UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 Number)
100 Bank Street
P.O. BOX 5420
BURLINGTON, VERMONT
(Address of principal executive offices)
05401
(Zip code)
(802) 658-9959
(Registrant's telephone number, including area code)
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 [ ]
23,340,073 shares of common stock, $l.00 par, outstanding on September 30,
1999.
INDEX TO FORM 10-Q
PART I PAGE
Financial Highlights (Unaudited) 1
Item l Interim Financial Statements
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1999 and 1998 (Both unaudited) 2
Consolidated Balance Sheets at September 30, 1999 (Unaudited),
December 31, 1998 and September 30, 1998 (Unaudited) 3
Consolidated Statements of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1999
(Unaudited), June 30, 1999 (Unaudited), September 30, 1999
(Unaudited) and the Year Ended December 31, 1998 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (Both unaudited) 5
Notes to Unaudited Interim Consolidated Financial Statements 6
Independent Auditors' Review Report 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures about Market
Risk 15
PART II
Item 1 Legal Proceedings N/A
Item 2 Changes in Securities N/A
Item 3 Defaults Upon Senior Securities N/A
Item 4 Submission of Matters to a Vote of Security Holders N/A
Item 5 Other Information N/A
Item 6 Exhibits and Reports on Form 8-K N/A
Signatures 35
3rd Quarter 1999 Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
(In thousands, except share and per share data) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME DATA
Net income, as reported $ 13,693 $ 12,118 $ 41,282 $ 33,282
Less "non-operating" income items:
Net securities transactions 6 319 374 (7)
Bank-Owned Life Insurance claim -- -- 1,389 --
Net gain on curtailment of pension plan -- -- 2,577 --
--------------------------------------------------------
Total "non-operating" income items 6 319 4,340 (7)
Income taxes on "non-operating" income items 2 112 1,196 2
--------------------------------------------------------
Total "non-operating" income items, net of taxes 4 207 3,144 (9)
--------------------------------------------------------
Add "non-operating" expense items:
Merger and acquisition related expenses -- -- 1,233 --
Income taxes on "non-operating" expense items -- -- 445 --
--------------------------------------------------------
Total "non-operating" expense items, net of taxes -- -- 788 --
--------------------------------------------------------
Income from operations (1) $ 13,689 $ 11,911 $ 38,926 $ 33,291
Cash income from operations (2) $ 15,029 $ 12,704 $ 42,905 $ 35,669
SHARE AND PER SHARE DATA
Basic wtd. avg. number of shares 23,444,966 23,226,319 23,392,786 23,305,115
Basic earnings per share (Basic EPS)
Net income $ 0.58 $ 0.52 $ 1.76 $ 1.43
Income from operations (1) 0.58 0.51 1.66 1.43
Cash income from operations (2) 0.64 0.55 1.83 1.53
Diluted wtd. avg. number of shares 23,754,876 23,613,000 23,696,575 23,711,125
Diluted earnings per share (Diluted EPS)
Net income $ 0.58 $ 0.51 $ 1.74 $ 1.40
Income from operations (1) 0.58 0.50 1.64 1.40
Cash income from operations (2) 0.64 0.54 1.81 1.50
Shares outstanding, net of treasury shares, p.e. 23,340,073 23,086,148 23,340,073 23,086,148
Book value, p.e. $ 14.44 $ 14.47 $ 14.44 $ 14.47
Tangible book value, p.e. 11.29 13.29 11.29 13.29
Market price: (3)
High 35.25 42.75 37.25 42.75
Low 28.44 27.00 24.75 27.00
Average close 31.56 32.69 29.50 33.63
Last 29.88 29.25 29.88 29.25
Share volume (3) 3,035,589 1,699,941 12,646,236 6,865,764
Average monthly share volume (3) 1,011,863 566,647 1,405,137 762,863
Price/Tangible book value, p.e. 264.5% 220.1% 264.5% 220.1%
Price/Diluted EPS (last 4 qtrs.) 19.2 15.4 19.2 15.4
Price/Diluted income from operations per share (last 4 qtrs.) 14.0 16.1 14.0 16.1
AVERAGE BALANCES
Assets $ 4,445,154 $ 4,051,492 $ 4,391,272 $ 4,002,073
Earning assets 4,108,217 3,818,389 4,066,802 3,772,496
Loans 2,921,632 2,675,888 2,870,317 2,660,021
Goodwill 74,631 27,949 76,268 29,241
Deposits 3,584,264 3,199,599 3,583,718 3,138,686
Short-term borrowed funds 385,177 382,313 331,971 414,827
Long-term debt 72,577 74,534 73,346 60,117
Guaranteed preferred beneficial interests in Corporation's
subordinated debentures 30,000 30,000 30,000 30,000
Shareholders' equity 328,454 323,221 325,383 318,129
KEY RATIOS AND OTHER INFORMATION
Return on average assets:
Net income 1.22% 1.19% 1.26% 1.11%
Income from operations (1) 1.22 1.17 1.19 1.11
Cash income from operations (2) 1.34 1.24 1.31 1.19
Return on average shareholders' equity:
Net income 16.54 14.87 16.96 13.99
Income from operations (1) 16.53 14.62 15.99 13.99
Cash income from operations (2) 18.15 15.59 17.63 14.99
Net interest margin 4.42 4.26 4.42 4.35
Efficiency ratio 55.55 57.83 57.49 59.65
Total non-interest income from operations/total gross revenue (fte) 21.69 20.45 21.88 19.56
Stratevest total assets under management $ 4,063,489 $ 2,914,239 $ 4,063,489 $ 2,914,239
Managed assets with discretionary powers 2,706,242 1,607,368 2,706,242 1,607,368
Net loan charge-offs to average loans 0.49% 0.17% 0.24% 0.19%
Provision for loan losses to average loans 0.36 0.35 0.32 0.35
Allowance for loan losses to loans, p.e. 1.56 1.56 1.56 1.56
Allowance for loan losses coverage of non-performing loans, p.e. 311.71 184.26 311.71 184.26
Non-performing assets to total assets, p.e. 0.34 0.63 0.34 0.63
Total capital to risk-adjusted assets, p.e. 10.84 12.67 10.84 12.67
Tier 1 capital to risk-adjusted assets, p.e. 9.58 11.42 9.58 11.42
Tier 1 capital to quarterly average total assets (Leverage) 6.99 8.13 6.99 8.13
Tangible shareholders' equity to tangible assets, p.e. 5.98 7.60 5.98 7.60
<FN>
Note: All share and per share data has been restated to give retroactive
effect to stock splits.
<F1> Income from operations equals net income, excluding merger expenses,
net securities transactions, gain on sale of merchant processing, and
gain on curtailment of pension plan, net of income tax.
<F2> Cash income from operations represents income from operations,
excluding goodwill amortization expense, net of income tax effect.
<F3> Market price per share and share volume represents the historical
market price per share and share volume of Banknorth Group, Inc.
</FN>
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands, except per share data) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $62,315 $59,790 $183,627 $178,546
Interest on money market investments 261 567 674 1,151
Interest on securities available for sale 17,717 16,404 51,634 48,190
Interest on investment securities held to maturity 295 455 959 2,158
-------------------------------------------
Total interest and dividend income 80,588 77,216 236,894 230,045
Interest expense:
Deposits 29,786 30,538 90,033 89,318
Short-term borrowed funds 4,474 4,978 10,971 16,363
Long-term debt 1,131 1,179 3,389 2,871
-------------------------------------------
Total interest expense 35,391 36,695 104,393 108,552
-------------------------------------------
Net interest income 45,197 40,521 132,501 121,493
Less: provision for loan losses 2,600 2,335 6,875 7,010
-------------------------------------------
Net interest income after provision for loan losses 42,597 38,186 125,626 114,483
-------------------------------------------
Other operating income:
Income from trust and investment management fees 4,826 2,946 14,634 9,047
Service charges on deposit accounts 3,226 2,861 9,826 8,688
Mortgage banking income 724 1,812 3,338 4,101
Card product income 766 569 2,127 1,541
ATM income 759 618 2,049 1,623
Net securities transactions 6 319 374 (7)
Bank-Owned Life Insurance 744 567 1,835 1,660
Bank-Owned Life Insurance claim -- -- 1,389 --
Net gain on curtailment of pension plan -- -- 2,577 --
Other income 1,701 1,149 3,892 3,174
-------------------------------------------
Total other operating income 12,752 10,841 42,041 29,827
Other operating expenses:
Compensation 13,734 12,683 41,243 38,581
Employee benefits 3,118 3,022 9,728 9,410
Net occupancy 3,076 2,345 9,064 7,321
Equipment and software 2,627 2,352 7,611 7,045
Data processing 1,556 1,756 5,425 5,417
FDIC deposit insurance and other regulatory 357 284 957 847
Other real estate owned and repossession 140 239 347 737
Legal and professional 1,150 1,242 3,357 3,643
Printing and supplies 686 696 2,282 2,224
Advertising and marketing 1,260 916 3,586 2,948
Communications 956 739 2,859 2,190
Amortization of goodwill 2,233 1,321 6,631 3,964
Capital securities 789 789 2,367 2,367
Merger and acquisition related expenses -- -- 1,233 --
Other expenses 3,552 3,109 11,135 9,498
-------------------------------------------
Total other operating expenses 35,234 31,493 107,825 96,192
-------------------------------------------
Income before income tax expense 20,115 17,534 59,842 48,118
Income tax expense 6,422 5,416 18,560 14,836
-------------------------------------------
Net income $13,693 $12,118 $ 41,282 $ 33,282
===========================================
Basic earnings per share $ 0.58 $ 0.52 $ 1.76 $ 1.43
===========================================
Basic wtd. avg. number of shares 23,445 23,226 23,393 23,305
===========================================
Diluted earnings per share $ 0.58 $ 0.51 $ 1.74 $ 1.40
===========================================
Diluted wtd. avg. number of shares 23,755 23,613 23,697 23,711
===========================================
<FN>
All share and per share data has been restated to give retroactive effect
to stock splits.
See accompanying notes to unaudited interim consolidated financial statements.
</FN>
</TABLE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In thousands, except share and per share data) 1999 1998 1998
------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Cash and due from banks $ 135,958 $ 164,826 $ 107,142
Money market investments 100 4,900 17,700
-------------------------------------------
Cash and cash equivalents 136,058 169,726 124,842
-------------------------------------------
Securities available for sale, at fair value 1,135,573 1,127,865 1,078,694
Loans held for sale 17,462 42,996 33,314
Investment securities, held to maturity 16,454 20,545 24,389
(Fair value of $16,669 at September 30, 1999, $21,606 at
December 31, 1998 and $25,706 at September 30, 1998)
Loans 2,954,772 2,837,106 2,677,147
Less: allowance for loan losses 46,165 44,537 41,746
-------------------------------------------
Net loans 2,908,607 2,792,569 2,635,401
-------------------------------------------
Accrued interest receivable 24,117 21,244 22,425
Premises, equipment and software, net 50,930 50,936 44,427
Other real estate owned and repossessed assets 278 3,335 3,038
Goodwill, net 73,369 80,224 27,154
Capitalized mortgage servicing rights 6,029 5,351 5,012
Bank-owned life insurance 59,547 42,306 41,737
Other assets 53,767 45,784 26,750
-------------------------------------------
Total assets $4,482,191 $4,402,881 $4,067,183
===========================================
Liabilities, Guaranteed Preferred Beneficial Interests in
Corporation's Junior Subordinated Debentures and
Shareholders' Equity
Deposits:
Non-interest bearing $ 526,973 $ 546,192 $ 443,774
NOW accounts & money market savings 1,471,073 1,490,944 1,259,904
Regular savings 351,307 328,986 300,485
Time deposits $100 thousand and greater 278,202 239,071 238,201
Time deposits under $100 thousand 999,491 1,034,304 995,424
-------------------------------------------
Total deposits 3,627,046 3,639,497 3,237,788
-------------------------------------------
Short-term borrowed funds:
Federal funds purchased 25,770 30,445 22,400
Securities sold under agreements to repurchase 195,307 208,511 177,545
Borrowings from U.S. Treasury 29,453 12,678 18,757
Borrowings from Federal Home Loan Bank 115,000 30,000 131,000
-------------------------------------------
Total short-term borrowed funds 365,530 281,634 349,702
-------------------------------------------
Long-term debt:
Federal Home Loan Bank term notes 65,881 66,062 64,942
Bank term loan 5,990 8,263 8,913
-------------------------------------------
Total long-term debt 71,871 74,325 73,855
-------------------------------------------
Accrued interest payable 6,623 7,101 7,889
Other liabilities 44,132 49,062 33,932
-------------------------------------------
Total liabilities 4,115,202 4,051,619 3,703,166
-------------------------------------------
Guaranteed preferred beneficial interests in
Corporation's junior subordinated debentures 30,000 30,000 30,000
Shareholders' equity:
Preferred stock, $.01 par value; authorized 500,000
shares and none issued as of September 30, 1999 and
December 31, 1998 -- -- --
Common stock, $1.00 par value; authorized 70,000,000
shares and issued 23,548,392 shares as of September 30,
1999, and December 31, 1998, and authorized 38,000,000
shares and issued 23,493,148 as of September 30, 1998 23,548 23,548 23,493
Capital surplus 85,622 86,033 85,217
Retained earnings 249,149 221,919 229,993
Unamortized employee restricted stock (1,222) (1,266) (1,093)
Accumulated other comprehensive income (loss) (13,016) 3,509 10,031
Unearned ESOP shares (139) (463) (463)
Less: Common stock in treasury, at cost; 208,319 shares
as of September 30, 1999, 369,300 shares as of December 31,
1998, and 407,000 shares as of September 30, 1998 (6,953) (12,018) (13,161)
-------------------------------------------
Total shareholders' equity 336,989 321,262 334,017
-------------------------------------------
Total liabilities, guaranteed preferred beneficial
interests in Corporation's junior subordinated
debentures and shareholders' equity $4,482,191 $4,402,881 $4,067,183
===========================================
<FN>
See accompanying notes to unaudited interim consolidated financial statements.
</FN>
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unamortized
Employee
Number of Shares Common Capital Retained Restricted
Issued Treasury Stock Surplus Earnings Stock
------ -------- ------ ------- -------- -----------
(Dollars and shares in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 23,669 154 $23,669 $88,363 $209,766 $(1,550)
Comprehensive income:
Net income -- -- 28,920 --
Other comprehensive income, net of tax:
Unrealized net holding gains arising
during the year (pre-tax $1,147) -- -- -- --
Reclassification adjustment for net
gains realized in net income during
the year (pre-tax $519) -- -- -- --
Minimum pension liability adjustments -- -- -- --
Other comprehensive income -- -- -- --
Comprehensive income
Cash dividends declared ($ .64 per share) -- -- (15,072) --
Issuance of employee restricted stock (7) -- 41 -- (254)
Amortization of employee restricted stock -- 259 -- 538
Issuance of restricted stock units under
directors' deferred compensation plan, net -- 385 (37) --
Exercise of employee stock options (144) -- -- (1,920) --
Purchase of treasury stock 366 -- -- -- --
Fractional shares repurchased (1) (1) (16) -- --
Stock vested in ESOP -- -- -- --
Pooled company transactions
Purchase and retirement of treasury stock (120) 122 (120) (2,999) -- --
Treasury stock reissued for stock awards
and options exercised (122) -- -- 262 --
----------------------------------------------------------------
Balance, December 31, 1998 23,548 369 $23,548 $86,033 $221,919 $(1,266)
----------------------------------------------------------------
Comprehensive income:
Net income -- -- 13,454 --
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $3,947) -- -- -- --
Reclassification adjustment for net gains
realized in net income during the
quarter (pre-tax $218) -- -- -- --
Other comprehensive income (loss) -- -- -- --
Comprehensive income
Cash dividends declared ($ .36 per share) -- -- (8,348) --
Amortization of employee restricted stock -- (560) -- 412
Issuance of restricted stock units under
directors' deferred compensation plan -- 144 -- --
Exercise of employee stock options (25) -- -- (207) --
Stock vested in ESOP -- -- -- --
----------------------------------------------------------------
Balance, March 31, 1999 23,548 344 $23,548 $85,617 $226,818 $ (854)
----------------------------------------------------------------
Comprehensive income:
Net income -- -- 14,135 --
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $15,596) -- -- -- --
Reclassification adjustment for net gains
realized in net income during the
quarter (pre-tax $140) -- -- -- --
Other comprehensive income (loss) -- -- -- --
Comprehensive income
Amortization of employee restricted stock -- 284 -- (10)
Issuance of restricted stock units under
directors' deferred compensation plan, net (7) -- (10) (61) --
Exercise of employee stock options (44) -- -- (506) --
Stock vested in ESOP -- -- -- --
----------------------------------------------------------------
Balance, June 30, 1999 23,548 293 $23,548 $85,891 $240,386 $ (864)
----------------------------------------------------------------
Comprehensive income:
Net income -- -- 13,693 --
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $6,106) -- -- -- --
Comprehensive income
Cash dividends $ .18 per share -- -- (4,186) --
Issuance of employee restricted stock (20) -- 48 -- (655)
Amortization of employee restricted stock -- (295) -- 297
Issuance of restricted stock units under
directors' deferred compensation plan, net (11) -- (22) (210) --
Exercise of employee stock options (54) -- -- (534) --
Stock vested in ESOP -- -- -- --
----------------------------------------------------------------
Balance, September 30, 1999 23,548 208 $23,548 $85,622 $249,149 $(1,222)
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Unearned Other
ESOP Comprehensive Treasury Comprehensive
Shares Income (Loss) Stock Income (Loss) Total
-------- ------------- -------- ------------- -----
(Dollars and shares in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $(640) $ 3,318 $ (4,798) $318,128
Comprehensive income:
Net income -- -- $28,920 $ 28,920
-------
Other comprehensive income, net of tax:
Unrealized net holding gains arising
during the year (pre-tax $1,147) -- -- -- 805
Reclassification adjustment for net
gains realized in net income during
the year (pre-tax $519) -- -- -- (364)
Minimum pension liability adjustments -- -- -- (250)
-------
Other comprehensive income -- 191 -- 191 191
-------
Comprehensive income $29,111
=======
Cash dividends declared ($ .64 per share) -- -- -- (15,072)
Issuance of employee restricted stock -- -- 213 --
Amortization of employee restricted stock -- -- -- 797
Issuance of restricted stock units under
directors' deferred compensation plan, net -- -- -- 348
Exercise of employee stock options -- -- 4,864 2,944
Purchase of treasury stock -- -- (12,297) (12,297)
Fractional shares repurchased -- -- -- (17)
Stock vested in ESOP 177 -- -- 177
Pooled company transactions
Purchase and retirement of treasury stock -- -- (1,921) (5,040)
Treasury stock reissued for stock awards
and options exercised -- -- 1,921 2,183
----------------------------------- --------
Balance, December 31, 1998 $(463) $ 3,509 $(12,018) $321,262
----------------------------------- --------
Comprehensive income:
Net income -- -- -- $13,454 $ 13,454
-------
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $3,947) -- -- -- (2,506)
Reclassification adjustment for net gains
realized in net income during the
quarter (pre-tax $218) -- -- -- (143)
-------
Other comprehensive income (loss) -- (2,649) -- (2,649) (2,649)
-------
Comprehensive income $10,805
=======
Cash dividends declared ($ .36 per share) -- -- -- (8,348)
Amortization of employee restricted stock -- -- -- (148)
Issuance of restricted stock units under
directors' deferred compensation plan -- -- -- 144
Exercise of employee stock options -- -- 773 566
Stock vested in ESOP 184 -- -- 184
----------------------------------- --------
Balance, March 31, 1999 $(279) $ 860 $(11,245) $324,465
----------------------------------- --------
Comprehensive income:
Net income -- -- -- $14,135 $ 14,135
-------
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $15,596) -- -- -- (9,896)
Reclassification adjustment for net gains
realized in net income during the
quarter (pre-tax $140) -- -- -- (89)
-------
Other comprehensive income (loss) -- (9,985) -- (9,985) (9,985)
-------
Comprehensive income $ 4,150
-------
Amortization of employee restricted stock -- -- -- 274
Issuance of restricted stock units under
directors' deferred compensation plan, net -- -- 220 149
Exercise of employee stock options -- -- 1,360 854
Stock vested in ESOP 70 -- -- 70
----------------------------------- --------
Balance, June 30, 1999 $(209) $ (9,125) $ (9,665) $329,962
----------------------------------- --------
Comprehensive income:
Net income -- -- -- $13,693 $ 13,693
-------
Other comprehensive income, net of tax:
Unrealized net holding losses arising
during the quarter (pre-tax $6,106) -- (3,891) -- (3,891) (3,891)
-------
Comprehensive income $ 9,802
-------
Cash dividends $ .18 per share -- -- -- (4,186)
Issuance of employee restricted stock -- -- 607 --
Amortization of employee restricted stock -- -- -- 2
Issuance of restricted stock units under
directors' deferred compensation plan, net -- -- 362 130
Exercise of employee stock options -- -- 1,743 1,209
Stock vested in ESOP 70 -- -- 70
----------------------------------- --------
Balance, September 30, 1999 $(139) $(13,016) $ (6,953) $336,989
----------------------------------- --------
<FN>
Note: Cash dividends per share represent historical dividends of Banknorth
Group, Inc. All share and per share data has been restated to give
retroactive effect of stock splits.
See accompanying notes to unaudited interim consolidated financial statements.
</FN>
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 41,282 $ 33,282
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of premises, equipment and software 5,523 5,068
Amortization of goodwill 6,631 3,964
Net amortization of premiums on securities available for sale 5,323 3,842
Net accretion of discounts on investment securities (66) (184)
Provision for loan losses 6,875 7,010
Adjustment of other real estate owned to estimated fair value (7) 321
Provision for deferred tax (benefit) expense 593 (998)
Amortization of employee restricted stock 128 343
Issuance of restricted stock units under directors' deferred
compensation plan, net 423 237
Net securities transactions (374) (7)
Net gain on sale of other real estate owned and repossessed assets (122) (392)
Proceeds from sale of loans held for sale 193,784 235,646
Originations and purchases of loans held for resale (166,419) (241,271)
Net gain on sale of loans held for sale (1,831) (2,731)
Net increase in cash surrender value of bank owned life insurance (1,835) (1,660)
Decrease (increase) in interest receivable (2,873) 852
(Decrease) increase in interest payable (478) 359
Decrease (increase) in other assets and other intangibles 885 (4,679)
Increase (decrease) in other liabilities (4,930) 4,447
ESOP compensation expense 324 177
----------------------------
Total adjustments 41,554 10,344
----------------------------
Net cash provided by operating activities 82,836 43,626
----------------------------
Cash flows from investing activities:
Proceeds from maturity and call of securities available for sale 267,323 234,689
Proceeds from maturity and call of investment securities held to maturity 4,173 34,421
Proceeds from sale of securities available for sale 16,869 121,818
Purchase of securities available for sale (322,872) (469,510)
Proceeds from sale of OREO and repossessed assets 3,552 2,968
Net increase in originated loans (123,279) (42,008)
Capital expenditures (5,950) (4,194)
Purchase of bank owned life insurance (15,406) 0
----------------------------
Net cash used in investing activities (175,590) (121,816)
----------------------------
Cash flows from financing activities:
Net (decrease) increase in deposits (12,451) 184,154
Net increase (decrease) in short-term borrowed funds 83,896 (100,233)
Purchase of treasury stock -- (17,197)
Issuance of long-term debt 140 37,468
Payments on long-term debt (2,594) (5,862)
Exercise of employee stock options 2,629 3,644
Dividends paid (12,534) (11,310)
----------------------------
Net cash provided by financing activities 59,086 90,664
----------------------------
Net (decrease) increase in cash and cash equivalents (33,668) 12,474
----------------------------
Cash and cash equivalents at beginning of period 169,726 112,368
----------------------------
Cash and cash equivalents at end of period $ 136,058 $ 124,842
============================
Additional disclosure relative to statement of cash flows:
Interest paid $ 104,871 $ 108,253
============================
Taxes paid $ 13,716 $ 14,248
============================
Supplemental schedule of non-cash investing and financing activities:
Net transfer of loans to OREO and repossessed assets $ 366 $ 3,140
Adjustment to securities available for sale to fair value, net of tax (16,524) 6,713
<FN>
See accompanying notes to unaudited interim consolidated financial statements.
</FN>
</TABLE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited interim consolidated financial statements
include the accounts of the Company and its subsidiaries, Evergreen
Bank, N.A., First Massachusetts Bank, N.A., North American Bank
Corporation and its wholly owned subsidiary, Farmington National Bank,
The Howard Bank, N.A., First Vermont Bank and Trust Company and its
wholly owned subsidiary, Banknorth Mortgage Company, Franklin Lamoille
Bank, Granite Savings Bank and Trust Company, The Stratevest Group,
N.A., North Group Realty, Inc., and Banknorth Capital Trust I. It is
the opinion of management that the accompanying unaudited interim
consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and reflect all adjustments which
are considered necessary to report fairly the financial position as of
September 30, 1999 and 1998, the results of their operations for the
three and nine months ended September 30, 1999 and 1998, and cash
flows for the nine months ended September 30, 1999 and 1998. The
accompanying unaudited interim consolidated financial statements
should be read in conjunction with Banknorth Group, Inc.'s
consolidated year end financial statements, including notes thereto,
which are included in Banknorth Group, Inc.'s 1998 annual report to
shareholders on Form 10-K. On December 31, 1998, Evergreen Bancorp,
Inc. and its wholly owned subsidiary Evergreen Bank, N.A. ("Evergreen")
were merged with and into Banknorth. The merger was accounted for as
a pooling of interests and, accordingly, the financial information for
all prior periods has been restated to present the combined financial
condition and results of operations of both companies as if the merger
had been in effect for all periods presented.
2. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Issuable shares (such as
those related to the directors' restricted stock units), and
returnable shares (such as restricted stock awards) are considered
outstanding common shares and are included in the computation of basic
earnings per share as of the date that all necessary conditions have
been satisfied. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity (such as the Company's stock options). All share and per share
data has been restated to give retroactive effect to stock splits.
The following table provides calculations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------------------------
Dollars in thousands, 1999 1998
except for per share data ---------------------------------- -----------------------------------
Weighted Weighted
Net Average Per Share Net Average Per Share
Income Shares Amount Income Shares Amount
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $13,693 23,444,966 $0.58 $12,118 23,226,319 $0.52
Effect of dilutive securities:
Stock options 284,480 357,851
Restricted stock awards 25,430 28,830
---------- ----------
Diluted earnings per share $13,693 23,754,876 $0.58 $12,118 23,613,000 $0.51
=======================================================================
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------------------
Dollars in thousands, 1999 1998
except for per share data ---------------------------------- -----------------------------------
Weighted Weighted
Net Average Per Share Net Average Per Share
Income Shares Amount Income Shares Amount
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $41,282 23,392,786 $1.76 $33,282 23,305,115 $1.43
Effect of dilutive securities:
Stock options 274,613 377,078
Restricted stock awards 29,176 28,932
---------- ----------
Diluted earnings per share $41,282 23,696,575 $1.74 $33,282 23,711,125 $1.40
=======================================================================
</TABLE>
3. In June 1998, the Financial Accounting Standards Board ("FASB"),
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
During the second quarter of 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers
the effective date of SFAS No. 133 by one year from fiscal quarters of
fiscal years beginning after June 15, 1999 to fiscal quarters of
fiscal years beginning after June 15, 2000. Management is currently
evaluating the impact of this Statement on the Company's consolidated
financial statements.
4. On June 2, 1999, Banknorth announced that it and Peoples Heritage
Financial Group, Inc. ("PHFG") had entered into an Agreement and Plan
of Merger (the "Agreement"), which sets forth the terms and conditions
pursuant to which the Company would be merged with and into PHFG (the
"Merger") and PHFG would change its name to "Banknorth Group, Inc."
The Agreement provides, among other things, that as a result of the
Merger, each outstanding share of common stock of the Company will be
converted into the right to receive 1.825 shares of PHFG's common
stock, plus cash in lieu of any fractional share interest.
Consummation of the Merger is subject to a number of conditions
including (i) the approval of the Agreement and Merger by the
shareholders of the Company and PHFG, (ii) the receipt of requisite
regulatory approvals, (iii) receipt by the parties of an opinion of
counsel as to certain tax consequences of the Merger, (iv) receipt by
the parties of letters from their independent public accountants
stating their opinion that the Merger shall qualify for pooling of
interests accounting treatment and (v) satisfaction of certain other
conditions. The transaction will create a $17 billion multi-state
banking and financial services company. It is expected that the
transaction will be closed early in 2000.
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Banknorth Group, Inc.
We have reviewed the accompanying consolidated balance sheets of
Banknorth Group, Inc. and subsidiaries ("the Company") as of September 30,
1999 and 1998, and the related consolidated statements of income for the
three and nine month periods ended September 30, 1999 and 1998, and the
consolidated statements of changes in shareholders' equity for the three
month periods ended March 31, 1999, June 30, 1999, and September 30, 1999,
and the consolidated statements of cash flows for the nine-month periods
ended September 30, 1999 and 1998. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Banknorth Group, Inc.
and subsidiaries as of December 31, 1998, and the related consolidated
statements of income and cash flows for the year then ended (not presented
herein) and the consolidated statement of changes in shareholders' equity for
the year then ended; and in our report dated January 22, 1999, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1998 and the consolidated statements of changes in
shareholders' equity for the year ended December 31, 1998, are fairly stated,
in all material respects, in relation to the consolidated balance sheet and
statement of changes in shareholders' equity from which it has been derived.
/S/ KPMG LLP
Albany, New York
October 22, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial review which follows focuses on the factors affecting
the consolidated financial condition and results of operations of Banknorth
Group, Inc. ("the parent") and its subsidiaries during the three and nine
months ended September 30, 1999, with comparisons to 1998, as applicable.
Collectively, the parent company and its subsidiaries are referred to herein
as "Banknorth" or "Company". 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
unaudited consolidated interim financial statements, as well as the 1998
annual report to shareholders' should be read in conjunction with this
review. Amounts in prior period consolidated financial statements are
reclassified whenever necessary to conform to the 1999 presentation. On
December 31, 1998, the shareholders of Banknorth Group, Inc. and Evergreen
Bancorp, Inc. ("Evergreen") of Glens Falls, New York approved a merger
between the two organizations. Evergreen was merged with and into Banknorth
on that date with each issued and outstanding share of Evergreen common
stock converted into 0.9 shares of Banknorth common stock. This resulted in
the issuance of approximately 7.9 million in additional shares of Banknorth
common stock. All of the historical financial information in this quarterly
report has been restated for the effect of this transaction, which was
accounted for as a pooling-of-interests.
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
banking organizations as well as non-bank providers of various
financial services;
* the effect of certain customers and vendors of critical systems or
services failing to adequately address issues relating to becoming
year 2000 compliant;
* 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;
* the effect of lower than expected revenues or cost savings from
the recently completed merger with Evergreen and acquisition of
the Berkshire branches;
* the effect of higher than expected costs and unanticipated
difficulties related to the cost of integration of acquired
businesses and operations; and
* the effect of other risks and uncertainties discussed throughout
this report as well as those discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
The Company wishes to caution readers not to place undue reliance on
any forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including those described above, could
cause the Company's actual results or circumstances for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions, which may be
made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
MERGER WITH PEOPLES HERITAGE FINANCIAL GROUP, INC.
On June 2, 1999, Banknorth announced that it and Peoples Heritage
Financial Group, Inc. ("PHFG") had entered into an Agreement and Plan of
Merger (the "Agreement"), which sets forth the terms and conditions pursuant
to which the Company would be merged with and into PHFG (the "Merger") and
PHFG would change its name to "Banknorth Group, Inc." The Agreement
provides, among other things, that as a result of the Merger, each
outstanding share of common stock of the Company will be converted into the
right to receive 1.825 shares of PHFG's common stock, plus cash in lieu of
any fractional share interest. Consummation of the Merger is subject to a
number of conditions including (i) the approval of the Agreement and the
Merger by the shareholders of the Company and PHFG, (ii) the receipt of
requisite regulatory approvals, (iii) receipt by the parties of an opinion
of counsel as to certain tax consequences of the Merger, (iv) receipt by the
parties of letters from their independent public accountants stating their
opinion that the Merger shall qualify for pooling-of-interests accounting
treatment and (v) satisfaction of certain other conditions.
The transaction will create a $17 billion multi-state banking and
financial services company. It is expected that the transaction will be
closed in early 2000. The operational integration of the two companies is
expected to be completed during the second quarter of 2000.
OVERVIEW
Banknorth's net income was $13.7 million, representing basic earnings
per share ("EPS") of $.58 and diluted EPS of $.58, for the three months
ended September 30, 1999, compared to $12.1 million, or $.52 basic EPS, and
$.51 diluted EPS for the three months ended September 30, 1998. For the
year to date period ended September 30, 1999, net income was $41.3 million,
representing basic EPS of $1.76 and diluted EPS of $1.74 as compared to
$33.3 million, or $1.43 basic EPS, and $1.40 diluted EPS.
As of September 30, 1999, the Company completed the core banking
systems and private banking conversions related to the Evergreen merger. As
a result, the Company recorded and paid $1.2 million in additional one-time
expenses, primarily in data conversion and staff expenses. Additionally,
the Company recorded a net gain of $2.6 million related to the curtailment
of the Evergreen pension plan resulting from the combination of the former
Evergreen and Banknorth pension plans following the merger. The net result
of the merger-related activities was a net pre-tax gain of $1.3 million, or
$735 thousand in after tax impact. This represents a $.03 impact on the
diluted EPS for the nine months ended September 30,1999.
ACQUISITION ACTIVITY
Evergreen Bancorp, Inc.
On December 31, 1998, the shareholders of Banknorth and Evergreen
approved a merger between the two organizations. Evergreen was merged with
and into Banknorth with each issued and outstanding share of Evergreen
common stock, together with associated preferred purchase rights, converted
into 0.9 shares of Banknorth common stock, plus cash in lieu of any
fractional share interest. This resulted in the issuance of approximately
7.9 million in additional shares of Banknorth common stock, bringing
Banknorth's outstanding shares to approximately 23.2 million immediately
following the merger.
In order to effect the merger, one-time merger related expenses of
$21.3 million ($15.9 million after-tax impact), were incurred in the fourth
quarter of 1998 and the first half of 1999. The majority of these expenses
were employment-related costs and data processing conversion and termination
costs. Additionally, as mentioned above, the Company recorded in the first
quarter of 1999, a net gain of $2.6 million on the curtailment of the
Evergreen pension plan. As of September 30, 1999, the systems conversion
was completed in all areas.
At December 31, 1998, after payments of certain one-time merger
related expenses, the Company had a remaining accrued liability for merger
costs of approximately $15.4 million, of which $11.4 million was paid during
the first nine months of 1999. As of September 30, 1999, $4.0 million of
these liabilities remain and primarily represent the accrual for the
supplemental early retirement plan for certain senior executives of Evergreen
Bank, N.A.
The merger qualified as a tax-free reorganization and was accounted
for as a pooling-of-interests. All historical financial information in this
quarterly report has been restated for the combination of the two companies.
First Massachusetts Bank - Berkshire Region
On November 13, 1998, Banknorth completed the purchase from
BankBoston, N.A. of ten full-service branches, one limited service branch
and nine remote ATM locations, as well as private banking relationships
associated with the branches in the Berkshire region of Massachusetts.
In connection with the Berkshire acquisition, Banknorth paid
BankBoston, N.A. a fixed premium of $52.5 million. At the closing, the
deposits of the Berkshire branches were approximately $290.1 million,
including accrued interest. Banknorth also purchased in the transaction
commercial loans associated with the branches with a net book balance as of
November 13, 1998 of approximately $73.6 million and a portfolio of consumer
loans originated in the branches with a net book balance of $35.8 million.
In addition, the Company received approximately $122.5 million in cash as
consideration for the net liabilities assumed.
The private banking relationships associated with these branches,
which as of closing represented approximately $1.0 billion of trust and
investment assets under management, including approximately $750 million in
discretionary trust assets under management, were acquired by Stratevest.
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 $54.2 million, substantially all of which is deductible
for income tax purposes, and is being amortized over fifteen years on a
straight-line basis. The one-time acquisition-related expenses of $1.8
million pre-tax, or $1.2 million after-tax, were recorded in the fourth
quarter of 1998.
The results of operations for the branches and private banking
relationships acquired are included in Banknorth's consolidated financial
statements from the date of acquisition forward.
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 92.02% and 94.20% of total assets at September 30, 1999
and 1998, 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 long-term debt.
Earning Assets
Earning assets were $4.1 billion during the third quarter of 1999, an
increase of $289.8 million, or 7.6% from the third quarter of 1998. For the
year to date period, earning assets were $4.1 billion as compared to $3.8
billion in 1998. Table A, Mix of Average Earning Assets, shows how the mix
of earning assets has changed as compared to the same period in 1998.
Loans. Average total loans of $2.9 billion during the three months
ended September 30, 1999, were $245.7 million, or 9.2%, above the same
period of 1998. The increase is primarily attributable to the Berkshire
branch acquisition completed in November 1998. The Berkshire acquisition
added approximately $100 million on average to the loan portfolio. The
remainder of the increase is attributable to strong loan demand in the
Massachusetts market and improved lending activity in Vermont and New
Hampshire. The strong commercial loan demand offset a decline in the real
estate mortgage portfolio as a result of refinancing activity. Table B,
Loan Portfolio, provides the detailed components of the loan portfolio as of
September 30, 1999 and 1998, as well as December 31, 1998.
Given the current economic indicators and interest rate environment,
management believes that the Company will see continued but slowing growth
in the loan portfolio during 1999. If interest rates rise, a greater slow
down in lending activity could be expected.
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 $17.5 million as of September 30, 1999, $15.9
million lower than the $33.3 million balance outstanding as of September 30,
1998. The production level experienced in 1998 was at record high levels for
the Company as refinancing activity was strong throughout the year given the
low interest rate environment. Interest rates rose throughout 1999 and
refinancing activity slowed. The current production in 1999 is primarily
new mortgage originations as the home buying season is active and interest
rates remain relatively low. Management expects the level of mortgage
originations to continue at the more normal level, as seen to date in 1999,
for the remainder of 1999.
Securities available for sale. This portfolio is managed on a total
return basis with the objective of exceeding, by 50 basis points, the return
that would be experienced if investing solely in U.S. Treasury instruments.
This category of investments is used primarily for liquidity purposes while
simultaneously producing earnings, and is managed under prudent policy
limits established for average duration, average convexity and average
portfolio life.
Period end balances in securities available for sale totaled
approximately $1.1 billion at both September 30, 1999 and 1998, an increase
of $56.9 million or 5.3%. The balances include a fair value adjustment
reflecting a net unrealized loss of $20.1 million at September 30, 1999,
compared to a net unrealized gain of $16.2 million at September 30, 1998.
The increase in securities available for sale is primarily the result of the
cash flow generated by the investment securities held to maturity portfolio
re-invested in the available for sale portfolio and the investing of excess
liquidity as a result of deposit growth. Average balances for securities
available for sale for the three months ended September 30, 1999 and 1998
were $1.1 billion and $1.0 billion, respectively.
Investment securities held to maturity. The designation "investment
securities held to maturity" 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 September 30, 1999, the balance of securities in this category was $16.5
million, $7.9 million below the balance at September 30, 1998. The primary
cause of the reduced portfolio size was the reinvestment of cash flows from
maturities during 1998 and thus far in 1999 into the available for sale
portfolio.
Table C, Securities Available for Sale and Investment Securities
contains details of investment securities at September 30, 1999 and 1998, as
well as December 31, 1998.
Money market investments. Money market investments, primarily Federal
funds sold, averaged $20.1 million during the third quarter of 1999, down
$20.3 million, or 50.2%, from the third quarter of 1998. The decline reflects
the overnight cash needs of the Company at any point in time. 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. Income from earning assets was $81.4 million
for the three-month period ended September 30, 1999, as compared to $77.6
million for the same period in 1998. The increase of $3.8 million, or 4.9%,
resulted from the increases in earning assets through acquisition and normal
growth described previously. Total earning assets during the third quarter
of 1999 of $4.1 billion yielded 7.82%, while in 1998 earning assets of $3.8
billion yielded 8.08%. The increase in earning assets contributed $6.3
million towards the increase in interest income, while the decline in yield
of 26 basis points resulted in $2.5 million less in interest income. Table
D, Average Balances, Yields and Net Interest Margins and Table F, Volume and
Yield Analysis contain details of changes by category of interest income
from earning assets.
For the nine months ended September 30, 1999 and 1998, income from
earning assets was $239.0 million and $231.2 million, respectively. Total
earning assets of $4.1 billion, increased $294.3 million or 7.8% over the
nine month average of 1998. The yield on earning assets was 7.84% during
the first nine months of 1999 as compared to 8.21% during the same period of
1998. During the first nine months of 1999, the increase in earning asset
contributed $18.1 million towards the increase over the same period of 1998,
while the 37 basis point reduction in yield caused a $10.3 million decrease.
Funding Sources
Banknorth utilizes various traditional sources of funding to support
its earning asset portfolios. Average total net funding increased by $385.6
million, or 10.5%, in the third quarter of 1999 in comparison to the average
for the quarter ended September 30, 1998. Table E, Average Sources of
Funding, presents the various categories of funds used and the corresponding
average balances for the second quarter of 1999 and 1998.
Deposits. Total core deposits averaged $3.3 billion during the three
month period ended September 30, 1999, $347.0 million, or 11.6%, over the
third quarter average of 1998. The majority of the increase was the result
of the Berkshire branch acquisition, which contributed $287.6 million on
average in deposits during the third quarter of 1999. Overall, NOW and
money market accounts increased by $215.6 million, and regular savings
increased $43.4 million. Retail time deposits in denominations less than
$100,000 decreased slightly by $5.1 million. In the current low rate
environment, the indexed money market product offered is an attractive
option for our customers. Total core deposits represented 82.6% of total
net funding during the third quarter of 1999 as compared to 81.8% during the
same quarter of 1998.
Purchased liabilities. Total purchased liabilities increased on
average by $41.5 million to $695.5 million during the third quarter of 1999
from $654.0 million during the third quarter of 1998. Short-term borrowed
funds increased $2.9 million from $382.3 million for the three months ended
September 30, 1998 to $385.2 million for the three months ended September
30, 1999. Federal funds purchased and securities sold under agreements to
repurchase increased by $10.3 million and $13.6 million, respectively, while
short-term borrowings from the FHLB decreased $23.2 million on average from
the quarter ended September 30, 1998 to September 30, 1999. The decrease in
FHLB borrowings was the result of paydowns and the refinancing of
approximately $30.0 million to longer-term debt at more favorable rates. Long-
term advances from the Federal Home Loan Bank increased on average from $65.0
million for the three months ended September 30, 1998 to $65.9 million for the
three months ended September 30, 1999. Scheduled maturities of short-term
advances were replaced with long-term advances in response to movements in
interest rates while maintaining the Company's interest rate risk profile
within established guidelines.
Securities sold under repurchase agreements continued to be an
important source of purchased liabilities. Securities sold under repurchase
agreements averaged $191.1 million or 27.5% of the purchased liabilities for
the third quarter of 1999. This is an increase of $13.6 million from the
average in the third quarter of 1998. The Company enters into sales of
securities under short-term, usually overnight, fixed coupon, repurchase
agreements with customers. Such agreements are treated as financings and
the obligations to repurchase securities sold are reflected as liabilities.
Bank Debt. Average bank debt of $6.7 million during the third quarter
of 1999 represented primarily the 1994 funding of the acquisition of North
American Bank Corporation. The balance of $6.0 million at September 30, 1999
will be repaid within five years. Additionally, there was $280 thousand in
bank debt at September 30, 1999 related to the funding of the Employee Stock
Ownership Plan of Evergreen Bank. This loan is an adjustable rate loan that
will mature in 2000.
Interest expense summary. Total interest expense for the three months
ended September 30, 1999 was $35.4 million, a decrease of $1.3 million or
3.6%, as compared to the same period of 1998. The decrease in interest
expense was the result of the Company lowering its cost of funding given the
significant increase in core deposits. Increased levels of interest-bearing
liabilities contributed $2.9 million to the increase in interest expense
while the decline in rates paid decreased interest expense by $4.2 million.
The cost of interest bearing liabilities was 3.99% in the third quarter of
1999, a decrease of 52 basis points from the third quarter of 1998.
Total interest-bearing liabilities averaged $3.5 billion during the
nine months ended September 30, 1999, $282.5 million, or 8.8%, higher than
in 1998. The cost of funds was 4.01% in 1999 as compared to 4.53% in 1998.
Table D, Average Balances, Yields and Net Interest Margins and Table F,
Volume and Yield Analysis contain details of changes by category of interest
bearing liabilities and interest expense.
Net Interest Income
Net interest income totaled $46.0 million and $40.9 million for the
three-month periods ended September 30, 1999 and 1998, respectively. The
net interest margin was 4.42% during the second quarter of 1999 as compared
to 4.26% during the same period of 1998. The yield on earning assets of
7.82% for the third quarter of 1999, was 26 basis points below the
corresponding period of the prior year. Interest rates generally decreased
during 1998 and stabilized in 1999. This trend of the decreasing yield on
earning assets was experienced throughout 1998 and 1997. In the third
quarter of 1999, the cost of funds declined 52 basis points from the third
quarter of 1998. This decline in the cost of funds was greater than the
decline in the yield on earning assets, resulting in a slight increase in
the net interest margin in the third quarter of 1999 compared to the third
quarter of 1998.
Net interest income totaled $134.6 million for the nine months ended
September 30, 1999, compared to $122.7 million for the same period of 1998.
The net interest margin increased slightly from 4.35% for the nine months
ended September 30, 1998 to 4.42% for the nine months ended September 30,
1999. As noted earlier, the decline in the cost of funds exceeded the
decline in the yield in earning assets during this time period.
RISK MANAGEMENT
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 ("NPAs"). Non-performing assets include non-
performing loans, which are those loans in a non-accrual status, loans which
have been classified as troubled debt restructurings and loans past due 90
days or more and still accruing interest. Also included in the total non-
performing assets are foreclosed and repossessed non-real estate assets.
NPAs were $15.1 million at September 30, 1999, a decrease of $10.6
million, or 41.3%, from September 30, 1998 and a decrease of $9.2 million,
or 38.0%, from December 31, 1998. The ratio of NPAs to loans plus other real
estate owned and repossessed assets at September 30, 1999, was .51% compared
to .96% at September 30, 1998. The decrease during this period was primarily
due to the removal of one large commercial credit from troubled debt
restructuring ("TDR") status in January 1999. The credit was designated a
TDR in the third quarter of 1998. Prinicipal and interest payments were
current for the remainder of 1998, and since the loan was rewritten at a
market interest rate, the TDR status was removed in January of 1999. Table
G, Non-Performing Assets, contains the details for September 30, 1999 and
1998, and December 31, 1998.
Non-performing loans ("NPLs") at September 30, 1999 were $14.8
million, a net decrease of $7.8 million, or 34.6%, from September 30, 1998.
Delinquency rates in the residential portfolio are consistent with trends
seen regionally and nationally. Given the possibility of further 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 NPLs and subsequent charge-offs, management does not expect it
to materially affect the Company's performance during the year.
Total other real estate owned and repossessed assets were $278
thousand at September 30, 1999, down $2.8 million from one year earlier and
$3.1 million from December 31, 1998.
Allowance for loan losses and provision. The allowance for loan losses
is maintained at a level estimated by management to provide adequately for
risk of loss inherent in the current loan portfolio. The adequacy of the
allowance for loan losses is monitored quarterly. It is assessed for
adequacy using a methodology designed to ensure the level of the allowance
reasonably reflects the loan portfolio's risk profile. It is also evaluated
to ensure that it is sufficient to absorb all probable and reasonably
estimable credit losses inherent in the current loan portfolio.
For purposes of evaluating the adequacy of the allowance, the Company
considers a number of significant factors that affect the collectibility of
the portfolio. For individually analyzed loans, these include estimates of
loss exposure, which reflect the facts and circumstances that affect the
likelihood of repayment of such loans as of the evaluation date. For
homogenous pools of loans, estimates of the Company's exposure to credit
loss reflect a thorough assessment of a number of factors, which could
affect loan collectibility. These factors include: the size, trend,
composition, and nature; changes in lending policies and procedures,
including underwriting standards and collection, charge-off and recovery
practices; trends experienced in non-performing and delinquent loans; past
loss experience; economic trends in the Company's market; portfolio
concentrations that may affect loss experienced across one or more
components of the portfolio; the effect of external factors such as
competition, legal and regulatory requirements; and, the experience,
ability, and depth of lending management and staff. In addition, various
regulatory agencies, as an integral component 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 based on
their judgement about information available to them at the time of their
examination, which may not be currently available to management.
After a thorough consideration and validation of the factors discussed
above, required additions to the allowance for loan losses are made
periodically by charges to the provision for loan losses. These charges are
necessary to maintain the allowance at a level which management believes is
reasonably reflective of overall risk of loss inherent in the loan
portfolio. While management uses available information to recognize losses
on loans, additions to the allowance may fluctuate from one reporting period
to another. These fluctuations are reflective of changes in risk associated
with portfolio content and/or changes in management's assessment of any or
all of the determining factors discussed above.
Table H, Summary of Loan Loss Experience, includes an analysis of the
changes to the allowance for the three months ended September 30, 1999 and
1998, as well as for the year ended December 31, 1998. Loans charged off in
the first nine months of 1999 were $9.3 million, or an annualized .43% of
average loans, comparable to the prior year's results when charge-offs
totaled $8.2 million, or an annualized .41% of average loans. Recoveries on
loans previously charged off were $4.0 million for the nine months ended
September 30, 1999 compared to $4.4 million for the same period of 1998.
The provision for loan losses ("provision") for the three months ended
September 30, 1999 was $2.6 million, or an annualized .36% of average loans.
The provision for the first nine months of the year was $6.9 million or an
annualized .32% of average loans. Provisions of $7.0 million, or an
annualized .35% of average loans, and $9.3 million, or .35% of average loans
were experienced during the first nine months of 1998 and the full year of
1998, respectively. The quarter to date and the year to date provisions are
relatively consistent with the corresponding periods of 1998. While NPLs as
a percentage of total loans are down, net charge-offs are up and the loan
portfolio continues to grow especially in higher risk loan categories.
Accordingly, the Company maintained a relatively flat provision and
allowance to total loan ratio of 1.56% for September 30, 1999 and 1998.
At September 30, 1999, the allowance provided a coverage of non-
performing loans of 311.71% as compared to 212.14% and 184.26% at December
31, 1998 and September 30, 1998, respectively.
Market Risk
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate
risk and commodity price risk, do not arise in the normal course of the
Company's business activities.
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 various 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.
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 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, interest rate corridors and interest rate cap or floor
agreements, among other things, to correct the imbalance. Banknorth
utilized swaps, floors and corridors 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 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. To protect the Company from this occurrence, interest rate floors in
the notional amount of $295.0 million were used to mitigate the potential
reduction in interest income on certain adjustable and variable rate loans.
Further, in May 1998, the Company sold interest rate swaps in the notional
amount of $50.0 million previously in use for a net gain of $254 thousand.
This gain was amortized into interest income over the original remaining
lives of the initial swap contracts of approximately one year. The swaps
were sold in order to reduce interest rate risk sensitivity of the Company.
In late 1998, interest rate corridors in the notional amount of $50.0
million and interest rate swaps in the notional amount of $50.0 million were
entered into in order to mitigate the reduction in interest income in a
period of rising rates. In a period of quickly rising interest rates,
certain deposit products will reprice more rapidly than certain fixed rate
earning assets potentially causing a reduction in interest income. These
contracts were designed to make a portion of the Corporation's fixed rate
loans sensitive to rising rates.
The aggregate cost of the interest rate floors and corridors was $3.2
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 September 30,
1999, the unamortized balance of these interest rate floors and corridors
was $830 thousand. The estimated fair value of these floors was $188
thousand as of September 30, 1999. The estimated net fair value of the
interest rate swap contracts and interest rate corridors were $1.3 million and
$382 thousand as of September 30, 1999.
Banknorth utilizes an interest rate risk model widely recognized in
the financial industry to monitor and measure interest rate risk. The model
simulates the behavior of interest income and expense of all on and off
balance sheet financial instruments under different interest rate scenarios
together with a dynamic future balance sheet. Banknorth measures its
interest rate risk in terms of potential changes in net interest income.
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: core
deposits, purchased liabilities, and long-term or capital market funds. Core
deposits consist of non-interest bearing demand deposits and retail
deposits. These deposits result from relatively dependable customers and
commercial banking relationships and are therefore viewed as a stable
component of total required funding. Banknorth will continue to seek funding
in the most efficient and cost effective manner as possible. Table E
reflects the components of funding for September 30, 1999 and 1998.
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.
One of the principal components of purchased funding is short-term
borrowed funds through sales of securities under agreements to repurchase.
These borrowings generally represent short-term uninsured customer
investments, which are secured by Company securities. During the third
quarter of 1999, the average securities sold under agreements to repurchase
were $191.1 million, as compared to $177.5 million in the third quarter of
1998.
Long-term purchased funding, primarily through the FHLB, was $65.9
million during the third quarter of 1999, up $944 thousand from the quarter
ended September 30, 1998 as short-term notes from the FHLB were replaced
with longer term FHLB debt at more favorable rates.
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, held for
sale in the secondary market. Alternatively these assets may be pledged to
secure short-term borrowed funds.
The Company also uses the capital markets as a source of liquidity.
In May 1997, the Company established a trust to issue and sell $30.0 million
in capital securities. The net proceeds were used for general corporate
purposes. In February 1996, the Company issued 2,044,446 shares of common
stock resulting in $32.2 million in net proceeds which 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.
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 $12.8 million for the third quarter of 1999,
$1.9 million or 17.6% higher than the third quarter of 1998. For the nine
months ended September 30, 1999 and 1998, other operating income was $42.0
million and $29.8 million, respectively, an increase of $12.2 million, or
40.9%. Included in the first nine months of 1999 other income was a net
gain of $2.6 million on the curtailment of the Evergreen pension plan and
$1.4 million of income from bank-owned life insurance resulting from the
death of a senior executive. Without these one-time items, other operating
income increased $8.2 million, or 27.7%, for the nine month period ended
September 30, 1999 compared to the same period of 1998.
Investment management income. The Stratevest Group, N.A.,
("Stratevest"), the Company's investment and financial management
subsidiary, contributes the largest recurring portion of other operating
income through fees generated from trust and investment management services.
Income from such services totaled $4.8 million in the third quarter of 1999,
an increase of $1.9 million, or 63.8% over the same period of 1998. For the
nine months ended September 30, 1999, trust and investment management income
was $14.6 million, up $5.6 million, or 61.8%, over the same period of 1998.
The increase was the result of strong sales and market conditions as well as
the increase in the managed assets as a result of the Berkshire acquisition.
The Company's acquisition of approximately $1.0 billion in investment assets
in November 1998 was added to the Stratevest portfolio of managed assets.
This portion of the portfolio generated approximately $1.6 million in
investment management income in the third quarter of 1999. Total assets
under management totaled $4.1 billion, including $2.7 billion under
discretionary management, as of September 30, 1999, compared to total assets
under management of $2.9 billion, including $1.6 billion under discretionary
management, as of September 30, 1998. Continued opportunities for increases
in the generation of Stratevest's income lie in increased sales in the
Massachusetts, New York and New Hampshire markets. The Company is
experiencing increased sales in these areas and, accordingly, management
expects continued increased levels of trust and investment management income
for 1999.
Service charges on deposit accounts. Service charges on deposit
accounts, $3.2 million for the three months ended September 30, 1999, were
$365 thousand, or 12.8% above the same period of 1998. The increase in
service charges was primarily the result of improved charge policies
implemented in late 1997 and the Berkshire branch acquisition, which added
on average $287.6 million in deposits in the third quarter of 1999.
Mortgage banking income. Mortgage banking income, which is comprised
of loan servicing income and net loan transactions amounted to $724 thousand
for the three months ended September 30, 1999. This category of income was
down $1.1 million, or 60.0%, from September 30, 1998, primarily due to lower
production levels in 1999 and the recording of a $392 thousand gain on the
sale of servicing in the third quarter of 1998.
Net loan transaction income is generated through the origination and
subsequent sale of mortgage products into the secondary mortgage market.
Net loan transaction income in the third quarter of 1999 amounted to $272
thousand, $660 thousand lower than the same period of 1998. In 1998, the
Company experienced record level production throughout the year, which
created strong sales activity. The sales activity throughout 1999 returned
to more normal levels as interest rates rose and refinancing activity
slowed. The current production in 1999 is primarily new mortgage
originations as the home buying season was strong in the third quarter and
interest rates remained relatively low. Additionally, as noted above, the
Company sold $86 million in servicing in the third quarter of 1998
generating a gain of $392 thousand.
Card product income. Card product income represents the fees and
interchange income generated by the use of Banknorth issued credit (Visa)
and debit cards. This income category increased $197 thousand, to $766
thousand, in the third quarter of 1999 as compared to the third quarter of
1998 as the volume of debit card transactions increased given the addition
of the Berkshire customers and improved consumer acceptance and usage of the
product. For the nine months ended September 30, 1999 and 1998, card product
income was $2.1 million and $1.5 million, respectively.
ATM income. ATM income represents the income generated from the ATM
network operated by Banknorth for the benefit of its customers. ATM income
amounted to $759 thousand for the three months ended September 30, 1999
compared to $618 thousand for the three months ended September 30, 1998.
The increase in ATM income over the last year was the result of the terminal
convenience fee, assessed for non-customer usage, in all states in which the
Company operates and the addition of the Berkshire ATMs to the Banknorth
network. For the nine months ended September 30, 1999 and 1998, ATM income
was $2.0 million and $1.6 million, respectively. Fee income is expected to
remain at approximately that level for the remainder of 1999.
Bank-owned life insurance income. Banknorth purchased an additional
$16.0 million of bank-owned life insurance ("BOLI") in the third quarter of
1999 to cover the Evergreen and Berkshire region employees. As of September
30, 1999 as a result of the additional purchase and the increase in the cash
surrender value over the past two years, the Company's total BOLI holdings
increased to $59.5 million. BOLI generated income of approximately $744
thousand of income in the third quarter of 1999 and $567 thousand in the same
period of 1998. The BOLI was purchased as a financing tool for employee
benefits. The value of life insurance financing is the tax-preferred status of
life insurance cash values. The purchase of the life insurance policy results
in an interest sensitive asset on the Company's consolidated balance sheet
that provides monthly tax-free income to the Company. The largest risk to the
BOLI program is credit risk of the insurance carriers. To mitigate this risk,
the Company selected insurance carriers with a minimum rating of A (Best
rating) and further, annual financial condition reviews are completed on all
carriers. Securities available for sale were allowed to mature or were sold
in order to provide the funding necessary to implement the bank-owned life
insurance program. As a result of this transaction, the Company benefits in
future periods from the tax-free nature of income generated from the life
insurance policies. In general, the yield received from the bank-owned life
insurance is comparable to the yield previously received on the securities
available for sale, thereby causing the Company's earnings stream to benefit
from the tax characteristics of the bank-owned life insurance.
Net gain on curtailment of pension plan. As noted earlier, the
Company recorded, in the first quarter of 1999, a net gain of $2.6 million
from the curtailment of the Evergreen pension plan resulting from the
combination of the former Evergreen and Banknorth pension plans following
the merger. This is a non-recurring income item. All employees of
Banknorth are now participants in a single pension plan.
Bank-owned life insurance claim. During the second quarter of 1999,
the Company recorded $1.4 million of income from a BOLI claim resulting from
the death of a senior executive. The income is non-recurring and tax-exempt.
Other income. Other income amounted to $1.7 million for the three
months ended September 30, 1999, compared to $1.1 million for the three
months ended September 30, 1998. For the nine months ended September 30,
1999 and 1998, other income was $3.9 million and $3.2 million, respectively.
The largest portions of this income category are from personal banking and
commercial banking fees, including safe deposit box and official checks.
The increase is primarily as a result of the ten additional branches
acquired in the Berkshire region of Massachusetts.
OTHER OPERATING EXPENSES
Other operating expenses for the third quarter were $35.2 million, $3.7
million, or 11.9%, above expense levels in the third quarter of 1998. The
majority of the increase in operating expenses was due to $912 thousand in
additional goodwill expense, $1.1 million in additional compensation and
benefit expenses and $1.0 million in occupancy and equipment. The Company's
efficiency ratio was 55.55% in the third quarter of 1999, down from 57.83%
from the same period one year earlier. For the nine months ended September
30, 1999 and 1998, other operating expense was $107.8 million and $96.2
million, respectively. The efficiency ratio on a year to date basis was
57.49% for the first nine months of 1999 compared to 59.65% for the same
period of 1998.
Compensation. Compensation expense increased by $1.1 million, or
8.3%, in the third quarter of 1999 in comparison to the third quarter of
1998. The increase in this expense is primarily due to an increase in
performance based compensation recorded in 1999 in comparison to 1998.
Sales and performance based compensation in 1999 for the trust subsidiary,
subsidiary banks and overall Company exceeded those accrued or paid to date
in 1998. Additionally, temporary help expense in the third quarter of 1999
exceeded that of the third quarter of 1998 by $146 thousand as the
integration of the Evergreen, Berkshire and trust operations was being
completed. Year to date, compensation expense increased $2.7 million or
6.9%. Benefits expenses also increased by 3.2% between the three months
ended September 30, 1999 and 1998.
Net occupancy. Net occupancy costs increased $731 thousand or 31.2%
from $2.3 million for the three months ended September 30, 1998 to $3.1
million for the three months ended September 30, 1999. As noted earlier, in
the Berkshire acquisition, the Company acquired ten additional banking
offices and its corresponding occupancy costs. Occupancy expenses are
expected to remain at this level throughout 1999.
Equipment and software. Equipment and software expense was $2.6
million and $2.4 million for the three months ended September 30, 1999 and
1998, respectively. Banknorth continuously invests in upgraded technology in
order to offer enhanced products and services or to create operating
efficiencies.
Data processing. Data processing fees include payments to Banknorth's
vendors of mainframe systems and site management, credit card processing,
ATM transaction processing and shareholder accounting services. These fees
decreased $200 thousand or 11.4% in the third quarter of 1999 in comparison
to the same period of 1998 primarily due to the reduction in core
application processing costs as a result of the merger with Evergreen. In
1998, the data processing costs consisted of two mainframe site management
contracts. One contract was terminated upon the merger with Evergreen,
thereby reducing the overall data processing costs. Offsetting this
favorable change in data processing expense, the Company recognized $300
thousand in data processing costs for the outside servicing of the purchased
Berkshire private banking relationships. This outside servicing expense was
eliminated in the end of third quarter of 1999.
Other real estate owned. Expenses relating to other real estate owned
and repossessed assets decreased for the third quarter of 1999 by $99
thousand as compared to September 30, 1998 as the holding cost of these
properties declined. Included in this expense category in the third quarter
of 1999 are net gains on the sale of other real estate owned and repossessed
assets in the amount of $75 thousand. Net gains on sales in the third
quarter of 1998 were $165 thousand. Year to date, OREO expense continue to
be low at $347 thousand in 1999, compared to $737 thousand in 1998.
Management anticipates the level of other real estate owned and repossession
expenses to remain steady throughout the year.
Advertising and marketing. Advertising and marketing expenses were
$1.3 million for the three months ended September 30, 1999, $344 thousand,
or 37.6% higher than the first three months of 1998. In 1998, Banknorth
introduced a market branding campaign and increased its marketing efforts in
target markets. Marketing expenses are expected to be higher throughout 1999
in comparison to 1998. Year to date, advertising and marketing expenses
were $638 thousand, or 21.6%, higher in 1999 compared to 1998.
Communications. Communications expenses totaled $956 thousand in the
third quarter of 1999, and $739 thousand in the third quarter of 1998. The
increase in communication expenses was primarily due to the expansion of the
voice/data communication network to accommodate the aforementioned acquired
locations of Banknorth.
Amortization of goodwill. Amortization of goodwill amounted to $2.2
million in third quarter of 1999 compared to $1.3 million in the third
quarter of 1998. The increased goodwill amortization is the result of the
Berkshire acquisition completed in November 1998, which generated an
additional $54.2 million in goodwill or $3.6 million in amortization per
year as this goodwill will be amortized over 15 years. Based on existing
goodwill, the 1999 goodwill amortization expense is expected to be $8.7
million.
Capital securities. The capital securities issued in May 1997, which
created Tier I capital, gave rise to expense of $789 thousand in the third
quarters of 1999 and 1998. As mentioned previously, incremental investment
purchases were made in an effort to offset the cost of the capital
securities through increased net interest income. Funding for the
investments was primarily in the form of borrowings from the FHLB.
Merger and acquisition related expenses. The merger expenses incurred
in the first nine months of 1999, related to the merger with Evergreen,
amounted to approximately $1.2 million, or $788 thousand, after income tax
effect. The majority of these expenses were employment-related costs and
data processing conversion and termination costs.
Other expenses. Other expenses totaled $3.6 million and $3.1 million
for the three months ended September 30, 1999 and 1998, respectively. The
majority of the increase was due to additional operating expenses of a
larger institution, including postage and delivery, check sale costs, and
network charges. Additionally, the Company increased its investment in low-
income housing projects during 1998, which resulted in greater losses in the
third quarter of 1999 compared to the third quarter of 1998. These low-income
housing projects generate significant tax credits and reduce the Company's
effective tax rate from the statutory level. Year to date, other expense
increased $1.6 million or 17.2%. Expenses in this category are expected to
continue at approximately this level throughout the year.
SUBSIDIARY BANK MERGER
On May 24, 1999, the Company merged one of its subsidiary banks,
Woodstock National Bank, into another subsidiary bank, First Vermont Bank,
with Woodstock National Bank's three offices becoming branch offices of
First Vermont Bank. The conversion costs totaled approximately $400
thousand.
YEAR 2000 COMPLIANCE
Historically, some computer software and hardware and firmware
systems, and equipment or machinery with embedded processors or processing
instructions (sometimes referred to as "embedded processors"), were written
to recognize and process dates with the year written with two digits. For
dates on or after January 1, 2000 (when four digits will be necessary to
identify dates accurately), or for periods beginning before, and ending on
or after January 1, 2000, such software, hardware and firmware systems and
embedded processors may not be able to recognize or properly process dates
or information including dates or time periods. Among other things, this
may cause computers to produce incorrect information, to shut down, to cause
other systems or equipment to shut down or malfunction, or to malfunction in
other ways, and may cause equipment or machinery with embedded processors to
malfunction or to shut down. This is often referred to as, among other
things, the "Year 2000 problem."
In order to assure, to the extent possible, that the Year 2000 problem
does not impair their ability to do business or subject them to liability,
companies are advised to determine whether and to what extent their
information technology or physical resources may be affected by Year 2000
problems, to repair, replace or retire the affected systems or assets, and
to test the new systems or assets to assure that they will not be affected
by the Year 2000 problem (which is often referred to as being "year 2000
compliant"). Some new hardware, software or equipment, and some revisions
or upgrades of hardware, software or equipment, may have so-called "bugs" or
may prove to be incompatible with existing or other new or upgraded systems
or components. As a result, the testing of the changed components, and of
systems and subsystems as a whole, is critical and experience has shown that
the process is time consuming.
In order to protect the integrity of the banking system, the Federal
Reserve Board and other federal banking regulatory agencies (collectively
known as the "Federal Financial Institutions Examination Council," or
"FFIEC") have issued guidelines to financial institutions for addressing the
Year 2000 problem and set milestones that financial institutions are
expected to meet in becoming Year 2000 compliant and testing to assure
compliance. In broad outline, those guidelines provide that (i) by
September 30, 1997, financial institutions should have identified, assessed
and begun remediation of mission critical systems; (ii) by September 30,
1998, institutions should be continuing remediation of mission critical
systems and have completed development of testing strategies and plans;
(iii) by September 1, 1998, institutions should be continuing system
remediation and should have begun testing of internal mission critical
systems; (iv) by December 31, 1998, institutions should have substantially
completed testing of internal mission critical systems; (v) by September 30,
1999, institutions relying on service providers should have substantially
completed system testing and all institutions should have begun external
testing with third parties (such as other financial institutions, business
partners and payment system providers); and (vi) by September 30, 1999,
institutions should have completed testing of mission critical systems and
substantially completed all implementation of those systems.
Banknorth's Year 2000 remediation and compliance program (the "Year
2000 Project") is managed by a Project Group consisting of representatives
from more than 25 business units and functional departments within Banknorth
and its subsidiaries. The Project is directed by a Banknorth Vice President
and is overseen by the Banknorth Board and the board of directors of each
subsidiary.
Banknorth has completed a preliminary assessment of all its computer
software, hardware and firmware systems, and equipment and machinery with
embedded processors (including vaults and other security systems, elevators
and HVAC systems). Banknorth believes that it has identified all
components, systems, equipment and databases that might not be able to
function properly as a result of the Year 2000 problems and has formulated a
plan to replace, upgrade or revise affected software, to upgrade or replace
affected hardware and equipment, and to remediate affected data and
databases. Banknorth substantially completed the replacements, upgrades and
revisions of the affected software, hardware and equipment by December 31,
1998. Banknorth began compliance testing of components and systems in July,
1998 and substantially completed its compliance testing of vital banking
systems by the end of 1998. To date, all FFIEC guidelines, previously
disclosed, have been met by the Company.
Substantially all of Banknorth's mission critical systems are
outsourced or are purchased software packages. As a result, much of the
remediation and testing process is dependent on the accuracy of work
performed by, and the Year 2000 compliance of software, hardware and
firmware and equipment provided by, vendors. Banknorth has had discussions
with its vendors and monitored their Year 2000 compliance programs and the
compliance of their products or services with required standards. Where
possible, Banknorth has arranged alternate service or software providers in
cases where it appears that vendors may not timely provide adequate solutions.
The economic cost of the Year 2000 Project includes not just direct
incremental amounts expended by Banknorth for repairing, upgrading or
replacing hardware, software and facilities, but also the use of internal
resources devoted to the Year 2000 Project that would otherwise have been
devoted to other business opportunities. It is difficult to quantify the
economic cost of internal resources of the Project. However, Banknorth
estimates that over the life of this Project, between 1996 and 2000, it will
utilize approximately $6.0 million to $6.8 million of internal resources on
this effort. These are internal resources that would have been utilized for
other business opportunities and do not necessarily represent additional
operating expenditures or costs. As of September 30, 1999, approximately
$5.7 million of these amounts have been expended. Further, Banknorth's
direct incremental expenditures for the Year 2000 Project are estimated at
$1.7 million over this five year period. Although this estimate includes
hardware and equipment expenditures, which would have been made even absent
the Year 2000 problem as part of normal operations, such expenditures are
included in the estimates since the timing of these purchases and upgrades was
accelerated due to the Year 2000 Project. As of September 30, 1999,
approximately $1.6 million of the direct incremental expenditures have been
made. Previous estimates by the Company indicated that the direct incremental
expenditures would be $3.7 million over this five-year period. However, the
purchase and installation of a new branch platform, included in our original
estimate, is no longer required due to the pending merger.
As noted earlier, the Company has satisfied the FFIEC guidelines
described above and has completed its year 2000 compliance program.
The Company will continue to maintain and routinely test its systems throughout
the remainder of 1999 and into the year 2000. The Company does not presently
foresee any additional costs or issues with its year 2000 compliance, however,
no reassurance can be given on future unforeseen events.
Banknorth has performed a customer awareness program to inform its
customers (both depositors and borrowers) of the Year 2000 problem,
Banknorth's responses to the problem and the potential impact of the problem
on the customers and their business. Banknorth and its subsidiaries have
had awareness sessions with their customers and are taking into account
customers' Year 2000 compliance in evaluating and rating loans. Banknorth
Group, Inc. is aware that if borrowers suffer losses or illiquidity because
of their own Year 2000 problems (or the Year 2000 problems of others with
whom they do business or on whom they are dependent) Banknorth's subsidiary
banks may suffer credit losses or experience illiquidity. The standard loan
documentation of Banknorth's subsidiary banks has been revised to include
representations that the borrower is Year 2000 compliant and to give the
bank the right to examine the borrower's systems and procedures in order to
determine Year 2000 compliance.
Banknorth believes that the key risk factors associated with the Year
2000 are those it cannot directly control, primarily the readiness of key
suppliers and service providers, the readiness of the public infrastructure,
and as noted above, the readiness of its credit customers. However,
Banknorth and its subsidiaries have developed contingency plans and
strategies and so-called "work arounds" for each non-compliant system and
the possible failure of systems and resources that have been tested as
compliant. The contingency plans vary with the affected systems. Among
other things, Banknorth has designated certain of its local banks as "key
branches" and will equip them properly, so that the Banknorth banks can
continue banking operations even if there are electrical outages because
local utilities are not Year 2000 compliant. Banknorth is also arranging to
have temporary help available so that, in event of the failure of a mission
critical system, the functions affected by the system failure can be
performed manually.
The determination of the effect of Banknorth's own non-compliance with
Year 2000 requirements or the non-compliance of its vendors or customers is
complex and depends on numerous variables and unknowns. Without
remediation, the failure of critical software systems at any of the
Banknorth banks or at other banks could impair the ability of the banks to
do business, the failure of large or numerous borrowers to timely pay their
loans could impair the capital of one or more banks, and the failure of
embedded processors would adversely affect the physical security of the
banks. However, Banknorth believes that, as a result of its remediation and
testing efforts and its contingency plans, that worst case scenario is not
likely.
INCOME TAXES
In the third quarter of 1999, Banknorth recognized income tax expense
of $6.4 million, as compared to $5.4 million in third quarter of 1998. The
effective rate was 31.93% in the third quarter of 1999 compared to 30.89% in
the third quarter of 1998. 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, including loans, securities and BOLI, as well as tax credits
received on low-income housing projects. For the nine months ended September
30, 1999, the effective tax rate was 31.02% compared to 30.83% for the same
period of 1998.
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.
In October 1997, Banknorth announced a stock buyback plan. The
Company planned to buy back up to 5%, or 782,665 shares of its outstanding
common stock. As part of the merger with Evergreen, however, the stock
buyback program was rescinded in July 1998. As of September 30, 1999, the
Company held 208,319 treasury shares, all of which were purchased under the
October 1997 stock buyback plan.
The Company (including, prior to 1989, its corporate predecessors) has
historically paid regular quarterly cash dividends on its common stock.
Since 1993, the Company's dividend has increased from a level of $.05 per
share to most recently $.18 per share in 1999. The
Board makes decisions regarding payment of dividends based upon the
Company's earnings outlook and other relevant factors.
On February 24, 1998, the Board of Directors approved a 2-for-1 split
of its common stock effected in the form of a 100% stock dividend. The new
shares were issued April 6, 1998, to shareholders of record on March 20,
1998. The stock split was recorded as of December 31, 1997 by a transfer of
$7.8 million from capital surplus to common stock, representing the $1.00
par value for each additional share issued. Further, on August 15, 1996,
the Board of Directors of the Evergreen Bancorp, Inc. approved a 2-for-1
split effected in the form of a 100% stock dividend and was recorded by a
transfer of $4.3 million from capital surplus to common stock. All per share
data has been restated to reflect the splits.
The Company's principal source of funds to pay cash dividends and the
cost of capital securities and to service long-term debt requirements is
dividends from its subsidiary banks. Various laws and regulations restrict
the ability of banks to pay dividends to their shareholders. During 1998,
as part of its plan to adequately capitalize FMB for regulatory purposes
after the Berkshire acquisition and to allow Stratevest to purchase the
private banking relationships associated with the Berkshire branches, the
Company re-deployed accumulated capital of certain of its subsidiary banks
through the payment of a special dividend. Because the special dividend
exceeded applicable regulatory limitations, the subsidiary banks obtained
approval from the applicable regulatory agencies for the payment of that
portion of the dividend.
Additionally, in connection with the Evergreen merger, Evergreen Bank
paid a special dividend to the parent company. As the special dividend
exceeded applicable regulatory limitations, Evergreen Bank obtained approval
from the OCC for the payment of that portion of the dividend which exceeded
such regulatory limitations.
As a result of these capital redeployments, the payment of dividends
by the Company in the future will require the generation of sufficient
future earnings by the subsidiary banks
At September 30, 1999, Banknorth's Tier I capital was $306.5 million,
or 9.58% of total risk-adjusted assets, compared to $326.4 million and
11.42% as of September 30, 1998. The decrease in the Tier I capital is
attributable to the $46.2 million in additional goodwill generated by the
Berkshire branch acquisition. The ratio of Tier I capital to total quarterly
average adjusted assets (leverage ratio) was 6.99%, and 8.13% as of
September 30, 1999 and 1998, respectively. Banknorth is "well capitalized"
at September 30, 1999 according to regulatory definition, and thereby,
exceed all minimum regulatory capital requirements. Table I, Capital Ratios,
provides the components of capital as of various dates.
TABLE A. Mix of Average Earning Assets
<TABLE>
<CAPTION>
Three Months Percentage of
Ended September 30, % of Total Earning Assets
------------------------- Total --------------------
(Dollars in thousands) 1999 1998 Change Change 1999 1998
---- ---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income
and unamortized loan fees and costs:
Commercial, financial and agricultural $ 595,906 $ 584,080 $ 11,826 4.1% 14.5% 15.3%
Construction and land development 61,472 40,631 20,841 7.2 1.5 1.1
Commercial real estate 802,604 589,564 213,040 73.5 19.5 15.4
Residential real estate 1,018,002 1,051,325 (33,323) (11.5) 24.8 27.5
Credit card receivables 31,628 28,645 2,983 1.0 0.8 0.8
Lease receivables 79,207 75,952 3,255 1.1 1.9 2.0
Other installment 332,813 305,691 27,122 9.4 8.1 8.0
-----------------------------------------------------------------------
Total loans, net of unearned income and
unamortized loan fees and costs 2,921,632 2,675,888 245,744 84.8 71.1 70.1
Securities available for sale:
U.S. Treasuries and Agencies 161,321 236,613 (75,292) (26.0) 3.9 6.2
States and political subdivisions 48,539 7,815 40,724 14.1 1.2 0.2
Mortgage-backed securities 679,994 516,863 163,131 56.3 16.6 13.5
Corporate debt securities 206,436 226,454 (20,018) (6.9) 5.0 5.9
Equities and other securities 49,200 45,210 3,990 1.4 1.2 1.2
Net unrealized gain (loss) (20,248) 8,650 (28,898) (10.0) (0.5) 0.2
-----------------------------------------------------------------------
Total securities available for sale,
at fair value 1,125,242 1,041,605 83,637 28.9 27.4 27.2
Investment securities, held to maturity:
U.S. Treasuries and Agencies 2,973 5,094 (2,121) (0.7) 0.1 0.1
States and political subdivisions 9,923 12,317 (2,394) (0.8) 0.2 0.4
Mortgage-backed securities 4,478 8,625 (4,147) (1.5) 0.1 0.2
Corporate debt securities 10 10 0 0.0 0.0 0.0
-----------------------------------------------------------------------
Total investment securities, held to maturity,
at amortized cost 17,384 26,046 (8,662) (3.0) 0.4 0.7
Loans held for sale 23,847 34,435 (10,588) (3.7) 0.6 0.9
Money market investments 20,112 40,415 (20,303) (7.0) 0.5 1.1
-----------------------------------------------------------------------
Total earning assets $4,108,217 $3,818,389 $289,828 100.0% 100.0% 100.0%
=======================================================================
</TABLE>
TABLE B. Loan Portfolio
<TABLE>
<CAPTION>
At September 30, At December 31, % Change
------------------------------------------------- ---------------------- ---------------------
1999 1998 1998 09/30/99 09/30/99
---------------------- ---------------------- ---------------------- versus versus
Amount Percent Amount Percent Amount Percent 09/30/98 12/31/98
(Dollars in thousands) ------ ------- ------ ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $ 592,014 20.0% $ 578,166 21.6% $ 690,170 24.3% 2.4% (14.2)%
Real estate:
Construction and land
development 64,675 2.2 41,584 1.5 45,704 1.6 55.5 41.5
Commercial 827,531 28.0 594,025 22.2 615,503 21.7 39.3 34.4
Residential 1,021,516 34.6 1,046,612 39.1 1,041,667 36.7 (2.4) (1.9)
---------------------------------------------------------------------------------------------------
Total real estate 1,913,722 64.8 1,682,221 62.8 1,702,874 60.0 13.8 12.4
---------------------------------------------------------------------------------------------------
Credit card receivables 31,329 1.0 28,752 1.1 33,205 1.2 9.0 (5.6)
Lease receivables 78,725 2.7 77,273 2.9 79,001 2.8 1.9 (0.3)
Other installment 338,982 11.5 310,735 11.6 331,856 11.7 9.1 2.1
---------------------------------------------------------------------------------------------------
Total installment 449,036 15.2 416,760 15.6 444,062 15.7 7.7 1.1
---------------------------------------------------------------------------------------------------
Total loans 2,954,772 100.0 2,677,147 100.0 2,837,106 100.0 10.4 4.1
Less: allowance for loan
losses 46,165 1.6 41,746 1.6 44,537 1.6 10.6 3.7
---------------------------------------------------------------------------------------------------
Net loans $2,908,607 98.4% $2,635,401 98.4% $2,792,569 98.4% 10.4% 4.2%
===================================================================================================
</TABLE>
TABLE C. Securities Available for Sale and Securities Held to Maturity
<TABLE>
<CAPTION>
At September 30,
------------------------- At December 31,
(Dollars in thousands) 1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Securities available for sale:
U.S. Treasuries and Agencies $ 156,628 $ 192,569 $ 165,683
States and political subdivisions 48,571 7,811 7,806
Mortgage-backed securities 700,581 599,516 711,540
Corporate debt securities 200,724 217,686 188,154
Equities and other securities 49,184 44,877 48,791
Net unrealized gain (loss) (20,115) 16,235 5,891
------------------------------------------
Fair value of securities available for sale $1,135,573 $1,078,694 $1,127,865
==========================================
Investment securities, held to maturity:
U.S. Treasuries and Agencies $ 2,797 $ 4,579 $ 3,582
States and political subdivisions 9,626 12,065 11,443
Mortgage-backed securities 4,021 7,735 5,510
Corporate debt securities 10 10 10
------------------------------------------
Amortized cost of investment securities,
held to maturity $ 16,454 $ 24,389 $ 20,545
==========================================
Fair value of investment securities, held to maturity $ 16,669 $ 25,706 $ 21,606
==========================================
Excess of fair value over recorded value $ 215 $ 1,317 $ 1,061
Fair value as a % of amortized cost 101.3% 105.4% 105.2%
</TABLE>
Note: There were no holdings of any single issuer that, when taken in
aggregate, exceeded 10% of shareholders' equity at September 30, 1999.
TABLE D. Average Balances, Yields, and Net Interest Margins
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------
1999 1998
------------------------------- ------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Earning assets:
Money market investments $ 20,112 $ 261 5.15% $ 40,415 $ 567 5.57%
Securities available for sale, at fair value (1 and 2) 1,125,242 18,042 6.25 1,041,605 16,443 6.32
Loans held for sale 23,847 512 8.52 34,435 639 7.36
Investment securities, held to maturity (2) 17,384 351 8.01 26,046 522 7.95
Loans, net of unearned income and
unamortized loan fees and costs (2 and 3) 2,921,632 62,237 8.45 2,675,888 59,459 8.82
-------------------- --------------------
Total earning assets 4,108,217 81,403 7.82 3,818,389 77,630 8.08
Cash and due from banks 129,689 104,685
Allowance for loan losses (47,396) (41,274)
Other assets 254,644 169,692
---------- ----------
Total assets $4,445,154 $4,051,492
========== ==========
Interest-bearing liabilities:
NOW accounts & money market savings $1,465,857 12,102 3.28 $1,250,277 11,698 3.71
Regular savings 350,612 2,079 2.35 307,189 2,013 2.60
Time deposits $100 thousand and greater 244,357 3,171 5.15 206,675 2,913 5.59
Time deposits under $100 thousand 998,493 12,434 4.94 1,003,586 13,914 5.50
-------------------- --------------------
Total interest-bearing deposits 3,059,319 29,786 3.86 2,767,727 30,538 4.38
Short-term borrowed funds 385,177 4,473 4.61 382,313 4,978 5.17
Long-term debt 72,577 1,131 6.18 74,534 1,179 6.28
-------------------- --------------------
Total interest-bearing liabilities 3,517,073 35,390 3.99 3,224,574 36,695 4.51
--------------------------------------------------------------
Non-interest bearing deposits 524,945 431,872
Other liabilities 44,682 41,825
Capital securities 30,000 30,000
Shareholders' equity 328,454 323,221
---------- ----------
Total liabilities, capital securities and
shareholders' equity $4,445,154 $4,051,492
========== ==========
Net interest income $46,013 $40,935
======= =======
Interest rate differential 3.83% 3.57%
==== ====
Net interest margin 4.42% 4.26%
==== ====
Notes:
<F1> For the purpose of these computations, the average yield is based on
amortized cost.
<F2> Tax exempt income has been adjusted to a tax equivalent basis by tax
effecting such interest at the Federal (35%) rate.
<F3> Includes principal balances of non-accrual loans and industrial revenue
bonds.
</TABLE>
TABLE D. Average Balances, Yields, and Net Interest Margins
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------
1999 1998
------------------------------- ------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Earning assets:
Money market investments $ 19,261 $ 674 4.68% $ 27,257 $ 1,151 5.65%
Securities available for sale, at fair value (1 and 2) 1,128,946 52,368 6.16 1,009,359 48,291 6.44
Loans held for sale 29,450 1,668 7.57 35,444 1,898 7.16
Investment securities, held to maturity (2) 18,828 1,143 8.12 40,415 2,370 7.84
Loans, net of unearned income and
unamortized loan fees and costs (2 and 3) 2,870,317 183,124 8.53 2,660,021 177,497 8.92
-------------------- --------------------
Total earning assets 4,066,802 238,977 7.84 3,772,496 231,207 8.21
Cash and due from banks 127,305 100,748
Allowance for loan losses (46,420) (40,445)
Other assets 243,585 169,274
---------- ----------
Total assets $4,391,272 $4,002,073
========== ==========
Interest-bearing liabilities:
NOW accounts & money market savings $1,459,761 35,237 3.23 $1,201,549 33,005 3.67
Regular savings 344,981 6,172 2.39 307,650 6,003 2.61
Time deposits $100 thousand and greater 252,431 9,809 5.20 215,197 9,061 5.63
Time deposits under $100 thousand 1,021,339 38,815 5.08 1,001,967 41,249 5.50
-------------------- --------------------
Total interest-bearing deposits 3,078,512 90,033 3.91 2,726,363 89,318 4.38
Short-term borrowed funds 331,971 10,971 4.42 414,827 16,363 5.27
Long-term debt 73,346 3,389 6.18 60,117 2,871 6.39
-------------------- --------------------
Total interest-bearing liabilities 3,483,829 104,393 4.01 3,201,307 108,552 4.53
-------------------- --------------------
Non-interest bearing deposits 505,206 412,323
Other liabilities 46,854 40,314
Capital securities 30,000 30,000
Shareholders' equity 325,383 318,129
---------- ----------
Total liabilities, capital securities and
shareholders' equity $4,391,272 $4,002,073
========== ==========
Net interest income $134,584 $122,655
======== ========
Interest rate differential 3.83% 3.68%
==== ====
Net interest margin 4.42% 4.35%
==== ====
Notes:
<F1> For the purpose of these computations, the average yield is based on
amortized cost.
<F2> Tax exempt income has been adjusted to a tax equivalent basis by tax
effecting such interest at the Federal (35%) rate.
<F3> Includes principal balances of non-accrual loans and industrial revenue
bonds.
</TABLE>
TABLE E. Average Sources of Funding
<TABLE>
<CAPTION>
Three Months Percentage of
Ended September 30, Change Total Funding
------------------------ --------------------- -------------
(Dollars in thousands) 1999 1998 Amount Percent 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 524,945 $ 431,872 $ 93,073 21.6% 13.0% 11.8%
Retail deposits:
Regular savings 350,612 307,189 43,423 14.1 8.7 8.4
Time deposits under $100 thousand 998,493 1,003,586 (5,093) (0.5) 24.7 27.4
NOW accounts & money market savings 1,465,857 1,250,278 215,579 17.2 36.2 34.2
-------------------------------------------------------------------
Total retail deposits 2,814,962 2,561,053 253,909 9.9 69.6 70.0
-------------------------------------------------------------------
Total core deposits 3,339,907 2,992,925 346,982 11.6 82.6 81.8
Time deposits $100 thousand and greater 244,357 206,675 37,682 18.2 6.0 5.7
Federal funds purchased 13,501 3,211 10,290 320.5 0.3 0.1
Securities sold under agreements to
repurchase 191,054 177,477 13,577 7.7 4.7 4.9
Borrowings from U.S. Treasury 17,742 15,553 2,189 14.1 0.4 0.4
Short-term notes from FHLB 162,880 186,072 (23,192) (12.5) 4.0 5.1
Long-term notes from FHLB 65,922 64,978 944 1.5 1.6 1.8
-------------------------------------------------------------------
Total purchased liabilities 695,456 653,966 41,490 6.3 17.2 17.9
Bank term loan 6,655 9,556 (2,901) (30.4) 0.2 0.3
-------------------------------------------------------------------
Total funding $4,042,018 $3,656,447 $385,571 10.5% 100.0% 100.0%
===================================================================
</TABLE>
TABLE F. Volume and Yield Analysis
<TABLE>
<CAPTION>
Three Months
Ended September 30, Due to
------------------- --------------------
1999 1998 Change Volume Rate
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Interest income (FTE):
Money market investments $ 261 $ 567 $ (306) $ (263) $ (43)
Securities available for sale, at fair value 18,042 16,443 1,599 1,781 (182)
Loans held for sale 512 639 (127) (228) 101
Investment securities, held to maturity 351 522 (171) (175) 4
Loans 62,237 59,459 2,778 5,274 (2,496)
------------------------------
Total interest income 81,403 77,630 3,773 6,252 (2,479)
------------------------------
Interest expense:
NOW accounts & money market savings 12,102 11,698 404 1,759 (1,355)
Regular savings 2,079 2,013 66 260 (194)
Time deposits $100 thousand and greater 3,171 2,913 258 487 (229)
Time deposits under $100 thousand 12,434 13,914 (1,480) (63) (1,417)
Short-term borrowed funds 4,473 4,978 (505) 35 (540)
Long-term debt 1,131 1,179 (48) (29) (19)
------------------------------
Total interest expense 35,390 36,695 (1,305) 2,921 (4,226)
------------------------------------------------------
Net interest income (FTE) $46,013 $40,935 $ 5,078 $ 3,331 $ 1,747
======================================================
</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.
TABLE F. Volume and Yield Analysis
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Due to
-------------------- ---------------------
1999 1998 Change Volume Rate
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Interest income (FTE):
Money market investments $ 674 $ 1,151 $ (477) $ (279) $ (198)
Securities available for sale, at fair value 52,368 48,291 4,077 6,176 (2,099)
Loans held for sale 1,668 1,898 (230) (339) 109
Investment securities, held to maturity 1,143 2,370 (1,227) (1,312) 85
Loans 183,124 177,497 5,627 13,386 (7,759)
-------------------------------
Total interest income 238,977 231,207 7,770 18,055 (10,285)
-------------------------------
Interest expense:
NOW accounts & money market savings 35,237 33,005 2,232 6,186 (3,954)
Regular savings 6,172 6,003 169 675 (506)
Time deposits $100 thousand and greater 9,809 9,061 748 1,440 (692)
Time deposits under $100 thousand 38,815 41,249 (2,434) 714 (3,148)
Short-term borrowed funds 10,971 16,363 (5,392) (2,756) (2,636)
Long-term debt 3,389 2,871 518 612 (94)
-------------------------------
Total interest expense 104,393 108,552 (4,159) 8,291 (12,450)
--------------------------------------------------------
Net interest income (FTE) $134,584 $122,655 $11,929 $ 9,764 $ 2,165
========================================================
</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.
TABLE G. Non-Performing Assets
<TABLE>
<CAPTION>
At At At
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
----------------------------------------------
<S> <C> <C> <C>
Loans on non-accrual status:
Commercial, financial and agricultural $ 2,728 $ 3,816 $ 4,574
Real estate:
Construction and land development 4 19 55
Commercial 3,321 2,518 1,907
Residential 6,909 6,153 6,448
Other installment 21 23 264
----------------------------------------
Total non-accrual 12,983 12,529 13,248
Restructured loans:
Real estate:
Commercial - 5,940 6,340
Residential 30 32 33
Other installment - 5 5
----------------------------------------
Total restructured 30 5,977 6,378
Past-due 90 days or more and still accruing:
Commercial, financial and agricultural 59 1,216 746
Real estate:
Commercial 302 62 1,066
Residential 370 36 126
Credit card receivables 203 177 192
Lease receivables 128 185 168
Other installment 735 812 732
----------------------------------------
Total past-due 90 days or more
and still accruing 1,797 2,488 3,030
----------------------------------------
Total non-performing loans 14,810 20,994 22,656
Other real estate owned (OREO) 278 3,324 2,936
Non-real estate and repossessed assets - 11 102
----------------------------------------
Total foreclosed and repossessed assets (F/RA) 278 3,335 3,038
----------------------------------------
Total non-performing assets $15,088 $24,329 $25,694
========================================
Allowance for loan losses (ALL) $46,165 $44,537 $41,746
ALL coverage of non-performing loans 311.71% 212.14% 184.26%
Non-performing assets as a % of (loans & F/RA) 0.51 0.86 0.96
Non-performing assets to total assets 0.34 0.55 0.63
Note: Installment loans are generally charged off at 120 days past due.
</TABLE>
TABLE H. Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Nine Months Twelve Months Nine Months
Ended September 30, Ended December 31, Ended September 30,
(Dollars in thousands) 1999 1998 1998
----------------------------------------------------------------
<S> <C> <C> <C>
Loans outstanding-end of period $2,954,772 $2,837,106 $2,677,147
Average loans outstanding-period to date 2,870,317 2,684,169 2,660,021
Allowance for loan losses at beginning of period 44,537 38,551 38,551
Allowance related to purchase acquisitions -- 2,200 --
Loans charged off:
Commercial, financial and agricultural (650) (2,318) (1,905)
Real estate:
Construction and land development (158) -- --
Commercial (2,387) (209) (151)
Residential (662) (1,916) (1,296)
-------------------------------------------------------
Total real estate (3,207) (2,125) (1,447)
Credit card receivables (836) (878) (552)
Lease receivables (1,031) (1,646) (1,282)
Other installment (3,532) (4,763) (2,991)
-------------------------------------------------------
Total installment (5,399) (7,287) (4,825)
Total loans charged off (9,256) (11,730) (8,177)
-------------------------------------------------------
Recoveries on loans, previously charged off:
Commercial, financial and agricultural 579 1,673 766
Real estate:
Construction and land development 8 15 11
Commercial 435 542 486
Residential 276 829 626
-------------------------------------------------------
Total real estate 719 1,386 1,123
Credit card receivables 116 111 73
Lease receivables 614 1,190 994
Other installment 1,981 1,811 1,406
-------------------------------------------------------
Total installment 2,711 3,112 2,473
Total recoveries on loans 4,009 6,171 4,362
-------------------------------------------------------
Loans charged off, net of recoveries (5,247) (5,559) (3,815)
-------------------------------------------------------
Provision for loan losses 6,875 9,345 7,010
-------------------------------------------------------
Allowance for loan losses at end of period $ 46,165 $ 44,537 $ 41,746
=======================================================
Loans charged off, net (annualized),
as a % of average total loans 0.24% 0.21% 0.19%
Provision for loan losses (annualized)
as a % of average total loans 0.32 0.35 0.35
Allowance for loan losses
as a % of period-end total loans 1.56 1.57 1.56
</TABLE>
TABLE I. Capital Ratios
<TABLE>
<CAPTION>
At At At At At
September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 1999 1999 1999 1998 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total risk-adjusted on-balance sheet assets (1) (3) $3,028,890 $2,971,280 $2,866,111 $2,880,854 $2,701,146
Total risk-adjusted off-balance sheet items 169,768 163,762 162,430 174,890 158,508
-------------------------------------------------------------------------
Total risk-adjusted assets $3,198,658 $3,135,042 $3,028,541 $3,055,744 $2,859,654
========================================================================
Total risk-adjusted assets / average total assets,
net of fair value adjustments and goodwill (1) (3) 72.95% 72.89% 70.75% 73.49% 71.25%
Total shareholders' equity $ 336,989 $ 329,962 $ 324,465 $ 321,262 $ 334,017
Fair value adjustments (1) 12,766 8,875 (1,110) (3,759) (10,281)
Corporation-obligated manditorily redeemable
capital securities 30,000 30,000 30,000 30,000 30,000
Goodwill (73,369) (75,602) (77,835) (80,224) (27,154)
Other Intangibles (3) 144 144 144 70 (145)
-------------------------------------------------------------------------
Total Tier I capital 306,530 293,379 275,664 267,349 326,437
Maximum allowance for loan losses (2) 40,060 39,286 37,953 38,275 35,820
-------------------------------------------------------------------------
Total capital $ 346,590 $ 332,665 $ 313,617 $ 305,624 $ 362,257
========================================================================
Quarterly average total assets, net of
fair value adjustments and goodwill (1) (3) $4,384,551 $4,301,187 $4,280,729 $4,158,082 $4,013,768
Allowance for loan losses 46,165 47,135 45,658 44,537 41,746
Total capital to total risk-adjusted assets 10.84% 10.61% 10.36% 10.00% 12.67%
Tier I capital to total risk-adjusted assets 9.58 9.36 9.10 8.75 11.42
Tier I capital to total quarterly average
adjusted assets (Leverage) 6.99 6.82 6.44 6.43 8.13
Notes:
<F1> The market valuation relating to securities available for sale included
in shareholders' equity and total assets on consolidated balance sheets
has been excluded in the above ratios.
<F2> 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.
<F3> Mortgage servicing assets, included in total assets on the consolidating
balance sheets, that exceed 90% of fair market value of these assets,
have been excluded in the above ratios.
</TABLE>
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- --------------------------
(In thousands, except share and per share data) Q3 Q2 Q1 Q4 Q3
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income:
Interest and dividend income $ 80,588 $ 78,448 $ 77,858 $ 78,656 $ 77,216
Interest expense 35,391 34,246 34,756 36,106 36,695
-------------------------------------------------------------------
Net interest income 45,197 44,202 43,102 42,550 40,521
Provision for loan losses 2,600 2,275 2,000 2,335 2,335
-------------------------------------------------------------------
Net interest income after provision
for loan losses 42,597 41,927 41,102 40,215 38,186
-------------------------------------------------------------------
Other operating income:
Income from trust and investment management fees 4,826 4,975 4,833 3,791 2,946
Service charges on deposit accounts 3,226 3,402 3,198 2,969 2,861
Mortgage banking income 724 1,290 1,324 1,391 1,812
Card product income 766 748 613 686 569
ATM income 759 671 619 635 618
Bank owned life insurance 744 552 539 569 567
Net securities transactions 6 143 225 526 319
Net gain on curtailment of pension plan -- -- 2,577 -- --
Bank owned life insurance claim -- 1,389 -- -- --
All other 1,701 1,290 901 1,079 1,149
-------------------------------------------------------------------
Total other operating income 12,752 14,460 14,829 11,646 10,841
-------------------------------------------------------------------
Other operating expenses:
Compensation and employee benefits 16,852 17,344 16,775 17,554 15,705
Net occupancy, equipment and software 5,703 5,489 5,483 4,852 4,697
Data processing 1,556 1,767 2,102 1,472 1,756
FDIC deposit insurance and other regulatory 357 306 294 292 284
Other real estate owned and repossession 140 53 154 331 239
Amortization of goodwill 2,233 2,234 2,164 1,779 1,321
Capital securities 789 789 789 789 789
Merger and acquisition related expenses -- 60 1,173 21,968 --
All other 7,604 8,275 7,340 7,507 6,702
-------------------------------------------------------------------
Total other operating expenses 35,234 36,317 36,274 56,544 31,493
-------------------------------------------------------------------
Income before income tax expense (benefit) 20,115 20,070 19,657 (4,683) 17,534
Income tax expense (benefit) 6,422 5,935 6,203 (321) 5,416
-------------------------------------------------------------------
Net income (loss) $ 13,693 $ 14,135 $ 13,454 $ (4,362) 12,118
===================================================================
Average Balances:
Loans $ 2,921,632 $ 2,852,496 $ 2,835,880 $ 2,755,824 $ 2,675,888
Loans held for sale 23,847 28,232 36,409 36,490 34,435
Securities available for sale, at fair value 1,125,242 1,134,240 1,127,381 1,123,294 1,041,605
Investment securities, held to maturity 17,384 19,055 20,076 22,965 26,046
Money market investments 20,112 18,208 19,454 22,376 40,415
-------------------------------------------------------------------
Total earning assets 4,108,217 4,052,231 4,039,200 3,960,949 3,818,389
Other assets 336,937 315,683 320,474 281,190 233,103
-------------------------------------------------------------------
Total assets $ 4,445,154 $ 4,367,914 $ 4,359,674 $ 4,242,139 $ 4,051,492
===================================================================
Non interest-bearing deposits $ 524,945 $ 494,857 $ 495,452 $ 477,977 $ 431,872
Interest-bearing deposits 3,059,319 3,091,763 3,084,735 2,957,813 2,767,727
-------------------------------------------------------------------
Total deposits 3,584,264 3,586,620 3,580,187 3,435,790 3,199,599
Short-term borrowed funds 385,177 305,526 304,361 320,459 382,313
Long-term debt 72,577 73,337 74,141 74,634 74,534
Other liabilities 44,682 46,330 49,604 43,466 41,825
Guaranteed preferred beneficial interests in
Corporation's junior subordinated debentures 30,000 30,000 30,000 30,000 30,000
Shareholders' equity 328,454 326,101 321,381 337,790 323,221
-------------------------------------------------------------------
Total liabilities, guaranteed preferred
beneficial interests in Corporation's junior
subordinated debentures and shareholders' equity $ 4,445,154 $ 4,367,914 $ 4,359,674 $ 4,242,139 $ 4,051,492
===================================================================
Loans charged off, net of recoveries $ 3,570 $ 798 $ 879 $ 1,743 $ 1,160
Non-performing assets, p.e. 15,088 20,329 23,656 24,329 25,694
Share and Per Share Data:
Shares outstanding, net treasury stock, p.e. 23,340,073 23,255,296 23,204,585 23,179,092 23,086,148
Basic wtd. avg. number of shares 23,444,966 23,379,073 23,353,668 23,203,566 23,226,319
Basic earnings per share (Basic EPS) $ 0.58 $ 0.60 $ 0.58 $ (0.19) $ 0.52
Diluted wtd. avg. number of shares 23,754,876 23,665,780 23,663,808 23,552,615 23,613,000
Diluted earnings per share (Diluted EPS) $ 0.58 $ 0.60 $ 0.57 $ (0.19) $ 0.51
Tangible book value 11.29 10.94 10.63 10.40 13.29
Closing price at period end 29.88 33.00 28.25 37.63 29.25
Key Ratios:
Return on average assets 1.22% 1.30% 1.25% (0.41)% 1.19%
Return on average shareholders' equity 16.54 17.39 16.98 (5.12) 14.87
Net interest margin, fte 4.42 4.44 4.39 4.31 4.26
Efficiency ratio 55.55 58.43 58.56 59.71 57.83
As a % of risk-adjusted assets, p.e.
Total capital 10.84 10.61 10.36 10.00 12.67
Tier 1 capital 9.58 9.36 9.10 8.75 11.42
As a % of quarterly average total assets:
Tier 1 capital (regulatory leverage) 6.99 6.82 6.44 6.43 8.13
Tangible shareholders' equity, to tangible assets, p.e. 5.98 5.86 5.79 5.58 7.60
Note: All share and per share data has been restated to give retroactive
effect to stock splits.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
BANKNORTH GROUP, INC.
Registrant
Date: 11/13/99 /S/ William H. Chadwick
-------------------------------------
William H. Chadwick
President and Chief Executive Officer
Date: 11/13/99 /S/ Thomas J. Pruitt
-------------------------------------
Thomas J. Pruitt
Executive Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 135,958
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,135,573
<INVESTMENTS-CARRYING> 16,454
<INVESTMENTS-MARKET> 16,669
<LOANS> 2,954,772
<ALLOWANCE> 46,165
<TOTAL-ASSETS> 4,482,191
<DEPOSITS> 3,627,046
<SHORT-TERM> 365,530
<LIABILITIES-OTHER> 50,755
<LONG-TERM> 71,871
30,000
0
<COMMON> 23,548
<OTHER-SE> 313,441
<TOTAL-LIABILITIES-AND-EQUITY> 4,482,191
<INTEREST-LOAN> 183,627
<INTEREST-INVEST> 52,593
<INTEREST-OTHER> 674
<INTEREST-TOTAL> 236,894
<INTEREST-DEPOSIT> 90,033
<INTEREST-EXPENSE> 14,360
<INTEREST-INCOME-NET> 132,501
<LOAN-LOSSES> 6,875
<SECURITIES-GAINS> 674
<EXPENSE-OTHER> 107,825
<INCOME-PRETAX> 59,842
<INCOME-PRE-EXTRAORDINARY> 59,842
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,282
<EPS-BASIC> 1.76
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 4.42
<LOANS-NON> 12,983
<LOANS-PAST> 1,797
<LOANS-TROUBLED> 30
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 44,537
<CHARGE-OFFS> 9,256
<RECOVERIES> 4,009
<ALLOWANCE-CLOSE> 46,165
<ALLOWANCE-DOMESTIC> 46,165
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
