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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [$250 FEE]
For the fiscal year ended December 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________.
Commission File Number: 0-16947
PEOPLES HERITAGE FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Maine 01-0437984
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 9540
One Portland Square
Portland, Maine 04112-9540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 761-8500
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Title of Class
Preferred Stock Purchase Rights
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 19, 1996, the aggregate market value of the 17,028,129 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
the 262,577 shares held by all directors and executive officers of the
Registrant as a group (excluding the effects of unexercised stock options), was
$356.3 million. This figure is based on the last sale price of $21.25 per share
of the Registrant's Common Stock on March 19, 1996, as reported in The Wall
Street Journal on March 20, 1996. Although directors of the Registrant and
executive officers of the Registrant and its subsidiaries were assumed to be
"affiliates" of the Registrant for purposes of this calculation, the
classification is not to be interpreted as an admission of such status.
Number of shares of Common Stock outstanding as of March 19, 1996: 17,028,129
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the year ended
December 31, 1995 are incorporated by reference into Part II, Items 5-8
and Part IV, Item 14 of this Form 10-K.
(2) Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 23, 1996 are incorporated by reference
into Part III, Items 10-13 of this Form 10-K.
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Exhibit Index appears on page 44.
<PAGE> 2
PART I.
ITEM 1. BUSINESS
GENERAL
Peoples Heritage Financial Group, Inc. (the "Company") is a multi-bank
and financial services 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 Bank (the
"Bank") and First Coastal Banks, Inc. ("First Coastal"), a New Hampshire
corporation which wholly-owns The First National Bank of Portsmouth ("FNB"). At
December 31, 1995, the Company had total consolidated assets of $3.1 billion and
total shareholders' equity of $270.5 million.
The Company acquired all of the capital stock of the Bank upon
consummation of the Bank's reorganization into the holding company form of
organization in June 1988. The Bank conducts business from its headquarters and
main office in Portland, Maine and 60 full-service offices located throughout
the State of Maine. At December 31, 1995, the Bank had total assets of $2.5
billion and total shareholder's equity of $187.2 million.
The Company acquired all of the capital stock of First Coastal and FNB
in July 1989. FNB conducts business from its headquarters and main office in
Portsmouth, New Hampshire and 20 full-service offices (inclusive of five offices
purchased in February 1996) located in the east, southeast and central regions
of New Hampshire. At December 31, 1995, FNB had $570.6 million of total assets
and $41.9 million of shareholder's equity.
Unless the context otherwise requires, references herein to the Company
include the Bank and First Coastal and their respective subsidiaries.
The principal business of the Company consists of attracting deposits
from the general public through its offices and using such deposits to originate
loans secured by first mortgage liens on existing single-family (one-to-four
units) residential real estate ("residential real estate") and existing
multi-family (over four units) residential and commercial real estate (together
"commercial real estate"), construction loans, commercial business loans and
leases and consumer loans. The Company also provides various mortgage banking,
trust and investment advisory services and, through subsidiaries of the Bank,
engages in equipment leasing, financial planning and securities brokerage
activities. The Company also invests in investment securities and other
permitted investments.
The Company derives its income principally from interest charged on
loans and, to a lesser extent, from interest and dividends earned on
investments, fees received in connection with the sale and servicing of loans,
deposit services and for other services and gains on the sale of assets. The
Company's principal expenses are interest expense on deposits and borrowings,
operating expenses, provisions for loan losses and income tax
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expense. Funds for activities are provided principally by deposits, advances
from the Federal Home Loan Bank ("FHLB") of Boston, securities sold under
repurchase agreements, amortization and prepayments of outstanding loans,
maturities and sales of investments and other sources.
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHCA"), and as such is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). The Company also is registered as a Maine
financial institution holding company under Maine law and as such is subject to
regulation and examination by the Superintendent of Banking of the State of
Maine ("Superintendent").
As a Maine-chartered financial institution, the Bank is subject to
regulation and examination by the Superintendent, and as a national bank, FNB is
subject to regulation and examination by the Comptroller of the Currency
("Comptroller"). The deposit accounts of the Bank and FNB are insured by the
Federal Deposit Insurance Corporation ("FDIC") to the maximum extent permitted
by law and, as a result, these entities are subject to examination by the FDIC.
Each of these entities also is subject to certain requirements established by
the Federal Reserve Board.
RECENT AND PROSPECTIVE ACQUISITIONS
For information about recent and prospective acquisitions of the
Company, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations Acquisitions" included in Item 7 hereof and Note 18 to the
Consolidated Financial Statements included in Item 14 hereof.
LENDING ACTIVITIES
General. At December 31, 1995, the Company's net loan portfolio
totalled $2.2 billion, representing approximately 70.4% of its $3.1 billion of
total assets at that date. The principal categories of loans in the Company's
portfolio are residential real estate loans, which are secured by single-family
residences; commercial real estate loans, which are secured by multi-family
residential and commercial real estate; commercial business loans and leases;
and consumer loans. Substantially all of the Bank's mortgage loans are
conventional loans, which are neither insured by the Federal Housing
Administration ("FHA") nor partially guaranteed by the Department of Veterans'
Affairs ("VA").
Substantially all of the mortgage loans in the Company's loan portfolio
are secured by properties located in Maine and New Hampshire. Moreover,
substantially all of the Company's non-mortgage loan portfolio consists of loans
made to residents of and businesses located in Maine and New Hampshire.
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During 1994, the Company adopted a policy generally to limit loans to
one borrower, including related entities, to $8.0 million. In addition, during
1994, the Company's largest banking subsidiary, the Bank, adopted a policy
generally to limit loans to one borrower, including related entities, to $5.0
million. These limitations are substantially below the limitations set forth in
applicable laws and regulations.
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Loan Portfolio Composition and Maturity. The following table sets forth
information concerning the Company's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992
-------------------- -------------------- -------------------- --------------------
% of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate
loans:
Conventional $ 567,538 25.6% 589,826 28.1% $ 509,999 26.7% $ 447,447 23.9%
FHA/VA 26,612 1.2 32,981 1.6 27,897 1.5 34,628 1.8
Construction 13,219 0.6 9,555 0.5 8,243 0.4 11,814 0.6
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total residential
real estate loans(1) 607,369 27.4 632,361 30.1 546,139 28.6 493,889 26.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Commercial real estate loans:
Permanent first mortgage
loans(2) 584,806 26.4 572,298 27.3 543,418 28.4 565,744 30.2
Construction 38,880 1.7 23,057 1.1 18,885 1.0 23,138 1.2
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total commercial real
estate loans 623,686 28.1 595,355 28.4 562,303 29.4 588,882 31.5
---------- ----- ---------- ----- ---------- ----- ---------- -----
Commercial business
loans and leases(3) 332,755 15.0 265,644 12.7 248,164 13.0 252,761 13.5
---------- ----- ---------- ----- ---------- ----- ---------- -----
Consumer loans and leases:
Home equity 256,813 11.6 217,889 10.4 188,823 9.9 183,565 9.8
Mobile home 196,408 8.8 201,297 9.6 185,454 9.7 160,000 8.5
Automobile 109,738 4.9 106,666 5.1 91,434 4.8 71,913 3.8
Home improvement, second
mortgage and land 36,900 1.7 32,921 1.6 36,337 1.9 40,899 2.2
Boat and recreational
vehicle 17,013 0.8 18,836 0.9 22,780 1.2 26,380 1.4
Other 36,955 1.7 27,309 1.3 29,456 1.5 53,573 2.9
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total consumer loans 653,827 29.5 604,918 28.8 554,284 29.0 536,330 28.7
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total loans receivable 2,217,637 100.0% 2,098,278 100.0% 1,910,890 100.0% 1,871,862 100.0%
---------- ===== ---------- ===== ---------- ===== ---------- =====
Allowance for loan losses (49,138) (50,484) (52,804) (54,604)
---------- ---------- ---------- ----------
Net loans receivable $2,168,499 $2,047,794 $1,858,086 $1,817,258
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------
1991
----------------------
% of
Amount Loans
------ -----
(Dollars in Thousands)
<S> <C> <C>
Residential real estate
loans:
Conventional $ 475,613 23.3%
FHA/VA 49,808 2.4
Construction 6,472 0.3
---------- -----
Total residential
real estate loans(1) 531,893 26.0
---------- -----
Commercial real estate loans:
Permanent first mortgage
loans(2) 604,335 29.6
Construction 56,015 2.7
---------- -----
Total commercial real
estate loans 660,350 32.3
---------- -----
Commercial business
loans and leases(3) 339,007 16.6
---------- -----
Consumer loans and leases:
Home equity 176,904 8.7
Mobile home 134,709 6.6
Automobile 60,702 3.0
Home improvement, second
mortgage and land 48,253 2.4
Boat and recreational
vehicle 30,731 1.5
Other 61,664 3.0
---------- -----
Total consumer loans 512,963 25.1
---------- -----
Total loans receivable 2,044,213 100.0%
---------- =====
Allowance for loan losses (67,955)
----------
Net loans receivable $1,976,258
==========
</TABLE>
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(1) At December 31, 1995, $402.7 million and $204.7 million of residential real
estate loans had adjustable and fixed rates, respectively.
(2) At December 31, 1995, permanent commercial real estate loans consisted of
$524.2 million of permanent commercial real estate loans and $60.6 million of
multi-family residential loans.
(3) At December 31, 1995, commercial business loans and leases included $62.0
million of lines and letters of credit and $10.9 million of leases.
The following table sets forth scheduled contractual amortization of
loans in the Company's portfolio at December 31, 1995, as well as the dollar
amount of loans which are scheduled to mature after one year which have fixed or
adjustable interest rates. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdraft loans are reported as due in
one year or less.
<TABLE>
<CAPTION>
Commercial
Residential Commercial Business
Real Estate Real Estate Loans and Consumer
Loans Loans Leases Loans Total
----------- ----------- ---------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 31,139 $ 79,233 $ 132,035 $ 68,129 $ 310,537
After one year through five
years 76,738 316,142 149,185 170,031 712,096
Beyond five years 499,492 228,311 51,535 415,666 1,195,004
---------- ---------- ---------- ---------- ----------
Total $ 607,369 $ 623,686 $ 332,755 $ 653,827 $2,217,637
========== ========== ========== ========== ==========
Interest rate terms on amounts
due after one year:
Fixed $ 255,102 $ 159,942 $ 45,989 $ 263,248 $ 724,281
========== ========== ========== ========== ==========
Adjustable $ 321,128 $ 384,511 $ 154,731 $ 322,449 $1,182,819
========== ========== ========== ========== ==========
</TABLE>
Scheduled contractual amortization does not reflect actual maturities
of loans due to prepayments and in the case of single-family residential loans
due-on-sale clauses, which give the Company the right to declare a loan due and
payable in the event of a sale of the security property.
Origination, Purchase and Sale of Loans. Historically, the Company has
originated loans and engaged in other lending activities primarily through its
banking subsidiaries. In addition, the Bank has a mortgage banking subsidiary
which engages in mortgage banking activities outside of the primary market areas
of the Company's banking subsidiaries in Maine and New Hampshire; the activities
of this subsidiary have not been material to date. See "Subsidiaries - Mortgage
Banking Activities" below.
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Applications for all types of loans may be taken at most of the
Company's branch offices. Residential loan applications are primarily
attributable to correspondent lending institutions, referrals from real estate
brokers, whom the Company actively solicits, and builders, existing customers
and walk-in customers. Commercial real estate applications are obtained
primarily from previous borrowers, direct contacts with the Company and
referrals. Commercial business loan and lease applications are primarily
obtained through existing customers, walk-in customers, solicitation by the
Company and referrals. Consumer loans are primarily obtained through existing
and walk-in customers who have been made aware of the Company's programs by
advertising, phonebank and other means, as well as indirectly through a network
of dealers in the various products financed by the Company. During 1995, the
Company also utilized a marketing campaign to attract all types of loans.
Applications also are obtained through several field loan originators
who solicit and refer residential mortgage loan applications to the Company.
These representatives are compensated in part on a commission basis and provide
convenient origination services during banking and nonbanking hours. The Bank
also operates a residential loan production office in Londonderry, New
Hampshire, and the Bank's mortgage banking subsidiary maintains a residential
loan office in Burlington, Massachusetts. See "Business Subsidiaries."
During 1995, the Company significantly expanded its correspondent
lending operations in order to leverage existing secondary market capabilities
and add mortgage servicing income at a low marginal cost. Substantially all
loans originated through the Company's correspondent lending network are sold in
the secondary mortgage market. The vast majority of correspondent originations
come from correspondent lenders located outside of New England. Residential real
estate mortgage originations from correspondent lenders increased by $285.0
million, or 304.7%, from $93.5 million in 1994 to $378.5 million in 1995.
Loans may be approved by branch managers, including assistants, and
various lending officers of the Company within designated limits, which are
established and modified from time to time to reflect expertise and experience.
All loans in excess of an individual's designated limits are referred to the
nearest officer with the requisite authority. Commercial business and commercial
real estate loan relationships at the Bank in excess of $1.25 million and less
than $3.0 million are reviewed and approved by a senior management loan
committee, and relationships in excess of $3.0 million are reviewed and approved
by the Board of Directors or a committee of the Board of Directors.
The Company believes that its decentralized approach to approving loan
applications allows it to process and approve applications faster than many of
its competitors. The Company also believes that its decentralized approach to
lending is conducive to providing direct and personal service to borrowers
located in its market areas. The Company also has established a telephone
application center for consumer loans, which the Company believes has further
improved efficiencies and service to consumer borrowers.
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The Company emphasizes residential mortgage loans that are made on
terms, conditions and documentation which permit sale to the Federal Home Loan
Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"),
Government National Mortgage Association ("GNMA") and other institutional
investors in the secondary market. Currently, substantially all of such
long-term, fixed-rate mortgage loans originated by the Company are sold in the
secondary market to the FHLMC and the FNMA and the Company both sells and
retains adjustable-rate mortgage loans originated by it in its loan portfolio.
In recent years, the Company also has held a portion of its originations of ten
and 15 year fixed-rate residential loans for its loan portfolio.
The Company has retained credit risk on certain residential mortgage
loans sold with full or partial recourse, which amounted to $48.2 million at
December 31, 1995. Loan sales in the secondary market provide additional funds
for lending and other business activities.
The long-term, fixed-rate loans originated by the Bank include loans
which are originated for sale to the Maine State Housing Authority ("MSHA").
MSHA is an independent agency of the State of Maine which issues tax-exempt
bonds in order to purchase low-rate mortgages made to eligible borrowers. The
Company sold $11.7 million, $9.5 million and $10.7 million of loans to the MSHA
in 1995, 1994 and 1993, respectively.
For additional information relating to the Company's activities in the
secondary market for loans, see "Loan Servicing Activities" below and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Loans and Leases" included in Item 7 hereof.
Residential Real Estate Loans. At December 31, 1995, $607.4 million or
27.4% of the Company's total loan portfolio consisted of single-family
residential loans, substantially all of which were conventional loans.
The Company originates single-family residential loans which provide
for periodic adjustments to the interest rate. The Company's ability to
originate adjustable rate loans is dependent on market and economic conditions,
including the level of interest rates. Approximately 16%, 38% and 24% of the
permanent single-family residential loans originated by the Company in 1995,
1994 and 1993, respectively, had adjustable interest rates. At December 31,
1995, approximately $402.7 million or 66.3% of the single-family residential
loans in the Bank's loan portfolio consisted of loans which provided for
adjustable rates of interest.
The Company's adjustable-rate loans have 15 to 30-year terms and an
interest rate which adjusts annually in accordance with an index which is based
on one-year securities issued by the United States government. There generally
is a 2% cap on any increase or decrease in the interest rate per year, and
various caps depending on when the loan was originated (currently 6%) on the
interest rate over the life of the loan. The Company has not engaged in the
practice of using a cap on the payments that could allow the loan
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balance to increase rather than decrease, resulting in negative amortization.
The Company often offers discounts on the initial interest rate on its
adjustable-rate residential mortgage loans, as compared to the index plus its
normal margin, for up to one year for competitive reasons, but evaluates the
borrower's ability to pay at the rate which would be in effect without the
discount.
The Company originates long-term, fixed-rate loans, but generally only
under terms, conditions and documentation which permit sale in the secondary
market. At December 31, 1995, approximately $204.7 million or 33.7% of the
permanent single-family residential loans in the Company's loan portfolio
consisted of loans which provide for fixed rates of interest. Although these
loans provide for repayments of principal over a fixed period of up to 30 years,
it is the Company's experience that such loans have remained outstanding for a
substantially shorter period of time.
The Company will lend up to 95% of the appraised value of the property
securing the loan (referred to as the loan-to-value ratio), and generally
requires borrowers to obtain private mortgage insurance on the portion of the
principal amount of the loan that exceeds 80% of the value of the security
property. The Company's general policy is to emphasize loans with loan-to-value
ratios of 80% or less (which may be higher in the case of sales of other real
estate owned).
The Company generally requires title insurance insuring the priority of
its mortgage lien, as well as fire and extended coverage casualty insurance in
order to protect the properties securing its residential and other mortgage
loans. The properties securing all of the Company's mortgage loans are appraised
by independent appraisers approved by senior lending officers of the Company.
Commercial Real Estate Loans. The Company originates mortgage loans for
acquisition, development and construction of commercial real estate properties.
At December 31, 1995, $623.7 million or 28.1% of the Company's total loan
portfolio consisted of such loans, including construction and development loans
totalling $38.9 million or 1.7% of total loans.
Commercial real estate loans originated by the Company are primarily
secured by office buildings, industrial buildings, warehouses and various
special purpose properties, including hotels, restaurants and nursing homes.
Commercial real estate loans also include multi-family residential loans, which
are primarily secured by townhouse condominiums and apartment buildings.
Although terms vary, commercial real estate loans secured by existing
properties generally have maturities of ten years or less and are amortized over
a period of up to 30 years, thus requiring a balloon payment at maturity.
Commercial real estate loans generally have interest rates which float in
accordance with a designated prime lending rate or, to a lesser extent, adjust
every one, three or five years in accordance with a designated index,
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subject in some instances to ceilings and floors which may be negotiated at the
time of origination. Permanent commercial real estate loans are also made with
fixed rates of interest for terms of up to five years or longer if they can be
funded with a comparably maturing liability at an acceptable positive interest
rate spread.
Construction loans, including loans for the acquisition and development
of land for construction, generally have maturities of 12 to 18 months. Interest
rates on construction loans generally float at a spread above a designated prime
lending rate or adjust in accordance with a designated index, and occasionally
may be made on a fixed-rate basis. Advances are generally made to cover actual
construction costs. Loan proceeds are disbursed as inspections of construction
progress warrant and as pre-construction sale and leasing requirements generally
imposed by the Company are met.
Loan-to-value ratios on the Company's commercial real estate loans
generally range from 60% to 80% (which may be higher in the case of sales of
other real estate owned), although in prior years the Company would finance a
greater amount of the value of the property which secures the loan. In addition,
as part of the criteria for underwriting permanent commercial real estate loans,
the Company generally imposes a debt coverage ratio (the ratio of net cash from
operations before payment of debt service to debt service) of 115% to 125%. It
is also the Company's general policy to obtain personal guarantees of its
commercial real estate loans from the principals of the borrower.
Commercial Business Loans and Leases. The Company is authorized to make
secured or unsecured loans for commercial, corporate, business and agricultural
purposes, including issuing letters of credit. At December 31, 1995, $332.8
million or 15.0% of the Company's total loan portfolio consisted of commercial
business loans and leases.
The Company's current strategy is to focus on lending to sound, small
to medium business customers within its market areas. The Company's commercial
business loans consist primarily of loans secured by various equipment,
machinery and other corporate assets. Commercial business loans also are made to
provide working capital to businesses in the form of lines of credit which may
be secured by inventory, accounts receivable or other assets or unsecured and
which are generally required to be paid out for 30 consecutive days annually, as
well as for various other miscellaneous purposes.
Commercial business loans are generally provided to closely-held
businesses which are primarily located in Maine and New Hampshire, and the
Company's commercial business loans are well distributed by type of business.
Commercial business loans generally have terms of five years or less and are
amortized over a period of up to 30 years, thus requiring a balloon payment at
maturity. Commercial business loans generally have interest rates which float in
accordance with a designated base lending rate, although the Company also
originates commercial business loans with adjustable and fixed rates of
interest. Loan-to-value ratios generally are 80% or less. The Company generally
obtains personal guarantees of its commercial business loans from the principals
of the borrower.
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The Company originates commercial business leases through Peoples
Heritage Leasing Company, Inc. (the "Leasing Company"), which was formerly known
as Northeast Leasing Company, Inc. The Leasing Company is a wholly-owned
subsidiary of the Bank. For a further description of the activities of this
subsidiary, which had $10.9 million of leases outstanding at December 31, 1995,
see "Subsidiaries" below.
At December 31, 1995, commitments under unused commercial lines and
standby letters of credit amounted to $120.8 million.
Consumer Loans. The Company also is authorized to make loans for a wide
variety of personal or consumer purposes. At December 31, 1995, $653.8 million
or 29.5% of the Company's total loan portfolio consisted of consumer loans.
The Company has been emphasizing a wide variety of consumer loans in
recent years in order to provide a full range of financial services to its
customers and because such loans generally have shorter terms and higher
interest rates than mortgage loans. The consumer loans offered by the Company
include home improvement loans, home equity credit lines and loans that are
secured by personal property, including automobiles, boats, mobile homes and
recreational vehicles.
Originations of consumer loans increased substantially in recent years
primarily as a result of increased originations of loans indirectly obtained by
the Company through various dealers in products financed by the Company. In
general, each such loan is underwritten by the Company prior to its acquisition
of the loan. Indirect consumer loans accounted for approximately 23.2%, 35% and
40% of the Company's total originations of consumer loans in 1995, 1994 and
1993, respectively, and amounted to $300.1 million or 45.9% of the Company's
consumer loan portfolio at December 31, 1995.
The following table sets forth information regarding the Company's
indirect consumer loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Mobile home loans $188,201 $197,634 $180,669
Auto loans 88,532 100,884 70,422
Boat, home improvement and other
loans 23,391 18,391 46,504
-------- -------- --------
Total indirect loans $300,124 $316,909 $297,595
======== ======== ========
</TABLE>
The largest category of loans in the Company's consumer loan portfolio
consists of home equity lines, which are a form of revolving credit and are
secured by the underlying equity in the borrower's home. Home equity lines
amounted to $256.8 million or 39.3% of the Company's total consumer loan
portfolio at December 31, 1995. Credit generally is
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extended for up to 90% of the appraised value of the home, less any loans
outstanding secured by such collateral.
The second largest category of loans in the Company's consumer loan
portfolio is loans secured by mobile homes. Mobile home loans amounted to $196.4
million or 30.0% of the Company's total consumer loan portfolio at December 31,
1995. In recent years, the Company's originations of mobile home loans have been
obtained primarily through two mobile home loan brokers who have been selected
by the Company based on their experience in the industry, market area and
experience with the Company. The mobile homes which secure these loans are
primarily located in Maine, New Hampshire, Massachusetts and upstate New York. A
loss reserve deposit account funded by the broker is maintained at the Company
to cover any future losses and prepayments on mobile home loans. (The loss and
prepayment reserve for each loan is calculated based on a percentage of the
difference between the total finance charge to be paid by the borrower compared
to the total finance charge retained by the Company (assuming no prepayments);
this percentage generally ranges from 50% to 55%). During 1995 and 1994, the
Company charged net credit losses of $883,668 or .46% of average indirect mobile
home loans and $743,000 or .39% of average indirect mobile home loans,
respectively, against the dealer reserve deposit accounts. In addition, during
1995 and 1994, the Company charged $2.4 million and $2.2 million, respectively,
of prepayment losses against the dealer reserve deposit accounts. At December
31, 1995, dealer reserve deposit accounts amounted to $3.0 million.
Additionally, the Company has established a credit loss reserve for its mobile
home loans as part of its allowance for loan losses, which amounted to $5
million at December 31, 1995.
The third largest category of loans in the Company's consumer loan
portfolio is loans secured by new and used automobiles. Automobile loans
amounted to $109.7 million or 16.8% of the Company's total consumer loan
portfolio at December 31, 1995. These loans have fixed rates of interest and
terms up to five years, depending on the age of the automobile. Such loans are
obtained primarily indirectly through a network of new car dealers located
within the States of Maine and New Hampshire, who are selected based on their
stability and location, among other factors. The dealer generally retains a
reserve on each loan originated. Indirect loans are generally made under terms
which do not allow the Company to seek recourse from the dealer in the event of
default. During 1995 and 1994, the Company charged net credit losses against its
allowance for loan losses of $266,000 or .30% of its average indirect auto loans
and $180,000 or .19% of its average indirect auto loans, respectively.
Together, home improvement, second mortgage and land loans and boat and
recreational vehicle loans amounted to $53.9 million or 8.3% of the Company's
total consumer loan portfolio at December 31, 1995. Home improvement loans, etc.
and boat and recreational vehicle loans generally have a fixed rate of interest
and a term of five to 15 years, or terms of up to 20 years and provisions which
provide for adjustment of the interest rate every one or three years in
accordance with a designated prime lending rate.
11
<PAGE> 13
Such loans generally have loan-to-value ratios of 80% or less. Some of these
loans are obtained by the Company through various dealers in products financed
by the Company. Collectively, during 1995 and 1994, the Company charged-off
$296,000 and $307,000, respectively, of these types of loans against the
allowance for loan and lease losses.
Loan Fee Income. In addition to interest earned on loans, the Company
receives income through servicing of loans, unamortized loan fees in connection
with loan sales and fees in connection with loan modifications, late payments,
prepayments and for miscellaneous services related to its loans. Income from
these activities varies from period to period with the volume and type of loans
made and competitive conditions.
In its lending, the Company often charges loan origination fees which
are calculated as a percentage of the amount borrowed. Loan origination fees
generally are not obtained in connection with consumer loans and may or may not
be obtained in connection with commercial business and commercial real estate
loans.
The Company's policy is to defer all loan fees net of direct
origination costs and amortize those fees over the estimated remaining lives of
the related loans. Amortization of loan fees is included in interest income.
Loan Servicing Activities. Residential real estate mortgages are
originated by the Company primarily for sale into the secondary market. Such
loans generally are sold to institutional investors such as the FNMA and the
FHLMC. Under loan sale and servicing agreements with these investors, the
Company generally continues to service the residential real estate mortgages.
Servicing includes collecting and remitting loan payments, accounting for
principal and interest, holding escrow funds for the payment of real estate
taxes and insurance premiums, contacting delinquent borrowers, supervising
foreclosures in the event of unremedied defaults and generally administering the
loans. The Company pays the investor an agreed-upon rate on the loan, which,
including a guarantee fee paid to FNMA and FHLMC, is less than the interest rate
the Company receives from the borrower. The difference is retained by the
Company as a fee for servicing the residential real estate mortgages.
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights -- An Amendment of FASB Statement No. 65," which
changed the method of accounting for certain mortgage banking activities. The
Company elected early adoption of SFAS No. 122 and as a result capitalized $2.5
million of originated mortgage servicing rights in 1995. For additional
information regarding SFAS No. 122 and the mortgage banking activities of the
Company, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Noninterest Income" and "- Risk Management Interest Rate
Risk and Asset Liability Management" included in Item 7 hereof and Note 9 to the
Consolidated Financial Statements included in Item 14 hereof.
12
<PAGE> 14
The Company periodically purchases residential mortgage servicing
rights through a closed bid process from brokers representing financial
institutions with mortgage servicing portfolios available for sale. The payment
made to purchase such mortgage servicing rights is capitalized by the Company
upon consummation of the purchase. During 1995, 1994 and 1993, the Company paid
$707,000, $11.4 million and $5.9 million, respectively, to acquire the servicing
rights related to approximately $76 million, $780 million and $700 million of
mortgages secured by real estate located primarily in New England. Although the
Company currently intends to continue to expand its loan servicing portfolio
primarily through the origination and sale of loans on a servicing-retained
basis, the Company from time to time may evaluate additional purchases of loan
servicing portfolios. In addition, depending on current mortgage origination
volumes and other factors, from time to time, the Company may sell a portion of
newly-originated loans on a servicing-released basis or sell a portion of its
servicing portfolio. During 1995, the Company sold the servicing rights related
to approximately $158 million of loans for a gain of $642,000.
Mortgage servicing rights are amortized on an accelerated method over
the estimated weighted average life of the loans. Amortization is recorded as a
charge against mortgage service fee income ( a component of mortgage banking
services income). The Company's assumptions with respect to prepayments, which
affect the estimated average life of the loans, are adjusted periodically to
reflect current circumstances and to ensure that the carrying value of the
remaining mortgage servicing rights does not exceed the present value of
estimated future net servicing income. Mortgage servicing rights generally are
adversely affected by accelerated prepayments resulting primarily from
decreasing interest rates. In evaluating the realizability of the carrying value
of mortgage servicing rights, the Company assesses the estimated life of its
servicing portfolio based on data which is disaggregated to reflect the coupon
rates on the underlying loans whose servicing rights have been acquired in
connection with the Company's lending activities or as a result of purchases of
servicing rights from third parties. Included in the amortization of mortgage
servicing rights charged to service fee income were writedowns of $0, $0 and
$400,000 during 1995, 1994 and 1993, respectively, to adjust for changes in
prepayment experience.
The following table sets forth an analysis of the Company's mortgage
servicing rights during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 17,275 $ 6,483 $ 1,985
Mortgage servicing rights capitalized 9,101 12,535 6,764
Amortization charged against mortgage
servicing fee income (3,483) (1,743) (2,266)
Mortgage servicing rights sold (2,584) -- --
-------- -------- --------
Balance at end of period $ 20,309 $ 17,275 $ 6,483
======== ======== ========
</TABLE>
13
<PAGE> 15
The following table presents information regarding the loans serviced
by the Company for investors at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1994 1993
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Mortgage loans serviced for investors $2,511,795 $2,001,208 $1,512,974
========== ========== ==========
</TABLE>
At December 31, 1995, the $2.5 billion of loans serviced by the Company
for others consisted of approximately 35,750 loans with an average loan balance
of approximately $70,300, a weighted average service fee of approximately .46%
per annum (inclusive of excess servicing) and a weighted average remaining term
of approximately 23 years.
The following table sets forth the coupon distribution of the loans
serviced by the Company for investors at December 31, 1995.
<TABLE>
<CAPTION>
Coupon Principal Balance
- ------------------------------------------ -------------------------------
(Dollars in Thousands)
<S> <C>
4.99% or less $ 4,131
5.00% - 5.99% 39,054
6.00% - 6.99% 284,262
7.00% - 7.99% 1,095,984
8.00% - 8.99% 752,070
9.00% - 9.99% 250,997
10.00% - 10.99% 71,799
11.00% and greater 13,497
----------
$2,511,795
==========
</TABLE>
The following table sets forth the geographic locations of properties
securing the Company's portfolio of loans serviced for investors at December 31,
1995.
<TABLE>
<CAPTION>
Percentage of Total
State Principal Balance Principal Balance
- ------------------------------- ----------------------------------- --------------------------------------
(In Thousands)
<S> <C> <C>
Maine $1,035,270 41.2%
New Hampshire 157,556 6.3
Massachusetts 638,899 25.4
Connecticut 152,740 6.1
Rhode Island 46,422 1.8
Other 480,908 19.1
---------- -----
Total $2,511,795 100.0%
========== =====
</TABLE>
14
<PAGE> 16
Nonperforming Loans and Other Real Estate Owned. The following table
sets forth information regarding nonperforming loans and leases and other
nonperforming assets held by the Company at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Residential real estate loans:
Non-accrual loans $ 4,990 $ 1,799 $ 1,819 $ 4,167 $ 5,690
Accruing loans 90 days overdue 2,274 2,883 2,930 3,281 5,229
Troubled debt restructurings -- -- 111 1,097 --
-------- -------- -------- -------- --------
Total 7,714 4,682 4,860 8,545 10,919
-------- -------- -------- -------- --------
Commercial real estate loans:
Non-accrual loans 13,247 20,413 24,453 36,239 59,176
Accruing loans 90 days overdue -- -- 279 1,631 1,424
Troubled debt restructurings 2,595 5,704 14,406 16,633 28,862
-------- -------- -------- -------- --------
Total 15,842 26,117 39,138 54,503 89,462
-------- -------- -------- -------- --------
Commercial business loans and leases:
Non-accrual loans 6,235 6,270 12,232 20,767 32,099
Accruing loans 90 days overdue -- -- 318 1,113 2,491
Troubled debt restructurings 1,859 2,013 2,404 1,543 1,224
-------- -------- -------- -------- --------
Total 8,094 8,283 14,954 23,423 35,814
-------- -------- -------- -------- --------
Consumer loans:
Non-accrual loans 2,846 2,727 1,828 2,012 1,098
Accruing loans 90 days overdue 532 468 633 656 2,560
Troubled debt restructurings -- -- 26 -- 70
-------- -------- -------- -------- --------
Total 3,378 3,195 2,487 2,668 3,728
-------- -------- -------- -------- --------
Total nonperforming loans:
Non-accrual loans 27,318 31,209 40,332 63,185 98,063
Accruing loans 90 days overdue 3,256 3,351 4,160 6,681 11,704
Troubled debt restructurings 4,454 7,717 16,947 19,273 30,156
-------- -------- -------- -------- --------
Total 35,028 42,277 61,439 89,139 139,923
-------- -------- -------- -------- --------
Other nonperforming assets:
Other real estate owned, net of related
reserves 5,073 6,658 19,002 30,370 30,678
In-substance foreclosures, net of related
reserves -- 2,096 8,224 28,013 33,289
Repossessions, net of related reserves 1,528 1,976 1,961 2,566 2,664
-------- -------- -------- -------- --------
Total 6,601 10,730 29,187 60,949 66,631
-------- -------- -------- -------- --------
Total nonperforming assets $ 41,629 $ 53,007 $ 90,626 $150,088 $206,554
======== ======== ======== ======== ========
Total nonperforming loans as a
percentage of total loans 1.58% 2.01% 3.22% 4.76% 6.84%
Total nonperforming assets as a
percentage of total assets 1.35 1.90 3.43 5.89 7.55
Total nonperforming assets as a
percentage of total loans and total
other nonperforming assets 1.87 2.51 4.67 7.77 9.79
</TABLE>
15
<PAGE> 17
For additional information about the Company's nonperforming assets,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations Financial Condition - Nonperforming Assets" included in Item 7 hereof
and Notes 5 and 10 to the Consolidated Financial Statements included in Item 14
hereof.
Allowance for Loan and Lease Losses. The allowance for loan and lease
losses is maintained at a level determined to be adequate by management to
absorb future charge-offs of loans deemed uncollectible and losses on loans sold
with recourse. The allowance for loan and lease losses is increased by
provisions charged to operating expense and by recoveries on loans previously
charged off. Arriving at an appropriate level of the allowance for loan and
lease losses necessarily involves a high degree of judgment.
The following table sets forth information concerning the activity in
the Company's allowance for loan and lease losses during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average loans and leases outstanding $2,209,900 $2,009,372 $1,900,105 $1,990,672 $2,119,394
========== ========== ========== ========== ==========
Allowance at the beginning of the year $ 50,484 $ 52,804 $ 54,604 $ 68,055 $ 62,854
Additions due to acquisitions and
purchases 2,314 -- -- -- --
---------- ---------- ---------- ---------- ----------
Charges-offs:
Residential real estate mortgages 1,467 1,857 2,438 8,867 4,500
Commercial real estate mortgages 7,339 5,168 6,254 17,058 42,795
Commercial business loans and leases 1,914 3,023 8,594 15,665 11,171
Consumer loans and leases 2,262 1,714 3,084 4,529 4,151
---------- ---------- ---------- ---------- ----------
Total loans charged off 12,982 11,762 20,370 46,119 62,617
---------- ---------- ---------- ---------- ----------
Recoveries:
Residential real estate mortgages 245 408 540 613 403
Commercial real estate mortgages 4,626 4,184 5,676 2,430 1,080
Commercial business loans and leases 1,615 2,506 1,260 2,663 4,450
Consumer loans and leases 406 487 1,315 1,737 2,947
---------- ---------- ---------- ---------- ----------
Total loans recovered 6,892 7,585 8,791 7,443 8,880
---------- ---------- ---------- ---------- ----------
Net charge-offs 6,090 4,177 11,578 38,676 53,737
Additions charged to operating expenses 2,430 1,857 9,779 25,225 58,938
---------- ---------- ---------- ---------- ----------
Allowance at end of year $ 49,138 $ 50,484 $ 52,804 $ 54,604 $ 68,055
========== ========== ========== ========== ==========
Ratio of net charge-offs to average loans
and leases outstanding 0.28% 0.21% 0.61% 1.94% 2.54%
Ratio of allowance to end of period loans
and leases 2.22 2.41 2.76 2.74 3.32
Ratio of allowance to nonperforming
loans and leases at end of period 140.28 119.41 85.95 61.26 48.57
</TABLE>
16
<PAGE> 18
The following table sets forth information concerning the allocation of
the Company's allowance for loan and lease losses by loan categories at the
dates indicated. For information about the percent of total loans in each
category to total loans, see "Loan Portfolio Composition and Maturity."
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------
1995 1994 1993
------------------------ ----------------------------- ----------------------------
Allowance to Allowance to Allowance to
Percent of Percent of Percent of
Total Loans Total Loans Total Loans
Amount by Category Amount by Category Amount by Category
------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate $ 2,872 0.5% $ 3,078 0.5% $ 5,425 1.0%
Commercial real estate 29,240 4.7 30,545 5.1 32,916 5.9
Commercial business
loans and leases 8,201 2.5 8,219 3.1 5,833 2.4
Consumer 8,824 1.4 8,642 1.4 8,630 1.6
------- ------- -------
$49,138 2.2 $50,484 2.4 $52,804 2.8
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1992 1991
----------------------------- ---------------------------
Allowance to Allowance to
Percent of Percent of
Total Loans Total Loans
Amount by Category Amount by Category
------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential real estate $ 8,112 1.6% $ 7,700 1.4%
Commercial real estate 33,624 5.7 41,884 6.3
Commercial business
loans and leases 9,607 3.8 14,721 4.3
Consumer 3,261 0.6 3,750 0.7
------- -------
$54,604 2.9 $68,055 3.3
======= =======
</TABLE>
For additional information relating to the Company's allowance for loan
and lease losses, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Allowance for Loan
and Lease Losses" included in Item 7 hereof.
17
<PAGE> 19
INVESTMENT ACTIVITIES
The Company invests in investment securities in accordance with the
requirements of federal and state law. The Company's investment securities
portfolio is managed in accordance with a written investment policy adopted by
the Board of Directors. Investments may be made by individual officers of the
Company within specified limits and must be approved in advance by the
Investment Committee for transactions over certain limits.
The Company's investment securities portfolio currently consists
primarily of U.S. Government and federal agency securities and mortgage-backed
securities which are insured or guaranteed by the FHLMC, the FNMA or the GNMA.
Mortgage-backed securities increase the quality of the Company's assets by
virtue of the guarantees that back them, require less capital under risk-based
capital rules than non-insured or guaranteed mortgage loans, are more liquid
than individual mortgage loans and may be used to collateralize borrowings or
other obligations of the Company.
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which the Company adopted effective December 31,
1993, debt and equity securities that an institution has the positive intent and
ability to hold to maturity are to be reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of
selling them in the near term are to be classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
and other debt and equity securities are to be classified as securities
available for sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity. At December 31, 1995, all of the Company's investment securities were
classified as available for sale and an aggregate of $2.2 million of net
unrealized gains (net of related taxes) on investment securities available for
sale was included in the Company's shareholders' equity.
The following table sets forth the Company's investment securities
available for sale at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Bonds and other debt securities:
U.S. Government and federal agencies $249,697 $219,220 $201,607
Tax-exempt bonds and notes 10,299 11,085 6,779
Other bonds and notes 5,417 2,706 7,581
Mortgage-backed securities 195,823 172,466 225,609
-------- -------- --------
Total debt securities 461,236 405,477 441,576
-------- -------- --------
Equities:
FHLB stock 23,793 23,236 17,321
Other securities 189 290 178
-------- -------- --------
Total equity securities 23,982 23,526 17,499
-------- -------- --------
Total investment securities $485,218 $429,003 $459,075
======== ======== ========
</TABLE>
18
<PAGE> 20
The following table sets forth the scheduled maturities and weighted
average yields of the Company's debt securities available for sale at December
31, 1995, based on amortized cost.
<TABLE>
<CAPTION>
Amortized Cost Maturing in
--------------------------------------------------------------------------------------------
One Year or Less More than One to Five Years More than Five to Ten Years
------------------------ --------------------------- ---------------------------
Amount Yield(1) Amount Yield(1) Amount Yield(1)
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agencies $125,088 5.86% $120,263 6.19% $ 2,076 5.57%
Tax-exempt bonds and
notes 5,390 4.81 4,881 4.29 -- --
Other bonds and notes 3,157 6.86 2,106 7.07 104 7.19
Mortgage-backed
securities 256 8.14 1,993 6.29 32,537 6.98
-------- -------- --------
Total $133,891 5.85 $129,243 6.14 $ 34,718 6.89
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Amortized Cost Maturing in
---------------------------
More than Ten Years Total
----------------------- ---------------------------
Amount Yield(1) Amount Yield(1)
------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Government and
federal agencies $ 670 7.55% $248,096 6.03%
Tax-exempt bonds and
notes -- -- 10,271 4.57
Other bonds and notes -- -- 5,368 6.95
Mortgage-backed
securities 159,231 6.91 194,018 6.91
-------- ---------
Total $159,901 6.91 457,753(2) 6.38
======== =========
</TABLE>
- --------------------
(1) Fully-taxable equivalent basis.
(2) The market value of these securities amounted to $461.2 million at
December 31, 1995.
19
<PAGE> 21
Actual maturities of debt securities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
At December 31, 1995, investments in the debt and/or equity securities
of any one issuer (excluding U.S. Government and federal agencies) did not
exceed more than 1.7% of the Company's total shareholders' equity.
For additional information, see Notes 3 and 12 to the Consolidated
Financial Statements included in Item 14 hereof.
SOURCES OF FUNDS
Deposits. Deposits obtained through offices of the Company have
traditionally been the principal source of the Company's funds for use in
lending and for other general business purposes. The Company's current deposit
products include regular savings and club accounts, personal and commercial
demand accounts, negotiable order of withdrawal ("NOW") accounts, money market
deposit accounts and certificates of deposit ranging in terms from three months
to ten years. Included among these deposit products are Individual Retirement
Account certificates and Keogh retirement certificates (collectively "retirement
accounts"), as well as negotiable-rate certificates of deposit with balances of
$100,000 or more ("negotiated-rate jumbo certificates").
The Company's deposits are obtained primarily from residents of the
State of Maine and, to a lesser extent, the State of New Hampshire. Management
of the Company estimates that an insignificant amount of the Company's deposits
are obtained from customers residing outside of these states. The Company
attracts deposit accounts primarily by offering a wide variety of services and
accounts, competitive interest rates, and convenient office locations and
service hours. The Company does not rely on brokered deposits. See "Regulation -
Banking Subsidiaries - Brokered Deposits."
The Company's office locations and service hours are supplemented by
the Company's BankCard, which may be used to conduct various deposit and/or
withdrawal transactions at the 77 automated teller machines ("ATMs") maintained
by the Company at December 31, 1995. The BankCard also may be used in the
"Passkey," "NYCE," "Yankee 24," "TX" and the "Exchange" regional ATM networks,
as well as in the nationwide ATM network known as "Plus." These networks provide
the Company's customers with access to over 200 ATMs in the State of Maine and
thousands of ATMs across the United States.
20
<PAGE> 22
The following table shows the distribution of the Company's deposits by
type of deposit as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------- ----------------------------- ----------------------
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-brokered deposits:
Regular savings $ 303,504 12.9% $ 361,657 17.5% $ 248,069 12.0%
Money market deposit
accounts 448,998 19.0 276,064 13.4 389,191 18.8
NOW accounts 215,529 9.1 195,161 9.5 192,916 9.3
Demand accounts 269,830 11.4 218,559 10.6 199,815 9.6
Certificates:
3 - 5 months 12,728 0.5 19,293 0.9 30,430 1.5
6 - 8 months 109,161 4.6 90,505 4.4 325,594 15.7
9 - 11 months 907 0.0 1,115 0.1 1,789 0.1
12 - 23 months 225,631 9.6 113,596 5.5 148,424 7.1
24 - 35 months 118,737 5.0 85,742 4.1 117,738 5.7
36 - 47 months 192,436 8.1 280,029 13.6 68,813 3.3
48 - 59 months 14,679 0.6 14,684 0.7 16,360 0.8
60 - 120 months 212,774 9.0 202,803 9.8 126,870 6.1
Negotiated-rate jumbo
certificates 30,094 1.3 19,623 0.9 18,564 0.9
---------- ----- ---------- ----- ---------- -----
Total certificates 917,147 38.8 827,390 40.0 854,582 41.2
---------- ----- ---------- ----- ---------- -----
Retirement accounts 206,957 8.8 184,936 9.0 174,918 8.4
---------- ----- ---------- ----- ---------- -----
Total non-brokered
deposits 2,361,965 100.0 2,063,767 100.0 2,059,491 99.3
---------- ----- ---------- ----- ---------- -----
Brokered deposits -- -- -- 0.0 15,000 0.7
---------- ----- ---------- ----- ---------- -----
Total deposits at end of
period $2,361,965 100.0% $2,063,767 100.0% $2,074,491 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
At December 31, 1995, the Company had $103.7 million of certificates of
deposit in amounts of $100,000 or more outstanding maturing as follows: $24.1
million within three months; $16.8 million over three months through six months;
$13.3 million over six months through 12 months; and $49.5 million thereafter.
The ability of the Company to attract and maintain deposits and the
Company's cost of funds on these deposits have been, and will continue to be,
significantly affected by economic and competitive conditions.
21
<PAGE> 23
Borrowings. The following table sets forth certain information
concerning the Company's borrowings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
FHLB advances $252,446 $362,450 $251,760
Repurchase agreements 139,942 86,631 68,450
Federal funds purchased 1,500 4,404 1,600
Other 18,928 7,902 2,859
-------- -------- --------
Total $412,816 $461,387 $324,669
======== ======== ========
</TABLE>
Each of the Bank and FNB is a member of the Federal Home Loan Bank
System ("FHLB System"), which consists of 12 regional Federal Home Loan Banks
subject to supervision and regulation by the Federal Housing Finance Board. The
Federal Home Loan Banks provide a central credit facility primarily for member
institutions. Each member of the FHLB of Boston is required to hold shares of
common stock in that FHLB in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts, and similar obligations at the beginning of each year, or 5% of its
advances (borrowings) from the FHLB of Boston, whichever is greater. The Bank
and FNB had an aggregate investment of $23.8 million in stock of the FHLB of
Boston at December 31, 1995. For additional information, see Note 13 to the
Consolidated Financial Statements included in Item 14 hereof.
The Company's borrowings also include funds received from sales of
securities under agreements to repurchase ("repurchase agreements"), which are
considered for reporting purposes borrowings secured by the securities sold.
These agreements generally have maturities of 180 days or less.
The following table presents certain information regarding the
Company's repurchase agreements at the dates and for the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Average balance outstanding $113,599 $ 75,870 $ 45,655
Maximum outstanding at any
month-end during the period 167,618 110,176 68,450
Balance outstanding at end of period 139,942 86,631 68,450
Average interest rate during the period 5.13% 3.62% 2.47%
Average interest rate at end of period 4.78 4.82 2.43
</TABLE>
22
<PAGE> 24
For additional information relating to the Company's borrowings, see
Notes 12 and 13 to the Consolidated Financial Statements included in Item 14
hereof.
TRUST ACTIVITIES
FNB and, commencing in February 1995, the Bank, provide full trust
services to their customers. Each of the Bank and FNB focuses on offering
employee benefit trust services in which it will act as trustee, custodian,
administrator and/or investment advisor, among other things, for employee
benefit plans for corporate, self-employed, municipal and not-for-profit
employers throughout the Company's market areas. In addition, each of the Bank
and FNB serve as trustee of both living trust and trusts under wills and as such
hold, account for and manage financial assets, real estate and special assets.
Custody, estate settlement and fiduciary tax services, among others, also are
offered by the Bank and FNB. At December 31, 1995, the Company had $401.3
million of investments held by the trust departments of its banking
subsidiaries, which are not included in the Company's consolidated balance sheet
for financial reporting purposes.
SUBSIDIARIES
At December 31, 1995, the Company's only direct subsidiaries were the
Bank and First Coastal. A description of certain indirect non-banking
subsidiaries follows.
Mortgage Banking Activities. During 1993, the Bank formed Peoples
Heritage Mortgage Company (the "Mortgage Company") for the purpose of expanding
its residential real estate mortgage origination business outside of the
Company's principal lending areas of Maine and New Hampshire. At December 31,
1995, the Mortgage Company had only one office, which was located in Burlington,
Massachusetts. Currently, the activities of the Mortgage Company are not
material.
Investments in Real Estate. The Bank holds certain investments in real
estate primarily through Four-Eighty-One Corp. and Apex, Inc., each of which is
a wholly-owned subsidiary of the Bank, and, to a lesser degree, other
wholly-owned subsidiaries of the Bank. Exclusive of other real estate owned and
investments in office properties and facilities, which are discussed under Item
2 hereof, at December 31, 1995 the Bank's investments in real estate consisted
entirely of interests in limited partnerships formed for the purpose of
investing in real estate for lower income families, elderly housing projects
and/or the preservation or restoration of historically or architecturally
significant buildings or structures. At December 31, 1995, the Bank's
investments in these limited partnerships had a carrying value of $1.5 million
and the largest single limited partnership investment was $1.1 million.
For information relating to federal laws and regulations which limit
the authority of FDIC-insured, state-chartered banks such as the Bank to engage
in real estate investment and other activities, see "Regulation - Banking
Subsidiaries - Activities and Investments of Insured State-Chartered Banks."
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Equipment Leasing Activities. The Bank conducts equipment leasing
activities through the Leasing Company, which it acquired in June 1987. In July
1988, the Leasing Company acquired substantially all of the assets of Emerald
Leasing Co. of Keene, New Hampshire. The Leasing Company is headquartered in
Portland, Maine and engages in direct equipment leasing activities, primarily
involving office equipment, in the Portland, Maine metropolitan area and
elsewhere in the States of Maine, New Hampshire and Massachusetts. At December
31, 1995, the Leasing Company had $10.9 million of leases outstanding.
Financial Planning and Securities Brokerage Activities. The Bank also
conducts financial planning, investment planning and securities brokerage
activities through Heritage Investment Planning Group, Inc. ("Heritage"), a
subsidiary of the Bank. The Company also offers through Heritage investments in
mutual funds and annuities throughout the Company's market areas. Heritage
offers its services to individuals and small businesses from its office located
in Portland, Maine and from certain of the Company's other locations in Maine
and New Hampshire. Sales professionals at Heritage are registered
representatives of Royal Alliance, a registered broker/dealer, and all
securities brokerage activities are conducted through Royal Alliance. The sales
professionals receive referrals from the Company's branch offices throughout its
market areas. The Company believes that it will benefit from the growth in the
mutual fund area by offering this service through Heritage to its customers.
COMPETITION
The Company encounters strong competition both in the attraction of
deposits and in the making of real estate and other loans. Its most direct
competition for deposits has historically come from savings institutions,
commercial banks and credit unions with offices in the metropolitan areas of
Maine and southeastern New Hampshire. The Company also encounters competition
for deposits from money market funds, as well as corporate and government
securities. The principal methods used by the Company to attract deposit
accounts include the variety of services offered, the competitive interest rates
offered and the convenience of office locations, ATMs and expanded banking
hours.
The Company's competition for real estate and other loans comes
principally from savings institutions, credit unions, commercial banks, mortgage
banking companies, insurance companies and other institutional lenders. The
Company competes for loans through interest rates, branch locations, loan
maturities, loan fees and the quality of service extended to borrowers and
brokers.
In recent years, Maine laws have given Maine-chartered savings banks
virtually the same powers as commercial banks, and both Maine laws and New
Hampshire laws have enabled the acquisition of Maine-chartered and New
Hampshire-chartered financial institutions, respectively, by financial
institution holding companies based outside of these states. As a result, the
Company has encountered substantial competition in its market areas,
particularly from out-of-state banking organizations that have entered the Maine
and
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New Hampshire banking markets, and the Company expects to continue to encounter
such competition in the future.
EMPLOYEES
The Company had approximately 1500 full-time employees as of December
31, 1995. None of these employees is represented by a collective bargaining
agent, and the Company believes that it enjoys good relations with its
personnel.
REGULATION OF THE COMPANY
The following references to laws and regulations which are applicable
to the Company and its banking subsidiaries are brief summaries thereof which do
not purport to be complete and are qualified in their entirety by reference to
such laws and regulations.
BHCA - General. The Company, as a bank holding company, is subject to
regulation and supervision by the Federal Reserve Board. Under the BHCA, a bank
holding company is required to file annually with the Federal Reserve Board a
report of its operations and, with its subsidiaries, is subject to examination
by the Federal Reserve Board.
BHCA - Activities and Other Limitations. The BHCA generally prohibits a
bank holding company from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any bank, or increasing such ownership or
control of any bank, without prior approval of the Federal Reserve Board. As a
result of recent amendments to the BHCA, the Federal Reserve Board generally may
approve an application by a bank holding company that is adequately capitalized
and adequately managed to acquire control of, or to acquire all or substantially
all of the assets of, a bank located in a state other than the home state of
such bank holding company, without regard to whether such transaction is
prohibited under the law of any state, provided, however, that the Federal
Reserve Board may not approve any such application that would have the effect of
permitting an out-of-state bank holding company to acquire a bank in a host
state that has not been in existence for any minimum period of time, not to
exceed five years, specified in the statutory law of the host state.
The BHCA also generally prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. In making such determinations, the Federal Reserve Board is
required to weigh the expected benefit to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as
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undue concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include operating a mortgage company, finance company, credit card
company, factoring company, trust company or savings association; performing
certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full-payout, non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve Board also has determined that certain other activities,
including real estate brokerage and syndication, land development, property
management and underwriting of life insurance not related to credit
transactions, are not closely related to banking and a proper incident thereto.
Capital Requirements. For a description of the capital adequacy
guidelines adopted by the Federal Reserve Board to assess the adequacy of
capital of bank holding companies, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Regulatory Environment -
Regulatory Capital Requirements" included in Item 7 hereof.
Affiliated Institutions. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to each subsidiary
bank and to commit resources to support each subsidiary bank in circumstances
when it might not do so absent such policy. The Federal Reserve Board takes the
position that in implementing this policy it may require bank holding companies
to provide such support when the holding company otherwise would not consider
itself able to do so. The legality and precise scope of this policy is unclear,
however, in light of recent judicial precedent.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank or banks. Normally, the major source of a holding company's
revenue is dividends a holding company receives from its subsidiary banks. The
right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or
reorganization or otherwise is subject to the prior claims of creditors of such
subsidiary banks. The subsidiary banks are subject to claims by creditors for
long-term and short-term debt obligations, including substantial obligations for
federal funds purchased and securities sold under repurchase agreements, as well
as deposit liabilities. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, in the event of a loss suffered by the FDIC in
connection with a banking subsidiary of a bank holding company (whether due to a
default or the provision of FDIC assistance), other banking subsidiaries of the
holding company could be assessed for such loss.
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Maine law provides for the enforcement of any pro rata assessment of
stockholders of a Maine-chartered financial institution to cover impairment of
capital by sale, to the extent necessary, of the stock of any assessed
stockholder failing to pay the assessment. Similarly, the National Bank Act
provides for such assessment with respect to the stockholders of national banks.
The Company, as the sole stockholder of its banking subsidiaries, is subject to
these requirements.
Federal laws limit the transfer of funds by a subsidiary bank to its
holding company in the form of loans or extensions of credit, investments or
purchases of assets. Transfers of this kind are limited to 10% of a bank's
capital and surplus with respect to each affiliate and to 20% in the aggregate,
and are also subject to certain collateral requirements. These transactions, as
well as other transactions between a subsidiary bank and its holding company,
also must be on terms substantially the same as, or at least as favorable as,
those prevailing at the time for comparable transactions with non-affiliated
companies or, in the absence of comparable transactions, on terms or under
circumstances, including credit standards, that would be offered to, or would
apply to, non-affiliated companies.
Limitations of Acquisitions of Common Stock. The federal Change in Bank
Control Act prohibits a person or group of persons from acquiring "control" of a
bank holding company unless the Federal Reserve Board has been given 60 days'
prior written notice of such proposed acquisition and within that time period
the Federal Reserve Board has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during which such
a disapproval may be issued. An acquisition may be made prior to expiration of
the disapproval period if the Federal Reserve Board issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve Board, the acquisition of more than 10% of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act would, under the circumstances set forth in
the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of
the Federal Reserve Board under the BHCA before acquiring 25% (5% in the case of
an acquiror that is a bank holding company) or more of the outstanding Common
Stock of, or such lesser number of shares as constitute control over, the
Company.
Maine Law. Under Maine law, the prior approval of the Superintendent is
required in any case where any person or company proposes to acquire more than
5% of the voting shares of any Maine financial institution holding company or
Maine financial institution. In addition, the prior approval of the
Superintendent is required for the acquisition of more than 5% of the voting
shares of the financial institution, the operations of which are principally
conducted outside the State of Maine, by a Maine financial institution or Maine
financial institution holding company.
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In addition, any person or company which directly or indirectly
acquires more than 5% of the voting shares of a Maine financial institution or a
Maine financial institution holding company is required within five days of the
acquisition to file with the Superintendent a statement containing specified
information, including the background and identity of the person or company, the
source and amount of funds or other consideration for the purchase and any plans
or proposals which the acquiring person may have to liquidate the financial
institution or financial institution holding company, to sell its assets or
merge it with any company or to make any other major change in its business,
corporate structure or management. Any person or company also must file a notice
with the Superintendent when there is a material change in ownership. Under
Maine law, the acquisition of an aggregate of more than another 5% of the voting
shares is a material change.
A Maine financial institution holding company may not engage in any
activity other than managing or controlling financial institutions or other
activities deemed permissible by the Superintendent. The Superintendent has by
regulation determined that, with the prior approval of the Superintendent, a
financial institution holding company may engage in those activities which are
permissible for bank holding companies under the BHCA and those activities which
are permissible for savings and loan holding companies under the Home Owners'
Loan Act, and additional activities as specified by regulations.
New Hampshire Law. New Hampshire law generally prohibits a bank holding
company organized under the laws of New Hampshire or doing business in the State
of New Hampshire from directly or indirectly acquiring ownership or control of
any voting stock of any bank or national bank, if upon such acquisition (i) the
bank holding company would have more than twelve bank affiliates in New
Hampshire, or (ii) the dollar volume of the total of time, savings and demand
deposits in New Hampshire of the bank holding company and all its affiliates
would exceed 20% of the dollar volume of the total of time, savings and demand
deposits of all banks, national banks and federal savings and loan associations
in the State New Hampshire as determined by the New Hampshire Bank Commissioner.
The above-referenced 20% limitation may be waived by the New Hampshire Bank
Commissioner and the New Hampshire Attorney General if both determine that it is
in the best interests of the State of New Hampshire, provided that under no
circumstances shall the total dollar volume of total deposits exceed 30%.
REGULATION OF BANKING SUBSIDIARIES
General. The Bank is subject to extensive regulation and examination by
the Bureau of Banking of the State of Maine and FNB is subject to extensive
regulation and examination by the Comptroller. Each of the Company's banking
subsidiaries also is subject to regulation and examination by the FDIC, which
insures the deposits of each of the Company's banking subsidiaries to the
maximum extent permitted by law, and requirements established by the Federal
Reserve Board. In addition, FNB is subject to regulation by the Federal Reserve
Board as a result of its membership in the Federal Reserve System and the
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Bank is subject to regulation incidental to its membership in the FHLB System.
The federal and state laws and regulations which are applicable to banks
regulate, among other things, the scope of their business, their investments,
their reserves against deposits, the timing of the availability of deposited
funds and the nature and amount of and collateral for loans. The laws and
regulations governing the Company's banking subsidiaries generally have been
promulgated to protect depositors and not for the purpose of protecting
stockholders.
Capital Requirements. For a description of regulatory capital
requirements which are applicable to the Company's banking subsidiaries, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Regulatory Environment Regulatory Capital Requirements" included in
Item 7 hereof.
Prompt Corrective Action. Section 38 of the Federal Deposit Insurance
Act ("FDIA") provides the federal banking regulators with broad power to take
"prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Under regulations adopted by the federal banking regulators,
an institution shall be deemed to be (i) "well capitalized" if it has total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio
of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well capitalized,"
(iii) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a Tier I leverage capital ratio that is less
than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. The regulations also
provide that a federal banking regulator may, after notice and an opportunity
for a hearing, reclassify a "well capitalized" institution as "adequately
capitalized" and may require an "adequately capitalized" institution or an
"undercapitalized" institution to comply with supervisory actions as if it were
in the next lower category if the institution is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice. The federal banking
regulator may not, however, reclassify a "significantly undercapitalized"
institution as "critically undercapitalized."
An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with an appropriate federal banking
regulator within 45 days of the date that the institution receives notice or is
deemed to have notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Immediately upon becoming
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undercapitalized, an institution becomes subject to statutory provisions which,
among other things, set forth various mandatory and discretionary restrictions
on the operations of such an institution.
Each of the Bank and FNB had capital levels which qualified it as a
"well-capitalized" institution at December 31, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Regulatory Environment - Regulatory Capital Requirements" in Item 7 of this
report.
FDIC Insurance Premiums. Each of the Bank and FNB are members of the
Bank Insurance Fund ("BIF") administered by the FDIC, although certain deposits
of each of these entities acquired in acquisitions are insured by the Savings
Association Insurance Fund ("SAIF") administered by the FDIC.
As an FDIC-insured institution, each of the Bank and FNB is required to
pay deposit insurance premiums to the FDIC. On November 14, 1995, the FDIC
adopted a new assessment rate schedule of zero to .27% (subject to a $2,000
minimum) for BIF members beginning on January 1, 1996, while retaining the
existing assessment rate schedule for SAIF-member institutions, which currently
range from .23% for well capitalized, healthy institutions to .31% for
undercapitalized institutions with substantial supervisory concerns.
The Balanced Budget Act of 1995, which was vetoed by the President of
the United States in December 1995, provided for a recapitalization of the SAIF
by a one-time assessment on the deposits of all SAIF-insured institutions and an
eventual merger of the SAIF and the BIF. The deposit assessment rate was to be
determined by the FDIC and set at a level which was sufficient to recapitalize
the SAIF to the designated statutory reserve ratio. This assessment rate was
estimated to be approximately $.85 for every $100 of assessable deposits as of
March 31, 1995, with payment due on January 1, 1996. The Balanced Budget Act of
1995 provided certain relief for institutions, such as the Bank and FNB, which
are members of the BIF but have acquired SAIF insured deposits as a result of
acquisitions of savings institutions in transactions effected pursuant to
Section 5(d)(3) of the FDIA. Such institutions do not pay SAIF assessments based
on the actual amount of the SAIF deposits acquired, as adjusted to reflect
increases or decreases in such deposits subsequent to the date of acquisition,
but on the actual amount of the SAIF deposits acquired as adjusted by a growth
attribution rule set forth in Section 5(d)(3) of the FDIA. Pursuant to the
proposed legislation the amount of any deposits which are treated as insured by
SAIF under Section 5(d)(3) of the FDIA was to be reduced by ten percent if the
adjusted attributable amount of SAIF deposits of the BIF member was less than
fifty percent of the total deposits of that member as of June 30, 1995 (which
was the case for both the Bank and FNB). 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.
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At December 31, 1995, the adjusted attributable amount of SAIF deposits
of the Company's banking subsidiaries amounted to $381.3 million or 16.0% 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 FNB), the one-time
assessment which would be payable by the Company's banking subsidiaries would
aggregate approximately $3.2 million on a pre-tax basis.
Brokered Deposits. The FDIA restricts the use of brokered deposits by
certain depository institutions. Under the FDIA and applicable regulations, (i)
a "well capitalized insured depository institution" may solicit and accept,
renew or roll over any brokered deposit without restriction, (ii) an "adequately
capitalized insured depository institution" may not accept, renew or roll over
any brokered deposit unless it has applied for and been granted a waiver of this
prohibition by the FDIC and (iii) an "undercapitalized insured depository
institution" may not (x) accept, renew or roll over any brokered deposit or (y)
solicit deposits by offering an effective yield that exceeds by more than 75
basis points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited. The term "undercapitalized insured depository
institution" is defined to mean any insured depository institution that fails to
meet the minimum regulatory capital requirement prescribed by its appropriate
federal banking agency. The FDIC may, on a case-by-case basis and upon
application by an adequately capitalized insured depository institution, waive
the restriction on brokered deposits upon a finding that the acceptance of
brokered deposits does not constitute an unsafe or unsound practice with respect
to such institution. The Bank and FNB currently do not accept brokered deposits,
and had no such deposits outstanding at December 31, 1995.
Activities and Investments of Insured State-Chartered Banks. Section 24
of the FDIA and regulations thereunder generally limit the activities and equity
investments of FDIC-insured, state-chartered banks to those that are
permissible for national banks. Under the regulations dealing with equity
investments, an insured state bank generally may not acquire or retain any
equity investment of a type, or in an amount, that is not permissible for a
national bank. An insured state bank is not prohibited from, among other things,
(i) acquiring or retaining a majority interest in a subsidiary, (ii) investing
as a limited partner in a partnership the sole purpose of which is direct or
indirect investment in the acquisition, rehabilitation or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's assets, (iii) acquiring up to 10% of the voting
stock of a company that solely provides or reinsures directors' and officers'
liability insurance and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met. Under the regulations
dealing with activities and investments, an insured state-chartered bank may
not, directly, or indirectly through a subsidiary, engage as "principal" in any
activity that is not permissible for a national bank unless the FDIC has
determined that such activities would pose no risk to the insurance fund of
which it is a member and the bank is in compliance with applicable regulatory
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capital requirements. The foregoing regulations have not had a material adverse
effect on the Company's banking operations.
Community Investment and Consumer Protection Laws. In connection with
its lending activities, each of the Bank and FNB is subject to a variety of
federal laws designed to protect borrowers and promote lending to various
sectors of the economy and population. Included among these are the federal Home
Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending
Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and Community
Reinvestment Act ("CRA").
The CRA requires insured institutions to define the communities that
they serve, identify the credit needs of those communities and adopt and
implement a "Community Reinvestment Act Statement" pursuant to which they offer
credit products and take other actions that respond to the credit needs of the
community. The responsible federal banking regulator (in the case of the Bank
and FNB, the FDIC and the OCC, respectively) must conduct regular CRA
examinations of insured financial institutions and assign to them a CRA rating
of "outstanding," "satisfactory," "needs improvement" or "unsatisfactory." In
1995, the Bank's CRA rating was "outstanding" and FNB's CRA rating was
"satisfactory."
Safety and Soundness. Other regulations which were recently adopted or
are currently proposed to be adopted pursuant to recent legislation include: (i)
real estate lending standards for insured institutions, which provide guidelines
concerning loan-to-value ratios for various types of real estate loans; (ii)
revisions to the risk-based capital rules to account for interest rate risk,
concentration of credit risk and the risks posed by "non-traditional
activities;" (iii) rules requiring depository institutions to develop and
implement internal procedures to evaluate and control credit and settlement
exposure to their correspondent banks; and (iv) rules addressing various "safety
and soundness" issues, including operations and managerial standards, standards
for asset quality, earnings and stock valuations, and compensation standards for
the officers, directors, employees and principal stockholders of the insured
institution.
Limitations on Dividends. The Company is a legal entity separate and
distinct from its banking and other subsidiaries. The Company's principal source
of revenue consists of dividends from its banking subsidiaries. The payment of
dividends by the Company's banking subsidiaries is subject to various regulatory
requirements.
Maine law generally provides that institutions such as the Bank may pay
dividends to stockholders from their undistributed earnings. The Bank cannot
declare or pay any dividend, however, which would reduce its capital below (i)
the amount required to be maintained by federal and state laws and regulations,
or (ii) the amount in the liquidation account established in connection with the
Bank's conversion from mutual to stock form.
Under the National Bank Act, the approval of the Comptroller is
required for any dividend by a national bank such as FNB if the total of all
dividends declared by the bank
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in any calendar year would exceed the total of its net profits, as defined, for
that year, combined with its retained net profits for the preceding two years.
In addition, a national bank may not pay a dividend in an amount greater than
its undivided profits then on hand after deducting its losses and bad debts. For
this purpose, bad debts generally are defined to include the principal amount of
loans which are in arrears with respect to interest by six months or more unless
such loans are fully secured and in the process of collection.
Miscellaneous. The Company's banking subsidiaries are subject to
certain restrictions on loans to the Company or its non-bank subsidiaries, on
investments in the stock or securities thereof, on the taking of such stock or
securities as collateral for loans to any borrower, and on the issuance of a
guarantee or letter of credit on behalf of the Company or its non-bank
subsidiaries. The Company's banking subsidiaries also are subject to certain
restrictions on most types of transactions with the Company or its non-bank
subsidiaries, requiring that the terms of such transactions be substantially
equivalent to terms of similar transactions with non-affiliated firms.
Regulatory Enforcement Authority. The enforcement powers available to
federal banking regulators is substantial and includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities.
TAXATION
Federal Taxation. The Company and its banking subsidiaries are subject
to those rules of federal income taxation generally applicable to corporations
under the Internal Revenue Code of 1986, as amended ("Code"). The Company and
its banking subsidiaries, as members of an affiliated group of corporations
within the meaning of Section 1504 of the Code, file a consolidated federal
income tax return, which has the effect of eliminating or deferring the tax
consequences of inter-company distributions, including dividends, in the
computation of consolidated taxable income.
In addition to regular corporate income tax, corporations are subject
to an alternative minimum tax which generally is equal to 20% of alternative
minimum taxable income (taxable income, increased by tax preference items and
adjusted for certain regular tax items). The preference items generally
applicable to savings associations include an amount equal to 75% of the amount
by which a savings association's adjusted current earnings (generally
alternative minimum taxable income computed without regard to this preference
and prior to reduction for net operating losses) exceeds its alternative minimum
taxable income without regard to this preference. Alternative minimum tax paid
can be credited against regular tax due in later years.
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State Taxation. As a financial institution holding company, the Company
is subject to a separate state franchise tax in lieu of state corporate income
tax. The amount of the tax is the sum of 1% of Maine net income and $.08 per
$1,000 of Maine assets as defined in Maine law. Maine assets are the Company's
total end of the year assets as reported to the United States Government on the
federal income tax return. Maine net income is the Company's net income or loss
as reported by the Company on its consolidated financial statements which is
apportioned to Maine under Maine law.
The Company is subject to New Hampshire business profits tax based on
federal taxable income attributable to its New Hampshire affiliates. The tax is
essentially computed by excluding from taxable income any interest on U.S.
Government obligations, adding back New Hampshire business profits taxes used in
computing federal taxable income, and then multiplying the resulting New
Hampshire taxable income by 7.0%. The computed tax is offset by a credit for any
New Hampshire enterprise tax assessed on the affiliates' compensation, interest
and dividends paid.
For additional information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Review of Financial
Statements - Results of Operations - Income Tax Expense (Benefit)" included in
Item 7 hereof.
ITEM 2. PROPERTIES
At December 31, 1995, the Company conducted its business from its
headquarters and main office at One Portland Square, Portland, Maine, and 76
other branch offices located throughout the State of Maine and in east and
southeast New Hampshire. The Company owns 48 of its branch offices and leases 29
of its branch offices. In addition, the Company owns four operational offices
and leases five operational offices. At December 31, 1995, the net book value of
the property and leasehold improvements of the offices of the Company amounted
to $44.4 million. For additional information regarding the Company's lease
obligations, see Note 15 to the Consolidated Financial Statements included in
Item 14 hereof.
34
<PAGE> 36
The following tables set forth certain information with respect to the
offices of the Company as of December 31, 1995.
STATE OF MAINE
<TABLE>
<CAPTION>
Net Book Value of
Number of Property and Leasehold
County Offices Improvements Deposits
- ------------------ ---------- ---------------------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Androscoggin 7 $ 7,852 $ 244,766
Aroostook 13 2,776 188,975
Cumberland 17 15,165 705,101
Franklin 2 545 38,325
Hancock 1 416 48,930
Kennebec 3 2,439 143,960
Knox 3 707 105,011
Oxford 2 385 39,865
Penobscot 5 1,506 154,359
Somerset 2 435 55,059
Waldo 1 79 17,489
York 5 2,213 150,555
-- ---------- ----------
Total 61 $ 34,518 $1,892,395
== ========== ==========
</TABLE>
STATE OF NEW HAMPSHIRE
<TABLE>
<CAPTION>
Net Book Value of
Number of Property and Leasehold
County Offices Improvements Deposits
- --------------- -------- ------------------ --------
(Dollars in Thousands)
<S> <C> <C> <C>
Carroll 5 $ 1,780 $116,285
Rockingham 8 7,167 284,665
Strafford 3 893 68,620
-- -------- --------
16 $ 9,840 $469,570
== ======== ========
</TABLE>
In early 1988, the Company moved into new headquarters constructed in
One Portland Square, which is a mixed-use development involving six acres of
land in the Old Port area adjacent to the financial district in downtown
Portland, Maine. The first phase of the project involved the construction of a
185,000 square foot, ten-story office building. The Company is leasing 52,000
square feet of the building, which bears its name, for its corporate
headquarters and a retail branch on the street level. In 1988, the Company
purchased a 15% limited partnership interest in One Portland Square for $500,000
and received Federal Reserve Board concurrence that this is a permissible
investment under the BHCA.
35
<PAGE> 37
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information contained under the section captioned "Common Stock
Prices" on the inside back cover of the Company's Annual Report to Stockholders
for the year ended December 31, 1995 ("Annual Report") is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected Five-Year
Consolidated Financial and Other Data" on page 14 of the Company's Annual Report
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 15 through 29 of the Company's Annual Report is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required are contained
on pages 30 through 51 of the Company's Annual Report and are incorporated
herein by reference.
PART III.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
36
<PAGE> 38
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to pages 2 through 4 and pages 7 through 8 of
the definitive Proxy Statement of the Company, dated March 22, 1996 ("Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to pages 11 through 17 of the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to pages 9 through 10 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to pages 18 through 19 of the Proxy
Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The following financial statements are incorporated by reference
from Item 8 hereof and the Annual Report to Stockholders included herein as
Exhibit 13:
Consolidated balance sheets at December 31, 1995 and 1994
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 1995
Consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 1995
Consolidated statements of changes in shareholders' equity for each of
the years in the three-year period ended December 31, 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
omitted because of the absence
37
<PAGE> 39
of conditions under which they are required or because the required information
is included in the financial statements and related notes thereto.
(a)(3) The following exhibits are included as part of this Form 10-K.
Exhibit No. Exhibit Location
- ----------- ------- --------
3(a) Articles of Incorporation of the Company (1)
3(b) Bylaws of the Company (1)
4(a) Specimen Common Stock certificate (1)
4(b) Form of Indenture between the Company and Mellon
Bank, N.A., as trustee (2)
4(c) Form of Debenture due 2000 (2)
10(a) Amended and Restated Severance Agreement between
the Company and William J. Ryan
10(b) Amended and Restated Severance Agreement between
the Company and Peter J. Verrill
10(c) Severance Agreement between the Company and
John W. Fridlington (3)
10(d) Severance Agreement between the Company and
Henry G. Beyer (3)
10(e) Employment Agreement between the Company and John
E. Menaro, including the Severance Agreement included
as Attachment A
10(f) Supplemental Retirement Agreement among the
Company, its subsidiaries and William J. Ryan (4)
10(g) Supplemental Retirement Agreement among the
Company, its subsidiaries and John E. Menario (4)
10(h) Supplemental Retirement Agreement among the
Company, its subsidiaries and Peter J. Verrill (4)
10(i) Supplemental Retirement Agreement among the
Company, its subsidiaries and Henry G. Beyer (3)
10(j) Supplemental Retirement Agreement among the
Company, its subsidiaries and John W. Fridlington
38
<PAGE> 40
Exhibit No. Exhibit Location
- ----------- ------- --------
10(k) Senior Officers' Deferred Compensation Plan, as
amended (5)
10(l) Directors' Deferred Compensation Plan, as amended (5)
10(m) 1986 Stock Option and Stock Appreciation Rights
Plan, as amended (1)(6)
10(n) 1986 Employee Stock Purchase Plan, as amended (1)(6)
10(o) Restricted Stock Plan for Non-Employee Directors (7)
10(p) 1995 Stock Option Plan for Non-Employee Directors (8)
10(q)(1) Thrift Incentive Plan (9)
10(q)(2) First Amendment to Thrift Incentive Plan
10(q)(3) Second Amendment to Thrift Incentive Plan
10(r)(1) Profit Sharing Employee Stock Ownership Plan (9)
10(r)(2) First Amendment to Profit Sharing Employee Stock
Ownership Plan
10(r)(3) Second Amendment to Profit Sharing Employee Stock
Ownership Plan
10(s) 1996 Equity Incentive Plan (10)
10(t) Agreement, dated January 1, 1989, by and among the
Company and Robert P. Bahre (5)
10(u) Stockholders Rights Agreement, dated September 12,
1989, between the Company and Mellon Securities Trust
Company, as Rights Agent (11)
13 Certain sections of the Company's Annual Report
to Stockholders for 1995
21 Subsidiaries of the Company
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Annual Report on Form 10-K for the Company's Thrift
Incentive Plan (12)
39
<PAGE> 41
- -----------------
(1) Exhibit is incorporated by reference to the Form S-4 Registration Statement
(No. 33-20243) filed by the Company with the Securities and Exchange Commission
("SEC") on February 22, 1988.
(2) Exhibit is incorporated by reference to the Form 8-K report filed by the
Company with the SEC on February 28, 1995.
(3) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1994, filed with the SEC on March 30, 1995 and
amended on April 28, 1995.
(4) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1990, filed with the SEC on March 23, 1991.
(5) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1993, filed with the SEC on March 17, 1994.
(6) An amendment to the 1986 Stock Option and Stock Appreciation Rights Plan is
incorporated by reference to the proxy statement filed by the Company with the
SEC on March 24, 1994, and an amendment to the Employee Stock Purchase Plan is
incorporated by reference to the proxy statement filed by the Company with the
SEC on March 24, 1993.
(7) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 16, 1990.
(8) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 24, 1995.
(9) Exhibit is incorporated by reference to the Form S-1 Registration Statement
(No. 33- 53236) filed by the Company with the SEC on November 23, 1992.
(10) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 20, 1996.
(11) Exhibit is incorporated by reference to the Form 8-K report filed by the
Company with the SEC on September 13, 1989.
(12) To be filed by amendment on or before April 30, 1996.
The Company's management contracts or compensatory plans or
arrangements consist of Exhibit Nos. 10(a)-(t).
40
<PAGE> 42
(b) The Company filed a report on Form 8-K on October 25, 1995,
reporting under Item 5 thereof the execution of an agreement to acquire Bank of
New Hampshire Corporation.
(c) See (a)(3) above for all exhibits filed herewith and the Exhibit
Index.
(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report to Stockholders which are
required to be included herein.
41
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 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 organized.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
<TABLE>
<S> <C>
By: /s/ William J. Ryan Date: March 26, 1996
-------------------------------------------------
William J. Ryan
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Robert P. Bahre Date: March 26, 1996
- ----------------------------------------------------
Robert P. Bahre
Director
/s/ Everett W. Gray Date: March 26, 1996
- ----------------------------------------------------
Everett W. Gray
Director
/s/ Andrew W. Greene Date: March 26, 1996
- --------------------------------------------------
Andrew W. Greene
Director
/s/ Katherine M. Greenleaf Date: March 26, 1996
- --------------------------------------------------
Katherine M. Greenleaf
Director
</TABLE>
42
<PAGE> 44
<TABLE>
<S> <C>
/s/ Dana Levenson Date: March 26, 1996
- ----------------------------------------------------
Dana Levenson
/s/ Robert A. Marden, Sr. Date: March 26, 1996
- ----------------------------------------------------
Robert A. Marden, Sr.
Vice Chairman
/s/ Malcolm W. Philbrook, Jr. Date: March 26, 1996
- ---------------------------------------------------
Malcolm W. Philbrook, Jr.
Director
/s/ Pamela P. Plumb Date: March 26, 1996
- -----------------------------------------------------
Pamela P. Plumb
Vice Chairman
/s/ William J. Ryan Date: March 26, 1996
- ------------------------------------------------------
William J. Ryan
Chairman, President and Chief
Executive Officer
(principal executive officer)
/s/ Curtis M. Scribner Date: March 26, 1996
- ------------------------------------------------------
Curtis M. Scribner
Director
/s/ Peter J. Verrill Date: March 26, 1996
- --------------------------------------------------------
Peter J. Verrill
Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer (principal financial
and accounting officer)
</TABLE>
43
<PAGE> 45
EXHIBIT INDEX
Exhibit No. Exhibit Location
- ----------- ------- --------
3(a) Articles of Incorporation of the Company (1)
3(b) Bylaws of the Company (1)
4(a) Specimen Common Stock certificate (1)
4(b) Form of Indenture between the Company and Mellon
Bank, N.A., as trustee (2)
4(c) Form of Debenture due 2000 (2)
10(a) Amended and Restated Severance Agreement between
the Company and William J. Ryan
10(b) Amended and Restated Severance Agreement between
the Company and Peter J. Verrill
10(c) Severance Agreement between the Company and
John W. Fridlington (3)
10(d) Severance Agreement between the Company and
Henry G. Beyer (3)
10(e) Employment Agreement between the Company and John
E. Menaro, including the Severance Agreement included
as Attachment A
10(f) Supplemental Retirement Agreement among the
Company, its subsidiaries and William J. Ryan (4)
10(g) Supplemental Retirement Agreement among the
Company, its subsidiaries and John E. Menario (4)
10(h) Supplemental Retirement Agreement among the
Company, its subsidiaries and Peter J. Verrill (4)
10(i) Supplemental Retirement Agreement among the
Company, its subsidiaries and Henry G. Beyer (3)
10(j) Supplemental Retirement Agreement among the
Company, its subsidiaries and John W. Fridlington
10(k) Senior Officers' Deferred Compensation Plan, as
amended (5)
10(l) Directors' Deferred Compensation Plan, as amended (5)
<PAGE> 46
Exhibit No. Exhibit Location
- ----------- ------- --------
10(m) 1986 Stock Option and Stock Appreciation Rights
Plan, as amended (1)(6)
10(n) 1986 Employee Stock Purchase Plan, as amended (1)(6)
10(o) Restricted Stock Plan for Non-Employee Directors (7)
10(p) 1995 Stock Option Plan for Non-Employee Directors (8)
10(q)(1) Thrift Incentive Plan (9)
10(q)(2) First Amendment to Thrift Incentive Plan
10(q)(3) Second Amendment to Thrift Incentive Plan
10(r)(1) Profit Sharing Employee Stock Ownership Plan (9)
10(r)(2) First Amendment to Profit Sharing Employee Stock
Ownership Plan
10(r)(3) Second Amendment to Profit Sharing Employee Stock
Ownership Plan
10(s) 1996 Equity Incentive Plan (10)
10(t) Agreement, dated January 1, 1989, by and among the
Company and Robert P. Bahre (5)
10(u) Stockholders Rights Agreement, dated September 12,
1989, between the Company and Mellon Securities Trust
Company, as Rights Agent (11)
13 Certain sections of the Company's Annual Report
to Stockholders for 1995
21 Subsidiaries of the Company
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Annual Report on Form 10-K for the Company's Thrift
Incentive Plan (12)
- --------------
(1) Exhibit is incorporated by reference to the Form S-4 Registration Statement
(No. 33-20243) filed by the Company with the Securities and Exchange Commission
("SEC") on February 22, 1988.
2
<PAGE> 47
(2) Exhibit is incorporated by reference to the Form 8-K report filed by the
Company with the SEC on February 28, 1995.
(3) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1994, filed with the SEC on March 30, 1995 and
amended on April 28, 1995.
(4) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1990, filed with the SEC on March 23, 1991.
(5) Exhibit is incorporated by reference to the Company's Form 10-K report for
the year ended December 31, 1993, filed with the SEC on March 17, 1994.
(6) An amendment to the 1986 Stock Option and Stock Appreciation Rights Plan is
incorporated by reference to the proxy statement filed by the Company with the
SEC on March 24, 1994, and an amendment to the Employee Stock Purchase Plan is
incorporated by reference to the proxy statement filed by the Company with the
SEC on March 24, 1993.
(7) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 16, 1990.
(8) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 24, 1995.
(9) Exhibit is incorporated by reference to the Form S-1 Registration Statement
(No. 33-53236) filed by the Company with the SEC on November 23, 1992.
(10) Exhibit is incorporated by reference to the proxy statement filed by the
Company with the SEC on March 20, 1996.
(11) Exhibit is incorporated by reference to the Form 8-K report filed by the
Company with the SEC on September 13, 1989.
(12) To be filed by amendment on or before April 30, 1996.
3
<PAGE> 1
EXHIBIT 10(a)
AMENDED & RESTATED
WILLIAM J. RYAN SEVERANCE AGREEMENT
This AGREEMENT, made and entered into as of the 1st day of January,
1995, by and among PEOPLES HERITAGE FINANCIAL GROUP, INC. (the "Company") and
WILLIAM J. RYAN (the "Executive");
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Company in a key executive
capacity and possesses intimate knowledge of the business and affairs of the
Company; and
WHEREAS, the Company desires to ensure, insofar as possible, that it
will continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill; and
WHEREAS, the Company recognizes that circumstances may arise in which a
change in the control of the Company occurs, thereby causing uncertainty of
employment without regard to the Executive's competence or past contributions;
and
WHEREAS, the Company and the Executive wish to provide reasonable
security to the Executive against changes in the Executive's relationship with
the Company in the event of such change in control;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
<PAGE> 2
1. Definitions
(a) Accrued Benefit means:
(i) All salary earned or accrued through the date the
Executive's employment is terminated;
(ii) reimbursement for any and all monies advanced in
connection with the Executive's employment for
reasonable and necessary expenses incurred by the
Executive through the date the Executive's employment
is terminated;
(iii) any and all other compensation previously earned and
deferred at the election of the Executive or pursuant
to any deferred compensation plans then in effect
together with any interest or desired earnings
thereon;
(iv) annual bonus, if any, accrued for a Year prior to the
Year in which employment terminates, but not yet paid
to the Executive, under any bonus or incentive
compensation plan or plans in which the Executive is
a participant;
(v) a pro rata portion of the maximum bonus payable to
the Executive for the Year in which employment
terminates under any bonus or incentive compensation
plan or plans in which the Executive is a
participant, determined as if the Executive had
remained in employment for the full Year and prorated
based upon weeks, partial weeks, of employment during
that Year;
2
<PAGE> 3
(vi) all other payments and benefits to which the
Executive may be entitled under the terms of any
applicable compensation arrangement or benefit plan
or program of the Company.
(b) Act means the Securities Exchange Act of 1934, as amended.
(c) Affiliate of any specified persons means any other person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under direct or indirect common control with such
specified person. For the purposes of this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(d) Annual Compensation. Annual compensation shall mean the sum
of:
(i) the Executive's annual salary at the rate in effect
on the date of a termination of employment as
described in Section 3 or in Section 7(d) (or, in the
event of a termination for Good Reason under Section
l (k) (i) (A) below, the annual salary as in effect
immediately before the actions giving rise to Good
Reason); plus
(ii) the greatest of the bonuses either paid or accrued in
either the Year of the Change in Control or the
immediately preceding Year.
(e) Base Amount means an amount equal to the Executive's Annualized
Includable Compensation for the Base Period as defined in Section 28OG (d) (1)
and (2) of the Code (as hereinafter defined).
3
<PAGE> 4
(f) Cause means (i) the executive's conviction of, or plea of nolo
contendere to, a felony; or (ii) willful and intentional misconduct, willful
neglect, or gross negligence, in the performance of the Executive's duties,
which has caused a demonstrable and serious injury to the Company, monetary or
otherwise.
The Executive shall be given written notice that the Company intends to
terminate his employment for Cause. Such written notice shall specify the
particular acts, or failures to act, on the basis of which the decision to so
terminate employment was made.
In the case of a termination for Cause as described in Clause (ii),
above, the Executive shall be given the opportunity within 30 days of the
receipt of such notice to meet with the Board to defend such acts, or failures
to act, prior to termination. The Company may suspend the Executive's title and
authority pending such meeting, and such suspension shall not constitute "Good
Reason," as defined in subsection (k) below.
(g) Change in Control of the Company shall mean a Change in Control of
a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Act or any successor
thereto, provided that without limiting the foregoing, a Change in Control of
the Company also shall be deemed to have occurred if:
(i) any "person" (as defined under Section 3 (a) (9) of
the Act) or "group" of persons (as provided under
Rule 13d-3 of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 or otherwise under
the Act), directly or indirectly (including as
provided in Rule 13d-3 (d) (1) of the Act), of
capital stock of the Company the holders of which are
4
<PAGE> 5
entitled to vote for the election of directors
("voting stock") representing that percentage of the
Company's then outstanding voting stock (giving
effect to the deemed ownership of securities by such
person or group, as provided in Rule 13d-3 (d) (1) of
the Act, but not giving effect to any such deemed
ownership of securities by another person or group)
equal to or greater than thirty-five percent (35%) of
all such voting stock;
(ii) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof. Any person
becoming a director subsequent to such date whose
election, or nomination for election, is, at any
time, approved by a vote of at least a majority of
the directors comprising the Incumbent Board shall be
considered as though he were a member of the
Incumbent Board;
(iii) The Company combines with another person or entity,
whether through a merger, asset sale, reorganization
or otherwise, and (A) any person or group of persons
holds at any time after such combination, voting
stock equal to or greater than thirty-five percent
(35%) determined by reference to the voting
securities of the surviving entity, or (B) the
Company's directors, as of the date immediately
before such combination, constitute less than a
majority of the Board of Directors of the combined
entity.
5
<PAGE> 6
(h) Code means the Internal Revenue Code of 1986, including any
amendments thereto.
(i) Effective Date means the date this Agreement is executed by the
parties.
(j) Employment Period means a period commencing on the date of a Change
in Control of the Company and ending on the earlier of (i) the last day of the
twenty-fourth month following the month in which the Change in Control occurs,
or (ii) the Executive's Normal Retirement Date.
(k) Good Reason means:
(i) any breach of this Agreement by the Company,
including without limitation (A) any reduction during
the employment period in the amount of the
Executive's base salary or aggregate benefits as in
effect from time to time, (B) failure to provide the
Executive with the same fringe benefits that were
provided to the Executive immediately prior to a
Change in Control of the Company, or with a package
of fringe benefits (including paid vacations) that,
though one or more of such benefits may vary from
those in effect immediately prior to such a Change in
Control, is substantially comparable in all material
respects to such fringe benefits taken as a whole, or
(C) any other breach by the Company of its
obligations contained in Section 6 below;
(ii) without the Executive's express written consent, the
assignment to the Executive of any duties which are
materially inconsistent with the Executive's
positions, duties, responsibilities and status
immediately
6
<PAGE> 7
prior to the Change in Control of the Company, a
material change in the Executive's reporting
responsibilities, titles or offices as an employee
and as in effect immediately prior to the Change in
Control, or a significant reduction, in the
Executive's title, duties or responsibilities, or in
the level of his support services;
(iii) the relocation of the Executive's principal place of
employment, without the Executive's written consent,
to a location outside the same metropolitan area in
which the Executive was employed at the time of such
Change in Control, or the imposition of any
requirement that the Executive spend more than ninety
business days per year at a location other than such
principal place of employment;
(iv) any purported termination of the Executive's
employment for Cause, Disability or Retirement which
is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (m) below;
or
(v) a change in the ownership of the Company (either
accompanying or following the Change in Control),
such that the Executive's duties, reporting
responsibilities, or authority is no longer
consistent with those of an executive of an
independent company.
Upon the occurrence of any of the events described in (i), (ii),
(iii), (iv) or (v) above, the Executive shall give the Company written notice
that such event constitutes Good Reason, and the Company shall thereafter have
thirty (30) days in which to cure. If the Company has not cured in that time,
the event shall constitute Good Reason.
7
<PAGE> 8
(1) Normal Retirement Date means Normal Retirement Date as defined in
the Peoples Heritage Financial Group, Inc. Retirement Plan.
(m) Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision relied upon in this Agreement and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(n) Person or Group means a "Person" or "group," as defined in Section
i (g) (i) hereof.
(o) Year means a calendar year unless otherwise specifically provided.
2. Term of Agreement. This Agreement shall begin on the date first set
forth above and shall continue until the third anniversary of such date,
provided that, on such third anniversary, and each succeeding anniversary, the
term shall be renewed for an additional period of one year unless either party
has given written notice that the term is not so renewed, which notice must be
delivered to the other party at least one year prior to the date of any such
renewal, and further provided that if a Change in Control of the Company occurs
during such term, the term shall in all events continue through the last day of
the Employment Period. This Agreement is also subject to earlier termination as
provided in Section 3 below. All rights and obligations hereunder shall survive
to the extent necessary to the intended enforcement thereof.
3. Termination of Employment Prior to a Change in Control,.
(a) The Company and the Executive shall each retain the right
to terminate
8
<PAGE> 9
the employment of the Executive at any time prior to a Change in Control of the
Company. In the event the Executive's employment is terminated prior to a Change
in Control of the Company, this Agreement shall, except as provided in
Subsection (b) below, be terminated and of no further force and effect, and any
and all rights and obligations of the parties hereunder shall cease.
(b) If the Executive's employment is terminated by the Company
prior to the occurrence of a Change in Control of the Company, and if it can be
shown that the Executive's termination (i) was at the direction or request of a
third party that had taken steps reasonably calculated to effect the Change in
Control of the Company thereafter, or (ii) otherwise occurred in connection
with, or in anticipation of, the Change in Control of the Company, the Executive
shall have the rights described in Section 7(d) below, as if a Change in Control
of the Company had occurred on the date immediately preceding such termination.
4. Employment Following a Change in Control. If a Change in Control of
the Company occurs when the Executive is employed by the Company, the Company
will continue thereafter to employ the Executive, and the Executive will remain
in the employ of the Company, during the Employment Period, in accordance with
the terms and provisions of this Agreement.
5. Duties. During the Employment Period, the Executive shall serve in
such capacities and positions as may be assigned by the Company consistent with
the Executive's capacities and positions on the Effective Date and shall devote
the Executive's best efforts and all of the Executive's business time, attention
and skill to the business and affairs of the
9
<PAGE> 10
Company, as such business and affairs now exist and as they may hereafter be
conducted.
6. Compensation. During the Employment Period, the Executive shall be
compensated by the Company as follows:
(a) the Executive shall receive, at such intervals and in
accordance with such standard policies as in effect on the date of the Change in
Control of the Company, an annual salary not less than the Executive's annual
salary as in effect on the date of the Change in Control of the Company, subject
to adjustment as hereinafter provided;
(b) the Executive shall be included in all plans providing
incentive compensation to executives, including but not limited to bonus,
deferred compensation, annual or other incentive compensation, supplemental
pension, stock ownership, stock option, stock appreciation, stock bonus and
similar or comparable plans as any such plans are extended by the Company from
time to time to senior corporate officers, key employees and other employees of
comparable status;
(c) the Executive shall be reimbursed, at such intervals and
in accordance with such standard policies as may be in effect on the date of the
Change in Control of the Company, for any and all monies advanced in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company, including travel expenses;
(d) the Executive shall be included, to the extent eligible
thereunder, in any and all plans providing but not limited to, group life
insurance, hospitalization, disability, medical, dental, pension, profit sharing
and stock bonus plans, and shall be provided any and all other benefits and
perquisites made available to other employees of comparable status
10
<PAGE> 11
and position at the expense of the Company on a comparable basis;
(e) the Executive shall receive annually not less than the
amount of paid vacation and not fewer than the number of paid holidays received
annually immediately prior to the Change in Control of the Company or available
annually to other employees of comparable status and position with the Company;
and
(f) During the Employment Period the Board of Directors of the
Company, or an appropriate committee thereof, will consider and appraise, at
least annually, the contributions of the Executive to the Company's operating
efficiency, growth, production and profits and, in accordance with past
practice, due consideration shall be given to the upward adjustment of the
Executive's compensation rate, at least annually, commensurate with increases
generally given to other senior corporate officers and key employees and as the
scope of the Executive's duties expands.
7. Termination of Employment. Any termination by the Company or the
Executive of the Executive's employment during the Employment Period shall be
communicated by written Notice of Termination to the Executive if such notice is
delivered by the Company and to the Company if such notice is delivered by the
Executive. The Notice of Termination shall comply with the requirements of
Section 17 below.
(a) Termination for Disability. If during the Employment
Period, the Executive's employment is terminated on account of the Executive's
disability, as determined under the Company's long-term disability plan (as in
effect on the date of a Change in Control of the Company), the Executive shall
receive any Accrued Benefits, and shall remain eligible for all benefits as
provided pursuant to the terms of any long-term
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disability programs of the Company in effect at the time of such termination.
(b) Termination on the Executive's Death. If, during the
Employment Period, the Executive's employment is terminated on account of the
Executive's death, the Executive's estate or his designated beneficiary (or
beneficiaries), as applicable, shall receive all the Executive's Accrued
Benefits.
(c) Voluntary Termination or Termination for Cause. If, during
the Employment Period, (i) the Executive shall terminate employment with the
Company other than for Good Reason, or (ii) the Executive's employment is
terminated for Cause, the Executive shall receive from the Company his Accrued
Benefits.
(d) Termination by the Company Without Cause or by the
Executive for Good Reason. If, during the Employment Period, the Executive's
employment with the Company is terminated by the Company other than for Cause,
or by the Executive for Good Reason, then:
(i) the Executive shall be entitled to receive
from the Company his Accrued Benefit, except
that, for this purpose, Accrued Benefit
shall not include any entitlement to
severance under any Company severance policy
generally applicable to the Company's
salaried employees;
(ii) the Executive shall receive from the
Company, no less than ten days following
termination of his employment, a lump sum
payment (the "Termination Payment") equal to
three times the Executive's Annual
Compensation;
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(iii) all rights under any equity or long-term
incentive plan shall be fully vested;
(iv) rights, if any, to supplemental pension
shall be fully vested; and
(v) the Executive shall continue to be covered
at the expense of the Company by the same or
equivalent hospital, medical, dental,
accident, disability and life insurance
coverage as in effect for the Executive
immediately prior to termination of his
employment, until the earlier of (A)
thirty-six months following termination of
employment, or (B) the date the Executive
has commenced new employment and has thereby
become eligible for comparable benefits.
8. Certain Supplemental Payments by the Company.
(a) In the event the Executive's employment is terminated
pursuant to Section 7(d) above, and if in connection therewith it is determined
that (A) part or all of the compensation and benefits to be paid to the
Executive constitute "parachute payments" under Section 28OG of the Code, and
(B) the payment thereof will cause the Executive to incur excise tax under
Section 4999 of the Code, the Company, on or before the date for payment of such
excise tax, shall pay the Executive, in lump sum, an amount (the "Gross-Up
Amount") such that, after payment of all federal, state and local income tax and
any additional excise tax under Section 4999 of the Code in respect of the
Gross-Up Amount payment, the Executive will be fully reimbursed for the amount
of such excise tax.
(b) The determination of the Parachute Amount, the Base Amount
and the
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<PAGE> 14
Gross-Up Amount, as well as any other calculations necessary to implement this
Section 8 shall be made by a nationally recognized accounting or benefits
consulting firm selected by the Executive and reasonably satisfactory to the
Company and which has not performed services, other than minor indirect or
incidental services, for either the Company or the Executive for three years
prior to the date the Consultant is retained for this purpose. The Consultant's
fee shall be paid by the Company.
(c) As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the Executive under
this Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such amounts as become due to the Executive under this
Agreement.
(d) As a result of the uncertainty in the application of
Section 28OG of the Code at the time of an initial determination hereunder, it
is possible that payments will not have been made by the Company which should
have been made under clause (a) of this Section 8 ("Underpayment"). In the event
that there is a final determination by the Internal Revenue Service, or a final
determination by a court of competent jurisdiction, that an Underpayment has
been made and the Executive thereafter is required to make any payment of an
excise tax, income tax, any interest or penalty, the accounting or benefits
consulting firm selected under clause (b) above shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
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<PAGE> 15
9. Further Obligations of the Executive. During and following the
Executive's employment by the Company, the Executive shall hold in confidence
and not directly or indirectly disclose or use or copy or make lists of any
confidential information or proprietary data of the Company, except to the
extent authorized in writing by the Board of Directors of the Company or
required by any court or administrative agency, other than to an employee of the
Company or a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by the Executive of duties as an executive of
the Company. Confidential information shall not include any information known
generally to the public or any information of a type not otherwise considered
confidential by persons engaged in the same business or a business similar to
that of the Company. All records, files, documents and materials or copies
thereof, relating to the Company's business which the Executive shall prepare,
or use, or come into contact with, shall be and remain the sole property of the
Company and shall be promptly returned to the Company upon termination of
employment with the Company.
10. Expenses and Interest. If, after a Change in Control of the
Company, a good faith dispute arises with respect to the enforcement of the
Executive's rights under this Agreement, or if any legal or arbitration
proceeding shall be brought in good faith to enforce or interpret any provision
contained herein, or to recover damages for breach hereof, the Executive shall
recover from the Company any reasonable attorney's fees and necessary costs and
disbursements incurred as a result of such dispute, and prejudgment interest on
any money judgment or arbitration award obtained by the Executive calculated at
the rate of interest announced by Peoples Heritage Bank, or the successor
thereto, from
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<PAGE> 16
time to time as its prime rate from the date that payments to him should have
been made under this Agreement.
11. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the compensation and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any set
off, counterclaim, recoupment, defense or other right which the Company may have
against him or anyone else. All amounts payable by the Company hereunder shall
be paid without notice or demand. Each and every payment made hereunder by the
Company shall be final and the Company will not seek to recover all or any part
of such payment from the Executive or from whomsoever may be entitled thereto,
for any reason whatever except as provided in Section 8(d) above.
12. Successors.
(a) (i) If the Company sells, assigns, or transfers
all or substantially all of its business and
assets to any Person, excluding Affiliates
of the Company, or if the Company merges
into or consolidates or otherwise combines
with any Person which is a continuing or
successor entity, then the Company shall
assign all of its rights, title and interest
in this Agreement as of the date of such
event to the Person which is either the
acquiring or successor Company, and such
Person shall assume in writing and perform
from and after the date of such written
assignment all of the terms, conditions and
provisions imposed by this Agreement
16
<PAGE> 17
upon the Company. Failure of the Company to
obtain such written assignment shall be a
breach of this Agreement. In case of such
assignment by the Company and of written
assumption and agreement by such Person, all
further rights as well as all other
obligations of the Company under this
Agreement thenceforth shall cease and
terminate and thereafter the expression "the
Company" wherever used herein shall be
deemed to mean such Person or Persons.
(ii) This Agreement and all rights of the
Executive shall inure to the benefit of and
be enforceable by the Executive's personal
or legal representatives, estates,
executors, administrators, heirs and
beneficiaries. All amounts payable to the
Executive hereunder shall be paid, in the
event of the Executive's death, to the
Executive's estate, heirs and
representatives. This Agreement shall inure
to the benefit of, be binding upon and be
enforceable by, any successor, surviving or
resulting Company or other entity to which
all or substantially all of the Company's
business and assets shall be transferred.
This Agreement shall not be terminated by
the voluntary or involuntary dissolution of
the Company.
13 Enforcement. The provisions of this Agreement shall be regarded as
divisible, and if any such provisions or any part hereof are declared invalid or
unenforceable
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<PAGE> 18
by a court of competent jurisdiction, the validity and enforceability of the
remainder of such provisions or parts hereof and the applicability thereof shall
not be affected thereby.
14. Amendment. This Agreement may not be amended or modified at any
time except by a written instrument executed by the Company and the Executive if
such amendment or modification occurs before any Change in Control, or by the
Executive and the Company after any Change in Control.
15. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes, or charge which it is from time to time required to withhold. The
Company shall be entitled to rely on an opinion of counsel if any question as to
the amount or requirement of any such withholding shall arise.
16. Governing law: Arbitration. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Maine. Any dispute arising out of this Agreement shall be
determined by arbitration in the State of Maine under the rules of the American
Arbitration Association then in effect and judgment upon any award pursuant to
such arbitration may be enforced in any court having jurisdiction thereof.
17. Notice. Notices given pursuant to this Agreement shall be in
writing and shall be deemed given when received and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested,
addressee only postage prepaid, to the Company at:
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<PAGE> 19
Peoples Heritage Financial Group, Inc.
P.O. Box 9540
One Portland Square
Portland, ME 04112
Attn: Clerk
or if to the Executive, at the address set forth below the Executive's signature
line of this Agreement, or to such other address as the party to be notified
shall have given to the other.
18. No Waiver. No waiver by any party at any time of any breach by
another party of, or compliance with, any condition or provision of this
Agreement to be performed by another party shall be deemed a waiver of similar
or dissimilar provisions or conditions at any time.
19. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By: /s/ William J. Ryan
------------------------------------
Attest: /s/ Carol L. Mitchell
--------------------------------
Secretary
/s/ William J. Ryan
----------------------------------------
Executive
Address: 6 Hemlock Dr.
Cumberland Center, ME 04021
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<PAGE> 1
EXHIBIT 10(b)
AMENDED & RESTATED
PETER J. VERRILL SEVERANCE AGREEMENT
This AGREEMENT, made and entered into as of the 1st day of
January, 1996, by and among PEOPLES HERITAGE FINANCIAL GROUP, INC. (the
"Company") and PETER J. VERRILL (the "Executive");
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Company in a key
executive capacity and possesses intimate knowledge of the business and affairs
of the Company; and
WHEREAS, the Company desires to ensure, insofar as possible,
that it will continue to have the benefit of the Executive's services and to
protect its confidential information and goodwill; and
WHEREAS, the Company recognizes that circumstances may arise
in which a change in the control of the Company occurs, thereby causing
uncertainty of employment without regard to the Executive's competence or past
contributions; and
WHEREAS, the Company and the Executive wish to provide
reasonable security to the Executive against changes in the Executive's
relationship with the Company in the event of such change in control;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
<PAGE> 2
1. Definitions
(a) Accrued Benefit means:
(i) All salary earned or accrued through
the date the Executive's employment
is terminated;
(ii) reimbursement for any and all monies
advanced in connection with the
Executive's employment for
reasonable and necessary expenses
incurred by the Executive through
the date the Executive's employment
is terminated;
(iii) any and all other compensation
previously earned and deferred at
the election of the Executive or
pursuant to any deferred
compensation plans then in effect
together with any interest or
desired earnings thereon;
(iv) annual bonus, if any, accrued for a
Year prior to the Year in which
employment terminates, but not yet
paid to the Executive, under any
bonus or incentive compensation plan
or plans in which the Executive is a
participant;
(v) a pro rata portion of the maximum
bonus payable to the Executive for
the Year in which employment
terminates under any bonus or
incentive compensation plan or plans
in which the Executive is a
participant, determined
2
<PAGE> 3
as if the Executive had remained in
employment for the full Year and
prorated based upon weeks, including
partial weeks, of employment during
that Year;
(vi) all other payments and benefits to
which the Executive may be entitled
under the terms of any applicable
compensation arrangement or benefit
plan or program of the Company.
(b) Act means the Securities Exchange Act of 1934,
as amended.
(c) Affiliate of any specified persons means any
other person that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under direct or indirect common control
with such specified person. For the purposes of this definition, "control" means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
(d) Annual Compensation. Annual compensation shall
mean the sum of:
(i) the Executive's annual salary at the
rate in effect on the date of a
termination of employment as
described in Section 3 or in Section
7(d) (or, in the event of a
termination for Good Reason under
Section l (k) (i) (A) below, the
annual salary as in effect
immediately before
3
<PAGE> 4
the actions giving rise to Good
Reason); plus
(ii) the greatest of the bonuses either
paid or accrued in either the Year
of the Change in Control or the
immediately preceding Year.
(e) Base Amount means an amount equal to the
Executive's Annualized Includable Compensation for the Base Period as defined in
Section 28OG (d) (1) and (2) of the Code (as hereinafter defined).
(f) Cause means (i) the executive's conviction of,
or plea of nolo contendere to, a felony; or (ii) willful and intentional
misconduct, willful neglect, or gross negligence, in the performance of the
Executive's duties, which has caused a demonstrable and serious injury to the
Company, monetary or otherwise.
The Executive shall be given written notice that
the Company intends to terminate his employment for Cause. Such written notice
shall specify the particular acts, or failures to act, on the basis of which the
decision to so terminate employment was made.
In the case of a termination for Cause as described
in Clause (ii), above, the Executive shall be given the opportunity within 30
days of the receipt of such notice to meet with the Board to defend such acts,
or failures to act, prior to termination. The Company may suspend the
Executive's title and authority pending such meeting, and such suspension shall
not constitute "Good Reason," as defined in subsection (k) below.
(g) Change in Control of the Company shall mean a
Change in Control of a nature that would be required to be reported in response
to Item 5(f) of
4
<PAGE> 5
Schedule 14A of Regulation 14A promulgated under the Act or any successor
thereto, provided that without limiting the foregoing, a Change in Control of
the Company also shall be deemed to have occurred if:
(i) any "person" (as defined under
Section 3 (a) (9) of the Act) or
"group" of persons (as provided
under Rule 13d- 3 of the Act) is or
becomes the "beneficial owner" (as
defined in Rule 13d-3 or otherwise
under the Act), directly or
indirectly (including as provided in
Rule 13d- 3 (d) (1) of the Act), of
capital stock of the Company the
holders of which are entitled to
vote for the election of directors
("voting stock") representing that
percentage of the Company's then
outstanding voting stock (giving
effect to the deemed ownership of
securities by such person or group,
as provided in Rule 13d-3 (d) (1) of
the Act, but not giving effect to
any such deemed ownership of
securities by another person or
group) equal to or greater than
thirty-five percent (35%) of all
such voting stock;
(ii) individuals who constitute the Board
on the date hereof (the "Incumbent
Board") cease for any reason to
constitute at least a majority
thereof. Any person becoming a
director subsequent to such date
whose
5
<PAGE> 6
election, or nomination for
election, is, at any time, approved
by a vote of at least a majority of
the directors comprising the
Incumbent Board shall be considered
as though he were a member of the
Incumbent Board;
(iii) The Company combines with another
person or entity, whether through a
merger, asset sale, reorganization
or otherwise, and (A) any person or
group of persons holds at any time
after such combination, voting stock
equal to or greater than thirty-five
percent (35%) determined by
reference to the voting securities
of the surviving entity, or (B) the
Company's directors, as of the date
immediately before such combination,
constitute less than a majority of
the Board of Directors of the
combined entity.
(h) Code means the Internal Revenue Code of 1986,
including any amendments thereto.
(i) Effective Date means the date this Agreement is
executed by the parties.
(j) Employment Period means a period commencing on
the date of a Change in Control of the Company and ending on the earlier of (i)
the last day of the twenty-fourth month following the month in which the Change
in Control occurs, or (ii) the Executive's Normal Retirement Date.
6
<PAGE> 7
(k) Good Reason means:
(i) any breach of this Agreement by the
Company, including without
limitation (A) any reduction during
the employment period in the amount
of the Executive's base salary or
aggregate benefits as in effect from
time to time, (B) failure to provide
the Executive with the same fringe
benefits that were provided to the
Executive immediately prior to a
Change in Control of the Company, or
with a package of fringe benefits
(including paid vacations) that,
though one or more of such benefits
may vary from those in effect
immediately prior to such a Change
in Control, is substantially
comparable in all material respects
to such fringe benefits taken as a
whole, or (C) any other breach by
the Company of its obligations
contained in Section 6 below;
(ii) without the Executive's express
written consent, the assignment to
the Executive of any duties which
are materially inconsistent with the
Executive's positions, duties,
responsibilities and status
immediately prior to the Change in
Control of the Company, a material
change in the Executive's reporting
responsibilities, titles or offices
as an employee and as in effect
7
<PAGE> 8
immediately prior to the Change in
Control, or a significant reduction,
in the Executive's title, duties or
responsibilities, or in the level of
his support services;
(iii) the relocation of the Executive's principal place of
employment, without the Executive's written consent,
to a location outside the same metropolitan area in
which the Executive was employed at the time of such
Change in Control, or the imposition of any
requirement that the Executive spend more than ninety
business days per year at a location other than such
principal place of employment;
(iv) any purported termination of the Executive's
employment for Cause, Disability or Retirement which
is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (m) below;
or
Upon the occurrence of any of the events described in (i), (ii),
(iii), (iv) or (v) above, the Executive shall give the Company written notice
that such event constitutes Good Reason, and the Company shall thereafter have
thirty (30) days in which to cure. If the Company has not cured in that time,
the event shall constitute Good Reason.
(l) Normal Retirement Date means Normal Retirement Date as defined in
the Peoples Heritage Financial Group, Inc. Retirement Plan.
(m) Notice of Termination. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision relied upon in this Agreement and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under
8
<PAGE> 9
the provision so indicated.
(n) Person or Group means a "Person" or "group," as defined in Section
i (g) (i) hereof.
(o) Year means a calendar year unless otherwise specifically provided.
2. Term of Agreement. This Agreement shall begin on the date first set
forth above and shall continue until the third anniversary of such date,
provided that, on such third anniversary, and each succeeding anniversary, the
term shall be renewed for an additional period of one year unless either party
has given written notice that the term is not so renewed, which notice must be
delivered to the other party at least one year prior to the date of any such
renewal, and further provided that if a Change in Control of the Company occurs
during such term, the term shall in all events continue through the last day of
the Employment Period. This Agreement is also subject to earlier termination as
provided in Section 3 below. All rights and obligations hereunder shall survive
to the extent necessary to the intended enforcement thereof.
3. Termination of Employment Prior to a Change in Control,.
(a) The Company and the Executive shall each retain the right
to terminate the employment of the Executive at any time prior to a Change in
Control of the Company. In the event the Executive's employment is terminated
prior to a Change in Control of the Company, this Agreement shall, except as
provided in Subsection (b) below, be terminated and of no further force and
effect, and any and all rights and obligations of the parties hereunder shall
cease.
(b) If the Executive's employment is terminated by the
Company prior to
9
<PAGE> 10
the occurrence of a Change in Control of the Company, and if it can be shown
that the Executive's termination (i) was at the direction or request of a third
party that had taken steps reasonably calculated to effect the Change in Control
of the Company thereafter, or (ii) otherwise occurred in connection with, or in
anticipation of, the Change in Control of the Company, the Executive shall have
the rights described in Section 7(d) below, as if a Change in Control of the
Company had occurred on the date immediately preceding such termination.
4. Employment Following a Change in Control. If a Change in Control of
the Company occurs when the Executive is employed by the Company, the Company
will continue thereafter to employ the Executive, and the Executive will remain
in the employ of the Company, during the Employment Period, in accordance with
the terms and provisions of this Agreement.
5. Duties. During the Employment Period, the Executive shall serve in
such capacities and positions as may be assigned by the Company consistent with
the Executive's capacities and positions on the Effective Date and shall devote
the Executive's best efforts and all of the Executive's business time, attention
and skill to the business and affairs of the Company, as such business and
affairs now exist and as they may hereafter be conducted.
6. Compensation. During the Employment Period, the Executive shall be
compensated by the Company as follows:
(a) the Executive shall receive, at such intervals and in
accordance with such standard policies as in effect on the date of the Change in
Control of the Company,
10
<PAGE> 11
an annual salary not less than the Executive's annual salary as in effect on the
date of the Change in Control of the Company, subject to adjustment as
hereinafter provided;
(b) the Executive shall be included in all plans providing
incentive compensation to executives, including but not limited to bonus,
deferred compensation, annual or other incentive compensation, supplemental
pension, stock ownership, stock option, stock appreciation, stock bonus and
similar or comparable plans as any such plans are extended by the Company from
time to time to senior corporate officers, key employees and other employees of
comparable status;
(c) the Executive shall be reimbursed, at such intervals and
in accordance with such standard policies as may be in effect on the date of the
Change in Control of the Company, for any and all monies advanced in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company, including travel expenses;
(d) the Executive shall be included, to the extent eligible
thereunder, in any and all plans providing but not limited to, group life
insurance, hospitalization, disability, medical, dental, pension, profit sharing
and stock bonus plans, and shall be provided any and all other benefits and
perquisites made available to other employees of comparable status and position
at the expense of the Company on a comparable basis;
(e) the Executive shall receive annually not less than the
amount of paid vacation and not fewer than the number of paid holidays received
annually immediately prior to the Change in Control of the Company or available
annually to other employees of comparable status and position with the Company;
and
11
<PAGE> 12
(f) During the Employment Period the Board of Directors of the
Company, or an appropriate committee thereof, will consider and appraise, at
least annually, the contributions of the Executive to the Company's operating
efficiency, growth, production and profits and, in accordance with past
practice, due consideration shall be given to the upward adjustment of the
Executive's compensation rate, at least annually, commensurate with increases
generally given to other senior corporate officers and key employees and as the
scope of the Executive's duties expands.
7. Termination of Employment. Any termination by the Company or the
Executive of the Executive's employment during the Employment Period shall be
communicated by written Notice of Termination to the Executive if such notice is
delivered by the Company and to the Company if such notice is delivered by the
Executive. The Notice of Termination shall comply with the requirements of
Section 17 below.
(a) Termination for Disability. If during the Employment
Period, the Executive's employment is terminated on account of the Executive's
disability, as determined under the Company's long-term disability plan (as in
effect on the date of a Change in Control of the Company), the Executive shall
receive any Accrued Benefits, and shall remain eligible for all benefits as
provided pursuant to the terms of any long-term disability programs of the
Company in effect at the time of such termination.
(b) Termination on the Executive's Death. If, during the
Employment Period, the Executive's employment is terminated on account of the
Executive's death, the Executive's estate or his designated beneficiary (or
beneficiaries), as applicable, shall receive all the Executive's Accrued
Benefits.
12
<PAGE> 13
(c) Voluntary Termination or Termination for Cause. If, during
the Employment Period, (i) the Executive shall terminate employment with the
Company other than for Good Reason, or (ii) the Executive's employment is
terminated for Cause, the Executive shall receive from the Company his Accrued
Benefits.
(d) Termination by the Company Without Cause or by the
Executive for Good Reason. If, during the Employment Period, the Executive's
employment with the Company is terminated by the Company other than for Cause,
or by the Executive for Good Reason, then:
(i) the Executive shall be entitled to receive
from the Company his Accrued Benefit, except
that, for this purpose, Accrued Benefit
shall not include any entitlement to
severance under any Company severance policy
generally applicable to the Company's
salaried employees;
(ii) the Executive shall receive from the
Company, no less than ten days following
termination of his employment, a lump sum
payment (the "Termination Payment") equal to
three times the Executive's Annual
Compensation;
(iii) all rights under any equity or long-term
incentive plan shall be fully vested;
(iv) rights, if any, to supplemental pension
shall be fully vested; and
(v) the Executive shall continue to be covered
at the expense of the Company by the same or
equivalent hospital, medical, dental,
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accident, disability and life insurance
coverage as in effect for the Executive
immediately prior to termination of his
employment, until the earlier of (A)
thirty-six months following termination of
employment, or (B) the date the Executive
has commenced new employment and has thereby
become eligible for comparable benefits.
8. Certain Supplemental Payments by the Company.
(a) In the event the Executive's employment is terminated
pursuant to Section 7(d) above, and if in connection therewith it is determined
that (A) part or all of the compensation and benefits to be paid to the
Executive constitute "parachute payments" under Section 28OG of the Code, and
(B) the payment thereof will cause the Executive to incur excise tax under
Section 4999 of the Code, the Company, on or before the date for payment of such
excise tax, shall pay the Executive, in lump sum, an amount (the "Gross-Up
Amount") such that, after payment of all federal, state and local income tax and
any additional excise tax under Section 4999 of the Code in respect of the
Gross-Up Amount payment, the Executive will be fully reimbursed for the amount
of such excise tax.
(b) The determination of the Parachute Amount, the Base Amount
and the Gross-Up Amount, as well as any other calculations necessary to
implement this Section 8 shall be made by a nationally recognized accounting or
benefits consulting firm selected by the Executive and reasonably satisfactory
to the Company and which has not performed services, other than minor indirect
or incidental services, for either the Company or the Executive for three years
prior to the date the Consultant is retained for this purpose. The
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Consultant's fee shall be paid by the Company.
(c) As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the Executive under
this Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such amounts as become due to the Executive under this
Agreement.
(d) As a result of the uncertainty in the application of
Section 28OG of the Code at the time of an initial determination hereunder, it
is possible that payments will not have been made by the Company which should
have been made under clause (a) of this Section 8 ("Underpayment"). In the event
that there is a final determination by the Internal Revenue Service, or a final
determination by a court of competent jurisdiction, that an Underpayment has
been made and the Executive thereafter is required to make any payment of an
excise tax, income tax, any interest or penalty, the accounting or benefits
consulting firm selected under clause (b) above shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
9. Further Obligations of the Executive. During and following the
Executive's employment by the Company, the Executive shall hold in confidence
and not directly or indirectly disclose or use or copy or make lists of any
confidential information or proprietary data of the Company, except to the
extent authorized in writing by the Board of Directors of the Company or
required by any court or administrative agency, other than to an employee of the
Company or a person to whom disclosure is reasonably necessary or
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<PAGE> 16
appropriate in connection with the performance by the Executive of duties as an
executive of the Company. Confidential information shall not include any
information known generally to the public or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that of the Company. All records, files, documents and
materials or copies thereof, relating to the Company's business which the
Executive shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company and shall be promptly returned to the Company
upon termination of employment with the Company.
10. Expenses and Interest. If, after a Change in Control of the
Company, a good faith dispute arises with respect to the enforcement of the
Executive's rights under this Agreement, or if any legal or arbitration
proceeding shall be brought in good faith to enforce or interpret any provision
contained herein, or to recover damages for breach hereof, the Executive shall
recover from the Company any reasonable attorney's fees and necessary costs and
disbursements incurred as a result of such dispute, and prejudgment interest on
any money judgment or arbitration award obtained by the Executive calculated at
the rate of interest announced by Peoples Heritage Bank, or the successor
thereto, from time to time as its prime rate from the date that payments to him
should have been made under this Agreement.
11. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the compensation and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any set
off, counterclaim, recoupment,
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<PAGE> 17
defense or other right which the Company may have against him or anyone else.
All amounts payable by the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by the Company shall be final and
the Company will not seek to recover all or any part of such payment from the
Executive or from whomsoever may be entitled thereto, for any reason whatever
except as provided in Section 8(d) above.
12. Successors.
(a) (i) If the Company sells, assigns, or transfers
all or substantially all of its business and
assets to any Person, excluding Affiliates
of the Company, or if the Company merges
into or consolidates or otherwise combines
with any Person which is a continuing or
successor entity, then the Company shall
assign all of its rights, title and interest
in this Agreement as of the date of such
event to the Person which is either the
acquiring or successor Company, and such
Person shall assume in writing and perform
from and after the date of such written
assignment all of the terms, conditions and
provisions imposed by this Agreement upon
the Company. Failure of the Company to
obtain such written assignment shall be a
breach of this Agreement. In case of such
assignment by the Company and of written
assumption and agreement by such Person, all
further rights as well as all other
obligations of the Company under this
Agreement thenceforth shall cease and
terminate and thereafter the
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<PAGE> 18
expression "the Company" wherever used
herein shall be deemed to mean such Person
or Persons.
(ii) This Agreement and all rights of the
Executive shall inure to the benefit of and
be enforceable by the Executive's personal
or legal representatives, estates,
executors, administrators, heirs and
beneficiaries. All amounts payable to the
Executive hereunder shall be paid, in the
event of the Executive's death, to the
Executive's estate, heirs and
representatives. This Agreement shall inure
to the benefit of, be binding upon and be
enforceable by, any successor, surviving or
resulting Company or other entity to which
all or substantially all of the Company's
business and assets shall be transferred.
This Agreement shall not be terminated by
the voluntary or involuntary dissolution of
the Company.
13 Enforcement. The provisions of this Agreement shall be regarded as
divisible, and if any such provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
14. Amendment. This Agreement may not be amended or modified at any
time except by a written instrument executed by the Company and the Executive if
such amendment or modification occurs before any Change in Control, or by the
Executive and the Company after any Change in Control.
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15. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes, or charge which it is from time to time required to withhold. The
Company shall be entitled to rely on an opinion of counsel if any question as to
the amount or requirement of any such withholding shall arise.
16. Governing law: Arbitration. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Maine. Any dispute arising out of this Agreement shall be
determined by arbitration in the State of Maine under the rules of the American
Arbitration Association then in effect and judgment upon any award pursuant to
such arbitration may be enforced in any court having jurisdiction thereof.
17. Notice. Notices given pursuant to this Agreement shall be in
writing and shall be deemed given when received and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested,
addressee only postage prepaid, to the Company at:
Peoples Heritage Financial Group, Inc.
P.O. Box 9540
One Portland Square
Portland, ME 04112
Attn: Clerk
or if to the Executive, at the address set forth below the Executive's signature
line of this Agreement, or to such other address as the party to be notified
shall have given to the other.
18. No Waiver. No waiver by any party at any time of any breach by
another party of, or compliance with, any condition or provision of this
Agreement to be performed
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by another party shall be deemed a waiver of similar or dissimilar provisions or
conditions at any time.
19. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By: /s/ Peter J. Verrill
---------------------------------------------
Attest: /s/ Carol L. Mitchell
-----------------------------------
Secretary
/s/ Peter J. Verrill
-----------------------------------
Executive
Address: 57 U.S. Route 1
Falmouth, Maine 04105
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<PAGE> 1
EXHIBIT 10(e)
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into the 30th day of June
1995, by and between Peoples Heritage Financial Group, Inc. (the "Company"), and
John E. Menario (the "Executive"), and shall become effective as provided in
Section 1, below.
WITNESSETH
WHEREAS, the Executive has served the Company as Senior Executive Vice
President and Chief Operating Officer; and
WHEREAS, the Executive desires to alter his employment status so as to
reduce his annual time commitment to the Company while remaining an active
employee;
WHEREAS, the Company wishes to continue the Executive's employment on
that basis; and
WHEREAS, in connection therewith, the Company and the Executive (the
"Parties") desire to amend the Severance Agreement between the Company and the
Executive dated January 1, 1995 (the "Severance Agreement") pursuant to Section
14 thereof:
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Parties
agree as follows:
1. Term of Employment.
This Agreement shall become fully effective on February 1,
1996 (the "Effective Date"), if the Executive is then in the employ of the
Company. Once this Agreement becomes effective, the Executive's employment
hereunder shall run from the Effective Date until January 31, 2001 (the
"Termination Date"), subject to earlier termination as provided in Section 7
below (the "Employment Term").
2. Position, Duties, Responsibilities.
During the Employment Term, the Executive shall serve as
Special Assistant to the President with such duties and responsibilities as may
be assigned from time to time by the President and Chief Executive Officer of
the Company, to whom the Executive shall report. The Executive shall be employed
for a period of 1,000 hours during any calendar year. The exact schedule for the
performance of the Executive's services shall be established in good faith by
the Chief Executive Officer, it being understood that the Executive shall reside
out of state during approximately three months of the year and that during such
period he shall be subject to limited reasonable travel demands.
<PAGE> 2
3. Salary.
During the Employment Term, the Executive shall be paid salary
("Salary") at an annual rate of Ninety Thousand Dollars ($90,000), payable in
accordance with the Company's standard payroll practices. The Executive's salary
shall be reviewed annually for increase in the sole judgment of the Chief
Executive Officer, provided that in all events the Executive's salary shall be
increased by a percentage not less than the average percentage increase in
salary applicable to Executive Vice Presidents of the Company.
4. Annual Bonus.
The Executive shall have an annual target bonus opportunity
stated as a percentage of his salary for the bonus year (the "Annual Bonus").
The percentage shall be the same as the percentage of "mid-point" salaries set
as the target bonus opportunity applicable to Executive Vice Presidents for that
year. Actual bonus shall be determined as per the Company's Short Term Incentive
Compensation Plan.
5. Stock Options.
The Executive shall be granted stock options at such times and
pursuant to such terms as are applicable to Executive Vice Presidents of the
Company generally. The number of shares subject to any such option ("Option
Shares"), shall be equal to one half the average number of Option Shares
applicable to simultaneous grants to such Executive Vice Presidents.
6. Other Benefits.
The Company shall provide the Executive (i) continued
crediting of "employment" under the Executive's Supplemental Retirement
Agreement (the "Supplemental Pension), and (ii) such benefits and perquisites as
are provided under the Company's Plans applicable to part-time employees (the
"Plans"). The Executive shall be reimbursed for all reasonably incurred business
expenses properly accounted for.
7. Termination of Employment.
7.1 Disability or Death.
(a) Subject to Section 7.4 below, if the Executive's
employment is terminated due to the Executive's Disability, as defined in
Subsection (b) below, or the death of the Executive, then the Executive, his
guardian or his estate, as applicable, shall be entitled to:
(i) Salary and benefits earned to the date of
termination of employment;
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(ii) any unpaid Annual Bonus earned for the
performance year prior to the performance year in
which the Executive's employment terminates; and
(iii) other benefits as are provided under the Plans
of the Company as then in effect.
(b) For purposes of this Agreement, "Disability" shall mean
the inability of the Executive to perform all the material and substantial
duties called for in this Agreement as a result of sickness or injury which
commenced while the Executive was employed by the Company. Disability shall be
determined by a physician selected by the Company.
(c) The amounts described in clauses (i) and (ii) of
subsection 7.1 (a) above shall each be paid as soon as practicable once the
amount thereof can be determined.
7.2 Termination by the Company without Cause.
(a) Subject to Section 7.4 below, the Company may terminate
the Executive's employment at any time without Cause (as hereinafter defined),
in which case the Executive shall be entitled to:
(i) Salary and benefits earned to the date of
termination of employment;
(ii) continued Salary through the earlier of (A) the
end of the twelfth full calendar month after the date
of such termination of employment, or (B) January 31,
2001 (the "Continuation Period");
(iii) continued crediting of employment under the
Supplemental Pension for the Continuation Period;
(iv) coverage for the Continuation Period under the
Plans, to the extent practicable under the provisions
of the Plans, applicable insurance policies and law,
at the same cost, if any, to the Executive as was
applicable during the Employment Term (it being
understood that the Executive may be entitled under
Federal law to continue certain coverages at his own
cost after the end of the Continuation Period);
(v) any unpaid Annual Bonus earned for the
performance year prior to the performance year in
which his employment terminates;
(vi) Pro-rata Annual Bonus, determined as provided in
subsection (b) below, for the performance year in
which the Executive's employment terminates.
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<PAGE> 4
(b) Pro-rata Annual Bonus shall mean the Annual Bonus as
otherwise determined for the applicable year, multiplied by a fraction, the
numerator of which is the number of full weeks of employment worked by the
Executive in the applicable year and the denominator of which is 52.
(c) The amounts described in clauses (i), (iii) and (iv) of
subsection 7.2 (a) above shall each be paid as soon as practicable once the
amount thereof can be determined. The amounts described in clause (ii) above
shall be paid pursuant to standard payroll practices for Executive Vice
Presidents as in effect from time to time.
7.3 Voluntary Termination or Termination by the Company
for Cause.
(a) Subject to Section 7.4 below, if the Executive terminates
employment voluntarily, or the Company terminates the Executive's employment for
Cause, as defined in Subsection (b) below, the Executive shall be entitled only
to:
(i) Salary and benefits earned to the date of
termination of employment; and
(ii) any unpaid Annual Bonus earned for the
performance year prior to the performance year in
which his employment terminates.
(b) Cause shall mean:
(i) the Executive's conviction of, or plea of nolo
contendere to a felony;
(ii) the Executive's willful and repeated neglect of
duties which continues after written notice; or
(iii) the Executive's willful or gross misconduct in
the performance of duties.
(c) The amounts described in clauses (i) and (ii) of (a)
above, shall each be paid as soon as practicable once the amount thereof can be
determined.
7.4 Severance Agreement.
(a) On the Effective Date, the Severance Agreement shall,
without further action by the Parties, be amended and restated as set forth in
Attachment A.
(b) Notwithstanding any other provision of this Agreement, if
the Executive's employment with the Company is terminated under circumstances
entitling him to compensation or benefits under the restated Severance
Agreement, then all rights and
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<PAGE> 5
obligations of either party under this Agreement shall terminate and the
Executive's rights in respect of such termination shall be determined under the
restated Severance Agreement.
8. Confidential Information.
(a) The Executive by reason of his employment with the Company
may acquire Confidential Information (as hereinafter defined), concerning the
operation of the Company or its subsidiaries (collectively, "the Group"), the
use or disclosure of which would cause the company substantial loss and damages
which could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, the Executive agrees that he will not (directly or
indirectly) at any time, whether during or after the Employment Term, (i)
knowingly use for an improper personal benefit any Confidential Information that
he may learn or has learned by reason of his employment with the Company or (ii)
disclose any such Confidential Information to any person except (A) in the
performance of his obligations to the Group hereunder, (B) as required by
applicable law, (C) in connection with the enforcement of his rights under this
Employment Agreement or (D) with the prior consent of the Board. As used herein,
"Confidential Information" includes information with respect to the Group's
confidential reports, financial information, business plans, prospects or
opportunities; provided, however, that such term shall not include any
information that (x) is or becomes generally known or available other than as a
result of a disclosure by the Executive or (y) is or becomes known or available
to the Executive on a nonconfidential basis from a source (other than the Group)
which, to the Executive's knowledge, is not prohibited from disclosing such
information to the Executive by a legal, contractual, fiduciary or other
obligation to the Group.
(b) The Executive confirms that all Confidential Information
is the exclusive property of the Group. All business records, papers and
documents kept or made by the Executive relating to the business of the Group
shall be and remain the property of the Group during the Employment Term and all
times thereafter. Upon the termination of his employment with the Company or
upon the request of the Group at any time, the Executive shall promptly deliver
to the Group, and shall retain no copies of, any written materials, records and
documents made by the Executive or coming into his possession concerning the
business or affairs of the Group other than personal notes or correspondence of
the Executive not containing Confidential Information.
9. Non-Competition.
(a) During the Employment Term, and, if the Executive's
employment is terminated voluntarily by the Executive as described in Section
7.3 above, for a period of one year thereafter (the "Restricted Period"), the
Executive shall not, unless he receives the prior written consent of the Board,
own any interest in, manage, operate, join, control, or participate in or be
connected with, as an officer, employee, partner, stockholder, consultant or
otherwise, any person engaged in the business of banking or acting as a trust
company, or any person who otherwise competes with any member of the Group, in
any
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<PAGE> 6
state in which any member of the Group maintains or maintained an office during
the period of the Executive's employment. Nothing herein shall prohibit the
Executive from acquiring or holding any issue of stock or securities of any
person that has any securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended, listed on a national securities exchange or
quoted on the automated quotation system of the National Association of
Securities Dealers, Inc. so long as (i) the Executive is not deemed to be an
"affiliate" of such person as such term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act of 1933, as amended, and (ii) the Executive,
members of his immediate family or persons under his control do not own or hold
more than 5% of any voting securities of any such person.
(b) The Executive has carefully read and considered the
provisions of this Section 9 and, having done so, agrees that the restrictions
set forth in this Section 9 (including the Restricted Period, scope of activity
to be restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interest of the Group, its
officers, directors, employees, creditors and shareholders. The Executive
understands that the restrictions contained in this Section 9 may limit his
ability to engage in a business similar to the Group's business, but
acknowledges that he will receive sufficient remuneration and other benefits
from the Company hereunder to justify such restrictions.
(c) During the Restricted Period, the Executive shall not,
whether for his own account or for the account of any other person (excluding
the Group), intentionally (i) solicit, endeavor to entice or induce any employee
of the Group to terminate his employment with any member of the Group or accept
employment with anyone else or (ii) interfere in a similar manner with the
business of the Group.
(d) In the event that any provision of this Section 9 relating
to the Restricted Period and/or the areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or areas of
restriction such court deems reasonable and enforceable, the Restricted Period
and/or areas of restriction deemed reasonable and enforceable by the court shall
become and thereafter be the maximum time period and/or areas of restriction.
10. Breach of Section 8 or Section 9.
The Executive acknowledges that a breach of any of the
covenants contained in Section 8 and Section 9 hereof may result in material,
irreparable injury to the Company for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of such a breach, all obligations of the Company to the
Executive, including its obligations under this Agreement, shall cease, and the
Company shall be entitled to obtain a temporary restraining order and/or a
preliminary or permanent injunction restraining the Executive from engaging in
activities prohibited by Section 8 or Section 9 hereof or such other relief as
may be required to
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<PAGE> 7
enforce any of the covenants contained in Section 8 or Section 9 hereof.
11. Withholding.
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Executive, his spouse, his
estate or beneficiaries, shall be subject to withholding of such amounts
relating to taxes as the Company may reasonably determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts in whole or in part, the Company may, in its sole discretion, accept
other provisions for payment of taxes as required by law, provided it is
satisfied that all requirements of law affecting its responsibilities to
withhold such taxes have been satisfied.
12. Assignability; Binding Nature.
(a) If the Company sells, assigns, or transfers all or
substantially all of its business and assets to any Person (as defined under
Section 3(a)(9) of the Securities Exchange Act of 1934, as amended), excluding
affiliates of the Company, or if the Company merges into or consolidates or
otherwise combines with any Person which is a continuing or successor entity,
then the Company shall assign all of its rights, title and interest in this
Agreement as of the date of such event to the Person which is either the
acquiring or successor Company, and such Person shall assume in writing and
perform from and after the date of such written assignment all of the terms,
conditions and provisions imposed by this Agreement upon the Company. Failure of
the Company to obtain such written assignment shall be a breach of this
Agreement. In case of such assignment by the Company and of written assumption
and agreement by such Person, all further rights as well as all other
obligations of the Company under this Agreement thenceforth shall cease and
terminate and thereafter the expression "the Company" wherever used herein shall
be deemed to mean such Person or Persons.
(b) This Agreement and all rights of the Executive shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
All amounts payable to the Executive hereunder shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs and representatives.
This Agreement shall inure to the benefit of, be binding upon and be enforceable
by, any successor, surviving or resulting Company or other entity to which all
or substantially all of the Company's business and assets shall be transferred.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company.
13. Entire Agreement.
This Agreement, together with the Severance Agreement,
contains the entire agreement between the Parties concerning the subject matter
hereof and supersedes all prior
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<PAGE> 8
agreements, understandings, discussions, negotiations, and undertakings, whether
written or oral, between the Parties with respect thereto.
14. Amendments and Waivers.
This Agreement may not be modified or amended except by a
writing signed by both Parties. A Party may waive compliance by the other Party
with any term or provision of this Agreement, or any part thereof, provided that
the term or provision, or part thereof, is for the benefit of the waiving Party.
Any waiver will be limited to the facts or circumstances giving rise to the
noncompliance and will not be deemed either a general waiver or modification
with respect to the term or provision, or part thereof, being waived, or as to
any other term or provision of this Agreement, nor will it be deemed a waiver of
compliance with respect to any other facts or circumstances then or thereafter
occurring.
15. Notice.
Any notice given hereunder shall be in writing and shall be
deemed given when delivered personally or by courier, or five days after being
mailed, certified or registered mail, duly addressed to the Party concerned at
the address indicated below or at such other address as such Party may
subsequently provide, in accordance with the notice and delivery provisions of
this Section 15:
To the Company: Peoples Heritage Financial Group, Inc.
One Portland Square
PO Box 9540
Portland, ME 04112-9540
ATTN.: Clerk
With a copy to: Stephan G. Bachelder
Moon, Moss, McGill & Bachelder, P.A.
10 Free Street, PO Box 7250
Portland, ME 04112-7250
To the Executive: John E. Menario
215 East Grand Avenue
Old Orchard Beach, ME 04046
16. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement will be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
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17. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
18. References.
In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his legal representative or,
where appropriate, to his beneficiary or beneficiaries.
19. Governing Law.
This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Maine without reference
to the principles of conflicts of law.
20. Headings.
The headings of paragraphs contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement on the date first written above.
PEOPLES HERITAGE FINANCIAL
GROUP, INC.
By: /s/ William J. Ryan
-------------------------------
Chairman, President and Chief
Executive Officer
Attest: /s/ Carol L. Mitchell
-------------------------------
Secretary
/s/ John E. Menario
----------------------------------------
Executive
Address: 215 E. Grand Avenue
------------------------------
Old Orchard Beach, Maine 04064
------------------------------
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ATTACHMENT A
JOHN E. MENARIO SEVERANCE AGREEMENT
This AGREEMENT, made and entered into by and among PEOPLES HERITAGE
FINANCIAL GROUP, INC. (the "Company") and JOHN E. MENARIO (the "Executive");
W I T N E S S E T H:
WHEREAS, the Executive is employed by the Company in a key executive
capacity and possesses intimate knowledge of the business and affairs of the
Company; and
WHEREAS, the Company desires to ensure, insofar as possible, that it
will continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill; and
WHEREAS, the Company recognizes that circumstances may arise in which a
change in the control of the Company occurs, thereby causing uncertainty of
employment without regard to the Executive's competence or past contributions;
and
WHEREAS, the Company and the Executive wish to provide reasonable
security to the Executive against changes in the Executive's relationship with
the Company in the event of such change in control;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Definitions.
(a) Accrued Benefit means:
(i) all salary earned or accrued through the
date the Executive's employment is terminated;
(ii) reimbursement for any and all monies advanced in
connection with the Executive's employment for reasonable and necessary expenses
incurred by the Executive through the date the Executive's employment is
terminated;
(iii) any and all other compensation previously
earned and deferred at the election of the Executive or pursuant to any deferred
compensation plans then in effect together with any interest or desired earnings
thereon;
(iv) annual bonus, if any, accrued for a Year prior
to the Year in which employment terminates, but not yet paid to the Executive,
under any bonus or incentive compensation plan or plans in which the Executive
is a participant;
<PAGE> 11
(v) a pro rata portion of the maximum bonus payable
to the Executive for the Year in which employment terminates under any bonus or
incentive compensation plan or plans in which the Executive is a participant,
determined as if the Executive had remained in employment for the full Year and
prorated based upon weeks, including partial weeks, of employment during that
Year;
(vi) all other payments and benefits to which the
Executive may be entitled under the terms of any applicable compensation
arrangement or benefit plan or program of the Company.
(b) Act means the Securities Exchange Act of 1934, as
amended.
(c) Affiliate of any specified persons means any other person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under direct or indirect common control with such
specified person. For the purposes of this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(d) Annual Compensation means the sum of:
(i) the Executive's annual salary at the rate in
effect on the date of a termination of employment as described in Section 3 or
in Section 7(d) (or, in the event of a termination for Good Reason under Section
1(k)(i)(A) below, the annual salary as in effect immediately before the actions
giving rise to Good Reason); plus
(ii) the greatest of the bonuses either paid or
accrued in either the Year of the Change in Control or the immediately preceding
Year (except that, only one half of any bonus accrued prior to 1996 shall be
taken into account).
(e) Base Amount means an amount equal to the Executive's
Annualized Includable Compensation for the Base Period as defined in Section
280G(d)(1) and (2) of the Code (as hereinafter defined).
(f) Cause means (i) the executive's conviction of, or plea of
nolo contendere to, a felony; or (ii) willful and intentional misconduct,
willful neglect, or gross negligence, in the performance of the Executive's
duties, which has caused a demonstrable and serious injury to the Company,
monetary or otherwise.
The Executive shall be given written notice that the
Company intends to terminate his employment for Cause. Such written notice shall
specify the particular acts, or failures to act, on the basis of which the
decision to so terminate employment was made.
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<PAGE> 12
In the case of a termination for Cause as described
in Clause (ii), above, the Executive shall be given the opportunity within 30
days of the receipt of such notice to meet with the Board to defend such acts,
or failures to act, prior to termination. The Company may suspend the
Executive's title and authority pending such meeting, and such suspension shall
not constitute "Good Reason," as defined in subsection (k) below.
(g) Change in Control of the Company shall mean a Change in
Control of a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A promulgated under the Act or any
successor thereto, provided that without limiting the foregoing, a Change in
Control of the Company also shall be deemed to have occurred if:
(i) any "person" (as defined under Section 3(a)(9) of
the Act) or "group" of persons (as provided under Rule 13d-3 of the Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 or otherwise under the
Act), directly or indirectly (including as provided in Rule 13d-3(d)(1) of the
Act), of capital stock of the Company the holders of which are entitled to vote
for the election of directors ("voting stock") representing that percentage of
the Company's then outstanding voting stock (giving effect to the deemed
ownership of securities by such person or group, as provided in Rule 13d-
3(d)(1) of the Act, but not giving effect to any such deemed ownership of
securities by another person or group) equal to or greater than thirty-five
percent (35%) of all such voting stock;
(ii) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof. Any person becoming a director subsequent to such date whose
election, or nomination for election, is, at any time, approved by a vote of at
least a majority of the directors comprising the Incumbent Board shall be
considered as though he were a member of the Incumbent Board;
(iii) The Company combines with another person or
entity, whether through a merger, asset sale, reorganization or otherwise, and
(A) any person or group of persons holds at any time after such combination,
voting stock equal to or greater than thirty-five percent (35%) determined by
reference to the voting securities of the surviving entity, or (B) the Company's
directors, as of the date immediately before such combination, constitute less
than a majority of the Board of Directors of the combined entity.
(h) Code means the Internal Revenue Code of 1986, including
any amendments thereto.
(i) Effective Date means February 1, 1996.
(j) Employment Period means a period commencing on the date of
a Change in Control of the Company and ending on the earlier
of (i) the last
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<PAGE> 13
day of the twenty-fourth month following the month in which
the Change in Control occurs, or (ii) the Termination Date
under the Employment Agreement effective January 1, 1996
between the Company and the Executive (the "Employment
Agreement").
(k) Good Reason means:
(i) any breach of this Agreement by the Company,
including without limitation (A) any reduction during the employment period in
the amount of the Executive's base salary or aggregate benefits as in effect
from time to time, (B) failure to provide the Executive with the same fringe
benefits that were provided to the Executive immediately prior to a Change in
Control of the Company, or with a package of fringe benefits (including paid
vacations) that, though one or more of such benefits may vary from those in
effect immediately prior to such a Change in Control, is substantially
comparable in all material respects to such fringe benefits taken as a whole, or
(C) any other breach by the Company of its obligations contained in Section 6
below. Notwithstanding the above, the changes in the terms and conditions of the
Executive's employment occurring as of the Effective Date pursuant to the
Employment Agreement shall not constitute Good Reason, and the terms and
conditions applicable to the Executive's employment under the Employment
Agreement as of the Effective Date, shall constitute the basis for determining
whether an event constituting Good Reason shall have occurred thereafter.
(ii) without the Executive's express written consent,
the assignment to the Executive of any duties which are materially inconsistent
with the Executive's positions, duties, responsibilities and status immediately
prior to the Change in Control of the Company, a material change in the
Executive's reporting responsibilities, titles or offices as an employee and as
in effect immediately prior to the Change in Control, or a significant
reduction, in the Executive's title, duties or responsibilities, or in the level
of his support services;
(iii) the relocation of the Executive's principal
place of employment, without the Executive's written consent, to a location
outside the same metropolitan area in which the Executive was employed at the
time of such Change in Control, or the imposition of any requirement that the
Executive spend more than ninety business days per year at a location other than
such principal place of employment; or
(iv) any purported termination of the Executive's
employment for Cause, Disability or Retirement which is not effected pursuant to
a Notice of Termination satisfying the requirements of paragraph (l) below.
Upon the occurrence of any of the events described in (i),
(ii), (iii), or (iv) above, the Executive shall give the Company written notice
that such event constitutes Good Reason, and the Company shall thereafter have
thirty (30) days in which to cure. If the Company has not cured in that time,
the event shall constitute Good Reason.
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<PAGE> 14
(l) Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision relied upon in this Agreement and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(m) Person or Group means a "person" or "group," as defined in
Section 1(g)(i) hereof.
(n) Year means a calendar year unless otherwise specifically
provided.
2. Term of Agreement. This Agreement shall begin on the Effective Date
and shall continue until December 31, 2000, provided that, if a Change in
Control of the Company occurs during such term, the term shall in all events
continue through the last day of the Employment Period. This Agreement is also
subject to earlier termination as provided in Section 3 below. All rights and
obligations hereunder shall survive to the extent necessary to the intended
enforcement thereof.
3. Termination of Employment Prior to a Change in Control.
(a) The Company and the Executive shall each retain the right
to terminate the employment of the Executive at any time prior to a Change in
Control of the Company, subject to the Employment Agreement. In the event the
Executive's employment is terminated prior to a Change in Control of the
Company, this Agreement shall, except as provided in Subsection (b) below, be
terminated and of no further force and effect, and any and all rights and
obligations of the parties hereunder shall be determined solely under the
Employment Agreement.
(b) If the Executive's employment is terminated by the Company
prior to the occurrence of a Change in Control of the Company, and if it can be
shown that the Executive's termination (i) was at the direction or request of a
third party that had taken steps reasonably calculated to effect the Change in
Control of the Company thereafter, or (ii) otherwise occurred in connection
with, or in anticipation of, the Change in Control of the Company, the Executive
shall have the rights described in Section 7(d) below, as if a Change in Control
of the Company had occurred on the date immediately preceding such termination.
4. Employment Following a Change in Control. If a Change in Control of
the Company occurs when the Executive is employed by the Company, the Company
will continue thereafter to employ the Executive, and the Executive will remain
in the employ of the Company, during the Employment Period, in accordance with
the terms and provisions of this Agreement and the Employment Agreement.
5. Duties. During the Employment Period, the Executive shall serve in
such capacities and positions as may be assigned by the Company consistent with
the
5
<PAGE> 15
Employment Agreement, and the Executive shall devote his best efforts, attention
and skill to the business and affairs of the Company, as such business and
affairs now exist and as they may hereafter be conducted.
6. Compensation. During the Employment Period, the Executive shall be
compensated by the Company as follows:
(a) the Executive shall receive, at such intervals and in
accordance with such standard policies as in effect on the date of the Change in
Control of the Company, an annual salary not less than the Executive's annual
salary as in effect under the Employment Agreement;
(b) the Executive shall, subject to the Employment Agreement,
be included in all plans providing incentive compensation to executives,
including but not limited to bonus, deferred compensation, annual or other
incentive compensation, supplemental pension, stock ownership, stock option,
stock appreciation, stock bonus and similar or comparable plans as any such
plans are extended by the Company from time to time to senior corporate
officers, key employees and other employees of comparable status;
(c) the Executive shall be reimbursed, at such intervals and
in accordance with such standard policies as may be in effect on the date of the
Change in Control of the Company, for any and all monies advanced in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company, including travel expenses;
(d) the Executive shall be included, to the extent eligible
thereunder, and subject to the Employment Agreement, in any and all plans
providing but not limited to, group life insurance, hospitalization, disability,
medical, dental, pension, profit sharing and stock bonus plans, and shall be
provided any and all other benefits and perquisites made available to other
employees of comparable status and position at the expense of the Company on a
comparable basis;
(e) During the Employment Period the Executive's salary shall
be subject to adjustment as per the Employment Agreement.
7. Termination of Employment. Any termination by the Company or the
Executive of the Executive's employment during the Employment Period shall be
communicated by written Notice of Termination to the Executive if such notice is
delivered by the Company and to the Company if such notice is delivered by the
Executive. The Notice of Termination shall comply with the requirements of
Section 17 below.
6
<PAGE> 16
(a) Termination for Disability. If, during the Employment
Period, the Executive's employment is terminated on account of the Executive's
Disability, as defined below, this Agreement shall terminate and the Executive's
rights shall be determined under the Employment Agreement. For purposes of this
Agreement, "Disability" shall have the meaning set forth in the Employment
Agreement.
(b) Termination on the Executive's Death. If, during the
Employment Period, the Executive's employment is terminated on account of the
Executive's death, this Agreement shall terminate and the Executive's rights
shall be determined under the Employment Agreement.
(c) Voluntary Termination or Termination for Cause. If, during
the Employment Period, (i) the Executive terminates employment with the Company
other than for Good Reason, or (ii) the Executive's employment is terminated for
Cause, the Executive shall receive from the Company his Accrued Benefits.
(d) Termination by the Company Without Cause or by the
Executive for Good Reason. If, during the Employment Period, the Executive's
employment with the Company is terminated by the Company other than for Cause,
or by the Executive for Good Reason, then:
(i) the Executive shall be entitled to receive from
the Company his Accrued Benefit, except that, for this purpose, Accrued Benefit
shall not include any entitlement to severance under any Company severance
policy generally applicable to the Company's salaried employees;
(ii) the Executive shall receive from the Company, no
less than ten (10) days following termination of his employment, a lump-sum
payment equal to his Annual Compensation multiplied by the lesser of (A) 2, or
(B) a fraction, the numeration of which is the number of months remaining
through December 31, 2000 (the "Employment Agreement Term") and the denominator
of which is 12;
(iii) all rights under any equity or long-term
incentive plan shall be fully vested to the extent such rights would have become
vested had the Executive remained in employment through the Employment Agreement
Term;
(iv) rights, if any, to supplemental pension shall be
fully vested; and
(v) the Executive shall continue to be covered at the
expense of the Company by the same or equivalent hospital, medical, dental,
accident, disability and life insurance coverage as in effect for the Executive
immediately prior to termination of his employment, until the earliest of (A)
twenty-four months following termination of employment, (B) the date the
Executive has commenced new employment and has thereby become eligible for
comparable benefits, and (C) the end of the Employment Agreement
7
<PAGE> 17
Term.
8. Certain Supplemental Payments by the Company.
(a) In the event the Executive's employment is terminated
pursuant to Section 7(d) above, and if in connection therewith it is determined
that (A) part or all of the compensation and benefits to be paid to the
Executive constitute "parachute payments" under Section 280G of the Code, and
(B) the payment thereof will cause the Executive to incur excise tax under
Section 4999 of the Code, the Company, on or before the date for payment of such
excise tax, shall pay the Executive, in lump sum, an amount (the "Gross-Up
Amount") such that, after payment of all federal, state and local income tax and
any additional excise tax under Section 4999 of the Code in respect of the
Gross-Up Amount payment, the Executive will be fully reimbursed for the amount
of such excise tax.
(b) The determination of the Parachute Amount, the Base Amount
and the Gross-Up Amount, as well as any other calculations necessary to
implement this Section 8 shall be made by a nationally recognized accounting or
benefits consulting firm selected by the Executive and reasonably satisfactory
to the Company and which has not performed services, other than minor indirect
or incidental services, for either the Company or the Executive for three years
prior to the date the Consultant is retained for this purpose. The Consultant's
fee shall be paid by the Company.
(c) As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the Executive under
this Agreement and shall promptly pay to or distribute to or for the benefit of
the Executive in the future such amounts as become due to the Executive under
this Agreement.
(d) As a result of the uncertainty in the application of
Section 280G of the Code at the time of an initial determination hereunder, it
is possible that payments will not have been made by the Company which should
have been made under clause (a) of this Section 8 ("Underpayment"). In the event
that there is a final determination by the Internal Revenue Service, or a final
determination by a court of competent jurisdiction, that an Underpayment has
been made and the Executive thereafter is required to make any payment of an
excise tax, income tax, any interest or penalty, the accounting or benefits
consulting firm selected under clause (b) above shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
9. Further Obligations of the Executive. During and following the
Executive's employment by the Company, the Executive shall hold in confidence
and not directly or indirectly disclose or use or copy or make lists of any
confidential information or proprietary data of the Company, except to the
extent authorized in writing by the Board of Directors of the Company or
required by any court or administrative agency, other than to an employee of the
Company or a person to whom disclosure is reasonably necessary or
8
<PAGE> 18
appropriate in connection with the performance by the Executive of duties as an
executive of the Company. Confidential information shall not include any
information known generally to the public or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that of the Company. All records, files, documents and
materials or copies thereof, relating to the Company's business which the
Executive shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company and shall be promptly returned to the Company
upon termination of employment with the Company.
10. Expenses and Interest. If, after a Change in Control of the
Company, a good faith dispute arises with respect to the enforcement of the
Executive's rights under this Agreement, or if any legal or arbitration
proceeding shall be brought in good faith to enforce or interpret any provision
contained herein, or to recover damages for breach hereof, the Executive shall
recover from the Company any reasonable attorney's fees and necessary costs and
disbursements incurred as a result of such dispute, and prejudgment interest on
any money judgment or arbitration award obtained by the Executive calculated at
the rate of interest announced by Peoples Heritage Bank, or the successor
thereto, from time to time as its prime rate from the date that payments to him
should have been made under this Agreement.
11. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the compensation and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any setoff,
counterclaim, recoupment, defense or other right which the Company may have
against him or anyone else. All amounts payable by the Company hereunder shall
be paid without notice or demand. Each and every payment made hereunder by the
Company shall be final and the Company will not seek to recover all or any part
of such payment from the Executive or from whomsoever may be entitled thereto,
for any reason whatever except as provided in Section 8(d) above.
12. Successors.
(a) If the Company sells, assigns, or transfers all or
substantially all of its business and assets to any Person, excluding Affiliates
of the Company, or if the Company merges into or consolidates or otherwise
combines with any Person which is a continuing or successor entity, then the
Company shall assign all of its rights, title and interest in this Agreement as
of the date of such event to the Person which is either the acquiring or
successor Company, and such Person shall assume in writing and perform from and
after the date of such written assignment all of the terms, conditions and
provisions imposed by this Agreement upon the Company. Failure of the Company to
obtain such written assignment shall be a breach of this Agreement. In case of
such assignment by the Company and of written assumption and agreement by such
Person, all further rights as well as all other obligations of the Company under
this Agreement thenceforth shall cease and terminate and thereafter the
expression "the Company" wherever used herein shall be
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<PAGE> 19
deemed to mean such Person or Persons.
(ii) This Agreement and all rights of the Executive
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, estates, executors, administrators, heirs and
beneficiaries. All amounts payable to the Executive hereunder shall be paid, in
the event of the Executive's death, to the Executive's estate, heirs and
representatives. This Agreement shall inure to the benefit of, be binding upon
and be enforceable by, any successor, surviving or resulting Company or other
entity to which all or substantially all of the Company's business and assets
shall be transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
13. Enforcement. The provisions of this Agreement shall be regarded as
divisible, and if any such provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
14. Amendment. This Agreement may not be amended or modified at any
time except by a written instrument executed by the Company and the Executive.
15. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes, or charge which it is from time to time required to withhold. The
Company shall be entitled to rely on an opinion of counsel if any question as to
the amount or requirement of any such withholding shall arise.
16. Governing law: Arbitration. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Maine. Any dispute arising out of this Agreement shall be
determined by arbitration in the State of Maine under the rules of the American
Arbitration Association then in effect and judgment upon any award pursuant to
such arbitration may be enforced in any court having jurisdiction thereof.
17. Notice. Notices given pursuant to this Agreement shall be in
writing and shall be deemed given when received and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested,
addressee only postage prepaid, to the Company at:
Peoples Heritage Financial Group, Inc.
P.O. Box 9540
One Portland Square
Portland, ME 04112
Attn: Clerk
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<PAGE> 20
or if to the Executive, at the address set forth below the Executive's signature
line of this Agreement, or to such other address as the party to be notified
shall have given to the other.
18. No Waiver. No waiver by any party at any time of any breach by
another party of, or compliance with, any condition or provision of this
Agreement to be performed by another party shall be deemed a waiver of similar
or dissimilar provisions or conditions at any time.
19. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
20. Effectiveness. This Agreement shall become effective on the
Effective Date, but only if the Executive is then in the employ of the Company.
Once this Agreement becomes effective, it shall supersede the Severance
Agreement between the Executive and the Company dated January 1, 1995 in its
entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as an
Attachment A to the Employment Agreement.
PEOPLES HERITAGE FINANCIAL
GROUP, INC.
By: /s/ William J. Ryan
-------------------------------
Chairman, President and Chief
Executive Officer
Date: June 30, 1995
-------------------------------
Attest: /s/ Carol L. Mitchell
Secretary
/s/ John E. Menario
----------------------------------------
Executive
Date: June 30, 1995
Address: 215 E. Grand Avenue
Old Orchard Beach, Maine 04064
11
<PAGE> 1
EXHIBIT 10(j)
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT, made as of this first day of January, 1996 by and
between Peoples Heritage Financial Group, Inc., its subsidiaries and affiliates
(hereinafter collectively called the "Corporation") and John W. Fridlington
(hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Executive has been in the employ of the Corporation and is
now serving as Executive Vice President of Peoples Heritage Bank and,
WHEREAS, because of the Executive's experience, knowledge of affairs of
the Corporation, and reputation and contacts in the industry, the Corporation
deems the Executive's continued employment with the corporation important for
its future growth; and,
WHEREAS, it is the desire of the Corporation and in its best interest
that the Executive's service be retained; and
WHEREAS, in order to induce the Executive to continue in the employ of
the Corporation and in recognition of his past service, the Board of Directors
of Peoples Heritage Financial Group, Inc. voted on December 19, 1996 to
authorize the Corporation to enter into this Agreement to provide him or his
beneficiaries certain benefits in accordance with the terms and conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of these premises as well as the
mutual promises and covenants herein contained, it is agreed as follows:
ARTICLE ONE
1.01 EMPLOYMENT. The Corporation may employ the Executive in such capacity as
the Corporation may from time to time determine. Notwithstanding anything
contained herein, this Agreement is not an agreement of employment. Nothing
herein shall restrict the Corporation concerning other terms and conditions of
his employment.
<PAGE> 2
The benefits provided by this Agreement are not part of any
salary reduction plan or an arrangement deferring a bonus or a salary increase.
The Executive has no option to take any current payment or bonus in lieu of
these salary continuation benefits.
ARTICLE TWO
2.01 NORMAL RETIREMENT BENEFITS. If the Executive shall continue in the
employment of the Corporation until his sixty-fifth (65th) birthday (the "Normal
Retirement Date"), he shall be entitled to a retirement benefit (the "Normal
Retirement Benefit") commencing on the first day of the month next following his
actual retirement and continuing for fifteen (15) years certain payable monthly
in the annual amount of sixty-five percent (65%) of his Benefit Computation Base
(defined in Section 2.02), multiplied by a fraction, not to exceed one (1), the
numerator of which is the actual number of months of employment with the
Corporation (including partial months for month of hire and month of
termination) and the denominator of which is three hundred (300) months, and
reduced by:
(1) fifty percent (50%) of the Executive's Primary Social
Security retirement benefit estimated as of the
Normal Retirement Date based on the Social Security
retirement benefit formulas assuming level future
earnings based on his Benefit Computation Base in
effect on the date of termination of the Executive;
(2) the annual amount of benefits payable to the
Executive at the Normal Retirement Date on the life
annuity basis from the qualified defined benefit
pension plan maintained by the Corporation;
(3) the annual amount of benefits payable to the
Executive at the Normal Retirement Date on the life
annuity basis, which is the Actuarial Equivalent (as
defined in the Corporation's qualified defined
benefit plan), at the date of determination, of that
portion of the account balances attributable to
contributions by the Corporation to any and all
qualified defined contribution plans maintained by
the Corporation; and
(4) the annual amount of benefits payable to the
Executive at the Normal
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<PAGE> 3
Retirement Date on a life annuity basis attributable
to contributions by the Corporation from any other
qualified or non-qualified retirement plan or
agreement maintained or entered into by the
Corporation.
2.02 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base shall be
the average of the Executive's compensation from the Corporation for the five
(5) consecutive calendar years during the ten (10) years preceding the
Executive's termination of employment with the Corporation in which such
compensation is the highest (excluding all years of the Executive's employment
by the Corporation after the year in which the Normal Retirement Date occurs).
For the purposes of this Agreement, compensation shall mean the amount actually
paid or made available to the Executive during a calendar year as remuneration
of a kind or nature reported by the Corporation on the Executive's W-2.
Compensation shall also include annual bonuses, any contributions made on behalf
of the Executive by the Corporation pursuant to a salary reduction agreement
under Internal Revenue Code Sections 125, 129 and/or 401(k), and any
compensation deferred under the Corporation's Senior Management Deferred
Compensation Plan. Compensation shall not include any amounts available to the
Executive pursuant to any Stock Option, Stock Appreciation Right and Senior
Management Long Term Incentive Plans of the Corporation.
2.03 ACCRUED BENEFIT. As used herein, the term "Accrued Benefit" shall mean the
Normal Retirement Benefit (before applying the offsets in Section 2.01(1), (2),
(3) and (4) to which the Executive would be entitled under Section 2.01
commencing at the Normal Retirement Date assuming continuation of service by the
Executive to the Normal Retirement Date based on the Benefit Computation Base on
the date the Accrued Benefit is determined (the "Determination Date"),
multiplied by a fraction, not to exceed one (1), the numerator of which is the
actual number of months of employment with the Corporation (including partial
months for month of hire and month of termination) and the denominator of which
is three hundred (300) months, and reduced by:
(1) fifty percent (50%) of the Executive's Primary Social
Security
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<PAGE> 4
retirement benefit estimated as of the Normal
Retirement Date based on the Social Security
retirement benefit formulas assuming level future
earnings based on his Benefit Computation Base in
effect on the date of termination of the Executive;
(2) the annual amount of benefits payable to the
Executive at the Normal Retirement Date on the life
annuity basis from the qualified defined benefit
pension plan maintained by the Corporation;
(3) the annual amount of benefits payable to the
Executive at the Normal Retirement Date on the life
annuity basis, which is the Actuarial Equivalent (as
defined in the Corporation's qualified defined
benefit plan), at the date of determination, of that
portion of the account balances attributable to
contributions by the Corporation to any and all
qualified defined contribution plans maintained by
the Corporation; and
(4) the annual amount of benefits payable to the
Executive at the Normal Retirement Date on a life
annuity basis attributable to contributions by the
Corporation from any other qualified or non-qualified
retirement plan or agreement maintained or entered
into by the Corporation.
2.04 OPTIONAL FORMS OF PAYMENT. In lieu of the fifteen year certain payments
provided in Section 2.01 above, or whenever an Accrued Benefit is payable under
this Agreement, the Executive may elect in the calendar year prior to the
calendar year in which payments are to begin an optional form of payment which
shall be the actuarial equivalent of the said fifteen year certain payments, and
which shall be any optional form which is provided the Executive under the terms
of the Corporation's qualified defined benefit pension plan. In addition, the
Executive may elect a lump sum payment under this plan; however, the Corporation
may require that such payment shall be made over a period of up to five (5)
years in equal consecutive annual installments of principal and interest. The
applicable rate of interest (as defined in Section 6.01) shall be determined as
of the date of the first monthly installment and shall remain the same for all
subsequent payments.
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2.05 VESTING. The Executive has a vested interest in any Accrued Benefit payable
under this Agreement if he has completed at least five years of employment with
the Corporation commencing with his original date of hire with the Corporation.
ARTICLE THREE
3.01 DEATH OF EXECUTIVE. Upon the death of the Executive while employed by the
Corporation, the Corporation will pay to the Executive's named beneficiaries the
Accrued Benefit earned by the Executive as of the date of death in equal annual
installments for a period of fifteen (15) years. The Executive may name one or
more beneficiaries in writing to the Corporation. If no beneficiary is so named
or if no named beneficiary is living at the time a payment is due, that payment
and all subsequent payments shall be made, when otherwise due, to the
Executive's estate.
ARTICLE FOUR
4.01 DISABILITY PRIOR TO RETIREMENT. In the event the Executive shall become
disabled, mentally or physically, which disability prevents him from performing
the material aspects of his duties, the Corporation will pay no disability
benefits under this Agreement. Disability benefits (if any) will be paid to the
Executive through the insurance program sponsored by the Corporation. Upon
termination of such other disability benefits (if any), or attainment of the
Normal Retirement Date if later, the Executive shall commence receiving payment
of his Accrued Benefit determined as of the date of the disability. The Accrued
Benefits shall be paid in the form provided in Section 2.04.
In the event the Executive returns to work with the Corporation
after terminating employment because of disability, this Agreement shall
continue in full force and effect as though such disability had not occurred as
long as he returns to work in the position in which he was employed at the date
of disability. For the purposes of the numerator of the fractions in Sections
2.01 and 2.03, the Executive's period of disability shall be treated as a period
of employment with the Corporation.
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ARTICLE FIVE
5.01 TERMINATION OF SERVICE OR DISCHARGE. In the event that prior to the Normal
Retirement Date, the Executive's employment with the Corporation is terminated
for reasons other than death or disability and the Executive is vested pursuant
to Section 2.05, the Executive shall be entitled to an annual benefit payable
monthly commencing at the Normal Retirement Date and
continuing for fifteen years which shall be his Accrued Benefit as of the date
of his termination of employment.
5.02 EARLY RETIREMENT. The Executive may retire prior to the Normal Retirement
Date and receive an annual benefit determined in accordance with Section 5.01,
payable monthly, and continuing for fifteen (15) years certain. Said early
retirement and payments hereunder may commence at the earlier of (a) age 55 or
(b) any date approved by the Corporation, notwithstanding the provisions of
Section 5.01. Said early retirement payments shall be the annual benefit payable
according to Section 5.01 further reduced by one-quarter of one percent (.25%)
per month for each month of the first sixty (60) months the annual benefit is
received prior to age 65. Said early retirement payments shall be further
reduced by one-half of one percent (.50%) per month for each of the months by
which the annual benefit is received prior to age 60.
5.03 PAYMENT. Benefits payable under this Article Five shall be paid for fifteen
(15) years certain payable monthly or in the manner provided in Section 2.04.
5.04 FORFEITURE. Anything to the contrary in this Agreement notwithstanding,
benefits under this Agreement shall be forfeited and all rights of the Executive
and his beneficiaries shall become null and void, if the Executive's employment
is terminated for cause. For this purpose, "cause" shall mean conviction by a
court of law for fraud, misappropriation, embezzlement or any crime related to
the Corporation.
ARTICLE SIX
6.01 INTEREST. Unless otherwise expressly provided herein, any reference to
"interest" shall be a variable rate of interest which shall be the rate of
interest on one (1) year U.S.
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Treasury Bills determined at the first auction of each calendar year or part
thereof during the period of which interest is to be applied to any obligation
hereunder.
ARTICLE SEVEN
7.01 ALIENABILITY. Neither the Executive, nor any beneficiary under this
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony or separate
maintenance, owed by the Executive or his beneficiary or any of them, or be
transferable by operation of law in the event of bankruptcy, or otherwise.
ARTICLE EIGHT
8.01 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement shall be
construed to alter, abridge, or in any manner affect the rights and privileges
of the Executive to participate in and be covered by any pension,
profit-sharing, group insurance, bonus or any other employee plan or plans which
the Corporation may have or hereafter have.
ARTICLE NINE
9.01 FUNDING. The Corporation reserves the absolute right at its sole and
exclusive discretion to insure or otherwise provide for the obligations of the
Corporation undertaken by this Agreement or to refrain from same, and to
determine the extent, nature and method thereof, including the establishment of
one or more trusts. Should the Corporation elect to insure this Agreement, in
whole or in part, through the medium of insurance or annuities, or both, the
Corporation shall be the owner and beneficiary of the policy. At no time shall
the Executive be deemed to have any right, title or interest in or to any
specified asset or assets of the Corporation trust or escrow arrangement,
including, but not by way of restriction, any insurance or annuity or contracts
or the proceeds therefrom.
Any such policy, contract or asset shall not in any way be
considered to be security for the performance of the obligations of this
Agreement.
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<PAGE> 8
If the Corporation purchases a life insurance or annuity policy
on the life of the Executive, he agrees to sign any papers that may be required
for that purpose and to undergo any medical examination or tests which may be
necessary, and generally cooperate with the Corporation in securing such policy.
9.02 NO TRUST. Nothing contained in this Agreement and no action taken pursuant
to the provisions of this Agreement shall create or be construed to create a
trust of any kind or a fiduciary
relationship between the Corporation and the Executive, his designated
beneficiary or any other person.
ARTICLE TEN
10.01 REORGANIZATION. The Corporation shall not merge or consolidate into or
with another corporation, or reorganize, or sell substantially all of its assets
to another corporation, or reorganize, or sell substantially all of its assets
to another corporation, firm, or person unless and until such succeeding or
continuing corporation, firm or person agrees to assume and discharge the
obligations of the Corporation under this Agreement. Upon the occurrence of such
event, the term "Corporation" as used in this Agreement shall be deemed to refer
to such successor, assignee, or survivor Corporation.
ARTICLE ELEVEN
11.01 BENEFITS AND BURDENS. This Agreement shall be binding upon and inure to
the benefit of the Executive and his personal representatives, and the
Corporation, and any successor organization which shall succeed to substantially
all of its assets and business without regard to the form of such succession.
11.02 CORPORATION. As used in this Agreement, the term "Corporation" shall mean
Peoples Heritage Financial Group, Inc., a Maine Corporation, and any entity that
from time to time is aggregated with Peoples Heritage Financial Group, Inc., its
successors and assigns, under Sections 414(b), 414(c), 414(m), 414(n) or 414(o)
of the Internal Revenue Code of 1986, as amended. For the purpose of determining
the Executive's period of employment
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with the Corporation as required hereunder, the term "Corporation" shall also
include any predecessor of the Corporation.
ARTICLE TWELVE
12.01 COMMUNICATIONS. Any notice or communication required of either party with
respect to this Agreement shall be made in writing and may either be delivered
personally or sent by First Class mail, as the case may be:
TO THE CORPORATION:
Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, ME 04112
TO THE EXECUTIVE:
John W. Fridlington
53 Stapleford Drive
Falmouth, ME 04105
Each party shall have the right by written notice to change the place to which
any notice may be addressed.
ARTICLE THIRTEEN
13.01 CLAIMS PROCEDURE. In the event that benefits under this Agreement are not
paid to the Executive (or his beneficiary or personal representative in the case
of the Executive's death), and such person feels entitled to receive them, a
claim shall be made in writing to the Corporation within sixty (60) days after
written notice from the Corporation to the Executive or his beneficiary or
personal representative that payments are not being made or are not to be made
under this Agreement. Such claim shall be reviewed by the Corporation. If the
claim is approved or denied, in full or in part, the corporation shall provide a
written notice of approval or denial within sixty (60) days of receipt of the
written claim setting forth the specific reason for denial, specific reference
to the provision of this
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<PAGE> 10
Agreement upon which the denial is based, and any additional material or
information necessary to perfect the claim, if any. Also, such written notice
shall indicate the steps to be taken if a review of the denial is desired. If a
claim is denied and a review is desired, the Executive or his beneficiary or
personal representative shall notify the Corporation in writing within twenty
(20) days (a claim shall be deemed denied if the Corporation does not take
action within the aforesaid sixty (60) day period). In requesting a review of
the denial, the Executive or his beneficiary or personal representative may
review this Agreement or any document relating to it and submit any written
issues and comments he or she may feel appropriate. In its sole discretion, the
Corporation shall then review the claim and provide a written decision within
sixty (60) days. This decision likewise shall state the specific reasons for the
decision and shall include reference to specific provisions of this Agreement on
which the decision is based. Any decision of the Corporation shall not preclude
further action by the Executive, his beneficiary or personal representative.
ARTICLE FOURTEEN
14.01 ENTIRE AGREEMENT; MODIFICATION. This instrument contains the entire
agreement of the parties hereto and there are no agreements or representations
which are not set forth herein. This instrument may be altered or amended only
by written agreement signed by the parties hereto.
14.02 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Maine.
14.03 SEVERABILITY. The provisions of this Agreement are severable and the
invalidity of any provision shall not affect the validity of any other
provision.
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IN WITNESS WHEREOF, the Corporation and the Executive have
caused this Agreement to be executed and the Seal of the Corporation to be
affixed, as of the date and year first above written.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
/s/ Cynthia H. Hamilton By: /s/ Carol L. Mitchell
- --------------------------- -------------------------
Witness Its:
/s/ Cynthia H. Hamilton /s/ John Fridlington
- --------------------------- -----------------------------
11
<PAGE> 1
EXHIBIT 10(q)(2)
FIRST AMENDMENT
TO THE
PEOPLES HERITAGE FINANCIAL GROUP, INC.
THRIFT INCENTIVE PLAN
The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan
(the "Plan") was last amended and restated, effective generally, January 1,
1989. The Plan is hereby further amended in the following respects:
1. The terms used in this Amendment shall have the meanings set
forth in the Plan unless the context indicates otherwise.
2. The first sentence of Section 1.6 is hereby amended to read
as follows:
"1.6 Beneficiary. The person, trust, estate or other entity
designated by the Participant to receive benefits which may be
payable on account of the death of a Participant under Article
8; provided, however, that in the case of a married Participant,
the Participant's spouse shall be the Beneficiary unless the
Participant's spouse waives his or her rights as the
Beneficiary, the Participant is legally separated or has been
abandoned and the Participant has a court order to such effect,
or the Participant's current spouse cannot be located."
3. Section 1.16 is hereby amended to read as follows:
"1.16 Direct Rollover. Direct transfer of all or a portion of
the Participant's Vested Interest, as designated by an eligible
distributee, to an eligible retirement plan in accordance with
the requirements under Section 401(a)(31) of the Code and
Section 8.10."
4. Section 1.17 is hereby amended to read as follows:
"1.17 Earnings. The total compensation paid by the Company to
the Employee for services rendered while a Participant that
constitutes wages as defined in Section 3401(a) of the Code and
all other payments made by the Company to an Employee for
services rendered while a Participant for which the Company is
required to furnish the Employee a written statement under
Sections 6041(d), 6051(a)(3) and 6052 of the Code without regard
to any rules under Section 3401(a) of the Code that limit the
remuneration included in wages based on the nature or location
of the employment or service performed. Notwithstanding the
forgoing to the contrary, Earnings (i) shall include elective
contributions made by the Company on behalf of an Employee that
are not includable in income under Section 125, Section
402(e)(3), or Section 402(h) of the Code; and (ii) shall be
reduced by reimbursements or other expense
<PAGE> 2
allowances, fringe benefits (cash and non-cash), moving
expenses, deferred compensation and welfare benefits.
Notwithstanding the foregoing to the contrary, effective
January 1, 1989, the annual Earnings of any Employee in excess
of Two Hundred Thousand Dollars ($200,000.00) (or such higher
amount as the Secretary of the Treasury may prescribe) shall not
be taken into account under the Plan, and, effective January 1,
1994, the annual Earnings of any Employee in excess of One
Hundred Fifty Thousand Dollars ($150,000.00) (or such higher
amount as the Secretary may prescribe) shall not be taken into
account under the Plan. In the event Earnings are determined
based on a period of time which contains fewer than twelve (12)
calendar months, the annual Earnings limit shall be an amount
equal to the annual Earnings limit for the calendar year in
which the period begins multiplied by a fraction, the numerator
of which is the number of full calendar months and the
denominator of which is twelve (12). For purposes of the annual
Earnings limit, any Earnings paid to an Employee who is the
spouse or a lineal descendant (who has not attained age nineteen
(19) by the close of the Plan Year) of an Employee who is a five
percent owner (as defined in Section 416(i)(1) of the Code) or
one of the ten (10) Highly Compensated Employees paid the
highest earnings (as defined in Section 4.4) for the Plan Year
shall be treated as paid to or on behalf of such five percent
owner or Highly Compensated Employee. If Earnings for a prior
Plan Year are taken into account for any Plan Year, such
Earnings shall be subject to the annual Earnings limit in effect
for such prior Plan Year."
5. Paragraphs (2) through (4) of Section 1.25(b) are hereby
amended to read as follows:
"(2) Solely for purposes of this Section, the Company
shall include all Affiliates, and Earnings shall have
the meaning given such term under Section 1.17, but
without regard to the annual Earnings limit.
(3) For purposes of Paragraph (a)(3) of this Section, the
top-paid group shall consist of the top twenty
percent of Employees for a Plan Year when ranked on
the basis of Earnings. In determining the number of
Employees to be included in the top twenty percent
and the number of officers to be taken into account
under Paragraph (a)(4), Employees described in
Section 414(q)(8) of the Code and the regulations
promulgated thereunder shall be excluded.
(4) If an Employee is a family member of an Employee who
owns more than five percent of the Company or of a
Highly Compensated Employee who is one of the top ten
Employees when ranked on the basis of Earnings for
the current Plan Year, such Employee shall not
2
<PAGE> 3
be treated as a separate Employee, and any Earnings
paid to him and any contributions on his behalf shall
be treated as paid to (or contributed on behalf of)
such five percent owner or Highly Compensated
Employee, as the case may be. For purposes of this
Paragraph (b)(4), "family member" shall mean a
spouse, lineal ascendant, lineal descendant and the
spouses of such lineal ascendants and descendants."
6. Section 1.33 is hereby amended to read as follows:
"1.33 Plan Administrator. A committee of not less than four
individuals appointed by the Board."
7. Section 3.2 is hereby amended to read as follows:
3.2 Annual Limitation on Salary Deferrals.
(a) Effective January 1, 1989, the Salary Deferrals that
may be allocated to a Participant's Salary Deferral
Contribution Account for any calendar year shall not
exceed Seven Thousand Six Hundred Twenty- Seven
Dollars ($7,627.00), reduced by the amount of any
employer contributions for such year on behalf of
such Participant pursuant to an election to defer
compensation under any qualified cash or deferred
arrangement within the meaning of Section 401(k) of
the Code, any simplified employee pension cash or
deferred arrangement within the meaning of Section
402(h)(1)(B) of the Code, any eligible deferred
compensation plan under Section 457 of the Code, any
plan within the meaning of Section 501(c)(18) of the
Code and a salary reduction agreement for the
purchase of an annuity contract under Section 403(b)
of the Code. For purposes of this Section, any Salary
Deferrals returned to a Participant pursuant to
Section 4.4 shall be disregarded. The dollar
limitation of this Section shall be automatically
adjusted to reflect any cost of living adjustment
made under Section 402(g)(5) of the Code.
(b) In the event that the limitation of Paragraph (a) is
exceeded with respect to any Participant, not later
than April 15 of the following calendar year, the
Plan Administrator shall distribute the excess
deferral (plus any income and minus any loss
allocable thereto), provided that the Plan
Administrator has received the notice pre- scribed in
Paragraph (c). Excess deferrals shall be adjusted for
any income or loss up to the date of distribution.
The income or loss allocable to excess deferrals
shall be determined by the same manner in which
income or loss is allocated to the Participants'
Aggregate Accounts under Article 4 of the Plan.
3
<PAGE> 4
The amount of excess deferral with respect to a
Participant for any calendar year shall be reduced by
the amount of any contributions previously
distributed to such Participant under Section 3.7 for
the Plan Year beginning with or within the calendar
year.
(c) It shall be the responsibility of the Participant to
notify the Plan Administrator of any excess deferral
for a calendar year. Such notice shall be in writing;
shall specify the amount of the excess deferral;
shall state that if the excess deferral is not
distributed, such excess shall be includable in the
Participant's gross income under Section 402(g) of
the Code; and shall be submitted to the Plan
Administrator not later than March 1 of the following
calendar year. A Participant shall be deemed to have
notified the Plan Administrator of an excess deferral
to the extent such Participant has an excess deferral
for a calendar year, taking into account only Salary
Deferrals under the Plan and any other plans of the
Company or its Affiliates subject to Section 402(g)
of the Code."
8. Section 3.3 is hereby amended to read as follows:
"3.3 Company Matching Contributions. For each Plan Year, the
Company shall contribute and allocate to each Participant's
Company Matching Contribution Account an amount equal to fifty
percent of such Participant's Salary Deferrals under Section 3.1
not in excess of six percent of Earnings; provided, however, no
Company Matching Contribution may be made with respect to any
excess deferral under Section 3.2, or any Excess Salary Deferral
under Section 3.6 or any Salary Deferral which is returned to
the Participant pursuant to Section 4.4. The Company shall
contribute Company Matching Contributions for a Plan Year to the
Trust not later than the date the Company is required to file
its federal corporate income tax return (with extensions) with
respect to the year in which such Plan Year ends."
9. Section 3.4 is hereby amended to read as follows:
"3.4 Company Discretionary Contributions. Within twelve months
after the end of the Plan Year, the Company, as instructed by
the Plan Administrator, may make a qualified nonelective
contribution (as defined in Section 401(m)(4)(C) of the Code) on
behalf of Non-Highly Compensated Employees in an amount which
enables the Plan to satisfy the requirements set forth in
Section 3.6 or 3.8."
10. Section 3.6 is hereby amended to read as follows:
"3.6 Limitations on Actual Deferral Percentage. In the event
a Participant
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<PAGE> 5
who is a Highly Compensated Employee participates in two or more
cash or deferred arrangements (under Section 401(k) of the Code)
that have different plan years, for purposes of this Section,
all such arrangements ending with or within the same calendar
year shall be treated as a single arrangement. For purposes of
this Section, this Plan and any other Code Section 401(k) plan
maintained by the Company or any of its Affiliates shall be
treated as a single plan if such plans are treated as one plan
for purposes of Section 401(a)(4) or Section 410(b) of the Code
or if a Highly Compensated Employee participates in such other
plan. Plans may be aggregated to satisfy Section 401(k) of the
Code only if such plans have the same Plan Year.
(a) The Actual Deferral Percentage for Participants who
are Highly Compensated Employees for any Plan Year
commencing after December 31, 1986, shall not exceed
the greater of:
(i) the Actual Deferral Percentage for all other
Participants multiplied by 1.25; or
(ii) the lesser of the Actual Deferral Percentage
for all other Participants multiplied by 2,
or the Actual Deferral Percentage for such
Participants plus two percent (2%).
(b) The sum of the Actual Deferral Percentage for
Participants who are Highly Compensated Employees and
the Average Contribution Percentage for Participants
who are Highly Compensated Employees shall not exceed
the greater of:
(i) the sum of (1) the greater of the Actual
Deferral Percentage for all other
Participants multiplied by 1.25 or the
Average Contribution Percentage for all
other Participants multiplied by 1.25, and
(2) the lesser of the Actual Deferral
Percentage for all other Participants plus 2
or the Average Contribution Percentage for
all other Participants plus 2, provided that
in no event shall such percentage plus 2
exceed such percentage multiplied by 2.
(ii) the sum of (1) the lesser of the Actual
Deferral Percentage for all other
Participants multiplied by 1.25 or the
Average Contribution Percentage for all
other Participants multiplied by 1.25, and
(2) the greater of the Actual Deferral
Percentage for all other Participants plus 2
or the Average Contribution Percentage for
all other Participants plus 2, provided that
in no event shall such percentage plus 2
exceed such percentage multiplied by 2.
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<PAGE> 6
Paragraph (b) of this Section shall not apply if the
respective Actual Deferral Percentage and Average Contribution
Percentage of the Highly Compensated Employees does not exceed
the respective Actual Deferral Percentage and Average
Contribution Percentage of all other Participants multiplied by
1.25.
For purposes of this Section, Salary Deferrals and Company
Matching Contributions must be made before the last day of the
twelve (12) month period immediately following the Plan Year to
which such contributions relate. If a Participant who is a
Highly Compensated Employee is subject to the family aggregation
provisions of Section 1.25, the individual deferral percentage
for such Participant shall be determined in accordance with the
applicable regulations under Section 401(k) of the Code. For
purposes of this Section, any Salary Deferrals returned to a
Participant pursuant to Section 4.4 shall be disregarded.
The Company shall maintain records sufficient to demonstrate
compliance with this Section and the amount of any Company
Matching Contributions used to satisfy this Section. The
determination and treatment of the contributions on behalf of
any Participant that are taken into account for purposes of this
Section shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury."
11. Section 3.7 is hereby amended to read as follows:
"3.7 Restrictions and Adjustments. The Plan Administrator may
restrict the deferral percentages elected by Participants if the
Plan Administrator determines such restriction is necessary to
comply with Section 3.2, Section 3.6, Section 3.11 or Section
4.4.
In the event that the Actual Deferral Percentage of the
Participants who are Highly Compensated Employees for any Plan
Year exceeds the limitations prescribed in Paragraph 3.6(a), the
Plan Administrator shall, within two and one-half (2 1/2) months
after the end of such year, distribute the Excess Salary
Deferrals (plus any income and minus any loss allocable thereto)
to such Participants on the basis of the respective portions of
the Excess Salary Deferrals attributable to each such
Participant and shall designate such distribution as a
distribution of Excess Salary Deferrals (plus any income and
minus any loss allocable thereto). Excess Salary Deferrals shall
be allocated to Participants who are subject to the family
aggregation rules of Section 414(q)(6) of the Code in the manner
prescribed by regulations.
The amount of any Excess Salary Deferrals of a Participant who
is a Highly Compensated Employee shall be determined by reducing
contributions on behalf of all such Participants in the order of
their respective individual
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<PAGE> 7
deferral percentages, beginning with the highest such
percentage. The amount of Excess Salary Deferrals with respect
to a Participant who is a Highly Compensated Employee for any
Plan Year shall be reduced by the amount of excess deferrals
previously distributed to such Participant under Section 3.2 for
the calendar year ending with or within the Plan Year; provided,
however, that notwithstanding the distribution of an excess
deferral in accordance with Section 3.2 to a Participant who is
a Highly Compensated Employee, such distributed amount shall be
taken into account under Section 3.6.
Excess Salary Deferrals shall be adjusted for any income or
loss up to the date of distribution. The income or loss
allocable to Excess Salary Deferrals shall be determined by the
same manner in which income or loss is allocated to
Participants' Aggregate Accounts under Article 4 of the Plan.
In the event that the sum of the Actual Deferral Percentage
for Participants who are Highly Compensated Employees and the
Average Contribution Percentage for Participants who are Highly
Compensated Employees for any Plan Year exceeds the limitations
prescribed in Paragraph 3.6(b), the Plan Administrator shall,
within two and one-half (2 1/2) months after the end of such
year reduce the Average Contribution Percentage for Participants
who are Highly Compensated Employees in the manner prescribed in
subsections (g) through (j) of Section 3.8.
Notwithstanding the foregoing provisions of this Section to
the contrary, in lieu of distributing Excess Salary Deferrals
(plus any income and minus any loss allocable thereto) or
reducing the Average Contribution Percentage for Participants
who are Highly Compensated Employees in the manner prescribed in
subsections (g) through (j) of Section 3.8 in order to comply
with Paragraph 3.6(b) for any Plan Year, the Company may make
qualified nonelective contributions to the Plan as provided in
Section 3.4."
12. Section 3.8 is hereby amended to read as follows:
"3.8 Special Rules for Company Matching Contributions.
(a) The Average Contribution Percentage for Participants
who are Highly Compensated Employees for any Plan
Year commencing after December 31, 1986, shall not
exceed the greater of:
(i) the Average Contribution Percentage for all
other Participants multiplied by 1.25; or
(ii) the lesser of the Average Contribution
Percentage for all other Participants
multiplied by 2, or the Average Contribution
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Percentage for such Participants plus two
percent (2%).
(b) For purposes of this Section, if two or more
qualified plans maintained by the Company or any of
its Affiliates are treated as one plan to meet the
requirements of Section 401(a)(4), Section 410(b) or
Section 401(m) of the Code, such plans shall be
treated as a single plan. If a Participant who is a
Highly Compensated Employee participates in any other
qualified plan maintained by the Company to which
Company Matching Contributions or Employee
contributions are made, all such contributions for
Plan Years ending with or within the same calendar
year shall be aggregated for purposes of this
Section. If a Participant who is a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash
or deferred arrangements ending with or within the
same calendar year shall be treated as a single
arrangement. For Plan Years beginning after December
31, 1989, plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same
plan year.
(c) If an Employee is a family member within the meaning
of Section 1.25 of a five percent owner (as defined
in Section 416(i)(1) of the Code) or of one of the
ten (10) Highly Compensated Employees receiving the
greatest compensation from the Company during the
Plan Year, then the individual contribution
percentage attributable to such Employee shall be
treated as if it were attributable to the five
percent owner or Highly Compensated Employee. An
Employee who is a family member with respect to a
five percent owner or one of the ten (10) Highly
Compensated Employees receiving the greatest
compensation from the Company shall not be considered
a separate Employee for purposes of determining the
Average Contribution Percentage for Participants who
are Highly Compensated Employees and the Average
Contribution Percentage for all other Participants.
(d) To the extent Salary Deferrals are taken into account
under this Section, any Salary Deferrals returned to
a Participant pursuant to Section 4.4 shall be
disregarded.
(e) Notwithstanding Section 7.3 to the contrary, any
Company Matching Contribution which is attributable
to an excess deferral under Section 3.2 or an Excess
Salary Deferral shall be forfeited and shall be
disregarded for purposes of Paragraph (a) of this
Section. Forfeitures shall be used to reduce future
Company Matching Contributions.
(f) For purposes of this Section, Company Matching
Contributions shall
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be treated as made for a Plan Year if such
contributions are made no later than the end of the
twelve (12) month period beginning on the day after
the close of the Plan Year. The Company shall
maintain records sufficient to demonstrate
satisfaction of this Section and the amount of any
Salary Deferrals taken into account under this
Section. The determination and treatment of the
individual contribution percentage of any Participant
shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(g) In the event that the Average Contribution Percentage
of the Partici- pants who are Highly Compensated
Employees for any Plan Year exceeds the limitation of
Paragraph 3.8 (a) above, the Plan Administra- tor
shall, within two and one-half (2 1/2) months after
the end of such year, distribute the Excess Aggregate
Contributions to the extent nonforfeitable (plus any
income and minus any loss allocable thereto) to such
Participants on the basis of the respective portions
of the Excess Aggregate Contributions attributable to
each such Participant and shall designate such
distribution as a distribution of Excess Aggregate
Contributions (plus any income and minus any loss
allocable thereto). To the extent the Excess
Aggregate Contributions are forfeitable, they shall
be forfeited in accordance with the provisions of
Section 7.3; provided, however, that forfeitures of
Excess Aggregate Contributions may not be allocated
to the Aggregate Accounts of Participants whose
Company Matching Contributions are reduced pursuant
to this paragraph 3.8(g).
Notwithstanding the foregoing provisions of
this Section to the contrary, in lieu of distributing
Excess Aggregate Contributions to the extent
nonforfeitable (plus any income and minus any loss
allocable thereto) to Participants who are Highly
Compensated Employees or forfeiting Excess Aggregate
Contributions (to the extent forfeitable) in order to
comply with Paragraph 3.8(a) above for any Plan Year,
the Company may make qualified nonelective
contributions as provided in Section 3.4.
(h) Excess Aggregate Contributions shall be allocated to
Participants who are subject to the family
aggregation rules of Section 414(q)(6) of the Code in
the manner prescribed by regulations.
(i) Excess Aggregate Contributions shall be adjusted for
any income or loss up to the date of distribution.
The income or loss allocable to Excess Aggregate
Contributions shall be determined by the same manner
in which income or loss is allocated to Participants'
Aggregate Accounts under Article 4.
9
<PAGE> 10
(j) The amount of Excess Aggregate Contributions of any
Participant who is a Highly Compensated Employee
shall be determined by reducing contributions on
behalf of all such Participants in the order of their
respective contribution percentages, beginning with
the highest such percentage. The determination of the
amount of Excess Aggregate Contributions with respect
to the Plan shall be made after first determining the
amount of excess deferrals under Section 3.2 and
second determining the amount of Excess Salary
Deferrals under Section 3.6."
13. Section 3.9 is hereby deleted, and Sections 3.10 and 3.11
are hereby redesignated as Sections 3.9 and 3.10 respectively.
14. Section 3.9(b), as herein redesignated, is hereby amended
by adding the following sentence at the end thereof:
"The portion of any contribution returned to the Company in
accordance with this Section that represents Salary Deferrals
shall be paid promptly to the Participants on whose behalf such
deferrals were made."
15. Section 3.10, as herein redesignated, is hereby amended to
read as follows:
"Rollover Contributions. An Employee who has received an
eligible rollover distribution (as defined in Section 402(c)(4)
of the Code) from an employee's trust described in Section
401(a) of the Code which is exempt from tax under Section 501(a)
of the Code may transfer all or any portion of such distribution
to the Trust, provided the transfer is made to the Trust not
later than the sixtieth (60th) day following the day on which he
received such distribution and the amount transferred is $1,000
or more. In addition, an Employee who receives a distribution
from an individual retirement account (within the meaning of
Section 408(a) of the Code) which is attributable solely to a
rollover contribution (as defined in Section 402(c)(5) of the
Code) from an employee's trust described in Section 401(a) of
the Code which is exempt from tax under Section 501(a) of the
Code may transfer the entire amount distributed to the Trust,
provided the transfer is made to the Trust not later than the
sixtieth (60th) day following the day on which he received such
distribution and the amount transferred is $1,000 or more.
Notwithstanding the foregoing to the contrary, an Employee who
has received an eligible rollover distribution (as hereinabove
defined), solely by reason of the death of his spouse, or a
distribution from an individual retirement account (as
hereinabove defined), which account is attributable solely to a
rollover contribution (as hereinabove defined) from an
employee's trust described in Section 401(a) of the Code which
is exempt from tax under Section 501(a) of the Code of amounts
received by reason of the death of his spouse, may not transfer
any
10
<PAGE> 11
portion of such distribution to the Trust.
A rollover contribution shall be credited to a Rollover
Contributions Account on behalf of the contributing Employee,
and such Employee shall have a fully vested and nonforfeitable
interest in his Rollover Contributions Account.
An Employee who has made a rollover contribution in accordance
with this Section who has not otherwise become a Participant
shall become a Participant coincident with such rollover
contribution, provided that such Participant shall not have a
right to defer Earnings or to share in any Company Matching
Contributions until he has otherwise satisfied the eligibility
requirements imposed by Article 2."
16. Article III is hereby amended by adding the following
Section 3.11 at the end thereof:
"3.11 Maximum Contributions. In no event shall the
contributions made by the Company for any Plan Year exceed the
maximum amount which the Company is permitted to deduct for
federal income tax purposes or cause the Annual Addition (as
defined in Section 4.4) for any Participant to exceed the amount
permitted under the Plan."
17. Paragraph (a)(4) of Section 4.4 is hereby amended to read
as follows:
"(4) `Maximum Annual Additions' of a Participant for any
Limitation Year shall mean the lesser of (A) $30,000
(or, if greater,1/4of the dollar limitation as then
in effect under Section 415(b)(1)(A) of the Code for
such Limitation Year) or (B) twenty-five percent of
such Participant's earnings during such year except
the limitation in this Clause (B) shall not apply to
any contribution for medical benefits (within the
meaning of Section 419A(f)(2) of the Code) after a
Participant's termination of employment with the
Company or an Affiliate which is otherwise treated as
an Annual Addition or to any amount otherwise treated
as an Annual Addition under Section 415(l)(1) of the
Code.
For purposes of Clause (B) and except as hereinafter
provided, `earnings' shall mean, with respect to a
Plan Year, the total compensation paid by the Company
to an Employee for services rendered while an
Employee that constitutes wages as defined in Section
3401(a) of the Code and all other payments by the
Company to an Employee for services rendered while an
Employee for which the Company is required to furnish
the Employee a written statement under Sections
6041(d), 6051(a)(3) and 6052 of the Code without
regard to any rules under Section 3401(a) of the Code
that limit the remuneration
11
<PAGE> 12
included in wages based on the nature or location of
the employment or services performed. For Limitation
Years beginning after Decem- ber 31, 1991, for
purposes of applying the limitations of this Section
4.4, `earnings' for a Limitation Year shall mean the
compensation actually paid or includable in gross
income during such Limitation Year. Notwithstanding
the preceding sentence, `earnings' with respect to a
Participant who is permanently and totally disabled
(within the meaning of Section 22(e)(3) of the Code)
shall mean the earnings such Participant would have
received for the Limitation Year if he or she had
been paid at the rate of earnings paid immediately
before becoming permanently and totally disabled;
provided such imputed earnings may be taken into
account only if the Participant is not a Highly
Compensated Employee and contributions made on behalf
of such Participant are not forfeitable when made."
18. Section 4.4(b) is hereby amended to read as follows:
"(b) Notwithstanding any other provision in the Plan
regarding the allocation of contributions, under no
circumstances shall the Annual Additions credited to
a Participant's Aggregate Account for any Limitation
Year exceed the Maximum Annual Additions for such
Participant for such year. If, as a result of a
reasonable error in estimating a Participant's
Earnings or because of other limited facts and
circumstances, the Annual Additions which would be
credited to a Participant's Aggregate Account for a
Limitation Year would nonetheless exceed the Maximum
Annual Additions for such Partici- pant for such
year, the excess Annual Additions which, but for this
Section, would have been allocated to such
Participant's Aggregate Account shall be disposed of
as follows:
(1) Any such excess Annual Additions in the form
of Salary Deferrals, shall, to the extent
such amounts would have otherwise been
allocated to such Participant's Salary
Deferral Contribution Account, be returned
to the Participant;
(2) Any such excess Annual Additions in the form
of Company Matching Contributions remaining
in the Plan after the application of
Paragraph (b)(1) above, shall, to the extent
such amounts would have otherwise been
allocated to such Participant's Company
Matching Contribution Account, be allocated
instead to a suspense account and shall be
held therein until used to reduce future
Company Matching Contributions in the same
manner as a Forfeiture; and
12
<PAGE> 13
(3) Any such excess Annual Additions in the form
of Company Discretionary Contributions
remaining in the Plan after the application
of Paragraphs (b)(1) and (2) above, shall be
allocated instead to a suspense account and
shall be held therein until allocated to
such Participant's Salary Deferral
Contribution Account in future Limitation
Years before any Salary Deferral
contributions or Company Discretionary
Contributions are made to the Plan on behalf
of such Participant."
19. Section 6.2(c)(1) is hereby amended to read as follows:
"(1) Payment of medical expenses described in Section
213(d) of the Code previously incurred by the
Participant, his spouse or dependent (within the
meaning of Section 152 of the Code) or payment
necessary for such persons to obtain medical care as
described in Section 213(d) of the Code;"
20. Section 6.2(c)(4) is hereby amended to read as follows:
"(4) Payment of tuition, related educational fees and room
and board expenses for the next 12 months of
post-secondary education for the Participant, his
spouse or dependent (within the meaning of Section
152 of the Code); or"
21. Section 6.3(c) is hereby deleted, and Section 6.3(d) is
hereby redesignated as Section 6.3(c).
22. The last sentence of Section 8.3(a) is hereby amended to
read as follows:
"For purposes of this Paragraph, if the value of the
Participant's vested interest in his Company Matching
Contribution Account upon terminating employment is zero, such
Participant shall be deemed to have received an immediate
distribution of such interest."
23. Section 8.3(b) is hereby amended to read as follows:
"(b) If a Participant terminates employment prior to
Normal Retirement Age for any reason other than on
account of Disability or death and his Vested
Interest at any time has exceeded $3,500, such
Participant shall be entitled to receive his Vested
Interest in one or more of the forms of benefit
provided under Section 8.5(a). A Participant electing
to receive a distribution shall forfeit the unvested
portion of his Aggregate Account."
13
<PAGE> 14
24. Article 8 is hereby amended by adding the following new
Section 8.10 at the end thereof:
"8.10 Direct Rollovers.
(a) Effective January 1, 1993, a Participant who is
entitled to receive an eligible rollover distribution
may elect to have such distribution (or a portion
thereof not less than Five Hundred Dollars ($500.00))
made directly to an eligible retirement plan ("direct
rollover election").
An alternate payee who is entitled to
receive an eligible rollover distribution pursuant to
a qualified domestic relations order under Section
8.9 and who is the spouse or a former spouse of a
Participant may make a direct rollover election as if
such alternate payee were the Participant.
A surviving spouse who is entitled to
receive an eligible rollover distribution by reason
of the Participant's death may make a direct rollover
election; provided that such election is restricted
to an eligible retirement plan that is an individual
retirement account described in Section 408(a) of the
Code or an individual retirement annuity described in
Section 408(b) of the Code.
(b) No earlier than ninety (90) days and no later than
thirty (30) days before an eligible rollover
distribution is to be made, the Plan Administrator
shall provide the Participant, alternate payee, or
surviving spouse, as the case may be, with a written
explanation of:
(i) the rules under which he may make a
direct rollover election;
(ii) the legal requirement that federal
income tax be withheld from the
distribution if he does not elect a
direct rollover;
(iii) the rules under which the amount
that he actually receives will not
be subject to federal income tax if
such amount is transferred ("rolled
over") within sixty (60) days after
being received pursuant to Section
402(c) of the Code;
(iv) the rules, if applicable, for
receiving special income tax
averaging, or capital gain
treatment, under Section 402(d) of
the Code; and
14
<PAGE> 15
(v) the Plan provisions under which a
direct rollover election with
respect to one payment in a series
of periodic payments will apply to
all subsequent payments until such
election is changed.
Notwithstanding the foregoing to the contrary, if an
eligible rollover distribution is one of a series of
periodic payments, the explanation required by this
Paragraph (b) shall be provided annually as long as
such payments continue.
(c) A direct rollover election shall be made in such
manner and at such time as the Plan Administrator
shall prescribe, and shall include:
(i) the name of the eligible retirement
plan;
(ii) a statement that such plan is an
eligible retirement plan; and
(iii) any other information necessary to
permit a direct rollover by the
means selected by the Plan
Administrator.
An election to make a direct rollover with
respect to one payment in a series of periodic
payments shall apply to all subsequent payments in
the series until such election is changed; such
change with respect to subsequent payments may be
made at any time.
(d) Notwithstanding Paragraph (b) to the contrary, if an
individual, after receiving the written explanation
required by subsection (b) affirmatively elects to
make or not make a direct rollover, an eligible
rollover distribution may be made less than thirty
(30) days after the date such written explanation was
given, provided the Plan Administrator has informed
such individual, in writing, of his right to a period
of at least thirty (30) days to make such election.
(e) As used in this Section, the following terms shall
have the following
meanings:
(i) `Eligible Retirement Plan' shall
mean
(A) an individual retirement
account, described in
Section 408(a) of the Code;
(B) an individual retirement
annuity described in
15
<PAGE> 16
Section 408(b) of the Code
(other than an endowment
contract);
(C) a trust described in
Section 401(a) of the Code
which is exempt from tax
under Section 501(a) of the
Code and which is part of a
defined contribution plan
described in Section 414(i)
of the Code that permits
rollover contributions; or
(D) an annuity plan described
in Section 403(a) of the
Code.
(ii) `Eligible Rollover Distribution'
shall mean a distribution from the
Plan of Two Hundred Dollars
($200.00) or more, excluding the
following:
(A) a distribution that is one
of a series of periodic
payments (not less
frequently than annually)
made for a specified period
of ten (10) years or
longer, for the
distributee's life
expectancy (or the joint
life expectancy of the
distributee and his
designated Beneficiary), or
for the distributee's life
(or the joint lives of the
distributee and his
designated Beneficiary);
(B) a required distribution
pursuant to Section
401(a)(9) of the Code;
(C) a return of Salary
Deferrals pursuant to
Section 4.4;
(D) a corrective distribution
pursuant to Section 3.2,
3.7 or 3.8."
25. Section 9.1 is hereby amended to read as follows:
"9.1 Plan Administrator. The general administration of the
Plan shall be vested in the Plan Administrator, who shall be a named
fiduciary for purposes of Section 402(a)(1) of ERISA. In performing its
duties hereunder, the Plan Administrator shall have the fullest
discretion permitted by law and shall have all powers granted by the
provisions of the Plan except those specifically granted or allocated
to the Board, the Trustee and investment manager."
26. Section 9.2(i) of the Plan is hereby amended to read as follows:
16
<PAGE> 17
"(i) To select any investment managers;"
27. Section 9.3 is hereby amended to read as follows:
"9.3 Delegation of Ministerial Duties. The Plan Administrator
may delegate to any of its members or to any Employee or Employees,
severally or jointly, the authority to perform any ministerial act in
connection with the administration of the Plan."
28. Section 12.1(a) is hereby amended to read as follows:
"(a) No amendment may be made which would vary the Plan's
exclusive purpose of providing benefits to
Participants, and their beneficiaries, and defraying
reasonable expenses of administering the Plan or
which would permit the diversion of any part of the
Trust Fund from that exclusive purpose. No amendment
shall, except to the extent permit- ted under Section
412(c)(8) of the Code, decrease a Participant's
Aggregate Account balance or, except to the extent
permitted by regulations, eliminate an optional form
of benefit. In addition, no amendment shall have the
effect of decreasing a Participant's Vested Interest
determined without regard to such amendment as of the
later of the date such amendment is adopted or the
date it becomes effective."
29. Section 12.1 is hereby amended by adding the following new
paragraph at the end thereof:
"(d) If the vesting schedule in effect under the Plan is
amended, each Participant who has completed at least
three (3) Years of Service may elect to have the
vested percentage of such portion of his Aggregate
Account determined without regard to such amendment.
The Plan Administrator shall promptly give each such
Participant written notice of the adoption of any
such amendment and the availability of the election
to have the vested percentage of such portion of his
Aggregate Account determined without regard to such
amendment. An election by a Participant shall be in
writing and shall be effective if filed with the Plan
Administrator at any time during the period beginning
with the date such amendment is adopted and ending on
the later of (i) the date which is 60 days after the
day such amendment is adopted, (ii) the date which is
60 days after the day such amendment becomes
effective, or (iii) the date which is 60 days after
the day the Participant receives written notice of
such amendment. An election once made shall be
irrevocable. For purposes of this Section, a
Participant shall be considered to have completed 3
Years of Service if the Participant has
17
<PAGE> 18
completed 3 Years of Service prior to the expiration
of the period in which an election could be made."
30. Except as otherwise provided herein, this Amendment shall be
effective January 1, 1989.
IN WITNESS WHEREOF, Peoples Heritage Financial Group, Inc. has caused
this Amendment to be executed by its duly authorized officer on this 23rd day of
May 1995.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By /s/ Carol L. Mitchell
----------------------------------------
Name: Carol L. Mitchell
Title: Senior Vice President and
General Counsel
18
<PAGE> 1
EXHIBIT 10(q)(3)
SECOND AMENDMENT
TO THE
PEOPLES HERITAGE FINANCIAL GROUP, INC.
THRIFT INCENTIVE PLAN
The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the
"Plan") was last amended and restated effective generally January 1, 1989, and
further amended by a First Amendment effective as of the same date. The Plan is
hereby further amended in the following respects:
1. The terms used in this Amendment shall have the meanings set forth
in the Plan unless the context indicates otherwise.
2. Section 1.3(c) is hereby amended to read as follows, effective as of
the adoption date of this Second Amendment:
(c) In lieu of a joint and survivor annuity under
Paragraph (b)(1), a married Participant may elect to
receive a single life annuity, a ten year certain and
continuous life annuity or a 50% joint and survivor
annuity with another individual as joint annuitant if
the Participant's spouse consents to such election.
Such election may be made, with spousal consent,
during the ninety-day period ending on the first day
of the first period for which an amount is paid as an
Annuity ("annuity starting date"), provided, however,
that (1) if the written explanation required by
Section 417(a)(3) of the Code has not been furnished
to the Participant at least thirty days before the
annuity starting date, the election period will be
extended, if necessary, to include the thirty-day
period following the date on which such information
is furnished to the Participant, and (2) if the
Participant requests additional information described
in Treasury Regulation Section
1.401(a)-11(c)(3)(iii), the election period shall be
extended, if necessary, to include the thirty-day
period following the day on which such additional
information is personally delivered or mailed to the
Participant.
Notwithstanding the foregoing to the contrary, if a
Participant, after receiving the written explanation
required by Section 417(a)(3) of the Code,
affirmatively elects a form of distribution, with
spousal consent, an Annuity may commence no less than
seven days after the date such written explanation
was given, provided the Plan Administrator has
informed such Participant, in writing, of his right
to a period of at least thirty days to make such
election.
<PAGE> 2
For purposes of this Paragraph (c):
(1) any consent by the Participant's spouse to
waive rights to survivor benefits under a
joint and survivor annuity must be in
writing, must acknowledge the effect of such
waiver and must be witnessed by a notary
public;
(2) subject to the spousal consent requirement
above, the Participant may change an
election under this Paragraph (c) at any
time and any number of times before the
annuity starting date, in the form and the
manner required by the Plan Administrator
from time to time; and
(3) the Participant's spouse may not revoke
consent to a specific waiver of a joint and
survivor form of benefit.
3. Section 1.43 is hereby amended to read as follows:
1.43 Valuation Date. For any Plan Year, the last day of each
Calendar Quarter and such additional dates as the Plan Administrator
may designate.
4. Section 1.45 is hereby amended by adding the following new paragraph
(d) at the end thereof, effective October 1, 1995:
(d) All Years of Service with Mid Maine Savings Bank, FSB
prior to the date on which such bank was acquired by
the Company, and all Years of Service with North
Conway Bank prior to the date on which such bank was
acquired by the Company, shall be recognized for
participation and vesting purposes under this Plan.
5. Article 2 is hereby amended by adding a new Section 2.4 to read as
follows:
"2.4 Special Participation Rules. Effective August 1, 1994,
each Employee who was previously employed by Mid Maine Savings Bank,
FSB, immediately prior to the date on which such bank was acquired by
the Company, shall be eligible to participate in the Plan as of the
later of August 1, 1994, or the first day of the Calendar Quarter
coincident with or next following completion of a Year of Service,
provided that a Participation Agreement has been filed with the Plan
Administrator by the fifteenth day of the month immediately preceding
such Calendar Quarter. Effective July 1, 1995, each Employee who was
previously employed by North Conway Bank, immediately prior to the date
on which such bank was acquired by the Company, shall be eligible to
participate in the Plan as of the later of July 1, 1995, or the first
day of the Calendar Quarter coincident with or next following
completion of a Year of Service, provided that a Participation
Agreement has been filed with the
2
<PAGE> 3
Plan Administrator by the fifteenth day of the month immediately
preceding such Calendar Quarter. For purposes of determining whether an
Employee described in this Section has completed a Year of Service, his
service with Mid Maine Savings Bank or North Conway Bank shall be taken
into account."
6. Section 5.1 is hereby amended to read as follows, effective
October 1, 1995:
5.1 Investment Funds. The Trustee shall establish a Company
Stock Fund and one or more other Investment Funds as the Plan
Administrator shall from time to time direct. Each Investment Fund,
other than the Company Stock Fund, shall be invested, as the Plan
Administrator shall direct:
(a) at the discretion of the Trustee in
accordance with such investment guidelines
and objectives as may be established by the
Plan Administrator for such Investment Fund;
(b) at the discretion of a duly appointed
Investment Manager in accordance with such
investment guidelines and objectives as may
be established by the Plan Administrator; or
(c) in such investments as the Plan
Administrator may specify for such
Investment Fund.
The Plan Administrator may from time to time change its
direction with respect to any Investment Fund and may, at any time,
eliminate any Investment Fund. Whenever an Investment Fund is
eliminated, the Trustee shall promptly liquidate the assets of such
Investment Fund and reinvest the proceeds thereof in accordance with
the direction of the Plan Administrator.
The Trustee shall transfer to each Investment Fund such
portion of the assets of the Trust as the Plan Administrator may from
time to time direct in accordance with the terms of the Plan. All
interest, dividends and other income received with respect to, and any
proceeds realized from the sale or other disposition of, assets held in
any Investment Fund shall be credited to and reinvested in such
Investment Fund, and all expenses properly attributable to any
Investment Fund shall be paid therefrom unless paid by the Company.
7. Section 5.2 is hereby amended to read as follows, effective
October 1, 1995:
5.2 Investment of Contributions.
(a) Each Participant may direct that
contributions made on his behalf shall be
invested in any one or more of the
Investment Funds. An investment direction
shall be made by such written,
3
<PAGE> 4
telephonic or electronic means as shall be
prescribed by the Plan Administrator.
A Participant's investment direction, if
received by the Plan Administrator prior to
the date he commences participation, shall
be effective as of said date. If a
Participant does not make an investment
direction or an investment direction is not
received by the Plan Administrator before
the Participant commences participation, the
contributions on behalf of such Participant
shall be invested in the fund which presents
the least risk of loss as determined by the
Plan Administrator. An investment direction
received by the Plan Administrator after the
date a Participant commences participation
shall be effective as soon as practicable
following receipt by the Plan Administrator
(or by the person or persons specified by
the Plan Administrator).
(b) A Participant may modify an investment
direction to have future contributions on
his behalf invested in the Investment Funds
in proportions other than those previously
elected, by such written, telephonic or
electronic means as shall be prescribed by
the Plan Administrator. A modification shall
be effective as soon as practicable
following receipt by the Plan Administrator
(or by the person or persons specified by
the Plan Administrator).
(c) A Participant may elect to reinvest all or a
portion of the balance credited to one or
more of his accounts in any one or more of
the Investment Funds, by such written,
telephonic or electronic means as shall be
prescribed by the Plan Administrator. An
election to reinvest shall be effective as
soon as practicable after receipt by the
Plan Administrator (or by the person or
persons specified by the Plan
Administrator).
Notwithstanding the foregoing, an Insider shall be subject to the
provisions of Section 5.8 whenever he shall transfer any amount
credited to one or more of his accounts from the Company Stock Fund to
another Investment Fund or from another Investment Fund to the Company
Stock Fund or change his previously elected investment options with
respect to future contributions or make any other investment election
under the Plan.
8. Section 6.2 is hereby amended to read as follows:
6.2 Hardship Withdrawals. The Plan Administrator may
direct the Trustee
4
<PAGE> 5
to make a hardship withdrawal distribution to a Participant from the
accounts designated by the Participant, excluding investment earnings
allocated to the Participant's Salary Deferral Account after December
31, 1988, subject to the following:
(a) Each request for a hardship withdrawal shall
be made by such written, telephonic or
electronic means as may be prescribed by the
Plan Administrator. The request shall
specify the reason for such withdrawal and
shall include such other information and
documentation as the Plan Administrator may
request.
(b) A hardship withdrawal may be made only in
cash and may not exceed the Participant's
Vested Interest in his accounts, excluding
investment earnings allocated to the
Participant's Salary Deferral Account after
December 31, 1988.
(c) A hardship withdrawal shall be permitted
only if the distribution is on account of an
immediate and heavy financial need of the
Participant and is necessary to satisfy such
financial need.
(1) A financial need may qualify as
immediate and heavy without regard
to whether such need was
foreseeable or voluntarily
incurred by the Participant. The
following shall be deemed
immediate and heavy financial
needs:
(A) Payment of medical expenses
described in Section 213(d)
of the Code previously
incurred by the
Participant, his spouse or
dependent (within the
meaning of Section 152 of
the Code) or payment
necessary for such persons
to obtain medical care as
described in Section 213(d)
of the Code;
(B) Costs directly related to
the purchase (excluding
mortgage payments) of a
principal residence of the
Participant;
(C) Payment of tuition, related
educational fees and room
and board expenses for the
next 12 months of
post-secondary education
for the Participant, his
spouse or dependent (within
the meaning of Section 152
of the Code);
(D) Payment to prevent eviction
of the Participant
5
<PAGE> 6
from his principal
residence or foreclosure on
the mortgage of the
Participant's principal
residence; and
(E) Any other financial need
deemed to be immediate and
heavy by the Commissioner
of Internal Revenue as set
forth in a Treasury
regulation, revenue ruling,
notice, or other document
of general applicability.
The above list of deemed immediate
and heavy financial needs shall
not be exclusive, and other needs
may qualify as immediate and heavy
financial needs.
(2) A distribution shall be treated as
necessary to satisfy an immediate
and heavy financial need of the
Participant only to the extent (A)
the amount of such distribution
does not exceed the amount
required to relieve the financial
need (including the amount of any
federal, state or local income
taxes or penalties reasonably
anticipated to result from the
distribution) and (B) the amount
of such distribution is not
reasonably available to the
Participant from other resources.
The Plan Administrator may
reasonably rely (unless the Plan
Administrator has actual knowledge
to the contrary) on the
Participant's written
representations that the need
cannot be relieved through
reimbursement or compensation by
insurance or otherwise; by
reasonable liquidation of the
Participant's assets; by cessation
of Salary Deferral Contributions
under the Plan; or by other
distributions or nontaxable (at
the time of the loan) loans from
plans maintained by any present or
former employer of the Participant
or from commercial lenders. A
Participant's resources shall be
deemed to include those assets of
his spouse and minor children that
are reasonably available to the
Participant.
(3) The amount of an immediate and
heavy financial need may include
any amounts necessary to pay any
federal, state or local income
taxes or penalties reasonably
anticipated to result from the
distribution.
(d) A request for a hardship distribution shall
be treated as a claim for benefits under
Section 9.5. A hardship withdrawal shall be
6
<PAGE> 7
made as soon as practicable following
approval of the request by the Plan
Administrator.
(e) The Plan Administrator may from time to time
establish rules governing withdrawals. Such
rules shall be applied on a uniform and
nondiscriminatory basis.
9. Section 8.5(b) is hereby amended to read as follows, effective
as of the adoption date of this Second Amendment:
(b) Any distribution to a Participant who has a Vested
Interest that exceeds $3,500, or that exceeded $3,500
at the time of any prior distribution, shall require
such Participant's written consent if such
distribution commences prior to Normal Retirement
Age. With regard to such consent:
(1) The Participant shall receive the written
notice described in Treasury Regulation
1.411(a)-11(c)(2)(i), including notice of
his right to defer payment of benefits under
this Article, no less than thirty days and
no more than ninety days before the date on
which such distribution is paid or commences
to be paid. If a Participant declines or
fails to consent, it shall be deemed to be
an election to defer payment of such
benefits. However, any election to defer
payment shall not apply with respect to
distributions which are required under
Section 8.5(c).
(2) Notwithstanding the foregoing to the
contrary, if a Participant, after receiving
written notice under Paragraph (b)(1),
affirmatively elects a distribution, then
the distribution may be paid or may commence
to be paid less than thirty days after the
date such written explanation was given,
provided the Plan Administrator has informed
such Participant, in writing, of his right
to a period of at least thirty days to
consider whether to consent to the
distribution.
10. Section 8.10(e)(ii) is hereby amended by modifying
subparagraph (D) to read as follows and adding the following new subparagraphs
(E), (F), and (G) at the end thereof, effective October 19, 1995:
(D) a corrective distribution pursuant to Section 3.2,
3.7, or 3.8;
(E) the portion of any distribution that is not
includable in gross income (determined without regard
to the exclusion for net unrealized appreciation
described in Section 402(e)(4) of the Code);
7
<PAGE> 8
(F) a loan pursuant to Section 6.3 that is treated as a
deemed distribution pursuant to Section 72(p) of the
Code; or
(G) any similar item designated by the Commissioner of
Internal Revenue as set forth in a Treasury
regulation, revenue ruling, notice, or other document
of general applicability.
11. Except as otherwise provided herein, this Amendment shall be
effective January 1, 1995.
* * * * * * * * * *
IN WITNESS WHEREOF, Peoples Heritage Financial Group, Inc. has caused
this Second Amendment to be executed by its duly authorized officer on this 24th
day of October 1995.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By /s/ Carol L. Mitchell
------------------------------------
Name: Carol L. Mitchell
Title: Senior Vice President and
General Counsel
8
<PAGE> 1
EXHIBIT 10(r)(2)
FIRST AMENDMENT
TO THE
PEOPLES HERITAGE FINANCIAL GROUP, INC.
PROFIT-SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
The Peoples Heritage Financial Group, Inc. Profit-Sharing and Employee
Stock Ownership Plan ("Plan") was last amended and restated effective generally
January 1, 1989. The Plan is hereby amended in the following respects:
i. The terms used in this Amendment shall have the meanings set forth in
the Plan, unless the context indicates otherwise.
ii. Section 1.11 is hereby amended to read as follows:
"1.11 Earnings. The total compensation paid by the Company to the
Employee for services rendered while a Participant that constitutes wages
as defined in Section 3401(a) of the Code and all other payments made by
the Company to an Employee for services rendered while a Participant for
which the Company is required to furnish the Employee a written statement
under Sections 6041(d), 6051(a)(3) and 6052 of the Code without regard to
any rules under Section 3401(a) of the Code that limit the remuneration
included in wages based on the nature or location of the employment or
service performed. Notwithstanding the forgoing to the contrary, Earnings
(i) shall include elective contributions made by the Company on behalf of
an Employee that are not includable in income under Section 125, Section
402(e)(3) or Section 402(h) of the Code; and (ii) shall be reduced by
reimbursements or other expense allowances, fringe benefits (cash and
non-cash), moving expenses, deferred compensation and welfare benefits.
Notwithstanding the foregoing to the contrary, effective January 1,
1989, the annual Earnings of any Employee in excess of Two Hundred Thousand
Dollars ($200,000.00) (or such higher amount as the Secretary of the
Treasury may prescribe) shall not be taken into account under the Plan,
and, effective January 1, 1994, the annual Earnings of any Employee in
excess of One Hundred Fifty Thousand Dollars ($150,000.00) (or such higher
amount as the Secretary may prescribe) shall not be taken into account
under the Plan. In the event Earnings are determined based on a period of
time which contains fewer than twelve (12) calendar months, the annual
Earnings limit shall be an amount equal to the annual Earnings limit for
the calendar year in which the period begins multiplied by a fraction, the
numerator of which is the number of full calendar months and the
denominator of which is twelve (12). For purposes of the annual Earnings
limit, any Earnings paid to an Employee who is the spouse or a lineal
descendant (who has not attained age nineteen (19) by the close of the Plan
Year) of an Employee who is a five percent owner (as defined in Section
416(i) of the Code) or one of the ten (10) Highly Compensated Employees
paid the highest earnings (as defined in Section 4.8(a)(5)) for the Plan
Year shall be
<PAGE> 2
treated as paid to or on behalf of such five percent owner or Highly
Compensated Employee. If Earnings for a prior Plan Year are taken into
account for any Plan Year, such Earnings shall be subject to the annual
Earnings limit in effect for such prior Plan Year."
iii. Section 1.31 is hereby amended to read as follows:
"1.31 Plan Administrator. A committee of not less than four (4)
individuals appointed by the Board of Directors."
iv. Section 4.4 is hereby amended to read as follows:
"4.4 Allocation of Company Contributions and Forfeitures. Company
contributions and any Forfeitures from Participants' ESOP Accounts (whether
in whole or fractional shares of Stock, cash or other property) during the
Plan Year shall be allocated to the ESOP Stock Accounts and ESOP Cash
Accounts, as the case may be, of Participants who completed at least 1,000
Hours of Service during such Plan Year and who were employed by the Company
or an Affiliate on the last day of such Plan Year, or terminated employment
during such year on account of death, Disability or Retirement. Such
allocation shall be made in the same proportion that each such
Participant's Earnings for the Plan Year bears to the total Earnings of all
such Participants for the Plan Year."
v. Section 4.8(a)(5) is hereby amended to read as follows:
"(5) 'Section 415 Compensation' shall mean, with respect to a
Limitation Year, the total compensation paid by an Employer to an Employee
for services rendered while an Employee that constitutes wages as defined
in Section 3401(a) of the Code, and all other payments by the Employer to
an Employee for services rendered while an Employee for which the Employer
is required to furnish the Employee a written statement under Sections
6041(d), 6051(a)(3) and 6052 of the Code, without regard to any rules that
limit the remuneration included in wages based on the nature or location of
the employment or services performed. 'Limitation Year' shall mean the
calendar year."
vi. Section 6.6 Loans to Participants and all references thereto are
hereby deleted.
vii. Section 6.7 is hereby amended to read as follows:
6.7 Direct Rollovers.
(a) Effective January 1, 1993, a Participant who is entitled to
receive an eligible rollover distribution may elect to have such
distribution (or a portion thereof not less than Five Hundred
Dollars ($500.00)) made
2
<PAGE> 3
directly to an eligible retirement plan ("direct rollover
election").
An alternate payee who is entitled to receive an eligible
rollover distribution pursuant to a qualified domestic relations
order under Section 6.9 and who is the spouse or a former spouse
of a Participant may make a direct rollover election as if such
alternate payee were the Participant.
A surviving spouse who is entitled to receive an eligible
rollover distribution by reason of the Participant's death may
make a direct rollover election; provided that such election is
restricted to an eligible retirement plan that is an individual
retirement account described in Section 408(a) of the Code or an
individual retirement annuity described in Section 408(b) of the
Code.
(b) No earlier than ninety (90) days and no later than thirty (30)
days before an eligible rollover distribution is to be made, the
Plan Administrator shall provide the Participant, alternate
payee, or surviving spouse, as the case may be, with a written
explanation of:
(1) the rules under which he may make a direct rollover
election;
(2) the legal requirement that federal income tax be
withheld from the distribution if he does not elect a
direct rollover;
(3) the rules under which the amount that he actually
receives will not be subject to federal income tax if
such amount is transferred ("rolled over") within sixty
(60) days after being received pursuant to Section
402(c) of the Code;
(4) the rules, if applicable, for receiving special income
tax averaging, or capital gain treatment, under Section
402(d) of the Code; and
(5) the Plan provisions under which a direct rollover
election with respect to one payment in a series of
periodic payments will apply to all subsequent payments
until such election is changed.
Notwithstanding the foregoing to the contrary, if an eligible
rollover distribution is one of a series of periodic payments,
the explanation
3
<PAGE> 4
required by this Paragraph (b) shall be provided annually as long
as such payments continue.
(c) A direct rollover election shall be made in such manner and at
such time as the Plan Administrator shall prescribe, and shall
include:
(1) the name of the eligible retirement plan;
(2) a statement that such plan is an eligible retirement
plan; and
(3) any other information necessary to permit a direct
rollover by the means selected by the Plan
Administrator.
An election to make a direct rollover with respect to one
payment in a series of periodic payments shall apply to all
subsequent payments in the series until such election is changed;
such change with respect to subsequent payments may be made at
any time.
(d) Notwithstanding Paragraph (b) to the contrary, if an individual,
after receiving the written explanation required by subsection
(b) affirmatively elects to make or not make a direct rollover,
an eligible rollover distribution may be made less than thirty
(30) days after the date such written explanation was given,
provided the Plan Administrator has informed such individual, in
writing, of his right to a period of at least thirty (30) days to
make such election.
(e) As used in this Section, the following terms shall have the
following meanings:
(1) 'Eligible Retirement Plan' shall mean
(A) an individual retirement account, described in
Section 408(a) of the Code;
(B) an individual retirement annuity described in
Section 408(b) of the Code (other than an
endowment contract);
(C) a trust described in Section 401(a) of the Code
which is exempt from tax under Section 501(a) of
the Code and which is part of a defined
contribution plan described in Section 414(i) of
the Code
4
<PAGE> 5
that permits rollover contributions; or
(D) an annuity plan described in Section 403(a) of the
Code.
(2) 'Eligible Rollover Distribution' shall mean a
distribution from the Plan of Two Hundred Dollars
($200.00) or more, excluding the following:
(A) a distribution that is one of a series of periodic
payments (not less frequently than annually) made
for a specified period of ten (10) years or
longer, for the distributee's life expectancy (or
the joint life expectancy of the distributee and
his designated Beneficiary), or for the
distributee's life (or the joint lives of the
distributee and his designated Beneficiary);
(B) a required distribution pursuant to Section
401(a)(9) of the Code."
viii. Section 7.1 is hereby amended to read as follows:
"7.1 Plan Administrator. The general administration of the Plan shall
be vested in the Plan Administrator, who shall be a named fiduciary for
purposes of Section 402(a) (2) of ERISA. In performing its duties, the Plan
Administrator shall have the fullest discretion permitted under ERISA and
the provisions of this Plan, and shall have all powers granted by the
provisions of the Plan and the Trust Agreement except those specifically
granted or allocated to the Board of Directors, to the Trustees, and any
Investment Manager."
ix. Section 7.2(i) of the Plan is hereby amended to read as follows:
"(i) to select any investment managers;"
x. Section 7.3 is hereby amended to read as follows:
"7.3 Delegation of Ministerial Duties. The Plan Administrator may
delegate to any of its members or to any Employee or Employees, severally
or jointly, the authority to perform any ministerial act in connection with
the administration of the Plan."
xi. Section 9.1(a)(3) is hereby amended to read as follows:
5
<PAGE> 6
"(3) decrease a Participant's ESOP Accounts balance (except to the
extent permitted under Section 412(c)(8) of the Code), eliminate
an optional form of benefit (except to the extent permitted by
regulations), or have the effect of decreasing a Participant's
Vested Interest determined without regard to such amendment as of
the later of the date such amendment is adopted or the date it
becomes effective."
xii. Section 9.1 is amended by adding a new subsection (d) to read as
follows:
"(d) If the vesting schedule in effect under the Plan is amended,
each Participant who has completed at least three (3) Years
of Service may elect to have his or her Vested Interest
determined without regard to such amendment. The Plan
Administrator shall promptly give each such Participant
written notice of the adoption of any such amendment and the
availability of the election to have his or her Vested
Interest determined without regard to such amendment. An
election by a Participant shall be in writing and shall be
effective if filed with the Plan Administrator at any time
during the period beginning with the date such amendment is
adopted and ending on the later of (i) the date which is 60
days after the day such amendment is adopted, (ii) the date
which is 60 days after the day such amendment becomes
effective, or (iii) the date which is 60 days after the day
the Participant receives written notice of such amendment.
An election once made shall be irrevocable. For purposes of
this Section, a Participant shall be considered to have
completed 3 Years of Service if the Participant has
completed 3 Years of Service prior to the expiration of the
period in which an election could be made."
xiii. This Amendment shall be effective January 1, 1989.
IN WITNESS WHEREOF, Peoples Heritage Financial Group, Inc. has caused this
Amendment to be executed by its duly authorized officer on this 23rd day of May
1995.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By /s/ Carol L. Mitchell
--------------------------------
Name: Carol L. Mitchell
Title: Senior Vice President and
General Counsel
6
<PAGE> 1
EXHIBIT 10(r)(3)
SECOND AMENDMENT
TO THE
PEOPLES HERITAGE FINANCIAL GROUP, INC.
PROFIT-SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
The Peoples Heritage Financial Group, Inc. Profit-Sharing and Employee
Stock Ownership Plan ("Plan") was last amended and restated effective generally
January 1, 1989. The Plan was thereafter amended effective the same date, and is
hereby further amended in the following respects:
xiv. The terms used in this Amendment shall have the meanings set forth in
the Plan, unless the context indicates otherwise.
xv. Section 1.41 is hereby amended by adding a new paragraph at the end
thereof to read as follows:
"All Years of Service with Mid Maine Savings Bank, FSB prior to the
date on which such bank was acquired by the Company, and all Years of
Service with North Conway Bank prior to the date on which such bank was
acquired by the Company, shall be recognized for participation and vesting
purposes under this Plan."
xvi. Article 2 is hereby amended by adding a new Section 2.5 to read as
follows:
"2.5 Special Participation Rules. Effective August 1, 1994, each
Employee who was previously employed by Mid Maine Savings Bank, FSB,
immediately prior to the date on which such bank was acquired by the
Company, shall be eligible to participate in the Plan as of the later of
August 1, 1994, or the first day of the Calendar Quarter coincident with or
next following completion of a Year of Service. Effective July 1, 1995,
each Employee who was previously employed by North Conway Bank, immediately
prior to the date on which such bank was acquired by the Company, shall be
eligible to participate in the Plan as of the later of July 1, 1995, or the
first day of the Calendar Quarter coincident with or next following
completion of a Year of Service. For purposes of determining whether an
Employee described in this Section has completed a Year of Service, his
service with Mid Maine Savings Bank or North Conway Bank shall be taken
into account."
xvii. Section 6.4(b) is hereby amended to read as follows, effective as of
the adoption date of this Second Amendment:
"(b) Any distribution to a Participant who has a Vested Interest that
exceeds $3,500, or that exceeded $3,500 at the time of any prior
distribution, shall require such Participant's written consent if
such distribution commences prior to Normal Retirement Age. With
regard to such consent:
<PAGE> 2
(1) The Participant shall receive the written notice described
in Treasury Regulation 1.411(a)-11(c)(2)(i), including
notice of his right to defer payment of benefits under this
Article, no less than thirty days and no more than ninety
days before the date on which such distribution is paid or
commences to be paid. If a Participant declines or fails to
consent, it shall be deemed to be an election to defer
payment of such benefits. However, any election to defer
payment shall not apply with respect to distributions which
are required under Section 6.4(d).
(2) Notwithstanding the foregoing to the contrary, if a
Participant, after receiving written notice under Paragraph
(b)(1), affirmatively elects a distribution, then the
distribution may be paid or may commence to be paid less
than thirty days after the date such written explanation was
given, provided the Plan Administrator has informed such
Participant, in writing, of his right to a period of at
least thirty days to consider whether to consent to the
distribution.
xviii. Except as otherwise provided herein, this Amendment shall be
effective January 1, 1995.
IN WITNESS WHEREOF, Peoples Heritage Financial Group, Inc. has caused this
Amendment to be executed by its duly authorized officer on this 24th day of
October 1995.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By /s/ Carol L. Mitchell
--------------------------------
Name: Carol L. Mitchell
Title: Senior Vice President and
General Counsel
2
<PAGE> 1
EXHIBIT 13
[GRAPHIC OMITTED]
Peoples Heritage Financial Group, Inc.
1995 Annual Report
<PAGE> 2
At Peoples Heritage, we achieved another record earnings year by making banking
easier and more convenient for our customers. With our customer-driven approach,
we're continuing to offer new services, build our lines of business, and expand
our markets. Because for us, success comes one customer at a time.
Table of Contents
<TABLE>
<S> <C>
ANOTHER RECORD EARNINGS YEAR 1
Selected financial highlights at Peoples Heritage
Financial Group, Inc.
LETTER TO SHAREHOLDERS 2
A look at what made 1995 a year of accomplishment by
President and CEO William J. Ryan.
PERFORMANCE 4
The key financial indicators of our impressive performance
across the board.
STRATEGY 6
How we've taken advantage of short-term opportunity
while continuing to build for long-term growth.
LINES OF BUSINESS 8
Highlights of our 1995 business growth as we find new ways
to attract customers and broaden customer relationships.
MARKETS 10
An overview of our significant expansion into New Hampshire
and continued growth in Maine.
LOOKING AHEAD 12
How our unique role as a community bank can continue to contribute
to our success as we grow throughout northern New England.
SELECTED 5-YEAR CONSOLIDATED FINANCIAL AND OTHER DATA 14
MANAGEMENT'S DISCUSSION AND ANALYSIS 15
FINANCIAL STATEMENTS 30
CORPORATE DIRECTORY 52
</TABLE>
PEOPLES HERITAGE FINANCIAL GROUP, INC.
Peoples Heritage Financial Group, Inc. is a multi-bank and financial services
holding company for Peoples Heritage Bank in Maine and First Coastal Banks,
Inc., the parent company of The First National Bank of Portsmouth in New
Hampshire.
<PAGE> 3
FINANCIAL HIGHLIGHTS
Another Record Earnings Year
By setting our goals high and working hard to achieve them, Peoples Heritage
again turned in an impressive financial performance.
1995 earnings were up 34% over our record-breaking 1994 results. And we
finished the year with our stock price at an all-time high-- up nearly 90% for
the year. In 1995, we gained important market share, increased our loans, and
added deposits. We raised our return on assets to a record level, increased our
return on equity, and improved asset quality. We wrote more home mortgages,
raised net interest income and increased our fee income. At the same time, we
maintained our focus on strong expense control and efficiency to deliver a solid
financial performance across the board.
[BAR GRAPHS OMITTED]
1
<PAGE> 4
[PHOTO OF WILLIAM J. RYAN]
"Our strategic plan is on course as we transition from Maine's premier community
bank to build northern New England's premier community banking franchise."
Dear Shareholders:
I am pleased to report that 1995 was another record earnings year, up 34%
over 1994's record-setting earnings. Peoples Heritage achieved impressive
results on virtually every significant measure of our company's financial
performance. Our record earnings were fueled by many factors, including our
growth in net interest income and fee income combined with strong expense
control.
1995 has been a remarkable year by more than just financial measures. We
have continued to successfully expand our Maine and New Hampshire franchises to
increase our future earnings potential.
In Maine, we increased our market share to become the state's second
largest deposit bank. We also doubled our ATM network, made a strong move into
telephone banking, and entered new communities to expand our presence across the
state.
In New Hampshire, we acquired North Conway Bank and agreed to purchase five
Shawmut branches. Most significantly, we agreed to buy the $1 billion Bank of
New Hampshire with an agreement that is structured to ensure that net earnings
will increase during the first year. Our New Hampshire expansion is part of our
ongoing effort to increase both earnings per share and the rate of return that
we generate on shareholders' equity.
Clearly, our strategic plan is on course as we transition from Maine's
premier community bank to build northern New England's premier community banking
franchise. The acquisition of Bank of New Hampshire will make us the third
largest bank in New Hampshire, balancing our number two position in Maine and
giving
2
<PAGE> 5
us significant earnings potential in two states.
As an innovator in all our markets, Peoples Heritage is constantly changing
in very positive ways with new services to serve our customers better. These
include our new PhoneBank, a new supermarket banking office, and our
pace-setting Sunday banking hours. At the same time, we remain steadfast in our
commitment to our customers and what it means to be a community bank. For all of
us at Peoples Heritage, that means a focus on customer service, local
decision-making, and contributing to the community.
In addition to our ongoing support of charitable causes, our commitment to
our customers and the communities we serve was recognized by a variety of
organizations in 1995. We were commended by the Newcomen Society as Maine's
business of the year, and by the Finance Authority of Maine for our commitment
to Maine businesses. The Small Business Administration recognized Peoples
Heritage as a leading "LowDoc" lender, and IDC Financial Publishing recognized
us with its superior ranking as one of the safest institutions in the United
States.
While focusing on our long-term vision of expanding our community banking
franchise, we were also flexible enough to seize short-term opportunity. With
marketplace disruption caused by mergers and cutbacks at competitive financial
institutions, we acted swiftly and aggressively to attract new customers to
Peoples Heritage.
Customers responded in great numbers, won over by our reputation for
customer service, and attracted by products like our innovative relationship
accounts which reward customers for maintaining higher balances and multiple
account relationships. Our initiatives to strengthen and expand our customer
relationships will play an even greater role in the coming year as we cross sell
products and services to current customers, while bringing superior service and
products to our expanded customer base in New Hampshire.
As we look ahead to 1996 and beyond with a sense of anticipation and
promise, I wish to thank all of you who made 1995 a year of accomplishment --
our board of directors, our enthusiastic and dedicated employees, our loyal
customers, and our shareholders for your continued support.
Sincerely yours,
/s/ WILLIAM J. RYAN
- -------------------
William J. Ryan
Chairman, President and
Chief Executive Officer
[BAR GRAPH OMITTED]
3
<PAGE> 6
[GRAPHIC OMITTED]
PERFORMANCE
STRENGTH IN NUMBERS
Our 1995 financial results speak to our financial strength, as well as our
ability to achieve these results while expanding our markets to position Peoples
Heritage for continued growth in northern New England. We remain on course as we
strive to become one of the nation's top-performing financial organizations.
RECORD EARNINGS - Peoples Heritage Financial Group achieved record annual
net earnings of $34.0 million, or $2.05 per share in 1995. Net earnings were up
33.8% from 1994's annual record net earnings of $25.4 million, or $1.52 per
share.
RETURN ON ASSETS - Our return on average assets (ROA) of 1.17% in 1995 was
up from 0.95% in 1994. In addition, we reported a 1.25% ROA for our fourth
quarter, establishing a new quarterly record.
RETURN ON EQUITY - In 1995, our return on average equity (ROE) was 13.76%,
up from 11.35% in 1994, another record performance.
EFFICIENCY RATIO - Our efficiency ratio, a measure of how efficient we are
in generating revenue, improved to 63.3%, down from 71.1% in 1994. For the
fourth quarter of 1995, our efficiency ratio was 61.3%.
STRONG MARGINS - In 1995, the net interest margin was 4.62%, up from 4.41%
in 1994. Our net interest margin has continued to benefit from higher levels of
earning assets as we've continued to increase earnings and reduce our level of
nonperforming assets.
MORE LOANS - Net loans and leases increased 5.89% in 1995. Contributing
factors included the success of our fall Home Equity campaign and our ongoing
initiatives in business lending at our banking centers.
4
<PAGE> 7
[GRAPHIC OMITTED]
INCREASED FEE INCOME - Fee income increased to $21.8 million in 1995 from
$18.5 million the previous year. This increase of 17.86% was largely due to our
significant growth in mortgage servicing and strong originations.
CAPITALIZATION - We ended 1995 with a leverage capital ratio of 8.28%, up
from 8.06% at the end of 1994. This greatly exceeds the 5% level at which banks
are considered "well capitalized" and reflects our increased earnings and
continued reductions in nonperforming assets.
RECORD DEPOSITS - In 1995, we attracted a record level of deposits. In
Maine, we moved from third to the second largest deposit bank in the state. By
capitalizing on disruptions in the marketplace, we were able to attract
customers with our relationship banking products and reputation for quality
customer service.
ASSET QUALITY IMPROVEMENTS - We significantly improved our asset quality in
1995. Nonperforming assets were $41.6 million, or just 1.35% of total assets,
down from $53.0 million, or 1.9% of total assets in 1994. More than $5.0 million
of the twelve-month reduction occurred in the fourth quarter of 1995.
INCREASED DIVIDEND - Our dividend payout has increased steadily from 6
cents per share for the first quarter of 1994 to 16 cents per share declared for
the fourth quarter of 1995.
[BAR GRAPHS OMITTED]
5
<PAGE> 8
[GRAPHIC OMITTED]
STRATEGY
GROWING OPPORTUNITY
The success of our core strategy lies in its simplicity: serve our customers
better. For while we expand our markets, build our lines of business, and offer
new integrated services, we remain customer-driven in all we do. Our strategic
planning sessions and task forces regularly examine every area of the Company to
find new ways to improve our performance for our customers, and in turn, for our
shareholders.
CUSTOMER FOCUS - Our success at Peoples Heritage is rooted in our unique
role as a true community banking organization. We listen to our customers to
understand their needs. So we can provide the kinds of products and services
that will fit their lives and values -- and set us apart from our competition.
EXPANDING OUR REACH - As we become northern New England's premier community
bank, we're expanding our reach with market growth in both Maine and New
Hampshire. Fortunately, the efficiency of our advanced operations center
continues to help us easily manage our growth and operate cost-effectively as we
serve greater numbers of customers.
STRENGTHENING RELATIONSHIPS - While bringing aboard new customers, we're
also strengthening and deepening our current relationships by cross selling our
services. In addition, our CARE (Customer and Account Retention Excellence)
program helps all employees identify accounts that may be at risk and offers
effective retention strategies.
GROWING CUSTOMER BASE - In our Maine banking market, we turned unrest into
opportunity. With market disruption from mergers, cutbacks, and bank sales,
customers were being shuffled about. We responded with a targeted advertising
appeal, the right mix of products, and our reputation for service. The result
was over 2,000 new customers.
6
<PAGE> 9
[GRAPHIC OMITTED]
DOUBLED ATM NETWORK - As part of our commitment to make banking more
accessible and convenient for our customers, Peoples Heritage more than doubled
its ATM network in 1995. We added 35 ATM machines in supermarkets, banking
centers, and at freestanding locations throughout our market area. So Peoples
customers can bank where and when they want.
LAUNCHED PHONE BANK - Our new PhoneBank gives Peoples Heritage a distinct
competitive advantage. It offers convenience for our customers, while enabling
us to increase sales and service productivity. Through an automated system or a
customer service representative, customers can access account balances and
information, and even apply for a loan.
SUPERMARKET BANKING - With the busy pace of modern life, customers
appreciate the ability to bank where they shop. As the first bank to open a
supermarket banking center in Maine, Peoples Heritage added a new Waterville
supermarket banking center in 1995.
SUNDAY HOURS - Because our customers don't always have time to get to the
bank, Peoples Heritage offers Sunday hours at numerous branch locations. We also
offer expanded Saturday hours and expanded weekday hours at many locations. It's
one more way to make sure we're there for our customers.
[BAR GRAPH OMITTED]
7
<PAGE> 10
[GRAPHIC OMITTED]
BUSINESS LINES
BROADENING OUR RELATIONSHIPS
Much of our success stems from our ability to maximize our growth potential
through our core competencies in retail banking, commercial banking and mortgage
banking. We also recognize the opportunity to grow and integrate many of our
business lines by packaging our services to meet our customers' financial needs
in every aspect of their lives. By broadening our relationships with our
consumer, business, and public sector customers, we broaden our own potential
for growth.
SMALL BUSINESS LENDING - Peoples Heritage continues to offer fast, local
decision-making and a simplified application process to make our banking centers
a convenient source for small business lending. In 1995, our efforts were
recognized with Certified Lender status from the Small Business Administration
(SBA) and recognition as a leading SBA "LowDoc" Lender. In addition, Peoples
Heritage was recognized by the Finance Authority of Maine for our commitment to
Maine's small businesses.
GROWTH IN COMMERCIAL LENDING - Taking advantage of our lending expertise
and local decision-making, our commercial lending and business loan portfolio
grew 25% in 1995 to reach $800 million. Peoples Heritage offers a full range of
commercial lending services throughout Maine with an increasing presence in New
Hampshire.
RELATIONSHIP BANKING SUCCESS - Our relationship banking programs have
succeeded beyond expectations. While strengthening ties with our customers, our
new Signature Banking program attracted $200 million in deposits in 1995. The
more recent introduction of our New Hampshire bank's First Charter Banking
program has also been a great success. Both programs reward customers for
multiple account relationships.
INCREASED MORTGAGE LENDING - Peoples Heritage originated more than $650
million in mortgage loans in 1995. We're the 80th largest issuer of
mortgage-backed securities in the nation. In addition, we originate more
mortgage loans than any other bank in Maine. And we service more than $2.5
billion in mortgages for others.
NEW TRUST SERVICES - With the launch of our Trust and Investment Management
Services at the start of the year, Peoples Heritage rounds out its capabilities
as a full-
8
<PAGE> 11
[GRAPHIC OMITTED]
service institution for the people and businesses of northern New England. Trust
services represent another opportunity for relationship building with our
customers and are a natural extension of Peoples' mission as a customer-driven
bank.
INVESTMENT PRODUCTS AT BANKING CENTERS - To make investing easier and more
accessible for our customers, we offer investment products through our banking
centers. So our customers can take care of their investments right where they
bank. It's another way we're expanding customer relationships and developing new
ones.
DOUBLED CREDIT CARD FEE INCOME - In 1995, we established a new relationship
with MBNA, the world's second-largest bank credit card lender. With MBNA, we
more than doubled our credit card fee income through various telemarketing and
direct mail campaigns.
GROWTH IN PUBLIC FINANCE - The revitalized Public Finance Division of
Peoples Heritage is a growing provider of investment and loan products to
northern New England's cities, towns, and other public bodies. The division set
ambitious goals for 1995 and delivered by increasing public sector deposits from
$82.7 million in January 1995 to $125 million by December 1995, and more than
doubling loan volume from $13.4 million to $27.6 million.
[BAR GRAPH OMITTED]
9
<PAGE> 12
[GRAPHIC OMITTED]
MARKETS
EXTENDING OUR REACH
Peoples Heritage began 1995 as the premier community bank in both Maine and
seacoast New Hampshire with our New Hampshire bank, The First National Bank of
Portsmouth. We ended the year with plans to become the premier community banking
franchise in northern New England with an agreement to acquire the $1 billion
Bank of New Hampshire. As we continue our market expansion, we intend to build
on our customer-driven approach to keep lending decisions, community involvement
choices and service as close to the customer as possible. As a result, we not
only increase our market reach, but our opportunities for success.
GROWTH IN NEW HAMPSHIRE - With several major developments in 1995, Peoples
Heritage is expanding its New Hampshire franchise from a regional seacoast area
bank to a statewide presence. We reached agreement to acquire the Bank of New
Hampshire Corporation, acquired North Conway Bank in the Mount Washington Valley
area of the state, and reached agreement to purchase five New Hampshire branches
of Shawmut Bank, NH.
AGREEMENT TO ACQUIRE BANK OF NH - When the acquisition of Bank of New
Hampshire is completed as expected in the second quarter of 1996, we will be the
third largest bank in New Hampshire with a virtual statewide reach and a strong
presence in the state's most important markets. Peoples Heritage will climb to
more than $4 billion in assets as the sixth-largest bank holding company in New
England.
PURCHASE OF NORTH CONWAY BANK - This past year Peoples Heritage acquired
Bankcore, Inc., the holding company for North Conway Bank. The acquisition added
five full-service banking offices and marked our entry into another key market
area in New Hampshire.
10
<PAGE> 13
[GRAPHIC OMITTED]
AGREEMENT TO PURCHASE FIVE SHAWMUT BRANCHES - In 1995, Peoples Heritage
also reached agreement to acquire five branches of Shawmut Bank NH, that were
being divested as part of the merger of Fleet Financial Group and Shawmut
National Corporation. The purchase was finalized in February, 1996. The branches
added total deposits of $160 million and add an important presence in the
Merrimack Valley. This region includes some of New Hampshire's most prosperous
communities and key business areas.
EXPANSION IN MAINE - Building on our commitment to provide community
banking services throughout Maine, Peoples Heritage Bank acquired seven branches
in Aroostook County from Fleet Financial Group. In addition to a greater
presence in northern Maine, the acquisition increased deposits by $56 million.
In 1995, Peoples also opened a new banking center in Augusta, the state's
capital, and a supermarket banking center in Waterville.
[GRAPHIC OMITTED]
MAINE -- 61 Branches
NEW HAMPSHIRE -- 21 Branches*
*Includes five former Shawmut Bank NH branches acquired February 16, 1996.
Merger of twenty-nine Bank of New Hampshire branches anticipated in second
quarter, 1996.
11
<PAGE> 14
[GRAPHIC OMITTED]
LOOKING AHEAD
BUILDING ON OUR SUCCESS
At Peoples Heritage, our success is built on strong, loyal customer
relationships. We understand that what sets us apart from our competitors is
more than the services we offer. It's the little things we do to serve our
customers better every day. It's the extra effort at every level of our
organization that shows we're willing to do more. And it's how we intend to
continue growing in the days ahead. After all, we know there's no shortcut to
success. It happens one customer at a time.
UNDERSTANDING OUR ROLE - Staying close to the customer is important at
Peoples Heritage. That not only means meeting our customers' financial needs,
but being a responsible, involved neighbor in every community we serve. With a
year of activities like our "Strike Out Cancer in Kids" program, "Peoes Cares
for Kids CD," and "Neighborhood Cause" programs, Peoples Heritage continued to
demonstrate its commitment to community needs. In 1996, our new "Peoples
Promise" campaign will lend new focus to our corporate giving by supporting
organizations that improve the lives of children within our communities.
GROWING WITH OUR CUSTOMERS - In 1995, we successfully capitalized on market
unrest as large regional banks in northern New England changed ownership and
customers reevaluated their banking relationships. Through our marketing and
product initiatives, we were able to strengthen our competitive position.
Looking ahead in 1996, we aim to continue to attract new customers, but just as
importantly, build on our current relationships by turning single service
customers into multi-service customers.
INCENTIVE COMPENSATION - We believe that Peoples Heritage employees are the
most dedicated, motivated and enthusiastic in the industry. While we may be
biased, it's the spirit of our employees that makes Peoples what it is. That's
something our customers can see and feel just by walking into a banking center.
Now, with our newly revitalized performance pay plan, every employee at Peoples
gets the opportunity to earn more through higher performance.
12
<PAGE> 15
[GRAPHIC OMITTED]
TECHNOLOGY UPGRADES - To provide the best service, Peoples Heritage
employees need the technological tools that will allow them to address needs
quickly and accurately. In 1995, we implemented numerous technology upgrades
throughout our organization. Our Technology Planning Committee is continually
selecting and prioritizing new project plans to help Peoples Heritage improve
operational efficiency in the future.
STRATEGIC PLANNING - Strategic planning is vital to our solid financial
performance and enables us to focus our goals as we push ourselves to higher
levels. Our planning encompasses every area of our business, from delivering
excellent customer service to maximizing our growth potential to reaching key
financial milestones. With a three to five year planning horizon, we continue to
update our goals and strategies as we progress to keep ourselves focused on new
heights.
SHAREHOLDER VALUE - Peoples Heritage ended 1995 with our stock price up
nearly 90% for the year. This level of increase was the third highest among New
England banking companies -- and one of the only two banks to achieve a higher
level of increase was the Bank of New Hampshire, which we have agreed to merge
with our current New Hampshire bank. As we broaden our banking franchise, we
will continue to seek business and earnings growth that will generate total
returns for our shareholders.
[BAR GRAPH OMITTED]
13
<PAGE> 16
<TABLE>
<CAPTION>
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, Except Per Share Data)
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Condition Data 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 3,078,669 $ 2,783,182 $ 2,640,269 $ 2,546,754 $ 2,735,272
Total loans and leases, net 2,168,499 2,047,794 1,858,086 1,817,258 1,976,258
Debt and equity securities, net (1) 485,218 429,003 459,075 372,509 369,231
Deposits 2,361,965 2,063,767 2,074,491 2,079,624 2,292,766
Borrowings 412,816 461,387 324,669 248,777 253,766
Shareholders' equity 270,468 229,265 219,111 199,317 171,478
Nonperforming assets 41,629 53,014 90,626 150,088 206,554
Allowance for loan and lease losses 49,138 50,484 52,804 54,604 67,956
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $ 235,599 $ 196,396 $ 181,033 $ 199,690 $ 256,567
Interest expense 111,063 87,274 89,435 119,147 174,736
------- ------ ------ ------- -------
Net interest income 124,536 109,122 91,598 80,543 81,831
Provision for loan losses 2,430 1,857 9,779 25,225 58,938
----- ----- ----- ------ ------
Net interest income after
provision for loan losses 122,106 107,265 81,819 55,318 22,893
------- ------- ------ ------ ------
Net securities gains (losses) 116 (419) 1,001 2,851 (1,603)
Net gains on sales of consumer loans -- 33 2,576 -- --
Other noninterest income 21,710 18,904 16,127 17,599 14,244
Noninterest expenses 92,657 90,758 87,743 86,920 78,482
------ ------ ------ ------ ------
Income (loss) before
provision for income taxes 51,275 35,025 13,780 (11,152) (42,948)
Income tax expense (benefit) 17,243 9,588 (2,339) 53 (14,586)
------ ----- ------ -- -------
Net income (loss) $ 34,032 $ 25,437 $ 16,119 $ (11,205) $ (28,362)
=========== =========== =========== =========== ===========
Earnings (loss) per share $ 2.05 $ 1.52 $ 0.97 $ (1.18) $ (3.02)
Dividends per share $ 0.52 $ 0.24 $ 0.00 $ 0.00 $ 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data (2) At or For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (3) 4.62% 4.41% 3.93% 3.36% 3.21%
Interest rate spread (3) 4.06% 4.01% 3.60% 3.13% 2.89%
Book value per share at end of period $ 15.96 $ 13.72 $ 13.17 $ 12.05 $ 18.25
Tangible book value per share at end of period $ 14.71 $ 12.59 $ 11.92 $ 10.61 $ 15.44
Return on average assets 1.17% 0.95% 0.63% -0.43% -1.01%
Return on average equity (4) 13.76% 11.35% 7.83% -6.80% -16.11%
Tier I leverage capital ratio at end of period 8.28% 8.06% 7.59% 6.93% 5.26%
Dividend payout ratio 25.38% 15.55% 0.00% 0.00% -1.95%
Price to book value at end of period 142.54% 87.46% 91.10% 80.90% 14.38%
Nonperforming assets as a %
of total assets at end of period 1.35% 1.90% 3.43% 5.89% 7.55%
Allowance for loan losses as a %
of nonperforming loans at end of period 140.28% 119.41% 85.95% 61.26% 8.57%
Allowance for loan losses as a %
of total loans at end of period 2.22% 2.415 2.76% 2.92% 3.32%
Full service banking offices at end of period 77 67 70 72 75
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) All securities were classified as available for sale at December 31, 1995, 1994 and 1993.
(2) Ratios are based on average daily balances during the respective periods.
(3) Fully-taxable equivalent basis, excludes effect of unrealized gains or losses on securities available for sale.
(4) Excludes effect of unrealized gains or losses on securities available for sale.
</FN>
</TABLE>
14
<PAGE> 17
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Overview of Company.
Peoples Heritage Financial Group, Inc. (the "Company") is a multi-bank and
financial services holding company 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 Bank (the "Bank") based in
Portland, Maine, and First Coastal Banks, Inc. ("First Coastal") based in
Portsmouth, New Hampshire. First Coastal wholly owns The First National Bank of
Portsmouth ("Portsmouth") headquartered in Portsmouth, New Hampshire.
Business Strategy.
The principal business of the Company consists of attracting deposits from
the general public through its offices and using such deposits and other sources
of funds to originate residential mortgage loans, commercial business loans and
leases, commercial real estate loans and a variety of consumer loans. The
Company also invests in mortgage-backed securities and securities issued by the
United States Government and agencies thereof. In addition, the Company engages
in the sale of other financial products (annuities and mutual funds), provides
trust services, and services residential mortgage loans for investors.
The Company's goal is to sustain profitable, controlled growth by focusing
on increased loan and deposit market share in Maine and New Hampshire,
developing new financial products, services and delivery channels, closely
managing yields on earning assets and rates on interest-bearing liabilities,
increasing non-interest income through expanded trust and investment advisory
services and mortgage servicing operations and controlling growth of noninterest
expenses. It is also part of the business strategy of the Company to supplement
internal growth with targeted acquisitions of other banking or thrift
institutions in Northern New England. During the period covered by this
discussion, the Company engaged in numerous merger and acquisition related
activities. For further information, see Note 18, "Mergers and Acquisitions," to
the consolidated financial statements and "Acquisitions" below.
Maine and New Hampshire Economies.
The success of the Company is closely linked to the overall health and
vitality of the Maine and New Hampshire economies. Starting in the late 1980s
through 1992 the region experienced an economic decline, including severe
problems in the local real estate markets. During this period excess real estate
inventory contributed substantially to increases in the Company's nonperforming
assets. Since 1992 the Company has been able to significantly reduce its
nonperforming assets and related costs.
The Company believes that Maine, New Hampshire and New England in general
have witnessed slow but steady economic growth since 1992. While economic
activity is just beginning to reach levels experienced in the late 1980s, the
Northern New England economy appears stable at the end of 1995. The economies
and real estate markets in the Company's primary market areas will continue to
be significant determinants of the quality of the Company's assets in future
periods and, thus, its results of operations.
REVIEW OF FINANCIAL STATEMENTS
The discussion and analysis which follows focuses on the factors affecting
the Company's financial condition at December 31, 1995 and 1994 and financial
results of operations during 1995, 1994 and 1993. The consolidated financial
statements and related notes beginning on page 30 of this report should be read
in conjunction with this review. Certain amounts in years prior to 1995 have
been reclassified to conform to the 1995 presentation.
RESULTS OF OPERATIONS
Overview.
The Company reported net income of $34.0 million in 1995 versus net income
of $25.4 million in 1994 and $16.1 million in 1993. Earnings per share in 1995
was $2.05 versus $1.52 in 1994 and $.97 in 1993. Return on average assets was
1.17% in 1995 compared with .95% in 1994 and .63% in 1993. Return on average
equity was 13.76% in 1995 compared to 11.35% in 1994 and 7.83% in 1993. The
primary reasons for the improved results in 1995 were the improvement in net
interest income, increases in mortgage banking services and customer services
income, a decrease in collection and carrying costs related to a reduction in
nonperforming assets, and a decrease in deposit assessment expense, which were
offset in part by higher salary and employee benefit costs and income tax
expense. Overall, the Company was able to increase revenue, both net interest
income and noninterest income, at a faster rate than the increase in operating
expenses in 1995.
The operating results of the Company depend greatly on its net interest
income, which is the difference between interest and dividend income on earning
assets, which consist primarily of loans and leases and securities, and interest
expense on interest-bearing liabilities, which consist primarily of deposits and
borrowings. The Company's results of operations also are affected by the
provision for loan losses, resulting from the Company's assessment of the
adequacy of the allowance for loan losses, the level of its other noninterest
income, including gains and losses on the sales of loans and securities,
noninterest expenses, and income tax expense and benefits. Each of these
principal components of the Company's operating results is discussed below.
Net Interest Income.
Net interest income was $124.5 million, $109.1 million and $91.6 million in
1995, 1994 and 1993, respectively. Net interest income changes are caused by
interest rate movements, changes in the amounts and the mix of earning assets
and interest-bearing liabilities, and changes in the level of nonearning assets
and noninterest-bearing liabilities.
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
15
<PAGE> 18
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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. For purposes of the table
and the following discussion, (i) income from interest-earning assets and net
interest income is presented on a fully-taxable equivalent basis primarily by
adjusting income and yields earned on tax-exempt interest received on loans to
qualifying borrowers and on certain of the Company's equity securities to make
them equivalent to income and yields earned on fully-taxable investments,
assuming a federal income tax rate of 35% and (ii) 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and leases: (1)
Residential real estate mortgages $ 674,008 $ 54,516 8.09%
Commercial real estate mortgages 604,891 60,226 9.96
Commercial business loans and leases 303,607 30,481 10.04
Consumer loans and leases 627,394 59,353 9.46
-------- -----
Total loans and leases 2,209,900 204,576 9.26
--------- -------
Investment securities (2) 484,082 30,460 6.29
Federal funds sold 24,755 1,527 6.17
Total earning assets 2,718,737 236,563 8.70
--------- -------
Nonearning assets (2) 184,152
-------
Total assets $2,902,889
==========
Interest-bearing deposits:
Regular savings $ 319,916 9,207 2.88
NOW accounts 195,267 2,418 1.24
Money market access accounts 367,531 14,304 3.89
Brokered deposits -- -- --
Certificates of deposit 1,080,384 60,242 5.58
--------- ------
Total interest-bearing deposits 1,963,098 86,171 4.39
Borrowed funds 429,919 24,892 5.79
------- ------
Total interest-bearing liabilities 2,393,017 111,063 4.64
--------- -------
Demand deposit accounts 228,141
Other liabilities (2) 32,797
Shareholders' equity (2) 248,934
-------
Total liabilities and shareholders' equity $2,902,889
==========
Net earning assets $ 325,720
==========
Net interest income (fully-taxable equivalent) 125,500
Less: fully-taxable equivalent adjustments (964)
--------
Net interest income $124,536
========
Net interest rate spread (fully-taxable equivalent) 4.06
Net interest margin (fully-taxable equivalent) 4.62
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and leases: (1)
Residential real estate mortgages $ 630,386 $ 46,575 7.39%
Commercial real estate mortgages 567,758 50,181 8.84
Commercial business loans and leases 245,268 22,851 9.32
Consumer loans and leases 565,960 50,751 8.97
------- ------
Total loans and leases 2,009,372 170,358 8.48
--------- -------
Investment securities (2) 467,153 26,215 5.61
Federal funds sold 8,751 386 4.41
Total earning assets 2,485,276 196,959 7.93
--------- ------- ----
Nonearning assets (2) 189,720
-------
Total assets $2,674,996
==========
Interest-bearing deposits:
Regular savings $ 293,943 8,291 2.82
NOW accounts 174,275 2,915 1.67
Money market access accounts 313,773 8,576 2.73
Brokered deposits -- -- --
Certificates of deposit 1,065,401 48,442 4.55
--------- ------
Total interest-bearing deposits 1,847,392 68,224 3.69
Borrowed funds 378,849 19,050 5.03
------- ------
Total interest-bearing liabilities 2,226,241 87,274 3.92
--------- ------
Demand deposit accounts 189,133
Other liabilities (2) 226,845
-------
Total liabilities and shareholders' equity $2,674,996
----------
Net earning assets $ 259,035
==========
Net interest income (fully-taxable equivalent) 109,685
Less: fully-taxable equivalent adjustments (563)
--------
Net interest income $109,122
========
Net interest rate spread (fully-taxable equivalent) 4.01
Net interest margin (fully-taxable equivalent) 4.41
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1993
- --------------------------------------------------------------------------------
Average Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and leases: (1)
Residential real estate mortgages $ 530,355 $ 42,588 8.03%
Commercial real estate mortgages 574,682 45,731 7.96
Commercial business loans and leases 256,965 21,562 8.39
Consumer loans and leases 538,103 47,595 8.84
------- ------
Total loans and leases 1,900,105 157,476 8.29
--------- -------
Investment securities (2) 416,280 23,130 5.56
Federal funds sold 25,988 807 3.11
Total earning assets 2,342,373 181,413 7.74
--------- -------
Nonearning assets (2) 203,672
-------
Total assets $ 2,546,045
===========
Interest-bearing deposits:
Regular savings $ 240,967 6,891 2.86
NOW accounts 181,810 3,566 1.96
Money market access accounts 407,922 11,988 2.94
Brokered deposits 15,000 550 3.67
Certificates of deposit 1,040,083 51,733 4.97
---------
Total interest-bearing deposits 1,885,782 74,728 3.96
Borrowed funds 272,679 14,707 5.39
-------
Total interest-bearing liabilities 2,158,461 89,435 4.14
---------
Demand deposit accounts 163,181
Other liabilities (2) 18,567
Shareholders' equity (2) 205,836
-- -------
Total liabilities and shareholders' equity $ 2,546,045
===========
Net earning assets $ 183,912
===========
Net interest income (fully-taxable equivalent) 91,978
Less: fully-taxable equivalent adjustments (380)
----
Net interest income $ 91,598
========
Net interest rate spread (fully-taxable equivalent) 3.60
Net interest margin (fully-taxable equivalent) 3.93
<FN>
(1) Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans.
(2) Excludes effect of unrealized gains or losses.
</FN>
</TABLE>
16
<PAGE> 19
The following table presents certain information on a fully-taxable
equivalent basis regarding changes in interest income and interest expense of
the Company for the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided with respect to
changes attributable to (1) changes in rate (change in rate multiplied by old
volume), (2) changes in volume (change in volume multiplied by old rate) and (3)
changes in rate/volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 vs 1994 Year Ended December 31, 1994 vs 1993
Increase (Decrease) Due to Increase (Decrease) Due to
- ------------------------------------------------------------------------------------------------------------------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and leases: (1)
Residential real estate mortgages $ 4,413 $ 3,224 $ 304 $ 7,941 $ (3,394) $ 8,033 $ (652) $ 3,987
Commercial real estate mortgages 6,359 3,283 403 10,045 5,057 (551) (56) 4,450
Commercial business loans and leases 1,766 5,437 427 7,630 2,390 (981) (120) 1,289
Consumer loans and leases 2,773 5,511 318 8,602 700 2,463 (7) 3,156
----- ----- --- ----- --- ----- -- -----
Total loans and leases 15,311 17,455 1,452 34,218 4,753 8,964 (835) 12,882
Investment securities 3,177 950 118 4,245 208 2,829 48 3,085
Federal funds sold 154 706 281 1,141 338 (536) (223) (421)
--- --- --- ----- --- ---- ---- ----
Total 18,642 19,111 1,851 39,604 5,299 11,257 (1,010) 15,546
------ ------ ----- ------ ----- ------ ------ ------
Interest-bearing liabilities:
Deposits:
Regular savings 176 732 8 916 (96) 1,515 (19) 1,400
NOW accounts (749) 351 (99) (497) (527) 48) 24 (651)
Money market access accounts 3,640 1,468 620 5,728 (857) ,768) 213 (3,412)
Brokered deposits -0- -0- -0- -0- 550 (550) (550)
Certificates of deposit 10,974 682 144 11,800 (4,368) 1,258 (181) (3,291)
------ --- --- ------ ------ ----- ---- ------
Total deposits 14,041 3,233 673 17,947 (5,298) (693) (513) (6,504)
Borrowed funds 2,879 2,569 394 5,842 (982) 5,723 (398) 4,343
----- ----- --- ----- ---- ----- ---- -----
Total 16,920 5,802 1,067 23,789 (6,280) 5,030 (911) (2,161)
------ ----- ----- ------ ------ ----- ---- ------
Net interest income
(fully taxable equivalent) $ 1,722 $13,309 $ 784 $ 15,815 $ 11,579 $ 6,227 $ (99) $ 17,707
======== ======= ======= ======== ======== ======== ======= ========
<FN>
(1) Loans and leases include portfolio loans and loans held for sale.
</FN>
</TABLE>
17
<PAGE> 20
Net interest income increased by $15.8 million, or 14.4%, during 1995. This
increase was primarily attributable to an increase in the average balance of
interest-earning assets and, to a lesser extent, an increase in the net interest
rate spread from 4.01% to 4.06% during 1994 and 1995, respectively.
Interest income increased by $39.6 million, or 20.1%, during 1995,
primarily as a result of a $34.2 million, or 10.1%, increase in interest on
loans and leases available for sale and held for investment (collectively,
"loans and leases"). The increase in interest on loans and leases was
attributable to both a $200.5 million, or 10.0%, increase in the average balance
of loans and leases, which reflected increases in the average balances of all
loan categories, and an increase in the weighted average yield on loans and
leases from 8.48% during 1994 to 9.26% during 1995, which also reflected
increases in all loan categories. At December 31, 1995, the percentage of the
Company's loans and leases which had adjustable or floating interest rates
amounted to 65.7%.
Interest expense increased by $23.8 million, or 27.3%, during 1995
primarily as a result of a $17.9 million, or 26.3% increase in interest expense
on interest-bearing deposits. The increase in interest expense on
interest-bearing deposits was primarily attributable to an increase in the
weighted average rate thereon from 3.69% in 1994 to 4.39% in 1995, which
reflected the generally higher interest rate environment, and to a lesser extent
a $115.7 million, or 6.3%, increase in the average balance of interest-bearing
deposits, which reflected the aggregate acquisition of $156.9 million of
deposits during the year in connection with the acquisition of Bankcore, Inc.
("Bankcore") on July 1, 1995 and the branch offices of Fleet Bank of Maine in
Aroostook County, Maine on June 15, 1995. Interest expense also increased during
1995 as a result of a $5.8 million, or 30.7% increase in interest on borrowings,
which consist of advances from the Federal Home Loan Bank of Boston and
securities sold under agreements to repurchase. This increase reflected both an
increase in the weighted average rate and average balance of the Company's
borrowings.
Net interest income increased by $17.7 million, or 19.3%, during 1994. This
increase was primarily attributable to an increase in the net interest rate
spread from 3.60% during 1993 to 4.01% during 1994 and, to a lesser extent, an
increase in the average balance of interest-earning assets.
Interest income increased by $15.5 million, or 8.6%, during 1994, primarily
as a result of a $12.9 million, or 8.2%, increase in interest on loans and
leases. The increase in interest on loans and leases reflected substantial
increases in the average balance of residential loans and consumer loans and
leases and, to a lesser extent, an increase in the weighted average yield on
loans and leases from 8.29% during 1993 to 8.48% during 1994 as a result of
increases in the yields on commercial real estate loans and commercial business
loans and leases.
Interest expense decreased by $2.2 million, or 2.4%, during 1994 as a
result of a decrease in the weighted average rate on interest-bearing
liabilities from 4.14% during 1993 to 3.92% during 1994, which more than offset
a $67.8 million, or 3.1%, increase in the average balance of such liabilities
from 1993 to 1994. Interest expense also increased during 1994 as a result of a
$4.3 million, or 29.5%, increase in interest on borrowings, which was primarily
attributable to a $106.2 million, or 38.9%, increase in the average balance of
borrowings during 1994.
Provision for Loan Losses.
The provision for loan losses increased $573 thousand from $1.9 million in
1994 to $2.4 million in 1995. In 1994 the provision for loan losses decreased
$7.9 million from $9.8 million in 1993 to $1.9 million in 1994. The lower
provisions in 1995 and 1994 as compared with 1993 resulted from management's
ongoing evaluation of the adequacy of the allowance for loan and lease losses
which includes, among other procedures, monitoring trends in nonperforming
loans, delinquent loans and net charge-offs, as well as new loan originations
and other asset quality factors.
Although management utilizes its best judgment in providing for possible
losses, there can be no assurance that the Company will not have to change its
provisions for possible loan losses in subsequent periods to a higher level from
that recorded during 1995. Changing economic and business conditions in Northern
New England, fluctuations in local markets for real estate, future changes in
nonperforming asset trends, large upward movements in market based interest
rates or other reasons could affect the Company's future provision for loan
losses.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the adequacy of 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 judgment about
information available to them at the time of 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, 1994; and Portsmouth was most recently examined by the Comptroller
of the Currency as of December 31, 1994.
Noninterest Income.
Noninterest income was $21.8 million for 1995, $18.5 million for 1994 and
$19.7 million for 1993. The $3.3 million, or 17.9%, increase in 1995 compared
with 1994 resulted primarily from a $2.5 million increase in mortgage banking
services income, a $1.5 million increase in customer services related income and
a $535 thousand increase in net securities gains which were offset in part by a
$1.3 million decrease in other noninterest income. The $1.2 million decrease in
1994 compared with 1993 resulted primarily from a $2.5 million decrease in gains
on sales of consumer loans, a $1.4 million decrease in net securities
transactions and a $572 thousand decrease in loan related services income which
were offset in part by a $1.9 million increase in mortgage banking services
income and a $1.2 million increase in other noninterest income.
18
<PAGE> 21
The following table sets forth certain information relating to mortgage
banking activities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At or for the Year Ended December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential mortgages
serviced for investors $2,511,795 $2,001,208 $1,512,974
========== ========== ==========
Residential mortgage sales income $ 4,269 $ 1,869 $ 3,407
Residential mortgage servicing income 6,303 6,196 2,769
---------- ---------- ----------
Total mortgage banking services income $ 10,572 $ 8,065 $ 6,176
========== ========== ==========
</TABLE>
In 1995 total mortgage banking income increased by $2.5 million, or 31.1%,
from $8.1 million in 1994 to $10.6 million in 1995. In 1994 mortgage banking
income increased by $1.9 million, or 30.6%, compared with 1993, primarily due to
an increased level of residential mortgage servicing income offset somewhat by a
decline in residential mortgage sales income. In 1993 total mortgage banking
services income was negatively impacted by accelerated amortization and write
downs of purchased mortgage servicing rights which had declined in value as a
result of a downward movement in interest rates.
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights -- An Amendment of FASB Statement No. 65," which
changed the method of accounting for certain mortgage banking activities. The
Company elected early adoption of SFAS No. 122 and as a result capitalized $2.5
million of originated mortgage servicing rights in 1995. Income related to the
capitalization of originated mortgage servicing rights is included in
residential mortgage sales income.
In 1995, residential mortgage sales income increased $2.4 million from $1.9
million in 1994 to $4.3 million in 1995. The increase in residential mortgage
sales income was primarily related to the adoption of SFAS No. 122 as noted
above. Also included in residential mortgage sales income in 1995 is $642
thousand in gains recognized on the sale of residential mortgage servicing
rights. There were no sales of residential mortgage servicing rights in 1994 or
1993. Excluding the income related to the Company's adoption of SFAS No. 122 and
the gains recognized on the sale of mortgage servicing rights, mortgage sales
income would have decreased by $783 thousand in 1995 as compared with 1994. The
decrease in mortgage sales income, excluding the income related to SFAS No. 122
and the gains on sales of mortgage servicing, was in part attributable to a more
competitive market for retail originations and correspondent loan purchases as
well as an increase in the amount of costs directly allocated to retail mortgage
originations.
Residential mortgage servicing income increased $107 thousand, or 1.7%, in
1995 as compared with 1994 and increased $3.4 million, or 123.8%, in 1994 as
compared with 1993. The Company's portfolio of residential mortgages serviced
for investors increased by $510.6 million, net of amortization and prepayments,
or 25.5%, during 1995 after an increase of $488.2 million, or 32.3%, during
1994. These increases were primarily attributable to the Company's strategy to
originate fixed-rate residential real estate mortgages for sale in the secondary
market while retaining the rights to service these loans and the Company's
selective purchase of mortgage servicing rights for portfolios of residential
mortgages.
Residential mortgage servicing income was negatively impacted in 1995 by
the Company's adoption of SFAS No. 122, 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 conjunction with the adoption of SFAS No. 122, the Company elected to
accelerate the amortization of capitalized mortgage servicing rights and excess
servicing fees related to numerous pools of loans with small outstanding
balances which, from an ongoing operational standpoint, were inefficient to
amortize on a monthly basis. The cumulative impact of accelerating amortization
of capitalized mortgage servicing rights and excess servicing fees associated
with small pools of loans with small outstanding balances and the amortization
expense related to adoption of SFAS No. 122 during 1995 was $445 thousand.
The net gains on sale of consumer loans of $2.6 million in 1993 resulted
primarily from the Company's decision to exit its unprofitable retail credit
card product line.
The generation of mortgage sales income and the recognition of net gains on
the sales of securities, consumer loans and other assets 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 $1.5 million, or 22.7%, in 1995 as
compared with 1994. The increase in customer services income in 1995 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 offices at
December 31, 1994 to 77 offices at December 31, 1995.
Other noninterest income decreased $1.3 million in 1995 as compared with
1994 primarily as a result of $1.3 million of interest income accrued and
received on federal tax receivables during 1994.
19
<PAGE> 22
Noninterest Expenses.
The following table sets forth information relating to the Company's
noninterest expenses during the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $48,878 $43,563 $38,636
Occupancy 7,531 7,438 6,794
Data processing 7,073 6,174 4,965
Deposit and other assessments 3,474 5,735 5,843
Equipment 4,902 4,413 4,329
Collection and carrying costs of
nonperforming assets 1,485 4,295 11,640
Advertising and marketing 3,710 3,692 2,026
Other noninterest expenses:
Amortization of goodwill 1,812 1,688 2,623
Other 13,792 13,760 10,887
------ ------ ------
Total other noninterest expenses 15,604 15,448 13,510
------ ------ ------
Total noninterest expenses $92,657 $90,758 $87,743
======= ======= =======
</TABLE>
Total noninterest expense increased by $1.9 million, or 2.1%, from 1994 to
1995 and $3.0 million, or 3.4%, from 1993 to 1994. During the past few years the
Company has emphasized building a customer focused, highly profitable, community
banking franchise in Northern New England. The current strategy of the Company
includes controlled asset growth, new product development, enhancement of
alternative delivery systems, geographic expansion in New Hampshire, greater
market share in existing markets, revenue enhancement and diversification. As
the Company made investments in new systems, products and employees during the
past two years to support the current business strategy, the Company was also
able to substantially reduce collection and carrying cost of nonperforming
assets.
Salaries and employee benefits expense increased by $5.3 million, or 12.2%,
from 1994 to 1995 and by $4.9 million, or 12.8%, from 1993 to 1994. These
increases were attributable to staff additions related to the Company's mortgage
banking operations, severance and other employee related costs associated with
the acquisitions of Mid Maine Savings Bank ("MMSB") and Bankcore, initiation of
supermarket banking and Sunday banking hours, expanded telephone banking
services, expanded operations staff to support new deposit products and start-up
costs associated with trust services at the Bank.
Data processing expenses increased by $899 thousand, or 14.6%, from 1994 to
1995 and by $1.2 million, or 24.4% from 1993 to 1994. The investment in expanded
operational capabilities to support new product offerings and improve customer
service and a higher level of transactions related to the larger mortgage
servicing portfolio were the primary factors behind the increases in data
processing expenses during 1995 and 1994.
Deposit and other assessment expenses consist primarily of deposit
insurance paid by the Company's subsidiary banks to either the Bank Insurance
Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). At December 31,
1995, the Company had approximately 84.0% of its deposits insured by the BIF and
16.0% by the SAIF. The $2.3 million decrease in deposit and other assessment
expenses in 1995 compared with 1994 is directly attributable to the reduction in
deposit insurance premiums from $0.23 per $100.00 of deposits to $0.04 per
$100.00 of deposits beginning in June, 1995 paid by the Bank and Portsmouth to
the BIF compared with $0.23 per $100.00 of deposits for all of 1994. There has
been much discussion but no clear resolution regarding the recapitalization of
the SAIF. It is anticipated based on various proposed legislation pending in the
U.S. Congress, that there will be a one-time assessment on all SAIF-insured
institutions and that the BIF and the SAIF funds will eventually be merged
together. If an assessment of between $0.65 and $0.85 per $100.00 of assessable
deposits was effected on SAIF deposits of the Company's banking subsidiaries,
the one-time assessment would aggregate between $2.5 million and $3.3 million on
a pre-tax basis.
The Company continued to benefit in 1995 from lower collection and carrying
costs associated with the reduction of nonperforming assets. In 1995 collection
and carrying cost of nonperforming assets decreased by $2.8 million, or 65.4%,
from $4.3 million in 1994 to $1.5 million in 1995. This followed a reduction of
$7.3 million, or 63.1%, in 1994 from $11.6 million in 1993. See "Financial
Condition - Nonperforming Assets" below.
Advertising and marketing expenses increased by $18 thousand, or 0.5%, from
1994 to 1995 and by $1.7 million, or 82.2%, from 1993 to 1994. The significant
increase in advertising and marketing expenses in 1994 and in 1995 from the 1993
level is a reflection of the Company's business strategy to improve the
visibility of its products and services, communicate its improved financial
condition and take advantage of the opportunity created by the confusion and
related customer dissatisfaction caused by major changes that have occurred and
are anticipated to occur in the structure of the banking industries in Maine and
New Hampshire.
Amortization of goodwill increased by $124 thousand, or 7.4%, from 1994 to
1995 and decreased by $935 thousand, or 35.6%, from 1993 to 1994. The increase
in goodwill in 1995 reflects the amortization of goodwill created in the
Bankcore acquisition. The decrease in goodwill from 1993 to 1994 resulted
primarily from the Company's decision in 1993 to accelerate the amortization of
goodwill associated with Peoples Heritage Leasing Company's (a wholly-owned
subsidiary of the Bank, formerly known as Northeast Leasing) acquisition of
assets (primarily leases) of Emerald Leasing Co. in 1988. Amortization of
goodwill associated with Emerald Leasing Co. was $914 thousand during 1993,
including a $520 thousand write-off of the remaining balance during the fourth
quarter of 1993. For additional discussion and disclosure relating to goodwill,
refer to Notes 1 and 8 to the Consolidated Financial Statements.
During 1995 the Company completed the acquisition and operational
conversion of Bankcore and the purchase and operational conversion of all of
Fleet Bank of Maine's branches located in Aroostook County, Maine. During 1994
the Company completed the merger and operational conversion of MMSB into the
Company and closed the New
20
<PAGE> 23
Hampshire operations center and consolidated its operations. The Company remains
committed to controlling the growth of operating expenses and is planning
various initiatives in 1996 which management anticipates will improve the
efficiency of existing operations and facilitate the successful conversion of
operations and systems of pending acquisitions, as discussed below.
Income Tax Expense (Benefit).
The Company recognized income tax expense of $17.2 million and $9.6 million
in 1995 and 1994, respectively, and a $2.3 million income tax benefit in 1993.
The effective tax rate (benefit) was 33.6% in 1995, 27.4% in 1994 and (17.0%) in
1993.
The Company adopted SFAS No. 109 as of January 1, 1993. At the time of
adoption of SFAS No. 109, the Company (prior to the merger of MMSB) determined
that its net deferred tax asset exceeded the amount previously reported under
APB Opinion 11 at January 1, 1993 by $5.7 million. Under SFAS No. 109, however,
the Company established a valuation allowance against the deferred tax asset
which, in its opinion, at the time was not more likely than not to be realized.
The $5.7 million valuation allowance offset the positive impact of adjusting the
Company's deferred tax assets and liabilities as provided for under SFAS No.
109. At December 31, 1993, this valuation allowance was reversed because the
Company then believed, as a result of recent profitable operations, that it was
more likely than not that all net deferred taxes would be realized.
MMSB also adopted SFAS No. 109 as of January 1, 1993 and determined that
its deferred tax asset exceeded the amount previously reported under APB Opinion
11. Since MMSB was also not in a position to substantiate that it was more
likely than not that it would be able to utilize the net deferred tax assets, it
established a valuation allowance for $3.4 million. At December 31, 1993, MMSB
was still not able to substantiate that it was more likely than not that it
would be able to utilize the net deferred tax asset. Upon the acquisition of
MMSB by the Company in 1994, the Company recorded a one-time $1.7 million tax
benefit from the reversal of the valuation allowance for net deferred tax
assets. This one-time tax benefit is reflected in the Company's 1994 income tax
expense.
For additional information relating to income taxes, refer to Note 11 of
the Consolidated Financial Statements.
FINANCIAL CONDITION.
Set forth below is a discussion of the material changes in the Company's
financial condition from December 31, 1994 to December 31, 1995.
General.
At December 31, 1995, the Company had consolidated assets of $3.1 billion,
an increase of $295.5 million, or 10.6%, from December 31, 1994. A significant
percentage of the increase in assets during 1995 was attributable to the
Company's purchase of all the branches and associated deposits of Fleet Bank of
Maine located in Aroostook County, which added $46.1 million in assets, and the
acquisition of Bankcore, which added $132.8 million in assets. The change in
assets consisted of a $120.7 million increase in net loans and leases, $59.9
million increase in loans held for sale, a $56.2 million increase in securities
available for sale, a combined $51.9 million increase in cash and due from banks
and federal funds sold and a $6.7 million increase in all other assets. The
change in liabilities and shareholders' equity consisted of a $298.2 million
increase in deposits, a $53.2 million increase in securities sold under
repurchase agreements, a $41.2 million increase in total shareholders' equity
and $12.8 million increase in all other liabilities and borrowings, which were
in part offset by a $110.0 million decrease in borrowings from the Federal Home
Loan Bank of Boston.
Securities Available for Sale.
Securities available for sale increased by $56.2 million, or 13.1%. The
primary reason behind the increase in securities available for sale in 1995 was
the increase in securities sold under repurchase agreements which are
collateralized by U.S. Government obligations and by mortgage-backed securities,
which increased by $53.2 million in 1995. The Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," at December
31, 1993 and decided to classify all of its investment securities as available
for sale. Securities available for sale are reported at fair value, with net
unrealized gains and losses, net of related income taxes, reported as a separate
component of shareholders' equity. The Company had a net unrealized gain of $3.5
million at December 31, 1995 compared with a net unrealized loss of $14.6
million one year earlier as a result of the lower interest rate environment at
year end 1995 as compared with year end 1994.
The changes in the investment securities portfolio reflect the Company's
efforts to meet asset and liability objectives and otherwise manage its
liquidity and funding needs within the parameters of current accounting
policies. For additional information see "Risk Management" below and Notes 1 and
3 of the Consolidated Financial Statements.
Loans Held for Sale.
Loans held for sale increased by $59.9 million, or 539.9%, from $11.1
million at December 31, 1994 to $71.0 million at December 31, 1995. This
increase was due to an increased volume of residential mortgages being
originated for sale in the secondary market at the end of 1995 as compared with
1994, which was attributable to favorable interest rates for refinancing of
existing mortgages and an increase in the volume of loans originated through the
Bank's correspondent network. For additional information in this regard, see
Notes 1 and 4 to the Consolidated Financial Statements and discussion of "Loans
and Leases" below.
Loans and Leases.
Total loans and leases increased by $119.4 million, or 5.7%. The increase
in loans and leases was comprised of a $67.1 million, or 25.3%, increase in
commercial business loans and leases, a $48.9 million, or 8.1%, increase in
consumer loans and leases, and a $28.3 million, or 4.8%, increase in commercial
real estate mortgages, which were in part offset by a $25.0 million, or 4.0%,
decrease in residential real estate mortgages. A significant percentage of the
increase in loans was attributable to $78 million of loans acquired in the
Bankcore acquisition and $16.5 million of loans acquired in connection with the
acquisition of the Fleet Bank of Maine branch offices in Aroostook County,
Maine.
21
<PAGE> 24
The following table sets forth loans held for sale and total loans and
leases originated, purchased, sold and repaid during 1995 and 1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Originations and purchases:
Residential real estate mortgages $ 675,342 $ 387,984
Commercial real estate mortgages 121,600 158,866
Commercial business loans and leases 379,638 276,172
Consumer loans and leases 268,044 293,181
------- -------
Total originations and purchases 1,444,624 1,116,203
--------- ---------
Loans acquired through acquisitions 94,452 -0-
Total originations, purchases and acquisitions 1,539,076 1,116,203
--------- ---------
Sales and principal reductions:
Sales 552,774 272,357
Principal reductions 807,056 710,224
------- -------
Total sales and principal reductions 1,359,830 982,581
--------- -------
Net increase in loans held for sale
and loans and leases $ 179,246 $ 133,622
========== ==========
</TABLE>
In addition to scheduled contractual amortization and prepayments, loan
principal reductions include charge-offs of $13.0 million and $11.8 million for
the years ended December 31, 1995 and 1994, respectively, as well as transfers
from loans to other real estate owned and repossessions.
Residential real estate mortgage originations increased by $287.4
million, or 74.1%, from $388.0 million in 1994 to $675.3 million in 1995. The
Company has continued its strategy to originate fixed-rate residential loans
for sale to the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association and other institutional investors in the secondary market,
as well as to generally retain adjustable-rate loans in its portfolio. The
increase in residential mortgage originations in 1995 reflected a lower
interest rate environment during the second half of 1995 and a substantial
increase in loans originated through the Bank's correspondent network.
Residential real estate mortgage originations from correspondent lenders
increased by $285.0 million, or 304.7%, from $93.5 million in 1994 to $378.5
million in 1995.
Commercial real estate mortgage originations declined by $37.3 million, or
23.5%, in 1995 as compared with 1994. The Company continues to de-emphasize
commercial real estate loans and to reduce its relative exposure to such loans
in favor of other types of loans. The Company's business plan is to continue to
lend within its geographic markets to sound commercial businesses which
collateralize their borrowings with existing and operational commercial real
estate properties, as well as ongoing refinances of existing commercial real
estate mortgages in the Company's loan portfolio. The increase in the balance of
commercial real estate loans from December 31, 1994 to December 31, 1995 was
largely attributable to the Company's acquisitions during the period. See Note 5
to the Consolidated Financial Statements.
Commercial business loan and lease originations increased by $103.5
million, or 37.5%, in 1995 as compared with 1994. This increase was consistent
with the Company's business strategy to focus on lending to sound, small and
medium sized business customers within its geographical markets.
Consumer loan originations decreased by $25.1 million, or 8.6%, in 1995
compared with 1994. The decrease in consumer loan originations in 1995 was
directly attributable to the decrease in indirect consumer loan originations
which decreased by $35.2 million from $101.6 million in 1994 to $66.4 million in
1995. This decrease was primarily attributable to decreased originations of
indirect mobile home loans. Exclusive of indirect consumer loan originations,
consumer loan originations increased by $28.4 million, or 14.8%, in 1995
compared with 1994. The growth in consumer loan originations and outstanding
balances was concentrated in home equity loans. See Note 5 to the Consolidated
Financial Statements.
Nonperforming Assets.
Nonperforming assets declined by $11.4 million, or 21.5%, during 1995 and
by $37.6 million, or 41.5%, during 1994. Nonperforming loans decreased by $7.2
million, or 17.2%, during 1995 and by $19.2 million, or 31.2%, during 1994.
Other nonperforming assets decreased by $4.2 million and by $18.5 million, or
38.5% and 63.2%, in 1995 and 1994, respectively. Nonperforming assets as a
percentage of total assets decreased from 1.90% at December 31, 1994 to 1.35% at
December 31, 1995.
The Company continues to focus on asset quality issues even though the
levels of nonperforming loans and assets have been substantially reduced.
Significant resources continue to be allocated to the key asset quality control
functions of credit policy and administration and loan review. The collection,
workout and asset management functions continue to focus on the further
reduction of nonperforming asset levels. Despite the ongoing focus on asset
quality and the reductions of nonperforming asset levels, there can be no
assurance that adverse changes in the real estate markets and economic
conditions in the Company's primary business areas will not result in higher
nonperforming asset levels in the future and negatively impact the Company's
operations through higher provisions for loan losses, net loan charge-offs,
decreased accrual of interest income and increased noninterest expenses as a
result of the allocation of resources to the collection and workout of
nonperforming assets.
22
<PAGE> 25
The following table sets forth information regarding nonperforming assets
at the dates indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31, December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential real estate mortgages:
Nonaccrual loans $ 4,990 $ 1,799 $ 1,819
Accruing loans which are 90 days overdue 2,724 2,883 2,930
Troubled debt restructurings -- -- 111
------ ------ ------
Total 7,714 4,682 4,860
------ ------ ------
Commercial real estate mortgages:
Nonaccrual loans 13,247 20,413 24,453
Accruing loans which are 90 days overdue -- -- 279
Troubled debt restructurings 2,595 5,704 14,406
------ ------ ------
Total 15,842 26,117 39,138
------ ------ ------
Commercial business loans and leases:
Nonaccrual loans 6,235 6,270 12,232
Accruing loans which are 90 days overdue -- -- 318
Troubled debt restructurings 1,859 2,013 2,404
------ ------ ------
Total 8,094 8,283 14,954
------ ------ ------
Consumer loans and leases:
Nonaccrual loans 2,846 2,727 1,828
Accruing loans which are 90 days overdue 532 468 633
Troubled debt restructurings -- -- 26
------ ------ ------
Total 3,378 3,195 2,487
------ ------ ------
Total nonperforming loans and leases:
Nonaccrual loans 27,318 31,209 40,332
Accruing loans which are 90 days overdue 3,256 3,351 4,160
Troubled debt restructurings 4,454 7,717 16,947
------ ------ ------
Total nonperforming loans 35,028 42,277 61,439
------ ------ ------
Other nonperforming assets:
Other real estate owned, net of related reserves 5,073 6,658 19,002
In-substance foreclosures, net of related reserves -- 2,096 8,224
Repossessions, net of related reserves 1,528 1,976 1,961
------ ------ ------
Total other nonperforming assets 6,601 10,730 29,187
------ ------ ------
Total nonperforming assets $41,629 $53,014 $90,626
======= ======= =======
Total nonperforming loans as a percentage of total loans (1) 1.58% 2.01% 3.22%
Total nonperforming assets as a percentage of total assets 1.35 1.90 3.43
Total nonperforming assets as a percentage
of total loans (1) and total other nonperforming assets 1.87 2.51 4.67
<FN>
(1) Exclusive of loans held for sale.
</FN>
</TABLE>
23
<PAGE> 26
It is the policy of the Company to place all commercial real estate
mortgages and commercial business loans and leases 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 mortgages and consumer loans and leases are placed on
nonaccrual status generally at 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 therefore
nonperforming status loans currently less than 90 days past due or performing in
accordance with their loan terms but which in management's judgment are likely
to present future principal and/or interest repayment problems and which thus
ultimately would be classified as nonperforming. At December 31, 1995, $11.9
million of commercial real estate and commercial business loans and leases, or
49.7%, of total nonperforming loans were on nonaccrual status and thus disclosed
as nonperforming loans even though they were less than 90 days past due.
Nonperforming residential real estate mortgages increased by $3.0 million
from December 31, 1994 to December 31, 1995. As a percentage of total
residential real estate loans, nonperforming residential real estate increased
from .74% at year end 1994 to 1.27% at year end 1995. This increase was
attributable to the low level of nonperforming loans at year end 1994 and an
increase in past due loans during 1995 to levels approaching but still below
national and regional averages.
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 as other real estate owned, it is
recorded at the lower of carrying or fair value at the date of acquisition or
classification and any writedown resulting therefrom is charged to the allowance
for loan and lease 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 and are included in collection and carrying
costs of nonperforming assets (a component of noninterest expenses). For further
information, see Note 1 to the Consolidated Financial Statements.
The following table summarizes the gross activity in other real estate
owned during the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Activity Amount
- --------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1993 $ 19,002
Property acquired through foreclosure or deed-in-lieu thereof 7,279
Sales and rental proceeds (net of losses) (19,647)
Writedowns and provisions for losses (credited to operations) 24
--------
Balance at December 31, 1994 $ 6,658
--------
Property acquired through foreclosure or deed-in-lieu thereof 11,112
Property acquired through acquisition 2,910
Sales and rental proceeds (net of gains) (16,044)
Writedowns and negative provisions for losses
(credited to operations) (437)
--------
Balance at December 31, 1995 $ 5,073
========
- --------------------------------------------------------------------------------
</TABLE>
Potential Nonperforming Assets.
The total of commercial real estate and commercial business loans and
leases which are internally graded substandard or lower, according to the
Company's internal loan grading system, but which are still in a performing
status, or in other words, the population from which future nonperforming loans
would most likely arise, has continued to decrease since the middle of 1992. At
December 31, 1995 and 1994, the Company had classified a total of $79.8 million
and $99.9 million, respectively, of commercial real estate mortgages and
commercial business loans and leases as substandard or lower on its risk rating
system. Included in this amount at December 31, 1995 was the Company's $23.9
million of nonperforming commercial real estate and business loans. In the
opinion of management, the remaining $55.9 million of commercial real estate
mortgages and commercial business loans and leases classified as substandard at
December 31, 1995 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 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.
Allowance for Loan and Lease Losses.
The allowance for loan and lease losses is maintained at a level determined
to be adequate by management to absorb future chargeoffs of loans deemed
uncollectible. This allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off. Arriving at an
appropriate level of allowance for loan and lease losses necessarily involves a
high degree of judgment, as discussed above under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Provision for Loan
Losses."
24
<PAGE> 27
The following table sets forth information concerning the activity in the
Company's allowance for loan and lease losses during the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Average loans and leases outstanding $2,209,900 $2,009,372 $1,900,105
========== ========== ==========
Allowance at the beginning of the period $ 50,484 $ 52,804 $ 54,604
Additions due to acquisitions
and purchases 2,314 -- --
Charge-offs:
Residential real estate mortgages 1,467 1,857 2,438
Commercial real estate mortgages 7,339 5,168 6,254
Commercial business loans and leases 1,914 3,023 8,594
Consumer loans and leases 2,262 1,714 3,084
----- ----- -----
Total loans charged off 12,982 11,762 20,370
------ ------ ------
Recoveries:
Residential real estate mortgages 245 408 540
Commercial real estate mortgages 4,626 4,184 5,676
Commercial business loans and leases 1,615 2,506 1,260
Consumer loans and leases 406 487 l,316
--- --- ----
Total loans recovered 6,892 7,585 8,791
----- ----- -----
Net charge-offs 6,090 4,177 11,578
Additions charged to operating expenses 2,430 1,857 9,779
----- ----- -----
Allowance at end of period $ 49,138 $ 50,484 $ 52,804
========== ========== ==========
Ratio of net charge-offs to average
loans and leases outstanding 0.28% 0.21% 0.61%
Ratio of allowance to total loans and
leases at end of period 2.22% 2.41% 2.76%
Ratio of allowance to nonperforming
loans at end of period 140.28% 119.41% 85.95%
- --------------------------------------------------------------------------------
</TABLE>
The allowance for loan and lease losses is available for offsetting credit
losses in connection with any loan but is internally allocated to various loan
categories as part of the Company's process for evaluating the adequacy of the
allowance for loan and lease losses.
The following table sets forth information concerning the allocation of the
Company's allowance for loan and lease losses by loan categories at the dates
indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------
PERCENT OF Percent of
TOTAL LOANS Total Loans
BY CATEGORY by Category
AMOUNT TO TOTAL LOANS Amount to Total Loans
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential real estate mortgages $ 2,872 27.4% $ 3,078 30.1%
Commercial real estate mortgages 29,240 28.1 30,545 28.4
Commercial business loans
and leases 8,201 15.0 8,219 12.7
Consumer loans and leases 8,824 29.5 8,642 28.8
----- ---- ----- ----
$ 49,138 100.0% $50,484 100.0%
======== ===== ======= =====
- --------------------------------------------------------------------------------------------
</TABLE>
Deposits.
Total deposits increased by $298.2 million, or 14.4%, for the year ended
December 31, 1995 primarily as a result of acquiring deposits through
acquisition and the success of the Company's relationship banking products. The
change in deposits was comprised of a $172.9 million, or 62.6%, increase in
money market accounts, a $111.8 million, or 11.0%, increase in certificates of
deposit and a combined $71.6 million, or 17.3%, increase in NOW and demand
deposits, which were offset in part by a $58.2 million, or 16.1%, decrease in
regular savings. The changes in deposit balances reflect the Company's current
strategy to emphasize relationship banking, cash management services, core
deposits and the deposit mix of the acquisitions completed in 1995. Deposits
acquired through acquisitions in 1995 totaled $156.9 million.
Other Interest-Bearing Liabilities.
Other interest-bearing liabilities consist of borrowings from the Federal
Home Loan Bank, securities sold under repurchase agreements, federal funds
purchased, debentures and Federal Reserve Bank treasury tax and loan note option
borrowings. Total interest-bearing liabilities decreased from $461.4 million at
December 31, 1994 to $412.8 million at December 31, 1995, a net decrease of
$48.6 million or 10.5%. The decrease in total interest-bearing liabilities other
than deposits reflects the Company's efforts to replace higher-costing
borrowings with lower-costing core deposits.
Federal Home Loan Bank borrowings remain the largest non-deposit related
interest-bearing funding source for the Company. In 1995 the Company reduced
borrowings from the Federal Home Loan Bank by $110.0 million, or 30.4%, to
$252.4 million at December 31, 1995. Federal Home Loan Bank borrowings are
secured by qualified residential loans, certain investment securities and
certain other assets available to be pledged. At December 31,
25
<PAGE> 28
1995, the Company estimates its additional available borrowing capacity from the
Federal Home Loan Bank to be approximately $391.0 million.
Securities sold under repurchase agreements increased by $53.3 million, or
61.5%, from $86.6 million at December 31, 1994 to $139.9 million at December 31,
1995. The increase in securities sold under repurchase agreements is directly
related to the expansion of both public finance activities and commercial cash
management services at the Company's banking subsidiaries during 1995. For
additional discussion of securities sold under repurchase agreements, see Note
12 to the Consolidated Financial Statements below.
The debentures, which are included as part of Other Borrowings in the
Consolidated Balance Sheets, are five-year notes which were issued in
conjunction with the Bankcore acquisition on July 1, 1995, which had an
outstanding balance of $7.8 million at December 31, 1995.
As part of its asset and liability management and liquidity and funds
management, the Company actively evaluates its funding sources and strategies to
reduce and manage the vulnerability of its operations to changes in interest
rates. See "Interest Rate Risk Management" and "Liquidity Risk Management"
below.
Capital Resources.
Consistent with its long-term goal of operating a safe, sound and
profitable financial organization, the Company strives to maintain a strong
capital base. The Company's shareholders' equity base totaled $270.5 million and
$229.3 million or 8.8% and 8.2% of total assets at December 31, 1995 and 1994,
respectively. The $41.2 million, or 18.0%, increase in shareholders equity was
attributable to net income of $34.0, a $11.3 million net unrealized gain (net of
tax effect) in the market value of securities available for sale, $11.3 million
related to the reissuance of treasury stock in conjunction with the Bankcore
acquisition and $1.5 million of treasury stock sales related to various employee
benefit plans of the Company, the effects of which were offset in part by $8.6
million in dividends paid to shareholders and $8.3 million in treasury stock
purchases.
As authorized by the Board of Directors, and in anticipation of the
Bankcore acquisition, the Company initiated a share repurchase program on
December 20, 1994 and repurchased 751,600 shares of its common stock for a total
cost of $9.6 million during 1994 and 1995. A total of 646,600 of these shares,
with a total cost of $8.3 million, were repurchased in 1995; the balance were
repurchased in 1994. All shares repurchased as part of the share repurchase
program were reissued in conjunction with the Bankcore acquisition on July 1,
1995. The Company does not currently anticipate repurchasing any additional
shares.
For additional discussion of capital resources, see Note 14 to the
Consolidated Financial Statements and regulatory capital requirements under
"Regulatory Environment" below.
RISK MANAGEMENT
The Company's success is largely dependent upon its ability to
strategically manage financial as well as nonfinancial risks. Prominent
nonfinancial challenges facing the Company and addressed through the Company's
strategic planning process include competition from bank and nonbank financial
service companies, changing regulatory and political environments, rapid
advances in technology based information systems and demographic and economic
changes. The significant financial risks actively managed by the Company
include: a) credit risk; b) interest rate risk, including asset and liability
management; c) liquidity risk; and d) off-balance sheet risks and commitments.
Credit Risk Management.
The loan portfolio accounted for 72.0% of the assets of the Company at
December 31, 1995 and represents its primary source of credit risk. The Company
has dedicated and will continue to dedicate a substantial amount of time and
resources to the management of credit risk within its loan portfolio. The
Company has established systems of checks and balances to manage the
origination, control and collection of loan assets.
See related discussion of credit risk management issues above under
"Results of Operations, Provision for Loan Losses," "Financial Condition -
Nonperforming Assets," and Note 5 to the Consolidated Financial Statements.
Interest Rate Risk and Asset Liability Management.
The Company's actions in regard to interest rate risk and asset and
liability management are the responsibility of a Liquidity and Funds Management
Committee which reports to the Board of Directors and is comprised of members of
the Company's senior management. The Liquidity and Funds Management Committee is
actively involved in formulating the economic projections the Company uses in
its planning and budgeting process and establishes policies which monitor and
coordinate the Company's sources, uses and pricing of funds.
Interest rate risk can be defined as the exposure of the Company's net
income or financial position to adverse movements in interest rates. In addition
to directly impacting net interest income, changes in the level of interest
rates also affect (i) the amount of loans originated by an institution, (ii) the
ability of borrowers to repay adjustable-rate loans, (iii) the average maturity
of mortgage loans, which tends to increase when current mortgage loan rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when rates on existing mortgages are substantially higher than current
mortgage loans rates (due to refinancings of loans at lower rates), (iv) the
value of an institution's interest-earning assets and the resultant ability to
realize gains on the sale of such assets, and (v) the carrying value of
investment securities classified as available for sale and resultant adjustments
to shareholders' equity.
The principal objective of the Company is to maintain an appropriate
balance between income growth and the risks associated with maximizing income
through the mismatch of the timing of interest rate changes between assets and
liabilities. Perfectly matching asset and liability maturities and interest rate
changes can eliminate interest rate risk, but net interest income is not always
enhanced. The Company seeks to reduce the volatility of its net interest income
by managing the relationship of interest-rate sensitive assets to interest-rate
sensitive liabilities.
To meet its asset and liability management objectives, the Company has
undertaken various steps to increase the ability of the rates earned on its
interest-earning assets to change in accordance with market rates of interest
and to reduce the average maturity of such assets. A principal focus in recent
years has been on the origination of adjustable-rate residential loans and
consumer loans, which generally have shorter maturities than fixed-rate
residential loans.
26
<PAGE> 29
The Company also originates adjustable-rate and fixed-rate commercial real
estate mortgages and commercial business loans and leases, which collectively
also generally mature or reprice more quickly than fixed-rate residential loans.
Net interest income sensitivity to movements in interest rates is measured
through use of a simulation model which analyzes resulting net income under
various interest rate scenarios. Projected net interest income is modeled based
on both an immediate rise or fall in interest rates ("rate shock") as well as
gradual movements in interest rates over a twelve month period. The model is
based on the actual maturity and repricing characteristics of interest rate
sensitive assets and liabilities and factors in budget projections for
anticipated activity levels by major product lines of the Company. The
simulation model incorporates assumptions regarding the impact of changing
interest rates on the prepayment rate of certain assets and liabilities. The
model also takes into account the Company's ability to exert greater control
over the setting of interest rates on certain deposit products than it has over
variable and adjustable rate loans which are tied to published indices, such as
designated prime lending rates and the rate on U.S. Treasury Bills.
Based on the information and assumptions in effect at December 31, 1995,
management of the Company believes that a 200 basis point gradual change in
interest rates over a twelve month period, up or down, would not significantly
affect the Company's annualized net interest income.
As a result of the Company's business strategy to increase noninterest
income related to mortgage banking services, the Company has grown its portfolio
of residential mortgages serviced for investors. As a result of that strategy,
as well as the adoption of SFAS No. 122, the level of mortgage servicing rights
has increased significantly.
In order to mitigate the prepayment risk associated with mortgage servicing
rights and protect economic value, in 1995 the Company purchased a constant
maturity treasury floor ("CMT") for $555 thousand. The cost of the CMT is being
amortized over five years using the straight line method of amortization. The
CMT's value is related to movements in market interest rates to which it is
indexed (based on a $30 million, 10 year Constant Maturity Treasury Yield) and
the remaining term of the CMT. The CMT's value is inversely related to movements
in market interest rates. As interest rates decline, the value of the CMT
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 in mortgage loan prepayment speeds. The value of
mortgage servicing rights generally increases as market interest rates increase
and declines as rates decrease. While not accorded hedge accounting treatment
due to the uncertainty of strict correlation, in the event that interest rates
fall any resulting increase in the value of the CMT is intended to offset, in
part, the prospective impairment to mortgage servicing rights. The CMT is
included in other assets on the Company's balance sheet at December 31, 1995 at
amortized cost of $462 thousand, which approximates market value.
Liquidity Risk Management.
The Company seeks to maintain various sources of funding and prudent levels
of liquid assets in order to satisfy its varied liquidity demands. Many factors
affect the Company's ability to meet its liquidity needs, including its mix of
assets and liabilities, reputation and credit standing in the marketplace,
interest rates and general economic conditions.
The Company's actual inflow and outflow of funds is detailed in the
Consolidated Statements of Cash Flows.
Each of the Company's banking subsidiaries monitors its liquidity in
accordance with guidelines established by the Company and applicable regulatory
requirements. The primary sources of funds of the Company's banking subsidiaries
are deposits, borrowings from the FHLB of Boston and other sources, cash flows
from operations, prepayments and maturities of outstanding loans, leases,
investments and mortgage-backed securities and the sale of mortgage loans.
During 1995 and 1994, the Company's banking subsidiaries used their sources of
funds primarily to meet ongoing commitments to pay maturing savings certificates
and savings withdrawals, pay off maturing brokered deposits, fund loan and lease
commitments and maintain a substantial portfolio of investment securities.
Management believes that the Company's banking subsidiaries currently have
adequate liquidity available to respond to both expected and unexpected
liquidity demands, according to the measurement system established during 1991
and set forth in the Company's contingency liquidity plan. This system, the
Reactive Capacity Adequacy Report System, measures the net amount of marketable
assets, after deducting pledged assets, plus lines of credit, primarily with the
FHLB, which are available to fund liquidity requirements. It then measures the
adequacy of that amount against the amount of sensitive or volatile liabilities.
These include core deposit balances in excess of $100 thousand, term deposits
with short maturities and credit commitments outstanding. This evaluation is
conducted at each subsidiary and consolidated for the Company on a monthly
basis. It allows the Company to manage its liquidity position and funding
sources in order to ensure that it has continuing ability to meet its ongoing
commitment to pay maturing savings certificates and savings withdrawals, fund
loan and lease commitments, meet contractual maturities on borrowings and
maintain a significant portfolio of investment securities.
The Company's liquidity management policies currently include requirements
that the Company maintain a minimum liquidity ratio of no less than 15% with a
target of 20%. The Company's consolidated liquidity position increased during
1995 as net cash, short-term and marketable assets amounted to 22.2% of net
deposits and short-term liabilities at December 31, 1995 as compared to 20.0% at
December 31, 1994.
A secondary source of liquidity, not included in the liquidity ratio
calculation, is represented by asset-based liquidity. Asset-based liquidity
consists chiefly of single-family mortgage loans which qualify for secondary
market sale.
The liquidity needs of the Company on a parent-only basis consist primarily
of dividends to shareholders and expenses for general corporate purposes. The
primary source of parent-only company cash flow is dividends received from
subsidiary banks. For additional information, see Notes 2 and 4 to the
Consolidated Financial Statements.
Off-Balance Sheet Risks and Commitments.
COMMITMENTS TO EXTEND CREDIT. At December 31, 1995 and 1994, the total
approved loan commitments outstanding amounted to $188.4 million and $132.0
million, respectively. At the same dates, commitments under unused lines of
credit amounted to $263.0 million and $214.4 million, respectively. The
unadvanced portion of construction loans amounted to $18.7 million and $15.7
million, respectively.
27
<PAGE> 30
LETTERS OF CREDIT AND STAND-BY LETTERS OF CREDIT. Letters of credit and
standby letters of credit amounted to $11.8 million and $8.5 million,
respectively, at December 31, 1995 and 1994. The credit risk involved in issuing
letters of credit is essentially the same as involved in extending loans to
customers.
DERIVATIVES. The Company has only limited involvement with off-balance
sheet derivative financial instruments and does not use them for trading
purposes.
The Company has explored and utilized in the past certain financial
techniques, such as interest rate exchange agreements, to assist in the
management of interest rate risk. The Company believes that such techniques have
benefits under certain market and economic conditions. At December 31, 1995, the
Company did not have any interest rate exchange agreements in place.
The Company makes use of forward commitments to sell loans as part of its
mortgage banking business. Forward commitments are used in the normal course of
business to reduce the Company's exposure to fluctuations in interest rates.
For additional information, see Note 15 to the Consolidated Financial
Statements.
COUNTERPARTY RISK. The Company does business with a variety of financial
institutions and other companies in the normal course of business. The Company
is subject to potential financial loss if the counterparty is unable to complete
an agreed upon transaction. The Company controls counterparty risk through
financial analysis, dollar limits and other monitoring procedures.
REGULATORY ENVIRONMENT
Compliance with Laws and Regulations
Banks and bank holding companies are subject to a broad scope of laws and
regulations. The Company believes that it is in material compliance with all
applicable federal and state laws and regulations.
Regulatory Capital Requirements
Under Federal Reserve Board (FRB) guidelines, bank holding companies such
as the Company are required to maintain capital based on "risk-adjusted" assets.
Under risk based capital guidelines, categories of assets with potentially
higher credit risk require more capital than assets with lower risk. In addition
to balance sheet assets, bank holding companies are required to maintain
capital, on a risk adjusted basis, to support certain off-balance sheet
activities such as loan commitments. The FRB standards classify capital into two
tiers, Tier I and Total. Tier I risk based capital consists of common
stockholder's equity, noncumulative and cumulative (bank holding companies only)
perpetual preferred stock, and minority interests, less goodwill. Total risk
based capital consists of Tier 1 capital plus a portion of the general allowance
for loan losses, hybrid capital instruments, term subordinated debt and
intermediate preferred stock.
In addition to risk-based capital requirement, the FRB requires bank
holding companies to maintain a minimum leverage capital ratio of Tier I capital
to total assets. Total assets for this purpose do not include goodwill and any
other intangible assets and investments that the FRB determines should be
deducted from Tier I capital.
The FDIC has promulgated similar regulations and guidelines regarding the
capital adequacy of state-chartered banks which are not members of the Federal
Reserve System, which apply to the Bank. The Comptroller of the Currency also
has adopted similar capital adequacy regulations and guidelines which apply to
national banks such as Portsmouth. In each case these requirements are
substantially similar to those adopted by the FRB, as described above. The Maine
Bureau of Banking has also promulgated a regulation regarding capital adequacy
which generally parallels the minimum Tier I leverage capital requirements of
the FDIC.
The following table sets forth the regulatory capital ratios of the
Company, the Bank and Portsmouth at December 31, 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
Required
Minimums(1) Actual
- --------------------------------------------------------------------------------
<S> <C> <C>
THE COMPANY Risk-based capital ratios:
Tier I 4.00% 12.04%
Total 8.00 13.30
Tier I leverage capital ratio (1) 4.00 8.28
THE BANK Risk-based capital ratios:
Tier I 4.00 10.78
Total 8.00 12.04
Tier I leverage capital ratio (1) 4.00 7.46
PORTSMOUTH Risk-based capital ratios:
Tier I 4.00 10.85
Total 8.00 12.10
Tier I leverage capital ratio (1) 4.00 6.80
- --------------------------------------------------------------------------------
</TABLE>
(1) Bank holding companies and banks, including the Company and its banking
subsidiaries, may be required to maintain a Tier I leverage capital ratio of
4.0% to 5.0% or more. The Regulatory Agencies have not advised the Company or
its subsidiaries of a specific Tier I leverage capital ratio requirement to
date.
28
<PAGE> 31
Impact of Inflation and Changing Prices.
The Consolidated Financial Statements and related Notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature. As a
result, interest rates have a more significant impact on the Company's
performance than the general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same direction or in the same
magnitude as inflation.
Impending Accounting Changes.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-Lived Assets to be Disposed of," which was
adopted by the Company on January 1, 1996. This Statement established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to such assets being held and used and for
such assets and certain identifiable intangibles to be disposed of. The
implementation of this Statement did not and is not expected to have a material
effect on the Company's results of operations or financial condition.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which became effective on January 1, 1996. This Statement
establishes a fair value based method of accounting for stock-based compensation
plans under which compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period. However, the
statement allows a company to continue to measure compensation cost for such
plans under Accounting Principles Board (APB) Opinion No. 25," Accounting for
Stock Issued to Employees." Under APB Opinion No. 25, no compensation cost is
recorded if, at the grant date, the exercise price of the options is equal to
the fair market value of the Company's common stock. The Company has elected to
continue to follow the accounting under APB No. 25. SFAS No. 123 requires
companies which elect to continue to follow the accounting in APB Opinion No. 25
to disclose in the notes to their financial statements pro forma net income and
earnings per share as if the value based method of accounting had been applied.
Management has not determined the impact opf the adoption of SFAS No. 123 on the
financial position or results of operations of the Company.
Acquisitions.
On February 16, 1996, Portsmouth acquired five branch offices and
approximately $160 million of related deposits from Fleet Bank NH. Two of these
offices are located in Manchester, New Hampshire and the others are located in
Bedford, Nashua and Littleton, New Hampshire. In addition to various assets
related to the acquired branches, Portsmouth also acquired approximately $216.4
million of loans in connection with this transaction, which consisted primarily
of $178.6 million of single-family residential loans
The Company, First Coastal and Bank of New Hampshire Corporation ("BNHC"),
a New Hampshire-chartered bank holding company, have entered into an Agreement
and Plan of Merger, dated as of October 25, 1995 (the "Agreement"), which
provides, among other things, for (i) the merger of First Coastal with and into
BNHC (the "Merger") and (ii) the conversion of each share of BNHC Common Stock
outstanding immediately prior to the Merger (other than any dissenting shares
under New Hampshire law and certain shares held by the Company) into the right
to receive two shares of the Company's Common Stock, subject to possible
adjustment under certain circumstances. Based on 4,064,165 shares of BNHC Common
Stock outstanding as of December 31, 1995, a maximum of 8,128,330 shares of
Common Stock of the Company will be issuable upon consummation of the Merger.
Consummation of the Merger is subject to various conditions, including approval
of the Agreement by the stockholders of the Company and BNHC, which have been
obtained, the receipt of all required regulatory approvals and confirmation from
the independent accountants of the Company and BNHC that the Merger shall be
accounted for as a pooling-of-interests. BNHC conducts its business through 29
offices of Bank of New Hampshire, its wholly-owned subsidiary, located
throughout the southern, central, seacoast and lakes region of New Hampshire. At
December 31, 1995, BNHC had $977.8 million of total assets and $84.5 million of
stockholders' equity.
29
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
(In Thousands, Except Number of Shares and Per Share Data) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 124,153 $ 99,741
Federal funds sold 58,255 30,735
Securities available for sale, at market value
(Notes 3, 12, 13) 485,218 429,003
Loans held for sale, market value $71,872 in 1995
and $11,163 in 1994, respectively (Note 4) 70,979 11,092
Loans and leases (Note 5 and 13):
Residential real estate mortgages 607,369 632,361
Commercial real estate mortgages 623,686 595,355
Commercial business loans and leases 332,755 265,644
Consumer loans and leases 653,827 604,918
------- -------
2,217,637 2,098,278
Less: Allowance for loan and lease losses (Note 6) 49,138 50,484
------ ------
Net loans and leases 2,168,499 2,047,794
--------- ---------
Premises and equipment (Note 7) 44,358 35,915
Goodwill and other intangibles (Note 8) 21,176 18,985
Mortgage servicing rights (Note 9) 20,309 17,275
Other real estate and repossessed
assets owned (Note 10) 6,601 10,730
Deferred income taxes (Note 11) 26,621 30,542
Interest and dividends receivable 21,634 18,929
Other assets 30,866 32,441
------ ------
$3,078,669 $2,783,182
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------------
(In Thousands, Except Number of Shares and Per Share Data) 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Regular savings $ 303,504 $ 361,657
Money market access accounts 448,998 276,064
Certificates of deposit (including certificates of
$100 or more of $103,730 and $81,911, respectively) 1,124,104 1,012,326
NOW accounts 215,529 195,161
Demand deposits 269,830 218,559
------- -------
2,361,965 2,063,767
--------- ---------
Federal funds purchased 1,500 4,404
Securities sold under repurchase agreements (Note 12) 139,942 86,631
Borrowings from the Federal Home Loan Bank
of Boston (Note 13) 252,446 362,450
Other borrowings 18,928 7,902
Deferred income taxes (Note 11) 10,400 4,884
Other liabilities (Note 16) 23,020 23,879
------ ------
Total liabilities 2,808,201 2,553,917
--------- ---------
Commitments and contingent liabilities (Notes 14, 15 and 16)
Shareholders' equity (Notes 2, 3, 14 and 18):
Preferred stock, par value $0.01; 5,000,000
shares authorized, none issued -- --
Common stock, par value $0.01; 30,000,000
shares authorized, 17,468,220 shares issued 175 175
Paid-in capital 186,900 186,900
Retained earnings 88,951 62,235
Net unrealized gain (loss), net of applicable
income taxes, on securities available for sale 2,247 (9,085)
Treasury stock at cost (524,062 shares and
760,327 shares, respectively) (7,805) (10,960)
------ ------
Total shareholders' equity 270,468 229,265
------- -------
$ 3,078,669 $ 2,783,182
=========== ===========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
30
<PAGE> 33
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
In Thousands, Except Number of Shares and Per Share Data 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income:
<S> <C> <C> <C>
Interest on loans and leases (Note 5) $ 203,968 $ 170,038 $ 157,239
Interest on mortgage-backed investments 12,627 12,409 10,266
Interest on other investments 17,312 12,417 12,446
Dividends on equity securities 1,692 1,532 1,082
----- ----- -----
Total interest and dividend income 235,599 196,396 181,033
------- ------- -------
Interest expense:
Interest on deposits 86,171 68,224 74,728
Interest on borrowed funds 24,892 19,050 14,707
------ ------ ------
Total interest expense 111,063 87,274 89,435
------- ------ ------
Net interest income 124,536 109,122 91,598
Provision for loan losses (Note 6) 2,430 1,857 9,779
- ----- ----- -----
Net interest income after provision for loan losses 122,106 107,265 81,819
------- ------- ------
Noninterest income:
Mortgage banking services (Note 9) 10,572 8,065 6,176
Customer services 8,298 6,765 6,671
Trust and investment advisory services 1,621 1,569 1,373
Loan related services 1,059 1,016 1,588
Net securities gains (losses) (Note 3) 116 (419) 1,001
Net gains on sales of consumer loans (Note 5) -- 33 2,576
Other noninterest income 160 1,489 319
--- ----- ---
21,826 18,518 19,704
------ ------ ------
Noninterest expenses:
Salaries and employee benefits (Note 16) 48,878 43,563 38,636
Occupancy 7,531 7,438 6,794
Data processing 7,073 6,174 4,965
Equipment 4,902 4,413 4,329
Advertising and marketing 3,710 3,692 2,026
Deposit and other assessments 3,474 5,735 5,843
Collection and carrying costs of nonperforming assets 1,485 4,295 11,640
Other noninterest expenses (Note 8) 15,604 15,448 13,510
- ------ ------ ------
92,657 90,758 87,743
------ ------ ------
Income before income tax expense (benefit) 51,275 35,025 13,780
Applicable income tax (benefit) (Note 11) 17,243 9,588 (2,339)
-- ------ ----- ------
Net income $ 34,032 $ 25,437 $ 16,119
============ ============ ============
Weighted average shares outstanding 16,569,063 16,719,800 16,601,195
Earnings per share $ 2.05 $ 1.52 $ 0.97
</TABLE>
See accompanying notes to Consolidated Financial Statements.
31
<PAGE> 34
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net
Number Unrealized
(In Thousands, Except Number of Shares Par Paid-in Retained Loan to Gain Treasury
of Shares and Per Share Data) Issued Value Capital Earnings ESOP (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 17,450,302 $175 $186,649 $26,112 $ (108) $ -0- $ (13,515) $ 199,313
Proceeds from sale of stock
(net of issue cost) 17,918 -0- 251 -0- -0- -0- -0- 251
Treasury stock purchased
(8,044 shares at an
average price of $9.74) -0- -0- -0- -0- -0- -0- (79) (79)
Treasury stock issued for s
employee benefit plan (85,491
shares at an average price
of $9.23) -0- -0- -0- (451) -0- -0- 1,241 790
Principal reduction in loan to ESOP -0- -0- -0- -0- 108 -0- -0- 108
Implementation of change in accounting
for investments in debt and
equity securities, net of
tax effect of $1,609 -0- -0- -0- -0- -0- 2,609 -0- 2,609
Net income -0- -0- -0- 16,119 -0- -0- -0- 16,119
--- --- --- ------ --- ----- --- ------
Balances at December 31, 1993 17,468,220 175 186,900 41,780 -0- 2,609 (12,353) 219,111
Treasury stock purchased
(105,000 shares at an
average price of $12.02) -0- -0- -0- -0- -0- -0- (1,262) (1,262)
Treasury stock issued for employee
benefit plans (179,426 shares
at an average price of $7.42) -0- -0- -0- (1,027) -0- -0- 2,655 1,628
Change in unrealized gains (losses)
on securities available for
sale, net of tax of $6,859 -0- -0- -0- -0- -0- (11,694) -0- (11,694)
Net income -0- -0- -0- 25,437 -0- -0- -0- 25,437
Cash dividends $0.24 per share -0- -0- -0- (3,955) -0- -0- -0- (3,955)
--- --- --- ------ --- ----- --- ------
Balances at December 31, 1994 17,468,220 175 186,900 62,235 -0- (9,085) (10,960) 229,265
Treasury stock purchased
(647,357 shares at an
average price of $12.85) -0- -0- -0- -0- -0- -0- (8,317) (8,317)
Treasury stock issued for employee
benefit plans (132,022 shares
at an average price of $9.76) -0- -0- -0- (401) -0- -0- 1,908 1,507
Reissuance of treasury stock
pursuant to acquisition
(751,600 shares at $15.00) -0- -0- -0- 1,710 -0- -0- 9,564 11,274
Changes in unrealized gains
(losses) on securities available
for sale, net of tax effect
of $6,515 -0- -0- -0- -0- -0- 11,332 -0- 11,332
Net income -0- -0- -0- 34,032 -0- -0- -0- 34,032
Cash dividends $0.52 per share -0- -0- -0- (8,625) -0- -0- -0- (8,625)
--- --- --- ------ --- ------ --- ------
Balances at December 31, 1995 17,468,220 $175 $186,900 $ 88,951 $ -0- $ 2,247 $ (7,805) $ 270,468
========== ==== ======== ======== ===== ======= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
32
<PAGE> 35
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 34,032 $ 25,437 $ 16,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,430 1,857 9,779
Provision for depreciation 4,418 3,959 3,903
Provision for losses and writedowns (credits)
of other real estate owned (958) 143 2,658
Amortization of goodwill and other intangibles 2,098 1,932 2,913
Amortization and sale of servicing rights 6,067 1,743 2,266
Deferred income tax expense (benefit) (note 11) 2,922 (3,050) (5,974)
Net (gains) losses realized from sales of other real estate owned 585 299 (521)
Net (gains) losses realized from sales of securities and consumer loans (116) 384 (3,577)
Net (gains) losses realized from sales of loans
held for sale (a component of mortgage banking services) 510 543 (3,407)
Gains on capitalized servicing (8,524) (1,100) (883)
Proceeds from sales of securities held for sale -- -- 36,469
Proceeds from maturities and principal repayments of securities held for sale -- -- 55,185
Purchases of securities held for sale -- -- (73,205)
Proceeds from sales of loans held for sale 552,774 271,257 257,117
Residential loans originated and purchased for sale (613,171) (218,034) (292,684)
Net (increase) decrease in net deferred tax assets -- (19) 793
Net (increase) decrease in interest and dividends receivable and other assets (1,130) 8,655 7,225
Net increase (decrease) in other liabilities (859) 10,323 (1,293)
---- ------ ------
Net cash provided (used) by operating activities $ (18,922) $ 104,329 $ 12,883
--------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities $ -- $ -- $ 2,070
Proceeds from maturities and principal repayments of investment securities -- -- 79,543
Purchases of investment securities -- -- (180,196)
Proceeds from sales of securities available for sale 9,192 64,960 --
Proceeds from maturities and principal repayments of securities available for sale 135, 972 110,446 --
Purchases of securities available for sale (183,418) (164,304) --
Net (increase) decrease in loans and leases (128,136) (184,040) (52,188)
Proceeds from sale of loans -0- 590 17,846
Purchase of mortgage servicing rights (577) (11,435) (5,882)
Premiums paid on deposits purchased (4,290) (75) --
Net additions to premises and equipment (12,861) (4,657) (2,482)
Proceeds from sales of other real estate owned 8,872 6,884 9,819
Net (increase) decrease in repossessed assets owned 634 3,049 6,283
--- ----- -----
Net cash provided (used) by investing activities $(174,612) $(178,582) $(125,187)
--------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
33
<PAGE> 36
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase (decrease) in deposits $ 298,198 $ (10,724) $ (5,134)
Net increase (decrease) in securities sold under repurchase agreements 53,311 18,181 23,173
Proceeds from Federal Home Loan Bank of Boston borrowings 415,998 390,284 168,250
Payments on Federal Home Loan Bank of Boston borrowings (526,002) (279,594) (112,050)
Payoff of subordinated capital notes -- -- (5,000)
Net increase (decrease) in other borrowings 11,026 5,043 919
Loans to Employee Stock Option Plan -- -- 108
Sale of treasury stock 1,507 1,628 790
Issuance of treasury stock for acquisition 11,274 -- --
Purchase of treasury stock (8,317) (1,262) (79)
Net proceeds from sale of stock -- -- 251
Cash dividends paid to shareholders (8,625) (3,955) --
------ ------ ----
Net cash provided by financing activities $ 248,370 $ 119,601 $ 71,228
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 54,836 45,348 (41,076)
Cash and cash equivalents at beginning of period 126,072 80,724 121,800
------- ------ -------
Cash and cash equivalents at end of period $ 180,908 $ 126,072 $ 80,724
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of information:
Interest paid on deposits and borrowings $ 110,401 $ 86,627 $ 89,987
Income taxes paid (refunded) 11,872 (271) (2,707)
Noncash investing transactions:
Investment securities transferred to securities available
for sale to adopt SFAS No. 115 $ -- $ -- $ 335,103
Securities held for sale transferred to securities available
for sale to adopt SFAS No. 115 -- -- 119,754
Securities held for sale transferred to investment securities -- -- 33,692
Investment securities transferred to securities held for sale -- -- 14,018
Loans transferred to other real estate 11,024 4,079 9,271
Loans originated to finance the sales of other real estate owned 6,020 12,161 22,794
Increases (decreases)resulting from the adoption of SFAS No. 115:
Securities available for sale
Deferred income taxes - liabilities 6,515 (6,859) 1,609
Net unrealized gain (loss) on securities available for sale, net of tax 11,332 (11,694) 2,609
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(All Dollar Amounts Expressed in Thousands, Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples Heritage Financial Group,
Inc. (the "Company") and its subsidiaries conform to generally accepted
accounting principles and to general practice within the Banking industry. The
Company's principal business activities are retail, commercial and mortgage
banking as well as trust and investment advisory services, and are conducted
through the Company's direct wholly-owned subsidiaries located in Maine and New
Hampshire. The Company and its subsidiaries are subject to competition from
other financial institutions and are also subject to regulation of, and periodic
examination by, the Federal Deposit Insurance Corporation, the Office of the
Comptroller of the Currency, the Maine Bureau of Banking and the Federal Reserve
Board. The following is a description of the more significant accounting
policies.
Financial Statement Presentation
The consolidated financial statements include the accounts of Peoples
Heritage Financial Group, Inc., the Company's direct wholly-owned subsidiaries
Peoples Heritage Savings Bank (the "Bank") and First Coastal Banks, Inc. ("First
Coastal"), which wholly owns The First National Bank of Portsmouth
("Portsmouth"), and other subsidiaries which are wholly-owned by the Company's
direct wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in prior
periods have been reclassified to conform to the current presentation.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that effect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to
change relate to the determination of the allowance for possible loan and lease
losses and the net deferred tax asset.
Securities Available for Sale
Securities available for sale consist of debt and equity securities that
the Company anticipates could be made available for sale in response to changes
in market interest rates, liquidity needs, changes in funding sources and other
similar factors. These assets are specifically identified and are carried at
market value. Changes in market value, net of applicable income taxes, are
recorded in and reported as a separate component of shareholders' equity. When a
decline in market value of a security is considered other than temporary, the
loss is charged to net securities gains (losses) in the consolidated statements
of operations as a writedown. Premiums and discounts are amortized and accreted
over the term of the securities on the level yield method. Gains and losses on
the sale of investment securities are recognized at the time of the sale using
the specific identification method.
Loans Held for Sale
Loans originated for the purpose of potential subsequent sale are
classified as held for sale. These loans are specifically identified and carried
at the lower of aggregate cost or estimate of market value.
Loans
Loans are carried at the principal amounts outstanding reduced by partial
charge-offs and net deferred loan fees. Loans are generally placed on nonaccrual
status when they are past due 90 days as to either principal or interest, or
when in management's judgment the collectibility of interest or principal of the
loan has been significantly impaired. When a loan has been placed on nonaccrual
status, previously accrued and uncollected interest is charged to interest on
loans. A loan can be returned to accrual status when collectibility of principal
is reasonably assured and the loan has performed for a period of time, generally
six months. 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." Loans are classified as impaired when it is probable that the
Company will not be able to collect all amounts due according to the contractual
terms of the loan agreement. Factors considered by management in determining
impairment include payment status and collateral value. At adoption, the Company
reclassified $2.2 million of insubstance foreclosures and related reserves of
$96 thousand to loans and leases and allowance for loan and lease losses,
respectively.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is maintained at a level determined
to be adequate by management to absorb future charge-offs of loans deemed
uncollectible. This allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off, and reduced by
charge-offs on loans.
Arriving at an appropriate level of allowance for loan and lease losses
necessarily involves a high degree of judgment. Primary considerations in this
evaluation are prior loan loss experience, the character and size of the loan
portfolio, business and economic conditions and management's estimation of
future potential losses. Although management uses available information to
establish the appropriate level of the allowance for loan and lease losses,
future additions to the allowance may be necessary based on estimates that are
susceptible to change as a result of changes in economic conditions and other
factors. 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 adjustments to
the allowance based on their judgments about information available to them at
the time of their examination.
Other Real Estate and Repossessed Assets Owned
Other real estate and repossessed assets owned is comprised of (i)
properties or other assets acquired through a foreclosure proceeding, or
acceptance of a deed or title in lieu of foreclosure and (ii) other assets
repossessed in connection with non-real estate loans. Other real estate and
repossessed assets owned are initially carried at the lower of cost or fair
value of the collateral less estimated cost to sell. Losses arising from the
acquisition of such properties are
35
<PAGE> 38
charged against the allowance for loan losses. Operating expenses and any
subsequent provisions to reduce the carrying value are charged to current period
earnings. Gains upon disposition are reflected in earnings as realized; losses
are charged to the valuation allowance.
Restrictions on Cash Availability
The Company is required to comply with various laws and regulations of
the Federal Reserve Bank which require that the Company maintain certain
amounts of cash on deposit and is restricted from investing those amounts.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of related assets.
Goodwill and Other Intangibles
Goodwill is amortized on a straight-line basis over periods of fifteen and
twenty years; core deposit premiums are amortized on a level-yield basis over
the estimated life of the associated deposits. Goodwill and other intangible
assets are reviewed for possible impairment when events or changed circumstances
may affect the underlying basis of the asset.
Mortgage Banking
Residential real estate mortgages originated for the purpose of potential
subsequent sale are classified as held for sale. Forward commitments to sell
residential real estate mortgages are contracts which the Company enters into
for the purpose of reducing the market risk associated with originating loans
for sale. In the event the Company is unable to originate loans to fulfill the
contracts, it would normally purchase loans from correspondents or in the open
market to deliver against the contract. Such loans are also classified as held
for sale.
In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB
Statement No. 65." SFAS No. 122 changed the Company's method of accounting for
certain mortgage banking activities. The Company elected early adoption of SFAS
No. 122 effective for all mortgage banking activities in 1995 and as a result
capitalized $2.3 million of originated mortgage servicing rights, net of
amortization.
When loans are sold, a gain or loss is recognized to the extent that the
sale proceeds exceed or are less than the carrying value of the loans. Gains and
losses are determined using the specific identification method and recorded as
mortgage sales income, a component of mortgage banking services income. The
gains and losses resulting from the sales of loans with servicing retained are
adjusted to recognize the present value of future servicing fee income over the
estimated lives of the related loans. Purchased mortgage servicing rights are
recorded at cost upon acquisition.
Mortgage servicing rights are amortized on an accelerated method over the
estimated weighted average life of the loans. Amortization is recorded as a
charge against mortgage service fee income, a component of mortgage banking
services income. The Company's assumptions with respect to prepayments, which
affect the estimated average life of the loans, are adjusted periodically to
reflect current circumstances and to ensure that the carrying value of the
remaining mortgage servicing rights do not exceed the present value of the
estimated future net servicing income. In evaluating the realizability of the
carrying values of mortgage servicing rights, the Company assesses the estimated
life of its servicing portfolio based on data which is disaggregated to reflect
note rate, type and term on the underlying loans.
Mortgage servicing fees received from investors for servicing their loan
portfolios are recorded as mortgage servicing fee income when received. Loan
servicing costs are charged to noninterest expenses when incurred.
Pension Accounting
The Company provides pension benefits to its employees under a
noncontributory defined benefit plan which is funded on a current basis in
compliance with the requirements of the Employee Retirement Income Security Act
of 1974 and recognizes costs over the estimated employee service period.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest-bearing deposits in banks, and federal funds
sold minus federal funds purchased.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. To the extent that current available
information raises doubt as to the realization of some portion or all of the
deferred tax assets, a valuation allowance must be established. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Earnings Per Share
Earnings per share have been computed on the basis of the weighted average
number of shares of common stock outstanding. Common stock equivalents were not
considered in the calculation of weighted average shares outstanding since their
effect was not material.
36
<PAGE> 39
2. CONDENSED PARENT INFORMATION
Condensed Financial Statements of the Parent Company
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
Balance Sheets 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 22,059 $ 6,914
Investment in bank subsidiaries 230,261 202,059
Goodwill 14,392 15,896
Amounts receivable from subsidiaries 8,432 459
Other assets 4,095 4,337
----- -----
Total assets $279,239 $229,665
======== ========
Liabilities and shareholders' equity
Amounts payable to subsidiaries $ 132 $ 85
Notes payable 7,836 --
Other liabilities 803 315
Shareholders' equity 270,468 229,265
------- -------
Total liabilities and
shareholders' equity $279,239 $229,665
======== ========
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
Statements of Operations 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income:
Dividends from banking subsidiaries $ 20,157 $ 9,540 $ 1,009
Gain (loss) on intercompany loan sales -0- (430) 262
Other operating income 322 132 40
--- --- --
Total operating income 20,479 9,242 1,311
------ ----- -----
Operating expenses:
Interest on borrowings 363 -0- 138
Amortization of goodwill 1,505 1,505 1,505
Amortization of acquisition premiums 359 359 305
Other operating expenses 1,502 813 600
----- --- ---
Total operating expenses 3,729 2,677 2,548
----- ----- -----
Income (loss) before income taxes
and equity in undistributed net income
(loss) of subsidiaries 16,750 6,565 (1,237)
Income tax benefit (413) (389) (153)
---- ---- ----
Income (loss)before equity in undistributed
net income of subsidiaries 17,163 6,954 (1,084)
Equity in undistributed
net income of subsidiaries 16,869 18,483 17,203
------ ------ ------
Net income $ 34,032 $ 25,437 $ 16,119
======== ======== ========
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
Statements of Cash Flows 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 34,032 $ 25,437 $ 16,119
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Undistributed net income from subsidiaries (16,869) (18,483) (17,203)
Amortization of goodwill 1,505 1,505 1,505
Amortization of acquisition premiums 359 359 305
Loss (gain) on intercompany loan sales -0- 430 (292)
(Increase) decrease in amounts
receivable from subsidiaries (7,973) (459) 4
(Increase) in other assets (119) (130) (103)
Increase (decrease) in amounts payable
to subsidiaries 47 79 (530)
Increase (decrease) in other liabilities 488 (325) (2,219)
-------- ------- --------
Net cash (used) provided by
operating activities 11,470 8,413 (2,414)
-------- ------- --------
Cash flows from investing activities:
Reissuance of treasury stock pursuant
to acquisition 11,274 -- --
Issuance of notes payable pursuant
to acquisition (net) 7,836 -- --
Capital invested in subsidiaries -0- -0- (2,600)
-------- ------- --------
Net cash used by investing activities 19,110 -0- (2,600)
-------- ------- --------
Cash flows from financing activities:
Dividends paid to shareholders (8,625) (3,955) --
Treasury stock acquired (8,317) (1,262) (79)
Treasury stock sold 1,507 1,628 790
Net proceeds from sale of stock -- -- 251
-------- -------- --------
Net cash provided (used) by
financing activities (15,435) (3,589) 962
-------- -------- --------
Net increase (decrease)
in cash and due from banks 15,145 4,824 (4,052)
Cash and due from banks at beginning of year 6,914 2,090 6,142
-------- -------- --------
Cash and due from banks at end of year $ 22,059 $ 6,914 $ 2,090
======== ======== ========
- --------------------------------------------------------------------------------
Supplemental disclosure information:
Interest paid on borrowings $ 363 $ -- $ 138
- --------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 40
3. SECURITIES AVAILABLE FOR SALE
A summary of the amortized cost and market values of securities available
for sale follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized Market
Cost Holding Gains Holding Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Government obligations and obligations of
U.S. Government agencies and corporations $248,096 $1,828 $ (227) $249,697
Tax-exempt bonds and notes 10,271 30 (2) 10,299
Other bonds and notes 5,368 55 (6) 5,417
Mortgage-backed securities 194,018 2,224 (419) 195,823
-------- ------ -------- --------
Total debt securities 457,753 4,137 (654) 461,236
-------- ------ -------- --------
Federal Home Loan Bank of Boston stock 23,793 0 0 23,793
Other equity securities 160 29 0 189
-------- ------ -------- --------
Total equity securities 23,953 29 0 23,982
-------- ------ -------- --------
Total securities available for sale $481,706 $4,166 $ (654) $485,218
======== ====== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The excess of market value over amortized cost of $3.5 million, net of tax
effect of $1.3 million, is recorded in and reported as a separate component of
shareholders' equity.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized Market
Cost Holding Gains Holding Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Government obligations and obligations of
U.S. Government agencies and corporations $225,058 $ 9 $ (5,847) $219,220
Tax-exempt bonds and notes 11,192 6 (113) 11,085
Other bonds and notes 2,751 0 (45) 2,706
Mortgage-backed securities 180,930 69 (8,533) 172,466
-------- ------ -------- --------
Total debt securities 419,931 84 (14,538) 405,477
-------- ------ -------- --------
Federal Home Loan Bank of Boston stock 23,236 0 0 23,236
Other equity securities 171 119 0 290
-------- ------ -------- --------
Total equity securities 23,407 119 0 23,526
-------- ------ -------- --------
Total securities available for sale $443,338 $ 203 $(14,538) $429,003
======== ====== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The excess of amortized cost over market value of $14.3 million, net of tax
effect of $5.3million is recorded in and reported as a separate component of
shareholders' equity.
- --------------------------------------------------------------------------------
The amortized cost and market values of debt securities available for sale at
December 31, 1995 by contractual maturity are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Cost Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1995:
Due in one year or less $133,891 $134,342
Due after one year through five years 129,243 130,484
Due after five years through ten years 34,718 35,029
Due after ten years 159,901 161,381
------- -------
Total debt securities $457,753 $461,236
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
A summary of realized gains and losses on securities available for sale for
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS Gross Gross Gross Gross
REALIZED REALIZED Realized Realized Realized Realized
GAINS LOSSES Gains Losses Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales of U.S. Government obligations
and obligations of U.S. Government
agencies and corporations $ 31 $ 84 $ 32 $773 $ 561 $-0-
Sales of other bonds and notes 16 3 -0- 25 6 34
Sales of mortgage-backed securities -0- 0 54 -0- -0- -0-
Sales of equity securities 244 87 298 5 468 -0-
---- ---- ---- ---- ------ ---
Total $290 $174 $384 $803 $1,035 $34
==== ==== ==== ==== ====== ===
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. LOANS HELD FOR SALE
The following table summarizes the book value and estimated market value of
loans held for sale at the dates indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
ESTIMATE OF Estimate of
BOOK VALUE MARKET VALUE Book Value Market Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed-rate residential real estate loans having a weighted
average note rate of 7.31% and 7.71% at December 31, 1995
and 1994, respectively $70,979 $71,872 $11,092 $11,163
===== ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in the portfolio of residential real estate loans held for sale are
gross unrealized gains of $1.8 million and $122 thousand and gross unrealized
losses of $874 thousand and $51 thousand at December 31, 1995 and 1994,
respectively.
39
<PAGE> 42
5. LOANS AND LEASES
The Company's lending activities are conducted principally in Maine and New
Hampshire. The principal categories of loans in the Company's portfolio are
residential real estate loans, which are secured by single-family (one to four
units) residences; commercial real estate loans, which are secured by
multi-family (five or more units) residential and commercial real estate;
commercial business loans and leases; and consumer loans and leases.
A summary of loans and leases follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
<S> <C> <C>
Residential real estate mortgages:
Adjustable-rate $ 402,695 $ 418,653
Fixed-rate 204,674 213,708
------- -------
607,369 632,361
------- -------
Commercial real estate mortgages:
Commercial real estate 524,179 520,813
Multi-family residential real estate 60,627 51,485
Construction and development 38,880 23,057
------ ------
623,686 595,355
------- -------
Commercial business loans and leases:
Business loans 259,826 207,594
Lines and letters of credit 61,989 48,842
Leases 10,940 9,208
------ -----
332,755 265,644
------- -------
Consumer loans and leases:
Home equity 256,813 217,889
Mobile home 196,408 201,297
Automobile 109,738 106,666
Home improvement, second mortgage and land 36,900 32,921
Boat and recreational vehicle 17,013 18,836
Other 36,955 27,309
------ ------
653,827 604,918
------- -------
Total loans and leases $2,217,637 $2,098,278
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Loan and lease balances are stated net of deferred loan fees totaling
$3,897 and $5,676 at December 31, 1995 and 1994, respectively.
During 1993 the Company sold substantially all of its credit card portfolio
in order to exit its unprofitable retail credit product lines. As a result of
this sales transaction, the Company realized a $2.6 million gain.
Related Party Transactions
Loans to officers, directors and related parties are made in the ordinary
course of business and on the same terms and conditions prevailing at the time
for comparable transactions. A summary of loans to related parties during 1995
and 1994 follows:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balance at December 31, 1993 $ 18,488
Loans made/advanced and additions 1,089
Repayments and reductions (4,898)
Other changes 76
--
Balance at December 31, 1994 $ 14,603
Loans made/advanced and additions 500
Repayments and reductions (1,866)
Other changes (1,386)
------
Balance at December 31, 1995 $ 11,865
========
</TABLE>
- --------------------------------------------------------------------------------
Nonperforming loans
The following table sets forth information regarding nonperforming loans at
the dates indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
<S> <C> <C>
Residential real estate mortgages:
Nonaccrual loans $ 4,990 $ 1,799
Accruing loans which are 90 days overdue 2,724 2,883
------- -------
Total 7,714 4,682
------- -------
Commercial real estate mortgages:
Nonaccrual loans 13,247 20,413
Troubled debt restructurings 2,595 5,704
------- -------
Total 15,842 26,117
------- -------
Commercial business loans and leases:
Nonaccrual loans 6,235 6,270
Troubled debt restructurings 1,859 2,013
------- -------
Total 8,094 8,283
------- -------
Consumer loans and leases:
Nonaccrual loans 2,846 2,727
Accruing loans which are 90 days overdue 532 468
------- -------
Total 3,378 3,195
------- -------
Total nonperforming loans:
Nonaccrual loans 27,318 31,209
Accruing loans which are 90 days overdue 3,256 3,351
Troubled debt restructurings 4,454 7,717
------- -------
Total nonperforming loans $35,028 $42,277
======= =======
- --------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 43
The ability and willingness of the residential real estate, commercial real
estate, commercial business and consumer borrowers to repay loans is generally
dependent on current economic conditions and real estate values within the
borrowers' geographic areas.
During 1995 and 1994, the Company's policy was generally to limit new loans
to one borrower to $8.0 million. These limitations are substantially below the
limitations set forth in applicable laws and regulations.
Interest income that would have been recognized for 1995, 1994 and 1993, if
nonperforming loans at December 31, 1995, 1994 and 1993 had been performing in
accordance with their original terms, approximated $4.1 million, $4.8 million
and $6.8 million, respectively. The actual amount that was collected on these
loans during the periods and included in interest income approximated $1.5
million, $1.5 million and $2.5 million, respectively. As a result, the reduction
in interest income for 1995, 1994, and 1993 associated with nonperforming loans
held at the end of such periods approximated $2.6 million, $3.3 million and $4.3
million, respectively.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Account ing 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.
Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which is probable that the Company
will not be able to collect all amounts due according to the contractual terms
of the loan agreement. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap.
Nonaccrual loans include impaired loans and are those on which the accrual of
interest is discontinued when collectibility of principal or interest is
uncertain or payments of principal or interest have become contractually past
due 90 days. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the loan
as impaired, if (i) it is probable that the Company will collect all amounts due
in accordance with the contractual terms of the loan or (ii) the loan is not a
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of 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, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are individually significant are measured for
impairment collectively. Loans that experience insignificant payment delays and
insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into the consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
At December 31, 1995, total impaired loans were $24.4 million, of which
$21.8 million had related allowances of $4.9 million. During the year ended
December 31, 1995, the income recognized related to impaired loans was $1.5
million and the average balance of outstanding impaired loans was $29.1 million.
The Company recognizes interest on impaired loans on a cash basis when the
ability to collect the principal balance is not in doubt; otherwise,
cash received is applied to the principal balance of loan.
6. ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 50,484 $ 52,804 $ 54,604
Allowance on acquired portfolios 2,314 -0- -0-
Provisions charged to operations 2,430 1,857 9,779
Loans and leases charged off (12,982) (11,762) (20,370)
Recoveries 6,892 7,585 8,791
----- ----- -----
Balance at end of period $ 49,138 $ 50,484 $ 52,804
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
7. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 9,837 $ 8,100
Buildings and improvements 31,915 28,569
Leasehold improvements 8,365 7,203
Furniture, fixtures and equipment 33,599 25,426
------ ------
83,716 69,298
------ ------
Less accumulated depreciation and amortization 39,358 33,383
------ ------
$44,358 $35,915
======= =======
- --------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 44
8. GOODWILL AND OTHER INTANGIBLES
A summary of goodwill and other intangibles follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $19,145 $17,506
Core deposit premiums 2,031 1,479
----- -----
$21,176 $18,985
======= =======
- --------------------------------------------------------------------------------
</TABLE>
Amortization of goodwill is included in other noninterest expenses and
amounted to $1,813, $1,688 and $2,623 for the years ended December 31, 1995,
1994 and 1993, respectively.
Amortization of core deposit premiums is included in interest on deposits
and amounted to $286, $244 and $290 for the years ended December 31, 1995, 1994
and 1993, respectively.
9. MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights for the years ended December 31,
1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 17,275 $ 6,483 $ 1,985
Mortgage servicing rights capitalized 9,101 12,535 6,764
Amortization charged against mortgage
service fee income (3,483) (1,743) (2,266)
Mortgage servicing rights sold (2,584) -0- -0-
------ - -
Balance at end of period $ 20,309 $ 17,275 $ 6,483
======== ======== =======
- --------------------------------------------------------------------------------
</TABLE>
Residential real estate mortgages are originated by the Company generally
for sale into the secondary market. Such loans are sold to institutional
investors such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Under loan sale and servicing
agreements with these investors, the Company generally continues to service the
residential real estate mortgages. The Company pays the investor an agreed-upon
rate on the loan, which, including a guarantee fee paid to FNMA and FHLMC, is
less than the interest rate the Company receives from the borrower. The
difference is retained by the Company as a fee for servicing the residential
real estate mortgages. As required by SFAS No. 122, the Company capitalizes
mortgage servicing rights at their fair value upon sale of the related loans.
The Company periodically purchases residential mortgage servicing rights
through a closed bid process from brokers representing financial institutions
with mortgage servicing portfolios available for sale. The payment made to
purchase such mortgage servicing rights is capitalized by the Company upon
consummation of the purchase agreement.
Residential real estate mortgages serviced for investors at December 31,
1995, 1994 and 1993 amounted to $2.5 billion, $2.0 billion and $1.5 billion,
respectively.
Mortgage servicing rights are generally amortized on a level yield method
over the estimated weighted average life of the loans. Amortization is recorded
as a charge against mortgage service fee income (a component of mortgage banking
services income). The Company's assumptions with respect to prepayments, which
affect the estimated average life of the loans, are adjusted periodically to
reflect current circumstances and to ensure that the carrying value of the
remaining mortgage servicing rights do not exceed the present value of the
estimated future net servicing income. In evaluating the fair value of the
carrying value of mortgage servicing rights, the Company assesses the estimated
life of its servicing portfolio based on data which is disaggregated by note
rate, note type and note term.
10. OTHER REAL ESTATE AND REPOSSESSED ASSETS OWNED
The following table summarizes the composition of other real estate and
repossessed assets owned, net of related reserves:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Real estate properties acquired in settlement of loans $ 5,073 $ 6,658
In-substance foreclosures -0- 2,096
Other assets repossessed in settlement of non-
real estate loans 1,528 1,976
----- -----
$ 6,601 $10,730
======= =======
- --------------------------------------------------------------------------------
</TABLE>
As a result of the adoption of 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," the Company reclassified $2.2
million of in-substance foreclosures and related reserves of $96 thousand to
loans and leases and allowance for loan and lease losses, respectively.
11. INCOME TAXES
The current and deferred components of income tax expense (benefit) follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current (including $805, $302, and $113,
respectively, of state income tax) $14,321 $ 12,638 $ 3,635
Deferred 2,922 (3,050) (5,974)
----- ------ ------
$17,243 $ 9,588 $(2,339)
======= ======== =======
- --------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 45
The following table reconciles the expected income tax expense (benefit)
(computed by applying the federal statutory tax rate to income before taxes) to
recorded income tax expense (benefit):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax expense (benefit) $ 17,946 $ 12,259 $ 4,823
State income tax, net of federal benefits 523 196 72
Dividends received deduction -- (1) (2)
Benefit of tax-exempt income (507) (399) (252)
Amortization of goodwill and other intangibles 839 842 1,146
Low income/rehabilitation credits (1,265) (1,265) (1,264)
Book net operating loss carryback limitation -- -- (351)
Tax bad debt reserve recapture on acquisition -- 1,022 --
Change in valuation allowance -- (3,124) (5,865)
Change in federal tax rate -- -- (478)
Other, net (293) 58 (168)
-------- -------- -------
$ 17,243 $ 9,588 $(2,339)
======== ======== =======
- --------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1994 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses $18,459 $17,746
Reserve for mobile home dealers 2,119 1,384
Accrued pension expense 848 319
Difference of tax and book basis of
other real estate owned 391 1,398
Deferred loan fees 206 1,310
Interest accrued and payments received on nonperforming
loans for tax purposes 842 1,071
Unrealized depreciation on investment securities -- 5,272
Other 3,756 2,024
----- -----
Total gross deferred tax assets 26,621 30,542
------ ------
Less: valuation allowance -- --
------ ------
Net deferred tax assets 26,621 30,542
------ ------
Deferred tax liabilities:
Difference of tax and book basis of leases 420 842
Difference of tax and book basis of
premises and equipment 1,041 1,010
Difference of tax and book basis of securities 522 1,119
Tax bad debts reserve 5,518 --
Unrealized appreciation of investment securities 1,243 --
Other 1,656 1,913
----- -----
Total gross deferred tax liabilities 10,400 4,884
------ -----
Net deferred tax asset $16,221 $25,658
======= =======
- --------------------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making this assessment. The Company estimates that substantially all
of its gross deferred assets and liabilities will reverse within the next five
years. In order to fully realize the net deferred tax asset, the Company will
need to generate future taxable income of approximately $46.3 million. Pre-tax
book income for the year ended December 31, 1995 was $51.3 million. Based upon
the level of 1995 taxable income and projections for future taxable income over
the periods which the deferred tax assets are deductible, the Company believes
it is more likely than not that it will realize the benefits of these deductible
temporary differences at December 31, 1995. Accordingly, no valuation allowance
has been recorded at December 31, 1995.
12. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The weighted average interest rate on reverse repurchase agreements was
4.78% and 4.82% at December 31, 1995 and 1994, respectively. These borrowings
were scheduled to generally mature within 180 days. These borrowings were
collateralized by FHLMC and FNMA securities and U.S. Government obligations with
an aggregate market value of $154,846 and $96,416 at December 31, 1995 and 1994,
respectively, and an aggregate amortized cost of $153,545 and $100,216 at
December 31, 1995 and 1994, respectively. Securities sold under agreements to
repurchase averaged $113,599 and $75,870 during the years ended December 31,
1995 and 1994, respectively. The maximum amount outstanding at any month-end
during the years ended December 31, 1995 and 1994 was $167,618 and $110,176,
respectively.
13. BORROWINGS FROM THE FEDERAL HOME LOAN BANK OF BOSTON
A summary of the borrowings from the Federal Home Loan Bank of Boston is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amounts Rates Dates
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 31,500 4.26% - 6.57% 1996
72,950 5.82% - 6.87% 1997
82,500 5.30% - 6.02% 1998
64,000 5.71% - 5.78% 2000
1,496 6.70% - 6.90% 2005
- --------
$252,446
========
- --------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1994
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amounts Rates Dates
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 54,000 4.08% - 6.31% 1995
25,500 4.26% - 5.87% 1996
252,950 5.62% - 6.87% 1997
30,000 5.30% 1998
- --------
$362,450
========
- --------------------------------------------------------------------------------
</TABLE>
Short and long-term borrowings from the Federal Home Loan Bank of Boston,
which consist of both fixed and adjustable rate borrowings, are secured by a
blanket lien on qualified collateral consisting primarily of loans with first
mortgages secured by 1 to 4 family properties, certain unencumbered investment
securities and other qualified assets.
14. SHAREHOLDERS' EQUITY
Regulatory Capital Requirements
At December 31, 1995 and 1994, the Company and each of its banking
subsidiaries were in compliance with all applicable regulatory capital
requirements and had capital ratios in excess of federal regulatory risk-based
and leverage requirements.
Dividend Limitations
Dividends paid by subsidiaries are the primary source of funds available to
the Company for payment of dividends to its shareholders. The Company's
subsidiary banks are subject to certain requirements imposed by state and
federal banking laws and regulations. These requirements, among other things,
establish minimum levels of capital and restrict the amount of dividends that
may be distributed by the subsidiary banks to the Company. In addition, there
are informal regulatory commitments which could affect the Bank's ability to
distribute dividends to the Company.
Stockholder Rights Plan
In 1989, the Company's Board of Directors adopted a Stockholder Rights Plan
declaring a dividend of one preferred Stock Purchase Right for each outstanding
share of Common Stock. The rights will remain attached to the Common Stock and
are not exercisable except under limited circumstances relating to acquisition
of, the right to acquire beneficial ownership of, or tender offer for 20% or
more of the outstanding shares of Common Stock. The Rights have no voting or
dividend privileges and, until they become exercisable, have no dilutive effect
on the earnings of the Company.
15. COMMITMENTS, CONTINGENT LIABILITIES AND
OTHER OFF-BALANCE SHEET RISKS
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to originate loans, standby letters of
credit, recourse arrangements on serviced loans, and forward commitments to sell
loans. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the Consolidated
Balance Sheets. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments, standby letters of
credit and recourse arrangements is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. For interest rate exchange agreements and forward commitments to
sell loans, the contract or notional amounts do not represent exposure to credit
loss. The Company controls the credit risk of its forward commitments to sell
loans through credit approvals, limits and monitoring procedures.
Financial instruments with off-balance sheet risk at December 31, 1995 and
1994 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contract or Notional Amount
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments with contract amounts
which represent credit risk:
Commitments to originate loans $188,430 $131,973
Unused lines and standby letters of credit 274,778 222,609
Loans serviced with recourse 48,213 74,103
Unadvanced portions of construction loans 18,680 15,673
Financial instruments with notional or contract
amounts which exceed the amount of credit risk:
Forward commitments to sell loans $128,000 $ 11,670
- --------------------------------------------------------------------------------
</TABLE>
Commitments to originate loans, unused lines of credit and unadvanced
portions of construction loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Because many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower.
44
<PAGE> 47
Included in commitments to originate loans, the Company had guaranteed the
rate on $83.3 million in fixed rate residential real estate loans with a
weighted average interest rate of 7.26% which were substantially hedged by the
$128.0 million in forward sales commitments noted above.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Company has retained credit risk on certain residential mortgage loans
sold with full or partial recourse and on certain residential mortgage loans
whose servicing rights were acquired during 1990.
Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments.
Forward commitments to sell residential mortgage loans are contracts which
the Company enters into for the purpose of reducing the market risk associated
with originating loans for sale. Risks may arise from the possible inability of
the Company to originate loans to fulfill the contracts, in which case the
Company would normally purchase loans from correspondent banks or in the open
market to deliver against the contract.
Legal Proceedings
The Company and certain of its subsidiaries have been named as defendants
in various legal proceedings arising from their normal business activities.
Although the amount of any ultimate liability with respect to such proceedings
cannot be determined, in the opinion of management, based upon the opinions of
counsel, any such liability will not have a material effect on the consolidated
financial position or results of operations of the Company and its subsidiaries.
Lease Obligations
The Company leases certain properties used in operations under terms of
operating leases which include renewal options. Rental expense under these
leases approximated $2.8 million, $3.0 million and $2.6 million for the years
ended 1995, 1994 and 1993, respectively.
Approximate minimum lease payments over the remaining terms of the leases
at December 31, 1995 follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 2,892
1997 2,837
1998 2,572
1999 2,472
2000 2,338
2001 and after 8,212
-----
$21,323
=======
- --------------------------------------------------------------------------------
</TABLE>
16. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
The Company has a noncontributory defined benefit plan covering
substantially all permanent, full-time employees. Benefits are based on career
average earnings and length of service. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed to service-to-date, but also for those expected to be
earned in the future.
The following tables set forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $14,635 and $12,787 $ 15,181 $ 13,367
======== ========
Projected benefit obligation for service
rendered to date $ 16,599 $ 14,680
Plan assets at fair value, primarily listed
stocks and corporate bonds (16,475) (12,974)
------- -------
Plan assets less than projected benefit obligation 124 1,706
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (1,170) (2,753)
Unrecognized prior service cost 872 786
Unrecognized net asset being recognized
over 20.5 years 1,203 1,328
----- -----
Accrued pension cost included in other liabilities $ 1,029 $ 1,067
======== ========
- --------------------------------------------------------------------------------
</TABLE>
Net pension cost for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost during the period $ 1,193 $ 987 $ 806
Interest cost on projected
benefit obligation 1,053 989 900
Actual return on plan assets (2,762) 72 (1,103)
Net amortization and deferral 1,580 (1,250) (116)
----- ------ ----
Net periodic pension cost $ 1,064 $ 798 $ 487
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 48
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of projected
benefit obligations was 7.0% for both 1995 and 1994. The expected long-term rate
of return on assets was 8.0% for both 1995 and 1994.
Thrift Incentive Plan
The Company also has a Contributory Thrift Incentive Plan, covering
substantially all permanent employees after completion of one year of service.
The Company matches employee contributions based on a predetermined formula and
may make additional discretionary contributions. The total expense for 1995,
1994 and 1993 was $659 thousand, $620 thousand and $462 thousand, respectively.
Profit Sharing Employee Stock Ownership Plan
In 1989 the Company also adopted a Profit Sharing Employee Stock Ownership
Plan which is designed to invest primarily in Common Stock of the Company.
Substantially all employees are eligible for the Plan following one year of
service. Employees may not make contributions to the Plan but may receive a
discretionary contribution from the Company based on their pro rata share of
eligible compensation. For 1995, 1994 and 1993 the Directors voted to contribute
3%, 5% and 9% of eligible compensation, respectively. The approximate expense of
this contribution for 1995, 1994 and 1993 was $850 thousand, $1.4 million and
$2.1 million, respectively.
Stock Option Plans
The Company has adopted a Stock Option and Stock Appreciation Rights Plan
for key employees. The maximum number of shares which may be granted under the
Plan is 1,670,000 shares, of which 1,454,130 options were outstanding and
190,038 shares had been issued upon the exercise of stock options cumulatively
through December 31, 1995. All options have been issued at not less than fair
market value at the date of grant and expire 10 years (10 years plus one month
in the case of non-qualified options) from the date granted. In addition, the
Plan authorizes the Company to issue stock appreciation rights (SARs) to
optionees under certain terms and conditions.
During 1995 the Company granted employees options to purchase 399,139
shares of common stock at $21.00 per share. During 1994 the Company granted
options to purchase 487,436 shares of common stock at between $12.88 and $14.75
per share.
The Company has adopted a Stock Option Plan for nonemployee directors. The
maximum number of shares which may be granted under the plan is 75,000 shares,
of which 18,000 options, all of which were granted in 1995 at $13.63 per share,
were outstanding and -0- shares had been issued upon the exercise of the stock
options cumulatively through December 31, 1995. All options have been issued at
not less than fair market value at the date of grant and expire 10 years from
date of grant.
A summary of option activity follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of period 1,135,683 817,256
Granted during the year 417,139 487,436
Cancelled during the year 24,902 72,133
Exercised during the year 73,790 96,876
Outstanding at end of period 1,454,130 1,135,683
Exercisable at end of period 636,029 249,873
Average price of options exercisable $ 9.73 $ 6.70
Price range of options $2.75 - $21.00 $2.75 - $14.75
Average price of options outstanding $ 13.36 $ 10.31
SARs outstanding at end of period 2,500 2,500
- --------------------------------------------------------------------------------
</TABLE>
Employee Stock Purchase Plan
The Company also has adopted an Employee Stock Purchase Plan covering all
full-time employees with one year of service. The maximum number of shares which
may be issued under the Employee Stock Purchase Plan is 676,000 shares.
Employees have the right to authorize payroll deductions up to 10% of their
salary. As of December 31, 1995, 300,318 shares had been purchased under this
plan.
Supplemental Retirement Plans
During 1990 the Company adopted supplemental retirement plans for several
key officers. These plans were designed to offset the impact of changes in the
Pension Plan which reduced benefits for highly paid employees. The cost of these
plans was $ 537 thousand, $342 thousand and $512 thousand for 1995, 1994 and
1993, respectively.
Postretirement Benefits Other Than Pensions
The Company sponsors a postretirement benefit program which provides
medical coverage and life insurance benefits to employees and directors who meet
minimum age and service requirements. Active employees and directors accrue
benefits over a 25 year period.
The Company recognizes costs related to post retirement benefits under the
accrual method, which recognizes costs over the employee's period of active
employment. The impact of adopting SFAS No. 106 is being amortized over a twenty
year period beginning January 1, 1993.
46
<PAGE> 49
The following reconciles the program's funded status with amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1995 and
1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 1,840 $ 1,994
Fully eligible active program participants 311 463
Other active program participants 542 1,255
--- -----
2,693 3,712
Plan assets -- --
------ ------
Accumulated postretirement benefit obligation in
excess of plan assets 2,693 3,712
Unrecognized net gain 485 5
Unrecognized prior service cost (2,290) (3,062)
------ ------
Accrued postretirement benefit cost included
in other liabilities $ 888 $ 655
======= =======
- --------------------------------------------------------------------------------
</TABLE>
Net postretirement benefit cost for the year ended December 31, 1995, 1994
and 1993 included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 29 $ 73 $ 72
Interest cost 187 242 242
Amortization of accumulated
postretirement obligation 141 170 170
--- --- ---
Net periodic postretirement benefit cost $357 $485 $484
==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered benefits (i.e. health care cost trend rate) was assumed in 1995
and 1994. The health care cost trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care cost
trend rate by one percentage point would increase the accumulated postretirement
benet obligation as of December 31, 1995 by $151 thousand and the aggregate of
the service and interest cost components of net periodic post retirement benefit
cost for the year ended December 31, 1995 by $10 thousand.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1995 and 1994. Currently, the
Company pays retiree benefit premiums directly on a monthly basis rather than
through a formal funded trust. Consequently, the postretirement benefit program
neither requires nor has any plan assets.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
issued in December 1991 and effective beginning with 1992 financial statements,
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value estimates are made as of a specific point in
time based on the characteristics of the financial instruments and relevant
market information. Where available, quoted market prices are used. In other
cases, fair values are based on estimates using present value or other valuation
techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and judgments made regarding risk
characteristics of various financial instruments, discount rates, estimates of
future cash flows, future expected loss experience and other factors. Changes in
assumptions could significantly affect these estimates. Derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in an immediate sale of the instrument. Also,
because of differences in methodologies and assumptions used to estimate fair
values, the Company's fair values should not be compared to those of other
banks.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market value of the Company. For certain assets and
liabilities, the information required under SFAS No. 107 is supplemented with
additional information relevant to an understanding of the fair value. Also,
fair values are presented for certain assets that are not financial instruments
under the definition in SFAS No. 107.
The following describes the methods and assumptions used by the Company in
estimating the fair values of financial instruments and certain non-financial
instruments:
CASH AND CASH EQUIVALENTS, INCLUDING CASH AND DUE FROM BANKS,
INTEREST-BEARING DEPOSITS IN BANKS AND FEDERAL FUNDS SOLD. For these cash and
cash equivalents, which have maturities of 90 days or less, the carrying amounts
reported in the balance sheet approximate fair values.
SECURITIES AVAILABLE FOR SALE AND LOANS HELD FOR SALE. Fair values,
including fair values of mortgage-backed securities, are based on quoted bid
market prices, where available. Where quoted market prices for an instrument are
not available, fair values are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instrument being valued. Fair values are calculated based on the value of one
unit without regard to premiums or discounts that might result from selling all
of the Company's holdings of a particular security in one transaction.
LOANS AND LEASES. The fair values of commercial, commercial real estate,
residential real estate, and certain consumer loans are estimated by discounting
the contractual cash flows using interest rates currently being offered for
loans with similar terms to borrowers of similar quality.
47
<PAGE> 50
For certain variable-rate consumer loans, including home equity lines of
credit and credit card receivables, carrying value approximates fair value. This
method of estimating the fair value of the credit card portfolio excluded the
value of the ongoing customer relationships, a factor which can represent a
significant premium over book value.
Lease financing receivables are similar to loans in many respects, fair
values are provided and were estimated using the methodologies used for the loan
portfolio.
For nonperforming loans and certain loans where the credit quality of the
borrower has deteriorated significantly, fair values are estimated by
discounting cash flows at a rate commensurate with the risk associated with
those cash flows.
MORTGAGE SERVICING RIGHTS. The fair value of the Company's mortgage
servicing rights is based on the expected present value of future mortgage
servicing income, net of estimated servicing costs.
INTEREST AND DIVIDENDS RECEIVABLE. The carrying amount of interest and
dividends receivable approximates its fair value.
DEPOSITS. The fair value of deposits with no stated maturity is equal to
the carrying amount. The fair value of time deposits is based on the discounted
value of contractual cash flows, applying interest rates currently being offered
on the deposit products of similar maturities.
The fair value estimates for deposits do not include the benefit that
results from the low-cost funding provided by the deposit liabilities compared
to the cost of alternative forms of funding ("deposit base intangibles").
BORROWINGS, INCLUDING FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS, BORROWINGS FROM THE FEDERAL HOME LOAN BANK OF BOSTON,
SUBORDINATED CAPITAL NOTES AND OTHER BORROWINGS. The fair value of the Company's
long-term borrowings is estimated based on quoted market prices for the issues
for which there is a market, or by discounting cash flows based on current rates
available to the Company for similar types of borrowing arrangem ents. For
short-term borrowings that mature or reprice in 90 days or less, carrying value
approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS:
INTEREST RATE EXCHANGE AGREEMENTS. Fair values for interest rate exchange
agreements are based on established pricing models.
COMMITMENTS TO ORIGINATE LOANS AND COMMITMENTS TO EXTEND CREDIT AND STANDBY
LETTERS OF CREDIT. In the course of originating loans and extending credit and
standby letters of credit, the Company will charge fees in exchange for its
lending commitment. While these commitment fees have value, the Company has not
estimated their value due to the short-term nature of the underlying
commitments.
FORWARD COMMITMENTS TO SELL LOANS. The fair value of the Company's forward
commitments to sell loans reflects the value of origination fees and excess
servicing recognizable upon sale of loans net of any cost to the Company if it
fails to meet its sale obligation. Of the $128.0 million of forward sales
commitments at December 31, 1995, the Company had $71.9 million available to
sell at that date as well as sufficient loan originations subsequent to December
31, 1995 to fulfill the commitments. Consequently, the Company has no unmet
sales obligation to value and due to the short-term nature of the commitments
has not estimated the value of the fees and servicing.
LOANS SERVICED WITH RECOURSE. Under certain of the Company's servicing
arrangements with investors, the Company has recourse obligation to those
serviced loan portfolios. In the event of foreclosure on a serviced loan, the
Company is obligated to repay the investor to the extent of the investor's
remaining balance after application of proceeds from the sale of the underlying
collateral. To date, losses related to these recourse arrangements have been
insignificant and while the Company cannot project future losses, the fair value
of this recourse obligation is deemed to be likewise insignificant.
A summary of the fair values of the Company's significant financial instruments
and certain non-financial instruments at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On-Balance Sheet Assets and Liabilities
Assets:
Cash and cash equivalents $ 182,408 $ 182,408 $ 130,476 $ 130,476
Securities available for sale 485,218 485,218 429,003 429,003
Loans held for sale 70,979 71,872 11,092 11,163
Loans and leases 2,168,499 2,220,318 2,047,794 2,006,506
Mortgage servicing rights 20,309 22,140 17,275 21,052
Interest and dividend receivable 21,634 21,634 18,929 18,929
Liabilities:
Deposits (with no stated maturity) $1,237,861 $1,237,861 $1,051,441 $1,051,441
Time deposits 1,124,104 1,141,268 1,012,326 991,665
Borrowings 412,816 414,000 461,387 452,689
Interest payable 4,762 4,762 4,099 4,099
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 51
18. MERGERS AND ACQUISITIONS (UNAUDITED)
Completed During 1995 and 1994
On July 1, 1995, Bankcore, Inc. ("Bankcore"), the New Hampshire based
holding company for North Conway Bank, was acquired and North Conway Bank merged
into Portsmouth. At the time of the 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 in goodwill was created and
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.
On July 31, 1994, Mid Maine Savings Bank, F.S.B. ("MMSB"), headquartered in
Auburn, Maine, was merged into the Bank, and was accounted for under the
pooling-of-interest method. Accordingly, the consolidated financial statements
of the Company have been restated to reflect the acquisition at the beginning of
each period presented. At July 31, 1994, MMSB had total assets of $170.5 million
and total shareholders' equity of $11.4 million. Substantially concurrently with
the merger of MMSB into the Bank, the Bank sold all the assets and liabilities
relating to MMSB's Hampton (New Hampshire) Division to Portsmouth.
Pending at December 31, 1995
On September 29, 1995 and amended as of October 31, 1995, the Company
entered into an agreement with Shawmut Bank NH ("Shawmut") to acquire five
branches of Shawmut (the "Branch Acquisition"). The purchase will result in the
transfer of approximately $212 million in loans to the Company and its
assumption of approximately $160 million in deposits. The purchase was completed
during the first quarter of 1996.
On October 25, 1995, the Company, First Coastal and the Bank of New
Hampshire Corporation ("BNHC") entered into an Agreement and Plan of Merger (the
"Agreement"), pursuant to which, among other things, First Coastal will merge
into BNHC (the "Merger"). Simultaneous with the Merger, each share of common
stock of BNHC will be converted into and represent the right to receive two
shares of common stock of the Company. At December 31, 1995, BNHC had 4,064,156
shares of common stock outstanding. At December 31, 1995, BNHC had total assets
of $977.8 million and total shareholders' equity of $84.5 million. Consummation
of the Merger is subject to, among other things, the receipt of all necessary
regulatory and shareholder approvals. The Merger is expected to be accounted for
as a pooling of interests and to be completed during the second quarter of 1996.
<TABLE>
The following pro forma condensed balance sheet was prepared as if the pending
acquisitions noted above had been completed at December 31, 1995.
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
Branch Pro Forma Pro Forma
PHFG BNHC Acquisition Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments(1) $ 543,473 $323,430 $(31,265) $ 0 $ 835,638
Total loans and leases, net 2,168,499 549,043 212,358 0 2,929,900
Other assets 366,697 105,363 19,330 0 491,390
---------- -------- -------- ------- ----------
Total assets $3,078,669 $977,836 $200,423 0 $4,256,928
========== ======== ======== ======= ==========
Liabilities and equity:
Deposits $2,361,965 $837,726 $160,056 0 $3,359,747
Borrowings 412,816 44,116 40,000 0 496,932
Other liabilities 33,420 11,537 367 1,802 47,126
---------- -------- -------- ------- ----------
Total liabilities 2,808,201 893,379 200,423 1,802 3,903,805
---------- -------- -------- ------- ----------
Shareholders' equity 270,468 84,457 0 (1,802) 353,123
---------- -------- -------- ------- ----------
Total liabilities and shareholders equity $3,078,669 $977,836 $200,423 $ 0 $4,256,928
========== ======== ======== ======= ==========
- --------------------------------------------------------------------------------------------------------------------------
(1) Includes federal funds sold
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 52
<TABLE>
The following pro forma condensed consolidated statement of operations was
prepared as if the pending and completed acquisitions noted above had all been
completed at January 1, 1995.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Branch Pro Forma Pro Forma
PHFG BNHC Acquisition Bankcore(1) Adjustments Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 235,599 $ 70,926 $16,449 $4,393 $ 0 $ 327,367
Interest expense 111,063 23,831 11,567 2,226 0 148,687
---------- --------- ------- ------ ------- ----------
Net interest income 124,536 47,095 4,882 2,167 0 178,680
Provision for loan losses 2,430 1,800 0 109 0 4,339
---------- --------- ------- ------ ------- ----------
Net interest income after
provision for loan losses 122,106 45,295 5,116 2,058 0 174,575
Noninterest income 21,826 10,130 301 1,007 0 33,264
Non-interest expense (2) 92,657 38,839 1,884 2,390 (3,667) 132,103
---------- --------- ------- ------ ------- ----------
Income before income taxes 51,275 16,586 3,299 675 3,667 75,502
Income tax expense 17,243 6,132 1,155 (115) 1,283 25,698
---------- --------- ------- ------ ------- ----------
Net income 34,032 10,454 $ 2,144 $ 790 $ 2,384 49,804
========== ========= ======= ====== ======= ==========
Earnings per common share $ 2.05 $ 2.57 $ 2.02
Average shares outstanding 16,569,063 4,064,165 24,697,393
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Reflects the operations of Bankcore for the six months ended June 30, 1995; subsequent to June 30, 1995 the operations of
Bankcore are included in the operations of PHFG.
(2) The operations of BNHC include nonrecurring charges of $3.7 million related to the Merger eliminated for pro forma
presentation.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This unaudited pro forma information may not be indicative of the results that
would actually have occurred if the combination had been in effect on the dates
indicated or which may obtained in the future. The pro forma information does
not give effect to anticipated cost savings in connection with the Merger and
the Branch Acquisition.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH First Second Third Fourth
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 55,025 $ 57,197 $61,509 $61,868 $44,704 $ 47,483 $50,759 $ 53,451
Interest expense 25,213 27,137 29,203 29,510 20,880 21,051 21,943 23,401
Provision for loan losses 580 590 630 630 1,001 751 -0- 105
Net interest income after
provision for loan losses 29,232 29,470 31,676 31,728 22,823 25,681 28,816 29,945
Noninterest income 4,588 5,288 6,035 5,79 5,269 4,434 4,830 4,371
Net gains (losses) on sales of
securities and consumer loans (92) (53) 39 222 427 (42) 2 (773)
Noninterest expenses 22,924 22,691 23,509 23,533 21,494 21,752 24,160 23,353
Income before income taxes 10,804 12,014 14,241 14,216 7,025 8,321 9,488 10,190
Income tax expense 3,540 4,094 4,902 4,707 2,179 2,458 1,941 3,009
Net income 7,264 7,920 9,339 9,509 4,846 5,863 7,547 7,181
Earnings per share $ 0.44 $ 0.49 $ 0.55 $ 0.56 0.29 $ 0.35 $ 0.45 $ 0.43
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples Heritage Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of Peoples Heritage
Financial Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Heritage
Financial Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
mortgage servicing rights effective January 1, 1995.
January 17, 1996
Boston, Massachusetts
51
<PAGE> 54
[text for 52, 53, 54 & 55 intentionally omitted]
SHAREHOLDER INFORMATION
ANNUAL MEETING
The 1996 Annual Meeting of the Shareholders of Peoples Heritage Financial
Group, Inc. will be held at 10:30 a.m. on Tuesday, April 23, 1996 at the
Portland Marriott at Sable Oaks, 200 Sable Oaks Drive, South Portland, Maine.
CORPORATE HEADQUARTERS
One Portland Square, Portland, Maine
Mail Address: P.O. Box 9540, Portland, ME 04112-9540
Contact: Brian S. Arsenault,
Corporate Communications Officer
(207)761-8517 * 1-800-462-3666
or
Peter J. Verrill,
Executive Vice President, Chief Operating Officer and Chief Financial
Officer
(207)761-8507
STOCK LISTING
Peoples Heritage Financial Group, Inc. is traded over the counter on the
NASDAQ National Market System under the symbol: PHBK.
FORM 10-K AND OTHER REPORTS
Peoples Heritage will send a copy of its 1995 Annual Report on Form 10-K to
shareholders upon request. Requests should be addressed to Investor Relations at
the Corporate Headquarters.
TRANSFER AGENT
Shareholder inquiries regarding change of address or title should be
directed to:
Chemical Mellon Securities Transfer Services
450 West 33rd Street, 15th Floor, New York, New York 10001
Phone: 1-800-526-0801
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
99 High Street, Boston, MA 02110
RESEARCH COVERAGE
Recent research coverage on Peoples Heritage Financial Group, Inc. is
available from Salomon Brothers, Inc., Maine Securities Corp., Legg Mason Wood
Walker, Inc., Keefe, Bruyette & Woods, Inc., Friedman Billings Ramsey & Co.,
Merrill, Lynch, Pierce, Fenner & Smith, Inc., H. C. Wainwright & Co., First
Albany Corp. and Tucker Anthony, Inc.
MARKET MAKERS
The following companies have generally been market makers for Peoples
Heritage Financial Group, Inc. Common Stock as of December 31, 1995:
Advest, Inc.
A.G. Edwards & Sons, Inc.
Bear, Stearns & Co., Inc.
Dean Witter Reynolds, Inc.
First Albany Corporation
Friedman Billings Ramsey & Co.
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities, L.P.
Legg Mason Wood Walker, Inc.
Livada Securities, Inc.
Macallister Pitfield Mackay
Merrill Lynch, Pierce, Fenner
Morgan Stanley & Co., Inc.
Nash Weiss/Div. of Shatkin Inv.
PaineWebber, Inc.
Prudential Securities Inc.
Ryan Beck & Co., Inc.
Salomon Brothers, Inc.
Sherwood Securities Corp.
Smith Barney, Inc.
Troster Singer Corp.
Tucker Anthony Incorporated
COMMON STOCK PRICES
<TABLE>
Market prices for Peoples Heritage Financial Group, Inc.'s common stock
and dividends declared per quarter during 1995 and 1994 are as follows:
<CAPTION>
- ------------------------------------------------------------------------------
Dividends Declared Per Market Price
1995 Quarters Share During Quarter High Low
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
First $.11 $14 $11 3/4
Second .13 16 3/4 12 3/8
Third .13 20 1/2 15 1/4
Fourth .15 22 7/8 18 1/4
1994 Quarters
- ------------------------------------------------------------------------------
First $.00 $12 1/2 $10 1/8
Second .06 14 10 1/8
Third .08 15 12 1/4
Fourth .10 15 1/8 10 3/8
- ------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company had approximately 4,288 shareholders of
record of the 16,944,158 shares outstanding. These numbers do not reflect the
number of individuals or institutional investors holding stock in nominee name
through banks, brokerage firms and others.
<PAGE> 1
EXHIBIT 21
Information relating to certain of the subsidiaries of Peoples Heritage
Financial Group, Inc. is set forth below:
Direct Subsidiaries:
Name Jurisdiction of Incorporation
---- -----------------------------
Peoples Heritage Bank Maine
First Coastal Banks, Inc. New Hampshire
Indirect Subsidiaries:
Name Jurisdiction of Incorporation
---- -----------------------------
The First National Bank of Portsmouth(1) United States
Heritage Investment Planning Group, Inc. (2) Maine
Peoples Heritage Leasing Corp. (2) Maine
Peoples Heritage Mortgage Corporation(2) Maine
- --------------------------
(1) Subsidiary of First Coastal Banks, Inc.
(2) Subsidiary of Peoples Heritage Bank.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Peoples Heritage Financial Group, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-22205, 33-22206 and 33-80310) on Form S-8 of Peoples Heritage Financial
Group, Inc. of our report dated January 17, 1996, which referred to a change in
the Company's method of accounting for mortgage servicing rights, relating to
the consolidated balance sheets of Peoples Heritage Financial Group, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995, which
report is incorporated by reference in the December 31, 1995 Annual Report on
Form 10-K of Peoples Heritage Financial Group, Inc.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PEOPLES HERITAGE BANK FOR THE YEAR ENDED DECEMBER 31,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 124,153
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 58,255
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 485,218
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,217,637
<ALLOWANCE> 49,138
<TOTAL-ASSETS> 3,078,669
<DEPOSITS> 2,361,965
<SHORT-TERM> 184,280
<LIABILITIES-OTHER> 33,420
<LONG-TERM> 0
<COMMON> 175
0
0
<OTHER-SE> 270,293
<TOTAL-LIABILITIES-AND-EQUITY> 3,078,669
<INTEREST-LOAN> 203,968
<INTEREST-INVEST> 29,939
<INTEREST-OTHER> 1,692
<INTEREST-TOTAL> 235,599
<INTEREST-DEPOSIT> 86,171
<INTEREST-EXPENSE> 24,892
<INTEREST-INCOME-NET> 124,536
<LOAN-LOSSES> 2,430
<SECURITIES-GAINS> 116
<EXPENSE-OTHER> 92,657
<INCOME-PRETAX> 51,275
<INCOME-PRE-EXTRAORDINARY> 51,275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,032
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.70
<LOANS-NON> 27,318
<LOANS-PAST> 3,256
<LOANS-TROUBLED> 4,454
<LOANS-PROBLEM> 55,900
<ALLOWANCE-OPEN> 50,484
<CHARGE-OFFS> 12,982
<RECOVERIES> 6,892
<ALLOWANCE-CLOSE> 49,138
<ALLOWANCE-DOMESTIC> 49,138
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
