-----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, FfI6+KKQecprtCtGXXSgJG3ExlDxq2VNDet6dF+O+Zysyy1m8UG1e2Kx64yO8L+t QkuPDYWdM8N2Zyn8vULJzg== 0000950135-96-002930.txt : 19960703 0000950135-96-002930.hdr.sgml : 19960703 ACCESSION NUMBER: 0000950135-96-002930 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960702 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960702 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16947 FILM NUMBER: 96590256 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 8-K 1 PEOPLES HERITAGE FINANCIAL GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 July 2, 1996 - -------------------------------------------------------------------------------- (Date of earliest event reported) Peoples Heritage Financial Group, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maine 0-16947 01-0437984 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) P.O. Box 9540, One Portland Square, Portland, Maine 04112-9540 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (207) 761-8500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 2 ITEM 5. OTHER EVENTS As previously reported by Peoples Heritage Financial Group, Inc. (the "Company") in its Current Report on Form 8-K, dated April 3, 1996, the Company completed its acquisition of Bank of New Hampshire Corporation ("BNHC") on April 2, 1996 by means of the merger of First Coastal Banks, Inc. ("First Coastal"), a wholly-owned subsidiary of the Company, with and into BNHC (the "Merger"). Upon consummation of the Merger, each outstanding share of BNHC Common Stock was converted into the right to receive two shares of Company Common Stock. The Merger was accounted for as a pooling of interests for accounting and financial reporting purposes. Following consummation of the Merger, the Company merged its two New Hampshire-based banking subsidiaries The First National Bank of Portsmouth and Bank of New Hampshire - under the charter of Bank of New Hampshire effective the close of business on June 28, 1996. This transaction also was accounted for as a pooling of interests for accounting and financial reporting purposes. Also as previously announced by the Company in its Current Report on Form 8-K, dated June 5, 1996, the Company, Peoples Heritage Merger Corp. ("PHMC"), a newly-formed, wholly-owned subsidiary of the Company, and Family Bancorp ("Family") have entered into an Agreement and Plan of Merger, dated as of May 30, 1996, which provides, among other things, for (i) the merger of Family with and into PHMC (the "Family Merger") and (ii) the conversion of each share of Family Common Stock outstanding immediately prior to the Family Merger (other than any dissenting shares under Massachusetts law and certain shares held by the Company) into the right to receive 1.26 shares of Company Common Stock, subject to possible adjustment under certain circumstances, plus cash in lieu of any fractional share interest. The Company intends to file a registration statement on Form S-4 in connection with its pending acquisition of Family. In accordance with Item 10 of Form S-4, the Company has submitted herewith under Item 7 of this Form 8-K, (i) supplemental financial information, including restated supplemental consolidated financial statements, as of December 31, 1995 and 1994 and for the three years ended December 31, 1995 and (ii) supplemental financial information, including restated supplemental consolidated financial statements, as of March 31, 1996 and for the three months ended March 31, 1996 and 1995, in each case giving retroactive effect to the acquisition of BNHC for all periods presented. The supplemental consolidated financial statements will become, in all material respects, the historical financial statements of the Company. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Not applicable. (b) Not applicable. 2 3 (c) The following exhibits are included with this Report: Exhibit 23 Consent of KPMG Peat Marwick LLP Exhibit 27 Financial Data Schedules at December 31, 1995 and March 31, 1996 Exhibit 99(a) Supplemental financial information as of December 31, 1995 and 1994 and for the three years ended December 31, 1995 Exhibit 99(b) Supplemental financial information as of March 31, 1996 and for the three months ended March 31, 1996 and 1995 3 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEOPLES HERITAGE FINANCIAL GROUP, INC. Date: July 2, 1996 By: /s/ Peter J. Verrill ----------------------------------------- Name: Peter J. Verrill Title: Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer 4 EX-23 2 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Nos. 33-22205, 33-22206, and 33-80310) on Form S-8 of Peoples Heritage Financial Group, Inc. (the "Company") of our report, dated June 25, 1996, relating to the supplemental consolidated balance sheets of the Company as of December 31, 1995 and 1994 and the related supplemental consolidated statements of income, changes in shareholders' equity and cash flows, for each of the years in the three-year period ended December 31, 1995, which report appears in the Current Report on Form 8-K of the Company dated July 3, 1996. Our report refers to a change in method of accounting for mortgage servicing rights effective January 1, 1995. KPMG Peat Marwick LLP Boston, Massachusetts July 1, 1996 EX-27.1 3 FINANCIAL DATA SCHEDULE (3 MONTHS)
9 3-MOS DEC-31-1996 MAR-31-1996 164,587 0 49,000 0 767,539 0 0 3,022,443 65,533 4,257,912 3,347,427 497,720 50,610 0 256 0 0 361,899 4,257,912 67,930 12,400 424 80,754 29,568 6,047 45,139 450 504 34,582 19,576 19,576 0 0 12,606 .50 .50 4.79 32,736 5,090 3,142 0 60,975 2,918 2,716 65,533 65,533 0 0
EX-27.2 4 FINANCIAL DATA SCHEDULE (1 YEAR)
9 12-MOS DEC-31-1995 DEC-31-1995 190,436 0 100,255 0 766,648 0 0 2,778,583 60,975 4,058,126 3,197,138 456,932 49,131 0 256 0 0 354,669 4,058,126 253,787 50,148 1,914 305,849 108,209 26,686 170,954 4,230 116 130,280 67,861 67,861 0 0 44,486 1.80 1.80 4.79 33,063 4,412 5,045 0 63,675 17,968 8,724 60,975 60,975 0 0
EX-99.(A) 5 FINANCIAL INFORMATION 1 EXHIBIT 99(a) INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION Page ---- Selected Supplemental Consolidated Financial Data 1 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Supplemental Consolidated Financial Statements 33 Notes to Supplemental Consolidated Financial Statements 61 Report of Independent Public Accountants 62 2 SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA (Dollars in Thousands, Except Per Share Data)
December 31, --------------------------------------------------------------- BALANCE SHEET DATA: 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Total assets $4,058,126 $3,737,906 $3,624,641 $3,523,094 $3,750,333 Debt and equity securities, net(1) 766,648 719,194 717,467 557,787 548,226 Total loans, net(2) 2,717,608 2,575,902 2,368,348 2,425,020 2,603,780 Goodwill and other intangibles 22,792 20,713 22,758 22,310 26,470 Deposits 3,197,138 2,885,845 2,939,826 2,948,549 3,198,366 Borrowings 456,932 505,347 359,935 288,024 308,469 Shareholders' equity 354,925 304,439 287,438 249,862 216,462 Nonperforming assets(3) 56,752 78,339 120,076 185,733 253,857 Allowance for loan and lease losses 60,975 63,675 67,385 71,223 88,067 Book value per share 14.16 12.26 11.61 10.73 13.20 Tangible book value per share 13.25 11.42 10.69 9.77 11.59
Year Ended December 31, --------------------------------------------------------------- OPERATIONS DATA: 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Interest and dividend income $ 305,849 $ 256,597 $ 243,452 $ 272,596 $ 343,316 Interest expense 134,895 108,002 112,305 150,458 224,739 ---------- ---------- ---------- ---------- ---------- Net interest income 170,954 148,595 131,147 122,138 118,577 Provision for loan losses 4,230 3,374 14,047 32,025 71,480 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 166,724 145,221 117,100 90,113 47,097 ---------- ---------- ---------- ---------- ---------- Net securities gains (losses) 116 (254) 1,183 2,859 1,520 Net gains on sales of consumer loans -- 33 2,576 -- -- Other noninterest income 31,301 27,847 24,842 26,747 21,310 Noninterest expense 130,280 125,137 122,391 125,091 116,610 ---------- ---------- ---------- ---------- ---------- Income (loss) before income tax expense (benefit) and cumulative effect of a change in accounting principle 67,861 47,710 23,310 (5,372) (46,683) Income tax expense (benefit) 23,375 13,662 799(4) 1,510 (15,095) Cumulative effect on years prior to 1992 of a change in accounting principle -- -- -- 1,100(5) -- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 44,486 $ 34,048 $ 22,511 $ (5,782) $ (31,588) ========== ========== ========== ========== ========== Net income (loss) per share $ 1.80 $ 1.37 $ 0.95 $ (0.36) $ (1.95) Dividends per share $ 0.46 $ 0.23 $ 0.01 $ 0.00 $ 0.00
1 3
At or For the Year Ended December 31, -------------------------------------------------- OTHER DATA(6): 1995 1994 1993 1992 1991 ---------- -------- -------- -------- -------- Return on average assets 1.16% 0.94% 0.64% (0.16)% (0.83)% Return on average equity(7) 13.53 11.42 8.57 (2.69) (14.22) Average equity to average assets(7) 8.55 8.21 7.50 5.98 5.85 Interest rate spread(8) 4.20 4.01 3.76 3.41 3.56 Net interest margin(8) 4.79 4.44 4.11 3.71 3.43 Tier I leverage capital ratio at end of period 8.33 7.96 7.63 7.00 5.73 Dividend payout ratio 25.42 16.45 1.44 0.00 0.00 Nonperforming loans as a percent of total loans at end of period(3) 1.53 2.13 3.18 4.36 6.11 Nonperforming assets as a percent of total assets at end of period(3) 1.40 2.10 3.31 5.29 6.77 Allowance for loan and lease losses as a percent of nonperforming loans 143.40 113.17 86.95 65.39 53.50 at end of period Full service banking offices 106 96 98 100 103
- ------------------------------- (1) All securities were classified as available for sale at December 31, 1995. (2) Does not include loans held for sale. (3) Nonperforming assets consist of nonperforming loans, other real estate owned and repossessions, net of related reserves where appropriate. Nonperforming loans consist of non-accrual loans, accruing loans 90 days or more overdue and troubled debt restructurings. (4) PHFG's results of operations for 1993 reflect the elimination of the valuation allowance relating to deferred income tax assets of $6.5 million. (5) Reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1992. (6) With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods and are annualized where appropriate. (7) Average equity excludes the effect of unrealized gains or losses on securities available for sale. (8) Calculated on a fully-taxable equivalent basis. 2 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Peoples Heritage Financial Group, Inc. (the "Company") is a Maine-chartered, multi-bank holding company which conducts business from its headquarters in Portland, Maine and 110 offices located throughout the States of Maine and New Hampshire. Based on $4.1 billion of total assets at December 31, 1995, the Company is the largest independent bank holding company headquartered in the State of Maine and the fifth largest independent bank holding company headquartered in New England. The Company offers a broad range of commercial and consumer banking services and products and trust and investment advisory services through two wholly-owned banking subsidiaries: Peoples Heritage Bank ("PHB") and Bank of New Hampshire ("BNH"). PHB is a Maine-chartered savings bank which operates 61 offices throughout Maine and, through subsidiaries, engages in mortgage banking, financial planning and equipment leasing activities. At December 31, 1995, PHB had consolidated assets of $2.5 billion and consolidated shareholder's equity of $187.2 million. BNH is a New Hampshire-chartered commercial bank which operates 49 offices (including five offices acquired in February 1996) throughout New Hampshire. At December 31, 1995, BNH had consolidated assets of $1.5 billion and consolidated shareholder's equity of $127.6 million. Each of PHB and BNH is a member of the Bank Insurance Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC"). The Company's goal is to sustain profitable, controlled growth by focusing on increased loan and deposit market share in Maine and New Hampshire, developing new financial products, services and delivery channels, closely managing yields on interest-earning assets and rates on interest-bearing liabilities, increasing noninterest income through, among other things, expanded trust and investment advisory services and mortgage servicing operations, and controlling growth of noninterest expenses. It also is a part of the business strategy of the Company to supplement internal growth with targeted acquisitions of other banking or thrift institutions in Northern New England. During the periods covered by this discussion, the Company engaged in numerous merger and acquisition related activities. For further information see Note 18 to the Supplemental Consolidated Financial Statements and "Acquisitions" below. MAINE AND NEW HAMPSHIRE ECONOMIES The success of the Company is closely linked to the overall health and vitality of the Maine and New Hampshire economies. Starting in the late 1980s through 1992 the region experienced an economic decline, including severe problems in the local real estate markets. During this period excess real estate inventory contributed substantially to increases in the Company's nonperforming assets. Since 1992, the Company has been able to significantly reduce its nonperforming assets and related costs. The Company believes that Maine, New Hampshire and New England in general have witnessed slow but steady economic growth since 1992. Although economic activity is 3 5 just beginning to reach levels experienced in the mid-to-late 1980s, the Northern New England economy appears stable at this time. The economies and real estate markets in the Company's primary market areas will continue to be significant determinants of the quality of the Company's assets in future periods and, thus, its results of operations. RESULTS OF OPERATIONS The Company reported net income of $44.5 million or $1.80 per share in 1995, as compared to net income of $34.0 million or $1.37 per share in 1994 and $22.5 million or $0.95 per share in 1993. Return on average assets amounted to 1.16% in 1995, as compared to .94% and .64% during 1994 and 1993, respectively, and return an average equity amounted to 13.53% in 1995, as compared to 11.42% and 8.57% during 1994 and 1993, respectively. The primary reasons for the improved results in 1995 and 1994 were substantial increases in net interest income, which on a fully-taxable equivalent basis amounted to $172.0 million, $149.3 million and $132.1 million during 1995, 1994 and 1993, respectively, and, to a lesser extent, increases in noninterest income, particularly mortgage banking services and customer services income, a decrease in collection and carrying costs related to reductions in nonperforming assets and a decrease in deposit insurance assessment expense, which were offset in part by higher salary and employee benefit costs and income tax expense and, in 1995, one-time merger related expenses. Net Interest Income. The operations of the Company are substantially dependent on its net interest income, which is the difference between the interest income received from its interest-earning assets and the interest expense paid on its interest-bearing liabilities. Net interest income is determined by an institution's net interest spread (i.e., the difference between the yield earned on its interest-earning assets and the rates paid on its interest-bearing liabilities), the relative amount of interest-earning assets and interest-bearing liabilities, which is reflected in an institution's net interest margin (net interest income divided by average interest-earning assets) and the degree of mismatch in the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities. 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. For purposes of the table and the following discussion, (i) income from interest-earning assets and net interest income is presented on a fully-taxable equivalent basis primarily by adjusting income and yields earned on tax-exempt interest received on loans to qualifying borrowers and on certain of the Company's equity securities to make them equivalent to income and yields earned on fully-taxable investments, assuming a federal income tax rate of 35%, and (ii) nonaccrual loans have been included in the appropriate average balance loan category, but unpaid interest on nonaccrual loans has not been included for purposes of determining interest income. 4 6
Year Ended December 31, -------------------------------------------------------------- 1995 1994 ----------------------------- ------------------------------ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ---------- --------- ------- ---------- ---------- ------ (Dollars in Thousands) Loans and leases(1) $2,732,318 $ 254,484 9.31% $2,529,723 $ 215,587 8.52% Investment securities(2) 771,462 47,392 6.14 749,507 38,434 5.13 Federal funds sold 85,191 5,066 5.95 81,376 3,295 4.05 ---------- --------- ---------- ---------- Total earning assets 3,588,971 306,942 8.55 3,360,606 257,316 7.66 --------- ---------- Nonearning assets 256,797 269,352 ---------- ---------- Total assets $3,845,768 $3,629,958 ========== ========== Interest-bearing deposits: Regular savings $ 588,581 16,753 2.85 $ 596,254 16,313 2.74 NOW accounts 328,238 4,697 1.43 307,021 5,014 1.63 Money market access accounts 414,025 15,507 3.75 367,820 9,770 2.66 Brokered deposits -- -- -- -- -- -- Certificates of deposit 1,299,735 71,252 5.48 1,275,805 56,823 4.45 ---------- --------- ---------- ---------- Total interest-bearing deposits 2,630,579 108,209 4.11 2,546,900 87,920 3.45 Borrowed funds 471,456 26,686 5.66 414,956 20,082 4.84 ---------- --------- ---------- ---------- Total interest-bearing liabilities 3,102,035 134,895 4.35 2,961,856 108,002 3.65 ---------- --------- ---------- ---------- Demand deposit accounts 368,832 325,615 Other liabilities 46,197 44,357 Shareholders' equity(2) 328,704 298,130 ---------- ---------- Total liabilities and shareholders' equity $3,845,768 $3,629,958 ========== ========== Net earning assets $ 486,936 $ 398,750 ========== ========== Net interest income (fully-taxable equivalent) 172,047 149,314 Less: fully-taxable equivalent adjustments (1,093) (719) --------- ---------- Net interest income $ 170,954 $ 148,595 ========= ========== Net interest rate spread (fully-taxable equivalent) 4.20 4.01 Net interest margin (fully-taxable equivalent) 4.79 4.44
Year Ended December 31, ------------------------------------- 1993 ----------------------------------- Average Yield/ Balance Interest Rate ---------- ---------- ---------- Loans and leases(1) $2,473,666 $ 209,258 8.46% Investment securities(2) 626,590 31,729 5.06 Federal funds sold 110,308 3,377 3.06 ---------- ---------- Total earning assets 3,210,564 244,364 7.61 ---------- Nonearning assets 288,015 ---------- Total assets $3,498,579 ========== Interest-bearing deposits: Regular savings $ 536,788 15,414 2.87 NOW accounts 309,137 5,911 1.91 Money market access accounts 466,948 13,364 2.86 Brokered deposits 15,000 550 3.67 Certificates of deposit 1,274,423 61,554 4.83 ---------- ---------- Total interest-bearing deposits 2,602,296 96,793 3.72 Borrowed funds 311,639 15,512 4.98 ---------- ---------- Total interest-bearing liabilities 2,913,935 112,305 3.85 ---------- ---------- Demand deposit accounts 294,516 Other liabilities 27,599 Shareholders' equity(2) 262,529 ---------- Total liabilities and shareholders' equity $3,498,579 ========== Net earning assets $ 296,629 ========== Net interest income (fully-taxable equivalent) 132,059 Less: fully-taxable equivalent adjustments (912) ---------- Net interest income $ 131,147 ========== Net interest rate spread (fully-taxable equivalent) 3.76 Net interest margin (fully-taxable equivalent) 4.11
(1) Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans. (2) Excludes effect of unrealized gains or losses on securities available for sale. 5 7 Rate/Volume Analysis. The following table presents certain information on a fully-taxable equivalent basis regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by old volume), (2) changes in volume (change in volume multiplied by old rate) and (3) changes in rate/volume (change in rate multiplied by change in volume).
Year Ended December 31, 1995 vs. 1994 ---------------------------------------------- Increase (Decrease) Due to ---------------------------------- Rate/ Rate Volume Volume Total ---------- ---------- ---------- ---------- (In Thousands) Interest-earnings assets: Loans and leases(1) $ 20,028 $ 17,265 $ 1,604 $ 38,897 Investment securities 7,609 1,126 223 8,958 Federal funds sold 1,544 155 72 1,771 ---------- ---------- ---------- ---------- Total 29,181 18,546 1,899 49,626 ---------- ---------- ---------- ---------- Interest-bearing liabilities: Deposits: Regular savings 658 (210) (8) 440 NOW accounts (621) 347 (43) (317) Money market access accounts 4,007 1,227 503 5,737 Brokered deposits -- -- -- -- Certificates of deposit 13,117 1,066 246 14,429 ---------- ---------- ---------- ---------- Total deposits 17,161 2,430 698 20,289 Borrowed funds 3,406 2,734 464 6,604 ---------- ---------- ---------- ---------- Total 20,567 5,164 1,162 26,893 ---------- ---------- ---------- ---------- Net interest income (fully taxable equivalent) $ 8,614 $ 13,382 $ 737 $ 22,733 ========== ========== ========== ==========
Year Ended December 31, 1994 vs. 1993 ---------------------------------------- Increase (Decrease) Due to ---------------------------------- Rate/ Rate Volume Volume Total ---------- ---------- ---------- ---------- (In Thousands) Interest-earnings assets: Loans and leases(1) $ 1,552 $ 4,742 $ 35 $ 6,329 Investment securities 402 6,224 79 6,705 Federal funds sold 1,089 (885) (286) (82) ---------- ---------- ---------- ---------- Total 3,043 10,081 (172) 12,952 ---------- ---------- ---------- ---------- Interest-bearing liabilities: Deposits: Regular savings (728) 1,708 (81) 899 NOW accounts (862) (41) 6 (897) Money market access accounts (961) (2,837) 204 (3,594) Brokered deposits (550) (550) 550 (550) Certificates of deposit (4,793) 67 (5) (4,731) ---------- ---------- ---------- ---------- Total deposits (7,894) (1,653) 674 (8,873) Borrowed funds (430) 5,143 (143) 4,570 ---------- ---------- ---------- ---------- Total (8,324) 3,490 531 (4,303) ---------- ---------- ---------- ---------- Net interest income (fully taxable equivalent) $ 11,367 $ 6,591 $ (703) $ 17,255 ========== ========== ========== ========== - --------------- (1) Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans.
6 8 Net interest income increased by $22.7 million or 15.2% during 1995. This increase was primarily attributable to changes in the volume of interest-earning assets and interest-bearing liabilities, which resulted from an $88.2 million or 22.1% increase in net earning assets from 1994 to 1995 and an increase in the Company's net interest margin from 4.44% to 4.79% during the same respective periods, and to a lesser extent to changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities, which resulted in an increase in the Company's interest rate spread from 4.01% to 4.20% during 1994 and 1995, respectively. Interest and dividend income increased by $49.6 million or 19.3% during 1995 primarily as a result of a $38.9 million or 18.0% increase in interest on loans and leases available for sale and held for investment (collectively "loans and leases"). The increase in interest on loans and leases was attributable to both an increase in the weighted average yield on loans and leases from 8.52% during 1994 to 9.31% during 1995, which reflected increases in all loan categories, and a $202.6 million or 8.0% increase in the average balance of loans and leases from 1994 to 1995, which also reflected increases in all loan categories. At December 31, 1995, the percentage of the Company's loans and leases which had adjustable or floating rates amounted to 45.3%. Interest and dividend income also increased in 1995 as a result of a $9.0 million or 23.3% increase in interest income on investment securities, which was primarily attributable to an increase in the weighted average yield earned on investment securities from 5.13% to 6.14% during 1994 and 1995, respectively. Interest expense increased by $26.9 million or 24.9% during 1995 as a result of a $20.3 million or 23.1% increase in interest expense on interest-bearing deposits and a $6.6 million or 32.9% increase in interest expense on borrowed funds, which consist primarily of advances from the Federal Home Loan Bank of Boston and, to a lesser extent, securities sold under agreements to repurchase and federal funds purchased. These increases were primarily attributable to an increase in the weighted average rate paid on interest-bearing liabilities, which increased from 3.65% to 4.35% during 1994 to 1995, respectively. Interest expense also increased during 1995 as a result of a $140.2 million or 4.7% increase in the average balance of interest-bearing liabilities, which was attributable to increases in both interest-bearing deposits, particularly money market accounts, and borrowings. Net interest income increased by $17.3 million or 13.1% during 1994. This increase was primarily attributable to changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities, which resulted in an increase in the Company's interest rate spread from 3.76% to 4.01% during 1993 and 1994, respectively, and to a lesser extent to changes in the volume of interest-earning assets and interest-bearing liabilities, which resulted in a $102.1 million or 34.4% increase in net earning assets from 1993 to 1994 and an increase in the Company's net interest margin from 4.11% to 4.44% during the same respective periods. Interest and dividend income increased by $13.0 million or 5.3% during 1994 primarily as a result of a $6.7 million or 21.1% increase in interest and dividend income on investment securities and a $6.3 million or 3.0% increase in interest on loans and leases. These increases were primarily attributable to increases in the average balances of investment securities and loans and leases from 1993 to 1994, which in the latter case reflected substantial increases in residential loans and consumer loans and leases. 7 9 Interest expense decreased by $4.3 million or 3.8% during 1994 as a result of a decrease in the weighted average rate on interest-bearing liabilities from 3.85% during 1993 to 3.65% during 1994, which more than offset a $47.9 million or 1.6% increase in the average balance of such liabilities from 1993 to 1994. Provision for Loan Losses. The provision for loan losses increased $856,000 from $3.4 million in 1994 to $4.2 million in 1995. In 1994, the provision for loan losses decreased $10.7 million from $14.0 million in 1993 to $3.4 million in 1994. The lower provisions in 1995 and 1994 as compared with 1993 resulted from management's ongoing evaluation of the adequacy of the allowance for loan and lease losses, which includes, among other procedures, monitoring trends in nonperforming loans, delinquent loans and net charge-offs, as well as new loan originations and other asset quality factors. Although management utilizes its best judgment in providing for possible losses, there can be no assurance that the Company will not have to change its provisions for possible loan losses in subsequent periods to a higher level from that recorded during 1995. Changing economic and business conditions in Northern New England, fluctuations in local markets for real estate, future changes in nonperforming asset trends, large upward movements in market-based interest rates or other reasons could affect the Company's future provisions for loan losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of 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 judgment about information available to them at the time of examination. Noninterest Income. Noninterest income amounted to $31.4 million, $27.6 million and $28.6 million during 1995, 1994 and 1993, respectively. The $3.8 million or 13.7% increase in noninterest income during 1995 was primarily attributable to a $2.4 million or 28.5% increase in mortgage banking services income and a $1.4 million or 13.6% increase in customer services income. The $975,000 or 3.4% decrease in noninterest income during 1994 was primarily attributable to a $2.5 million decrease in gains on sales of consumer loans and a $1.4 million decrease in net securities gains, which were offset in part by increases in all other categories of noninterest income from 1993 to 1994. 8 10 The following table sets forth information relating to the Company's noninterest income during the periods indicated.
Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (In Thousands) Mortgage banking services $ 10,849 $ 8,446 $ 7,150 Customer services 11,908 10,481 9,852 Trust and investment advisory services 5,850 5,471 4,694 Loan related services 1,907 1,847 1,588 Net securities gains (losses) 116 (254) 1,183 Net gains on sales of consumer loans -- 33 2,576 Other noninterest income 787 1,602 1,558 ------------ ------------ ------------ $ 31,417 $ 27,626 $ 28,601 ============ ============ ============
Mortgage banking services income, which is comprised of residential mortgage sales income and residential mortgage servicing income, increased by $2.4 million or 28.5% during 1995 and by $1.3 million or 18.1% during 1994. The increase in mortgage banking services income in 1995 was primarily attributable to an increase in residential mortgage sales income and the increase in mortgage banking services income in 1994 was attributable to an increase in residential mortgage servicing income. The following table sets forth certain information relating to the Company's mortgage banking activities during the periods indicated.
At or for the Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (In Thousands) Residential mortgages serviced for investors $ 2,595,049 $ 2,089,972 $ 1,602,333 ============ ============ ============ Residential mortgage sales income $ 4,224 $ 1,915 $ 4,381 Residential mortgage servicing income 6,625 6,531 2,769 ------------ ------------ ------------ Mortgage banking services income $ 10,849 $ 8,446 $ 7,150 ============ ============ ============
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights - An Amendment of FASB Statement No. 65," which changed the method of accounting for certain mortgage banking activities. The Company elected early adoption of SFAS No. 122 and as a result capitalized $2.5 million of originated mortgage servicing rights in 1995. Income related to the capitalization of originated mortgage servicing rights is included in residential mortgage sales income. Residential mortgage sales income increased by $2.3 million or 120.6% in 1995 primarily as a result of the Company's adoption of SFAS No. 122. Also included in residential mortgage sales income in 1995 is $642,000 of gains recognized on the sale of residential mortgage servicing rights. There were no sales of residential mortgage servicing rights in 1994 or 1993. Excluding the income related to the Company's adoption of SFAS No. 122 and the gains recognized on the sale of mortgage servicing rights, mortgages sales 9 11 income would have decreased by $833,000 in 1995 as compared with 1994. The decrease in mortgage sales income, excluding income related to SFAS No. 122 and gains on sales of mortgage servicing rights, was in part attributable to a more competitive market for retail originations and correspondent loan purchases, as well as an increase in the amount of costs directly allocated to retail mortgage loan originations. Residential mortgage sales income decreased by $2.5 million or 56.3% in 1994 primarily as a result of a $64.1 million or 13.5% decrease in originations of residential mortgage loans. Residential mortgage servicing income increased by $94,000 in 1995 and by $3.8 million or 135.9% in 1994. These increases reflected increases in the Company's portfolio of residential mortgages serviced for investors, which increased by $505.1 million or 24.2% during 1995 and by $487.6 million or 30.4% during 1994, in each case net of amortization and prepayments. These increases were primarily attributable to the Company's strategy to originate fixed-rate residential real estate mortgages for sale in the secondary market while retaining the rights to service these loans and the Company's selective purchase of mortgage servicing rights for portfolios of residential mortgages. The increase in residential mortgage servicing income during 1994 also reflected accelerated amortization and write downs of purchased mortgage servicing rights during 1993 as a result of increased prepayments of loans following decreases in market interest rates. Residential mortgage servicing income was negatively impacted in 1995 by the Company's adoption of SFAS No. 122, 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 conjunction with the adoption of SFAS No. 122, the Company elected to accelerate the amortization of capitalized mortgage servicing rights and excess servicing fees related to numerous pools of loans with small outstanding balances which, from an ongoing operational standpoint, were inefficient to amortize on a monthly basis. The cumulative impact of accelerating amortization of capitalized mortgage servicing rights and excess servicing fees associated with the pools of loans with small outstanding balances and the amortization expense related to adoption of SFAS No. 122 during 1995 was $445,000. The net gains on sale of consumer loans of $2.6 million in 1993 resulted primarily from PHB's decision to exit its retail credit card product line. The generation of mortgage sales income and the recognition of net gains on the sales of securities, consumer loans and other assets 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 interperiod variations in the results from such activities. Customer services income increased by $1.4 million or 13.6% during 1995 and by $629,000 or 6.4% during 1994. These increases generally reflect the Company's efforts to increase the number and volume of transaction accounts, the increased use of and fees generated by automatic teller machines and the increased volume associated with expansion of the Company's retail branch franchise from 98 offices at December 31, 1993 to 106 offices at December 31, 1995. Other noninterest income decreased by $815,000 or 50.9% during 1995 as a result of $1.3 million of interest income accrued and received on federal tax receivables during 1994. 10 12 Noninterest Expenses. Noninterest expenses amounted to $130.3 million, $125.1 million and $122.4 million during 1995, 1994 and 1993, respectively. Noninterest expenses increased by $5.1 million or 4.1% during 1995 and by $2.7 million or 2.2% during 1994 primarily as a result of increases in salaries and employee benefits, data processing expenses and merger expenses, which more than offset decreases in deposit and other assessments and collection and carrying costs of nonperforming assets. (Exclusive of merger expenses, noninterest expenses increased by $185,000 or .1% during 1995.) The current strategy of the Company includes controlled asset growth, new product development, enhancement of alternative delivery systems, geographic expansion in Northern New England, greater market share in existing markets, revenue enhancement and diversification. As the Company made investments in new systems, products and employees during the past two years to support the current business strategy, the Company also was able to substantially reduce the collection and carrying costs of nonperforming assets. The following table sets forth information relating to the Company's noninterest expenses during the periods indicated.
Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (In Thousands) Salaries and employee benefits $ 67,472 $ 61,799 $ 56,287 Occupancy 10,574 10,454 9,837 Data processing 8,924 7,306 6,762 Equipment 6,844 6,233 6,168 Advertising and marketing 4,642 4,642 2,668 Deposit and other assessments 4,497 7,899 8,367 Collection and carrying costs of nonperforming assets 2,595 6,033 14,840 Merger expenses 4,958 559 300 Other noninterest expenses: Amortization of goodwill 1,925 1,801 2,756 Other 17,849 18,411 14,306 ------------ ------------ ------------ Total other noninterest expenses 19,774 20,771 17,462 ------------ ------------ ------------ Total noninterest expenses $ 130,280 $ 125,137 $ 122,391 ============ ============ ============
Salaries and employee benefits increased by $5.7 million or 9.2% during 1995 and by $5.5 million or 9.8% during 1994. These increases reflect normal salary increases, as well as staff additions related to the Company's mortgage banking operations, initiation of supermarket banking and Sunday banking hours, expanded telephone banking services, new deposit products and the establishment of a trust department at PHB. Data processing expense increased by $1.6 million or 22.1% during 1995 and by $544,000 or 8.0% during 1994. Investment in expanded operational capabilities to support new product offerings and improve customer service and a higher level of transactions related to the larger mortgage servicing portfolio were the primary factors behind the increases in data processing expenses during 1995 and 1994. Deposit and other assessment expenses consist primarily of deposit insurance paid by the Company's subsidiary banks to either the BIF or the Savings Association Insurance Fund ("SAIF") administered by the FDIC. At December 31, 1995, approximately 84.0% and 16.0% of the Company's deposits were insured by the BIF and the SAIF, respectively. The 11 13 $3.4 million or 43.1% decrease in deposit and other assessment expenses in 1995 was primarily attributable to the reduction in the deposit insurance premium rate paid on the Company's BIF-insured deposits from $0.23 per $100 of assessable deposits to $0.04 per $100 of assessable deposits beginning in June 1995, as compared with $0.23 per $100 of assessable deposits for all of 1994. There has been much discussion but no clear resolution regarding the recapitalization of the SAIF. Based on various legislative proposals which have been made in the U.S. Congress in recent periods, it is anticipated that there will be a one-time assessment on all SAIF-insured institutions in order to recapitalize the SAIF and that the BIF and the SAIF eventually will be merged. If an assessment of between $0.65 and $0.85 per $100 of assessable deposits was effected on SAIF deposits of the Company's banking subsidiaries, the one-time assessment would aggregate between $2.5 million and $3.3 million on a pre-tax basis. The Company continued to benefit in 1995 from lower collection and carrying costs associated with the reduction of nonperforming assets. Collection and carrying costs of nonperforming assets decreased by $3.4 million or 57.0% during 1995 and by $8.8 million or 59.3% during 1994. See "Financial Condition - Nonperforming Assets" below. Merger expenses in 1995 consist primarily of $3.7 million of expenses related to the Company's combination wtih Bank of New Hampshire Corporation ("BNHC"), which was consummated on April 2, 1996. Merger expenses related to the combination with BNHC which were incurred in 1995 consisted primarily of $3.1 million of severance costs, $441,000 of investment banking fees and $90,000 of legal and accounting fees. Following consummation of the combination with BNHC, the Company incurred $4.7 million of additional merger-related expenses in connection with this transaction, which consisted primarily of $1.8 million of employee severance costs, $1.5 million of branch consolidation expenses and $1.3 million of professional fees. These expenses will reduce the Company's income during the three months ended June 30, 1996 by approximately $3.0 million or $.12 per share. Other merger expenses in 1995 relate to the Company's acquisition of Bankcore, Inc. ("Bankcore") in mid-1995 and consist primarily of severance and other employee-related costs. Advertising and marketing expenses increased by $2.0 million or 74.0% during 1994. The higher levels of advertising and marketing expenses during 1995 and 1994, as compared to the 1993 level, reflect the Company's business strategy to improve the visibility of its products and services, communicate its improved financial condition and take advantage of the opportunity created by the confusion and related customer dissatisfaction caused by major changes that have occurred and are anticipated to occur in the structure of the banking industries in Maine and New Hampshire. Amortization of goodwill increased by $124,000 or 6.9% during 1995 and decreased by $955,000 or 34.7% during 1994. The increase in goodwill amortization expense in 1995 reflects the amortization of goodwill recorded in connection with the acquisition of Bankcore. The decrease in goodwill amortization expense in 1994 resulted primarily from the Company's decision in 1993 to accelerate the amortization of goodwill recorded in connection with the acquisition by Peoples Heritage Leasing Company, Inc. (a wholly-owned subsidiary of PHB) of assets (primarily leases) of Emerald Leasing Co. in 1988. Amortization of goodwill associated with Emerald Leasing Co. amounted to $914,000 during 1993, which included a $520,000 write-off of the remaining balance during the fourth quarter of 1993. For additional information relating to goodwill, see Notes 1 and 8 to the Supplemental Consolidated Financial Statements. 12 14 Other noninterest expenses decreased by $1.1 million or 5.9% during 1995 and increased by $4.3 million or 29.0% during 1994. Other noninterest expenses decreased in 1995 primarily as a result of the Company's completion of the operational conversion of Mid Maine Savings Bank, F.S.B. ("MMSB"), which was acquired in mid-1994, and the closure of MMSB's New Hampshire operations center. Income Tax Expense. Income tax expense amounted to $23.4 million, $13.7 million and $799,000 during 1995, 1994 and 1993, respectively, which resulted in effective tax rates of 34.4%, 28.6% and 3.4% during the respective periods. The low effective tax rates in 1994 and 1993 were primarily attributable to the reversal of valuation allowances established pursuant to SFAS No. 109, "Accounting for Income Taxes," which the Company adopted as of January 1, 1993. At the time of adoption of SFAS No. 109, the Company (prior to the acquisition of MMSB) determined that its net deferred tax asset exceeded the amount previously reported under APB Opinion 11 by $5.7 million at January 1, 1993. Under SFAS No. 109, however, the Company established a valuation allowance against the deferred tax asset, which in its opinion at the time was not more likely than not to be realized. The $5.7 million valuation allowance offset the positive impact of adjusting the Company's deferred tax assets and liabilities as provided for under SFAS No. 109. At December 31, 1993, this valuation allowance was reversed because the Company then believed, as a result of recent profitable operations, that it was more likely than not that all net deferred taxes would be realized. MMSB also adopted SFAS No. 109 as of January 1, 1993 and determined that its deferred tax asset exceeded the amount previously reported under APB Opinion 11. Because MMSB also was not in a position to substantiate that it was more likely than not that it would be able to utilize the net deferred tax assets, it established a valuation allowance for $3.4 million. At December 31, 1993, MMSB was still not able to substantiate that it was more likely than not that it would be able to utilize the net deferred tax asset. Upon the acquisition of MMSB by the Company in mid-1994, the Company recorded a one-time $1.7 million tax benefit from the reversal of the valuation allowance for net deferred tax assets. This one-time tax benefit is reflected in the Company's income tax expense for 1994. For additional information relating to income taxes, see Note 11 to the Supplemental Consolidated Financial Statements. FINANCIAL CONDITION General. The Company's total assets increased by $320.2 million or 8.6% from $3.7 billion at December 31, 1994 to $4.1 billion at December 31, 1995. This increase reflected internal growth, as well as the Company's acquisition of all the branches and associated deposits, as well as certain loans, of Fleet Bank of Maine in Aroostook, County, Maine, which added $46.1 million of assets, and the Company's acquisition of Bankcore, which added $132.8 million of assets. Securities Available for Sale. The Company invests in a wide variety of investment securities, which may be classified as available for sale, held for investment or trading securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under SFAS No. 115, debt and equity securities that an institution has the positive intent and ability to hold to maturity are reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; and other debt and equity securities are classified as available for sale and reported at fair value, with unrealized 13 15 gains and losses excluded from earnings and reported as a separate component of shareholders' equity. The Company adopted SFAS No. 115 at December 31, 1993 and decided to classify all of its investment securities (prior to the acquisition of BNHC) as available for sale. In accordance with the FASB's Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," issued November 15, 1995, the Company reclassified the investment securities held by BNHC, substantially all of which were classified as held to maturity, to available for sale. At December 31, 1995, the Company had a net unrealized gain (net of related taxes) of $3.8 million on its securities available for sale, as compared to a net unrealized loss of $9.1 million at December 31, 1994. Total securities held to maturity and available for sale increased by $47.5 million or 6.6% during 1995. This increase was primarily attributable to the investment of proceeds received from securities sold under agreements to repurchase, which are collateralized by investment securities and increased by $53.4 million or 41.9% during 1995. The following table sets forth the carrying value of the Company's securities available for sale and securities held to maturity at the dates indicated.
December 31, ---------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (In Thousands) Securities available for sale: Bonds and other debt securities: U.S. Government and federal agencies $ 526,576 $ 219,220 $ 201,607 Tax-exempt bonds and notes 10,837 11,085 6,779 Other bonds and notes 5,694 2,706 7,581 Mortgage-backed securities 195,823 172,466 225,609 ------------ ------------ ------------ Total debt securities 738,930 405,477 441,576 ------------ ------------ ------------ Equities: FHLB stock 23,793 23,236 17,321 Other equity securities 3,925 3,904 178 ------------ ------------ ------------ Total equity securities 27,718 27,140 17,499 ------------ ------------ ------------ Total investment securities $ 766,648 $ 432,617 $ 459,075 ============ ============ ============ Securities held for investment: Bonds and other debt securities: U.S. Government and federal agencies $ -- $ 285,392 $ 256,380 Tax-exempt bonds and notes -- 908 1,215 Other bonds and notes -- 277 191 ------------ ------------ ------------ Total debt securities -- 286,577 257,786 ------------ ------------ ------------ Equities: Other equity securities -- -- 606 ------------ ------------ ------------ Total equity securities -- -- 606 ------------ ------------ ------------ Total investment securities $ -- $ 286,577 $ 258,392 ============ ============ ============
14 16 The following table sets forth the scheduled maturities and weighted average yields of the Company's debt securities available for sale at December 31, 1995, based on amortized cost.
Amortized Cost Maturing in ------------------------------------------------------------------------------------ One Year or Less More than One to Five Years More than Five to Ten Years ---------------------- --------------------------- ---------------------------- Amount Yield(1) Amount Yield(1) Amount Yield(1) ---------- ---------- ------------ ------------ ------------ ------------- (Dollars in Thousands) U.S. Government and federal agencies $ 338,795 5.99% $ 180,525 6.18% $ 2,187 5.62% Tax-exempt bonds and notes 5,608 4.99 4,881 5.29 -- -- Other bonds and notes 3,434 6.31 2,106 7.07 105 7.19 Mortgage-backed securities 256 8.14 1,993 6.29 32,537 6.98 ---------- ------------- ------------ Total $ 348,093 5.98 $189,505 6.15 $ 34,829 6.89 ========== ============= ============
Amortized Cost Maturing in ------------------- More than Ten Years Total ------------------- --------------------- Amount Yield(1) Amount Yield(1) --------- --------- ----------- ----- U.S. Government and federal agencies $ 1,316 8.50% $ 522,823 6.06% Tax-exempt bonds and notes 307 0.00 10,796 4.98 Other bonds and notes -- -- 5,645 6.61 Mortgage-backed securities 159,231 6.91 194,017 6.92 --------- ------- Total $ 160,854 6.93 733,281(2) 6.27 ========= =======
- ------------------------------------------ (1) Fully-taxable equivalent basis. (2) The market value of these securities amounted to $738.9 million at December 31, 1995. 15 17 Loans Held for Sale. Loans held for sale increased by $59.9 million or 539.9% during 1995. This increase was due to an increased volume of residential mortgages originated for sale in the secondary market at the end of 1995 as compared with the end of 1994, which was attributable to favorable interest rates for refinancing of existing mortgages and an increase in the volume of loans originated through the correspondent loan network utilized by the Company. For additional information, see Notes 1 and 4 to the Supplemental Consolidated Financial Statements and "Financial Condition-Loans and Leases" below. Loans and Leases. Total loans and leases increased by $139.0 million or 5.3% during 1995 as a $5.4 million or 0.7% decrease in residential real estate loans was offset by an $84.2 million or 26.0% increase in commercial business loans and leases, a $33.1 million or 4.5% increase in consumer loans and leases and a $27.1 million or 3.5% increase in commercial real estate loans. A significant amount of the increase in loans and leases during 1995 was attributable to $78 million of loans acquired in connection with the acquisition of Bankcore and $16.5 million of loans acquired in connection with the acquisition of the Fleet Bank of Maine branch offices in Aroostock County Maine. 16 18 The following table sets forth information concerning the Company's loan portfolio by type of loan at the dates indicated.
December 31, ----------------------------------------------------------------- 1995 1994 1993 -------------------- -------------------- -------------------- % of % of % of Amount Loans Amount Loans Amount Loans ---------- -------- ---------- -------- ---------- -------- (Dollars in Thousands) Residential real estate loans: Adjustable rate $ 402,695 14.49% $ 418,653 15.86% $ 382,485 15.70% Fixed rate 395,381 14.23 384,845 14.58 336,391 13.81 ---------- -------- ---------- -------- ---------- -------- Total 798,076 28.72 803,498 30.44 718,876 29.51 ---------- -------- ---------- -------- ---------- -------- Commercial real estate loans: Permanent first mortgage loans 753,857 27.13 745,356 28.24 731,074 30.01 Construction and development 43,829 1.58 25,216 0.96 21,260 0.87 ---------- -------- ---------- -------- ---------- -------- Total 797,686 28.71 770,572 29.20 752,334 30.88 ---------- -------- ---------- -------- ---------- -------- Commercial loans and leases: Loans 397,652 14.31 315,200 11.94 292,645 12.01 Leases 10,940 0.39 9,208 0.35 10,949 0.45 ---------- -------- ---------- -------- ---------- -------- Total 408,592 14.70 324,408 12.29 303,594 12.46 Consumer loans and leases: Home equity 283,008 10.19 247,751 9.39 222,262 9.13 Mobile home 214,761 7.73 222,600 8.43 210,682 8.65 Automobile 127,969 4.61 125,887 4.77 95,449 3.92 Boat and recreational vehicle 22,716 0.82 20,680 0.78 24,992 1.03 Other 125,775 4.52 124,181 4.70 107,544 4.42 ---------- -------- ---------- -------- ---------- -------- Total 774,229 27.87 741,099 28.07 660,929 27.15 ---------- -------- ---------- -------- ---------- -------- Total loans receivable 2,778,583 100.00% 2,639,577 100.00% 2,435,733 100.00% ---------- ======== ---------- ======== ---------- ======== Allowance for loan and lease losses 60,975 63,675 67,385 ---------- ------ ---------- Net loans receivable $2,717,608 $2,575,902 $2,368,348 ========== ========= ==========
December 31, ------------------------------------------- 1992 1991 -------------------- -------------------- % of % of Amount Loans Amount Loans ---------- -------- ---------- -------- Dollars in Thousands) Residential real estate loans: Adjustable rate $ 303,437 12.16% $ 321,318 11.94% Fixed rate 391,160 15.67 401,258 14.91 ---------- -------- ---------- -------- Total 694,597 27.83 722,576 26.85 ---------- -------- ---------- -------- Commercial real estate loans: Permanent first mortgage loans 793,019 31.77 829,074 30.80 Construction and development 27,235 1.09 61,972 2.30 ---------- -------- ---------- -------- Total 820,254 32.86 891,046 33.10 ---------- -------- ---------- -------- Commercial loans and leases: Loans 314,550 12.60 410,357 15.25 Leases 18,467 0.74 33,118 1.23 ---------- -------- ---------- -------- Total 333,017 13.34 443,475 16.48 Consumer loans and leases: Home equity 220,674 8.84 217,700 8.09 Mobile home 189,732 7.60 167,484 6.22 Automobile 77,942 3.12 68,653 2.55 Boat and recreational vehicle 28,767 1.15 32,358 1.20 Other 131,260 5.26 148,456 5.51 ---------- -------- ---------- -------- Total 648,375 25.97 634,651 23.57 ---------- -------- ---------- -------- Total loans receivable 2,496,243 100.00% 2,691,748 100.00% ---------- ======== ---------- ======== Allowance for loan and lease losses 71,223 87,968 ------ ------ Net loans receivable $2,425,020 $2,603,780 ========= =========
17 19 The following table sets forth scheduled contractual amortization of loans in the Company's portfolio at December 31, 1995, as well as the dollar amount of loans which are scheduled to mature after one year which have fixed or adjustable interest rates. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdraft loans are reported as due in one year or less.
Commercial Residential Commercial Business Consumer Real Estate Real Estate Loans and Loans and Loans Loans Leases Leases Total(1) ----------- ----------- ---------- --------- -------- (In Thousands) Amounts due: Within one year $ 38,429 $154,714 $187,169 $ 80,171 $ 460,483 After one year through five years 89,183 368,346 165,954 254,082 877,565 Beyond five years 670,464 274,626 55,469 439,976 1,440,535 -------- -------- -------- -------- ---------- Total $798,076 $797,686 $408,592 $774,229 $2,778,583 ======== ======== ======== ======== ========== Interest rate terms on amounts due after one year: Fixed $404,300 $258,461 $ 66,692 $330,362 $1,059,815 ======== ======== ======== ======== ========== Adjustable $355,347 $384,511 $154,731 $363,696 $1,258,285 ======== ======== ======== ======== ========== - ------------- (1) Scheduled contractual amortization does not reflect the actual maturities of loans because of prepayments and, in the case of conventional mortgage loans, due-on-sale clauses, which give the lender the right to require repayment of a mortgage loan in connection with a transfer of the related property.
Substantially all of the mortgage loans in the Company's loan portfolio are secured by properties located in Maine and New Hampshire. Moreover, substantially all of the Company's non-mortgage loan portfolio consists of loans made to residents of and businesses located in Maine and New Hampshire. Residential real estate loans consist of loans secured by single-family (one-to-four units) residences and consist primarily of conventional loans, which are neither insured by the Federal Housing Administration nor partially guaranteed by the Department of Veterans' Affairs. The Company generally originates fixed-rate residential real estate loans for sale to the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and other institutional investors in the secondary market and generally retains adjustable-rate residential real estate loans in its loan portfolio. Originations of residential real estate loans increased by $311.3 million or 75.9% from $410.1 million in 1994 to $721.4 million in 1995. This increase reflected a lower interest rate environment during the second half of 1995 and loans originated through the Company's correspondent lending network, which increased by $285.0 million or 304.8% from $93.5 million in 1994 to $378.5 million in 1995. During 1995, the Company substantially increased its correspondent lenders, the vast majority of which are located outside of New England, in order to leverage existing secondary market capabilities and add mortgage servicing income at a low marginal cost. Substantially all of the loans originated through the Company's correspondent lending network are sold in the secondary mortgage market. Commercial real estate loans consist of loans secured by income-producing commercial real estate (including office buildings and industrial buildings), service industry real estate (including hotels and health care facilities), multi-family (over four units) residential real estate and retail trade real estate (including restaurants, automotive-related properties and food stores), as well as loans for the acquisition, development and 18 20 construction of such commercial real estate. Originations of commercial real estate loans decreased by $25.1 million or 14.6% from $171.1 million in 1995. The Company generally has decreased its emphasis on commercial real estate loans in recent periods in order to reduce its relative exposure to such loans, although its business plan is to continue to lend within its geographic markets to sound commercial businesses which collateralize their borrowings with existing commercial real estate and to refinance existing commercial real estate loans in the Company's loan portfolio. The increase in the balance of commercial real estate loans from December 31, 1994 to December 31, 1995 was largely attributable to the Company's acquisitions during the period. Commercial business loans and leases are made to sound, small to medium sized businesses within the Company's geographic markets and are a principal focus of the Company's current lending strategy. Commercial business loans consist primarily of loans secured by various equipment, machinery and other corporate assets, as well as loans to provide working capital to businesses in the form of lines of credit, which may be secured by inventory, accounts receivable or other assets or unsecured. The Company also originates commercial business leases, primarily through Peoples Heritage Leasing Company, Inc., a wholly-owned subsidiary of PHB. Originations of commercial business loans and leases increased by $139.9 million or 44.5% from $314.0 million in 1994 to $453.9 million in 1995 as a result of the Company's current focus in this area. Consumer loans consist of a wide variety of loans which have been emphasized by the Company in recent years in order to provide a full range of financial services to its customers and because such loans generally have shorter terms and higher interest rates than mortgage loans. Consumer loans are originated directly by the Company or, in the case of mobile home loans, automobile loans, boat loans and certain other loans, indirectly through various dealers in products financed by the Company. Originations of consumer loans decreased by $30.3 million or 9.4% from $320.8 million in 1994 to $290.6 million in 1995. This decrease was primarily attributable to a decrease in indirect consumer loan originations, which decreased by $35.2 million or 34.6% from $101.6 million in 1994 to $66.4 million in 1995 primarily as a result of a decrease in indirect originations of mobile home loans. Exclusive of indirect consumer loan originations, consumer loan originations increased by $5.0 million or 2.3% in 1995, primarily as a result of originations of home equity loans. Nonperforming Assets. Nonperforming assets decreased by $21.6 million or 27.6% from $78.3 million at December 31, 1994 to $56.8 million at December 31, 1995. The decrease in nonperforming assets in 1995 was a continuation of the decline in nonperforming assets in recent periods and was attributable to a $13.7 million decrease in nonperforming loans and a $7.8 million decrease in other nonperforming assets. Nonperforming assets as a percentage of total assets decreased from 2.10% at December 31, 1994 to 1.40% at December 31, 1995. The Company continues to focus on asset quality issues and to allocate significant resources to the key asset quality control functions of credit policy and administration and loan review. The collection, workout and asset management functions continue to focus on the further reduction of nonperforming asset levels. Despite the ongoing focus on asset quality and the reductions of nonperforming asset levels, there can be no assurance that adverse changes in the real estate markets and economic conditions in the Company's primary market areas will not result in higher nonperforming asset levels in the future and negatively impact the Company's operations through higher provisions for loan losses, net loan chargeoffs, decreased accrual of interest income and increased noninterest expenses 19 21 as a result of the allocation of resources to the collection and workout of nonperforming assets. The following table sets forth information regarding nonperforming loans and leases and other nonperforming assets held by the Company at the dates indicated.
December 31, -------------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- -------- -------- -------- (Dollars in Thousands) Residential real estate loans: Non-accrual loans $ 5,713 $ 3,317 $ 4,806 $ 8,555 $ 9,711 Accruing loans 90 days overdue 3,728 4,473 4,479 4,316 6,635 Troubled debt restructurings -- -- 111 1,097 -- ------- ------- -------- -------- -------- Total 9,441 7,790 9,396 13,968 16,346 ------- ------- -------- -------- -------- Commercial real estate loans: Non-accrual loans 17,029 26,978 30,780 43,731 65,835 Accruing loans 90 days overdue -- 1,020 454 1,704 2,478 Troubled debt restructurings 3,186 6,284 15,275 18,155 30,853 ------- ------- -------- -------- -------- Total 20,215 34,282 46,509 63,590 99,166 ------- ------- -------- -------- -------- Commercial business loans and leases: Non-accrual loans 6,735 6,871 14,399 24,252 39,434 Accruing loans 90 days overdue 25 30 336 1,163 3,130 Troubled debt restructurings 1,859 2,684 2,547 1,649 1,224 ------- ------- -------- -------- -------- Total 8,619 9,585 17,282 27,064 43,788 ------- ------- -------- -------- -------- Consumer loans: Non-accrual loans 3,586 3,775 3,386 3,038 2,031 Accruing loans 90 days overdue 659 831 897 1,268 3,199 Troubled debt restructurings -- -- 26 -- 70 ------- ------- -------- -------- -------- Total 4,245 4,606 4,309 4,306 5,300 ------- ------- -------- -------- -------- Total nonperforming loans: Non-accrual loans 33,063 40,941 53,371 79,576 117,011 Accruing loans 90 days overdue 4,412 6,354 6,166 8,451 15,442 Troubled debt restructurings 5,045 8,968 17,959 20,901 32,147 ------- ------- -------- -------- -------- Total 42,520 56,263 77,496 108,928 164,600 ------- ------- -------- -------- -------- Other nonperforming assets: Other real estate owned, net of related reserves 12,679 16,682 28,867 37,657 40,540 In-substance foreclosures, net of related reserves -- 3,391 11,752 36,582 46,083 Repossessions, net of related reserves 1,553 2,003 1,961 2,566 2,664 ------- ------- -------- -------- -------- Total 14,232 22,076 42,580 76,805 89,287 ------- ------- -------- -------- -------- Total nonperforming assets $56,752 $78,339 $120,076 $185,733 $253,887 ======= ======= ======== ======== ======== Total nonperforming loans as a percentage of total loans 1.53% 2.13% 3.18% 4.36% 6.11% Total nonperforming assets as a percentage of total assets 1.40 2.10 3.31 5.29 6.77 Total nonperforming assets as a percentage of total loans and total other nonperforming assets 2.03 2.94 4.85 7.22 9.13
It is the policy of the Company to generally place all commercial real estate loans and commercial business loans and leases 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 and leases are placed on nonaccrual status generally at 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 therefore nonperforming status loans currently less than 90 days past due or performing in accordance with their terms but which in management's judgment are likely to present future principal and/or interest repayment problems and which thus ultimately would be classified as nonperforming. At December 31, 1995, $11.9 million of commercial real estate and 20 22 commercial business loans and leases, or 28.0% of total nonperforming loans, were on nonaccrual status and thus disclosed as nonperforming loans even though they were less than 90 days past due. Nonperforming residential real estate loans increased by $1.7 million from December 31, 1994 to December 31, 1995. As a percentage of total residential real estate loans, nonperforming residential real estate loans increased from 1.0% at December 31, 1994 to 1.2% at December 31, 1995. This increase was attributable to the low level of nonperforming loans at December 31, 1994 and an increase in past due loans during 1995 to levels approaching but still below national and regional averages. 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 as other real estate owned, it is recorded at the lower of carrying or fair value at the date of acquisition or classification and any writedown resulting therefrom is charged to the allowance for loan and lease 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 and are included in collection and carrying costs of nonperforming assets (a component of noninterest expenses). For further information, see Note 1 to the Supplemental Consolidated Financial Statements. Potential Nonperforming Assets. The total of commercial real estate and commercial business loans and leases which are internally graded substandard or lower, according to the Company's internal loan grading system, but which are still in a performing status (the population from which future nonperforming loans would most likely arise), has continued to decrease since the middle of 1992. At December 31, 1995 and 1994, the Company had classified a total of $89.7 million and $124.8 million, respectively, of commercial real estate loans and commercial business loans and leases as substandard or lower on its risk rating system. Included in this amount at December 31, 1995 was the Company's $28.8 million of nonperforming commercial real estate loans and commercial business loans and leases. In the opinion of management, the remaining $60.9 million of commercial real estate loans and commercial business loans and leases classified as substandard at December 31, 1995 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 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 and lease losses. Allowance for Loan and Lease Losses. The allowance for loan and lease losses is maintained at a level determined to be adequate by management to absorb future charge-offs of loans deemed noncollectible. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off. Arriving at an appropriate level of allowance for loan and lease losses necessarily involves a high degree of judgment, as discussed above under "Results of Operations - Provision for Loan Losses." 21 23 The following table sets forth information concerning the activity in the Company's allowance for loan and lease losses during the periods indicated.
Year Ended December 31, -------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Average loans and leases outstanding $2,732,318 $2,529,723 $2,473,666 $2,647,479 $2,799,630 ========== ========== ========== ========== ========== Allowance at the beginning of the year $ 63,675 $ 67,385 $ 71,223 $ 88,067 $ 84,429 Additions due to acquisitions and purchases 2,314 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Charges-offs: Residential real estate mortgages 4,139 4,646 6,607 13,565 7,573 Commercial real estate mortgages 8,964 6,207 8,482 19,053 48,997 Commercial business loans and leases 2,234 4,124 9,622 18,825 15,735 Consumer loans and leases 2,631 2,225 3,861 5,771 6,110 ---------- ---------- ---------- ---------- ---------- Total loans charged off 17,968 17,202 28,572 57,214 78,415 ---------- ---------- ---------- ---------- ---------- Recoveries: Residential real estate mortgages 620 904 642 627 647 Commercial real estate mortgages 5,185 4,917 6,293 2,582 1,269 Commercial business loans and leases 2,181 3,440 2,035 2,997 5,116 Consumer loans and leases 738 857 1,717 2,139 3,541 ---------- ---------- ---------- ---------- ---------- Total loans recovered 8,724 10,118 10,687 8,345 10,573 ---------- ---------- ---------- ---------- ---------- Net charge-offs 9,244 7,084 17,885 48,869 67,842 Additions charged to operating expenses 4,230 3,374 14,047 32,025 71,480 ---------- ---------- ---------- ---------- ---------- Allowance at end of year $ 60,975 $ 63,675 $ 67,385 $ 71,223 $ 88,067 ========== ========== ========== ========== ========== Ratio of net charge-offs to average loans and leases outstanding 0.34% 0.28% 0.72% 1.85% 2.42% Ratio of allowance to end of period loans and leases 2.19 2.41 2.77 2.85 3.27 Ratio of allowance to nonperforming loans and leases at end of period 143.40 113.17 86.95 65.39 53.50
22 24 The following table sets forth information concerning the allocation of the Company's allowance for loan and lease losses by loan categories at the dates indicated. For information about the percent of total loans in each category to total loans, see "Financial Condition-Loans and Leases" above.
December 31, -------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 -------------------- -------------------- -------------------- -------------------- -------------------- Allowance to Allowance to Allowance to Allowance to Allowance to Percent of Percent of Percent of Percent of Percent of Total Loans Total Loans Total Loans Total Loans Total Loans Amount by Category Amount by Category Amount by Category Amount by Category Amount by Category ------- ------------ ------- ------------ ------- ------------ ------- ------------ ------- ------------ (Dollars in Thousands) Residential real estate $10,118 1.27% $ 8,567 1.07% $ 9,864 1.37% $13,647 1.96% $11,039 1.53% Commercial real estate 31,673 3.97 35,505 4.61 38,177 5.07 40,899 4.99 51,512 5.78 Commercial business loans and leases 9,491 2.32 9,274 2.86 8,734 2.88 12,162 3.65 20,447 4.61 Consumer loans and leases 9,693 1.25 10,329 1.39 10,610 1.61 4,515 0.70 5,069 0.80 ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- $60,975 2.19 $63,675 2.41 $67,385 2.77 $71,223 2.85 $88,067 3.27 ======= ==== ======= ==== ======= ==== ======= ==== ======= ====
23 25 The allowance for loan and lease losses is available for offsetting credit losses in connection with any loan but is internally allocated to various loan categories as part of the Company's process for evaluating the adequacy of the allowance for loan and lease losses. Deposits. Total deposits increased by $311.3 million or 10.8% during 1995. This increase was attributable to the assumption of $156.9 million of deposits as a result of acquisitions during 1995 and the success of the Company's relationship banking products. The change in deposits was comprised of a $163.2 million or 49.8% increase in money market accounts, a $151.0 million or 12.5% increase in certificates of deposit, a $71.3 million or 19.7% increase in demand accounts and an $18.3 million or 5.5% increase in NOW accounts, which collectively more than offset a $92.4 million or 14.2% decrease in regular savings accounts. The changes in deposit balances reflect the Company's current strategy to emphasize relationship banking, cash management services and core deposits, as well as the deposit mix of the deposits assumed in connection with the Company's acquisitions during 1995. The following table sets forth the distribution of the Company's deposits by type of deposit at the dates indicated.
December 31, ------------------------------------------------------------------------------- 1995 1994 1993 ------------------------- ------------------------- ------------------------- % of % of % of Amount Deposits Amount Deposits Amount Deposits ---------- -------- ---------- -------- ---------- -------- (Dollars in Thousands) Non-brokered deposits: Demand accounts $ 434,091 13.58% $ 362,790 12.57% $ 348,599 11.86% NOW accounts 351,481 10.99 333,192 11.55 331,738 11.28 Savings accounts 557,896 17.45 650,302 22.53 545,274 18.55 Money market accounts 490,575 15.34 327,424 11.35 443,538 15.09 Certificates of deposit: $100,000 or more 116,472 3.64 91,469 3.17 93,335 3.17 Other 1,246,623 39.00 1,120,668 38.83 1,162,342 39.54 ---------- ------ ---------- ------ ---------- ------ 1,363,095 42.63 1,212,137 42.00 1,255,677 42.71 ---------- ------ ---------- ------ ---------- ------ Total non-brokered deposits 3,197,138 100.00 2,885,845 100.00 2,924,826 99.49 ---------- ------ ---------- ------ ---------- ------ Brokered deposits -- -- -- -- 15,000 0.51 ---------- ------ ---------- ------ ---------- ------ Total deposits $3,197,138 100.00% $2,885,845 100.00% $2,939,826 100.00% ========== ====== ========== ====== ========== ======
At December 31, 1995, the Company's $116.5 million of certificates of deposit in amounts of $100,000 or more were scheduled to mature as follows: $26.5 million within three months, $19.6 million over three months through six months, $17.9 million over six months through 12 months and $52.5 million thereafter. Other Interest-bearing Liabilities. Other interest-bearing liabilities, which consist of borrowings from the Federal Home Loan Bank ("FHLB") of Boston, securities sold under agreements to repurchase ("repurchase agreements"), federal funds purchased and other interest-bearing liabilities, decreased by $48.4 million or 9.6% during 1995. 24 26 The following table sets forth certain information concerning the Company's borrowings at the dates indicated.
December 31, ---------------------------------------- 1995 1994 1993 -------- -------- -------- (In Thousands) FHLB advances $252,446 $362,450 $251,760 Repurchase agreements 180,957 127,519 100,688 Federal funds purchased 1,500 4,404 1,600 Other 22,029 10,974 5,887 -------- -------- -------- Total $456,932 $505,347 $359,935 ======== ======== ========
FHLB advances are the largest non-deposit related interest-bearing funding source for the Company. In 1995, the Company reduced FHLB advances by $110.0 million or 30.4%. FHLB advances are secured by qualifying residential real estate loans, investment securities and certain other assets. For additional information regarding FHLB advances, see Note 13 to the Supplemental Consolidated Financial Statements. Repurchase agreements represent funds received from sales of securities under agreements to repurchase, which are considered to be borrowings secured by the securities sold, and generally have maturities of 180 days or less. Repurchase agreements increased by $53.4 million or 41.9% during 1995. This increase was primarily attributable to the expansion of both public finance activities and commercial cash management services at the Company's banking subsidiaries during 1995. For additional information regarding repurchase agreements, see Note 12 to the Supplemental Consolidated Financial Statements. The following table presents certain information regarding the Company's short-term borrowings having average balances during the period of greater than 30% of shareholders' equity at the end of the period. During each reported period, repurchase agreements were the only category of borrowings meeting this criteria.
At or For the Year Ended December 31, ------------------------------------- 1995 1994 1993 -------- -------- -------- (Dollars in Thousands) Average balance outstanding $152,411 $109,216 $ 81,086 Maximum outstanding at any month-end during the period 213,104 153,710 112,831 Balance outstanding at end of period 180,957 127,519 100,688 Average interest rate during the period 4.90% 3.36% 2.28% Average interest rate at end of period 4.64 4.62 2.21
Other borrowings increased by $11.1 million or 100.7% during 1995. This increase was primarily attributable to the issuance of five-year debentures in connection with the Company's acquisition of Bankcore, which had an outstanding balance of $7.8 million at December 31, 1995. Shareholders' Equity. Consistent with its long-term goal of operating a safe, sound and profitable financial organization, the Company strives to maintain a strong capital base. The Company's shareholders' equity totaled $354.9 million or 8.7% of total assets at December 31, 1995, as compared to $304.4 million or 8.1% of total assets at December 31, 25 27 1994. The increase in shareholders' equity during 1995 was attributable to net income of $44.5 million, a $12.8 million net unrealized gain (net of tax effect) in the market value of securities available for sale, $11.3 million related to the reissuance of treasury stock in conjunction with the Bankcore acquisition and $1.5 million of treasury stock sales related to various employee benefit plans of the Company, the effects of which were offset in part by $11.3 million in dividends paid to shareholders and $8.3 million in treasury stock purchases. As authorized by the Board of Directors, and in anticipation of the Bankcore acquisition, the Company initiated a share repurchase program on December 20, 1994 and repurchased 751,600 shares of its common stock for a total cost of $9.6 million during 1994 and 1995. A total of 646,600 of these shares, with a total cost of $8.3 million, were repurchased in 1995; the balance were repurchased in 1994. All shares repurchased as part of the share repurchase program were reissued in conjunction with the Bankcore acquisition on July 1, 1995. For additional information, see Note 14 to the Supplemental Consolidated Financial Statements and "Regulatory Environment" below. RISK MANAGEMENT The Company's success is largely dependent upon its ability to strategically manage financial and nonfinancial risks. Prominent nonfinancial challenges facing the Company and addressed through the Company's strategic planning process include competition from bank and nonbank financial service companies, changing regulatory and political environments, rapid advances in technology-based information systems and demographic and economic changes. The significant financial risks actively managed by the Company include: a) credit risk; b) interest rate risk, including asset and liability management; c) liquidity risk; and d) off-balance sheet risks and commitments. Credit Risk Management. The Company's net loan portfolio accounted for 67.0% of the assets of the Company at December 31, 1995 and represents its primary source of credit risk. The Company has dedicated and will continue to dedicate a substantial amount of time and resources to the management of credit risk within its loan portfolio. The Company has established systems of checks and balances to manage the origination, control and collection of loan assets. For additional information relating to credit risk, see "Results of Operations Provision for Loan Losses," "Financial Condition - Nonperforming Assets" and Note 5 to the Supplemental Consolidated Financial Statements. Interest Rate Risk and Asset/Liability Management. The Company's actions in regard to interest rate risk and asset and liability management are the responsibility of a Liquidity and Funds Management Committee which reports to the Board of Directors and is comprised of members of the Company's senior management. The Liquidity and Funds Management Committee is actively involved in formulating the economic projections used by the Company in its planning and budgeting process and establishes policies which monitor and coordinate the Company's sources, uses and pricing of funds. Interest rate risk can be defined as the exposure of the Company's net income or financial position to adverse movements in interest rates. In addition to directly impacting 26 28 net interest income, changes in the level of interest rates also can affect (i) the amount of loans originated and sold by an institution, (ii) the ability of borrowers to repay adjustable-rate loans, (iii) the average maturity of mortgage loans, which tends to increase when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are substantially lower than current mortgage loan rates (due to refinancings of loans at lower rates), (iv) the value of an institution's interest-earning assets and the resultant ability to realize gains on the sale of such assets and (v) the carrying value of investment securities classified as available for sale and resultant adjustments to shareholders' equity. The principal objective of the Company is to maintain an appropriate balance between income growth and the risks associated with maximizing income through the mismatch of the timing of interest rate changes between assets and liabilities. Although perfectly matching asset and liability maturities and interest rate changes can eliminate interest rate risk, such actions may not enhance net interest income. The Company seeks to reduce the volatility of its net interest income by managing the relationship of interest-rate sensitive assets to interest-rate sensitive liabilities. To meet its asset and liability management objectives, the Company has undertaken various steps to increase the ability of the yields earned on its interest-earning assets to change in accordance with market rates of interest and to reduce the average maturity of such assets. A principal focus in recent years has been on the origination of adjustable-rate residential real estate loans and consumer loans, which generally have shorter maturities than fixed-rate residential real estate loans. The Company also originates adjustable-rate and fixed-rate commercial real estate loans and commercial business loans and leases, which collectively also generally mature or reprice more quickly than fixed-rate residential real estate loans. Net interest income sensitivity to movements in interest rates is measured through use of a simulation model which analyzes resulting net income under various interest rate scenarios. Projected net interest income is modeled based on both an immediate rise or fall in interest rates ("rate shock") as well as gradual movements in interest rates over a twelve month period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities and factors in budget projections for anticipated activity levels by major product lines of the Company. The simulation model incorporates assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also takes into account the Company's ability to exert greater control over the setting of interest rates on certain deposit products than it has over variable and adjustable-rate loans which are tied to published indices, such as designated prime lending rates and the rate on U.S. Treasury Bills. Based on the information and assumptions in effect at December 31, 1995, management of the Company believes that a 200 basis point gradual change in interest rates over a twelve month period, up or down, would not significantly affect the Company's annualized net interest income. As a result of the Company's business strategy to increase noninterest income related to mortgage banking services, the Company has increased its portfolio of residential mortgages serviced for investors. As a result of that strategy, as well as the adoption of SFAS No. 122, the level of mortgage servicing rights has increased significantly in recent periods. 27 29 In order to mitigate the prepayment risk associated with mortgage servicing rights and protect economic value, in 1995 the Company purchased a constant maturity treasury floor ("CMT") for $555,000. The cost of the CMT is being amortized over five years using the straight line method of amortization. The CMT's value is related to movements in market interest rates to which it is indexed (based on a $30 million, 10-year Constant Maturity Treasury Yield) and the remaining term of the CMT. The CMT's value is inversely related to movements in market interest rates. As interest rates decline, the value of the CMT 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 in mortgage loan prepayment speeds. The value of mortgage servicing rights generally increases as market interest rates increase and declines as market interest rates decrease. Although 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 CMT is intended to offset, in part, the prospective impairment to the value of the Company's mortgage servicing rights. The CMT is included in other assets on the Company's balance sheet at December 31, 1995 at amortized cost of $462,000, which approximates market value. Liquidity Risk Management. The Company seeks to maintain various sources of funds and prudent levels of liquid assets in order to satisfy its varied liquidity demands. Many factors affect the Company's ability to meet its liquidity needs, including its mix of assets and liabilities, reputation and credit standing in the marketplace, interest rates and general economic conditions. The Company's actual inflow and outflow of funds is detailed in the Supplemental Consolidated Statements of Cash Flows. Each of the Company's banking subsidiaries monitors its liquidity in accordance with guidelines established by the Company and applicable regulatory requirements. The primary sources of funds of the Company's banking subsidiaries are deposits, borrowings from the FHLB of Boston and other sources, cash flows from operations, prepayments and maturities of outstanding loans, leases, investments and mortgage-backed securities and the sale of mortgage loans. During 1995 and 1994, the Company's banking subsidiaries used their sources of funds primarily to meet ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan and lease commitments and maintain a substantial portfolio of investment securities. Management believes that the Company's banking subsidiaries currently have adequate liquidity available to respond to both expected and unexpected liquidity demands, according to the measurement system established during 1991 and set forth in the Company's contingency liquidity plan. This system, the Reactive Capacity Adequacy Report System, measures the net amount of marketable assets, after deducting pledged assets, plus lines of credit, primarily with the FHLB, which are available to fund liquidity requirements. It then measures the adequacy of that amount against the amount of sensitive or volatile liabilities, which include core deposit balances in excess of $100,000, term deposits with short maturities and credit commitments outstanding. This evaluation is conducted at each banking subsidiary and consolidated for the Company on a monthly basis. It allows the Company to manage its liquidity position and funding sources in order to ensure that it has continuing ability to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan and lease commitments, meet contractual maturities on borrowings and maintain a significant portfolio of investment securities. The Company's liquidity management policies currently include requirements that the Company maintain a minimum liquidity ratio of no less than 15% with a target of 20%. 28 30 The Company's consolidated liquidity position increased during 1995 as net cash, short-term and marketable assets amounted to 26.5% of net deposits and short-term liabilities at December 31, 1995, as compared to 25.2% at December 31, 1994. A secondary source of liquidity, not included in the liquidity ratio calculation, is represented by asset-based liquidity. Asset-based liquidity consists primarily of single-family residential real estate loans which qualify for sale in the secondary market. The liquidity needs of the Company on a parent-only basis consist primarily of dividends to shareholders and expenses for general corporate purposes. The primary source of parent-only company cash flow is dividends received from subsidiary banks. For additional information, see Notes 2 and 14 to the Supplemental Consolidated Financial Statements. Off-Balance Sheet Risks and Commitments. Set forth below is a discussion of various off-balance sheet risks and commitments of the Company. Commitments to extend credit. At December 31, 1995 and 1994, the total approved loan commitments outstanding amounted to $336.4 million and $201.7 million, respectively. At the same dates, commitments under unused lines of credit amounted to $345.6 million and $286.1 million, respectively, and the unadvanced portion of construction loans amounted to $34.2 million and $25.9 million, respectively. Derivatives. The Company has only limited involvement with off-balance sheet derivative financial instruments and does not use them for trading purposes. The Company has explored and utilized in the past certain financial techniques, such as interest rate exchange agreements, to assist in the management of interest rate risk. The Company believes that such techniques have benefits under certain market and economic conditions. At December 31, 1995, the Company did not have any interest rate exchange agreements in place. The Company makes use of forward commitments to sell loans as part of its mortgage banking business. Forward commitments are used in the normal course of business to reduce the Company's exposure to fluctuations in interest rates. For additional information, see Note 15 to the Supplemental Consolidated Financial Statements. Counterparty risk. The Company does business with a variety of financial institutions and other companies in the normal course of business. The Company is subject to potential financial loss if the counterparty is unable to complete an agreed upon transaction. The Company controls counterparty risk through financial analysis, dollar limits and other monitoring procedures. REGULATORY ENVIRONMENT Regulatory Capital Requirements. Banks and bank holding companies are subject to a broad scope of laws and regulations. The Company believes that it is in material compliance with all applicable federal and state laws and regulations. 29 31 Regulatory Capital Requirements. Under Federal Reserve Board ("FRB") guidelines, bank holding companies such as the Company are required to maintain capital based on "risk-adjusted" assets. Under risk-based capital guidelines, categories of assets with potentially higher credit risk require more capital than assets with lower risk. In addition to balance sheet assets, bank holding companies are required to maintain capital, on a risk-adjusted basis, to support certain off-balance sheet activities such as loan commitments. The FRB guidelines classify capital into two tiers, Tier I and Total. Tier I risk-based capital consists of common shareholders' equity, noncumulative and cumulative (bank holding companies only) perpetual preferred stock and minority interests, less goodwill. Total risk-based capital consists of Tier 1 capital plus a portion of the general allowance for loan losses, hybrid capital instruments, term subordinated debt and intermediate preferred stock. In addition to risk-based capital requirements, the FRB requires bank holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets. Total assets for this purpose do not include goodwill and any other intangible assets and investments that the FRB determines should be deducted from Tier I capital. The FDIC has promulgated similar regulations and guidelines regarding the capital adequacy of state-chartered banks which are not members of the Federal Reserve System, such as PHB and BNH. These requirements are substantially similar to those adopted by the FRB, as described above. In addition, the Maine Bureau of Banking has promulgated a regulation regarding capital adequacy for Maine-chartered financial institutions such as PHB. This regulation generally parallels the minimum Tier I leverage capital requirements of the FDIC. The following table sets forth the regulatory capital ratios of the Company, PHB and BNH at December 31, 1995.
December 31, 1995 ----------------------- Required Minimums Actual -------- ------ THE COMPANY: Risk-based capital ratios: Tier I 4.00% 12.88% Total 8.00 14.15 Tier I leverage capital ratio(1) 4.00 8.33 PEOPLES HERITAGE BANK: Risk-based capital ratios: Tier I 4.00 10.78 Total 8.00 12.04 Tier I leverage capital ratio(1) 4.00 7.46 BANK OF NEW HAMPSHIRE: Risk-based capital ratios: Tier I 4.00 14.25 Total 8.00 15.51 Tier I leverage capital ratio(1) 4.00 7.93
30 32 - ------------------- (1) Bank holding companies and banks, including the Company and its banking subsidiaries, may be required to maintain a Tier I leverage capital ratio of 4.0% to 5.0% or more. The regulatory agencies have not advised the Company or its banking subsidiaries of a specific Tier I leverage capital ratio requirement to date. Recent Accounting Developments. In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of," which was adopted by the Company on January 1, 1996. This Statement established accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to such assets being held and used and for such assets and certain identifiable intangibles to be disposed of. The implementation of this Statement did not and is not expected to have a material effect on the Company's results of operations or financial condition. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which became effective on January 1, 1996. This Statement establishes a fair-value based method of accounting for stock-based compensation plans under which compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. However, the Statement allows a company to continue to measure compensation cost for such plans under Accounting Principles Board ("APB") Opinion No. 25," Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no compensation cost is recorded if, at the grant date, the exercise price of the options is equal to the fair market value of the Company's common stock. The Company has elected to continue to follow the accounting under APB No. 25. SFAS No. 123 requires companies which elect to continue to follow the accounting in APB Opinion No. 25 to disclose in the notes to their financial statements pro forma net income and earnings per share as if the value-based method of accounting had been applied. Management has not determined the impact of the adoption of SFAS No. 123 on the financial position or results of operations of the Company. ACQUISITIONS For information regarding acquisitions completed by the Company during the years ended December 31, 1995 and 1994, see Note 18 to the Supplemental Consolidated Financial Statements. On February 16, 1996, BNH acquired five branch offices and approximately $160 million of related deposits from Fleet Bank NH. Two of these offices are located in Manchester, New Hampshire and the others are located in Bedford, Nashua and Littleton, New Hampshire. In addition to various assets related to the acquired branches, BNH also acquired approximately $216.4 million of loans in connection with this transaction, which consisted primarily of $178.6 million of single-family residential loans. The Company, Peoples Heritage Merger Corp. ("PHMC") and Family Bancorp ("Family") have entered into an Agreement and Plan of Merger, dated as of May 30, 1996 (the "Agreement"), which provides, among other things, for (i) the merger of Family with and into PHMC (the "Merger") and (ii) the conversion of each share of Family common stock outstanding immediately prior to the Merger (other than any dissenting shares under Massachusetts law and certain shares held by the Company) into the right to receive 1.26 shares of the Company's common stock, subject to possible adjustment under certain circumstances, plus cash in lieu of any fractional share interest. Inclusive of the potential 31 33 effects of outstanding options to acquire Family common stock, a maximum of 5,572,001 shares of common stock of the Company will be issuable upon consummation of the Merger. Consummation of the Merger is subject to various conditions, including approval of the Agreement by the shareholders of the Company and Family and the receipt of all required regulatory approvals. IMPACT OF INFLATION AND CHANGING PRICES The Supplemental Consolidated Financial Statements and related Notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of the assets and virtually all of the liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation. 32 34 Peoples Heritage Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
December 31, (In Thousands, Except Number of Shares ----------------------- and Per Share Data) 1995 1994 - ----------------------------------------------------------------------------- ASSETS Cash and due from banks $ 190,436 $ 165,772 Federal funds sold 100,255 58,735 Investment securities (Notes 3, 12, 13) --- 286,577 Securities available for sale, at market value (Notes 3, 12, 13) 766,648 432,617 Loans held for sale, market value $71,872 in 1995 and $11,163 in 1994, respectively (Note 4) 70,979 11,092 Loans and leases (Notes 5 and 13): Residential real estate mortgages 798,076 803,498 Commercial real estate mortgages 797,686 770,572 Commercial business loans and leases 408,592 324,408 Consumer loans and leases 774,229 741,099 ---------- ---------- 2,778,583 2,639,577 Less: Allowance for loan and lease losses (Note 6) 60,975 63,675 ---------- ---------- Net loans and leases 2,717,608 2,575,902 ---------- ---------- Premises and equipment (Note 7) 56,021 46,507 Goodwill and other intangibles (Note 8) 22,792 20,713 Mortgage servicing rights (Note 9) 20,309 17,275 Other real estate and repossessed assets owned (Note 10) 14,232 22,076 Deferred income taxes (Note 11) 32,972 37,692 Interest and dividends receivable 30,726 27,786 Other assets 35,148 35,162 ---------- ---------- $4,058,126 $3,737,906 ========== ==========
See accompanying Notes to Supplemental Consolidated Financial Statements. 33 35 Peoples Heritage Financial Group, Inc. and Subsidiaries - --------------------------------------------------------------------------------
December 31, (In Thousands, Except Number of Shares ---------------------------- and Per Share Data) 1995 1994 - --------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Regular savings $ 557,896 $ 650,302 Money market access accounts 490,575 327,424 Certificates of deposit (including certificates of $100 or more of $116,472 and $91,469, respectively) 1,363,095 1,212,137 NOW accounts 351,481 333,192 Demand deposits 434,091 362,790 ----------- ----------- 3,197,138 2,885,845 ----------- ----------- Federal funds purchased 1,500 4,404 Securities sold under repurchase agreements (Note 12) 180,957 127,519 Borrowings from the Federal Home Loan Bank of Boston (Note 13) 252,446 362,450 Other borrowings 22,029 10,974 Deferred income taxes (Note 11) 12,577 6,087 Other liabilities (Note 16) 36,554 36,188 ----------- ----------- Total liabilities 3,703,201 3,433,467 ----------- ----------- Commitments and contingent liabilities (Notes 14, 15 and 16) Shareholders' equity (Notes 2, 3, 14 and 18): Preferred stock, par value $0.01; 5,000,000 shares authorized, none issued -- -- Common stock, par value $0.01; 30,000,000 shares authorized, 25,596,550 shares and 25,596,426 shares issued, respectively 256 256 Paid-in capital 224,268 224,267 Retained earnings 134,443 99,955 Net unrealized gain (loss), net of applicable income taxes, on securities available for sale 3,763 (9,079) Treasury stock at cost (524,062 shares and 760,327 shares, respectively) (7,805) (10,960) ----------- ----------- Total shareholders' equity 354,925 304,439 ----------- ----------- $ 4,058,126 $ 3,737,906 =========== ===========
See accompanying Notes to Supplemental Consolidated Financial Statements. 34 36 Peoples Heritage Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, (In Thousands, Except Number of ---------------------------------------------- Shares and Per Share Data) 1995 1994 1993 - ------------------------------------------------------------------------------------------------- Interest and dividend income: Interest on loans and leases (Note 5) $ 253,787 $ 215,177 $ 208,547 Interest on mortgage-backed investments 12,627 12,409 10,266 Interest on other investments 37,521 27,241 23,547 Dividends on equity securities 1,914 1,770 1,092 ----------- ------------ ------------ Total interest and dividend income 305,849 256,597 243,452 ----------- ------------ ------------ Interest expense: Interest on deposits 108,209 87,920 96,793 Interest on borrowed funds 26,686 20,082 15,512 ----------- ------------ ------------ Total interest expense 134,895 108,002 112,305 ----------- ------------ ------------ Net interest income 170,954 148,595 131,147 Provision for loan losses (Note 6) 4,230 3,374 14,047 ----------- ------------ ------------ Net interest income after provision for loan losses 166,724 145,221 117,100 ----------- ------------ ------------ Noninterest income: Mortgage banking services (Note 9) 10,849 8,446 7,150 Customer services 11,908 10,481 9,852 Trust and investment advisory services 5,850 5,471 4,694 Loan related services 1,907 1,847 1,588 Net securities gains (losses) (Note 3) 116 (254) 1,183 Net gains on sales of consumer loans (Note 5) -- 33 2,576 Other noninterest income 787 1,602 1,558 ----------- ------------ ------------ 31,417 27,626 28,601 ----------- ------------ ------------ Noninterest expenses: Salaries and employee benefits (Note 16) 67,472 61,799 56,287 Occupancy 10,574 10,454 9,837 Data Processing 8,924 7,306 6,762 Equipment 6,844 6,233 6,168 Advertising and marketing 4,642 4,642 2,668 Deposit and other assessments 4,497 7,899 8,367 Collection and carrying costs of nonperforming assets 2,595 6,033 14,840 Merger expenses 4,958 559 300 Other noninterest expenses (Note 8) 19,774 20,212 17,162 ----------- ------------ ------------ 130,280 125,137 122,391 ----------- ------------ ------------ Income before income tax expense 67,861 47,710 23,310 Applicable income tax (Note 11) 23,375 13,662 799 ----------- ------------ ------------ Net income $ 44,486 $ 34,048 $ 22,511 =========== ============ ============ Weighted average shares outstanding 24,696,393 24,849,800 23,705,195 Earnings per share $ 1.80 $ 1.37 $ 0.95
See accompanying Notes to Supplemental Consolidated Financial Statements. 35 37 Peoples Heritage Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Number Net Number of Shares and of Shares Par Paid-In Retained Loan to Unrealized Treasury Per Share Data) Issued Value Capital Earnings ESOP Gain (Loss) Stock Total - --------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1992 24,208,336 $242 $213,025 $50,800 $(108) $ -0- $(14,101) $249,858 Proceeds from sale of stock (net of cost) 1,397,918 14 11,833 -0- -0- -0- -0- 11,847 Treasury stock purchased (8,044 shares at an average price of $9.74) -0- -0- -0- -0- -0- -0- (79) (79) Treasury stock issued for employee benefits plans (85,491 shares at an average price of $9.23) -0- -0- -0- (451) -0- -0- 1,241 790 Retirement of Treasury stock (148) -0- (586) -0- -0- -0- 586 -0- Purchase and retirement of common stock (4,000) -0- (29) -0- -0- -0- -0- (29) Cash dividends paid -0- -0- -0- (325) -0- -0- -0- (325) Principal reduction in loan to ESOP -0- -0- -0- -0- 108 -0- -0- 108 Implementation of change in accounting for investments in debt and equity securities net of tax effect of $1,609 -0- -0- -0- -0- -0- 2,694 -0- 2,694 Compensation cost of employee stock plan -0- -0- 63 -0- -0- -0- -0- 63 Net income -0- -0- -0- 22,511 -0- -0- -0- 22,511 ---------- ---- -------- ------- ----- -------- -------- -------- Balances at December 31, 1993 25,602,106 $256 $224,306 $72,535 $ -0- $ 2,694 $(12,353) $287,438
See accompanying Notes to Supplemental Consolidated Financial Statements. 36 38 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Cont'd)
(In Thousands, Except Number Net Number of Shares and of Shares Par Paid-in Retained Loan to Unrealized Treasury Per Share Data) Issued Value Capital Earnings ESOP Gain (Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1993 25,602,106 $256 $224,306 $72,535 $ -0- $ 2,694 $(12,353) $287,438 Treasury stock purchased (105,000 shares at an average price of $12.02) -0- -0- -0- -0- -0- -0- (1,262) (1,262) Treasury stock issued for employee benefit plans (179,426 shares at an average price of $7.42) -0- -0- -0- (1,027) -0- -0- 2,655 1,628 Purchase and retirement of common stock (5,680) -0- (60) -0- -0- -0- -0- (60) Change in unrealized gains (losses) on securities available for sale, net of tax of $6,900 -0- -0- -0- -0- -0- (11,773) -0- (11,773) Compensation cost of employee stock plan -0- -0- 21 -0- -0- -0- -0- 21 Net income -0- -0- -0- 34,048 -0- -0- -0- 34,048 Cash dividends paid $0.23 per share -0- -0- -0- (5,601) -0- -0- -0- (5,601) ---------- ---- -------- ------- ----- -------- -------- -------- Balances at December 31, 1994 25,596,426 $256 $224,267 $99,955 $ -0- $ (9,079) $(10,960) $304,439
SEE ACCOMPANYING NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS. 37 39 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Cont'd)
(In Thousands, Except Number Net Number of Shares and of Shares Par Paid-in Retained Loan to Unrealized Treasury Per Share Data) Issued Value Capital Earnings ESOP Gain (Loss) Stock Total - -------------------------------------------------------------------------------------------------------------- Balances at December 31, 1994 25,596,426 $256 $224,267 $ 99,955 $ -0- $ (9,079) $(10,960) $304,439 Treasury stock purchased (647,357 shares at an average price of $12.85) -0- -0- -0- -0- -0- -0- (8,317) (8,317) Treasury stock issued for employee benefit (132,022 shares at an average price of $9.76) -0- -0- -0- (401) -0- -0- 1,908 1,507 Reissuance of treasury stock pursuant to acquisition (751,600 shares at $15.00) -0- -0- -0- 1,710 -0- -0- 9,564 11,274 Change in unrealized gains (losses) on securities available for sale, net of tax effect $7,293 -0- -0- -0- -0- -0- 12,842 -0- 12,842 Compensation cost of employee stock plan 124 -0- 1 -0- -0- -0- -0- 1 Net income -0- -0- -0- 44,486 -0- -0- -0- 44,486 Cash dividends paid $0.46 per share -0- -0- -0- (11,307) -0- -0- -0- (11,307) ---------- ---- -------- -------- ----- -------- -------- -------- Balances at December 31, 1995 25,596,550 $256 $224,268 $134,443 $ -0- $ 3,763 $ (7,805) $354,925 ========== ==== ======== ======== ===== ======== ======== ========
See accompanying Notes to Supplemental Consolidated Financial Statements. 38 40 Peoples Heritage Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, --------------------------------------- (In Thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 44,486 $ 34,048 $ 22,511 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,230 3,374 14,047 Provision for depreciation 6,286 5,399 5,111 Provision for losses and writedowns (credits) of other real estate owned (958) 143 2,658 Amortization of goodwill and other intangibles 2,211 2,045 3,046 Amortization and sale of servicing rights 6,067 1,743 2,266 Net (increase) decrease in net deferred tax assets 3,919 (2,486) (3,875) Net losses realized from sales of other real estate owned 528 64 439 Net (gains) losses realized from sales of securities and consumer loans (116) 221 (3,759) Net (gains) losses realized from sales of loans held for sale (a component of mortgage banking services) 664 491 (4,411) Gains on capitalized servicing (8,524) (1,100) (883) Proceeds from sales of securities held for sale -- -- 36,469 Proceeds from maturities and principal repayments of securities held for sale -- -- 55,185 Purchases of securities held for sale -- -- (73,205) Proceeds from sales of loans held for sale 552,774 273,287 257,639 Residential loans originated and purchased for sale (613,171) (218,034) (292,684) Net (increase) decrease in interest and dividends receivable and other assets (2,925) 10,492 10,783 Net increase (decrease) in other liabilities 366 8,227 (3,731) --------- --------- --------- Net cash provided (used) by operating activities $ ( 4,163) $ 117,914 $ 27,606 --------- --------- --------- Cash flows from investing activities: Proceeds from sales of investment securities $ -- $ -- $ 3,379 Proceeds from maturities and principal repayments of investment securities 125,540 158,211 297,105 Purchases of investment securities (114,491) (186,396) (472,000) Proceeds from sales of securities available for sale 9,814 65,380 -- Proceeds from maturities and principal repayments of securities available for sale 135,972 110,446 -- Purchases of securities available for sale (184,040) (168,173) -- Net increase in loans and leases (184,323) (215,590) (12,387) Proceeds from sale of loans 31,425 7,550 64,566 Purchase of mortgage servicing rights (577) (11,435) (5,882) Premiums paid on deposits purchased (4,290) (75) -- Net additions to premises and equipment (15,800) (5,323) (3,723) Proceeds from sales of other real estate owned 12,722 13,420 17,224 Net decrease in repossessed assets owned 2,360 4,020 7,708 --------- --------- --------- Net cash (used) by investing activities $(185,688) $(227,965) $(104,010) --------- --------- ---------
See accompanying Notes to Supplemental Consolidated Financial Statements. 39 41 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31, --------------------------------------- 1995 1994 1993 --------- --------- --------- Cash flows from financing activities: Net increase (decrease) in deposits $ 311,293 $ (53,981) $ (8,723) Net increase in securities sold under repurchase agreements 53,438 26,831 19,304 Proceeds from Federal Home Loan Bank of Boston borrowings 415,998 390,284 168,250 Payments on Federal Home Loan Bank of Boston borrowings (526,002) (279,594) (112,050) Payoff of subordinated capital notes -- -- (5,000) Net increase in other borrowings 11,055 5,087 807 Sale of treasury stock 1,507 1,628 790 Issuance of treasury stock for acquisition 11,274 -- -- Purchase of treasury stock (8,317) (1,262) (79) Net proceeds from sale of stock -- -- 11,877 Cash dividends paid to shareholders (11,307) (5,601) (325) Other shareholders' equity, net -- 39 (108) --------- --------- --------- Net cash provided (used) by financing activities $ 258,939 $ 83,431 $ 74,743 Increase (decrease) in cash and cash equivalents 69,088 (26,620) (1,661) Cash and cash equivalents at beginning of period 220,103 246,723 248,384 --------- --------- --------- Cash and cash equivalents at end of period $ 289,191 $ 220,103 $ 246,723 ========= ========= ========= - ------------------------------------------------------------------------------------ Supplemental disclosures of information: Interest paid on deposits and borrowings $ 132,301 $ 107,927 $ 112,487 Income taxes paid (refunded) 18,272 2,429 (207) Noncash investing transactions: Investment securities transferred to securities available for sale $ 275,528 $ -- 335,103 Securities held for sale transferred to securities available for sale to adopt SFAS No. 115 -- -- 119,754 Securities held for sale transferred to investment securities -- -- 33,692 Investment securities transferred to securities held for sale -- -- 14,018 Loans transferred to other real estate 12,828 9,304 16,598 Loans originated to finance the sales of other real estate owned 6,020 12,161 22,794 Increases (decreases) resulting from the adoption of SFAS No. 115: Securities available for sale 20,133 (18,547) 4,101 Deferred income taxes - liabilities 7,291 (6,859) 1,577 Net unrealized gain (loss) on securities available for sale, net of tax 12,842 (11,688) 2,524 - ------------------------------------------------------------------------------------
See accompanying Notes to Supplemental Consolidated Financial Statements. 40 42 Peoples Heritage Financial Group, Inc. and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 (All dollar Amounts Expressed in Thousands, Except Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Peoples Heritage Financial Group, Inc. (the "Company") and its subsidiaries conform to generally accepted accounting principles and to general practice within the banking industry. The Company's principal business activities are retail, commercial and mortgage banking as well as trust and investment advisory services, and are conducted through the Company's direct wholly-owned subsidiaries located in Maine and New Hampshire. The Company and its subsidiaries are subject to competition from other financial institutions and are also subject to regulation of, and periodic examination by, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Maine Bureau of Banking, the New Hampshire Bank Commissioner and the Federal Reserve Board. The following is a description of the more significant accounting policies. Financial Statement Presentation The consolidated financial statements include the accounts of Peoples Heritage Financial Group, Inc., the Company's direct wholly-owned subsidiaries Peoples Heritage Savings Bank (the "Bank") and Bank of New Hampshire Corporation ("BNHC"), which wholly owns Bank of New Hampshire and The First National Bank of Portsmouth ("Portsmouth"), and other subsidiaries which are wholly-owned by the Company's direct wholly-owned subsidiaries. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that effect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for possible loan and lease losses and the net deferred tax asset. Acquisition of BNHC On April 2, 1996, the Company acquired BNHC by merging the subsidiary holding company of Portsmouth into BNHC. The acquisition was accounted for as a pooling of interests and, accordingly, the financial information for all prior periods presented has been restated to present the combined financial condition and results of operations as if the combination had been in effect for all periods presented. Certain amounts in prior periods have been reclassified to conform to the current presentation. The supplemental consolidated financial statements of the Company have been prepared to give retroactive effect to the acquisition of BNHC on April 2, 1996. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of the Company after financial statements convering the date of consummation of the business combination are issued. Investments Investment securities at December 31, 1995 and 1994 consist of U.S. Treasury, mortgage-backed, corporate debt and equity securities. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115 at December 31, 1993. SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values, and all investments in debt securities. Under SFAS No. 115, the Company classifies its debt and marketable equity investments in one of three categories: trading, available for sale, or held to maturity. The Company's investment accounting policies are as follows. Securities Available for Sale Securities available for sale consist of debt and equity securities that the Company anticipates could be made available for sale in response to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors. These assets are specifically identified and are carried at market value. Changes in market value, net of applicable income taxes, are recorded in and reported as a separate component of shareholders' equity. When a decline in market value of a security is considered other than temporary, the loss is charged to net securities gains (losses) in the consolidated statements of operations as a writedown. Securities Held to Maturity Securities held to maturity consist of debt securities purchased where the Company has the positive intent and ability to hold such securities until maturity. Debt securities classified as held to maturity are carried at amortized cost, adjusted for amortization of premiums and accretion of discounts. 41 43 Trading Account Securities Trading account securities are marketable securities purchased with the intent to be subsequently sold to provide net securities gains. These securities are carried at market value and any changes in market value of these securities, while being held, are reported in the consolidated statements of operations as a component of net securities gains (losses). There were no trading account securities at December 31, 1995 or December 31, 1994. Loans Held for Sale Loans originated for the purpose of potential subsequent sale are classified as held for sale. These loans are specifically identified and carried at the lower of aggregate cost or estimated of market value. Loans Loans are carried at the principal amounts outstanding reduced by partial charge-offs and net deferred loan fees. Loans are generally placed on nonaccrual status when they are past due 90 days as to either principal or interest, or when in management's judgment the collectibility of interest or principal of the loan has been significantly impaired. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is charged to interest on loans. A loan can be returned to accrual status when collectibility of principal is reasonably assured and the loan has performed for a period of time, generally six months. 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." Loans are classified as impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and collateral value. At adoption, the Company reclassified $2.2 million of insubstance foreclosures and related reserves of $96 thousand to loans and leases and allowance for loan and lease losses, respectively. Allowance for Loan and Lease Losses The allowance for loan and lease losses is maintained at a level determined to be adequate by management to absorb future charge-offs of loans deemed uncollectible. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off, and reduced by charge-offs on loans. Arriving at an appropriate level of allowance for loan and lease losses necessarily involves a high degree of judgment. Primary considerations in this evaluation are prior loan loss experience, the character and size of the loan portfolio, business and economic conditions and management's estimation of future potential losses. Although management uses available information to establish the appropriate level of the allowance for loan and lease losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. 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 adjustments to the allowance based on their judgments about information available to them at the time of their examination. Other Real Estate and Repossessed Assets Owned Other real estate and repossessed assets owned is comprised of (i) properties or other assets acquired through a foreclosure proceeding, or acceptance of a deed or title in lieu of foreclosure and (ii) other assets repossessed in connection with non-real estate loans. Other real estate and repossessed assets owned are initially carried at the lower of cost or fair value of the collateral less estimated cost to sell. Losses arising from the acquisition of such properties are charged against the allowance for loan losses. Operating expenses and any subsequent provisions to reduce the carrying value are charged to current period earnings. Gains upon disposition are reflected in earnings as realized; losses are charged to the valuation allowance. Restrictions on Cash Availability The Company is required to comply with various laws and regulations of the Federal Reserve Bank which require that the Company maintain certain amounts of cash on deposit and is restricted from investing those amounts. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of related assets. 42 44 Goodwill and Other Intangibles Goodwill is amortized on a straight-line basis over periods of fifteen and twenty years; core deposit premiums are amortized on a level-yield basis over the estimated life of the associated deposits. Goodwill and other intangible assets are reviewed for possible impairment when events or changed circumstances may affect the underlying basis of the asset. Mortgage Banking Residential real estate mortgages originated for the purpose of potential subsequent sale are classified as held for sale. Forward commitments to sell residential real estate mortgages are contracts which the Company enters into for the purpose of reducing the market risk associated with originating loans for sale. In the event the Company is unable to originate loans to fulfill the contracts, it would normally purchase loans from correspondents or in the open market to deliver against the contract. Such loans are also classified as held for sale. In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122 changed the Company's method of accounting for certain mortgage banking activities. The Company elected early adoption of SFAS No. 122 effective for all mortgage banking activities in 1995 and as a result capitalized $2.3 million of originated mortgage servicing rights, net of amortization. When loans are sold, a gain or loss is recognized to the extent that the sale proceeds exceed or are less than the carrying value of the loans. Gains and losses are determined using the specific identification method and recorded as mortgage sales income, a component of mortgage banking services income. The gains and losses resulting from the sales of loans with servicing retained are adjusted to recognize the present value of future servicing fee income over the estimated lives of the related loans. Purchased mortgage servicing rights are recorded at cost upon acquisition. Mortgage servicing rights are amortized on an accelerated method over the estimated weighted average life of the loans. Amortization is recorded as a charge against mortgage service fee income, a component of mortgage banking services income. The Company's assumptions with respect to prepayments, which affect the estimated average life of the loans, are adjusted periodically to reflect current circumstances and to ensure that the carrying value of the remaining mortgage servicing rights do not exceed the present value of the estimated future net servicing income. In evaluating the realizability of the carrying values of mortgage servicing rights, the Company assesses the estimated life of its servicing portfolio based on data which is disaggregated to reflect note rate, type and term on the underlying loans. Mortgage servicing fees received from investors for servicing their loan portfolios are recorded as mortgage servicing fee income when received. Loan servicing costs are charged to noninterest expenses when incurred. Pension Accounting The Company provides pension benefits to its employees under a noncontributory defined benefit plan which is funded on a current basis in compliance with the requirements of the Employee Retirement Income Security Act of 1974 and recognizes costs over the estimated employee service period. Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in banks, and federal funds sold minus federal funds purchased. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. To the extent that current available information raises doubt as to the realization of some portion or all of the deferred tax assets, a valuation allowance must be established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share Earnings per share have been computed on the basis of the weighted average number of shares of common stock outstanding. Common stock equivalents were not considered in the calculation of weighted average shares outstanding since their effect was not material. 43 45 2. CONDENSED PARENT INFORMATION Condensed Financial Statements of the Parent Company
December 31, -------------------------- Balance Sheets 1995 1994 - ----------------------------------------------------------------------------- Assets Cash and due from banks $ 22,568 $ 11,231 Securities 1,045 948 Investment in bank subsidiaries 311,907 271,699 Goodwill 14,392 15,896 Amounts receivable from subsidiaries 9,363 535 Other assets 5,315 4,551 ---------- ---------- Total assets $ 364,590 $ 304,860 ========== ========== Liabilities and shareholders' equity Amounts payable to subsidiaries $ 132 $ 85 Notes payable 7,836 --- Other liabilities 1,697 336 Shareholders' equity 354,925 304,439 ---------- ---------- Total liabilities and shareholders' equity $ 364,590 $ 304,860 ========== ========== - ----------------------------------------------------------------------------- Year Ended December 31, --------------------------- Statements of Operations 1995 1994 1993 - ----------------------------------------------------------------------------- Operating income: Dividends from banking subsidiaries $23,007 $10,590 $ 1,009 Gain (loss) on intercompany loan sales -0- (430) 262 Other operating income 474 452 281 ------- ------- ------- Total operating income 23,481 10,612 1,552 ------- ------- ------- Operating expenses: Interest on borrowings 363 -0- 138 Amortization of goodwill 1,505 1,505 1,505 Amortization of acquisition premiums 359 359 305 Merger 4,958 --- --- Other operating expenses 731 1,242 770 ------- ------- ------- Total operating expenses 7,916 3,106 2,718 ------- ------- ------- Income (loss) before income taxes and equity in undistributed net income of subsidiaries 15,565 7,506 (1,166) Income tax benefit (1,492) (432) (186) ------- ------- ------- Income (loss) before equity in undistributed net income of subsidiaries 17,057 7,938 (980) Equity in undistributed net income of subsidiaries 27,429 26,110 23,491 ------- ------- ------- Net income $44,486 $34,048 $22,511 ======= ======= ======= - --------------------------------------------------------------------------------
44 46
- ---------------------------------------------------------------------------------------- Year Ended December 31, ------------------------------------ Statements of Cash Flows 1995 1994 1993 - ---------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 44,486 $ 34,048 $ 22,511 Adjustments to reconcile net income to net cash (used) provided by operating activities: Undistributed net income from subsidiaries (27,429) (26,110) (23,491) Amortization of goodwill 1,505 1,505 1,505 Amortization of acquisition premiums 359 359 305 Securities losses (gains) 1 (165) (177) Loss (gain) on intercompany loan sales -0- 430 (292) (Increase) decrease in amounts receivable from subsidiaries (7,973) (459) 4 Increase in other assets (119) (130) (103) Increase (decrease) in amounts payable to subsidiaries 47 79 (530) Increase (decrease) in other liabilities 488 (325) (2,219) Other, net (1,021) (609) 68 -------- -------- -------- Net cash (used) provided by operating activities 10,344 8,623 (2,419) -------- -------- -------- Cash flows from investing activities: Reissuance of treasury stock pursuant to acquisition 11,274 -- -- Issuance of notes payable pursuant to acquisition (net) 7,836 -- -- Sales of available for sale securities 622 255 -- Purchases of available for sale securities (622) -- -- Sales of investment securities -- -- 654 Purchases of investment securities -- -- (230) Capital invested in subsidiaries -0- -0- (10,100) -------- -------- -------- Net cash used by investing activities 19,110 255 (9,676) -------- -------- -------- Cash flows from financing activities: Dividends paid to shareholders (11,307) (5,601) (325) Treasury stock acquired (8,317) (1,322) (108) Treasury stock sold 1,507 1,628 790 Net proceeds from sale of stock -- -- 11,847 -------- -------- -------- Net cash provided (used) by financing activities (18,117) (5,295) 12,204 -------- -------- -------- Net increase (decrease) in cash and due from banks 11,337 3,583 109 Cash and due from banks at beginning of year 11,231 7,648 7,539 -------- -------- -------- Cash and due from banks at end of year $ 22,568 $ 11,231 $ 7,648 ======== ======== ======== - ---------------------------------------------------------------------------------------- Supplemental disclosure information: Interest paid on borrowings $ 363 $ -- $ 138 - ----------------------------------------------------------------------------------------
45 47 3. SECURITIES Investment Securities The following is a summary of held-to-maturity debt securities at December 31, 1994:
Held-to-Maturity Debt Securities ---------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value - ---------------------------------------------------------------------------------- U.S. Treasury and other U.S. Government agencies $285,392 $ 26 $(3,666) $281,752 State and municipal 908 4 (15) 897 Other debt securities 277 89 -- 366 -------- ---- ------- -------- Total debt securities $286,577 $119 $(3,681) $283,015 ======== ==== ======= ========
The Company chose to reclassify securities held to maturity to available for sale at December 31, 1995. Securities Available for Sale A summary of the amortized cost and market values of securities available for sale follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Market Cost Gains Losses Value - ---------------------------------------------------------------------------------- December 31, 1995: U.S. Government obligations and obligations of U.S. Government agencies and corporations $522,822 $3,981 $(227) $526,576 Tax-exempt bonds and notes 10,796 43 (2) 10,837 Other bonds and notes 5,645 55 (6) 5,694 Mortgage-backed securities 194,018 2,224 (419) 195,823 -------- ------ ----- -------- Total debt securities 733,281 6,303 (654) 738,930 -------- ------ ----- -------- Federal Home Loan Bank of Boston stock 23,793 -0- -0- 23,793 Other equity securities 3,764 170 (9) 3,925 -------- ------ ----- -------- Total equity securities 27,557 170 (9) 27,718 -------- ------ ----- -------- Total securities available for sale $760,838 $6,473 $(663) $766,648 ======== ====== ===== ========
The excess of market value over amortized cost of $5.8 million, net of tax effect of $2.0 million, is recorded and reported as a separate component of shareholders' equity.
Gross Gross Unrealized Unrealized Amortized Holding Holding Market Cost Gains Losses Value - --------------------------------------------------------------------------------- December 31, 1994: U.S. Government obligations and obligations of U.S. Government agencies and corporations $225,058 $ 9 $ (5,847) $219,220 Tax-exempt bonds and notes 11,192 6 (113) 11,085 Other bonds and notes 2,751 -0- (45) 2,706 Mortgage-backed securities 180,930 69 (8,533) 172,466 -------- ---- -------- -------- Total debt securities 419,931 84 (14,538) 405,477 -------- ---- -------- -------- Federal Home Loan Bank of Boston stock 23,236 -0- -0- 23,236 Other equity securities 3,776 152 (24) 3,904 -------- ---- -------- -------- Total equity securities 27,012 152 (24) 27,140 -------- ---- -------- -------- Total securities available for sale $446,943 $236 $(14,562) $432,617 ======== ==== ======== ========
46 48 The excess of amortized cost over market value of $14.3 million, net of tax effect of $5.3 million, is recorded in and reported as a separate component of shareholders' equity. The amortized cost and market values of debt securities available for sale at December 31, 1995 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
- -------------------------------------------------------------------------------- Amortized Cost Market Value - -------------------------------------------------------------------------------- December 31, 1995: Due in one year or less $348,093 $349,968 Due after one year through five years 189,505 191,442 Due after five years through ten years 34,829 35,143 Due after ten years 160,854 162,377 -------- -------- Total debt securities $733,281 $738,930 ======== ========
A summary of realized gains and losses on investment securities and securities available for sale for 1995, 1994 and 1993 follows:
Securities Available for Sale Investment Securities ------------------------ ------------------------ Gross Gross Gross Gross Realized Realized Realized Realized Gains Losses Gains Losses -------- -------- -------- -------- 1995 $ 305 $189 $-0- $-0- 1994 549 803 -0- -0- 1993 1,035 34 251 69
47 49 4. LOANS HELD FOR SALE The following table summarizes the book value and estimated market value of loans held for sale at the dates indicated:
December 31, 1995 December 31, 1994 ------------------------ ------------------------- Estimate of Estimate of Book Value Market Value Book Value Market Value ---------- ------------ ---------- ------------ Fixed-rate residential real estate loans having a weighted average note rate of 7.31% and 7.71% at December 31, 1995 and 1994, respectively $ 70,979 $ 71,872 $ 11,092 $ 11,163 ======== ======== ======== ========
Included in the portfolio of residential real estate loans held for sale are gross unrealized gains of $1.8 million and $122 thousand and gross unrealized losses of $874 thousand and $51 thousand at December 31, 1995 and 1994, respectively. 5. LOANS AND LEASES The Company's lending activities are conducted principally in Maine and New Hampshire. The principal categories of loans in the Company's portfolio are residential real estate loans, which are secured by single-family (one to four units) residences; commercial real estate loans, which are secured by multi-family (five or more units) residential and commercial real estate; commercial business loans and leases; and consumer loans and leases. A summary of loans and leases follows:
December 31, ---------------------------- 1995 1994 ---------- ---------- Residential real estate mortgages: Adjustable-rate $ 402,695 $ 418,653 Fixed-rate 395,381 384,845 ---------- ---------- 798,076 803,498 ---------- ---------- Commercial real estate mortgages: Commercial real estate 753,857 745,356 Construction and development 43,829 25,216 ---------- ---------- 797,686 770,572 ---------- ---------- Commercial business loans and leases: Business loans 397,652 315,200 Leases 10,940 9,208 ---------- ---------- 408,592 324,408 ---------- ---------- Consumer loans and leases: Home equity 283,008 247,751 Mobile home 214,761 222,600 Automobile 127,969 125,887 Boat and recreational vehicle 22,716 20,680 Other 125,775 124,181 ---------- ---------- 774,229 741,099 ---------- ---------- Total loans and leases $2,778,583 $2,639,577 ========== ==========
Loan and lease balances are stated net of deferred loan fees totaling $5,022 and $6,623 at December 31, 1995 and 1994, respectively. During 1993 the Bank sold substantially all of its credit card portfolio. As a result of this sales transactions, the Company realized a $2.6 million gain. 48 50 Related Party Transactions Loans to officers, directors and related parties are made in the ordinary course of business and on the same terms and conditions prevailing at the time for comparable transactions. A summary of loans to related parties during 1995 and 1994 follows: Balance at December 31, 1993 $25,345 Loans made/advanced and additions 2,289 Repayments and reductions (6,798) Other changes (76) ------- Balance at December 31, 1994 $20,760 Loans made/advanced and additions 4,224 Repayments and reductions (4,191) Other changes (1,380) ------- Balance at December 31, 1995 $19,413 =======
Nonperforming loans The following table sets forth information regarding nonperforming loans at the dates indicated:
December 31, ------------------------ 1995 1994 ------- ------- Residential real estate loans: Nonaccrual loans $ 5,713 $ 3,317 Accruing loans which are 90 days overdue 3,728 4,473 ------- ------- Total 9,441 7,790 ------- ------- Commercial real estate loans: Nonaccrual loans 17,029 26,978 Accruing loans which are 90 days overdue -0- 1,020 Troubled debt restructurings 3,186 6,284 ------- ------- Total 20,215 34,282 ------- ------- Commercial business loans and leases: Nonaccrual loans 6,735 6,871 Accruing loans which are 90 days overdue 25 30 Troubled debt restructurings 1,859 2,684 ------- ------- Total 8,619 9,585 ------- ------- Consumer loans: Nonaccrual loans 3,586 3,775 Accruing loans which are 90 days overdue 659 831 ------- ------- Total 4,245 4,606 ------- ------- Total nonperforming loans: Nonaccrual loans 33,063 40,941 Accruing loans which are 90 days overdue 4,412 6,354 Troubled debt restructurings 5,045 8,968 ------- ------- Total $42,520 $56,263 ======= =======
The ability and willingness of the residential real estate, commercial real estate, commercial business and consumer borrowers to repay loans is generally dependent on current economic conditions and real estate values within the borrowers' geographic areas. During 1995 and 1994, the Company's policy was generally to limit new loans to one borrower to $8.0 million. These limitations are substantially below the limitations set forth in applicable laws and regulations. Interest income that would have been recognized for 1995, 1994 and 1993, if nonperforming loans at December 31, 1995, 1994 and 1993 had been performing in accordance with their original terms, approximated $5.3 million, $8.2 million and $11.6 million, respectively. The actual amount that was collected on these loans during the periods and included in interest income approximated $1.6 million, $1.8 million and $3.4 million, respectively. As a result, the reduction in interest income for 1995, 1994, and 1993 associated with nonperforming loans held at the end of such periods approximated $3.7 million, $6.4 million and $8.2 million, respectively. 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 49 51 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 leases and the allowance for loan and lease 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. Impaired loans are commercial, commercial real estate, and individually significant mortgage and consumer loans for which it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The definition of "impaired loans" is not the same as the definition of "nonaccrual loans," although the two categories overlap. Nonaccrual loans include impaired loans and loans on which the accrual of interest is discontinued when collectibility of principal or interest is uncertain or payments of principal or interest have become contractually past due 90 days. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired, if (i) it is not probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan or (ii) the loan is not a commercial, commercial real estate or an individually significant mortgage or consumer loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of 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, as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral. Mortgage and consumer loans which are not individually significant are measured for impairment collectively. Loans that experience insignificant payment delays and insignificant shortfalls in payment amounts generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into the consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. At December 31, 1995, total impaired loans were $27.8 million, of which $24.7 million had related allowances of $5.7 million. During the year ended December 31, 1995, the income recognized related to impaired loans was $1.5 million and the average balance of outstanding impaired loans was $29.1 million. The Company recognizes interest on impaired loans on a cash basis when the ability to collect the principal balance is not in doubt; otherwise, cash received is applied to principal balance of loan. 6. ALLOWANCE FOR LOAN AND LEASE LOSSES Changes in the allowance for loan and lease losses follow:
December 31, -------------------------------------- 1995 1994 1993 -------- -------- -------- Balance at beginning of period $ 63,675 $ 67,385 $ 71,223 Allowance on acquired loans 2,314 -0- -0- Provisions charged to operations 4,230 3,374 14,047 Loans and leases charged off (17,968) (17,202) (28,572) Recoveries 8,724 10,118 10,687 -------- -------- -------- Balance at end of period $ 60,975 $ 63,675 $ 67,385 ======== ======== ========
7. PREMISES AND EQUIPMENT A summary of premises and equipment follows:
December 31, ----------------------- 1995 1994 -------- -------- Land $ 11,754 $ 9,991 Buildings and improvements 45,302 41,110 Leasehold improvements 10,090 9,141 Furniture, fixtures and equipment 47,372 38,867 -------- -------- 114,518 99,109 -------- -------- Less accumulated depreciation and amortization 58,497 52,602 -------- -------- $ 56,021 $ 46,507 ======== ========
50 52 8. GOODWILL AND OTHER INTANGIBLES A summary of goodwill and other intangibles follows:
December 31, ---------------------- 1995 1994 -------- -------- Goodwill $ 20,761 $ 19,234 Core deposit premiums 2,031 1,479 -------- -------- $ 22,792 $ 20,713 ======== ========
Amortization of goodwill is included in other noninterest expenses and amounted to $1,925, $1,801 and $2,756 for the years ended December 31, 1995, 1994 and 1993, respectively. Amortization of core deposit premiums is included in interest on deposits and amounted to $286, $244 and $290 for the years ended December 31, 1995, 1994 and 1993, respectively. 9. MORTGAGE SERVICING RIGHTS An analysis of mortgage servicing rights for the years ended December 31, 1995, 1994 and 1993 follows:
1995 1994 1993 - ---------------------------------------------------------------------------- Balance at beginning of period $17,275 $ 6,483 $ 1,985 Mortgage servicing rights capitalized 9,101 12,535 6,764 Amortization charged against mortgage service fee income (3,483) (1,743) (2,266) Mortgage servicing rights sold (2,584) -0- -0- ------- ------- ------- Balance at end of period $20,309 $17,275 $ 6,483 ======= ======= =======
Residential real estate mortgages are originated by the Company generally for sale into the secondary market. Such loans are sold to institutional investors such as the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). Under loan sale and servicing agreements with these investors, the Company generally continues to service the residential real estate mortgages. The Company pays the investor an agreed-upon rate on the loan, which, including a guarantee fee paid to FNMA and FHLMC, is less than the interest rate the Company receives from the borrower. The difference is retained by the Company as a fee for servicing the residential real estate mortgages. As required by SFAS No. 122, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans. The Company periodically purchases residential mortgage servicing rights through a closed bid process from brokers representing financial institutions with mortgage servicing portfolios available for sale. The payment made to purchase such mortgage servicing rights is capitalized by the Company upon consummation of the purchase agreement. Residential real estate mortgages serviced for investors at December 31, 1995, 1994 and 1993 amounted to $2.6 billion, $2.1 billion and $1.6 billion, respectively. Mortgage servicing rights are generally amortized on a level yield method over the estimated weighted average life of the loans. Amortization is recorded as a charge against mortgage service fee income (a component of mortgage banking services income). The Company's assumptions with respect to prepayments, which affect the estimated average life of the loans, are adjusted periodically to reflect current circumstances and to ensure that the carrying value of the remaining mortgage servicing rights do not exceed the present value of the estimated future net servicing income. In evaluating the fair value of the carrying value of mortgage servicing rights, the Company assesses the estimated life of its servicing portfolio based on data which is disaggregated by note rate, note type and note term. 10. OTHER REAL ESTATE AND REPOSSESSED ASSETS OWNED The following table summarizes the composition of other real estate and repossessed assets owned, net of related reserves:
December 31, ------------------- 1995 1994 ------- ------- Real estate properties acquired in settlement of loans $12,679 $20,073 Other assets repossessed in settlement of non- real estate loans 1,553 2,003 ------- ------- $14,232 $22,076 ======= =======
51 53 As a result of the adoption of 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," the Company reclassified $2.2 million of other real estate and related reserves of $96 thousand to loans and leases and allowance for loan and lease losses, respectively. 11. INCOME TAXES The current and deferred components of income tax expense (benefit) follow:
December 31, --------------------------------- 1995 1994 1993 ------- ------- ------- Current (including $805, $302, and $113 respectively, of state income tax) $19,480 $16,129 $ 5,467 Deferred 3,895 (2,467) (4,668) ------- ------- ------- $23,375 $13,662 $ 799 ======= ======= =======
The following table reconciles the expected income tax expense (benefit) (computed by applying the federal statutory tax rate to income (loss) before taxes) to recorded income tax expense (benefit):
December 31, ----------------------------- 1995 1994 1993 ------- ------- ------- Computed tax expense $23,585 $16,572 $ 8,063 State income tax, net of federal benefits 523 196 72 Dividends received deduction --- (1) (2) Benefit of tax-exempt income (585) (495) (391) Merger Expenses 380 --- --- Amortization of goodwill and other intangibles 839 842 1,146 Low income/rehabilitation credits (1,265) (1,265) (1,264) Book net operating loss carryback limitation --- --- (351) Tax bad debt reserve recapture on Mid Maine acquisition --- 1,022 --- Change in valuation allowance --- (3,322) (5,865) Change in federal tax rate --- --- (478) Other, net (102) 113 (131) ------- ------- ------- $23,375 $13,662 $ 799 ======= ======= =======
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 follow:
1995 1994 ------- ------- Deferred tax assets: Allowance for loan and lease losses $23,007 $22,991 Reserve for mobile home dealers 2,119 1,384 Accrued pension expense 848 319 Difference of tax and book basis of other real estate owned 391 1,398 Deferred loan fees 527 1,714 Interest accrued and payments received on nonperforming loans for tax purposes 1,096 1,606 Unrealized depreciation on investment securities -0- 5,272 Other 4,984 3,008 ------- ------- Total gross deferred tax assets 32,972 37,692 Less: valuation allowance --- --- ------- ------- Net deferred tax assets 32,972 37,692 ------- ------- Deferred tax liabilities Difference of tax and book basis of leases 420 842 Difference of tax and book basis of premises and equipment 1,747 1,556 Difference of tax and book basis of securities 522 1,119 Tax bad debt reserve 5,518 --- Unrealized appreciation of investment securities 2,025 3 Other 2,345 2,567 ------- ------- Total gross deferred tax liabilities 12,577 6,087 ------- ------- Net deferred tax asset $20,395 $31,605 ======= =======
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company 52 54 considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. The Company estimates that substantially all of its gross deferred tax assets and liabilities will reverse within the next five years. In order to fully realize the net deferred tax asset, the Company will need to generate future taxable income of approximately $58.3 million. Pre-tax book income for the year ended December 31, 1995 was $67.9 million. Based upon the level of 1995 taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible temporary differences at December 31, 1995. Accordingly, no valuation allowance has been recorded at December 31, 1995. 12. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS The weighted average interest rate on reverse repurchase agreements was 4.64% and 4.62% at December 31, 1995 and 1994, respectively. These borrowings were scheduled to generally mature within 180 days. These borrowings were collateralized by FHLMC and FNMA securities and U.S. Government obligations with an aggregate market value of $195,861 and $137,304 at December 31, 1995 and 1994, respectively, and an aggregate amortized cost of $194,560 and $141,104 at December 31, 1995 and 1994, respectively. Securities sold under agreements to repurchase averaged $152,411 and $109,216 during the years ended December 31, 1995 and 1994, respectively. The maximum amount outstanding at any month-end during the years ended December 31, 1995 and 1994 was $213,104 and $153,710, respectively. 13. BORROWINGS FROM THE FEDERAL HOME LOAN BANK OF BOSTON A summary of the borrowings from the Federal Home Loan Bank of Boston is as follows:
December 31, 1995 - -------------------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Dates - -------------------------------------------------------------------------------- $ 31,500 4.26% - 6.57% 1996 72,950 5.82% - 6.87% 1997 82,500 5.30% - 6.02% 1998 64,000 5.71% - 5.78% 2000 1,496 6.70% - 6.90% 2005 - -------- $252,446 ======== December 31, 1994 - -------------------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Dates - -------------------------------------------------------------------------------- $ 54,000 4.08% - 6.31% 1995 25,500 4.26% - 5.87% 1996 252,950 5.62% - 6.87% 1997 30,000 5.30% 1998 - -------- $362,450 ========
Short and long-term borrowings from the Federal Home Loan Bank of Boston, which consist of both fixed and adjustable rate borrowings, are secured by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by 1 to 4 family properties, certain unencumbered investment securities and other qualified assets. 14. SHAREHOLDERS' EQUITY Regulatory Capital Requirements At December 31, 1995 and 1994, the Company and each of its banking subsidiaries were in compliance with all applicable regulatory capital requirements and had capital ratios in excess of federal regulatory risk-based and leverage requirements. Dividend Limitations Dividends paid by subsidiaries are the primary source of funds available to the Company for payment of dividends to its shareholders. The Company's subsidiary banks are subject to certain requirements imposed by state and federal banking laws and regulations. These requirements, among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by the subsidiary banks to the Company. Stockholder Rights Plan In 1989, the Company's Board of Directors adopted a Stockholder Rights Plan declaring a dividend of one preferred Stock Purchase Right for each outstanding share of Common Stock. The rights will remain attached to the Common Stock and are not exercisable except under limited circumstances 53 55 relating to acquisition of, the right to acquire beneficial ownership of, or tender offer for 20% or more of the outstanding shares of Common Stock. The Rights have no voting or dividend privileges and, until they become exercisable, have no dilutive effect on the earnings of the Company. 15. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER OFF-BALANCE SHEET RISKS The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to originate loans, standby letters of credit, recourse arrangements on serviced loans, and forward commitments to sell loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and recourse arrangements is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For interest rate exchange agreements and forward commitments to sell loans, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward commitments to sell loans through credit approvals, limits and monitoring procedures. Financial instruments with off-balance sheet risk at December 31, 1995 and 1994 follow:
Contract or Notional Amount ------------------------- December 31, ------------------------- 1995 1994 - ----------------------------------------------------------------------------- Financial instruments with contract amounts which represent credit risk: Commitments to originate loans $ 336,409 $ 201,745 Unused lines and standby letters of credit 345,627 286,148 Loans serviced with recourse 48,213 74,103 Unadvanced portions of construction loans 34,215 25,940 Financial instruments with notional or contract amounts which exceed the amount of credit risk: Forward commitments to sell loans $ 128,000 $ 11,670
Commitments to originate loans, unused lines of credit and unadvanced portions of construction loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Included in commitments to originate loans, the Company had guaranteed the rate on $83.3 million in fixed rate residential real estate loans with a weighted average interest rate of 7.26% which were substantially hedged by the $128.0 million in forward sales commitments noted above. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company has retained credit risk on certain residential mortgage loans sold with full or partial recourse and on certain residential mortgage loans whose servicing rights were acquired during 1990. Derivative Financial Instruments The Company has only limited involvement with derivative financial instruments. Forward commitments to sell residential mortgage loans are contracts which the Company enters into for the purpose of reducing the market risk associated with originating loans for sale. Risks may arise from the possible inability of the Company to originate loans to fulfill the contracts, in which case the Company would normally purchase loans from correspondent banks or in the open market to deliver against the contract. 54 56 Legal Proceedings The Company and certain of its subsidiaries have been named as defendants in various legal proceedings arising from their normal business activities. Although the amount of any ultimate liability with respect to such proceedings cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated financial position or results of operations of the Company and its subsidiaries. Lease Obligations The Company leases certain properties used in operations under terms of operating leases which include renewal options. Rental expense under these leases approximated $3.4 million, $3.6 million and $3.3 million for the years ended 1995, 1994 and 1993, respectively. Approximate minimum lease payments over the remaining terms of the leases at December 31, 1995 follow: 1996 $ 3,526 1997 3,410 1998 3,070 1999 2,904 2000 2,612 2001 and after 9,544 ------- $25,066 =======
16. EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plan The Company has a noncontributory defined benefit plan covering substantially all permanent, full-time employees (except BNHC employees). Benefits are based on career average earnings and length of service. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. The following tables set forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1995 and 1994.
December 31, -------------------- 1995 1994 -------- -------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $14,635 and $12,787 $ 15,181 $ 13,367 ======== ======== Projected benefit obligation for service rendered to date $ 16,599 $ 14,680 Plan assets at fair value, primarily listed stocks and corporate bonds (16,475) (12,974) -------- -------- Plan assets less than projected benefit obligation 124 1,706 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions (1,170) (2,753) Unrecognized prior service cost 872 786 Unrecognized net asset being recognized over 20.5 years 1,203 1,328 -------- -------- Accrued pension cost included in other liabilities $ 1,029 $ 1,067 ======== ========
Net pension cost for 1995, 1994 and 1994 included the following components:
1995 1994 1993 - ------------------------------------------------------------------------------ Service cost during the period $ 1,193 $ 987 $ 806 Interest cost on projected benefit obligation 1,053 989 900 Actual return on plan assets (2,762) 72 (1,103) Net amortization and deferral 1,580 (1,250) (116) ------- ------- ------- Net periodic pension cost $ 1,064 $ 798 $ 487 ======= ======= =======
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of 55 57 projected benefit obligations was 7.0% for both 1995 and 1994. The expected long-term rate of return on assets was 8.0% for both 1995 and 1994. Retirement Plans BNHC maintains a noncontributory defined benefit retirement plan covering substantially all employees. Benefits are based on compensation and years of service. A supplemental executive retirement plan ("SERP") was adopted during 1994 for several executive officers. The SERP is designed to offset the impact of changes in the retirement plan which reduced benefits of highly paid employees. The following sets forth the funded status and amounts recognized in the consolidated balance sheets for BNHC retirement and SERP plans:
December 31, 1995 1994 ------------------------- (In Thousands) Projected benefit obligation: Vested benefits $ 16,190 $ 12,770 Nonvested benefits 324 250 ------ ------ Accumulated benefit obligation 16,514 13,020 Effect of projected future compensation levels 1,779 1,335 ------ ------ Projected benefit obligation 18,293 14,355 Plan assets at fair value 15,127 12,265 ------ ------ Projected benefit obligation in excess of plan assets 3,166 2,090 Unrecognized prior service cost (322) (350) Unrecognized net loss (2,551) (1,940) Unrecognized net asset, net of amortization 718 846 -------- -------- Net pension and SERP liability $ 1,011 $ 646 ======== ========
A summary of the components of net periodic pension and SERP expense follows:
1995 1994 1993 -------------------------- (In Thousands) Service cost - benefits earned during the year $ 504 $ 575 $ 556 Interest cost on the projected benefit obligation 1,284 1,192 1,190 Actual return on plan assets (2,756) 211 (295) Net amortization and deferral 1,748 (1,310) (996) ------- ------- ------ Net periodic pension and SERP expense $ 780 $ 668 $ 455 ======= ======= ======
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation were 7.50% and 8.75% as of December 31, 1995 and 1994, respectively. The rate of increase in future compensation levels used was 3.0% as of December 31, 1995 and 1994. The expected long-term rate of return on plan assets was 9.0% in 1995 and 1994, and 10.0% in 1993. The impact of changes in the discount rate as of December 31, 1995 was to decrease the net pension liability by $443,000. The year end 1995 and 1994 net pension and SERP accrued liability of $1.0 million and $646,000, respectively, is included in other liabilities. Thrift Incentive Plan The Company has a Contributory Thrift Incentive Plan, covering substantially all permanent employees after completion of one year of service. The Company matches employee contributions based on a predetermined formula and may make additional discretionary contributions. The total expense for 1995, 1994 and 1993 was $659 thousand, $620 thousand and $462 thousand, respectively. Profit Sharing Employee Stock Ownership Plan In 1989 the Company adopted a Profit Sharing Employee Stock Ownership Plan which is designed to invest primarily in Common Stock of the Company. Substantially all employees are eligible for the Plan following one year of service. Employees may not make contributions to the Plan but may receive a discretionary contribution from the Company based on their pro rata share of eligible compensation. For 1995, 1994 and 1993 the Directors voted to contribute 3%, 5% and 9% of eligible compensation, respectively. The approximate expense of this contribution for 1995, 1994 and 1993 was $850 thousand, $1.4 million and $2.1 million, respectively. Stock Option Plans The Company has adopted a Stock Option and Stock Appreciation Rights Plan for key employees. The maximum number of shares which may be granted under the Plan is 1,670,000 shares, of which 1,454,823 options were outstanding and 190,038 shares had been issued upon the exercise of stock options cumulatively through December 31, 1995. All options have been issued at not less than fair 56 58 market value at the date of grant and expire 10 years (10 years plus one month in the case of non-qualified options) from the date granted. In addition, the Plan authorizes the Company to issue stock appreciation rights (SARs) to optionees under certain terms and conditions. During 1995 the Company granted employees options to purchase 399,139 shares of common stock at $21.00 per share. During 1994 the Company granted options to purchase 487,436 shares of common stock at between $12.88 and $14.75 per share. The Company has adopted a Stock Option Plan for nonemployee directors. The maximum number of shares which may be granted under the plan is 75,000 shares, of which 18,000 options, all of which were granted in 1995 at $13.63 per share, were outstanding and -0- shares had been issued upon the exercise of the stock options cumulatively through December 31, 1995. All options have been issued at not less than fair market value at the date of grant and expire 10 years from date of grant. A summary of option activity follows:
Year Ended December 31, ------------------------------- 1995 1994 - ------------------------------------------------------------------------ Outstanding at beginning of period 1,135,683 817,256 Granted during the year 417,139 487,436 Cancelled during the year 24,902 72,133 Exercised during the year 73,790 96,876 Outstanding at end of period 1,454,130 1,135,683 Exercisable at end of period 636,029 249,873 Average price of options exercisable $9.73 $6.70 Price range of options $2.75-$21.00 $2.75-$14.75 Average price of options outstanding $13.36 $10.31 SARs outstanding at end of period 2,500 2,500
Employee Stock Purchase Plan The Company has adopted an Employee Stock Purchase Plan covering all full-time employees with one year of service. The maximum number of shares which may be issued under the Employee Stock Purchase Plan is 676,000 shares. Employees have the right to authorize payroll deductions up to 10% of their salary. As of December 31, 1995, 300,318 shares had been purchased under this plan. Supplemental Retirement Plans The Company has adopted supplemental retirement plans for several key officers. These plans were designed to offset the impact of changes in the Pension Plan which reduced benefits for highly paid employees. The cost of these plans was $537 thousand, $342 thousand and $512 thousand for 1995, 1994 and 1993, respectively. Postretirement Benefits Other Than Pensions The Bank sponsors a postretirement benefit program which provides medical coverage and life insurance benefits to employees and directors who meet minimum age and service requirements. Active employees and directors accrue benefits over a 25 year period. The Company recognizes costs related to post retirement benefits under the accrual method, which recognizes costs over the employee's period of active employment. The impact of adopting SFAS No. 106 is being amortized over a twenty year period beginning January 1, 1993. The following reconciles the program's funded status with amounts recognized in the Company's Consolidated Balance Sheet at December 31, 1995 and 1994:
Accumulated postretirement benefit obligation: 1995 1994 ------- ------- Retirees $ 1,840 $ 1,994 Fully eligible active program participants 311 463 Other active program participants 542 1,255 ------- ------- 2,693 3,712 Plan assets --- --- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 2,693 3,712 Unrecognized net gain 485 5 Unrecognized prior service cost (2,290) (3,062) ------- ------- Accrued postretirement benefit cost included in other liabilities $ 888 $ 655 ======= =======
57 59 Net postretirement benefit cost for the year ended December 31, 1995, 1994 and 1993 included the following components:
1995 1994 1993 ------ ------ ----- Service cost $ 29 $ 73 $ 72 Interest cost 187 242 242 Amortization of accumulated postretirement obligation 141 170 170 ------ ------ ------ Net periodic postretirement benefit cost $ 357 $ 485 $ 484 ====== ====== ======
For measurement purposes, an 8% annual rate of increase in the per capita cost of covered benefits (i.e. health care cost trend rate) was assumed in 1995 and 1994. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $151 thousand and the aggregate of the service and interest cost components of net periodic post retirement benefit cost for the year ended December 31, 1995 by $10 thousand. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7% in 1995 and 1994. Currently, the Bank pays retiree benefit premiums directly on a monthly basis rather than through a formal funded trust. Consequently, the postretirement benefit program neither requires nor has any plan assets. Other Postretirement Benefits In addition to the BNHC retirement plan and SERP, BNHC sponsors a defined benefit welfare plan that provides postretirement medical and life insurance benefits to full-time employees who have worked 10 years and attained age 55 while in service with the Company. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The Company's future contributions will be capped at the 1996 per capita cost. The Company will continue to credit each retiree based on years of service. Retirees will bear the cost of any future annual increases above the 1996 cost levels. The Company's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. The plan is unfunded at December 31, 1995. The following table sets forth the plan's accumulated postretirement benefit obligation reconciled with the amount shown in the Company's balance sheet:
December 31, 1995 1994 --------------------------- (In Thousands) Accumulated postretirement benefit obligation: Retirees $ 2,330 $ 2,209 Fully eligible plan participants 506 406 Other active plan participants 1,162 836 ------- ------- 3,998 3,451 ------- ------- Plan assets $ -0- $ -0- Accumulated postretirement benefit obligation in excess of plan assets $ 3,998 $ 3,451 Unrecognized net (loss) gain (216) 234 Unrecognized transition obligation (2,929) (3,101) ------- ------- Accrued postretirement benefit cost $ 853 $ 584 ======= =======
Net periodic postretirement benefit cost included the following components:
1995 1994 1993 ------------------------ (In Thousands) Service cost $ 71 $ 72 $ 71 Interest cost 282 272 284 Amortization of transition obligation over 20 years 172 172 172 ---- ---- ---- Net periodic postretirement benefit cost $525 $516 $527 ==== ==== ====
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e. health care cost trend rate) is 9.0% for 1996 and is assumed to decrease gradually to 5.5% for seven years and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $272,000 and the aggregate of the service and interest cost components of net periodic 58 60 postretirement benefit cost for 1995 by $21,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% at December 31, 1995 and 8.5% at December 31, 1994. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Company's fair values should not be compared to those of other banks. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company. For certain assets and liabilities, the information required under SFAS No. 107 is supplemented with additional information relevant to an understanding of the fair value. Also, fair values are presented for certain assets that are not financial instruments under the definition in SFAS No. 107. The following describes the methods and assumptions used by the Company in estimating the fair values of financial instruments and certain non-financial instruments: Cash and cash equivalents, including cash and due from banks, interest-bearing deposits in banks and federal funds sold. For these cash and cash equivalents, which have maturities of 90 days or less, the carrying amounts reported in the balance sheet approximate fair values. Securities available for sale and loans held for sale. Fair values, including fair values of mortgage-backed securities, are based on quoted bid market prices, where available. Where quoted market prices for an instrument are not available, fair values are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instrument being valued. Fair values are calculated based on the value of one unit without regard to premiums or discounts that might result from selling all of the Company's holdings of a particular security in one transaction. Loans and leases. The fair values of commercial, commercial real estate, residential real estate, and certain consumer loans are estimated by discounting the contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers of similar quality. For certain variable-rate consumer loans, including home equity lines of credit and credit card receivables, carrying value approximates fair value. This method of estimating the fair value of the credit card portfolio excluded the value of the ongoing customer relationships, a factor which can represent a significant premium over book value. Lease financing receivables are similar to loans in many respects, fair values are provided and were estimated using the methodologies used for the loan portfolio. For nonperforming loans and certain loans where the credit quality of the borrower has deteriorated significantly, fair values are estimated by discounting cash flows at a rate commensurate with the risk associated with those cash flows. Mortgage servicing rights. The fair value of the Company's mortgage servicing rights is based on the expected present value of future mortgage servicing income, net of estimated servicing costs. Interest and dividends receivable. The carrying amount of interest and dividends receivable approximates its fair value. Deposits. The fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is based on the discounted value of contractual cash flows, applying interest rates currently being offered on the deposit products of similar maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding ("deposit base intangibles") Borrowings, including federal funds purchased, securities sold under repurchase agreements, borrowings from the Federal Home Loan Bank of Boston, subordinated capital notes and other borrowings. The fair value of the Company's long-term borrowings is estimated based on quoted market prices for 59 61 the issues for which there is a market, or by discounting cash flows based on current rates available to the Company for similar types of borrowing arrangements. For short-term borrowings that mature or reprice in 90 days or less, carrying value approximates fair value. Off-balance sheet instruments: Interest rate exchange agreements. Fair values for interest rate exchange agreements are based on established pricing models. Commitments to originate loans and commitments to extend credit and standby letters of credit. In the course of originating loans and extending credit and standby letters of credit, the Company will charge fees in exchange for its lending commitment. While these commitment fees have value, the Company has not estimated their value due to the short-term nature of the underlying commitments. Forward commitments to sell loans. The fair value of the Company's forward commitments to sell loans reflects the value of origination fees and excess servicing recognizable upon sale of loans net of any cost to the Company if it fails to meet its sale obligation. Of the $128.0 million of forward sales commitments at December 31, 1995, the Company had $71.9 million available to sell at that date as well as sufficient loan originations subsequent to December 31, 1995 to fulfill the commitments. Consequently, the Company has no unmet sales obligation to value and due to the short-term nature of the commitments has not estimated the value of the fees and servicing. Loans serviced with recourse. Under certain of the Company's servicing arrangements with investors, the Company has recourse obligation to those serviced loan portfolios. In the event of foreclosure on a serviced loan, the Company is obligated to repay the investor to the extent of the investor's remaining balance after application of proceeds from the sale of the underlying collateral. To date, losses related to these recourse arrangements have been insignificant and while the Company cannot project future losses, the fair value of this recourse obligation is deemed to be likewise insignificant. A summary of the fair values of the Company's significant financial instruments and certain non-financial instruments at December 31, 1995 and 1994 follows:
1995 1994 - ----------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ----------------------------------------------------------------------------------------- ON-BALANCE SHEET ASSETS AND LIABILITIES Assets: Cash and cash equivalents $ 290,691 $ 290,691 $ 224,507 $ 224,507 Securities 766,648 766,648 719,194 715,632 Loans held for sale 70,979 71,872 11,092 11,163 Net loans and leases 2,717,608 2,776,912 2,575,902 2,540,052 Mortgage servicing rights 20,309 22,140 17,275 21,502 Interest and dividends receivable 30,756 30,756 27,806 27,806 Liabilities: Deposit (with no stated maturity) 1,834,043 1,834,043 1,673,708 1,673,708 Time deposits 1,363,095 1,382,145 1,212,137 1,190,933 Borrowings 456,932 458,116 505,347 496,649 Interest payable 9,816 9,816 7,229 7,229
18. MERGERS AND ACQUISITIONS (UNAUDITED) Completed During 1995 and 1994 On July 1, 1995, Bankcore, Inc. ("Bankcore"), the New Hampshire based holding company for North Conway Bank, was acquired and North Conway Bank merged into Portsmouth. At the time of the 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 in goodwill was created and 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. On July 31, 1994, Mid Maine Savings Bank, F.S.B. ("MMSB"), headquartered in Auburn, Maine, was merged into the Bank, and was accounted for under the pooling-of-interest method. Accordingly, the consolidated financial statements of the Company have been restated to reflect the acquisition at the beginning of each period presented. At July 31, 1994, MMSB had total assets 60 62 of $170.5 million and total shareholders' equity of $11.4 million. Substantially concurrently with the merger of MMSB into the Bank, the Bank sold all the assets and liabilities relating to MMSB's Hampton (New Hampshire) Division to Portsmouth. Pending at December 31, 1995 On September 29, 1995 and amended as of October 31, 1995, the Company entered into an agreement with Shawmut Bank NH ("Shawmut") to acquire five branches of Shawmut (the "Branch Acquisition). The purchase will result in the transfer of approximately $212 million in loans to the Company and its assumption of approximately $160 million in deposits. The purchase was completed during the first quarter of 1996. 19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1995 -------------------------------------------- Fourth(1) Third Second First Quarter Quarter Quarter Quarter ------- ------- ------- ------- Interest income $80,162 $79,490 $74,364 $71,833 Interest expense 35,854 35,344 32,970 30,727 Provision for loan losses 1,080 1,080 1,040 1,030 Net interest income after provision for loan losses 43,228 43,066 40,354 40,076 Noninterest income 8,379 8,325 7,616 7,097 Noninterest expenses 35,253 31,901 30,983 32,143 Income before income taxes 16,354 19,490 16,987 15,030 Income tax expense 5,930 6,701 5,776 4,968 Net income 10,424 12,789 11,211 10,062 Earnings per share $ 0.42 $ 0.51 $ 0.46 $ 0.41
(1) In the fourth quarter of 1995, the Company recorded $3.7 million ($2.7 million after tax), or $0.11 per share of nonrecurring merger expenses.
1994 -------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter ------- ------- ------- ------- Interest income $69,669 $66,043 $62,090 $58,795 Interest expense 28,805 27,169 26,070 25,958 Provision for loan losses 490 252 1,182 1,450 Net interest income after provision for loan losses 40,374 38,622 34,838 31,387 Noninterest income 5,855 7,210 6,626 7,935 Noninterest expenses 32,016 32,983 30,111 30,027 Income before income taxes 14,213 12,849 11,353 9,295 Income tax expense 4,365 3,072 3,479 2,746 Net income 9,848 9,777 7,874 6,549 Earnings per share $ 0.40 $ 0.39 $ 0.32 $ 0.26
61 63 INDEPENDENT AUDITORS' REPORT The Board of Directors Peoples Heritage Financial Group, Inc. We have audited the accompanying supplemental consolidated balance sheets of Peoples Heritage Financial Group, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related supplemental consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The supplemental consolidated financial statements give retroactive effect to the merger of Peoples Heritage Financial Group, Inc. and Bank of New Hampshire Corporation on April 2, 1996, which has been accounted for as a pooling-of-interests as described in Note 1 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation. However, they will become the historical consolidated financial statements of Peoples Heritage Financial Group, Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Heritage Financial Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ending December 31, 1995, in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combination. As discussed in Note 1, the Company changed its method of accounting for mortgage servicing rights effective January 1, 1995. Boston, Massachusetts June 25, 1996 62 EX-99.(B) 6 SUPPLEMENTAL FINANCIAL INFORMATION 1 EXHIBIT 99(b) INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION
Page ---- Supplemental Consolidated Financial Statements 1 Notes to Supplemental Consolidated Financial Statements 6 Selected Supplemental Consolidated Financial Data 7
2 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL 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 $ 164,587 $ 190,436 Federal funds sold 49,000 100,255 Securities available for sale, at market value 767,539 766,648 Loans held for sale, market value $88,342 and $71,872, respectively 88,185 70,979 Loans and leases: Residential real estate mortgages 984,722 798,076 Commercial real estate mortgages 836,935 797,686 Commercial business loans and leases 410,476 408,592 Consumer loans and leases 790,310 774,229 ----------- ----------- 3,022,443 2,778,583 ----------- ----------- Less: Allowance for loan and lease losses 65,533 60,975 ----------- ----------- Net loans and leases 2,956,910 2,717,608 ----------- ----------- Bank premises and equipment 56,809 56,021 Goodwill and other intangibles 40,100 22,792 Mortgage servicing rights 23,187 20,309 Other real estate and repossessed assets owned 12,954 14,232 Deferred income taxes 33,045 32,972 Interest and dividends receivable 31,019 30,726 Other assets 34,577 35,148 ----------- ----------- $ 4,257,912 $ 4,058,126 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Regular savings $ 599,424 $ 557,896 Money market access accounts 510,216 490,575 Certificates of deposit (including certificates of $100 or more of $138,468 and $116,472, respectively) 1,463,867 1,363,095 NOW accounts 357,891 351,481 Demand deposits 416,029 434,091 ----------- ----------- Total deposits 3,347,427 3,197,138 ----------- ----------- Federal funds purchased 20,337 1,500 Securities sold under repurchase agreements 164,674 180,957 Borrowings from Federal Home Loan Bank of Boston 291,444 252,446 Other borrowings 21,265 22,029 Deferred income taxes 10,566 12,577 Other liabilities 40,044 36,554 ----------- ----------- Total liabilities 3,895,757 3,703,201 ----------- ----------- 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, 25,596,220 shares issued) 256 256 Paid-in capital 224,268 224,268 Retained earnings 143,379 134,443 Net unrealized gain on securities available for sale 807 3,763 Treasury stock at cost (440,091 shares and 524,062 shares, respectively) (6,555) (7,805) ----------- ----------- Total shareholders' equity 362,155 354,925 ----------- ----------- $ 4,257,912 $ 4,058,126 =========== ===========
See accompanying notes to Supplemental Consolidated Financial Statements. 1 3 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL 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 $ 67,930 $ 60,037 Interest on mortgage-backed investments 3,496 3,098 Interest on other investments 8,904 8,142 Dividends on equity securities 424 556 ----------- ------------ Total interest and dividend income 80,754 71,833 ----------- ------------ Interest expense: Interest on deposits 29,568 23,588 Interest on borrowed funds 6,047 7,139 ----------- ------------ Total interest expense 35,615 30,727 ----------- ------------ Net interest income 45,139 41,106 Provision for loan losses 450 1,030 ----------- ------------ Net interest income after provision for loan losses 44,689 40,076 ----------- ------------ Noninterest income: Mortgage banking services 3,364 2,218 Customer services 3,269 2,717 Trust and investment advisory services 1,644 1,349 Loan related services 442 383 Net securities gains (losses) 504 (95) Other noninterest income 246 525 ----------- ------------ 9,469 7,097 ----------- ------------ Noninterest expenses: Salaries and employee benefits 18,238 16,419 Occupancy 3,297 2,657 Data processing 2,798 2,044 Equipment 2,008 1,478 Advertising and marketing 993 1,176 Deposit and other assessments 345 1,879 Collection and carrying costs of nonperforming assets 504 814 Merger expenses 453 300 Other noninterest expenses 5,946 5,376 ----------- ------------ 34,582 32,143 ----------- ------------ Income before income tax 19,576 15,030 Applicable income tax 6,970 4,969 ----------- ------------ Net income $ 12,606 $ 10,061 =========== ============ Weighted average shares outstanding 25,128,427 24,477,164 Earnings per share $ 0.50 $ 0.41
See accompanying notes to Supplemental Consolidated Financial Statements. 2 4 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL 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 $256 $224,267 $ 99,955 $(9,079) $(10,960) $304,439 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 -- -- -- 5,313 -- 5,313 Net income -- -- 10,061 -- -- 10,061 Cash dividends $0.09 -- -- (2,424) -- -- (2,424) ---- -------- -------- -------- -------- -------- Balances at March 31, 1995 $256 $224,267 $107,430 $ (3,766) $(18,874) $309,313 ==== ======== ======== ======== ======== ======== Balances at December 31, 1995 $256 $224,268 $134,443 $ 3,763 $ (7,805) $354,925 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 -- -- -- (2,956) -- (2,956) Net income -- -- 12,606 -- -- 12,606 Cash dividends $0.14 -- -- (3,455) -- -- (3,455) ---- -------- -------- -------- -------- -------- Balances at March 31, 1996 $256 $224,268 $143,379 $ 807 $ (6,555) $362,155 ==== ======== ======== ======== ======== ========
See accompanying notes to Supplemental Consolidated Financial Statements. 3 5 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three Months Ended March 31, 1996 1995 ----------------------- Cash flows from operating activities: Net income $ 12,606 $ 10,061 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 450 1,030 Provision for depreciation 1,689 1,818 Provision for losses and writedowns (credits) of other real estate owned -0- (869) Amortization of goodwill and other intangibles 923 511 Amortization of servicing rights 944 814 Net (increase) decrease in net deferred tax assets (452) 137 Net losses realized from sales of other real estate owned 54 894 Net (gains) losses realized from sales of securities and consumer loans (504) 95 Net (gains) losses realized from sales of loans held for sale (a component of mortgage banking services) 510 (529) Proceeds from sales of loans and loans held for sale 233,363 70,955 Residential loans originated and purchased for sale (251,079) (52,544) Net decrease in interest and dividends receivable and other assets 276 2,266 Net increase (decrease) in other liabilities 3,493 (4,469) --------- -------- Net cash provided by operating activities $ 2,273 $ 30,170 --------- -------- Cash flows from investing activities: Maturities of investment securities $ -0- $ 45,362 Purchases of investment securities -0- (44,923) Proceeds from sales of securities available for sale 31,143 7,228 Proceeds from maturities and principal repayments of securities available for sale 150,528 39,058 Purchases of securities available for sale (186,647) (45,261) Net (increase) decrease in loans and leases (239,570) (14,098) Purchase of mortgage servicing rights (3,822) (273) Premiums paid on deposits purchased (18,231) -0- Net additions to premises and equipment (2,477) (1,590) Proceeds from sales of other real estate owned 545 3,541 Net decrease in repossessed assets owned 498 1,674 --------- -------- Net cash (used) by investing activities $(268,033) $ (9,282) --------- --------
4 6 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES SUPPLEMENTAL 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 $ 150,289 $ (12,966) Net increase (decrease) in securities sold under repurchase agreements (16,283) 18,627 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 (decrease) in other borrowings (765) (3,725) Sale of treasury stock 1,035 225 Purchase of treasury stock -0- (8,301) Cash dividends paid to shareholders (3,455) (2,423) --------- --------- Net cash provided (used) by financing activities $ 169,819 $ (13,563) --------- --------- Increase (decrease) in cash and cash equivalents $ (95,941) $ 7,325 Cash and cash equivalents at beginning of period 289,191 220,103 --------- --------- Cash and cash equivalents at end of period $ 193,250 $ 227,428 ========= ========= Supplemental disclosures of information: Interest paid on deposits and borrowings $ 34,002 $ 29,964 Income taxes paid 371 525 Income tax refunds 38 44 Noncash investing transactions: Loans transferred to other real estate owned 790 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 (4,588) 8,346 Deferred income taxes - liabilities (1,632) 3,033 Net unrealized gain (loss) on securities available for sale (2,956) 5,313
5 7 PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 Note 1 - Basis of Presentation The accompanying unaudited supplemental 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 April 2, 1996,the Company acquired Bank of New Hampshire Corporation. The acquisition was accounted for as a pooling of interests and accordingly, the financial information for all prior periods presented has been restated to present the combined financial condition and results of operations as if the combination had been in effect for all periods presented. The supplemental consolidated financial statements of the Company have been prepared to give retroactive effect to the acquisition of BNHC on April 2, 1996. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation; however, they will become the historical consolidated financial statements of the Company after financial statements covering the date of consummation of the business combination are issued. 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. 6 8 SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA (Dollars in Thousands, Except Per Share Data)
March 31, December 31, BALANCE SHEET DATA: 1996 1995 ---------- ------------ Total assets $4,257,912 $4,058,126 Securities available for sale 767,539 766,648 Total loans, net(1) 2,956,910 2,717,608 Goodwill and other intangibles 40,100 22,792 Deposits 3,347,427 3,197,138 Borrowings 497,720 456,932 Shareholders' equity 362,155 354,925 Nonperforming assets(2) 53,922 56,752 Allowance for loan losses 65,533 60,975 Book value per share 14.40 14.16 Tangible book value per share 12.80 13.25 Three Months Ended March 31, ------------------------- OPERATIONS DATA: 1996 1995 ------- -------- Interest and dividend income $80,754 $ 71,833 Interest expense 35,615 30,727 ------- -------- Net interest income 45,139 41,106 Provision for loan losses 450 1,030 ------- -------- Net interest income after provision for loan losses 44,689 40,076 ------- -------- Net securities gains (losses) 504 (95) Other noninterest income 8,965 7,192 Noninterest expense 34,582 32,143 ------- -------- Income before income tax expense 19,576 15,030 Income tax expense 6,970 4,969 ------- -------- Net income $12,606 $ 10,061 ======= ======== Net income per share $ 0.50 $ 0.41 Dividends per share $ 0.14 $ 0.09 Three Months Ended March 31, ----------------------------- OTHER DATA(3): 1996 1995 ------ ------ Return on average assets 1.24% 1.10% Return on average equity(4) 14.20 13.04 Average equity to average assets(4) 8.76 8.46 Interest rate spread(5) 4.19 4.35 Net interest margin(5) 4.79 4.87 Tier I leverage capital ratio at end of period 7.95 7.86 Dividend payout ratio 27.38 21.90 Nonperforming loans as a percent of total loans at end of period(2) 1.36 2.18 Nonperforming assets as a percent of total assets at end of period(2) 1.27 1.97 Allowance for loan losses as a percent of nonperforming loans at end of period 159.96 103.95 Full service banking offices 111 97
7 9 - ---------------- (1) Does not include loans held for sale. (2) Nonperforming assets consist of nonperforming loans, other real estate owned, in-substance foreclosures and repossessions, net of related reserves where appropriate. Nonperforming loans consist of non-accrual loans, accruing loans 90 days or more overdue and troubled debt restructurings. (3) With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods and are annualized where appropriate. (4) Average equity excludes the effect of unrealized gains or losses on securities available for sale. (5) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities (which do not include non-interest bearing demand accounts), and net interest margin represents net interest income as a percent of average interest-earning assets, in each case calculated on a fully-taxable equivalent basis. 8 10 Average Balance Analysis. 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. For purposes of the table, (i) income from interest-earning assets and net interest income is presented on a fully-taxable equivalent basis primarily by adjusting income and yields earned on tax-exempt interest received on loans to qualifying borrowers and on certain of the Company's equity securities to make them equivalent to income and yields earned on fully-taxable investments, assuming a federal income tax rate of 35%, and (ii) nonaccrual loans have been included in the appropriate average balance loan category, but unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.
Three Months Ended March 31, ------------------------------------------------------------ 1996 1995 ---------------------------- ----------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance(1) Interest Rate(1) ---------- -------- ------ ---------- -------- ------- (Dollars in Thousands) Loans and leases(2) $2,959,218 $68,068 9.25% $2,651,299 $60,211 9.21% Investment securities(3) 752,285 11,646 6.23 722,676 10,848 6.09 Federal funds sold 93,232 1,235 5.33 69,905 1,014 5.88 ---------- ------- ---------- ------- Total earning assets 3,804,735 80,949 8.56 3,443,880 72,073 8.49 Nonearning assets 272,408 ------- 253,423 ------- ---------- ---------- Total assets $4,077,143 $3,697,303 ========== ========== Interest-bearing deposits: Regular savings $ 575,680 3,979 2.78 $ 623,919 4,411 2.87 NOW accounts 343,631 1,106 1.29 312,565 1,160 1.51 Money market access accounts 504,353 4,639 3.70 343,577 2,757 3.25 Certificates of deposit 1,406,904 19,843 5.67 1,226,949 15,260 5.04 ---------- ------- ---------- ------- Total interest-bearing deposits 2,830,568 29,567 4.20 2,507,010 23,588 3.82 Borrowed funds 450,311 6,048 5.40 501,456 7,139 5.77 ---------- ------- ---------- ------- Total interest-bearing liabilities 3,280,879 35,615 4.37 3,008,466 30,727 4.14 ---------- ------- ---------- ------- Demand deposit accounts 395,453 330,393 Other liabilities 43,838 45,550 Shareholders' equity(3) 356,973 312,894 ---------- ---------- Total liabilities and shareholders' equity $4,077,143 $3,697,303 ========== ========== Net earning assets $ 523,856 $ 435,414 ========== ========== Net interest income (fully-taxable equivalent) 45,334 41,346 Less: fully-taxable equivalent adjustments (195) (240) ------- ------- Net interest income $45,139 $41,106 ======= ======= Net interest rate spread (fully-taxable equivalent) 4.19 4.35 Net interest margin (fully-taxable equivalent) 4.79 4.87
- -------------------- (1)Annualized. (2)Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans. (3)Excludes effect of unrealized gains or losses on securities available for sale. 9 11 Rate/Volume Analysis. The following table presents certain information on a fully-taxable equivalent basis regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by old volume), (2) changes in volume (change in volume multiplied by old rate) and (3) changes in rate/volume (change in rate multiplied by change in volume).
Three Months Ended March 31, 1996 vs. Three Months Ended March 31, 1995 -------------------------------------------- Increase (Decrease) Due to ------------------------------ Rate/ Rate Volume Volume Total ------- ------- ----- ------- (In Thousands) Interest-earnings assets: Loans and leases:(1) $ 272 $ 7,051 $ 534 $ 7,857 Investment securities 249 448 101 798 Federal funds sold (96) 341 (24) 221 ------- ------- ----- ------- Total 425 7,840 611 8,876 ------- ------- ----- ------- Interest-bearing liabilities: Deposits: Regular savings (135) (344) 47 (432) NOW accounts (164) 116 (7) (54) Money market access accounts 380 1,301 201 1,882 Certificates of deposit 1,918 2,257 409 4,583 ------- ------- ----- ------- Total deposits 1,999 3,330 650 5,979 Borrowed funds (464) (734) 107 (1,091) ------- ------- ----- ------- Total 1,535 2,596 757 4,888 ------- ------- ----- ------- Net interest income (fully taxable equivalent) $(1,110) $ 5,244 $(146) $ 3,988 ======= ======= ===== =======
Mortgage Banking Services Income. The following table sets forth certain information relating to the Company's mortgage banking activities during the periods indicated.
Three Months Ended March 31, ---------------------------- 1996 1995 ---------- ---------- (In Thousands) Residential mortgages serviced for investors $2,701,552 $2,348,838 ========== ========== Residential mortgage sales income $ 1,532 $ 442 Residential mortgage service income 1,832 1,776 ---------- ---------- Total mortgage banking services income $ 3,364 $ 2,218 ========== ==========
10 12 Investment Securities. The following table sets forth the Company's investment securities available for sale at the dates indicated.
March 31, December 31, 1996 1995 --------- ------------ (In Thousands) Bonds and other debt securities: U.S. Government and federal agencies $489,203 $526,576 Tax-exempt bonds and notes 19,254 10,837 Other bonds and notes 7,873 5,694 Mortgage-backed securities 223,185 195,823 --------- --------- Total debt securities 739,515 738,930 --------- --------- Equities: FHLB stock 23,962 23,793 Other securities 4,062 3,925 --------- --------- Total equity securities 28,024 27,718 --------- --------- Total investment securities $767,539 $766,648 ========= =========
Loan Portfolio Composition. The following table sets forth information concerning the Company's loan portfolio by type of loan at the dates indicated.
March 31, December 31, 1996 1995 --------------------- ---------------------- % of % of Amount Loans Amount Loans ---------- ------ ---------- ------ (Dollars in Thousands) Residential real estate loans $ 984,722 32.58% $ 798,076 28.72% Commercial real estate loans 836,935 27.69 797,686 28.71 Commercial business loans and leases 410,476 13.58 408,592 14.71 Consumer loans and leases 790,310 26.15 774,229 27.86 ---------- ------ ---------- ------ Total loans receivable 3,022,443 100.00% 2,778,583 100.00% Allowance for loan losses 65,533 ====== 60,975 ====== ---------- ---------- Net loans receivable $2,956,910 $2,717,608 ========== ==========
11 13 Nonperforming Loans and Other Real Estate Owned. The following table sets forth information regarding nonperforming loans and leases and other nonperforming assets held by the Company at the dates indicated.
March 31, December 31, 1996 1995 --------- ------------ (Dollars in Thousands) Residential real estate loans: Non-accrual loans $ 6,089 $ 5,713 Accruing loans 90 days overdue 3,800 3,728 ------- ------- Total 9,889 9,441 ------- ------- Commercial real estate loans: Non-accrual loans 16,917 17,029 Accruing loans 90 days overdue 128 -- Troubled debt restructurings 1,793 3,186 ------- ------- Total 18,838 20,215 ------- ------- Commercial business loans and leases: Non-accrual loans 5,631 6,735 Accruing loans 90 days overdue 111 25 Troubled debt restructurings 1,349 1,859 ------- ------- Total 7,091 8,619 ------- ------- Consumer loans: Non-accrual loans 4,099 3,586 Accruing loans 90 days overdue 1,051 659 ------- ------- Total 5,150 4,245 ------- ------- Total nonperforming loans: Non-accrual loans 32,736 33,063 Accruing loans 90 days overdue 5,090 4,412 Troubled debt restructurings 3,142 5,045 ------- ------- Total 40,968 42,520 ------- ------- Other nonperforming assets: Other real estate owned, net of related reserves 11,089 12,679 Repossessions, net of related reserves 1,865 1,553 ------- ------- Total 12,954 14,232 ------- ------- Total nonperforming assets $53,922 $56,752 ======= ======= Total nonperforming loans as a percentage of total loans 1.36% 1.53% Total nonperforming assets as a percentage of total assets 1.27 1.40 Total nonperforming assets as a percentage of total loans and total other nonperforming assets 1.78 2.03
12 14 Activity in the Allowance for Loan and Lease Losses. The following table sets forth information concerning the activity in the Company's allowance for loan and lease losses during the periods indicated.
Three Months Ended March 31, ---------------------------- 1996 1995 ----------- ----------- (Dollars in Thousands) Average loans and leases outstanding $2,959,218 $2,651,299 ========== ========== Allowance at the beginning of period $ 60,975 $ 63,675 Additions due to acquisitions and purchases 4,310 -- ---------- ---------- Charges-offs: Residential real estate mortgages 434 819 Commercial real estate mortgages 888 4,724 Commercial business loans and leases 855 401 Consumer loans and leases 741 613 ---------- ---------- Total loans charged off 2,918 6,557 ---------- ---------- Recoveries: Residential real estate mortgages 62 69 Commercial real estate mortgages 2,060 501 Commercial business loans and leases 420 649 Consumer loans and leases 174 95 ---------- ---------- Total loans recovered 2,716 1,314 ---------- ---------- Net charge-offs 202 5,243 Additions charged to operating expenses 450 1,030 ---------- ---------- Allowance at end of period $ 65,533 $ 59,462 ========== ========== Ratio of net charge-offs to average loans and leases outstanding 0.03% 0.79% Ratio of allowance to end of period loans and leases 2.17 2.26 Ratio of allowance to nonperforming 159.96 103.95 loans and leases at end of period
Allocation of Allowance for Loan and Lease Losses. The following table sets forth information concerning the allocation of the Company's allowance for loan and lease losses by loan categories at the dates indicated. For information about the percent of total loans in each category to total loans, see "Loan Portfolio Composition."
March 31, December 31, 1996 1995 ----------------------- -------------------------- Allowance to Allowance to Percent of Percent of Total Total Loans Loans Amount by Category Amount by Category ------- ------------ ------- ---------------- (Dollars in Thousands) Residential real estate loans $ 8,373 0.85% $10,118 1.27% Commercial real estate loans 37,636 4.50 31,673 3.97 Commercial business loans and leases 9,532 2.32 9,491 2.32 Consumer loans and leases 9,992 1.26 9,693 1.25 ------- ---- ------- ---- $65,533 2.17 $60,975 2.19 ======= ==== ======= ====
13 15 Deposits. The following table sets forth the distribution of the Company's deposits by type of deposit at the dates indicated.
March 31, December 31, 1996 1995 ---------------------- --------------------- % of % of Amount Deposits Amount Deposits ---------- -------- ---------- -------- (Dollars in Thousands) Non-brokered deposits: Demand accounts $ 416,029 12.43% $ 434,091 13.58% NOW accounts 357,891 10.69 351,481 10.99 Savings accounts 599,424 17.91 557,896 17.45 Money market access accounts 510,216 15.24 490,575 15.34 Certificates of deposit: $100,000 or more 138,468 4.14 116,472 3.64 Other 1,325,399 39.59 1,246,623 39.00 ---------- ------ ---------- ------ 1,463,867 43.73 1,363,095 42.63 ---------- ------ ---------- ------ Total deposits $3,347,427 100.00% $3,197,138 100.00% ========== ====== ========== ======
At March 31, 1996, the Company had $138.5 million of certificates of deposit in amounts of $100,000 or more outstanding maturing as follows: $44.1 million within three months, $20.2 million over three months through six months, $22.5 million over six months through 12 months and $51.7 million thereafter. Regulatory Capital Requirements. The following table sets forth the regulatory capital ratios of the Company, Peoples Heritage Bank and Bank of New Hampshire at March 31, 1996.
March 31, 1996 ------------------------ Required Minimums Actual -------- ------ THE COMPANY: Risk-based capital ratios: Tier I 4.00% 11.91% Total 8.00 13.81 Tier I leverage capital ratio(1) 4.00 7.95 PEOPLES HERITAGE BANK: Risk-based capital ratios: Tier I 4.00 10.89 Total 8.00 12.16 Tier I leverage capital ratio(1) 4.00 7.58 BANK OF NEW HAMPSHIRE: Risk-based capital ratios: Tier I 4.00 12.14 Total 8.00 13.40 Tier I leverage capital ratio(1) 4.00 7.34
- ----------------- (1) Bank holding companies and banks, including the Company and its banking subsidiaries, may be required to maintain a Tier I leverage capital ratio of 4.0% to 5.0% or more. The regulatory agencies have not advised the Company or its banking subsidiaries of a specific Tier I leverage capital ratio requirement to date. 14 -----END PRIVACY-ENHANCED MESSAGE-----