UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 0F THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission file number (0-18173)
BANKNORTH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 03-0321189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 FINANCIAL PLAZA 05401
P.O. BOX 5420 (Zip Code)
BURLINGTON, VERMONT
(Address of principal executive offices)
(802) 658-9959
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (Par Value $1.00 per share)
Associated Common Share Purchase Rights
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K/A or any amendment to this Form 10-K/A.
The aggregate market value of the voting stock held by non-
affiliates of the registrant, based on the closing price on March 1,
1997, was $332,632,540
As of March 26, 1997, 7,826,648 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically
incorporated by reference in the indicated Part of this Annual Report on
Form 10-K/A:
Document Part
-------- ----
Annual Report to Shareholders For the Year Ended December 31, 1996 I,II
Proxy Statement for the 1997 Annual Meeting of Shareholders III
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 1
Five Year Selected Financial Data ...................................... 19
Summary of Unaudited Quarterly Financial Information.................... 20
Management's Statement of Responsibility................................ 21
Independent Auditors' Report............................................ 22
Consolidated Statements of Income....................................... 23
Consolidated Balance Sheets............................................. 24
Consolidated Statements of Changes in Shareholders' Equity.............. 25
Consolidated Statements of Cash Flows................................... 26
Notes to Consolidated Financial Statements.............................. 27
Form 10-K............................................................... 48
Signatures.............................................................. 53
Glossary of Terms....................................................... 54
</TABLE>
1996 FINANCIAL HIGHLIGHTS
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 Percent Change
<S> <C> <C> <C>
INCOME DATA
Net interest income, taxable equivalent $ 109,467 $ 85,331 28.3%
Net interest margin 4.86% 4.79% 1.5
Net income $ 25,390 $ 22,373 13.5
Earnings per share 3.30 3.29 0.3
PERIOD END BALANCES
Assets $ 2,601,323 $ 1,910,174 36.2
Earning assets 2,425,902 1,779,593 36.3
Loans 1,848,232 1,351,053 36.8
Goodwill 36,142 8,553 322.6
Deposits 2,066,064 1,560,769 32.4
Short-term borrowings 280,461 116,213 141.3
Long-term debt 25,923 55,997 (53.7)
Shareholders' equity 206,737 159,936 29.3
Shares outstanding 7,826,648 6,804,425 15.0
AVERAGE BALANCES
Assets $ 2,405,407 $ 1,875,400 28.3
Earning assets, net of fair value adjustment 2,252,385 1,781,836 26.4
Loans 1,730,720 1,329,188 30.2
Goodwill 34,582 9,007 283.9
Deposits 1,989,006 1,453,878 36.8
Short-term borrowings 159,672 164,010 (2.6)
Long-term debt 43,951 94,107 (53.3)
Shareholders' equity 191,279 145,950 31.1
Weighted average shares outstanding 7,703,758 6,804,425 13.2
KEY RATIOS
Return on average total assets 1.06% 1.19% (10.9)
Return on average shareholders' equity 13.27 15.33 (13.4)
Efficiency ratio 62.11 65.11 (4.6)
Net loan charge-offs to average loans 0.34 0.28 21.4
Provision for loan losses to average loans 0.32 0.33 (3.0)
Allowance for loan losses to loans, p.e. 1.27 1.64 (22.6)
Allowance for loan losses coverage of non-perf 124.00 158.15 (21.6)
Non-performing assets to total assets, p.e. 0.76 0.79 (3.8)
Total capital to risk-adjusted assets, p.e. 10.35 12.48 (17.1)
Tier 1 capital to risk-adjusted assets, p.e. 9.11 11.22 (18.8)
Tier 1 capital to quarterly average total asse 6.91 8.05 (14.2)
Tangible equity to tangible assets 6.65 7.96 (16.5)
</TABLE>
Volume & Per Share Information of Common Stock:
<TABLE>
<CAPTION>
Range of
Net Cash Tangible Stock Prices Trading
Income Dividends Book Value High Low Close Volume
<S> <C> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $0.36 $0.15 $19.07 $20.75 $18.00 $18.38 479,085
2nd Qtr. 0.50 0.15 18.94 22.50 17.75 20.56 559,590
3rd Qtr. 0.65 0.15 19.34 26.00 20.50 24.25 1,713,387
4th Qtr. 0.85 0.15 18.54 24.75 21.50 22.00 654,308
1995
1st Qtr. $0.77 $0.23 $19.42 $25.75 $21.75 $23.50 457,704
2nd Qtr. 0.80 0.23 20.31 27.00 23.50 26.88 371,940
3rd Qtr. 0.86 0.23 21.05 35.50 26.25 33.25 812,154
4th Qtr. 0.86 0.23 22.25 39.50 29.75 38.50 563,741
1996
1st Qtr. $0.65 $0.25 $19.38 $38.50 $32.50 $35.25 1,149,471
2nd Qtr. 0.87 0.25 19.89 36.25 32.50 34.25 1,093,788
3rd Qtr. 0.87 0.25 20.74 37.50 31.50 37.38 661,529
4th Qtr. 0.90 0.25 21.80 41.50 34.50 41.50 868,350
</TABLE>
Management's Discussion of Financial Condition and Results of Operations
The financial review which follows focuses on the factors affecting the
financial condition and results of operations of Banknorth Group, Inc.
("Banknorth," "Company" or "Corporation") during 1996 and, in summary form, the
preceding two years. Net interest income and net interest margin are presented
in this discussion on a fully taxable equivalent basis (f.t.e.). Balances
discussed are daily averages unless otherwise described. The consolidated
financial statements and related notes and the quarterly reports to
shareholders for 1996 should be read in conjunction with this review. Certain
amounts in years prior to 1996 have been reclassified to conform to the 1996
presentation.
Except for historical information contained herein, the matters contained
in this review are "forward-looking statements" that involve risk and
uncertainties, including statements concerning future events or performance and
assumptions and other statements which are other than statements of historical
facts. The Company wishes to caution readers that the following important
factors, among others, could in the future affect the Company's actual results
and could cause the Company's actual results for subsequent periods to differ
materially from those expressed in any forward-looking statement made by or on
behalf of the Company herein:
* the effect of changes in laws and regulations, including federal
and state banking laws and regulations, with which the Company and
its banking subsidiaries must comply, the cost of such compliance
and the potentially material adverse effects if the Company or any
of its banking subsidiaries were not in substantial compliance
either currently or in the future as applicable;
* the effect of changes in accounting policies and practices, as may
be adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or changes in the Company's
organization, compensation and benefit plans;
* the effect on the Company's competitive position within its market
area of increasing consolidation within the banking industry and
increasing competition from larger "super regional" and other
out-of-state banking organizations as well as non-bank providers of
various financial services;
* uncertainties due to a lack of operating history of the Company's
Massachusetts subsidiary;
* the effect of unforeseen changes in interest rates;
* the effects of changes in the business cycle and downturns in the
local, regional or national economies.
OVERVIEW
Banknorth recorded net income of $25.4 million, or $3.30 per share, for
the year ended December 31, 1996, compared to $22.4 million, or $3.29 per
share, for the year ended December 31, 1995. In 1994, income before the
cumulative effect of the accounting change which resulted from the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" on January 1, 1994, was
$15.9 million while net income for the year 1994 was $16.0 million.
During the year 1996:
* Banknorth issued 1,022,223 shares of common stock, raising $32.2
million in new equity capital, net of costs associated with the
issue.
* The Company completed the acquisition of thirteen banking offices
in central and western Massachusetts, and formed First
Massachusetts Bank, N.A. ("FMB"), Banknorth's first bank in
Massachusetts.
* Banknorth consolidated its bank trust departments into a new
subsidiary, The Stratevest Group, N.A. ("Stratevest") to market
trust and financial management services more effectively.
* Net income per share was $3.30 as compared to $3.29 in 1995 and
$2.36 in 1994.
* The Company incurred one-time expenses related to the establishment
of FMB and Stratevest, transition to a new incentive compensation
plan and a data processing conversion in the ATM/debit card area
totaling approximately $1.4 million, net of taxes, or $.18 per
share.
* Banknorth incurred goodwill expense of $4.7 million, or $.39 per
share, net of tax, in 1996 as compared to $632 thousand and $136
thousand in 1995 and 1994, respectively.
MERGER AND ACQUISITION ACTIVITY
First Massachusetts Bank, N.A.
On February 16, 1996, Banknorth completed the purchase of thirteen
banking offices of Shawmut Bank, N.A. (the "Shawmut branches") in central and
western Massachusetts. A new subsidiary, FMB, with principal offices in
Worcester, Massachusetts was organized to own and operate the acquired offices.
Under the terms of the Purchase and Assumption Agreement with Shawmut
Bank, National Association (Shawmut), Banknorth paid a premium of $29.2
million, representing 5.23% on deposit liabilities assumed, including accrued
interest payable, calculated based upon the average amount of deposits
outstanding (including accrued interest payable) over the thirty day period
ended February 13, 1996.
At the closing, the Company assumed total liabilities with an estimated
fair value of $560.3 million and acquired total assets, including loans,
accrued interest receivable on such loans, certain real property, furniture,
fixtures, equipment and other assets, with an estimated fair value of $405.7
million. No loans acquired were past due 90 days or more. In addition, the
Company received approximately $124.1 million in cash as consideration for the
net liabilities assumed.
The transaction was accounted for under purchase accounting rules. As
such, both the assets acquired and liabilities assumed have been recorded on
the consolidated balance sheet of the Company at estimated fair value as of the
date of acquisition. Goodwill, representing the excess of cost over net assets
acquired, was $32.1 million, substantially all of which is deductible for
income tax purposes, and is being amortized over seven years on a straight-line
basis. The results of operations for FMB are included in Banknorth's
consolidated financial statements from the date of acquisition forward.
To complete the transaction, Banknorth issued 1,022,223 shares of common
stock in February, 1996. The net proceeds of $32.2 million were used to provide
a portion of the initial capital of FMB and to help offset the reduction in the
Company's regulatory capital ratios resulting from the acquisition.
North American Bank Corporation
On October 14, 1994, Banknorth completed the purchase of North American
Bank Corporation ("NAB") and its sole subsidiary, Farmington National Bank
("Farmington"). The acquisition was accounted for as a purchase of stock and
resulted in approximately $9.3 million of goodwill. The goodwill is being
amortized over fifteen years on a straight line basis. The results of
operations for NAB and Farmington are included in Banknorth's consolidated
financial statements from the date of acquisition forward.
Banknorth financed the NAB transaction using a five-year credit facility
from another bank. The credit agreement was re-negotiated in December, 1996,
and contains certain covenants, none of which impose significant limits on
management's ability to operate the Company and, therefore, are not expected to
materially impact the financial condition of Banknorth.
An important aspect of Banknorth's strategic direction is controlled,
profitable growth through acquisition. The Company continues to focus its
attention on possible acquisition candidates in New England and upstate New
York. Minimal book value dilution, coupled with future accretion to the
earnings base, are the primary criteria which must be met.
ASSET/LIABILITY MANAGEMENT
In managing its asset portfolios, Banknorth utilizes funding and capital
sources within sound credit, investment, interest rate and liquidity risk
guidelines. Loans and securities are the Company's primary earning assets with
additional capacity invested in money market instruments. Earning assets were
93.26% and 93.16% of total assets at December 31, 1996 and 1995, respectively.
Banknorth, through its management of liabilities, attempts to provide
stable and flexible sources of funding within established liquidity and
interest rate risk guidelines. This is accomplished through core deposit
products offered within the markets served by the Company as well as through
the prudent use of purchased liabilities.
Banknorth's objectives in managing its balance sheet are to limit the
sensitivity of net interest income to actual or potential changes in interest
rates, and to enhance profitability through strategies that promise sufficient
reward for understood and controlled risk. The Company is deliberate in its
efforts to maintain adequate liquidity, under prevailing and forecasted
economic conditions, and to maintain an efficient and appropriate mix of core
deposits, purchased liabilities and bank term debt.
Earning Assets
Earning assets were $2.3 billion during 1996, an increase of $470.5
million, or 26.4% from 1995. Of the increase, $445.1 million resulted from the
acquisition of the branches comprising FMB. Earning assets grew 1.4%, exclusive
of FMB. Table A, Mix of Average Earning Assets, presents information relating
to the mix of earning assets during the last three years.
TABLE A.--Mix of Average Earning Assets
<TABLE>
<CAPTION>
Percentage of
Years ended December 31, % of Total Earning Assets
------------------------------------ Total ------------------------
1996 1995 Change Change 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans, net of unearned income and unamortized loan
fees and costs:
Commercial, financial and agricultural $ 281,391 $ 221,294 $ 60,097 12.7% 12.5% 12.4% 12.4%
Construction and land development 21,805 20,960 845 0.2 1.0 1.2 1.3
Commercial real estate 486,522 388,359 98,163 20.9 21.6 21.8 22.3
Residential real estate 704,382 488,571 215,811 45.9 31.3 27.4 26.0
Credit card receivables 23,707 25,465 (1,758) (0.4) 1.0 1.4 1.5
Lease receivables 57,611 38,071 19,540 4.1 2.5 2.1 1.8
Other installment 155,302 146,468 8,834 1.9 6.9 8.3 8.0
------------------------------------------------------------------------
Total loans, net of unearned income and
unamortized loan fees and costs 1,730,720 1,329,188 401,532 85.3 76.8 74.6 73.3
Securities available for sale:
U.S. Treasuries and Agencies 88,651 41,061 47,590 10.1 4.0 2.3 4.2
States and political subdivisions 698 -- 698 0.2 -- -- --
Mortgage-backed securities 272,769 81,207 191,562 40.7 12.1 4.6 8.8
Corporate debt securities 64,363 8,235 56,128 11.9 2.9 0.5 --
Equity securities 23,354 20,059 3,295 0.7 1.0 1.1 1.0
------------------------------------------------------------------------
Total securities available for sale 449,835 150,562 299,273 63.6 20.0 8.5 14.0
Investment securities:
U.S. Treasuries and Agencies 18,982 62,614 (43,632) (9.2) 0.8 3.5 1.4
States and political subdivisions 1,414 2,196 (782) (0.2) 0.1 0.1 --
Mortgage-backed securities 21,590 212,167 (190,577) (40.5) 1.0 11.9 9.5
Corporate debt securities 507 2,406 (1,899) (0.4) -- 0.1 0.1
------------------------------------------------------------------------
Total investment securities 42,493 279,383 (236,890) (50.3) 1.9 15.6 11.0
Loans held for sale 14,834 12,985 1,849 0.4 0.7 0.7 1.0
Money market investments 14,503 9,718 4,785 1.0 0.6 0.6 0.7
------------------------------------------------------------------------
Total earning assets $ 2,252,385 $ 1,781,836 $ 470,549 100.0% 100.0% 100.0% 100.0%
========================================================================
</TABLE>
Loans. Total loans of $1.8 billion at December 31, 1996, were $497.2
million, or 36.8%, above year end 1995. The increase in total loans from 1995
levels is attributable to three primary factors. FMB represented approximately
$420.0 million of the increase. The remaining $77.2 million increase in total
loans was comprised of purchases of loans during 1996 of $38.2 million, and
increases in loan originations in Vermont and New Hampshire of $39.0 million.
After an initial period of loan runoff, credit activity at FMB increased
significantly. Improved credit demand in all markets served resulted in
increased loan originations during 1996 as compared to 1995. During 1996,
management supplemented its in-market loan originations with the purchase of
residential real estate loans originated by other financial institutions in an
effort to increase the level of earning assets. Table B, Loan Portfolio,
provides the detailed components of the loan portfolio as of year-end, for each
of the last five years.
Commercial, financial and agricultural loans at December 31, 1996, were
$300.7 million representing 16.3% of total loans. The 1996 balance, $71.9
million higher than at December 31, 1995, reflects increased lending activity
in the markets served by the Company as well as the addition of the FMB
portfolio. The Company offers a wide range of commercial credit products and
services to its customers. These include secured and unsecured loan products
specifically tailored to the credit needs of the customer, underwritten with
terms and conditions reflective of portfolio risk objectives and corporate
earnings requirements.
Commercial real estate loans increased $132.8 million, or 33.3%, during
1996 to reach $531.4 million at December 31, 1996. This category is comprised
primarily of mortgages on owner-occupied income producing properties or
businesses. In most cases, the Company maintains complete banking relationships
with these customers.
Residential real estate loans, $737.3 million at December 31, 1996, were
$259.8 million higher than at year end 1995. A significant portion of the loans
acquired in establishing FMB were residential mortgages, thereby accounting for
most of the increase in this loan category. Banknorth Mortgage Company ("BMC")
acts as a supplier of mortgage loan assets for the banking subsidiaries,
thereby allowing the banks to place assets on their balance sheet which meet
desired rate and repricing characteristics. Loans originated by BMC are the
primary means by which the Company replaces runoff in its portfolio which
occurs through scheduled principal payments as well as loan pre-payments.
Periodically, Banknorth will supplement these loan originations with purchases
of residential real estate loans made by other financial institutions. In 1996,
in an effort to increase earning assets, Banknorth purchased approximately
$38.2 million of such loans.
Installment loans, including credit card and lease receivables, were
$249.5 million at December 31, 1996, $24.0 million, or 10.6% higher than at
December 31, 1995. Lease receivables increased $23.3 million , or 49.6% over
1995 while other consumer loans increased $2.9 million, or 1.9% over year end
1995. The increase in lease volume as compared to the increase in other
installment receivables is indicative of increased consumer preference towards
automobile leasing over traditional financing.
Loans held for sale. Loans designated as held for sale are primarily
single-family mortgages, originated by the Company's mortgage banking
subsidiary or purchased through its wholesale lending operation, awaiting sale
into the secondary market or to other Banknorth subsidiaries. Loans held for
sale were $12.1 million at December 31, 1996 and $19.1 million at December 31,
1995. Balances in this category vary from period to period largely due to the
difference in timing between loan originations and the settlement of sales into
the secondary market.
The majority of loans originated by BMC, primarily fixed rate, are sold
to the secondary market. Certain production, primarily adjustable rate, is
retained by the Company to be held in its mortgage portfolio. This is
accomplished by the sale of high quality loans to the banking subsidiaries. At
the time of sale, the assets are moved from the held for sale category at the
lower of cost or market value, and reflected as loans on the Company's
consolidated financial statements. During 1996 and 1995, $44.9 million and
$50.4 million, respectively, of mortgage originations were retained in such a
manner by the Company's subsidiary banks.
TABLE B.--Loan Portfolio
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- ------------------- ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Commercial, financial and
agricultural $ 300,730 16.3% $ 228,877 16.9% $ 201,431 15.5% $ 190,087 16.9% $ 188,201 17.2%
Real
Estate:
Construction and land
development 29,364 1.6 20,587 1.5 23,042 1.8 17,959 1.6 18,562 1.7
Commercial 531,364 28.7 398,586 29.5 386,663 29.8 365,329 32.5 367,264 33.5
Residential 737,261 39.9 477,458 35.4 483,936 37.4 371,210 33.1 353,616 32.3
-----------------------------------------------------------------------------------------------------
Total real estate 1,297,989 70.2 896,631 66.4 893,641 69.0 754,498 67.2 739,442 67.5
-----------------------------------------------------------------------------------------------------
Credit card receivables 24,563 1.3 26,867 2.0 26,174 2.0 27,134 2.4 23,279 2.1
Lease receivables 70,396 3.8 47,055 3.5 33,291 2.6 19,851 1.8 10,591 1.0
Other installment 154,554 8.4 151,623 11.2 141,534 10.9 131,646 11.7 134,138 12.2
-----------------------------------------------------------------------------------------------------
Total installment 249,513 13.5 225,545 16.7 200,999 15.5 178,631 15.9 168,008 15.3
-----------------------------------------------------------------------------------------------------
Total loans 1,848,232 100.0 1,351,053 100.0 1,296,071 100.0 1,123,216 100.0 1,095,651 100.0
Less: Allowance for loan
losses 23,520 1.3 22,095 1.6 21,437 1.7 21,363 1.9 22,099 2.0
-----------------------------------------------------------------------------------------------------
Net loans $1,824,712 98.7% $1,328,958 98.4% $1,274,634 98.3% $1,101,853 98.1% $1,073,552 98.0%
=====================================================================================================
</TABLE>
TABLE C.--Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
At December 31, 1996, Maturing:
------------------------------------------------
After 1 year
In 1 year but within After
or less 5 years 5 years Total
------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands)
Commercial, financial and agricultural $ 101,827 $ 119,126 $ 79,777 $ 300,730
Construction and land development 14,472 14,892 -- 29,364
------------------------------------------------
Total $ 116,299 $ 134,018 $ 79,777 $ 330,094
================================================
Predetermined interest rates $ 44,251 $ 35,336 $ 26,842 $ 106,429
Floating interest rates 72,048 98,682 52,935 223,665
------------------------------------------------
Total $ 116,299 $ 134,018 $ 79,777 $ 330,094
================================================
</TABLE>
Securities available for sale. The portfolio is managed on a total return
basis with the objective of exceeding the return that would be experienced if
investing solely in U.S. Treasury instruments. This category of securities is
used primarily for liquidity purposes while simultaneously producing earnings,
and is managed under policy limits established for average duration, average
convexity and average portfolio life.
The designation of "available for sale" is made at the time of purchase,
based upon management's intent to hold the securities for an indefinite period
of time; however, these securities would be available for sale in response to
changes in market interest rates, related changes in the securities prepayment
risk, needs for liquidity, or changes in the availability of, and yield on
alternative investments. These securities are purchased under assumptions
relating to liquidity and performance characteristics, and may be sold or
transferred to held-to-maturity, when these characteristics are significantly
diminished by changes in economic circumstances. Sales may also occur when
liquidity or other funding needs arise. On a regular basis, horizon analysis is
performed on a 6--12 month time horizon to evaluate the need of re-balancing
the portfolio.
In November 1995, the Financial Accounting Standards Board ("FASB")
issued a "Special Report" which granted all entities a one-time opportunity to
reconsider their ability and intent to hold securities accounted for under SFAS
115 to maturity. This decision allowed entities to transfer securities from the
held-to-maturity category without "tainting" their remaining held-to-maturity
securities. On November 30, 1995, in response to the FASB's action, the Company
reclassified certain securities having an aggregate unamortized cost of $197.1
million and an aggregate fair value of $195.3 million from "held-to-maturity"
to "available for sale."
Period end balances in securities available for sale totaled $531.3
million at December 31, 1996 as compared to $359.1 million at December 31,
1995. The 1996 balance is stated net of a fair value adjustment reflecting net
unrealized losses of $3.8 million, whereas the December 1995 balance is net of
a fair value adjustment reflecting net unrealized gains of $45 thousand. In
1996, the Company increased its holdings of securities available for sale by
$113.9 million in order to establish an adequate portfolio at FMB. During 1996,
cash flow generated by the "held-to-maturity" portfolio were re-invested in the
available for sale portfolio accounting for approximately $15.5 million of the
increase. During the fourth quarter of 1996, Banknorth purchased $52.0 million
of various issues in order to increase the size of its earning asset portfolio.
During 1995, maturities occurring in the held-to-maturity portfolio were also
reinvested in the available for sale portfolio.
Equity securities are comprised primarily of non-marketable investments
in both the Federal Reserve Bank of Boston and the Federal Home Loan Bank of
Boston ("FHLB"). Both investments are required for memberships.
TABLE D.--Securities Available for Sale and Investment Securities
<TABLE>
<CAPTION>
At December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Securities available for sale:
U.S. Treasuries and Agencies $ 111,774 $ 76,401 $ 39,976
States and political subdivisions 2,361 -- --
Mortgage-backed securities 272,433 249,549 63,446
Corporate debt securities 121,384 12,147 3,239
Equity securities 27,128 20,943 18,850
Valuation reserve (3,811) 45 (6,957)
-----------------------------------
Recorded value of securities available for
sale $ 531,269 $ 359,085 $ 118,554
===================================
Investment securities:
U.S. Treasuries and Agencies $ 13,181 $ 23,837 $ 70,926
States and political subdivisions 1,135 1,630 1,898
Mortgage-backed securities 19,868 23,146 236,362
Corporate debt securities 10 1,067 7,990
-----------------------------------
Recorded value of investment securities $ 34,194 $ 49,680 $ 317,176
===================================
Fair value of investment securities $ 34,644 $ 51,087 $ 301,682
===================================
Excess (deficiency) of fair value versus
recorded value $ 450 $ 1,407 $ (15,494)
Fair value as a % of recorded value 101.3% 102.8% 95.1%
</TABLE>
Table E.--Investment Portfolio Maturity Distribution
<TABLE>
<CAPTION>
As of December 31, 1996
-----------------------
Amount Yield (FTE)
-----------------------
<S> <C> <C>
(Dollars in thousands)
Securities available for sale:
U.S.Treasuries and Agencies:
Within 1 year $ 5,967 5.15%
1 to 5 years 105,807 5.91
------------------
$ 111,774 5.87%
==================
State and political subdivisions:
1 to 5 years $ 2,361 6.71%
==================
Mortgage-backed securities:
Within 1 year $ 430 3.45%
1 to 5 years 108,785 5.18
6 to 10 years 30,106 6.44
Over 10 years 133,112 6.99
------------------
$ 272,433 6.20%
==================
Corporate debt securities:
1 to 5 years $ 44,066 5.91%
6 to 10 years 37,492 6.31
Over 10 years 39,826 6.66
------------------
$ 121,384 6.28%
==================
Total securities available for sale:
Within 1 year $ 6,397 5.04%
1 to 5 years 261,019 5.61
6 to 10 years 67,598 6.37
Over 10 years 172,938 6.91
Equity securities 27,128 5.97
Valuation reserve (3,811) --
------------------
$ 531,269 6.18%
==================
Investment securities:
U.S.Treasuries and Agencies:
Within 1 year $ 4,990 6.78%
1 to 5 years 8,191 6.68
------------------
$ 13,181 6.72%
==================
State and political subdivisions:
Within 1 year $ 325 10.57%
1 to 5 years 530 7.94
Over 10 years 280 2.63
------------------
$ 1,135 7.38%
==================
Mortgage-backed securities:
Within 1 year $ 698 7.13%
1 to 5 years 17,660 7.60
6 to 10 years 1,484 9.03
Over 10 years 26 7.48
------------------
$ 19,868 7.69%
==================
Corporate debt securities:
6 to 10 years $ 10 7.00%
==================
Total investment securities:
Within 1 year $ 6,013 7.03%
1 to 5 years 26,381 7.32
6 to 10 years 1,494 9.02
Over 10 years 306 3.04
------------------
$ 34,194 7.30%
==================
</TABLE>
Investment securities. The designation "investment securities" is made
at the time of purchase or transfer based upon the intent and ability to hold
these securities until maturity. The management of this portfolio focuses on
yield and earnings generation, liquidity through cash flow and interest rate
risk characteristics within the framework of the entire balance sheet. Cash
flow guidelines and average duration targets have been established for
management of this portfolio. As of December 31, 1996, the balance of
securities in this category was $34.2 million, $15.5 million below the balance
at December 31, 1995. The primary cause of the reduced portfolio size was the
reinvestment of maturities throughout 1996 into the available for sale
portfolio. During the fourth quarter of 1995, in anticipation of the
acquisition of the Shawmut branches and the formation of FMB discussed above,
proceeds from securities called were used to pay down long-term advances from
the FHLB rather than being reinvested in new securities.
Table D, Securities Available for Sale and Investment Securities contains
details of investment securities at December 31, 1996, 1995, and 1994.
Money market investments. Money market investments, primarily Federal
funds sold, averaged $14.5 million during 1996, an increase of $4.8 million
over the average balance in 1995. As of December 31, 1996, money market
investments were $101 thousand as compared to $650 thousand at December 31,
1995. Subsidiary banks with excess overnight cash positions invest such funds
with other subsidiary banks that may have short-term funding needs. This
internal settlement, performed prior to purchasing funds in the market, reduces
funding costs and improves overall liquidity.
Income on earning assets. The Company's income from earning assets, total
interest income, was $190.6 million in 1996 on a fully tax equivalent basis, an
increase of $37.3 million, or 24.3%, from the 1995 total of $153.3 million, and
$65.7 million higher than in 1994. Of the increase in interest income from 1995
to 1996, $38.4 million was the result of increases in earning assets. Decreases
in the yields on earning assets resulted in a decline in interest income of
$1.1 million. In 1996, the average yield on total earning assets was 8.46% as
compared to 8.60% in 1995 and 7.71% in 1994. The acquisition of FMB contributed
to both the increase in earning assets and total interest income.
Table F, Average Balances, Yields and Net Interest Margins and Table H,
Volume and Yield Analysis, contain details of changes by category of interest
income from earning assets for each of the last three years.
TABLE F.--Average Balances, Yields, and Net Interest Margins
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Earning assets:
Money market investments $ 14,503 $ 806 5.56% $ 9,718 $ 562 5.78% $ 11,419 $ 462 4.05%
Securities available for sale,
at amortized cost (Note 1) 449,835 27,474 6.11 150,562 9,255 6.15 228,103 13,066 5.73
Loans held for sale 14,834 1,150 7.75 12,985 1,024 7.89 15,432 1,195 7.74
Investment securities, at
amortized cost (Note 1) 42,493 3,037 7.15 279,383 17,439 6.24 178,524 10,607 5.94
Loans, net of unearned income
and unamortized loan
fees (Notes 1,2,3) 1,730,720 158,140 9.14 1,329,188 125,031 9.41 1,187,773 99,592 8.38
------------------------------------------------------------------------------------------
Total earning assets 2,252,385 190,607 8.46 1,781,836 153,311 8.60 1,621,251 124,922 7.71
------------------------------------------------------------------------------------------
Cash and due from banks 83,631 60,441 64,222
Allowance for loan losses (24,142) (21,564) (20,933)
Valuation reserve for securities
available for sale and investment
securities (5,118) (7,461) (7,819)
Other assets 98,651 62,148 57,093
------------------------------------------------------------------------------------------
Total assets $2,405,407 $1,875,400 $1,713,814
==========================================================================================
Interest-bearing liabilities:
NOW accounts & money
market savings $ 741,351 24,829 3.35 $ 513,280 18,343 3.57 $ 424,381 11,679 2.75
Regular savings 223,936 5,351 2.39 189,927 4,935 2.60 202,423 5,056 2.50
Time deposits $100 thousand
and greater 76,194 4,266 5.60 45,658 2,481 5.43 41,157 1,704 4.14
Time deposits under $100
thousand 682,587 36,172 5.30 510,433 27,330 5.35 453,112 19,352 4.27
------------------------------------------------------------------------------------------
Total interest-bearing
deposits 1,724,068 70,618 4.10 1,259,298 53,089 4.22 1,121,073 37,791 3.37
Long-term debt 43,951 2,609 5.94 94,107 5,874 6.24 113,364 5,585 4.93
Short-term borrowed funds 159,672 7,913 4.96 164,010 9,017 5.50 145,616 6,223 4.27
------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,927,691 81,140 4.21 1,517,415 67,980 4.48 1,380,053 49,599 3.59
------------------------------------------------------------------------------------------
Demand deposits 264,938 194,580 185,676
Other liabilities 21,499 17,455 17,077
Shareholders' equity 191,279 145,950 131,008
------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,405,407 $1,875,400 $1,713,814
==========================================================================================
Net interest income (FTE) $109,467 $ 85,331 $ 75,323
==============================================================================
Interest rate differential 4.25% 4.12% 4.12%
===================================================================
Net interest margin 4.86% 4.79% 4.65%
===================================================================
<FN>
Notes:
<F1> (1) Tax exempt income has been adjusted to a tax equivalent basis by tax
effecting such interest at the Federal tax rate.
<F2> (2) Includes principal balances of non-accrual loans.
<F3> (3) Includes industrial revenue bonds.
</FN>
</TABLE>
Funding Sources
Banknorth utilizes various traditional sources of funding to support its
earning asset portfolios. Average total net funding increased by $485.7
million, or 29.4 %, over the average for 1995. Table G, Average Sources of
Funding, presents the various categories of funds used and the corresponding
average balances for each of the last two years as well as the percentage of
net funding by category for 1996, 1995 and 1994.
TABLE G.--Average Sources of Funding
<TABLE>
<CAPTION>
Percentage
Years Ended December 31, Change Total Net Funding
------------------------ ------------------- -------------------------
1996 1995 $ % 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Demand deposits $ 264,938 $ 194,580 $ 70,358 36.2% 12.4% 11.8% 12.4%
Retail deposits:
Regular savings 223,936 189,927 34,009 17.9 10.5 11.6 13.5
Time deposits under $100 thousand 682,587 510,433 172,154 33.7 31.9 30.9 30.2
NOW accounts & money
market savings 741,351 513,280 228,071 44.4 34.7 31.0 28.2
-----------------------------------------------------------------------
Total retail deposits 1,647,874 1,213,640 434,234 35.8 77.1 73.5 71.9
-----------------------------------------------------------------------
Total core deposits 1,912,812 1,408,220 504,592 35.8 89.5 85.3 84.3
Less: Cash and due from banks 83,631 60,441 23,190 38.4 3.9 3.7 4.3
-----------------------------------------------------------------------
Net core deposits 1,829,181 1,347,779 481,402 35.7 85.6 81.6 80.0
-----------------------------------------------------------------------
Time deposits $100 thousand and greater 76,194 45,658 30,536 66.9 3.6 2.8 2.7
Federal funds purchased 5,368 4,274 1,094 25.6 0.3 0.3 0.4
Securities sold under agreements to
repurchase 106,918 98,586 8,332 8.5 5.0 6.0 5.6
Borrowings from U.S. Treasury 7,730 8,486 (756) (8.9) 0.4 0.5 0.6
Short-term notes from FHLB 39,656 52,664 (13,008) (24.7) 1.9 3.2 3.2
Long-term notes from FHLB 28,736 74,712 (45,976) (61.5) 1.2 4.4 7.2
-----------------------------------------------------------------------
Total purchased liabilities 264,602 284,380 (19,778) (7.0) 12.4 17.2 19.7
Bank term loan 15,215 19,395 (4,180) (21.6) 0.7 1.2 0.3
Stock offering, net 28,255 -- 28,255 100.0 1.3 -- --
-----------------------------------------------------------------------
Total net funding $2,137,253 $1,651,554 $ 485,699 29.4% 100.0% 100.0% 100.0%
=======================================================================
</TABLE>
Deposits. Total core deposits increased $504.6 million over 1995 of which
$439.1 million resulted from the acquisition of FMB. Retail time deposits in
denominations less than $100,000 increased by $172.2 million while NOW and
money market accounts increased by $228.1 million.
Purchased liabilities. Total purchased liabilities decreased on average
from $284.4 million during 1995 to $264.6 million during 1996. As of December
31, 1996, total short-term borrowings were $280.5 million as compared to $116.2
million at December 31, 1995. Short- term borrowings from the FHLB increased
from $12.5 million at December 31, 1995 to $129.0 million at December 31, 1996.
The increase in short-term borrowings was the result of funding needs at FMB as
well as funding needs for incremental loan and securities available for sale
purchases made during 1996. Banknorth had no brokered deposits during 1996 and
1995 and does not anticipate the need for such funding in the future. Long-term
advances from the Federal Home Loan Bank declined on average from $74.7 million
during 1995 to $28.7 million in 1996. Scheduled maturities of long-term
advances were replaced with short-term advances in order to improve spreads
while maintaining the Company's interest rate risk profile within established
guidelines.
Bank Term Debt. Bank term debt of $15.2 million during 1996 represents
the late 1994 funding of the acquisition of NAB. As previously disclosed,
Banknorth financed the transaction with a bank credit facility whose original
terms were re-negotiated in December, 1996. The new terms provide improved
pricing and an extension of the repayment period. The balance of $13.0 million
at December 31, 1996 will be repaid over a five year period.
Interest expense summary. Total interest expense was $81.1 million in
1996, an increase of $13.2 million, or 19.4% as compared to 1995. Increased
levels of interest-bearing liabilities, a large portion of which reflect FMB,
contributed $16.0 million to the increase while the decrease in rates paid
reduced interest expense by $2.9 million. The cost of interest-bearing
liabilities was 4.21% in 1996, a decrease of 27 basis points from 1995.
Table F, Average Balances, Yields and Net Interest Margins and Table H,
Volume and Yield Analysis, contain details of changes by category of interest
expense for each of the last three years.
Time deposits, in denominations of $100 thousand and greater, at December
31, 1996 were scheduled to mature as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
3 months or less $ 37,772
Over 3 to 6 months 18,908
Over 6 to 12 months 22,081
Over 12 months 12,484
--------
Total $ 91,245
========
</TABLE>
TABLE H.--Volume and Yield Analysis
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
------------------------------------------------- -------------------------------------------------
Increase Due to Increase Due to
1996 1995 (Decrease) Volume Rate 1995 1994 (Decrease) Volume Rate
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest income (FTE):
Money market investments $ 806 $ 562 $ 244 $ 265 $ (21) $ 562 $ 462 $ 100 $ (98) $ 198
Securities available for
sale 27,474 9,255 18,219 18,279 (60) 9,255 13,066 (3,811) (4,769) 958
Loans held for sale 1,150 1,024 126 144 (18) 1,024 1,195 (171) (191) 20
Investment securities 3,037 17,439 (14,402) (16,960) 2,558 17,439 10,607 6,832 6,305 527
Loans 158,140 125,031 33,109 36,698 (3,589) 125,031 99,592 25,439 13,308 12,131
---------------------------------------------------------------------------------------------------
Total interest income 190,607 153,311 37,296 38,426 (1,130) 153,311 124,922 28,389 14,555 13,834
---------------------------------------------------------------------------------------------------
Interest expense:
NOW accounts and money
market savings 24,829 18,343 6,486 7,615 (1,129) 18,343 11,679 6,664 3,184 3,480
Regular savings 5,351 4,935 416 803 (387) 4,935 5,056 (121) (323) 202
Time deposits $100
thousand and greater 4,266 2,481 1,785 1,707 78 2,481 1,704 777 246 531
Time deposits under $100
thousand 36,172 27,330 8,842 9,097 (255) 27,330 19,352 7,978 3,084 4,894
Long-term debt 2,609 5,874 (3,265) (2,983) (282) 5,874 5,585 289 (1,196) 1,485
Short-term borrowings 7,913 9,017 (1,104) (218) (886) 9,017 6,223 2,794 1,003 1,791
---------------------------------------------------------------------------------------------------
Total interest
expense 81,140 67,980 13,160 16,021 (2,861) 67,980 49,599 18,381 5,998 12,383
Net interest income (FTE) $109,467 $ 85,331 $24,136 $22,405 $ 1,731 $ 85,331 $ 75,323 $10,008 $ 8,557 $ 1,451
===================================================================================================
</TABLE>
Increases and decreases in interest income and interest expense due to both
rate and volume have been allocated to volume on a consistent basis.
Net Interest Income
Net interest income for 1996 of $109.5 million was $24.1 million, or
28.3% higher than that recognized in 1995. The yield on earning assets declined
by 14 basis points in 1996 to 8.46%, while the cost of interest bearing
liabilities decreased 27 basis points. Of the change in net interest income of
$24.1 million, $22.4 million was due to increased volume and $1.7 million was
due to changes in interest rates. The net interest margin was 4.86% in 1996,
4.79% in 1995 and 4.65% in 1994.
Interest rates decreased during 1996, the result of which was a decrease
in both the yield on earning assets and the cost of interest-bearing
liabilities. During the fourth quarter of 1996, the net interest margin was
4.81%, 5 basis points below the margin for the full year of 1996. The net
interest margin narrowed during the later part of 1996 as competition for
quality credits and retail deposits resulted in a tighter spread between asset
yields and deposit costs. A changing mix of deposits where higher cost deposits
increased faster than lower cost deposits also contributed to the narrowing
margin. Given this trend, management expects the net interest margin in 1997 to
be lower than that experienced during 1996.
RISK MANAGEMENT
The responsibility for balance sheet risk management oversight is the
function of the Asset/Liability Committee ("ALCO"). The Corporate ALCO, chaired
by the chief financial officer and composed of subsidiary presidents and other
members of corporate senior management, meets on a monthly basis to review
balance sheet structure, formulate strategy in light of expected economic
conditions, and review performance against guidelines established to control
exposure to the various types of inherent risk. Bank subsidiary ALCOs meet on a
more frequent basis to implement policy, review adherence to guidelines, adjust
product prices as necessary and monitor liquidity.
Credit Risk
Credit risk is managed through a network of loan officer authorities,
credit committees, loan policies and oversight from the corporate senior credit
officer and subsidiary boards of directors. Management follows a policy of
continually identifying, analyzing and grading credit risk inherent in each
loan portfolio. An ongoing independent review, subsequent to management's
review, of individual credits is performed on each subsidiary bank's commercial
loan portfolios by the independent Loan Review function.
As a result of management's ongoing review of the loan portfolio, loans
are placed in non-accrual status, either due to the delinquent status of
principal and/or interest payments, or a judgment by management that, although
payments of principal and/or interest are current, such action is prudent.
Loans are generally placed in non-accrual status when principal and/or interest
is 90 days overdue, except in the case of consumer loans which are generally
charged off when loan principal and/or interest payments are 120 days overdue.
Non-performing assets (NPA's). Non-performing assets include
non-performing loans, which are those loans in a non-accrual status, loans
which have been treated as troubled debt restructurings and loans past due 90
days or more and are still accruing interest. Also included in the total
non-performing assets are foreclosed real estate properties and repossessed
non-real estate assets.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," (SFAS 114) as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure," (SFAS 118). At that time, all of the Company's in-substance
foreclosed assets were reclassified into impaired loan status as required by
SFAS 114. For all prior periods presented, amounts related to in-substance
foreclosures have also been reclassified. These Statements prescribe
recognition criteria for loan impairment, generally related to commercial type
loans and measurement methods for impaired loans.
NPA's were $19.9 million at December 31, 1996, an increase of $4.7
million, or 31.4%, from December 31, 1995. NPA's at December 31, 1994 were
$20.0 million. The NPA ratio at December 31, 1996, was 1.08% compared to 1.12%
at year end 1995. Table I, Non-Performing Assets, contains the details of NPA's
for the last five years.
Non-performing loans ("NPL's") at December 31, 1996 were $19.0 million, a
net increase of $5.0 million, or 35.8%, from December 31, 1995.
The recorded investment in loans considered to be impaired under SFAS 114
totaled $8.6 million as of December 31, 1996 and $5.0 million as of December
31, 1995. The related allowances for loan losses on these impaired loans were
$1.9 million and $1.1 million as of December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, there were no impaired loans which did not have
an allowance for loan losses determined in accordance with SFAS 114.
The increase in NPL's is largely in non-accrual loans and is attributable
to weakening in certain large commercial and commercial real estate credits,
increased delinquencies in the residential real estate portfolio and increased
volume primarily related to the formation of FMB. Delinquency rates and the
increase in non-accrual loans in the residential portfolio are consistent with
trends seen regionally and nationally. Given the possibility of increases in
interest rates, management expects that certain credits may encounter
difficulty in continuing to perform under the contractual terms of their loans
should rates actually increase. While this occurrence might result in increases
in NPL's and subsequent chargeoffs, management does not expect it to materially
affect the Company's performance in 1997.
As of December 31, 1996, there are no other loans in the Company's
portfolio that management is aware of that pose significant adverse risk to the
eventual full collection of principal.
Total other real estate owned was $921 thousand at the end of 1996, down
$248 thousand from one year earlier.
TABLE I.--Non-Performing Assets
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans on a non-accrual basis:
Commercial, financial and agricultural $ 3,221 $ 648 $ 2,073 $ 2,174 $ 4,734
Real estate:
Construction and land development 39 103 730 282 1,196
Commercial 4,443 3,993 8,873 18,232 26,460
Residential 9,290 7,625 6,092 6,819 8,532
Credit card receivables -- -- -- 3 12
Other installment -- -- -- 1 17
---------------------------------------------------------
Total non-accrual 16,993 12,369 17,768 27,511 40,951
Restructured loans:
Commercial, financial and agricultural -- -- -- -- 255
Real estate:
Commercial 716 288 260 709 221
Residential 39 85 69 46 --
Other installment 10 55 141 159 16
---------------------------------------------------------
Total restructured 765 428 470 914 492
Past-due 90 days or more and still accruing:
Commercial, financial and agricultural 169 87 54 30 88
Real estate:
Commercial -- 64 270 35 628
Residential 88 396 466 7 724
Credit card receivables 111 105 118 57 73
Lease receivables 48 28 -- 81 --
Other installment 794 494 243 381 740
---------------------------------------------------------
Total past-due 90 days or more and still
accruing 1,210 1,174 1,151 591 2,253
---------------------------------------------------------
Total non-performing loans 18,968 13,971 19,389 29,016 43,696
---------------------------------------------------------
Other real estate owned (OREO) 921 1,169 575 3,444 7,151
---------------------------------------------------------
Total non-performing assets $ 19,889 $ 15,140 $ 19,964 $ 32,460 $ 50,847
=========================================================
Allowance for loan losses (ALL) $ 23,520 $ 22,095 $ 21,437 $ 21,363 $ 22,099
ALL coverage of non-performing loans 124.00% 158.15% 110.56% 73.62% 50.57%
Non-performing assets as a % of (loans & OREO) 1.08 1.12 1.54 2.88 4.61
Non-performing assets to total assets 0.76 0.79 1.07 1.95 3.26
</TABLE>
Allowance and provision for loan losses. The balance of the allowance for
loan losses ("allowance") has been accumulated over the years through periodic
provisions and is available to absorb future losses on loans. The adequacy of
the allowance is evaluated monthly based on review of all significant loans,
with particular emphasis on non-performing and other loans that management
believes warrant special attention. The balance of the allowance is maintained
at a level that is, in management's judgment, representative of the amount of
risk inherent in the loan portfolio given past, present and expected
conditions.
Table J, Summary of Loan Loss Experience, includes an analysis of the
changes to the allowance for the past five years. Loans charged off in 1996
were $10.3 million, or .60% of average loans, an increase of $1.2 million from
the $9.2 million in 1995. Recoveries in 1996 on loans previously charged off
were $4.5 million as compared to $5.4 million in 1995. TABLE J.--Summary of
Loan Loss Experience
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans outstanding--end of year $1,848,232 $1,351,053 $1,296,071 $1,123,216 $1,095,651
Average loans outstanding $1,730,720 $1,329,188 $1,187,773 $1,091,851 $1,125,675
Allowance for loan losses at beginning of year $ 22,095 $ 21,437 $ 21,363 $ 22,099 $ 22,096
------------------------------------------------------------------
Allowance related to acquisitions 1,650 -- 1,608 -- --
Loans charged off:
Commercial, financial and agricultural (1,356) (1,283) (795) (3,000) (8,049)
Real estate:
Construction and land development (73) (357) (97) (183) (176)
Commercial (2,122) (2,287) (4,239) (4,216) (5,283)
Residential (1,772) (1,833) (1,441) (792) (1,467)
------------------------------------------------------------------
Total real estate (3,967) (4,477) (5,777) (5,191) (6,926)
Credit card receivables (788) (576) (479) (469) (496)
Lease receivables (867) (410) (255) (66) --
Other installment (3,348) (2,415) (2,414) (2,991) (4,255)
------------------------------------------------------------------
Total installment (5,003) (3,401) (3,148) (3,526) (4,751)
Total loans charged off (10,326) (9,161) (9,720) (11,717) (19,726)
------------------------------------------------------------------
Recoveries on loans:
Commercial, financial and agricultural 619 1,597 1,459 3,104 1,976
Real estate:
Construction and land development 60 540 227 99 185
Commercial 1,039 1,430 1,419 1,067 1,107
Residential 669 302 309 268 531
------------------------------------------------------------------
Total real estate 1,768 2,272 1,955 1,434 1,823
Credit card receivables 144 162 123 119 110
Lease receivables 695 277 155 31 --
Other installment 1,275 1,136 1,284 1,593 2,487
------------------------------------------------------------------
Total installment 2,114 1,575 1,562 1,743 2,597
Total recoveries on loans 4,501 5,444 4,976 6,281 6,396
------------------------------------------------------------------
Loans charged off, net of recoveries (5,825) (3,717) (4,744) (5,436) (13,330)
------------------------------------------------------------------
Provision for loan losses 5,600 4,375 3,210 4,700 13,333
------------------------------------------------------------------
Allowance for loan losses at end of year $ 23,520 $ 22,095 $ 21,437 $ 21,363 $ 22,099
==================================================================
Loans charged off, net, as a % of average
total loans 0.34% 0.28% 0.40% 0.50% 1.18%
Provision for loan losses as a % of average
total loans 0.32 0.33 0.27 0.43 1.18
Allowance for loan losses as a % of
year-end total loans 1.27 1.64 1.65 1.90 2.02
</TABLE>
The provision for loan losses ("provision") in 1996 was $5.6 million, or
.32% of average loans. In 1995, the provision was $4.4 million, or .33% of
average loans while in 1994 the provision was $3.2 million, or .27% of average
loans.
The following table presents the breakdown of the allowance by loan type
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------- ----------------
% of % of
Amount Loans Amount Loans
-------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Commercial and commercial real estate $ 15,361 1.8% $ 14,484 2.2%
Residential real estate 4,498 0.6 4,430 2.0
Installment 3,661 1.5 3,181 0.7
-----------------------------------
Total allowance for loan losses $ 23,520 1.3% $ 22,095 1.6%
===================================
</TABLE>
Interest Rate Risk
Interest rate risk can be defined as an exposure to a movement in
interest rates that could have an adverse effect on the Company's net interest
income. Interest rate risk arises naturally from the imbalance in the
repricing, maturity and/or cash flow characteristics of assets and liabilities.
Management's objectives are to measure, monitor and develop strategies in
response to the interest rate risk profile inherent in the Company's
consolidated balance sheet and off-balance sheet financial instruments.
Interest rate risk is managed by the Corporate ALCO. Interest rate risk
measurement and management techniques incorporate the repricing and cash flow
attributes of balance sheet and off-balance sheet instruments as they relate to
potential changes in interest rates. The level of interest rate risk, measured
in terms of the potential future effect on net interest income, is determined
through the use of modeling and other analytical techniques under multiple
interest rate scenarios. Interest rate risk is evaluated on a quarterly basis
and reviewed by the Corporate ALCO with subsidiary risk profiles presented to
the respective boards of directors.
The Company's Asset Liability Management Policy, approved annually by the
boards of directors, establishes interest rate risk limits in terms of
variability of net interest income under rising, flat and decreasing rate
scenarios. It is the role of the ALCO to evaluate the overall risk profile and
to determine actions to maintain and achieve a posture consistent with policy
guidelines.
Certain imbalances causing interest rate risk to exceed policy limits are
correctable through management of asset and liability product offerings.
Depending upon the specific nature of the imbalance, it may be more efficient
and less costly to utilize off-balance sheet instruments such as interest rate
swaps and interest rate cap or floor agreements, among other things, to correct
the imbalance. Banknorth has utilized both swaps and floors to address certain
interest rate risk exposures.
A significant portion of the Company's loans are adjustable or variable
rate resulting in reduced levels of interest income during periods of falling
rates. Certain categories of deposits reach a point in this instance where
market forces prevent further reduction in the rate paid on those instruments.
The net effect of these circumstances is reduced interest income offset only by
a nominal decrease in interest expense, thereby narrowing the net interest
margin. Additionally, the interest rate risk characteristics of the loans and
deposits purchased with the Shawmut branches exacerbated the potential for
reduced interest income under those circumstances. To protect the Company from
this occurrence, at December 31, 1996, interest rate floors in the notional
amount of $295 million and interest rate swaps in the notional amount of $50
million were used to mitigate the potential reduction in interest income on
certain adjustable and variable rate loans.
The aggregate cost of the interest rate floors was $2.8 million which is
being amortized as an adjustment to the related loan yield on a straight-line
basis over the terms of the agreements. At December 31, 1996, the unamortized
balance of these interest rate floors was $2.1 million. The estimated fair
value of these floors was $4.0 million as of December 31, 1996. The estimated
fair value of the interest rate swap contracts was $270 thousand as of December
31, 1996.
As of December 31, 1996, based on the various assumptions through the use
of the Company's interest rate risk simulation model, the change in net
interest income from the Company's flat-rate (given no changes in the December
31, 1996 interest rate levels) forecasted net interest income would not exceed
5% under any of the interest rate scenarios used in the analysis. This level of
variability places the Company's interest rate risk profile within acceptable
policy guidelines. The following table summarizes the percentage change from
the flat-rate forecasted net interest income if rates, rather than remaining at
their December 31, 1996 levels, increased or decreased 200 basis points
steadily through the 24 month planning horizon:
<TABLE>
<CAPTION>
% Change from Flat-
Rate Forecast
--------------------
Rising Falling
Rate Rate
Scenario Scenario
--------------------
<S> <C> <C>
Months 1--12 -1.86% 0.00%
Months 13--24 -3.45% -2.01%
Months 1--24 -2.69% -1.05%
</TABLE>
A tool used by some in the banking industry for measuring interest rate
risk is interest rate sensitivity gap ("gap") analysis. This approach attempts
to measure the difference between assets and liabilities repricing or maturing
within specified time periods.
A gap analysis has several significant limitations, which renders it less
meaningful to Banknorth than the above discussed analysis. These limitations
include the fact that it is a static measurement, it does not capture basis
risk, and it does not capture risk that varies non-proportionally with rate
movements. The selection of the beginning and ending dates of the time
intervals used as gap buckets as well as the size of the time interval can mask
interest rate risk. Assets and liabilities do not always have clear repricing
dates and many loans and deposits reprice earlier than their contractual
maturities indicate. Gap analysis is also unable to properly reflect the impact
on net interest income of certain interest rate floors. Such complexities are
better addressed by the Company's simulation model which, over the 24 month
horizon, shows future levels of net interest income to be relatively neutral to
changes in the interest rate environment as a result of the Company's active
asset liability management practices.
Liquidity Risk
Banknorth seeks to obtain favorable sources of liabilities and to
maintain prudent levels of liquid assets in order to satisfy varied liquidity
demands. Besides serving as a funding source for maturing obligations,
liquidity provides flexibility in responding to customer initiated needs. Many
factors affect the Company's ability to meet liquidity needs, including
variations in the markets served by its network of offices, its mix of assets
and liabilities, reputation and credit standing in the marketplace, and general
economic conditions.
The Company actively manages its liquidity position through target ratios
established under its liquidity policy. Continual monitoring of these ratios,
both historically and through forecasts under multiple interest rate scenarios,
allows Banknorth to employ strategies necessary to maintain adequate liquidity.
Management has also defined various degrees of adverse liquidity situations
which could potentially occur and has prepared appropriate contingency plans
should such situations arise.
The Company achieves its liability-based liquidity objectives in a
variety of ways. Net liabilities can be classified into three basic categories
for the purpose of managing liability-based liquidity: net core deposits,
purchased liabilities and long-term or capital market funds. Net core deposits
consist of non-interest bearing demand deposits and retail deposits, less cash
and amounts due from other banks. These deposits result from relatively
dependable customers and commercial banking relationships and are therefore
viewed as a stable component of total required funding. Net core deposits
increased from 1995 to 1996 by $481.4 million, or 35.7%. Net core deposits
represented 85.6% of total funding in 1996 and 81.6% in 1995. Banknorth will
continue to seek funding in the most efficient and cost effective manner as is
possible. Table G reflects the components of funding over the last three years.
Among the traditional funding instruments comprising the category of
purchased liabilities are time deposits $100 thousand and greater, Federal
funds purchased, securities sold under agreement to repurchase, borrowings from
the United States Treasury Department Treasury, Tax and Loan accounts, and
short- and long-term borrowings from the FHLB. The average balance of purchased
liabilities during 1996, as reflected in Table G, was $264.6 million, $19.8
million or 7.0% lower than in 1995. Purchased liabilities represented 12.4% of
total funding in 1996 as compared to 17.2% in 1995.
The principal component of short-term borrowings is securities sold under
agreement to repurchase. These borrowings generally represent short-term
uninsured customer investments, which are secured by the Company's investment
portfolio. During 1996, the average securities sold under agreement to
repurchase were $106.9 million, as compared to $98.6 million in 1995.
Long-term funding, primarily through the FHLB, decreased during 1996 by
$46.0 million and were replaced mostly by time deposits $100 thousand and
greater and securities sold under repurchase agreements.
As previously discussed, the Company utilized financial institution
borrowings pursuant to a five-year credit facility to finance the NAB
acquisition. The Company's primary source of funds to pay principal and
interest under this credit facility is dependent upon the continued ability of
the subsidiary banks to pay dividends in an amount sufficient to service such
debt.
A secondary source of liquidity is represented by asset-based liquidity.
Asset-based liquidity consists of holdings of securities available for sale and
short-term money market investments that can be readily converted to cash, as
well as single-family mortgage loans which qualify for secondary market sale.
Off-Balance Sheet Risk
Commitments to extend credit. Banknorth makes contractual commitments to
extend credit and extends lines of credit which are subject to the Company's
credit approval and monitoring procedures. At December 31, 1996 and 1995,
commitments to extend credit in the form of loans, including unused lines of
credit, amounted to $477.8 million and $341.4 million, respectively. In the
opinion of management, there are no material commitments to extend credit that
represent unusual risks.
Letters of credit and stand-by letters of credit. Banknorth guarantees
the obligations or performance of customers by issuing letters of credit and
stand-by letters of credit to third parties. These letters of credit are
frequently issued in support of third party debt, such as corporate debt
issuances, industrial revenue bonds and municipal securities. The risk involved
in issuing letters of credit and stand-by letters of credit is essentially the
same as the credit risk involved in extending loan facilities to customers, and
they are subject to the same credit origination, portfolio maintenance and
management procedures in effect to monitor other credit and off-balance sheet
products. At December 31, 1996 and 1995, outstanding letters of credit and
stand-by letters of credit were approximately $32.0 million and $25.2 million,
respectively.
Counterparty risk. Banknorth enters into interest rate swap and floor
agreements under which the Company and the swap or floor counterparty are
obligated to exchange interest payments on notional principal amounts. For swap
and floor transactions, the contract or notional amount does not represent
exposure to credit loss. The Company is exposed to risk should the counterparty
default in its responsibility to pay interest under the terms of the swap or
floor agreement. Banknorth controls counterparty risk through credit approvals,
limits and monitoring procedures.
OTHER OPERATING INCOME AND EXPENSES
Other operating income. Other operating income is a significant source of
revenue for Banknorth and an important factor in the Company's results of
operations. Other operating income totaled $25.3 million in 1996, $4.4 million
or 21.0% higher than in 1995. The 1996 increase is due primarily to increases
in service charges on deposit accounts generated by FMB, net loan transactions
and reduced levels of securities losses.
The trust function contributes the largest recurring portion of other
operating income through fees generated from the performance of fiduciary
services. Income from fiduciary activities totaled $7.8 million in 1996, an
increase of $409 thousand, or 5.5% over 1995. In February, 1996, the Company
consolidated its subsidiary banks' trust departments into a newly formed
limited charter national bank, The Stratevest Group, N.A. Under this new
structure the Company expects higher levels of income to result from improved
marketing and sales initiatives and enhanced product offerings. Additional
opportunities for the generation of trust income lie in the penetration of the
Massachusetts and New Hampshire markets. Accordingly, management expects
increased levels of fiduciary income in 1997.
Service charges on deposit accounts, $6.6 million in 1996, were $1.5
million, or 29.1% above 1995 and 33.4% higher than in 1994. The acquisition of
NAB provided increased levels of service charge income in 1995 while FMB
contributed significantly to the increase in 1996.
Credit card income was $3.0 million in 1996 and $2.8 million in 1995 and
1994, respectively. Targeted promotional campaigns during 1996 and 1995 were
the primary reasons for the increase in income.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 122, "Accounting for Mortgage Servicing Rights," (SFAS 122), which
amends Statement of Financial Accounting Standard No. 65, "Accounting for
Certain Mortgage Banking Activities". SFAS 122 requires that entities recognize
as separate assets, the rights to service mortgage loans for others, regardless
of how those rights are acquired. Additionally, SFAS 122 requires that the
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights, and that impairment, if any, be recognized through
a valuation allowance.
Loan servicing income, primarily mortgage servicing at BMC, in 1996 was
$2.8 million, an increase of $144 thousand, or 5.3%, over 1995 . Offsetting
loan servicing income for 1996 was $881 thousand of purchased and excess
mortgage servicing rights amortization expense and $81 thousand in amortization
of newly recognized originated mortgage servicing rights under SFAS 122. Loan
servicing income was $2.7 million in 1995, 7.7% above that recognized in 1994.
The increase from 1994 reflected growth in the servicing portfolio as well as
reduced rates of amortization of purchased mortgage servicing rights and excess
servicing, both due to the movement in interest rates.
Net loan transaction income is normally generated through the origination
and subsequent sale of mortgage products into the secondary mortgage market.
Net loan transaction income of $1.6 million was $1.1 million higher than in
1995, directly the result of increased originations of mortgage loans to be
sold into the secondary market and income recognition under SFAS 122. Included
in net loan transaction income in 1996 was $869 thousand resulting from
application of SFAS 122. Net loan transactions were lower in 1995 than in 1994
due to reduced levels of mortgage originations resulting from an upward
movement in interest rates.
Banknorth recognized a net gain of approximately $664 thousand on sale of
certain mortgage servicing rights in 1994. The servicing rights were comprised
primarily of residential mortgages and second home mortgages of customers
outside Banknorth's normal market area.
Net gains or losses from securities transactions are also included in
other operating income. In 1996, the Company realized $31 thousand in net
securities gains as compared to 1995 when it incurred $409 thousand in net
losses and 1994 when it realized net losses in the amount of $2.2 million. The
Company anticipates that it will consider sales from the securities available
for sale portfolio during 1997 as it attempts to achieve its objectives in the
total return management of the securities available for sale portfolio. The
Company also expects that losses incurred, if any, would be recovered through
yield improvement within a one to two year period.
Other Operating Expenses
Other operating expenses were $91.2 million in 1996, $20.6 million, or
29.2% above expense levels in 1995, and $21.3 million, or 30.4% higher than in
1994. Included in 1996 total other operating expenses are those relating to
FMB, both recurring and one-time, as well as one-time expenses relating to the
formation of Stratevest, transition to a new incentive compensation plan and a
data processing conversion in the ATM/debit card area. One-time expenses
relating to these activities amounted to approximately $2.1 million before
taxes resulting in an after-tax impact on net income per share of $.18.
Further, the Company incurred a $250 thousand loss from a burglary at one of
its subsidiary bank branches. The Company's efficiency ratio was 62.11% in
1996, down from 65.11% in 1995 and 69.76% in 1994.
Salaries expense increased by $7.5 million, or 26.5%, over 1995. Of the
increase, $4.3 million was related to the direct expense of FMB, while a
significant portion of the remaining increase resulted from the increased
staffing levels necessary to provided operational and other support functions
to FMB. The 1995 expense of $28.3 million was $2.3 million, or 8.9% above 1994
salaries expense of $26.0 million. The increase in 1995 was directly the result
of NAB.
Included in salaries expense in 1996 is $849 thousand relating to the
Banknorth Short-Term Management Incentive Compensation Plan ("Plan"). The Plan
expense in 1995 was $1.2 million and $700 thousand in 1994. In 1996,
performance of the Company in relationship to targets defined by the Plan,
resulted in a reduced level of award to participants from that made in 1995.
Employee benefit expense for 1996 was $8.3 million in 1996, up $1.8
million from 1995. Payroll tax expense increased by approximately $773 thousand
over 1995 while insurance, pension and 401-K expenses increased $592 thousand,
$211 thousand and $219 thousand, respectively. Included in the increase
described above are benefit expenses related to the employees of FMB of $966
thousand in 1996.
The formation of FMB and the increase in leased office space for
necessary support functions were the primary cause of the $1.7 million increase
in net occupancy expense during 1996. FMB incurred occupancy expenses in the
amount of $1.0 million. Occupancy expense of $5.5 million in 1995, was $142
thousand, or 2.7% higher than 1994. Contributing to the increase in 1995 over
1994 were expenses relating to a full year of Farmington, the opening of a new
branch office in Rochester, N.H. and continued efforts to comply with the
Americans with Disabilities Act which requires retro-fitting certain customer
contact areas.
Equipment and software expense was $6.7 million, $5.5 million and $5.4
million in 1996, 1995 and 1994, respectively. In 1996, FMB incurred equipment
and software expenses of approximately $522 thousand. The remaining portion of
the increase in 1996 as compared with 1995 is due primarily to increased
expenditures for furniture and equipment for the additional staff required to
provide operational support to the new bank. The Company continues to invest in
various technologies which allow the Company to operate more efficiently,
either through reduced staff levels or avoidance of future adds to staff, and
enhance service to our customer base. During 1996, the Company began
implementing an image-based proof of deposit system using electronic images of
checks for filing and distribution to customers. The implementation of this new
system was completed at all subsidiary banks during early 1997.
Data processing fees include payments to Banknorth's vendors of mainframe
systems and site management, credit card processing, ATM transaction processing
and payroll processing. Data processing fees totaled $4.6 million in 1996 and
1995, $5.0 million in 1994. Generally, these expenses are governed by contract
terms relating to either volume of activity and/or changes in the consumer
price index. In 1994, Banknorth re-negotiated the five-year contract under
which data processing services are provided by the Company's facilities
manager. As expected, the contract revisions lowered data processing expense in
1996 and 1995.
FDIC deposit insurance and other regulatory expense in 1996 decreased
$1.6 million from 1995. The Federal Deposit Insurance Corporation Improvement
Act mandated a reduction in insurance rates when the Bank Insurance Fund
achieved a 1.25% reserve ratio. That target was reached in May 1995, resulting
in reduced premiums for the third and fourth quarters of 1995 as well as a
refund of premiums for the June 1995 time period. The reduced premium level
continued through 1996 reaching a fixed nominal fee paid by the subsidiary
banks. For 1997, the Company is expected to pay approximately $850 thousand in
increased regulatory premiums due to the legislation involving the combination
of the Bank Insurance Fund and Savings Association Insurance Fund.
Expenses relating to other real estate owned and repossessed assets
declined in 1996 by $49 thousand as compared to 1995. These expenses were $471
thousand in 1996, $520 thousand in 1995 and $1.7 million in 1994. Included in
this expense category in 1996 are adjustments of other real estate to estimated
fair value in the amount of $176 thousand and net gains on the sale of other
real estate owned in the amount of $598 thousand. Fair value adjustments in
1995 and 1994 were $241 thousand and $904 thousand, respectively, while net
gains on sale in those years were $835 thousand and $1.1 million, respectively.
Net expenses for the maintenance, real estate taxes and property insurance
relating to these properties amounted to $802 million in 1996. Management
anticipates a level of other real estate owned and repossession expenses in
1997 similar to that experienced in 1996.
Legal and professional expenses of $3.6 million in 1996, were $866
thousand, or 31.8% higher than in 1995, and $806 thousand, or 29.0% higher than
in 1994. Approximately $416 thousand of the increase in legal and professional
expenses were incurred by FMB in 1996. Otherwise, legal and professional fees
in 1996 increased from 1995 primarily due to expenses related to various
business development initiatives.
Printing and supplies expense in 1996 increased $1.3 million from 1995.
Of the increase, $945 thousand is related to FMB. Also contributing to the
increase was the expense associated with issuing new ATM and debit cards to the
Company's customer base and the supplies for the new image-based proof of
deposit technology. The increase of $182 thousand between 1995 and 1994 was
mainly attributable to recognition of a full year of operations of NAB.
Advertising and marketing expenses were $2.7 million in 1996, $719
thousand, or 35.4% higher than in 1995. As with other categories of expense,
the primary cause of the increases from year to year is the addition of either
FMB in 1996 or Farmington in 1995. Included in 1996 expenses are FMB marketing
expenses of $882 thousand while included in 1995 expenses were $155 thousand
related to NAB. In 1996, advertising and marketing expenditures also included
the startup of Stratevest and the roll out of the new debit card program.
Communication expenses amounted to $2.4 million in 1996, up $857 thousand
from 1995. The increase was primarily due to formation of FMB and the increased
volume of usage at the other subsidiary banks and 24 hour banking.
Amortization of goodwill amounted to $4.7 million in 1996 representing
approximately 10.5 months of amortization of the goodwill related to FMB and a
full year of amortization of the NAB goodwill. Goodwill expense was $632
thousand in 1995 and $136 thousand in 1994.
Other expenses totaled $11.1 million in 1996 as compared with $8.8
million in 1995 and $9.0 million in 1994. Contributing to the increase from
1995 were expenses related to directors' compensation relative to a phantom
stock program, a loss of approximately $250 thousand resulting from a burglary
at one of the subsidiary bank branches, and both one-time and recurring
expenses at FMB.
Core Tangible Performance
After removing the impact of the balance of goodwill and the related
period amortization, as well as the impact of the significant one-time net
expenses discussed previously, "core tangible" performance for 1996, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Net income, as reported $ 25,390 $ 22,373 $ 16,041
Adjustments, net of tax effect:
Significant one-time net expenses/(income) 1,443 -- (114)
Amortization of goodwill 2,990 615 132
-----------------------------------------
"Core tangible income" $ 29,823 $ 22,988 $ 16,059
=========================================
Average tangible assets $ 2,370,825 $ 1,866,393 $ 1,711,877
Average tangible equity 156,697 136,943 129,071
Weighted average shares outstanding 7,703,758 6,804,425 6,804,425
"Core tangible" return on average tangible assets 1.26% 1.23% .94%
"Core tangible" return on average tangible equity 19.03% 16.79% 12.44%
"Core tangible" net income per share $ 3.87 $ 3.38 $ 2.36
</TABLE>
INCOME TAXES
In 1996, Banknorth recognized tax expense of $12.0 million, as compared
to $8.2 million in 1995 and $5.7 million in 1994. The increase in tax expense
is primarily reflective of the improved earnings performance with income before
taxes and cumulative effect of accounting changes of $37.4 million, $30.6
million and $21.6 million in 1996, 1995, and 1994, respectively. In each year,
the tax expense on the Company's income was lower than tax expense at the
statutory rate of 35%, due primarily to tax exempt income, tax credits and the
reduction of the deferred tax asset valuation reserve.
Activity within the committee structure of the Vermont State Legislature
has the potential to result in legislation that would impose a state income tax
on banks rather than the current deposit based franchise tax. If such
legislation was to be enacted, the change in tax methodology could result in
significantly higher tax expense in future reporting periods.
REGULATORY ENVIRONMENT
The Financial Institutions Reform, Recovery and Enforcement Act and the
Federal Deposit Insurance Corporation Improvement Act are laws enacted that
have or will change various aspects of the banking industry, including
regulatory oversight and reporting issues. Management does not expect these
laws to have a material impact on the operations of the Company's subsidiaries.
CAPITAL RESOURCES
Consistent with its long-term goal of operating a sound and profitable
financial organization, Banknorth strives to maintain a "well capitalized"
company according to regulatory standards. Historically most of the Company's
capital requirements have been provided through retained earnings, as indicated
in Table K, Rate of Internal Capital Generation.
The Company (including, prior to 1989, its corporate predecessors) has
historically paid regular quarterly cash dividends on its common stock. This
pattern was temporarily interrupted during 1991 and 1992 when the board of
directors of the Company suspended payment of the regular cash dividend to
better preserve the Company's capital in the face of increasing levels of
non-performing loans requiring higher provisions for loan losses. As the
Company's performance recovered, payment of regular quarterly cash dividends
was resumed during the first quarter of 1993 at a level of $.10 per share. The
quarterly dividend was increased in 1994 to a level of $.15 per share, to $.23
per share in 1995, to $.25 per share in 1996, and most recently to $.29 per
share in January of 1997.
The Banknorth board of directors presently intends to continue the
payment of regular quarterly cash dividends, equal to approximately 30% of net
income, subject to adjustment from time to time, based upon the Company's
earnings outlook and other relevant factors. The Company's principal source of
funds to pay cash dividends are derived from dividends from its subsidiary
banks. Various laws and regulations restrict the ability of banks to pay
dividends to their shareholders. As part of its plan to capitalize FMB at a
"well capitalized" level for regulatory purposes, the Company re-deployed
accumulated capital of certain of its subsidiary banks. Because the special
dividend exceeded applicable regulatory limitations, the Company obtained
approval from the applicable regulatory agencies for the payment of that
portion of the dividend which exceeded such regulatory limitations. The payment
of dividends by the Company in the future will require the generation of
sufficient future earnings by the subsidiary banks. For further disclosures
relative to dividend restrictions and regulatory requirements, refer to the
notes to the consolidated financial statements.
At December 31, 1996, Banknorth's Tier 1 capital was $173.1 million, or
9.11% of risk-adjusted assets, compared to $151.4 million and 11.22% at
December 31, 1995, and $134.7 million and 10.61% at December 31, 1994. The
ratio of Tier 1 capital to quarterly average adjusted assets, or leverage
ratio, at December 31, 1996 was 6.91% as compared to 8.05% and 7.41% in 1995
and 1994 , respectively. Both ratios compare favorably with peer organizations
and exceed all "well capitalized" regulatory requirements on a consolidated
basis as well as at the subsidiary bank level.
Table L, Capital Ratios, reveals the components of capital and the
changes from 1994 through 1996.
TABLE K.--Rate of Internal Capital Generation
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average total assets:
Income before cumulative effect of accounting changes 1.06% 1.19% 0.93% 0.72% 0.14%
Net income 1.06 1.19 0.94 0.50 0.14
Return on average shareholders' equity:
Income before cumulative effect of accounting changes 13.27 15.33 12.14 8.93 1.74
Net income 13.27 15.33 12.24 6.20 1.74
Average equity to average assets 7.95 7.78 7.64 8.05 7.85
Dividend payout 30.30 27.96 25.42 34.19 --
Earnings retention rate 69.70 72.04 74.58 65.81 100.00
Internal capital generation rate 9.25 11.04 9.13 4.08 1.74
<FN>
<F1> Note: For 1996, 1995 and 1994, amounts include the effect of the fair market
value adjustment on securities available for sale.
</FN>
</TABLE>
To assist in establishing FMB as a "well capitalized" bank, and offset
the reduction in maintaining the Company's regulatory capital ratios as "well
capitalized" as a result of the acquisition of the Shawmut branches, Banknorth,
on February 14, 1996, issued 1,022,223 shares of common stock generating $32.2
million, net of costs, of new capital.
TABLE L.--Capital Ratios
<TABLE>
<CAPTION>
December 31, % change
---------------------------------------- --------------------
1996 1995
vs. vs.
1996 1995 1994 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Total risk-adjusted on-balance-sheet assets $ 1,795,825 $ 1,272,079 $ 1,215,843 41.2% 4.6%
Total risk-adjusted off-balance-sheet items 103,647 76,432 53,885 35.6 41.8
-------------------------------------------------------------
Total risk-adjusted assets $ 1,899,472 $ 1,348,511 $ 1,269,728 40.9 6.2
=============================================================
Total risk-adjusted assets/average total assets,
net of fair value adjustment and goodwill (1) 75.87% 71.77% 69.90% -- --
Total shareholders' equity $ 206,737 $ 159,936 $ 135,564 29.3 18.0
Fair value adjustment (1) 2,477 (29) 8,495 (8,641.4) (100.3)
Other adjustments to Tier 1 capital (36,142) (8,553) (9,391) 322.6 (8.9)
-------------------------------------------------------------
Total Tier 1 capital 173,072 151,354 134,668 14.3 12.4
Maximum allowance for loan losses (2) 23,520 16,921 15,940 39.0 6.2
-------------------------------------------------------------
Total capital $ 196,592 $ 168,275 $ 150,608 16.8 11.7
=============================================================
Quarterly average total assets,
net of fair value adjustment and goodwill (1) $ 2,503,637 $ 1,879,047 $ 1,816,503 33.2 3.4
Allowance for loan losses 23,520 22,095 21,437 6.4 3.1
Total capital to total risk-adjusted assets 10.35% 12.48% 11.86%
Tier 1 capital to total risk-adjusted assets 9.11 11.22 10.61
Tier 1 capital to total quarterly average
adjusted assets (Leverage) 6.91 8.05 7.41
<FN>
Notes:
<F1> (1) The market valuation relating to securities available for sale included
in shareholders' equity and total assets on the consolidated balance
sheets has been excluded in the above ratios.
<F2> (2) The maximum allowance for loan losses used in calculating total capital
is the period-end allowance for loan losses or 1.25% of risk-adjusted
assets prior to the allowance limitation, whichever is lower.
</FN>
</TABLE>
Five Year Selected Financial Data
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except for share data)
STATEMENT OF INCOME:
Interest income $ 190,008 $ 152,624 $ 124,403 $ 113,178 $ 123,671
Interest expense 81,140 67,980 49,599 44,670 58,575
-------------------------------------------------------------------
Net interest income 108,868 84,644 74,804 68,508 65,096
Provision for loan losses 5,600 4,375 3,210 4,700 13,333
-------------------------------------------------------------------
Net interest income after provision for loan losses 103,268 80,269 71,594 63,808 51,763
Other income:
Income from fiduciary activities 7,835 7,426 7,227 7,455 6,988
Service charges on depositor accounts 6,558 5,081 4,917 5,128 4,990
Credit card income 3,029 2,789 2,835 2,751 2,640
Loan servicing income 2,845 2,701 2,509 2,040 1,854
Net loan transactions 1,629 568 1,214 3,408 4,889
Gain on sale of mortgage servicing rights -- -- 664 -- --
Net securities transactions 31 (409) (2,234) 1,110 73
All other 3,376 2,754 2,839 2,865 2,253
-------------------------------------------------------------------
Total other income 25,303 20,910 19,971 24,757 23,687
Other expenses:
Salaries 35,823 28,316 25,990 26,734 26,190
Employee benefits 8,272 6,489 6,642 6,191 7,445
Net occupancy expenses 7,193 5,487 5,345 5,027 5,096
Equipment and software expenses 6,661 5,519 5,407 4,981 5,320
Data processing fees 4,584 4,629 5,027 4,840 4,725
FDIC insurance and other regulatory expenses 461 2,062 3,415 3,634 3,474
OREO and repossession expenses 471 520 1,723 4,606 5,587
Amortization of goodwill 4,652 632 136 5 5
All other 23,083 16,935 16,243 15,851 15,274
-------------------------------------------------------------------
Total other expenses 91,200 70,589 69,928 71,869 73,116
-------------------------------------------------------------------
Income before income taxes 37,371 30,590 21,637 16,696 2,334
Income tax expense 11,981 8,217 5,734 5,235 163
-------------------------------------------------------------------
Income before cumulative effect of changes in accounting 25,390 22,373 15,903 11,461 2,171
Cumulative effect of changes in accounting -- -- 138 (3,500) --
-------------------------------------------------------------------
Net income $ 25,390 $ 22,373 $ 16,041 $ 7,961 $ 2,171
===================================================================
AVERAGE BALANCES:
Loans $ 1,730,720 $ 1,329,188 $ 1,187,773 $ 1,091,851 $ 1,125,675
Loans held for sale 14,834 12,985 15,432 24,161 20,468
Securities available for sale 449,835 150,562 228,103 337,523 72,528
Investment securities 42,493 279,383 178,524 23,491 238,339
Money market investments 14,503 9,718 11,419 9,873 17,574
-------------------------------------------------------------------
Total earning assets 2,252,385 1,781,836 1,621,251 1,486,899 1,474,584
Other assets 153,022 93,564 92,563 107,289 117,324
-------------------------------------------------------------------
Total assets $ 2,405,407 $ 1,875,400 $ 1,713,814 $ 1,594,188 $ 1,591,908
===================================================================
Demand deposits $ 264,938 $ 194,580 $ 185,676 $ 178,734 $ 166,177
Interest-bearing deposits 1,724,068 1,259,298 1,121,073 1,099,550 1,207,840
-------------------------------------------------------------------
Total deposits 1,989,006 1,453,878 1,306,749 1,278,284 1,374,017
Short-term borrowings 159,672 164,010 145,616 130,176 57,875
Long-term debt 43,951 94,107 113,364 41,312 14,834
Other liabilities 21,499 17,455 17,077 16,107 20,186
Shareholders' equity 191,279 145,950 131,008 128,309 124,996
-------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,405,407 $ 1,875,400 $ 1,713,814 $ 1,594,188 $ 1,591,908
===================================================================
Loans charged off, net of recoveries $ 5,825 $ 3,717 $ 4,744 $ 5,436 $ 13,330
Non-performing assets, p.e. 19,889 15,140 19,964 32,460 50,847
SHARED DATA:
Shares outstanding, p.e. 7,826,648 6,804,425 6,804,425 6,804,425 6,804,425
Weighted average shares outstanding 7,703,758 6,804,425 6,804,425 6,804,425 6,804,425
Tangible book value, p.e. $ 21.80 $ 22.25 $ 18.54 $ 19.40 $ 18.71
Cash dividends declared 1.00 0.92 0.60 0.40 --
Income before cumulative effect of account changes 3.30 3.29 2.34 1.68 0.32
Net income 3.30 3.29 2.36 1.17 0.32
Closing price at year end 41.50 38.50 22.00 19.50 13.50
Cash dividends declared as a % of net income 30.30% 27.96% 25.42% 34.19% --%
RATIOS:
Return on average assets
Before cumulative effect of accounting changes 1.06% 1.19% 0.93% 0.72% 0.14%
Net income 1.06 1.19 0.94 0.50 0.14
Return on average shareholders' equity
Before cumulative effect of accounting changes 13.27 15.33 12.14 8.93 1.74
Net income 13.27 15.33 12.24 6.20 1.74
Net interest margin, fte 4.86 4.79 4.65 4.65 4.47
Efficiency ratio 62.11 65.11 69.76 72.88 75.37
Expense ratio 2.59 2.70 2.84 2.96 2.98
As a % of risk-adjusted assets:
Total capital 10.35 12.48 11.86 12.95 12.71
Tier 1 capital 9.11 11.22 10.61 11.70 11.45
As a % of total assets:
Tier 1 capital (regulatory leverage) 6.91 8.05 7.41 7.96 8.19
Tangible shareholders' equity, p.e. to tangible
assets, p.e. 6.65 7.96 6.77 7.86 8.15
Price earnings ratio 12.6 11.7 9.3 16.7 42.2
</TABLE>
Summary of Unaudited Quarterly Financial Information
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------ ------------------------------------------------------
Q4 Q3 Q2 Q1 Year Q4 Q3 Q2 Q1 Year
------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except
for share data)
STATEMENT OF INCOME:
Interest income $ 50,246 $ 49,175 $ 47,454 $ 43,133 $ 190,008 $ 38,643 $ 39,214 $ 37,967 $ 36,800 $ 152,624
Interest expense 21,666 20,899 20,058 18,517 81,140 17,508 17,763 17,079 15,630 67,980
-------------------------------------------------------------------------------------------------------------
Net interest income 28,580 28,276 27,396 24,616 108,868 21,135 21,451 20,888 21,170 84,644
Provision for loan
losses 1,500 1,500 1,300 1,300 5,600 1,125 1,125 1,125 1,000 4,375
-------------------------------------------------------------------------------------------------------------
Net interest income
after provision
for loan losses 27,080 26,776 26,096 23,316 103,268 20,010 20,326 19,763 20,170 80,269
-------------------------------------------------------------------------------------------------------------
Other income:
Income from fiduciary
activities 1,750 2,084 2,005 1,996 7,835 1,835 1,879 1,890 1,822 7,426
Service charges on
depositor accounts 1,734 1,692 1,792 1,340 6,558 1,226 1,298 1,321 1,236 5,081
Credit card income 938 764 728 599 3,029 842 684 665 598 2,789
Loan servicing income 701 795 670 679 2,845 679 649 655 718 2,701
Net loan
transactions 413 257 358 601 1,629 217 165 94 92 568
Net securities
transactions 7 21 -- 3 31 9 (471) 46 7 (409)
All other 961 844 903 668 3,376 611 949 625 569 2,754
-------------------------------------------------------------------------------------------------------------
Total other income 6,504 6,457 6,456 5,886 25,303 5,419 5,153 5,296 5,042 20,910
Other expenses:
Salaries 9,117 9,278 9,053 8,375 35,823 7,661 7,104 6,814 6,737 28,316
Employee benefits 1,898 2,057 2,146 2,171 8,272 1,457 1,589 1,656 1,787 6,489
Net occupancy
expenses 1,971 1,669 1,767 1,786 7,193 1,388 1,343 1,325 1,431 5,487
Equipment and
software expenses 1,958 1,569 1,701 1,433 6,661 1,400 1,400 1,368 1,351 5,519
Data processing fees 1,156 1,111 1,209 1,108 4,584 1,242 1,125 1,076 1,186 4,629
FDIC deposit
insurance and other
regulatory expenses 129 134 99 99 461 234 9 905 914 2,062
OREO and repossession
expenses 96 267 78 30 471 (95) 347 (9) 277 520
Amortization of
goodwill 1,305 1,297 1,319 731 4,652 157 157 159 159 632
All other 5,731 5,794 5,138 6,420 23,083 4,558 4,313 4,078 3,986 16,935
-------------------------------------------------------------------------------------------------------------
Total other expenses 23,361 23,176 22,510 22,153 91,200 18,002 17,387 17,372 17,828 70,589
-------------------------------------------------------------------------------------------------------------
Income before income
taxes 10,223 10,057 10,042 7,049 37,371 7,427 8,092 7,687 7,384 30,590
Income tax expense 3,190 3,244 3,248 2,299 11,981 1,596 2,266 2,213 2,142 8,217
-------------------------------------------------------------------------------------------------------------
Net income $ 7,033 $ 6,813 $ 6,794 $ 4,750 $ 25,390 $ 5,831 $ 5,826 $ 5,474 $ 5,242 $ 22,373
=============================================================================================================
AVERAGE BALANCES:
Loans $1,838,093 $1,797,510 $1,746,552 $1,538,784 $1,730,720 $1,352,356 $1,343,177 $1,324,586 $1,295,777 $1,329,188
Loans held for sale 12,010 14,497 15,668 17,196 14,834 16,267 15,607 10,178 9,854 12,985
Securities available
for sale 488,277 474,626 446,227 389,515 449,835 191,408 128,822 129,333 126,610 150,562
Investment
securities 35,846 40,151 45,703 48,371 42,493 216,701 301,023 310,092 316,155 279,383
Money market
investments 1,631 9,835 18,522 28,216 14,503 10,717 15,595 3,035 9,448 9,718
-------------------------------------------------------------------------------------------------------------
Total earning
assets 2,375,857 2,336,619 2,272,672 2,022,082 2,252,385 1,787,449 1,804,224 1,777,224 1,757,844 1,781,836
Other assets 161,445 157,757 156,577 137,606 153,022 100,180 97,826 88,653 89,064 93,564
-------------------------------------------------------------------------------------------------------------
Total assets $2,537,302 $2,494,376 $2,429,249 $2,159,688 $2,405,407 $1,887,629 $1,902,050 $1,865,877 $1,846,908 $1,875,400
=============================================================================================================
Demand deposits $ 284,835 $ 272,492 $ 261,437 $ 227,571 $ 264,938 $ 205,354 $ 199,122 $ 186,609 $ 187,790 $ 194,580
Interest-bearing
deposits 1,779,766 1,788,238 1,768,600 1,558,369 1,724,068 1,307,950 1,266,310 1,233,929 1,227,791 1,259,298
-------------------------------------------------------------------------------------------------------------
Total deposits 2,064,601 2,060,730 2,030,037 1,785,940 1,989,006 1,513,304 1,465,432 1,420,538 1,415,581 1,453,878
Short-term
borrowings 215,332 172,217 138,632 124,853 159,672 129,836 176,809 183,021 167,810 164,010
Long-term debt 31,497 44,713 47,311 52,411 43,951 72,534 94,169 101,506 108,613 94,107
Other liabilities 22,027 21,426 21,574 20,966 21,499 17,678 17,695 17,029 17,412 17,455
Shareholders' equity 203,845 195,290 191,695 175,518 191,279 154,277 147,945 143,783 137,492 145,950
-------------------------------------------------------------------------------------------------------------
Total liabilities
and shareholders'
equity $2,537,302 $2,494,376 $2,429,249 $2,159,688 $2,405,407 $1,887,629 $1,902,050 $1,865,877 $1,846,908 $1,875,400
=============================================================================================================
Loans charged off,
net of recoveries $ 2,264 $ 1,885 $ 814 $ 862 $ 5,825 $ 440 $ 622 $ 1,771 $ 884 $ 3,717
Non-performing
assets, p.e. 19,889 23,330 23,248 15,909 19,889 15,140 17,954 19,850 21,112 15,140
SHARE DATA:
Shares outstanding,
p.e. 7,826,648 7,826,648 7,826,648 7,826,648 7,826,648 6,804,425 6,804,425 6,804,425 6,804,425 6,804,425
Weighted average
shares outstanding 7,826,648 7,826,648 7,826,648 7,332,386 7,703,758 6,804,425 6,804,425 6,804,425 6,804,425 6,804,425
Tangible book value,
p.e. $21.80 $20.74 $19.89 $19.38 $21.80 $22.25 $21.05 $20.31 $19.42 $22.25
Cash dividends
declared 0.25 0.25 0.25 0.25 1.00 0.23 0.23 0.23 0.23 0.92
Net income 0.90 0.87 0.87 0.65 3.30 0.86 0.86 0.80 0.77 3.29
Closing price at
quarter end 41.50 37.38 34.25 35.25 41.50 38.50 33.25 26.88 23.50 38.50
Cash dividends
declared as a % of
net income 27.78% 28.74% 28.74% 38.46% 30.30% 26.74% 26.74% 28.75% 29.87% 27.96%
RATIOS:
Return on average
assets 1.10% 1.09% 1.12% 0.88% 1.06% 1.23% 1.22% 1.18% 1.15% 1.19%
Return on average
shareholders' equity 13.73 13.88 14.25 10.88 13.27 15.00 15.62 15.27 15.46 15.33
Net interest margin,
fte 4.81 4.83 4.88 4.93 4.86 4.73 4.76 4.75 4.85 4.79
Efficiency ratio 62.36 61.34 62.07 62.73 62.11 67.13 61.92 65.45 66.01 65.11
Expense ratio 2.59 2.54 2.59 2.66 2.59 2.79 2.48 2.70 2.85 2.70
As a % of risk-
adjusted assets:
Total capital 10.35 10.45 10.37 10.32 10.35 12.48 12.14 12.18 12.12 12.48
Tier 1 capital 9.11 9.19 9.12 9.07 9.11 11.22 10.89 10.92 10.86 11.22
As a % of total
assets:
Tier 1 capital
(regulatory
leverage) 6.91 6.78 6.72 7.29 6.91 8.05 7.74 7.66 7.51 8.05
Tangible shareholders'
equity, p.e. to
tangible assets,
p.e. 6.65 6.56 6.44 6.39 6.65 7.96 7.49 7.30 7.13 7.96
Price earnings ratio
(last twelve months) 12.6 11.5 10.6 11.1 12.6 11.7 10.1 8.8 8.5 11.7
</TABLE>
Management's Statement of Responsibility
The consolidated financial statements and related information in the 1996
Annual Report were prepared in conformity with generally accepted accounting
principles. Management is responsible for the integrity and objectivity of the
consolidated financial statements and related information. Accordingly, it
maintains an extensive system of internal controls and accounting policies and
procedures to provide reasonable assurance of the accountability and
safeguarding of Company assets and of the accuracy of financial information.
These procedures include management evaluations of asset quality and the impact
of economic events, organizational arrangements that provide an appropriate
division of responsibility, and a program of internal audits to evaluate
independently the adequacy and application of financial and operating controls
and compliance with Company policies and procedures.
The responsibility of the Company's independent public accountants, KPMG
Peat Marwick LLP, is limited to an expression of their opinion as to the
fairness of the consolidated financial statements presented. Their opinion is
based on an audit conducted in accordance with generally accepted auditing
standards as described in the second paragraph of their report.
The board of directors, through its Examining and Audit Committee, is
responsible for ensuring that both management and the independent public
accountants fulfill their respective responsibilities with regard to the
consolidated financial statements. The Examining and Audit Committee, which is
comprised entirely of directors who are not officers or employees of the
Company, meets periodically with both management and the independent public
accountants to assure that each is carrying out its responsibilities. The
independent public accountants have full and free access to the Examining and
Audit Committee and meet with it, with and without management being present, to
discuss auditing and financial reporting matters.
William H. Chadwick Thomas J. Pruitt Neal E. Robinson
President & Chief Executive Executive Vice President & Treasurer
Officer Chief Financial Officer
Independent Auditors' Report
The Shareholders
Banknorth Group, Inc.
We have audited the accompanying consolidated balance sheets of Banknorth
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Banknorth
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
January 1, 1996, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights," which requires entities to
recognize as separate assets, the rights to service mortgage loans for others,
regardless of how those servicing rights are acquired. As discussed in notes 1
and 5 to the consolidated financial statements, effective January 1, 1995, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No. 114, "Accounting by Creditors
for Impairment of a Loan," and Statement of Financial Accounting Standard No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures," which prescribe recognition criteria for loan impairment and
measurement methods for impaired loans. As discussed in note 1 to the
consolidated financial statements, effective January 1, 1994, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which changed its method of accounting for
certain investments in debt and equity securities.
/s/ KPMG PEAT MARWICK LLP
Albany, New York
January 24, 1997
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
(In thousands, except for per share amounts)
Interest income:
Interest and fees on loans $ 158,734 $ 125,408 $ 100,276
Interest on money market investments 806 562 462
Interest on securities available for sale 27,460 9,255 13,066
Interest on investment securities 3,008 17,399 10,599
-----------------------------------
Total interest income 190,008 152,624 124,403
Interest expense:
Deposits 70,618 53,089 37,791
Short-term borrowed funds 7,913 9,017 6,223
Long-term debt 2,609 5,874 5,585
-----------------------------------
Total interest expense 81,140 67,980 49,599
-----------------------------------
Net interest income 108,868 84,644 74,804
Less: provision for loan losses 5,600 4,375 3,210
-----------------------------------
Net interest income after provision for loan losses 103,268 80,269 71,594
-----------------------------------
Other operating income:
Income from fiduciary activities 7,835 7,426 7,227
Service charges on depositor accounts 6,558 5,081 4,917
Credit card income 3,029 2,789 2,835
Loan servicing income 2,845 2,701 2,509
Net loan transactions 1,629 568 1,214
Gain on sale of mortgage servicing rights -- -- 664
Net securities transactions 31 (409) (2,234)
Other income 3,376 2,754 2,839
-----------------------------------
Total other operating income 25,303 20,910 19,971
Other operating expenses:
Salaries 35,823 28,316 25,990
Employee benefits 8,272 6,489 6,642
Net occupancy expenses 7,193 5,487 5,345
Equipment and software expenses 6,661 5,519 5,407
Data processing fees 4,584 4,629 5,027
FDIC deposit insurance and other regulatory expenses 461 2,062 3,415
Other real estate owned and repossession expenses 471 520 1,723
Legal and professional fees 3,589 2,723 2,783
Printing and supplies expenses 3,246 1,915 1,733
Advertising and marketing expenses 2,748 2,029 1,500
Communications expenses 2,354 1,497 1,192
Amortization of goodwill 4,652 632 136
Other expenses 11,146 8,771 9,035
-----------------------------------
Total other operating expenses 91,200 70,589 69,928
-----------------------------------
Income before income tax expense and cumulative effect of
accounting change 37,371 30,590 21,637
Income tax expense 11,981 8,217 5,734
-----------------------------------
Income before cumulative effect of accounting change 25,390 22,373 15,903
Cumulative effect of change in accounting for securities
available for sale, net of tax -- -- 138
-----------------------------------
Net income $ 25,390 $ 22,373 $ 16,041
===================================
Income per share before cumulative effect of accounting change $ 3.30 $ 3.29 $ 2.34
Net income per share 3.30 3.29 2.36
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
----------------------------
<S> <C> <C>
(In thousands, except share and per share data)
ASSETS
Cash and due from banks $ 91,871 $ 89,111
Money market investments 101 650
---------------------------
Cash and cash equivalents 91,972 89,761
---------------------------
Securities available for sale, at fair value 531,269 359,085
Loans held for sale 12,106 19,125
Investment securities 34,194 49,680
Loans 1,848,232 1,351,053
Less: Allowance for loan losses 23,520 22,095
---------------------------
Net loans 1,824,712 1,328,958
---------------------------
Accrued interest receivable 15,148 11,505
Premises, equipment and software, net 29,448 24,917
Other real estate owned and repossessed assets 921 1,169
Goodwill 36,142 8,553
Capitalized mortgage servicing rights 3,921 3,480
Other assets 21,490 13,941
---------------------------
Total assets $ 2,601,323 $ 1,910,174
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 287,598 $ 228,334
NOW accounts & money market savings 773,870 563,192
Regular savings 215,364 173,565
Time deposits $100 thousand and greater 91,245 59,233
Time deposits under $100 thousand 697,987 536,445
---------------------------
Total deposits 2,066,064 1,560,769
---------------------------
Short-term borrowed funds:
Federal funds purchased 23,305 --
Securities sold under agreements to repurchase 116,484 95,472
Borrowings from U.S. Treasury 11,672 8,241
Borrowings from Federal Home Loan Bank of Boston 129,000 12,500
---------------------------
Total short-term borrowed funds 280,461 116,213
---------------------------
Long-term debt:
Federal Home Loan Bank of Boston term notes 12,923 39,197
Bank term loan 13,000 16,800
---------------------------
Total long-term debt 25,923 55,997
---------------------------
Accrued interest payable 3,914 3,914
Other liabilities 18,224 13,345
---------------------------
Total liabilities 2,394,586 1,750,238
---------------------------
Shareholders'equity:
Common stock, $1.00 par value; authorized 20,000,000
shares; issued and outstanding 7,826,648 shares at
December 31, 1996 and 6,804,425 at December 31, 1995 7,827 6,804
Surplus 87,410 56,023
Retained earnings 115,130 97,978
Unamortized employee restricted stock (1,153) (898)
Net unrealized gains (losses) on securities available
for sale, net of tax (2,477) 29
Total shareholders' equity 206,737 159,936
---------------------------
Total liabilities and shareholders' equity $ 2,601,323 $ 1,910,174
===========================
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Three Years Ended December 31, 1996
--------------------------------------------------------------------------
Net
Unearned unrealized
portion of gains (losses)
employee on securites
Common Retained restricted available for
Stock Surplus Earnings stock sale, net of tax Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands, except for per share amounts)
Balance, January 1, 1994 $ 6,804 $ 55,548 $ 70,373 $ (319) $ -- $ 132,406
Income before cumulative effect of accounting change -- -- 15,903 -- -- 15,903
Cumulative effect of change in accounting for
securities available for sale, net of tax -- -- 138 -- -- 138
Net unrealized losses on securities available for
sale, net of tax -- -- -- -- (4,591) (4,591)
Net unrealized losses on securities available for
sale transferred to the investment portfolio, net
of tax -- -- -- -- (3,904) (3,904)
Cash dividends $ .60 per share -- -- (4,083) -- -- (4,083)
Issuance of employee restricted stock -- -- -- (247) -- (247)
Amortization of employee restricted stock -- (75) -- 172 -- 97
Exercise of employee stock options -- -- (155) -- -- (155)
--------------------------------------------------------------------------
Balance, December 31, 1994 $ 6,804 $ 55,473 $ 82,176 $ (394) $ (8,495) $ 135,564
--------------------------------------------------------------------------
Net income -- -- 22,373 -- -- 22,373
Adjustment of securities available for sale to fair
value, net of tax -- -- -- -- 4,620 4,620
Adjustment of securities available for sale
transferred to the investment portfolio to fair
value, net of tax -- -- -- -- 3,904 3,904
Cash dividends $ .92 per share -- -- (6,260) -- -- (6,260)
Issuance of employee restricted stock -- -- -- (361) -- (361)
Amortization of employee restricted stock -- 550 (143) -- 407
Exercise of employee stock options -- -- (311) -- -- (311)
--------------------------------------------------------------------------
Balance, December 31, 1995 $ 6,804 $ 56,023 $ 97,978 $ (898) $ 29 $ 159,936
--------------------------------------------------------------------------
Net income -- -- 25,390 -- -- 25,390
Issuance of common stock, net of expenses 1,023 31,193 -- -- -- 32,216
Adjustment of securities available for sale to fair
value, net of tax -- -- -- -- (2,506) (2,506)
Cash dividends $ 1.00 per share -- -- (7,827) -- -- (7,827)
Issuance of employee restricted stock -- -- -- (371) -- (371)
Amortization of employee restricted stock -- 194 -- 116 -- 310
Exercise of employee stock options -- -- (411) -- -- (411)
--------------------------------------------------------------------------
Balance, December 31, 1996 $ 7,827 $ 87,410 $ 115,130 $ (1,153) $ (2,477) $ 206,737
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
(In thousands)
Increase in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 25,390 $ 22,373 $ 16,041
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of premises, equipment and
software 4,286 4,198 4,285
Amortization of goodwill 4,652 632 136
Provision for loan losses 5,600 4,375 3,210
Adjustment of other real estate owned to estimated fair value 176 241 904
Provision for deferred tax expense (benefit) 1,420 (181) (278)
Cumulative effect of a change in accounting for securities
available for sale, net of tax -- -- (138)
Amortization of employee restricted stock 310 407 97
Exercise of employee stock options (411) (311) (155)
Net securities transactions (31) 409 2,234
Net gain on sale of other real estate owned and repossessed assets (598) (835) (1,086)
Proceeds from sale of loans held for sale 168,680 135,750 149,329
Originations and purchases of loans held for resale (204,916) (190,710) (166,090)
Net gain on sale of loans held for sale (1,629) (568) (1,214)
Net gain on sale of mortgage servicing rights -- -- (664)
Increase in interest receivable (1,719) (120) (1,909)
Decrease in interest payable (426) (664) (214)
Decrease (increase) in other assets and other intangibles (8,076) (4,831) 8,721
Increase (decrease) in other liabilities 4,703 (199) (3,035)
----------------------------------------
Total adjustments (27,979) (52,407) (5,867)
----------------------------------------
Net cash provided by (used in) operating activities (2,589) (30,034) 10,174
----------------------------------------
Cash flows from investing activities:
Net cash provided by (used in) acquisitions 124,141 -- (5,007)
Proceeds from maturity and call of securities available for sale 188,591 110,656 34,157
Proceeds from maturity and call of investment securities 15,539 76,844 20,778
Proceeds from sale of securities available for sale 22,725 38,074 238,249
Purchase of securities available for sale (387,368) (185,567) (198,654)
Purchase of investment securities (10) (533) (79,736)
Proceeds from sale of OREO and repossessed assets 3,424 2,742 7,363
Payments received on OREO and repossessed assets 33 331 206
Net loans purchased (38,189) (3,010) (66,217)
Net increase in loans (24,126) (8,383) 11,552
Capital expenditures (4,933) (3,847) (852)
----------------------------------------
Net cash provided by (used in) investing activities (100,173) 27,307 (38,161)
----------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits (53,219) 117,302 17,595
Net increase (decrease) in short-term borrowed funds 164,248 (38,933) 5,792
Issuance of common stock, net of expenses 32,216 -- --
Issuance of long-term debt -- -- 61,500
Payments on long-term debt (30,074) (65,592) (36,712)
Issuance of employee restricted stock (371) (361) (247)
Dividends paid (7,827) (6,260) (4,083)
----------------------------------------
Net cash provided by financing activities 104,973 6,156 43,845
----------------------------------------
Net increase in cash and cash equivalents 2,211 3,429 15,858
----------------------------------------
Cash and cash equivalents at beginning of year 89,761 86,332 70,474
----------------------------------------
Cash and cash equivalents at end of year $ 91,972 $ 89,761 $ 86,332
========================================
Additional disclosure relative to statement of cash flows:
Interest paid $ 81,140 $ 68,644 $ 49,813
========================================
Taxes paid $ 15,539 $ 8,057 $ 16
========================================
Supplemental schedule of non-cash investing and financing
activities:
Net transfer of loans to OREO and repossessed assets $ 2,787 $ 3,073 $ 4,518
Net transfer of loans held for sale to loan status 44,884 50,379 33,741
Investments held to maturity transferred to securities available
for sale upon the adoption of Statement of Financial Accounting
Standards No. 115 -- -- 9,846
Securities available for sale transferred to held to maturity -- -- 108,362
Investments held-to-maturity transferred to securities available
for sale -- 197,103 --
Adjustment to securities available for sale to fair value, net of
tax (2,506) 4,620 (4,453)
Adjustment to securities available for sale transferred to
investment portfolio to fair value, net of tax -- 3,904 (3,904)
Fair value of assets acquired in acquisitions 405,741 -- 183,314
Fair value of liabilities assumed 560,340 -- 164,220
</TABLE>
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Banknorth Group, Inc., a
Delaware Corporation, ("Banknorth", "Company" or "Corporation"), and its
subsidiaries conform, in all material respects, to generally accepted
accounting principles and to general practices within the banking industry.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Banknorth and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Securities
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). Management determines the appropriate
classification of securities at the time of purchase. If management has the
positive intent and ability to hold debt securities to maturity, they are
classified as investment securities held-to-maturity and are stated at
amortized cost. If securities are purchased for the purpose of selling them in
the near term, they are classified as trading securities and are reported at
fair value with unrealized gains and losses reflected in current earnings. All
other debt and marketable equity securities are classified as securities
available for sale and are reported at fair value, with the net unrealized
gains or losses reported, net of income taxes, as a separate component of
shareholders' equity. Non-marketable equity securities are carried at cost.
Gains or losses on disposition of all securities are based on the adjusted cost
of the specific security sold. The cost of securities is adjusted for
amortization of premium and accretion of discount, which is calculated on the
effective interest method.
Unrealized losses on securities which reflect a decline in value which is
other than temporary, if any, are charged to income and reported under the
caption "Net securities transactions" in the consolidated financial statements.
Transfers from securities available for sale to investment securities are
recorded at the securities' fair value on the date of the transfer. Any net
unrealized gains or losses continue to be reported as a separate component of
shareholders' equity, on a net tax basis, as long as the securities are carried
in the investment security portfolio, and are amortized over the remaining life
of the transferred securities as an adjustment to yield in a manner consistent
with the amortization of any premium or discount.
Loans
Loans are carried at the principal amount outstanding net of unearned
income and unamortized loan fees and expenses, which are amortized under the
effective interest method over the estimated lives of the loans. Nonrefundable
loan origination and commitment fees and direct costs associated with
originating or acquiring loans are deferred. The net deferred amount is
amortized as an adjustment to the related loan yield over the contractual life
of the related loans.
Non-performing loans include non-accrual loans, restructured loans and
loans which are 90 days or more past due and still accruing interest.
Generally, loans are placed on non-accrual status, either due to the
delinquency status of principal and/or interest payments, or a judgment by
management that, although payments of principal and/or interest are current,
such action is prudent. Except in the case of installment loans, which are
generally charged off when loan principal and/or interest payments are 120 days
overdue, loans are generally placed on non-accrual status when principal and/or
interest is 90 days overdue. When a loan is placed on non-accrual status, all
interest previously accrued in the current year but not collected is reversed
against current year interest income. Interest accrued in the prior year and
not collected is charged off against the allowance for loan losses. When the
principal is contractually current, interest and fee income is earned on a cash
basis. If ultimate repayment of principal is not expected or management judges
it to be prudent, any payment received on a non-accrual loan is applied to
principal until ultimate repayment becomes expected. Loans are removed from
non-accrual status when they become current as to principal and interest or
when, in the opinion of management, the loans are expected to be fully
collectible as to principal and interest.
As of January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," (SFAS No. 114). SFAS No. 114 was amended by Statement of Financial
Accounting Standard No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," (SFAS No. 118). A loan is considered
impaired when it is probable that the borrower will not repay the loan
according to the original contractual terms of the loan agreement, or the loan
is restructured in a troubled debt restructuring subsequent to January 1, 1995.
These Statements prescribe recognition criteria for loan impairment, generally
related to commercial type loans and measurement methods for impaired loans.
Impaired loans are included in non-performing loans, generally as non-accrual
commercial type loans, commercial type loans past due 90 days or more and still
accruing interest, and all loans restructured in a troubled debt restructuring
subsequent to January 1, 1995.
The allowance for loan losses related to impaired loans is based on
discounted cash flows using the loan's initial effective rate or the fair value
of the collateral for certain loans where repayment of the loan is expected to
be provided solely by the underlying collateral (collateral dependent loans).
The Company's impaired loans are generally collateral dependent. The Company
considers estimated cost to sell, on a discounted basis, when determining the
fair value of collateral in the measurement of impairment if those costs are
expected to reduce the cash flows available to repay or otherwise satisfy the
loans.
The adoption of SFAS Nos. 114 and 118 did not have a significant effect
on the Company's consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level estimated by
management to provide adequately for losses inherent in the loan portfolio. The
quality and collectibility of the loans are reviewed monthly and graded by the
applicable subsidiary loan officers. A continuous review of loan quality and
accuracy of grading is conducted independently by the Company's loan review
function. The adequacy of the allowance is monitored monthly and is based on
the grading and continuing review of individual loans, the present and expected
level of non-accrual loans, delinquency levels, past loss experience and
economic conditions which may affect the borrowers' ability to repay their
loans. As a result of the test of adequacy, required additions to the allowance
for loan losses are made periodically by charges to the provision for loan
losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary based on changes in
economic conditions or changes in the value of properties securing loans in the
process of foreclosure. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance for loan losses based on their judgments about
information available to them at the time of their examination which may not be
currently available to management.
Mortgage Banking
Loan servicing revenues and expenses are recognized when service fees are
earned and expenses are incurred. Gains or losses on sales of mortgage loans
are recognized based upon the difference between the selling price and the
carrying value of the related mortgage loans sold. Such gains or losses are
increased or decreased by the amount of originated mortgage servicing rights
and excess service fees receivable recorded. Net deferred origination fees and
costs are recognized at the time of sale in the gain or loss determination. The
mortgage loans being serviced are not included in these consolidated financial
statements as they are not assets of the Company. Mortgage loans held for sale
are stated at the lower of aggregate cost or aggregate fair value as determined
by outstanding commitments from investors or current market prices for loans
with no sale commitments.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS No. 122), which amends Statement of Financial Accounting Standard
No. 65, "Accounting for Certain Mortgage Banking Activities." SFAS No. 122
requires that entities recognize as separate assets, the rights to service
mortgage loans for others, regardless of how those servicing rights are
acquired. Additionally, SFAS No. 122 requires that the capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights, and that impairment, if any, be recognized through a valuation
allowance. The Company adopted SFAS No. 122 in the first quarter of 1996.
The Company purchases mortgage servicing rights separately or it may
acquire mortgage servicing rights by purchasing or originating mortgage loans
and selling those loans with servicing rights retained. Generally, purchased
mortgage servicing rights are capitalized at the cost to acquire the rights and
are carried at the lower of cost, net of accumulated amortization, or fair
value. Originated mortgage servicing rights are capitalized based on the
allocated cost of the servicing rights, derived from a relative fair value
calculation, and are recorded at the lower of the capitalized amount, net of
accumulated amortization, or fair value. Mortgage servicing rights are
amortized into servicing fee income in proportion to, and over the period of,
estimated net servicing income.
SFAS No. 122 requires that a portion of the cost of originating a
mortgage loan be allocated to the mortgage servicing rights based on its
relative fair value. To determine the fair value of mortgage servicing rights,
the Company uses a valuation model that calculates the present value of future
net servicing income. In using this valuation method, the Company incorporates
assumptions that they believe market participants would use in estimating
future net servicing income, which include estimates of the cost of servicing,
the discount rate, mortgage escrow earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses.
SFAS No. 122 requires enterprises to measure the impairment of servicing
rights based on the difference between the carrying amount and current
estimated fair value of the servicing rights. In determining impairment, the
Company aggregates all mortgage servicing rights, including those capitalized
prior to adoption of SFAS No. 122, and stratifies them based on the predominant
risk characteristics of loan type and interest rate. A valuation allowance is
established for any excess of amortized cost over the current fair value, by
risk stratification, by a charge to income. At December 31, 1996, no allowance
for impairment in the Company's capitalized mortgage servicing rights was
necessary.
Premises, Equipment and Software
Premises, equipment and software are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed on
straight-line and various accelerated methods over the estimated useful lives
of the assets ranging from 3 years to 30 years. Leasehold improvements are
amortized over the shorter of the terms of the related leases or the useful
lives of the assets.
Other Real Estate Owned
Other real estate owned includes both formally foreclosed and
in-substance foreclosed real properties. In-substance foreclosed properties are
those properties which the Company has taken possession of the collateral
regardless of whether formal foreclosure proceedings have taken place.
Other real estate owned is recorded at the fair value of the asset
acquired less estimated costs to sell. At the time of foreclosure, or when
foreclosure occurs in-substance, the excess, if any, of the loan value over the
fair market value of the asset received, less estimated cost to sell, is
charged to the allowance for loan losses. Subsequent declines in the value of
such assets and net operating expenses of such assets are charged directly to
other operating expenses.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
net assets acquired for transactions accounted for using purchase accounting.
The goodwill is being amortized using the straight-line method over the
estimated period of benefit, not to exceed fifteen years.
Trust Assets
Assets held in fiduciary or agency capacities for customers of
Banknorth's trust subsidiary are not included in the accompanying consolidated
balance sheets since such assets are not assets of the subsidiaries.
Pension Costs
The Company maintains a noncontributory, defined benefit retirement and
pension plan covering substantially all employees. Pension costs, based on
actuarial computations of current and future benefits for employees, are
charged to current operating expenses.
Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. On January 1, 1996, the
Company adopted Standard of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma net income per share disclosures for employee
stock-based awards made in 1995 and future years as if the fair value based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosures of SFAS No. 123.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company's policy is that deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. In considering if it is more likely than not that some or all of the
deferred tax assets will not be realized, the Company considers temporary
taxable differences, historical taxes and estimates of future taxable income.
Per Share Amounts
Net income per share is calculated by dividing net income by the weighted
average number of shares outstanding during the period, retroactively adjusted
to give effect to the declaration of stock dividend, stock splits and pooling
of interests, if any. The weighted average number of shares outstanding were
7,703,758 for the year ended December 31, 1996 and 6,804,425 in each of the
years ended December 31, 1995 and 1994. The effect of the outstanding stock
option awards is not material to the calculation of net income per share.
Cash and Cash Equivalents
Banknorth includes cash, due from banks, Federal funds sold and all
highly liquid debt instruments with original maturities of three months or
less, if any, as Cash and Cash Equivalents for the consolidated statements of
cash flows.
Interest-Related Contracts
The Company and its subsidiaries use interest rate swap and floor
contracts as part of asset/liability management. These contracts are designated
and are effective as hedges of existing risk positions. Gains and losses, if
any, are deferred as an adjustment to the carrying value of the hedged item and
recognized as an adjustment to the yield of the hedged item for the remaining
life of the original swap and floor agreement.
Other Financial Instruments
The Company is a party to certain financial instruments with off-balance
sheet risk such as commitments to extend credit, unused lines of credit,
letters of credit, standby letters of credit, as well as certain mortgage loans
sold to investors with recourse. The Company's policy is to record such
instruments when funded.
Transfer and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). SFAS No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and will supersede SFAS No. 122, which is discussed
above. Certain aspects of SFAS No. 125 were amended by Statement of Financial
Accounting Standard No. 127, "Deferral of the Effective Date of Certain
Provision of FASB Statement No. 125." Management believes the adoption of SFAS
No. 125, as amended, will not have a material impact on the Company's
consolidated financial statements.
Reclassification
Amounts in the prior years' consolidated financial statements are
reclassified whenever necessary to conform with the current year's
presentation.
2. Acquisitions
First Massachusetts Bank, N.A.
On February 16, 1996, Banknorth completed the purchase of thirteen
banking offices of Shawmut Bank, N.A. ("Shawmut"). A new subsidiary, First
Massachusetts Bank, N.A. ("FMB" or "First Massachusetts"), with principal
offices in Worcester, Massachusetts, was organized to own and operate the
acquired offices.
Under the terms of the Purchase and Assumption Agreement with Shawmut,
Banknorth paid a premium of $29.2 million, representing 5.23% of deposit
liabilities assumed, including accrued interest payable, calculated based upon
the average amount of deposits outstanding (including accrued interest payable)
over the thirty day period ended February 13, 1996.
At the closing, the Company assumed total liabilities with an estimated
fair value of $560.3 million and acquired total assets, including loans,
accrued interest receivable on such loans, certain real property, furniture,
fixtures, equipment and other assets, with an estimated fair value of $405.7
million. No loans acquired were past due 90 days or more. In addition, the
Company received approximately $124.1 million in cash as consideration for the
net liabilities assumed.
The acquisition was accounted for using purchase accounting in accordance
with Accounting Principal Board Opinion No. 16, "Business Combinations" (APB
No. 16). Under this method of accounting, the purchase price is allocated to
the respective assets acquired and liabilities assumed based on their estimated
fair values, net of applicable income tax effects. Goodwill, representing the
excess of cost over net assets acquired, was $32.1 million and is being
amortized over seven years on a straight-line basis. The results of operations
for First Massachusetts are included in Banknorth's consolidated financial
statements from the date of acquisition forward.
To complete the transaction, Banknorth issued 1,022,223 shares of common
stock in February 1996. The net proceeds of $32.2 million were used to provide
a portion of the initial capital of First Massachusetts and to help offset the
reduction in the Company's regulatory capital ratios resulting from the
acquisition.
North American Bank Corporation
On October 14, 1994, the Company acquired, for approximately $19.1
million in cash, the outstanding capital stock of North American Bank
Corporation (NAB), a New Hampshire corporation and registered bank holding
company. NAB's sole subsidiary is the Farmington National Bank, based in
Farmington, New Hampshire, which operated banking offices in Farmington,
Wolfeboro, and Alton, and a limited service facility in Melvin Village.
The acquisition was accounted for using purchase accounting rules. The
acquisition of NAB resulted in approximately $9.3 million of goodwill. The
goodwill is being amortized to expense using the straight line method over a
period of fifteen years. The results of operations for NAB are included in
Banknorth's consolidated financial statements from the date of acquisition
forward.
3. Securities Available for Sale
In November 1995, the Financial Accounting Standards Board released its
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." The Special Report
contained, among other things, a unique provision that allowed entities to, as
of one date either concurrent with the initial adoption of the Special Report
(November 15, 1995), but no later than December 31, 1995, reassess the
appropriateness of the classifications of all securities held at that time. On
November 30, 1995, the Company transferred certain securities with amortized
costs totaling approximately $197.1 million and fair values totaling
approximately $195.3 million from the "held-to-maturity" classification to the
"available for sale" classification.
The amortized cost and estimated fair values of the securities available
for sale are as follows:
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasuries and Agencies $ 111,774 $ 213 $ 956 $ 111,031
States and political subdivisions 2,361 15 1 2,375
Mortgage-backed securities 272,433 914 3,777 269,570
Corporate debt securities 121,384 210 610 120,984
-----------------------------------------------
Total debt securities 507,952 1,352 5,344 503,960
Equity securities 27,128 181 -- 27,309
-----------------------------------------------
Total securities available for sale $ 535,080 $ 1,533 $ 5,344 $ 531,269
===============================================
<CAPTION>
At December 31, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasuries and Agencies $ 76,401 $ 112 $ 125 $ 76,388
Mortgage-backed securities 249,549 2,032 2,284 249,297
Corporate debt securities 12,147 210 -- 12,357
-----------------------------------------------
Total debt securities 338,097 2,354 2,409 338,042
Equity securities 20,943 100 -- 21,043
-----------------------------------------------
Total securities available for sale $ 359,040 $ 2,454 $ 2,409 $ 359,085
===============================================
</TABLE>
Included in equity securities are certain non-marketable equity
securities amounting to $27.0 million and $20.8 million at December 31, 1996,
and 1995, respectively, consisting of Federal Home Loan Bank of Boston and
Federal Reserve Bank of Boston equity securities. Both investments are required
for membership. Non-marketable equity securities are carried at cost.
The following table sets forth information with regard to contractual
maturities of debt securities available for sale as of December 31, 1996:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Total Debt Securities Cost Value
- --------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Within one year $ 6,397 $ 6,371
From one to five years 261,019 257,764
From five to ten years 67,598 67,274
After ten years 172,938 172,551
----------------------
Total debt securities available for sale $ 507,952 $ 503,960
======================
</TABLE>
The following table sets forth information with regard to sales
transactions of securities available for sale:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
1996 1995 1994
---------------------------------
(In thousands)
<S> <C> <C> <C>
Proceeds from sale of:
Debt securities $ 22,725 $ 38,074 $ 238,249
Gross realized gains from sale of:
Debt securities $ 12 $ 122 $ 699
Gross realized losses from sale of:
Debt securities $ 25 $ 531 $ 2,933
</TABLE>
Securities available for sale with an amortized cost of approximately
$241.7 million and $179.9 million at December 31, 1996, and 1995, respectively,
were pledged to secure public deposits, securities sold under agreements to
repurchase, and for other purposes as required by law.
4. Investment Securities
The amortized cost and estimated fair values of the investment securities
portfolio are as follows:
<TABLE>
<CAPTION>
At December 31, 1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasuries and Agencies $ 13,181 $ 181 $ 4 $ 13,358
States and political subdivisions 1,135 40 -- 1,175
Mortgage-backed securities 19,868 253 20 20,101
Corporate debt securities 10 -- -- 10
----------------------------------------------
Total investment securities $ 34,194 $ 474 $ 24 $ 34,644
==============================================
<CAPTION>
At December 31, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasuries and Agencies $ 23,837 $ 500 $ -- $ 24,337
States and political subdivisions 1,630 44 -- 1,674
Mortgage-backed securities 23,146 855 -- 24,001
Corporate debt securities 1,067 8 -- 1,075
----------------------------------------------
Total investment securities $ 49,680 $ 1,407 $ -- $ 51,087
==============================================
</TABLE>
The following table sets forth information with regard to contractual
maturities of debt securities as of December 31, 1996:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Total Debt Securities Cost Value
- -----------------------------------------------------
(In thousands)
<S> <C> <C>
Within one year $ 6,013 $ 6,046
From one to five years 26,381 26,673
From five to ten years 1,494 1,600
After ten years 306 325
---------------------
Total debt securities $ 34,194 $ 34,644
=====================
</TABLE>
There were no sales of investment securities in 1996, 1995 or 1994.
During 1996, investment securities with an amortized cost of $783 thousand were
called resulting in a gain of $44 thousand. Investment securities with a book
value of approximately $11.5 million and $21.7 million at December 31, 1996 and
December 31, 1995, respectively, were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other purposes as
required by law.
5. Loans and Allowance for Loan Losses
A summary of loans by category is as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------
1996 1995
--------------------------
(In thousands)
<S> <C> <C>
Commercial, financial and agricultural, net of unamortized loan
fees of $402 thousand in 1996 and $173 thousand in 1995 $ 300,730 $ 228,877
Real estate, net of unamortized loan cost of $ 244 thousand in
1996 and net of unamortized loan fees of $102 thousand in 1995:
Residential (1-4 family) 737,261 477,458
Commercial 531,364 398,586
Construction and land development 29,364 20,587
--------------------------
Total real estate 1,297,989 896,631
--------------------------
Credit card receivables 24,563 26,867
Lease receivables, net of unearned discount of $10.2 million
in 1996 and $6.6 million in 1995 70,396 47,055
Other installment, including deferred costs of $3.0 million in
1996 and $3.8 million in 1995 154,554 151,623
--------------------------
Total installment 249,513 225,545
--------------------------
Total loans 1,848,232 1,351,053
Less: Allowance for loan losses 23,520 22,095
--------------------------
Net loans $ 1,824,712 $ 1,328,958
==========================
</TABLE>
At December 31, 1996 and 1995, loans to executive officers, directors and
to associates of such persons aggregated $46.7 million and $49.7 million,
respectively. During 1996, new loans of $79.6 million were made, and repayment
of loans totaled $82.6 million. In the opinion of management, such loans were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions. These loans do not involve more than the normal risk
of collectibility or present other unfavorable features.
Banknorth primarily grants loans throughout the States of Vermont,
Massachusetts and New Hampshire. Although the loan portfolio is diversified, a
substantial portion of its debtors' ability to repay is dependent upon the
economic conditions existing in these States. Adverse trends in the real estate
market in Vermont, Massachusetts or New Hampshire could also negatively affect
the Company's collateral position.
As of December 31, 1996 and 1995, one to four family first mortgage loans
with an approximate book value of $189.2 million and $68.9 million,
respectively, were pledged to secure borrowings from the Federal Home Loan Bank
of Boston.
Non-performing Loans:
The following table sets forth the information with regard to
non-performing loans:
<TABLE>
<CAPTION>
At December 31,
------------------------------
1996 1995 1994
------------------------------
(In thousands)
<S> <C> <C> <C>
Loans in non-accrual status $ 16,993 $ 12,369 $ 17,768
Loans contractually past due 90 days or
more and still accruing interest 1,210 1,174 1,151
Restructured loans 765 428 470
------------------------------
Total non-performing loans $ 18,968 $ 13,971 $ 19,389
==============================
</TABLE>
Accumulated interest on non-performing loans of $772 thousand, $774
thousand, and $1.1 million, was not recognized as income in 1996, 1995 and
1994, respectively. Approximately $1.0 million, $913 thousand, and $705
thousand of interest on restructured and non-accrual loans was collected and
recognized as income in 1996, 1995, and 1994, respectively.
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
For the years ended
--------------------------------
1996 1995 1994
--------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 22,095 $ 21,437 $ 21,363
Allowance related to acquisitions 1,650 -- 1,608
Provision for loan losses 5,600 4,375 3,210
Loans charged off (10,326) (9,161) (9,720)
Recoveries on loans previously charged off 4,501 5,444 4,976
--------------------------------
Balance at end of year $ 23,520 $ 22,095 $ 21,437
================================
</TABLE>
Impaired loans are included in non-performing loans, generally as
non-accrual commercial type loans, commercial type loans past due 90 days or
more and still accruing interest and all loans restructured in a troubled debt
restructuring subsequent to the adoption of SFAS No. 114. Since January 1,
1995, loans totaling $765 thousand were restructured and are considered to be
impaired.
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 totaled $8.6 million and $5.0
million, respectively, for which the related allowance for loan losses is $1.9
million and $1.1 million, respectively. As of December 31, 1996 and 1995, there
were no impaired loans which did not have an allowance for loan losses
determined in accordance with SFAS No. 114. The average recorded investment in
impaired loans during the years ended December 31, 1996 and 1995 was
approximately $8.7 million and $10.2 million, respectively. During 1996, the
Company recognized interest income on those impaired loans of $492 thousand,
which included $488 thousand of interest income recognized using the cash basis
method of income recognition. During 1995, the Company recognized interest
income on those impaired loans of $250 thousand, which included $228 thousand
of interest income recognized using the cash basis method of income
recognition.
6. Mortgage Servicing Rights
The following table is a summary of activity for mortgage servicing
rights purchased ("Purchased"), originated ("Originated") and excess servicing
fees receivable ("Excess") for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Purchased Originated Excess Total
-----------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 3,184 $ -- $ 232 $ 3,416
Additions 813 -- 9 822
Amortization (686) -- (72) (758)
----------------------------------------
Balance at December 31, 1995 $ 3,311 $ -- $ 169 $ 3,480
Additions 520 869 14 1,403
Amortization (848) (81) (33) (962)
----------------------------------------
Balance as of December 31, 1996 $ 2,983 $ 788 $ 150 $ 3,921
========================================
</TABLE>
The Company adopted SFAS No. 122 in the first quarter of 1996. The result
of adoption was to capitalize $869 thousand in mortgage servicing rights and
increase the gains or decrease the losses on the sale of these loans originated
in the year ended December 31, 1996. The estimated fair value of the Company's
capitalized mortgage servicing rights was $5.6 million at December 31, 1996.
The mortgage servicing rights as of December 31, 1996 relate to
approximately $537.5 million of mortgage loans serviced for third parties. In
addition, as of December 31, 1996, the Company services approximately $469.7
million of mortgage loans for third parties for which there is no capitalized
servicing asset on the Company's consolidated financial statements.
7. Premises, Equipment and Software
A summary of premises, equipment and software is as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------
1996 1995
-------------------
(In thousands)
<S> <C> <C>
Land and land improvements $ 3,566 $ 2,460
Buildings and improvements 31,428 27,951
Equipment, fixtures and software 36,737 33,230
-------------------
Total 71,731 63,641
Less: Accumulated depreciation and amortization 42,283 38,724
-------------------
Premises, equipment and software, net $ 29,448 $ 24,917
===================
</TABLE>
Depreciation and amortization expense was approximately $4.3 million for
the year ended December 31, 1996, approximately $4.2 million for the year ended
December 31, 1995, and approximately $4.3 million for the year ended December
31, 1994.
Certain premises, equipment and software are leased under non-cancelable
operating leases expiring periodically through the year 2027. Some of these
leases contain one or more renewal options. Current non-cancelable operating
leases generally require payment of real estate taxes and/or property
maintenance fees in excess of specified minimum rental payments.
Rental expense for premises, equipment and software was approximately
$2.9 million in 1996, $1.7 million in 1995 and $1.6 million in 1994. Required
minimum annual rental payments on non-cancelable operating leases with original
terms of one year or more consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 2,519
1998 2,179
1999 1,434
2000 1,156
2001 1,004
Thereafter 5,587
--------
Total $ 13,879
========
</TABLE>
8. Other Real Estate Owned and Repossessed Assets
Other real estate owned (OREO) and repossessed assets consist of the
following:
<TABLE>
<CAPTION>
At December 31,
----------------
1996 1995
----------------
(In thousands)
<S> <C> <C>
Other real estate owned
Commercial $ 308 $ 495
Condominium 13 70
Apartment -- 60
Land 37 97
Single family residential 563 447
----------------
$ 921 $ 1,169
================
</TABLE>
OREO and repossessed assets transactions during 1996, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,169 $ 575 $ 3,444
Net transfer of loans to OREO and repossessed assets 2,787 3,073 4,518
Write down of OREO and repossessed assets (265) (241) (904)
Proceeds from sale of OREO and repossessed assets (3,424) (2,742) (7,363)
Payments received on OREO and repossessed assets (33) (331) (206)
Deferred gain on sale of OREO 89 -- --
Net gain on sale of OREO and repossessed assets 598 835 1,086
-----------------------------
Balance at end of year $ 921 $ 1,169 $ 575
=============================
</TABLE>
9. Deposits
A summary of depositors' balances is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---------------------------
(In thousands)
<S> <C> <C>
Demand deposits, NOW accounts & money market savings $ 1,061,468 $ 791,526
Regular savings 215,364 173,565
Time deposits 789,232 595,678
--------------------------
Total deposits $ 2,066,064 $ 1,560,769
==========================
</TABLE>
The approximate amount of contractual maturities of time deposits for the
years subsequent to December 31, 1996, is as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 587,284
1998 135,849
1999 35,442
2000 19,673
2001 9,830
Thereafter 1,154
---------
Total deposits $ 789,232
=========
</TABLE>
10. Short-Term Borrowed Funds
As of December 31, 1996 and 1995, the Company had unused lines of credit
amounting to approximately $96.8 million and $105.5 million, respectively,
which are available primarily for overnight purchases of Federal funds from
correspondent banks primarily on an as-available basis. Interest rates on
Federal funds borrowings are determined by the federal funds market. In
addition, as of December 31, 1996 and 1995, the Company had unused lines of
credit with the Federal Home Loan Bank of Boston amounting to $317.3 million,
and $234.1 million, respectively. Interest rates on Federal Home Loan Bank
borrowings, determined by the Federal Home Loan Bank, are generally priced
above the Federal funds rate for overnight borrowings.
The Company enters into sales of securities under short term, usually
overnight, fixed coupon, repurchase agreements. Such agreements are treated as
financings, and the obligations to repurchase securities sold are reflected as
liabilities on the Company's consolidated balance sheets. During the period of
such agreements, the underlying securities are transferred to a third party
custodian's account that explicitly recognizes the Company's interest in the
securities.
The following table presents the detail of Banknorth's short-term
borrowed funds and weighted average interest rates thereon for each of the last
three years:
<TABLE>
<CAPTION>
Securities
Federal Sold under Borrowings Borrowings
Funds Agreements to from from FHLB
Purchased Repurchase U.S. Treasury of Boston
------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996:
Ending balance $ 23,305 $ 116,484 $ 11,672 $ 129,000
Average amount outstanding 5,368 106,918 7,730 39,656
Maximum amount outstanding at any month end 27,700 117,214 22,531 129,000
Weighted average interest:
During year 5.78% 4.66% 5.10% 5.61%
End of year 7.74 4.48 5.16 5.47
1995:
Ending balance $ -- $ 95,472 $ 8,241 $ 12,500
Average amount outstanding 4,274 98,586 8,486 52,664
Maximum amount outstanding at any month end 25,300 111,382 21,059 72,500
Weighted average interest:
During year 6.33% 5.07% 5.61% 6.22%
End of year -- 5.04 5.16 6.18
1994:
Ending balance $ -- $ 90,172 $ 9,974 $ 55,000
Average amount outstanding 5,290 83,834 9,143 47,349
Maximum amount outstanding at any month end 29,075 103,041 24,112 78,500
Weighted average interest:
During year 4.49% 4.28% 3.88% 4.32%
End of year -- 5.15 5.21 6.02
</TABLE>
11. Long-Term Debt
Long-term debt consists of secured term loans from the Federal Home Loan
Bank of Boston in the amounts of $12.9 million and $39.2 million at December
31, 1996 and 1995, respectively, and $13.0 million and $16.8 million of
unsecured debt from a third party financial institution at December 31, 1996
and 1995, respectively.
The following table sets forth the final maturities, outstanding balance
and weighted average interest rates of the long-term debt at December 31, 1996:
<TABLE>
<CAPTION>
Fixed Variable
Fixed Weighted Variable Weighted
Rate Average Rate Average
Maturity Outstanding Interest Outstanding Interest
Date Balance Rate Balance Rate
- -------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1997 $ 668 6.18% $ -- --%
1998 9,975 4.77 -- --
1999 342 6.81 -- --
2000 -- -- -- --
2001 313 5.67 13,000 7.43
2002--2013 1,625 7.49 -- --
-------------------------------------------
Total $ 12,923 $ 13,000
===========================================
</TABLE>
The interest rate on the variable rate long-term note is tied to LIBOR.
The borrowings from Federal Home Loan Bank of Boston are secured by
mortgage loans held in the Company's loan portfolios and certain securities not
pledged elsewhere.
12. Income Taxes
The components of the income tax expense are as follows:
<TABLE>
<CAPTION>
For the years ended
-----------------------------
1996 1995 1994
-----------------------------
(In thousands)
<S> <C> <C> <C>
Current tax expense $ 10,561 $ 8,398 $ 6,012
Deferred tax expense (benefit) 1,420 (181) (278)
----------------------------
Total income tax expense $ 11,981 $ 8,217 $ 5,734
============================
</TABLE>
The Company has identified certain securities to be "marked-to-market"
for tax return purposes in accordance with the 1993 Tax Act. Accordingly, any
change in the fair value of these securities, as measured at December 31 of
each year, creates a current tax liability or refund for tax return purposes.
The identification of securities as mark-to-market for tax return purposes has
no effect on the Company's tax expense. As of December 31, 1996, the
mark-to-market associated with approximately $535.0 million of securities
created a current tax refund of $1.5 million. As of December 31, 1995, the
mark-to-market associated with approximately $359.0 million of securities
created a current tax liability of $5.1 million.
Applicable income tax expense for financial reporting purposes differs
from the amount computed by applying the statutory federal income tax rate to
pre-tax income for the reasons noted in the table below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------
(In thousands)
<S> <C> <C> <C>
Expense at statutory federal tax rate $ 13,080 $ 10,707 $ 7,573
Increases (decreases) in tax expense resulting from:
Tax exempt income, net (445) (447) (400)
Reduction in valuation allowance (100) (1,636) (1,000)
Tax credits available (698) (607) (345)
Other, net 144 200 (94)
-------------------------------
Income tax expense $ 11,981 $ 8,217 $ 5,734
===============================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------
(In thousands)
<S> <C> <C>
Temporary deductible items:
Differences in reporting the provision for loan losses
and loan charge offs $ 8,075 $ 7,972
Pension and deferred remuneration 4,441 3,586
Purchase accounting 1,273 777
Deferred net loan origination fees 400 493
Accrued medical benefits 197 189
Other 29 327
--------------------
Total gross deferred tax assets 14,415 13,344
Less valuation allowance -- (100)
--------------------
Deferred tax assets net of valuation allowance $ 14,415 $ 13,244
====================
Temporary taxable items:
Lease financing $ (6,939) $ (4,852)
Depreciation (765) (920)
Mark-to-market for investments and loans (519) (769)
Prepaid expenses (575) (491)
Mortgage servicing rights (318) --
Other (442) (540)
--------------------
Total gross deferred tax liabilities (9,558) (7,572)
--------------------
Net deferred tax asset at end of year 4,857 5,672
Net deferred tax assets at beginning of year 5,672 5,491
--------------------
815 (181)
Deferred tax assets from acquisition 605 --
--------------------
Deferred tax expense (benefit) for the years ended
December 31, 1996 and 1995 $ 1,420 $ (181)
====================
</TABLE>
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. At December 31, 1994, the Company had
limited historical taxable income available to justify the realization of its
entire gross deferred tax asset of $13.9 million. In addition, primarily as a
result of the significant volatility in taxable income caused by the
"mark-to-market" tax rules adopted by the Company with respect to certain
securities in accordance with the 1993 Tax Act, there was uncertainty regarding
the level of taxable income which would be generated in 1995. Accordingly, as
of December 31, 1994, the Company was unable to conclude that it was more
likely than not that the entire deferred tax asset would be fully realized.
Based upon the availability of temporary taxable items, historical taxable
income and an estimate of the future taxable income, a deferred tax asset
valuation allowance of $1.7 million was maintained. This deferred tax asset
valuation allowance was $1.0 million less than December 31, 1993. The reduction
in the deferred tax asset valuation allowance during 1994 was primarily the
result of an increase in the amount of historical taxable income available to
justify the deferred tax asset at December 31, 1994 as compared with December
31, 1993.
During 1995, the valuation reserve was reduced by $1.6 million as a
result of taxable income generated which includes taxable income from the tax
"mark-to-market" of certain investment securities as of December 31, 1995, in
accordance with the 1993 Tax Act. The remaining valuation allowance for
December 31, 1995 was $100 thousand.
During 1996, the valuation allowance of $100 thousand was reduced to
zero. Based primarily on the sufficiency of temporary taxable items, historical
taxable income, as well as estimates of future taxable income, management
believes it is more likely than not that the entire net deferred tax asset at
December 31, 1996 will be realized.
13. Employee Benefit Plans
The Corporation maintains a non-contributory defined benefit retirement
and pension plan covering substantially all employees. Benefit payments to
retired employees are based upon years of service, a percentage of qualifying
compensation during the final years of employment and an average of social
security maximum taxable earnings. The amounts contributed to the plan are
determined annually by applicable regulations. Assets of the plan are primarily
invested in listed stocks, common trust funds maintained by the Company's trust
subsidiary, The Stratevest Group, N.A., corporate obligations and U.S.
Government and Agency obligations.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
At December 31,
----------------------
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ (19,605) $ (20,686)
Non-vested benefits (686) (759)
----------------------
Accumulated benefit obligation (20,291) (21,445)
Effect of anticipated future compensation levels and other
events (5,545) (1,895)
----------------------
Projected benefit obligation (25,836) (23,340)
Estimated fair value of assets held in the plan 26,151 22,639
----------------------
Projected plan assets in excess/(deficiency) of benefit
obligation 315 (701)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (2,041) (639)
Net prior service cost not yet recognized in net periodic
pension cost 403 443
Unrecognized net asset being recognized over 9 years (349) (458)
----------------------
Accrued pension cost included in other liabilities $ (1,672) $ (1,355)
======================
</TABLE>
Net pension costs recognized in the consolidated statements of income for
the years ended December 31, 1996, 1995, and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 1,053 $ 715 $ 835
Interest cost 1,842 1,623 1,606
Actual loss (return) on plan assets (4,035) (4,464) 64
Amortization of net prior service cost 40 40 40
Amortization of transition net asset (109) (109) (109)
Deferral of actual return (loss) on plan assets
versus actuarial long-term assumptions 2,026 2,792 (1,806)
-----------------------------
Net pension cost $ 817 $ 597 $ 630
=============================
</TABLE>
The actuarial assumptions used in determining the actuarial present value
of projected benefit obligations as of December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 7.50% 8.25%
Rate of increase in future compensation 5.50% 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
In addition, the Company provides a defined benefit post-retirement plan
which provides medical benefits to substantially all employees, as well as life
insurance benefits to a closed group of retirees. Active employees are only
eligible for medical coverage from early retirement until age 65. Post-age 65
medical coverage and life insurance benefits are offered to a closed group of
retirees. The post-retirement health care portion of the plan is contributory,
with participant contributions adjusted annually and contains other
cost-sharing features, such as deductibles and co-insurance. The funding policy
of the plan is to pay claims and/or insurance premiums as they come due. The
1996 and 1995 accounting for the plan is based on the level of cost sharing as
of January 1, 1996 and 1995, respectively.
The following table presents the amounts recognized in the Company's
consolidated balance sheets:
<TABLE>
<CAPTION>
At December 31,
--------------------
1996 1995
--------------------
(In thousands)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees and eligible beneficiaries $ (1,280) $ (1,447)
Active employees fully eligible for benefits (197) (154)
Other active plan participants (1,147) (893)
--------------------
(2,624) (2,494)
Unrecognized transition obligation 2,159 2,294
Net prior service cost not yet recognized in net
post-retirement benefit cost 193 75
Unrecognized net gain from past experience different
from that assumed and changes in assumptions (237) (240)
--------------------
Accrued post-retirement benefit cost included in
other liabilities $ (509) $ (365)
====================
</TABLE>
Net periodic post-retirement benefit cost recognized in the consolidated
statements of income for the years ended December 31, 1996, 1995, and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 123 $ 93 $ 112
Interest cost 191 190 238
Recognition of transition obligation 135 135 135
Net amortization and deferral 8 (14) 7
---------------------
Net periodic post-retirement benefit cost $ 457 $ 404 $ 492
=====================
</TABLE>
The discount rate used in determining the accumulated post-retirement
benefit obligation was 7.5%, 7.5%, and 8.25% at December 31, 1996, 1995, and
1994, respectively. For measurement purposes, a 9.1% annual rate of increase in
the per capita cost of covered health care benefits was assumed for medical
coverage for 1996; the rate was assumed to decrease uniformly to 5.5% by 2004
and to remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated post-retirement benefit obligation as
of December 31, 1996 by approximately $197 thousand and the aggregate of the
service and interest cost for 1996 would increase by approximately $32
thousand.
During the years ended December 31, 1996, 1995 and 1994, the Company
recorded an expense of $157 thousand, $159 thousand and $202 thousand,
respectively, related to certain post-employment benefits provided to inactive
employees.
In addition to the Company's non-contributory defined benefit retirement
and pension plan, the Company provides a supplemental employees retirement
plan. The amount of liability recognized in the Company's consolidated balance
sheets was $1.8 million and $1.7 million at December 31, 1996 and 1995,
respectively. The charges to expense with respect to this plan amounted to $350
thousand, $293 thousand, and $177 thousand for the years ended December 31,
1996, 1995, and 1994, respectively.
The Company and its subsidiaries have other benefit plans including
savings and profit sharing plans and executive benefit plans. The charges to
expense with respect to these plans amounted to $975 thousand in 1996, $736
thousand in 1995, and $704 thousand in 1994.
14. Dividend Restrictions and Regulatory Requirements
Cash and Due From Banks
Bank subsidiaries of Banknorth are required to maintain certain reserves
of vault cash and/or deposits with the Federal Reserve Bank of Boston. The
amount of this reserve requirement, included in Cash and Due from Banks, was
approximately $24.9 million and $20.0 million at December 31, 1996 and 1995,
respectively.
Dividend Restrictions
The Company's ability to pay dividends to its shareholders is largely
dependent on the ability of its subsidiaries to pay dividends to the Company.
Payment of dividends by Vermont-chartered banks is subject to applicable state
and federal laws. Similarly, payment of dividends by national banks is subject
to applicable federal law. National banks must obtain the approval of the
Office of the Controller of the Currency for the payment of dividends if the
total of all dividends declared in any calendar year would exceed the total of
the bank's net profits, as defined by applicable regulations, for that year,
combined with its retained net profits for the preceding two years.
Furthermore, a national bank may not pay a dividend in an amount greater than
its undivided profits then on hand after deducting its losses and bad debts, as
defined by applicable regulations.
Dividends paid by subsidiaries are the primary source of funds available
to Banknorth for payment of dividends to its shareholders and for debt service
and other working capital needs. Various laws and regulations restrict the
ability of banks to pay dividends to their shareholders. As of December 31,
1996, banking subsidiaries were able to declare dividends to Banknorth in 1997,
without regulatory approval, of approximately $4.7 million plus an additional
amount equal to the net profits, as defined in the applicable regulations, for
1997 through the date of any such dividend declarations, less any required
transfer to surplus.
In February 1996, as part of its plan to capitalize the Company's newly
formed subsidiary bank, First Massachusetts Bank, at a "well-capitalized" level
for regulatory capital purposes, the Company redeployed accumulated capital of
$45.6 million from certain of its subsidiary banks. Because the special
dividend exceeded applicable regulatory limitations, the Company obtained
approval from the applicable regulatory agencies for the payment of that
portion of the dividend which exceeded such regulatory limitations. Payment of
these dividends significantly restricts the dividend paying capacity of the
subsidiary banks. The payment of dividends by the Company in the future will
require the generation of sufficient future earnings by the subsidiary banks.
In relationship to the funding of the acquisition of North American Bank
Corporation, the Company has a credit agreement with a third party institution.
The credit agreement was revised December 19, 1996 and restricts the Company's
ability to pay dividends on its capital stock or redeem , repurchase or
otherwise acquire or retire any of its capital stock during the period from
September 30, 1996 to the date of calculation in an amount not to exceed the
sum of (a) $7,000,000 plus (b) 40% of the Company's consolidated net income
with certain adjustments, for such period, computed on a cumulative basis for
such period. As of December 31, 1996, the Company had authority to pay
dividends of up to $7.9 million under the terms of this restriction, after
taking into account dividends already paid during the calculation period
(September 30, 1996 through December 31, 1996).
Regulatory Capital Requirements
Regulatory regulations require banks to maintain minimum levels of
regulatory capital. Under the regulations in effect at December 31, 1996, the
Company's subsidiary banks were required to maintain a minimum leverage ratio
of Tier 1 capital to total adjusted quarterly average assets of 4.00%; and
minimum ratios of Tier 1 capital and total capital to risk weighted assets of
4.00% and 8.00%, respectively. The Federal Reserve Board ("FRB") has adopted
similar requirements for the consolidated capital of bank holding companies.
Under its prompt corrective action regulations, regulatory authorities
are required to take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized institution. Such
actions could have a direct material effect on an institution's financial
statements. The regulations establish a framework for the classification of
banks into five categories: well capitalized, adequately capitalized, under
capitalized, significantly under capitalized, and critically under capitalized.
Generally, an institution is considered well capitalized if it has a Tier 1
(leverage) capital ratio of at least 5.0% (based on total adjusted quarterly
average assets), a Tier 1 risk based capital ratio of at least 6.0%, and a
total risked based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the the regulatory
authorities about capital components, risk weighting and other factors.
As of December 31, 1996, the Company's subsidiary banks and the Company
met all capital adequacy requirements to which they are subject. Further, the
most recent regulatory notification categorized each of the subsidiary banks as
well-capitalized institutions under the prompt corrective action regulations.
There have been no conditions or events since that notification that have
changed the subsidiary banks' capital classifications.
The following is a summary of the Company's significant subsidiary banks'
and the Company's (on a consolidated basis) actual capital amounts and ratios
as of December 31, 1996, compared to the regulatory minimum capital adequacy
requirements and the regulatory requirements for classification as a
well-capitalized institution:
<TABLE>
<CAPTION>
Regulatory Requirements
-------------------------------------
Actual Minimum Capital For Classification
-------------------- Adequacy as Well Capitalized
Amount Ratio Ratio Ratio
------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Tier 1 (leverage) Capital:
The Howard Bank, N.A. $ 49,003 7.50% 4.00% 5.00%
First Massachusetts Bank, N.A. 46,980 7.98 4.00 5.00
First Vermont Bank and Trust Co. 46,435 7.91 4.00 5.00
Banknorth Group, Inc. (consolidated) 173,072 6.91 4.00 5.00
Tier 1 Risk Based Capital:
The Howard Bank, N.A. $ 49,003 9.51% 4.00% 6.00%
First Massachusetts Bank, N.A. 46,980 10.25 4.00 6.00
First Vermont Bank and Trust Co. 46,435 9.83 4.00 6.00
Banknorth Group, Inc. (consolidated) 173,072 9.11 4.00 6.00
Total Risk Based Capital:
The Howard Bank, N.A. $ 55,447 10.77% 8.00% 10.00%
First Massachusetts Bank, N.A. 50,794 11.08 8.00 10.00
First Vermont Bank and Trust Co. 52,347 11.08 8.00 10.00
Banknorth Group, Inc. (consolidated) 196,592 10.35 8.00
</TABLE>
15. Shareholders' Equity
Common Share Purchase Rights
On November 27, 1990, the Board of Directors adopted a Rights Agreement
and declared a dividend distribution of one Common Share Purchase Right
("Right") on each outstanding share of common stock, payable December 7, 1990,
to shareholders of record on that date. The Rights Agreement also provides that
shares of common stock issued after December 7, 1990 will have Common Share
Purchase Rights associated with them to the same extent as the shares
outstanding on December 7, 1990. The Rights expire on December 7, 2000.
Rights become exercisable 10 days after a person or group acquires 20% or
more of the Corporation's common stock, or ten business days (or such later
date as may be determined by the Board of Directors prior to a person or group
acquiring 20% or more of the Corporation's common stock) after a person or
group announces an offer, the consummation of which, would result in such
person or group owning 20% or more of the common stock (even if no purchases
actually occur).
When the Rights first become exercisable, unless a person or group has
acquired 20% or more of the Corporation's common stock, a holder will be
entitled to buy from the Corporation one share of common stock at the exercise
price of $35.00. If any person or group acquires 20% or more of the
Corporation's common stock the Rights will entitle a holder (other than such
person or any member of such group) to buy a number of additional shares of
common stock of the Corporation having a market value of twice the exercise
price of each Right.
Following the acquisition by any person or group of 20% or more of the
Corporation's common stock, but only prior to the acquisition by a person or
group of a 50% stake, the Board of Directors will also have the ability to
exchange the Rights (other than Rights held by such person or group), in whole
or in part, for one share of common stock per right.
If the Corporation is involved in a merger or other business combination
at any time after a person or group has acquired 20% or more of the
Corporation's common stock, the Rights will entitle the holder to buy a number
of shares of common stock of the acquiring company having a market value of
twice the exercise price of each right.
Prior to the acquisition by a person or group of 20% or more of the
Corporation's common stock, at the option of the Board of Directors the Rights
are redeemable for one cent per Right. The Board of Directors is also
authorized to reduce the 20% threshold to not less than 10%.
16. Long-Term Incentive Plan
On May 8, 1990, the shareholders of Banknorth approved the Banknorth
Group, Inc. Comprehensive Long-Term Executive Incentive Plan ("Plan"), which
authorizes the granting of stock option awards, stock appreciation rights,
restricted stock awards, and restricted stock units to eligible employees of
the Corporation and/or its subsidiaries. The Plan is administered by the
Corporation's Board of Directors. Persons eligible to participate are chosen by
the Board of Directors. Directors of the Corporation who are not otherwise
officers or employees of the Corporation or of a subsidiary are not eligible to
participate in the Plan. Subject to adjustments described in the Plan, the
total number of shares of Banknorth common stock that may be issued pursuant to
the Plan may not exceed 500,000. Such shares may be either newly-issued shares
or previously issued shares that have been reacquired by the Corporation.
Stock Options
The exercise price of each option equals the market price of the
Company's stock on the date of grant, and an option's maximum term is ten
years. Options vest over a two year period from the date the options are
granted. The Company applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," in accounting for its Plan and, accordingly, no compensation
cost has been recognized for its stock options in the consolidated statements
of income. Had the Company recorded compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's consolidated net income and net income
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----------------------
(In thousands, except
for per share amounts)
<S> <C> <C> <C>
Net Income As reported $ 25,390 $ 22,373
Pro forma 24,958 22,223
Net income per share As reported $ 3.30 $ 3.29
Pro forma 3.24 3.27
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of two years and compensation cost for options granted prior to
January 1, 1995 is not considered. The effect of the variable restricted stock
awards discussed below is not material to the above pro forma disclosures.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
dividend yield of 3.13% and 3.29%; expected volatility of 24% and 25%, risk
free interest rates of 6.14% and 5.30%, and expected lives of 5 years for both
1996 and 1995 option grants.
A summary of the status of the Company's fixed stock options as of
December 31, 1996, 1995, and 1994, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 253,475 $21.91 202,350 $18.70 163,100 $15.89
Granted 131,500 31.99 84,000 28.00 78,000 23.00
Exercised (34,825) 17.61 (17,275) 13.62 (13,750) 11.47
Forfeited (5,000) 29.50 (15,600) 22.37 (25,000) 17.70
-----------------------------------------------------------------
Outstanding at end of year 345,150 26.07 253,475 21.91 202,350 18.70
=================================================================
Options exercisable at end of year 137,150 104,475 51,150
=================================================================
Weighted-average fair value of options
granted during the year $7.51 $6.29
=================================================================
</TABLE>
For the exercise of the option awards noted above, the Corporation
elected to reacquire previously issued shares to cover the exercised options.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------------
Weighted-Avg Weighted- Weighted-
Number Remaining Avg Number Avg
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9 to 13 28,100 5.3 years $12.00 28,100 $12.00
19 to 23 109,050 7.1 21.27 109,050 21.27
28 to 32 203,000 9.1 30.30 -- --
38 5,000 9.0 38.00 -- --
---------------------------------------------------------------------------------------
$ 9 to 38 345,150 8.2 $26.07 137,150 $19.37
=======================================================================================
</TABLE>
Restricted Stock Awards
Additionally, under the Plan, variable restricted stock awards were
granted in each year since 1992, including restricted stock units worth 50% of
the value of the underlying shares, to executive officers chosen by the
Corporation's board of directors. At December 31, 1996, restricted stock
options outstanding amounted to 49,900 shares. The following are the terms of
the restricted stock options granted:
July 23, 1996: Variable restricted stock awards of 11,400 shares were
granted and are outstanding as of December 31, 1996. Vesting for the 1996
shares and the units requires continuous service through July 23, 2001.
In addition, vesting of 25% of both the shares and the units occurs for
the 1996 awards each year between 1996 and 2000 in which the return on
average equity is equal to or greater than 13% and return on average
assets is equal to or greater than 1.1% to a maximum vesting of 100%.
July 25, 1995: Variable restricted stock awards of 12,500 shares were
granted and are outstanding as of December 31, 1996. Vesting for the 1995
shares and the units requires continuous service through July 25, 2000.
In addition, vesting of 25% of both the shares and the units occurs for
the 1995 awards each year between 1995 and 1999 in which the return on
average equity is equal to or greater than 13% and return on average
assets is equal to or greater than 1.1% to a maximum vesting of 100%.
July 26, 1994: Variable restricted stock awards of 10,500 shares were
granted and 9,000 shares were outstanding as of December 31, 1996.
Vesting for the 1994 shares and the units requires continuous service
through July 26, 1999. In addition, vesting of 25% of both the shares and
the units occurs for the 1994 awards each year between 1994 and 1998 in
which the return on average equity is equal to or greater than 12% and
return on average assets is equal to or greater than 1% to a maximum
vesting of 100%.
July 27, 1993: Variable restricted stock awards of 10,500 shares were
granted and 9,000 shares were outstanding as of December 31, 1996.
Vesting for the 1993 shares and the units requires continuous service
through July 27, 1998. In addition, vesting of 50% of both the shares and
the units occurs for the 1993 awards each year between 1995 and 1997 in
which the return on average equity is equal to or greater than 12% and
return on average assets is equal to or greater than 1% to a maximum
vesting of 100%. As of December 31, 1996, the 1993 awards were fully
vested.
July 28, 1992: Variable restricted stock awards of 10,000 shares were
granted and 8,000 shares were outstanding as of December 31, 1996.
Vesting for the 1992 shares and the units requires continuous service
through July 28, 1997. In addition, vesting of 50% of both the shares and
the units occurs for the 1992 awards each year between 1994 and 1996, in
which the return on average equity is equal to or greater than 12% to a
maximum vesting of 100%. As of December 31, 1996, the 1992 awards were
fully vested.
No restrictions are removed on any of the above noted stock awards until
the end of the required continuous service period. If participants are not
employees at the end of the continuous service period, all awards are
forfeited. For the years ended December 31, 1996, 1995 and 1994, compensation
expense related to these restricted stock awards and units amounted to $475
thousand, $609 thousand, and $146 thousand, respectively. For the issuance of
the variable restricted stock awards noted above, the Company elected to
reacquire previously issued shares.
17. Commitments, Off-Balance Sheet Risk and Contingent Liabilities
Commitments and Off-Balance-Sheet Risk
Banknorth and its subsidiaries are parties to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers and to facilitate asset/liability management. These
financial instruments include interest rate swaps, commitments to extend
credit, letters of credit, standby letters of credit, and loans sold with
recourse. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on the balance sheet. The
contract or notional amount of these instruments reflect the extent of
involvement the Corporation has in particular instruments.
The maximum exposure to credit loss in the event of complete
non-performance by the other party to the financial instruments, and any
collateral or guarantees which prove to be of no value, for commitments to
extend credit, letters of credit, standby letters of credit and loans sold with
recourse is represented by the contractual or notional amount of these
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Unless otherwise noted, the Corporation does not require collateral or
other security to support off-balance sheet financial instruments with credit
risk.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case by case basis. The amount and type of
collateral deemed necessary upon extension of credit is based upon management's
credit evaluation and is consistent with existing credit policies for
collateral of on-balance sheet instruments. Collateral varies but may include
accounts receivable, inventory, property, plant and equipment, income producing
commercial properties, and residential real estate.
The Company may enter into rate lock agreements which fix the interest
rate at which the loan, if ultimately made, will be originated. Such agreements
may be made with borrowers with whom commitments to extend credit have been
made, as well as with individuals who have applied for mortgage loans and have
not yet received a commitment. These rate lock agreements expose the Company to
interest rate risk given the possibility that rates may change between the date
of the rate lock agreement and the date that the related loans, if ultimately
originated, are sold. In addition, the portfolio of mortgage loans held for
sale expose the Company to interest rate risk. At December 31, 1996 and 1995,
the Company had rate lock agreements (certain of which relate to loan
applications for which no formal commitment has been made) and mortgage loans
held for sale amounting to approximately $19.5 million, and $35.6 million,
respectively. In order to limit the interest rate risk associated with rate
lock agreements as well as the interest rate risk associated with mortgage
loans held for sale, the Company enters into various agreements to sell loans
in the secondary mortgage market at fixed interest rates. Banknorth and its
subsidiaries have outstanding various commitments to sell real estate mortgages
amounting to approximately $12.3 million at December 31, 1996, and $23.1
million at December 31, 1995.
Letters of credit and standby letters of credit are conditional
commitments issued by the Corporation to guarantee payment on behalf of a
customer and guarantee the performance of a customer to a third party. The
credit risk involved in issuing these instruments is essentially the same as
that involved in extending loans to customers. Since a portion of these
instruments will expire unused, the total amounts do not necessarily represent
future cash requirements. Each customer is evaluated individually for
creditworthiness under the same underwriting standards used for commitments to
extend credit and on-balance-sheet instruments. Corporate policies governing
loan collateral apply to letters of credit and standby letters of credit at
time of credit extension.
The Corporation has sold mortgage loans where the investor has limited
recourse to the Corporation as issuer. These loans represent normal exposure to
credit loss exhibited by residential mortgage loans. Generally, the mortgage
notes are secured by liens on the real estate and by private mortgage insurance
where the loan to value ratio exceeds 80% at the time of extension of credit.
Certain mortgage loans are written on an adjustable basis and include
interest rate caps which limit annual and lifetime increases in the interest
rates on such loans. Generally, adjustable rate mortgages have an annual rate
increase cap of 2% and a lifetime rate increase cap of 5% to 6%. Interest rates
charged on home equity lines of credit are also capped. The home equity
interest rate cap is 18% for the Company. In addition, all other consumer loans
are subject to statutory interest rate ceilings as imposed by the State of
Vermont. No statutory interest rate ceilings on consumer loans are imposed by
the States of New Hampshire or Massachusetts. At December 31, 1996, the State
of Vermont imposed ceilings ranged from 18% to 24% depending on the loan amount
and underlying collateral on consumer loans. These caps expose the Corporation
to interest rate risk should market rates increase above these limits. As of
December 31, 1996 and 1995, $553.4 million, and $454.5 million of loans had
interest rate caps.
Financial instruments with off-balance sheet credit risk are as follows:
<TABLE>
<CAPTION>
As of December 31, 1996
--------------------------------
Fixed Variable Total
--------------------------------
(In thousands)
<S> <C> <C> <C>
Financial instruments whose contract amounts include
credit risk--trading instruments:
Commitments to extend credit for mortgage loans
held for sale $ 13,685 $ 5,155 $ 18,840
Mortgage loans sold with recourse 1,316 83 1,399
--------------------------------
Total trading instruments $ 15,001 $ 5,238 $ 20,239
================================
Financial instruments whose contract amounts include
credit risk--non-trading instruments:
Commitments to extend credit $ 13,963 $ 26,935 $ 40,898
Unused lines of credit -- 418,111 418,111
Letters of credit and standby letters of credit -- 32,037 32,037
--------------------------------
Total non-trading instruments $ 13,963 $ 477,083 $ 491,046
================================
Financial instruments whose notional amounts exceed
the amount of credit risk:
Interest rate swap agreements (pay variable) $ -- $ 50,000 $ 50,000
================================
Interest rate floor agreements (pay variable) $ -- $ 295,000 $ 295,000
================================
<CAPTION>
As of December 31, 1995
--------------------------------
Fixed Variable Total
--------------------------------
(In thousands)
<S> <C> <C> <C>
Financial instruments whose contract amounts include
credit risk--trading instruments:
Commitments to extend credit for mortgage loans
held for sale $ 8,582 $ 1,435 $ 10,017
Mortgage loans sold with recourse 1,276 -- 1,276
--------------------------------
Total trading instruments $ 9,858 $ 1,435 $ 11,293
================================
Financial instruments whose contract amounts include
credit risk--non-trading instruments:
Commitments to extend credit $ 9,923 $ 35,432 $ 45,355
Unused lines of credit -- 286,042 286,042
Letters of credit and standby letters of credit -- 25,233 25,233
--------------------------------
Total non-trading instruments $ 9,923 $ 346,707 $ 356,630
================================
Financial instruments whose notional amounts exceed
the amount of credit risk:
Interest rate swap agreements (pay fixed) $ 10,000 $ -- $ 10,000
================================
Interest rate floor agreements (pay variable) $ -- $ 150,000 $ 150,000
================================
</TABLE>
Interest Rate Swap and Floor Contracts
Interest rate swap and floor transactions generally involve the exchange
of fixed and variable rate interest payment obligations without the exchange of
the underlying principal (or notional) amounts. The Corporation's swaps and
floors are used as an interest rate risk management tool to protect the net
interest income from adverse changes in interest rates. The Corporation is
exposed to risk should the swap or floor counterparty default in its
responsibility to pay interest under the terms of the swap/floor agreement.
However, Banknorth minimizes this risk by performing normal credit reviews on
the counterparties and by limiting its exposure to any one counterparty.
Notional principal amounts are a measure of the volume of agreements
transacted, but the level of credit risk is significantly less. As of December
31, 1996, the Company does not expect any counterparties to fail to meet their
obligations.
Interest rate floors and swaps were utilized by the Company in 1996 and
1995 to correct imbalances between the re-pricing characteristics of certain
interest earning assets and certain interest-bearing liabilities. A significant
portion of the Company's loans are adjustable or variable rate resulting in
reduced levels of interest income during periods of falling rates. Certain
categories of deposits reach a point where market forces prevent further
reduction in the rate paid on those instruments. The net effect of these
circumstances is reduced interest income offset only by a nominal decrease in
interest expense, thereby narrowing the net interest margin. Interest rate
floors and swaps are, therefore, utilized to protect the Company from this
occurrence. At December 31, 1996, these instruments are intended to offset
potential declines in interest income on certain variable and floating rate
loans.
The following provides information related to interest rate swap and
floor contracts as of December 31, 1996 and 1995 and for the years then ended:
<TABLE>
<CAPTION>
1996 1995
----------------------
(Dollars in thousands)
<S> <C> <C>
Interest Rate Swap Contracts:
Notional amount at end of period $ 50,000 $ 10,000
Average notional amount during the year 30,000 12,137
Fair value at year-end 270 --
Weighted average variable rate paid end of year 5.54% --
Weighted average fixed rate received at end of year 6.37% --
Weighted average fixed rate paid end of year -- 7.36%
Weighted average variable rate received at end of year -- 5.94%
Interest Rate Floor Contracts:
Notional amount at end of period $ 295,000 $ 150,000
Average notional amount during the year 234,809 126,438
Carrying value 2,051 1,392
Fair value at year-end 3,994 5,230
Weighted average variable rate paid at end of year 5.56% 5.83%
Weighted average fixed rate received at end of year 5.80% 6.25%
</TABLE>
Data Processing Contract
Effective September 1, 1994, the Company entered into a five-year
facilities management contract with a third-party data processing company.
Under terms of the facilities management contract, the Company will pay a
minimum of $9.4 million for the remainder of the contract, which expires in
August, 1999. In addition, fees will be adjusted annually for inflation, based
upon the Consumer Price Index for all Urban Consumers--All Items ("CPI-ALL"),
with no increase to exceed eight percent, or be less than two percent.
Required minimum annual payments under these contracts were as follows at
December 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 3,462
1998 3,531
1999 2,386
-------
$ 9,379
=======
</TABLE>
Contingent Liabilities
The Corporation has a self-insurance plan which covers both medical and
dental benefits for employees. Under the terms of the plan, the Company pays up
to a maximum of $100 thousand per employee on medical and dental claims.
In the ordinary course of business there are various legal proceedings
pending against Banknorth. After consultation with outside counsel, management
considers that the aggregate exposure, if any, arising from such litigation
would not have a material adverse effect on Banknorth's consolidated financial
position.
18. Disclosures About the Fair Value of Financial Instruments
Disclosure About Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires that the Company
disclose estimated fair values for financial instruments. Fair value estimates,
methods, and assumptions are set forth below.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company has a substantial trust
operation that contributes net fee income annually. The trust operation is not
considered a financial instrument, and its value has not been incorporated into
the fair value estimates. Other significant assets and liabilities include the
mortgage banking operation, benefits resulting from the low-cost funding of
deposit liabilities as compared to the cost of borrowing funds in the market,
and premises, equipment and software. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimate of fair value under SFAS No. 107.
Short-Term Financial Instruments
The fair value of certain financial instruments is estimated to
approximate their carrying value because the remaining term to maturity of the
financial instrument is less than 90 days or the financial instrument reprices
in 90 days or less. Such financial instruments include cash and due from banks,
money market investments, accrued interest receivable, accrued interest payable
and short-term borrowed funds.
Securities Available for Sale and Investment Securities
The securities portfolios are financial instruments which are usually
traded in broad markets. Fair values are based upon market prices and dealer
quotations. If a quoted market price is not available for a particular
security, the fair value is determined by reference to quoted market prices for
securities with similar characteristics.
Loans Held For Sale
Estimated fair value of loans held for sale is determined based upon
outstanding commitments from investors or current market prices for amounts
with no sales commitments.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type including commercial, financial
and agricultural, commercial real estate, construction and land development,
residential real estate, credit card and lease receivables and other
installment loans. Each loan category is further segmented into fixed and
variable interest rate terms and performing and non-performing categories.
The estimated fair value of performing loans, except the portfolio of
residential mortgage loans and credit card receivables, is calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent
in the respective loan portfolio. The estimate of maturity is based on the
Company's historical experience with repayments for each loan classification,
modified, as required, by an estimate of the effect of current economic and
lending conditions. For residential mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources adjusted to reflect
differences in servicing and credit costs.
Estimated fair value for non-performing loans is based on recent external
appraisals of the collateral or estimated cash flows discounted using a rate
commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.
The fair value estimate for credit card receivables is based on the
carrying value of existing loans. Given the repricing frequency of this
portfolio, the estimated fair value is expected to approximate the carrying
value. This estimate does not include the value that relates to estimated cash
flows from new loans generated from existing cardholders over the remaining
life of the portfolio.
Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether the
estimated fair value would be indicative of the value negotiated in an actual
sale.
Interest Rate Floor Agreements
The estimated fair value of interest rate floor agreements are obtained
from dealer quotes. These values represent the estimated amount the Company
would receive or pay to terminate the agreements, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties.
Deposit Liabilities
The estimated fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings, NOW, and money market accounts,
is regarded to be the amount payable on demand as of December 31, 1996 and
1995. The estimated fair value of time deposits is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
estimates for deposits do not include the benefit that results from the
low-cost funding provided by the deposit liabilities as compared to the cost of
borrowing funds in the market.
Long-Term Debt
The fair value for the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues.
Table of On-Balance Sheet Financial Instruments
The carrying value and estimated fair values of financial instruments
were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 91,871 $ 91,871 $ 89,111 $ 89,111
Money market investments 101 101 650 650
Securities available for sale 531,269 531,269 359,085 359,085
Loans held for sale 12,106 12,270 19,125 19,249
Investment securities 34,194 34,644 49,680 51,087
Loans 1,848,232 1,846,334 1,351,053 1,350,195
Less: Allowance for loan losses 23,520 -- 22,095 --
--------------------------------------------------------
Net loans 1,824,712 1,846,334 1,328,958 1,350,195
Accrued interest receivable 15,148 15,148 11,505 11,505
Interest rate floor agreements 2,051 3,994 1,392 5,230
Financial Liabilities:
Deposits:
Demand, NOW, savings and money market accounts $ 1,276,832 $ 1,276,832 $ 965,091 $ 965,091
Time deposits 789,232 792,721 595,678 596,228
Short-term borrowed funds 280,461 280,461 116,213 116,213
Long-term debt 25,923 25,949 55,997 55,855
Accrued interest payable 3,914 3,914 3,914 3,914
<FN>
<F1> Note: Loans held for sale represent the only trading financial instrument; all
other financial instruments are considered to be held for purposes other
than trading.
<FN>
</TABLE>
Commitments to Extend Credit, Unused Lines of Credit, Letters of Credit,
Standby Letters of Credit and Financial Guarantees
These financial instruments generally are not sold or traded, and
estimated fair values are not readily available. However, the fair value of
commitments to extend credit and unused lines of credit is estimated using the
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. For loan commitments and unused lines of credit for which the
Company has locked in an interest rate, estimated fair value also considers the
difference between current levels of interest rates and the committed rates. As
of December 31, 1996 and 1995, the fair value was estimated at $118 thousand
and $40 thousand for commitments to extend credit and $344 thousand and $372
thousand for unused lines of credit, respectively. The estimated fair value of
financial guarantees, such as mortgage loans sold with recourse, letters of
credit and standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties. The estimated fair value of
such financial guarantees as of December 31, 1996 and 1995 were $582 thousand
and $513 thousand, respectively.
Interest Rate Swap Agreements
The estimated fair value of interest rate swap agreements are obtained
from dealer quotes. These values represent the estimated amount the Company
would receive or pay to terminate the contracts or agreements, taking into
account current interest rates and, when appropriate, the current
creditworthiness of the counterparties. The fair value of interest rate swap
agreements at December 31, 1996 was $270 thousand. There was no estimated fair
value on the interest rate swap agreements due to the short expiration of the
swap agreement as of December 31, 1995.
19. Parent Company Only Financial Statements
The following information presents the financial position of Banknorth
Group, Inc. (Parent Company) at December 31, 1996 and 1995 and the results of
its operations and cash flows for each of the years in the three-year period
ended December 31, 1996:
<TABLE>
<CAPTION>
December 31,
----------------------
BALANCE SHEETS 1996 1995
----------------------
(In thousands)
<S> <C> <C>
Assets:
Cash and due from subsidiary banks $ 6 $ 5
Securities purchased under agreements to resell
to a subsidiary bank 3,341 1,887
----------------------
Cash and cash equivalents 3,347 1,892
Investment in equity of bank subsidiaries 217,206 172,863
Investment in equity of non-bank subsidiaries 269 227
Securities available for sale 319 238
Other assets 8,226 8,665
----------------------
Total assets $ 229,367 $ 183,885
======================
Liabilities and Shareholders' Equity:
Long-term debt $ 13,000 $ 16,800
Accrued expenses and other liabilities 9,630 7,149
Total shareholders' equity 206,737 159,936
----------------------
Total liabilities and shareholders' equity $ 229,367 $ 183,885
======================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
STATEMENTS OF INCOME 1996 1995 1994
--------------------------------
(In thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries $ 59,065 $ 12,280 $ 4,389
Service fees paid by subsidiaries 28,853 26,978 25,873
Interest income 221 233 115
Net securities transactions -- -- 20
Other income 931 1,002 881
--------------------------------
Total income 89,070 40,493 31,278
Expenses:
Salaries and wages 13,706 12,888 10,967
Employee benefits 2,843 2,588 2,452
Occupancy 1,510 1,328 1,292
Equipment 3,651 2,802 3,007
Printing and supplies 1,261 960 896
Legal and other professional fees 1,633 1,248 1,286
Outside data processing services 4,545 4,485 4,966
Directors' fees and expenses 531 888 502
Telephone and telecommunications 465 398 310
Training and education 592 338 220
Postage 888 717 677
Interest 1,191 1,657 378
Other 1,897 1,752 1,234
--------------------------------
Total expenses 34,713 32,049 28,187
Income before income tax benefit and equity in undistributed
(distributions in excess of) income of subsidiaries 54,357 8,444 3,091
Income tax benefit (2,119) (1,883) (501)
--------------------------------
Income before equity in undistributed (distributions in
excess of) income of subsidiaries 56,476 10,327 3,592
Equity in undistributed (distributions in excess of) income
of bank subsidiaries (31,128) 12,005 12,408
Equity in undistributed income of non-bank subsidiaries 42 41 41
--------------------------------
Net income $ 25,390 $ 22,373 $ 16,041
================================
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
--------------------------------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 25,390 $ 22,373 $ 16,041
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,274 1,188 922
Gain on sale of securities available for sale -- -- (20)
Exercise of employee stock options (411) (311) (155)
Amortization of employee restricted stock 310 407 97
Increase (decrease) in interest payable (32) (305) 378
Decrease (increase) in other assets 543 (3,166) 555
Increase in accrued expense and other liabilities 2,513 1,180 1,746
Equity in undistributed (distributions in excess of)
income of subsidiaries 31,086 (12,046) (12,446)
--------------------------------
Total adjustments 35,283 (13,053) (8,923)
--------------------------------
Net cash provided by operating activities 60,673 9,320 7,118
--------------------------------
Cash flows from investing activities:
Decrease (increase) in investment in equity of subsidiaries (78,030) 50 (19,094)
Proceeds from sale of securities available for sale -- -- 1,127
Capital expenditures (1,406) (1,452) (1,338)
--------------------------------
Net cash used in investment activities (79,436) (1,402) (19,305)
--------------------------------
Cash flows from financing activities:
Issuance of common stock, net of expenses 32,216 -- --
Issuance of employee restricted stock (371) (361) (247)
Dividends paid (7,827) (6,260) (4,083)
Payments on long-term debt (3,800) (4,200) --
Issuance of long-term debt -- -- 21,000
--------------------------------
Net cash provided by (used in) financing activities 20,218 (10,821) 16,670
--------------------------------
Net increase (decrease) in cash and cash equivalents 1,455 (2,903) 4,483
--------------------------------
Cash and cash equivalents at beginning of year 1,892 4,795 312
--------------------------------
Cash and cash equivalents at end of year $ 3,347 $ 1,892 $ 4,795
================================
Additional disclosure relative to cash flows:
Interest paid $ 1,193 $ 1,962 $ 378
================================
Taxes paid $ 25 $ 40 $ 16
================================
Supplemental schedule of non-cash investing and financing
activities:
Adjustment of securities available for sale to fair value,
net of tax $ 52 $ 30 $ 33
Adjustment of securities available for sale and securities
available for sale transferred to investment securities
to fair value, net of tax, at the subsidiaries 2,559 8,494 (8,529)
</TABLE>
Form 10-K
The following is a copy, except for the cover page, cross-reference
sheet, certain portions of Part IV, signature pages, exhibit index and
exhibits, of the Annual Report of Banknorth Group, Inc. (the "Company") on Form
10-K for the year ended December 31, 1996, filed with the Securities and
Exchange Commission (the "Commission").
Certain information included herein is incorporated by reference from the
Company's 1996 Annual Report to Shareholders ("Annual Report") as indicated
below. Except for those portions of the Annual Report which are expressly
incorporated herein by reference, the Annual Report is not to be deemed filed
with the Commission. The Annual Report and Form 10-K have not been approved or
disapproved by the Commission, nor has the Commission passed upon the accuracy
or adequacy of the same.
<TABLE>
<S> <C> <C>
Part I Pages
- ---------------------------------------------------------------------------
Item 1. Business 1-20, 48
Item 2. Properties 33, 50
Item 3. Legal Proceedings 43-44, 50
Item 4. Submission of Matters to a Vote of Security Holders N/A
Part II Pages
- ---------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters cover, 50
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-20
Item 8. Financial Statements and Supplementary Data 23-47
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 50
Part III
- ---------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Part IV**
- ---------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
- ---------------------------------------------------------------------------
<FN>
<F1> * The information required by Part III is incorporated herein by reference
from the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on May 13, 1997.
<F2> ** A list of exhibits in the Form 10-K is set forth on the Exhibit Index
included in the Form 10-K filed with the Commission and incorporated
herein by reference. Copies of any exhibit to the Form 10-K may be
obtained from the Company by contacting Corporate Communications,
Banknorth Group, Inc., P.O. Box 5420, Burlington, Vt., 05402-5420. All
financial statement schedules are omitted since the required information
is either not applicable, is immaterial or is included in the
consolidated financial statements of the Company and notes thereto in the
Annual Report.
</FN>
</TABLE>
Business
Banknorth Group, Inc. is the sole owner of five Vermont banks; namely,
First Vermont Bank and Trust Company, Franklin Lamoille Bank, The Howard Bank,
N.A., Granite Savings Bank and Trust Company and Woodstock National Bank; one
Vermont limited charter bank, The Stratevest Group, N.A., a consolidated trust
subsidiary; one New Hampshire holding company; namely North American Bank
Corporation and its sole subsidiary, Farmington National Bank; and one
Massachusetts bank; First Massachusetts Bank, NA. Banknorth is also the sole
owner of North Group Realty, Inc., which owns real estate utilized in the
operation of Banknorth.
On October 14, 1994, Banknorth Group acquired North American Bank
Corporation and its sole subsidiary, Farmington National Bank. The acquisition,
which was accounted for as a purchase, is the first for Banknorth in the state
of New Hampshire.
On February 16, 1996, Banknorth completed the purchase of thirteen
banking offices from Shawmut Bank, N.A. A new subsidiary, First Massachusetts
Bank, N.A., with principal offices in Worcester, Massachusetts, was organized
to own and operate the acquired offices.
The subsidiary banks offer a full range of loan, deposit, investment
products and trust services designed to meet the financial needs of individual
consumers, businesses and municipalities. Mortgage banking services are also
offered through Banknorth Mortgage Company, a wholly-owned subsidiary of First
Vermont Bank and Trust Company. These services are currently offered throughout
the states of Vermont, Massachusetts and New Hampshire through a network of 58
banking offices.
Based on total assets of $2.6 billion as of December 31, 1996, Banknorth
is the largest bank holding company based in Vermont. In December 1996,
Banknorth and its subsidiaries employed 1,108 on a full-time equivalent basis.
Deposit and Loan Products
Deposit Products. The Company offers a variety of deposit products
typical of commercial banks and has designed product offerings responsive to
the needs of both individuals and businesses. Traditional demand deposit
accounts, interest-bearing transaction accounts (NOW accounts) and savings
accounts are offered on a competitive basis to meet customers' basic banking
needs. Indexed money market accounts, time deposits in the form of certificates
of deposit and IRA/KEOUGH accounts provide customers with price competitive and
flexible investment alternatives.
Loan Products. The Company offers a broad range of commercial and
consumer loan products designed to meet the banking needs of individual
customers, businesses and municipalities. Additional information is set forth
below relating to the Company's loan products, including major loan categories,
general loan terms, credit underwriting criteria, and risks particular to each
category of loans.
Commercial, Financial and Agricultural Loans; Commercial Real Estate
Loans. The Company offers a wide range of commercial credit products and
services to its customers. These include secured and unsecured loan products
specifically tailored to the credit needs of the customer, underwritten with
terms and conditions reflective of risk profile objectives and corporate
earnings requirements. These products are offered through the Subsidiary Banks
and all credit decisions are made on a decentralized basis under the umbrella
of a common corporate commercial loan policy which was developed to provide a
clear framework for determining acceptable levels of credit risk, underwriting
criteria, monitoring existing credits, and managing problem credit
relationships. Credit risk control mechanisms have been established at the
Subsidiary Banks and are monitored closely for compliance by a loan review
department at the Company level.
The Company has, from time to time, purchased loans originated by other
financial institutions as a means of supplementing in-market loan originations.
Risks particular to commercial, financial and agricultural loans include
borrowers' capacities to perform according to contractual terms of loan
agreements during periods of unfavorable economic conditions and changing
competitive environments. Management expertise and competency are critical
factors affecting the customers' performance and ultimate ability to repay
their debt obligations. Commercial real estate loans create exposure to market
value risk where the value of the underlying collateral decreases primarily as
the result of regional economic trends.
Consumer Loans and Leases. The Company offers a range of consumer loan
products. These products include both open-end (credit cards, home equity lines
of credit, unsecured revolving lines of credit) and closed-end (secured and
unsecured direct and indirect installment loans and leases) loans and leases
which are delivered through the Subsidiary Banks and through a network of
retail dealers. This delivery mechanism is supported by an automated loan
platform delivery system and a central underwriting process. The lending
process is designed to ensure not only the efficient delivery of credit
products, but also compliance with applicable consumer regulations while
minimizing credit risk exposure.
Credit decisions are made under the guidance of a standard consumer loan
policy, with the assistance of central underwriting resources. The loan policy
was developed to provide definitive guidance encompass ing credit underwriting,
monitoring and management. Credits are monitored for compliance with
established standards at both the Company and Subsidiary Bank level. The
quality and condition of the consumer loan and lease portfolio, as well as
compliance with established standards, is also monitored closely.
A borrower's ability to repay consumer debt is generally dependent upon
the stability of the income stream necessary to service the debt. Adverse
changes in economic conditions resulting in higher levels of unemployment
increase the risk of consumer defaults. Risk of default is also impacted by a
customer's total debt obligation. While the Company can analyze a borrower's
capacity to repay at the time a credit decision is made, subsequent extensions
of credit by other financial institutions may cause the customer to become
over-extended, thereby increasing the risk of default.
Residential Real Estate Loans. The Company offers mortgage banking
services, originating a full array of mortgage loan products and servicing a
$1.5 billion residential mortgage portfolio, approximately $1 billion of which
is serviced for unaffiliated third parties. The majority of loans originated by
the Company, both fixed and adjustable rate, are underwritten to secondary
market standards. Most originated residential mortgage loans are sold to the
secondary market. Loans made which are not eligible for sale in the secondary
market are held in the Subsidiary Banks' loan portfolios. Residential real
estate loans possess risk characteristics much the same as consumer loans.
Stability of the borrower's employment is a critical factor in determining the
likelihood of repayment. Market value risk, where the value of the underlying
collateral declines due to economic conditions, is also a factor.
Competition
Competition within New England for banking and related business is
strong. Banknorth, through its subsidiaries, competes with both state and
nationally-charted commercial banks for deposits, loans and trust accounts, and
with savings and loan associations, savings banks and credit unions for
deposits and loans. In addition, there is significant competition with other
financial institutions including personal loan companies, mortgage banking
companies, finance companies, insurance companies, securities firms, mutual
funds and certain government agencies as well as major retailers all actively
engaged in providing various types of loans and other financial services.
In recent years the competitive environment in the New England banking
industry has expanded to include larger out-of-region bank holding companies.
In 1987, the Vermont legislature enacted the Interstate Banking Act, which
permitted, during a phase-in period, acquisitions of Vermont banks and bank
holding companies by bank holding companies based in the states of Connecticut,
Maine, Massachusetts, New Hampshire and Rhode Island, so long as such states
permitted acquisitions by Vermont institutions on terms not substantially more
restrictive. Effective February 1, 1990, the act permitted interstate banking
on a nationwide reciprocal basis.
Supervision and Regulation
Banknorth and its subsidiaries are subject to regulation and supervision
by a variety of government agencies including the Federal Reserve system, the
Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation and the Vermont Department of Banking and Insurance. As a bank
holding company, Banknorth is subject to regulation under the Bank Holding
Company Act of 1956, as amended (the "Act"), and its examination and reporting
requirements. The Act requires Banknorth to obtain the prior approval of the
Board of Governors of the Federal Reserve System for bank acquisitions, limits
the shares of out-of-state banking organizations unless permitted by state law
and prescribes limitations on the non-banking activities of the Company.
Banknorth Group and its direct or indirect subsidiaries, are considered
"affiliates" for the purpose of Section 19(i) of the Federal Deposit Insurance
Act, as amended, and are thus subject to limitations with respect to their
ability to make loans and other extensions of credit to, or investments in,
each other, and are likewise subject to specific restrictive collateral
security requirements in respect to certain loans or other extensions of
credit.
The banking industry is affected by the monetary and fiscal policies of
government agencies, including the Federal Reserve System. An important
function of the Federal Reserve System is to regulate aggregate national bank
credit and money through such means as open market dealings in securities,
establishment of the discount rate on bank borrowings and changes in reserve
requirements against bank deposits.
The United States Congress has periodically considered and adopted
legislation which has resulted in, and could result in further, deregulation of
both banks and other financial institutions. Such legislation could relax or
eliminate geographic restrictions on banks and bank holding companies and could
place Banknorth and its subsidiaries in more direct competition with other
financial institutions, including mutual funds, securities and brokerage firms,
and investment banking firms. No assurance can be given as to whether any
additional national legislation will be adopted and as to the effect of such
legislation on the business of Banknorth.
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
and the Federal Deposit Insurance Company Improvement Act (FDICIA) are laws
enacted that have changed various aspects of the banking industry, including
regulator oversight and reporting issues.
In addition, the passage of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, which among other things provides for the
recapitalization of the Savings Association Insurance Fund ("SAIF") and for the
eventual merger of the SAIF and the Bank Insurance Fund ("BIF"), has resulted
in higher BIF assessments for 1997 and future years.
Properties
As of December 31, 1996, Banknorth subsidiaries operated 58 community
banking offices and 75 automated banking machines throughout the states of
Vermont, Massachusetts and New Hampshire. The Company's headquarters are
located at 300 Financial Plaza, Burlington, Vt.
The Company leases certain premises from third parties under terms and
conditions considered by management to be favorable to the Company.
Additional information relating to the Company's properties is set forth
in note 7 to the consolidated financial statements on page 33 of the Annual
Report and incorporated herein by reference.
Legal Proceedings
Banknorth and certain of its subsidiaries have been named as defendants
in various legal proceedings arising from their normal business activities.
Although the amount of any ultimate liability with respect to such proceedings
cannot be determined, in the opinion of management, based upon the opinion of
counsel, any such liability will not have a material effect on the consolidated
financial position of Banknorth and its subsidiaries.
Market for Registrant's Common Equity and Related Shareholder Matters
Banknorth's common stock, $1.00 par value per share (the "Common Stock"),
began trading in the over-the-counter market, quoted on the Nasdaq National
Market System ("Nasdaq"). As of December 31, 1996, there were 4,150 holders of
record of the Common Stock.
Holders of the Common Stock are entitled to receive such dividends as may
be legally declared by the Board of Directors and, in the event of dissolution
and liquidation, to receive the net assets of Banknorth remaining after payment
of all liabilities, in proportion to their respective holdings. Additional
information concerning certain limitations on the payment of dividends by the
Company and its bank subsidiaries is set forth under "Business -- Supervision
and Regulation" and in note 14 to the consolidated financial statements on
pages 37-38 in the Annual Report and incorporated herein by reference.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There were no changes in accountants, nor were there any disagreements
with the accountants on accounting and financial disclosure.
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a.3. Exhibits Reg. S-K Item 601 Exhibit Table
Item No.
(3) Articles of incorporation and by-laws (previously filed with
the Commission as Exhibit 4 to the Company's Current
Report on Form 8-K dated November 30, 1989, as amended on
Form 8-K/A dated December 7, 1995, and incorporated herein
by reference).
(4)(i) Common Stock Certificate of the Company, previously
filed with the Commission as Exhibit 4 to the Company's
Current Report on Form 8-K dated November 30, 1989, as
amended on Form 8-K/A dated December 7, 1995, and
incorporated herein by reference.
(4)(ii) Rights Agreement dated as of November 27, 1990 between
the Company and Mellon Securities Trust Company, as
rights agent, previously filed with the Commission as
Exhibit 1 to the Company's Registration Statement on
Form 8-A dated November 29, 1990, and incorporated
herein by reference.
(4)(iii) First Amendment to Rights Agreement, dated as of
February 13, 1996, between the Company and Mellon
Securities Trust Company, as Rights Agent, previously
filed with the Commission as Exhibit 3 to the Company's
amended Registration Statement on Form 8-A/A dated
March 1, 1996, and incorporated herein by reference.
(10) Material contracts
10(i) Supplemental Retirement Agreement dated November 1,
1987, between the Company and William H. Chadwick,
previously filed with the Commission as Exhibit 10(xiv)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein
by reference.
10(ii) Employment Agreement dated December 21, 1994, between
the Company and William H. Chadwick, previously filed
with the Commission as Exhibit 10(xiv) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1994, and incorporated herein by reference.
10(iii) Change-in-control Agreement, dated December 21, 1994,
between the Company and Thomas J. Pruitt, previously
filed with the Commission as Exhibit 10(xv) to the
Company's Annual report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by
reference.
10(iv) Banknorth Group, Inc. Comprehensive Long-term Executive
Incentive Compensation Plan, as amended and restated
July 26, 1994, previously filed as Exhibit 10(4) to the
Company's Registration Statement on Form S-3 (Reg. No.
33-80273), and incorporated herein by reference.
10(v) 1994 Deferred Compensation Plan for Directors and
Selected Executive Officers of Banknorth Group, Inc.
and Participating Affiliates, amended and restated as
of January 1, 1996, previously filed with the
Commission as Exhibit 10(vii) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1995, and incorporated herein by reference.
10(vi) Banknorth Group, Inc. Supplemental Employees Retirement
Plan, dated January 1, 1995, previously filed with the
Commission as Exhibit 10(xvi) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
10(vii) Banknorth Group, Inc. 1996 Management Incentive
Compensation Plan, previously filed as Exhibit 10(10)
to the Company's Registration Statement on Form S-3
(Reg. No. 33-80273), and incorporated herein by
reference.
10(viii) Banknorth Group, Inc. 1997 Management Incentive
Compensation Plan.
10(ix) Change-in-Control Agreement, dated January 1, 1996,
between the Company and Richard J. Fitzpatrick.,
previously filed with the Commission as Exhibit 10(xi)
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein
by reference.
10(x) Change-in-Control Agreement, dated January 1, 1996,
between the Company and Robert M. Gillis, previously
filed with the Commission as Exhibit 10(xii) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by
reference.
10(xi) Credit Agreement (as amended), dated October 14, 1994,
among Banknorth Group, Inc, the lenders named therein,
and The First National Bank of Chicago, as Agent,
previously filed as Exhibit 10(9) to the Company's
Registration Statement on Form S-3 (Reg. No. 33-80273),
and incorporated herein by reference. (Replaced by
Exhibit 10 (xii) listed below.)
10(xii) Credit Agreement, dated December 16, 1996, among
Banknorth Group, Inc., the lenders named therein, and
The First National Bank of Chicago, as Agent.
(11) Statement re Computation of Per Share Earnings
Earnings per share computations are based on the weighted
average number of shares outstanding after giving retroactive
effect to stock dividends and poolings of interest. The effect
of the outstanding stock option awards, which are fully
described in the note 16 to the 1996 Banknorth Group, Inc.
consolidated financial statements, is not significant to the
calculation of the per share earnings. Weighted average number
of shares outstanding for each year in the period 1992 to 1996
are as follows:
1996 7,703,758
1995 6,804,425
1994 6,804,425
1993 6,804,425
1992 6,804,425
(13) The Corporation's 1996 Annual Report to Shareholders,
specifically designated portions of which have been
incorporated by reference in this Report on Form 10-K, is filed
herewith.
(21) Subsidiaries of Banknorth Group, Inc.
The Howard Bank, N.A.--Vermont
First Vermont Bank and Trust Company and its wholly owned
subsidiary, Banknorth Mortgage Company--Vermont
Franklin Lamoille Bank--Vermont
Granite Savings Bank and Trust Company--Vermont
Woodstock National Bank-- Vermont
North American Bank Corporation and its wholly owned
subsidiary, Farmington National Bank-- New Hampshire
The Stratevest Group, N.A.-- Vermont
First Massachusetts Bank, N.A., and its wholly owned
subsidiaries, First Massachusetts Security Corporation
(commenced operations on January 1, 1997), and North-group
Investment and Insurance Services, Inc. (commencing
operations in April, 1997)-- Massachusetts
North Group Realty, Inc.--Vermont
(23) Independent Auditors' Report
Consent of Independent Public Accountants
(99) The Proxy Statement for the Corporation's 1997 Annual Meeting
of Shareholders to be filed with the commission is incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-K/A report to be signed on its
behalf by the undersigned thereunto duly authorized.
BANKNORTH GROUP, INC.
Registrant
Date: 03/31/97 /s/ THOMAS J. PRUITT
--------------------------------
Thomas J. Pruitt
Executive Vice President &
Chief Financial Officer
A Glossary of Terms
Basis Risk
Basis risk is the risk of adverse consequences resulting from unequal changes
in the spread between two or more rates for different instruments with the same
maturity.
Book value per share
Total shareholders' equity divided by shares outstanding on the same date.
Cash dividends per share
Total cash dividends declared divided by average shares outstanding for the
period.
Cumulative effect of an accounting change
Although the presumption is that once an accounting principle has been adopted
it should not be changed, when a change is necessary it generally is recognized
by including the cumulative effect of the change in net income of the period of
change. The cumulative effect of a change in accounting principle is the total
direct effects, net of the related tax effect, that the change has on prior
periods.
Earning assets
Interest-bearing deposits with banks, securities available for sale, investment
securities, loans (net of unearned income), federal funds sold and securities
purchased under agreements to resell.
Earnings per share
Net income divided by average shares outstanding during the period, including
the effect of stock options, if significant.
Efficiency ratio
Total other operating expense, excluding goodwill amortization,
OREO/repossession expense and other non-recurring expenses, as a percentage of
net interest income, on a fully taxable equivalent basis, and total other
operating income, excluding securities gains/losses and non-recurring items.
Expense ratio
Total other operating expense, excluding goodwill amortization,
OREO/repossession expense and other non-recurring expenses, less other
operating income, excluding securities gains or losses and non-recurring items,
as a percentage of average earning assets.
Fully taxable-equivalent (fte) income
Tax-exempt income which has been converted to place tax-exempt and taxable
income on a comparable basis before application of income taxes.
Impaired loans
Loans, usually commercial type loans, where it is probable that the borrower
will not repay the loan according to the original contractual terms of the loan
agreement and all loans restructured in troubled debt restructurings subsequent
to January 1, 1995.
Intangible assets
Intangible assets include goodwill, purchased mortgage servicing rights,
servicing release premiums, and purchased credit card rights.
Interest-bearing liabilities
Interest-bearing deposits, federal funds purchased, securities sold under
agreements to repurchase, other short-term borrowings and long-term debt.
Liquidity
The ability to meet both loan commitments and deposit withdrawals as they come
due.
Net loans charged off
Reductions to the allowance for loan losses for loans written off, net of the
recovery of loans previously written off.
Net interest income
The difference between income on earning assets and interest expense on
interest-bearing liabilities.
Net interest margin
Fully taxable-equivalent basis net interest income as a percentage of average
earning assets.
Net loan transactions
Gains and losses resulting from sales of loans, primarily by the mortgage
banking operation.
Net securities transactions
Gains and losses resulting from sales of securities available for sale at
prices above or below the amortized cost of the securities sold and gains
realized on the call of certain securities.
Non-accrual loans
Loans for which no periodic accrual of interest income is realized.
Non-performing assets
When other real estate owned (OREO) and repossessed assets is added to
non-performing loans, the result is defined as non-performing assets.
Non-performing loans
Non-performing loans are defined as all non-accrual and restructured loans, and
all loans which are 90 days or more past-due but still accruing interest.
Other operating expenses
All expenses other than interest expense and the provision for loan losses.
Other operating income
All income other than interest income and dividend income.
Other real estate owned (OREO)
Real estate acquired through foreclosure or in-substance foreclosure.
Parent Company
A company that owns or controls subsidiaries through the ownership of voting
stock.
Purchase accounting
An accounting method which, following an acquisition, the acquired entity is
recorded at fair value. The operating results of the acquired entity are
included in the acquiring entity's result from the date of the acquisition
forward.
Restructured loans
A refinanced loan in which the bank allows the borrower certain concessions
that would not normally be considered. The concessions are always made in light
of the borrower's financial difficulties, and the objective of the bank is to
maximize recovery of the investment.
Return on average assets (ROA)
Net income as a percentage of average total assets. A key ratio which indicates
how effectively a bank holding company uses its total resources.
Return on average shareholders' equity (ROE)
Net income as a percentage of average shareholders' equity. A key ratio which
provides a measure of how efficiently equity has been employed.
Significant non-recurring income or expense items
A significant non-recurring income or expense item represents income or expense
which is reported in the quarter in which it occurs, and is not expected to
recur in future periods.
Tangible book value
Tangible shareholders' equity divided by shares outstanding on the same date.
Tangible shareholders' equity
Shareholders' equity less goodwill.
Tangible total assets
Total assets less goodwill.
BY-LAWS
OF
BANKNORTH GROUP, INC.
A Delaware Corporation
Article I
General
Section 1.1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State
of Delaware.
Section 1.2. Offices. The principal office and place of business of
the Corporation shall be in the City of Burlington, County of Chittenden and
State of Vermont. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
Section 1.3. Seal. The seal of the Corporation shall be in the form
of a circle and shall have inscribed thereon the name of the Corporation,
the year of its organization and the words, "Corporate Seal, Delaware."
Section 1.4. Fiscal Year. The fiscal year of the Corporation shall
be the period from January 1 to December 31.
Article II
Stockholders
Section 2.1. Place of Meetings. All meetings of the stockholders
shall be held at the principal office of the Corporation, except such
meetings as the Board of Directors expressly determine shall be held
elsewhere, in which case meetings may be held upon notice as hereinafter
provided at such other place or places as the Board of Directors shall have
determined and as shall be stated in such notice.
Section 2.2. Annual Meeting. The annual meeting of the stockholders
shall be held during the month of May in each year at such date and time as
shall be designated from time to time by the Board of Directors and stated
in the Notice of the Meeting. In the event the annual meeting is omitted by
oversight or otherwise on the date herein provided, then a substituted
annual meeting may be held on any subsequent date prior to the close of the
corporate fiscal year, and any business transacted or elections held at such
meeting shall be as valid and effective as if transacted or held at the
regular annual meeting. A written and signed application for such
substituted annual meeting may be made by any stockholder, and notice shall
be given therefor as hereinafter provided by these By-laws.
At each annual meeting, the stockholders entitled to vote shall elect
those directors whose terms expire at such annual meeting, in accordance
with Article Sixth of the Certificate of Incorporation, by majority vote by
ballot, and they may transact such other corporate business as may properly
be brought before the meeting. At the annual meeting any business may be
transacted, irrespective of whether the notice calling such meeting shall
have contained a reference thereto, except where notice is required by law,
the Certificate of Incorporation, or these By-laws.
Section 2.3. Quorum. At all meetings of the stockholders the holders
of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a
quorum requisite for the transaction of business except as otherwise
provided by law, by the Certificate of Incorporation or by these By-laws.
if, however, such majority shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or by proxy, by a majority vote, shall have power to
adjourn the meeting from time to time without notice other than announcement
at the meeting until the requisite amount of voting stock shall be present.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At such adjourned meeting, at which the
requisite amount of voting stock shall be represented, any business may be
transacted which might have been transacted if the meeting had been held as
originally called.
The vote of a majority of the quorum shall decide any question or
matter, except as otherwise required by law, the Certificate of
Incorporation, or these By-laws.
Section 2.4. Adjourned Meeting. Any meeting of stockholders, either
annual or special, and whether a quorum is present or not, may be adjourned
from time to time by vote of a majority of the shares, the holders of which
are either present in person or represented by proxy, but in the absence of
a quorum, no other business shall be transacted.
When any such meeting is adjourned for more than thirty (30) days,
notice of such adjourned meeting shall be given as provided in these By-
laws, but except as aforesaid, it shall not be necessary to give any notice
of an adjournment of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken.
Section 2.5. Right to Vote; Proxies. Each stockholder having the
right to vote at any meeting shall be entitled to one vote for each share of
stock held by said stockholder. Any stockholder entitled to vote at any
meeting of stockholders may vote either in person or by proxy, but no proxy
which is dated more than three years prior to the meeting at which it is
offered shall confer the right to vote thereat unless the proxy provides
that it shall be effective for a longer period. Every proxy shall be in
writing, subscribed by a stockholder or said stockholder's duly authorized
attorney in fact, and dated, but need not be sealed, witnessed, or
acknowledged.
Section 2.6. Voting. At all meetings of stockholders all questions,
except as otherwise expressly provided for by statute, the Certificate of
Incorporation or these By-laws, shall be determined by a majority vote of
the stockholders present in person or represented by proxy. Except as
otherwise expressly provided by law, the Certificate of Incorporation, these
By-laws or the Board of Directors, at all meetings of stockholders, the
voting shall be taken by ballot, each of which shall state the name of the
stockholder voting and the number of shares voted by said stockholder, and,
if such ballot be cast by a proxy, it shall also state the name of the
proxy. Except as otherwise provided in the Certificate of Incorporation or
by the By-laws, all elections shall be decided by majority vote.
Section 2.7. Notice of Annual Meeting. Written notice of the annual
meeting of the stockholders shall be mailed to each stockholder entitled to
vote thereat at such address as appears on the stock books of the
Corporation at least ten (10) days and not more than sixty (60) days prior
to the meeting. It shall be the duty of every stockholder to furnish to the
Secretary of the Corporation or to the transfer agent, if any, the class of
stock owned by said stockholder, the stockholder's post-office address and
to notify said Secretary or transfer agent of any change therein.
Section 2.8. Stockholders' List. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical
order and showing the address of each stockholder, and the number of shares
registered in the name of each stockholder, shall be prepared by the
Secretary and filed either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held, at least
ten days before such meeting, and shall at all times during ordinary
business hours, and during the whole time of said meeting, be open to
examination of any stockholder for a purpose germane to the meeting.
Section 2.9. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise provided by statute, may be
called by the Board of Directors or by the President of the Corporation and
shall be called by the President or Secretary at the request in writing of a
majority of The Board of Directors or not less than one-tenth (1/10th) of
the entire outstanding shares. The business transacted at such special
meeting shall be confined to the purpose or purposes stated in the notice
therefor.
Written notice of a special meeting of stockholders, stating the time
and place and object thereof, shall be mailed, postage prepaid, not less
than ten (10) nor more than sixty (60) days before such meeting, to each
stockholder entitled to vote thereat, at such address as appears on the
books of the Corporation. No business may be transacted at such meeting
except that referred to in said notice, or in a supplemental notice given
also in compliance with the provisions hereof, or such other business as may
be germane or supplementary to that stated in said notice or notices.
Section 2.10. Inspectors. One or more inspectors may be appointed by
the Board of Directors before or at any meeting of stockholders, or, if no
such appointment shall have been made, the presiding officer may make such
appointment, if deemed necessary, at the meeting. At the meeting for which
the inspector or inspectors are appointed, the inspectors shall open and
close the polls, receive and take charge of the proxies and the acceptance
and rejection of votes. If any inspector previously appointed shall fail to
attend or refuse or be unable to serve, the presiding officer shall appoint
a substitute inspector.
Section 2.11. Stockholders' Action by Unanimous Consent. Whenever
the vote of stockholders at a meeting thereof is required or permitted to be
taken in connection with any corporate action by any provisions of law, the
Certificate of Incorporation, or these By-laws, the meeting and vote of
stockholders may be dispensed with under the conditions specified in the
Certificate of Incorporation.
Section 2.12. Waiver of Notice. Any meeting at which all of the
stockholders entitled to vote are present, either in person or by proxy, or
at which those not present have waived notice in writing, either prior or
subsequent to such meeting, shall be a legal meeting for the transaction of
any business, notwithstanding that notice has not been given, provided a
quorum be present in person or by proxy. Such waivers shall not be
recognized unless filed with the Secretary, or someone acting in such
capacity.
Article III
Directors
Section 3.1. Number of Directors. Except as otherwise provided by
law, the Certificate of Incorporation or these By-laws, the property and
business of the Corporation shall be managed by or under the direction of a
board of fourteen (14) Directors divided into three classes (Class I, Class
II and Class III, respectively as nearly equal as possible. Directors need
not be stockholders, residents of Delaware or citizens of the United States.
The stockholders shall, at each annual meeting or meeting held in place
thereof, elect one class of Directors. Except as herein provided with
respect to vacancies, and except with respect to the initial Directors, as
set out in the Certificate of Incorporation, each Director shall hold office
for three years and until his successor is elected and qualified. If the
office of any director becomes vacant by reason of death, resignation,
disqualification, removal, failure to elect, or otherwise, the remaining
Directors, although more or less than a quorum, by a majority vote of such
remaining Directors may elect a successor or successors who shall hold
office for the unexpired term.
Section 3.2. Chance in Number of Directors; Vacancies. Any
alteration, change, amendment or repeal to Section 3.1 or 3.2 shall require
the affirmative vote of holders of at least 80% of the outstanding Voting
Stock (as defined in Article Thirteenth of the Certificate of Incorporation,
which vote shall include the affirmative vote of at least two-thirds (2/3)
of the outstanding Voting Stock held by stockholders other than an
Interested Stockholder (as defined in Article Thirteenth of the Certificate
of Incorporation) if an interested Stockholder exists on the record date of
the meeting at which such action is submitted to the stockholders for their
consideration; provided, however, that such higher voting requirement shall
not apply to any amendment, alteration, change, amendment or repeal
recommended to the shareholders by a majority of the Continuing Directors
(as defined in Article Thirteenth of the Certificate of Incorporation). If
the number of Directors is so increased or decreased by action of the Board
of Directors or of the stockholders then the additional Directors may be
elected in the manner provided above for the filing of vacancies in the
Board of Directors or at the annual meeting of stockholders or at a special
meeting called for that purpose.
Section 3.3. Chairman of the Board. The Directors shall elect a
Chairman of the Board. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and Directors, and shall have such other
duties as may be assigned to him/her from time to time by the Board of
Directors.
Section 3.4. Resignation. Any Director of the Corporation may resign
at any time by giving written notice to the President or the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, at the time of receipt if no time is specified therein and at the
time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.5. Removal. Any Director or the entire Board of Directors
may be removed only for cause, and pursuant to the procedure set forth in
Article Ninth (b) of the Certificate of Incorporation.
Section 3.6. Place of Meeting and Books. The Board of Directors may
hold their meetings and keep the books of the Corporation outside the State
of Delaware, at such places as they may from time to time determine.
Section 3.7. General Powers. In addition to the powers and authority
expressly conferred upon them by these By-laws, the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by
these By-laws directed or required to be exercised or done by the
stockholders.
Section 3.8. Executive Committee. There may be an executive
committee of one or more Directors designated by resolution passed by a
majority of the whole Board. The act of a majority of the members of such
committee shall be the act of the committee. Said committee may meet at
stated times or on notice to all by any of their own number, and shall have
and may exercise those powers of the Board of Directors in the management of
the business affairs of the Corporation as are provided by law and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Vacancies in the membership of the committee shall be filled by
the Board of Directors at a regular meeting or at a special meeting called
for that purposes.
Section 3.9. Other Committees. The Board of Directors may also
designate one or more committees in addition to the executive committee, by
resolution or resolutions passed by a majority of the whole Board of
Directors; such committee or committees shall consist of one or more
Directors of the Corporation, and to the extent provided in the resolution
or resolutions designating them, shall have and may exercise specific powers
of the Board of Directors in the management of the business and affairs of
the Corporation to the extent permitted by statute and shall have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
Section 3.10. Powers Denied to Committees. Committees of the Board
of Directors shall not, in any event, have any power or authority to amend
the Certificate of Incorporation, adopt an agreement of merger or
consolidation, recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommend
to the stockholders a dissolution of the Corporation or to amend the By-laws
of the Corporation. Further, committees of the Board of Directors shall not
have any power or authority to declare a dividend or to authorize the
issuance of stock.
Section 3.11. Substitute Committee Member. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he,
she or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of such absent or
disqualified member. Any committee shall keep regular minutes of its
proceedings and report the same to the Board as may be required by the
Board.
Section 3.12. Compensation of Directors. The Board of Directors
shall have the power to fix the compensation of Directors and members of
committees of the Board. The Directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors and/or a
stated retainer as Director. No such payment shall preclude any Director
from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for being members of those committees and/or
attending committee meetings.
Section 3.13. Annual Meeting. The Board may meet at such place and
time as shall be fixed and announced by the presiding officer at the annual
meeting of stockholders, for the purpose of organization or otherwise, and
no further notice of such meeting shall be necessary to the Directors
(including the newly elected Directors) in order legally to constitute the
meeting, provided a quorum shall be present, or they may meet at such place
and time as shall be stated in a notice given to such Directors two (2) days
prior to such meeting, or as shall be fixed by the consent in writing of all
the Directors.
Section 3.14. Regular Meetings. The annual meeting of the Board of
Directors shall be held as soon as practical following the adjournment of
the annual meeting of stockholders upon notice from the Chairman of the
Board, if any, or the President. Other regular meetings of the Board of
Directors may be held at such times and at such places within or without the
State of Vermont as the Board may by vote determine from time to time, and,
if so determined, no notice thereof need be given, provided, however, a
regular meeting of the Board shall be held at least once each calendar
quarter.
Section 3.15. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, if any, or the President, on two (2)
days' notice to each Director, or such shorter period of time before the
meeting as will nonetheless be sufficient for the convenient assembly of the
Directors so notified; special meetings shall be called by the Secretary in
like manner and on like notice, on the written request of two or more
Directors.
Section 3.16. Waiver of Notice. Attendance of a Director at a
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 3.17. Quorum. At all meetings of the Board of Directors, a
majority of the total number of Directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically permitted or provided by statute, or by the Certificate of
Incorporation, or by these By-laws. If at any meeting of the Board there
shall be less than a quorum present, a majority of those present may adjourn
the meeting to a definite date and place from time to time until a quorum is
obtained, and no further notice thereof need be given other than by
announcement at said meeting which shall be so adjourned.
Section 3.18. Telephonic Participation in Meetings. Members of the
Board of Directors or any committee designated by such Board may participate
in a meeting of the Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant
to this section shall constitute presence in person at such meeting.
Section 3.19. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if written consent thereto
is signed by all members of the Board or of such committee as the case may
be and such written consent is filed with the minutes of proceedings of the
Board or committee.
Section 3.20. Minutes and Records. Minutes of all meetings of
Directors shall be taken by the Secretary, or in his/her absence, by someone
appointed by the presiding officer to take and authenticate the record of
the meeting.
Section 3.21. Director of Subsidiaries. Except for the President and
Chief Executive Officer and the Vice Chairman and Chief Operating Officer,
no person who serves as a Director of the Corporation shall also serve as a
Director of any of the Corporation's subsidiaries.
Section 3.22. Maximum Age of Director. No person shall serve as a
Director of the Corporation after the annual meeting following attainment of
age 70.
Article IV
Officers
Section 4.1. Selection; Statutory Officers. The officers of the
Corporation shall be chosen by the Board of Directors. There shall be a
President and Chief Executive Officer, a Vice Chairman and Chief Operating
Officer, one or more Vice Presidents, a Treasurer and a Secretary (Clerk).
The same person may hold more than one office except that the same person
shall not be both President and Secretary.
Section 4.2. Time of Election. The officers above named, shall be
chosen by the Board of Directors at its first meeting after each annual
meeting of stockholders. Nothing herein shall be deemed to restrict the
power of the Board to discharge or remove any officer, and to fill the
vacancy created thereby, at any time. None of said officers need be a
Director.
Section 4.3. Additional Officers. The Board may appoint such other
officers and agents as it shall deem necessary, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4.4. Subordinate Officers. The Board of Directors may
appoint such subordinate officers as the business of the Corporation may
require, each of such officers to hold office at the pleasure of the Board,
and to have such authority, and perform such duties as the Board of
Directors may from time to time determine.
Section 4.5. Terms of Office. Each officer of the Corporation shall
hold office until his/her successor is chosen and qualified, or until
his/her earlier resignation or removal. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors.
Section 4.6. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, the President or Secretary.
Any such resignation shall be effective at the date of receipt of such
notice or at any later date specified therein. Unless otherwise specified
in said resignation, acceptance shall not be necessary to make it effective.
Section 4.7. Compensation of Officers. The Board of Directors shall
have power to fix the compensation of all officers of the Corporation. It
may authorize any officer, upon whom the power of appointing subordinate
officers may have been conferred, to fix the compensation of such
subordinate officers.
Section 4.8. President. The President shall be the Chief Executive
Officer and head of the Corporation. In the absence of the Chairman of the
Board, the President shall preside at all meetings of Directors and
stockholders. Under the supervision of the Board of Directors and of the
executive committee, if any, the President shall have the general control
and management of the Corporation's business and affairs, subject, however,
to the right of the Board of Directors and of the executive committee to
confer any specific power, except such as may be by statute exclusively
conferred on the President, upon any other officer or officers of the
Corporation. The President shall perform and do all acts and things
incident to the position of President and such other duties as may be
lawfully assigned to him/her from time to time by the Board of Directors or
the executive committee.
Section 4.9. Vice Chairman and Chief Operating Officer. The Vice
Chairman and Chief Operating Officer shall perform and do all acts and
things incident to the position of Vice Chairman and Chief Operating Officer
and such other duties as may be lawfully assigned to him/her from time to
time by the Board of Directors of the Executive Committee. In the absence
of the President, the Vice Chairman and Chief Operating Officer shall
perform the President's functions.
Section 4.10. Vice Presidents. The Vice Presidents in order of their
rank as fixed by the Board of Directors, or, if not ranked, as designated by
the Board of Directors shall perform such of the duties of the President on
behalf of the Corporation as may be respectively assigned to them from time
to time by the Board of Directors or by the executive committee or by the
President. The Board of Directors or the executive committee may designate
one or more of the Vice Presidents as an Executive Vice President, and in
the absence or inability of the President and Vice Chairman and Chief
Operating Officer to act, such Executive Vice Presidents shall have and
possess all of the powers and discharge all of the duties of the President
and/or Vice Chairman and Chief Operating Officer, subject to the control of
the Board and of the executive committee.
Section 4.11. Treasurer. The Treasurer shall have the care and
custody of all the funds and securities of the Corporation which may come
into his/her hands as Treasurer, and the power and authority to endorse
checks, drafts and other instruments for the payment of money for deposit or
collection when necessary or proper and to deposit the same to the credit of
the Corporation in such bank or banks or depository as the Board of
Directors or the executive committee, or the officers or agents to whom the
Board of Directors or the executive committee may delegate such authority,
may designate, and he/she may endorse all commercial documents requiring
endorsements for or on behalf of the Corporation. The Treasurer may sign
all receipts and vouchers for the payments made to the Corporation. The
Treasurer shall render an account of his transactions to the Board of
Directors or to the executive committee as often as the Board or the
committee shall require the same. The Treasurer shall enter regularly in
the books to be kept by him/her for that purpose full and adequate account
of all moneys received and paid by him/her on account of the Corporation.
The Treasurer shall perform all acts incident to the position of Treasurer,
subject to the control of the Board of Directors or the executive committee,
give a bond to the Corporation conditioned for the faithful performance of
his duties, the expense of which bond shall be borne by the Corporation.
Section 4.12. Secretary. The Secretary shall maintain the office of
the Secretary at the place where the principal office of the Corporation is
located. The Secretary shall have and keep in his/her custody at the office
of the Secretary, the corporate seal and corporate documents and records,
including the minutes of all meetings of the Stockholders and Board of
Directors. The Secretary shall keep full and accurate minutes of all
meetings of the Board of Directors and of the stockholders; he shall attend
to the giving and serving of all notices of the Corporation. Except as
otherwise ordered by the Board of Directors or the executive committee, the
Secretary shall attest the seal of the Corporation upon all contracts and
instruments executed under such seal and shall affix the seal of the
Corporation thereto and to all certificates of shares of the Capital Stock.
The Secretary shall have charge of the stock certificate book, transfer book
and stock ledger, and such other books and papers as the Board of Directors
or the executive committee may direct. The Secretary shall, in general,
perform all the duties of the Secretary, subject to the control of the Board
of Directors and of the executive committee.
Section 4.13. Assistant Secretary. The Board of Directors may
appoint or remove one or more Assistant Secretaries of the Corporation. Any
Assistant Secretary upon appointment shall perform such duties of the
Secretary, and have any and all such other duties as the Board of Directors
may designate.
Article V
Stock
Section 5.1. Amount. The amount of the capital stock of the
Corporation shall be defined by the Certificate of Incorporation and
amendments thereto.
Section 5.2. Stock. Each stockholder shall be entitled to a
certificate or certificates of stock of the Corporation in such form as the
Board of Directors may from time to time prescribe. The certificates of
stock of the Corporation shall be numbered and shall be entered in the books
of the Corporation as they are issued. They shall certify the holder's name
and number and class of shares and shall be signed by both of (a) either the
President or a Vice President, and (b) any one of the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, and shall be
sealed with the corporate seal of the Corporation. If such certificate is
countersigned (a) by a transfer agent other than the Corporation or its
employee, or, (2) by a registrar other than the Corporation or its employee,
the signature of the officers of the Corporation and the registrar may be
facsimiles. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of
the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons
who signed such certificate or certificates or whose facsimile signature
shall have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 5.3. Fractional Share Interests. The Corporation may, but
shall not be required to, issue fractions of a share. If the Corporation
does not issue fractions of a share, it shall (a) arrange for the
disposition of fractional interests by those entitled thereto, (b) pay in
cash the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined, or (c) issue scrip or
warrants in registered or bearer form which shall entitle the holder to
receive a certificate for a full share upon the surrender of such scrip or
warrants aggregating a full share. A certificate for a fractional share
shall, but scrip or warrants shall not unless otherwise provided therein,
entitle the holder to exercise voting rights, to receive dividends thereon,
and to participate in any of the assets of the Corporation in the event of
liquidation. The Board of Directors may cause scrip or warrants to be
issued subject to the conditions that they shall become void if not
exchanged for certificates representing full shares before a specified date,
or subject to the conditions that the shares for which scrip or warrants are
exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
Section 5.4. Transfers of Stock. Subject to any transfer
restrictions then in force, the shares of stock of the Corporation shall be
transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives and upon such
transfer the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers or to such other person as the directors may designate by whom they
shall be canceled and new certificates shall thereupon be issued. The
Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such share
on the part of any other person whether or not it shall have express or
other notice thereof save as expressly provided by the laws of Delaware.
Section 5.5. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion, or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. If no such record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall
be the day on which the first written consent is expressed; and the record
date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at any meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 5.6. Transfer Agent and Registrar. The Board of Directors
may appoint one or more transfer agents or transfer clerks and one or more
registrars and may require all certificates of stock to bear the signature
or signatures of any of them.
Section 5.7. Dividends.
1. Power to Declare. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at
any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject
to the provisions of the Certificate of Incorporation and the laws of
Delaware.
2. Reserves. Before payment of any dividend, there may be set
aside out of the funds of the Corporation available for dividends such
sum or sums as the Directors from time to time in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose
as the Directors shall think conducive to interest of the Corporation,
and the Directors may modify or abolish any such reserve in the manner
in which it was created.
Section 5.8. Lost, Stolen or Destroyed Certificates. No certificates
for shares of stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed except upon
production of such evidence of the loss, theft or destruction and upon
indemnification of the Corporation and its agents to such extent and in such
manner as the Board of Directors may from time to time prescribe.
Section 5.9. Inspection of Books. The stockholders of the
Corporation by a majority vote at any meeting of stockholders duly called,
or in case the stockholders shall fail to act, the Board of Directors shall
have power from time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the accounts
and books of the Corporation (other than the stock ledger) or any of them,
shall be open to inspection by stockholders; and no stockholder shall have
any right to inspect any account or book or document of the Corporation
except as conferred by statute or authorized by the Board of Directors or by
a resolution of the stockholders.
Article VI
Miscellaneous Management Provisions
Section 6.1. Checks, Drafts and Notes. All checks, drafts or orders
for the payment of money, and all notes and acceptances of the Corporation
shall be signed by such officer or officers, agent or agents as the Board of
Directors may designate.
Section 6.2. Notices.
1. Notices to Directors may, and notices to stockholders shall
be in writing and delivered personally or mailed to the Directors or
stockholders at their addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time
when the same shall be mailed. Notice to Directors may also be given
by telegram or orally, by telephone or in person.
2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or
of these By-laws, a written waiver of notice, signed by the person or
persons entitled to said notice, whether before or after the time
stated herein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such
meeting except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called
or convened.
Section 6.3. Authorization and Execution of Contracts. The Board of
Directors, except as otherwise provided in the By-laws, may authorize any
officer or officers, agent or agents to enter into any contract or execute
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined in specific instances.
Section 6.4. Conflict of Interest. No contract or transaction
between the Corporation and one or more of its Directors or officers, or
between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its Directors or officers are
directors or officers, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the Director or officer
is present at or participates in the meeting of the Board of or committee
thereof which authorized the contract or transaction, or solely because his
or her votes are counted for such purpose, provided that the material facts
as to his or her relationship or interest as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee and
the Board or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested Directors, even
though the disinterested Directors be less than a quorum or provided that
the contract or transaction is otherwise authorized in accordance with the
laws of Delaware. Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract or transaction.
Section 6.5. Voting of Securities Owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares
or other securities issued by any other corporation and owned or controlled
by the Corporation may be voted in person at any meeting of security holders
of such other corporation by the President of the Corporation if he is
present at such meeting, or in his absence by the Treasurer of the
Corporation if he is present at such meeting, and (b) whenever, in the
judgment of the President, it is desirable for the Corporation to execute a
proxy or written consent in respect to any shares or other securities issued
by any other corporation and owned by the Corporation, such proxy or consent
shall be executed in the name of the Corporation by the President, without
necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer,
provided that if the President is unable to execute such proxy or consent by
reason of sickness, absence from the United States or other similar cause,
the Treasurer may execute such proxy or consent. Any person or persons
designated in the manner above stated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote the shares or
other securities issued by such other corporation and owned by the
Corporation the same as such shares or other securities might be voted by
the Corporation.
Article VII
Director Emeritus
Section 7.1. Director Emeritus
a. An individual who is a Director of the Corporation on February
27, 1996 and who continues to be a Director until their
retirement from the Board at the Annual Meeting following their
attainment of age 65 and prior to the first Annual Meeting after
attainment of age 67 will thereupon be appointed to the status
of Director Emeritus and be entitled to remain as such until the
Annual Meeting following their attainment of age 72.
b. Directors appointed to the status of Director Emeritus will be
entitled to attend all Board meetings of the Corporation as non-
voting members and will continue to receive the Directors'
annual retainer so long as they remain Director Emeritus.
c. An individual who becomes a Director of the Corporation after
February 27, 1996 shall not be eligible to receive the attendant
benefits of a Director Emeritus upon his/her retirement from the
Board.
Article VIII
Amendments
Section 8.1. Amendments. Except as otherwise provided in these By-
laws, the By-laws of the Corporation may be altered, amended or repealed at
any regular or special meeting of the Board of Directors by a vote of at
least a majority of the Directors or by or at any meeting of the
stockholders by the vote of the holders of at least a majority of the stock
issued and outstanding and entitled to vote at such meeting, in accordance
with the provisions of the Certificate of Incorporation and of the laws of
Delaware, provided notice of the proposed amendment, alteration or repeal is
mailed to each such holder at least ten days prior to such meeting.
Banknorth Group, Inc.
Supplemental Employees Retirement Plan
First Amendment
WHEREAS, Banknorth Group, Inc. (the "Employer") established the
Banknorth Group, Inc. Supplemental Employees Retirement Plan (the "Plan")
Effective January 1, 1995, and
WHEREAS, the Employer reserves the right to amend the Plan from time
to time in accordance with Section 8.03 thereof, and
WHEREAS, the Employer now desires to amend the Plan;
NOW, THEREFOR, the Plan is hereby amended effective January 1, 1996,
as follows:
A. Section 401(ii) is hereby deleted and the following new Section
4.01(ii) is substituted in lieu thereof:
(ii) The benefit which would have been payable under the terms of
the Retirement Plan if the definition of compensation under
the Retirement Plan included compensation in excess of Section
401(a)(17) of the Code, if the limits under Section 415 of the
Code did not apply, and if Credited Service included the
Additional Credited Service as specified in Appendix C shall
be calculated."
B. The following new sentence shall be added to Section 5.1:
"For the purpose of determination of a Participant's vested status
under this Plan, Credited Service shall include the Additional Credited
Service as specified in Appendix C."
C. The following new Appendix C shall be added:
"APPENDIX C
Additional
Name Credited Service
---- ----------------
Richard Collins 5 Years"
IN WITNESS WHEREOF, Banknorth Group, Inc. has caused this instrument
to be executed in its name and on its behalf this 7th day of
February, 1996,
BANKNORTH GROUP, INC.
By: /s/
----------------------------------
Its: Executive Vice President
----------------------------------
Attest:
/s/
- -----------------------------------
Witness
(Seal)
Banknorth Group, Inc.
Supplemental Employees Retirement Plan
Second Amendment
WHEREAS, Banknorth Group, Inc. (the "Employer") established the
Banknorth Group, Inc. Supplemental Employees Retirement Plan (the "Plan")
Effective January 1, 1995, and
WHEREAS, the Employer reserves the right to amend the Plan from time
to time in accordance with Section 8.03 thereof, and
WHEREAS, the Employer now desires to amend the Plan;
NOW, THEREFOR, the Plan is hereby amended effective January 1, 1997,
as follows:
Appendix B is hereby amended to include the attached.
IN WITNESS WHEREOF, Banknorth Group, Inc. has caused this instrument
to be executed in its name and on its behalf this 4th day of
November, 1996,
BANKNORTH GROUP, INC.
By: /s/
---------------------------------
Its: Senior Vice President
---------------------------------
Attest:
/s/
- -----------------------------------
Witness
(Seal)
=============================================================================
Memorandum
- -----------------------------------------------------------------------------
To: Compensation Committee
From: William H. Chadwick
Date: 07-29-1996
Subject: Owen Becker
As you know, Owen Becker continues to be a key member of this senior
management team of Banknorth. I find his leadership and counsel a welcome
addition to the Executive Team and the Policy Group. His experiences prior
to joining Banknorth have provided a different and quite valuable
perspective on our company as we plan our growth and strategy.
When Owen joined us, it was clear we were getting someone with special and
unique talents at a "below market" compensation package. Also, because of
his personal situation, he did not avail himself of our benefit program.
In order to address Owen's total compensation package, I would like to
provide him with an additional benefit under the Banknorth Group
Supplemental Employee Retirement Plan ("SERP"). The attached letter from
our pension consultants at Watson Wyatt give a detailed overview of the
SERP benefit I am recommending. The highlights of the benefit are as
follows:
* If Owen "retires" prior to vesting in our qualified plan, he
will receive a benefit under the SERP of a $1,000 per month at
age 65.
* If Owen "retires" with a vested benefit under the Qualified
Plan, the total benefit of integrating the qualified benefit
and this SERP benefit will not exceed $2,000 per month.
I would appreciate your review of and concurrence with this
recommendation.
If you have additional questions please contact either me or Mike New
(860-5581).
Thank you.
WATSON WYATT [LETTERHEAD]
July 25, 1996
PERSONAL AND CONFIDENTIAL
Mr. Michael J. New
Managing Director of Human Resources
Banknorth Group, Inc.
P. O. Box 366
Burlington, Vermont 05402-0366
Dear Mike:
The purpose of this letter is to summarize the benefits we discussed for
Owen Becker under Banknorth's qualified pension plan and SERP. Once Mr.
Becker's SERP benefit arrangement has been approved by Banknorth, we will
amend the plan document to incorporate the agreed upon provisions.
Mr. Becker became a participant in the qualified retirement plan as of
January 1, 1996. His benefits under the plan will be determined based on
his final average compensation (subject to Internal Revenue Code
limitations) and Banknorth service as of his retirement date. In order to
receive a benefit from the plan, Mr. Becker will need to complete at least
five years of service with Banknorth. Based on his hire date of Janaury 3,
1995, Mr. Becker will become vested once he completes 1,000 hours of
service during 1999.
If Mr. Becker earns more than $150,000 during 1996 (and the Compensation
Committee of the Board of Directors does not take action to prohibit his
participation), he will become a participant in the SERP as of January 1,
1997. The SERP will provide Mr. Becker with the benefits he "loses" in the
qualified plan due to the application of IRS compensation and benefit
limitations. This "excess plan" feature of the SERP, together with the
qualified plan, will provide Mr. Becker with a benefit equal to what he
would receive under the qualified plan formula if there were no
limitations. As in the qualified plan, the SERP currently requires
participants to complete at least five years of service to be vested in a
benefit.
In addition to the benefits described above, the SERP will provide the
following:
* If Mr. Becker leaves Banknorth before becoming vested, he will
receive $1,000 per month for life payable at age 65 or
* If Mr. Becker leaves Banknorth after becoming vested, he will
receive a monthly benefit for life payable at age 65 equal to
the excess of $2,000 over his qualified plan benefit.
Thus, if Mr. Becker leaves after three years, his pension from Banknorth
(payable as a life annuity at age 65) will consist solely of $1,000 per
month paid from the SERP. He would not receive a qualified plan benefit or
"excess plan" from the SERP since he would not be vested in those
benefits.
If Mr. Becker leaves after six years and has a qualified plan benefit of
$1,200 per year then he will receive $800 from the SERP under the special
arrangement. He would also be entitled to his "excess plan" benefit from
the SERP attributable to the benefits lost in the qualified plan due to
IRS limitations.
SERP benefits will be payable in the same form as Mr. Becker chooses for
his qualified plan benefit (if he is vested when he retires). If Mr.
Becker elects a form of benefit which provides some level of death benefit
coverage to his spouse or beneficiary the benefit reduction factors which
apply (or would apply) to his qualified plan benefit will also be used to
reduce his SERP benefit. Since ten years of service is required to receive
an early retirement benefit from the qualified plan and SERP, Mr. Becker
will not be eligible to begin receiving any benefits before age 65.
If you have any questions, please call.
Very truly yours,
Michael A. Hluska
Associate, Society of Actuaries
MAH: mrg
cc: Mr. James F. Obernesser
BANKNORTH GROUP, INC.
Management Incentive Compensation Plan
OBJECTIVES
----------
1. Increase executive focus on implementation of strategic plans to
further (1) growth in the earnings and (2) return on assets and
equity.
2. Increase executive focus on decisions to improve earnings and returns
in their subsidiary.
3. Improve executive focus in decision-making on what is in the best
interests of Banknorth Group, Inc. and rewards for continuously
improving relative performance against peer banks.
4. Provide a reasonable opportunity for payout consistent with stockholder
expectations and Company performance.
5. Facilitate securing, retaining and motivating the highest caliber of
management employees.
PRIMARY PROVISIONS
------------------
I. THRESHOLD LEVEL
There will be no awards made under the Incentive Compensation Plan
("the Plan") unless the Corporation attains at least a comprehensive
performance rating of "2" on net income, ROAA, and ROAE targets of 1997,
after accruing for all plan awards.
II. CORPORATE PERFORMANCE AWARDS
Corporate performance awards will be based on (1) Net Income, (2)
Return on Average Assets, and (3) Return on Average Equity, measured
against Plan after taxes and before accounting adjustments. The total
performance rating will be the numerical average of the ratings on each
target objective. The modification factor is listed in the exhibits.
III. SUBSIDIARY UNIT PERFORMANCE AWARDS
Subsidiary bank unit performance awards will be based on subsidiary
net income as measured against plan and efficiency ratio, return on
average assets, and salary and benefits as a percent of earning assets
as measured against corporate performance targets in these areas.
Subsidiary mortgage and Stratevest Group unit awards will be based on
subsidiary income and profit margin as measured against plan.
IV. RELATIVE PERFORMANCE MODIFICATION
Performance awards will be further modified by comparing Banknorth
Group, Inc.'s performance against a peer group of approximately 40
similar sized banks. The relative performance to peers will be
determined by the ranking of a weighted average percentile for ROAE,
weighted at 4 and ROAA, Net Interest Margin, Operating Expense/Average
Assets, and NPAs/Assets all weighted at one each. The modification
factor for relative performance is listed in the exhibits. At least
fifty percent of the award will be paid as close as possible to the time
that the internal performance is determined. The remaining amount,
adjusting for relative performance to peers, will be paid when that data
is available.
V. COMPENSATION LEVELS AND TARGET AWARDS
Incentive compensation levels and the corresponding targets for 1996
are as follows:
Level 5 (Grade 36) - 50% of base salary
Level 4 (Grades 33 & 34) - 35% of base salary
Level 3 (Grades 31 & 32) - 25% of base salary
Level 2 (Grade 30) - 20% of base salary
Level 1 (Grade 29) - 15% of base salary
Base salary for each participant will equal the regular salary earned
in 1996 during the period they were employed in the compensation level.
VI. INDIVIDUAL PERFORMANCE
Performance awards may be modified at the discretion of the CEO and by
approval of the Compensation Committee of the Board. Any modification of
an individual executive's awards will be based upon that executive's
performance against key performance objectives (KPO's), not measured
otherwise in the corporate and subsidiary unit performance awards. This
modification will be limited to 15% individually and 7.5% as a group.
VII. ELIGIBILITY
An eligible participant must be an active employee at the end of the
plan year to receive any award. Persons hired or promoted into eligible
positions prior to July 1 of the plan year will have their potential
award pro-rated. Eligible participants may be assigned by the CEO to
alternate compensation levels during the year due to changes in pay grade
or job responsibilities. In such cases, their award will be pro-rated
based on time employed in differing levels. When managers participate in
an incentive plan targeted to their function, they will not be eligible
to participate in this plan.
VIII. INDIVIDUAL TARGET AWARDS
Category "A":
Incentive compensation awards are determined for participants based
100% on corporate performance.
Category "B":
Incentive compensation awards are determined for participants based
50% on corporate performance and 50% on respective subsidiary unit
performance.
Category "C":
Incentive compensation awards are determined for participants based
25% on corporate performance and 75% on respective subsidiary unit
performance.
Eligible participants may be assigned by the CEO to alternate
categories based on transfers, reorganization, or other factors. Awards
may either be prorated based on time in the category or given based on
the category in which the participants spent the most time, at the
discretion of the CEO.
IX. OTHER PROVISIONS
All plan calculations will be made based upon the audited year end
financial statement. No awards will be made until the date of the audit
opinion and adjustments, if any, have been approved by the Banknorth
Group Compensation Committee.
The Board reserves the right to adjust performance targets and/or
payouts under this plan in cases of significant non-recurring events.
1997
Management Incentive Compensation Program
Internal Performance Management System (IPMS)
CORPORATE
<TABLE>
<CAPTION>
Performance Levels (% of Target)
Performance Corporate --------------------------------
Category Target 1 2 3 4 5
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NI $30,051 80 90 100 110 120
ROAA 1.11% 80 90 100 110 120
ROAE 13.75% 80 90 100 110 120
</TABLE>
1997
Management Incentive Compensation Program
Internal Performance Management System (IPMS)
SUBSIDIARY
<TABLE>
<CAPTION>
Performance Levels (% of Target)
Performance Subsidiary --------------------------------
Category Target 1 2 3 4 5
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FMB, NI $4,001 80 90 100 110 120
FMB, ROAA .58% 80 90 100 110 120
FMB, Effic Ratio 56.62% 80 90 100 110 120
FMB, Sal & Ben/EA .91% 80 90 100 110 120
HB, NI $9,118 80 90 100 110 120
HB, ROAA 1.33% 80 90 100 110 120
HB, Effic. Ratio 58.06% 80 90 100 110 120
HB, Sal & Ben/EA .83% 80 90 100 110 120
FVB, NI $7,763 (1) 80 90 100 110 120
FVB, ROAA 1.34%(1) 80 90 100 110 120
FVB, Effic. Ratio 54.30%(1) 80 90 100 110 120
FVB, Sal & Ben/EA .73%(1) 80 90 100 110 120
FLB, NI $3,939 80 90 100 110 120
FLB, ROAA 1.32% 80 90 100 110 120
FLB, Effic. Ratio 55.82% 80 90 100 110 120
FLB, Sal & Ben/EA .86% 80 90 100 110 120
FNB, NI $1,726 (2) 80 90 100 110 120
FNB, ROAA .82%(2) 80 90 100 110 120
FNB, Effic. Ratio 58.17%(2) 80 90 100 110 120
FNB, Sal & Ben/EA 1.00%(2) 80 90 100 110 120
GB, NI $1,657 80 90 100 110 120
GB, ROAA 1.13% 80 90 100 110 120
GB, Effic. Ratio 58.13% 80 90 100 110 120
GB, Sal & Ben/EA .88% 80 90 100 110 120
WNB, NI $ 967 80 90 100 110 120
WNB, ROAA 1.27% 80 90 100 110 120
WNB, Effic. Ratio 59.57% 80 90 100 110 120
WNB, Sal & Ben/EA .85% 80 90 100 110 120
BMC, NI $1,042 80 90 100 110 120
BMC, Profit Margin 22.09%(3) 80 90 100 110 120
SG, NI $ -0- 80 90 100 110 120
SG, Profit Margin 26.09%(4) 80 90 100 110 120
<F1> BMC eliminations deducted from FVB
<F2> NAB consolidated
<F3> Income before income taxes
--------------------------------
Net int. inc. + other income
<F4> Income before income taxes + GW amortization - net int. inc.
-----------------------------------------------------------------
Other income
<F5> NOTE: Ratio may change slightly when final Balance Sheet adjustments are
made.
</TABLE>
1997
Management Incentive Compensation Program
Internal Performance Management System (IPMS) Modifier
<TABLE>
<CAPTION>
IPMS Level % of Target Incentive
---------------------------------------------
(see Exhibits 2A, 2B)
<C> <C>
5.0 200%
4.5 175%
4.0 150%
3.5 125%
3.0 100%
2.5 75%
2.0 50%(Threshold)
1.5 0%
1.0 0%
<F1> NOTES: Actual performance and target incentive will be established on an
interpolated basis.
</TABLE>
No awards will be paid if performance falls below an IPMS of 2.0.
1997
Management Incentive Compensation Program
Relative Performance Management System (RPMS) Modifier
<TABLE>
<CAPTION>
Banknorth %ile Award
Performance Against Modification
The Peer Group Factor
----------------------------------------
<C> <C>
100 %ile 150%
90 %ile 140%
80 %ile 130%
70 %ile 120%
60 %ile 110%
50 %ile 100%
40 %ile 90%
30 %ile 80%
20 %ile 50%
10 %ile 0%
0 %ile 0%
<F1> NOTE: Actual performance and award modification factor will be
established on an interpolated basis.
</TABLE>
TERM LOAN AGREEMENT
DATED AS OF DECEMBER 16, 1996
AMONG
BANKNORTH GROUP, INC.,
THE LENDERS
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS Page 1
ARTICLE II THE CREDITS Page 12
2.1. Commitment Page 12
2.2. Required Payments; Termination Date Page 12
2.3. Ratable Loans Page 12
2.4. Types of Advances Page 12
2.5. Applicable Margin Page 13
2.6. Minimum Amount of Each Advance Page 13
2.7. Optional Principal Payments Page 13
2.8. Method of Selecting Types and Eurodollar
Interest Periods for New Advances Page 13
2.9. Conversion and Continuation of
Outstanding Advances Page 14
2.10. Changes in Interest Rate, etc. Page 15
2.11. Rates Applicable After Default Page 15
2.12. Method of Payment Page 15
2.13. Notes; Telephonic Notices Page 16
2.14. Interest Payment Dates; Interest and Fee Basis Page 16
2.15. Notification of Advances, Interest
Rates and Prepayments Page 17
2.16. Lending Installations Page 17
2.17. Non-Receipt of Funds by the Agent Page 17
2.18. Withholding Tax Exemption Page 18
ARTICLE III CHANGE IN CIRCUMSTANCES Page 18
3.1. Yield Protection Page 18
3.2. Changes in Capital Adequacy Regulations Page 19
3.3. Availability of Types of Advances Page 19
3.4. Funding Indemnification Page 20
3.5. Lender Statements; Survival of Indemnity Page 20
ARTICLE IV CONDITIONS PRECEDENT Page 21
4.1. Initial Advance Page 21
ARTICLE V REPRESENTATIONS AND WARRANTIES Page 22
5.1. Corporate Existence and Standing Page 22
5.2. Authorization and Validity Page 22
5.3. No Conflict; Government Consent Page 22
5.4. Financial Statements Page 23
5.5. Material Adverse Change Page 23
5.6. Taxes Page 23
5.7. Litigation and Contingent Obligations Page 23
5.8. Subsidiaries Page 23
5.9. ERISA Page 23
5.10. Accuracy of Information Page 24
5.11. Regulation U Page 24
5.12. Material Agreements Page 24
5.13. Compliance With Laws Page 24
5.14. Ownership of Properties Page 24
5.15. Investment Company Act Page 24
5.16. Public Utility Holding Company Act Page 25
5.17. Solvency Page 25
ARTICLE VI COVENANTS Page 25
6.1. Financial Reporting Page 25
6.2. Use of Proceeds Page 28
6.3. Notice of Default Page 28
6.4. Conduct of Business Page 28
6.5. Taxes Page 28
6.6. Insurance Page 29
6.7. Compliance with Laws Page 29
6.8. Maintenance of Properties Page 29
6.9. Inspection Page 29
6.10. Dividends Page 29
6.11. Indebtedness Page 30
6.12. Merger Page 30
6.13. Sale of Assets Page 30
6.14. Sale and Leaseback Page 31
6.15. Investments and Acquisitions Page 31
6.16. Liens Page 32
6.17. Fixed Asset Expenditures Page 34
6.18. Consolidated Non-Performing Assets to
Total Equity Capital Page 34
6.19. Funded Debt to Tangible Equity Capital Page 34
6.20. Return on Average Assets Page 35
6.21. Capitalization Page 34
6.22. Capital Guidelines Page 35
6.23. Affiliates Page 35
ARTICLE VII DEFAULTS Page 35
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES Page 38
8.1. Acceleration Page 38
8.2. Amendments Page 38
8.3. Preservation of Rights Page 39
ARTICLE IX GENERAL PROVISIONS Page 39
9.1. Survival of Representations Page 39
9.2. Governmental Regulation Page 39
9.3. Taxes Page 39
9.4. Headings; References to Statutes Page 39
9.5. Entire Agreement Page 40
9.6. Several Obligations; Benefits of this Agreement Page 40
9.7. Expenses; Indemnification Page 40
9.8. Numbers of Documents Page 40
9.9. Accounting Page 40
9.10. Severability of Provisions Page 41
9.11. Nonliability of Lenders Page 41
9.12. CHOICE OF LAW Page 41
9.13. CONSENT TO JURISDICTION Page 41
9.14. WAIVER OF JURY TRIAL Page 41
9.15. Confidentiality Page 42
ARTICLE X THE AGENT Page 42
10.1. Appointment Page 42
10.2. Powers Page 42
10.3. General Immunity Page 42
10.4. No Responsibility for Loans, Recitals, etc. Page 42
10.5. Action on Instructions of Lenders Page 43
10.6. Employment of Agents and Counsel Page 43
10.7. Reliance on Documents; Counsel Page 43
10.8. Agent's Reimbursement and Indemnification Page 43
10.9. Rights as a Lender Page 44
10.10. Lender Credit Decision Page 44
10.11. Successor Agent Page 44
10.12. Agent's Fees Page 45
ARTICLE XI SETOFF; RATABLE PAYMENTS Page 45
11.1. Setoff Page 45
11.2. Ratable Payments Page 45
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS Page 46
12.1. Successors and Assigns Page 46
12.2. Participations Page 46
12.2.1. Permitted Participants; Effect Page 46
12.2.2. Voting Rights Page 47
12.2.3. Benefit of Setoff Page 47
12.3. Assignments Page 47
12.3.1. Permitted Assignments Page 47
12.3.2. Effect; Effective Date Page 48
12.4. Dissemination of Information Page 48
12.5. Tax Treatment Page 48
ARTICLE XIII NOTICES Page 49
13.1. Giving Notice Page 49
13.2. Change of Address Page 49
ARTICLE XIV COUNTERPARTS Page 49
EXHIBITS
--------
EXHIBIT "A" NOTE Page 51
EXHIBIT "B" FORM OF OPINION Page 53
EXHIBIT "C" COMPLIANCE CERTIFICATE Page 55
EXHIBIT "D" ASSIGNMENT AGREEMENT Page 60
EXHIBIT "E" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTIONS Page 70
SCHEDULES
---------
SCHEDULE "1" LITIGATION AND CONTINGENT OBLIGATIONS Page 71
SCHEDULE "2" SUBSIDIARIES AND OTHER INVESTMENTS Page 72
SCHEDULE "3" INDEBTEDNESS AND LIENS Page 73
TERM LOAN AGREEMENT
This Agreement, dated as of December 16, 1996, is among Banknorth
Group, Inc., the Lenders and The First National Bank of Chicago, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
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As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
the Borrower or any of its Subsidiaries (i) acquires any assets of another
Person or acquires any going business or all or substantially all of the
assets of any firm, corporation or division thereof, whether through
purchase of assets, merger or otherwise or (ii) directly or indirectly
acquires (in one transaction or as the most recent transaction in a series
of transactions) at least a majority (in number of votes) of the securities
of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of
the outstanding partnership interests of a partnership.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by the Lenders to the Borrower of the same
Type and, in the case of Eurodollar Advances, for the same Eurodollar
Interest Period.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person owns 10% or more of any class of voting securities (or
other ownership interests) of the controlled Person or possesses, directly
or indirectly, the power to direct or cause the direction of the management
or policies of the controlled Person, whether through ownership of stock, by
contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as
agent for the Lenders pursuant to Article X, and not in its individual
capacity as a Lender, and any successor Agent appointed pursuant to Article
X.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders.
"Agreement" means this Term Loan Agreement, as it may be amended or
modified and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent
with that used in preparing the financial statements referred to in Section
5.4.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the
sum of Federal Funds Effective Rate for such day plus 1/2% per annum.
"Annualized Net Income" means actual year-to-date Net Income divided
by the actual number of days in the year-to-date period, multiplied by the
actual number of days in the year.
"Applicable Margin" is defined in Section 2.5.
"Article" means an article of this Agreement unless another document
is specifically referenced.
"Authorized Officer" means any of the President and Chief Executive
Officer, Executive Vice President and Chief Financial Officer, Senior Vice
President and Treasurer or Director of Investments of the Borrower, acting
singly.
"Banking Subsidiary" means any insured depository institution (within
the meaning of 12 U.S.C. 1813(c), as amended, supplemented or otherwise
modified from time to time), which is controlled (within the meaning of 12
U.S.C. 1841, as amended, supplemented or otherwise modified from time to
time) by the Borrower.
"Borrower" means Banknorth Group, Inc., a Delaware corporation, and
its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or
rate selection of Eurodollar Advances, a day (other than a Saturday or
Sunday) on which banks generally are open in Chicago and New York for the
conduct of substantially all of their commercial lending activities and on
which dealings in United States dollars are carried on in the London
interbank market and (ii) for all other purposes, a day (other than a
Saturday or Sunday) on which banks generally are open in Chicago for the
conduct of substantially all of their commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as
a liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the outstanding shares of voting
stock of the Borrower.
"Closing Date" means the date on which all of the conditions set forth
in Section 4.1 are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to
make a Loan to the Borrower pursuant to Section 2.1 not exceeding the amount
set forth opposite its signature below.
"Condemnation" is defined in Section 7.8.
"Consolidated Financial Statements" means the Consolidated Financial
Statements for Bank Holding Companies With Total Consolidated Assets of $150
Million or More, or With More Than One Subsidiary Bank--FR Y-9 C, as such
report may be amended or modified from time to time, and any similar report
required to be filed by the Borrower.
"Consolidated Net Income" means the Borrower's net income determined
in a manner consistent with that used in preparing the Borrower's September
30, 1996 Consolidated Financial Statements, which amount is currently
reported on line 13 of Schedule HI thereto.
"Consolidated Reports of Condition and Income" means the Consolidated
Reports of Condition and Income for A Bank With Domestic and Foreign
Offices--FFIEC 031, Consolidated Reports of Condition and Income for A Bank
With Domestic Offices Only and Total Assets of $300 Million or More--FFIEC
032, Consolidated Reports of Condition and Income for A Bank With Domestic
Offices Only and Total Assets of $100 Million or More But Less Than $300
Million--FFIEC 033, and Consolidated Reports of Condition and Income for A
Bank With Domestic Offices Only and Total Assets of Less Than $100 Million--
FFIEC 034, as such reports may be amended or modified from time to time, and
any similar report required to be filed by any Banking Subsidiary.
"Contingent Obligation" of a Person means any agreement, undertaking
or arrangement by which such Person assumes, guarantees, endorses,
contingently agrees to purchase or provide funds for the payment of, or
otherwise becomes or is contingently liable upon, the obligation or
liability of any other Person, or agrees to maintain the net worth or
working capital or other financial condition of any other Person, or
otherwise assures any creditor of such other Person against loss, including,
without limitation, any comfort letter, operating agreement, take-or-pay
contract or application for a Letter of Credit.
"Conversion/Continuation Notice" is defined in Section 2.9.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower or any of its
Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes.
"Default" means an event described in Article VII.
"Designated Employee" is defined in Section 2.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Eurodollar Interest Period, the rate determined by the Agent to
be the rate at which deposits in U.S. dollars are offered by First Chicago
to first-class banks in the London interbank market at approximately 11 a.m.
(London time) two Business Days prior to the first day of such Eurodollar
Interest Period, in the approximate amount of First Chicago's relevant
Eurodollar Loan and having a maturity approximately equal to such Eurodollar
Interest Period.
"Eurodollar Interest Period" means, with respect to a Eurodollar
Advance, a period of one, two, three or six months, commencing on a Business
Day selected by the Borrower pursuant to this Agreement. Such Eurodollar
Interest Period shall end on (but exclude) the day which corresponds
numerically to such date one, two, three or six months thereafter, provided,
however, that if there is no such numerically corresponding day in such
next, second, third or sixth succeeding month, such Eurodollar Interest
Period shall end on the last Business Day of such next, second, third or
sixth succeeding month. If a Eurodollar Interest Period would otherwise end
on a day which is not a Business Day, such Eurodollar Interest Period shall
end on the next succeeding Business Day, provided, however, that if said
next succeeding Business Day falls in a new calendar month, such Eurodollar
Interest Period shall end on the immediately preceding Business Day.
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided
by (b) one minus the Reserve Requirement (expressed as a decimal) applicable
to such Eurodollar Interest Period, plus (ii) the Applicable Margin. The
Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1%
if the rate is not such a multiple.
"Existing Agreement" means that certain Credit Agreement dated as of
October 14, 1994 among the Borrower, the lenders named therein and The First
National Bank of Chicago as agent, as amended.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations at
approximately 10 a.m. (Chicago time) on such day on such transactions
received by the Agent from three Federal funds brokers of recognized
standing selected by the Agent in its sole discretion.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or its delegate, the Federal Reserve Bank of Boston.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each
case changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Funded Debt" means all Indebtedness for borrowed money of the
Borrower having a maturity (or extendible to a maturity at the option of the
Borrower) of more than one year from the date of creation thereof.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade),
(iii) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property now or hereafter owned or
acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi)
Rate Hedging Obligations, (vii) Contingent Obligations, and
(viii)obligations for which such Person is obligated pursuant to a Letter of
Credit.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in
the ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in
the trade), deposit account or contribution of capital by such Person to any
other Person or any investment in, or purchase or other acquisition of, any
assets or any stock, partnership interests, notes, debentures or other
securities of any other Person made by such Person.
"Lenders" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way
liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized Lease or other
title retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance.
"Loan Documents" means this Agreement and the Notes.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of
operations, or prospects of the Borrower and its Subsidiaries taken as a
whole, (ii) the ability of the Borrower to perform its obligations under the
Loan Documents, or (iii) the validity or enforceability of any of the Loan
Documents or the rights or remedies of the Agent or the Lenders thereunder.
"Moody's" means Moody's Investors Service Inc. or any successor
corporation thereto.
"Net Income" means the Borrower's net income determined in a manner
consistent with the Agreement Accounting Principles used in preparing the
Borrower's quarterly report on Form 10-Q for the quarter ended September 30,
1996.
"Non-Performing Assets" means the total of (i) Non-Performing Loans,
(ii) Other Real Estate Owned and (iii) without duplication for amounts
included as Other Real Estate Owned, property acquired pursuant to in
substance foreclosures.
"Non-Performing Loans" means (i) the total of loans which are placed
on a nonaccrual status, (ii) the total of loans which are past due 90 days
or more and are still accruing, and (iii) the total of loans and leases
restructured and in compliance with modified terms, in each case determined
in a manner consistent with that used in preparing the Borrower's September
30, 1996 Consolidated Financial Statements, which amounts are currently
reported on line 10 of Schedule HC-H thereto for items (i) and (ii) above
and on line M(1)(f) of Schedule HC-B thereto for item (iii) above.
"Note" means a promissory note, in substantially the form of Exhibit
"A" hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent or any indemnified party hereunder
arising under the Loan Documents.
"Other Real Estate Owned" means Other Real Estate Owned as defined in
12 C.F.R. [SECTION]7.3025 (1989), as such regulation may be amended or supple-
mented from time to time, determined in a manner consistent with that used in
preparing the Borrower's September 30, 1996 Consolidated Financial
Statements, which amount is currently reported on lines 7(a) and 7(b) of
Schedule HC thereto.
"Parent Company Only Financial Statements" means the Parent Company
Only Financial Statements for Bank Holding Companies With Total Consolidated
Assets of $150 Million or More, or With More Than One Subsidiary Bank--FR Y-
9 LP, as such report may be amended or modified from time to time, and any
similar report required to be filed by the Borrower.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each March, June, September and
December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Banking Subsidiary Indebtedness" means obligations incurred
by any Banking Subsidiary in the ordinary course of business in such
circumstances as may be incidental or usual in carrying on the banking or
trust business of a bank or trust company, including, solely by way of
example and not for purposes of limitation, obligations incurred in
connection with (i) any deposits with or funds collected by such Subsidiary,
(ii) any banker's acceptance credit of such Subsidiary, (iii) any check,
note, certificate of deposit, instrument, money or Letter of Credit issued
by such Subsidiary, (iv) any check, note, certificate of deposit, money
order, traveler's check, draft or bill of exchange issued, accepted or
endorsed by such Subsidiary, (v) any discount with, borrowing from, or other
obligation to, any Federal Reserve Bank or any Federal Home Loan Bank, (vi)
any agreement made by such Subsidiary to purchase or repurchase securities,
loans or Federal funds or any interest or participation in any thereof,
(vii) any guarantee or similar obligation incurred by such Subsidiary in the
ordinary course of its banking or trust business, (viii) any transaction in
the nature of an extension of credit, whether in the form of a commitment or
otherwise, undertaken by such Subsidiary for the account of a third party
with the application of the same banking considerations and legal lending
limits that would be applicable if the transaction were a loan to such
party, (ix) any transaction in which such Subsidiary acts solely in the
fiduciary or agency capacity, (x) Rate Hedging Obligations incurred in the
ordinary course of business, and (xi) other short-term liabilities similar
to those enumerated in clauses (i) and (vi) above, including United States
Treasury tax and loan borrowings.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, trust or other entity or organization,
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section
412 of the Code as to which the Borrower or any member of the Controlled
Group may have any liability.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Obligations" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions
and modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or cross-
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of
the foregoing.
"Rating" means the issuer rating assigned to the Borrower by Thomson,
Standard & Poor's, Moody's or any other rating agency approved by the
Lenders; provided that if such rating is received from (i) one rating
agency, then that rating will be the Rating, (ii) two rating agencies, then
the lowest rating will be the Rating, and (iii) three rating agencies, then
(a) if two of the three rating agencies agree, then that rating will be the
Rating and (b) if none of the three agencies agree, then the middle rating
will be the Rating.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of the
Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing
or carrying margin stocks applicable to member banks of the Federal Reserve
System.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a
Plan, excluding, however, such events as to which the PBGC by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided, however, that a
failure to meet the minimum funding standard of Section 412 of the Code and
of Section 302 of ERISA shall be a Reportable Event regardless of the
issuance of any such waiver of the notice requirement in accordance with
either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Required Lenders" means (i) prior to the Closing Date, Lenders in the
aggregate having at least 66 2/3% of the Aggregate Commitment or, (ii) on
and after the Closing Date, Lenders in the aggregate holding at least 66
2/3% of the aggregate unpaid principal amount of the outstanding Loans.
"Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation
D on Eurocurrency liabilities.
"Return on Average Assets" means Annualized Net Income divided by
Total Consolidated Average Assets.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group.
"Standard & Poor's" means Standard & Poor's Corporation or any
successor corporation thereto.
"Subsidiary" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at
the time be owned or controlled, directly or indirectly, by such Person or
by one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Notwithstanding the foregoing, "Subsidiary" of the Borrower shall also mean
any Banking Subsidiary. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the
Borrower and its Subsidiaries, Property which (i) represents more than 10%
of the consolidated assets of the Borrower and its Subsidiaries as would be
shown in the consolidated financial statements of the Borrower and its
Subsidiaries as at the beginning of the twelve-month period ending with the
month in which such determination is made, or (ii) is responsible for more
than 10% of the consolidated net sales or of the consolidated net income of
the Borrower and its Subsidiaries as reflected in the financial statements
referred to in clause (i) above.
"Tangible Equity Capital" means (i) Total Equity Capital, minus (ii)
goodwill (determined in a manner consistent with that used in preparing the
Borrower's September 30, 1996 Consolidated Financial Statements, which
amount is currently reported on line 10(c) of Schedule HC thereof).
"Termination Date" means December 16, 2001.
"Thomson" means Thomson Bankwatch, Inc. or any successor corporation
thereto.
"Thrift Financial Report" means the Thrift Financial Report, as such
report may be amended or modified from time to time, and any similar report
required to be filed by any Banking Subsidiary.
"Total Consolidated Assets" means the Borrower's total consolidated
assets determined in a manner consistent with the Agreement Accounting
Principles used in preparing the Borrower's quarterly report on Form 10-Q
for the quarter ended September 30, 1996.
"Total Consolidated Average Assets" means the sum of the actual Total
Consolidated Assets for each day in the year-to-date period divided by the
actual number of days in the year-to-date period.
"Total Equity Capital" means the Borrower's total equity capital
determined in a manner consistent with that used in preparing the Borrower's
September 30, 1996 Consolidated Financial Statements, which amount is
currently reported on line 27(h) of Schedule HC thereof.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or Eurodollar Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-
Owned Subsidiaries of such Person, or by such Person and one or more Wholly-
Owned Subsidiaries of such Person, or (ii) any partnership, association,
joint venture or similar business organization 100% of the ownership
interests having ordinary voting power of which shall at the time be so
owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
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2.1. Commitment. Each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make a Loan to the Borrower on
the Closing Date in an amount equal to its Commitment. Any payments or
prepayments (whether mandatory or optional) made by the Borrower with
respect to the Loans may not be reborrowed.
2.2. Required Payments; Termination Date. On each Payment Date,
commencing on December 31, 1996, and on the Termination Date, the Borrower
shall make a mandatory payment on the Loans outstanding in an amount equal
to the lesser of (i) $650,000, and (ii) the aggregate principal amount of
the Loans outstanding. All unpaid Obligations shall be paid in full by the
Borrower on the Termination Date.
2.3. Ratable Loans. Each Advance hereunder shall consist of Loans
made from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment.
2.4. Types of Advances. The Advances may be Floating Rate Advances
or Eurodollar Advances, or a combination thereof, selected by the Borrower
in accordance with Sections 2.8 and 2.9.
2.5. Applicable Margin. The Applicable Margin for Advances shall be
based on the Borrower's Rating and shall be determined in accordance with
the table set forth below. The Applicable Margin shall be adjusted on the
earlier of the date of announcement or the date of publication by the
respective rating agencies of a change in the Rating (the "Adjustment
Date"), and shall apply to all outstanding Advances from and after such
Adjustment Date to the next Adjustment Date. In the event that the Borrower
shall at any time cease to be rated by Thomson Bankwatch, Inc. or any other
rating agency which is acceptable to the Lenders, the maximum Applicable
Margin shall apply.
<TABLE>
<CAPTION>
Rating Applicable Margin
------ -----------------
Floating
Standard Rate Eurodollar
Thomson & Poor's Moody's Advances Advances
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
B or above AA or above Aa2 or above 0.00% 1.50%
B/C A or above A2 or above 0.00% 1.60%
C BBB or above Baa2 or above 0.00% 1.80%
C/D BB or above Ba2 or above 0.00% 2.00%
D B or above B2 or above 0.00% 2.50%
D/E or below B- or below B3 or below 0.00% 3.00%
or No Rating
</TABLE>
2.6. Minimum Amount of Each Advance. Each Eurodollar Advance shall
be in the minimum amount of $1,000,000 (and in multiples of $100,000 if in
excess thereof), and each Floating Rate Advance shall be in the minimum
amount of $500,000 (and in multiples of $100,000 if in excess thereof),
provided, however, that any Floating Rate Advance may be in the amount of
the unused Aggregate Commitment.
2.7. Optional Principal Payments. The Borrower may from time to
time pay, without penalty or premium, all outstanding Floating Rate
Advances, or, in a minimum aggregate amount of $500,000 or any integral
multiple of $100,000 in excess thereof, any portion of the outstanding
Floating Rate Advances upon two Business Days' prior notice to the Agent.
Any payment of a Eurodollar Advance prior to the last day of the applicable
Eurodollar Interest Period shall subject the Borrower to the indemnification
provisions set forth in Section 3.4. Principal payments shall be applied to
the principal installments payable under Section 2.2 in the inverse order of
maturity.
2.8. Method of Selecting Types and Eurodollar Interest Periods for
New Advances. The Borrower shall select the Type of Advance and, in the
case of each Eurodollar Advance, the Eurodollar Interest Period applicable
to each Advance from time to time. The Borrower shall give the Agent
irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago
time) at least one Business Day before the Borrowing Date of each Floating
Rate Advance, and three Business Days before the Borrowing Date for each
Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Eurodollar Interest
Period applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans, in funds immediately available in Chicago
to the Agent at its address specified pursuant to Article XIII. The Agent
will make the funds so received from the Lenders available to the Borrower
at the Agent's aforesaid address.
2.9. Conversion and Continuation of Outstanding Advances. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of
the then applicable Eurodollar Interest Period therefor, at which time such
Eurodollar Advance shall be automatically converted into a Floating Rate
Advance unless the Borrower shall have given the Agent a
Conversion/Continuation Notice requesting that, at the end of such
Eurodollar Interest Period, such Eurodollar Advance either continue as a
Eurodollar Advance for the same or another Eurodollar Interest Period or be
converted into a Floating Rate Advance. Subject to the terms of Section
2.6, the Borrower may elect from time to time to convert all or any part of
an Advance of any Type into another Type of Advance; provided that any
conversion of any Eurodollar Advance shall be made on, and only on, the last
day of the Eurodollar Interest Period applicable thereto. The Borrower
shall give the Agent irrevocable notice (a "Conversion/Continuation Notice")
of each conversion of an Advance or continuation of a Eurodollar Advance not
later than 10:00 a.m. (Chicago time) at least one Business Day, in the case
of a conversion into a Floating Rate Advance, or three Business Days, in the
case of a conversion into or continuation of a Eurodollar Advance, prior to
the date of the requested conversion or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(iii) the amount and Type of Advance into which such Advance is to be
converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Advance, the duration of the
Eurodollar Interest Period applicable thereto.
2.10. Changes in Interest Rate, etc. Each Floating Rate Advance
shall bear interest on the outstanding principal amount thereof, for each
day from and including the date such Advance is made or is converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9 to
but excluding the date it becomes due or is converted into a Eurodollar
Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the
Floating Rate for such day. Changes in the rate of interest on that portion
of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate. Each Eurodollar
Advance shall bear interest from and including the first day of the
Eurodollar Interest Period applicable thereto to (but not including) the
last day of such Eurodollar Interest Period at the interest rate determined
as applicable to such Eurodollar Advance. No Eurodollar Interest Period may
end after the Termination Date. The Borrower shall select Eurodollar
Interest Periods so that it is not necessary to repay any portion of a
Eurodollar Advance prior to the last day of the applicable Eurodollar
Interest Period in order to make a mandatory repayment required pursuant to
Section 2.2.
2.11. Rates Applicable After Default. Notwithstanding anything to
the contrary contained in Section 2.8 or 2.9, during the continuance of a
Default or Unmatured Default the Required Lenders may, at their option, by
notice to the Borrower (which notice may be revoked at the option of the
Required Lenders notwithstanding any provision of Section 8.2 requiring
unanimous consent of the Lenders to changes in interest rates), declare that
no Advance may be made as, converted into or continued as a Eurodollar
Advance. During the continuance of a Default, the Required Lenders may, at
their option, by notice to the Borrower (which notice may be revoked at the
option of the Required Lenders notwithstanding any provision of Section 8.2
requiring unanimous consent of the Lenders to changes in interest rates),
declare that (i) each Eurodollar Advance shall bear interest for the
remainder of the applicable Eurodollar Interest Period at the rate otherwise
applicable to such Eurodollar Interest Period plus 2% per annum and (ii)
each Floating Rate Advance shall bear interest at a rate per annum equal to
the Floating Rate otherwise applicable to the Floating Rate Advance plus 2%
per annum.
2.12. Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrower, by noon (local time) on the date when
due and shall be applied ratably by the Agent among the Lenders. Each
payment delivered to the Agent for the account of any Lender shall be
delivered promptly by the Agent to such Lender in the same type of funds
that the Agent received at its address specified pursuant to Article XIII or
at any Lending Installation specified in a notice received by the Agent from
such Lender. The Agent is hereby authorized to charge the account of the
Borrower maintained with First Chicago for each payment of principal,
interest and fees as it becomes due hereunder.
2.13. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note, provided, however, that the failure to so
record shall not affect the Borrower's obligations under such Note. The
Borrower hereby authorizes the Agent and the Lenders to extend, convert or
continue Advances, effect selections of Types of Advances and to transfer
funds based on telephonic notices made by any person the Agent or any Lender
in good faith believes to be a Designated Employee (as hereinafter defined);
provided, however, that the Agent shall telephonically confirm such notice
prior to taking any such action. The Borrower shall notify the Agent in
writing of the names of the persons authorized to take any such action on
behalf of the Borrower (each a "Designated Employee"), and shall provide the
Agent with a specimen signature of each Designated Employee. The Agent and
the Lenders shall be entitled to rely conclusively on any Designated
Employee's authority to take any such action until the Agent and the Lenders
receive written notice to the contrary from the Borrower. The Agent and the
Lenders shall compare, but shall have no duty to verify, the authenticity of
the signature appearing on any written notice given to the Agent or any
Lender, and with respect to an oral request to take any such action, the
Agent and the Lenders shall inquire as to, but shall have no duty to verify,
the identity of any person representing himself as a Designated Employee.
Neither the Agent nor any Lender shall incur any liability to the Borrower
in acting upon any telephonic notice in the manner referred to in this
Section 2.13. If requested by the Agent or any Lender, the Borrower agrees
to deliver promptly to the Agent or any such Lender a written confirmation,
signed by an Authorized Officer, of each telephonic notice. If the written
confirmation differs in any material respect from the action taken by the
Agent and the Lenders, the records of the Agent and the Lenders shall govern
absent manifest error.
2.14. Interest Payment Dates; Interest and Fee Basis. Interest
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof and at
maturity. Interest accrued on each Eurodollar Advance shall be payable on
the last day of its applicable Eurodollar Interest Period, on any date on
which the Eurodollar Advance is prepaid, whether by acceleration or
otherwise, and at maturity. Interest accrued on each Eurodollar Advance
having an Eurodollar Interest Period longer than three months shall also be
payable on the last day of each three-month interval during such Eurodollar
Interest Period. Interest shall be calculated for actual days elapsed on
the basis of a 360-day year. Interest shall be payable for the day an
Advance is made but not for the day of any payment on the amount paid if
payment is received prior to noon (local time) at the place of payment. If
any payment of principal of or interest on an Advance shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such
extension of time shall be included in computing interest in connection with
such payment.
2.15. Notification of Advances, Interest Rates and Prepayments.
Promptly after receipt thereof, the Agent will notify each Lender of the
contents of each Borrowing Notice, Conversion/Continuation Notice, and
repayment notice received by it hereunder. The Agent will notify each
Lender of the interest rate applicable to each Eurodollar Advance promptly
upon determination of such interest rate and will give each Lender prompt
notice of each change in the Alternate Base Rate.
2.16. Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to
any such Lending Installation and the Notes shall be deemed held by each
Lender for the benefit of such Lending Installation. Each Lender may, by
written or telex notice to the Agent and the Borrower, designate a Lending
Installation through which Loans will be made by it and for whose account
Loan payments are to be made.
2.17. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it
is scheduled to make payment to the Agent of (i) in the case of a Lender,
the proceeds of a Loan or (ii) in the case of the Borrower, a payment of
principal, interest or fees to the Agent for the account of the Lenders,
that it does not intend to make such payment, the Agent may assume that such
payment has been made. The Agent may, but shall not be obligated to, make
the amount of such payment available to the intended recipient in reliance
upon such assumption. If such Lender or the Borrower, as the case may be,
has not in fact made such payment to the Agent, the recipient of such
payment shall, on demand by the Agent, repay to the Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to
(i) in the case of payment by a Lender, the Federal Funds Effective Rate for
such day or (ii) in the case of payment by the Borrower, the interest rate
applicable to the relevant Loan.
2.18. Withholding Tax Exemption. At least five Business Days prior to
the first date on which interest or fees are payable hereunder for the
account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will
deliver to each of the Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224, certifying in
either case that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Lender which so delivers a Form 1001 or
4224 further undertakes to deliver to each of the Borrower and the Agent two
additional copies of such form (or a successor form) on or before the date
that such form expires (currently, three successive calendar years for Form
1001 and one calendar year for Form 4224) or becomes obsolete or after the
occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrower or the Agent, in each
case certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation
any change in treaty, law or regulation) has occurred prior to the date on
which any such delivery would otherwise be required which renders all such
forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1. Yield Protection. If any law or any governmental or quasi-
governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the
compliance of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from
the Borrower (excluding federal taxation of the overall net income
of any Lender or applicable Lending Installation), or changes the
basis of taxation of payments to any Lender in respect of its
Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender or any applicable Lending
Installation (other than reserves and assessments taken into
account in determining the interest rate applicable to Eurodollar
Advances), or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of
making, funding or maintaining loans or reduces any amount
receivable by any Lender or any applicable Lending Installation in
connection with loans, or requires any Lender or any applicable
Lending Installation to make any payment calculated by reference
to the amount of loans held or interest received by it, by an
amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender determines is attributable to making,
funding and maintaining its Loans.
3.2. Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required or expected to be maintained by
such Lender, any Lending Installation of such Lender or any corporation
controlling such Lender is increased as a result of a Change, then, within
15 days of demand by such Lender, the Borrower shall pay such Lender the
amount necessary to compensate for any shortfall in the rate of return on
the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans or its obligation to make Loans
hereunder (after taking into account such Lender's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement
in the Risk-Based Capital Guidelines or (ii) any adoption of or change in
any other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of
law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or any Lending
Installation or any corporation controlling any Lender. "Risk-Based Capital
Guidelines" means (i) the risk-based capital guidelines in effect in the
United States on the date of this Agreement, including transition rules, and
(ii) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of
the Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted
prior to the date of this Agreement.
3.3. Availability of Types of Advances. If any Lender determines
that maintenance of its Eurodollar Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or
not having the force of law, or if the Required Lenders determine that (i)
deposits of a type and maturity appropriate to match fund Eurodollar
Advances are not available or (ii) the interest rate applicable to a Type of
Advance does not accurately reflect the cost of making or maintaining such
Advance, then the Agent shall suspend the availability of the affected Type
of Advance and require any Eurodollar Advances to be repaid.
3.4. Funding Indemnification. If any payment of a Eurodollar
Advance occurs on a date which is not the last day of the applicable
Eurodollar Interest Period, whether because of acceleration, prepayment or
otherwise, or a Eurodollar Advance is not made on the date specified by the
Borrower for any reason other than default by the Lenders, the Borrower will
indemnify each Lender for any loss or cost incurred by it resulting
therefrom, including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability
of the Borrower to such Lender under Sections 3.1 and 3.2 or to avoid the
unavailability of a Type of Advance under Section 3.3, so long as such
designation is not disadvantageous to such Lender. Each Lender shall
deliver a written statement of such Lender as to the amount due, if any,
under Sections 3.1, 3.2 or 3.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such
amount and shall be final, conclusive and binding on the Borrower in the
absence of manifest error. Determination of amounts payable under such
Sections in connection with a Eurodollar Loan shall be calculated as though
each Lender funded its Eurodollar Loan through the purchase of a deposit of
the type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan, whether in fact
that is the case or not. Unless otherwise provided herein, the amount
specified in the written statement shall be payable on demand after receipt
by the Borrower of the written statement. The obligations of the Borrower
under Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and
termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Advance.
4.1.1. The Lenders shall not be required to make the initial Advance
hereunder unless the Borrower has furnished to the Agent with sufficient
copies for the Lenders:
(i) Copies of the articles of incorporation of the Borrower,
together with all amendments, and a certificate of good standing,
both certified by the appropriate governmental officer in its
jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of
the Borrower, of its by-laws.
(iii) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by
name and title and bear the signature of the officers of the
Borrower authorized to sign the Loan Documents and to make
borrowings hereunder, upon which certificate the Agent and the
Lenders shall be entitled to rely until informed of any change in
writing by the Borrower.
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Borrowing Date no Default
or Unmatured Default has occurred and is continuing.
(v) A written opinion of the Borrower's counsel, addressed to the
Lenders in substantially the form of Exhibit "B" hereto.
(vi) Notes payable to the order of each of the Lenders.
(vii) Written money transfer instructions, in substantially the form
of Exhibit "E" hereto, addressed to the Agent and signed by an
Authorized Officer, together with such other related money
transfer authorizations as the Agent may have reasonably
requested.
(viii) Such other documents as any Lender or its counsel may have
reasonably requested.
4.1.2. The Lenders shall not be required to make the initial Advance
hereunder, unless prior to or concurrently with the making of the initial
Advance hereunder, the Existing Agreement shall have been terminated and the
Borrower shall have paid to the lenders and the agent thereunder any and all
unpaid principal of and accrued and unpaid interest on the notes evidencing
the obligations thereunder, and any and all other obligations of the
Borrower thereunder arising under or in connection with the Existing
Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lenders that as of the
Closing Date:
5.1. Corporate Existence and Standing. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has
all requisite authority to conduct its business in each jurisdiction in
which its business is conducted, except where the failure to obtain such
authority would not have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has the corporate
power and authority and legal right to execute and deliver the Loan
Documents and to perform its obligations thereunder. The execution and
delivery by the Borrower of the Loan Documents and the performance of its
obligations thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
5.3. No Conflict; Government Consent. Neither the execution and
delivery by the Borrower of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor compliance with the provisions
thereof will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its
Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation
or by-laws or the provisions of any indenture, instrument or agreement to
which the Borrower or any of its Subsidiaries is a party or is subject, or
by which it, or its Property, is bound, or conflict with or constitute a
default thereunder, or result in the creation or imposition of any Lien in,
of or on the Property of the Borrower or a Subsidiary pursuant to the terms
of any such indenture, instrument or agreement. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is
required in connection with the execution, delivery and performance of, or
the legality, validity, binding effect or enforceability of, any of the Loan
Documents.
5.4. Financial Statements. The December 31, 1995 and September 30,
1996 consolidated financial statements of the Borrower and its Subsidiaries
heretofore delivered to the Lenders were prepared in accordance with
generally accepted accounting principles in effect on the date such
statements were prepared and fairly present the consolidated financial
condition and operations of the Borrower and its Subsidiaries at such date
and the consolidated results of their operations for the period then ended.
5.5. Material Adverse Change. Since September 30, 1996, there has
been no change in the business, Property, prospects, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries
which could have a Material Adverse Effect.
5.6. Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to
be filed and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by the Borrower or any of its Subsidiaries, except
such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. The United States income tax returns
of the Borrower and its Subsidiaries have been audited by the Internal
Revenue Service through the fiscal year ended December 31, 1992. No tax
liens have been filed and no claims are being asserted with respect to any
such taxes. The charges, accruals and reserves on the books of the Borrower
and its Subsidiaries in respect of any taxes or other governmental charges
are adequate.
5.7. Litigation and Contingent Obligations. Except as set forth on
Schedule "1" hereto, there is no litigation, arbitration, governmental
investigation, proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower or any of its
Subsidiaries which could have a Material Adverse Effect. Except as set
forth on Schedule "1" hereto, the Borrower has no material contingent
obligations not provided for or disclosed in the financial statements
referred to in Section 5.4.
5.8. Subsidiaries. Schedule "2" hereto contains an accurate list of
all of the presently existing Subsidiaries of the Borrower, setting forth
their respective jurisdictions of incorporation and the percentage of their
respective capital stock owned by the Borrower or other Subsidiaries. All
of the issued and outstanding shares of capital stock of such Subsidiaries
have been duly authorized and issued and are fully paid and non-assessable.
5.9. ERISA. There are no Unfunded Liabilities. Each Plan complies
in all material respects with all applicable requirements of law and
regulations, no Reportable Event has occurred with respect to any Plan,
neither the Borrower nor any other members of the Controlled Group has
withdrawn from any Plan or initiated steps to do so, and no steps have been
taken to reorganize or terminate any Plan.
5.10. Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein
not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of those assets of the Borrower and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or other
corporate restriction which could have a Material Adverse Effect. Neither
the Borrower nor any Subsidiary is in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained
in (i) any agreement to which it is a party, which default could have a
Material Adverse Effect or (ii) any agreement or instrument evidencing or
governing Indebtedness.
5.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property. Neither the
Borrower nor any Subsidiary has received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable federal, state and local environmental, health and safety
statutes and regulations or the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to
a release of any toxic or hazardous waste or substance into the environment,
which non-compliance or remedial action could have a Material Adverse
Effect.
5.14. Ownership of Properties. Except as set forth on Schedule "3"
hereto, on the date of this Agreement, the Borrower and its Subsidiaries
will have good title, free of all Liens other than those permitted by
Section 6.16, to all of the Property and assets reflected in the financial
statements as owned by it.
5.15. Investment Company Act. Neither the Borrower nor any
Subsidiary thereof is an "investment company" or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
5.16. Public Utility Holding Company Act. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
5.17. Solvency. (i) Immediately after the making of the initial
Loans hereunder, giving effect to the application of the proceeds of such
Loans and using a valuation method agreed to by the Lenders, (a) the fair
value of the assets of the Borrower and the Subsidiaries on a consolidated
basis, at a fair valuation, will exceed the debts and liabilities,
subordinated, contingent or otherwise, of the Borrower and the Subsidiaries
on a consolidated basis; (b) the present fair saleable value of the property
of the Borrower and the Subsidiaries on a consolidated basis will be greater
than the amount that will be required to pay the probable liability of the
Borrower and the Subsidiaries on a consolidated basis on their debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) the Borrower and the
Subsidiaries on a consolidated basis will be able to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Borrower and the
Subsidiaries on a consolidated basis will not have unreasonably small
capital with which to conduct the businesses in which they are engaged as
such businesses are now conducted and are proposed to be conducted after the
date hereof.
(ii) The Borrower does not intend to, or to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries
will, incur debts beyond its ability to pay such debts as they mature,
taking into account the timing of and amounts of cash to be received by it
or any such Subsidiary and the timing of the amounts of cash to be payable
on or in respect of its Indebtedness or the Indebtedness of any such
Subsidiary.
ARTICLE VI
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified audit report certified by independent certified public
accountants, acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated basis for itself
and the Subsidiaries, including balance sheets as of the end of
such period, related profit and loss and reconciliation of surplus
statements, and a statement of cash flows, accompanied by (a) any
management letter prepared by said accountants, and (b) a
certificate of said accountants that, in the course of their
examination necessary for their certification of the foregoing,
they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default
or Unmatured Default shall exist, stating the nature and status
thereof.
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and the
Subsidiaries, consolidated unaudited balance sheets as at the
close of each such period and consolidated profit and loss and
reconciliation of surplus statements and a statement of cash flows
for the period from the beginning of such fiscal year to the end
of such quarter, all certified by its chief financial officer.
(iii) Together with the financial statements required hereunder, a
compliance certificate in substantially the form of Exhibit "C"
hereto signed by its chief financial officer showing the
calculations necessary to determine compliance with this
Agreement and stating that no Default or Unmatured Default exists,
or if any Default or Unmatured Default exists, stating the nature
and status thereof.
(iv) Simultaneously with the preparation thereof, and not more than
45 days after the close of each of the first three fiscal quarters
of the Borrower and not more than 90 days after the close of the
last fiscal quarter of the Borrower in each fiscal year (a) call
reports for each Banking Subsidiary in the form delivered to (1)
the Federal Reserve District Bank, the Comptroller of the Currency
or The Federal Deposit Insurance Corporation, as the case may be,
such reports to include the Consolidated Reports of Condition and
Income and all schedules thereto and (2) the Office of Thrift
Supervision, such reports to include the Thrift Financial Reports
and all schedules thereto, and (b) the Consolidated Financial
Statements and the Parent Company Only Financial Statements of
the Borrower as at the end of such quarter, each in the form
delivered to the appropriate Federal Reserve District Bank and
each to include all schedules thereto.
(v) Within 270 days after the close of each fiscal year, a
statement of the Unfunded Liabilities of each Single Employer
Plan, certified as correct by an actuary enrolled under ERISA.
(vi) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by the chief financial
officer of the Borrower, describing said Reportable Event and the
action which the Borrower proposes to take with respect thereto.
(vii) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (a) any notice or claim to the
effect that the Borrower or any of its Subsidiaries is or may be
liable to any Person as a result of the release by the Borrower,
any of its Subsidiaries, or any other Person of any toxic or
hazardous waste or substance into the environment, and (b) any
notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower
or any of its Subsidiaries, which, in either case, could reasonably
be expected to have a Material Adverse Effect.
(viii) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(ix) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular
reports which the Borrower or any of its Subsidiaries files with
the Securities and Exchange Commission.
(x) Promptly after the Borrower's or any Subsidiary's receipt
thereof, unless disclosure is prohibited by the terms thereof
and after the Borrower or such Subsidiary has in good faith
attempted to obtain the consent of the relevant regulatory
authority, such authority will not consent to the disclosure
thereof, copies of any (i) notice of charges, (ii) notice of
intent to revoke deposit insurance, (iii) cease and desist order,
(iv) suspension or removal order, (v) memorandum of understanding,
(vi) assessment of civil money penalties, (vii) directive relating
to holding company activities constituting a risk to any Bank
Subsidiary, (viii) directive, order or disapproval of any
exception or exemption request, plan or proposal related to
capital requirements, (ix) request that the Borrower guarantee
any capital restoration plan of any Banking Subsidiary, (x)
notification that any Bank Subsidiary is, or is to be treated as
if it were, not "well capitalized" or "adequately capitalized" for
purposes of 12 U.S.C. 1831(o) and any rules and regulations issued
thereunder (including, without limitation, 12 C.F.R. 565.4), as
amended, supplemented or otherwise modified from time to time;
(xi) request or directive from any regulatory authority requiring
any Banking Subsidiary to submit a capital restoration plan or
restricting the payment of dividends by any Subsidiary to the
Borrower or any other Subsidiary.
(xi) Such other information (including non-financial information and
examination reports to the extent permitted by applicable
regulatory authorities) as the Agent or any Lender may from time
to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Advances to refinance the Obligations
under and as defined in the Existing Agreement and for general corporate
purposes. The Borrower will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Advances to purchase or carry any "margin stock"
(as defined in Regulation U).
6.3. Notice of Default. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Lenders of the
occurrence of any Default or Unmatured Default and of any other development,
financial or otherwise, which could have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and to do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is
conducted.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to,
pay when due all taxes, assessments and governmental charges and levies upon
it or its income, profits or Property, except those which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
6.6. Insurance. The Borrower will, and will cause each Subsidiary
to, maintain with financially sound and reputable insurance companies
insurance on all their Property in such amounts and covering such risks as
is consistent with sound business practice, and the Borrower will furnish to
any Lender upon request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject, except
where the failure to so comply would not, individually or in the aggregate,
have a Material Adverse Effect.
6.8. Maintenance of Properties. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect
and keep its Property in good repair, working order and condition, and make
all necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at all
times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary
to, permit the Lenders, by their respective representatives and agents, to
inspect any of the Property, corporate books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary,
and to discuss the affairs, finances and accounts of the Borrower and each
Subsidiary with, and to be advised as to the same by, their respective
officers at such reasonable times and intervals as the Lenders may
designate.
6.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or
otherwise acquire or retire any of its capital stock at any time
outstanding, except that (i) any Subsidiary may declare and pay dividends to
the Borrower or to a Wholly-Owned Subsidiary, and (ii) the Borrower may
declare or pay dividends on its capital stock or redeem, repurchase or
otherwise acquire or retire any of its capital stock during the period from
September 30, 1996 to the date of calculation in an amount not to exceed the
sum of (a) $7,000,000 plus (b) 40% of the Borrower's Consolidated Net Income
for such period, computed on a cumulative basis for such period; provided
that in the case of clause (ii) above, such cumulative amount is first
reduced by any net losses incurred by the Borrower during such period; and
provided further that in the case of each of clauses (i) and (ii) above,
after giving effect to such event, no Default or Unmatured Default exists.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans.
(ii) Indebtedness existing on the date hereof and described in
Schedule "3" hereto.
(iii) Permitted Banking Subsidiary Indebtedness.
(iv) Contingent Obligations incurred with respect to the endorsement
of instruments for deposit or collection in the ordinary course
of business.
(v) Rate Hedging Obligations incurred by the Borrower and any
Subsidiary (other than any Banking Subsidiary) in the ordinary
course of business solely for the purpose of hedging against
interest rate risk and conducting asset/liability management and
not for speculative purposes.
(vi) Indebtedness owing by any Subsidiary to the Borrower or any
other Subsidiary in connection with Investments permitted pursuant
to Section 6.15(iv) and 6.15(v), and Indebtedness owing by the
Borrower to any Subsidiary in connection with Investments
permitted pursuant to Section 6.15(v).
(vii) In addition to Indebtedness permitted under Section 6.11(vi),
other Indebtedness of Banknorth Mortgage Company, Inc.; provided
that such Indebtedness (i) does not exceed an aggregate principal
amount of $50,000,000 at any one time outstanding, and (ii)
consists of mortgage warehousing loans secured by the underlying
mortgages only.
(viii) Additional Indebtedness of the Borrower and its Subsidiaries in
an aggregate principal amount not to exceed $20,000,000 at any
one time outstanding.
6.12. Merger. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except
(i) that a Subsidiary may merge with the Borrower or a Wholly-Owned
Subsidiary and (ii) the Borrower may merge with another Person; provided
that (a) the Borrower is the surviving entity, and (b) immediately before
and after the consummation of such transaction, no Default or Unmatured
Default shall have occurred and be continuing.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property, to any
other Person except for (i) sales of loans, sales of receivables in
connection with asset securitization financings and sales of other similar
assets, in each case in the ordinary course of business, (ii) the
intercompany transfers permitted pursuant to Section 6.15(iv) and 6.15(v),
and (iii) leases, sales or other dispositions of its Property that, together
with all other Property of the Borrower and its Subsidiaries previously
leased, sold or disposed of (other than inventory in the ordinary course of
business) as permitted by this Section during the twelve-month period ending
with the month in which any such lease, sale or other disposition occurs, do
not constitute a Substantial Portion of the Property of the Borrower and its
Subsidiaries.
6.14. Sale and Leaseback. The Borrower will not, nor will it permit
any Subsidiary to, sell or transfer any of its Property in order to
concurrently or subsequently lease as lessee such or similar Property.
6.15. Investments and Acquisitions. The Borrower will not, nor will
it permit any Subsidiary to, make or suffer to exist any Investments
(including, without limitation, loans and advances to, and other Investments
in, Subsidiaries), or commitments therefor, or to create any Subsidiary or
to become or remain a partner in any partnership or joint venture, or to
make any Acquisition of any Person, except:
(i) Investments of any Banking Subsidiary in the ordinary course of
its banking or trust business and other Investments which the
Borrower or any Banking Subsidiary is permitted to hold and
invest in under applicable law and regulation.
(ii) Investments of any other Subsidiary in marketable securities,
money-market instruments and other similar Investments which have
been made by such Subsidiary in accordance with any investment
policy approved by its Board of Directors in the Board's
reasonable discretion.
(iii) Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in Schedule "2" hereto.
(iv) Additional Investments of the Borrower in its Subsidiaries in
an aggregate principal amount not exceeding 12.5% of Tangible
Equity Capital at any one time outstanding.
(v) Investments made by any Subsidiary in or to the Borrower or any
Wholly-Owned Subsidiary.
(vi) Any Acquisition; provided that (a) the total assets acquired
pursuant to any individual Acquisition do not exceed an aggregate
amount of 1.5% of Tangible Equity Capital and (b) if such
Acquisition is of a bank, savings and loan association or branch
thereof, or corporation, it shall have been approved and
recommended by the board of directors of such bank, savings and
loan association or branch thereof, or corporation; and provided
further that (a) if such Acquisition is of a bank holding company
and one or more banks, such bank holding company shall have a
composite BOPEC rating of 2 or better, (b) if such Acquisition is
of a bank only, such bank shall have a composite CAMEL rating of 2
or better, (c) if such Acquisition is of a savings and loan
association or a branch thereof, either (1) such savings and loan
association or branch thereof has a composite MACRO rating of 2 or
better, or (2) such Acquisition is being made from the Resolution
Trust Corporation or any successor thereof and is being assisted
by the Resolution Trust Corporation or any successor thereof.
(vii) The creation of (a) new Subsidiaries in connection with the
Acquisitions permitted under Section 6.15(vi), (b) new
Subsidiaries of the Borrower established for the purpose of
conducting any servicing activity for its Subsidiaries
permissible under Section 225.22(a) of Regulation Y of the Federal
Reserve Board or by order of the Federal Reserve Board, (c) any
new Subsidiaries of the Borrower established for the purpose of
conducting any non-banking activity permissible for bank holding
companies under applicable law, including regulations or orders
of the Federal Reserve Board; (d) any new Subsidiaries established
by any Banking Subsidiary of the Borrower for the purpose of
conducting any activity permissible under applicable federal or
state banking laws, regulations or orders; and (e) new Banking
Subsidiaries in connection with internal reorganizations and
restructurings among existing Banking Subsidiaries of the
Borrower, including bank charter conversions and consolidations;
provided, however, that promptly and in any event within five (5)
Business Days after the later to occur of the creation of any new
Subsidiary and the consummation of any such Acquisition (if
applicable), the Borrower shall furnish an updated schedule of
Subsidiaries to the Agent and the Lenders in the form of Schedule
"2" hereto, which schedule shall set forth the respective
jurisdictions of incorporation of the Subsidiaries and the
percentage of their respective capital stock owned by the
Borrower or other Subsidiaries.
6.16. Liens. The Borrower will not, nor will it permit any
Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with generally accepted principles of
accounting shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall
have been set aside on its books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in
the business of the Borrower or the Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule "3"
hereto.
(vi) Liens granted by a Banking Subsidiary in the ordinary course of
its banking and trust business in connection with any Permitted
Banking Subsidiary Indebtedness.
(vii) Liens to secure public funds or other pledges of funds required
by law to secure deposits.
(viii) Repurchase agreements, reverse repurchase agreements and other
similar transactions entered into by any Banking Subsidiary in
the ordinary course of its banking or trust business.
(ix) Liens granted by any Subsidiary to the Borrower or any other
Subsidiary as required pursuant to 12 U.S.C. 371c, as amended,
supplemented or otherwise modified from time to time, and other
Liens granted in connection with intercompany Indebtedness
permitted under Section 6.11(vi).
(x) Liens granted by Banknorth Mortgage Company, Inc. in connection
with the mortgage warehousing loans permitted under Sections 6.11
(vii); provided, however, that such Liens are only on the
underlying mortgages financed by such mortgage warehousing loans.
(xi) Liens granted by the Borrower or any Subsidiary in the ordinary
course of business on Rate Hedging Obligations permitted under
Section 6.11(v); provided, however, that any such Rate Hedging
Obligation is subject to a bilateral collateral agreement between
the Borrower or such Subsidiary, as applicable, and the other
counterparty in respect of such Rate Hedging Obligation.
(xii) Liens granted by any Banking Subsidiary in the ordinary course
of business to another bank which confirms such Banking
Subsidiary's Letter of Credit; provided, however, that such
Letter of Credit is secured by collateral pledged by the applicant
thereunder, which collateral is sufficient to cover such Banking
Subsidiary's obligations to the confirming bank.
6.17. Fixed Asset Expenditures. The Borrower will not, nor will it
permit any Subsidiary to, expend, or commit to expend, at any time an amount
in excess of the maximum amount permitted by any regulatory agency having
jurisdiction over them in the acquisition of fixed assets.
6.18. Consolidated Non-Performing Assets to Total Equity Capital. The
Borrower will maintain as at the last day of each fiscal quarter a ratio of
(i) Non-Performing Assets to (ii) Total Equity Capital of not greater than
.40 to 1.0.
6.19. Funded Debt to Tangible Equity Capital. The Borrower will
maintain as at the last day of each fiscal quarter a ratio of (i) Funded
Debt to (ii) Tangible Equity Capital which is less than .25 to 1.0.
6.20. Return on Average Assets. The Borrower will maintain as at the
last day of each fiscal quarter a Return on Average Assets of not less than
.25 to 1.0.
6.21. Capitalization. The Borrower will ensure that each Banking
Subsidiary will at all times be, and will at all times be treated by the
relevant regulatory authorities as if they were, "well-capitalized" or
"adequately capitalized" for purposes of 12 U.S.C. 1831(o) and any rules and
regulations issued thereunder (including, without limitation, 12 C.F.R.
565.4), as amended, supplemented or otherwise modified from time to time.
6.22. Capital Guidelines. The Borrower and its Banking Subsidiaries
shall comply at all times with any and all minimum risk-based capital
guidelines, leverage measure capital guidelines and any other capital
guidelines now or hereafter published by any federal or state regulatory
authorities having jurisdiction over them.
6.23. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation,
the purchase or sale of any Property or service) with, or make any payment
or transfer to, any Affiliate, except in accordance with applicable legal
and regulatory requirements governing transactions among bank or bank
holding company affiliates, which requirements are imposed by any federal or
state regulatory authorities having jurisdiction over the Borrower or any
Subsidiary, including, without limitation, Sections 23A and 23B of the
Federal Reserve Act and Regulation O of the Federal Reserve Board.
6.24. Resolutions. The Borrower shall furnish to the Lenders, by no
later than December 24, 1996, a copy, certified by the Secretary or
Assistant Secretary of the Borrower, of its Board of Directors' resolutions
(and resolutions of other bodies, if any are deemed necessary by counsel for
any Lender) ratifying the execution of the Loan Documents.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall
constitute a Default:
7.1. Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries to the Lenders or the
Agent under or in connection with this Agreement, any Loan, or any
certificate or information delivered in connection with this Agreement or
any other Loan Document shall be materially false on the date as of which
made.
7.2. Nonpayment of principal of any Note when due, or nonpayment of
interest upon any Note or of any commitment fee or other obligations under
any of the Loan Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.18, 6.19, 6.20, 6.21,
6.22, 6.23 and 6.24.
7.4. The breach by the Borrower (other than a breach which
constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or
provisions of this Agreement which is not remedied within thirty days after
written notice from the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness in excess of $10,000,000 in the aggregate when due; or the
default by the Borrower or any of its Subsidiaries in the performance of any
term, provision or condition contained in any agreement under which any
Indebtedness in excess of $10,000,000 in the aggregate was created or is
governed, or any other event shall occur or condition exist, the effect of
which is to cause, or to permit the holder or holders of such Indebtedness
to cause, such Indebtedness to become due prior to its stated maturity; or
any Indebtedness of the Borrower or any of its Subsidiaries in excess of
$10,000,000 in the aggregate shall be declared to be due and payable or
required to be prepaid (other than by a regularly scheduled payment) prior
to the stated maturity thereof; or the Borrower or any of its Subsidiaries
shall not pay, or admit in writing its inability to pay, its debts generally
as they become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order
for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any Substantial Portion of its Property, (iv)
institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief
of debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate
action to authorize or effect any of the foregoing actions set forth in this
Section 7.6 or (vi) fail to contest in good faith any appointment or
proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or
any of its Subsidiaries, a receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Borrower or any of its
Subsidiaries or any Substantial Portion of its Property, or a proceeding
described in Section 7.6(iv) shall be instituted against the Borrower or any
of its Subsidiaries and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of 30 consecutive
days.
7.8. Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of (each a
"Condemnation"), all or any portion of the Property of the Borrower and its
Subsidiaries which, when taken together with all other Property of the
Borrower and its Subsidiaries so condemned, seized, appropriated, or taken
custody or control of, during the twelve-month period ending with the month
in which any such Condemnation occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30
days to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $500,000, which is not stayed on appeal or
otherwise being appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $1,000,000 or any Reportable Event shall occur in
connection with any Plan.
7.11. The Borrower or any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to the release by the Borrower or
any of its Subsidiaries, or any other Person of any toxic or hazardous waste
or substance into the environment, or any violation of any federal, state or
local environmental, health or safety law or regulation, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
7.12. Any Banking Subsidiary shall cease to be insured under the
Federal Deposit Insurance Act and any rules and regulations issued
thereunder, as amended, supplemented or otherwise modified from time to
time; or a cease and desist order shall be issued against the Borrower or
any Subsidiary pursuant to 12 U.S.C. 1818(b) or (c) or any similar
applicable provision of state law and any rules and regulations issued
thereunder, as amended, supplemented or otherwise modified from time to
time.
7.13. There shall occur, with respect to any Banking Subsidiary, any
event which is grounds for the required submission of a capital restoration
plan under 12 U.S.C. [SECTION]1831(o)(e)(2) and any rules and regulations
issued thereunder, as amended, supplemented or otherwise modified from time to
time, or for seeking the appointment of a receiver or conservator under 12
U.S.C. 1821(c) and any rules and regulations issued thereunder, as amended,
supplemented or otherwise modified from time to time; or any conservator or
receiver shall be appointed for any Banking Subsidiary under any such
provisions or any other state or federal law.
7.14. Any Change in Control shall occur.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on the
part of the Agent or any Lender. If any other Default occurs, the Required
Lenders may terminate or suspend the obligations of the Lenders to make
Loans hereunder, or declare the Obligations to be due and payable, or both,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which the
Borrower hereby expressly waives.
If, after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans hereunder as a
result of any Default (other than any Default as described in Section 7.6 or
7.7 with respect to the Borrower) and before any judgment or decree for the
payment of the Obligations due shall have been obtained or entered, the
Required Lenders (in their sole discretion) shall so direct, the Agent
shall, by notice to the Borrower, rescind and annul such acceleration and/or
termination.
8.2. Amendments. Subject to the provisions of this Article VIII,
the Required Lenders (or the Agent with the consent in writing of the
Required Lenders) and the Borrower may enter into agreements supplemental
hereto for the purpose of adding or modifying any provisions to the Loan
Documents or changing in any manner the rights of the Lenders or the
Borrower hereunder or waiving any Default hereunder; provided, however, that
no such supplemental agreement shall, without the consent of each Lender:
(i) Extend the maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Termination Date, or reduce the amount or extend the
payment date for, the mandatory payments required under Section
2.2, or permit the Borrower to assign its rights under this
Agreement.
(iv) Amend this Section 8.2.
No amendment of any provision of this Agreement relating to the Agent shall
be effective without the written consent of the Agent. The Agent may waive
payment of the fee required under Section 12.3.2 without obtaining the
consent of any other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or
the Agent to exercise any right under the Loan Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence
therein, and the making of a Loan notwithstanding the existence of a Default
or the inability of the Borrower to satisfy the conditions precedent to such
Loan shall not constitute any waiver or acquiescence. Any single or partial
exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right, and no waiver, amendment or
other variation of the terms, conditions or provisions of the Loan Documents
whatsoever shall be valid unless in writing signed by the Lenders required
pursuant to Section 8.2, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by
law afforded shall be cumulative and all shall be available to the Agent and
the Lenders until the Obligations have been paid in full.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations. All representations and
warranties of the Borrower contained in this Agreement shall survive
delivery of the Notes and the making of the Loans herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend
credit to the Borrower in violation of any limitation or prohibition
provided by any applicable statute or regulation.
9.3. Taxes. Any taxes (excluding federal income taxes on the
overall net income of any Lender) or other similar assessments or charges
made by any governmental or revenue authority in respect of the Loan
Documents shall be paid by the Borrower, together with interest and
penalties, if any.
9.4. Headings; References to Statutes. Section headings in the Loan
Documents are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of the Loan Documents. Any
references to specific statutes herein shall be deemed to refer to such
statute and any rules and regulations issued thereunder or in connection
therewith, as they may be amended, supplemented or otherwise modified from
time to time.
9.5. Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent and the Lenders
and supersede all prior agreements and understandings among the Borrower,
the Agent and the Lenders relating to the subject matter thereof.
9.6. Several Obligations; Benefits of this Agreement. The
respective obligations of the Lenders hereunder are several and not joint
and no Lender shall be the partner or agent of any other (except to the
extent to which the Agent is authorized to act as such). The failure of any
Lender to perform any of its obligations hereunder shall not relieve any
other Lender from any of its obligations hereunder. This Agreement shall
not be construed so as to confer any right or benefit upon any Person other
than the parties to this Agreement and their respective successors and
assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the
Agent for any costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Agent, which attorneys
may be employees of the Agent) paid or incurred by the Agent in connection
with the preparation, negotiation, execution, delivery, review, amendment,
modification, and administration of the Loan Documents. The Borrower also
agrees to reimburse the Agent and the Lenders for any costs, internal
charges and out-of-pocket expenses (including attorneys' fees and time
charges of attorneys for the Agent and the Lenders, which attorneys may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with the collection and enforcement of the Loan
Documents. The Borrower further agrees to indemnify the Agent and each
Lender, its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or
not the Agent or any Lender is a party thereto) which any of them may pay or
incur arising out of or relating to this Agreement, the other Loan
Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan hereunder.
The obligations of the Borrower under this Section shall survive the
termination of this Agreement.
9.8. Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
9.9. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement
Accounting Principles; provided, however, that compliance with Sections
6.18, 6.19 and 6.20 shall be interpreted and all determinations thereunder
shall be made in accordance with regulatory accounting principles as in
effect from time to time, applied in a manner consistent with that used in
preparing the financial statements and reports referred to in Section
6.1(iv) for the fiscal quarter ended September 30, 1996.
9.10. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable,
or invalid without affecting the remaining provisions in that jurisdiction
or the operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are
declared to be severable.
9.11. Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities
to the Borrower. Neither the Agent nor any Lender undertakes any
responsibility to the Borrower to review or inform the Borrower of any
matter in connection with any phase of the Borrower's business or
operations.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING
A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY
NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR
ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR
THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Confidentiality. Each Lender acknowledges that it will obtain
certain confidential and proprietary information from the Borrower in the
course of performance or enforcement of the obligations hereunder. Each
Lender agrees to hold any such confidential information which it may receive
from the Borrower pursuant to this Agreement in confidence, except for
disclosure (i) to other Lenders and their respective Affiliates, (ii) to
legal counsel, accountants, and other professional advisors to that Lender
or to a Transferee, (iii) to regulatory officials acting in the course of
their duty, (iv) to any Person as required by law, regulation, or legal
process, (v) to any Person in connection with any legal proceeding to which
that Lender is a party, and (vi) permitted by Section 12.4.
ARTICLE X
THE AGENT
---------
10.1. Appointment. The First National Bank of Chicago is hereby
appointed Agent hereunder and under each other Loan Document, and each of
the Lenders irrevocably authorizes the Agent to act as the agent of such
Lender. The Agent agrees to act as such upon the express conditions
contained in this Article X. The Agent shall not have a fiduciary
relationship in respect of the Borrower or any Lender by reason of this
Agreement.
10.2. Powers. The Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably
incidental thereto. The Agent shall have no implied duties to the Lenders,
or any obligation to the Lenders to take any action thereunder except any
action specifically provided by the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders
or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith except for its or their own gross negligence or willful
misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into, or verify (i) any
statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of any obligor under any Loan Document,
including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (iii) the satisfaction of any condition
specified in Article IV, except receipt of items required to be delivered to
the Agent; (iv) the validity, effectiveness or genuineness of any Loan
Document or any other instrument or writing furnished in connection
therewith; or (v) the value, sufficiency, creation, perfection or priority
of any interest in any collateral security. The Agent shall have no duty to
disclose to the Lenders information that is not required to be furnished by
the Borrower to the Agent at such time, but is voluntarily furnished by the
Borrower to the Agent (either in its capacity as Agent or in its individual
capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder
and under any other Loan Document in accordance with written instructions
signed by the Required Lenders, and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders
and on all holders of Notes. The Agent shall be fully justified in failing
or refusing to take any action hereunder and under any other Loan Document
unless it shall first be indemnified to its satisfaction by the Lenders pro
rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Loan Document by or
through employees, agents, and attorneys-in-fact and shall not be answerable
to the Lenders, except as to money or securities received by it or its
authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder and under any other Loan
Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons,
and, in respect to legal matters, upon the opinion of counsel selected by
the Agent, which counsel may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their
respective Loans outstanding (i) for any amounts not reimbursed by the
Borrower for which the Agent is entitled to reimbursement by the Borrower
under the Loan Documents, (ii) for any other expenses incurred by the Agent
on behalf of the Lenders, in connection with the preparation, execution,
delivery, administration and enforcement of the Loan Documents and (iii) for
any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of the Loan Documents or any
other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of
any such other documents, provided that no Lender shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent. The obligations of the Lenders under this Section
10.8 shall survive payment of the Obligations and termination of this
Agreement.
10.9. Rights as a Lender. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other
Loan Document as any Lender and may exercise the same as though it were not
the Agent, and the term "Lender" or "Lenders" shall, at any time when the
Agent is a Lender, unless the context otherwise indicates, include the Agent
in its individual capacity. The Agent may accept deposits from, lend money
to, and generally engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this Agreement or any
other Loan Document, with the Borrower or any of its Subsidiaries in which
the Borrower or such Subsidiary is not restricted hereby from engaging with
any other Person. The Agent, in its individual capacity, is not obligated
to remain a Lender.
10.10. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Borrower and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
10.11. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to
be effective upon the appointment of a successor Agent or, if no successor
Agent has been appointed, sixty days after the retiring Agent gives notice
of its intention to resign. Upon any such resignation, the Required Lenders
shall have the right to appoint, on behalf of the Borrower and the Lenders,
a successor Agent. If no successor Agent shall have been so appointed by
the Required Lenders within thirty days after the resigning Agent's giving
notice of its intention to resign, then the resigning Agent may appoint, on
behalf of the Borrower and the Lenders, a successor Agent. If the Agent has
resigned and no successor Agent has been appointed, the Lenders may perform
all the duties of the Agent hereunder and the Borrower shall make all
payments in respect of the Obligations to the applicable Lender and for all
other purposes shall deal directly with the Lenders. No successor Agent
shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial
bank having capital and retained earnings of at least $250,000,000. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the resigning Agent. Upon the
effectiveness of the resignation of the Agent, the resigning Agent shall be
discharged from its duties and obligations hereunder and under the Loan
Documents. After the effectiveness of the resignation of an Agent, the
provisions of this Article X shall continue in effect for the benefit of
such Agent in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent hereunder and under the other Loan
Documents.
10.12. Agent's Fees. The Borrower agrees to pay to the Agent, for
its own account, the fees agreed to by the Borrower and the Agent pursuant
to that certain letter agreement dated as of even date herewith.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
------------------------
11.1. Setoff. In addition to, and without limitation of, any rights
of the Lenders under applicable law, if the Borrower becomes insolvent,
however evidenced, or any Default or Unmatured Default occurs, any and all
deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other Indebtedness at any
time held or owing by any Lender to or for the credit or account of the
Borrower may be offset and applied toward the payment of the Obligations
owing to such Lender, whether or not the Obligations, or any part hereof,
shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Loans (other than payments
received pursuant to Sections 3.1, 3.2 or 3.4) in a greater proportion than
that received by any other Lender, such Lender agrees, promptly upon demand,
to purchase a portion of the Loans held by the other Lenders so that after
such purchase each Lender will hold its ratable proportion of Loans. If any
Lender, whether in connection with setoff or amounts which might be subject
to setoff or otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to
their Loans. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under
the Loan Documents and (ii) any assignment by any Lender must be made in
compliance with Section 12.3. Notwithstanding clause (ii) of this Section,
any Lender may at any time, without the consent of the Borrower or the
Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; provided, however, that no such assignment
shall release the transferor Lender from its obligations hereunder. The
Agent may treat the payee of any Note as the owner thereof for all purposes
hereof unless and until such payee complies with Section 12.3 in the case of
an assignment thereof or, in the case of any other transfer, a written
notice of the transfer is filed with the Agent. Any assignee or transferee
of a Note agrees by acceptance thereof to be bound by all the terms and
provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held
by such Lender, or any other interest of such Lender under the Loan
Documents. The consent of the Borrower and the Agent, which consent in
each case shall not be unreasonably withheld, shall be required prior to
a participation becoming effective with respect to a Participant which
is not a Lender or an Affiliate thereof; provided, however, that if a
Default has occurred and is continuing, the consent of the Borrower shall
not be required. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations
under the Loan Documents shall remain unchanged, such Lender shall remain
solely responsible to the other parties hereto for the performance of
such obligations, such Lender shall remain the holder of any such Note
for all purposes under the Loan Documents, all amounts payable by the
Borrower under this Agreement shall be determined as if such Lender
had not sold such participating interests, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan in
which such Participant has an interest which forgives principal, interest
or fees or reduces the interest rate or fees payable with respect to any
such Loan, postpones any date fixed for any regularly-scheduled payment
of principal of, or interest or fees on, any such Loan, releases any
guarantor of any such Loan or releases any substantial portion of
collateral, if any, securing any such Loan.
12.2.3. Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 11.1 in respect of its participating interest in amounts owing
under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the
Loan Documents, provided that each Lender shall retain the right of
setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.1, agrees to share with each
Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.2 as if
each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Loan Documents. Such
assignment shall be substantially in the form of Exhibit "D" hereto or in
such other form as may be agreed to by the parties thereto. The consent
of the Borrower and the Agent, which consent in each case shall not be
unreasonably withheld, shall be required prior to an assignment becoming
effective with respect to a Purchaser which is not a Lender or an
Affiliate thereof; provided, however, that if a Default has occurred
and is continuing, the consent of the Borrower shall not be required.
12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent
of a notice of assignment, substantially in the form attached as Exhibit
"I" to Exhibit "D" hereto (a "Notice of Assignment"), together with any
consents required by Section 12.3.1, and (ii) payment of a $2,500 fee to
the Agent for processing such assignment, such assignment shall become
effective on the effective date specified in such Notice of Assignment.
The Notice of Assignment shall contain a representation by the Purchaser
to the effect that none of the consideration used to make the purchase
of the Loans under the applicable assignment agreement are "plan assets"
as defined under ERISA and that the rights and interests of the Purchaser
in and under the Loan Documents will not be "plan assets" under ERISA.
On and after the effective date of such assignment, such Purchaser shall
for all purposes be a Lender party to this Agreement and any other Loan
Document executed by the Lenders and shall have all the rights and
obligations of a Lender under the Loan Documents, to the same extent as
if it were an original party hereto, and no further consent or action by
the Borrower, the Lenders or the Agent shall be required to release the
transferor Lender with respect to the percentage of the Loans assigned
to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the transferor Lender, the
Agent and the Borrower shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or,
as appropriate, replacement Notes, are issued to such Purchaser.
12.4. Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person
acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any prospective Transferee any and all information in such
Lender's possession concerning the creditworthiness of the Borrower and its
Subsidiaries; provided that each Transferee and prospective Transferee
agrees to be bound by Section 9.15 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the
transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, to comply with the provisions of Section
2.18.
ARTICLE XIII
NOTICES
-------
13.1. Giving Notice. Except as otherwise permitted by Section 2.13
with respect to borrowing notices, all notices and other communications
provided to any party hereto under this Agreement or any other Loan Document
shall be in writing or by telex or by facsimile and addressed or delivered
to such party at its address set forth below its signature hereto or at such
other address as may be designated by such party in a notice to the other
parties. Any notice, if mailed and properly addressed with postage prepaid,
shall be deemed given when received; any notice, if transmitted by telex or
facsimile, shall be deemed given when transmitted (answerback confirmed in
the case of telexes).
13.2. Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
ARTICLE XIV
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by telex or
telephone, that it has taken such action.
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
BANKNORTH GROUP, INC.
By: /s/ Thomas J. Pruitt
Print Name: Thomas J. Pruitt
Title: Executive Vice President & CFO
300 Financial Plaza
P.O. Box 5420
Burlington, Vermont 05401
Attention: Mr. Thomas J. Pruitt
Executive Vice President
and Chief Financial Officer
Commitment
- ----------
$6,825,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Robert E. O'Connell
Print Name: Robert E. O'Connell
Title: Vice President
One First National Plaza
Chicago, Illinois 60670
Attention: Mr. Robert E. O'Connell
Vice President
U.S. Financial
Institutions
$6,825,000 LASALLE NATIONAL BANK
By: /s/ Phillip J. Hagglund
Print Name: Phillip J. Hagglund
Title: Vice President
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Mr. Phillip J. Hagglund
Vice President
Correspondent Banking
Unit - USA
$13,650,000
===========
EXHIBIT "A"
NOTE
$ 6,825,000 December 16, 1996
-------------------------
BANKNORTH GROUP, INC., a Delaware corporation (the "Borrower"),
promises to pay to the order of The First National Bank of Chicago (the
"Lender") the lesser of the principal sum of six million eight hundred
twenty-five thousand and 00/100 Dollars or the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrower pursuant to Article
II of the Term Loan Agreement (as the same may be amended or modified, the
"Agreement") hereinafter referred to, in immediately available funds at the
main office of The First National Bank of Chicago in Chicago, Illinois, as
Agent, together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in the Agreement. The Borrower shall pay
the principal of and accrued and unpaid interest on the Loans in full on the
Termination Date and shall make such mandatory payments as are required to
be made under the terms of Article II of the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual
practice, the date and amount of each Loan and the date and amount of each
principal payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to
the benefits of, the Term Loan Agreement, dated as of December 16, 1996,
among the Borrower, The First National Bank of Chicago, individually and as
Agent, and the lenders named therein, including the Lender, to which
Agreement, as it may be amended from time to time, reference is hereby made
for a statement of the terms and conditions governing this Note, including
the terms and conditions under which this Note may be prepaid or its
maturity date accelerated. Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the
Agreement.
BANKNORTH GROUP, INC.
By: /s/ THOMAS J. PRUITT
----------------------------------
Print Name: Thomas J. Pruitt
--------------------------
Title: Executive Vice President
-------------------------------
NOTE
$ 6,825,000 December 16, 1996
-------------------------
BANKNORTH GROUP, INC., a Delaware corporation (the "Borrower"),
promises to pay to the order of La Salle National Bank (the "Lender")
the lesser of the principal sum of six million eight hundred
twenty-five thousand and 00/100 Dollars or the aggregate unpaid principal
amount of all Loans made by the Lender to the Borrower pursuant to Article
II of the Term Loan Agreement (as the same may be amended or modified, the
"Agreement") hereinafter referred to, in immediately available funds at the
main office of The First National Bank of Chicago in Chicago, Illinois, as
Agent, together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in the Agreement. The Borrower shall pay
the principal of and accrued and unpaid interest on the Loans in full on the
Termination Date and shall make such mandatory payments as are required to
be made under the terms of Article II of the Agreement.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual
practice, the date and amount of each Loan and the date and amount of each
principal payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to
the benefits of, the Term Loan Agreement, dated as of December 16, 1996,
among the Borrower, The First National Bank of Chicago, individually and as
Agent, and the lenders named therein, including the Lender, to which
Agreement, as it may be amended from time to time, reference is hereby made
for a statement of the terms and conditions governing this Note, including
the terms and conditions under which this Note may be prepaid or its
maturity date accelerated. Capitalized terms used herein and not otherwise
defined herein are used with the meanings attributed to them in the
Agreement.
BANKNORTH GROUP, INC.
By: /s/ THOMAS J. PRUITT
----------------------------------
Print Name: Thomas J. Pruitt
--------------------------
Title: Executive Vice President
-------------------------------
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF BANKNORTH GROUP, INC.,
DATED DECEMBER 16, l996
<TABLE>
<CAPTION>
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
- ------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
EXHIBIT "B"
FORM OF OPINION
, 19
To: The Agent and the Lenders who are parties
to the Agreement described below.
Gentlemen/Ladies:
We are counsel for Banknorth Group, Inc. (the Borrower"), and have
represented the Borrower in connection with its execution and delivery of a
Term Loan Agreement among the Borrower, The First National Bank of Chicago,
individually and as Agent, and the Lenders named therein, providing for
Advances in an aggregate principal amount not exceeding $13,650,000 at any
one time outstanding and dated as of December 16, 1996 (the "Agreement").
All capitalized terms used in this opinion and not otherwise defined shall
have the meanings attributed to them in the Agreement.
We have examined the Borrower's articles of incorporation, by-laws,
resolutions, the Loan Documents and such other matters of fact and law which
we deem necessary in order to render this opinion. Based upon the
foregoing, it is our opinion that:
l. The Borrower and each Subsidiary are corporations duly
incorporated, validly existing and in good standing under the laws of their
states of incorporation and have all requisite authority to conduct their
business in each jurisdiction in which their business is conducted, except
where the failure to obtain such authority would not have a Material Adverse
Effect.
2. The execution and delivery of the Loan Documents by the Borrower
and the performance by the Borrower of the Obligations have been duly
authorized by all necessary corporate action and proceedings on the part of
the Borrower and will not:
(a) require any consent of the Borrower's shareholders;
(b) violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its
Subsidiaries or the Borrower's or any Subsidiary's articles of
incorporation or by-laws or any indenture, instrument or agreement
binding upon the Borrower or any of its Subsidiaries; or
(c) result in, or require, the creation or imposition of any Lien
pursuant to the provisions of any indenture, instrument or agreement
binding upon the Borrower or any of its Subsidiaries.
3. The Loan Documents have been duly executed and delivered by the
Borrower and constitute legal, valid and binding obligations of the Borrower
enforceable in accordance with their terms except to the extent the
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and subject also to
the availability of equitable remedies if equitable remedies are sought.
4. There is no litigation or proceeding against the Borrower or any
of its Subsidiaries which, if adversely determined, could have a Material
Adverse Effect.
5. No approval, authorization, consent, adjudication or order of any
governmental authority, which has not been obtained by the Borrower or any
of its Subsidiaries, is required to be obtained by the Borrower or any of
its Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under the Agreement or in connection with the
payment by the Borrower of the Obligations.
This opinion may be relied upon by the Agent, the Lenders and their
participants, assignees and other transferees.
Very truly yours,
----------------------------------
EXHIBIT "C"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Agreement described below.
This Compliance Certificate is furnished pursuant to that certain Term
Loan Agreement dated as of December 16, 1996 (as amended, modified, renewed
or extended from time to time, the "Agreement") among the Borrower, the
lenders party thereto and The First National Bank of Chicago, as Agent for
the Lenders. Unless otherwise defined herein, capitalized terms used in
this Compliance Certificate have the meanings ascribed thereto in the
Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which
constitutes a Default or Unmatured Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of
the Agreement, all of which data and computations are true, complete and
correct.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it
has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
The foregoing certifications, together with the computations set forth
in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this day of
, 19 .
-----------------------
SCHEDULE I TO COMPLIANCE CERTIFICATE
SCHEDULE I
Compliance as of
-----------------
($ in Thousands)
Section 6.10 Dividends:
A. Dividends Paid
1. Dividends, redemptions and/or
repurchases of capital stock since
9/30/96 as of the last date of
calculation $
-----------------
2. Dividends, redemptions, and/or
repurchases of capital stock during
the quarter just ended $
-----------------
3. Total Dividends Paid (1 + 2) $
-----------------
B. Allowable Dividends
1. $7,000 $
-----------------
2. 40.00% of Consolidated Net Income
(Loss) since 9/30/96 as of the
last date of calculation $
-----------------
3. 40.00% of Consolidated Net Income
(Loss) for the quarter just ended $
-----------------
4. Total Allowable Dividends
(1 + 2 + 3) $
-----------------
C. B - A (must be a positive figure) $
-----------------
Section 6.11 Indebtedness:
A. Total Additional Indebtedness not
to exceed $20,000 at any one time
outstanding $
-----------------
Section 6.15 Investments and Acquisitions:
A. Investments in Subsidiaries
1. Additional Investments in Subsidiaries
in an aggregate principal amount not
exceeding 12.5% of Tangible Equity
Capital at any one time
outstanding $
-----------------
Section 6.18 Consolidated Non-Performing
Assets to Total Equity Capital
A. Consolidated Non-Performing Assets
1. Loans on nonaccrual status $
-----------------
2. Loans 90 days or more past
due and still accruing $
-----------------
3. Loans and leases restructured and
in compliance with modified terms $
-----------------
4. Other Real Estate Owned $
-----------------
5. Property acquired pursuant to
in substance foreclosures $
----------------
6. Total Consolidated Non-Performing
Assets (1 + 2 + 3 + 4 + 5) $
-----------------
B. Total Equity Capital $
-----------------
C. Ratio (A6/B) :1.00
-----------------
D. Maximum Permitted 0.40:1.00
-----------------
Section 6.19 Funded Debt to Tangible
Equity Capital:
A. Funded Debt $
-----------------
B. Total Equity Capital $
-----------------
C. Goodwill $
-----------------
D. Tangible Equity Capital (B-C) $
-----------------
E. Ratio A/D :1.00
-----------------
D. Maximum Permitted 0.25:1.00
-----------------
Section 6.20 Return on Average Assets:
A. Annualized Net Income $
-----------------
B. Total Consolidated Average Assets $
-----------------
C. Ratio (A/B) :1.00
-----------------
D. Minimum Required 0.25:1.00
-----------------
EXHIBIT "D"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between the
"Assignor") and (the "Assignee") is dated as of
, 19 . The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit
Agreement (which, as it may be amended, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1 of
Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings attributed to them
in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns
to the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations under
the Credit Agreement such that after giving effect to such assignment the
Assignee shall have purchased pursuant to this Assignment Agreement the
percentage interest specified in Item 3 of Schedule 1 of all outstanding
rights and obligations under the Credit Agreement relating to the facilities
listed in Item 3 of Schedule 1 and the other Loan Documents. The aggregate
Commitment (or Loans, if the applicable Commitment has been terminated)
purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement
(the "Effective Date") shall be the later of the date specified in Item 5 of
Schedule 1 or two Business Days (or such shorter period agreed to by the
Agent) after a Notice of Assignment substantially in the form of Exhibit "I"
attached hereto has been delivered to the Agent. Such Notice of Assignment
must include any consents required to be delivered to the Agent by Section
12.3.1 of the Credit Agreement. In no event will the Effective Date occur
if the payments required to be made by the Assignee to the Assignor on the
Effective Date under Sections 4 and 5 hereof are not made on the proposed
Effective Date. The Assignor will notify the Assignee of the proposed
Effective Date no later than the Business Day prior to the proposed
Effective Date. As of the Effective Date, (i) the Assignee shall have the
rights and obligations of a Lender under the Loan Documents with respect to
the rights and obligations assigned to the Assignee hereunder and (ii) the
Assignor shall relinquish its rights and be released from its corresponding
obligations under the Loan Documents with respect to the rights and
obligations assigned to the Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the
Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby.
The Assignee shall advance funds directly to the Agent with respect to all
Loans and reimbursement payments made on or after the Effective Date with
respect to the interest assigned hereby. [In consideration for the sale and
assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on
the Effective Date, an amount equal to the principal amount of the portion
of all Floating Rate Loans assigned to the Assignee hereunder and (ii) with
respect to each Eurodollar Loan made by the Assignor and assigned to the
Assignee hereunder which is outstanding on the Effective Date, (a) on the
last day of the Eurodollar Interest Period therefor or (b) on such earlier
date agreed to by the Assignor and the Assignee or (c) on the date on which
any such Eurodollar Loan either becomes due (by acceleration or otherwise)
or is prepaid (the date as described in the foregoing clauses (a), (b) or
(c) being hereinafter referred to as the "Payment Date"), the Assignee shall
pay the Assignor an amount equal to the principal amount of the portion of
such Eurodollar Loan assigned to the Assignee which is outstanding on the
Payment Date. If the Assignor and the Assignee agree that the Payment Date
for such Eurodollar Loan shall be the Effective Date, they shall agree to
the interest rate applicable to the portion of such Loan assigned hereunder
for the period from the Effective Date to the end of the existing Eurodollar
Interest Period applicable to such Eurodollar Loan (the "Agreed Interest
Rate") and any interest received by the Assignee in excess of the Agreed
Interest Rate shall be remitted to the Assignor. In the event interest for
the period from the Effective Date to but not including the Payment Date is
not paid by the Borrower with respect to any Eurodollar Loan sold by the
Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor
interest for such period on the portion of such Eurodollar Loan sold by the
Assignor to the Assignee hereunder at the applicable rate provided by the
Credit Agreement. In the event a prepayment of any Eurodollar Loan which is
existing on the Payment Date and assigned by the Assignor to the Assignee
hereunder occurs after the Payment Date but before the end of the Eurodollar
Interest Period applicable to such Eurodollar Loan, the Assignee shall remit
to the Assignor the excess of the prepayment penalty paid with respect to
the portion of such Eurodollar Loan assigned to the Assignee hereunder over
the amount which would have been paid if such prepayment penalty was
calculated based on the Agreed Interest Rate. The Assignee will also
promptly remit to the Assignor (i) any principal payments received from the
Agent with respect to Eurodollar Loans prior to the Payment Date and (ii)
any amounts of interest on Loans and fees received from the Agent which
relate to the portion of the Loans assigned to the Assignee hereunder for
periods prior to the Effective Date, in the case of Floating Rate Loans or
fees, or the Payment Date, in the case of Eurodollar Loans, and not
previously paid by the Assignee to the Assignor.]* In the event that either
party hereto receives any payment to which the other party hereto is
entitled under this Assignment Agreement, then the party receiving such
amount shall promptly remit it to the other party hereto.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the
Assignor a fee on each day on which a payment of interest or fees is made
under the Credit Agreement with respect to the amounts assigned to the
Assignee hereunder (other than a payment of interest or fees for the period
prior to the Effective Date or, in the case of Eurodollar Loans, the Payment
Date, which the Assignee is obligated to deliver to the Assignor pursuant to
Section 4 hereof). The amount of such fee shall be the difference between
(i) the interest or fee, as applicable, paid with respect to the amounts
assigned to the Assignee hereunder and (ii) the interest or fee, as
applicable, which would have been paid with respect to the amounts assigned
to the Assignee hereunder if each interest rate was of 1% less than the
interest rate paid by the Borrower or if the commitment fee was of 1%
less than the commitment fee paid by the Borrower, as applicable. In
addition, the Assignee agrees to pay % of the recordation fee required to
be paid to the Agent in connection with this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim created by the
Assignor. It is understood and agreed that the assignment and assumption
hereunder are made without recourse to the Assignor and that the Assignor
makes no other representation or warranty of any kind to the Assignee.
Neither the Assignor nor any of its officers, directors, employees, agents
or attorneys shall be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectability of any
Loan Document, including without limitation, documents granting the Assignor
and the other Lenders a security interest in assets of the Borrower or any
guarantor, (ii) any representation, warranty or statement made in or in
connection with any of the Loan Documents, (iii) the financial condition or
creditworthiness of the Borrower or any guarantor, (iv) the performance of
or compliance with any of the terms or provisions of any of the Loan
Documents, (v) inspecting any of the Property, books or records of the
Borrower, (vi) the validity, enforceability, perfection, priority,
condition, value or sufficiency of any collateral securing or purporting to
secure the Loans or (vii) any mistake, error of judgment, or action taken or
omitted to be taken in connection with the Loans or the Loan Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that
it has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking action under the Loan Documents, (iii) appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such
powers under the Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto,
(iv) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender, (v) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vi)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as
defined under ERISA and that its rights, benefits and interests in and under
the Loan Documents will not be "plan assets" under ERISA, [(vii) confirms
that it is an Eligible Assignee,]* [and (viii) attaches the forms prescribed
by the Internal Revenue Service of the United States certifying that the
Assignee is entitled to receive payments under the Loan Documents without
deduction or withholding of any United States federal income taxes].**
8. INDEMNITY. The Assignee agrees to indemnify and hold the
Assignor harmless against any and all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by
the Assignor in connection with or arising in any manner from the Assignee's
non-performance of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee
shall have the right pursuant to Section 12.3.1 of the Credit Agreement to
assign the rights which are assigned to the Assignee hereunder to any entity
or person, provided that (i) any such subsequent assignment does not violate
any of the terms and conditions of the Loan Documents or any law, rule,
regulation, order, writ, judgment, injunction or decree and that any consent
required under the terms of the Loan Documents has been obtained and (ii)
unless the prior written consent of the Assignor is obtained, the Assignee
is not thereby released from its obligations to the Assignor hereunder, if
any remain unsatisfied, including, without limitation, its obligations under
Sections 4, 5 and 8 hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement
and the Effective Date, the percentage interest specified in Item 3 of
Schedule 1 shall remain the same, but the dollar amount purchased shall be
recalculated based on the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached
Notice of Assignment embody the entire agreement and understanding between
the parties hereto and supersede all prior agreements and understandings
between the parties hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by
the internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement
in the manner set forth in the Credit Agreement. For the purpose hereof,
the addresses of the parties hereto (until notice of a change is delivered)
shall be the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above
written.
[NAME OF ASSIGNOR]
By:
--------------------------
Title:
--------------------------
--------------------------
--------------------------
[NAME OF ASSIGNEE]
By:
--------------------------
Title:
--------------------------
--------------------------
--------------------------
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement: Term Loan Agreement, dated
as of December 16, 1996, among Banknorth Group, Inc., the Lenders
named therein and The First National Bank of Chicago, as Agent.
2. Date of Assignment Agreement:_______________, 19__
3. Amounts (As of Date of Item 2 above):
<TABLE>
<CAPTION>
Facility Facility Facility Facility
1* 2* *3 *4
-----------------------------------------
<S> <C> <C> <C> <C>
a. Total of Commitments
(Loans)** under
Credit Agreement $ $ $ $
------ ------ ------ ------
b. Assignee's Percentage
of each Facility purchased
under the Assignment
Agreement*** % % % %
------ ------ ------ ------
c. Amount of Assigned Share in
each Facility purchased under
the Assignment Agreement $ $ $ $
------ ------ ------ ------
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $
------
5. Proposed Effective Date:
------
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
--------------------- --------------------------
Title: Title:
------------------ -----------------------
<F1> * Insert specific facility names per Credit Agreement
<F2> ** If a Commitment has been terminated, insert outstanding Loans in place
of Commitment
<F3> *** Percentage taken to 10 decimal places
</TABLE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
EXHIBIT "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
-------------
_________________, 19__
To: BANKNORTH GROUP, INC.*
----------------------
----------------------
[NAME OF AGENT]
----------------------
----------------------
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1").
Capitalized terms used herein and not otherwise defined herein shall have
the meanings attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and delivered
to ****[the Borrower and]**** the Agent pursuant to Section 12.3.2 of the
Credit Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of , 19 (the "Assignment"), pursuant to
which, among other things, the Assignor has sold, assigned, delegated and
transferred to the Assignee, and the Assignee has purchased, accepted and
assumed from the Assignor the percentage interest specified in Item 3 of
Schedule 1 of all outstandings, rights and obligations under the Credit
Agreement relating to the facilities listed in Item 3 of Schedule 1. The
Effective Date of the Assignment shall be the later of the date specified in
Item 5 of Schedule 1 or two Business Days (or such shorter period as agreed
to by the Agent) after this Notice of Assignment and any consents and fees
required by Sections 12.3.1 and 12.3.2 of the Credit Agreement have been
delivered to the Agent, provided that the Effective Date shall not occur if
any condition precedent agreed to by the Assignor and the Assignee has not
been satisfied.
* To be included only if consent must be obtained from the Borrower
pursuant to Section 12.3.1 of the Credit Agreement.
4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The
Assignor will confer with the Agent before the date specified in Item 5 of
Schedule 1 to determine if the Assignment Agreement will become effective on
such date pursuant to Section 3 hereof, and will confer with the Agent to
determine the Effective Date pursuant to Section 3 hereof if it occurs
thereafter. The Assignor shall notify the Agent if the Assignment Agreement
does not become effective on any proposed Effective Date as a result of the
failure to satisfy the conditions precedent agreed to by the Assignor and
the Assignee. At the request of the Agent, the Assignor will give the
Agent written confirmation of the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or before
the Effective Date the processing fee of $2,500 required by Section 12.3.2
of the Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor and
the Assignee request and direct that the Agent prepare and cause the
Borrower to execute and deliver new Notes or, as appropriate, replacements
notes, to the Assignor and the Assignee. The Assignor and, if applicable,
the Assignee each agree to deliver to the Agent the original Note received
by it from the Borrower upon its receipt of a new Note in the appropriate
amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the
funds, monies, assets or other consideration being used to make the purchase
pursuant to the Assignment are "plan assets" as defined under ERISA and that
its rights, benefits, and interests in and under the Loan Documents will not
be "plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under the
Loan Documents in accordance with the terms thereof. The Assignee
acknowledges that the Agent has no duty to supply information with respect
to the Borrower or the Loan Documents to the Assignee until the Assignee
becomes a party to the Credit Agreement.*
* May be eliminated if Assignee is a party to the Credit Agreement prior
to the Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By: By:
------------------------- -----------------------
Title: Title:
------------------------- -----------------------
ACKNOWLEDGED [AND CONSENTED TO] ACKNOWLEDGED [AND CONSENTED TO]
BY [NAME OF AGENT] BY [NAME OF BORROWER]
By: By:
------------------------- -----------------------
Title: Title:
------------------------- -----------------------
[Attach photocopy of Schedule 1 to Assignment]
EXHIBIT "E"
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTIONS
To: The First National Bank of Chicago, as Agent (the
"Agent") under the Agreement described below.
Re: Term Loan Agreement, dated as of December 16, 1996 (as the same may be
amended or modified from time to time, the "Credit Agreement"), among
Banknorth Group, Inc. (the "Borrower"), the Agent, and the Lenders
named therein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the
following standing money transfer instructions with respect to the proceeds
of Advances or other extensions of credit from time to time until receipt by
the Agent of a specific written revocation of such instructions by the
Borrower; provided, however, that the Agent may otherwise transfer funds as
hereafter directed in writing by the Borrower in accordance with Section
13.1 of the Credit Agreement or based on any telephonic notice made in
accordance with Section 2.13 of the Credit Agreement.
Facility Identification Number(s)
-----------------------------------
Customer/Account Name
-----------------------------------------------
Transfer Funds To
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
For Account No.
---------------------------------------------------
Reference/Attention To
----------------------------------------------
Authorized Officer
(Customer Representative) Date
---------------------------
- ------------------------------- --------------------------------
(Please Print) Signature
Bank Officer Name Date
---------------------------
- ------------------------------- --------------------------------
(Please Print) Signature
(Deliver Completed Form to Credit
Support Staff For Immediate Processing)
SCHEDULE "1"
LITIGATION AND CONTINGENT OBLIGATIONS
(See Section 5.7)
Im May 1996 a $2.6 million suit was filed against the Company in Windham
County Superior Court, Vermont entitled Klein vs Banknorth Group, Inc.
alleging sexual discrimination, sexual harassment, intentional infliction of
emotional distress and tort. The Company has denied all of the plaintiff's
allegations and believes that it has valid defenses to the plaintiff's
claims. At this time, discovery in the case is not yet completed. The
Company intends to defend itself vigorously against all charges. At this
time, no determination can be made as to the outcome of this litigation.
In addition to the above matter, the Company is a party to other legal
proceedings and claims which have arisen in the ordinary course of business.
Management does not believe the outcome of these other legal matters will
have a material effect on the Company's results of operations, cash flows or
financial position.
SCHEDULE "2"
SUBSIDIARIES AND OTHER INVESTMENTS
(See Sections 5.8 and 6.15)
<TABLE>
<CAPTION>
Amount of Percent Jurisdiction of
Investment In Owned By Investment Ownership Organization
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AS OF SEPTEMBER 30, 1996:
BANKNORTH GROUP, INC. SUBSIDIARIES:(1)
First Massachussetts Bank, N.A. Banknorth $73,359,661 100% Massachusetts
Worcester, MA
The Howard Bank, N.A. Banknorth 46,111,861 100% Vermont
Burlington, VT
First Vermont Bank & Trust Co. Banknorth 44,689,456 100% Vermont
Brattleboro, VT
Franklin Lamoille Bank & Trust Co. Banknorth 18,046,917 100% Vermont
St. Albans, VT
North American Bank Corporation Banknorth 12,912,620 100% New Hampshire
Farmington, NH
Farmington National Bank North American 12,912,620 100% New Hampshire
Farmington, NH Bank Corp
Granite Savings Bank & Trust Co. Banknorth 8,993,684 100% Vermont
Barre, VT
Woodstock National Bank Banknorth 4,700,045 100% Vermont
Woodstock, VT
Banknorth Mortgage Company First VT 5,414,926 100% Vermont
Brattleboro, VT
The Stratevest Group, N.A. Banknorth 3,044,496 100% Vermont
Burlington, VT
North Group Realty Banknorth 258,415 100% Vermont
St. Albans, VT
BALANCE AS OF SEPTEMBER 30, 1996:
BANKNORTH GROUP, INC. SUBSIDIARIES:
VENTURE CAPITAL FUNDS:
Vermont Venture Capital Howard 72,715 1.32% Vermont
First VT 105,346 3.29% Vermont
North Atlantic Venture Group First VT 152,355 3.36% Maine
Green Mountain Capital, LP Banknorth 91,811 3.27% Vermont
<F1> A Massachusetts security corporation is in the process of formation and
is expected to be incorporated on or before January 1, 1997.
</TABLE>
SCHEDULE "3"
INDEBTEDNESS AND LIENS
(See Sections 5.14, 6.11 and 6.16)
<TABLE>
<CAPTION>
Indebtedness Indebtedness Property Maturity and Amount
Incurred By Owed To Encumbered (If Any) of Indebtedness
- -----------------------------------------------------------------------
<S> <C> <C> <C>
None
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Banknorth Group, Inc.:
We consent to incorporation by reference in Registration Statements No.
33-38040 on Form S-8 and No. 33-53292 on Form S-8, of our report dated
January 24, 1997, relating to the consolidated balance sheets of Banknorth
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1996, which report appears in the annual report on Form 10-K/A of
Banknorth Group, Inc. for the fiscal year ended December 31, 1996. Our report
refers to the adoption of the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan", SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures", and SFAS NO. 122, "Accounting for
Mortgage Servicing Rights".
/s/ KPMG PEAT WARWICK LLP
Albany, New York
March 31, 1997
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