<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 September 30, 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)
Maine 01-0437984
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Portland Square, Portland, Maine 04112
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(207) 761-8500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the Registrant's common stock and related
stock purchase rights as of October 31, 2000 is:
Common stock, par value $.01 per share 144,820,551
-------------------------------------- -------------
(Class) (Outstanding)
<PAGE> 2
INDEX
BANKNORTH GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders'
Equity - Nine months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Nine months ended September 30, 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 32
PART II. OTHER INFORMATION
Item 1. Legal proceedings 32
Item 2. Changes in securities and use of proceeds 32
Item 3. Defaults upon senior securities 32
Item 4. Submission of matters to a vote of security holders 32
Item 5 Other information 32
Item 6 Exhibits and reports on Form 8-K 32
Signatures 32
2
<PAGE> 3
BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 482,730 $ 546,816
Federal funds sold and other short term investments 27,264 229,579
Securities available for sale, at market value 5,761,558 6,316,031
Securities held to maturity (fair value of $473,228 and $535,605
at September 30, 2000
and December 31, 1999, respectively) 474,978 557,151
Loans held for sale 38,884 82,318
Loans and leases:
Residential real estate mortgages 2,267,650 2,270,417
Commercial real estate mortgages 2,969,332 2,696,317
Commercial business loans and leases 2,245,803 1,924,201
Consumer loans and leases 3,258,239 2,963,721
------------ ------------
10,741,024 9,854,656
Less: Allowance for loan and lease losses 156,867 155,048
------------ ------------
Net loans and leases 10,584,157 9,699,608
------------ ------------
Premises and equipment 189,710 192,540
Goodwill and other intangibles 191,245 184,381
Mortgage servicing rights 41,029 52,724
Bank-owned life insurance 302,191 288,783
Other assets 368,577 358,333
------------ ------------
$ 18,462,323 $ 18,508,264
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Regular savings $ 1,445,146 $ 1,567,776
Money market and NOW accounts 3,940,488 3,698,934
Certificates of deposit 4,554,514 4,448,229
Brokered deposits 65,591 173,798
Demand deposits 2,063,665 1,821,764
------------ ------------
Total deposits 12,069,404 11,710,501
Federal funds purchased and securities sold under repurchase agreements 866,953 1,302,821
Borrowings from the Federal Home Loan Bank of Boston 3,806,025 3,997,819
Other borrowings 166,890 66,838
Other liabilities 143,337 139,236
------------ ------------
Total liabilities 17,052,609 17,217,215
------------ ------------
Company obligated, mandatory redeemable securities of subsidiary trusts 98,775 98,775
holding solely parent junior subordinated debentures
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, 400,000,000 and 200,000,000 shares
authorized, 149,584,289 and 149,623,204 shares issued) 1,496 1,496
Paid-in capital 616,926 617,523
Retained earnings 858,118 787,238
Unearned compensation (1,438) (2,751)
Accumulated other comprehensive income (loss) (82,900) (125,394)
Treasury stock, at cost (4,627,254 shares and 4,649,306 shares) (81,263) (85,838)
------------ ------------
Total shareholders' equity 1,310,939 1,192,274
------------ ------------
$ 18,462,323 $ 18,508,264
============ ============
</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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases $ 228,802 $ 203,925 $ 659,766 $ 619,643
Interest and dividends on securities 107,757 113,404 333,240 284,590
------------- ------------ ------------- ------------
Total interest and dividend income 336,559 317,329 993,006 904,233
Interest expense:
Interest on deposits 107,119 91,971 302,978 280,622
Interest on borrowed funds 78,727 65,358 230,977 159,243
------------- ------------ ------------- ------------
Total interest expense 185,846 157,329 533,955 439,865
Net interest income 150,713 160,000 459,051 464,368
Provision for loan and lease losses 6,250 6,165 17,167 17,570
------------- ------------ ------------- ------------
Net interest income after provision
for loan and lease losses 144,463 153,835 441,884 446,798
Noninterest income:
Customer services 20,801 18,390 59,882 49,830
Mortgage banking services 6,172 4,220 14,813 17,615
Insurance commissions 6,030 4,681 16,003 14,277
Trust services 8,612 8,382 26,039 25,374
Investment advisory services 1,679 1,696 5,115 4,402
Bank-owned life insurance income 4,216 3,811 13,481 11,608
Merchant and card product income, net 4,021 3,674 11,560 9,213
Net securities gains (losses) (23) 9 2 655
Losses on securities restructuring -- -- (15,895) --
Other noninterest income 4,559 2,917 16,122 8,910
------------- ------------ ------------- ------------
56,067 47,780 147,122 141,884
Noninterest expenses:
Salaries and employee benefits 53,175 57,922 170,461 171,381
Data processing 9,024 9,364 27,060 29,421
Occupancy 9,287 9,803 30,320 29,695
Equipment 8,010 7,726 23,575 22,245
Distributions on securities of subsidiary trusts 2,346 2,347 7,040 7,496
Amortization of goodwill and other intangibles 5,268 5,166 15,669 15,465
Special charges 414 -- 43,022 31,891
Other noninterest expenses 24,525 24,881 75,250 73,253
------------- ------------ ------------- ------------
112,049 117,209 392,397 380,847
Income before income tax expense 88,481 84,406 196,609 207,835
Applicable income tax expense 27,890 28,132 67,239 69,712
------------- ------------ ------------- ------------
Net income $ 60,591 $ 56,274 $ 129,370 $ 138,123
============= ============ ============= ============
Weighted average shares outstanding:
Basic 144,680,123 145,628,899 144,468,306 146,118,999
Diluted 145,736,317 147,188,579 145,382,650 147,868,635
Earnings per share:
Basic $ 0.42 $ 0.39 $ 0.90 $ 0.95
Diluted 0.42 0.38 0.89 0.93
</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
Unearned Other
Par Paid-in Retained Compen- Comprehensive Treasury
Value Capital Earnings sation Income (Loss) Stock Total
-------- -------- -------- -------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 $ 1,496 $617,523 $787,238 $(2,751) $(125,394) $(85,838) $1,192,274
Net income -- -- 129,370 -- -- -- 129,370
Unrealized gain on securities, net of
reclassification adjustment -- -- -- -- 42,494 -- 42,494
----------
Comprehensive income 171,864
----------
Common stock issued for employee benefit
plans -- -- (5,708) -- -- 14,341 8,633
Common stock issued for acquisition 1 1,324 -- -- -- -- 1,325
Cancellation of treasury shares at
acquisition (1) (2,206) -- -- -- 2,207 --
Treasury stock purchased -- -- -- -- -- (12,343) (12,343)
Decrease in unearned compensation -- 775 -- 321 -- -- 1,096
Issuance of restricted stock -- (82) (165) -- -- 370 123
Amortization of restricted stock awards -- (390) -- 992 -- -- 602
Payment of fractional shares -- (18) -- -- -- -- (18)
Cash dividends -- -- (52,617) -- -- -- (52,617)
-------- -------- -------- ------- --------- -------- ----------
Balances at September 30, 2000 $ 1,496 $616,926 $858,118 $(1,438) $( 82,900) $(81,263) $1,310,939
======== ======== ======== ======= ========= ======== ==========
Balances at December 31, 1998 $ 1,496 $618,624 $669,357 $(3,756) $ 1,858 $(65,189) $1,222,390
Net income -- -- 138,123 -- -- -- 138,123
Unrealized losses on securities, net of
reclassification adjustment -- -- -- -- (85,626) -- (85,626)
----------
Comprehensive income 52,497
----------
Common stock issued for employee benefit
plans -- -- (9,792) -- -- 26,391 16,599
Treasury stock purchased -- -- -- -- -- (53,745) (53,745)
Decrease in unearned compensation -- 1,167 -- 576 -- -- 1,743
Issuance of restricted stock -- 160 (271) (655) -- 1,189 423
Amortization of restricted stock awards -- (571) -- 699 -- -- 128
Premium on repurchase of trust preferred
securities -- (1,801) -- -- -- -- (1,801)
Payment of fractional shares -- (3) -- -- -- -- (3)
Cash dividends -- -- (49,109) -- -- -- (49,109)
-------- -------- -------- ------- --------- -------- ----------
Balances at September 30, 1999 $ 1,496 $617,576 $748,308 $(3,136) $( 83,768) $(91,354) $1,189,122
======== ======== ======== ======= ========= ======== ==========
</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>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 129,370 $ 138,123
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses 17,167 17,570
Depreciation 20,466 20,119
Amortization of goodwill and other intangibles 15,669 15,465
Provision for deferred tax expense (16,726) (1,082)
ESOP expense 1,096 1,743
Issuance and amortization of restricted stock 725 551
Net (gains) losses realized from sales of securities
and consumer loans 11,135 (655)
Net losses realized from sales of loans held for sale
(a component of mortgage banking services) (150) 130
Earnings from bank owned life insurance (13,481) (12,201)
Net (increase) decrease in mortgage servicing rights 11,695 (8,015)
Proceeds from sales of loans held for sale 184,408 1,012,031
Residential loans originated and purchased for sale (140,824) (567,448)
Net decrease (increase) in interest and dividends
receivable and other assets (38,277) (35,760)
Net increase (decrease) in other liabilities 8,181 29,546
------------ -----------
Net cash provided (used) by operating activities $ 190,454 $ 610,117
------------ -----------
Cash flows from investing activities:
Proceeds from sales of securities available for sale $ 106,220 $ 49,653
Proceeds from maturities and principal repayments of
securities available for sale 729,429 1,384,779
Purchases of securities available for sale (227,834) (3,758,742)
Proceeds from maturities and principal repayments of
securities held to maturity 79,079 71,059
Net (increase) decrease in loans and leases (931,215) (369,620)
Proceeds from sale of loans 34,234 --
Purchase of bank owned life insurance -- (165,406)
Net additions to premises and equipment (21,716) (16,721)
------------ -----------
Net cash provided (used) by investing activities $( 231,803) $(2,804,998)
------------ -----------
Cash flows from financing activities:
Net (decrease) increase in deposits $ 358,903 $( 286,725)
Net increase (decrease) in securities sold under
repurchase agreements (435,868) (39,414)
Proceeds from Federal Home Loan Bank of Boston borrowings 11,054,300 2,982,240
Payments on Federal Home Loan Bank of Boston borrowings (11,246,094) (627,532)
Net increase (decrease) in other borrowings 100,052 19,385
Repurchase of trust preferred securities -- (33,026)
Issuance of stock 8,633 16,596
Purchase of treasury stock (12,343) (53,745)
Dividends paid (52,617) (49,109)
Other shareholders' equity, net (18) --
------------ -----------
Net cash provided by financing activities $( 225,052) $ 1,928,670
------------ -----------
Increase (decrease) in cash and cash equivalents $( 266,401) $( 266,211)
Cash and cash equivalents at beginning of period 776,395 838,594
------------ -----------
Cash and cash equivalents at end of period $ 509,994 $ 572,383
============ ===========
</TABLE>
For the nine months ended September 30, 2000 and 1999, interest of $535,742 and
$436,198 and income taxes of $62,026 and $37,643 were paid, respectively.
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
BANKNORTH GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 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.
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
nine months ended September 30, 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 nine months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net income $ 129,370 $ 138,123
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during the period 32,164 (85,200)
Less: reclassification adjustment for gains (losses) included in net income (10,330) 426
--------- ---------
Other comprehensive income (loss), net 42,494 (85,626)
--------- ---------
Comprehensive income $ 171,864 $ 52,497
========= =========
</TABLE>
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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 60,591 $ 56,274 $ 129,370 $ 138,123
============ ============ ============ ============
Weighted average shares outstanding
Basic: 144,680,123 145,628,899 144,468,306 146,118,999
Effect of dilutive securities:
Stock options 1,056,194 1,559,680 914,344 1,749,636
------------ ------------ ------------ ------------
Diluted 145,736,317 147,188,579 145,382,650 147,868,635
============ ============ ============ ============
Net income per share:
Basic $ 0.42 $ 0.39 $ 0.90 $ 0.95
Diluted 0.42 0.38 0.89 0.93
</TABLE>
7
<PAGE> 8
NOTE 4 - COMPLETED ACQUISITION
On May 10, 2000, Peoples Heritage Financial Group, Inc. ("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 former 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 the Company's shareholder
rights plan (collectively, the "Common Stock"), with cash in lieu of fractional
share interests. Approximately 42.9 million shares of Common Stock were issued
or are issuable in connection with the merger. The Company accounted for the
acquisition of Banknorth under the pooling-of-interests method and, as a result,
the consolidated financial statements of the Company have been restated to
reflect the acquisition at the beginning of each period presented. At December
31, 1999, the former Banknorth had total assets of $4.6 billion and total
shareholders' equity of $341.3 million.
During the three months ended September 30, 2000, the Company completed the
acquisition of two insurance agencies based in Massachusetts and Connecticut for
a combination of cash and stock. These acquisitions were accounted for under the
purchase method and, as a result, the acquired assets and liabilities were added
to those of the Company at their respective fair values and the excess of the
purchase price over the fair value of net assets acquired, which aggregated
$22.5 million, was recorded as goodwill which will be amortized to expense over
20 years. In addition, under this method of accounting the results of operations
of the acquired agencies are included in the Company's results of operations
only from their respective dates of acquisition.
8
<PAGE> 9
BANKNORTH GROUP, INC. AND SUBSIDIARIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SUMMARY
Banknorth Group, Inc. (the "Company") reported consolidated net income of $60.6
million, or $0.42 per diluted share, for the third quarter of 2000 as compared
with $56.3 million, or $0.38 per diluted share, for the third quarter of 1999.
This represents an 11% increase in diluted earnings per share.
The Company's return on average equity ("ROE") and return on average assets
("ROA") were 19.31% and 1.31%, respectively, for the third quarter ended
September 30, 2000. ROE and ROA were 18.77% and 1.23%, respectively, for the
quarter ended September 30, 1999.
The nine months ended September 30, 2000 included $58.9 million of non-operating
items ($43.0 million net of tax). The nine months ended September 30, 1999
included "special items" of $31.9 million ($23.2 million after tax). "Special
items" consist of special charges (see Table 5) and losses on securities
restructuring. The Company's operating income for the nine months ended
September 30, 2000 was $172.4 million, or $1.19 per diluted share, and ROE and
ROA were 19.22% and 1.25%, respectively. Operating income for the nine months
ended September 30, 1999 was $161.3 million, or $1.09 per diluted share, and ROE
and ROA were 17.93% and 1.24%, respectively. Operating results for the nine
months ended September 30, 2000 represent a 9% increase in diluted earnings per
share from the comparable period last year.
The improved operating results for the third quarter of 2000 over the third
quarter of 1999 were largely due to strong fee income and lower operating
expenses which combined to more than offset lower net interest income.
Noninterest income increased 17% compared to the third quarter of 1999. The
growth in noninterest income was primarily due to a $2.4 million increase in
customer service income, a $2.0 million increase in mortgage banking services
income, a $1.3 million increase in insurance commissions and a $347 thousand
increase in merchant and card product income. Noninterest expenses for the third
quarter of 2000 decreased 4% from the same quarter in 1999. Contributing to the
decrease was a $4.7 million decrease in salaries and benefits and a $340
thousand decrease in data processing expenses. 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 and losses, including losses on securities
restructuring) was 52.85% in the third quarter of 2000 compared to 55.28% in the
comparable period last year. Net interest income declined by $9.3 million due to
lower margins related to higher prevailing interest rates. 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 2000 2000 1999 1999 1999 1999
Third Second First Fourth Third Second First
--------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 150,713 $ 153,165 $ 155,173 $ 159,861 $160,000 $153,328 $151,040
Provision for loan and lease losses 6,250 5,849 5,068 6,005 6,165 5,840 5,565
--------- --------- --------- --------- -------- -------- --------
Net interest income after loan and
lease loss provision 144,463 147,316 150,105 153,856 153,835 147,488 145,475
Noninterest income (excluding
securities transactions) 56,090 56,744 50,181 49,910 47,771 50,340 43,118
Net securities gains (losses) (23) (15,857) (13) -- 9 403 243
Noninterest expenses (excluding
special charges) (1) 111,635 117,730 120,010 121,183 117,209 117,637 114,110
Special charges (1) 414 37,271 5,337 (3,889) -- 60 31,831
--------- --------- --------- --------- -------- -------- --------
Income before income taxes 88,481 33,202 74,926 86,472 84,406 80,534 42,895
Income tax expense 27,890 14,323 25,026 27,637 28,132 25,633 15,947
--------- --------- --------- --------- -------- -------- --------
Net income $ 60,591 $ 18,879 $ 49,900 $ 58,835 $ 56,274 $ 54,901 $ 26,948
========= ========= ========= ========= ======== ======== ========
Earnings per share:
Basic $ 0.42 $ 0.13 $ 0.35 $ 0.41 $ 0.39 $ 0.37 $ 0.18
Diluted 0.42 0.13 0.34 0.40 0.38 0.37 0.18
Operating earnings per share
(excluding special items) (1):
Basic $ 0.42 $ 0.40 $ 0.37 $ 0.39 $ 0.39 $ 0.37 $ 0.34
Diluted 0.42 0.40 0.37 0.39 0.38 0.37 0.34
Return on average assets (2) 1.31% 0.41% 1.10% 1.28% 1.23% 1.26% 0.66%
Return on average equity (2) 19.31% 6.48% 16.75% 19.64% 18.77% 17.89% 9.06%
Operating ratios:
Return on average assets (excluding
special items) (1)(2) 1.32% 1.27% 1.17% 1.22% 1.23% 1.27% 1.23%
Return on average equity (excluding
special items) (1)(2) 19.49% 19.82% 17.96% 18.84% 18.77% 17.91% 16.87%
Efficiency ratio (3) 52.85% 54.97% 57.30% 56.65% 55.28% 56.59% 57.34%
Special items, net of related income
tax effect (1) $ 545 $ 38,870 $ 3,577 $( 2,389) $ 0 $ 40 $ 23,205
</TABLE>
(1) Special items consists of (i) special charges which consist of merger-
related expenses, branch closing costs and, in the first quarter of 1999,
one-time charges related to the discontinuance of the Company's
correspondent mortgage business and (ii) losses on restructuring the
investment portfolio.
(2) Annualized.
(3) Represents noninterest expenses, excluding distributions on securities of
subsidiary trusts and special charges, as a percentage of net interest
income and noninterest income, excluding net securities gains and losses.
COMPLETED ACQUISITIONS
During the third quarter of 2000, the Company completed the acquisition of the
Palmer Goodell Insurance Agency, Inc. (based in Springfield, Massachusetts) and
Arthur A. Watson & Co., Inc. (an insurance agency based in Wethersfield,
Connecticut). These agencies, which were acquired for a combination of cash and
stock, had combined annual revenues of approximately $18 million in 1999. The
acquisitions resulted in goodwill of approximately $22.5 million being recorded,
which is being amortized over 20 years. These insurance agency acquisitions are
a key part of the Company's strategy to offer our customers a full range of
financial services in all the markets served by it.
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 under the pooling-of-interests method of accounting. 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 the Company's shareholder rights plan
(collectively, the "Common Stock") with cash in lieu of fractional share
interests.
10
<PAGE> 11
NEW INITIATIVES
The Company has begun an e-commerce initiative which is expected to be rolled
out in three phases starting in the fourth quarter of this year. The e-commerce
initiative will be designed to complement the Company's existing delivery
channels and be competitive with web-based products offered by most regional
banks. The total investment is expected to be $30 to $40 million over the next
three years which is expected to be offset through operating efficiencies and
enhanced revenue.
RESULTS OF OPERATIONS
NET INTEREST INCOME
The Company's fully-taxable equivalent net interest income in the third quarter
of 2000 decreased $9.2 million compared to the third quarter of 1999. The net
interest margin declined from 3.79% in the third quarter of 1999 to 3.57% in the
third quarter of 2000. The decrease was primarily attributable to higher
prevailing interest rates and the net liability sensitive position of the
Company. Average total earning assets increased by $171 million from the third
quarter of 1999 to the third quarter of 2000. Average commercial real estate,
commercial business and consumer loans all experienced significant growth while
average residential real estate loans declined. Average securities decreased
during the three months ended September 30, 2000, as compared to the comparable
period in the prior year, due primarily to the repositioning of the securities
portfolio in the second quarter of 2000 and continued runoff on mortgage-backed
securities.
The Company's fully-taxable equivalent net interest income for the nine months
ended September 30, 2000 decreased $4.6 million compared to the nine months
ended September 30, 1999. The net interest margin declined from 3.88% for the
nine months ended September 30, 1999 to 3.64% for the nine months ended
September 30, 2000. Average total earning assets increased $861 million while
interest-bearing liabilities increased $873 million. The decrease in
fully-taxable equivalent net interest income was primarily attributable to the
increased cost of interest-bearing liabilities. Table 2 shows quarterly average
balances, net interest income by category and rates for each of the quarters in
2000 and 1999 as well as for the nine months ended September 30, 2000 and 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 Third Quarter 2000 Second Quarter
------------------------------------------ ---------------------------------
Yield/ Average Yield/
Average Balance Interest Rate(1) Balance Interest Rate(1)
--------------- ------------ ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $ 2,340,950 $ 43,370 7.41% $ 2,336,378 $ 44,190 7.57%
Commercial real estate mortgages 2,935,280 65,740 8.91 2,819,294 62,581 8.93
Commercial business loans and leases 2,205,430 51,110 9.22 2,132,627 48,021 9.06
Consumer loans and leases 3,193,830 69,489 8.65 3,101,735 66,598 8.64
------------ ------------ ----------- --------
Total loans and leases 10,675,490 229,709 8.57 10,390,034 221,390 8.56
Securities 6,298,451 107,303 6.81 6,478,785 109,892 6.79
Federal funds sold and other short-term investments 63,155 958 6.04 80,250 1,266 6.34
------------ ------------ ----------- --------
Total earning assets 17,037,096 337,970 7.91 16,949,069 332,548 7.87
------------ --------
Noninterest-earning assets 1,408,636 1,398,125
------------ -----------
Total assets $ 18,445,732 $18,347,194
============ ===========
Interest-bearing deposits:
Regular savings $ 1,469,374 $ 7,643 2.07 $ 1,545,893 8,037 2.09
NOW and money market accounts 3,898,780 34,877 3.56 3,770,025 31,269 3.34
Certificates of deposit 4,529,819 63,160 5.55 4,540,737 59,822 5.30
Brokered deposits 86,953 1,439 6.58 123,670 1,994 6.49
------------ ------------ ----------- --------
Total interest-bearing deposits 9,984,926 107,119 4.27 9,980,325 101,122 4.08
Borrowed funds 4,962,974 78,727 6.31 5,086,715 76,767 6.07
------------ ------------ ----------- --------
Total interest-bearing liabilities 14,947,900 185,846 4.95 15,067,040 177,889 4.75
------------ --------
Non-interest bearing deposits 2,046,112 1,875,798
Other liabilities 104,804 133,627
Securities of subsidiary trusts 98,775 98,775
Shareholders' equity 1,248,141 1,171,954
------------ -----------
Total liabilities and shareholders' equity $ 18,445,732 $18,347,194
============ ===========
Net earning assets $ 2,089,196 $ 1,882,029
============ ===========
Net interest income (fully-taxable equivalent) 152,124 154,659
Less: fully-taxable equivalent adjustments (1,411) (1,494)
------------ --------
Net interest income $ 150,713 $153,165
============ ========
Net interest rate spread (fully-taxable equivalent) 2.96% 3.12%
Net interest margin (fully-taxable equivalent) 3.57% 3.67%
</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
------------------------------------------ ---------------------------------
Yield/ Average Yield/
Average Balance Interest Rate(1) Balance Interest Rate(1)
--------------- ------------ ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $ 2,337,127 $ 43,536 7.45% $ 2,356,697 $ 43,190 7.33%
Commercial real estate mortgages 2,731,631 60,698 8.94 2,695,579 60,710 8.94
Commercial business loans and leases 1,952,209 43,019 8.86 1,865,582 40,957 8.71
Consumer loans and leases 3,036,234 64,193 8.50 2,908,574 63,008 8.59
------------ ------------ ----------- --------
Total loans and leases 10,057,201 211,446 8.45 9,826,432 207,865 8.39
Securities 6,783,530 114,163 6.74 7,030,811 115,643 6.58
Federal funds sold and other short-term investments 79,032 1,091 5.55 80,898 1,208 5.92
------------ ------------ ----------- --------
Total earning assets 16,919,763 326,700 7.75 16,938,141 324,716 7.61
------------ --------
Noninterest-earning assets 1,393,153 1,362,000
------------ -----------
Total assets $ 18,312,916 $18,300,141
============ ===========
Interest-bearing deposits:
Regular savings $ 1,561,943 $ 8,176 2.11 $ 1,604,451 8,427 2.08
NOW and money market accounts 3,639,746 27,701 3.06 3,644,631 26,356 2.87
Certificates of deposit 4,505,049 56,716 5.06 4,511,629 56,058 4.93
Brokered deposits 131,218 2,144 6.57 143,328 2,062 5.71
------------ ------------ ----------- --------
Total interest-bearing deposits 9,837,956 94,737 3.87 9,904,039 92,903 3.72
Borrowed funds 5,262,911 75,483 5.77 5,142,011 70,522 5.44
------------ ------------ ----------- --------
Total interest-bearing liabilities 15,100,867 170,220 4.53 15,046,050 163,425 4.31
------------ --------
Non-interest bearing deposits 1,798,107 1,861,423
Other liabilities 117,311 105,295
Securities of subsidiary trusts 98,775 98,775
Shareholders' equity 1,197,856 1,188,598
------------ -----------
Total liabilities and shareholders' equity $ 18,312,916 $18,300,141
============ ===========
Net earning assets $ 1,818,896 $ 1,892,091
============ ===========
Net interest income (fully-taxable equivalent) 156,480 161,291
Less: fully-taxable equivalent adjustments (1,307) (1,430)
------------ --------
Net interest income $ 155,173 $159,861
============ ========
Net interest rate spread (fully-taxable equivalent) 3.22% 3.30%
Net interest margin (fully-taxable equivalent) 3.70% 3.78%
</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 Third Quarter 1999 Second Quarter
------------------------------------------ ---------------------------------
Yield/ Average Yield/
Average Balance Interest Rate(1) Balance Interest Rate(1)
--------------- ------------ ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $ 2,535,350 $ 46,886 7.40% $ 2,687,207 $ 49,778 7.41%
Commercial real estate mortgages 2,626,837 57,882 8.74 2,517,706 55,123 8.78
Commercial business loans and leases 1,862,931 40,058 8.53 1,796,819 38,421 8.58
Consumer loans and leases 2,754,214 59,996 8.64 2,683,791 58,311 8.71
------------ ------------ ----------- --------
Total loans and leases 9,779,332 204,822 8.31 9,685,523 201,633 8.35
Securities 6,989,116 112,508 6.44 6,257,096 95,808 6.12
Federal funds sold and other short-term investments 97,563 1,313 5.34 208,006 2,542 4.90
------------ ------------ ----------- --------
Total earning assets 16,866,011 318,643 7.50 16,150,625 299,983 7.45
------------ --------
Noninterest-earning assets 1,303,766 1,266,088
------------ -----------
Total assets $ 18,169,777 $17,416,713
============ ===========
Interest-bearing deposits:
Regular savings $ 1,640,217 $ 8,627 2.09 $ 1,613,609 8,480 2.11
NOW and money market accounts 3,607,758 25,277 2.78 3,545,448 24,057 2.72
Certificates of deposit 4,541,065 55,791 4.87 4,671,041 57,914 4.97
Brokered deposits 163,886 2,275 5.51 201,244 2,811 5.60
------------ ------------ ----------- --------
Total interest-bearing deposits 9,952,926 91,970 3.67 10,031,342 93,262 3.73
Borrowed funds 5,015,825 65,358 5.17 4,148,710 52,208 5.05
------------ ------------ ----------- --------
Total interest-bearing liabilities 14,968,751 157,328 4.17 14,180,052 145,470 4.11
------------ --------
Non-interest bearing deposits 1,810,848 1,779,277
Other liabilities 101,867 126,708
Securities of subsidiary trusts 98,775 99,987
Shareholders' equity 1,189,536 1,230,689
------------ -----------
Total liabilities and shareholders' equity $ 18,169,777 $17,416,713
============ ===========
Net earning assets $ 1,897,260 $ 1,970,573
============ ===========
Net interest income (fully-taxable equivalent) 161,315 154,513
Less: fully-taxable equivalent adjustments (1,315) (1,185)
------------ --------
Net interest income $ 160,000 $153,328
============ ========
Net interest rate spread (fully-taxable equivalent) 3.33% 3.34%
Net interest margin (fully-taxable equivalent) 3.79% 3.84%
</TABLE>
-------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
14
<PAGE> 15
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 $ 3,461,965 $ 64,656 7.47%
Commercial real estate mortgages 2,438,735 54,024 8.98
Commercial business loans and leases 1,708,703 38,096 9.04
Consumer loans and leases 2,739,169 58,788 8.70
------------ ------------
Total loans and leases 10,348,572 215,564 8.45
Securities 4,730,964 71,543 6.05
Federal funds sold and other short-term investments 205,919 2,022 3.98
------------ ------------
Total earning assets 15,285,455 289,129 7.67
------------
Noninterest-earning assets 1,233,435
------------
Total assets $ 16,518,890
============
Interest-bearing deposits:
Regular savings $ 1,622,257 $ 8,486 2,12
NOW and money market accounts 3,482,796 23,549 2.74
Certificates of deposit 4,749,889 60,722 5.18
Brokered deposits 211,412 2,632 5.05
------------ ------------
Total interest-bearing deposits 10,066,354 95,389 3.84
Borrowed funds 3,301,978 41,677 5.12
------------ ------------
Total interest-bearing liabilities 13,368,332 137,066 4.16
------------
Non-interest bearing deposits 1,731,140
Other liabilities 95,770
Securities of subsidiary trusts 118,000
Shareholders' equity 1,205,648
------------
Total liabilities and shareholders' equity $ 16,518,890
============
Net earning assets $ 1,917,123
============
Net interest income (fully-taxable equivalent) 152,063
Less: fully-taxable equivalent adjustments (1,023)
------------
Net interest income $ 151,040
============
Net interest rate spread (fully-taxable equivalent) 3.51%
Net interest margin (fully-taxable equivalent) 4.03%
</TABLE>
-------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
15
<PAGE> 16
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------------------- ----------------------------------
Yield/ Average Yield/
Average Balance Interest Rate(1) Balance Interest Rate(1)
--------------- ----------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (2):
Residential real estate mortgages $ 2,332,940 $ 131,110 7.49% $ 2,891,447 $161,320 7.44%
Commercial real estate mortgages 2,835,199 189,019 8.91 2,528,449 167,029 8.83
Commercial business loans and leases 2,093,598 140,806 9.07 1,790,049 116,575 8.71
Consumer loans and leases 3,110,904 200,265 8.60 2,725,780 177,095 8.69
------------ ----------- ----------- --------
Total loans and leases 10,372,641 661,200 8.53 9,935,725 622,019 8.37
Securities 6,519,446 332,702 6.78 5,999,481 279,859 6.22
Federal funds sold and other short-term investments 74,078 3,316 5.98 170,099 5,877 4.62
------------ ----------- ----------- --------
Total earning assets 16,966,165 997,218 7.84 16,105,305 907,755 7.54
----------- --------
Noninterest earning assets 1,391,624 1,268,534
------------ -----------
Total assets $ 18,357,789 $17,373,839
============ ===========
Interest-bearing deposits:
Regular savings $ 1,525,531 23,828 2.09 $ 1,609,813 25,593 2.13
NOW and money market accounts 3,769,958 93,876 3.33 3,545,791 72,883 2.75
Certificates of deposit 4,520,689 179,697 5.31 4,653,203 174,427 5.01
Brokered deposits 118,379 5,577 6.29 192,037 7,718 5.37
------------ ----------- ----------- --------
Total interest-bearing deposits 9,934,557 302,978 4.07 10,000,844 280,621 3.75
Borrowed funds 5,100,917 230,977 6.05 4,161,769 159,243 5.12
------------ ----------- ----------- --------
Total interest-bearing liabilities 15,035,474 533,955 4.74 14,162,613 439,864 4.15
----------- -----------
Non-interest bearing deposits 1,906,997 1,789,674
Other liabilities 118,471 113,887
Securities of subsidiary trust 98,775 104,528
Shareholders' equity 1,198,072 1,203,137
------------ -----------
Total liabilities and shareholders' equity $ 18,357,789 $17,373,839
============ ===========
Net earning assets $ 1,930,691 $ 1,942,692
============ ===========
Net interest income (fully-taxable equivalent) 463,263 467,891
Less: fully-taxable equivalent adjustments (4,212) (3,523)
----------- -----------
Net interest income $ 459,051 $ 464,368
=========== ===========
Net interest rate spread (fully-taxable equivalent) 3.10% 3.39%
Net interest margin (fully-taxable equivalent) 3.64% 3.88%
</TABLE>
---------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
16
<PAGE> 17
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 September 30, 2000 vs. Nine Months Ended September 30, 2000 vs.
1999 Increase (decrease) due to 1999 Increase (decrease) due to
----------------------------------------- -------------------------------------------
Rate and Total Rate and Total
Volume Rate Volume(1) Change Volume Rate Volume(1) Change
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases $ 18,719 $ 6,391 $(223) $ 24,887 $ 27,377 $ 11,901 $ (97) $ 39,181
Securities (11,180) 6,500 (525) (5,205) 24,212 25,152 3,479 52,843
Federal funds sold and other
short-term investments (462) 172 (65) (355) (3,321) 1,732 (972) (2,561)
-------- -------- ----- -------- -------- -------- ------- --------
Total interest income 7,077 13,063 (813) 19,327 48,268 38,785 2,410 89,463
-------- -------- ----- -------- -------- -------- ------- --------
Interest expense:
Interest-bearing deposits
Regular savings (898) (82) (4) (984) (1,344) (482) 61 (1,765)
NOW and money market accounts 2,034 7,074 492 9,600 4,615 15,396 982 20,993
Certificates of deposit (138) 7,762 (255) 7,369 (4,970) 10,451 (211) 5,270
Brokered deposits (1,066) 441 (211) (836) (2,961) 1,323 (503) (2,141)
-------- -------- ----- -------- -------- -------- ------- --------
Total interest-bearing deposits (68) 15,195 22 15,149 (4,660) 26,688 329 22,357
Borrowed funds (687) 14,373 (317) 13,369 36,381 28,975 6,378 71,734
-------- -------- ----- -------- -------- -------- ------- --------
Total interest expense (755) 29,568 (295) 28,518 31,721 55,663 6,707 94,091
Net interest income (fully
taxable equivalent) $ 7,832 $(16,505) $(518) $ (9,191) $ 16,547 $(16,878) $(4,297) $ (4,628)
======== ======== ===== ======== ======== ======== ======= ========
</TABLE>
-------------------
(1) Includes changes in interest income and expense not due solely to volume or
rate changes.
17
<PAGE> 18
NONINTEREST INCOME
Third quarter noninterest income totaled $56.1 million, a 17% increase from the
third quarter of 1999. This increase was primarily due to customer service
income (up $2.4 million or 13%), mortgage banking services income (up $2.0
million or 46%), insurance commissions income (up $1.3 million or 29%) and
merchant and card product income (up $347 thousand or 9%). Other income
increased $1.6 million or 56% due to increased loan fees and gains realized on
venture capital and other investments. Noninterest income, excluding securities
gains and losses, as a percent of total revenues was 27% and 23% for the
quarters ended September 30, 2000 and 1999, respectively. For the nine months
ended September 30, 2000 and 1999, noninterest income amounted to $147.1 million
and $141.9 million, respectively. The 17.3% increase was primarily due to
increases in customer services income, merchant and card product income,
insurance commissions income and bank owned life insurance income.
Customer services income in the third quarter of 2000 increased 13% from the
third quarter of 1999. For the nine months ended September 30, 2000 and 1999,
customer service income amounted to $59.9 million and $49.8 million,
respectively, an increase of $10.1 million or 20.2%. These increases were
primarily attributable to volume driven increases in checking account income,
particularly increases in overdraft fees and ATM fee income.
Combined trust and investment advisory services income increased 2% from the
third quarter of 1999 to the third quarter of 2000. For the nine months ended
September 30, 2000 and 1999, combined trust and investment advisory services
income amounted to $31.2 million and $29.8 million, respectively, an increase of
5%. Assets under management were $9.3 billion and $7.2 billion at September 30,
2000 and 1999, respectively.
Insurance commissions income was $6.0 million for the third quarter of 2000
compared to $4.7 million for the same period in 1999, an increase of 29%. For
the nine months ended September 30, 2000 and 1999, insurance commissions income
amounted to $16.0 million and $14.3 million, respectively, an increase of 12%.
The increases in 2000 were partially attributable to the acquisition of an
agency during August 2000.
Bank-owned life insurance ("BOLI") income was $4.2 million for the third quarter
of 2000, compared to $3.8 million for the same period in 1999, an increase of
11%. For the nine months ended September 30, 2000 and 1999, BOLI income was
$13.5 million and $11.6 million, respectively, an increase of 16%. There was a
$1.2 million death benefit recorded in the first quarter of 2000 while the
second quarter of 1999 included a $1.4 million death benefit. There was also
increased income on higher average levels of BOLI in 2000. For the third quarter
of 2000, the average carrying value of BOLI was $301 million compared to $281
million for the third 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. Standard and Poors rated all
such companies AA- or better at September 30, 2000.
Merchant and card product income was $4.0 million for the third quarter of 2000,
compared to $3.7 million for the same period in 1999, an increase of 9%. For the
nine months ended September 30, 2000 and 1999, merchant and card product income
was $11.6 million and $9.2 million, respectively, an increase of 25%. This
income represents fees and interchange income generated by the use of
Company-issued credit and debit cards and charges to merchants for credit card
deposits. The increases were largely due to increased transaction volume.
Mortgage banking services income of $6.2 million and $4.2 million provided 11%
and 9% of non-interest income for the quarters ended September 30, 2000 and
1999, respectively. The $2.0 million or 46% increase from the same quarter of
last year was due to a $2.2 million gain on sale of mortgage servicing rights.
The amount of loans serviced for others was $3.3 billion and $4.7 billion at
September 30, 2000 and 1999, respectively. For the nine months ended September
30, 2000 and 1999, mortgage banking services income amounted to $14.8 million
and $17.6 million, or 10% and 12% of noninterest income, respectively. The
decrease was largely due to lower mortgage originations. See Table 4 for a
summary of mortgage banking services income by quarter for 2000 and 1999.
Capitalized mortgage servicing rights amounted to $41.0 million at September 30,
2000, compared to $52.7 million at December 31, 1999. The decrease was due
largely to the sale of mortgage servicing rights totaling $2.6 million in the
third quarter of 2000 and $6.3 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 services 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
18
<PAGE> 19
capitalized mortgage servicing rights and effects on mortgage banking services
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 services income. Notwithstanding the foregoing, there can be no
assurance that significant declines in interest rates will not have a material
adverse 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.
TABLE 4 - MORTGAGE BANKING SERVICES
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the Three Months Ended
----------------------------------------------------------------------------------------
9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL MORTGAGES
SERVICED FOR INVESTORS $3,332,529 $3,832,996 $3,993,680 $4,540,948 $4,682,347 $4,840,625 $5,259,768
========== ========== ========== ========== ========== ========== ==========
MORTGAGE SERVICING RIGHTS:
Balance at beginning of period $ 44,135 $ 44,780 $ 52,724 $ 54,132 $ 53,352 $ 50,924 $ 45,409
Mortgage servicing rights capitalized
and purchased 1,657 69 406 1,244 3,352 3,279 8,316
Amortization charged against
mortgage servicing fee income (2,344) (2,442) (3,020) (3,137) (3,073) (3,103) (3,197)
Change in impairment reserve 162 1,728 1,005 485 1,343 2,597 875
Mortgage servicing rights sold (2,581) - (6,335) - (842) (345) (479)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period $ 41,029 $ 44,135 $ 44,780 $ 52,724 $ 54,132 $ 53,352 $ 50,924
========== ========== ========== ========== ========== ========== ==========
MORTGAGE BANKING SERVICES INCOME:
Sales income:
Residential mortgage sales income $ 1,671 $ 318 $ 169 $ (386) $ 1,524 $ 3,395 $ 4,275
Lower of cost or market adjustment -
Loans held for sale 108 (36) 30 1,028 731 (1,934) -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total sales income 1,779 282 199 642 2,255 1,461 4,275
---------- ---------- ---------- ---------- ---------- ---------- ----------
Servicing income:
Residential mortgage servicing
income, net 1,590 2,956 1,439 1,810 1,641 2,359 1,996
Change in impairment reserve on
mortgage servicing rights 162 1,728 1,005 485 1,343 2,597 875
Valuation adjustments - interest
rate floor 460 (106) (545) 78 (953) (1,475) (1,600)
Gain (loss) on sale of capitalized
mortgage servicing rights 2,181 124 1,559 (207) (66) 2,924 (17)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total servicing income 4,393 4,702 3,458 2,166 1,965 6,405 1,254
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 6,172 $ 4,984 $ 3,657 $ 2,808 $ 4,220 $ 7,866 $ 5,529
========== ========== ========== ========== ========== ========== ==========
</TABLE>
Nine Months Ended
------------------------
9/30/00 9/30/99
--------- ---------
MORTGAGE BANKING SERVICES INCOME:
Sales income:
Residential mortgage sales income $ 2,158 $ 9,194
Lower of cost or market adjustment -
Loans held for sale 102 (1,203)
-------- --------
Total sales income 2,260 7,991
-------- --------
Servicing income:
Residential mortgage servicing income, net 5,985 5,996
Change in impairment reserve on mortgage
servicing rights 2,895 4,815
Valuation adjustments - interest rate floor (191) (4,028)
Gain (loss) on sale of capitalized mortgage
servicing rights 3,864 2,841
-------- --------
Total servicing income 12,553 9,624
-------- --------
Total $ 14,813 $ 17,615
======== ========
19
<PAGE> 20
The Company has reached agreement to sell the servicing rights on all
residential mortgage loans which it now services for others. The sale will be in
two installments and is expected to be completed by March 31, 2001. The Company
anticipates a combined gain of approximately $7 million when the sale is
completed. The Company also expects to sell the interest rate floor contracts
which are used to hedge the prepayment risk related to the mortgage servicing
rights asset. As these interest rate floor contracts are carried at market
value, the Company does not expect to incur a significant gain or loss on their
sale. The Company determined this asset could no longer meet its internal
investment targets because of the relatively small size of its loans serviced
for others portfolio, the increasing level of sophistication of the national
competitors and the volatility inherent in the mortgage servicing rights asset.
For the nine months ended September 30, 2000, the Company incurred $15.9 million
in losses on securities restructuring. During the second quarter of 2000, the
Company restructured parts of its securities portfolio by selling $104 million
of securities available for sale, realizing a loss of $15.9 million pre-tax
($10.3 million after-tax). The securities, with a weighted average yield of
5.73%, were primarily perpetual preferred stocks acquired in prior acquisitions,
treasury bonds (remaining maturity greater than 10 years) and below investment
grade debt securities. After the restructuring, the Company no longer holds any
of these types of securities.
Other income increased by $1.6 million or 56% and by $7.2 million or 81% during
the three and nine months ended September 30, 2000 and 1999, respectively, in
each case as compared to the comparable period in the prior year. The increase
in the third quarter was due to increases in loan fees and gains realized on
venture capital and other investments. The increase for the nine months was
attributable to these items as well as a $4.7 million gain on the sale of a $29
million credit card portfolio in June 2000.
NON-INTEREST EXPENSE
Non-interest expense was $112.0 million and $117.2 million for the quarters
ended September 30, 2000 and 1999, respectively, representing a decrease of $5.2
million, or 4%. The efficiency ratio was 52.85% and 55.28% for the quarters
ended September 30, 2000 and 1999, respectively. For the nine months ended
September 30, 2000 and 1999, noninterest expense, excluding special charges
amounted to $349.4 million and $349.0 million, respectively, an increase of $400
thousand. The efficiency ratio was 55.03% and 56.38% for the nine months ended
September 30, 2000 and 1999, respectively. For a description of the methodology
used by the Company to calculate the efficiency ratio, See Note 3 to Table 1.
Salaries and benefits expense of $53.2 million for the quarter ended September
30, 2000 decreased $4.7 million or 8% from the same quarter of last year. The
decline was due to favorable pension experience, lower incentive compensation
and merger-related savings. On a year to date basis, salaries and benefits
expense amounted to $170.5 million in 2000 compared to $171.4 million in 1999,
representing a decrease of $920 thousand or 0.5%.
Data processing expense of $9.0 million for the quarter ended September 30, 2000
decreased $340 thousand or 4% from the same quarter a year ago. For the nine
months ended September 30, 2000 and 1999, data processing expense amounted to
$27.1 million and $29.4 million, respectively, a $2.3 million or 8% decrease.
These decreases were primarily attributable to the absence in the current
periods of costs incurred in 1999 in order to ensure that the Company's computer
systems properly recognized the year 2000 as well as merger-related savings.
Occupancy expense of $9.3 million during the three months ended September 30,
2000 decreased $516 thousand or 5% from the same quarter in 1999 due to savings
related to a decrease in the Company's branch network through the closing/sale
of selected branch offices. For the nine months ended September 30, 2000 and
1999, occupancy expense amounted to $30.3 million and $29.7 million, a $625
thousand or 2% increase.
Equipment expense increased $284 thousand during the three months ended
September 30, 2000 from the third quarter of last year. For the nine months
ended September 30, 2000 and 1999, equipment expense was $23.6 million and $22.2
million, respectively, a $1.4 million or 6% increase. These increases were
primarily due to depreciation relating to new equipment and software.
Amortization of goodwill and other intangibles was $5.3 million and $5.2 million
for the quarters ended September 30, 2000 and 1999, respectively, and $15.7
million and $15.5 million for the nine months ended September 30, 2000 and 1999,
respectively. The slight increase related to amortization of goodwill recorded
in connection with the acquisition of an insurance agency during the quarter
ended September 30, 2000.
20
<PAGE> 21
Through September 30, 2000, special charges amounted to $43.0 million pre-tax
($32.1 million after tax) in 2000 and $31.9 million pre-tax ($23.2 million after
tax) in 1999. Included in 2000 special charges were $41.6 million of merger-
related expenses and $1.4 million of branch closing expenses related to the
closing of 11 branches. Special charges in 1999 included merger-related expenses
of $24.5 million and $7.4 million related to the discontinuance of the Company's
correspondent mortgage lending business. The Company also incurred a $15.9
million pre-tax loss on the restructuring of the securities portfolio in the
second quarter of 2000. The Company incurred $414 thousand of special charges in
the quarter ended September 30, 2000 related to the Banknorth merger and to
contract terminations. There were no special charges in the quarter ended
September 30, 1999.
The following table summarizes activity related to special charges recorded from
December 31, 1999 through September 30, 2000.
TABLE 5 - SPECIAL CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-Cash
Amount Cash Reductions
Balance Included in Payments Applied to Balance at
12/31/1999 Expense Reallocations (Receipts) Reserve 9/30/2000
---------- ----------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BANKNORTH MERGER CHARGES
Severance costs $ - $13,050 $ - $11,094 $ 725 $ 1,231
Data processing/systems integration - 5,167 (506) 2,600 - 2,061
Professional fees and transaction costs - 8,250 506 8,406 - 350
Asset write-downs/facility costs - 11,798 - 1,759 6,120 3,919
Gain on divestiture of branch - (4,250) - (4,250) - -
Customer communications - 6,314 - 5,043 - 1,271
Other costs - 2,962 - 2,466 - 496
------ ------- ------ ------- ------ -------
Sub-total - 43,291 $ - $27,118 $6,845 $ 9,328
====== ======= ====== =======
Gain on curtailment of benefit plans - (8,100)
------ -------
$ - $35,191
====== =======
BRANCH CLOSINGS
Severance and salary costs $ - $ 68 $ - $ - $ - $ 68
Asset write-downs/lease terminations - 1,063 - 310 753 --
Other costs - 256 - 134 - 122
------ ------- ------ ------- ------ -------
$ - $ 1,387 $ - $ 444 $ 753 $ 190
====== ======= ====== ======= ====== =======
OTHER SPECIAL CHARGES
Write-down of auto lease residuals $ - $ 2,500 $ - $ - $2,500 $ -
Facility write-downs - Evergreen merger - 1,253 - - 1,253 -
Contract termination - merchant processing - 3,091 - 3,091 - -
Balance forward from CFX/SIS mergers 1,628 (400) - 905 - 323
------ ------- ------ ------- ------ -------
$1,628 $ 6,444 $ - $ 3,996 $3,753 $ 323
====== ======= ====== ======= ====== =======
</TABLE>
Other non-interest expenses decreased by $356 thousand or 1% and increased by
$2.0 million or 3% during the three and nine months ended September 30, 2000,
respectively, in each case as compared to the comparable periods in the prior
year. The increase in the nine months ended September 30, 2000 related mainly to
higher legal and professional service costs. The following table summarizes the
principal components of other non-interest expenses for the periods indicated.
21
<PAGE> 22
TABLE 6 - OTHER NON-INTEREST EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 2000 2000 1999 1999 1999 1999
Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Advertising and marketing $ 2,772 $ 3,606 $ 2,985 $ 3,774 $ 3,418 $ 3,498 $ 3,482
Telephone 3,473 3,134 2,945 3,291 3,844 3,506 3,524
Office supplies 2,436 2,673 2,166 2,232 2,232 2,664 2,208
Postage and freight 2,267 2,376 2,470 2,254 2,185 2,218 2,640
Miscellaneous loan costs 1,545 1,717 2,203 1,108 2,420 2,180 2,194
Deposits and other assessments 1,110 1,002 961 957 1,219 1,033 962
Collection and carrying costs
of non-performing assets 618 590 746 204 499 366 855
Other 10,304 10,672 10,479 12,307 9,064 10,612 6,430
------- ------- ------- ------- ------- ------- -------
Total $24,525 $25,770 $24,955 $26,127 $24,881 $26,077 $22,295
======= ======= ======= ======= ======= ======= =======
</TABLE>
Nine Months Ended
------------------------
9/30/00 9/30/99
------- -------
Advertising and marketing $ 9,363 $10,398
Telephone 9,552 10,874
Office supplies 7,275 7,104
Postage and freight 7,113 7,043
Miscellaneous loan costs 5,465 6,794
Deposits and other assessments 3,073 3,214
Collection and carrying costs
of non-performing assets 1,954 1,720
Other 31,455 26,106
------- -------
Total $75,250 $73,253
======= =======
TAXES
The effective tax rate, excluding the effect of special charges, was 31% and 33%
for the quarters ended September 30, 2000 and 1999, respectively, and 33% for
each of the nine months ended September 30, 2000 and 1999, respectively. The 31%
effective tax rate in the quarter ended September 30, 2000 related to lower
state taxes.
OTHER COMPREHENSIVE INCOME
FASB Statement No. 130 requires disclosure of "Other comprehensive income."
Comprehensive income amounted to $171.9 million and $52.5 million during the
nine months ended September 30, 2000 and 1999, respectively, which were
significantly greater and less than the Company's reported net income during the
respective periods as a result of changes in the amount of unrealized gains and
losses on the Company's portfolio of securities available for sale. For
additional information, see Note 2 to the Consolidated Financial Statements
included herein.
As a result of realized losses on available for sale securities and the effects
of market conditions, the unrealized loss on the Company's securities portfolio
declined $42.5 million, net of taxes, from December 31, 1999 to September 30,
2000. At September 30, 2000, the net unrealized loss of $127.2 million, before
related tax effect, represented 2.2% 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."
22
<PAGE> 23
FINANCIAL CONDITION
LOANS AND LEASES
Total loans and leases (including loans held for sale) averaged $10.7 billion
during the third quarter of 2000, an increase of $896 million or 9.2% from the
third quarter of 1999. All loan categories experienced increases except for
residential real estate loans. Average loans as a percent of average earning
assets were 63% during the quarter ended September 30, 2000 compared to 60%
during the quarter ended September 30, 1999.
Average residential real estate loans (which include mortgage loans held for
sale) of $2.3 billion during the third quarter of 2000 declined $194 million
from the third quarter of last year. The decline was primarily attributable to
lower loans held for sale as a result of discontinuing the correspondent
mortgage business in January 1999. Mortgage loans held for sale amounted to
$38.9 million and $116.0 million at September 30, 2000 and 1999, respectively,
and $82.3 million at December 31, 1999. The decline in loans held for sale was
due primarily to the retention of a higher portion of residential real estate
loan originations in portfolio and lower refinancing activity.
Average commercial real estate loans of $2.9 billion increased 12% from the
third quarter of last year. The average yield on commercial real estate loans
during the third quarter of 2000 was 8.91%, as compared to 8.74% in the third
quarter of 1999.
Commercial loans and leases averaged $2.2 billion during the third quarter of
2000, an increase of 18% over the third quarter of 1999. The yield on commercial
loans and leases increased to 9.22% in the third quarter of 2000 from 8.53% in
the third quarter of 1999.
Average consumer loans and leases of $3.2 billion during the third quarter of
2000 increased 16% from the third quarter of 1999. The increase was primarily in
indirect automobile and home equity loans. The average yield on consumer loans
and leases increased from 8.64% in the third quarter of 1999 to 8.65% in the
third quarter of 2000.
SECURITIES AND OTHER EARNING ASSETS
The Company's securities portfolio averaged $6.3 billion during the third
quarter of 2000, as compared to $7.0 billion in the third 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, which include securitized
residential real estate loans held in a REMIC, and asset-backed securities. The
majority of securities available for sale are rated AAA or equivalently rated.
The decrease in the Company's securities portfolio during 2000 was partially due
to the sale of $104 million of securities to restructure the securities
portfolio in the second quarter of 2000, as discussed above. The average yield
on securities was 6.81% and 6.44% for the quarters ended September 30, 2000 and
1999, respectively. With the exception of the securitized residential real
estate loans held in a REMIC that 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. Securities available for sale are carried at fair
value and had an after-tax unrealized loss of $82.6 million and $125.1 million
September 30, 2000 and December 31, 1999, respectively. The unrealized loss was
2.2% of total securities available for sale at September 30, 2000.
ASSET QUALITY
As shown in Table 7, nonperforming assets were $56.9 million at September 30,
2000, or 0.31% of total assets, compared to $72.6 million or 0.40% of total
assets at September 30, 1999. There were declines in all loan categories except
for commercial real estate loans, which had a nominal increase. Significant
declines were experienced in nonperforming residential real estate loans and
commercial business 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 21% of the total loan
portfolio at September 30, 2000, as compared with 23% 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 September 30, 2000, 0.36% of the Company's
residential loans were nonperforming, as compared with 0.76% at December 31,
1999 and 0.76% at September 30, 1999.
23
<PAGE> 24
The Company's commercial real estate loan portfolio accounted for 28% of the
total loan portfolio at September 30, 2000, as compared with 27% at December 31,
1999. Commercial real estate loans consist primarily of loans secured by
income-producing commercial real estate (including office and industrial
buildings), service industries real estate (including hotels and health care
facilities), multi-family (over four units) residential properties and retail
trade real estate (including food stores). These loans generally are secured by
properties located in the New England states and New York, particularly Maine,
Massachusetts, New Hampshire and Vermont. At September 30, 2000, 0.60% of the
Company's commercial real estate loans were nonperforming, as compared with
0.66% at December 31, 1999 and 0.67% at September 30, 1999.
The Company's commercial business loan and lease portfolio accounted for 21% of
the total loan portfolio at September 30, 2000, as compared with 20% at 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, Vermont, New York and
Connecticut. The Company's commercial business loans and leases are generally to
small and medium size businesses located within its geographic market area. The
Company generally does not emphasize the purchase of participations in
syndicated commercial loans. At September 30, 2000, the Company had $179 million
of participations in syndicated commercial loans and commitments to purchase an
additional $136 million of such participations. At September 30, 2000, 0.78% of
the Company's commercial business loans and leases were non-performing, as
compared with 0.89% at December 31, 1999 and 1.10% at September 30, 1999.
The Company's consumer loan and lease portfolio accounted for 30% of the total
loan portfolio at September 30, 2000, and 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. The
Company's auto lease portfolio totaled $98.2 million at September 30, 2000. The
Company stopped auto lease production following the acquisition of CFX
Corporation in 1998 and Banknorth in the second quarter of 2000. At September
30, 2000, 0.17% of the Company's consumer loans and leases were nonperforming,
as compared with 0.20% at December 31, 1999 and 0.23% at September 30, 1999.
At September 30, 2000, the Company had $8.2 million of accruing loans which were
90 days or more delinquent, as compared to $12.1 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.
24
<PAGE> 25
TABLE 7 - NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Residential real estate loans:
Nonaccrual loans $ 8,258 $ 9,405 $14,204 $17,283 $16,978 $17,729 $16,412
Troubled debt restructurings - - 27 28 30 30 31
------- ------- ------- ------- ------- ------- -------
Total 8,258 9,405 14,231 17,311 17,008 17,759 16,443
------- ------- ------- ------- ------- ------- -------
Commercial real estate loans:
Nonaccrual loans 17,212 18,270 15,621 16,754 16,536 21,605 23,415
Troubled debt restructurings 665 692 961 1,002 1,282 1,391 1,110
------- ------- ------- ------- ------- ------- -------
Total 17,877 18,962 16,582 17,756 17,818 22,996 24,525
------- ------- ------- ------- ------- ------- -------
Commercial business loans and leases:
Nonaccrual loans 17,396 16,570 19,818 17,027 20,440 22,944 18,827
Troubled debt restructurings 39 39 39 82 83 80 40
------- ------- ------- ------- ------- ------- -------
Total 17,435 16,609 19,857 17,109 20,523 23,024 18,867
------- ------- ------- ------- ------- ------- -------
Consumer loans and leases:
Nonaccrual loans 5,650 5,110 4,861 5,951 6,446 6,199 8,465
Troubled debt restructurings - - - - - 5 5
------- ------- ------- ------- ------- ------- -------
Total 5,650 5,110 4,861 5,951 6,446 6,204 8,470
------- ------- ------- ------- ------- ------- -------
Total nonperforming loans:
Nonaccrual loans 48,516 49,355 54,504 57,015 60,400 68,477 67,119
Troubled debt restructurings 704 731 1,027 1,112 1,395 1,506 1,186
------- ------- ------- ------- ------- ------- -------
Total 49,220 50,086 55,531 58,127 61,795 69,983 68,305
------- ------- ------- ------- ------- ------- -------
Other nonperforming assets:
Other real estate owned, net of
related reserves 6,432 8,419 9,027 8,154 8,042 7,903 9,058
Repossessions, net of
related reserves 1,246 2,125 2,792 2,911 2,773 3,411 4,457
------- ------- ------- ------- ------- ------- -------
Total other nonperforming assets 7,678 10,544 11,819 11,065 10,815 11,314 13,515
------- ------- ------- ------- ------- ------- -------
Total nonperforming assets $56,898 $60,630 $67,350 $69,192 $72,610 $81,297 $81,820
======= ======= ======= ======= ======= ======= =======
Accruing loans which are
90 days overdue $ 8,195 $ 7,211 $ 7,914 $12,131 $15,561 $19,342 $26,908
======= ======= ======= ======= ======= ======= =======
Total nonperforming loans as
a percentage of total loans (1) 0.46% 0.48% 0.54% 0.59% 0.64% 0.74% 0.69%
Total nonperforming assets as
a percentage of total assets 0.31% 0.33% 0.37% 0.37% 0.40% 0.45% 0.48%
Total nonperforming assets as
a percentage of total loans
and leases (1) and total
other nonperforming assets 0.53% 0.58% 0.66% 0.70% 0.75% 0.85% 0.83%
</TABLE>
--------------------------
(1) Total loans and leases are exclusive of loans held for sale.
25
<PAGE> 26
PROVISION/ALLOWANCE FOR LOAN LOSSES
The Company provided $6.3 million and $6.2 million for loan and lease losses in
the quarters ended September 30, 2000 and 1999, respectively. As shown in Table
8, net charge-offs for the third quarter of 2000 were $5.8 million, or 0.22% of
average loans outstanding, compared to $7.0 million, or 0.28% of average loans
outstanding, for the third quarter of 1999. The provisions for loan and lease
losses during the quarter ended September 30, 2000 exceeded net charge-offs
during the period in order to provide coverage for the increase in the loan
portfolio during the period. At September 30, 2000, the allowance for loan and
lease losses amounted to $156.9 million or 1.46% of total portfolio loans and
leases, as compared to $157.0 million or 1.63% at September 30, 1999. The ratio
of the allowance for loan and lease losses to nonperforming loans was 319% at
September 30, 2000 and 254% at September 30, 1999.
Provisions are made to the allowance for loan and lease losses in order to
maintain the allowance at a level which management believes is reasonable and
reflective of the overall risk of loss inherent in the loan portfolio.
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 and
lease 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 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 the Company's
market areas, particularly 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 loan and lease losses.
TABLE 8 - ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 Third 2000 Second 2000 First 1999 Fourth 1999 Third 1999 Second 1999 First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans and leases outstanding
during the period (1) $10,675,490 $10,390,034 $10,057,201 $9,826,432 $9,779,332 $9,685,523 $10,348,572
=========== =========== =========== ========== ========== ========== ===========
Allowance at beginning of period $ 156,464 $ 155,078 $ 155,048 $ 156,953 $ 157,774 $ 156,231 $ 155,098
Charge-offs:
Real estate mortgages 1,989 894 1,425 2,609 2,868 2,516 705
Commercial business loans and leases 807 1,519 759 1,949 1,457 513 1,206
Consumer loans and leases 5,046 4,382 5,956 5,678 5,434 5,539 5,560
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total loans charged off 7,842 6,795 8,140 10,236 9,759 8,568 7,471
----------- ----------- ----------- ---------- ---------- ---------- -----------
Recoveries:
Real estate mortgages 707 409 983 212 529 1,692 720
Commercial business loans and leases 440 619 667 600 826 872 890
Consumer loans and leases 848 1,304 1,452 1,514 1,418 1,707 1,429
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total loans recovered 1,995 2,332 3,102 2,326 2,773 4,271 3,039
----------- ----------- ----------- ---------- ---------- ---------- -----------
Net charge-offs 5,847 4,463 5,038 7,910 6,986 4,297 4,432
Additions charged to operating
expenses 6,250 5,849 5,068 6,005 6,165 5,840 5,565
----------- ----------- ----------- ---------- ---------- ---------- -----------
Allowance at end of period $ 156,867 $ 156,464 $ 155,078 $ 155,048 $ 156,953 $ 157,774 $ 156,231
=========== =========== =========== ========== ========== ========== ===========
Ratio of net charge-offs to average
loans and leases outstanding
during the period, annualized (1) 0.22% 0.17% 0.20% 0.32% 0.28% 0.18% 0.17%
Ratio of allowance to total loans
and leases at end of period (2) 1.46% 1.49% 1.52% 1.57% 1.63% 1.66% 1.58%
Ratio of allowance to nonperforming
loans at end of period 319% 312% 279% 267% 254% 225% 229%
Ratio of net charge-offs as a
percent of average outstanding
loans, annualized (1):
Real estate mortgages 0.097% 0.038% 0.035% 0.188% 0.180% 0.063% -0.001%
Commercial business loans
and leases 0.066% 0.170% 0.019% 0.287% 0.134% -0.080% 0.075%
Consumer loans and leases 0.523% 0.399% 0.596% 0.568% 0.578% 0.573% 0.612%
</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.
26
<PAGE> 27
DEPOSITS
Average deposits of $12.0 billion during the third quarter of 2000 increased
$267 million from the third quarter of 1999. Excluding brokered deposits,
average total deposits increased $344 million compared to the third quarter of
1999. The increases in deposits were partially due to new commercial loan
relationships. The ratio of loans to deposits was 89% and 85% at September 30,
2000 and December 31, 1999, respectively.
Average non-interest bearing deposit accounts of $2.0 billion during the third
quarter of 2000 increased $235.3 million or 13% from the third 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 $9.9
billion during the third quarter of 2000 increased $108.9 million from the third
quarter of 1999 primarily due to increases in NOW and money market accounts. The
average rates paid on all deposit types increased from 3.67% in the third
quarter of 1999 to 4.27% in the third quarter of 2000.
The Company has agreed to sell eight branches in northern Maine. The sale is
scheduled to close in November 2000. Approximately $98 million of deposits and
$15 million of consumer loans are covered by this sale, which is expected to
generate a gain of approximately $1.0 million net of tax, with the potential for
additional gains over the next 5 years based on deposit retention rates.
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 third quarter of 2000 were $5.0
billion, a decrease of $52.9 million from the third quarter of 1999. The
proceeds from the sale of securities in the second quarter of 2000 were
partially utilized to decrease the outstanding borrowings.
Average FHLB borrowings for the third quarter of 2000 were $3.9 billion, which
decreased $278 million or 7% from the third quarter of 1999. FHLB collateral
consists primarily of first mortgage loans secured by 1 - 4 family properties,
certain unencumbered securities and other qualified assets. At September 30,
2000, the Company's FHLB borrowings amounted to $3.8 billion and its additional
borrowing capacity from the FHLB was $1.4 billion.
Average balances for securities sold under repurchase agreements were $922.6
million and $751.4 million for the quarters ended September 30, 2000 and 1999,
respectively, an increase of $171.2 million. These borrowings, with a cost of
5.43% for the quarter ended September 30, 2000, are secured by mortgage-backed
securities and U.S. Government obligations.
RISK MANAGEMENT
The primary goal of the Company's risk management program is to determine
how certain existing or emerging issues facing the Company or the financial
services industry affect the nature and extent of the risks faced by the
Company. Based on periodic self-evaluation, the Company determines key issues
and develops plans and/or objectives to address risk. The Board of Directors
(the "Board") and management believe that there are seven applicable "risk
categories," consisting of credit risk, interest rate risk, liquidity risk,
transaction risk, compliance risk, strategic risk and reputation risk. Each risk
category is viewed from a quantity of risk perspective (high, medium or low)
coupled with a quality of risk perspective. In addition, an aggregate level of
risk is assigned to the Company as a whole as well as the direction of risk
(stable, increasing or decreasing). Each risk category and the overall risk
level is compared to regulatory views on a regular basis and then reported to
the Board with an accompanying explanation as to the existence of any
differences. The risk program includes risk identification, risk measurement,
risk control and risk monitoring.
The Board has established the overall strategic direction of the Company.
It approves the overall risk policies of the Company and oversees the overall
risk management process for the Company. The Board has delegated authority to
three Board Committees, consisting of Audit, Board Risk Management and Asset
Review Committees, and has charged each Committee with overseeing key risks. The
executive risk management committee, which reports to the Board, evaluates the
seven key risk areas of the Company and makes recommendations to the Board Risk
Management Committee.
27
<PAGE> 28
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 Asset Liability Management
Committee ("ALCO"), 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 ALCO 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 the most significant
non-credit risk to which the Company is 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 and liabilities,
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 fair value of the Company's saleable
assets and derivatives and the resultant ability to realize gains.
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 ALCO. These limits and
guidelines reflect the Company's tolerance for interest-rate risk over both
short-term and long-term horizons. The Company attempts to control interest-rate
risk by identifying, quantifying and, where appropriate, hedging its exposure.
The Company quantifies and measures interest-rate exposure using a model to
dynamically simulate net interest income under various interest rate scenarios
over a 12-month period. 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,
increases or decreases 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, interest rate floors and
interest rate corridor agreements, among other instruments. At September 30,
2000, the Company had interest rate floor agreements in the notional amount of
$200 million which are used to hedge mortgage servicing rights, as discussed
below. These floors will mature no later than June 2001 and may expire worthless
as their strike prices are currently well below market prices. In conjunction
with the expected sale of the mortgage servicing rights asset which is to be
completed by the first quarter of 2001, the Company sold $100 million in
interest rate floor agreements in November 2000 at carrying value. In September
2000, the Company sold interest rate swaps with a $50 million notional amount
and interest rate corridors contracts with a notional amount of $50 million at a
combined gain of $1.6 million pretax. This gain was deferred and is being
amortized over a two-year period.
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<PAGE> 29
The Company's policy on interest-rate risk simulation specifies that if interest
rates were to shift gradually up or down 200 basis points, estimated net
interest income for the subsequent 12 months should decline by less than 5%. The
Company was in compliance with this limit at September 30, 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>
September 30, 2000 0.97% 0.99% (1.45%) (3.36%)
</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.
These results are dependent on material assumptions utilized by the Company. For
example, the Company believes that savings, money market and NOW accounts have
implied interest rate floors and that, as a result, in the event of a decrease
in market rates of interest, 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 Company believes that an increase in
interest income would be less than the increase in interest expense because the
Company's fixed-rate earning assets exceed its fixed-cost paying liabilities.
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 September
30, 2000, the Company had $200 million notional amount in interest rate floors
and $16 million in principal only strips designated as hedges. 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 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 September 30, 2000 of the
carrying 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 ($20,500) ($8,100) $5,400 $7,700
Interest rate floors 7,300 2,800 (900) (1,100)
Principal only strips 6,000 2,400 (1,300) (2,500)
---------------------------------------------------------
Net exposure ($7,200) ($2,900) $3,200 $4,100
=========================================================
</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 during 2000 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 decreases 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.
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<PAGE> 30
LIQUIDITY
Parent Company
On a parent-only basis at September 30, 2000, the Company's commitments or debt
service requirements consisted primarily of junior subordinated debentures
issued to two subsidiaries, $68.8 million to Peoples Heritage Capital Trust I
and $30 million to Banknorth Capital Trust I, in connection with the issuance of
9.06% Capital Securities due 2027 and 10.52% Capital Securities due 2027,
respectively. 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, and borrowings, including draws on a $60 million
unsecured line of credit which is renewable every 364 days and, if used, carries
interest at 3 month LIBOR plus 0.75%. The line has not been used to date.
Banking Subsidiaries
For banking subsidiaries of the Company, liquidity represents the ability to
fund asset growth or accommodate deposit 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.
The Company continually monitors and forecasts its liquidity position. There are
several interdependent methods used by the Company for this purpose, 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 September 30, 2000, the banks had in the aggregate $1.9 billion of
"immediately accessible liquidity", defined as cash that could be raised within
1-3 days through collateralized borrowings or security sales. This represents
16% of deposits or 10% of assets. The Company's current policy minimum is 10% of
deposits.
Also as of September 30, 2000, the banks had in the aggregate "potentially
volatile funds" of $1.3 billion. 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 September 30, 2000, the ratio of "immediately accessible liquidity" to
"potentially volatile funds" was 146%, 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 September 30, 2000, shareholders' equity amounted to $1.3 billion. In
addition, through subsidiary trusts, the Company had outstanding at such date
$98.8 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
each of the quarters of 2000. In July 1999, the Company authorized a 4,000,000
share repurchase program. The Company completed this repurchase program in the
first quarter of 2000 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. On
October 18, 2000, the Company announced its intention to repurchase up to
625,000 shares from time to time in open market transactions as market
conditions warrant, and on October 31, 2000, the Company approved a $0.125 per
share cash dividend on its Common Stock payable November 20, 2000 to
shareholders of record on November 10, 2000.
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<PAGE> 31
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 September 30, 2000:
Total capital (to risk weighted assets) $1,452,903 11.95% 972,383 8.00% $ 480,520 3.95%
Tier 1 capital (to risk weighted assets) 1,300,968 10.70% 486,191 4.00% 814,777 6.70%
Tier 1 leverage capital ratio (to average assets) 1,300,968 7.07% 735,980 4.00% 564,988 3.07%
As of December 31, 1999:
Total capital (to risk weighted assets) 1,376,171 12.02% 916,232 8.00% 459,939 4.02%
Tier 1 capital (to risk weighted assets) 1,232,863 10.76% 458,115 4.00% 774,748 6.76%
Tier 1 leverage capital (to average assets) 1,232,863 6.75% 730,693 4.00% 502,170 2.75%
</TABLE>
Net risk weighted assets were $12.2 billion and $11.5 billion at September 30,
2000 and December 31, 1999, respectively.
The Company's banking subsidiaries are also subject to federal regulatory
capital requirements. At September 30, 2000, each of the Company's depository
institutions was deemed to be "well capitalized" under the regulations of the
applicable federal banking agency and in compliance with applicable capital
requirements.
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, as amended by
SFAS No. 138, 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.
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<PAGE> 32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the section captioned "Management's Discussion and
Analysis - 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 and use of proceeds - not applicable.
Item 3. Defaults upon senior securities - not applicable.
Item 4. Submission of matters to a vote of security holders - not applicable.
Item 5. Other Information - not applicable.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K on July 26, 2000
and August 22, 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: November 14, 2000 By: /s/ William J. Ryan
-------------------------------
William J. Ryan
Chairman, President and
Chief Executive Officer
Date: November 14, 2000 By: /s/ Peter J. Verrill
-------------------------------
Peter J. Verrill
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: November 14, 2000 By: /s/ Stephen J. Boyle
-------------------------------
Stephen J. Boyle
Executive Vice President and
Controller
(principal accounting officer)
32
