-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K5iGmSQu6xQ7TUVJnJrbFjrO+Sdts7TfUPX3yGW/hH+ANDP19jqP/INM8Zyqhll/ juI40rbIV45A5OCN4VUlrA== 0000829750-96-000012.txt : 19960515 0000829750-96-000012.hdr.sgml : 19960515 ACCESSION NUMBER: 0000829750-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES HERITAGE FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000829750 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 010137770 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16947 FILM NUMBER: 96563710 BUSINESS ADDRESS: STREET 1: ONE PORTLAND SQ STREET 2: P O BOX 9540 CITY: PORTLAND STATE: ME ZIP: 04112 BUSINESS PHONE: 2077618500 MAIL ADDRESS: STREET 1: P O BOX 9540 CITY: PORTLAND STATE: ME ZIP: 04112-9540 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1996 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-16947 PEOPLES HERITAGE FINANCIAL GROUP, INC. (Exact name of Registrant as specified in its charter) Maine 01-0137770 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) One Portland Square, Portland, Maine 04112 (Address of principal executive offices) (Zip Code) (207) 761-8500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the Registrant's classes of common stock as of May 1, 1996 is: Common stock, par value $.01 per share 17,044,776 (Class) (Outstanding) INDEX PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited). Consolidated Balance Sheets - March 31, 1996 and December 31, 1995. Consolidated Statements of Income - Three months ended March 31, 1996 and 1995. Consolidated Statements of Changes in Shareholders' Equity - Three months ended March 31, 1996 and 1995. Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995. Notes to Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 1. Legal proceedings. Item 2. Changes in securities. Item 3. Defaults upon senior securities. Item 4. Submission of matters to a vote of security holders. Item 5. Other information. Item 6. Exhibits and reports on Form 8-K. PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Number of Shares and Per Share Data) (Unaudited) March 31, December 31, 1996 1995 Assets Cash and due from banks $ 111,904 $ 124,153 Federal funds sold -0- 58,255 Securities available for sale, at market value 507,681 485,218 Loans held for sale, market value $88,342 and $71,872, respectively 88,185 70,979 Loans and leases: Residential real estate mortgages 786,066 607,369 Commercial real estate mortgages 659,250 623,686 Commercial business loans and leases 341,944 332,755 Consumer loans and leases 667,245 653,827 2,454,505 2,217,637 Less: Allowance for loan and lease losses 53,553 49,138 Net loans and leases 2,400,952 2,168,499 Bank premises and equipment 45,400 44,358 Goodwill and other intangibles 38,512 21,176 Mortgage servicing rights 23,187 20,309 Other real estate and repossessed assets owned 6,111 6,601 Deferred income taxes 26,621 26,621 Interest and dividends receivable 22,480 21,634 Other assets 30,614 30,866 $3,301,647 $3,078,669 Liabilities and Shareholders' Equity Deposits: Regular savings $ 340,044 $ 303,504 Money market access accounts 470,288 448,998 Certificates of deposit (including certificates of $100 or more of $124,709 and $103,730, respectively) 1,219,525 1,124,104 NOW accounts 219,308 215,529 Demand deposits 279,866 269,830 Total deposits 2,529,031 2,361,965 Federal funds purchased 20,337 1,500 Securities sold under repurchase agreements 131,166 139,942 Borrowings from Federal Home Loan Bank of Boston 291,444 252,446 Other borrowings 18,572 18,928 Deferred income taxes 9,296 10,400 Other liabilities 25,348 23,020 Total liabilities 3,025,194 2,808,201 Shareholders' Equity: Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, none issued) -0- -0- Common stock (par value $0.01 per share, 30,000,000 shares authorized, 17,468,220 shares issued) 175 175 Paid-in capital 186,900 186,900 Retained earnings 95,613 88,951 Net unrealized gain on securities available for sale 320 2,247 Treasury stock at cost (440,091 shares and 524,062 shares, respectively) (6,555) (7,805) Total shareholders' equity 276,453 270,468 $3,301,647 $3,078,669 See accompanying notes to Consolidated Financial Statements. PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Number of Shares and Per Share Data) (Unaudited) Three Months Ended March 31, 1996 1995 Interest and dividend income: Interest on loans and leases $ 54,665 $ 47,763 Interest on mortgage-backed investments 3,496 3,098 Interest on other investments 4,151 3,669 Dividends on equity securities 373 495 Total interest and dividend income 62,685 55,025 Interest expense: Interest on deposits 23,733 18,500 Interest on borrowed funds 5,642 6,660 Total interest expense 29,375 25,160 Net interest income 33,310 29,865 Provision for loan losses -0- 580 Net interest income after provision for loan losses 33,310 29,285 Noninterest income: Mortgage banking services 3,296 2,138 Customer services 2,417 1,831 Trust and investment advisory services 510 363 Loan related services 272 198 Net securities gains (losses) 400 (92) Other noninterest income 11 58 6,906 4,496 Noninterest expenses: Salaries and employee benefits 13,385 11,458 Occupancy 2,418 1,875 Data processing 2,056 1,689 Equipment 1,566 1,067 Advertising and marketing 814 907 Deposit and other assessments 317 1,382 Collection and carrying costs of nonperforming assets 267 550 Other noninterest expenses 4,680 4,049 25,503 22,924 Income before income tax 14,713 10,804 Applicable income tax 5,114 3,540 Net income $ 9,599 $ 7,264 Weighted average shares outstanding 17,000,427 16,349,164 Earnings per share $ 0.56 $ 0.44 See accompanying notes to Consolidated Financial Statements.
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In Thousands, Except Number of Shares and Per Share Data) (Unaudited) Net Par Paid in Retained Unrealized Treasury Value Capital Earnings Gain (loss) Stock Total Balances at December 31, 1994 $175 $186,900 $62,235 $ (9,085) $(10,960) $229,265 Treasury stock purchased 646,600 shares at an average price of $12.84) -- -- -- -- (8,301) (8,301) Treasury stock issued for employee benefit plans (27,789 shares at an average price of $6.12) -- -- (162) -- 387 225 Change in unrealized gains (losses) on securities available for sale, net of tax -- -- -- 5,302 -- 5,302 Net income -- -- 7,263 -- -- 7,263 Cash dividends $0.11 -- -- (1,814) -- -- 1,814 Balances at March 31, 1995 $175 $186,900 $67,522 $ (3,783) $(18,874) $231,940 Balances at December 31, 1995 $175 $186,900 $88,951 $ 2,247 $ (7,805) $270,468 Treasury stock issued for employee benefit plans (83,971 shares at an average price of $8.75) -- -- (215) -- 1,250 1,035 Change in unrealized gains (losses) on securities available for sale, net of tax -- -- -- (1,927) -- (1,927) Net income -- -- 9,599 -- -- 9,599 Cash dividends $0.16 -- -- (2,722) -- -- (2,722) Balances at March 31, 1996 $175 $186,900 $95,613 $ 320 $ (6555) $276,453
See accompanying notes to Consolidated Financial Statements. PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Three Months Ended March 31, 1996 1995 Cash flows from operating activities: Net income (loss) $ 9,599 $ 7,264 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses -0- 580 Provision for depreciation 1,315 980 Provision for losses and writedowns of other real estate owned -0- (869) Amortization of goodwill and other intangibles 895 483 Amortization of servicing rights 944 814 Net (gains) losses realized from sales of other real estate owned 35 898 Net (gains) losses realized from sales of securities and consumer loans (400) 92 Net (gains) losses realized from sales of loans held for sale (a component of mortgage banking services) 510 (446) Proceeds from sales of loans held for sale 232,390 47,832 Residential loans originated and purchased for sale (251,079) (52,544) Net decrease (increase in interest and dividends receivable and other assets (594) 194 Net increase (decrease) in other liabilities 2,326 (5,295) Net cash provided by operating activities $ (4,059) $ (17) Cash flows from investing activities: Proceeds from sales of securities available for sale $ 30,416 $ 7,228 Proceeds from maturities and principal repayments of securities available for sale 70,467 39,058 Purchases of securities available for sale (125,975) (45,262) Net (increase) decrease in loans and leases (231,169) (18,319) Purchase of mortgage servicing rights (3,822) (194) Premiums paid on deposits purchased (18,231) -0- Net additions to premises and equipment (2,357) (1,152) Proceeds from sales of other real estate owned (297) 2,606 Net (increase) decrease in repossessed assets owned 441 1,408 Net cash provided (used) by investing activities $ (280,527) $ (14,627) PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (In Thousands) (Unaudited) Three Months Ended March 31, 1996 1995 Cash flows from financing activities: Net increase (decrease) in deposits $ 167,066 $ 7,555 Net increase (decrease) in securities sold under repurchase agreements (8,776) 21,743 Advances from Federal Home Loan Bank of Boston borrowings 110,000 50,000 Payments on Federal Home Loan Bank of Boston borrowings (71,002) (55,000) Net increase (decrease) in other borrowings (356) (3,210) Sale of treasury stock 1,035 225 Purchase of treasury stock -0- (8,301) Cash dividends paid to shareholders (2,722) (1,814) Net cash provided (used) by financing activities $ 195,245 $ 11,198 Increase (decrease) in cash and cash equivalents $ (89,341) $ (3,446) Cash and cash equivalents at beginning of period 180,908 126,072 Cash and cash equivalents at end of period $ 91,567 $ 122,626 Supplemental disclosures of information: Interest paid on deposits and borrowings $ 28,280 $ 24,851 Income taxes paid 371 -0- Income tax refunds 38 44 Noncash investing transactions: Loans transferred to other real estate owned 660 2,302 Loans originated to finance the sales of other real estate owned 971 2,886 Increases (decreases) resulting from the adoption of SFAS No. 115: Securities available for sale (3,029) 8,329 Deferred income taxes - liabilities (1,102) 3,027 Net unrealized gain (loss) on securities available for sale (1,927) 5,302 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations and other data for the three months ended March 31, 1996 are not necessarily indicative of results that may be expected for any other interim period or the entire year ending December 31, 1996. Certain amounts in prior periods have been reclassified to conform to the current presentation. On January 1, 1996, the Company adopted Statement of financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed of." The implementation of this Statement did not have a material effect on the Company's results of operations or financial condition. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has elected to continue to follow the accounting under Accounting Principal Board ("APB") Opinion No. 25. SFAS No. 123 requires companies which elect to continue to follow APB Opinion No. 25 to disclose in the notes to their financial statements the pro forma net income and earnings per share as if the value based method established under SFAS 123 had been applied. PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES PART I - ITEM 2 Management's discussion and analysis of financial condition and results of operations. General Peoples Heritage Financial Group, Inc. (the "Company") is a multi-bank holding company which is incorporated under the laws of the State of Maine and headquartered in Portland, Maine. The Company's direct subsidiaries, both of which are wholly-owned, are Peoples Heritage Savings Bank (the "Bank") and, as of March 31, 1996, First Coastal Banks, Inc. ("First Coastal"), which wholly owns The First National Bank of Portsmouth ("Portsmouth"). Effective April 2, 1996, First Coastal was merged into Bank of New Hampshire Corporation ("BNHC") in connection with the Company's acquisition of BNHC. See "Acquisition of BNHC" below. The Bank conducts business from its headquarters in Portland, Maine and 60 additional offices located throughout the State of Maine. At March 31, 1996, the Bank had total assets of $2.5 billion and total shareholder's equity of $189.1 million. Portsmouth conducts business from its headquarters in Portsmouth, New Hampshire and 20 additional offices located throughout the State of New Hampshire. At March 31, 1996, Portsmouth had $779.2 million of total assets and $55.9 million of shareholder's equity. On February 16, 1996, five branch offices and $160.9 million in related deposits located in New Hampshire were acquired by Portsmouth from Fleet Bank NH (the "Branch Acquisition"). In addition to various assets related to the acquired branches, approximately $216.4 million of loans were purchased in connection with this transaction, which consisted primarily of $178.6 million of single-family residential loans. A deposit premium of $18.2 million was paid which is being amortized over seven years. On July 1, 1995, Bankcore, Inc. ("Bankcore"), the New Hampshire-based holding company for North Conway Bank, was acquired and North Conway Bank was merged into Portsmouth. At the time of acquisition, Bankcore had $132.8 million in total assets and shareholders' equity of $17.8 million. The Bankcore acquisition was treated as a purchase for accounting purposes and, accordingly, the Company's financial statements reflect the acquisition from the time of purchase only. As a result of the transaction, $3.4 million of goodwill was created, which is being amortized over 15 years. On June 15, 1995, the Company purchased all the branches and associated deposits, as well as certain loans, of Fleet Bank of Maine located in Aroostook County, Maine. Five of the seven branches purchased were merged with and into existing branches of the Bank. The purchase resulted in the transfer of $46.1 million in deposits and $17.1 million in loans. Results of Operations The Company reported net income of $9.6 million for the three months ended March 31, 1996 as compared to $7.3 million for the same period in 1995. The improved results in 1996 were primarily attributable to the improvement in net interest income as a result of an increase in earning assets and increased noninterest income, which were offset in part by higher noninterest expenses and higher income tax expense. Net Interest Income. For purposes of the following table and the following discussion, income from interest-earning assets and net interest income are presented on a fully- taxable equivalent basis primarily by adjusting income and yields earned from tax-exempt interest received on qualified tax-exempt securities and on loans to qualifying borrowers to make them equivalent to income and yields earned on fully-taxable securities and loans, assuming tax rates of 35%. In addition, nonaccrual loans have been included in the appropriate average balance loan category, but unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Information is based on average daily balances during the indicated periods. Three Months Ended March 31, Three Months Ended March 31, 1996 1995 Average Yield/ Average Yield/ Balance Interest Rate (2) Balance Interest Rate (2) (Dollars in Thousands) Loans and leases (1): Residential real estate mortgages $ 762,560 $15,226 7.99% $ 650,084 $12,994 8.00% Commercial real estate mortgages 643,021 15,981 10.00 595,437 14,212 9.68 Commercial loans and leases 334,342 8,181 9.84 272,998 6,703 9.96 Consumer loans and leases 659,521 15,397 9.39 607,960 14,005 9.34 Total loans and leases 2,399,444 54,785 9.18 2,126,479 47,914 9.14 Investment securities (3) 510,458 7,813 6.16 431,619 6,938 6.52 Federal funds sold 18,331 239 5.24 24,838 364 5.94 Total earning assets 2,928,233 62,837 8.63 2,582,936 55,216 8.67 Nonearning assets 205,342 179,750 Total assets $3,133,575 $2,762,686 Interest-bearing deposits: Regular savings 318,499 2,208 2.79 339,892 2,439 2.91 NOW accounts 205,579 656 1.26 181,517 569 1.27 Money market access accounts 463,048 4,374 3.80 294,161 2,441 3.37 Certificates of deposit 1,164,494 16,495 5.70 1,025,447 13,051 5.16 Total interest-bearing deposits 2,155,620 23,733 4.43 1,841,017 18,500 4.08 Borrowed funds 411,979 5,642 5.51 456,194 6,660 5.92 Total interest bearing liabilities 2,567,599 29,375 4.60 2,297,211 25,160 4.44 Demand deposits 259,255 195,480 Other liabilities (3) 35,051 32,764 Shareholders' equity (3) 271,670 237,231 Total liabilities and shareholders' equity $3,133,575 $2,762,686 Net earning assets $ 360,634 $ 285,725 Net interest income (fully-taxable equivalent) 33,642 30,056 Less: fully-taxable equivalent adjustments (152) (191) Net interest income $33,310 29,865 Net interest rate spread (fully-taxable equivalent) 4.03% 4.23% Net interest margin (fully-taxable equivalent) 4.60% 4.72% (1) Loans and leases includes loans available for sale. (2) Annualized. (3) Excludes effect of unrealized gains or losses on investment securities.
Net interest income on a fully-taxable equivalent basis increased by $3.6 million for the three months ended March 31, 1996 as compared with the same period in 1995. The increase was primarily attributable to an increase in the level of interest-earning assets, which was offset somewhat by a decrease in the Company's net interest rate spread. The weighted average rate on loans and leases increased slightly to 9.18% from 9.14% and the average outstanding balances increased by $273.0 million, or 12.8% for the three months ended March 31, 1996, compared with the same period in 1995. Interest income earned on loans and leases increased by $6.9 million, or 14.3%, during the three months ended March 31, 1996, as compared with the three months ended March 31, 1995. The increase in interest income on loans was primarily attributable to loan growth from purchases and acquisitions as well as internal loan growth. Interest expense on deposits increased by $5.2 million, or 28.3%, during the three months ended March 31, 1996 as compared with the three months ended March 31, 1995. The increase in interest expense paid on deposits was attributable to an increase in the weighted average rate paid on interest-bearing deposits from 4.08% during the three months ended March 31, 1995 to 4.43% during the three months ended March 31, 1996 and a $314.6 million, or 17.1%, increase in average interest-bearing deposit balances outstanding during the three months ended March 31, 1996, as compared with the same period in 1995. The increase in average deposit balances was primarily attributable to deposit growth from purchases and acquisitions during the second half of 1995 and the first quarter of 1996. The increase in deposit balances enabled the Company to both fund the increase in earning assets and reduce the level of borrowed funds. Interest expense on borrowed funds decreased by $1.0 million, or 15.3%, for the three months ended March 31, 1996, as compared with the same period in 1995. This decrease was attributable to a $44.2 million, or 9.7%, decrease in outstanding average balances of borrowed funds and a decrease in the weighted average rate paid to 5.51% for the three months ended March 31, 1996, as compared with 5.51% for the same period in 1995. The Company's net interest rate spread decreased from 4.23% for the three months ended March 31, 1995 to 4.03% for the three months ended March 31, 1996. This decrease was attributable to the increased rate on interest-bearing deposits and a slight decrease in the yield on earning assets. The net interest margin decreased from 4.72% for the three months ended March 31, 1995 to 4.60% for the three months ended March 31, 1996. This decrease was attributable to the decreased net interest rate spread, which was offset in part by the higher level of net earning assets during the three months ended March 31, 1996, as compared with the same period in 1995. Provision for Loan Losses. The Company had a zero provision for loan losses for the three months ended March 31, 1996, as compared with a provision of $580 thousand for the three months ended March 31, 1995. The lower provision resulted from management's ongoing evaluation of the adequacy of the allowance for loan losses after taking into account recent trends in nonperforming loans, delinquent loans and net loan chargeoffs, as well as other asset quality factors. See "Financial Condition - Nonperforming Assets" below. Although management utilizes its best judgment in providing for possible losses, there can be no assurance that the Company will not have to increase its provisions for possible loan and lease losses in the future as a result of changing markets for real estate and economic conditions in the Company's primary market area, future changes in nonperforming assets or for other reasons which could affect the Company's results of operations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize changes to the allowance for loan and lease losses based on their judgments about information available to them at the time of the examination. The Company was most recently examined by the Federal Reserve Board as of December 31, 1994; the Bank was most recently examined by the FDIC and the Maine Bureau of Banking as of December 31, 1995; and Portsmouth was most recently examined by the Comptroller of the Currency ("Comptroller") as of December 31, 1994. Noninterest Income. Noninterest income increased $2.4 million, or 53.6%, for the three months ended March 31, 1996, as compared to the same period in 1995. The more significant changes to the components of noninterest income are more fully described below. The following table sets forth certain information relating to mortgage banking services income: At or for the Three Months Ended March 31, 1996 1995 (In Thousands) Residential mortgages serviced for investors at end of period $2,621,948 $2,267,063 Gain on sale of residential mortgage servicing rights $ 200 $ -0- Residential mortgage sales income 1,547 446 Residential mortgage servicing income 1,549 1,692 Total $ 3,296 $ 2,138 The Company's portfolio of residential mortgages serviced for investors increased by $354.9 million, net of amortization and prepayments, or 15.7%, from March 31, 1995 to March 31, 1996. The Company's portfolio of mortgages serviced for others continues to increase as a result of its strategy to originate and sell primarily fixed rate residential mortgages to the secondary market while retaining the rights to service these loans for the investors purchasing them. In addition, the outstanding amount of residential mortgages serviced for investors is impacted, from time to time, by the purchase and sale of mortgage servicing rights for portfolios of residential mortgage loans. In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights," which changes the method of accounting for certain mortgage banking activities. The Company elected early adoption of SFAS No. 122 in the second quarter of 1995 and consequently the impact of the adoption is not included in the results of operations of the Company which were reported for the three months ended March 31, 1995. A total of $273 thousand in originated mortgage servicing rights were attributable to mortgage banking sales activities for the three months ended March 31, 1995 but were reported in the results of operations for the three months ended June 30, 1995. Residential mortgage sales income increased $1.1 million for the three months ended March 31, 1996, as compared with the three months ended March 31, 1995. Including the $273 thousand of originated mortgage servicing rights attributable to mortgage sales activities during the three months ended March 31, 1995, the comparable increase in mortgage sales income during the three months ended March 31, 1996 was $828 thousand, or 115.2%. The increase in residential mortgage sales income reflects the lower interest rate environment during the three months ended March 31, 1996, as compared with the same period in 1995, which increased the level of both refinancing and purchase mortgages as well as an increase in the volume of loans originated by both the Bank and the acquired through the Bank's correspondent network. Residential real estate mortgage originations from correspondent lenders increased by $160.7 million, or 737.2%, from $21.8 million for the three months ended March 31, 1995 to $182.5 million for the three months ended March 31, 1996. Residential mortgage servicing income decreased $143 thousand, or 8.5%, during the three months ended March 31, 1996, as compared with the same period in 1995. Residential mortgage servicing income was negatively impacted during the three months ended March 31, 1996 by the Company's adoption of SFAS No. 122 in 1995, which effectively accelerated mortgage servicing income into the current period as a component of residential mortgage sales income and increased the amount of capitalized mortgage servicing rights. The mortgage servicing rights that have been created as a result of the adoption of SFAS No. 122 are amortized and recorded as an offset to mortgage servicing income. In order to mitigate the prepayment risk associated with mortgage servicing rights and protect economic value, the Company has purchased constant maturity treasury floors ("CMT"). The value of a CMT is inversely related to movements in interest rates. As interest rates decline, the value of a CMT floor increases. Market interest rate movements also influence the behavior of borrowers, which impacts the value of mortgage servicing rights as a result of an increase or decrease on mortgage loan prepayment speeds. The value of mortgage servicing rights generally increases as market interest rates increase and decreases as market interest rates decrease. While not accorded hedge accounting treatment due to the uncertainty of strict correlation, in the event that interest rates fall, any resulting increase in the value of the CMTs are intended to offset, in part, the prospective impairment to mortgage servicing rights. The CMT floors are included in other assets on the Company's balance sheet at March 31, 1996 at amortized cost of $868 thousand, which approximates market value. The following table shows the composition of net gains on the sales of securities for the periods indicated: Three Months Ended March 31, 1996 1995 (In Thousands) Securities losses $( 1) $(121) Securities gains 401 29 $ 400 $ (92) The generation of mortgage sales income and the recognition of net gains on the sales of securities are dependent on market and economic conditions and, accordingly, there can be no assurance that the income and net gains reported in prior periods can be achieved in the future or that there will not be significant inter-period variations in the results from such activities. Customer services income increased $586 thousand, or 32.0%, for the three months ended March 31, 1996, as compared with the same period in 1995. The increase in customer services income reflects the Company's focus on increasing the number and volume of transaction accounts, the increased use of and fees generated by ATM machines and the increased volume associated with the expansion of the retail branch franchise from 67 branches at March 31, 1995 to 82 at March 31, 1996. Other categories of noninterest income include loan related services income, which increased $74 thousand; trust and investment advisory services, which increased $147 thousand; and other noninterest income, which decreased $47 thousand for the three months ended March 31, 1996, as compared to the same period in 1995. The changes in these categories of noninterest income resulted primarily from the related volume of customer transactions. Noninterest Expenses. Total noninterest expenses increased $2.6 million, or 11.0%, for the three months ended March 31, 1996, as compared with the same period in 1995. Salaries and employee benefits increased $1.9 million, or 16.8%, for the three months ended March 31, 1996, as compared to the same period in 1995. This increase was principally the result of the employment of additional employees in connection with the expansion of the retail franchise as well as normal salary and wage increases. Occupancy expenses increased $543 thousand, or 29.0%, for the three months ended March 31, 1996, as compared with the same period in 1995. This increase was primarily attributable to the expansion of the Company's branch network, which resulted in higher utilities and maintenance expenses during the three months ended March 31, 1996, as compared with the same period in 1995. Equipment expenses increased $499 thousand, or 46.8%, for the three months ended March 31, 1996, as compared with the same period in 1995. The increase in equipment expenses was primarily attributable to increased investment in alternative delivery systems, office automation equipment and a larger branch network. Deposit and other assessment expenses decreased $1.1 million, or 77.1%, for the three months ended March 31, 1996, as compared with the same period in 1995. This decrease was directly attributable to the reduction in the deposit insurance premiums from $0.23 per $100 of deposits for the three months ended March 31, 1995 to a minimal amount for the three months ended March 31, 1996 paid by the Bank and Portsmouth to the Bank Insurance Fund ("BIF"). Approximately 83% of the Company's deposits are insured by BIF. The Company continues to pay $0.23 per $100 of deposits for the approximately 17% of its deposits that are insured by the Savings Association Insurance Fund ("SAIF"). For additional information in this regard, see Item 5 below, however. Other categories of noninterest expenses include data processing expense, which increased $367 thousand for the three months ended March 31, 1996, as compared to the same period in 1995; collection and carrying costs of nonperforming assets, which decreased $283 thousand for the three months ended March 31, 1996, as compared to the same period in 1995; and advertising and marketing expenses, which decreased $93 thousand for the three months ended March 31, 1996 as compared with the same period in 1995. Other noninterest expenses increased $631 thousand, or 15.6%, for the three months ended March 31, 1996, as compared to the same period in 1995. The following table sets forth information relating to other noninterest expenses during the periods indicated: Three Months Ended March 31, 1996 1995 (In Thousands) Postage and freight $ 626 $ 484 Telephone 553 374 Amortization of goodwill 480 430 Amortization of deposit premiums 415 54 Other 2,606 2,709 $4,680 $4,049 The increase in amortization of deposit premiums was attributable to the Branch Acquisition. Income Tax Expense. Income tax expense was $5.1 million and $3.5 million for the three months ended March 31, 1996 and 1995, respectively, which amounted to effective income tax rates of 34.8% and 32.8%, respectively. Financial Condition Set forth below is a discussion of the material changes in the Company's financial condition from December 31, 1995 to March 31, 1996. Securities Available for Sale Securities available for sale increased $22.5 million, or 4.6%. Securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity (net of related taxes). At March 31, 1996, $320 thousand of net unrealized gain (net of related taxes) was included in shareholders' equity. A summary of the carrying values of securities available for sale follows: March 31, December 31, 1996 1995 (In Thousands) U.S. Government obligations and obligations of U.S. Government agencies and corporations $233,920 $249,697 Other bonds and notes 26,592 15,716 Mortgage-backed securities 223,185 195,823 Total debt securities 483,697 461,236 Equity securities 23,984 23,982 Total securities available for sale $507,681 $485,218 Loans Held for Sale Loans held for sale, all of which were residential mortgage loans, increased $17.2 million. The outstanding dollar amount of loans held for sale can vary greatly from period to period as a result of mortgage origination levels, timing and delivery of loan sales, changes in market interest rates and asset liability management strategies. The change in loans held for sale from December 31, 1995 to March 31, 1996 was primarily attributable to the higher level of fixed rate mortgage originations in the months preceding March 31, 1996 as compared with December 31, 1995. Loans and Leases Total loans and leases held for investment increased $236.9 million, or 10.7%, for the three months ended March 31, 1996. The increase was primarily attributable to $216.4 million of loans acquired through the Branch Acquisition, as well as increases in residential and commercial real estate loan originations. The following table sets forth loans held for sale and total loans and leases originated or purchased and sold, repaid or otherwise reduced, by loan type, for the periods indicated: Three Months Ended March 31, 1996 1995 (In Thousands) Originations and purchases: Residential real estate loans $251,079 $ 59,709 Commercial real estate loans 35,870 26,622 Commercial business loans and leases 99,710 85,717 Consumer loans 78,298 61,954 Total originations and purchases 464,957 234,002 Loans acquired through acquisitions 218,129 -0- Total originations, purchases and acquisitions $683,086 $234,002 Sales and principal reductions: Sales $232,390 $ 47,386 Principal reductions 196,622 166,908 Total sales and principal reductions $429,012 $214,295 Increase in loans held for sale and loans and leases $254,074 $ 19,708 Residential real estate loan originations increased $191.4 million for the three months ended March 31, 1996, as compared with the same period in 1995. The increase in residential loan originations during the three months ended March 31, 1996 reflected significant refinancing activity due to a favorable interest rate environment and a substantial increase in loans originated through the Bank's correspondent network. For additional information regarding residential loan originations, see discussion of Loans Held for Sale and Noninterest Income above. Commercial business loan and lease originations increased $14.0 million for the three months ended March 31, 1996, as compared with the same period in 1995. The increase in commercial business loan and lease originations is consistent with the Company's strategy to focus on lending to sound small and medium-sized business customers within its geographic market as well as an increase in tax exempt loans to municipalities. Consumer loan originations increased $16.3 million for the three months ended March 31, 1996, as compared with the same period in 1995. The growth in consumer loan originations and balances was concentrated in home equity loans. Originations of consumer loans include a significant amount of loans indirectly obtained by the Company through various dealers in products financed by the Company. Indirect consumer loans accounted for approximately 18.1% of the total originations of consumer loans during the three months ended March 31, 1996 and amounted to $298.8 million, or 44.8%, of the Company's consumer loan portfolio at March 31, 1996. (CAPTION> Nonperforming Assets The following table sets forth information regarding nonperforming assets at the dates indicated: March 31, December 31, September 30, June 30, 1996 1995 1995 1995 (Dollars in Thousands) Residential real estate loans: Nonaccrual loans $ 6,004 $ 4,990 $ 5,231 $ 4,517 Accruing loans which are 90 days overdue 2,722 2,724 2,013 2,833 Total 8,727 7,714 7,244 7,350 Commercial real estate mortgages: Nonaccrual loans 13,548 13,247 16,106 15,327 Troubled debt restructurings 1,793 2,595 3,946 4,870 Total 15,341 15,842 20,052 20,197 Commercial business loans and leases: Nonaccrual loans 5,458 6,235 5,940 6,620 Troubled debt restructurings 1,349 1,859 1,953 2,098 Total 6,807 8,094 7,893 8,718 Consumer loans and leases: Nonaccrual loans 3,277 2,846 3,190 2,963 Accruing loans which are 90 days overdue 803 532 343 112 Total 4,080 3,378 3,533 3,075 Total nonperforming loans: Nonaccrual loans 28,288 27,318 30,467 29,427 Accruing loans which are 90 days overdue 3,525 3,256 2,356 2,945 Troubled debt restructurings 3,142 4,454 5,899 6,968 Total 34,955 35,028 38,722 39,340 Other nonperforming assets: Other real estate owned, net of related reserves 4,256 5,073 6,589 8,555 Repossessions, net of related reserves 1,855 1,528 1,629 1,591 Total other nonperforming assets 6,111 6,601 8,218 10,146 Total nonperforming assets $41,066 $41,629 $46,940 $49,486 Total nonperforming loans as a percentage of total loans (1) 1.42% 1.58% 1.74% 1.86% Total nonperforming assets as a percentage of total assets 1.24% 1.35% 1.55% 1.73% Total nonperforming assets as a percentage of total loans (1) and total other nonperforming assets 1.67% 1.87% 2.10% 2.33%
(1) Exclusive of loans held for sale. It is the policy of the Company to place all commercial real estate loans and commercial business loans which are 90 days or more past due, unless secured by sufficient cash or other assets immediately convertible to cash, on nonaccrual status. All such loans 90 days or more past due, whether on nonaccrual status or not, are considered as nonperforming loans. Residential real estate loans and consumer loans are placed on nonaccrual and nonperforming status generally when they are 90 days or more past due or when in management's judgment the collectibility of interest and/or principal is doubtful. It is also the policy of the Company to place on nonaccrual and nonperforming status loans currently performing in accordance with their terms but which in management's judgment are likely to present future principal and/or interest repayment problems and thus ultimately could be classified as nonperforming. At March 31, 1996, $11.4 million of commercial real estate and commercial business loans and leases, or 51.3% of total nonperforming commercial real estate and commercial business loans, were on nonaccrual status and thus disclosed as nonperforming loans even though they were less than 90 days past due. Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These statements require changes in both the disclosure and impairment measurement of nonperforming loans. Certain loans which had previously been reported as nonperforming and certain in- substance foreclosures are currently required to be disclosed as impaired loans. At adoption, the Company reclassified $2.2 million of in-substance foreclosures and related reserves of $96 thousand to loans and the allowance for loan losses, respectively. Prior year balances were not reclassified as management deemed the amounts to be immaterial. Restructured accruing loans entered into subsequent to the adoption of these statements are reported as impaired loans. In the year subsequent to restructure these loans may be removed from impaired loan status provided that the loan bears a market rate of interest at the time of restructure and is performing under the restructured terms. Restructured, accruing loans entered into prior to the adoption of these statements are not required to be reported as impaired loans unless such loans are not performing in accordance with the restructured terms. Commercial business and commercial real estate loans are considered impaired when it is probable that the Company will not be able to collect all amounts due according to the original contractual terms of the loan agreement. The amount of impairment for impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original contractual interest rate, and its recorded value, or, in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral. The Company recognizes income on impaired loans also classified as nonperforming on a cash basis when the ability to collect the principal balance is not in doubt. At March 31, 1996, total impaired loans were $24.6 million, of which $20.5 million had related allowances of $4.4 million. During the three months ended March 31, 1996, the income recognized related to impaired loans was $333 thousand and the average balance of outstanding impaired loans was $26.2 million. Real estate acquired by the Company as a result of foreclosure or by deed-in-lieu of foreclosure generally is classified as other real estate owned until it is sold. When property is acquired, it is recorded at the lower of carrying or fair value less estimated selling costs at the date of acquisition or classification and any writedown resulting therefrom is charged to the allowance for loan losses. Interest accrual ceases on the date of acquisition and all costs incurred from that date in maintaining the property and subsequent reductions in value are expensed. Nonperforming assets at March 31, 1996 included $4.3 million of other real estate owned and $1.9 million of repossessed assets, in each case net of related reserves. Potential Nonperforming Assets At March 31, 1996, the Company had classified a total of $79.9 million of commercial real estate loans and commercial business loans and leases as substandard or lower on its risk rating system, as compared to $79.8 million at December 31, 1995. Included in this amount was the Company's $22.1 million of nonperforming commercial business and commercial real estate loans. In the opinion of management, the remaining $57.8 million of commercial real estate loans and commercial business loans and leases classified as substandard or lower at March 31, 1996 evidence one or more weaknesses or potential weaknesses and, depending on the regional economy and other factors, may become nonperforming assets in future periods. These loans are net of any previously established specific reserves which have resulted in chargeoffs, but not general reserves which have been established based on the Company's internal rating of such loans and evaluation of the adequacy of its allowance for loan losses. Allowance for Loan Losses The following table sets forth information regarding activity in the allowance for loan losses for the three months ended March 31, 1996 and 1995, as well as certain related ratios: Three Months Three Months Ended Ended March 31, March 31, 1996 1995 (Dollars in Thousands) Average loans and leases outstanding during the period $2,399,444 $2,216,479 Allowance at beginning of period $ 49,138 $ 50,484 Chargeoffs: Residential real estate 414 208 Commercial real estate 399 4,275 Commercial business loans and leases 280 309 Consumer 651 517 Total loans charged off 1,744 5,369 Recoveries: Residential real estate 58 43 Commercial real estate 1,352 427 Commercial business loans and leases 321 521 Consumer 118 25 Total loans recovered 1,849 1,016 Net chargeoffs (recoveries) (105) 4,353 Additions charged to operating expenses -0- 580 Additions due to purchase acquisition 4,310 -0- Allowance at end of period $ 53,553 $ 46,711 Ratio of net chargeoffs to average loans and leases outstanding during the period - annualized (1) (0.02)% 0.83% Ratio of allowance to total loans and leases at end of period (2) 2.18% 2.21% Ratio of allowance to nonperforming loans at end of period 153.20% 104.15% (1) Average loans and leases include portfolio loans and loans held for sale. (2) Excludes loans held for sale. The following table sets forth the manner in which the Company's total allowance for loan losses was allocated by type of loan at the dates indicated: March 31, 1996 December 31, 1995 % of Total % of Total Loans by Loans by Category to Category to Amount Total Loans Amount Total Loans (Dollars in Thousands) Residential real estate loans $ 4,398 32.0% $ 2,872 27.4% Commercial real estate loans 32,621 26.9 29,240 28.1 Commercial business loans and leases 8,242 13.9 8,201 15.0 Consumer loans 8,292 27.2 8,824 29.5 $53,553 100.0% $49,138 100.0% Deposits and Borrowings Total deposits increased by $167.1 million, or 7.1%, during the three months ended March 31, 1996. This increase was principally attributable to the $160.9 million of deposits that were acquired in the Branch Acquisition, as described above. The increase in deposits resulted from an increase in certificates of deposit of $95.4 million, or 8.5%, an increase in regular savings of $36.5 million, or 12.0%, an increase in money market accounts of $21.3 million, or 4.7%, and a combined increase in NOW and demand deposits of $13.8 million, or 2.8%. The changes in deposit balances principally reflect the impact of the Branch Acquisition completed during February, 1996 but also reflect the Company's current strategy to emphasize relationship banking, cash management services and core deposits. Total borrowings increased by $48.7 million, or 11.8%, for the three months ended March 31, 1996. The increase was primarily attributable to a $39.0 million increase in Federal Home Loan Bank borrowings and an $18.8 million increase in federal funds purchased, which were offset in part by a $9.1 million decrease in other borrowings. The increase in Federal Home Loan Bank borrowings was directly attributable to the Branch Acquisition. At March 31, 1996, the Company estimates its additional available borrowing capacity from the Federal Home Loan Bank to be approximately $417.0 million. Shareholders' Equity Total shareholders' equity increased by $6.0 million, or 2.2%, during the three months ended March 31, 1996. This increase was the result of $9.6 million of net income and $1.0 million of treasury stock sales related to various employee benefit plans of the Company, the effects of which were offset in part by cash dividends of $2.7 million and a $1.9 million reduction in the net unrealized gain (net of tax effect) in the market value of securities available for sale. Regulatory Capital Requirements At March 31, 1996, the Company and each of its banking subsidiaries were in compliance with all applicable regulatory capital requirements. The following table sets forth the minimum regulatory capital requirements and the actual capital ratios of the Company and its two banking subsidiaries at March 31, 1996: Actual Required The The Minimums Bank Portsmouth Company Risk-based capital ratios: Tier I 4% 10.89% 7.22% 10.87% Total 8 12.16 8.48 12.14 Tier I leverage capital ratios 3 (1) 7.58 5.32 7.75 (1) The federal banking agencies have indicated that the most highly-rated institutions which meet certain criteria will be subject to a 3% requirement and all other institutions will be required to maintain an additional 1% to 2% of capital. The federal banking agencies have not specified any requirements in this regard with respect to the Company and its subsidiaries. Liquidity and Capital Resources The Company's liquidity increased slightly during the three months ended March 31, 1996. Net cash, short term and marketable assets amounted to $503.0 million, or 19.4% of net deposits and short term liabilities at March 31, 1996. This compares to a ratio of 22.2% at December 31, 1995. Liquidity is considered adequate by the Company to meet anticipated cash needs in the foreseeable future. Asset and Liability Management The Company analyzes the future impact on net interest income as a result of changing interest rates based on budget projections, including anticipated business activity, anticipated changes in interest rates and other variables which are adjusted periodically to reflect the interest rate environment and other factors. Based on this analysis and the information and assumptions in effect at March 31, 1996, management of the Company estimates that a 100 to 200 basis point gradual change in interest rates would not significantly affect the Company's annualized net interest income. This assessment is primarily based on management's ability to exert some control with respect to the extent and timing of the change in rates paid on the Company's interest-bearing liabilities and, therefore, to manage the effects somewhat of a negative or positive gap position on net interest income. The Company's methods for analyzing the effects of changes in interest rates on its operations incorporate assumptions concerning, among other things, the amortization and prepayment of assets and liabilities. Management believes that these assumptions approximate actual experience and considers them reasonable, although the actual amortization and repayment of assets and liabilities may vary substantially. Acquisition of BNHC On April 2, 1996, the Company completed the acquisition of Bank of New Hampshire Corporation ("BNHC"). Pursuant to the Agreement and Plan of Merger, First Coastal was merged with and into BNHC (the "Merger") and, upon consummation thereof, each share of common stock of BNHC was converted into two shares of common stock of the Company. Pursuant to the Merger, First Coastal was merged into BNHC. The acquisition was treated as a pooling of interests for accounting purposes. The following pro forma condensed balance sheet was prepared as if the Merger had been completed at March 31, 1996: Pro Forma Pro Forma PHFG BNHC Adjustments Combined Assets: Investments (1) $ 507,681 $ 308,858 $ -0- $ 816,539 Total loans and leases, net 2,454,505 555,888 -0- 3,010,393 Other assets 339,461 91,308 -0- 430,769 Total assets $3,301,647 $ 956,054 $ -0- $4,257,701 Liabilities and equity: Deposits $2,529,031 $ 820,154 $ -0- $3,349,185 Borrowings 461,519 36,200 -0- 497,719 Other liabilities (2) 34,644 13,998 3,000 51,642 Total liabilities 3,025,194 870,352 3,000 3,898,546 Shareholders' equity (2) 276,453 85,702 (3,000) 359,155 Total liabilities and shareholders' equity $3,301,647 $ 956,054 $ -0- $4,257,701 (1) Includes federal funds sold. (2) Reflects an estimated $4.0 million of remaining reorganization and restructuring cost related to the Merger, less related tax benefits of $1.0 million. The restructuring charges relate primarily to severance obligations, professional fees, branch closures and consolidation of data processing operations. The Company expects to take a one-time, nonrecurring reorganization and restructuring charge during the second quarter of 1996.
The following pro forma condensed consolidated statement of operations was prepared as if the Merger had been completed as of January 1, 1996: Pro Forma Pro Forma PHFG BNHC Adjustments Combined Interest income $ 62,685 $ 18,206 $ -0- $ 80,891 Interest expense 29,375 6,240 -0- 35,615 Net interest income 33,310 11,966 -0- 45,276 Provision for loan losses -0- 450 -0- 450 Net interest income after provision for loan losses 33,310 $ 11,516 -0- 44,826 Noninterest income 6,906 2,722 -0- 9,628 Noninterest expense (1) 25,503 9,373 (453) 34,423 Income before income taxes 14,713 4,865 453 20,031 Income tax expense 5,114 1,858 159 7,131 Net income $ 9,599 $ 3,007 $ 294 $ 12,900 Earnings per common share $ 0.56 $ 0.74 -0- $ 0.51 Average shares outstanding 17,000,427 4,064,165 -0- 25,128,757 (1) The operations of BNHC included nonrecurring charges of $453 thousand related to the Merger eliminated for pro forma presentation. This unaudited pro forma information is not necessarily indicative of the results that would have actually have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma information does not give effect to anticipated cost savings in connection with the Merger.
Part II - Other Information Item 1. Legal Proceedings: The Company is involved in routine legal proceedings occurring in the ordinary course of business which in the aggregate are believed by management to be immaterial to the financial condition and results of operations of the Company. Item 2. Changes in securities - not applicable Item 3. Defaults upon senior securities - not applicable. Item 4. Submission of matters to a vote of security holders. The Company's Annual Meeting of Stockholders was held on April 23, 1996, at which the following action was taken by the stockholders of the Company. 1. Election of Directors. The Company's nominees for election as Directors were elected by stockholders as follows: WITHHOLD FOR AUTHORITY Everett W. Gray 12,122,127 335,574 William J. Ryan 12,125,047 332,654 Curtis M. Scribner 12,124,954 332,747 2. To amend the Articles of Incorporation to increase the number of authorized shares. Total for: 9,709,609 Against: 3,200,736 Abstain: 91,923 3. To adopt a 1996 Equity Incentive Plan for key employees: Total for: 9,417,698 Against: 3,402,386 Abstain: 156,183 4. Ratification of appointment of KPMG Peat Marwick LLP: Total for: 12,194,189 Against: 16,081 Abstain: 35,197 Item 5. Other Information. The U.S. Senate and the U.S. House of Representatives have considered bills which would, among other things, recapitalize the Savings Association Insurance Fund ("SAIF") administered by the FDIC by a one-time assessment on the deposits of all SAIF-insured institutions and provide for an eventual merger of the SAIF and the BIF. The deposit assessment rate will be determined by the FDIC and set at a level which will be sufficient to recapitalize the SAIF to the designated statutory reserve ratio. Currently, it is anticipated that the assessment rate will be approximately $.85 for every $100 of assessable deposits as of March 31, 1995 and that the one-time assessment will be due during the second half of 1996. Most legislative proposals have contained provisions which provide certain relief for institutions, such as the Bank and Portsmouth, which are members of the BIF but have acquired SAIF-insured deposits as a result of acquisitions of savings institutions in the transactions effected pursuant to Section 5(d)(3) of the Federal Deposit Insurance Act ("FDIA"). Such institutions do not pay SAIF assessments based on the actual amount of the SAIF deposits acquired, but as adjusted to reflect increases or decreases in such deposits subsequent to the FDIA. The Company currently is unable to predict the likelihood of legislation effecting the foregoing changes, although a consensus among legislators, regulators and bankers appears to be developing in this regard. At March 31, 1995, the date most proposals use as the measurement date, the adjusted attributable amount of SAIF deposits of the Company's banking subsidiaries amounted to $352.4 million, or 17.0%, of the Company's total deposits. If an assessment of $.85 per $100 of assessable deposits was effected on these deposits (and assuming no downward adjustment on the assessment rate for institutions such as the Bank and Portsmouth), the one-time assessment which would be payable by the Company's banking subsidiaries would aggregate approximately $3.0 million on a pre-tax basis. Item 6. Exhibits and reports on Form 8-K. (a) The following exhibit required by Item 601 of Regulation S-K accompanies this report: (3) Articles of Amendment to Articles of Incorporation of the Company. (b) On April 3, 1996, the Company filed a Report on Form 8-K which disclosed the consummation of the Company's acquisition of BNHC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEOPLES HERITAGE FINANCIAL GROUP, INC. Date May 14, 1996 By: William J. Ryan Chairman, President and Chief Executive Officer Date May 14, 1996 By: Peter J. Verrill Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEOPLES HERITAGE FINANCIAL GROUP, INC. /s/ William J. Ryan Date May 14, 1996 By: William J. Ryan Chairman, President and Chief Executive Officer /s/ Peter J. Verrill Date May 14, 1996 By: Peter J. Verrill Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer) EX-27 2
9 3-MOS DEC-31-1996 MAR-31-1996 111,904 0 0 0 507,681 0 0 2,454,505 53,553 3,301,647 2,529,031 461,519 34,644 0 175 0 0 276,278 3,301,647 54,665 7,647 373 62,685 23,733 5,642 33,310 0 400 25,503 14,713 14,713 0 0 9,599 .56 .56 4.60 28,288 3,525 3,142 0 49,138 1,744 1,849 53,553 53,553 0 0
EX-3 3 EXHIBIT A The Articles of Incorporation of Peoples Heritage Financial Group, Inc. are hereby amended by changing the first two sentences of Article 4 thereof to read as follows: "The total number of shares of capital stock which the Corporation has authority to issue is 105,000,000, of which 5,000,000 shall be serial preferred stock, $.01 par value per share (hereinafter the "Preferred Stock") and 100,000,000 shall be common stock, par value $.01 per share (hereinafter the "Common Stock"). The aggregate par value of all authorized shares of capital stock having a par value if $1,050,000." For Use by the Secretary of State STATE OF MAINE FILED April 25, 1996 ARTICLES OF AMENDMENT (Amendment by Shareholders /s/ Gary Cooper Voting as One Class) Deputy Secretary of State A true Copy When Attested Pursuant to 13-A MRSA S.805 and 807 by Signature the undersigned corporation adopts these Articles of Amendment: /s/ Gary Cooper Deputy Secretary of State FIRST: All outstanding shares were entitled to vote on the following amendment as one class. SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders of Peoples Heritage Financial Group, Inc. at a meeting legally called and held on April 23, 1996. THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Number of Number of Number of Outstanding and Shares Shares Shares Entitled to Vote Voted For Voted Against Abstained 17,009,949 9,709,609 3,200,736 91,923 FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. Not applicable. FIFTH: If the amendment changes the number or par values of authorized shares, the number of shares the corporation has authority to issue thereafter, is as follows: Series Number Par Value Class (If Any) of Shares (If Any) Preferred Stock 5,000,000 $0.01 Common Stock 100,000,000 $0.01 The aggregate par value of all such shares (of all classes and series) having par value is $1,050,000 . The total number of all such shares (of all classes and series) without par value is 0 shares. SIXTH: Address of the registered office in Maine: One Portland Square, Portland, Maine 04112-9540. (street, city and zip code) MUST BE COMPLETED FOR VOTE PEOPLES HERITAGE FINANCIAL GROUP, INC. OF SHAREHOLDERS (Name of Corporation) I certify that I have custody of the minutes showing the above action by the shareholders. By* /s/ William J. Ryan (Signature) /s/ Carol L. Mitchell Carol L. Mitchell William J. Ryan, Chairman, President Senior Vice President, General Counsel, Secretary and Clerk and Chief Executive Officer (type or print name and capacity) By* /s/ Carol L, Mitchell (Signature) Dated: April 24, 1996 Carol L. Mitchell, Senior Vice President, General Counsel, Secretary and Clerk (type or print name and capacity) * In addition to any certification of custody of minutes this document MUST be signed by (1) the Clerk OR (2) the President or a vice president AND the Secretary, an assistant secretary or other officer the bylaws designate as second certifying officer OR (3) if no such officers, a majority of directors then in office OR (4) if no directors, the holders, or such of them designated by the holders of record of a majority of all outstanding shares entitled to vote thereon OR (5) the holders of all outstanding shares. NOTE: This form should not be used if any class of shares is entitled to vote as a separate class for any of the reasons set out in S.806, or because the articles so provide. For vote necessary for adoption see S.805. -----END PRIVACY-ENHANCED MESSAGE-----