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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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
/ / 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 .
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Commission File Number: 0-16947
PEOPLES HERITAGE FINANCIAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
Maine 01-0437984
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(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
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(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
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Title of Class
Preferred Stock Purchase Rights
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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
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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. /X/
As of March 19, 1997, the aggregate market value of the 27,661,647 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
the 745,956 shares held by all directors and executive officers of the
Registrant as a group (excluding the effects of unexercised stock options), was
$871.3 million. This figure is based on the last sale price of $31.50 per share
of the Registrant's Common Stock on March 19, 1997, as reported in The Wall
Street Journal on March 20, 1997. 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, 1997: 28,407,603
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, 1996 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 22, 1997 are incorporated by reference
into Part III, Items 10-13 of this Form 10-K.
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PART I.
ITEM 1. BUSINESS
THE COMPANY
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. The Company conducts business from its executive offices in
Portland, Maine and 131 offices located throughout Maine, New Hampshire and
northern Massachusetts. At December 31, 1996, the Company had consolidated
assets of $5.4 billion and consolidated shareholders' equity of $437.0 million.
Based on total assets at December 31, 1996, the Company is the largest
independent bank holding company headquartered in northern New England and the
fifth largest independent bank holding company headquartered in New England.
The Company offers a broad range of commercial and consumer banking
services and products and trust and investment advisory services through three
wholly-owned banking subsidiaries: Peoples Heritage Bank ("PHB"), Bank of New
Hampshire ("BNH") and Family Bank, FSB ("Family Bank"). PHB is a Maine-chartered
savings bank which operates 66 offices throughout Maine and, through
subsidiaries, engages in mortgage banking, financial planning, equipment leasing
and securities brokerage activities. At December 31, 1996, PHB had consolidated
assets of $2.6 billion and consolidated shareholder's equity of $175.3 million.
BNH is a New Hampshire-chartered commercial bank which operates 44 offices
throughout New Hampshire. At December 31, 1996, BNH had consolidated assets of
$1.8 billion and consolidated shareholder's equity of $132.7 million. Family
Bank is a federally-chartered savings bank which operates 17 banking offices in
the Merrimack Valley area of Greater Haverhill and Greater Lowell, Massachusetts
and five offices in southern New Hampshire. At December 31, 1996, Family Bank
had consolidated assets of $1.0 billion and consolidated shareholder's equity of
$107.1 million.
Acquisitions have been, and are expected to continue to be, an
important part of the expansion of the Company's business. Since January 1,
1995, the Company has completed one acquisition which has been accounted for
under the pooling-of-interests method and four acquisitions accounted for under
the purchase method, including the acquisition of Family Bancorp, the holding
company for Family Bank, on December 6, 1996.
Unless the context otherwise requires, references herein to the Company
include its direct and indirect subsidiaries.
BUSINESS OF THE COMPANY
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 and
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existing multi-family (over four units) residential and commercial real estate,
construction loans, commercial business loans and leases and consumer loans and
leases. The Company also provides various mortgage banking services and, as
discussed below, various trust and investment advisory services, as well as
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 leases 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 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.
PHB and BNH currently provide full trust services to their customers,
and the Company currently is taking steps in order for Family Bank to provide
full trust services to its customers. Each of PHB and BNH 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 PHB and
BNH 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 PHB and BNH. At December 31, 1996, the Company had $1.2 billion 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.
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 savings bank, PHB is subject to regulation and
examination by the Superintendent, as a New Hampshire-chartered commercial bank,
BNH is subject to regulation and examination by the New Hampshire Bank
Commissioner and as a federally-chartered savings bank, Family Bank is subject
to regulation and examination by the Office of Thrift Supervision ("OTS"). Each
of PHB, BNH and Family Bank is a member of the Bank Insurance Fund ("BIF")
administered by the Federal Deposit Insurance Corporation ("FDIC").
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SUBSIDIARIES
At December 31, 1996, the Company's only direct subsidiaries were PHB,
Bank of New Hampshire Corporation, a holding company for BNH, and Peoples
Heritage Merger Corp., a holding company for Family Bank. Set forth below is a
brief description of certain indirect non-banking subsidiaries of the Company,
all of which are subsidiaries of PHB.
Mortgage Banking Activities. During 1993, PHB formed Peoples Heritage
Mortgage Company ("PHMC") 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, 1996, PHMC had only one
office, which was located in Burlington, Massachusetts. Currently, the
activities of PHMC are not material.
Investments in Real Estate. PHB holds certain investments in real
estate primarily through Four-Eighty-One Corp. and Apex, Inc. and, to a lesser
degree, other wholly-owned subsidiaries of PHB. Exclusive of other real estate
owned and investments in office properties and facilities, which are discussed
under Item 2 hereof, at December 31, 1996 PHB'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, 1996, PHB's investments in
these limited partnerships had a carrying value of $4.8 million.
Equipment Leasing Activities. PHB conducts equipment leasing activities
through Peoples Heritage Leasing Corporation, Inc. ("PHLC"). PHLC 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, 1996, the Leasing Company had $14.4 million of
leases outstanding.
Financial Planning and Securities Brokerage Activities. PHB also
conducts financial planning, investment planning and securities brokerage
activities through Heritage Investment Planning Group, Inc. ("HIPG"). The
Company also offers through HIPG investments in mutual funds and annuities
throughout the Company's market areas. HIPG 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 HIPG 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.
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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 market areas served by
the Company. 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, automated teller machines 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, 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 New Hampshire banking markets, and
the Company expects to continue to encounter such competition in the future.
EMPLOYEES
The Company had approximately 2,300 full-time employees as of December
31, 1996. 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.
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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 undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
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
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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.
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. The Company, as the sole stockholder
of PHB, 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.
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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.
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%.
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REGULATION OF BANKING SUBSIDIARIES
General. Each of PHB, BNH and Family Bank is subject to extensive
regulation and examination by the Superintendent, the New Hampshire Bank
Commissioner and the OTS, respectively. 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 certain requirements established by the
Federal Reserve Board. 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. Each of the Company's banking subsidiaries is
subject to regulatory capital requirements of the FDIC (in the case of PHB and
BNH) and the OTS (in the case of Family Bank) which are substantially comparable
to the regulatory capital requirements of the Federal Reserve Board applicable
to bank holding companies such as the Company. At December 31, 1996, the
regulatory capital of each of the Company's banking subsidiaries substantially
exceeded applicable requirements.
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
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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
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.
At December 31, 1996, each of the Company's banking subsidiaries had
capital levels which qualified it as a "well-capitalized" institution.
FDIC Insurance Premiums. Each of the Company's banking subsidiaries is
a member of the 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 Company's banking
subsidiaries is required to pay deposit insurance premiums to the FDIC.
Effective January 1, 1997, the assessment schedule for both BIF and SAIF ranges
from 0 basis points (subject to a $2,000 annual minimum) to 27 basis points. In
addition, both BIF-insured institutions and SAIFinsured institutions are
assessed amounts in order for a federally-chartered Finance Corporation to make
payments on it bonds.
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
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Company's banking subsidiaries had no brokered deposits outstanding at December
31, 1996.
Community Investment and Consumer Protection Laws. In connection with
its lending activities, each of the Company's banking subsidiaries 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
1996, the CRA rating of the Company's banking subsidiaries was either
"outstanding" or "satisfactory."
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.
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.
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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).
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.
The Company is subject to Massachusetts financial institution excise
tax based on federal taxable income primarily attributable to its Massachusetts
affiliates. The tax is computed by adding back tax-exempt income excluded from
federal taxable income, state income tax/excise taxes deducted from federal
taxable income, and then multiplying the resulting Massachusetts taxable income
by approximately 12%. Certain affiliates chartered as Massachusetts Security
Corporations pay excise taxes to Massachusetts at a rate of 1.32% on gross
investment income.
ITEM 2. PROPERTIES
At December 31, 1996, the Company conducted its business from its
headquarters and main office at One Portland Square, Portland, Maine, and 132
other offices located throughout Maine, New Hampshire and northern
Massachusetts. The Company owns 83
11
<PAGE> 13
of its offices and leases 49 of its offices. For additional information
regarding the Company's lease obligations, see Note 14 to the Consolidated
Financial Statements included in Item 14 hereof.
The following table sets forth certain information with respect to the
offices of the Company as of December 31, 1996.
<TABLE>
<CAPTION>
Net Book Value of
Number of Property and Leasehold
State Offices Improvements Deposits
- ----- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Maine 66 $ 39,020 $1,965,024
New Hampshire 49 24,830 1,451,879
Massachusetts 17 10,106 768,386
---------- ---------- ----------
Total 132 $ 73,956 $4,185,289
========== ========== ==========
</TABLE>
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, 1996 (the "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 11 of the Company's Annual Report
is incorporated herein by reference.
12
<PAGE> 14
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 12 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 61 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.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to "Election of Directors" on pages 2 through
7 and "Executive Officers who are not Directors" on pages 9 through 11 of the
definitive Proxy Statement of the Company, dated March 21, 1997 (the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to "Compensation of Executive Officers and
Transactions with Management" on pages 14 and 21 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to "Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management" on pages 12 and 13 of the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to "Certain Transactions" on pages 21 through
22 of the Proxy Statement.
13
<PAGE> 15
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, 1996 and 1995
Consolidated statements of income for each of the years in the
three-year period ended December 31, 1996
Consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 1996
Consolidated statements of changes in shareholders' equity for each of
the years in the three-year period ended December 31, 1996
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 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)
14
<PAGE> 16
Exhibit No. Exhibit Location
- ----------- ------- --------
4(d) Amended and Restated Declaration of Trust (3)
relating to Peoples Heritage Capital Trust
I, dated as of January 31, 1997, between the
Company and the trustees named therein
4(e) Form of Common Securities and form of Capital (3)
Securities of Peoples Heritage Capital Trust I
(included as Exhibits to the Amended and
Restated Declaration included as Exhibit 4(d))
4(f) Indenture, dated as of January 31, 1997, between the (3)
Company and The Bank of New York, as trustee,
relating to Junior Subordinated Deferrable
Interest Debentures due 2027 of the Company
4(g) Form of Junior Subordinated Deferrable Interest (3)
Debentures due 2027 of the Company (included as
Exhibit A to the Indenture included as Exhibit
4(f))
4(h) Series A Capital Securities Guarantee Agreement, dated
as of January 31, 1997, relating to the Series
A Capital Securities of Peoples Heritage
Capital Trust I
4(i) Common Securities Guarantee Agreement, dated as
of January 31, 1997, relating to the Common
Securities of Peoples Heritage Capital Trust I
10(a) Amended and Restated Severance Agreement between (4)
the Company and William J. Ryan
10(b) Amended and Restated Severance Agreement between (4)
the Company and Peter J. Verrill
10(c) Form of Severance Agreement between the Company and
each of R. Scott Bacon, David D. Hindle, John W.
Fridlington, Glenn McAllister, Carol L. Mitchell and
Wendy Suehrstedt
10(d) Supplemental Retirement Agreement among the (5)
Company, its subsidiaries and William J. Ryan
10(e) Supplemental Retirement Agreement among the (5)
Company, its subsidiaries and Peter J. Verrill
10(f) Supplemental Retirement among the Company, its (6)
subsidiaries and John W. Fridlington
15
<PAGE> 17
Exhibit No. Exhibit Location
- ----------- ------- --------
10(g) Senior Officers' Deferred Compensation Plan, as (7)
amended
10(h) Directors' Deferred Compensation Plan, as amended (7)
10(i) 1986 Stock Option and Stock Appreciation Rights (1)(8)
Plan, as amended
10(j) 1986 Employee Stock Purchase Plan, as amended (1)(8)
10(k) Amended and Restated Restricted Stock Plan for Non-
Employee Directors
10(l) Amended and Restated 1995 Stock Option Plan for Non-
(9) Employee Directors (9)
10(m)(1) Amended and Restated Thrift Incentive Plan
10(m)(2) First Amendment to Amended and Restated Thrift
Incentive Plan
10(n)(1) Profit Sharing Employee Stock Ownership Plan (10)
10(n)(2) First Amendment to Profit Sharing Employee Stock (4)
Ownership Plan
10(n)(3) Second Amendment to Profit Sharing Employee Stock (4)
Ownership Plan
10(o) 1996 Equity Incentive Plan (11)
10(p) Agreement, dated January 1, 1989, by and among the (7)
Company and Robert P. Bahre
10(q) Stockholders Rights Agreement, dated September 12, (12)
1989, between the Company and American Stock
Transfer & Trust Company, as Rights Agent
10(r) Supplemental Retirement Agreement among the Company,
its subsidiaries and Glen McAllister
10(s) Bank of New Hampshire Corporation Executive Excess (13)
Benefit Plan for Paul R. Shea
10(t) Supplemental Executive Retirement Plan agreement (14)
between The Family Mutual Savings Bank and
David D. Hindle
10(u) Split Dollar Insurance Agreement between The (15)
Family Mutual Savings Bank and David D. Hindle
16
<PAGE> 18
Exhibit No. Exhibit Location
- ----------- ------- --------
13 Annual Report to Stockholders for 1996
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 (16)
Incentive Plan
(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 Form S-4 Registration
Statement (No. 333-23991) filed by the Company with the SEC on March 26, 1997.
(4) Exhibit is incorporated by reference to the Company's Form 10-K report
for the year ended December 31, 1995, filed with the SEC on March 29, 1996.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Exhibit is incorporated by reference to the proxy statement filed by
the Company with the SEC on March 21, 1997.
17
<PAGE> 19
(10) 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.
(11) Exhibit is incorporated by reference to the proxy statement filed by
the Company with the SEC on March 20, 1996.
(12) Exhibit is incorporated by reference to the Form 8-K report filed by
the Company with the SEC on September 13, 1989.
(13) Exhibit is incorporated by reference to the Form 10-K report filed by
Bank of New Hampshire Corporation (File No. 0-9517) for the year ended December
31, 1994.
(14) Exhibit is incorporated by reference to the Form 10-K report filed by
Family Bancorp (File No. 0-17252) for the year ended December 31, 1993.
(15) Exhibit is incorporated by reference to the Form S-4 Registration
Statement (No. 33-18613) filed by Family Bancorp.
(16) To be filed by amendment on or before April 30, 1997.
The Company's management contracts or compensatory plans or
arrangements consist of Exhibit Nos. 10(a)-(p) and 10(r)-(u).
(b) The Company filed reports on Form 8-K on December 9, 1996 and
January 22 and 29, 1997.
(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.
18
<PAGE> 20
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.
By: /s/ William J. Ryan Date: March 25, 1997
-------------------------------------------------
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 25, 1997
- ----------------------------------------------------
Robert P. Bahre
Director
/s/ Everett W. Gray Date: March 25, 1997
- ----------------------------------------------------
Everett W. Gray
Director
/s/ Andrew W. Greene Date: March 25, 1997
- --------------------------------------------------
Andrew W. Greene
Director
/s/ Katherine M. Greenleaf Date: March 25, 1997
- --------------------------------------------------
Katherine M. Greenleaf
Director
19
<PAGE> 21
/s/ Dana S. Levenson Date: March 25, 1997
- ----------------------------------------------------
Dana S. Levenson
/s/ Robert A. Marden, Sr. Date: March 25, 1997
- ----------------------------------------------------
Robert A. Marden, Sr.
Vice Chairman
/s/ Malcolm W. Philbrook, Jr. Date: March 25, 1997
- ---------------------------------------------------
Malcolm W. Philbrook, Jr.
Director
/s/ Pamela P. Plumb Date: March 25, 1997
- -----------------------------------------------------
Pamela P. Plumb
Vice Chairman
/s/ William J. Ryan Date: March 25, 1997
- ------------------------------------------------------
William J. Ryan
Chairman, President and Chief
Executive Officer
(principal executive officer)
/s/ Curtis M. Scribner Date: March 25, 1997
- ------------------------------------------------------
Curtis M. Scribner
Director
/s/ Paul R. Shea Date: March 25, 1997
- -----------------------------------------------------
Paul R. Shea
Director
20
<PAGE> 22
/s/ Davis P. Thurber Date: March 25, 1997
- ---------------------------------------------------
Davis P. Thurber
Director
/s/ John E. Veasey Date: March 25, 1997
- -----------------------------------------------------
John E. Veasey
Director
/s/ Peter J. Verrill Date: March 25, 1997
- --------------------------------------------------------
Peter J. Verrill
Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer (principal financial
and accounting officer)
21
<PAGE> 23
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)
4(d) Amended and Restated Declaration of Trust relating (3)
to Peoples Heritage Capital Trust I, dated as of
January 31, 1997, between the Company and the
trustees named therein
4(e) Form of Common Securities and form of Capital (3)
Securities of Peoples Heritage Capital Trust I
(included as Exhibits to the Amended and Restated
Declaration included as Exhibit 4(d))
4(f) Indenture, dated as of January 31, 1997, between the (3)
Company and The Bank of New York, as trustee,
relating to Junior Subordinated Deferrable Interest
Debentures due 2027 of the Company
4(g) Form of Junior Subordinated Deferrable Interest (3)
Debentures due 2027 of the Company (included as
Exhibit A to the Indenture included as Exhibit 4(f))
4(h) Series A Capital Securities Guarantee Agreement,
dated as of January 31, 1997, relating to the Series
A Capital Securities of Peoples Heritage Capital
Trust I
4(i) Common Securities Guarantee Agreement, dated as of
January 31, 1997, relating to the Common Securities
of Peoples Heritage Capital Trust I
10(a) Amended and Restated Severance Agreement between (4)
the Company and William J. Ryan
10(b) Amended and Restated Severance Agreement between (4)
the Company and Peter J. Verrill
<PAGE> 24
Exhibit No. Exhibit Location
- ----------- ------- --------
10(c) Form of Severance Agreement between the Company and
each of R. Scott Bacon, David D. Hindle, John W.
Fridlington, Glenn McAllister, Carol L. Mitchell and
Wendy Suehrstedt
10(d) Supplemental Retirement Agreement among the (5)
Company, its subsidiaries and William J. Ryan
10(e) Supplemental Retirement Agreement among the (5)
Company, its subsidiaries and Peter J. Verrill
10(f) Supplemental Retirement among the Company, its (6)
subsidiaries and John W. Fridlington
10(g) Senior Officers' Deferred Compensation Plan, as (7)
amended
10(h) Directors' Deferred Compensation Plan, as amended (7)
10(i) 1986 Stock Option and Stock Appreciation Rights (1)(8)
Plan, as amended
10(j) 1986 Employee Stock Purchase Plan, as amended (1)(8)
10(k) Amended and Restated Restricted Stock Plan for Non-
Employee Directors
10(l) Amended and Restated 1995 Stock Option Plan for Non- (9)
Employee Directors
10(m)(1) Amended and Restated Thrift Incentive Plan
10(m)(2) First Amendment to Amended and Restated Thrift
Incentive Plan
10(n)(1) Profit Sharing Employee Stock Ownership Plan (10)
10(n)(2) First Amendment to Profit Sharing Employee Stock (4)
Ownership Plan
10(n)(3) Second Amendment to Profit Sharing Employee Stock (4)
Ownership Plan
10(o) 1996 Equity Incentive Plan (11)
10(p) Agreement, dated January 1, 1989, by and among the (7)
Company and Robert P. Bahre
10(q) Stockholders Rights Agreement, dated September 12, (12)
1989, between the Company and American Stock
Transfer & Trust Company, as Rights Agent
<PAGE> 25
Exhibit No. Exhibit Location
- ----------- ------- --------
10(r) Supplemental Retirement Agreement among the Company,
its subsidiaries and Glen McAllister
10(s) Bank of New Hampshire Corporation Executive Excess (13)
Benefit Plan for Paul R. Shea
10(t) Supplemental Executive Retirement Plan agreement (14)
between The Family Mutual Savings Bank and
David D. Hindle
10(u) Split Dollar Insurance Agreement between The (15)
Family Mutual Savings Bank and David D. Hindle
13 Annual Report to Stockholders for 1996
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 (16)
Incentive Plan
- --------
(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 Form S-4 Registration
Statement (No. 333-23991) filed by the Company with the SEC on March 26, 1997.
(4) Exhibit is incorporated by reference to the Company's Form 10-K report
for the year ended December 31, 1995, filed with the SEC on March 29, 1996.
(5) 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.
(6) 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.
<PAGE> 26
(7) 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.
(8) 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.
(9) Exhibit is incorporated by reference to the proxy statement filed by
the Company with the SEC on March 21, 1997.
(10) 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.
(11) Exhibit is incorporated by reference to the proxy statement filed by
the Company with the SEC on March 20, 1996.
(12) Exhibit is incorporated by reference to the Form 8-K report filed by
the Company with the SEC on September 13, 1989.
(13) Exhibit is incorporated by reference to the Form 10-K report filed by
Bank of New Hampshire Corporation (File No. 0-9517) for the year ended December
31, 1994.
(14) Exhibit is incorporated by reference to the Form 10-K report filed by
Family Bancorp (File No. 0-17252) for the year ended December 31, 1993.
(15) Exhibit is incorporated by reference to the Form S-4 Registration
Statement (No. 33-18613) filed by Family Bancorp.
(16) To be filed by amendment on or before April 30, 1997.
The Company's management contracts or compensatory plans or
arrangements consist of Exhibit Nos. 10(a)-(p) and 10(r)-(u).
<PAGE> 1
EXHIBIT 4(h)
<PAGE> 2
EXHIBIT 4(h)
- --------------------------------------------------------------------------------
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
Peoples Heritage Financial Group, Inc.
Dated as of January 31, 1997
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation................................ 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.............................. 6
SECTION 2.2 Lists of Holders of Securities................................ 6
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee........... 6
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee...... 7
SECTION 2.5 Evidence of Compliance with Conditions Precedent.............. 7
SECTION 2.6 Events of Default; Waiver..................................... 7
SECTION 2.7 Event of Default; Notice...................................... 7
SECTION 2.8 Conflicting Interests......................................... 8
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee
Trustee....................................................... 8
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee........ 10
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A
Capital Securities Guarantee.................................. 12
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility............. 12
SECTION 4.2 Appointment, Removal and Resignation of Capital Secu-
rities Guarantee Trustee...................................... 13
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee..................................................... 14
SECTION 5.2 Waiver of Notice and Demand................................... 14
SECTION 5.3 Obligations Not Affected...................................... 14
<PAGE> 4
Page
SECTION 5.4 Rights of Holders............................................. 15
SECTION 5.5 Guarantee of Payment.......................................... 16
SECTION 5.6 Subrogation................................................... 16
SECTION 5.7 Independent Obligations....................................... 16
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions.................................... 17
SECTION 6.2 Ranking....................................................... 18
ARTICLE VII
TERMINATION
SECTION 7.1 Termination................................................... 18
ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses..................................... 18
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation................................................... 19
SECTION 9.2 Indemnification............................................... 20
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns........................................ 20
SECTION 10.2 Amendments.................................................... 20
SECTION 10.3 Notices....................................................... 20
SECTION 10.4 Exchange Offer................................................ 21
SECTION 10.5 Benefit....................................................... 22
SECTION 10.6 Governing Law................................................. 22
ii
<PAGE> 5
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Series A Capital Securities
Guarantee"), dated as of January 31, 1997, is executed and delivered by Peoples
Heritage Financial Group, Inc. a Maine corporation (the "Guarantor"), and The
Bank of New York, a New York banking corporation, as trustee (the "Capital
Securities Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Series A Capital Securities (as defined herein)
of Peoples Heritage Capital Trust I, a Delaware statutory business trust (the
"Issuer").
WITNESSETH:
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of January 31, 1997, among the trustees of
the Issuer, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 100,000 capital securities, having an aggregate
liquidation amount of $100,000,000, such capital securities being designated the
9.06% Series A Capital Securities (collectively the "Series A Capital
Securities") and, in connection with an Exchange Offer (as defined in the
Declaration), has agreed to execute and deliver the Series B Capital Securities
Guarantee (as defined in the Declaration) for the benefit of holders of the
Series B Capital Securities (as defined in the Declaration); and
WHEREAS, as incentive for the Holders to purchase the Series A
Capital Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Series A Capital Securities Guarantee, to
pay to the Holders the Guarantee Payments (as defined below) and to make certain
other payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is executing and delivering a guarantee
agreement (the "Common Securities Guarantee"), with substantially identical
terms to this Series A Capital Securities Guarantee, for the benefit of the
holders of the Common Securities (as defined herein), except that if an Event of
Default (as defined in the Declaration) has occurred and is continuing, the
rights of holders of the Common Securities to receive Guarantee Payments under
the Common Securities Guarantee are subordinated, to the extent and in the
manner set forth in the Common Securities Guarantee, to the rights of holders of
Series A Capital Securities and the Series B Capital Securities to receive
Guarantee Payments under this Series A Capital Securities Guarantee and the
Series B Capital Securities Guarantee, as the case may be;
NOW, THEREFORE, in consideration of the purchase by each
Holder, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Series A Capital Securities
Guarantee for the benefit of the Holders.
<PAGE> 6
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Series A Capital Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Series A Capital Securities
Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as of the date of execution
of this Series A Capital Securities Guarantee have the same
meaning when used in this Series A Capital Securities
Guarantee unless otherwise defined in this Series A Capital
Securities Guarantee;
(c) a term defined anywhere in this Series A Capital Securities
Guarantee has the same meaning throughout;
(d) all references to "the Series A Capital Securities Guarantee"
or "this Series A Capital Securities Guarantee" are to this
Series A Capital Securities Guarantee as modified,
supplemented or amended from time to time;
(e) all references in this Series A Capital Securities Guarantee
to Articles and Sections are to Articles and Sections of this
Series A Capital Securities Guarantee, unless otherwise
specified;
(f) a term defined in the Trust Indenture Act has the same meaning
when used in this Series A Capital Securities Guarantee,
unless otherwise defined in this Series A Capital Securities
Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule 405
under the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday or a Sunday, or a
day on which banking institutions in The City of New York or Portland, Maine are
authorized or required by law or executive order to close.
2
<PAGE> 7
"Capital Securities Guarantee Trustee" means The Bank of New York, a
New York banking corporation, until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Series A Capital Securities Guarantee and thereafter means each
such Successor Capital Securities Guarantee Trustee.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Capital Securities
Guarantee Trustee at which the corporate trust business of the Capital
Securities Guarantee Trustee shall, at any particular time, be principally
administered, which office at the date of execution of this Agreement is located
at 21 Barclay Street, 21st Floor West, New York, New York 10286.
"Covered Person" means any Holder or beneficial owner of Series A
Capital Securities.
"Debentures" means the series of subordinated debt securities of the
Guarantor designated the 9.06% Series A Junior Subordinated Deferrable Interest
Debentures due 2027 held by the Property Trustee (as defined in the Declaration)
of the Issuer.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Series A Capital Securities Guarantee,
provided, however, that except with respect to a default in payment of any
Guarantee Payment, the Guarantor shall have received notice of default and shall
not have cured such default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Series A Capital Securities, to the
extent not paid or made by the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Declaration) that are required to be paid on
such Series A Capital Securities to the extent the Issuer has funds on hand
legally available therefor at such time, (ii) the redemption price, including
all accumulated and unpaid Distributions to the date of redemption (the
"Redemption Price") to the extent the Issuer has funds on hand legally available
therefor at such time, with respect to any Series A Capital Securities called
for redemption by the Issuer, and (iii) upon a voluntary or involuntary
termination and liquidation of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Series A Capital
Securities as provided in the Declaration), the lesser of (a) the aggregate of
the liquidation amount and all accumulated and unpaid Distributions on the
Series A Capital Securities to the date of payment, to the extent the Issuer has
funds on hand legally available therefor, and (b) the amount of assets of the
Issuer remaining available for distribution to Holders in liquidation of the
Issuer. If an Event of Default has occurred and
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is continuing, no Guarantee Payments under the Common Securities Guarantee with
respect to the Common Securities or any guarantee payment under any Other Common
Securities Guarantees shall be made until the Holders shall be paid in full the
Guarantee Payments to which they are entitled under this Series A Capital
Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records
of the Issuer, of any Series A Capital Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Series A Capital
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Capital Securities Guarantee Trustee,
any Affiliate of the Capital Securities Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives,
nominees, custodians or agents of the Capital Securities Guarantee Trustee.
"Indenture" means the Indenture dated as of January 31, 1997, among the
Guarantor (the "Debenture Issuer") and The Bank of New York, as trustee,
pursuant to which the Debentures are to be issued to the Property Trustee of the
Issuer.
"Majority in liquidation amount of the Series A Capital Securities"
means, except as provided by the Trust Indenture Act, a vote by Holder(s) of
more than 50% of the aggregate liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accumulated and
unpaid Distributions to the date upon which the voting percentages are
determined) of all Series A Capital Securities.
"Officers' Certificate" means, with respect to the Guarantor, a
certificate signed by the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President, the Comptroller, the Secretary or an
Assistant Secretary, the Secretary or an Assistant Secretary of the Guarantor.
Any Officers' Certificate delivered with respect to compliance with a condition
or covenant provided for in this Series A Capital Securities Guarantee (other
than pursuant to Section 314(a)(4) of the Trust Indenture Act) shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(c) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
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"Other Common Securities Guarantees" shall have the same meaning as
"Other Guarantees" in the Common Securities Guarantee.
"Other Debentures" means all junior subordinated debentures issued by
the Guarantor from time to time and sold to trusts to be established by the
Guarantor (if any), in each case similar to the Issuer.
"Other Guarantees" means all guarantees to be issued by the Guarantor
with respect to capital securities (if any) similar to the Series A Capital
Securities issued by other trusts to be established by the Guarantor (if any),
in each case similar to the Issuer.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of January 31, 1997, by and among the Guarantor, the Issuer
and the Initial Purchasers named therein as such agreement may be amended,
modified or supplemented from time to time.
"Responsible Officer" means, with respect to the Capital Securities
Guarantee Trustee, any officer within the Corporate Trust Office of the Capital
Securities Guarantee Trustee, including any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer, any trust officer,
any senior trust officer or other officer in the Corporate Trust Office of the
Capital Securities Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Successor Capital Securities Guarantee Trustee" means a successor
Capital Securities Guarantee Trustee possessing the qualifications to act as
Capital Securities Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Securities" means the Common Securities and the Series A Capital
Securities and Series B Capital Securities, collectively.
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ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Series A Capital Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part of this
Series A Capital Securities Guarantee and shall, to the extent applicable, be
governed by such provisions; and
(b) if and to the extent that any provision of this Series A Capital
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Capital Securities Guarantee
Trustee (unless the Capital Securities Guarantee Trustee is otherwise the
registrar of the Capital Securities) with a list, in such form as the Capital
Securities Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within one Business Day
after June 1 and December 1 of each year, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Capital Securities Guarantee Trustee provided, that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Capital Securities
Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee may
destroy any List of Holders previously given to it on receipt of a new List of
Holders.
(b) The Capital Securities Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
Within 60 days after May 15 of each year, commencing May 15, 1997, the
Capital Securities Guarantee Trustee shall provide to the Holders such reports
as are required by Section 313(a) of the Trust Indenture Act, if any, in the
form and in the manner provided by Section 313 of the Trust Indenture Act. The
Capital Securities Guarantee Trustee shall also comply with the other
requirements of Section 313 of the Trust Indenture Act.
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SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee
The Guarantor shall provide to the Capital Securities Guarantee Trustee
such documents, reports and information as required by Section 314 (if any) and
the compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act, provided that such compliance certificate shall be delivered on
or before 120 days after the end of each fiscal year of the Guarantor. Delivery
of such reports, information and documents to the Capital Securities Guarantee
Trustee is for informational purposes only and the Capital Securities Guarantee
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Guarantor's compliance with any of its covenants
hereunder (as to which the Capital Securities Guarantee Trustee is entitled to
rely exclusively on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Capital Securities Guarantee Trustee
such evidence of compliance with any conditions precedent, if any, provided for
in this Series A Capital Securities Guarantee that relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) may be
given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Series A Capital
Securities may, by vote, on behalf of all the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Series A Capital Securities
Guarantee, but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
SECTION 2.7 Event of Default; Notice
(a) The Capital Securities Guarantee Trustee shall, within 90 days
after the occurrence of a default with respect to this Capital Securities
Guarantee, mail by first class postage prepaid, to all Holders, notices of all
defaults actually known to a Responsible Officer of the Capital Securities
Guarantee Trustee, unless such defaults have been cured before the giving of
such notice, provided, that, except in the case of default in the payment of any
Guarantee Payment, the Capital Securities Guarantee Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officers of the Capital Securities Guarantee Trustee in good faith determines
that the withholding of such notice is in the interests of the holders of the
Series A Capital Securities.
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(b) The Capital Securities Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the Capital Securities Guarantee
Trustee shall have received written notice from the Guarantor or a Holder, or a
Responsible Officer of the Capital Securities Guarantee Trustee charged with the
administration of the Declaration shall have obtained actual knowledge, of such
Event of Default.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described in this
Series A Capital Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee
(a) This Series A Capital Securities Guarantee shall be held by the
Capital Securities Guarantee Trustee for the benefit of the Holders, and the
Capital Securities Guarantee Trustee shall not transfer this Series A Capital
Securities Guarantee to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee
Trustee on acceptance by such Successor Capital Securities Guarantee Trustee of
its appointment to act as Successor Capital Securities Guarantee Trustee. The
right, title and interest of the Capital Securities Guarantee Trustee shall
automatically vest in any Successor Capital Securities Guarantee Trustee, and
such vesting and succession of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Capital Securities Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Capital Securities Guarantee Trustee has occurred and is continuing, the
Capital Securities Guarantee Trustee shall enforce this Series A Capital
Securities Guarantee for the benefit of the Holders.
(c) The Capital Securities Guarantee Trustee, before the occurrence of
any Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Series A Capital Securities Guarantee, and no implied covenants
shall be read into this Series A Capital Securities Guarantee against the
Capital Securities Guarantee Trustee. In case an Event of Default has occurred
(that has not been cured or waived pursuant to Section 2.6) and is actually
known to a Responsible Officer of the Capital Securities Guarantee Trustee, the
Capital Securities Guarantee Trustee shall exercise such of the rights and
powers vested in
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it by this Series A Capital Securities Guarantee, and use the same degree of
care and skill in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Series A Capital Securities Guarantee shall be
construed to relieve the Capital Securities Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Capital Securities
Guarantee Trustee shall be determined solely by the express provisions
of this Series A Capital Securities Guarantee, and the Capital
Securities Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Series A Capital Securities Guarantee, and no implied
covenants or obligations shall be read into this Series A Capital
Securities Guarantee against the Capital Securities Guarantee Trustee;
and
(B) in the absence of bad faith on the part of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Capital Securities Guarantee Trustee and
conforming to the requirements of this Series A Capital Securities
Guarantee; but in the case of any such certificates or opinions that by
any provision hereof are specifically required to be furnished to the
Capital Securities Guarantee Trustee, the Capital Securities Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Series A Capital
Securities Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Capital Securities Guarantee Trustee, unless it shall be proved that the
Capital Securities Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a Majority in liquidation
amount of the Series A Capital Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Capital
Securities Guarantee Trustee, or exercising any trust or power conferred
upon the Capital Securities Guarantee Trustee under this Series A Capital
Securities Guarantee; and
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(iv) no provision of this Series A Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if the
Capital Securities Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Series A Capital Securities Guarantee
or indemnity, reasonably satisfactory to the Capital Securities Guarantee
Trustee, against such risk or liability is not reasonably assured to it.
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Capital Securities Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting, upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this Series
A Capital Securities Guarantee may be sufficiently evidenced by an Officers'
Certificate.
(iii) Whenever, in the administration of this Series A Capital
Securities Guarantee, the Capital Securities Guarantee Trustee shall deem it
desirable that a matter be proved or established before taking, suffering or
omitting any action hereunder, the Capital Securities Guarantee Trustee
(unless other evidence is herein specifically prescribed) may, in the
absence of bad faith on its part, request and conclusively rely upon an
Officers' Certificate which, upon receipt of such request, shall be promptly
delivered by the Guarantor.
(iv) The Capital Securities Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any
rerecording, refiling or registration thereof).
(v) The Capital Securities Guarantee Trustee may consult with counsel
of its selection, and the advice or opinion of such counsel with respect to
legal matters shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion. Such counsel may be
counsel to the Guarantor or any of its Affiliates and may include any of its
employees. The Capital Securities Guarantee Trustee shall have the right at
any time to seek instructions concerning the
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administration of this Series A Capital Securities Guarantee from any court
of competent jurisdiction.
(vi) The Capital Securities Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Series A Capital Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Capital Securities
Guarantee Trustee such security and indemnity, reasonably satisfactory to
the Capital Securities Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Capital
Securities Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Capital Securities Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Capital Securities
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Series A
Capital Securities Guarantee.
(vii) The Capital Securities Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Capital Securities
Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit.
(viii) The Capital Securities Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, nominees, custodians or attorneys, and the Capital
Securities Guarantee Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
(ix) Any action taken by the Capital Securities Guarantee Trustee or
its agents hereunder shall bind the Holders, and the signature of the
Capital Securities Guarantee Trustee or its agents alone shall be sufficient
and effective to perform any such action. No third party shall be required
to inquire as to the authority of the Capital Securities Guarantee Trustee
to so act or as to its compliance with any of the terms and provisions of
this Series A Capital Securities Guarantee, both of which shall be
conclusively evidenced by the Capital Securities Guarantee Trustee's or its
agent's taking such action.
(x) Whenever in the administration of this Series A Capital Securities
Guarantee the Capital Securities Guarantee Trustee shall deem it desirable
to receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Capital Securities Guarantee Trustee
(i) may request instructions from the Holders of a Majority in liquidation
amount of the Series A
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Capital Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received and (iii)
shall be protected in conclusively relying on or acting in accordance with
such instructions.
(xi) The Capital Securities Guarantee Trustee shall not be liable for
any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Series A
Capital Securities Guarantee.
(b) No provision of this Series A Capital Securities Guarantee shall be
deemed to impose any duty or obligation on the Capital Securities Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital
Securities Guarantee
The recitals contained in this Series A Capital Securities Guarantee
shall be taken as the statements of the Guarantor, and the Capital Securities
Guarantee Trustee does not assume any responsibility for their correctness. The
Capital Securities Guarantee Trustee makes no representation as to the validity
or sufficiency of this Series A Capital Securities Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
(a) There shall at all times be a Capital Securities Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities
and Exchange Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least 50 million U.S.
dollars ($50,000,000), and subject to supervi-
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sion or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the
purposes of this Section 4.1(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Capital Securities Guarantee Trustee shall cease
to be eligible to so act under Section 4.1(a), the Capital Securities Guarantee
Trustee shall immediately resign in the manner and with the effect set out in
Section 4.2(c).
(c) If the Capital Securities Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Capital Securities Guarantee Trustee and Guarantor shall in
all respects comply with the provisions of Section 310(b) of the Trust Indenture
Act, subject to the penultimate paragraph thereof.
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
Guarantee Trustee
(a) Subject to Section 4.2(b), the Capital Securities Guarantee Trustee
may be appointed or removed without cause at any time by the Guarantor except
during an Event of Default.
(b) The Capital Securities Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Capital Securities Guarantee Trustee and
delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee shall hold office until a
Successor Capital Securities Guarantee Trustee shall have been appointed or
until its removal or resignation. The Capital Securities Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Capital Securities Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section 4.2 within
60 days after delivery of an instrument of removal or resignation, the Capital
Securities Guarantee Trustee resigning or being removed may petition any court
of competent jurisdiction for appointment of a Successor Capital Securities
Guarantee Trustee. Such court may thereupon,
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after prescribing such notice, if any, as it may deem proper, appoint a
Successor Capital Securities Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Capital Securities Guarantee Trustee.
(f) Upon termination of this Series A Capital Securities Guarantee or
removal or resignation of the Capital Securities Guarantee Trustee pursuant to
this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee
Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Issuer), as and when due, regardless of any defense, right of
set-off or counterclaim that the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Series A
Capital Securities Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, any right to require a proceeding first
against the Issuer or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Series A Capital Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Series A Capital Securities to be
performed or observed by the Issuer;
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(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Series A Capital Securities or the
extension of time for the performance of any other obligation under, arising out
of, or in connection with, the Series A Capital Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Series A Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Series A Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred;
(g) the consummation of the Exchange Offer; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor with respect to the
Guarantee Payments shall be absolute and unconditional under any and all
circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation amount of the Series A
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Capital Securities
Guarantee Trustee in respect of this Series A Capital Securities Guarantee or
exercising any trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series A Capital Securities Guarantee provided, however,
that, subject to Section 3.1, the Capital Securities Guarantee Trustee shall
have the right to decline to follow any such direction if the Capital Securities
Guarantee Trustee shall determine that the action so directed would be unjustly
prejudicial
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to the holders not taking part in such direction or if the Capital Securities
Guarantee Trustee being advised by counsel determines that the action or
proceeding so directed may not lawfully be taken or if the Capital Securities
Guarantee Trustee in good faith by its board of directors or trustees, executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers shall determine that the action or proceedings so directed would
involve the Capital Securities Guarantee Trustee in personal liability.
(b) If the Capital Securities Guarantee Trustee fails to enforce such
Series A Capital Securities Guarantee, any Holder may institute a legal
proceeding directly against the Guarantor to enforce the Capital Securities
Guarantee Trustee's rights under this Series A Capital Securities Guarantee,
without first instituting a legal proceeding against the Issuer, the Capital
Securities Guarantee Trustee or any other person or entity. The Guarantor waives
any right or remedy to require that any action be brought first against the
Issuer or any other person or entity before proceeding directly against the
Guarantor.
SECTION 5.5 Guarantee of Payment
This Series A Capital Securities Guarantee creates a guarantee of
payment and not of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Series A Capital Securities Guarantee; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any right that it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Series A Capital
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Series A Capital Securities Guarantee. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Series A
Capital Securities, and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this Series
A Capital Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof.
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ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Capital Securities remain outstanding, the Guarantor
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Guarantor's capital stock (which includes common and preferred stock) or (ii)
make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Guarantor (including any Other
Debentures) that rank pari passu with or junior in right of payment to the
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Guarantor of any securities of any subsidiary of the Guarantor (including
Other Guarantees) if such guarantee ranks pari passu or junior in right of
payment to the Debentures (other than (a) dividends or distributions in shares
of, or options, warrants, rights to subscribe for or purchase shares of, common
stock of the Guarantor, (b) any declaration of a dividend in connection with the
implementation of a stockholder's rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a
direct result of, and only to the extent required in order to avoid the issuance
of fractional shares of capital stock following, a reclassification of the
Guarantor's capital stock or the exchange or the conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (e) the purchase of fractional interests in shares of
the Guarantor's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, and (f)
purchases of common stock related to the issuance of common stock or rights
under any of the Guarantor's benefit plans for its directors, officers or
employees or any of the Guarantor's dividend reinvestment plans) if at such time
(i) an Event of Default (as defined in the Indenture) shall have occurred and be
continuing, (ii) there shall have occurred any event of which the Guarantor has
actual knowledge that (a) is, or with the giving of notice or the lapse of time,
or both, would be an Event of Default (as defined in the Indenture) and (b) in
respect of which the Guarantor shall not have taken reasonable steps to cure,
(iii) if such Debentures are held by the Property Trustee, the Guarantor shall
be in default with respect to its payment of any obligations under this Series A
Capital Securities Guarantee or (iv) the Guarantor shall have given notice of
its election of the exercise of its right to extend the interest payment period
pursuant to [SECTION 16.01] of the Indenture and any such extension shall be
continuing.
SECTION 6.2 Ranking
This Series A Capital Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to Senior Indebtedness (as defined in the Indenture), to the same extent
and in the same manner that the Debentures are subordinated to Senior
Indebtedness pursuant to the Inden-
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ture, it being understood that the terms of Article XV of the Indenture shall
apply to the obligations of the Guarantor under this Series A Capital Securities
Guarantee as if (x) such Article XV were set forth herein in full and (y) such
obligations were substituted for the term "Securities" appearing in such Article
XV, (ii) pari passu with the Debentures, the Other Debentures and with the most
senior preferred or preference stock now or hereafter issued by the Guarantor
and with any Other Guarantee (as defined herein) and any Other Common Securities
Guarantee and any guarantee now or hereafter entered into by the Guarantor in
respect of any preferred or preference stock of any Affiliate of the Guarantor,
and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Series A Capital Securities Guarantee shall terminate (i) upon
full payment of the Redemption Price (as defined in the Declaration) of all
Series A Capital Securities, (ii) upon liquidation of the Issuer, the full
payment of the amounts payable in accordance with the Declaration or the
distribution of the Debentures to the Holders of all of the Series A Capital
Securities or (iii) upon exchange of all the Series A Capital Securities for the
Series B Capital Securities in the Exchange Offer and the execution and delivery
of the Series B Capital Securities Guarantee. Notwithstanding the foregoing,
this Series A Capital Securities Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any Holder must restore
payment of any sums paid under the Series A Capital Securities or under this
Series A Capital Securities Guarantee.
ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses
The Guarantor covenants and agrees to pay to the Capital Securities
Guarantee Trustee from time to time, and the Capital Securities Guarantee
Trustee shall be entitled to, such compensation as shall be agreed to in writing
between the Guarantor and the Capital Securities Guarantee Trustee (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Guarantor will pay or reimburse the
Capital Securities Guarantee Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Capital Securities
Guarantee Trustee in accordance with any of the provisions of this Capital
Securities Guarantee (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, dis-
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bursement or advance as may arise from its negligence or bad faith. The
Guarantor also covenants to indemnify each of the Capital Securities Guarantee
Trustee (and its officers, agents, directors and employees) for, and to hold it
harmless against, any and all loss, damage, claim, liability or expense
including taxes (other than taxes based on the income of the Capital Securities
Guarantee Trustee) incurred without negligence or bad faith on the part of the
Capital Securities Guarantee Trustee and arising out of or in connection with
the acceptance or administration of this guarantee, including the costs and
expenses of defending itself against any claim of liability in the premises. The
obligations of the Guarantor under this Article VIII to compensate and indemnify
the Capital Securities Guarantee Trustee and to pay or reimburse the Capital
Securities Guarantee Trustee for expenses, disbursements and advances shall be
secured by a lien prior to that of the Series A Capital Securities upon all
property and funds held or collected by the Capital Securities Guarantee Trustee
as such, except funds held in trust for the benefit of the holders of particular
Series A Capital Securities.
The provisions of this Article shall survive the termination of this
Capital Securities Guarantee.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Series A
Capital Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Series A Capital Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders might properly be paid.
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SECTION 9.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any and all loss, liability,
damage, claim or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 9.2 shall survive the termination of this
Series A Capital Securities Guarantee.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns
All guarantees and agreements contained in this Series A Capital
Securities Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
then outstanding.
SECTION 10.2 Amendments
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Series A Capital Securities Guarantee may only be amended with
the prior approval of the Holders of a Majority in liquidation amount of the
Securities (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined). The provisions of the Declaration
with respect to consents to amendments thereof (whether at a meeting or
otherwise) shall apply to the giving of such approval.
SECTION 10.3 Notices
All notices provided for in this Series A Capital Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Issuer, in care of the Administrative Trustee at
the Issuer's mailing address set forth below (or such other address as the
Issuer may give notice of to the Holders and the Capital Securities Guarantee
Trustee):
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Peoples Heritage Capital Trust I
c/o Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, Maine 04112-9540
Attention: Chief Financial Officer
Telecopy: (207) 761-8587
(b) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below (or such
other address as the Capital Securities Guarantee Trustee may give notice of to
the Holders and the Issuer):
The Bank of New York
101 Barclay Street
21st Floor West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Telecopy: (212) 815-5915
(c) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Series A Capital Securities and the Capital Securities Guarantee
Trustee):
Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, Maine 04112-9540
Attention: President
Telecopy: (207) 761-8587
(d) If given to any Holder of Series A Capital Securities, at the
address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 10.4 Exchange Offer
In the event an Exchange Offer Registration Statement (as defined in
the Registration Rights Agreement) becomes effective and the Issuer issues any
Series B Capital Securities in the Exchange Offer, the Guarantor will enter into
a new capital securities guarantee agreement, in substantially the same form as
this Series A Capital Securities Guarantee, with respect to the Series B Capital
Securities.
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SECTION 10.5 Benefit
This Series A Capital Securities Guarantee is solely for the benefit of
the Holders and, subject to Section 3.1(a), is not separately transferable from
the Series A Capital Securities.
SECTION 10.6 Governing Law
THIS SERIES A CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
THIS SERIES A CAPITAL SECURITIES GUARANTEE is executed as of the day
and year first above written.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By:
-------------------------------------
Name: William J. Ryan
Title: Chairman, President and Chief
Executive Officer
THE BANK OF NEW YORK, as Capital
Securities Guarantee Trustee
By:
-------------------------------------
Name:
Title:
22
<PAGE> 1
EXHIBIT 4(i)
<PAGE> 2
EXHIBIT 4(i)
- --------------------------------------------------------------------------------
COMMON SECURITIES GUARANTEE AGREEMENT
Peoples Heritage Financial Group, Inc.
Dated as of January 31, 1997
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation...................................2
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee........................................................3
SECTION 2.2. Waiver of Notice and Demand......................................3
SECTION 2.3. Obligations Not Affected.........................................3
SECTION 2.4. Rights of Holders................................................4
SECTION 2.5. Guarantee of Payment.............................................4
SECTION 2.6. Subrogation......................................................5
SECTION 2.7. Independent Obligations..........................................5
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions.......................................5
SECTION 3.2. Ranking..........................................................6
ARTICLE IV
TERMINATION
SECTION 4.1. Termination......................................................6
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns...........................................7
SECTION 5.2. Amendments.......................................................7
SECTION 5.3. Notices..........................................................7
SECTION 5.4. Benefit..........................................................8
SECTION 5.5. Governing Law....................................................8
<PAGE> 4
COMMON SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Common Securities Guarantee"), dated as
of January 31, 1997, is executed and delivered by Peoples Heritage Financial
Group, Inc., a Maine corporation (the "Guarantor"), for the benefit of the
Holders (as defined herein) from time to time of the Common Securities (as
defined herein) of Peoples Heritage Capital Trust I, a Delaware business trust
(the "Issuer").
WITNESSETH:
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of January 31, 1997, among the Trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 3,093 common securities designated the 9.06% Common
Securities (the "Common Securities"), having an aggregate stated liquidation
amount of $3,093,000.
WHEREAS, as incentive for the Holders to purchase the Common
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth in this Common Securities Guarantee, to pay to the Holders
of the Common Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Series A Capital Securities Guarantee") for the benefit of the
holders of the Series A Capital Securities (as defined in the Declaration) and
upon consummation of the Exchange Offer (as defined in the Declaration) will
execute and deliver a guarantee agreement (the "Series B Capital Securities
Guarantee") for the benefit of the holders of the Series B Capital Securities
(as defined in the Declaration), each in substantially identical terms to this
Common Securities Guarantee, except that if an Event of Default (as defined in
the Declaration) has occurred and is continuing, the rights of Holders of the
Common Securities to receive Guarantee Payments under this Common Securities
Guarantee are subordinated to the rights of holders of Capital Securities to
receive Guarantee Payments under the Series A Capital Securities Guarantee and
the Series B Capital Securities Guarantee, as the case may be;
NOW, THEREFORE, in consideration of the purchase by each Holder of
Common Securities, which purchase the Guarantor hereby acknowledges shall
benefit the Guarantor, the Guarantor executes and delivers this Common
Securities Guarantee for the benefit of the Holders.
<PAGE> 5
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Common Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Common Securities Guarantee but
not defined in the preamble above have the respective meanings assigned
to them in this Section 1.1;
(b) Terms defined in the Declaration as of the date of execution of
this Common Securities Guarantee have the same meaning when used in
this Common Securities Guarantee unless otherwise defined in this
Common Securities Guarantee;
(c) a term defined anywhere in this Common Securities Guarantee has
the same meaning throughout;
(d) all references to "the Common Securities Guarantee" or "this
Common Securities Guarantee" are to this Common Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Common Securities Guarantee to Articles
and Sections are to Articles and Sections of this Common Securities
Guarantee unless otherwise specified; and
(f) a reference to the singular includes the plural and vice versa.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Common Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions that are
required to be paid on such Common Securities to the extent the Issuer has funds
on hand legally available therefor at such time, (ii) the redemption price,
including all accrued and unpaid Distributions to the date of redemption (the
"Redemption Price") to the extent the Issuer has funds on hand legally available
therefor at such time, with respect to any Common Securities called for
redemption by the Issuer and (iii) upon a voluntary or involuntary termination
and liquidation of the Issuer (other than in connection with the distribution of
Debentures to the Holders in exchange for Common Securities as provided in the
Declaration), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid Distributions on the Common Securities to the date of
payment, to the extent the Issuer has funds on hand legally available therefor,
and (b) the amount of assets of the Issuer remaining available for distribution
to Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution"). If an Event of Default has occurred and is continuing, no
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Guarantee Payments with respect to the Common Securities shall be made until
holders of Capital Securities shall be paid in full the Guarantee Payments to
which they are entitled under the Series A Capital Securities Guarantee and the
Series B Capital Securities Guarantee.
"Holder" means any holder, as registered on the books and records of
the Issuer, of any Common Securities.
"Other Guarantees" means all guarantees to be issued by the Guarantor
with respect to common securities (if any) similar to the Common Securities
issued by other trusts to be established by the Guarantor (if any), in each case
similar to the Issuer.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Issuer), as and when due, regardless of any defense, right of
set-off or counter-claim which the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Common
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 2.3. Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Common Securities Guarantee shall in no way be affected or impaired
by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied
agreement, covenant, term or condition relating to the Common
Securities to be performed or observed by the Issuer;
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(b) the extension of time for the payment by the Issuer of all or
any portion of the Distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Common
Securities or the extension of time for the performance of any other
obligation under, arising out of, or in connection with, the Common
Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum
payable that results from the extension of any interest payment period
on the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Holders pursuant to the terms of the
Common Securities, or any action on the part of the Issuer granting
indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the
Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Common
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it
being the intent of this Section 2.3 that the obligations of the
Guarantor with respect to the Guarantee Payments shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent
of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 2.4. Rights of Holders
The Guarantor expressly acknowledges that any Holder may institute a
legal proceeding directly against the Guarantor to enforce its rights under this
Common Securities Guarantee, without first instituting a legal proceeding
against the Issuer or any other Person.
SECTION 2.5. Guarantee of Payment
This Common Securities Guarantee creates a guarantee of payment and not
of collection.
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<PAGE> 8
SECTION 2.6. Subrogation
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Common Securities Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Common Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Common Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 2.7. Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Common
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Common
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 2.3 hereof.
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions
So long as any Common Securities remain outstanding, the Guarantor will
not (i) declare or pay any dividends or distribution on, or redeem, purchase,
acquire or make a liquidation payment with respect to any of the Guarantor's
capital stock (which includes common stock and preferred stock) or (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Guarantor (including Other Debentures) that
rank pari passu with or junior in right of payment to the Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Guarantor of
the debt securities of any subsidiary of the Guarantor (including under Other
Guarantees) if such guarantee ranks pari passu or junior in right of payment to
the Debentures (other than (a) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, common stock
of the Guarantor, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a
result of a reclassification of the Guarantor's capital stock or the exchange or
the conversion of one class or series of the Guarantor's capital stock for
another class or series of the Guarantor's capital stock, (e) the purchase of
fractional
5
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interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged and (f) purchases of common stock related to the issuance of common
stock or rights under any of the Guarantor's benefit plans for its directors,
officers or employees or any of the Guarantor's dividend reinvestment plans) if
at such time (i) there shall have occurred any event of which the Guarantor has
actual knowledge that (a) is, or with the giving of notice or the lapse of time,
or both, would be, an Event of Default and (b) in respect of which the Guarantor
shall not have taken reasonable steps to cure, (ii) if such Debentures are held
by the Property Trustee, the Guarantor shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee or (iii) the
Guarantor shall have given notice of its election of the exercise of its right
to extend the interest payment period pursuant to Section 16.01 of the Indenture
and any such extension shall be continuing.
SECTION 3.2. Ranking
This Common Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to Senior Indebtedness (as defined in the Indenture), to the same extent
and in the same manner that the Debentures are subordinated to Senior
Indebtedness pursuant to the Indenture, it being understood that the terms of
Article XV of the Indenture shall apply to the obligations of the Guarantor
under this Common Securities Guarantee as if (x) such Article XV were set forth
herein in full and (y) such obligations were substituted for the term
"Securities" appearing in such Article XV, (ii) pari passu with the Debentures
and with the most senior preferred or preference stock now or hereafter issued
by the Guarantor and with any Other Guarantee and any guarantee now or hereafter
entered into by the Guarantor in respect of any preferred or preference stock of
any Affiliate of the Guarantor and (iii) senior to the Guarantor's common stock.
ARTICLE IV
TERMINATION
SECTION 4.1. Termination
This Common Securities Guarantee shall terminate (i) upon full payment
of the Redemption Price of all Common Securities, (ii) upon the distribution of
the Debentures to all the Holders and the holders of the Capital Securities or
(iii) upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Common Securities Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any Holder must restore payment of any sums
paid under the Common Securities or under this Common Securities Guarantee.
6
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ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
All guarantees and agreements contained in this Common Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
then outstanding.
SECTION 5.2. Amendments
Except with respect to any changes which do not adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Common Securities Guarantee may be amended only with the prior approval of the
Holders of at least a majority in liquidation amount of all the outstanding
Common Securities. The provisions of Section 12.2 of the Declaration with
respect to meetings of Holders apply to the giving of such approval.
SECTION 5.2. Notices
All notices provided for in this Common Securities Guarantee shall be
in writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Issuer, in care of the Administrative Trustee
at the Issuer's mailing address set forth below (or such other address
as the Issuer may give notice of to the Holders):
Peoples Heritage Capital Trust I
c/o Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, Maine 04112-9540
Attention: Chief Financial Officer
Telecopy: (207) 761-8587
(b) if given to the Guarantor, at the Guarantor's mailing address
set forth below (or such other address as the Guarantor may given
notice of to the Holders):
Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, Maine 04112-9540
Attention: Chief Financial Officer
Telecopy: (207) 761-8587
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<PAGE> 11
(c) if given to any Holder, at the address set forth on the books
and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 5.4. Benefit
This Common Securities Guarantee is solely for the benefit of the
Holders of the Common Securities and is not separately transferable from the
Common Securities.
SECTION 5.5. Governing Law
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
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<PAGE> 12
THIS COMMON SECURITIES GUARANTEE is executed as of the day and year
first above written.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By:
-------------------------------------
Name: William J. Ryan
Title: Chairman, President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 10(c)
<PAGE> 2
SEVERANCE AGREEMENT
This AGREEMENT, made and entered into as of the __________________, by
and among PEOPLES HERITAGE FINANCIAL GROUP, INC. (the "Company") and
_______________________ (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> 3
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, including partial weeks,
of employment during that Year;
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<PAGE> 4
(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
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.
(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).
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<PAGE> 5
(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
4
<PAGE> 6
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
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<PAGE> 7
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.
(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;
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<PAGE> 8
(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;
(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.
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
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<PAGE> 9
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 the
provision so indicated.
(n) Person or Group means a "person" or "group," as defined in
Section 1(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.
8
<PAGE> 10
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 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
9
<PAGE> 11
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, 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
10
<PAGE> 12
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
(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,
11
<PAGE> 13
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.
(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
12
<PAGE> 14
payment (the "Termination Payment") equal to
one and one half 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,
accident, disability and life insurance
coverage as in effect for the Executive
immediately prior to termination of his
employment, until the earlier of (A)
eighteen 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
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
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<PAGE> 15
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
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
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<PAGE> 16
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 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,
15
<PAGE> 17
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) (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
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<PAGE> 18
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 by a court of
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<PAGE> 19
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:
Peoples Heritage Financial Group, Inc.
P.O. Box 9540
One Portland Square
Portland, ME 04112
Attn: Clerk
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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: ____________________________
Attest: ________________________
Secretary
________________________________
Executive
Address:________________________
________________________
________________________
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<PAGE> 1
EXHIBIT 10(k)
<PAGE> 2
EXHIBIT 10(k)
AMENDED AND RESTATED
PEOPLES HERITAGE FINANCIAL GROUP, INC.
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Name of Plan. This plan shall be known as the "Amended and
Restated Peoples Heritage Financial Group, Inc. Restricted Stock Plan for
Non-Employee Directors" and is hereinafter referred to as the "Plan."
2. Effective Date and Term. The Plan shall be effective as of
January 1, 1990 and shall remain in effect until amended or terminated by action
of the Board of Directors of Peoples Heritage Financial Group, Inc. (the
"Company").
3. Eligible Participants. Each member of the Board of Directors
of the Company and the Board of Directors of each subsidiary of the Company
(each a "Subsidiary" and collectively, the "Subsidiaries") as may be designated
by the Board of Directors of the Company or a duly authorized committee thereof
consisting solely of two or more NonEmployee Directors, as defined in Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Plan
Administrator"), who is not a full-time employee of the Company or any parent or
Subsidiary of the Company shall be eligible participants in this Plan (the
"Participants").
4. Compensation Paid in the Form of Restricted Shares. Commencing
with the calendar year 1990, $4,000 of the amount of the annual fee payable to
each Participant on the Board of Directors of the Company and $1,000 of the
amount of the annual fee payable to each Participant on the Board of Directors
of each participating Subsidiary who is also not a member of the Board of
Directors of the Company shall be payable solely in shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock"), subject to the
restrictions set forth in Section 6 hereof. Such fees shall be payable in one
annual installment on the first day of July in each calendar year for services
on the applicable Board of Directors and any committee thereof in the first six
months of such calendar year. The number of shares of Common Stock to be issued
to each Participant on each payment date shall be determined by dividing such
annual installment by the Fair Market Value of such shares, as hereinafter
defined.
5. Election to Increase the Amount of Compensation Paid in the
Form of Restricted Shares. During any calendar year, the Plan Administrator may
elect to decrease the amount of the annual fee payable in the form of shares of
Common Stock to each Participant for service on the applicable Board of
Directors and any committee thereof during the succeeding calendar year or to
increase the amount of such annual fee payable in the form of shares of Common
Stock to a dollar amount which does not exceed $10,000 in the case of
Participants on the Board of Directors of the Company and $2,500 in the case of
Participants on the Board of Directors of a participating Subsidiary who also
are not directors of the Company. Elections under this Section 5 shall remain in
effect from year
<PAGE> 3
to year until changed by the Plan Administrator in any calendar year for the
next succeeding calendar year. No election under this Section 5 shall be
effective until the next succeeding calendar year.
6. Restrictions on Shares. The shares of Common Stock issued
under this Plan shall be restricted and may not be sold, hypothecated or
transferred (including, without limitation, transfer by gift or donation),
except that such restrictions shall lapse upon:
(a) death of the Participant;
(b) disability of the Participant preventing continued service
on the applicable Board of Directors;
(c) retirement of the Participant from service as a Director
of the Company and a participating Subsidiary in
accordance with the policy on retirement of non-employee
Directors of the same then in effect;
(d) termination of service as a Director with the consent of a
majority of the members of the Board of Directors of the
Company or the Board of Directors of a participating
Subsidiary, as applicable, other than the Participant; or
(e) a Change in Control of the Company, as hereinafter
defined.
If a Participant ceases to be a Director of the Company or a participating
Subsidiary for any other reason, the shares of Common Stock issued to such
Director shall be forfeited and revert to the Company.
7. Fair Market Value. The term "Fair Market Value" shall mean the
per share closing price of the Common Stock in consolidated trading on the last
trading day preceding the relevant payment date on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 (the
"Exchange Act") on which the Common Stock is listed or, if the Common Stock is
not listed on any such exchange, the per share closing price of a share of
Common Stock on the Nasdaq Stock Market's National Market or any other such
system then in use, or if no quotations are available, the most recent average
of the closing bid and asked prices per share for the Common Stock in the
over-the-counter market.
8. Fractions of Shares. The Company shall not be required to
issue fractions of shares. Whenever under the terms of this Plan a fractional
share would be required to be issued, the Participant shall be paid in cash for
such fractional share based upon the same Fair Market Value which was utilized
to determine the number of shares subject to issuance on the relevant payment
date.
2
<PAGE> 4
9. Change in Control. "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 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (or any successor thereto), whether or not the Company in fact is
required to comply with Regulation 14A thereunder; provided that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Company and any employee benefit plan established by the Company
for the benefit of its employees, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities, or (ii) during any period of 24
consecutive months individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election by
the Company's stockholders, of each director who was not a director at the
beginning of the period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the
beginning of the period.
10. Withholding Taxes. Whenever shares of Common Stock are to be
issued under this Plan, the Company and a participating Subsidiary shall have
the right to require the recipient to remit to the Company or the participating
Subsidiary an amount sufficient to satisfy federal, state and local withholding
tax requirements prior to the issuance or delivery of any certificate or
certificates for such shares. Any such settlement shall be made in cash, a check
or such other form of consideration as is satisfactory to the Board of Directors
of the Company, including without limitation shares of Common Stock awarded
hereunder.
11. General Restriction. The issuance of shares or the delivery of
certificates for such shares to Participants hereunder shall be subject to the
requirement that, if at any time the Chairman and the President of the Company
shall reasonably determine, in their discretion, that the listing, registration
or qualification of such shares upon any securities exchange or under any state
or federal law, or the consent or approval of any government regulatory body or
shareholders of the Company, is necessary or desirable as a condition of, or in
connection with, such issuance or delivery hereunder, such issuance or delivery
shall not take place unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not
reasonably acceptable to the Chairman and the President of the Company.
12. Authorized or Treasury Shares. Shares issuable under this Plan
may be authorized but unissued shares and/or shares subsequently acquired by the
Company in public or private transactions.
13. Termination, Amendment, etc. Subject to any approval of the
Company's stockholders required under applicable law, the Board of Directors of
the Company may amend, terminate or suspend this Plan at any time, in its sole
and absolute discretion, provided that no such action shall affect
then-outstanding awards hereunder.
3
<PAGE> 5
14. Applicable Law. This Plan shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws of the
State of Maine.
15. Successors and Assigns. This Plan shall be binding upon the
successors and assigns of the Company and upon each Participant and such
Participant's heirs, executors, administrators, personal representatives,
permitted assignees and successors in interest.
Adopted by the Board of Directors of the Company effective as of January 1, 1990
and amended and restated by such Board of Directors on January 28, 1997.
4
<PAGE> 1
EXHIBIT 10(m)(1)
<PAGE> 2
EXHIBIT 10(m)(1)
PEOPLES HERITAGE FINANCIAL GROUP, INC.
THRIFT INCENTIVE PLAN
As Amended and Restated Generally Effective January 1, 1996
<PAGE> 3
TABLE OF CONTENTS
Page
----
Preamble .................................................................. 1
ARTICLE I Definitions................................................ 1
ARTICLE II Participation.............................................. 12
2.1 Eligibility................................................ 12
2.2 Termination of Participation............................... 12
2.3 Special Rule for Insiders.................................. 12
2.4 Special Participation Rules................................ 12
ARTICLE III Contributions.............................................. 13
3.1 Salary Deferrals........................................... 13
3.2 Annual Limitation on Salary Deferrals...................... 14
3.3 Company Matching Contributions............................. 14
3.4 Company Discretionary Contributions........................ 15
3.5 Payment of Contributions................................... 15
3.6 Limitations on Actual Deferral Percentage.................. 15
3.7 Restrictions and Adjustments............................... 16
3.8 Special Rules for Company Matching Contributions........... 17
3.9 Return of Contributions to the Company..................... 19
3.10 Rollover Contributions..................................... 19
3.11 Maximum Contributions...................................... 20
ARTICLE IV Allocations................................................ 20
4.1 Suspense Account........................................... 20
4.2 Allocation of Contributions................................ 20
4.3 Allocation of Net Income or Loss........................... 21
4.4 Limitation on Allocations.................................. 22
ARTICLE V Investment of Contributions................................ 24
5.1 Investment Funds........................................... 24
5.2 Investment of Contributions................................ 24
5.3 Valuation of Investment Funds.............................. 25
5.4 Purchase of Company Stock.................................. 25
5.5 Custody and Voting of Company Stock........................ 26
5.6 Investment of Dividends on Company Stock................... 27
5.7 Tender of Company Stock.................................... 27
5.8 Special Restrictions on Insiders........................... 28
<PAGE> 4
ii
ARTICLE VI Withdrawals and Loans...................................... 28
6.1 In-Service Withdrawals..................................... 28
6.2 Hardship Withdrawals....................................... 28
6.3 Loans...................................................... 30
ARTICLE VII Vesting.................................................... 31
7.1 Employee Contributions..................................... 31
7.2 Employer Contributions..................................... 31
7.3 Forfeitures................................................ 32
ARTICLE VIII Benefits and Distributions................................. 32
8.1 Normal Retirement Benefit.................................. 32
8.2 Disability Benefit......................................... 33
8.3 Benefit on Termination of Employment....................... 33
8.4 Death Benefit.............................................. 33
8.5 Distribution of Benefits to a Participant.................. 34
8.6 Distribution of Benefits Upon Death........................ 35
8.7 Commencement of Benefits................................... 35
8.8 Payment Upon Incapacity.................................... 36
8.9 Payment Under Qualified Domestic Relations Order........... 36
8.10 Direct Rollovers........................................... 36
ARTICLE IX Administration of the Plan................................. 38
9.1 Plan Administrator......................................... 38
9.2 Powers and Duties.......................................... 38
9.3 Delegation of Ministerial Duties........................... 39
9.4 Investment Manager......................................... 39
9.5 Benefit Claim Procedure.................................... 40
9.6 Conclusiveness of Records.................................. 40
9.7 Conclusiveness of Actions.................................. 40
ARTICLE X Administration of the Fund................................. 41
10.1 Payment of Expenses........................................ 41
10.2 Trust Fund Property........................................ 41
10.3 Disbursements and Distributions............................ 41
10.4 Trust Accounting........................................... 41
<PAGE> 5
iii
ARTICLE XI Trustees................................................... 42
11.1 Appointment and Succession................................. 42
11.2 Resignation and Removal.................................... 42
11.3 Trustee Powers............................................. 42
ARTICLE XII Amendment and Termination.................................. 42
12.1 Amendments................................................. 42
12.2 Discontinuance of Contributions............................ 43
12.3 Merger, Consolidation or Transfer of Assets................ 44
12.4 Manner of Amendment or Termination......................... 44
ARTICLE XIII Participating Employers.................................... 45
13.1 Adoption by Participating Employers........................ 45
13.2 Single Plan................................................ 45
ARTICLE XIV Predecessor Plans and Accounts............................. 45
14.1 Article Controls........................................... 45
14.2 Predecessor Plans.......................................... 45
14.3 Merger Provisions.......................................... 46
14.4 Predecessor Plan Accounts.................................. 46
ARTICLE XV Top Heavy Provisions....................................... 46
15.1 Article Controls........................................... 46
15.2 Definitions................................................ 46
15.3 Top-Heavy Status........................................... 48
15.4 Termination of Top-Heavy Status............................ 49
15.5 Effect of Article.......................................... 49
ARTICLE XVI Miscellaneous.............................................. 49
16.1 Not Contract of Employment................................. 49
16.2 Non-Assignability of the Right to Receive Benefits......... 49
16.3 Payments Solely from Trust Fund............................ 50
16.4 No Benefits to the Company................................. 50
16.5 Severability............................................... 50
16.6 Governing Law; Interpretation.............................. 50
16.7 Headings of Sections....................................... 50
16.8 Effect of Mistake.......................................... 50
16.9 Bonding.................................................... 50
<PAGE> 6
iv
Adoption .................................................................. 51
Appendix A
Schedule No. 1 Relating to the Mid Maine Savings Bank, FSB 401(k) Savings Plan
<PAGE> 7
PEOPLES HERITAGE FINANCIAL GROUP, INC.
THRIFT INCENTIVE PLAN
PREAMBLE
Effective October 1, 1985, the Board of Directors of Peoples Heritage
Bank adopted the Peoples Heritage Bank Thrift Incentive Plan, and related Trust,
for the purpose of providing long-term savings opportunities to its eligible
employees. As adopted, the Peoples Heritage Bank Thrift Incentive Plan was
intended to qualify as a profit-sharing plan with a cash or deferred arrangement
under Section 401(a) and (k) of the Internal Revenue Code.
On June 20, 1988, Peoples Heritage Financial Group, Inc., a nationally
chartered bank holding company, acquired a controlling interest in Peoples
Heritage Bank. As part of such acquisition, Peoples Heritage Financial Group,
Inc. assumed sponsorship of the Peoples Heritage Bank Thrift Incentive Plan and
renamed such plan the Peoples Heritage Financial Group, Inc. Thrift Incentive
Plan (the "Plan").
On August 1, 1994, Peoples Heritage Financial Group, Inc. acquired a
controlling interest in Mid Maine Savings Bank, FSB. As part of such
acquisition, Peoples Heritage Financial Group, Inc. assumed sponsorship of the
Mid Maine Savings Bank, FSB 401(k) Savings Plan and caused such plan to be
merged into this Plan as of January 1, 1996.
The Plan, as originally established effective October 1, 1985, has been
amended from time to time and was last amended and restated effective generally
January 1, 1989. Except as may be otherwise provided herein, this amendment and
restatement is effective January 1, 1996, and shall govern the rights and
benefits of all Participants who terminate employment with the Company or its
Affiliates on or after January 1, 1996. The Plan is intended to continue to
qualify, and the Trust established pursuant to the Plan's Trust Agreement is
intended to continue to be exempt from federal income tax, as a profit-sharing
plan with a cash or deferred arrangement under the pertinent provisions of the
Internal Revenue Code of 1986, as it may be amended from time to time. The Plan
and Trust are further intended to continue to comply with all applicable
requirements of the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE I
DEFINITIONS
When the following words and phrases appear in the Plan, they shall have the
respective meanings set forth below, unless their context clearly indicates to
the contrary. Additional words and phrases are defined in the text of the Plan.
Words in the masculine gender shall be construed to include the feminine gender,
and words in the singular shall be construed to included the plural and vice
versa, unless the context clearly indicates otherwise.
1.1 "Affiliate." Each organization that is a member of a "controlled
group" (as defined in Section 414(b) or (c) of the Code) or an "affiliated
service group" (as defined in Section 414(m) of the Code) with Peoples Heritage
Financial Group, Inc., and any other entity required to be
<PAGE> 8
2
aggregated with Peoples Heritage Financial Group, Inc. under regulations
promulgated under Section 414(o) of the Code.
1.2 "Aggregate Account." The sum of the amounts credited to the
Participant's Salary Deferral Contribution Account, Company Matching
Contribution Account, Rollover Contribution Account, and Predecessor Plan
Account (to the extent not included in the foregoing accounts) by the
Plan Administrator.
1.3 "Annuity." An annuity contract purchased from an insurance company,
bank, or other similar financial institution with all or a portion of a
Participant's Vested Interest, subject to the following requirements:
(a) Except for surrender to the issuer, the contract shall be
nontransferable, and no benefit thereunder may be sold, assigned, discounted, or
pledged.
(b) The normal form of the annuity contract shall be determined as
follows:
(i) Subject to Paragraph (c), if the Participant is married as
of the first day of the first period for which an amount is to be paid
under Section 8.5 (hereinafter referred to as the "Annuity Starting
Date"), such annuity shall be paid in the form of a 50% joint and
survivor annuity with the Participant's spouse as joint annuitant.
(ii) A Participant not described in Paragraph (b)(i) shall be
entitled to elect an annuity in the form of a single life annuity, a
ten (10) year certain and continuous annuity, or a 50% joint and
survivor annuity.
(c) In lieu of a joint and survivor annuity under Paragraph (b)(i),
a married Participant may elect to receive a single life annuity, a ten (10)
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 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 (30) 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 Treas. Reg. 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 (7) days after the date such written
explanation was given, provided the Plan Administrator has informed such
Participant, in writing, of his or her right to a period of at least thirty (30)
days to make such election.
<PAGE> 9
3
For purposes of this Paragraph (c):
(i) 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;
(ii) 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
(iii) the Participant's spouse may not revoke consent to a
specific waiver of a joint and survivor form of benefit.
1.4 "Average Contribution Percentage." For any Plan Year, the Average
Contribution Percentage for a specified group of Participants shall be the
average of the ratios, calculated separately for each Participant in the group,
of (a) the amount of the Company Matching Contributions paid on behalf of each
such Participant for such Plan Year, over (b) the total Earnings paid to each
such Participant during such Plan Year. Prior to computing such average, the
ratio of each Participant shall be expressed as a percentage which is rounded to
the nearest one hundredth of one percent (0.01%). At the election of the Plan
Administrator, Salary Deferrals and Company Discretionary Contributions shall be
treated as Company Matching Contributions in accordance with the provisions of
Treas. Reg. Section 1.401(m)-l(b)(5), which is hereby incorporated by reference
into this Plan. Notwithstanding the foregoing, any Company Matching
Contributions or Company Discretionary Contributions which are taken into
account in determining the Actual Deferral Percentage for a Plan Year shall be
disregarded in determining the Average Contribution Percentage for such year.
1.5 "Actual Deferral Percentage." For any Plan Year, the Actual
Deferral Percentage for a specified group of Participants shall be the average
of the ratios, calculated separately for each Participant in the group, of (a)
the amount of the Salary Deferrals actually paid over to the Trust on behalf of
each such Participant for such Plan Year, over (b) the total Earnings paid to
each such Participant during such Plan Year. Prior to computing such average,
the ratio of each Participant shall be expressed as a percentage which is
rounded to the nearest one hundredth of one percent (0.01%). If a Participant
does not make any Salary Deferrals for the Plan Year, such Participant's ratio
for such year shall be zero. At the election of the Plan Administrator, Company
Matching Contributions and Company Discretionary Contributions may be treated as
Salary Deferrals in accordance with the provisions of Treas. Reg. Section
1.401(k)-l(b)(5), which is hereby incorporated by reference into this Plan.
Notwithstanding the foregoing, any Salary Deferrals or Company Discretionary
Contributions which are taken into account in determining the Average
Contribution Percentage for a Plan Year shall be disregarded in determining the
Actual Deferral Percentage for such year.
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 VIII;
<PAGE> 10
4
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. A Participant may at any time
change or revoke a Beneficiary designation, provided that such action may not be
taken without subsequent spousal consent unless the original consent expressly
permits designation by the Participant without any requirement of further
spousal consent. For purposes of this Section:
(a) any consent by the Participant's spouse to waive rights to
death benefits must be in writing, must acknowledge the effect of such waiver
and must be witnessed by a notary public,
(b) subject to the spousal consent requirements above, the
Participant may change or revoke Beneficiary designations during his or her
lifetime in the form and manner required by the Plan Administrator from time to
time, and
(c) the Participant's spouse may not revoke consent to a specific
waiver of a joint and survivor form of benefit.
1.7 "Board." The board of directors of Peoples Heritage Financial
Group, Inc., as constituted from time to time.
1.8 "Break in Service."
(a) A vesting computation period beginning on or after January 1,
1976, during which an Employee is credited with no more than five hundred (500)
Hours of Service.
(b) In determining whether an Employee has completed at least five
hundred (500) Hours of Service during a computation period under Paragraph (a)
of this Section, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight (8) Hours of Service per
day of such absence. An absence from work for maternity or paternity reasons
shall mean an absence by reason of the individual's pregnancy, the birth of the
individual's child, a child's placement with the individual in connection with
the individual's adoption of such child, or the individual's caring for such
child for a period beginning immediately following such birth or placement.
Hours of Service hereunder shall be credited to the computation period in which
the absence begins if such crediting is necessary to prevent a Break in Service
in that period, or in all other cases, in the following computation period.
(c) Notwithstanding anything to the contrary in this Section,
employment with the Company and its Affiliates shall not be deemed to have been
interrupted by a Break in Service solely by reason of a leave of absence granted
by the Company or an Affiliate on a uniform and nondiscriminatory basis for
sickness, military service, accident or other cause, provided that an Employee
granted a leave of absence who fails to return to active employment at or before
the expiration of such leave (other than on account of death, disability or
retirement) shall, for purposes
<PAGE> 11
5
of this Plan, be deemed to have terminated employment as of the beginning of
such Employee's leave of absence.
1.9 "Calendar Quarter." For any Plan Year, the three-month period
beginning on January 1, April 1, July 1, and October 1.
1.10 "Code." The Internal Revenue Code of 1986, as amended from time to
time, or any successor federal income tax statute of the same or similar effect.
1.11 "Company." Peoples Heritage Financial Group, Inc. and each
Participating Employer under Article XIII.
1.12 "Company Discretionary Contributions." Contributions made to the
Plan by the Company under Section 3.4.
1.13 "Company Matching Contributions." Contributions made to the Plan
by the Company under Section 3.3.
1.14 "Company Matching Contribution Account." A bookkeeping entry
maintained by the Plan Administrator for each Participant which records the
Company Matching Contributions allocated to the Participant under Article III,
adjustments for allocations of income or loss, distributions and all other
information affecting the value of such account.
1.15 "Company Stock." Common stock, $.01 par value per share, of
Peoples Heritage Financial Group, Inc.
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.
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
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,
<PAGE> 12
6
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.
1.18 "Effective Date." January 1, 1996, as to this amendment and
restatement of the Plan, except as otherwise specifically provided herein.
1.19 "Eligible Employee." Each Employee of the Company.
1.20 "Employee." Any individual regularly employed, whether on a
full-time or part-time basis, by the Company or any Affiliate, excluding the
following: (a) any person serving solely as a director of the Company or any
Affiliate, (b) any person who is an independent contractor for whom neither the
Company nor any Affiliate is required to make FICA contributions, and (c) any
person who is a "leased employee" of the Company or an Affiliate within the
meaning of Section 414(n)(2) of the Code.
1.21 "ERISA." The Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor federal labor statute of the same or
similar effect.
1.22 "Excess Aggregate Contributions." For any Plan Year, the excess of
(a) the aggregate amount of contributions actually taken into account in
computing the Average Contribution Percentage of the group of Participants who
are Highly Compensated Employees, over (b) the maximum amount of such
contributions permitted under Section 3.8.
1.23 "Excess Salary Deferrals." For any Plan Year, the excess of (a)
the aggregate amount of Salary Deferrals actually taken into account in
computing the Actual Deferral Percentage of the group of Participants who are
Highly Compensated Employees, over (b) the maximum amount of such Deferrals
permitted under Section 3.6.
1.24 "Forfeiture." The portion of the Company Matching Contribution
Account that is forfeited on account of one or more of the following events: (a)
distribution of a Participant's entire Vested Interest in his or her Company
Matching Contribution Account under Article VIII, (b) the occurrence of the last
day of the Plan Year coincident with or next following five (5) consecutive
Breaks in Service, or (c) a reduction of Company Matching Contributions under
Section 3.7(c).
<PAGE> 13
7
Subject to Section 7.2(c), Forfeitures shall be applied to reduce future Company
Matching Contributions, and do not receive allocations of net income (or net
loss) from the Trust Fund.
1.25 "Highly Compensated Employee."
(a) Subject to Paragraph (b) of this Section, a Highly Compensated
Employee shall mean an Employee who, at any time during the Plan Year or the
twelve-month period ending on the day before the first day of the Plan Year:
(i) owns more than five percent (5%) of the Company,
(ii) has Earnings exceeding Seventy-Five Thousand Dollars
($75,000) (or such greater amount as may be determined by the Secretary
of Treasury to reflect any cost-of-living adjustments under Section
415(d) of the Code),
(iii) belongs to the top-paid group (as defined below) and
whose Earnings exceed Fifty Thousand Dollars ($50,000) (or such greater
amount as may be determined by the Secretary of Treasury to reflect any
cost-of-living adjustments under Section 415(d) of the Code), or
(iv) is an officer of the Company whose Earnings exceed fifty
percent (50%) of the limitation under Section 415(b)(1)(A) of the Code,
provided that no more than the lesser of (A) fifty (50) Employees, or
(B) the greater of three (3) Employees or ten percent (10%) of all
Employees, shall be considered officers for purposes of this Section,
and further provided that if no officer receives such Earnings for a
Plan Year, then the highest-paid officer shall be included for purposes
of this Section.
(b) The following rules shall apply in determining whether an
individual is a Highly Compensated Employee for a Plan Year:
(i) An Employee who was not a Highly Compensated Employee as
described in Paragraphs (a)(2), (3) or (4) for the immediately
preceding Plan Year, but who is a Highly Compensated Employee as
described in one of those Paragraphs for the current Plan Year, shall
not be considered a Highly Compensated Employee for the current Plan
Year unless such Employee is one of the top one hundred (100) Employees
when ranked on the basis of Earnings for such year.
(ii) 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.
(iii) For purposes of Paragraph (a)(3) of this Section, the
top-paid group shall consist of the top twenty percent (20%) 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 (20%) and the number of officers to be taken into account under
<PAGE> 14
8
Paragraph (a)(4), Employees described in Section 414(q)(8) of the Code
and the regulations promulgated thereunder shall be excluded.
(iv) If an Employee is a family member of an Employee who
owns more than five percent (5%) of the Company or of a Highly
Compensated Employee who is one of the top ten (10) Employees when
ranked on the basis of Earnings for the current Plan Year, such
Employee shall not be treated as a separate Employee, and any Earnings
paid to him or her and any contributions on his or her 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.
1.26 "Hour of Service."
(a) An Hour of Service shall be counted for:
(i) each hour during which an Employee is directly or
indirectly paid, or entitled to payment, for the performance of duties,
(ii) each hour during which an Employee is directly or
indirectly paid, or entitled to payment, on account of a period of time
during which no duties are performed due to vacation, holiday, illness,
incapacity (including disability, pregnancy and any other similar
condition which prevents an employee from performing duties), layoff,
jury duty, military duty or leave of absence, and
(iii) each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Company or an
Affiliate and for which credit is not otherwise counted.
Notwithstanding the foregoing, no Hours of Service shall be recognized
for any payment made due to severance of employment or in compliance with
worker's compensation, unemployment compensation or disability insurance laws,
or any payments made solely to reimburse an Employee for medical or
medically-related expenses.
(b) In the case of a payment described in Paragraph (a)(ii) above,
during which no duties are performed, the number of Hours of Service counted
shall be determined as follows:
(i) If the payment for a period in which no duties are
performed is calculated on the basis of a unit of time, the number of
Hours of Service counted for such period shall be the number of hours
regularly scheduled for performance of duties during such period.
(ii) If the payment for a period in which no duties are
performed is not calculated on the basis of a unit of time, the number
of hours counted for such period shall
<PAGE> 15
9
be determined by dividing the total of such payments by the Employee's
most recent hourly rate of compensation as determined under the
provisions of Department of Labor Regulation Section
2530.200b-2(b)(2)(ii), but shall not exceed the number of hours
scheduled for performance of duties during such period.
(c) Hours of service shall be credited to the computation period
determined under the provisions of paragraph (c) of Department of Labor
Regulation Section 2530.200b-2, which is hereby incorporated by reference into
this Plan.
(d) Solely for determining whether a Break in Service has
occurred, an Employee who is absent from employment for maternity or paternity
reasons shall receive credit for the Hours of Service which would otherwise have
been credited but for such absence, or in any case in which such hours cannot be
determined, eight (8) Hours of Service per day of such absence; provided,
however, that the credit given under this Paragraph (d) for any such reason
shall not exceed five hundred one (501) hours. For purposes of this Paragraph
(d), absence for maternity or paternity reasons hereunder shall mean the
Employee's absence on account of pregnancy of the Employee, the birth of a child
of the Employee, the placement of a child with the Employee in connection with
the adoption of such child by such Employee, or for purposes of caring for such
child for a period immediately following such birth or placement. The Hours of
Service to be credited under this Paragraph (d) shall be credited in the Plan
Year in which the absence begins if the crediting is necessary to prevent a
Break in Service in that period, or in all other cases, in the following Plan
Year.
(e) Nothing in this Plan shall be construed to deny any employee
credit for an hour of service if such credit is otherwise required by federal
law.
1.27 "Insider." A Participant who is subject to the provisions of
Section 16 of the Securities and Exchange Act of 1934 in respect of transactions
involving shares of Company Stock.
1.28 "Normal Retirement Age." The first day of the month coincident
with or next following the later of (a) the Participant attaining sixty five
(65) years of age or (b) the earlier of (i) the fifth (5th) anniversary of the
Participant's commencement of employment with the Company or (ii) the fifth
(5th) anniversary of the Participant's commencement of participation in the Plan
or any Predecessor Plan.
1.29 "Participant." Any Eligible Employee who has met the requirements
of Article II and is participating in the Plan. Notwithstanding the above, an
Eligible Employee who would be a Participant but for the failure to make Salary
Deferrals shall be treated as a Participant for purposes of Sections 3.6 and
3.8.
1.30 "Participating Employer." An Affiliate which adopts this Plan in
accordance with the provisions of Article XIII.
1.31 "Participation Agreement." An election by the Participant on a
form prepared by the Plan Administrator which (a) authorizes the Company to
withhold a portion of such Participant's
<PAGE> 16
10
current Earnings as a Salary Deferral under Section 3.1, (b) specifies the
investment funds under Article V in which the Participant's allocable share of
the Trust Fund shall be invested, and (c) designates the Beneficiary or
Beneficiaries to receive the death benefits provided under Article VIII.
1.32 "Plan." The Peoples Heritage Financial Group, Inc. Thrift
Incentive Plan, as set forth herein and as it may be amended from time to time.
1.33 "Plan Administrator." A committee of not less than four (4)
individuals appointed by the Board.
1.34 "Plan Affiliation Date." The date on which a Predecessor Plan was
merged into or consolidated with the Plan. The Plan Affiliation Date for each
Predecessor Plan shall be separately set forth in Appendix A attached to the
Plan and made a part hereof.
1.35 "Plan Year." The calendar year.
1.36 "Predecessor Plan." Each plan listed in Appendix A attached to the
Plan and made a part hereof. Any defined contribution plan, maintained by a
corporation or other organization that becomes a Participating Employer after
the Effective Date, or of which some or all of the business and assets are
acquired by, merged with or consolidated with the Company or an Affiliate after
the Effective Date, shall be identified as a Predecessor Plan on Appendix A if
the Board of Directors authorizes such plan to be merged with this Plan.
1.37 "Predecessor Plan Account." The aggregate value of a Predecessor
Plan Participant's interest in his or her account or accounts under a
Predecessor Plan, determined as of the Plan Affiliation Date.
1.38 "Predecessor Plan Participant." An individual who was a
participant in a Predecessor Plan on the day immediately preceding such plan's
Plan Affiliation Date.
1.39 "Qualified Domestic Relations Order." Any judgment, decree, or
order (including approval of a property settlement agreement) relating to the
provision of child support, alimony payment, or marital property rights to a
spouse, former spouse, child, or other dependent of a Participant which (a) is
made pursuant to a State domestic relations law (including a community property
law), (b) creates or recognizes the existence of an alternate payee's right to,
or assigns to an alternate payee the right to, receive all or a portion of the
benefits or funds payable with respect to a Participant under the Plan, and (c)
satisfies the requirements of Section 414(p)(2) and (3) of the Code.
1.40 "Rollover Contribution Account." A bookkeeping entry maintained by
the Plan Administrator for each Participant who makes a rollover contribution in
accordance with Section 3.11, in which shall be recorded the amount of his or
her rollover contributions, adjustments for allocations of income or loss,
distributions and all other information affecting the value of such account.
<PAGE> 17
11
1.41 "Salary Deferrals." Amounts which a Participant elects to defer by
payroll withholding from current Earnings under a Participation Agreement, which
amounts are contributed to the Plan by the Company and allocated to such
Participant's Salary Deferral Contribution Account as described in Section 3.1.
1.42 "Salary Deferral Contribution Account." A bookkeeping entry
maintained by the Plan Administrator for each Participant who has elected to
make Salary Deferrals in which shall be recorded the Salary Deferrals and
Company Discretionary Contributions to be allocated on the Participant's behalf
under Article III, adjustments for allocations of income or loss, distributions
and all other information affecting the value of such account.
1.43 "Trust." The legal entity created under the Trust Agreement to
hold the Trust Fund.
1.44 "Trust Agreement." The separate agreement entered into by Peoples
Heritage Financial Group, Inc. and the Trustee for the purpose of holding the
Trust Fund.
1.45 "Trust Fund." All monies, securities and assets held by the
Trustee for the benefit of Participants and Beneficiaries.
1.46 "Trustee." The trustee appointed by the Board under the Trust
Agreement and any duly appointed successor.
1.47 "Valuation Date." For any Plan Year, the last day of each Calendar
Quarter and such additional dates as the Plan Administrator may designate.
1.48 "Vested Interest." The fair market value of the Participant's
nonforfeitable interest in his or her Aggregate Account determined as of the
next following Valuation Date.
1.49 "Year of Service."
(a) A Year of Service shall mean a computation period of twelve
(12) consecutive months, as herein set forth, during which an Employee is
credited with at least one thousand (1,000) Hours of Service:
(i) For participation purposes, the initial computation
period shall begin with the date that the Employee first performs one
Hour of Service upon commencing employment or re-employment, as the
case may be, with the Company or an Affiliate. Upon completion of the
initial computation period, the computation period for participation
shall shift to the Plan Year and shall include the Plan Year in which
the initial computation period is completed.
(ii) For vesting purposes, the computation period shall begin
with the date that the Employee first performs one Hour of Service upon
commencing employment, and each anniversary thereafter; provided,
however, that if the Employee terminates employment and is re-employed
by the Company or an Affiliate, the computation period for future
service
<PAGE> 18
12
shall begin with the date that the Employee first performs one Hour of
Service upon recommencing employment, and each anniversary thereafter.
(b) All Years of Service prior to and following the Effective Date
shall be recognized for all purposes under this Plan.
(c) All Years of Service with the Company or any Affiliate shall
be recognized for all purposes under this Plan.
(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.
ARTICLE II
PARTICIPATION
2.1 Eligibility. Each Eligible Employee employed by the Company on the
Effective Date who was a Participant in the Plan on December 31, 1995, shall
remain eligible to participate in this Plan. Each other Eligible Employee,
regardless of age, shall become a Participant on 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 (15th) day of the month immediately preceding
such Calendar Quarter.
2.2 Termination of Participation. A Participant who fails to qualify as
an Eligible Employee for any reason shall be ineligible thereafter to make
Salary Deferrals for any succeeding payroll periods or to share in the
allocation of any future Company Matching Contributions. Such individual again
shall become a Participant as of the first day of the Calendar Quarter
immediately following the date on which he or she again becomes an Eligible
Employee, provided that a Participation Agreement has been filed with the Plan
Administrator by the fifteenth (15th) day of the month immediately preceding
such Calendar Quarter.
2.3 Special Rule for Insiders. Notwithstanding any other provision of
this Article II, an Insider may not participate in the Plan for at least six (6)
months after he or she ceases to participate in the Plan for any reason.
2.4 Special Participation Rules.
(a) 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 (15th) day
of the month immediately preceding such Calendar Quarter. For purposes of
determining whether an
<PAGE> 19
13
Employee described in this Section has completed a Year of Service, his or her
service with Mid Maine Savings Bank shall be taken into account.
(b) 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 Plan Administrator by the fifteenth (15th) 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 or
her service with North Conway Bank shall be taken into account.
ARTICLE III
CONTRIBUTIONS
3.1 Salary Deferrals. A Participant may elect, subject to the right of
the Plan Administrator to establish uniform and nondiscriminatory rules and,
from time to time, to modify or change such rules governing the manner and
methods by which Salary Deferrals shall be made, to reduce his or her current
Earnings by a deferral percentage, which amount the Company shall then
contribute to the Trust and allocate to his or her Salary Deferral Contribution
Account in accordance with the following provisions:
(a) A Participant may elect to defer at least one percent (1%) of
his or her Earnings but no more than fifteen percent (15%) of his or her
Earnings, in increments of one percent (1%).
(b) A Participant may direct the Plan Administrator to cease
Salary Deferrals as soon as practicable after written notice to such effect has
been delivered by such Participant to the Plan Administrator. If a Participant
ceases to make Salary Deferrals, such Participant shall not be entitled to again
make Salary Deferrals until the first payroll period of the following Calendar
Quarter.
(c) A Participant may increase or decrease the amount of his or
her Salary Deferrals during the Plan Year. Changes in the deferral percentage
shall be effective as of the first day of any Calendar Quarter coincident with
or next following the end of the thirty-day period beginning on the date that
the Plan Administrator receives such change.
(d) The Plan Administrator may reduce or discontinue, as
necessary, future Salary Deferrals to some or all of the Participants who are
Highly Compensated Employees for the Plan Year in order to maintain the
qualified status of the Plan or to avoid subjecting the Highly Compensated
Employees to Federal income tax currently with respect to such Salary Deferrals.
The amount by which a Participant's Salary Deferrals are reduced or discontinued
shall be paid to such Participant in cash.
<PAGE> 20
14
(e) The Company shall contribute Salary Deferrals to the Trust
within thirty (30) days after such amounts are withheld from the Participant's
Earnings.
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 prescribed 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 IV of the Plan.
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.
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 (50%) of such
Participant's Salary Deferrals under Section 3.1 not in excess of six percent
(6%) 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
<PAGE> 21
15
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.
3.4 Company Discretionary Contributions. Within twelve (12) 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.
3.5 Payment of Contributions. Contributions under this Article shall be
made in cash; provided, however, that in the discretion of the Plan
Administrator, contributions which are to be invested in the Company Stock Fund
may be made, in part or in whole, in shares of Company Stock, valued for such
purposes at the fair market value of such shares on the trading day next
following the day on which such contributions are delivered to the Trustee.
3.6 Limitations on Actual Deferral Percentage. In the event a
Participant 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
<PAGE> 22
16
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.
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.
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
<PAGE> 23
17
order of their respective individual 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 IV 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.
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
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
<PAGE> 24
18
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 (5%) 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 (5%) owner or Highly Compensated Employee.
An Employee who is a family member with respect to a five percent (5%) 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 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
Participants who are Highly Compensated Employees for any Plan Year exceeds the
limitation of Paragraph 3.8 (a) above, the Plan Administrator 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).
<PAGE> 25
19
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
IV.
(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.
3.9 Return of Contributions to the Company. Notwithstanding anything
to the contrary in this Article III:
(a) Contributions to the Plan by the Company are contingent upon
their deductibility under Section 404 of the Code. To the extent that a
deduction for any contribution hereunder is disallowed, such contribution shall,
upon the written demand of the Company, be returned to the Company by the
Trustee within one year after the date of disallowance, reduced by any net
losses of the Trust Fund attributable thereto but not increased by any net
earnings of the Trust Fund attributable thereto.
(b) If any contribution under this Article III is made as a result
of a mistake of fact, such contribution shall, upon the written demand of the
Company, be returned to the Company by the Trustee no later than one (1) year
after the payment thereof, reduced by any net losses of the Trust Fund
attributable thereto but not increased by any net earnings of the Trust Fund
attributable thereto. 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.
3.10 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
<PAGE> 26
20
than the sixtieth (60th) day following the day on which he or she received such
distribution and the amount transferred is One Thousand Dollars ($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 or
she received such distribution and the amount transferred is One Thousand
Dollars ($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 or her 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 or her spouse, may not transfer any 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 or her 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 or she has otherwise satisfied the eligibility
requirements imposed by Article II.
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.
ARTICLE IV
ALLOCATIONS
4.1 Suspense Account. All contributions and net income (or net loss)
of the Trust Fund shall be held in a suspense account until allocated to
Participants' Aggregate Accounts under this Article.
4.2 Allocation of Contributions.
(a) Salary Deferral Contributions shall be allocated to each
Participant's Salary Deferral Contribution Account in an amount equal to each
such Participant's designated percentage of deferred Earnings effective no later
than the last day of the Calendar Quarter in which such contributions were paid
to the Trustee.
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21
(b) Company Matching Contributions shall be allocated to each
Participant's Company Matching Contribution Account in amount determined under
Section 3.3 effective no later than the last day of the Calendar Quarter in
which such contributions were paid to the Trustee.
(c) Company Discretionary Contributions shall be allocated to the
Salary Deferral Contribution Account of each Participant who is a non-Highly
Compensated Employee in the same proportion that his or her Earnings for the
applicable Plan Year bears to the total Earnings of all Participants who are
non-Highly Compensated Employees for such Plan Year effective no later than the
last day of the Calendar Quarter in which such contributions were paid to the
Trustee.
(d) Rollover Contributions made by a Participant under Section
3.10 shall be allocated to his or her Rollover Contribution Account as of the
Valuation Date next following the receipt of such contribution by the Trustee.
4.3 Allocation of Net Income or Loss.
(a) As of each Valuation Date, the Trustee shall determine the
fair market value of the Trust Fund assets and the net income (or net loss) of
the Trust Fund. The net income (or net loss) of each investment fund within the
Trust Fund since the next preceding Valuation Date shall be ascertained by the
Trustee and shall be determined on the accrual basis of accounting; provided,
however, that such net income (or net loss) shall include any net increase or
net decrease in the value of the assets of each such Fund since the next
preceding Valuation Date to the extent not otherwise accrued. As soon as is
practicable after each Valuation Date, the Trustee shall deliver to the Plan
Administrator a written statement of such determination.
(b) For purposes of allocations of net income (or net loss) of the
Trust Fund, the Salary Deferral Contribution Account, the Company Matching
Contribution Account and the Rollover Contribution Account shall be divided into
subaccounts to reflect such Participant's investment designations under Article
V. As of each Valuation Date, the Plan Administrator shall adjust such accounts
of each Participant as follows:
(i) The net income (or net loss) of each investment fund,
separately and respectively, shall be allocated among the corresponding
subaccounts of the Participants who had such corresponding subaccounts
on the next preceding Valuation Date and each such corresponding
subaccounts on such date; provided, however, that the value of such
subaccounts as of the next preceding Valuation Date shall be reduced by
the amount of any withdrawals or distributions made therefrom since the
next preceding Valuation Date.
(ii) With respect to each Participant whose employment is
terminated for any reason, his or her Salary Deferral Contribution
Account, Company Matching Contribution Account and Rollover
Contribution Account shall continue to receive allocations under this
Section 4.3 so long as there is a balance in such accounts; provided,
however, that the value of such accounts as of the next preceding
Valuation Date shall be reduced by the amount of any payments made
therefrom since the next preceding Valuation Date.
<PAGE> 28
22
4.4 Limitation on Allocations.
(a) For purposes of this Section 4.4, the following terms and
phrases shall have the meanings specified below:
(i) "Affiliate" (other than an affiliated service group
member within the meaning of Section 414(m) of the Code) shall be
determined by application of a more than fifty percent (50%) control
standard in lieu of an eighty percent (80%) control standard.
(ii) "Annual Addition." With respect to each Participant for
any Limitation Year, the sum of (A) Salary Deferrals made by the
Participant under this Plan and credited to his or her Salary Deferral
Contribution Account, (B) Company Matching Contributions made by the
Company to this Plan and allocated to the Participant's Company
Matching Contribution Account, (C) Company Discretionary Contributions
made by the Company and allocated to the Participant's Salary Deferral
Contribution Account, (D) Forfeitures allocated to the Participant's
Company Matching Contribution Account and (E) any other amounts treated
as an "annual addition" in Section 415(c)(2) of the Code.
(iii) "Limitation Year." The Plan Year.
(iv) "Maximum Annual Additions." For a Participant for any
Limitation Year, the lesser of (A) Thirty Thousand Dollars ($30,000)
or, if greater, one fourth (1/4) of 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 (25%) 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 included in
wages based on the nature or location of the employment or services
performed. For Limitation Years beginning after December 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;
<PAGE> 29
23
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.
(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 Participant 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:
(i) 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;
(ii) 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
(iii) 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.
(c) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, it will not participate in allocations
of the net income (or net loss) of the Trust Fund.
(d) For purposes of determining whether the Annual Additions under
this Plan exceed the limitations herein provided, all defined contribution plans
of the Company are to be treated as one defined contribution plan. In addition,
all defined contribution plans of Affiliates shall be aggregated for this
purpose. If the Annual Additions credited to a Participant's Aggregate Account
for any Limitation Year under this Plan plus the additions credited on his or
her behalf under other defined contribution plans required to be aggregated
pursuant to this Paragraph would exceed the Maximum Annual Additions for such
Participant for such Limitation Year, the Annual Additions under this Plan and
the additions under such other plans shall be reduced first, in this Thrift
Incentive Plan, from Salary Deferrals above six percent (6%) of Earnings and
then, as necessary, on a pro rata
<PAGE> 30
24
basis and allocated, reallocated or returned in accordance with applicable plan
provisions regarding Annual Additions in excess of Maximum Annual Additions.
(e) In the case of a Participant who also participates in a
defined benefit plan of the Company or an Affiliate, the Annual Additions
credited to the Aggregate Account of such Participant shall be reduced to the
extent necessary to prevent the limitations set forth in Section 415(e) of the
Code from being exceeded; provided, however, that this Paragraph (e) shall not
be operative to the extent that such defined benefit plan provides for a
reduction of benefits thereunder to ensure that the limitation set forth in
Section 415(e) of the Code is not exceeded.
ARTICLE V
INVESTMENT OF CONTRIBUTIONS
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.
5.2 Investment of Contributions.
(a) Each Participant may direct that contributions made on his or
her behalf shall be invested in any one or more of the Investment Funds. An
investment direction shall be made by such written, telephonic or electronic
means as shall be prescribed by the Plan Administrator.
<PAGE> 31
25
A Participant's investment direction, if received by the Plan
Administrator prior to the date he or she 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 or her 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 or her 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 or she shall transfer any amount credited
to one or more of his or her accounts from the Company Stock Fund to another
Investment Fund or from another Investment Fund to the Company Stock Fund or
change his or her previously elected investment options with respect to future
contributions or make any other investment election under the Plan.
5.3 Valuation of Investment Funds. As of each Valuation Date, the Trust
Fund, and each of the investment funds comprising the Trust Fund, shall be
valued on the basis of its current fair market value. For purposes of allocating
accruals pursuant to Section 6.3, the Trust Fund and each of the investment
funds of the Trust Fund shall be valued as of a Valuation Date as if each
contribution to, reallocation to, reallocation out of, or benefit payment out of
the Trust Fund made after the last preceding Valuation Date had been made
immediately following the valuation of the Trust Fund then being made.
5.4 Purchase of Company Stock.
(a) As soon as practicable after receipt of cash contributions or
other funds applicable to the Company Stock Fund, the Trustee shall purchase
shares of Company Stock from such source and in such manner as the Trustee may
determine. If the Trustee and the Company agree, any such shares may be
purchased from the Company and may either be treasury shares or authorized but
unissued shares. If shares of Company Stock are acquired by the Plan other than
on an exchange or other national market system, such shares shall be purchased
at fair market value, which shall be the closing sale price on the date in
question of such shares on the principal United States securities exchange
registered under the Securities Exchange of 1934, as amended, on which such
Company
<PAGE> 32
26
Stock is listed or, if such Company Stock is not listed on any such exchange,
the closing sale price with respect to a share of such Company Stock on the
NASDAQ National Market System or any system then in use; or if no quotations are
available, the fair market value on the date in question of a share of Company
Stock shall be determined by independent appraisal in compliance with applicable
provisions of ERISA.
(b) For purposes of crediting contributions invested in the
Company Stock Fund, the credit shall be based on the average cost per share
(including brokerage fees and transfer fees) of Company Stock purchased by the
Trustee for all Participants for the month in which the contributions were made,
and for this purpose contributions of shares of Company Stock shall be valued at
the closing price of such stock for the date of contributions, or, if no sale
occurred on such date, for the next preceding day on which a sale occurred.
(c) Notwithstanding any other provision of this Section, the
Trustee shall not purchase shares of Company Stock during any period in which
such purchase is, in the opinion of counsel for the Company or the Plan
Administrator, restricted by any law or regulation applicable thereto. During
such period, amounts that would otherwise be invested in shares of Company Stock
shall be invested in such other assets as the Trustee may in its discretion
determine, or the Trustee may hold such amounts uninvested for a reasonable
period pending the designated investment.
5.5 Custody and Voting of Company Stock.
(a) All shares of Company Stock acquired by the Trustee shall be
held in the possession of the Trustee or its designee until disposed of pursuant
to provisions of the Plan. Such shares may be registered in the name of the
Trustee or its nominee.
(b) Each Participant (or, in the event of a Participant's death,
the Participant's Beneficiary) shall have the right, to the extent of shares of
Company Stock allocated to the Participant's Aggregate Account, to direct the
Trustee in writing as to the manner in which to vote with respect to such shares
of Company Stock. Before each annual or special meeting of the shareholders of
the Company, the Plan Administrator shall cause to be sent to each Participant a
copy of the proxy solicitation material for the meeting, together with a form
requesting confidential instructions to the Trustee as to the voting of the
shares of Company Stock allocated to each Participant's Aggregate Account,
whether or not vested. The Trustee, itself or by proxy, shall vote the shares of
Company Stock in such Aggregate Account in accordance with the instructions of
the Participant; provided, that if the Trustee determines (in its sole
discretion) that adherence to any such instructions is inconsistent with the
discharge of its fiduciary duties under ERISA, the Trustee shall vote the
affected shares of Company Stock in a manner consistent with the proper exercise
of its fiduciary duties. If the Trustee shall not have received instructions as
to the manner in which to vote any shares of Company Stock held in the Trust
Fund (whether because instructions have not been timely received or because the
shares of Company Stock are not allocated to any Participant's Aggregate
Account), the Trustee, itself or by proxy, shall vote all such shares in a
manner consistent with the proper exercise of its fiduciary duties under ERISA,
as determined in its sole discretion.
<PAGE> 33
27
5.6 Investment of Dividends on Company Stock. Cash dividends on shares
of Company Stock held in the Company Stock Fund shall be reinvested in the
Company Stock Fund.
5.7 Tender of Company Stock.
(a) Each Participant (or, in the event of a Participant's death,
the Participant's Beneficiary) shall have the right, to the extent of shares of
Company Stock allocated to the Participant's Aggregate Account, to direct the
Trustee in writing as to the manner in which to respond to a tender or exchange
offer with respect to Company Stock. The Plan Administrator shall utilize its
best efforts to timely distribute or cause to be distributed to each Participant
such information as will be distributed to shareholders of the Company in
connection with any such tender or exchange offer. The Trustee shall respond to
the tender or exchange offer with respect to the shares of Company Stock in each
Participant's Aggregate Account in accordance with the instructions of the
Participant; provided, that if the Trustee determines (in its sole discretion)
that adherence to any such instructions is inconsistent with the discharge of
its fiduciary duties under ERISA, the Trustee shall respond to the tender or
exchange offer with respect to the affected shares of Company Stock in a manner
consistent with the proper exercise of its fiduciary duties. If the Trustee
shall not have received instructions as to the manner in which to respond to a
tender or exchange offer with respect to any shares of Company Stock held in the
Trust Fund (whether because instructions have not been timely received or
because the shares of Company Stock are not allocated to any Participant's
Aggregate Account), the Trustee, itself or by proxy, shall vote all such shares
in a manner consistent with the proper exercise of its fiduciary duties under
ERISA, as determined in its sole discretion.
(b) Cash proceeds received by the Trustee from the sale or
exchange of any shares of Company Stock shall be invested by the Trustee in one
or more other Investment Funds in ten percent (10%) increments, in accordance
with directions obtained from Participants at the time of the receipt of such
proceeds, which directions shall be independent of the investment directions
made by the Participants pursuant to Section 5.2 hereof. If timely investment
direction is not received from a Participant, such Participant's interest in
such cash proceeds shall be invested in the fund which presents the least risk
of loss as determined by the Plan Administrator.
(c) Any decision by a Participant to tender (or not tender) or to
exchange (or not exchange) under Paragraph (a) of this Section and any direction
made by a Participant under Paragraph (b) of this Section shall constitute an
exercise of control by the Participant over the assets credited to his or her
Aggregate Account within the meaning of Section 404(c) of ERISA. Each
Participant who so exercises such control shall, by such exercise, release and
agree, on the Participant's own behalf and on behalf of the Participant's
Beneficiary, to indemnify and hold harmless the Trustee, the Company and the
Plan Administrator from and against any claim, demand, loss, liability, cost or
expense (including reasonable attorney's fees) caused by or arising out of such
exercise, including without limitation any diminution in value or losses
incurred from such exercise.
<PAGE> 34
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5.8 Special Restrictions on Insiders.
(a) An Insider shall be prohibited from transferring any amounts
into the Company Stock Fund from any other Fund, or out of the Company Stock
Fund into any other Fund, unless any such transfer is made during a period (1)
beginning (A) at least six (6) months following the most recent such transfer
(either into or out of the Company Stock Fund), and (B) on the third (3rd)
business day following the Company's release for publication of quarterly or
annual summary financial information, and (2) ending on the twelfth (12th)
business day following such date. The release date of the aforementioned
financial data shall be deemed to have occurred when such data either appears on
a wire service, a financial news service or a newspaper of general circulation,
or is otherwise made publicly available.
(b) To the extent a withdrawal (including a loan) by an Insider
under Article VI shall reduce the Insider's interest in the Company Stock Fund,
such withdrawal may only occur pursuant to a written election filed with the
Plan Administrator at least six (6) months prior to the date of the withdrawal.
An Insider who makes such a withdrawal shall be prohibited from having any
amount allocated, or otherwise transferred, into the Company Stock Fund for his
or her account for at least six (6) months following such withdrawal; provided,
however, that extraordinary distributions as described in Rule 16b-3(d)(2)(B),
as promulgated by the Securities and Exchange Commission, shall not result in
such prohibition.
(c) The Plan Administrator, in its sole judgment and discretion,
may waive either of the restrictions set forth in Paragraphs (a) and (b) of this
Section 5.8, if either (1) in the opinion of counsel to the Plan it will not
result in a violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, and recoverable profits to the Company, or (2) the Plan
Administrator otherwise concludes that such waiver is necessary and appropriate
under the circumstances. Insiders may not take any part in the consideration of,
or action upon, any matter described in this Section 5.8(c) by the Plan
Administrator. Notwithstanding the foregoing, the Plan Administrator shall not
be required to take any steps or pursue any course of action to evaluate a
request for any such waiver by a Participant and the Plan Administrator may not
waive any obligation of the Participant under Section 16 of the Securities
Exchange Act of 1934, as amended.
ARTICLE VI
WITHDRAWALS AND LOANS
6.1 In-Service Withdrawals. A Participant may withdraw all or any part
of his or her Vested Interest attributable to Salary Deferrals and Rollover
Contributions after attaining fifty-nine and one half (59 1/2) years of age. The
Plan Administrator shall establish reasonable procedures for handling withdrawal
requests under this Section.
6.2 Hardship Withdrawals. The Plan Administrator may direct the
Trustee 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:
<PAGE> 35
29
(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 or her accounts, excluding
investment earnings allocated to the Participant's Salary Deferral Account (or
to the comparable portion of his or her Predecessor Plan Account, as determined
under the applicable Schedule) 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.
(i) 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
or her 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 twelve (12) months of
post-secondary education for the Participant, his or her
spouse or dependent (within the meaning of Section 152 of the
Code);
(D) Payment to prevent eviction of the Participant
from his or her 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.
(ii) 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
<PAGE> 36
30
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 or her spouse and minor children that are reasonably
available to the Participant.
(iii) 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 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.
6.3 Loans.
(a) Upon written application by (1) any Participant who is an
Employee, (2) any Participant no longer employed by the Company, (3) any
Beneficiary of a deceased Participant or (4) any alternate payee under a
Qualified Domestic Relations Order who retains an Aggregate Account balance and
who is a "party in interest", as that term is defined by Section 3(14) of ERISA,
as to the Plan (an individual who is eligible to apply for a loan under this
Section being hereinafter referred to as a "Participant" for purposes of this
Section), the Plan Administrator in its sole discretion may direct the Trustee
to make a loan or loans to such Participant, not to exceed fifty percent (50%)
of the then value of the Participant's Vested Interest. Such loans shall be made
pursuant to the provisions of the Plan Administrator's written loan procedure,
which procedure is hereby incorporated by reference as a part of the Plan.
(b) Paragraph (a) to the contrary notwithstanding, the amount of a
loan made to a Participant under this Section shall not exceed an amount equal
to the difference between:
(i) the lesser of Fifty Thousand Dollars ($50,000) (reduced
by the excess, if any, of (A) the highest outstanding balance of loans
from the Plan during the one-year period ending on the day before the
date on which the loan is made, over (B) the outstanding balance of
loans from the Plan on the date on which the loan is made) or one half
(1/2) of the present value of the Participant's total nonforfeitable
accrued benefit under all qualified plans of the Company or its
Affiliates; minus
<PAGE> 37
31
(ii) the total outstanding loan balance of the Participant
under all other loans from all "qualified employer plans", as that term
is defined in Section 72(p)(4)(A) of the Code, of the Company or its
Affiliates.
(c) The provisions of this Section shall be applicable to loans
granted or renewed under the Plan after January 1, 1989, and loans granted or
renewed on or prior to such date shall be governed by the provisions of the Plan
as in effect on October 1, 1985; provided that, with respect to a Predecessor
Plan Account, the provisions of this Section shall be applicable to loans
granted or renewed after the Plan Affiliation Date. Loans granted or renewed
with respect to a Predecessor Plan Account on or before such date shall be
governed by the provisions of the Predecessor Plan as in effect on the Plan
Affiliation Date.
ARTICLE VII
VESTING
7.1 Employee Contributions. A Participant shall have a fully vested and
nonforfeitable interest in all amounts credited to the Participant's Salary
Deferral Contribution Account and Rollover Contribution Account.
7.2 Employer Contributions.
(a) A Participant's Company Matching Contribution Account shall
become nonforfeitable on the earliest of the following events: (1) the date the
Participant attains Normal Retirement Age, (2) the date the Participant becomes
disabled within the meaning of Section 8.2, (3) the Participant's date of death,
provided the Participant is actively employed at such time or (4) the date
employer contributions to the Plan are permanently discontinued under Section
12.2.
(b) A Participant not otherwise having a nonforfeitable interest
in his or her Company Matching Contribution Account under Paragraph (a) shall
earn a nonforfeitable interest in such account according to the following
vesting schedule:
<TABLE>
<CAPTION>
Years of Nonforfeitable Interest in
Service Company Matching Contributions
------- ------------------------------
<S> <C>
Less than 1 0 %
1 20 %
2 40 %
3 60 %
4 80 %
5 or More 100 %
</TABLE>
(c) All Years of Service shall be counted for purposes of
determining a Participant's nonforfeitable interest in Company Matching
Contributions under the vesting schedule; provided, however, that if a
Participant terminates employment and is subsequently reemployed by the Company
after a Break in Service has occurred, the following rules apply:
<PAGE> 38
32
(i) A Participant's Years of Service completed prior to a
Break in Service shall be disregarded in determining the Participant's
nonforfeitable interest until the affected Participant completes at
least one (1) Year of Service after such break in service.
(ii) A Participant's Years of Service completed before five
(5) or more consecutive Breaks in Service shall be counted only for
purposes of determining such Participant's nonforfeitable interest in
Company Matching Contributions after such Breaks in Service.
7.3 Forfeitures.
(a) If a Participant terminates employment, the nonvested portion
of a Participant's Company Matching Contribution Account prior to such
termination shall be forfeited as of the last day of the Plan Year in which the
Participant completes five (5) consecutive Breaks in Service, or, if earlier,
upon a complete cash out of the nonforfeitable portion of such account under
Section 8.3.
(b) A Participant who receives a distribution on account of
termination of employment and who, upon subsequent reemployment, repays the full
amount of such distribution to the Plan in accordance with Section 8.3(c), shall
be entitled to a restored Company Matching Contribution Account as of the
Valuation Date coincident with or next following the date of repayment. The
amount to be restored shall be the amount previously forfeited, unadjusted by
any subsequent gains or losses. Any restoration hereunder shall be made from any
forfeitures under Paragraph (a). If forfeitures are insufficient to restore the
Participant's Company Matching Contribution Account, the Company shall
contribute such additional amounts as is required to make restoration. If
forfeitures exceed the amounts required to make restoration, the remainder shall
be applied to reduce Company Matching Contributions.
(c) If a Participant entitled to repay a prior distribution upon
reemployment under Paragraph (b) fails to do so, or if a Participant receives a
hardship withdrawal under Section 6.2 from his or her Company Matching
Contribution Account which is not fully vested, the value of the nonforfeitable
interest in such account upon a subsequent termination of employment shall be
determined by the following formula:
X = P(AB + D) - D
where X is the value of the nonforfeitable interest, P is the vested percentage
at the relevant time, AB is the account balance at the relevant time and D is
the amount of the distribution.
ARTICLE VIII
BENEFITS AND DISTRIBUTIONS
8.1 Normal Retirement Benefit. A Participant shall be entitled to
receive his or her Vested Interest in one or more of the forms of payment
provided under Section 8.5(a) upon attaining Normal Retirement Age. If a
Participant remains employed with the Company past Normal Retirement Age,
<PAGE> 39
33
such Participant shall be entitled to continue active participation in the Plan,
and no distribution shall be made hereunder prior to a request for retirement
benefits by such Participant unless a minimum distribution under Section 8.5(c)
is required.
8.2 Disability Benefit. A Participant shall be entitled to receive his
or her Vested Interest in or more of the forms of payment provided under Section
8.5(a) upon suffering a disability prior to attaining Normal Retirement Age. For
purposes of this Section, a Participant is disabled if the Plan Administrator
determines that an injury or illness prevents the Participant from engaging in
any substantial gainful activity by reason of an illness or injury that can be
expected to result in death, or which has lasted (or can be expected to last) a
continuous period of not less than twelve (12) months. Notwithstanding the
foregoing, a Participant shall be deemed disabled upon becoming eligible to
receive disability benefits under the terms of a long-term disability plan
maintained by Company.
8.3 Benefit on Termination of Employment.
(a) If a Participant terminates his or her employment prior to
Normal Retirement Age for any reason other than on account of Disability or
death, and his or her Vested Interest has never exceeded Three Thousand Five
Hundred Dollars ($3,500), such Participant shall receive a single lump sum
payment in cash equal to his or her Vested Interest as soon as administratively
feasible after the Valuation Date following such termination of employment. The
remaining nonvested portion of such Participant's Aggregate Account shall be
immediately forfeited. For purposes of this Paragraph, if the value of the
Participant's vested interest in his or her Company Matching Contribution
Account upon terminating employment is zero, such Participant shall be deemed to
have received an immediate distribution of such interest.
(b) If a Participant terminates employment prior to Normal
Retirement Age for any reason other than on account of Disability or death and
his or her Vested Interest at any time has exceeded Three Thousand Five Hundred
Dollars ($3,500), such Participant shall be entitled to receive his or her
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
nonvested portion of his or her Aggregate Account.
(c) If a Participant who is not fully vested receives (or is deemed
to receive) a distribution under this Section and resumes employment with a
Participating Company, such Participant shall have the right to repay to the
Plan the full amount of the prior distribution on or before the earlier of the
date the Participant incurs five (5) consecutive Breaks in Service after such
distribution or the end of the five-year period beginning on the date the
Participant is subsequently reemployed. For purposes of the preceding sentence,
a Participant deemed to have received a distribution under Paragraph (a) shall
also be deemed to have repaid such distribution upon resuming employment with a
Participating Company.
8.4 Death Benefit. In the event of a Participant's death, the remaining
Vested Interest of such Participant, reduced by any security interest held by
the Plan by reason of a loan outstanding to such Participant, shall be paid to
the Participant's Beneficiary as provided under Section 8.6. If
<PAGE> 40
34
there is no such Beneficiary, such Vested Interest shall be payable to the
Participant's estate. The Plan Administrator may require such proof of death and
such evidence of the right of any person to receive payment of the deceased
Participant's remaining Vested Interest as it deems necessary and appropriate.
8.5 Distribution of Benefits to a Participant.
(a) A Participant shall have the right to receive all or a portion
of his or her Vested Interest as a Retirement Benefit, Disability Benefit or
Benefit on Termination of Employment, as the case may be, in one or more of the
following forms of payment: a single lump sum payment in cash, an Annuity or a
Direct Rollover.
(b) Any distribution to a Participant who has a Vested Interest
that exceeds Three Thousand Five Hundred Dollars ($3,500), or that exceeded
Three Thousand Five Hundred Dollars ($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:
(i) The Participant shall receive the written notice described
in Treas. Reg. Section 1.411(a)-11(c)(2)(i), including notice of his or
her right to defer payment of benefits under this Article, no less than
thirty days (30) and no more than ninety (90) 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).
(ii) Notwithstanding the foregoing to the contrary, if a
Participant, after receiving written notice under Paragraph (b)(i),
affirmatively elects a distribution, then the distribution may be paid
or may commence to be paid less than thirty (30) days after the date
such written explanation was given, provided the Plan Administrator has
informed such Participant, in writing, of his or her right to a period
of at least thirty (30) days to consider whether to consent to the
distribution.
(c) Notwithstanding any other provision of the Plan to the
contrary, the Participant's Vested Interest shall be distributed in accordance
with the following requirements and shall otherwise comply with Section
401(a)(9) of Code and Treas. Reg. Section 1.401(a)(9), the provisions of which
are incorporated herein by reference:
(i) A Participant's benefits shall be distributed commencing
not later than the required beginning date or shall be distributed,
beginning not later than the required beginning date, over a period not
extending beyond the life expectancy of such Participant or the life
expectancy of the Participant and the joint annuitant of the
Participant. For purposes of this Paragraph (c), the required beginning
date is April 1 of the calendar year following the calendar year in
which the Participant attains seventy and one half (70 1/2) years of
age.
<PAGE> 41
35
(ii) The life expectancy of a Participant and a Participant's
spouse shall be determined in accordance with applicable Treasury
Regulations without annual recalculation. Life expectancies and joint
and last survivor expectancy shall be determined using the return
multiples in Tables V and VI of Treas. Reg. Section 1.72-9.
8.6 Distribution of Benefits Upon Death.
(a) Subject to Paragraph (b) below, the death benefits payable
under Section 8.4 shall be paid to the Participant's Beneficiary within a
reasonable time after the Participant's death by either of the following
methods, as elected by the Participant (or if no election has been made prior to
the Participant's death, by the Participant's Beneficiary): a single lump sum
payment in cash, an Annuity or a Direct Rollover.
(b) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance with
the following requirements and shall otherwise comply with Section 401(a)(9) and
the regulations thereunder, which are hereby incorporated by reference into this
Plan:
(i) If it is determined pursuant to the regulations that the
distribution of a Participant's interest has begun and the Participant
dies before his or her entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected under Section 8.5
as of his or her date of death.
(ii) Subject to Paragraph (c)(1) below, if a Participant dies
before he or she has begun to receive any distribution of his or her
interest under the Plan or before distributions are deemed to begin
under the regulations, then the death benefits payable hereunder shall
be distributed to such Participant's Beneficiary by the end of the
calendar year in which the fifth (5th) anniversary of his or her date
of death occurs.
(iii) If the Participant's spouse (determined as of the
Participant's date of death) is the Beneficiary, distributions must be
made over a period not extending beyond the life expectancy of the
spouse and must commence on or before the later of the end of the
calendar year in which the Participant died or would have attained
seventy and one half (70 1/2) years of age. If the surviving spouse
dies before distribution to such spouse has begun, then the five-year
distribution requirement of this Paragraph shall apply as if the spouse
was the Participant.
8.7 Commencement of Benefits. Any payment of benefits from the Plan
will be made as soon as administratively feasible following the applicable
Valuation Date on which the Participant's Vested Interest is to be determined.
Notwithstanding the foregoing, unless the Participant elects to defer the
payment of benefits, the payment of benefits will commence no later than the
sixtieth (60th) day following the close of the Plan Year in which the latest of
the following events occurs: (a) the date on which the Participant attains
Normal Retirement Age, (b) the tenth (10th) anniversary of the
<PAGE> 42
36
year in which the Participant commenced participation in the Plan, and (c) the
date the Participant terminates employment with the Company.
8.8 Payment Upon Incapacity. The Plan Administrator may suspend the
payment of benefits under the Plan to any person if it determines in its sole
discretion that such person is incapacitated so as to be unable to manage his or
her financial affairs. In such case, the Plan Administrator shall direct the
Trustee to resume the payment of benefits under the Plan to the conservator or
other legal representative appointed for such incapacitated person.
8.9 Payment Under Qualified Domestic Relations Order. All rights and
benefits provided to a Participant under this Plan shall be subject to the
rights of any alternate payee under a Qualified Domestic Relations Order. If
authorized by a Qualified Domestic Relations Order, an alternate payee may elect
to receive an immediate distribution of all or a portion of the Participant's
Vested Interest even if the affected Participant has not reached his or her
earliest retirement age. For purposes of this Section, "alternate payee" and
"earliest retirement age" shall have the meaning set forth in Section 414(p) of
the Code.
8.10 Direct Rollovers.
(a) 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 or she may make a direct
rollover election;
(ii) the legal requirement that federal income tax be
withheld from the distribution if he or she does not elect a direct
rollover;
(iii) the rules under which the amount that he or she 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;
<PAGE> 43
37
(iv) the rules, if applicable, for receiving special income
tax averaging, or capital gain treatment, under Section 402(d) of the
Code; and
(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 or her 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." An individual retirement
account, described in Section 408(a) of the Code; an individual
retirement annuity described in Section 408(b) of the Code (other than
an endowment contract); 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 an annuity plan described
in Section 403(a) of the Code.
(ii) "Eligible Rollover Distribution." A distribution from the
Plan of Two Hundred Dollars ($200.00) or more, excluding the following:
<PAGE> 44
38
(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 or her designated Beneficiary), or for
the distributee's life (or the joint lives of the distributee
and his or her 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;
(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);
(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.
ARTICLE IX
ADMINISTRATION OF THE PLAN
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.
9.2 Powers and Duties. The Plan Administrator shall supervise the
administration and enforcement of the Plan according to the terms and provisions
hereof and shall have all powers necessary to accomplish these purposes,
including, but not by way of limitation, the right, power, authority and duty:
(a) to make rules, regulations and bylaws for the administration of
the Plan which are not inconsistent with the terms and provisions hereof;
(b) to construe all terms, provisions, conditions and limitations
of the Plan;
<PAGE> 45
39
(c) to correct any defect or supply any omission or reconcile any
inconsistency that may appear in the Plan, in such manner and to such extent as
it shall deem expedient to carry the Plan into effect for the greatest benefit
of all interested parties;
(d) to employ and compensate such accountants, attorneys,
investment advisors and other agents and employees as the Plan Administrator may
deem necessary or advisable in the proper and efficient administration of the
Plan;
(e) to determine all factual and interpretation questions relating
to benefits under the Plan;
(f) to prescribe procedures to be followed by Participants,
Beneficiaries and alternate payees when requesting benefits hereunder;
(g) to prepare, file and distribute, in such manner as the Plan
Administrator determines to be appropriate, such information and material as is
required by the reporting and disclosure requirements of ERISA;
(h) to make a determination as to the right of any person to a
benefit under the Plan;
(i) to select any investment managers;
(j) to receive and review reports from the Trustee and any
investment managers as to the financial condition of the Trust Fund, including
its receipts and disbursements;
(k) to instruct the Trustee to grant loans as provided under
Section 6.3, above.
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.
9.4 Investment Manager. The Plan Administrator may, in its sole
discretion, appoint an investment manager, with power to manage, acquire or
dispose of any asset of the Plan and to direct the Trustee in this regard, so
long as:
(a) the investment manager is (1) registered as an investment
adviser under the Investment Advisers Act of 1940, (2) a bank or (3) an
insurance company qualified to do business under the laws of more than one
state; and
(b) such investment manager acknowledges in writing that he or she
is a fiduciary with respect to the Plan.
Upon such appointment, the Plan Administrator shall not be liable for the acts
of the investment manager. The Trustee shall follow the directions of such
investment manager and shall not be liable
<PAGE> 46
40
for the acts or omissions of such investment manager. The investment manager may
be removed by the Plan Administrator at any time and within its sole discretion.
9.5 Benefit Claim Procedure.
(a) A claim for a benefit under the Plan shall be submitted to an
individual designated by the Plan Administrator (the "Designee"). Submissions
should be made in the form and within the time period designated by the Plan
Administrator, provided, however that a claim for a Disability benefit shall be
made within six (6) months from the date the Participant was determined to be
disabled, or his or her last full day of active employment, whichever is later.
Satisfactory proof of eligibility and information necessary to determine the
amount of such payments, including, where appropriate, proof of age, Social
Security status, death of an Employee or a prior Beneficiary, appointment as
executor, administrator or guardian and such other information as is reasonably
required in the circumstances must be submitted. The Designee shall authorize or
deny payment or any claimed benefit, distribution or withdrawal within a
reasonable period of time; provided, however, that the failure of the Designee
initially to authorize or deny a claim for a benefit within a reasonable time
after application for such a benefit shall be deemed to be a denial of the
claim. If payment of the benefit is denied, the claimant shall be furnished a
written statement setting forth the specific reason or reasons for the denial in
a manner calculated to be understood by the Participant.
(b) Whenever a claimed benefit is denied, the claimant may upon
request obtain a review of the denial. A request for review must set out in
writing the reason why the denial of the benefit is thought to be erroneous and
be submitted to the Plan Administrator not later than sixty (60) days following
issuance of notice of the denial of the claim by the Designee. Within sixty
(60)) days after filing such request, the claimant shall be granted a hearing
before the full Plan Administrator and shall be entitled to counsel at such
hearing. The decision of the Plan Administrator shall be delivered in writing to
the claimant only after a full and fair review of the claim not later than the
quarterly meeting of the Plan Administrator next following the submission of the
request for review to it, unless such submission is within thirty (30) days
preceding the date of such meeting, in which case, the decision shall be made no
later than the date of the second quarterly meeting following the date of
submission. If special circumstances, such as the need for further investigation
of the facts, require further time, the decision shall be made as promptly as
possible but not later than the third meeting after the submission of the
request for review to it or by such date as may be mutually agreed upon the
claimant and the Plan Administrator. The decision of the Plan Administrator
shall set forth the reasons for the decision and the Sections of the Plan or
other pertinent documents on which such decision was based.
9.6 Conclusiveness of Records. In administering the Plan, the Plan
Administrator may conclusively rely upon the Company's payroll and personnel
records maintained in the ordinary course of business.
9.7 Conclusiveness of Actions. Any action or determination taken or
made by the Plan Administrator in its discretion shall be conclusive and binding
upon all individuals.
<PAGE> 47
41
ARTICLE X
ADMINISTRATION OF THE FUND
10.1 Payment of Expenses. All expenses incident to the administration
of the Plan and Trust, including but not limited to, legal, accounting, Trustee
fees, expenses of the Plan Administrator and the cost of furnishing any bond or
security required of the Plan Administrator shall be paid by the Company;
provided, however, that the Board in its discretion may elect at any time to
require the Trust Fund to pay part or all thereof (excluding Trustee fees), and,
until paid, shall constitute a claim against the Trust Fund which is paramount
to the claims of Participants and Beneficiaries. Any election for payment of
expenses from the Trust Fund by the Board shall not bind the Board as to its
right to elect, with respect to the same or other expenses, to have such
expenses paid directly by the Company.
10.2 Trust Fund Property. All income, profits, recoveries,
contributions, Forfeitures and any and all moneys, securities and properties of
any kind at any time received or held by the Trustee hereunder shall be held for
investment purposes as a commingled Trust Fund. The Plan Administrator shall
maintain a Salary Deferral Contribution Account, Company Matching Contribution
Account, Rollover Contribution Account, Predecessor Plan Account, and Aggregate
Account in the name of each Participant, but the maintenance of such accounts
shall not mean that such Participant shall have a greater or lesser interest
than that due him or her by operation of the Plan and shall not be considered as
segregating any funds or property from any other funds or property contained in
the commingled fund. No Participant shall have any title to any specific asset
in the Trust Fund.
10.3 Disbursements and Distributions. The Trustee shall make
disbursements for the purposes of investment as the Trustee in its sole
discretion deems advisable and proper. The Trustee shall make disbursements for
the payment of expenses upon approval by the Plan Administrator, and the Trustee
shall have no other responsibility with respect to such disbursements. The
Trustee shall make distributions to Participants and Beneficiaries in accordance
with the instructions of the Plan Administrator, observing the amounts,
frequency of payment, names, addresses and other similar instructions given by
the Plan Administrator, and the Trustee shall have no other responsibility with
respect to such distributions.
10.4 Trust Accounting. The Trustee shall keep full accounts of all its
receipts, disbursements, and investments in the Trust Fund. Within a reasonable
period following the close of each Plan Year or the termination of the Trust,
the Trustee shall render to the Plan Administrator an accounting of its
administration of the Trust during the preceding year or interim period. Said
accounting shall be made available at all reasonable times for inspection or
audit by any person designated by the Plan Administrator and by any other person
or entity to the extent required by law. The written approval of any accounting
by the Plan Administrator (or failure to except or object in writing to the
Trustee as to any matter or transaction stated therein within sixty (60) days
after receipt of any account) shall be final and binding upon them and upon all
persons who may be or become interested in this Trust as to all matters and
transactions stated in such account.
<PAGE> 48
42
ARTICLE XI
TRUSTEES
11.1 Appointment and Succession. The Company may appoint one or more
additional Trustees at any time. In the event of a vacancy in the office of
Trustee, whether by reason of the death, legal incapacity, resignation, or
removal of a Trustee, the Company may designate and appoint a successor Trustee,
but should there be no Trustee, then the Company shall designate one or more
successor Trustees. In the event that the Company shall go out of existence or
shall fail to appoint a required Trustee within a reasonable period of time,
then the remaining Trustee or Trustees shall appoint a successor Trustee. The
successor Trustee shall have all the powers conferred herein upon an original
Trustee, but shall not be responsible for the acts, omissions, or accounts of
his or her predecessor Trustee. Any successor Trustee shall immediately and
automatically vest in the title to any property in the Trust Fund.
11.2 Resignation and Removal. Any Trustee may resign from this Trust by
sending written notice to the Company. The Company may remove a Trustee at any
time by sending written notice to the Trustee. Thereupon, the Trustee shall
render to the Company an accounting of his or her administration of this Trust
from the Trustee's last annual accounting to the date of resignation or removal
and shall perform all acts necessary to transfer the assets of this Trust to his
or her successor.
11.3 Trustee Powers. The Trustee shall have the power to do all such
acts, take all such proceedings, and exercise all such rights and privileges as
the Trustee may deem necessary to administer the funds and to carry out the
purposes of the Plan and Trust.
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendments.
(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 permitted 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.
(b) Subject to the limitations in Paragraph (a) of this Section and
any other limitations contained in ERISA or the Code, the Board may make any
amendment to the Plan including, but not limited to, an increase or decrease of
contributions, a change or modification of the method of allocation of
contributions or Forfeitures, or a change of the provisions relating to the
administration of the Plan.
<PAGE> 49
43
(c) Nothing herein shall be construed as prohibiting any amendment
or modification of the Plan which is required in order to comply with provisions
of any law or regulation relating to the establishment or maintenance of the
Plan, including but not limited to the establishment and maintenance of the Plan
as a qualified retirement plan or trust under applicable provisions of the Code
and to comply with ERISA, even though such amendment or modification is made
retroactively or adversely affects the rights or interests of a Participant of
the Plan. Any such modifications or amendment shall be approved by the Plan
Administrator without further authorization from the Board.
(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 or her 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 or her 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 sixty (60) days after the day such amendment is adopted, (ii)
the date which is sixty (60) days after the day such amendment becomes
effective, or (iii) the date which is sixty (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 three (3) Years of Service if the Participant has
completed three (3) Years of Service prior to the expiration of the period in
which an election could be made.
12.2 Discontinuance of Contributions.
(a) The Company has established the Plan with the bona fide
intention and expectation that from year to year it will be able to, and will
deem it advisable to, make its contributions as herein provided. However, the
Company realizes that circumstances not now foreseen, or circumstances beyond
its control, may make it either impossible or inadvisable to continue to make
its contributions to the Trust. Therefore, the Company shall have the power to
discontinue contributions to the Plan, terminate the Plan or partially terminate
the Plan at any time.
(b) If the Plan is amended so as to permanently discontinue
Company contributions, or if Company contributions are in fact permanently
discontinued, each affected Participant shall have a fully Vested Interest in
his or her Aggregate Accounts effective as of the date of discontinuance. In
case of discontinuance, the Plan Administrator shall continue to administer the
Plan and all other provisions of the Plan which are necessary, in the opinion of
the Plan Administrator, for equitable operation of the Plan shall remain in
force.
(c) If the Plan is terminated or partially terminated, each
affected Participant shall have a fully Vested Interest effective as of the
termination date. Unless the Plan is otherwise amended prior to dissolution of
the Company, the Plan shall terminate as of the date of dissolution of the
Company.
<PAGE> 50
44
(d) Upon discontinuance or termination, any previously unallocated
contributions, Forfeitures and net income (or net loss) shall be allocated to
the accounts of Participants on such date of discontinuance or termination under
Article IV, as if such date of discontinuance or termination were a Valuation
Date. Thereafter, net income (or net loss) shall continue to be allocated to
Participants' accounts under Article IV until the balances thereunder are
distributed. In the event of termination, the date of the final distribution
shall be treated as a Valuation Date.
(e) In the case of a total or partial termination of the Plan, and
in the absence of a Plan amendment to the contrary, the Trustee shall be
entitled in its sole discretion to pay the balance of an affected Participant's
Aggregate Account in a single lump sum payment.
12.3 Merger, Consolidation or Transfer of Assets. In the event of any
merger or consolidation of the Plan with, or transfer in whole or in part of the
assets and liabilities of the Trust Fund to another trust fund held under any
other retirement or pension plan maintained or to be established for the benefit
of some or all of the Participants in this Plan, the assets of the Trust Fund
applicable to such Participants shall be transferred to the other trust fund
only if:
(a) each Participant would (if either this Plan or the other plan
terminated) receive a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had been terminated);
(b) the Board shall have authorized such merger, consolidation, or
transfer of assets, and the board of directors of any new or successor employer
of the affected Participants shall have agreed to an assumption of liabilities
with respect to such Participants' inclusion in the new or successor employer's
plan; and
(c) such other plan and trust are qualified under Sections 401(a)
and 501(a) of the Code.
12.4 Manner of Amendment or Termination. Except as otherwise provided
in the Plan, any amendment, modification, suspension, or termination of the Plan
shall be formally adopted or approved by the Board by resolution, unanimous
written consent, or any other method authorized under the by-laws of the
Company, and shall be effective on the date of its adoption or approval or such
other date as is specified therein; provided, however, the Board may delegate to
the Plan Administrator or other party (by formally-adopted or approved
resolution, unanimous written consent, or any other method authorized under the
by-laws of the Company) the authority to amend or modify the Plan.
<PAGE> 51
45
ARTICLE XIII
PARTICIPATING EMPLOYERS
13.1 Adoption by Participating Employers.
(a) Affiliates may adopt this Plan and thereby become with a
"Participating Employer" hereunder. Any such entity, whether or not presently
existing, may become, upon approval of the Plan Administrator, a party hereto by
appropriate action of its board of directors or noncorporate counterpart.
(b) The provisions of the Plan shall apply separately and equally
to each Participating Employer and its employees in the same manner as is
expressly provided for the Company and its Employees, except that provisions
granting powers, rights and duties under the Plan to the Board.
(c) Notwithstanding Paragraph (b), any Participating Employer may,
by appropriate action of its board of directors or non-corporate counterpart,
suspend or discontinue its contributions under this Plan or terminate its
participation in this Plan by giving not less than thirty days' written notice
to that effect to the Board and the Trustee.
(d) The Board may, in its discretion, terminate a Participating
Employer's participation in this Plan at any time. If such discontinuance of
participation is due to the establishment of a separate plan, the Trustee shall
take whatever action is necessary to effect a transfer of the applicable assets
to such separate plan. Otherwise, such assets shall continue to be held under
this Plan and the provisions hereof shall govern.
13.2 Single Plan. For purposes of the Code and ERISA, the Plan as
adopted by the Participating Employers shall constitute a single plan rather
than a separate plan of each Participating Employer. All assets in the Trust
Fund shall be available to pay benefits to all Participants and their
Beneficiaries.
ARTICLE XIV
PREDECESSOR PLANS AND ACCOUNTS
14.1 Article Controls. The provisions of this Article XIV shall take
precedence over any conflicting provisions of any other Article of the Plan with
respect to the benefits, rights, and features of a Predecessor Plan remaining in
effect with respect to a Participant's Predecessor Plan Account.
14.2 Predecessor Plans. The plans identified on Appendix A to the Plan
shall be Predecessor Plans as of their respective Plan Affiliation Dates stated
therein. The rights, benefits, and features remaining in effect with respect to
Predecessor Plan Accounts attributable to each Predecessor Plan shall be set
forth on the applicable Schedule attached to Appendix A and made a part of the
Plan.
<PAGE> 52
46
14.3 Merger Provisions. The following provisions shall be applicable to
the merger of each Predecessor Plan with this Plan as of the applicable Plan
Affiliation Date:
(a) All participant accounts, employer contributions accounts,
suspense accounts, outstanding forfeitures, and loans under the Predecessor Plan
shall be transferred to this Plan;
(b) All of the Predecessor Plan's assets shall be transferred to
this Plan;
(c) All of the Predecessor Plan's benefit obligations shall be
transferred to this Plan and become the responsibility of the Plan;
(d) On and after the Plan Affiliation Date, the rights of
participants and beneficiaries of participants under the Predecessor Plan shall
be determined strictly in accordance with the terms of this Plan;
(e) On the Plan Affiliation Date, the vested interest in the Plan
of each Participant whose account is transferred from the Predecessor Plan shall
be no less than his or her vested employer contributions account and his or her
participant contributions account under the Predecessor Plan on the date
preceding the merger;
(f) The Trustee shall accept the Predecessor Plan's assets when
transferred and shall have all the rights, duties, powers and responsibilities
with respect to such assets as prescribed under Article XI of the Plan; and
(g) Pursuant to Article V of the Plan, each Participant who has an
account transferred from the Predecessor Plan shall make an investment election
with respect to such Predecessor Plan Account which shall be applicable as of
the transfer date, and shall invest and reinvest his or her Predecessor Plan
Account in accordance with the provisions thereof.
14.4 Predecessor Plan Accounts. Each Predecessor Plan Account shall
separately reflect the balance of each sub-account identified on the applicable
Schedule as of the Plan Affiliation Date.
ARTICLE XV
TOP HEAVY PROVISIONS
15.1 Article Controls. Any Plan provisions to the contrary
notwithstanding, the provisions of this Article shall control to the extent
required to cause the Plan to comply with the requirements imposed under Section
416 of the Code.
15.2 Definitions. For purposes of this Article, the following terms and
phrases shall have the respective meanings set forth below:
(a) "Account Balance." As of any Valuation Date, the aggregate
amount credited to an individual's account or accounts under a qualified defined
contribution plan maintained by the Company or an Affiliate (excluding employee
contributions which were deductible within the
<PAGE> 53
47
meaning of Section 219 of the Code and rollover or transfer contributions made
after December 31, 1983, by or on behalf of such individual to such plan from
another qualified plan sponsored by an entity other than the Company or an
Affiliate), increased by (1) the aggregate distributions made to such individual
from such plan during a five-year period ending on the Determination Date and
(2) the amount of any contributions due as of the Determination Date immediately
following such Valuation Date.
(b) "Accrued Benefit." As of any Valuation Date, the present value
(computed on the basis of the Assumptions) of the cumulative accrued benefit
(excluding the portion thereof which is attributable to employee contributions
which were deductible pursuant to Section 219 of the Code, to rollover or
transfer contributions made after December 31, 1983, by or on behalf of such
individual to such plan from another qualified plan sponsored by an entity other
than the Company or an Affiliate, to proportional subsidies or to ancillary
benefits) of an individual under a qualified defined benefit plan maintained by
the Company or an Affiliate increased by (1) the aggregate distributions made to
such individual from such plan during a five-year period ending on the
Determination Date and (2) the estimated benefit accrued by such individual
between such Valuation Date and the Determination Date immediately following
such Valuation Date. Solely for the purpose of determining top-heavy status, the
Accrued Benefit of an individual shall be determined under (1) the method, if
any, that uniformly applies for accrual purposes under all qualified defined
benefit plans maintained by the Company and the Controlled Entities or (2) if
there is no such method, as if such benefit accrued not more rapidly than under
the slowest accrual rate permitted under Section 411(b)(1)(C) of the Code.
(c) "Aggregation Group." The group of qualified plans maintained by
the Company and each Affiliate consisting of (1) each plan in which a Key
Employee participates and each other plan which enables a plan in which a Key
Employee participates to meet the requirements of Sections 401(a)(4) or 410 of
the Code and any other plan which the Company elects to include as a part of
such group; provided, however, that the Company may not elect to include a plan
in such group if its inclusion would cause the group to fail to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(d) "Assumptions." The interest rate and mortality assumptions
specified for top-heavy status determination purposes in any defined benefit
plan included in the Aggregation Group including the Plan.
(e) "Determination Date." For the first Plan Year of any plan, the
last day of such Plan Year and for each subsequent Plan Year of such plan, the
last day of the preceding Plan Year.
(f) "Key Employee." A "key employee" as defined in Section 416(i)
of the Code and the Treasury Regulations thereunder.
(g) "Plan Year." With respect to any plan, the annual accounting
period used by such plan for annual reporting purposes.
<PAGE> 54
48
(h) "Remuneration." Compensation within the meaning of Section
415(c)(3) of the Code, as limited by Section 401(a)(17) of the Code.
(i) "Valuation Date." With respect to any Plan Year of any defined
contribution plan, the most recent date within the twelve-month period ending on
a Determination Date as of which the Trust Fund established under such plan was
valued and the net income (or loss) thereof allocated to participants' accounts.
With respect to any Plan Year of any defined benefit plan, the most recent date
within a twelve-month period ending on a Determination Date as of which the plan
assets were valued for purposes of computing plan costs for purposes of the
requirements imposed under Section 412 of the Code.
15.3 Top-Heavy Status.
(a) The Plan shall be deemed to be top-heavy for a Plan Year, if,
as of the Determination Date for such Plan Year, (1) the sum of Account Balances
of Participants who are Key Employees exceeds sixty percent (60%) of the sum of
Account Balances of all Participants unless an Aggregation Group including the
Plan is not top-heavy or (2) an Aggregation Group including the Plan is
top-heavy. An Aggregation Group shall be deemed to be top-heavy as of a
Determination Date if the sum (computed in accordance with Section 416(g)(2)(B)
of the Code and the Treasury Regulations promulgated thereunder) of (1) the
Account Balances of Key Employees under all defined contribution plans included
in the Aggregation Group and (2) the Accrued Benefits of Key Employees under all
defined benefit plans included in the Aggregation Group exceeds sixty percent
(60%) of the sum of the Account Balances and the Accrued Benefits of all
individuals under such plans. Notwithstanding the foregoing, the Account
Balances and Accrued Benefits of individuals who are not Key Employees in any
Plan Year but who were Key Employees in any prior Plan Year shall not be
considered in determining the top-heavy status of the Plan for such Plan Year.
Further, notwithstanding the foregoing, the Account Balances and Accrued
Benefits of individuals who have not performed services for the Company at any
time during the five-year period ending on the applicable Determination Date
shall not be considered.
(b) If the Plan is determined to be top-heavy for a Plan Year, the
Company shall contribute to the Plan for such Plan Year on behalf of each
Participant who is not a Key Employee and who has not terminated his or her
employment as of the last day of such Plan Year an amount equal to the lesser of
(1) three percent (3%) of such Participant's Remuneration for such Plan Year or
(2) a percent of such Participant's Remuneration for such Plan Year equal to the
greatest percent determined by dividing for each Key Employee the amounts
allocated to such Key Employee's Salary Deferral Contribution Account and
Company Matching Contribution Account for such Plan Year by such Key Employee's
Remuneration. The minimum contribution required to be made for a Plan Year
pursuant to this Paragraph for a Participant employed on the last day of such
Plan Year shall be made regardless of whether such Participant is otherwise
ineligible to receive an allocation of the Company's contributions for such Plan
Year. The minimum contribution required to be made pursuant to this Paragraph
shall also be made for an Employee who is not a Key Employee and who is excluded
from participation in the Plan for failing to make Salary Deferral
Contributions. Notwithstanding the foregoing, if the Plan is deemed to be
top-heavy for a Plan Year, the Company's contribution for such Plan Year
pursuant to this Paragraph shall be increased by substituting "four
<PAGE> 55
49
percent" in lieu of "three percent" in Clause (1) hereof to the extent that the
Board determines to so increase such contribution to comply with the provisions
of Section 416(h)(2) of the Code. Notwithstanding the foregoing, no contribution
shall be made pursuant to this Paragraph for a Plan Year with respect to a
Participant who is a participant in another defined contribution plan sponsored
by the Company or an Affiliate if such Participant receives under such other
defined contribution plan (for the Plan Year of such plan ending with or within
the Plan Year of this Plan) a contribution which is equal to or greater than the
minimum contribution required by Section 416(c)(2) of the Code. Notwithstanding
the foregoing, no contribution shall be made pursuant to this Paragraph for a
Plan Year with respect to a Participant who is a participant in a defined
benefit plan sponsored by the Company or an Affiliate if such Participant
accrues under such defined benefit plan (for the Plan Year of such plan ending
with or within the Plan Year of this Plan) a benefit which is at least equal to
the benefit described in Section 416(c)(1) of the Code. If the preceding
sentence is not applicable, the requirements of this Paragraph shall be met by
providing a minimum benefit under such defined benefit plan which, when
considered with the benefit provided under the Plan as an offset, is at least
equal to the benefit described in Section 416(c)(1) of the Code.
15.4 Termination of Top-Heavy Status. If the Plan has been deemed to be
top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the
provisions of this Article shall cease to apply to the Plan effective as of the
Determination Date on which it is determined to no longer be top-heavy.
Notwithstanding the foregoing, the nonforfeitable interest of each Participant's
Aggregate Account as of such Determination Date shall not be reduced and, with
respect to each Participant who has three (3) or more years of Years of Service
for vesting purposes on such Determination Date, the nonforfeitable percentage
of each such Participant's Aggregate Account shall continue to be determined in
accordance with the schedule set forth in Section 15.3(b).
15.5 Effect of Article. Notwithstanding anything contained herein to
the contrary, the provisions of this Article shall automatically become
inoperative and of no effect to the extent not required by the Code or ERISA.
ARTICLE XVI
MISCELLANEOUS
16.1 Not Contract of Employment. The adoption and maintenance of this
Plan shall not be deemed to be a contract between the Company and any person or
to be consideration for the employment of any person. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of the
Company or to restrict the right of the Company to discharge any person at any
time, nor shall the Plan be deemed to give the Company the right to require any
person to remain in the employ of the Company or to restrict any person's right
to terminate his or her employment at any time.
16.2 Non-Assignability of the Right to Receive Benefits. Except as
otherwise provided with respect to a Qualified Domestic Relations Order under
Section 8.9 of the Plan and except as otherwise provided under other applicable
law, no right or interest of any kind in any benefit shall be transferable or
assignable by any Participant, Beneficiary or alternate payee, or be subject to
<PAGE> 56
50
anticipation, adjustment, alienation, encumbrance, garnishment, attachment,
execution or levy of any kind.
16.3 Payments Solely from Trust Fund. All benefits payable under the
Plan shall be paid or provided for solely from the Trust Fund and neither the
Company nor the Trustee assumes any liability or responsibility for the adequacy
thereof. Each person entitled at any time to any payment hereunder shall look
solely for such payment to the Trust Fund. The Plan Administrator or the Trustee
may require execution and delivery of such instruments as are deemed necessary
to assure proper payment of any benefits.
16.4 No Benefits to the Company. No part of the corpus or income of the
Trust Fund shall be used for any purpose other than the exclusive purpose of
providing benefits for the Participants and their beneficiaries and defraying
reasonable expenses of administering the Plan. Anything to the contrary herein
notwithstanding, the Plan shall never be construed to vest any rights in the
Company other than those specifically given herein.
16.5 Severability. If any provision of this Plan shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof. Instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
16.6 Governing Law; Interpretation. The provisions of this Plan shall
be construed and enforced according to the laws of the State of Maine, to the
extent that such laws are not preempted by the laws of the United States of
America, and in such manner as will tend to carry out the purposes of the Plan.
Should this Plan be found or be held to contain contradictory clauses or should
there appear to be a conflict between different provisions hereof, the
interpretation that favors this Plan as a qualified plan under Section 401 of
the Code shall govern over any other interpretation; provided, however, that
neither the Trustee nor the Plan Administrator shall be under any liability or
responsibility for failure of this Plan or the Trust to qualify at any time or
for any period as a tax-exempt Plan and Trust under the provisions of the Code
or for any tax or increase in tax upon any Participant or Beneficiary by reason
of any benefits payable or contributions made hereunder.
16.7 Headings of Sections. The headings of sections and articles are
included solely for convenience of reference, and if there is any conflict
between such headings and the text of the Plan, the text shall control.
16.8 Effect of Mistake. In the event of a mistake or misstatement as to
age or eligibility of any individual, or the amount of accrued benefits
applicable to a Participant, or distributions made or to be made to a
Participant or other individual pursuant the Plan, the Plan Administrator shall,
to the extent it deems possible, make such adjustment in its sole discretion as
will in its judgment accord to such Participant or other individual the accrued
benefits or distributions to which he or she is properly entitled.
16.9 Bonding. Unless exempted by ERISA, every fiduciary (as defined
under Section 3(21)(A) of ERISA) shall be bonded in an amount not less than ten
percent (10%) of the amount of
<PAGE> 57
51
the funds such fiduciary handles; provided, however, that the minimum bond shall
be One Thousand Dollars ($1,000) and the maximum bond Five Hundred Thousand
Dollars ($500,000). The amount of funds handled shall be determined at the
beginning of each Plan Year by the amount of funds handled by such persons,
group, or class to be covered and their predecessors, if any, during the
preceding Plan Year, or if there is no preceding Plan Year, then by the amount
of the funds to be handled during the then current year. The bond shall provide
protection to the Plan against any loss by reason of acts of fraud or dishonesty
by the fiduciary alone or with others. The surety shall be a corporate surety
company (as such term is used in Section 412(a)(2) of ERISA), and the bond shall
be in a form approved by the Secretary of Labor. Notwithstanding anything in
this Plan to the contrary, the cost of such bonds shall be paid from the Trust
Fund, unless otherwise directed by the Plan Administrator.
ADOPTION
IN WITNESS WHEREOF, to record the adoption of the Plan, as amended and
restated herein, Peoples Heritage Financial Group, Inc. has caused this
instrument to be executed by its duly authorized officer to become effective as
of January 1, 1996.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By____________________________________
Its
Dated: _________________, 1996
<PAGE> 58
PEOPLES HERITAGE FINANCIAL GROUP, INC.
THRIFT INCENTIVE PLAN
APPENDIX A
Each of the following Schedules set forth certain benefits, rights, and
features under Predecessor Plans that remain in effect solely with respect to a
Participant's Predecessor Plan Account. All capitalized terms used in a Schedule
that are defined in the Plan shall have the respective meanings assigned to them
in the Plan unless otherwise specified in the Schedules.
<TABLE>
<CAPTION>
Schedule Predecessor Plan Plan Affiliation Date
- -------- ---------------- ---------------------
<S> <C> <C>
1 Mid Maine Savings Bank, FSB 401(k) Savings Plan January 1, 1996
2 Bank of New Hampshire Corporation Tax Deferred July 1, 1996
Savings & Investment Plan
</TABLE>
A-1
<PAGE> 59
SCHEDULE NO. 1
RELATING TO THE
MID MAINE SAVINGS BANK, FSB 401(K) SAVINGS PLAN
1.1 Definitions. As used in this Schedule, the following words and
phrases shall have the respective meanings set forth below, unless their context
clearly indicates to the contrary.
(a) "Early Retirement Date." The first day of any month coincident
with or following a Predecessor Plan Participant's attainment of age fifty-five
(55) and completion of ten consecutive years of credited service (as determined
under the Peoples Heritage Financial Group, Inc. Retirement Plan), and preceding
his or her attainment of Normal Retirement Age.
(b) "Normal Retirement Age." The date on which a Predecessor Plan
Participant attains age sixty-five (65).
(c) "Normal Retirement Date." The first day of the month coincident
with or next following a Predecessor Plan Participant's attainment of Normal
Retirement Age.
(d) "Plan Affiliation Date." January 1, 1996.
(e) "Postponed Retirement Date." The first day of any coincident
with or next following a Predecessor Plan Participant's date of actual
retirement if he or she remains employed with the Company past Normal Retirement
Age.
(f) "Predecessor Plan." The Mid Maine Savings Bank, FSB 401(k)
Savings Plan, as in effect on the Plan Affiliation Date.
1.2 Predecessor Plan Account.
(a) The Predecessor Plan Account maintained under the Plan shall
reflect separately the amounts credited to the Predecessor Plan Participant as
of the Plan Affiliation Date attributable to elective deferrals and qualified
non-elective contributions made pursuant to Sections 401(k) and 401(m) of the
Code ("Basic Contribution Account"); matching contributions made pursuant to
Section 401(m) of the Code (Matching Contribution Account); and rollover
contributions described in Section 402(c) of the Code ("Rollover Contribution
Account").
(b) For purposes of the provisions of the Plan, subject to the
provisions of this Schedule, a Predecessor Plan Participant's Account shall be
included in his or her Aggregate Account, and his or her Basic Contribution
Account thereunder shall be included in his or her Salary Deferral Contribution
Account; his or her Matching Contribution Account thereunder shall be included
in his or her Company Matching Contribution
A-2
<PAGE> 60
Account; and his or her Rollover Contribution Account thereunder shall be
included in his or her Rollover Contribution Account.
1.3 Withdrawals and Loans. In addition to, and not in limitation of,
the in-service withdrawals permitted under Section 6.1 of the Plan, a
Participant may withdraw all or any part of the nonforfeitable portion of his or
her Predecessor Plan Account after attaining fifty-nine and one-half years of
age.
1.4 Benefits and Distributions.
(a) Normal Retirement Benefits. Whenever the Plan provides that a
benefit, right, or feature is payable at or determined by reference to a
Participant's Normal Retirement Age, a Predecessor Plan Participant's
entitlement to such benefit, right, or feature with respect to his or her
Predecessor Plan Account shall be determined by reference to his or her Normal
Retirement Age as defined in Section 1.1(b) of this Schedule 1.
(b) Disability Benefit.
(i) For purposes of determining a Participant's right to
receive a distribution of his or her Predecessor Plan Account under
Section 8.2 of the Plan, the Plan Administrator shall determine whether
such Participant is disabled without regard to whether an illness or
injury can be expected to result in death or has lasted (or can be
expected to last) a continuous period of not less than twelve months.
(ii) In lieu of the normal and optional forms of benefit
payment under the Plan, a Predecessor Plan Participant who terminates
employment on account of disability prior to his or her earliest
retirement date under the Plan and this Schedule may elect to receive
the nonforfeitable portion of his or her Predecessor Plan Account in
the form of installments over a period not to exceed twenty (20) years,
provided that such form of payment complies with Section 8.5(c) of the
Plan. The nonforfeitable portion of his or her Predecessor Plan Account
shall be determined as of the Valuation Date or Valuation Dates in each
Plan Year during the period of distribution that the Predecessor Plan
Participant shall elect. In the event of the Predecessor Plan
Participant's death before receiving the entire nonforfeitable portion
of his or her Predecessor Plan Account, the installment payments made
to the Predecessor Plan Participant will continue to his or her
designated Beneficiary until the total guaranteed monthly payments have
been made.
(c) Retirement Benefit.
(i) In lieu of the normal and optional forms of benefit
payment under the Plan, a Predecessor Plan Participant who terminates
employment on his or her Early, Normal, or Postponed Retirement Date
may elect to receive the nonforfeitable portion of his or her
Predecessor Plan Account in the form of installments over a period not
to exceed twenty (20) years, provided that such form of payment
complies with Section 8.5(c) of the Plan. The nonforfeitable portion of
A-3
<PAGE> 61
his or her Predecessor Plan Account shall be determined as of the
Valuation Date or Valuation Dates in each Plan Year during the period
of distribution that the Predecessor Plan Participant shall elect. In
the event of the Predecessor Plan Participant's death before receiving
the entire nonforfeitable portion of his or her Predecessor Plan
Account, the installment payments made to the Predecessor Plan
Participant will continue to his or her designated Beneficiary until
the total guaranteed monthly payments have been made.
(ii) A Predecessor Plan Participant who terminates employment
on his or her Early, Normal, or Postponed Retirement Date may elect to
defer receipt of the nonforfeitable portion of his or her Predecessor
Plan Account until any Valuation Date preceding or coinciding with the
required beginning date under Section 8.5(c) of the Plan. Such election
shall be made in writing on the form prescribed by the Plan
Administrator, and must be received by the Plan Administrator at least
ten (10) days before the Predecessor Plan Participant's retirement
date. The deferred distribution shall be made, at the Predecessor Plan
Participant's election, in any normal or optional form otherwise
available with respect to his or her Predecessor Plan Account.
(d) Time of Payment to Predecessor Plan Participant. Any single
lump sum payment of the nonforfeitable portion of a Predecessor Plan Account to
a Predecessor Plan Participant shall be made within seven (7) days of the
Valuation Date on which such nonforfeitable portion is to be determined.
(e) Death Benefit. In the event of a Predecessor Plan Participant's
death after electing a deferred lump sum distribution and prior to receiving
payment, such payment shall be made upon the earlier of (i) the elected
distribution date and (ii) the last Valuation Date that is not more than one (1)
year following the date of death; and provided that, if the Beneficiary is the
Predecessor Plan Participant's spouse, the spouse may elect to defer payment
until any date preceding or coinciding with the date on which the Predecessor
Plan Participant would have attained age seventy and one half (70 1/2). If the
spouse dies prior to receiving payment, the preceding proviso shall be applied
as if the spouse were the Predecessor Plan Participant.
A-4
<PAGE> 1
EXHIBIT 10(m)(2)
<PAGE> 2
EXHIBIT 10(m)(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, 1996. The
Plan is hereby further amended as set forth herein.
1. The terms used in this Amendment shall have the meanings set
forth in the Plan unless the context indicates otherwise.
2. Effective January 1, 1996, Section 14.3(d) shall be amended to
read in its entirety as follows:
"(d) On and after the Plan Affiliation Date, the rights of
participants and beneficiaries of participants under the Predecessor
Plan shall be determined strictly in accordance with the terms of this
Plan; provided that, in accordance with Paragraph (g), each such
participant's Predecessor Plan Account shall be invested and reinvested
in accordance with the applicable provisions of the Predecessor Plan
until the date on which the Predecessor Plan's assets are transferred
to the trust under this Plan ("transfer date");"
3. Effective July 1, 1996, Appendix A shall be amended to refer
to Schedule No. 2, relating to the Bank of New Hampshire Corporation Tax
Deferred Savings & Investment Plan (the "BONH Plan"), in substantially the same
form as attached hereto. Said Schedule shall be prepared by the Plan
Administrator to set forth the benefits, rights, and features remaining in
effect with respect to a Participant's Predecessor Plan Account attributable to
the BONH Plan.
* * * * * * * * * *
IN WITNESS WHEREOF, to record the adoption of this First Amendment as
of the effective date stated herein, Peoples Heritage Financial Group, Inc. has
caused this instrument to be executed by its duly authorized officer this 31st
day of December, 1996.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By ___________________________________
Its
<PAGE> 1
EXHIBIT 10(r)
<PAGE> 2
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 Glenn McAllister
(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, 1995 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> 3
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 Compensation
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
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<PAGE> 4
(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.
2.02 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
retirement benefit estimated as of the Normal Retirement Date
based on the Social Security retirement benefit formulas
assuming level future earnings based on
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<PAGE> 5
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.
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.
Page 4
<PAGE> 6
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.
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
Page 5
<PAGE> 7
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. 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
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<PAGE> 8
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.
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
Page 7
<PAGE> 9
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 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:
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<PAGE> 10
TO THE CORPORATION:
Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, ME 04112
TO THE EXECUTIVE:
Glenn McAllister
One Boxwood Drive
Yarmouth, ME 04096
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 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
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<PAGE> 11
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.
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/ By: /s/
- ---------------------------- ---------------------------------
Witness Its: Senior vice President
/s/ /s/
- ---------------------------- ------------------------------------
Witness
Page 10
<PAGE> 1
EXHIBIT 13
<PAGE> 2
Along the road to success 1996
--------------------------------------------
Peoples Heritage
Financial Group, Inc. Annual Report
Maine
New Hampshire
Massachusetts
[ GRAPHIC OF MAP AND THREE INSTANT PHOTOS ]
<PAGE> 3
AT PEOPLES HERITAGE,
we know how to get where we're going. With our community banking approach and
successful expansion strategy, Peoples Heritage continues to grow and prosper.
In 1996 we not only virtually doubled our asset size, but expanded our market
share and earnings potential. All while generating record-breaking earnings for
the third consecutive year.
Table of Contents
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 1
LETTER TO SHAREHOLDERS 2
MARKETS 4
PERFORMANCE 4
STRATEGY 6
COMMUNITY BANKING SERVICES 9
SELECTED 5-YEAR CONSOLIDATED
FINANCIAL AND OTHER DATA 11
MANAGEMENT'S DISCUSSION
AND ANALYSIS 12
FINANCIAL STATEMENTS 30
CORPORATE DIRECTORY 55
- --------------------------------------------------------------------------------
PEOPLES HERITAGE FINANCIAL GROUP, INC.
Peoples Heritage Financial Group, Inc. is the banking and financial
services holding company for Peoples Heritage Bank,
Bank of New Hampshire, and Family Bank.
- --------------------------------------------------------------------------------
<PAGE> 4
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
1996 was our third consecutive record earnings year at Peoples Heritage. Our
annual net earnings were up 18% over 1995's record net earnings.
Just as importantly, we achieved these results while meeting the
challenges of two major bank acquisitions, Bank of New Hampshire and Family
Bank. As with all of our previous acquisitions, our successful expansion was
both prudent and profitable. We delivered a strong financial performance across
the board, while expanding our market area, increasing our earnings potential,
and positioning Peoples Heritage for continued growth.
Earnings Per Share Strong Margins
<TABLE>
<S> <C>
[BAR CHART 1 OF EARNINGS PER SHARE] [BAR CHART 2 OF STRONG MARGINS]
</TABLE>
1
<PAGE> 5
Dear Shareholders:
- --------------------------------------------------------------------------------
"In achieving both growth and profitability, we set earnings records for a third
consecutive year and realized impressive performance across a wide range of
financial measurements."
[ PHOTO ]
Net Income
[BAR CHART FOR NET INCOME]
1996 was yet another record-breaking year at Peoples Heritage. In
addition to achieving record earnings, we virtually doubled our asset size
through growth and acquisitions to become the fifth largest bank in New England.
While expanding in Maine, we grew to become a three-state holding
company with over half our assets outside the state. Building on our successful
record of acquisitions, we significantly expanded our presence in New Hampshire
to become the Granite state's number three bank to complement our number two
market position in Maine. We also entered a vital new market in northern
Massachusetts.
In achieving both growth and profitability, we set earnings records for
a third consecutive year and realized impressive performance across a wide range
of financial measurements. Our performance is moving us into the top tier of
American banks. At the same time, we have significantly expanded our earnings
potential through our broadened presence in the more vibrant economies of New
Hampshire and Massachusetts.
Our 1996 acquisitions of Bank of New Hampshire and Family Bank,
represented a natural extension of our market, and a natural fit for our growth
strategy. Peoples Heritage is committed to our customers and our community
banking approach. We understand and appreciate the value of community
involvement, local decision making, and a deep awareness of local banking needs.
2
<PAGE> 6
In addition to being strong-performing banks, both Bank of New
Hampshire and Family Bank share long histories of personal service and community
involvement. As part of our community banking approach, both banks are keeping
their management teams, keeping their bank names, and subsequently, keeping
their loyal customers who want to continue banking at their local bank with the
people they know and trust. It's a proven business approach that sets Peoples
Heritage apart from other banks in our markets -- and has helped make us one of
New England's fastest growing banks.
To ensure that we rapidly achieve profitability and efficiencies
through our acquisitions, we are consolidating operations activities at our
state-of-the-art operations facility in Maine. With the larger resources of
Peoples Heritage behind them, our New Hampshire and Massachusetts banks are
revitalizing their consumer and commercial lending. Additionally, we are sharing
successful banking products and services throughout the holding company to
realize efficiencies and leverage the best each bank has to offer.
As part of our strategy to enhance shareholder value during our
acquisitions, we completed a "Dutch Auction" self tender offer and repurchased
2.5 million shares of our Common Stock in 1996, in addition to the 751,600
shares repurchased in 1995.
Looking ahead, we will stay open to new business opportunities as they
arise. We will seek to attract and retain new customers as the potential for
disruptions from branch closings and cutbacks at other financial institutions in
our market areas continues. Above all, we will maintain our commitment to our
community banking focus and enhancing shareholder value.
Management can seek to expand our company, develop new lines of
business, and define the strategies critical to our success. However, it is the
daily efforts of our dedicated employees that give life to those decisions and
make them a reality. I wish to thank all of our valued employees, as well as our
loyal customers and shareholders, as we look to the future and new opportunities
for success.
Sincerely yours,
/s/ William J. Ryan
William J. Ryan
Chairman, President and
Chief Executive Officer
3
<PAGE> 7
- --------------------------------------------------------------------------------
ALONG THE ROAD IN MAINE
As Maine's own in-state bank, we
understand the needs of our customers
and deliver the kinds of products and
services that fit our customers' lives.
From our mortgage leadership to our new
supermarket branches to our Sunday
hours, we're constantly striving to
serve our customers better. Peoples
Heritage Bank holds the number two
market position in Maine with 66
branches throughout the state and $2.64
billion in assets.
66 BRANCHES THROUGHOUT MAINE
NO. 2 MARKET POSITION
$2.64 BILLION IN ASSETS
[ 2 PHOTOS ]
- --------------------------------------------------------------------------------
MARKETS
Peoples' market share continues to expand through acquisitions and growth. When
1995 ended, Peoples Heritage had total assets of just over $3 billion. At the
end of 1996, we had expanded to $5.4 billion in assets with a banking system
that stretches from northern Maine to northeastern Massachusetts, encompassing
132 banking offices operating as Peoples Heritage Bank, Bank of New Hampshire
and Family Bank.
[GRAPHIC OF MAINE]
PERFORMANCE
With record earnings for a third consecutive year, Peoples Heritage Financial
Group is moving into the top tier of the region's and nation's banks. Our
performance numbers also reflect our ability to make profitable, sound
acquisitions.
RECORD EARNINGS - In 1996, Peoples Heritage achieved record annual
net earnings of $52.5 million, or $2.10 per share, even after merger-related
costs were expensed in the period. Net earnings were up 18% over 1995's record
net earnings of $44.5 million, or $1.80 per share.
RECORD DEPOSITS - In 1996, we increased our deposits to $4.2 billion from $3.2
billion at the end of 1995 -- an increase of 31%. Our strong increase was a
result of our
4
<PAGE> 8
[ 5 PHOTOS ]
profitable acquisition strategy as well as our continued market share growth in
Maine.
STRONG MARGINS - Our diversified portfolio of consumer and commercial loans and
foundation of core deposits enabled us to maintain a strong 4.7+% net interest
margin for 1996, stable with 1995.
MORE LOANS - Net loans and leases increased 32% in 1996, from $2.7 billion to
$3.6 billion. Our results reflect the impact of our successful marketing
efforts, core growth, and growth from acquisitions.
INCREASED FEE INCOME - Fee income increased 20% in 1996. We attribute this
growth to a variety of factors including our rapidly growing Trust Services,
customer fees, strength in mortgage originations, and our mortgage servicing
income which includes $3.2 billion of mortgages we service for others.
INCREASED DIVIDEND - More than 30 cents of every net dollar earned in 1996 was
returned to shareholders as dividend. Following the fourth quarter of 1996, we
increased the quarterly dividend to 18 cents per share, up from 17 cents per
share the previous quarter, and from 16 cents per share for the same quarter a
year ago.
RETURN ON ASSETS - Our Return on Average Assets (ROA) reached an annual historic
high of 1.21%, up from 1.16% in 1995. Our ROA performance puts us on par with
some of America's best banks.
RETURN ON EQUITY - Our Return on Average Equity reached 14.41% in 1996, as
compared to 13.53% in 1995 -- another historic high.
STRONG ASSET QUALITY - Asset quality improved markedly in 1996. We reduced
nonperforming
5
<PAGE> 9
- --------------------------------------------------------------------------------
ALONG THE ROAD IN NEW HAMPSHIRE
In 1996, Bank of New Hampshire became a
part of Peoples Heritage Financial Group
and was combined with our previous New
Hampshire bank, The First National Bank
of Portsmouth. We also acquired five
Shawmut Bank of New Hampshire branches
in the past year with $160 million in
deposits. As a result, we now enjoy the
number three market position in New
Hampshire with 44 branches and $1.77
billion in assets
44 BRANCHES THROUGHOUT
NEW HAMPSHIRE
NO. 3 MARKET POSITION
$1.77 BILLION IN ASSETS
[ 2 PHOTOS ]
- --------------------------------------------------------------------------------
assets to 1.01% of total assets, down from 1.40% in 1995, and down from 2.1% in
1994 -cutting nonperforming asset ratio in half in just two years.
RESERVE COVERAGE -- Peoples Heritage achieved nearly a 160% ratio of reserves to
nonperforming loans. Our more than adequate coverage reflects our prudent
management style.
STRATEGY
Our growth in New Hampshire and expansion into Massachusetts provides us with a
larger and more vigorous economy than Maine alone. Of course, we also
strengthened our ability to earn and reward shareholders. By continuing a
community banking approach in new market areas, we can continue building on our
success.
COMMUNITY BANKING - At the heart of everything we do, community banking is the
fundamental strategy behind our expansion.
NONPERFORMING ASSETS COVERAGE RATIO
<TABLE>
<S> <C>
[BAR CHART FOR NONPERFORMING ASSETS] [BAR CHART FOR COVERAGE RATIO]
</TABLE>
6
<PAGE> 10
[ 5 PHOTOS ]
With our newly acquired banks, we're expanding our community banking approach by
retaining the acquired banks' names, local management and customer contact staff
to continue to provide personal customer service. Local decision making will
also be maintained supported by our strategic business units and strong
performance expectations.
UNIQUE MARKET POSITION - With our lending expertise and systems, Peoples
Heritage is smartly positioned with the ability to serve the large segment of
commercial borrowers that big banks tend to ignore, and smaller banks can't
handle.
GROWTH AND PROFITABILITY - Peoples has demonstrated a history of intelligent,
profitable acquisitions. Our latest acquisitions are no exception -- in the
higher growth region of northern Massachusetts and in New Hampshire which boasts
New England's fastest growing economy.
OPERATIONAL EFFICIENCIES - Peoples' strong operations continued to improve in
1996. With our recent acquisitions, we achieved efficiencies by consolidating
"back room" functions including operations, accounting and finance, legal and
human resources.
BUILDING ON OUR STRENGTHS - With our expanded resources, we are able to share
successful products and ideas throughout our system. For example, we recently
took a successful checking product from Family Bank to Peoples, and took a
popular CD product from Peoples to Bank of New Hampshire.
EXPANDED ATM NETWORK - To make banking as convenient as possible for our
customers, we are
7
<PAGE> 11
- --------------------------------------------------------------------------------
ALONG THE ROAD IN MASSACHUSETTS
Family Bank joined the Peoples family at
the end of 1996 with the acquisition of
its parent company, Family Bancorp.
Family Bank enjoys the top market
position in most of the local
communities it serves. This valuable
acquisition extends Peoples' presence
and community banking approach into
northeastern Massachusetts. Family Bank
adds 17 branches in northeastern
Massachusetts, five in southern New
Hampshire, and $1.01 billion in assets.
17 BRANCHES IN NORTHEASTERN
MASSACHUSETTS
5 BRANCHES IN SOUTHERN
NEW HAMPSHIRE
$1.01 BILLION IN ASSETS
[ 2 PHOTOS ]
- --------------------------------------------------------------------------------
continuing to expand our ATM network with new machines in supermarkets, banking
centers and at freestanding locations throughout our market area.
GROWING PHONE BANK - Driven by strong demand, our telephone banking service grew
significantly in 1996. We now have 70 professionals and an automated response
unit responding to over 300,000 calls each month. So customers from all three
banks can check balances, originate a consumer loan, or determine recent account
activity. They can take advantage of our automated services or talk to a person
- -- we're always there to help.
EXPANDED SUPERMARKET BANKING - Our customers really appreciate the ability to
bank where they shop. In 1996, we opened four new supermarket banking centers in
Maine. And with our experience and success, we're now laying the groundwork for
new supermarket
DIVIDEND BY YEAR RETURN ON ASSETS
<TABLE>
<S> <C>
[BAR CHART FOR DIVIDEND BY YEAR] [BAR CHART FOR RETURN ON ASSETS]
</TABLE>
8
<PAGE> 12
[ 5 PHOTOS ]
banking centers in New Hampshire and Massachusetts. It's all part of our
strategy to continue our customer-driven approach in new markets.
SUNDAY HOURS - Being a community bank means being there for our customers --
even on Sundays. We offer Sunday hours and expanded Saturday and weekday hours
at numerous branches throughout our market areas and at all supermarket banking
centers.
INCENTIVE COMPENSATION - Delivering superior customer service requires the
commitment and support of employees at every level. That's why all employees,
from tellers to top management, operate under incentive-based compensation.
COMMUNITY BANKING
SERVICES
At Peoples Heritage, community banking means more than personal service. Being a
true community bank means providing a range of banking services which encompass
all the business and consumer needs of the markets we serve.
MORTGAGE LENDING - Peoples is the 70th largest mortgage originator in the nation
- -- up doubled digits from a year ago. We're the number one mortgage originator
in Maine, the second largest mortgage originator in New Hampshire, and we're
re-introducing mortgage lending at Family Bank. In addition, we service over
$3.2 billion of mortgages for others.
CONSUMER LENDING - Our successful consumer lending program includes home equity
loans, indirect auto loans, and manufactured housing loans.
COMMERCIAL LENDING - With the acquisitions of Bank of
9
<PAGE> 13
New Hampshire and Family Bank, our commercial lending program is benefiting from
the more vigorous economies of New Hampshire and Massachusetts. In 1996, we also
assembled a team of experienced asset-based lending specialists to bring
asset-based lending services to all our markets.
CASH MANAGEMENT SERVICES - In 1996, the Cash Management Department at Peoples
Heritage Bank introduced a new on-line banking product to improve service and
attract and retain commercial customers.
PUBLIC FINANCE - Revitalized two years ago, our growing Public Finance
Department provides investment and loan products to northern New England's
cities, towns and other public bodies. The Department contributed $2.2 million
to our bottom line in 1996, while adding resources to service our new market
areas.
LEASING SERVICES - Our equipment leasing services expand our Public Finance
offerings and broaden the services we provide to our commercial customers. We're
now providing leasing throughout our three-state region.
INVESTMENT SERVICES - With the acquisition of Bank of New Hampshire, we added
the resources of their 100-year-old Trust department with $1.4 billion under
management and another $1 billion in corporate trust assets. This strengthens
our capabilities in Maine with a Trust department with $600 million under
management with a like amount of corporate trust assets. We also plan to bring
Trust services to Family Bank this year. In addition, we added Private Banking
to our range of services in Maine in 1996.
AT PEOPLES HERITAGE, OUR ROAD TO SUCCESS RUNS RIGHT THROUGH THE
COMMUNITIES OF NORTHERN NEW ENGLAND. AFTER ALL, COMMUNITY BANKING IS AT THE
HEART OF WHAT MAKES US UNIQUE IN OUR MARKETS. BY STAYING CLOSE TO OUR CUSTOMERS
AND CLOSE TO OUR COMMUNITIES, WE ONCE AGAIN ACHIEVED RECORD ANNUAL EARNINGS AND
BUILT ON OUR SUCCESS.
TO US, COMMUNITY BANKING MEANS UNDERSTANDING THE NEEDS OF OUR CUSTOMERS
IN ALL THE MARKETS WE SERVE -- AND OFFERING THE KINDS OF INNOVATIVE PRODUCTS AND
SERVICES THAT FIT THEIR LIVES AND MAKE BANKING EASIER AND MORE CONVENIENT. IT IS
OUR COMMUNITY BANKING PHILOSOPHY WHICH HAS GUIDED US THROUGH OUR HISTORY OF
SUCCESSFUL ACQUISITIONS. IT HAS ENABLED US TO GROW BOTH PRUDENTLY AND
PROFITABLY. IT HAS ALLOWED US TO DELIVER FOR OUR CUSTOMERS, AND IN TURN, OUR
SHAREHOLDERS.
AS WE LOOK TO THE ROAD AHEAD, WE WILL CONTINUE TO SEEK BETTER WAYS TO
SERVE OUR CUSTOMERS, WE WILL EXPLORE ACQUISITIONS WHEN ADVANTAGEOUS, AND WE WILL
MAINTAIN OUR COMMITMENT TO ENHANCING SHAREHOLDER VALUE.
WE LOOK FORWARD THE JOURNEY.
- --------------------------------------------------------------------------------
TOTAL DEPOSITS TOTAL ASSETS SHAREHOLDER'S EQUITY
[ BAR CHART FOR [ BAR CHART FOR [ BAR CHART FOR
TOTAL DEPOSITS] TOTAL ASSETS] SHAREHOLDER'S EQUITY]
10
<PAGE> 14
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Data) December 31,
- ---------------------------------------------------------------------------------------------------------------------
Financial Condition Data 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $5,398,398 $4,058,126 $3,737,906 $3,624,641 $3,523,094
Debt and equity securities, net (1) 1,045,069 766,648 719,194 717,467 557,787
Total loans and leases, net 3,587,112 2,717,608 2,575,902 2,638,348 2,425,020
Goodwill and other intangibles 71,649 22,792 20,713 22,758 22,310
Deposits 4,185,289 3,197,138 2,885,845 2,939,826 2,948,549
Borrowings 690,969 456,932 505,347 359,935 288,024
Shareholders' equity 437,010 354,925 304,439 287,438 249,862
Nonperforming assets 54,267 56,752 78,339 120,076 185,733
Allowance for loan and lease losses 67,488 60,975 63,675 67,385 71,223
Book value per share at end of period 15.48 14.16 12.26 11.61 10.73
Tangible book value per share at
end of period 12.95 13.25 11.42 10.69 9.77
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Operations Data Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 341,172 $ 305,849 $ 256,597 $ 243,452 $ 272,596
Interest expense 150,599 134,895 108,002 112,305 150,458
--------- --------- --------- --------- ---------
Net interest income 190,573 170,954 148,595 131,147 122,138
Provision for loan losses 900 4,230 3,374 14,047 32,025
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 189,673 166,724 145,221 117,100 90,113
--------- --------- --------- --------- ---------
Net securities gains (losses) 507 116 (254) 1,183 2,859
Net gains on sales of consumer loans -- -- 33 2,576 --
Other noninterest income 37,941 31,301 27,847 24,842 26,747
Noninterest expenses 148,073 130,280 125,137 122,391 125,091
--------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes 80,048 67,861 47,710 23,310 (5,372)
Income tax expense 27,568 23,375 13,662 799 1,510
Cumulative effect on years prior to 1992
of a change in accounting principle -- -- -- -- 1,100
--------- --------- --------- --------- ---------
Net income (loss) $ 52,480 $ 44,486 $ 34,048 $ 22,511 $ (5,782)
========= ========= ========= ========= =========
Earnings (loss) per share $ 2.10 $ 1.80 $ 1.37 $ 0.95 $ (0.36)
Cash earnings per share (5) $ 2.29 $ 1.89 $ 1.45 $ 1.08 $ (0.20)
Dividends per share $ .65 $ 0.46 $ 0.23 $ 0.01 $--
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Other Data (2) At or For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest margin (3),(4) 4.71% 4.79% 4.44% 4.11% 3.71%
Net interest rate spread (3),(4) 4.12 4.20 4.01 3.76 3.41
Return on average assets 1.21 1.16 0.94 0.64 (0.16)
Return on average equity (4) 14.41 13.53 11.42 8.57 (2.69)
Tier I leverage capital ratio at end
of period 7.96 8.33 7.96 7.63 7.00
Dividend payout ratio 30.36 25.42 16.45 1.44 --
Price to book value at end of period 180.88 160.66 97.88 103.36 90.87
Nonperforming assets as a % of total
assets at end of period 1.01 1.40 2.10 3.31 5.29
Allowance for loan losses as a % of
nonperforming loans at end of period 158.99 143.40 113.17 86.95 65.39
Allowance for loan losses as a % of
total loans at end of period 1.85 2.19 2.41 2.77 2.85
Full service banking offices at end of period 132 106 96 98 100
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All securities were classified as available for sale at December 31, 1996,
and 1995. (2) Ratios are based on average daily balances during the respective
periods. (3) Fully-taxable equivalent basis. (4) Excludes effect of unrealized
gains or losses on securities available for sale. (5) Earnings before the
amortization of goodwill and core deposit premiums.
11
<PAGE> 15
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Peoples Heritage Financial Group, Inc. (the "Company") is a Maine-chartered,
multi-bank holding company which conducts business from its headquarters in
Portland, Maine and 131 offices located throughout Maine, New Hampshire and
northern Massachusetts. Based on $5.4 billion of total assets at December 31,
1996, the Company is the largest independent bank holding company headquartered
in northern New England and the fifth largest independent bank holding company
headquartered in New England.
The Company offers a broad range of commercial and consumer banking services
and products and trust and investment advisory services through three
wholly-owned banking subsidiaries: Peoples Heritage Bank ("PHB"), Bank of New
Hampshire ("BNH") and Family Bank, FSB ("Family"). PHB is a Maine-chartered
savings bank which operates 66 offices throughout Maine and, through
subsidiaries, engages in mortgage banking, financial planning and equipment
leasing activities. At December 31, 1996, PHB had consolidated assets of $2.6
billion and consolidated shareholder's equity of $175.3 million. BNH is a New
Hampshire-chartered commercial bank which operates 44 offices throughout New
Hampshire. At December 31, 1996, BNH had consolidated assets of $1.8 billion and
consolidated shareholder's equity of $135.6 million. Family is a
federally-chartered savings bank which operates 22 offices in northern
Massachusetts and southern New Hampshire. At December 31, 1996, Family had
consolidated assets of $1.0 billion and consolidated shareholder's equity of
$107.1 million. Each of PHB, BNH and Family is a member of the Bank Insurance
Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC").
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, New Hampshire and northern
Massachusetts, 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, among
other things, 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 New England.
During the period covered by this discussion, the Company engaged in numerous
merger and acquisition related activities. For further information, see Note 2
to the Consolidated Financial Statements and "Overview" below.
OVERVIEW
The year 1996 was highlighted by several acquisitions by the Company. On
December 6, 1996 the Company completed the acquisition of Family Bancorp, the
holding company for Family, through the exchange of 1.26 shares of the Company's
Common Stock for each share of Family Bancorp Common Stock. There were 5,480,335
shares of the Company's Common Stock issued in connection with the acquisition
of Family Bancorp, including 2,500,000 shares of treasury stock. This
transaction was accounted for as a purchase. Accordingly, the impact of the
absorption of Family's operations is reflected in the Company's consolidated
financial statements from the date of acquisition.
On April 2, 1996, the Company completed the merger with Bank of New
Hampshire Corporation ("BNHC"), the holding company for BNH, whereby each share
of BNHC was converted into two shares of Common Stock of the Company. Because
the acquisition was accounted for under the pooling-of-interests method of
accounting, the consolidated financial statements of the Company for periods
prior to the acquisition have been restated to include BNHC. At December 31,
1995, BNHC had total consolidated assets of $977.8 million and total
consolidated shareholders' equity of $84.5 million.
On February 16, 1996, the Company acquired five branch offices and
approximately $160 million of related deposits from Fleet Bank NH (the "Branch
Acquisition"). The Company 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.
On July 1, 1995, the Company acquired Bankcore, Inc. ("Bankcore"), the New
Hampshire-based holding company for North Conway Bank. At the time of
acquisition, Bankcore had $132.8 million in total assets and shareholders'
equity of $17.8 million. The Bankcore acquisition was treated as a purchase for
accounting purposes and, accordingly, the Company's financial statements reflect
the acquisition from the date of acquisition.
On June 15, 1995, the Company purchased all the branches and $46.1 million
in deposits, as well as $17.1 million in 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 PHB.
During 1994, the Company acquired Mid-Maine Savings Bank, F.S.B., which was
accounted for under the pooling-of-interests method. Accordingly, the
consolidated financial statements of the Company have been restated to reflect
the acquisition for all periods presented.
Economic Conditions in Northern New England.
The Company believes that Maine, New Hampshire, northeastern Massachusetts and
New England in general have witnessed slow but steady economic growth since
1992. Although economic activity is just beginning to reach levels experienced
in the mid-to-late 1980s, the northern New England economy appears stable at
this time. 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.
12
<PAGE> 16
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
REVIEW OF FINANCIAL STATEMENTS
The discussion and analysis which follows focuses on the factors affecting the
Company's financial condition at December 31, 1996 and 1995 and financial
results of operations during 1996, 1995 and 1994. 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 1996 have
been reclassified to conform to the 1996 presentation.
RESULTS OF OPERATIONS
Overview.
The Company reported net income of $52.5 million or $2.10 per share in 1996, as
compared to net income of $44.5 million or $1.80 per share in 1995 and $34.0
million or $1.37 per share in 1994. Return on average assets amounted to 1.21%
in 1996, as compared to 1.16% and .94% during 1995 and 1994, respectively, and
return on average equity amounted to 14.41% in 1996, as compared to 13.53% and
11.42% during 1995 and 1994, respectively. The improved results were
attributable to substantial increases in net interest income, which on a
fully-taxable equivalent basis amounted to $191.4 million, $172.0 million and
$149.3 million for the years ended 1996, 1995 and 1994, respectively. The
increase in net interest income in 1996 was offset in part by non-recurring
expenses of $1.9 million incurred in connection with the recapitalization of the
Savings Association Insurance Fund ("SAIF") and $5.1 million in merger-related
expenses. The Company also experienced increases in noninterest income,
particularly in customer services income and mortgage banking services income
during 1996, 1995 and 1994.
The Company's results of operations are affected not only by its net
interest income, but also by the level of its other noninterest income including
gains and losses on the sales of loans and securities, noninterest expenses,
provision for loan losses resulting from the Company's assessment of the
adequacy of the allowance for loan losses, and income tax expense. Each of these
components of the Company's operating results is discussed below.
Net Interest Income.
The following table sets forth the information related to changes in net
interest income. 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.
13
<PAGE> 17
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(Dollars in Thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases: (1)
Residential real estate
mortgages $ 1,110,741 $ 87,357 7.86% $ 848,773 $ 69,957 8.24%
Commercial real estate
mortgages 829,011 80,825 9.75 762,275 75,657 9.93
Commercial business loans
and leases 425,873 40,880 9.60 371,863 37,174 10.00
Consumer loans and leases 858,684 80,524 9.38 749,407 71,696 9.57
------------- ------------- ------------- -------------
Total loans and leases 3,224,309 289,586 8.98 2,732,318 254,484 9.31
------------- ------------- ------------- -------------
Securities available for
sale (2) 793,847 50,102 6.31 771,462 47,392 6.14
Federal funds sold 43,716 2,350 5.38 85,191 5,066 5.95
------------- ------------- ------------- -------------
Total earning assets 4,061,872 342,038 8.42 3,588,971 306,942 8.55
------------- ------------- ------------- -------------
Nonearning assets (2) 289,781 256,797
------------- -------------
Total assets $ 4,351,653 $ 3,845,768
============= =============
Interest-bearing deposits
Regular savings $ 603,329 16,433 2.72 $ 588,581 16,753 2.85
NOW accounts 364,670 4,593 1.26 328,238 4,697 1.43
Money market access accounts 505,426 18,190 3.60 414,025 15,507 3.75
Certificates of deposit 1,462,097 81,227 5.56 1,299,735 71,252 5.48
------------- ------------- ------------- -------------
Total interest-bearing
deposits 2,935,522 120,443 4.10 2,630,579 108,209 4.11
Borrowed funds 568,406 30,156 5.31 471,456 26,686 5.66
------------- ------------- ------------- -------------
Total interest-bearing
liabilities 3,503,928 150,599 4.30 3,102,035 134,895 4.35
------------- ------------- ------------- -------------
Demand accounts 448,154 368,832
Other liabilities 35,318 46,197
Shareholders' equity (2) 364,253 328,704
------------- -------------
Total liabilities and
shareholders' equity $ 4,351,653 $ 3,845,768
============= =============
Net earning assets $ 557,944 $ 486,936
============= =============
Net interest income (fully-
taxable equivalent) 191,439 172,047
Less: fully-taxable equivalent
adjustments (866) (1,093)
------------- -------------
Net interest income $ 190,573 $ 170,954
============= =============
Net interest rate spread
(fully-taxable equivalent) 4.12 4.20%
Net interest margin
(fully-taxable equivalent) 4.71 4.79%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Year Ended December 31,
1994
- ----------------------------------------------------------------------------
AVERAGE YIELD/
(Dollars in Thousands) BALANCE INTEREST RATE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Loans and leases: (1)
Residential real estate
mortgages $ 808,715 $ 62,147 7.68%
Commercial real estate
mortgages 727,671 63,402 8.71
Commercial business loans
and leases 315,826 28,774 9.11
Consumer loans and leases 677,511 61,264 9.04
------------- -------------
Total loans and leases 2,529,723 215,587 8.52
------------- -------------
Securities available for
sale (2) 749,507 38,434 5.13
Federal funds sold 81,376 3,295 4.05
------------- -------------
Total earning assets 3,360,606 257,316 7.66
------------- -------------
Nonearning assets (2) 269,352
-------------
Total assets $ 3,629,958
=============
Interest-bearing deposits
Regular savings $ 596,254 16,313 2.74
NOW accounts 307,021 5,014 1.63
Money market access accounts 367,820 9,770 2.66
Certificates of deposit 1,275,805 56,823 4.45
------------- -------------
Total interest-bearing
deposits 2,546,900 87,920 3.45
Borrowed funds 414,956 20,082 4.84
------------- -------------
Total interest-bearing
liabilities 2,961,856 108,002 3.65
------------- -------------
Demand accounts 325,615
Other liabilities 44,357
Shareholders' equity (2) 298,130
-------------
Total liabilities and
shareholders' equity $ 3,629,958
=============
Net earning assets $ 398,750
=============
Net interest income (fully-
taxable equivalent) 149,314
Less: fully-taxable equivalent
adjustments (719)
-------------
Net interest income $ 148,595
=============
Net interest rate spread
(fully-taxable equivalent) 4.01
Net interest margin
(fully-taxable equivalent) 4.44
- ----------------------------------------------------------------------------
</TABLE>
(1) Loans and leases include portfolio loans and leases, loans held for sale and
nonperforming loans.
(2) Excludes effect of unrealized gains or losses on securities available for
sale.
14
<PAGE> 18
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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, 1996 vs 1995 Year Ended December 31, 1995 vs 1994
(Dollars in Thousands) 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 $ (3,225) $ 21,586 $ (961) $ 17,400 $ 4,529 $ 3,076 $ 205 $ 7,810
Commercial real estate mortgages (1,372) 6,627 (87) 5,168 8,878 3,014 363 12,255
Commercial business loans and leases (1,487) 5,401 (208) 3,706 2,811 5,105 484 8,400
Consumer loans and leases (1,424) 10,458 (206) 8,828 3,591 6,499 342 10,432
-------- -------- -------- -------- -------- -------- -------- --------
Total loans and leases (7,508) 44,072 (1,462) 35,102 19,809 17,694 1,394 38,897
-------- -------- -------- -------- -------- -------- -------- --------
Securities available for sale 1,311 1,374 25 2,710 7,570 1,126 262 8,958
Federal funds sold (486) (2,468) 238 (2,716) 1,546 155 70 1,771
-------- -------- -------- -------- -------- -------- -------- --------
Total (6,683) 42,978 (1,199) 35,096 28,925 18,975 1,726 49,626
-------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Regular savings (765) 420 25 (320) 656 (210) (6) 440
NOW accounts (558) 521 (67) (104) (614) 346 (49) (317)
Money market access accounts (621) 3,428 (124) 2,683 4,009 1,229 499 5,737
Certificates of deposit 1,040 8,897 38 9,975 13,141 1,065 223 14,429
-------- -------- -------- -------- -------- -------- -------- --------
Total deposits (904) 13,266 (128) 12,234 17,192 2,430 667 20,289
Borrowed funds (1,650) 5,487 (367) 3,470 3,403 2,735 466 6,604
-------- -------- -------- -------- -------- -------- -------- --------
Total (2,554) 18,753 (495) 15,704 20,595 5,165 1,133 26,893
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income
(fully taxable equivalent) $ (4,129) $ 24,225 $ (704) $ 19,392 $ 8,330 $ 13,810 $ 593 $ 22,733
======== ======== ======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans and leases include portfolio loans and loans held for sale and
nonperforming loans.
Net interest income increased by $19.4 million or 11.3% during 1996. This
increase was primarily attributable to significant increases in the volume of
interest-earning assets, primarily loans and leases, which contributed to a
$71.0 million or 14.6% increase in net earning assets during 1996. The increase
in volume of interest-earning assets was offset in part by a decrease in the
weighted average yield on all categories of interest-earning assets. The
Company's net interest margin decreased slightly from 4.79% in 1995 to 4.71% for
1996, and the net interest rate spread decreased to 4.12% in 1996 from 4.20% in
1995.
Interest and dividend income increased $35.1 million or 11.4% during 1996,
primarily due to increased interest on loans and leases. The average outstanding
balance of loans and leases increased $492.0 million or 18.0% from 1995 to 1996,
primarily as a result of the acquisition of $216.4 million of loans in
connection with the Branch acquisition.
The increase in volume of loans and leases was offset in part by a decrease
in the weighted average yield on loans and leases from 9.31% in 1995 to 8.98% in
1996. This decrease was due to growth in the percentage of lower-yielding
residential mortgage loans relative to other loans, as well as increased
competition for both consumer and commercial loans. At December 31, 1996, the
percentage of the Company's loans and leases which had adjustable or floating
interest rates amounted to 54.5%.
Interest expense increased $15.7 million or 11.6% during 1996. Interest
expense on interest-bearing deposits increased $12.2 million or 11.3% while
interest expense on borrowed funds, primarily from the Federal Home Loan Bank of
Boston, increased $3.5 million or 13.0%. The increase in interest expense was
primarily attributable to a $401.9 million or 13.0% increase in the volume of
interest-bearing liabilities as rates paid on deposits remained relatively
stable. The majority of the increase in volume was in certificates of deposit.
The $160.9 million of deposits acquired in connection with the Branch
Acquisition in February 1996 significantly contributed to the increase in the
volume of deposits, whereas the $774.6 million of deposits acquired in
connection with the acquisition of Family Bank in December 1996 contributed only
slightly to the increase in volume because such deposits were outstanding only
since the date of acquisition.
15
<PAGE> 19
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Net interest income increased by $22.7 million or 15.2% during 1995. This
increase was primarily attributable to changes in the volume of interest-earning
assets and interest-bearing liabilities, which resulted from an $88.2 million or
22.1% increase in net earning assets from 1994 to 1995 and an increase in the
Company's net interest margin from 4.44% to 4.79% during the same respective
periods, and to a lesser extent to changes in the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities,
which resulted in an increase in the Company's interest rate spread from 4.01%
to 4.20% during 1994 and 1995, respectively.
Interest and dividend income increased by $49.6 million or 19.3% during 1995
primarily as a result of a $38.9 million or 18.0% 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
an increase in the weighted average yield on loans and leases from 8.52% during
1994 to 9.31% during 1995, which reflected increases in all loan categories, and
a $202.6 million or 8.0% increase in the average balance of loans and leases
from 1994 to 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 rates amounted to 45.3%.
Interest and dividend income also increased in 1995 as a result of a $9.0
million or 23.3% increase in interest income on securities available for sale
which was primarily attributable to an increase in the weighted average yield
earned on securities from 5.13% to 6.14% during 1994 and 1995, respectively.
Interest expense increased by $26.9 million or 24.9% during 1995 as a result
of a $20.3 million or 23.1% increase in interest expense on interest-bearing
deposits and a $6.6 million or 32.9% increase in interest expense on borrowed
funds, which consist primarily of advances from the Federal Home Loan Bank of
Boston and, to a lesser extent, securities sold under agreements to repurchase
and federal funds purchased. These increases were primarily attributable to an
increase in the weighted average rate paid on interest-bearing liabilities,
which increased from 3.65% to 4.35% during 1994 to 1995, respectively. Interest
expense also increased during 1995 as a result of a $140.2 million or 4.7%
increase in the average balance of interest-bearing liabilities, which was
attributable to increases in both interest-bearing deposits, particularly money
market access accounts and borrowings.
Provision for Loan Losses.
The Company incurred a $900 thousand provision for loan losses in 1996
reflecting a decrease of $3.3 million from 1995. In 1995, the provision for
loans losses increased $856 thousand from $3.4 million in 1994 to $4.2 million
in 1995. The allowance for loan losses as a percentage of nonperforming loans
increased to 158.99% at December 31, 1996 compared to 143.40% at December 31,
1995. Provisions for loan losses are attributable to management's ongoing
evaluation of the adequacy of the allowance for loan and lease losses, which
incudes, among other procedures, consideration of the character and size of the
loan portfolio, 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 loan losses in subsequent periods to a higher level from that
recorded during 1996. 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 provisions 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.
Noninterest Income.
Noninterest income was $38.5 million, $31.4 million and $27.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively. The $7.1 million or
22.6% increase in noninterest income during 1996 was primarily attributable to a
$3.4 million or 28.9% increase in customer services income, a $2.1 million or
19.3% increase in mortgage banking services income, and a $1.4 million or 23.6%
increase in trust and investment advisory services income. The $3.8 million or
13.7% increase in noninterest income during 1995 was primarily attributable to a
$2.4 million or 28.5% increase in mortgage banking services income and a $1.4
million or 13.6% increase in customer services income.
The following sets forth information relating to the Company's noninterest
income.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer services $ 15,353 $ 11,908 $ 10,481
Mortgage banking services 12,940 10,849 8,446
Trust and investment
advisory services 7,233 5,850 5,471
Net securities gains (losses) 507 116 (254)
Other noninterest income 2,415 2,694 3,482
-------- -------- --------
$ 38,448 $ 31,417 $ 27,626
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
Mortgage banking services income is comprised of residential mortgage sales
income and residential mortgage servicing income. The increase in mortgage
banking services income in both 1996 and 1995 was primarily attributable to an
increase in residential mortgage sales income.
16
<PAGE> 20
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth certain information relating to the Company's
mortgage banking activities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
At or for the Year Ended December 31,
- -----------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential mortgages
serviced for investors $3,227,659 $2,595,049 $2,089,972
========== ========== ==========
Residential mortgage
sales income $ 7,108 $ 4,224 $ 1,915
Residential mortgage
servicing income 5,832 6,625 6,531
Mortgage banking
services income $ 12,940 $ 10,849 $ 8,446
========== ========== ==========
- -----------------------------------------------------------------------------------
</TABLE>
The Company's portfolio of residential mortgages serviced for investors
increased by $632.6 million or 24.4% from December 31, 1995 to December 31,
1996. In conjunction with the acquisition of Family Bank on December 6, 1996,
the Company added $322.6 million to its portfolio of residential mortgages
serviced for investors. In addition, the Company's portfolio of mortgages
serviced for others continued to increase due to origination and sale of
residential mortgages to the secondary market while retaining the rights to
service these loans for the investors purchasing them. In addition, the
outstanding amount of residential mortgages serviced for investors is impacted,
from time to time, by the purchase and sale of mortgage servicing rights for
portfolios of residential mortgage loans.
Residential mortgage sales income increased by $2.9 million and $2.3
million, or 68.3% and 120.6%, in 1996 and 1995, respectively. Included in
residential mortgage sales income in 1996 and 1995 are $1.1 million and $642
thousand of gains on the sale of residential mortgage servicing rights,
respectively. The mortgage sales income in 1996 was attributable to a
significant increase in the volume of loans originated from correspondent
lenders, the vast majority of which were sold in the secondary mortgage market.
Residential mortgage originations from correspondent lenders increased to $844.5
million in 1996 from $378.5 million in 1995, a 123.1% increase.
Residential mortgage servicing income decreased by $793 thousand in 1996 and
increased by $94 thousand in 1995. During 1996, the Company reclassified the
amortization expense of constant maturity treasury floors ("CMT") to residential
mortgage servicing income from other noninterest expenses, which resulted in a
$684 thousand decrease in residential mortgage servicing income in 1996 as
compared with 1995. Excluding the CMT floor amortization expense in 1996 as an
offset to mortgage servicing income, mortgage servicing income would have been
$6.5 million, or $109 thousand less than 1995. Residential mortgage servicing
income has lagged increases in the portfolio of mortgages serviced for others as
a result of the impact of the Company's adoption of Statement of Financial
Accounting Standards ("SFAS") No. 122 in 1995, which effectively accelerates
mortgage servicing income into the current period as a component 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. For additional discussion of CMT floors,
see "Interest Rate Risk and Asset Liability Management" below.
The generation of mortgage sales income and the recognition of net gains on
the sales of securities are dependent on market and economic conditions and,
accordingly, there can be no assurance that the income and net gains reported in
prior periods can be achieved in the future or that there will not be
significant inter-period variations in the results of such activities.
Customer services income increased by $3.4 million or 28.9% during 1996 and
by $1.4 million or 13.6% during 1995. The increase in customer services income
reflects the Company's focus on increasing the number and volume of transaction
accounts, the increased use of and fees generated by ATM machines, and the
impact of purchase acquisitions.
Trust and investment advisory services income increased $1.4 million or
23.6% in 1996 to $7.2 million. The increase primarily reflects the growth of the
trust department at PHB, which was started during the first quarter of 1995, as
well as increased fee based income from the sale of mutual fund and annuity
products.
Other noninterest income is primarily attributable to loan related services
income, which amounted to $2.1 million, $1.9 million and $1.8 million during
1996, 1995 and 1994, respectively.
Noninterest Expenses.
Total noninterest expenses increased $17.8 million or 13.7% during 1996 and $5.1
million or 4.1% in 1995. Excluding merger expenses in all periods and the
one-time assessment of all SAIF-insured deposits to recapitalize the SAIF in
1996, total noninterest expenses increased $15.8 million or 12.6% during 1996
and $744 thousand or 0.6% in 1995. The increase in noninterest expenses in 1996
was attributable to the expansion of the core banking franchise internally and
through acquisitions, asset growth, new product development, enhancements to
alternative delivery systems, increased market share in existing markets and
growth in noninterest income revenue. As the Company made investments in new
systems, products and employees during the past few years to support the current
business strategy, it has been able to significantly reduce collection and
carrying costs associated with nonperforming assets and has benefited from
substantially lower deposit insurance assessment related expenses.
17
<PAGE> 21
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth information relating to the Company's noninterest
expenses during the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 73,303 $ 67,472 $ 61,799
Data processing 12,528 8,924 7,306
Occupancy 12,320 10,574 10,454
Equipment 8,479 6,844 6,233
Advertising and marketing 4,327 4,642 4,642
Deposit and other assessments 3,050 4,497 7,899
Collection and carrying costs of
nonperforming assets 1,573 2,595 6,033
Merger expenses 5,105 4,958 559
Other noninterest expenses:
Amortization of goodwill 2,215 1,925 1,801
Amortization of deposit premium 2,659 -- --
Other 22,514 17,849 18,411
-------- -------- --------
Total other noninterest expenses 27,388 19,774 20,212
-------- -------- --------
Total noninterest expenses $148,073 $130,280 $125,137
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
Salaries and employee benefits increased by $5.8 million or 8.6% from 1995 to
1996 and by $5.7 million or 9.2% from 1994 to 1995. These increases reflect
staff additions in connection with the expansion of the retail franchise,
expanded telephone banking services, increased mortgage banking activities and
trust services, and additional staff related to the purchase acquisitions, as
well as normal salary and wage increases.
Data processing expenses increased by $3.6 million or 40.4% during 1996 and
by $1.6 million or 22.1% during 1995. Investment in expanded operational
capacities to support new product offerings and improve customer services,
increased transaction volumes related to mortgage banking operations, increased
automated deposit and check processing volumes, and the increase in
transactional processing associated with the purchase acquisitions were among
the primary factors behind the increase in data processing expenses in 1996.
Data processing expenses were also higher in 1996 as a result of BNH which, in
1995, processed checks in-house as opposed to outsourcing check processing in
1996. Consequently, the cost to outsource check processing is included in data
processing in 1996, with no equivalent charge in 1995. Effective July 1, 1996,
the computer systems and other back office functions of BNH were merged with
those of the Bank. Family Bank computer systems and other back office functions
were merged effective as of the acquisition date on December 6, 1996.
Occupancy expenses increased by $1.7 million or 16.5% in 1996 and by $120
thousand or 1.1% in 1995. The increase in occupancy expense in 1996 was
primarily attributable to the expansion of the Company's retail delivery system,
which resulted in higher rent, depreciation, utilities and maintenance expenses.
Deposit and other assessment expenses decreased by $1.5 million or 32.2%
during 1996 and by $3.4 million or 43.1% in 1995. These expenses consist
primarily of deposit insurance premiums paid by the Company's subsidiary banks
to either the Bank Insurance Fund ("BIF") or the SAIF administered by the FDIC.
The BIF premium, which had been set at $.23 per $100 deposits since 1991, was
lowered to $.04 per $100 of deposits in August 1995, and as a result of the BIF
becoming fully capitalized, the FDIC voted in November 1995 to reduce the
premium to zero as of January 1, 1996 with only an administrative fee being
assessed. Consequently, the Company incurred only a minimal expense for 1996
thereby accounting for approximately a $3.3 million decrease in premiums in
1996. This was offset by a one-time charge of $1.85 million to recapitalize the
SAIF, which was assessed as a result of legislation enacted by Congress in
September 1996. At December 31, 1996, the Company had approximately 91.1% of its
deposits insured by the BIF and 8.9% by the SAIF. Due to an overall reduction in
assessment rates, the Company expects a net decrease in deposit insurance
premium expenses for 1997.
The Company continued to benefit in 1996 from lower collection and carrying
costs associated with the reduction of nonperforming assets. Collection and
carrying costs of nonperforming assets decreased $1.0 million or 39.4% during
1996 and by $3.4 million or 57.0% during 1995. See "Financial Condition -
Nonperforming Assets" below.
Other categories of noninterest expense include equipment, which increased
$1.6 million in 1996, and advertising and marketing, which decreased $315
thousand in 1996.
Merger expenses of $5.1 million in 1996 and $5.0 million in 1995 are
primarily related to the acquisition of BNH by the Company. Of the $5.0 million
of merger expenses in 1995, $1.3 million was related to the acquisition of
Bankcore and the remainder related to the acquisition of BNH. Merger expenses
included employee severance costs, professional fees, branch consolidation costs
and operational consolidation costs.
Other noninterest expenses include amortization of goodwill and deposit
premiums as well as other administrative expenses. The increases in other
noninterest expenses in 1996 were primarily attributable to recent acquisitions
by the Company. Prior to 1996, deposit premium expense was included in interest
on deposits.
18
<PAGE> 22
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Income Tax Expense.
The Company recognized $27.6 million, $23.4 million and $13.7 million in income
tax expense for the years ended December 31, 1996, 1995 and 1994, respectively.
The effective tax rate was 34.4% for 1996, 34.5% for 1995 and 28.6% for 1994. As
a result of the acquisition of MMSB by the Company in mid 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 benefit is reflected in the
Company's income tax expense for 1994. For additional information relating to
income taxes, see Note 10 to the Consolidated Financial Statements.
FINANCIAL CONDITION
General.
The Company's total consolidated assets increased by $1.3 billion or 33.0% from
$4.1 billion at December 31, 1995 to $5.4 billion at December 31, 1996. This
increase reflected internal growth, as well as the Company's acquisitions as
discussed above. Of the $1.3 billion increase, approximately $1.0 billion was
due to the acquisition of Family Bank and $216 million was due to the Branch
Acquisition.
Set forth below is a discussion of the material changes in the Company's
financial condition from December 31, 1995 to December 31, 1996.
BALANCE SHEET REVIEW
Securities Available for Sale.
Securities available for sale, which include U.S. Government securities,
asset-backed and mortgage-backed securities, collateralized mortgage
obligations, and other debt and equity securities, increased by $278.4 million
or 36.3%. Of the increase, Family Bank contributed $391.8 million, which was
offset by sales activity to fund loan growth. The overall increase in securities
available for sale was primarily in mortgage-backed securities, which is
consistent with the Company's investment strategy.
The changes in the 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 to the
Consolidated Financial Statements.
The following table sets forth the carrying value of the Company's securities
available for sale and securities held to maturity at the dates indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities available for sale:
Bonds and other debt securities:
U.S. Government and federal agencies $ 432,230 $ 526,576 $ 219,220
Tax-exempt bonds and notes 17,828 10,837 11,085
Other bonds and notes 7,819 5,694 2,706
Mortgage-backed securities 443,995 195,823 172,466
Collateralized mortgage obligations 102,817 -- --
---------- ---------- ----------
Total debt securities 1,004,689 738,930 405,477
---------- ---------- ----------
Equities:
FHLB stock 37,948 23,793 23,236
Other equity securities 2,432 3,925 3,904
---------- ---------- ----------
Total equity securities 40,380 27,718 27,140
---------- ---------- ----------
Total securities available for sale $1,045,069 $ 766,648 $ 432,617
========== ========== ==========
Securities held to maturity:
Bonds and other debt securities:
U.S. Government and federal agencies $ -- $ -- $ 285,392
Tax-exempt bonds and notes -- -- 908
Other bonds and notes -- -- 277
---------- ---------- ----------
Total debt securities -- -- 286,577
---------- ---------- ----------
Equities:
Other equity securities -- -- --
---------- ---------- ----------
Total equity securities -- -- --
---------- ---------- ----------
Total investment securities held
to maturity $ -- $ -- $ 286,577
========== ========== ==========
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 23
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth the scheduled maturities and weighted average
yields of the Company's debt securities available for sale at December 31, 1996,
based on amortized cost.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Amortized Cost Maturing in
- ---------------------------------------------------------------------------------------------------------------------------------
More Than One to More Than Five to
(Dollars in Thousands) One Year or Less Five Years Ten Years More Than Ten Years Total
- ---------------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
federal agencies $213,287 5.78% $204,089 5.91% $ 8,383 7.18% $ 6,608 7.12% $ 432,367 5.89%
Tax-exempt bonds and
notes 13,624 3.78 3,825 4.65 -- -- 340 6.33 17,789 4.02
Other bonds and notes 3,290 5.62 4,481 6.11 87 7.14 -- -- 7,858 5.92
Mortgage-backed
securities 129 7.50 13,011 6.11 31,754 7.01 399,719 7.04 444,613 7.01
Collateralized mortgage
obligations 225 8.16 3,154 7.33 9,081 7.05 90,777 7.05 103,237 7.06
-------- -------- -------- -------- ----------
Total $230,555 5.66 $228,560 5.92 $ 49,305 7.05 $497,444 7.04 $1,005,864 6.47
======== ======== ======== ======== ==========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans Held for Sale.
Loans held for sale increased by $32.3 million or 45.5%. This increase was due
to an increased volume of residential mortgages originated for sale in the
secondary market at the end of 1996 as compared with the end of 1995, and an
increase in the volume of loans originated through the correspondent lenders.
For additional information, see Note 1 to the Consolidated Financial Statements
and "Financial Condition-Loans and Leases" below.
Loans and Leases.
Total loans and leases increased by $876.0 million or 31.5%. Family Bank and the
Branch Acquisitions accounted for $692.0 million of this increase. In addition,
significant internal growth was realized in the consumer loan portfolio.
20
<PAGE> 24
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth information concerning the Company's loan
portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
% OF % of % of % of % of
AMOUNT LOANS Amount Loans Amount Loans Amount Loans Amount Loans
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans:
Adjustable rate $ 617,323 16.89% $ 402,695 14.49% $ 418,653 15.86% $ 382,485 15.70% $ 303,437 12.16%
Fixed rate 559,551 15.31 395.381 14.23 384,845 14.58 336,391 13.81 391,160 15.67
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 1,176,874 32.20 798,076 28.72 803,498 30.44 718,876 29.51 694,597 27.83
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Commercial real
estate loans:
Permanent first
mortgage loans 901,105 24.66 753,857 27.13 745,356 28.24 731,074 30.01 793,019 31.77
Construction and
development 61,270 1.68 43,829 1.58 25,216 0.96 21,260 0.87 27,235 1.09
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 962,375 26.34 797,686 28.71 770,572 29.20 752,334 30.88 820,254 32.86
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Commercial loans
and leases:
Business Loans 463,011 12.67 397,652 14.31 315,200 11.94 292,645 12.01 314,550 12.60
Leases 14,391 0.39 10,940 0.39 9,208 0.35 10,949 0.45 18,467 0.74
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 477,402 13.06 408,592 14.70 324,408 12.29 303,594 12.46 333,017 13.34
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Consumer loans
and leases:
Home equity 362,105 9.91 283,008 10.19 247,751 9.39 222,262 9.13 220,674 8.84
Mobile home 206,061 5.64 214,761 7.73 222,600 8.43 210,682 8.65 189,732 7.60
Automobile 192,295 5.26 127,969 4.61 125,887 4.77 95,449 3.92 77,942 3.12
Education Loans 106,900 2.93 38,685 1.39 43,599 1.65 17,133 0.71 9,322 0.37
Boat and recreational
vehicle 31,969 0.87 22,716 0.82 20,680 0.78 24,992 1.03 28,767 1.15
Other 138,619 3.79 87,090 3.13 80,582 3.05 90,411 3.71 121,938 4.89
---------- ------ ---------- ------- ---------- ------ ---------- ------
Total 1,037,949 28.40 774,229 27.87 741,099 28.07 660,929 27.15 648,375 25.97
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total loans
receivable 3,654,600 100.00% 2,778,583 100.00% 2,639,577 100.00% 2,435,733 100.00% 2,496,243 100.00%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Allowance for loan and
lease losses 67,488 60,975 63,675 67,385 71,223
Net loans
receivable $3,587,112 $2,717,608 $2,575,902 $2,368,348 $2,425,020
========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 25
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth loans held for sale and total loans and leases
originated, purchased, sold and repaid during 1996 and 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Originations and purchases:
Residential real estate mortgages $1,297,723 $ 721,400
Commercial real estate mortgages 174,021 146,300
Commercial business loans and
leases 522,047 453,900
Consumer loans and leases 491,261 290,600
---------- ----------
Total originations and purchases 2,485,052 1,612,200
---------- ----------
Loans acquired through purchases
and acquisitions 691,966 94,452
---------- ----------
Total loan originations, purchases
and acquisitions 3,177,018 1,706,652
---------- ----------
Sales and principal reductions:
Sales 1,057,261 552,774
Principal reductions 1,211,449 954,985
---------- ----------
Total sales and principal reductions 2,268,710 1,507,759
---------- ----------
Net increase in loans held for sale
and loans and leases $ 908,308 $ 198,893
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Residential real estate mortgage loan originations increased to $1.3 billion in
1996, a 79.9% increase over 1995 originations. Residential real estate loans
consist of loans secured by single-family (one-to-four units) residences and
consist primarily of conventional loans. The Company's strategy generally is to
originate fixed-rate residential loans for sale to investors in the secondary
market. The Company generally retains adjustable-rate loans in its portfolio but
will, from time to time, also retain 15 year fixed-rate mortgages. Residential
real estate mortgage originations from correspondent lenders increased to $844.5
million from $378.5 million in 1995, a 123.1% increase.
Commercial real estate loans consist of loans secured by income-producing
commercial real estate (including office buildings and industrial buildings),
service industry real estate (including hotels and health care facilities),
multi-family (over four units) residential real estate and retail trade real
estate (including restaurants, automotive-related properties and food stores),
as well as loans for the acquisition, development and construction of such
commercial real estate.
Commercial real estate mortgage originations increased by $27.7 million or
19.0% in 1996 as compared with 1995. The Company's business plan is to continue
to lend within its geographic markets to sound commercial businesses which
collateralize their borrowings with commercial real estate properties as well as
ongoing refinances of existing commercial real estate mortgages in the Company's
loan portfolio. 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.
Commercial business loans consist primarily of loans secured by various
equipment, machinery and other corporate assets, as well as loans 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. The
Company also originates commercial business leases. Commercial business loans
and leases increased by $68.1 million or 15.0% in 1996 as compared with 1995.
The Company continues to focus on lending to sound, small and medium sized
business customers within its geographical markets.
Consumer loans consist of a wide variety of loans which have been emphasized
by the Company 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. Consumer loans are originated
directly by the Company, or in the case of mobile home loans, automobile loans,
boat loans and certain other loans, indirectly through various dealers in
products financed by the Company. Consumer loan originations increased by 69.1%
to $491.3 million during 1996. The increase was primarily a result of growth in
home equity loans, indirect automobile loans and educational loans, which are
included in other consumer loans. Increased consumer loan originations is
consistent with the Company's strategy to increase the percentage of consumer
loans in its loan portfolio.
22
<PAGE> 26
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The following table sets forth scheduled contractual amortization of loans
in the Company's portfolio at December 31, 1996, 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 Consumer
Real Estate Real Estate Loans and Loans and
(In Thousands) Loans Loans Leases Leases Total (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 52,226 $ 152,261 $ 191,234 $ 548,335 $ 944,056
After one year through five years 151,441 394,581 185,414 296,597 1,028,033
Beyond five years 973,207 415,533 100,754 193,017 1,682,511
---------- ---------- ---------- ---------- ----------
Total $1,176,874 $ 962,375 $ 477,402 $1,037,949 $3,654,600
========== ========== ========== ========== ==========
Interest rate terms on
amounts due after one year:
Fixed $ 547,773 $ 313,909 $ 115,629 $ 417,944 $1,395,255
Adjustable 576,875 496,205 170,539 71,670 1,315,289
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Scheduled contractual amortization does not reflect the actual maturities of
loans and leases because of prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses, which give the lender the right to
require repayment of a mortgage loan in connection with a transfer of the
related property.
Substantially all of the mortgage loans in the Company's loan portfolio are
secured by properties located in Maine, New Hampshire and northern
Massachusetts. Moreover, substantially all of the Company's non-mortgage loan
portfolio consists of loans made to residents of and businesses located in these
areas.
Nonperforming assets.
Nonperforming assets decreased $2.5 million or 4.4% from $56.8 million at
December 31, 1995 to $54.3 million at December 31, 1996. The decrease reflects a
decline in nonperforming loans and other nonperforming assets in recent years.
Nonperforming assets as a percentage of total assets decreased from 2.10% at
December 31, 1994 to 1.01% at December 31, 1996.
The Company continues to focus on asset quality issues and to allocate
significant resources 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 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 market
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 chargeoffs, 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.
23
<PAGE> 27
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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,
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate loans
Nonaccrual loans $ 3,867 $ 5,713 $ 3,317 $ 4,806 $ 8,555
Accruing loans 90 days overdue 5,560 3,728 4,473 4,479 4,316
Troubled debt restructurings -- -- -- 111 1,097
-------- -------- -------- -------- --------
Total 9,427 9,441 7,790 9,396 13,968
-------- -------- -------- -------- --------
Commercial real estate loans:
Nonaccrual loans 15,270 17,029 26,978 30,780 43,731
Accruing loans 90 days overdue -- -- 1,020 454 1,704
Troubled debt restructurings 1,581 3,186 6,284 15,275 18,155
-------- -------- -------- -------- --------
Total 16,851 20,215 34,282 46,509 63,590
-------- -------- -------- -------- --------
Commercial business loans and leases:
Nonaccrual loans 8,016 6,735 6,871 14,399 24,252
Accruing loans 90 days overdue -- 25 30 336 1,163
Troubled debt restructurings 579 1,859 2,684 2,547 1,649
-------- -------- -------- -------- --------
Total 8,595 8,619 9,585 17,282 27,064
-------- -------- -------- -------- --------
Consumer loans:
Nonaccrual loans 5,097 3,586 3,775 3,386 3,038
Accruing loans 90 days overdue 2,478 659 831 897 1,268
Troubled debt restructurings -- -- -- 26 --
-------- -------- -------- -------- --------
Total 7,575 4,245 4,606 4,309 4,306
-------- -------- -------- -------- --------
Total nonperforming loans:
Nonaccrual loans 32,250 33,063 40,941 53,371 79,576
Accruing loans 90 days overdue 8,038 4,412 6,354 6,166 8,451
Troubled debt restructurings 2,160 5,045 8,968 17,959 20,901
-------- -------- -------- -------- --------
Total 42,448 42,520 56,263 77,496 108,928
-------- -------- -------- -------- --------
Other nonperforming assets:
Other real estate owned, net of
related reserves 10,000 12,679 16,682 28,867 37,657
In-substance foreclosures, net of
related reserves -- -- 3,391 11,752 36,582
Repossessions, net of related
reserves 1,818 1,553 2,003 1,961 2,566
-------- -------- -------- -------- --------
Total 11,818 14,232 22,076 42,580 76,805
-------- -------- -------- -------- --------
Total nonperforming assets $ 54,267 $ 56,752 $ 78,339 $120,076 $185,733
======== ======== ======== ======== ========
Total nonperforming loans as a
percentage of total loans 1.16% 1.53% 2.13% 3.18% 4.36%
Total nonperforming assets as a
percentage of total assets 1.01 1.40 2.10 3.31 5.29
Total nonperforming assets as a
percentage of total loans and
total other nonperforming assets 1.48 2.03 2.94 4.85 7.22
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is the policy of the Company to generally place all commercial real estate
loans 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 loans 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 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, 1996, $10.8
million of commercial real estate and commercial business loans and leases, or
42.5% of total nonperforming loans, were on nonaccrual status and thus disclosed
as nonperforming loans even though they were less than 90 days past due.
24
<PAGE> 28
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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. 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 9 to the Consolidated
Financial Statements.
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 (the
population from which future nonperforming loans would most likely arise), has
continued to decrease since the middle of 1992. At December 31, 1996 and 1995,
the Company had classified a total of $79.6 million and $89.7 million,
respectively, of commercial real estate and commercial business loans and leases
as substandard or lower on its risk rating system. Included in this amount at
December 31, 1996 was the Company's $25.4 million of nonperforming commercial
real estate loans and commercial business loans and leases. In the opinion of
management, the remaining $54.2 million of commercial real estate loans and
commercial business loans and leases classified as substandard at December 31,
1996 evidence one or more weaknesses or potential weaknesses and, depending on
the regional economy and other factors, may become nonperforming assets in
future periods. These loans are net of charge-offs, 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 and lease 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 and leases deemed
noncollectible. 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 the "Results of Operations
Provision for Loan Losses."
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 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,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans and leases outstanding $3,224,309 $2,732,316 $2,529,723 $2,473,666 $2,647,479
========== ========== ========== ========== ==========
Allowance at the beginning of period $ 60,975 $ 63,675 $ 67,385 $ 71,223 $ 88,067
Additions due to acquisitions 11,365 2,314 -- -- --
Charge-offs:
Residential real estate mortgages 2,812 4,139 4,646 6,607 13,565
Commercial real estate mortgages 8,769 8,964 6,207 8,482 19,053
Commercial business loans and leases 2,994 2,234 4,124 9,622 18,825
Consumer loans and leases 3,598 2,631 2,225 3,861 5,771
---------- ---------- ---------- ---------- ----------
Total loans charged off 18,173 17,968 17,202 28,572 57,214
---------- ---------- ---------- ---------- ----------
Recoveries:
Residential real estate mortgages 507 620 904 642 627
Commercial real estate mortgages 9,541 5,185 4,917 6,293 2,582
Commercial business loans and leases 1,536 2,181 3,440 2,035 2,997
Consumer loans and leases 837 738 857 1,717 2,139
---------- ---------- ---------- ---------- ----------
Total loans recovered 12,421 8,724 10,118 10,687 8,345
---------- ---------- ---------- ---------- ----------
Net charge-offs 5,752 9,244 7,084 17,885 48,869
Additions charged to operating expenses 900 4,230 3,374 14,047 32,025
---------- ---------- ---------- ---------- ----------
Allowance at the end of the period $ 67,488 $ 60,975 $ 63,675 $ 67,385 $ 71,223
========== ========== ========== ========== ==========
Ratio of net charge-offs to average
loans and leases outstanding 0.18% 0.34% 0.28% 0.72% 1.85%
Ratio of allowance to total loans
and leases at end of period 1.85% 2.19% 2.41% 2.77% 2.85%
Ratio of allowance to nonperforming
loans at end of period 158.99% 143.40% 113.17% 86.95% 65.39%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 29
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE TO Allowance to Allowance to Allowance to Allowance to
PERCENT OF Percent of Percent of Percent of Percent of
TOTAL LOANS Total Loans Total Loans Total Loans Total Loans
(Dollars in Thousands) AMOUNT BY CATEGORY Amount by Category Amount by Category Amount by Category Amount by Category
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real
estate loans $ 7,723 0.66% $10,118 1.27% $ 8,567 1.07% $ 9,864 1.37% $13,647 1.96%
Commercial real
estate loans 35,478 3.69 31,673 3.97 35,505 4.61 38,177 5.07 40,899 4.99
Commercial business
loans and leases 13,449 2.82 9,491 2.32 9,274 2.86 8,734 2.88 12,162 3.65
Consumer loans and
leases 10,838 1.04 9,693 1.25 10,329 1.39 10,610 1.61 4,515 0.70
------- ------- ------- ------- -------
$67,488 1.85 $60,975 2.19 $63,675 2.41 $67,385 2.77 $71,223 2.85
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deposits.
The following table presents the changes in the balances of deposits outstanding
at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996-1995 1995-1994
Change Change
(Dollars in Thousands) 1996 1995 1994 Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 604,980 $ 434,091 $ 362,790 $ 170,889 39.4% $ 71,301 19.7%
NOW accounts 497,930 351,481 333,192 146,449 41.7 18,289 5.5
Money market access accounts 525,518 490,575 327,424 34,943 7.1 163,151 49.8
Regular savings 760,340 557,896 650,302 202,444 36.3 (92,406) (14.2)
Certificates of deposit 1,796,521 1,363,095 1,212,137 433,426 31.8 150,958 12.5
---------- ---------- ---------- ---------- ----------
Total deposits $4,185,289 $3,197,138 $2,885,845 $ 988,151 30.9% $ 311,293 10.8%
========== ========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase of $988.2 million in deposits in 1996 was principally due to $774.6
million of deposits acquired in connection with the acquisition of Family Bank
in December 1996 and $160.9 million of deposits acquired in connection with the
Branch Acquisition in February 1996.
Certificates of deposit of $100,000 or more are scheduled to mature as follows
at December 31, 1996:
<TABLE>
- --------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
3 months or less $ 77,403 33.3%
Over 3 to 6 months 50,566 21.7
Over 6 to 12 months 36,839 15.8
More than 12 months 68,072 29.2
-------- --------
$232,880 100.0%
======== ========
- --------------------------------------------------------------------------------
</TABLE>
Other Interest-Bearing Liabilities.
Other interest-bearing liabilities consist of borrowings from the Federal Home
Loan Bank ("FHLB"), securities sold under repurchase agreements, Federal Funds
purchased, debentures and treasury tax and loan borrowings from the Federal
Reserve Bank. Total interest-bearing liabilities increased 51.2% to $691.0
million at December 31, 1996. The majority of the increase was in borrowings
from the Federal Home Loan Bank of Boston. The acquisition of Family Bank added
$69.6 million in borrowings in December 1996.
The following table sets forth certain information concerning the Company
borrowings at the dates indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLB advances $470,080 $252,446 $362,450
Repurchase agreements 197,005 180,957 127,519
Federal funds purchased -- 1,500 4,404
Other 23,884 22,029 10,974
-------- -------- --------
Total $690,969 $456,932 $505,347
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
FHLB advances remain the largest nondeposit related interest-bearing funding
source for the Company in 1996. These borrowings are secured by qualified
residential loans, certain investment securities and certain other assets
available to be pledged. The increase in FHLB borrowings was used to partially
fund the Branch Acquisition and to support loan growth. For additional
information regarding FHLB advances, see Note 12 to the Consolidated Financial
Statements. At December 31, 1996, the Company estimates its addi-
26
<PAGE> 30
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
tional available borrowing capacity from the FHLB to be approximately $641.9
million.
The increase in securities sold under repurchase agreements of $16.0 million
was primarily attributable to the acquisition of Family Bank in December 1996,
which had securities sold under repurchase agreements of $11.2 million at
December 31, 1996. For additional information regarding securities sold under
repurchase agreements, see Note 11 to the Consolidated Financial Statements.
Capital Resources.
Consistent with its long-term goal of operating a safe, sound and profitable
organization, the Company strives to maintain a strong capital base. The
Company's shareholders' equity totaled $437.0 million or 8.1% of total assets at
December 31, 1996, as compared to $354.9 million or 8.7% of total assets at
December 31, 1995. The $82.1 million or 23.1% increase in shareholders' equity
from December 31, 1995 to December 31, 1996 was the result of $52.5 million in
net income, $47.9 million in new stock issuance related to the purchase of
Family Bank and $2.3 million of treasury stock sales related to various employee
benefit plans of the Company, the effects of which were offset in part by cash
dividends of $15.9 million and a $4.7 million reduction in net unrealized gain
(net of tax effect) in the market value of securities available for sale.
During 1996 the Company completed an issuer tender offer in anticipation of
the Family Bank purchase and acquired 2,500,000 shares of its common stock.
These shares were reissued in connection with the acquisition of Family Bank in
December 1996.
In anticipation of the Bankcore acquisition, the Company repurchased 751,600
shares of its common stock for a total cost of $9.6 million during 1994 and
1995. All shares repurchased were reissued in connection with the Bankcore
acquisition in July 1995.
On January 24, 1997, the Company established a statutory business trust
which issued $100 million in capital securities on January 31, 1997. The
proceeds were invested in Company issued junior subordinated debentures due
2027. See Note 19 to the Consolidated Financial Statements for more information.
For additional discussion on capital resources, see Note 13 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 and 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 Company's net loan portfolio accounted for 66.4% of the assets of the
Company at December 31, 1996 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.
For additional information relating to credit risk, see "Results of
Operations - Provision for Loan Losses," "Financial Condition - Nonperforming
Assets" and Notes 4 and 5 to the Consolidated Financial Statements.
Interest Rate Risk and Asset/Liability Management.
The Company's 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 Committee is actively involved in formulating the economic
projections used by the Company 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 can affect (i) the amount of loans originated and sold 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 mortgage loans are
substantially lower than current mortgage loan 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 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 accomplish this, the Company has undertaken various
steps to increase the percentage of floating rate assets and to reduce the
average maturity of such assets. A principal focus in recent years has been on
the origination of adjustable-rate residential real estate loans and consumer
loans, which generally have shorter maturities than fixed-rate residential real
estate loans. The Company also originates adjustable-rate and fixed-rate
commercial real estate loans and commercial business loans and leases, which
collectively also generally mature or reprice more quickly than fixed-rate
residential real estate 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 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.
27
<PAGE> 31
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Based on the information and assumptions in effect at December 31, 1996,
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 increased 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 recent periods.
In order to mitigate the prepayment risk associated with mortgage servicing
rights and protect economic value, in 1995 the Company began purchasing constant
maturity treasury floors ("CMTs"). The value of the CMTs is related to movements
in market interest rates to which they are indexed and the remaining term of the
CMT. A CMT's value is inversely related to movements in market interest rates.
As interest rates decline, the value of a 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 market interest
rates decrease. Although 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 the value of the Company's mortgage servicing rights.
At December 31, 1996, the Company's CMTs had an amortized cost of $279 thousand,
which approximates market value, and were included in other assets on the
Company's balance sheet.
Liquidity Risk Management.
The Company seeks to maintain various sources of funds 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 1996 and 1995, the Company's banking subsidiaries used their sources of
funds primarily to meet ongoing commitments to pay maturing savings certificates
and savings withdrawals, fund loan and lease commitments and maintain a
substantial securities portfolio.
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 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, which include core deposit balances in excess
of $100,000, term deposits with short maturities and credit commitments
outstanding. This evaluation is conducted at each banking 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 is has
continuing ability to meet its ongoing commitments 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 generally has
exceeded these amounts, as net cash, short-term and marketable assets amounted
to 26.8% of net deposits and short-term liabilities at December 31, 1996, as
compared to 26.5% at December 31, 1995.
A secondary source of liquidity, not included in the liquidity ratio
calculation, is represented by asset-based liquidity. Asset-based liquidity
consists primarily of single-family residential real estate loans which qualify
for sale in the secondary market.
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 13 and 18 to the
Consolidated Financial Statements.
Off-Balance Sheet Risks and Commitments.
Set forth below is a discussion of various off-balance sheet risks and
commitments of the Company.
Commitments to extend credit.
At December 31, 1996 and 1995, the total approved loan commitments outstanding,
commitments under unused lines of credit and the unadvanced portion of
construction loans amounted to $828.8 million and $716.2 million, respectively.
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, 1996, 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 14 to the Consolidated Financial
Statements.
28
<PAGE> 32
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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
Regulatory Capital Requirements.
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.
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 guidelines classify capital into
two tiers, Tier I and Total. Tier I risk-based capital consists of common
shareholders' equity, noncumulative perpetual preferred stock, cumulative
perpetual preferred stock and capital securities of trust subsidiaries, subject
in each case to specified limitations, and minority interests, less goodwill and
certain other intangible assets. Total risk-based capital consists of Tier I
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 requirements, 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. For more information, see Note 13 to the
Consolidated Financial Statements.
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.
Effective January 1, 1997, the Company will adopt SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. However, SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125," requires the deferral of implementation as
it relates to repurchase agreements, dollar-rolls, securities lending and
similar transactions until years beginning after December 31, 1997. Earlier or
retroactive applications of this Statement is not permitted. SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on an approach that focuses on control, whereby after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings.
Forward-Looking Statements.
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements which are based on
various assumptions (some of which are beyond the Company's control), may be
identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of those terms. Actual results could differ materially
from those set forth in forward-looking statements due to a variety of factors,
including, but not limited to, those related to the economic environment,
particularly in the market areas in which the Company operates, competitive
products and pricing, fiscal and monetary policies of the U.S. Government,
changes in government regulations affecting financial institutions, including
regulatory fees and capital requirements, changes in prevailing interest rates,
acquisitions and the integration of acquired businesses, credit risk management,
asset/liability management, the financial and securities markets and the
availability of and costs associated with sources of liquidity.
29
<PAGE> 33
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Number of Shares and Per Share Data) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 276,995 $ 190,436
Federal funds sold 83,000 100,255
Securities available for sale, at market value (Notes 3, 11 and 12) 1,045,069 766,648
Loans held for sale, market value $103,790 in 1996
and $71,872 in 1995, respectively 103,270 70,979
Loans and leases (Notes 4 and 12) 3,654,600 2,778,583
Less: Allowance for loan and lease losses (Note 5) 67,488 60,975
----------- -----------
Net loans and leases 3,587,112 2,717,608
----------- -----------
Premises and equipment (Note 6) 73,956 56,021
Goodwill and other intangibles (Note 7) 71,649 22,792
Mortgage servicing rights (Note 8) 33,314 20,309
Other assets (Notes 9 and 10) 124,033 113,078
----------- -----------
$ 5,398,398 $ 4,058,126
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Regular savings $ 760,340 $ 557,896
Money market access accounts 525,518 490,575
Certificates of deposit (including certificates of $100 or more
of $232,880 and $116,472 in 1996 and 1995, respectively) 1,796,521 1,363,095
NOW accounts 497,930 351,481
Demand deposits 604,980 434,091
----------- -----------
4,185,289 3,197,138
----------- -----------
Federal funds purchased -- 1,500
Securities sold under repurchase agreements (Note 11) 197,005 180,957
Borrowings from the Federal Home Loan Bank of Boston (Note 12) 470,080 252,446
Other borrowings 23,884 22,029
Other liabilities (Notes 10 and 16) 85,130 49,131
----------- -----------
Total liabilities 4,961,388 3,703,201
----------- -----------
Commitments and contingent liabilities (Notes 13, 14, 15 and 16)
Shareholders' equity (Notes 2, 3, 13, 15, 18 and 19):
Preferred stock, par value $0.01; 5,000,000 shares
authorized, none issued -- --
Common stock, par value $0.01; 100,000,000 and 30,000,000 shares authorized,
28,576,885 and 25,596,550 shares issued in 1996 and 1995, respectively 286 256
Paid-in capital 271,790 224,268
Retained earnings 170,855 134,443
Net unrealized gain (loss) on securities available for sale, net of applicable income taxes (582) 3,763
Treasury stock at cost (355,385 shares and
524,062 shares, respectively) (5,339) (7,805)
----------- -----------
Total shareholders' equity 437,010 354,925
----------- -----------
$ 5,398,398 $ 4,058,126
=========== ===========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
30
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Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
(In Thousands, Except Number of Shares and Per Share Data) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases (Note 4) $ 288,999 $ 253,787 $ 215,177
Interest on mortgage-backed investments 18,629 12,627 12,409
Interest on other investments 31,620 37,521 27,241
Dividends on equity securities 1,924 1,914 1,770
------------ ------------ ------------
Total interest and dividend income 341,172 305,849 256,597
------------ ------------ ------------
Interest expense:
Interest on deposits 120,443 108,209 87,920
Interest on borrowed funds 30,156 26,686 20,082
------------ ------------ ------------
Total interest expense 150,599 134,895 108,002
------------ ------------ ------------
Net interest income 190,573 170,954 148,595
Provision for loan and lease losses (Note 5) 900 4,230 3,374
------------ ------------ ------------
Net interest income after provision
for loan and lease losses 189,673 166,724 145,221
------------ ------------ ------------
Noninterest income:
Customer services 15,353 11,908 10,481
Mortgage banking services (Note 8) 12,940 10,849 8,446
Trust and investment advisory services 7,233 5,850 5,471
Net securities gains (losses) (Note 3) 507 116 (254)
Other noninterest income 2,415 2,694 3,482
------------ ------------ ------------
38,448 31,417 27,626
------------ ------------ ------------
Noninterest expenses:
Salaries and employee benefits (Notes 15 and 16) 73,303 67,472 61,799
Data processing 12,528 8,924 7,306
Occupancy 12,320 10,574 10,454
Equipment 8,479 6,844 6,233
Advertising and marketing 4,327 4,642 4,642
Deposit and other assessments 3,050 4,497 7,899
Collection and carrying costs of nonperforming assets 1,573 2,595 6,033
Merger expenses 5,105 4,958 559
Other noninterest expenses (Note 7) 27,388 19,774 20,212
------------ ------------ ------------
148,073 130,280 125,137
------------ ------------ ------------
Income before income tax expense 80,048 67,861 47,710
Applicable income tax expense (Note 10) 27,568 23,375 13,662
------------ ------------ ------------
Net income $ 52,480 $ 44,486 $ 34,048
============ ============ ============
Weighted average shares outstanding 25,035,041 24,696,393 24,849,800
Earnings per share $ 2.10 $ 1.80 $ 1.37
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
31
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Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Number Net
Number of Shares of Shares Par Paid-in Retained Unrealized Treasury
and Per Share Data) Issued Value Capital Earnings Gain (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 25,602,106 $ 256 $ 224,306 $ 72,535 $ 2,964 $ (12,353) $ 287,438
Treasury stock purchased
(105,000 shares at an
average price of $12.02) -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- 2,655 1,628
Purchase and retirement of
common stock (5,680) -0- (60) -0- -0- -0- (60)
Change in unrealized gains (losses)
on securities available for sale,
net of tax of $6,900 -0- -0- -0- -0- (11,773) -0- (11,773)
Compensation cost of employee
stock plan -0- -0- 21 -0- -0- -0- 21
Net income -0- -0- -0- 34,048 -0- -0- 34,048
Cash dividends $0.23 per share -0- -0- -0- (5,601) -0- -0- (5,601)
---------- ---------- ---------- --------- ---------- ---------- ---------
Balances at December 31, 1994 25,596,426 $ 256 $ 224,267 $ 99,955 $ (9,079) $ (10,960) $ 304,439
Treasury stock purchased
(647,357 shares at an
average price of $12.85) -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- 1,908 1,507
Reissuance of treasury stock
pursuant to acquisition
(751,600 shares at $15.00) -0- -0- -0- 1,710 -0- 9,564 11,274
Changes in unrealized gains (losses)
on securities available for sale,
net of tax effect of $7,293 -0- -0- -0- -0- 12,842 -0- 12,842
Compensation cost of employee
stock plan 124 -0- 1 -0- -0- -0- 1
Net income -0- -0- -0- 44,486 -0- -0- 44,486
Cash dividends $0.46 per share -0- -0- -0- (11,307) -0- -0- (11,307)
---------- ---------- ---------- --------- ---------- ---------- ---------
Balances at December 31, 1995 25,596,550 $ 256 $ 224,268 $ 134,443 $ 3,763 $ (7,805) $ 354,925
========== ========== ========== ========= ========== ========== =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
32
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Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONT'D)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Number Net
Number of Shares of Shares Par Paid-in Retained Unrealized Treasury
and Per Share Data) Issued Value Capital Earnings Gain (Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 25,596,550 $ 256 $ 224,268 $ 134,443 $ 3,763 $ (7,805) $ 354,925
Treasury stock issued for employee
benefit plans (168,677 shares at
an average price of $14.62) -0- -0- -0- (134) -0- 2,466 2,332
Purchase of 2,500,000 of treasury
stock pursuant to acquisition of
Family Bank -0- -0- -0- -0- -0- (60,342) (60,342)
Issuance of common stock and
2,500,000 shares from treasury
stock pursuant to acquisition of
Family Bank 2,980,335 30 47,522 -0- 344 60,342 108,238
Change in unrealized gains (losses)
on securities available for sale,
net of taxes of $2,194 -0- -0- -0- -0- (4,689) -0- (4,689)
Net income -0- -0- -0- 52,480 -0- -0- 52,480
Cash dividends $0.65 per share -0- -0- -0- (15,934) -0- -0- (15,934)
---------- ---------- ---------- --------- --------- --------- ---------
Balances at December 31, 1996 28,576,885 $ 286 $ 271,790 $ 170,855 $ (582) $ (5,339) $ 437,010
========== ========== ========== ========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
33
<PAGE> 37
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 52,480 $ 44,486 $ 34,048
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 900 4,230 3,374
Provision for depreciation 7,409 6,286 5,399
Provision for losses and writedowns of
other real estate owned 100 (958) 143
Amortization of goodwill and other intangibles 4,874 2,211 2,045
Net (increase) decrease in net deferred tax assets (394) 3,919 (2,486)
Net losses realized from sales
of other real estate owned 335 528 64
Net (gains) losses realized from sales
of securities and consumer loans (507) (116) 254
Net (gains) losses realized from sales
of loans held for sale (a component
or mortgage banking services) (7,108) 664 491
Net decrease (increase) in mortgage servicing rights (9,305) (3,034) (10,792)
Proceeds from sales of loans held for sale 1,057,261 552,774 273,287
Residential loans originated and purchased for sale (1,082,444) (613,171) (218,034)
Net decrease (increase) in interest and
dividends receivable and other assets (9,101) (2,925) 10,459
Net increase (decrease) in other liabilities 29,743 366 8,227
----------- ----------- -----------
Net cash provided by operating activities $ 44,243 $ (4,740) $ 106,479
----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities and principal
repayments of investment securities $ -- $ 125,540 $ 158,211
Purchase of investment securities -- (114,491) (186,396)
Proceeds from sales of securities available for sale 42,620 9,814 65,380
Proceeds from maturities and principal repayments of
securities available for sale 516,395 135,972 110,446
Purchases of securities available for sale (487,789) (184,040) (168,173)
Net (increase) decrease in loans and leases (398,152) (184,323) (215,590)
Proceeds from sales of loans -- 31,425 7,550
Premiums paid on deposits purchased (18,230) (4,290) (75)
Net additions to premises and equipment (12,155) (15,800) (5,323)
Proceeds from sales of other real estate owned 3,992 12,722 13,420
Net decrease in repossessed assets owned 1,396 2,360 4,020
Net cash provided by acquisitions 72,835 -- --
----------- ----------- -----------
Net cash provided (used) by investing activities $ (279,088) $ (185,111) $ (216,530)
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements.
34
<PAGE> 38
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------
(In Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 213,572 $ 311,293 $ (53,981)
Net increase (decrease) in securities sold under
repurchase agreements 10,675 53,438 26,831
Proceeds from Federal Home Loan Bank
of Boston borrowings 481,998 415,998 390,284
Payments on Federal Home Loan Bank
of Boston borrowings (328,507) (526,002) (279,594)
Net increase (decrease) in other borrowings 1,855 11,055 5,087
Sale of treasury stock 2,332 1,507 1,628
Purchase of treasury stock (60,342) (8,317) (1,262)
Reissuance of treasury stock pursuant
to acquisition -- 11,274 --
Cash dividends paid to shareholders (15,934) (11,307) (5,601)
Other shareholders' equity, net -- -- 39
----------- ----------- -----------
Net cash provided by financing activities $ 305,649 $ 258,939 $ 83,431
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 70,804 69,088 (26,620)
Cash and cash equivalents at beginning of period 289,191 220,103 246,723
----------- ----------- -----------
Cash and cash equivalents at end of period $ 359,995 $ 289,191 $ 220,103
=========== =========== ===========
Supplemental disclosures of information:
Interest paid on deposits and borrowings $ 147,785 $ 132,301 $ 107,927
Income taxes paid 22,905 18,272 2,429
Noncash investing transactions:
Common stock and treasury stock issued
for acquisition (1) 108,238 -- --
Investment securities transferred to
securities available for sale -- 275,528 --
Loans transferred to other real estate owned 5,188 12,828 9,304
Loans originated to finance the sales of
other real estate owned 3,602 6,020 12,161
Increases (decreases) related to SFAS No. 115:
Securities available for sale 6,883 20,133 (18,547)
Deferred income taxes - liabilities 2,194 7,291 (6,859)
Net unrealized gain (loss) on
securities available for sale, net of tax 4,689 12,842 (11,688)
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company purchased Family Bank whereby each share of Family Bank was
exchanged for 1.26 shares of the Company's stock. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $959,089
Less liabilities assumed 850,851
--------
Net effect on capital $108,238
========
See accompanying notes to Consolidated Financial Statements.
35
<PAGE> 39
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(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, New Hampshire and
northern Massachusetts. 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 Thrift Supervision, the Maine Bureau of Banking, the New Hampshire
Bank Commissioner 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"), Bank of New Hampshire Corporation ("BNHC"),
which wholly owns the Bank of New Hampshire ("BNH") and Peoples Heritage Merger
Corporation, which wholly owns Family Bank, FSB ("Family"), 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.
Assets held in a fiduciary capacity by subsidiary trust departments are not
assets of the Company and, accordingly, are not included in the Consolidated
Balance Sheets.
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.
Cash and Cash Equivalents.
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.
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.
Securities Available for Sale.
Securities available for sale consist of debt and equity securities that are
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 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 income as a
writedown. Premiums and discounts are amortized and accreted over the term of
the securities on the level yield method adjusted for prepayments. Gains and
losses on the sale of securities are recognized at the time of the sale using
the specific identification method.
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 reversed against 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. 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.
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 and leases
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 and leases.
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.
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.
36
<PAGE> 40
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Long-lived assets are evaluated periodically for other-than-temporary
impairment. An assessment of recoverability is performed prior to any writedown
of the asset. If circumstances suggest that their value may be permanently
impaired, then an expense would be charged in the current period.
Goodwill and Other Intangibles.
Goodwill is amortized on a straight-line basis over various periods not
exceeding 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 and Loans Held for Sale.
Loans originated for sale are classified as held for sale. These loans are
specifically identified and carried at the lower of aggregate cost or estimated
market value. Market value is estimated based on outstanding investor
commitments or, in the absence of such commitment, current investor yield
requirements.
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.
Gains and losses on sales of mortgage loans 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.
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.
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. In evaluating 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.
Other Real Estate and Repossessed Assets Owned.
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 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.
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.
Income Taxes.
The Company uses the asset and liability method of accounting for income taxes.
Under this 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. If current available information raises doubt as to the
realization of the deferred tax assets, a valuation allowance is 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.
2. MERGERS AND ACQUISITIONS
On December 6, 1996, the Company completed its purchase of Family Bank located
in northern Massachusetts. The purchase included 22 branch offices and $473.8
million in loans and $774.6 million in deposits. The transaction was treated as
a purchase for accounting purposes, and, accordingly, the Company's financial
statements reflect the acquisition from the time of purchase. The Company issued
5,480,335 shares of common stock.
On April 2, 1996, the Company completed its merger with the Bank of New
Hampshire Corporation which was accounted for under the pooling-of-interests
method. Accordingly, the consolidated financial statements of the Company have
been restated to reflect the acquisition at the beginning of each period
presented. At December 31, 1995, BNHC had total assets of $977.8 million and
total shareholders' equity of $84.5 million.
On February 16, 1996, the Company acquired five branch offices and
approximately $160 million of related deposits from Fleet Bank NH. In addition
to various assets related to the acquired branches, the Company also acquired
approximately $216.4 million of loans in connection with this transaction and
assumed $160.8 million in deposits.
In 1995 the Company had two acquisitions. On July 1, the Company acquired
Bankcore, Inc. ("Bankcore"), the New Hampshire-based holding company for North
Conway Bank. At the time of acquisition, Bankcore had $132.8 million in total
assets and shareholders' equity of $17.8 million. The Bankcore acquisition was
treated as a purchase for accounting purposes and, accordingly, the Company's
financial statements reflect the acquisition from the time of purchase only.
37
<PAGE> 41
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
On July 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. The purchase resulted in the transfer of $46.1 million in
deposits and $17.1 million in loans.
During 1994, the Company acquired Mid-Maine Savings, F.S.B. 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 the period presented.
3. SECURITIES AVAILABLE FOR SALE
A summary of the amortized cost and market values of securities available for
sale follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
U. S. Government obligations
and obligations of U.S.
Government agencies and
corporations $ 432,367 $ 934 $ (1,071) $ 432,230
Tax-exempt bonds and notes 17,789 39 -- 17,828
Other bonds and notes 7,858 11 (50) 7,819
Mortgage-backed securities 444,613 2,217 (2,835) 443,995
Collateralized mortgage
obligations 103,237 286 (706) 102,817
---------- ---------- ---------- ----------
Total debt securities 1,005,864 3,487 (4,662) 1,004,689
---------- ---------- ---------- ----------
Federal Home Loan Bank of
Boston stock 37,948 -- -- 37,948
Other equity securities 2,330 102 -- 2,432
---------- ---------- ---------- ----------
Total equity securities 40,278 102 -- 40,380
---------- ---------- ---------- ----------
Total securities available
for sale $1,046,142 $ 3,589 $ (4,662) $1,045,069
========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The excess of amortized cost over market value of $1.1 million, net of tax
effect of $491 thousand, is recorded as a separate component of shareholders'
equity.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
U. S. Government obligations
and obligations of U.S.
Government agencies and
corporations $522,822 $ 3,981 $ (227) $526,576
Tax-exempt bonds and notes 10,796 43 (2) 10,837
Other bonds and notes 5,645 55 (6) 5,694
Mortgage-backed securities 194,018 2,224 (419) 195,823
-------- -------- -------- --------
Total debt securities 733,281 6,303 (654) 738,930
-------- -------- -------- --------
Federal Home Loan Bank of
Boston stock 23,793 -- -- 23,793
Other equity securities 3,764 170 (9) 3,925
-------- -------- -------- --------
Total equity securities 27,557 170 (9) 27,718
-------- -------- -------- --------
Total securities available
for sale $760,838 $ 6,473 $ (663) $766,648
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The excess of market value over amortized cost of $5.8 million, net of tax
effect of $2.0 million, is recorded as a separate component of shareholders'
equity.
38
<PAGE> 42
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The amortized cost and market values of debt securities available for sale at
December 31, 1996 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. At
December 31, 1996, the Company had $24.9 million of securities available for
sale with call provisions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amortized Cost Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1996:
Due in one year or less $ 230,555 $ 230,786
Due after one year through five years 228,560 228,105
Due after five years through ten years 49,305 49,293
Due after ten years 497,444 496,605
---------- ----------
Total debt securities $1,005,864 $1,004,689
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
A summary of realized gains and losses on securities available for sale for
1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
Gross Gross
Realized Realized
Gains Losses
- --------------------------------------------------------
<S> <C> <C>
1996 $533 $ 26
1995 305 189
1994 549 803
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE> 43
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
4. LOANS AND LEASES
The Company's lending activities are conducted principally in Maine, New
Hampshire and northern Massachusetts. 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,
- --------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
Residential real estate mortgages:
Adjustable-rate $ 617,323 $ 402,695
Fixed-rate 559,551 395,381
---------- ----------
1,176,874 798,076
---------- ----------
Commercial real estate mortgages:
Commercial real estate 901,105 753,857
Construction and development 61,270 43,829
---------- ----------
962,375 797,686
---------- ----------
Commercial business loans and leases:
Business loans 463,011 397,652
Leases 14,391 10,940
---------- ----------
477,402 408,592
---------- ----------
Consumer loans and leases:
Home equity 362,105 283,008
Mobile home 206,061 214,761
Automobile 192,295 127,969
Education loans 106,900 38,685
Boat and recreational vehicle 31,969 22,716
Other 138,619 87,090
---------- ----------
1,037,949 774,229
---------- ----------
Total loans and leases $3,654,600 $2,778,583
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
Loan and lease balances are stated net of deferred loan fees totaling $3,324 and
$5,022 at December 31, 1996 and 1995, respectively.
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 1996 and
1995 follows:
<TABLE>
<S> <C>
Balance at December 31, 1994 $ 20,760
Loans made/advanced and additions 4,224
Repayments and reductions (4,191)
Other changes (1,380)
--------
Balance at December 31, 1995 $ 19,413
Loans made/advanced and additions 557
Repayments and reductions (2,415)
Other changes (5,571)
--------
Balance at December 31, 1996 $ 11,984
========
</TABLE>
- --------------------------------------------------------------------------------
40
<PAGE> 44
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NONPERFORMING LOANS
The following table sets forth information regarding nonperforming loans at the
dates indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate mortgages:
Nonaccrual loans $ 3,867 $ 5,713
Accruing loans which are 90 days overdue 5,560 3,728
------- -------
Total 9,427 9,441
------- -------
Commercial real estate loans:
Nonaccrual loans 15,270 17,029
Accruing loans which are 90 days overdue -- --
Troubled debt restructurings 1,581 3,186
------- -------
Total 16,851 20,215
------- -------
Commercial business loans and leases:
Nonaccrual loans 8,016 6,735
Accruing loans which are 90 days overdue -- 25
Troubled debt restructurings 579 1,859
------- -------
Total 8,595 8,619
------- -------
Consumer loans:
Nonaccrual loans 5,097 3,586
Accruing loans which are 90 days overdue 2,478 659
------- -------
Total 7,575 4,245
------- -------
Total nonperforming loans:
Nonaccrual loans 32,250 33,063
Accruing loans which are 90 days overdue 8,038 4,412
Troubled debt restructurings 2,160 5,045
------- -------
Total $42,448 $42,520
======= =======
</TABLE>
- --------------------------------------------------------------------------------
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 1996 and 1995, the Company's policy was generally to limit new loans
to one borrower to $10.0 million. These limitations are substantially below the
limitations set forth in applicable laws and regulations.
Interest income that would have been recognized for 1996, 1995 and 1994, if
nonperforming loans at December 31, 1996, 1995 and 1994 had been performing in
accordance with their original terms, approximated $4.7 million, $5.3 million
and $8.2 million, respectively. The actual amount that was collected on these
loans during the periods and included in interest income approximated $1.9
million, $1.6 million and $1.8 million, respectively. As a result, the reduction
in interest income for 1996, 1995, and 1994 associated with nonperforming loans
held at the end of such periods approximated $2.8 million, $3.7 million and $6.4
million, respectively.
Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which it 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 loans on which the accrual of
interest is discontinued when collectibility of principal or interest is
uncertain or on which 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 not
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 surround-
41
<PAGE> 45
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
ing 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, 1996 and 1995, total impaired loans were $28.3 million and
$27.8 million, of which $22.7 million and $24.7 million had related allowances
of $4.2 million and $5.7 million, respectively. During the years ended December
31, 1996 and 1995, the income recognized related to impaired loans was $1.6
million and $1.5 million and the average balance of outstanding impaired loans
was $25.2 million and $29.1 million, respectively. 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
principal balance of loan.
5. ALLOWANCE FOR LOAN AND LEASE LOSSES
Changes in the allowance for loan and lease losses follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 60,975 $ 63,675 $ 67,385
Allowance on acquired loans 11,365 2,314 --
Provisions charged to operations 900 4,230 3,374
Loans and leases charged off (18,173) (17,968) (17,202)
Recoveries 12,421 8,724 10,118
-------- -------- --------
Balance at end of period $ 67,488 $ 60,975 $ 63,675
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 10,227 $ 11,754
Buildings and improvements 61,398 45,302
Leasehold improvements 12,273 10,090
Furniture, fixtures and equipment 65,326 47,372
-------- --------
149,224 114,518
-------- --------
Less accumulated depreciation
and amortization 75,268 58,497
-------- --------
$ 73,956 $ 56,021
======== ========
</TABLE>
- --------------------------------------------------------------------------------
7. GOODWILL AND OTHER INTANGIBLES
A summary of goodwill and other intangibles follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $53,554 $20,761
Core deposit premiums 18,095 2,031
------- -------
$71,649 $22,792
======= =======
</TABLE>
- --------------------------------------------------------------------------------
Amortization of goodwill is included in other noninterest expenses and amounted
to $2,215, $1,925 and $1,801 for the years ended December 31, 1996, 1995 and
1994, respectively.
Amortization of core deposit premiums is included in interest on deposits and
amounted to $2,659, $286 and $244 for the years ended December 31, 1996, 1995
and 1994, respectively.
8. MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights for the years ended December 31, 1996,
1995 and 1994 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 20,309 $ 17,275 $ 6,483
Mortgage servicing rights capitalized 17,299 9,101 12,535
Mortgage servicing rights acquired
through acquisition 3,700 -- --
Amortization charged against
mortgage service fee income (4,375) (3,483) (1,743)
Mortgage servicing rights sold (3,619) (2,584) --
-------- -------- --------
Balance at end of period $ 33,314 $ 20,309 $ 17,275
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The Company generally continues to service the residential real estate mortgages
sold in the secondary market. The Company pays the investor an agreed-upon rate
on the loan, which 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 allocated cost based on relative
fair values upon sale of the related loans.
The Company periodically purchases and sells residential mortgage servicing
rights through a closed bid process from brokers representing financial
institutions with mortgage servicing portfolios. Residential real estate
mortgages serviced for investors at December 31, 1996, 1995 and 1994 amounted to
$3.2 billion, $2.6 billion and $2.1 billion, respectively.
9. 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, which is included in other
assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate properties acquired
in settlement of loans $ 9,941 $12,679 $20,073
Other assets repossessed in
settlement of non-real
estate loans 1,877 1,553 2,003
------- ------- -------
$11,818 $14,232 $22,076
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
42
<PAGE> 46
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
10. INCOME TAXES
The current and deferred components of income tax expense (benefit) follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current (including $1,381, $805,
and $302 respectively, of state
income tax) $27,134 $19,480 $ 16,129
Deferred 434 3,895 (2,467)
------- ------- --------
$27,568 $23,375 $ 13,662
======= ======= ========
</TABLE>
- --------------------------------------------------------------------------------
The following table reconciles the expected income tax expense (computed by
applying the federal statutory tax rate to income before taxes) to recorded
income tax expense:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax expense $ 28,017 $ 23,585 $ 16,572
State income tax, net of
federal benefits 898 523 196
Benefit of tax-exempt income (740) (585) (495)
Merger Expenses 623 380 --
Amortization of goodwill and
other intangibles 916 839 842
Low income/rehabilitation credits (1,231) (1,265) (1,265)
Tax bad debt reserve recapture on
Mid Maine acquisition -- -- 1,022
Change in valuation allowance -- -- (3,322)
Other, net (915) (102) 112
-------- -------- --------
$ 27,568 $ 23,375 $ 13,662
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities which are included in Other Assets and Other
Liabilities, respectively, at December 31, 1996 and 1995 follow:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses $25,003 $23,007
Reserve for mobile home dealers 2,000 2,119
Accrued pension expense 2,085 848
Difference of tax and book basis of other real estate owned 666 391
Deferred loan fees 272 527
Interest accrued and payments received on nonperforming loans for tax purposes 1,032 1,096
Unrealized depreciation on securities 491 --
Other 3,835 4,984
------- -------
Total gross deferred tax assets 35,384 32,972
------- -------
Deferred tax liabilities
Difference of tax and book basis of leases 313 420
Difference of tax and book basis of premises and equipment 1,819 1,747
Difference of tax and book basis of securities 256 522
Difference of tax and book basis of partnership investments 2,606 397
Tax bad debt reserve 6,143 5,518
Unrealized appreciation of securities -- 2,025
Other 942 1,948
Total gross deferred tax liabilities 12,079 12,577
------- -------
Net deferred tax asset $23,305 $20,395
======= =======
</TABLE>
- --------------------------------------------------------------------------------
43
<PAGE> 47
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The Company's net deferred tax asset was increased by $828 thousand during 1996
to reflect the purchase of Family Bank. In assessing the realizability of
deferred tax assets, the Company considers whether it is 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 tax 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 $66.6 million. Pre-tax book income for the year ended
December 31, 1996 was $80.0 million. Based upon the level of 1996 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, 1996. Accordingly, no valuation allowance has been recorded at
December 31, 1996.
In August, 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
The unrecaptured base year reserves will not be subject to recapture as long
as the institution continues to carry on the business of banking. In addition,
the balance of the pre-1988 bad debt reserves continue to be subject to
provisions of present law that require recapture in the case of certain excess
distributions to shareholders. The tax effect of pre-1988 bad debt reserves
subject to recapture in the case of certain excess distributions is
approximately $610 thousand.
11. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
A summary of securities sold under repurchase agreements follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
At of for the Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding at
end of period $197,005 $180,957 $127,519
Market value of collateral at
end of period 205,084 195,861 137,304
Amortized cost of
collateral at end of period 204,470 194,560 141,104
Average balance outstanding 140,365 152,411 109,216
Maximum outstanding at any
month end during the period 197,005 213,104 153,710
Average interest rate
during the period 4.47% 4.90% 3.36%
Average interest rate at end of period 4.06% 4.64% 4.62%
- --------------------------------------------------------------------------------
</TABLE>
Securities sold under repurchase agreements generally have maturities of 180
days or less and are collateralized by mortgage backed securities and U.S.
Government obligations with the aggregate market value and aggregate amortized
costs for the respective periods noted above.
- --------------------------------------------------------------------------------
12. 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, 1996
- --------------------------------------------------------------
Principal Amounts Interest Rates Maturity Dates
- --------------------------------------------------------------
<S> <C> <C>
$ 90,983 4.81% - 6.87% 1997
62,500 5.19% - 5.87% 1998
225,000 5.30% - 5.65% 1999
75,025 4.70% - 6.05% 2000
4,728 5.20% - 5.82% 2003
5,793 5.68% - 5.72% 2004
6,051 6.14% - 6.90% 2005
--------
$470,080
========
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
- --------------------------------------------------------------
Principal Amounts Interest Rates Maturity 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>
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.
13. SHAREHOLDERS' EQUITY
Regulatory Capital Requirements
Bank regulatory agencies have established capital adequacy standards which are
used extensively in their monitoring and control of the industry. These
standards relate capital to level of risk by assigning different weighing to
assets and certain off-balance sheet activity. The Company must maintain a
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table below.
44
<PAGE> 48
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For Capital
Actual Adequacy Purposes Excess
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk weighted assets) $409,144 12.24% $267,428 8.00% $141,716 4.24%
Tier 1 capital (to risk weighted assets) 367,041 10.98 133,714 4.00 233,327 6.98
Tier 1 leverage capital ratio (to average assets) 367,041 7.96 184,445 4.00 182,596 3.96
as of December 31, 1995:
Total capital (to risk weighted assets) 361,991 12.88 204,728 8.00 157,353 4.88
Tier 1 capital (to risk weighted assets) 329,645 14.15 102,364 4.00 227,231 10.15
Tier 1 leverage capital ratio (to average assets) 329,645 8.33 158,369 4.00 171,276 4.33
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, 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.
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.
14. 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 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, 1996 and 1995
follow:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Contract or Notional Amount
- -----------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Financial instruments with contract
amounts which represent credit risk:
Commitments to originate loans,
unused lines, standby letters of credit
and unadvanced portions of
construction loans $828,845 $716,251
Loans serviced with recourse 38,286 48,213
Financial instruments with notional or
contract amounts which exceed the
amount of credit risk:
Forward commitments to
sell loans $149,330 $128,000
- -----------------------------------------------------------------------
</TABLE>
45
<PAGE> 49
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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.
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 $4.5 million, $3.4 million and $3.6 million for the years
ended 1996, 1995 and 1994, respectively.
Approximate minimum lease payments over the remaining terms of the leases at
December 31, 1996 follow:
<TABLE>
<CAPTION>
- ---------------------------------------------
<S> <C>
1997 $ 4,216
1998 3,734
1999 3,394
2000 3,077
2001 2,169
2002 and after 5,940
-------
$22,530
=======
- ---------------------------------------------
</TABLE>
15. STOCK BASED COMPENSATION PLANS
Profit Sharing Employee Stock Ownership Plan
In 1989 the Company 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 1996, 1995 and 1994 the Directors voted to contribute 4%, 3%
and 5% of eligible compensation, respectively. The approximate expense of this
contribution for 1996, 1995 and 1994 was $1.5 million, $850 thousand and $1.4
million, respectively.
Stock Option Plans
The Company has adopted various stock option and stock appreciation rights plans
for key employees. In 1996, the Company adopted a stock option plan (the "1996
Option Plan") which replaced a plan that had existed since 1986 (the "1986
Option Plan"). The 1996 Option Plan authorizes grants of options to purchase up
to 1,250,000 shares of authorized but unissued common stock. Stock options are
granted with an exercise price equal to the stock's fair market value at the
date of the grant and expire 10 years from the date of the grant. At December
31, 1996, there were 903,050 additional shares available for grant under the
1996 Option Plan. The Company issued no stock appreciation rights in 1996 or
1995.
The Company has adopted a stock option plan for non-employee directors. The
maximum number of shares which may be granted under the plan is 75,000 shares,
of which 20,000 were granted in 1996 at $20.88 per share and 18,000 granted in
1995 at $13.63 per share. 1,627 shares had been issued upon exercise of the
stock options cumulatively through December 31, 1996.
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $7.91 and $7.04 on the date of the grants using the Black Scholes
option-pricing model with the following average assumptions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Expected dividend yield 2.50% 2.50%
Risk-free interest rate 6.06% 5.84%
Expected life 5.56 YEARS 5.63 Years
Volatility 34.50% 36.60%
- --------------------------------------------------------------
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no cost has been recognized for its stock options in the financial
statements. Had the Company determined cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net income would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Net Income
As reported $52,480 $44,486
Pro Forma $51,399 $44,263
Earnings Per Share
As Reported $ 2.10 $ 1.80
Pro Forma $ 2.05 $ 1.79
- -------------------------------------------------------------------
</TABLE>
46
<PAGE> 50
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Pro forma net income reflects only stock options granted in 1996 and 1995.
Therefore, the full impact of calculating cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented above because
cost is reflected over the options' vesting period and cost for options granted
prior to January 1, 1995 is not considered.
Stock option activity during the periods indicated was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
- ----------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994 1,135,683 $10.31
Granted 417,139 20.68
Exercised 73,790 7.78
Forfeited 24,902 12.50
Expired -- --
Balance at December 31, 1995 1,454,130 13.36
Granted 366,950 23.73
Exercised 137,973 9.54
Forfeited 30,296 18.59
Expired -- --
Assumed in acquisitions 91,665 7.34
---------
Balance at December 31, 1996 1,744,476 $15.44
=========
- ----------------------------------------------------------------
</TABLE>
The range of per share prices for outstanding exercisable stock options at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------
Options Options Options Options
Outstanding Exercisable Outstanding Exercisable
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2.65 to $ 5.00 135,608 135,608 109,392 109,392
$ 5.01 to $15.00 256,329 256,329 291,270 147,463
$10.01 to $15.00 607,181 494,540 654,558 379,174
$15.01 to $20.00 -- -- -- --
$20.01 to $25.38 745,358 158,429 398,910 --
---------- ---------- ---------- --------
Total Options 1,744,476 1,044,906 1,454,130 636,029
========== ========== ========== ========
Weighted
average price $ 15.44 $ 11.67 $ 13.36 $ 9.73
</TABLE>
Employee Stock Purchase Plan
The Company has 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, 1996,
327,250 shares had been purchased under this plan.
16. RETIREMENT AND OTHER BENEFIT PLANS
Defined Benefit Pension Plan
The Company and its subsidiaries have noncontributory defined benefit plans
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.
The following tables set forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheets at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $34,285
and $30,020 $ 36,161 $ 30,890
======== ========
Projected benefit obligation for service
rendered to date $ 42,628 $ 34,087
Plan assets at fair value, primarily listed
stocks and corporate bonds (42,331) (31,602)
-------- --------
Plan assets (greater) less than projected
benefit obligation 297 2,485
Unrecognized net loss from past experi-
ence different from that assumed and
effects of changes in assumptions (114) (3,721)
Unrecognized prior service cost 72 550
Unrecognized net asset at adoption of
SFAS No. 87, net of amortization 1,814 1,921
-------- --------
Accrued pension cost included
in other liabilities $ 2,069 $ 1,235
======== ========
- ------------------------------------------------------------------------
</TABLE>
Net pension cost for 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost during the period $ 1,667 $ 1,650 $ 1,562
Interest cost on projected
benefit obligation 2,515 2,268 2,181
Actual return on plan assets (3,673) (5,518) 283
Net amortization and deferral 693 3,158 (2,560)
------- ------- -------
Net periodic pension cost $ 1,202 $ 1,558 $ 1,466
======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used to determine actuarial present value of benefit obligations
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
Weighted average 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 7.25% 7.50%
Increase in compensation levels 4.50 4.50 4.50
Expected long term return on assets 8.25 8.25 8.50
- --------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 51
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Thrift Incentive Plan
The Company 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 1996, 1995 and 1994 was $870
thousand, $659 thousand and $620 thousand, respectively.
Supplemental Retirement Plans
The Company has 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
$343 thousand, $823 thousand and $342 thousand for 1996, 1995 and 1994,
respectively.
Postretirement Benefits Other Than Pensions
The Company and its subsidiaries sponsor postretirement benefit programs which
provide medical coverage and life insurance benefits to employees and directors
who meet minimum age and service requirements.
The Company and its subsidiaries recognize 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.
The following reconciles the program's funded status with amounts recognized
in the Company's Consolidated Balance Sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $4,146 $4,170
Fully eligible active program participants 427 817
Other active program participants 1,476 1,704
------ ------
6,049 6,691
Plan assets -- --
------ ------
Accumulated postretirement benefit
obligation in excess of plan assets 6,049 6,691
Unrecognized net gain 1,067 269
Unrecognized prior service cost (4,764) (5,219)
------ ------
Accrued postretirement benefit cost
included in other liabilities $2,352 $1,741
====== ======
- ----------------------------------------------------------------------
</TABLE>
Net postretirement benefit cost for the year ended December 31, 1996, 1995 and
1994 included the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost $127 $100 $ 145
Interest cost 417 469 514
Amortization of accumulated
postretirement obligation 263 313 342
---- ---- ------
Net periodic postretirement
benefit cost $807 $882 $1,001
==== ===== ======
- ---------------------------------------------------------------
</TABLE>
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company discloses 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, 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 and leases are estimated by
discounting the contractual cash flows using interest rates currently being
offered for loans with similar terms to borrowers of similar quality.
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.
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.
48
<PAGE> 52
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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.
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 arrangements. For
short-term borrowings that mature or reprice in 90 days or less, carrying value
approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS:
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 $149.3 million of forward sales
commitments at December 31, 1996, the Company had $103.3 million of loans
available to sell at that date as well as sufficient loan originations
subsequent to December 31, 1996 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
at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 359,995 $ 359,995 $ 290,691 $ 290,691
Securities 1,045,069 1,045,069 766,648 766,648
Loans held for sale 103,270 103,790 70,979 71,872
Loans and leases 3,587,112 3,767,093 2,717,608 2,776,912
Mortgage servicing rights 33,314 35,908 20,309 22,140
Liabilities:
Deposit (with no stated maturity) $2,388,768 $2,388,768 $1,834,043 $1,834,043
Time deposits 1,796,521 1,823,214 1,363,095 1,382,145
Borrowings 690,969 689,003 456,932 458,116
- --------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 53
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
18. CONDENSED PARENT INFORMATION
Condensed Financial Statements of the Parent Company
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
Balance sheets 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,401 $ 22,568
Securities -- 1,045
Investment in bank subsidiaries 418,074 311,907
Goodwill and other intangibles 13,206 14,392
Amounts receivable from subsidiaries 6,331 9,363
Other assets 4,088 5,315
-------- --------
Total assets $444,100 $364,590
======== ========
Liabilities and shareholders' equity
Amounts payable to subsidiaries $188 $132
Notes payable 6,530 7,836
Other liabilities 372 1,697
Shareholders' equity 437,010 354,925
-------- --------
Total liabilities and shareholders' equity $444,100 $364,590
======== ========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
Statements of Income 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income:
Dividends from banking subsidiaries $ 67,710 $ 23,007 $ 10,590
Gain (loss) on intercompany loan sales -- -- (430)
Other operating income 625 474 452
-------- -------- --------
Total operating income 68,335 23,481 10,612
-------- -------- --------
Operating expenses:
Interest on borrowings 609 363 --
Amortization of goodwill 1,505 1,505 1,505
Amortization of acquisition premiums 359 359 359
Merger 37 4,958 --
Other operating expenses 907 731 1,242
-------- -------- --------
Total operating expenses 3,417 7,916 3,106
-------- -------- --------
Income before income taxes and equity
in undistributed net income of subsidiaries 64,918 15,565 7,506
Income tax benefit (25) (1,492) (432)
-------- -------- --------
Income before equity in undistributed
net income of subsidiaries 64,943 17,057 7,938
Equity in undistributed net income
of subsidiaries (1) (12,463) 27,429 26,110
-------- -------- --------
Net income $ 52,480 $ 44,486 $ 34,048
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts in parenthesis represent the excess of dividends over net income
from subsidiaries.
50
<PAGE> 54
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 52,480 $ 44,486 $ 34,048
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Undistributed net income from subsidiaries 12,463 (27,429) (26,110)
Amortization of goodwill 1,505 1,505 1,505
Amortization of acquisition premiums 359 359 359
Securities losses (gains) -- 1 (165)
Loss (gain) on intercompany loan sales -- -- 430
(Increase) decrease in amounts receivable from subsidiaries 3,032 (7,973) (459)
Decrease (increase) in other assets 549 (119) (130)
Increase (decrease) in amounts payable to subsidiaries 56 47 79
Increase (decrease) in other liabilities (1,325) 488 (325)
Other, net (2,081) (1,021) (609)
-------- -------- --------
Net cash (used) provided by operating activities 67,038 10,344 8,623
-------- -------- --------
Cash flows from investing activities:
Reissuance of treasury stock pursuant to acquisition -- 11,274 --
Issuance of notes payable pursuant to acquisition (net) -- 7,836 --
Sales of available for sale securities 1,045 622 255
Purchase of available for sale securities -- (622) --
Payment of notes payable (1,306) -- --
Capital contribution to subsidiary (13,000) -- --
-------- -------- --------
Net cash used (provided) by investing activities (13,261) 19,110 255
-------- -------- --------
Cash flows from financing activities:
Dividends paid to shareholders (15,934) (11,307) (5,601)
Treasury stock acquired (60,342) (8,317) (1,322)
Treasury stock sold 2,332 1,507 1,628
-------- -------- --------
Net cash provided (used) by financing activities (73,944) (18,117) (5,295)
-------- -------- --------
Net increase (decrease) in cash and due from banks (20,167) 11,337 3,583
Cash and due from banks at beginning of year 22,568 11,231 7,648
-------- -------- --------
Cash and due from banks at end of year $ 2,401 $ 22,568 $ 11,231
======== ======== ========
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosure information:
Interest paid on borrowings $ 609 $ 363 $--
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 55
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
19. SUBSEQUENT EVENT (UNAUDITED)
On January 24, 1997, the Company sponsored the creation of Peoples Heritage
Capital Trust I (the "Trust") a statutory business trust created under the laws
of Delaware. The Company is the owner of all of the common securities of the
Trust. On January 31, 1997, the Trust issued $100.0 million of 9.06% Capital
Securities (the "Capital Securities," and with the "Common Securities," the
"Trust Securities"), the proceeds from which were used by the Trust, along with
the Company's $3.1 million capital contribution for the Common Securities, to
acquire $103.1 million aggregate principal amount of the Company's 9.06% Junior
Subordinated Deferrable Interest Debentures due February 1, 2027 (the
"Debentures"), which constitute the sole assets of the Trust. The Company has,
through the Declaration of Trust establishing the Trust, Common Securities and
Capital Securities Guarantee Agreements, the Debentures and a related Indenture,
taken together, fully irrevocably and unconditionally guaranteed all of the
Trust's obligations under the Trust Securities. The Capital Securities will be
presented as a separate line item in future consolidated balance sheets of the
Company, entitled "Company-obligated mandatorily redeemable capital securities
of subsidiary trust holding solely junior subordinated debentures of the
Company." The Company has sought treatment that separate financial statements of
the Trust are not required pursuant to Staff Accounting Bulletin 53 of the
Securities and Exchange Commission.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $90,827 $85,506 $84,085 $80,754 $80,162 $79,490 $74,364 $71,833
Interest expense 40,168 37,562 37,254 35,615 35,854 35,344 32,970 30,727
Provision for loan losses -- -- 450 450 1,080 1,080 1,040 1,030
Net interest income after
provision for loan losses 50,659 47,944 46,381 44,689 43,228 43,066 40,354 40,076
Noninterest income 9,979 9,804 9,196 9,469 8,379 8,325 7,616 7,097
Noninterest expenses 37,649 36,256 39,586 34,582 35,253 31,901 30,983 32,143
Income before income taxes 22,989 21,492 15,991 19,576 16,354 19,490 16,987 15,030
Income tax expense 7,450 7,300 5,848 6,970 5,930 6,701 5,776 4,968
Net income 15,539 14,192 10,143 12,606 10,424 12,789 11,211 10,062
Earnings per share 0.63 0.56 0.40 0.51 0.42 0.51 0.46 0.41
Cash earnings per share 0.69 0.61 0.45 0.54 0.44 0.53 0.49 0.43
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 56
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, 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.
KPMG PEAT MARWICK LLP
January 22, 1997
Boston, Massachusetts
53
<PAGE> 57
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
54
<PAGE> 58
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CORPORATE DIRECTORY
- --------------------------------------------------------------------------------
PEOPLES HERITAGE
FINANCIAL GROUP, INC.
BOARD OF DIRECTORS
[PHOTO]
WILLIAM J. RYAN (1,4)
Chairman of the Board
President & Chief Executive Officer
Chairman, Governance & Nominating Committee
Peoples Heritage Financial Group, Inc.
President & Chief Executive Officer
Peoples Heritage Bank
ROBERT A. MARDEN (1,4)
Vice Chairman of the Board
Chairman, Executive/ALCO Committee
Attorney-at-Law
Marden, Dubord, Bernier & Stevens
PAMELA P. PLUMB (1,3,4)
Vice Chairman of the Board
Pamela Plumb & Associates
Former President - National League of Cities
ROBERT P. BAHRE (1)
President & Chief Executive Officer
New Hampshire International Speedway
EVERETT W. GRAY (2,3,5)
Retired Attorney
Real Estate Investor
DAVIS P. THURBER
Chairman
Bank of New Hampshire
ANDREW W. GREENE (1,3,5)
President
Blue Cross/Blue Shield of Maine
KATHERINE M. GREENLEAF (1,3)
Chairman, Human Resources Committee
Principal
Katherine M. Greenleaf Consulting
MALCOLM W. PHILBROOK, JR. (1,2,5)
Chairman, Audit Committee Attorney & President
Crockett, Philbrook & Crouch, P.A.
CURTIS M. SCRIBNER (1,2,5)
Chairman, Asset Review
President
C. M. Scribner & Company
DANA S. LEVENSON (3,5)
President
Quatro Realty Corp.
PAUL R. SHEA
President & CEO
Bank of New Hampshire
JOHN E. VEASEY
President
Cedardale, Inc.
1. Executive/ALCO Committee
2. Audit Committee
3. Human Resources Committee
4. Governance & Nominating Committee
5. Asset Review Committee
- --------------------------------------------------------------------------------
PEOPLES HERITAGE BANK
BOARD OF DIRECTORS
[PHOTO]
[PEOPLES HERITAGE LOGO]
ROBERT A. MARDEN (1,3,6)
Chairman of the Board
Attorney-at-Law
Marden, Dubord, Bernier & Stevens
WILLARD B. ARNOLD III (1,3,4)
Chairman, Nominating Committee
Retired Sales Executive
EARL B. AUSTIN, JR. (1,2,4)
Accountant
Earl B. Austin, JL & Assoc., P.A.
CHARLES BELLEGARDE, JR. (2,4)
Consultant & President
Charles Bellegarde & Son, Inc.
PETER B. CHAPMAN (2,3,5)
President & Chief Executive Officer
Paris Farmers Union
MADELEINE R. FREEMAN (2)
Chairman
Audit Committee
Retired Executive Director
Eastern Area Agency on Aging
EVERETT W. GRAY (1,2,3,5)
Retired Attorney
Real Estate Investor
GUY A. HARTNETT (1,3,5)
President, Treasurer, Owner
One-Right Systems, Inc.
President
Lydimap Corp.
GALEN N. HOGAN (2,4)
President, Treasurer, Chief Executive Officer
Hogan Tire Co.
MALCOLM W. PHILBROOK, JR. (1,3,4,5,6)
Chairman, Executive Committee
Chairman, Liquidity & Funds Management Committee
Chairman, Trust Committee
Attorney & President
Crockett, Philbrook & Crouch P.A.
CURTIS M. SCRIBNER (1,4,5)
Chairman
Asset Review Committee
Principal
C.M. Scribner & Company
WILLIAM J. RYAN (1,3,4,5)
Chairman,
President & Chief Executive Officer
Peoples Heritage Financial Group, Inc.
President & Chief Executive Officer
Peoples Heritage Bank
DAVID M. MACMAHON (6)
President
Gates Formed-Fibre Products, Inc.
SHELTON S. WHITE, JR. (4)
President
H.E. Callahan Construction Co.
MEG BAXTER
President
United Way of Greater Portland
1. Executive Committee
2. Audit Committee
3. Nominating Committee
4. Liquidity & Funds Management Committee
5. Asset Review Committee
6. Trust Committee
55
<PAGE> 59
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PEOPLES HERITAGE
FINANCIAL GROUP, INC.
SENIOR MANAGEMENT
WILLIAM J. RYAN
President & Chief Executive Officer
PETER J. VERRILL, CPA
Executive Vice President & Chief Operating Officer & Chief Financial Officer
JOHN W. FRIDLINGTON
Executive Vice President
Commercial Lending
GLENN H. MCALLISTER
Executive Vice President
Residential and Consumer Lending
WENDY P. SUEHRSTEDT
Executive Vice President
Retail Delivery
R. SCOTT BACON
Executive Vice President
Bank of New Hampshire
DAVID D. HINDLE
Executive Vice President
Family Bank
CAROL L. MITCHELL, ESQ.
Executive Vice President General Counsel, Clerk & Secretary
- --------------------------------------------------------------------------------
PEOPLES HERITAGE BANK
SENIOR MANAGEMENT
WILLIAM J. RYAN
President & Chief Executive Officer
PETER J. VERRILL, CPA
Executive Vice President, Chief Operating Officer & Chief Financial Officer
JOHN W. FRIDLINGTON
Executive Vice President
Commercial Lending
GLENN H. MCALLISTER
Executive Vice President
Residential and Consumer Lending
CAROL L. MITCHELL, ESQ.
Executive Vice President & General Counsel
Legal Affairs, Human Resources, Facilities
WENDY P. SUEHRSTEDT
Executive Vice President
Retail Banking
ANNE T. DUNNE
President
Heritage Investment Planning Services
NORMAND J. ALBERT
Senior Vice President
Commercial Lending
THOMAS P. HOGAN
Senior Vice President
Consumer Lending
JOSEPH W. HANSON, JR.
Senior Vice President
Operations
MAURICE C. GALLANT, JR.
Senior Vice President
Audit
THEODORE N. SCONTRAS
Senior Vice President
Public Finance
STEPHEN J. BOYLE
Senior Vice President
Controller
CYNTHIA H. HAMILTON
Senior Vice President
Human Resources
ELIZABETH K. WARN
Senior Vice President
Retail Mortgage
GARY L. ROBINSON
Senior Vice President
Trust and Investment Group
WENDY P. SUEHRSTEDT
Executive Vice President
Retail Banking
HALL THOMPSON
Senior Vice President
Investments
RICHARD J. VAIL
Senior Vice President
Commercial Lending
BRIAN E. WOOD
Senior Vice President
Marketing
- --------------------------------------------------------------------------------
OXFORD BANK & TRUST
a division of Peoples Heritage Bank
SENIOR MANAGEMENT
EDWARD L. DILWORTH, JR.
Division President
NEIL R. ELDER
Senior Vice President
56
<PAGE> 60
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PEOPLES HERITAGE
BANKING CENTERS
ASHLAND
10 Main Street
AUBURN
223 Center Street
Great Falls Plaza
Auburndale Plaza
600 Center Street
AUGUSTA
101 Western Ave
BANGOR
1067 Union Street
74 Hammond Street
353 Main Street
54 Springer Drive
BIDDEFORD
299 Elm Street
BREWER
508 Wilson Street
BRUNSWICK
208 1/2 Maine Street
CAMDEN
89 Elm Street
CARIBOU
Sweden Street
Caribou Mall
EAGLE LAKE
Church Street
EASTON
Main Street
ELLSWORTH
204 Main Street
FAIRFIELD
112 Main Street
FALMOUTH
223 U.S. Route #1
FARMINGTON
60 Main Street
Mount Blue Shopping Center,
Rts. 2 & 4
FORT FAIRFIELD
206 Main Street
FORT KENT
Pleasent Street Plaza
GRAY
Gray Plaza, Rt. # 26
HOULTON
6 North Street
KENNEBUNK
56 Portland Road
KITTERY
30 State Road
LEWISTON
217 Main Street
664 Main Street
790 Lisbon Street
LIMESTONE
222 Main Street
LINCOLN
Lincoln Plaza
LISBON FALLS
38 Main Street
MARS HILL
37 Main Street
NEWPORT
Main Street
NORTH WINDHAM
Route #302 Roosevelt Trail
Shaw's Supermarket,
Route #302
OAKLAND
11 Main Street
PITTSFIELD
60 Main Street
PORTLAND
One Portland Square
481 Congress Street
605 Congress Street
Westgate Shopping Center,
1370 Congress Street
449 Forest Avenue
Northgate Shopping Center,
3 Auburn Street
PRESQUE ISLE
551 Main Street
ROCKLAND
34 School Street
SACO
Saco Valley Shopping Center,
11 Scammon Street
SANFORD
Shaw's Shopping Plaza
SCARBOROUGH
Oak Hill Plaza
SEARSPORT
Main Street
SOUTH PORTLAND
Millcreek Shopping Center
415 Philbrook Road
THOMASTON
115 Main Street
VAN BUREN
29 Main Street
WASHBURN
12 Main Street
WATERVILLE
182 Main Street
Shaw's Plaza,
251 Kennedy Memorial Drive
WESTBROOK
835 Main Street
YARMOUTH
Shop 'N Save Plaza,
U.S. Route #1
YORK
127 Long Sands Road
- ----------------------------
OXFORD BANK & TRUST
BANKING CENTERS
OXFORD
Route 26
MECHANIC FALLS
80 Lewiston Street
WEST PARIS
Main Street
CASCO
Leach Hill Road
SOUTH PARIS
45 Main Street
57
<PAGE> 61
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK OF
NEW HAMPSHIRE
BOARD OF DIRECTORS
[PHOTO]
[BANK OF NEW HAMPSHIRE LOGO]
DAVIS P. THURBER
Chairman of the Board
PAUL R. SHEA
President & Chief Executive Officer
ARTHUR E. COMOLLI, DMD
General Dentistry
RAYMOND G. COTE
President (Retired)
Harvey Construction Co., Inc.
RAYMOND J. CRETEAU
President (Retired)
Riverside Millwork Co., Inc.
JOSEPH A. DESMOND
Chairman & Chief Executive Officer
The Concord Group Insurance Companies
RALPH GABARRO
Chief Operating Officer
Charter Brookside
PETER J. GRIFFIN
President
Great Bay Marine, Inc.
DONALD G. HAYES
President
Ricci Supply Company, Inc.
DIANA JURIS
Vice President and Chief Operating Officer
Nashua Motor Express
DANA S. LEVENSON
President
Quatro Realty Corp.
JOHN E. MENARIO
Special Assistant to the President
Peoples Heritage Financial Group, Inc.
JOHN M. PARSONS
Treasurer
MH Parsons & Son Lumber Co.
PETER PRUDDEN, JR.
Senior Account Executive
Moore Business Forms, Inc.
GERRY S. WEIDEMA
Partner
Weidema & Lavin, CPAs
- --------------------------------------------------------------------------------
BANK OF
NEW HAMPSHIRE
SENIOR OFFICERS
PAUL R. SHEA
President & CEO
R. SCOTT BACON
Chief Operating Officer
Executive Vice President
HAROLD R. ACRES
Senior Executive Vice President
Chief Lending Officer
MARK A. COLLINS
Executive Vice President
Marketing & Strategic Planning
ROBERT B. ESAU
Executive Vice President
Trust Services
MARY A. SCHNOBRICH
Executive Vice President
Branch Administration
CAROLYN A. CLOUTIER
Senior Vice President
Commercial Lending
MAUREEN F. DONOVAN
Senior Vice President
Human Resources
THOMAS FURLONG
Senior Vice President
Trust Services
JOANNE T. HOWARD
Senior Vice President
Branch Administration
CORNEILUS J. JOYCE
Senior Vice President
Consumer & Mortgage Banking
DAVID H. MCARDLE
Senior Vice President
Commercial Lending
ROBERT J. MCDONALD
Senior Vice President
Loan Administration
STEVEN C. WEBB
Senior Vice President
Commercial Lending
DONNA F. CLARICO
Senior Vice President
Financial Services
PAUL E. DUFFY
Senior Vice President
Commercial Lending
MARY W. MCLAUGHLIN
Senior Vice President
Commercial Lending
58
<PAGE> 62
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK OF
NEW HAMPSHIRE
LOCATIONS
BARRINGTON
Route 125 & Province Road
BEDFORD
184 Route 101
BRISTOL
Central Square
CONCORD
143 North Main Street
216 Loudon Road
CONTOOCOOK
884 Maine Street
CONWAY
51 White Mountain Highway
DOVER
353 Central Ave
Shaw's Plaza,
845 Central Ave
EPSOM
Epsom Circle
GLEN
Junction Routes 16 & 302
GOFFSTOWN
3 Elm Street
GREENLAND
650 Portsmouth Avenue
HAMPTON
853 Lafayette Road
40 High Street
HILLSBOROUGH
School Street
HOOKSETT
1288 Hooksett Road
HUDSON
80 Derry Road
LITTLETON
76 Main Street
MANCHESTER
300 Franklin Street
Two South Beech Street
293 South Main Street
1255 South Willow
70 Bay Street
MERRIMACK
300 Daniel Webster Highway
Harris Pond,
32 Daniel Webster Highway
NASHUA
191 Main Street
Nashua Mall
300 Main Street
4 Northwest Boulevard
Daniel Webster Plaza,
225 Daniel Webster Highway
NEWINGTON
2033 Woodbury Avenue
NEWMARKET
72 Exeter Street
NORTH CONWAY
Routes 16 & 302
Mountain Valley Mall
NORTHWOOD
Route 4
PORTSMOUTH
Two Harbour Place
325 State Street
Market Basket Plaza,
1500 Lafayette Road
ROCHESTER
1 Merchants Plaza,
Intersection Rts. 125 & 16B
RYE
500 Washington Road
STRATHAM
28 Portsmouth Avenue
SUNCOOK
50 Glass Street
WEST OSSIPEE
Junction Routes 16 & 25
59
<PAGE> 63
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FAMILY BANK
BOARD OF DIRECTORS
[PHOTO]
[FAMILY BANK LOGO]
DAVID D. HINDLE
President & Chief Executive Officer
CHARLES GEORGE, JR.
President
Donahue & George Associates, Inc.
ELKIN B. MCCALLUM
President & Chief Executive Officer
Joan Fabrics
KENNETH L. PAUL
Vice President
Process Engineering, Inc.
JOHN E. VEASEY
President
Cedardale, Inc.
RICHARD L. BAILLY
Executive Vice President
UFP Technologies, Inc.
FRANCIS J. BERUBE
President & Treasurer
Westville Enterprises, Inc.
NELSON D. BLINN
Principal
Blinn & Farrell, CPAs
LAWRENCE J. EWING, JR.
Retired
WILLIAM J. LETOILE, JR.
President & Treasurer
Letoile Roofing Co., Inc.
DONALD R. MAIN
President
Don Main Auto Center, Inc.
JOHN F. REILLY, JR.
President & Chief Executive Officer
Fred C. Church, Inc.
NICOLA S. TSONGAS
Former Partner
Tsongas & Murphy, P.C.
L. DAVID VINCOLA
Principal
Lyman Associates, Management Consultants
- --------------------------------------------------------------------------------
FAMILY BANK
SENIOR OFFICERS
DAVID D. HINDLE
Chairman
President & Chief Executive Officer
DAVID J. LAFLAMME
Senior Vice President
Commercial
RONALD G. TROMBLEY
Senior Vice President
Retail
- --------------------------------------------------------------------------------
FAMILY BANK
LOCATIONS
MASSACHUSETTS
BRANCH OFFICES
HAVERHILL
Main Office,
153 Merrimack Street
Plainstow Road,
Route 125
Whittier Regional Vo-Tech HS,
115 Amesbury Line Road
ANDOVER
77 Main Street
BOXFORD
7 Elm Street
BRADFORD
860 South Main Street
CHELMSFORD
41 Drum Hill Road
DRACUT
1255 Bridge Street
GEORGETOWN
63 Central Street
GROVELAND
280 Main Street
LOWELL
45 Central Street,
33 Mammouth Road,
350 Westford Street
MIDDLETON
230 South Main Street,
Route 114
TOPSFIELD
16 Main Street,
Masconomet Regional High School,
20 Endicott Road
TYNGSBORO
One Pondview Place,
Middlesex Road
NEW HAMPSHIRE
BRANCH OFFICES
EXETER
82 Portsmouth Avenue
HAMPSTEAD
Main Street,
Route 21
KINGSTON
Carriage Town Plaza
PLAINSTOW
47 Plainstow Road
SEABROOK
270 Lafayette Road
60
<PAGE> 64
Peoples Heritage Financial Group, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
ANNUAL MEETING
The 1997 Annual Meeting of the Shareholders of Peoples Heritage Financial Group,
Inc. will be held at 10:30 a.m. on Tuesday, April 22, 1997 at the Portland
Marriott at Sable Oaks, 200 Sable Oaks Drive, South Portland, Maine.
CORPORATE HEADQUARTERS
One Portland Square
Portland, Maine 04101
Mail Address:
P.O. Box 9540
Portland, ME 04112-9540
Contact: Brian S. Arsenault, Vice President,
Corporate Communications
(207)761-8517
1-800-462-3666 Outside Maine
1-800-462-6606 Outside Greater Portland
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 1996 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:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Phone: 718-921-8206
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
One Boston Place
Boston, MA 02110
RESEARCH COVERAGE
Recent research coverage on Peoples Heritage Financial Group, Inc. is available
from Legg Mason Wood Walker, Inc., Keefe, Bruyette & Woods, Inc., Friedman
Billings Ramsey & Co., Merrill, Lynch, Pierce, Fenner & Smith, Inc., First
Albany Corp., Tucker Anthony Inc., Lehman Brothers, Inc., Southeast Research
Partners, Inc., Capital Resources, Inc. Research, and Maine Securities Corp.
MARKET MAKERS
The following companies have generally been market makers for Peoples Heritage
Financial Group, Inc. Common Stock as of December 31, 1996:
Advest, Inc.
Bear, Stearns & Co., Inc.
Dean Witter Reynolds, Inc.
First Albany Corporation
Fox-Pitt Kelton, Inc.
Friedman Billings Ramsey & Co.
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities L.P.
Legg Mason Wood Walker, Inc.
Lehman Brothers, Inc.
M.A. Schapiro & Co., Inc.
Macallister Pitfield Mackay
Mayer & Schweitzer, Inc.
Merrill Lynch, Pierce,
Fenner & Smith, Inc.
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.
Tucker Anthony Incorporated
- --------------------------------------------------------------------------------
COMMON STOCK PRICES
Market prices for Peoples Heritage Financial Group, Inc.'s common stock and
dividends declared per quarter during 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DIVIDENDS DECLARED
1996 QUARTERS PER SHARE HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FIRST $ .17 $ 22 3/4 $ 19
SECOND .17 22 1/4 19 3/8
THIRD .17 23 5/8 19
FOURTH .18 28 5/8 22 1/2
1995 Quarters
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1996, the Company had approximately 5,700
shareholders of record of the 28,407,603 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> 65
- --------------------------------------------------------------------------------
PEOPLES HERITAGE ONE PORTLAND SQUARE
FINANCIAL GROUP, INC. POST OFFICE BOX 9540
PORTLAND, MAINE 04112-9540
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 21
<PAGE> 2
EXHIBIT 21
Information relating to certain of the subsidiaries of Peoples Heritage
Financial Group, Inc. is set forth below. All of the indicated subsidiaries are
directly or indirectly wholly-owned by Peoples Heritage Financial Group, Inc.
Direct Subsidiaries:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Peoples Heritage Bank Maine
Bank of New Hampshire Corporation New Hampshire
Peoples Heritage Merger Corp. Maine
</TABLE>
Indirect Subsidiaries:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Bank of New Hampshire(1) New Hampshire
Family Bank, FSB(2) United States
Heritage Investment Planning Group, Inc. (3) Maine
Peoples Heritage Leasing Corp. (3) Maine
Peoples Heritage Mortgage Corporation(3) Maine
</TABLE>
- --------------------------
(1) Subsidiary of Bank of New Hampshire Corporation
(2) Subsidiary of Peoples Heritage Merger Corp.
(3) Subsidiary of Peoples Heritage Bank.
<PAGE> 1
EXHIBIT 23
<PAGE> 2
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, 33-80310 and 333-17467) on Form S-8 of Peoples Heritage
Financial Group, Inc. of our report dated January 22, 1997, 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, 1996 and 1995, 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, 1996,
which report is incorporated by reference in the December 31, 1996 Annual Report
on Form 10-K of Peoples Heritage Financial Group, Inc.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 28, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 9
<LEGEND>
FDS FOR 1996 10-K FILING
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 276,995
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 83,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,045,069
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,654,600
<ALLOWANCE> 67,488
<TOTAL-ASSETS> 5,398,398
<DEPOSITS> 4,185,289
<SHORT-TERM> 690,968
<LIABILITIES-OTHER> 85,130
<LONG-TERM> 0
0
0
<COMMON> 286
<OTHER-SE> 436,724
<TOTAL-LIABILITIES-AND-EQUITY> 5,398,398
<INTEREST-LOAN> 288,999
<INTEREST-INVEST> 50,249
<INTEREST-OTHER> 1,924
<INTEREST-TOTAL> 341,172
<INTEREST-DEPOSIT> 120,443
<INTEREST-EXPENSE> 30,156
<INTEREST-INCOME-NET> 190,573
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 507
<EXPENSE-OTHER> 148,073
<INCOME-PRETAX> 80,048
<INCOME-PRE-EXTRAORDINARY> 80,048
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,480
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 4.71
<LOANS-NON> 32,250
<LOANS-PAST> 8,038
<LOANS-TROUBLED> 2,160
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<ALLOWANCE-OPEN> 60,975
<CHARGE-OFFS> 18,173
<RECOVERIES> 12,421
<ALLOWANCE-CLOSE> 67,488
<ALLOWANCE-DOMESTIC> 67,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
