<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16947
BANKNORTH GROUP, INC. (formerly Peoples Heritage Financial Group, Inc.)
-----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Maine 01-0437984
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Portland Square, Portland, Maine 04112
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(207) 761-8500
----------------------------------------------------
(Registrant's telephone number, including area code)
Peoples Heritage Financial Group, Inc.
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
from last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the Registrant's common stock as of May 1,
2000 is:
Common stock, par value $.01 per share 101,511,514
- -------------------------------------- -------------
(Class) (Outstanding)
<PAGE> 2
INDEX
BANKNORTH GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders' Equity -
Three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 30
PART II. OTHER INFORMATION
Item 1. Legal proceedings 30
Item 2. Changes in securities 30
Item 3. Defaults upon senior securities 30
Item 4. Submission of matters to a vote of security holders 30
Item 5 Other information 30
Item 6 Exhibits and reports on Form 8-K 31
Signatures 31
</TABLE>
2
<PAGE> 3
BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, 2000 December 31,1999
-------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 318,989 $ 398,759
Federal funds sold and other short term investments 76,566 203,789
Securities available for sale, at market value 4,999,905 5,161,009
Securities held to maturity (fair value of $510,308 and
$519,725 at March 31, 2000 and December 31, 1999,
respectively) 522,632 541,332
Loans held for sale 15,367 67,220
Loans and leases:
Residential real estate mortgages 1,453,688 1,410,494
Commercial real estate mortgages 1,828,637 1,795,763
Commercial business loans and leases 1,391,825 1,291,371
Consumer loans and leases 2,483,879 2,347,031
------------ ------------
7,158,029 6,844,659
Less: Allowance for loan and lease losses 107,214 107,871
------------ ------------
Net loans and leases 7,050,815 6,736,788
------------ ------------
Premises and equipment 144,018 141,739
Goodwill and other intangibles 110,298 113,264
Mortgage servicing rights 39,284 46,829
Bank-owned life insurance 232,722 228,423
Other assets 292,984 280,376
------------ ------------
$ 13,803,580 $ 13,919,528
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Regular savings $ 1,244,740 $ 1,237,092
Money market and NOW accounts 2,264,863 2,232,891
Certificates of deposit 3,250,695 3,159,864
Brokered deposits 124,169 173,798
Demand deposits 1,366,269 1,311,112
------------ ------------
Total deposits 8,250,736 8,114,757
------------ ------------
Federal funds purchased and securities sold under
repurchase agreements 924,896 1,089,316
Borrowings from the Federal Home Loan Bank of Boston 3,596,968 3,667,399
Other borrowings 17,466 31,849
Other liabilities 91,443 96,455
------------ ------------
Total liabilities 12,881,509 12,999,776
------------ ------------
Company obligated, mandatory redeemable securities of
subsidiary trust holding solely parent junior subordinated
debentures 68,775 68,775
Shareholders' Equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares
authorized, none issued) -- --
Common stock (par value $0.01 per share, 200,000,000 shares
authorized, 106,647,386 and 106,647,585 shares issued) 1,066 1,066
Paid-in capital 509,234 509,009
Retained earnings 554,583 530,002
Unearned compensation (1,606) (1,690)
Accumulated other comprehensive income (loss):
Net unrealized loss on securities available for sale (119,402) (105,149)
Treasury stock, at cost (5,157,692 shares and 4,465,600 shares) (90,579) (82,261)
------------ ------------
Total shareholders' equity 853,296 850,977
------------ ------------
$ 13,803,580 $ 13,919,528
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) (Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
2000 1999
------------ -------------
<S> <C> <C>
Interest and dividend income:
Interest on loans and leases $ 145,812 $ 154,471
Interest and dividends on securities 95,257 55,777
------------ ------------
Total interest and dividend income 241,069 210,248
Interest expense:
Interest on deposits 62,862 64,976
Interest on borrowed funds 67,873 37,334
------------ ------------
Total interest expense 130,735 102,310
Net interest income 110,334 107,938
Provision for loan and lease losses 2,815 3,565
------------ ------------
Net interest income after provision
for loan and lease losses 107,519 104,373
Noninterest income:
Customer services 14,505 10,812
Mortgage banking services 2,998 4,205
Insurance commissions 5,279 5,282
Trust services 3,701 3,467
Investment advisory services 1,589 978
Bank-owned life insurance income 4,299 2,308
Net securities gains 9 18
Other noninterest income 3,166 2,364
------------ ------------
35,546 29,434
Noninterest expenses:
Salaries and employee benefits 43,232 40,170
Data processing 6,440 7,006
Occupancy 7,764 6,949
Equipment 5,295 4,807
Distributions on securities of subsidiary trust 1,558 1,986
Amortization of goodwill and other intangibles 2,966 2,968
Special charges 1,583 33,235
Other noninterest expenses 15,558 13,883
------------ ------------
84,396 111,004
Income before income tax expense 58,669 22,803
Applicable income tax expense 19,364 9,309
------------ ------------
Net income $ 39,305 $ 13,494
============ ============
Weighted average shares outstanding:
Basic 101,287,535 103,429,129
Diluted 101,811,677 104,851,511
Earnings per share:
Basic $ 0.39 $ 0.13
Diluted 0.39 0.13
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Compen- Other
Par Paid-in Retained sation Comprehensive Treasury
Value Capital Earnings ESOP Income (Loss) Stock Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 $1,066 $509,009 $530,002 ($1,690) ($105,149) ($82,261) $850,977
Net income -- -- 39,305 -- -- -- 39,305
Unrealized losses on securities, net of
reclassification adjustment -- -- -- -- (14,253) -- (14,253)
--------
Comprehensive income 25,052
--------
Common stock issued for employee
benefit plans -- -- (2,113) -- -- 4,025 1,912
Treasury stock purchased -- -- -- -- -- (12,343) (12,343)
Decrease in unearned compensation -- 225 -- 84 -- -- 309
Cash dividends -- -- (12,611) -- -- -- (12,611)
------- -------- -------- ------- --------- -------- --------
Balances at March 31, 2000 $1,066 $509,234 $554,583 ($1,606) ($119,402) ($90,579) $853,296
======= ======== ======== ======= ========= ======== ========
Balances at December 31, 1998 $1,066 $509,473 $447,438 ($2,027) ($1,651) ($53,171) $901,128
Net income -- -- 13,494 -- -- -- 13,494
Unrealized losses on securities net of
reclassification adjustment -- -- -- -- 1,601 -- 1,601
--------
Comprehensive income 15,095
--------
Premium on repurchase of trust
preferred securities -- (2,761) -- -- -- -- (2,761)
Common stock issued for employee
benefit plans -- -- (2,009) -- -- 5,442 3,433
Decrease in unearned compensation -- 244 -- 57 -- -- 301
Payment of fractional shares -- (2) -- -- -- -- (2)
Cash dividends -- -- (12,016) -- -- -- (12,016)
------- -------- ------- ------- --------- -------- ---------
Balances at March 31, 1999 $1,066 $506,954 $446,907 ($1,970) ($50) ($47,729) $905,178
======= ======== ======== ======= ========= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $39,305 $13,494
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan and lease losses 2,815 3,565
Depreciation 4,938 4,600
Amortization of goodwill and other intangibles 2,966 2,968
Provision for deferred tax expense 10,399 (702)
ESOP expense 309 301
Net gains realized from sales of securities and consumer loans (9) (18)
Net losses realized from sales of loans held for sale
(a component of mortgage banking services) 134 74
Earnings from bank owned life insurance (4,299) (2,308)
Net (increase) decrease in mortgage servicing rights 7,545 (5,178)
Proceeds from sales of loans held for sale 52,537 491,963
Residential loans originated and purchased for sale (818) (271,084)
Net decrease (increase) in interest and dividends receivable and
other assets (15,325) (8,488)
Net increase (decrease) in other liabilities (5,012) (13,745)
--------- -----------
Net cash provided (used) by operating activities $95,485 $215,442
--------- -----------
Cash flows from investing activities:
Proceeds from sales of securities available for sale $24,507 $20,635
Proceeds from maturities and principal repayments of securities available
for sale 189,597 417,523
Purchases of securities available for sale (74,926) (1,338,240)
Proceeds from maturities and principal repayments of securities held to
maturity 18,700 --
Net (increase) decrease in loans and leases (316,842) 17,011
Purchase of bank owned life insurance -- (150,000)
Net additions to premises and equipment (7,217) (4,133)
--------- -----------
Net cash provided (used) by investing activities ($166,181) ($1,037,204)
--------- -----------
Cash flows from financing activities:
Net (decrease) increase in deposits $135,979 ($159,561)
Net increase (decrease) in securities sold under repurchase agreements (164,420) (72,169)
Proceeds from Federal Home Loan Bank of Boston borrowings 2,839,300 1,020,000
Payments on Federal Home Loan Bank of Boston borrowings (2,909,731) (146,720)
Net increase (decrease) in other borrowings (14,383) (1,319)
Repurchase of trust preferred securities -- (32,761)
Issuance of stock 1,912 3,431
Purchase of treasury stock (12,343) --
Dividends paid (12,611) (12,016)
--------- -----------
Net cash provided by financing activities ($136,297) $598,885
--------- -----------
Increase (decrease) in cash and cash equivalents ($206,993) ($222,877)
Cash and cash equivalents at beginning of period 602,548 699,313
--------- -----------
Cash and cash equivalents at end of period $395,555 $476,436
========= ===========
For the three months ended March 31, 2000 and 1999, interest of $179,815 and
$101,484 and income taxes of $3,494 and $910 were paid, respectively.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
BANKNORTH GROUP, INC. AND SUBSIDIARIES
(FORMERLY PEOPLES HERITAGE FINANCIAL GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and predominant
practices within the banking industry. The Company has not changed its
accounting and reporting policies from those disclosed in its 1999 Annual Report
on Form 10-K.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations and other data for the
three months ended March 31, 2000 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 2000. Certain amounts in the prior periods have been reclassified
to conform to the current presentation.
NOTE 2 - OTHER COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income for the Company are net income and
unrealized gains (losses) on securities available for sale, net of tax. The
following is a reconciliation of comprehensive income for the three months ended
March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
-----------------------
2000 1999
--------- --------
<S> <C> <C>
Net income $39,305 $13,494
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for
sale securities:
Unrealized holding gains (losses) arising during the period (14,247) 1,613
Less: reclassification adjustment for gains included in net income 6 12
--------- -------
Other comprehensive income (loss), net (14,253) 1,601
--------- -------
Comprehensive income $25,052 $15,095
========= =======
</TABLE>
7
<PAGE> 8
NOTE 3 - EARNINGS PER SHARE
The computations of basic and diluted net income per share and weighted average
shares outstanding follow (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income $39,305 $13,494
=========== ===========
Weighted average shares outstanding
Basic: 101,287,535 103,429,129
Effect of dilutive securities:
Stock options 524,142 1,422,382
----------- -----------
Diluted 101,811,677 104,851,511
=========== ===========
Net income per share:
Basic $0.39 $0.13
Diluted 0.39 0.13
</TABLE>
NOTE 4 - COMPLETED ACQUISITION
On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc.,
which was effected by means of the merger of Banknorth Group, Inc. with and into
the Company. The Company changed its name to "Banknorth Group, Inc." as a result
of the merger. As a result of the merger and the change in the name of the
Company, the Company's symbol on the Nasdaq stock market is now BKNG. Upon
consummation of the merger, each share of Banknorth common stock outstanding was
automatically converted into the right to receive 1.825 shares of Company common
stock, including each attached right issued pursuant to an Amended and Restated
Rights Agreement, dated as of September 12, 1989 and amended and restated as of
July 27, 1999, with cash in lieu of fractional share interests. The financial
statements included herein reflect the historical financial statements of the
Company prior to the acquisition.
8
<PAGE> 9
BANKNORTH GROUP, INC. AND SUBSIDIARIES
(FORMERLY PEOPLES HERITAGE FINANCIAL GROUP, INC.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
Banknorth Group, Inc. (the "Company"), formerly Peoples Heritage Financial
Group, Inc., reported consolidated net income of $39.3 million, or $0.39 per
diluted share, for the first quarter of 2000. This compares with $13.5 million,
or $0.13 per diluted share, for the first quarter of 1999. Special charges
recorded in the first quarter of 2000 consisted of $1.6 million ($1.1 million
net of tax) of restructuring costs related to branch closings. Special charges
of $33.2 million ($24.1 million net of tax) were recorded in the first quarter
of 1999 and consisted of $25.9 million of merger related charges and $7.4
million of costs to discontinue the Company's correspondent mortgage business.
(See Table 5 for more information related to special charges.)
Excluding the impact of special charges, the Company's operating income for the
first quarter of 2000 was $40.4 million, or $0.40 per diluted share, and return
on average equity ("ROE") and return on average assets (" ROA") were 19.40% and
1.18%, respectively. Operating income for the first quarter of 1999 was $37.6
million, or $0.36 per diluted share, and ROE and ROA were 17.23% and 1.25%,
respectively. Operating results for the first quarter of 2000 represent an 11%
increase in diluted earnings per share from the comparable period last year.
The improved operating results for the first quarter of 2000 over the first
quarter of 1999 were largely due to growth in earning assets levels and strong
fee income. Noninterest income increased 21% compared to the first quarter of
1999. The growth in noninterest income was primarily due to a $3.7 million
increase in customer service income, a $2.0 million increase in income on bank
owned life insurance and an increase in investment advisory services income of
$611 thousand. The efficiency ratio (noninterest expense excluding distributions
on securities of subsidiary trust and special charges, as a percentage of net
interest income and noninterest income, excluding net securities gains) was
55.70% in the first quarter of 2000 compared to 55.17% in the comparable period
last year. Selected quarterly data, ratios and per share data, both as reported
and on an operating basis, are provided in Table 1.
9
<PAGE> 10
TABLE 1 - SELECTED QUARTERLY DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999 1999 1999 1999
First Fourth Third Second First
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net interest income $110,334 $114,380 $114,803 $109,126 $107,938
Provision for loan and lease losses 2,815 3,405 3,565 3,565 3,565
-------- -------- -------- -------- --------
Net interest income after loan and lease
loss provision 107,519 110,975 111,238 105,561 104,373
Noninterest income (excluding securities
transactions) 35,537 33,854 32,117 33,520 29,416
Net securities gains 9 -- 3 260 18
Noninterest expenses (excluding special
charges) 82,813 80,945 79,502 79,312 77,769
Special charges (1) 1,583 (3,889) -- -- 33,235
-------- ------- -------- -------- --------
Income before income taxes 58,669 67,773 63,856 60,029 22,803
Income tax expense 19,364 22,192 21,275 19,263 9,309
-------- -------- -------- -------- --------
Net income $39,305 $45,581 $42,581 $40,766 $13,494
======== ======== ======== ======== ========
Earnings per share:
Basic $0.39 $0.45 $0.41 $0.39 $0.13
Diluted 0.39 0.44 0.41 0.39 0.13
Operating earnings per share (excluding
special charges):
Basic 0.40 0.42 0.41 0.39 0.36
Diluted 0.40 0.42 0.41 0.39 0.36
Return on average assets (2) 1.15% 1.31% 1.23% 1.25% 0.45%
Return on average equity (2) 18.88% 21.28% 19.62% 18.08% 6.19%
Operating ratios:
Return on average assets (excluding special
charges)(2) 1.18% 1.24% 1.23% 1.25% 1.25%
Return on average equity (excluding special
charges)(2) 19.40% 20.16% 19.62% 18.08% 17.23%
Efficiency ratio (3) 55.70% 53.56% 53.05% 54.49% 55.17%
</TABLE>
- ------------------
(1) Special charges consists of merger-related expenses, one-time charges
related to the discontinuance of the Company's correspondent mortgage
business and one-time charges related to branch closings.
(2) Annualized.
(3) Represents operating expenses, excluding distributions on securities of
subsidiary trust and special charges, as a percentage of net interest
income and noninterest income, excluding net securities gains.
10
<PAGE> 11
RESULTS OF OPERATIONS
NET INTEREST INCOME
The Company's fully taxable equivalent net interest income in the first quarter
of 2000 increased $2.5 million compared to the first quarter of 1999. The
increase was primarily attributable to increased levels of average earning
assets, which were offset in part by lower net interest margins. Commercial real
estate, commercial business and consumer loan product lines all experienced
significant growth while residential real estate loans declined. Residential
real estate loans declined largely due to the Company's discontinuance of the
correspondent mortgage business and the securitization of $633 million of
residential loans into a real estate investment conduit ("REMIC"), which are
now classified as securities held to maturity. Securities increased due
primarily to this securitization and additional investments in agency
mortgage-backed securities. The Company's net interest margin was 3.49% for the
first quarter of 2000 compared to 3.86% for the comparable quarter of 1999. The
lower margin was due largely to increased levels of securities as a percent of
total assets (41% in the first quarter of 2000 compared to 29% in the first
quarter of 1999), purchases of Bank Owned Life Insurance (the earnings from
which are recorded as noninterest income) and an increase in average borrowings
as a percent of total average interest-bearing liabilities (41% in the first
quarter of 2000 compared to 30% in the first quarter of 1999). Table 2 shows
quarterly average balances, net interest income by category and rates for the
first quarter of 2000 and for each quarter in 1999. Table 3 shows the changes in
fully taxable equivalent net interest income by category due to changes in rate
and volume. See also "Interest Rate Risk and Asset Liability Management" below.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields; (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost; (iii) net
interest income; (iv) interest rate spread; and (v) net interest margin (net
interest income divided by average interest-earning assets). For purposes of the
tables 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 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. Average
balances are based on average daily balances during the indicated periods.
11
<PAGE> 12
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 First Quarter 1999 Fourth Quarter
--------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
----------- -------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $1,462,814 $26,745 7.31% $1,480,113 $26,400 7.13%
Commercial real estate mortgages 1,820,345 40,202 8.88 1,803,266 40,531 8.92
Commercial loans and leases 1,302,395 28,628 8.84 1,268,226 27,615 8.64
Consumer loans and leases 2,425,053 50,621 8.40 2,294,114 49,116 8.49
----------- -------- ---------- --------
Total loans and leases 7,010,607 146,196 8.38 6,845,719 143,662 8.34
Securities 5,619,683 94,510 6.73 5,862,306 96,417 6.57
Federal funds sold and other short term investments 66,454 898 5.43 73,230 1,103 5.39
----------- -------- ----------- --------
Total earning assets 12,696,744 241,604 7.63 12,781,255 241,182 7.51
-------- --------
Nonearning assets 1,020,030 1,004,764
----------- -----------
Total assets $13,716,774 $13,786,019
=========== ===========
Interest-bearing deposits:
Regular savings $1,233,945 6,311 2.06 $1,264,795 6,431 2.01
NOW and money market accounts 2,174,872 14,396 2.66 2,176,690 13,552 2.47
Certificates of deposit 3,211,625 40,142 5.03 3,220,391 39,561 4.88
Brokered deposits 131,563 2,013 6.15 143,328 2,062 5.71
----------- -------- ----------- --------
Total interest-bearing deposits 6,752,005 62,862 3.74 6,805,204 61,606 3.59
Borrowed funds 4,678,559 67,873 5.83 4,676,190 64,610 5.48
----------- -------- ----------- --------
Total interest-bearing liabilities 11,430,564 130,735 4.60 11,481,394 126,216 4.36
-------- --------
Non-interest bearing deposits 1,298,604 1,325,467
Other liabilities 81,734 60,579
Securities of subsidiary trust 68,775 68,775
Shareholders' equity 837,097 849,804
----------- -----------
Total liabilities and shareholder's equity $13,716,774 $13,786,019
=========== ===========
Net earning assets $1,266,180 $1,299,861
=========== ===========
Net interest income (fully-taxable equivalent) 110,869 114,966
Less: fully-taxable equivalent adjustments (535) (586)
-------- --------
Net interest income $110,334 $114,380
======== ========
Net interest rate spread (fully-taxable equivalent) 3.03% 3.15%
Net interest margin (fully-taxable equivalent) 3.49% 3.60%
</TABLE>
- ----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
12
<PAGE> 13
TABLE 2 - Average Balances, Yields and Rates
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 First Quarter 1999 Fourth Quarter
--------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
----------- -------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $1,653,642 $30,059 7.27% $1,801,616 $32,589 7.24%
Commercial real estate mortgages 1,762,761 38,599 8.69 1,689,588 36,952 8.77
Commercial loans and leases 1,267,025 27,045 8.47 1,232,071 26,029 8.47
Consumer loans and leases 2,150,425 46,370 8.55 2,081,520 44,796 8.63
----------- -------- ----------- --------
Total loans and leases 6,833,853 142,073 8.26 6,804,795 140,366 8.27
Securities 5,846,490 94,115 6.43 5,103,801 78,130 6.12
Federal funds sold and other short term investments 77,451 1,052 5.39 189,798 2,331 4.93
----------- -------- ----------- --------
Total earning assets 12,757,794 237,240 7.40 12,098,394 220,827 7.31
Nonearning assets 966,829 -------- 950,405 --------
----------- -----------
Total assets $13,724,623 $13,048,799
=========== ===========
Interest-bearing deposits:
Regular savings $1,289,605 6,548 2.01 $1,268,159 6,428 2.03
NOW and money market accounts 2,141,901 13,175 2.44 2,078,200 12,464 2.41
Certificates of deposit 3,298,215 40,186 4.83 3,391,976 41,725 4.93
Brokered deposits 163,886 2,275 5.51 201,244 2,811 5.60
----------- -------- ----------- --------
Total interest-bearing deposits 6,893,607 62,184 3.58 6,939,579 63,428 3.67
Borrowed funds 4,558,071 59,754 5.20 3,769,847 47,796 5.09
----------- -------- ----------- --------
Total interest-bearing liabilities 11,451,678 121,938 4.22 10,709,426 111,224 4.17
-------- --------
Non-interest bearing deposits 1,285,903 1,284,420
Other liabilities 57,185 80,378
Securities of subsidiary trust 68,775 69,987
Shareholders' equity 861,082 904,588
----------- -----------
Total liabilities and shareholders' equity $13,724,623 $13,048,799
=========== ===========
Net earning assets $1,306,116 $1,388,968
=========== ===========
Net interest income (fully-taxable equivalent) 115,302 109,603
Less: fully-taxable equivalent adjustments (499) (477)
-------- --------
Net interest income $114,803 $109,126
======== ========
Net interest rate spread (fully-taxable equivalent) 3.18% 3.14%
Net interest margin (fully-taxable equivalent) 3.61% 3.62%
</TABLE>
- ----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
13
<PAGE> 14
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 First Quarter
------------------------------------
Yield/
Average Balance Interest Rate (1)
---------------- ------- --------
<S> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $2,556,325 $47,050 7.36%
Commercial real estate mortgages 1,653,097 36,880 9.05
Commercial loans and leases 1,139,847 25,784 9.17
Consumer loans and leases 2,127,014 45,073 8.59
----------- --------
Total loans and leases 7,476,283 154,787 8.36
Securities 3,583,507 54,105 6.05
Federal funds sold and other short term investments 186,465 1,820 3.96
----------- --------
Total earning assets 11,246,255 210,712 7.55
--------
Nonearning assets 912,961
-----------
Total assets $12,159,216
===========
Interest-bearing deposits:
Regular savings $1,283,505 6,445 2.04
NOW and money market accounts 2,036,837 12,006 2.39
Certificates of deposit 3,449,865 43,893 5.16
Brokered deposits 211,412 2,632 5.05
----------- --------
Total interest-bearing deposits 6,981,619 64,976 3.77
Borrowed funds 2,923,476 37,334 5.18
----------- --------
Total interest-bearing liabilities 9,905,095 102,310 4.19
--------
Non-interest bearing deposits 1,235,688
Other liabilities 46,166
Securities of subsidiary trust 88,000
Shareholders' equity 884,267
-----------
Total liabilities and shareholders' equity $12,159,216
===========
Net earning assets $1,341,160
==========
Net interest income (fully-taxable equivalent) 108,402
Less: fully-taxable equivalent adjustments (464)
--------
Net interest income $107,938
========
Net interest rate spread (fully-taxable equivalent) 3.36%
Net interest margin (fully-taxable equivalent) 3.86%
</TABLE>
- ----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
14
<PAGE> 15
The following table presents certain information on a fully taxable equivalent
basis regarding changes in interest income and interest expense of the Company
for the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided with respect to changes
attributable to (1) changes in rate (change in rate multiplied by old volume),
(2) changes in volume (change in volume multiplied by old rate) and (3) changes
in rate/volume (change in rate multiplied by change in volume).
TABLE 3 - RATE /VOLUME ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 vs. 1999
Increase (decrease) due to
--------------------------------------------
Rate & Total
Volume Rate Volume (1) Change
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases ($ 9,679) $ 372 $ 716 ($ 8,591)
Securities 30,629 6,059 3,717 40,405
Federal funds sold and other short term investments (1,182) 682 (422) (922)
-------- -------- -------- --------
Total interest income 19,768 7,113 4,011 30,892
-------- -------- -------- --------
Interest expense:
Interest-bearing deposits
Regular savings (251) 64 53 (134)
NOW and money market accounts 820 1,367 203 2,390
Certificates of deposit (3,057) (1,115) 421 (3,751)
Brokered deposits (1,003) 578 (194) (619)
-------- -------- -------- --------
Total interest-bearing deposits (3,491) 894 483 (2,114)
Borrowed funds 22,604 4,725 3,210 30,539
-------- -------- -------- --------
Total interest expense 19,113 5,619 3,693 28,425
Net interest income (fully taxable equivalent) $ 655 $ 1,494 $ 318 $ 2,467
======== ======== ======== ========
</TABLE>
- --------------
(1) Includes changes in interest income and expense not due solely to
volume or rate changes.
15
<PAGE> 16
NONINTEREST INCOME
First quarter noninterest income of $35.5 million increased 21% from the first
quarter of 1999. This increase was due to customer service income (up $3.7
million or 34%), investment advisory income (up $611 thousand or 62%) and bank
owned life insurance income (up $2.0 million or 86%.) These increases were
partially offset by a $1.2 million decline in mortgage banking income due
primarily to lower levels of originations as a result of increased interest
rates. Noninterest income for the quarter ended March 31, 2000 was 24.4% of
total revenue compared to 21.4% for the quarter ended March 31, 1999.
Customer services income in the first quarter of 2000 increased 34% from the
first quarter of 1999. The increase was primarily attributable to volume driven
increases in checking account fees and ATM fees and the conversion of customers
of SIS branches to the Company's deposit products.
Investment advisory income increased 62% from the first quarter of 1999 due to
higher sales of retail investment products during the quarter. Trust income
increased 7% over the first quarter of last year reflecting the continued growth
in trust assets under management. Assets under management were $3.2 billion and
$3.1 billion at March 31, 2000 and 1999, respectively.
Bank-owned life insurance ("BOLI") income was $4.3 million for the first quarter
of 2000, compared to $2.3 million for the same period in 1999. The increase
includes a $1.2 million death benefit receipt in February 2000 and higher
average levels of BOLI in 2000. For the first quarter of 2000, the average cash
surrender value of BOLI was $232 million compared to $173 million for the first
quarter of 1999. BOLI covers certain employees of the Company's bank
subsidiaries. Most of the Company's BOLI is invested in the "general account" of
quality insurance companies. The majority of such companies were rated AA or
better by Standard and Poors at March 31, 2000.
Mortgage banking services income of $3.0 million and $4.2 million provided 8%
and 14% of non-interest income for the quarters ended March 31, 2000 and 1999,
respectively. The 29% decrease from the same quarter of last year was due to a
$3.2 million decrease in mortgage sales income resulting primarily from the
discontinuance of the correspondent mortgage lending business in January 1999,
which was partially offset by a $2.0 million increase in net servicing income.
This improvement was due to a $1.4 million gain on the sale of mortgage
servicing rights and a lower valuation adjustment on the mortgage servicing
rights and interest rate floors that hedge them. The amount of loans serviced
for others was $3.1 billion and $4.3 billion at March 31, 2000 and 1999,
respectively. See "Special Charges" in Table 5 for a discussion of the costs to
discontinue the correspondent mortgage lending business. See Table 4 for a
summary of mortgage banking services income by quarter for 2000 and 1999.
Capitalized mortgage servicing rights amounted to $39.3 million at March 31,
2000, compared to $46.8 million at December 31,1999. The decrease was due
largely to the sale of mortgage servicing rights totaling $6.2 million in the
first quarter of 2000. See Table 4 for details. Because mortgage servicing
rights are an interest-rate sensitive asset, the value of the Company's mortgage
servicing rights and the related mortgage banking income may be adversely
impacted if mortgage interest rates decline and actual or expected loan
prepayments increase. To mitigate the prepayment risk associated with adverse
changes in interest rates and the resultant impairment to capitalized mortgage
servicing rights and effects on mortgage banking income, the Company has
established a hedge program against a portion of its capitalized mortgage
servicing rights to help protect its value and mortgage banking income.
Notwithstanding the foregoing, there can be no assurance that significant
declines in interest rates will not have a material impact on the Company's
mortgage servicing rights and mortgage banking income or that the hedge program
will be successful in mitigating the effects of such a decline.
16
<PAGE> 17
TABLE 4 - MORTGAGE BANKING SERVICES
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the Three Months Ended
-----------------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESIDENTIAL MORTGAGES SERVICED FOR INVESTORS $ 3,078,580 $ 3,621,848 $ 3,759,247 $ 3,913,525 $ 4,328,668
MORTGAGE BANKING SERVICES INCOME:
Sales income:
Residential mortgage sales income $ 72 ($ 672) $ 1,252 $ 2,799 $ 3,313
Lower of cost or market adjustment -
loans held for sale 30 1,028 731 (1,934) --
----------- ----------- ----------- ----------- -----------
Total sales income 102 356 1,983 865 3,313
----------- ----------- ----------- ----------- -----------
Servicing income:
Residential mortgage servicing income, net 1,011 1,353 1,189 1,880 1,559
Decrease in impairment reserve on mortgage
servicing rights 1,005 485 1,343 2,382 950
Valuation adjustments - interest rate floor (545) 78 (953) (1,475) (1,600)
Gain (loss) on sale of capitalized mortgage
servicing rights 1,425 (207) (66) 2,924 (17)
----------- ----------- ----------- ----------- -----------
Total servicing income 2,896 1,709 1,513 5,711 892
----------- ----------- ----------- ----------- -----------
Total $ 2,998 $ 2,065 $ 3,496 $ 6,576 $ 4,205
=========== =========== =========== =========== ===========
MORTGAGE SERVICING RIGHTS:
Balance at beginning of period $ 46,829 $ 48,103 $ 47,314 $ 45,266 $ 40,088
Mortgage servicing rights capitalized
and purchased 323 1,001 2,985 2,747 7,535
Amortization charged against
mortgage servicing fee income (2,655) (2,760) (2,697) (2,736) (2,828)
Change in impairment reserve 1,005 485 1,343 2,382 950
Mortgage servicing rights sold (6,218) -- (842) (345) (479)
----------- ----------- ----------- ----------- -----------
Balance at end of period $ 39,284 $ 46,829 $ 48,103 $ 47,314 $ 45,266
=========== =========== =========== =========== ===========
</TABLE>
17
<PAGE> 18
NON-INTEREST EXPENSE
Excluding special charges, amortization of intangibles and distribution on
securities of subsidiary trust, non-interest expense was $78.3 million and $72.8
million for the quarters ended March 31, 2000 and 1999, respectively, an
increase of 7.5%. The efficiency ratio was 55.70% and 55.17% for the quarters
ended March 31, 2000 and 1999, respectively, excluding special charges,
distributions on securities of subsidiary trust and net securities gains.
Salaries and benefits expense of $43.2 million for the quarter ended March 31,
2000 increased $3.1 million or 7.6% from the same quarter of last year. The
increase was due to normal salary increases as well as increased cost of
benefits.
Data processing expense of $6.4 million for the quarter ended March 31, 2000
decreased $566 thousand or 8% from the same quarter a year ago, mostly due to
Year 2000 costs incurred in 1999.
Occupancy expense of $7.8 million increased $815 thousand from the first quarter
of 1999 due primarily to a $370 thousand increase in rent expense in the first
quarter of 2000 and a $300 thousand gain on sale of property recorded in the
first quarter of 1999.
Equipment expense increased $488 thousand from the first quarter of last year
due to depreciation on new equipment. Advertising and marketing expense
decreased $564 thousand from the first quarter of 1999 due to the timing of
campaigns and efficiencies from the acquisition of SIS Bancorp, Inc. ("SIS") on
January 1, 1999.
Amortization of goodwill and other intangibles was $3.0 million for the quarters
ended March 31, 2000 and 1999.
Restructuring charges of $1.6 million pre-tax were incurred in the first quarter
of 2000 related to the closing of 11 branches. Special charges of $33.2 million
in the first quarter of 1999 included merger-related expenses of $25.9 million
incurred in connection with the acquisition of SIS and $7.4 million related to
the discontinuance of the Company's correspondent mortgage lending business. On
an after-tax basis, special charges amounted to $1.1 million and $24.1 million
for the three months ended March 31, 2000 and 1999, respectively.
18
<PAGE> 19
The following table summarizes activity related to special charges recorded from
December 31, 1999 through March 31, 2000.
TABLE 5 - SPECIAL CHARGES
(Dollars in Thousands)
BRANCH CLOSINGS
<TABLE>
<CAPTION>
Non-Cash
Amount Reductions
Balance Included in Cash Applied to Balance at
12/31/99 Expense Payments Reserve 3/31/2000
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Severance and salary costs $ -- $ 68 $ -- $ -- $ 68
Asset write-downs/lease termination -- 1,259 -- -- 1,259
Other costs -- 256 -- -- 256
------------ ------------ ----------- ------------- ------------
$ -- $ 1,583 $ -- $ -- $ 1,583
============ ============ =========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
MERGER CHARGES(1) Non-Cash
Amount Reductions
Balance Included in Cash Applied to Balance at
12/31/99 Expense Payments Reserve 3/31/2000
--------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Asset write-downs / lease terminations $ 766 $ -- $ 281 $ -- $ 485
Other costs 862 -- 266 -- 596
------------ ------------ ----------- ------------- ------------
$ 1,628 $ -- $ 547 $ -- $ 1,081
============ ============ =========== ============= ============
</TABLE>
(1) The acquisitions of SIS and CFX Corporation were consummated on January 1,
1999 and April 10, 1998, respectively.
19
<PAGE> 20
Other non-interest expenses for the first quarter of 2000 increased $1.7 million
from the first quarter of 1999. The following table summarizes the principal
components of other non-interest expenses by quarter.
TABLE 6 - OTHER NON-INTEREST EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 1999 1999 1999 1999
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Miscellaneous loan costs $2,037 $835 $2,149 $1,952 $1,934
Telephone 2,296 2,375 2,888 2,566 2,561
Postage and freight 1,965 1,813 1,737 1,771 2,103
Advertising and marketing 1,769 2,644 2,158 2,320 2,333
Office supplies 1,472 1,467 1,546 1,805 1,471
Deposits and other assessments 711 840 862 727 668
Collection and carrying costs
of non-performing assets 555 57 359 313 701
Other 4,753 3,965 3,316 4,714 2,112
------- ------- ------- ------- -------
Total $15,558 $13,996 $15,015 $16,168 $13,883
======== ======= ======= ======= =======
</TABLE>
TAXES
The effective tax rate, excluding the effect of special charges, was 33% for
each of the quarters ended March 31, 2000 and 1999.
OTHER COMPREHENSIVE INCOME
FASB Statement No. 130 requires disclosure of "Other comprehensive income."
Unlike net income, "other comprehensive income" includes the after-tax change in
unrealized gains and losses on securities. As a result of an increase in
interest rates during the first quarter of 2000, the unrealized loss on the
Company's securities portfolio increased $14.3 million, net of taxes and gains
and losses realized on sales of securities. At March 31, 2000, the net
unrealized loss of $183.7 million, before related tax effect, represented 3.5%
of securities available for sale. The Company attempts to balance the interest
rate risk of its assets with its liabilities (see "Interest Rate Risk and Asset
Liability Management"). However, the change in value of its liabilities, which
tends to improve in rising interest rate environments, is not included in "other
comprehensive income."
FINANCIAL CONDITION
LOANS AND LEASES
Total loans and leases (including loans held for sale) averaged $7.0 billion
during the first quarter of 2000, a decrease of $466 million or 6.3% from the
first quarter of 1999. The decrease was primarily in residential real estate
mortgages. Loans as a percent of average earning assets were 55% at March 31,
2000 compared to 66% at March 31, 1999.
Average residential real estate loans (which includes mortgage loans held for
sale) of $1.5 billion during the first quarter of 2000 declined $1.1 billion
from the first quarter of last year. The decline was primarily attributable to
the $633 million securitization of single-family residential real estate loans
into a REMIC in April, 1999 which is classified as securities held to maturity,
as well as to decreased originations resulting from the discontinuance of the
Company's correspondent mortgage business. Mortgage loans held for sale amounted
to $15 million and $297 million at March 31, 2000 and 1999, respectively, and
$67 million at December 31, 1999. The decline in loans held for sale was due
primarily to the discontinuance of the correspondent mortgage business in the
first quarter of 1999 and the retention of a portion of residential real estate
loan originations in portfolio.
Average commercial real estate loans of $1.8 billion increased 10% from the
first quarter of last year. The average yield on commercial real estate loans
during the first quarter of 2000 was 8.88%, as compared to 9.05% in the first
quarter of 1999.
20
<PAGE> 21
Commercial loans and leases averaged $1.3 billion during the first quarter of
2000, an increase of 14% over the first quarter of 1999. The yield on commercial
loans and leases decreased to 8.84% in the first quarter of 2000 from 9.17% in
the first quarter of 1999.
Average consumer loans and leases of $2.4 billion during the first quarter of
2000 increased 14% from the first quarter of 1999. The increase was primarily in
indirect automobile, student and home equity loans. The average yield on
consumer loans and leases declined from 8.59% in the first quarter of 1999 to
8.40% in the first quarter of 2000.
SECURITIES AND OTHER EARNING ASSETS
The Company's securities portfolio averaged $5.6 billion during the first
quarter of 2000, as compared to $3.6 billion in the first quarter of 1999, and
consisted primarily of mortgage-backed securities, most of which are seasoned 15
year federal agency securities and U.S. Treasury securities. Other securities
consisted of collateralized mortgage obligations, asset-backed securities and
securitized residential real estate loans held in a REMIC. With the exception of
such securitized loans, which are classified as held to maturity and carried at
cost, all of the Company's securities are classified as available for sale and
carried at market value. The majority of securities available for sale are rated
AAA or equivalently rated. A significant portion of the increase in securities
was to replace the decline in residential real estate loans. The average yield
on securities was 6.73% and 6.05% for the quarters ended March 31, 2000 and
1999, respectively. The increased yield was due in part to the addition of the
REMIC securities which had a weighted average yield of 7.60%. Securities
available for sale are carried at fair value and had an after-tax unrealized
loss of $119.4 million and $105.1 million at March 31, 2000 and December 31,
1999, respectively. The unrealized loss was 3.5% of total securities available
for sale at March 31, 2000.
ASSET QUALITY
As shown in Table 7, nonperforming assets were $55.3 million at March 31, 2000,
or 0.40% of total assets, compared to $60.1 million at March 31, 1999. The
decline was attributable to declines in nonperforming residential and commercial
real estate loans as well as consumer loans. The Company continues to monitor
asset quality with regular reviews of its portfolio in accordance with its
lending and credit policies.
The Company's residential loan portfolio accounted for 20% of the total loan
portfolio at March 31, 2000, as compared with 21% at December 31, 1999. The
Company's residential loans are generally secured by single-family homes (one to
four units) and have a maximum loan to value ratio of 80%, unless they are
protected by mortgage insurance. At March 31, 2000, 0.62% of the Company's
residential loans were nonperforming, as compared with 0.78% at December 31,
1999 and .48% at March 31, 1999.
The Company's commercial real estate loan portfolio accounted for 25% of the
total loan portfolio at March 31, 2000 compared to 26% at December 31, 1999. At
March 31, 2000, 0.71% of the Company's commercial real estate loans were
nonperforming, as compared with 0.82% at December 31, 1999 and 1.08% at March
31, 1999.
The Company's commercial business loan and lease portfolio accounted for 19% of
the total loan portfolio at March 31, 2000 and December 31, 1999. Commercial
business loans and leases are not concentrated in any particular industry, but
reflect the broad-based economies of Maine, New Hampshire, Massachusetts and, to
a lesser extent, Connecticut. The Company's commercial business loans and leases
are generally to small and medium size businesses located within its geographic
market area. At March 31, 2000, 1.29% of the Company's commercial business loans
and leases were non-performing, as compared with 1.16% at December 31, 1999 and
1.06% at March 31, 1999.
The Company's consumer loan and lease portfolio accounted for 35% of the total
loan portfolio at March 31, 2000 and 34% at December 31, 1999. The Company has a
diversified consumer loan and lease portfolio consisting of home equity,
automobile, mobile home, boat and recreational vehicles and education loans. At
March 31, 2000, 0.17% of the Company's consumer loans and leases were
nonperforming, as compared with 0.22% at December 31, 1999 and .36% at March 31,
1999.
21
<PAGE> 22
At March 31, 2000, the Company had $6.7 million of accruing loans which were 90
days or more delinquent, as compared to $10.5 million of such loans at December
31, 1999. The decrease was primarily attributable to a decrease in residential
real estate loans over 90 days delinquent, which the Company believes are well
secured and in the process of collection.
TABLE 7 - NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Residential real estate loans:
Nonaccrual loans $ 9,047 $11,046 $10,855 $11,643 $10,124
------- ------- ------- ------- -------
Commercial real estate loans:
Nonaccrual loans 12,110 13,699 13,211 14,494 16,657
Troubled debt restructurings 961 1,002 1,282 1,391 1,110
------- ------- ------- ------- -------
Total 13,071 14,701 14,493 15,885 17,767
------- ------- ------- ------- -------
Commercial business loans and leases:
Nonaccrual loans 17,874 14,944 17,712 18,600 12,694
Troubled debt restructurings 39 82 83 80 40
------- ------- ------- ------- -------
Total 17,913 15,026 17,795 18,680 12,734
------- ------- ------- ------- -------
Consumer loans and leases:
Nonaccrual loans 4,151 5,115 5,639 5,531 7,566
------- ------- ------- ------- -------
Total nonperforming loans:
Nonaccrual loans 43,182 44,804 47,417 50,268 47,041
Troubled debt restructurings 1,000 1,084 1,365 1,471 1,150
------- ------- ------- ------- -------
Total 44,182 45,888 48,782 51,739 48,191
------- ------- ------- ------- -------
Other nonperforming assets:
Other real estate owned, net of related reserves 8,393 7,642 7,764 7,170 7,468
Repossessions, net of related reserves 2,712 2,826 2,773 3,411 4,446
------- ------- ------- ------- -------
Total other nonperforming assets 11,105 10,468 10,537 10,581 11,914
------- ------- ------- ------- -------
Total nonperforming assets $55,287 $56,356 $59,319 $62,320 $60,105
======= ======= ======= ======= =======
Accruing loans which are 90 days overdue $ 6,674 $10,484 $13,764 $17,990 $24,967
======= ======= ======= ======= =======
Total nonperforming loans as a percentage of total loans 0.62% 0.67% 0.73% 0.78% 0.68%
Total nonperforming assets as a percentage of total assets 0.40% 0.40% 0.43% 0.46% 0.48%
Total nonperforming assets as a percentage of total loans
and leases (1) and total other nonperforming assets 0.77% 0.82% 0.89% 0.94% 0.85%
</TABLE>
- --------------
(1) Total loans and leases are exclusive of loans held for sale.
22
<PAGE> 23
PROVISION/ALLOWANCE FOR LOAN LOSSES
The Company provided $2.8 million for loan and lease losses in the first quarter
of 2000, compared to $3.6 million in the first quarter of 1999. As shown in
Table 8, net charge-offs for the first quarter of 2000 were $3.5 million, or
.20% of average loans outstanding, compared to $3.6 million, or .19% of average
loans outstanding, for the first quarter of 1999. With the exception of the
fourth quarter of 1999, net quarterly charge-offs have remained relatively flat
since the first quarter of 1999. The provisions for loan and lease losses during
the first quarter of 2000 and the fourth quarter of 1999 were less than the net
charge-offs during these periods because of management's overall evaluation of
the adequacy of the total allowance for loan and lease losses, as discussed
below.
At March 31, 2000, the allowance for loan and lease losses amounted to $107.2
million or 1.50% of total portfolio loans and leases, as compared to $110.6
million or 1.56% at March 31, 1999. The ratio of the allowance for loan and
lease losses to nonperforming loans was 243% at March 31, 2000 and 229% at March
31, 1999. Management considers the allowance appropriate and adequate to cover
potential losses inherent in the loan portfolio based on the current economic
environment.
Provisions for loan losses are attributable to management's ongoing evaluation
of the adequacy of the allowance for loan and lease losses, which includes,
among other procedures, consideration of the character and size of the loan
portfolio, such as internal risk ratings and credit concentrations, trends in
nonperforming loans, delinquent loans and net charge-offs, the volume of 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 and lease
losses in subsequent periods. Changing economic and business conditions in
northern New England, fluctuations in local markets for real estate, future
changes in nonperforming asset trends, large movements in market-based interest
rates or other reasons could affect the Company's future provisions for loans
losses.
23
<PAGE> 24
TABLE 8 - ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 First 1999 Fourth 1999 Third 1999 Second 1999 First
Quarter Quarter Quarter Quarter Quarter
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Average loans and leases outstanding
during the period (1) $ 7,010,607 $ 6,845,718 $ 6,833,853 $ 6,804,795 $ 7,476,283
=========== =========== =========== =========== ===========
Allowance at beginning of period $ 107,871 $ 110,788 $ 110,639 $ 110,573 $ 110,561
Charge-offs:
Real estate mortgages 887 2,175 790 1,982 530
Commercial business loans and leases 708 1,627 1,043 346 1,137
Consumer loans and leases 3,854 3,565 3,260 3,904 3,550
----------- ----------- ----------- ----------- -----------
Total loans charged off 5,449 7,367 5,093 6,232 5,217
----------- ----------- ----------- ----------- -----------
Recoveries:
Real estate mortgages 864 62 452 1,402 550
Commercial business loans and leases 533 487 694 688 627
Consumer loans and leases 580 496 531 643 487
----------- ----------- ----------- ----------- -----------
Total loans recovered 1,977 1,045 1,677 2,733 1,664
----------- ----------- ----------- ----------- -----------
Net charge-offs 3,472 6,322 3,416 3,499 3,553
Additions charged to operating expenses 2,815 3,405 3,565 3,565 3,565
----------- ----------- ----------- ----------- -----------
Allowance at end of period $ 107,214 $ 107,871 $ 110,788 $ 110,639 $ 110,573
=========== =========== =========== =========== ===========
Ratio of net charge-offs to average loans
and leases outstanding during the period,
annualized 0.20% 0.37% 0.20% 0.21% 0.19%
Ratio of allowance to total loans and leases
at end of period (2) 1.50% 1.58% 1.66% 1.67% 1.56%
Ratio of allowance to nonperforming loans
at end of period 243% 235% 227% 214% 229%
Ratio of net charge-offs (recoveries) as a
percent of average outstanding loans,
annualized (1):
Real estate mortgages 0.003% 0.255% 0.039% 0.067% (0.002%)
Commercial business loans and
leases 0.054% 0.357% 0.109% (0.111%) 0.181%
Consumer loans and leases 0.543% 0.960% 0.503% 0.628% 0.584%
</TABLE>
- ----------------------------------
(1) Average loans and leases include portfolio loans and loans held for sale.
(2) Total loans and leases are exclusive of loans held for sale.
24
<PAGE> 25
DEPOSITS
Average deposits of $8.1 billion during the first quarter of 2000 decreased $167
million from the first quarter of 1999. Excluding brokered deposits, average
total deposits decreased $87 million compared to the first quarter of 1999. The
ratio of portfolio loans to retail deposits was 88% and 86% at March 31, 2000
and December 31, 1999, respectively.
Average non-interest bearing deposit accounts of $1.3 billion during the first
quarter of 2000 increased $62.9 million or 5% from the first quarter of 1999.
The increase in these non-interest bearing deposits is consistent with the
Company's marketing of these lower-cost accounts.
Average interest-bearing deposit accounts, excluding brokered deposits, of $6.6
billion during the first quarter of 2000 decreased $150 million from the first
quarter of 1999 primarily due to declines in certificates of deposit. The
average rates paid on all deposit types decreased from 3.77% in the first
quarter of 1999 to 3.74% in the first quarter of 2000.
OTHER FUNDING SOURCES
The Company's primary source of funding, other than deposits, are securities
sold under repurchase agreements and advances from the Federal Home Loan Bank of
Boston ("FHLB"). Average borrowed funds for the first quarter of 2000 were $4.7
billion, an increase of $1.8 billion from the first quarter of 1999. The
increase in borrowings was utilized to fund asset growth.
Average FHLB borrowings for the first quarter of 2000 were $3.6 billion, which
increased $1.3 billion or 54% from the first quarter of 1999 in order to fund
the growth in earning assets. FHLB collateral consists primarily of first
mortgage loans secured by 1 - 4 family properties, certain unencumbered
securities and other qualified assets. At March 31, 2000, the Company's FHLB
borrowings amounted to $3.6 billion and its additional borrowing capacity from
the FHLB was $809 million.
Average balances for securities sold under repurchase agreements were $1.0
billion and $574 million for the quarters ended March 31, 2000 and 1999,
respectively, an increase of $448 million. These borrowings, with a cost of
5.30% for the quarter ended March 31, 2000, are secured by mortgage-backed
securities and U.S. Government obligations.
ASSET-LIABILITY MANAGEMENT
The goal of asset-liability management is the prudent control of market risk,
liquidity and capital. Asset-liability management is governed by policies
reviewed and approved annually by the Company's Board of Directors (the "Board")
and monitored periodically by a committee of the Board. The Board delegates
responsibility for asset-liability management to the Liquidity and Funds
Management Committee ("LFMC"), which is comprised of members of senior
management who set strategic directives that guide the day-to-day
asset-liability management activities of the Company. The LFMC also reviews and
approves all major risk, liquidity and capital management programs.
Market Risk
Market risk is the sensitivity of income to changes in interest rates, foreign
exchange rates, commodity prices and other market-driven rates or prices. The
Company has no trading operations and thus is only exposed to non-trading market
risk.
Interest-rate risk, including mortgage prepayment risk, is by far the most
significant non-credit risk to which the Company in exposed. Interest-rate risk
is the sensitivity of income to changes in interest rates. Changes in interest
rates, as well as fluctuations in the level and duration of assets, affect net
interest income, the Company's primary source of revenue. This risk arises
directly from the Company's core banking activities - lending, deposit gathering
and loan servicing. In addition to directly impacting net interest income,
changes in the level of interest rates can also affect (i) the amount of loans
originated and sold by the institution, (ii) the ability of borrowers to repay
adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the
rate of amortization of capitalized mortgage servicing rights and premiums paid
on securities, (v) the amount of unrealized gains and losses on securities
available for sale and (vi) the value of an institution's investment securities
and mortgage loans and the resultant ability to realize gains on the sale of
such assets.
25
<PAGE> 26
The primary objective of interest-rate risk management is to control the
Company's exposure to interest-rate risk both within limits approved by the
Board of Directors and guidelines established by the LFMC. These limits and
guidelines reflect the Company's tolerance for interest-rate risk over both
short-term and long-term horizons. The Company controls interest-rate risk by
identifying, quantifying and, where appropriate, hedging its exposure.
The Company quantifies and measures interest-rate exposures using a model to
dynamically simulate net interest income under various interest rate scenarios
over 12 months. Simulated scenarios include deliberately extreme interest rate
"shocks" and more gradual interest rate "ramps." Key assumptions in these
simulation analyses relate to behavior of interest rates and spreads, the growth
or shrinkage of product balances and the behavior of the Company's deposit and
loan customers. The most material assumption relates to the prepayment of
mortgage assets (including mortgage loans, mortgage-backed securities and
mortgage servicing rights). The risk of prepayment tends to increase when
interest rates fall. Since future prepayment behavior of loan customers is
uncertain, the resultant interest rate sensitivity of loan assets cannot be
determined exactly. Complicating management's efforts to measure interest rate
risk is the uncertainty of the maturity, repricing and/or runoff of some of the
Company's assets and liabilities.
To cope with these uncertainties, management gives careful attention to its
assumptions. For example, many of the Company's interest-bearing deposit
products (e.g. interest checking, savings and money market deposits) have no
contractual maturity and based on historical experience have only a limited
sensitivity to movements in market rates. Because management believes it has
some control with respect to the extent and timing of rates paid on non-maturity
deposits, certain assumptions regarding rate changes are built into the model.
In the case of prepayment of mortgage assets, assumptions are derived from
published dealer median prepayment estimates for comparable mortgage loans.
The Company manages the interest-rate risk inherent in its core banking
operations primarily using on-balance sheet instruments that sometimes contain
embedded options, mainly fixed-rate portfolio securities and borrowed fund
maturities. When appropriate, the Company will utilize off-balance sheet
interest rate instruments such as interest-rate swaps, forward-rate agreements,
options, options on swaps and exchange traded futures and options.
The Company's policy on interest-rate risk simulation specifies that if interest
rates were to immediately shift up or down 200 basis points, estimated net
interest income for the subsequent 12 months should decline by less than 10%.
The Company was in compliance with this limit at March 31, 2000. The Company
also monitors gradual changes in market interest rates which it believes better
represents its exposure to net interest income. The following table reflects the
estimated percentage exposure of the Company's net interest income for the 12
months following the date indicated assuming a gradual shift in market interest
rates of 100 and 200 basis points, respectively.
<TABLE>
<CAPTION>
200 Basis Point 100 Basis Point 100 Basis Point 200 Basis Point
Rate Decrease Rate Decrease Rate Increase Rate Increase
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000 1.26% 1.84% (2.30%) (3.11%)
====== ==== ====== ======
March 31, 1999 (2.37%) 0.37% (0.98%) (2.42%)
====== ==== ====== ======
</TABLE>
The results implied in the above table indicate estimated changes in simulated
net interest income for the subsequent 12 months assuming a gradual shift up or
down in market rates of 100 and 200 basis points across the entire yield curve.
Assuming a downward shift in rates, savings, money market and NOW accounts have
implied interest rate floors and it is assumed that the related interest expense
on these accounts will not decrease in proportion to the downward shift in
rates. Assuming an upward shift in rates of 200 basis points, the simulated
increase in interest income would be less than the simulated increase in
interest expense as the Company's fixed-rate earning assets exceed its
fixed-cost paying liabilities. It should be emphasized, however, that the
results are dependent on material assumptions such as those discussed above.
The Company uses interest rate floors, U.S. Treasury debt instruments and
principal only strips to mitigate the prepayment risk associated with mortgage
servicing rights (see "Non-Interest Income" for further details). At March 31,
2000, the Company had $200 million notional amount in interest rate floors, $20
million in U.S. Treasury bonds and $20 million in principal only strips. The
U.S. Treasury Bonds, noted in the carrying value of mortgage servicing rights
table below, were sold in April 2000 as the amount of the hedge was decreased.
For mortgage servicing rights, the adverse impact of current movements in
interest rates on expected future cash flows must be recognized immediately
through an adjustment to their
26
<PAGE> 27
carrying value. If interest rates decline, estimated future fee income from
mortgage servicing rights is reduced because of an expected increase in mortgage
prepayments.
The following table sets forth the net exposure at March 31, 2000 of the
economic value of mortgage servicing rights and identified hedging instruments,
assuming an immediate shift by the indicated amount in market interest rates.
<TABLE>
<CAPTION>
200 Basis Point 100 Basis Point 100 Basis Point 200 Basis Point
Rate Decrease Rate Decrease Rate Increase Rate Increase
--------------- --------------- --------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage servicing rights ($18,585) ($8,000) $5,900 $10,620
Interest rate floors 5,800 1,600 (400) (600)
U.S. Treasury bonds 6,055 2,647 (2,145) (3,979)
Principal only strips 5,049 2,000 (1,600) (1,989)
-------- ------- ------ ------
Net exposure ($1,681) ($1,753) $1,755 $4,052
======== ======= ====== ======
</TABLE>
The foregoing estimates of the effects of specified changes in interest rates on
the Company's net interest income and the carrying value of its mortgage
servicing rights are based on various assumptions, as discussed above, which
approximate actual experience and which management of the Company considers to
be reasonable. The effects of changes in interest rates on the Company could
vary substantially if different assumptions were used or actual experience
differs from the historical experience on which the assumptions are based.
The most significant factors affecting market risk exposure of net interest
income in the past 12 months has been (i) the increase in interest rates, (ii)
changes in the yield curve for U.S. Government securities, (iii) changes in the
composition of mortgage assets (iv) increases in adjustable rate borrowings with
embedded interest rate caps and (v) the increase and diversification of assets
and off-balance sheet interest-rate instruments used to hedge mortgage servicing
rights.
The Company's earnings are not directly and materially impacted by movements in
foreign currency rate or commodity prices. Virtually all transactions are
denominated in the U.S. dollar. Movements in equity prices may have an indirect
but modest impact on earnings by affecting the volume of activity or the amount
of fees from investment-related businesses.
LIQUIDITY
Parent Company
On a parent-only basis, the Company does not have substantial commitments or
debt service requirements. At March 31, 2000, such commitments consisted
primarily of junior subordinated debentures issued to a subsidiary, Peoples
Heritage Capital Trust I, in connection with that subsidiary's issuance of 9.06%
Capital Securities due 2027. The principal sources of funds for the Company to
meet parent-only obligations are dividends from its banking subsidiaries, which
are subject to regulatory limitations. Other potential sources include public
and private borrowings.
Banking Subsidiaries
For banking subsidiaries of the Company, liquidity represents the ability to
fund asset growth and accommodate deposits withdrawals. Liquidity risk is the
danger that the banks cannot meet anticipated or unexpected funding requirements
or can meet them only at excessive cost. Liquidity is measured by the ability to
raise cash when needed at a reasonable cost. Many factors affect a bank's
ability to meet liquidity needs, including variations in the markets served, its
asset-liability mix, its reputation and credit standing in the market and
general economic conditions.
In addition to traditional retail deposits, the banks have various other
liquidity sources including proceeds from maturing securities and loans, the
sale of securities, asset securitizations and borrowed funds such as FHLB
advances, reverse repurchase agreements and brokered deposits
27
<PAGE> 28
The Company continually monitors and forecasts its liquidity position. There are
several interdependent methods including daily review of fed funds positions,
monthly review of balance sheet changes, monthly review of liquidity ratios,
periodic liquidity forecasts and periodic review of contingent funding plans.
As of March 31, 2000 the banks had $1.3 billion of "immediately accessible
liquidity" defined as cash that could be raised within 1-3 days through
collateralized borrowings or security sales. This represents 15% of deposits or
9% of assets. The Company's current policy minimum is 10% of deposits.
Also as of March 31, 2000 the banks had "potentially volatile funds" of $894
million. These are funds that might flow out of the banks over a 90-day period
in an adverse environment. Management estimates this figure by applying adverse
probabilities to its various credit-sensitive and economically-sensitive funding
sources.
As of March 31, 2000 the ratio of "immediately accessible liquidity" to
"potentially volatile funds" was 144%, versus a policy minimum of 100%.
In addition to the liquidity sources discussed above, management believes that
its consumer loan portfolios provide a significant amount of contingent
liquidity that could be accessed in a reasonable time period through sale or
securitization. The banks also have significant untapped access to the national
brokered deposit market. Both of these sources are contemplated as secondary
liquidity in the Company's contingent funding plan. Management believes that the
level of liquidity is sufficient to meet current and future funding
requirements.
CAPITAL
At March 31, 2000, shareholders' equity amounted to $853.3 million. In addition,
through a subsidiary trust, the Company had outstanding $68.8 million of Capital
Securities which mature in 2027 and qualify as Tier 1 Capital. The Company paid
a $0.125 per share dividend on its common stock during the first quarter of
2000. In July 1999, the Company authorized a 4,000,000 share repurchase program.
As of March 31, 2000, the Company completed this repurchase program at a total
cost of $66.1 million, having repurchased 912,500 shares for $12.3 million, or
an average price of $13.53 per share, in the first quarter of 2000.
Capital guidelines issued by the Federal Reserve Board require the Company to
maintain certain ratios, set forth in Table 9. As indicated in such table, the
Company's regulatory capital currently substantially exceeds all applicable
requirements.
TABLE 9 - REGULATORY CAPITAL REQUIREMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
For Capital Adequacy
Actual Purposes Excess
--------------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000:
Total capital (to risk weighted assets) $1,031,438 12.23% 337.304 8.00% $ 694,134 4.23%
Tier 1 capital (to risk weighted assets) 926,031 10.98% 337,304 4.00% 588,727 6.98%
Tier 1 leverage capital ratio (to average assets) 926,031 6.75% 546,525 4.00% 379,506 2.75%
As of December 31, 1999:
Total capital (to risk weighted assets) 1,015,125 12.38% 656,097 8.00% 359,028 4.38%
Tier 1 capital (to risk weighted assets) 912,544 11.13% 328,048 4.00% 584,496 7.13%
Tier 1 leverage capital (to average assets) 912,544 6.60% 552,173 4.00% 360,371 2.60%
</TABLE>
Net risk weighted assets were $8.4 billion and $8.2 billion at March 31, 2000
and December 31, 1999, respectively.
The Company's banking subsidiaries are also subject to federal, and in certain
cases state, regulatory capital requirements. At March 31, 2000, each of the
Company's banking subsidiaries was deemed to be "well capitalized" under the
regulations of the applicable federal banking agency and in compliance with
applicable state capital requirements.
28
<PAGE> 29
IMPACT OF THE YEAR 2000
The Company has not experienced any significant disruptions to its financial or
operating activities caused by a failure of its computerized systems resulting
from Year 2000 issues. Year 2000 expenses incurred in 1999 were funded out of
the Company's operating cash flow.
COMPLETED ACQUISITION
On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc.,
which was effected by means of the merger of Banknorth Group, Inc. with and into
the Company. The Company changed its name to "Banknorth Group, Inc." as a result
of the merger. As a result of the merger and the change in the name of the
Company, the Company's symbol on the Nasdaq stock market is now BKNG. Upon
consummation of the merger, each share of Banknorth common stock outstanding was
automatically converted into the right to receive 1.825 shares of Company common
stock including each attached right issued pursuant to an Amended and Restated
Rights Agreement, dated as of September 12, 1989 and amended and restated as of
July 27, 1999, with cash in lieu of fractional share interests. The financial
statements included herein reflect the historical financial statements of the
Company prior to the acquisition.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which sets accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This Statement currently is
scheduled to be effective for the Company for years beginning January 1, 2001,
and is not expected to have a significant impact on the Company's financial
condition or results of operations.
FORWARD LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the Securities
Exchange Act of 1934. 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.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of events or circumstances
after the date of such statements.
29
<PAGE> 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate Risk
and Asset - Liability Management" is incorporated herein by reference.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which in the aggregate are believed by
management to be immaterial to the financial condition and results of
operations of the Company.
Item 2. Changes in securities - not applicable.
Item 3. Defaults upon senior securities - not applicable.
Item 4. Submission of matters to a vote of security holders.
(a) A special meeting of shareholders was held on March 7, 2000.
(b) Not applicable.
(c) The item voted on at the meeting was the adoption of the
agreement and plan of merger, dated June 1, 1999, between the
Peoples Heritage Financial Group, Inc. and Banknorth Group,
Inc., as amended, which provided, among other things, for (i)
the merger of Banknorth with and into Peoples Heritage
Financial Group, Inc. under the name "Banknorth Group, Inc."
and (ii) the conversion of each share of Banknorth common
stock outstanding into the right to receive 1.825 shares of
Peoples Heritage Financial Group, Inc., plus cash in lieu of
fractional share interests. The result was as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
69,053,408 1,684,317 632,543 1,354,539
ITEM 5. OTHER INFORMATION.
The Company recently entered into revised severance agreements with
William J. Ryan, Peter J. Verrill, R. Scott Bacon, David J. Ott and other
executive officers of the Company. Pursuant to these agreements, each of these
officers would receive specified benefits in the event that his employment was
terminated by the Company other than for cause, disability, retirement or death
following a "change in control" of the Company, as defined, or the officer
terminated his employment under such circumstances for "good reason," as
defined. The benefits payable under such circumstances to each officer include a
lump sum payment equal to three times (in the case of the above-named executive
officers) and three or two times (in the case of other executive officers) the
sum of (i) the officer's annual salary at the rate in effect at the specified
time and (ii) the greatest of the bonuses paid to such officer or accrued on his
behalf in either the year in which the change in control occurred or the
immediately preceding year. The agreements also generally provide each officer
with an additional three years (in the case of the above-named executive
officers) and three or two years (in the case of other executive officers) of
benefits under the Company's various employee benefit plans under such
circumstances, as well as accelerated vesting of an officer's rights under any
equity or long-term incentive plan of the Company. The agreements also provide
that in the event that any of the payments to be made thereunder or otherwise
upon termination of employment are deemed to constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code, and
payments will cause the executive officer to incur an excise tax under the
Internal Revenue Code, the Company shall pay the executive officer an amount
such that after payment of all federal, state and local income tax and any
additional excise tax, the executive officer will be fully reimbursed for the
amount of such excise tax. Excess parachute payments generally are payments in
excess of three times the recipient's average annual compensation from the
employer includable in the recipient's gross income during the most recent five
taxable years ending before the date of a change in control of the employer
("base amount"). Recipients of excess parachute payments are subject to a 20%
federal excise tax on the amount by which such payments exceed the base amount,
in addition to regular income taxes, and
30
<PAGE> 31
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.
The form of the severance agreement between the Company and the
above-named executive officers is included as an exhibit to this report.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibit 10 - Form of severance agreement between the Company
and each of William J. Ryan, Peter J. Verrill, R. Scott
Bacon and David J. Ott.
Exhibit 27 - Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K on January 19,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANKNORTH GROUP, INC.
Date: May 15, 2000 By: /s/ William J. Ryan
-------------------------------
William J. Ryan
Chairman, President and
Chief Executive Officer
Date: May 15, 2000 By: /s/ Peter J. Verrill
-------------------------------
Peter J. Verrill
Executive Vice President,
Operating Officer and
Chief Financial Officer
Date: May 15, 2000 By: /s/ Stephen J. Boyle
-------------------------------
Stephen J. Boyle
Executive Vice President and
Controller
(principal accounting officer)
31
<PAGE> 1
EXHIBIT 10
BANKNORTH GROUP, INC.*
SEVERANCE AGREEMENT
This AGREEMENT, made and entered into as of the ___ day of ________, by
and among BANKNORTH 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:
1. DEFINITIONS
(a) Accrued Benefits 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;
(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 shall mean the sum of:
(i) the Executive's annual base 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(l)(i)(A) below, the annual base salary as in effect immediately before the
actions giving rise to Good Reason); plus
- --------------------------
*This form reflects the change of the Company's name from Peoples Heritage
Financial Group, Inc. to Banknorth Group, Inc., effective as of May 10, 2000.
1
<PAGE> 2
(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).
(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 (l) 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 mean the occurrence of any of the following
events:
(i) any "person" (as defined under Section
3(a)(9) of the Act) or "group" of persons (as provided under Rule 13d-3 of the
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 or otherwise
under the Act), directly or indirectly (including as provided in Rule
13d-3(d)(1) of the Act), of capital stock of the Company the holders of which
are entitled to vote for the election of directors ("voting stock") representing
that percentage of the Company's then outstanding voting stock (giving effect to
the deemed ownership of securities by such person or group, as provided in Rule
13d-3(d)(1) of the Act, but not giving effect to any such deemed ownership of
securities by another person or group) equal to or greater than twenty-five
percent (25%) of all such voting stock;
(ii) During any period of twenty four consecutive
months, individuals who at the beginning of such period constituted the Board of
Directors of the Company (including for this purpose any new director whose
election or nomination for election by the Company's shareholders was approved
by a vote of at least a majority of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors of the Company (excluding any Board
seat that is vacant or otherwise unoccupied).
(iii) There shall be consummated any consolidation,
merger, stock for stock exchange or similar transaction (collectively, "Merger
Transactions") involving securities of the Company in which holders of voting
stock of the Company immediately prior to such consummation own, as a group,
immediately after such consummation, voting stock of the Company (or, if the
Company does not survive the Merger Transaction, voting securities of the
corporation surviving such transaction) having less than 50% of the total voting
power in an election of directors of the Company (or such other surviving
corporation).
(h) Code means the Internal Revenue Code of 1986,
including any amendments thereto.
(i) Company Retirement Plan is defined in Section
1(q) below.
(j) Effective Date means the date this Agreement is
executed by the parties.
(k) 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.
(l) Good Reason means:
(i) any breach of this Agreement by the Company,
including without limitation (A) any reduction during the employment
period in the amount of the Executive's base salary or aggregate
benefits as in effect from time to time, (B) failure to provide the
Executive with the same fringe benefits that were provided to the Executive
immediately prior to a Change in Control of the Company, or with a package of
fringe benefits (including paid vacations) that, though one or more of such
benefits may vary from those in effect immediately prior to such a Change in
Control, is substantially comparable in all material respects to such fringe
benefits taken as a whole, or (C) any other breach by the Company of its
obligations contained in Section 6 below;
(ii) without the Executive's express written
consent, the assignment to the Executive of any duties which are
materially inconsistent with the Executive's positions, duties,
responsibilities and status immediately prior to the Change in Control of the
Company, a material change in the Executive's reporting responsibilities, titles
or offices as an employee and as in effect 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;
2
<PAGE> 3
(iii) the relocation of the Executive's principal
place of employment, without the Executive's written consent, to a location
outside the same metropolitan area in which the Executive was employed at the
time of such Change in Control, or the imposition of any requirement that the
Executive spend more than ninety business days per year at a location other than
such principal place of employment; or
(iv) any purported termination of the Executive's
employment for Cause, Disability or Retirement which is not effected pursuant to
a Notice of Termination satisfying the requirements of paragraph (n) below. Upon
the occurrence of any of the events described in (i), (ii), (iii), or (iv)
above, the Executive shall give the Company written notice that such event
constitutes Good Reason, and the Company shall thereafter have thirty (30) days
in which to cure. If the Company has not cured in that time, the event shall
constitute Good Reason.
(m) Normal Retirement Date means Normal Retirement Date as
defined in the Banknorth Group, Inc. Retirement Plan.
(n) 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.
(o) Person or Group means a "person" or "group," as defined in
Section 1(g)(i) hereof.
(p) Plan Year with respect to any of the Retirement Plan, the
Thrift Plan (as defined below) or the Employee Stock Ownership Plan, the "plan
year" as defined in such plan.
(q) Retirement Plan means the Banknorth Group, Inc. Retirement
Plan or any successor plan.
(r) SERP Agreement means the Supplemental Retirement Agreement
between the Executive and the Company.
(s) Year means a calendar year unless otherwise specifically
provided.
2. TERM OF AGREEMENT.
This Agreement shall begin on the Effective Date and shall
continue until the third anniversary of such date, provided that, on the first
anniversary of the Effective Date, and on 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 ninety (90) days prior to the date of any
such renewal, and further provided that if a Change in Control of the Company
occurs during such term, the term shall in all events continue through the last
day of the Employment Period. This Agreement is also subject to earlier
termination as provided in Section 3 below. All rights and obligations hereunder
shall survive to the extent necessary to the intended enforcement thereof.
3. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL.
(a) The Company and the Executive shall each retain the right
to terminate the employment of the Executive at any time prior to a Change in
Control of the Company. In the event the Executive's employment is terminated
prior to a Change in Control of the Company, this Agreement shall, except as
provided in Subsection (b) below, be terminated and of no further force and
effect, and any and all rights and obligations of the parties hereunder shall
cease.
(b) If the Executive's employment is terminated by the Company
prior to the occurrence of a Change in Control of the Company, and if it can be
shown that the Executive's termination (i) was at the direction or request of a
third party that had taken steps reasonably calculated to effect the Change in
Control of the Company thereafter, or (ii) otherwise occurred in connection
with, or in anticipation of, the Change in Control of the Company, the Executive
shall have the rights described in Section 7(d) below, as if a Change in Control
of the Company had occurred on the date immediately preceding such termination.
4. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
If a Change in Control of the Company occurs when the
Executive is employed by the Company, the Company will continue thereafter to
employ the Executive, and the Executive will remain in the employ of the
Company, during the Employment Period, in accordance with the terms and
provisions of this Agreement.
5. DUTIES.
During the Employment Period, the Executive shall serve in
such capacities and positions as may be assigned by the Company consistent with
the Executive's capacities and positions on the Effective Date and shall devote
the Executive's best efforts and all of the Executive's business time, attention
and skill to the business and affairs of the Company, as such business and
affairs now exist and as they may hereafter be conducted.
6. COMPENSATION.
During the Employment Period, the Executive shall be compensated by the
Company as follows:
(a) the Executive shall receive, at such intervals and in accordance
with such standard policies as in effect on the date of the Change in Control of
the Company, an annual base salary not less than the Executive's annual base
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
3
<PAGE> 4
extended by the Company from time to time to senior corporate officers,
key employees and other employees of comparable status;
(c) the Executive shall be reimbursed, at such intervals and in
accordance with such standard policies as may be in effect on the date of the
Change in Control of the Company, for any and all monies advanced in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive on behalf of the Company, including travel expenses;
(d) the Executive shall be included, to the extent eligible thereunder,
in any and all plans providing but not limited to, group life insurance,
hospitalization, disability, medical, dental, pension, profit sharing and stock
bonus plans, and shall be provided any and all other benefits and perquisites
made available to other employees of comparable status and position at the
expense of the Company on a comparable basis;
(e) the Executive shall receive annually not less than the amount of
paid vacation and not fewer than the number of paid holidays received annually
immediately prior to the Change in Control of the Company or available annually
to other employees of comparable status and position with the Company; and
(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 1(n).
(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 all
Accrued Benefits, if any, 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 the 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 only the 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 the
Accrued Benefits, except that, for this purpose, Accrued Benefits shall not
include any entitlement to severance under any Company severance policy
generally applicable to the Company's salaried employees;
(ii) the Executive shall receive from the Company, no less than ten
(10) days following termination of his employment, a lump sum payment (the
"Termination Payment") equal to three times the Annual Compensation;
(iii) for purposes of determining the Executive's benefit under the
SERP Agreement, the Executive shall be credited with 36 additional months of age
and of service determined as follows:
(A) The additional 36 months of age and service shall be applied for
purposes of benefit accrual, vesting, eligibility for early retirement,
subsidized early retirement factors, actuarial equivalence and any other
purposes under the Retirement Plan and the SERP Agreement.
(B) Any provision under the Retirement Plan or the SERP Agreement
prohibiting the accrual of any additional benefits after the Executive has been
credited with more than a stated number of years of service shall be
disregarded.
(C) For purposes of determining the amount of the Executive's benefit
under the SERP Agreement, the reduction in respect of the benefit paid under the
Retirement Plan shall be based on the Executive's actual Retirement Plan benefit
(that is, without any additional deemed service).
(D) For purposes of determining the Early Retirement Benefit (as
defined in the SERP Agreement) and other optional forms of benefit under the
SERP Agreement, if the Executive is less than fifty-five
4
<PAGE> 5
(55) years of age, the Executive shall be deemed to be at least fifty-five
(55) years of age on the date his employment with the Company terminates,
notwithstanding the Executive's actual age, if less.
(E) the Benefit Computation Base (as defined in the SERP Agreement)
shall be determined as if it were being calculated at the end of the 36 month
period of service credited to the Executive under this Section 7(d)(iii) and as
if during such 36 additional month period the Executive's annualized
compensation was the same as such compensation for (I) the Year during which the
Executive's employment is terminated, or, (II) any Year before the Change in
Control occurred, whichever is greater.
(F) Any amendment to the Retirement Plan within the twelve (12) month
period prior to the termination of the Executive's employment shall be
disregarded to the extent that the application of such amendment would decrease
the total amount of the benefits provided for in this Section 7(d)(iii).
(G) The Executive shall be entitled to a lump sum distribution of his
SERP in all events, and the Company shall not be entitled to require payment
over a longer period. If the Executive elects a lump sum payment (i) the
actuarial equivalent benefit shall be determined in accordance with the
provisions of the Retirement Plan as in effect immediately prior to the Change
in Control, or as in effect on termination of the Executive's employment,
whichever creates the greater benefit, and (ii) payment shall be made within
thirty (30) days following the later of (A) termination of the Executive's
employment, or (B) the date the Executive gives written notice of the
Executive's intent to elect a lump sum.
(iv) the Executive shall be paid a lump sum amount equal to (A) the sum
of (I) the aggregate contributions and forfeitures allocated to the Executive's
account under the Banknorth Group, Inc. Profit Sharing and Employee Stock
Ownership Plan (the "Employee Stock Ownership Plan") for the Plan Year ending
immediately prior to the Change of Control, or, if different, the Plan Year
ending immediately prior to the termination of the Executive's employment,
whichever Plan Year would produce the greater aggregate value, (II) the total
aggregate value of all contributions, other than elective contributions by the
Executive and employer matching contributions relating thereto, and forfeitures
allocated to the Executive's account under the Banknorth Group, Inc. Thrift
Incentive Plan (the "Thrift Plan") for the Plan Year ending immediately prior to
the Change of Control, or, if different, the Plan Year ending immediately prior
to the termination of the Executive's employment, whichever Plan Year would
produce the greater aggregate value, and (III) (A) the matching contributions
under the Thrift Plan (or its successor) which would have been credited under
such plan on Executive's behalf, if the Executive had contributed the maximum
salary deferral contribution allowable under Section 402(g) of the Code, for the
calendar year in which he terminated employment with the Company, multiplied by
(B) three (3).
(v) all rights under any equity or long-term incentive plan shall be
fully vested;
(vi) the Executive shall (A) 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 (I) 36
months following termination of employment, or (II) the date the Executive has
commenced new employment and has thereby become eligible for comparable
benefits; provided that, with respect to any of the coverages described above,
if such coverage is provided through an insurance policy with an insurance
company unaffiliated with the initial Company, and if under the terms of the
applicable policy, it is not possible to provide continued coverage (including
if continued coverage under the policy would increase the Company's cost
allocable to the Executive by more than 100%), then the Company shall pay the
Executive a lump sum cash amount, no later than sixty (60) days following
termination of employment an amount equal to twice the aggregate allocable cost
of such coverage as applicable immediately prior to termination of employment,
such payment to be made without any discount for present value.
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 (i)
part or all of the compensation and benefits to be paid to the Executive
constitute "parachute payments" under Section 280G of the Code, and (ii) the
payment thereof will cause the Executive to incur excise tax under Section 4999
of the Code, the Company, on or before the date for payment of such excise tax,
shall pay the Executive, in lump sum, an amount (the "Gross-Up Amount") such
that, after payment of all federal, state and local income tax and any
additional excise tax under Section 4999 of the Code in respect of the Gross-Up
Amount payment, the Executive will be fully reimbursed for the amount of such
excise tax.
(b) The determination of the Parachute Amount, the Base Amount and the
Gross-Up Amount, as well as any other calculations necessary to implement this
Section 8 shall be made by a nationally recognized accounting or benefits
consulting firm selected by the Executive and reasonably satisfactory to the
Company and which has not performed services, other than minor indirect or
incidental services, for either the Company or the Executive for three years
prior to the date the Consultant is retained for this purpose. The Consultant's
fee shall be paid by the Company.
(c) As promptly as practicable following such determination and the
elections hereunder, the Company shall pay to or distribute to or for the
benefit of the Executive such amounts as are then due to the Executive
5
<PAGE> 6
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 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.
(a) CONFIDENTIALITY. 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.
(b) NON-SOLICITATION. For the period from the Effective Date until the
second anniversary of the termination of the Executive's employment, the
Executive will not, directly or indirectly, contact, approach or solicit for the
purpose of offering employment to or hiring (whether as an employee, consultant,
agent, independent contractor or otherwise) any officer of the Company, or its
affiliates, other than on the Company's behalf, without the prior written
consent of the Company.
10. EQUITABLE RELIEF.
Executive acknowledges and agrees that in the event of a breach by
Executive of any of the provisions of Section 9 hereof, the Company shall suffer
irreparable harm for which monetary damages alone will constitute an
insufficient remedy. Consequently, in the event of any such breach, the Company
may, in addition to other rights and remedies existing in its favor, apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof, in each case without the requirement of posting a bond
or proving actual damages.
11. EXPENSES AND INTEREST.
If, after a Change in Control of the Company, a good faith dispute
arises with respect to the enforcement of the Executive's rights under this
Agreement, or if any legal or arbitration proceeding shall be brought in good
faith to enforce or interpret any provision contained herein, or to recover
damages for breach hereof, the Executive shall recover from the Company any
reasonable attorney's fees and necessary costs and disbursements incurred as a
result of such dispute, and prejudgment interest on any money judgment or
arbitration award obtained by the Executive calculated at the rate of interest
announced by Peoples Heritage Bank, or the successor thereto, from time to time
as its prime rate from the date that payments to him should have been made under
this Agreement.
12. 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.
13. SUCCESSORS.
(a) If the Company sells, assigns, or transfers all or substantially
all of its business and assets to any Person, excluding Affiliates of the
Company, or if the Company merges into or consolidates or otherwise combines
with any Person which is a continuing or successor entity, then the Company
shall assign all of its rights, title and interest in this Agreement as of the
date of such event to the Person which is either the acquiring or successor
Company, and such Person shall assume in writing and perform from and after the
date of such written assignment all of the terms, conditions and provisions
imposed by this Agreement upon the Company. Failure of the Company to obtain
such written assignment shall be a breach of this Agreement. In case of such
assignment by the Company and of written assumption and agreement by such
Person, all further rights as well as all other obligations of the Company under
this Agreement thenceforth shall
6
<PAGE> 7
cease and terminate and thereafter the expression "the Company" wherever used
herein shall be deemed to mean such Person or Persons.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
All amounts payable to the Executive hereunder shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs and representatives.
This Agreement shall inure to the benefit of, be binding upon and be enforceable
by, any successor, surviving or resulting Company or other entity to which all
or substantially all of the Company's business and assets shall be transferred.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company.
14. ENFORCEMENT. The provisions of this Agreement shall be regarded as
divisible, and if any such provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
15. AMENDMENT. This Agreement may not be amended or modified at any
time except by a written instrument executed bythe 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.
16. 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.
17. GOVERNING LAW. This Agreement and the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
State of Maine.
18. ARBITRATION. 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.
19. 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:
Banknorth Group, Inc.
P.O. Box 9540
One Portland Square
Portland, ME 04112
Attn: Clerk
or if to the Executive, at the address included in the Company's records, or to
such other address as the party to be notified shall have given to the other.
20. 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.
21. HEADINGS. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof. All prior
correspondence and proposals (including but not limited to summaries of proposed
terms) and all prior promises, representations, understandings, arrangements and
agreements relating to such subject matter are merged herein and superseded
hereby; provided however, that the terms of the SERP Agreement, the Retirement
Plan, the Thrift Plan, the Employee Stock Ownership Plan, and any effective
applicable employment agreement shall be incorporated herein and made a part
hereof to the extent not inconsistent with the terms hereof.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
BANKNORTH GROUP, INC.
____________________________ By:____________________________________
Witness William J. Ryan
Chairman, president and Chief
Executive Officer
- ----------------------------- ---------------------------------------
Witness
8
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