-----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, JoEZwq96u0Mdqy255/s4024m1hh93aa8V+rFIEE9fNw8PkBWSwj7kzmsXZHChz2A qqmHSfViAYHrx3WZMCAJ2Q== 0000950135-01-001025.txt : 20010416 0000950135-01-001025.hdr.sgml : 20010416 ACCESSION NUMBER: 0000950135-01-001025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKNORTH GROUP INC/ME CENTRAL INDEX KEY: 0000829750 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 010437984 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-16947 FILM NUMBER: 1584202 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 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLES HERITAGE FINANCIAL GROUP INC DATE OF NAME CHANGE: 19920703 10-K 1 b38140bge10-k.txt BANKNORTH GROUP, INC 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________ to ________. Commission File Number: 0-16947 BANKNORTH GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Maine 01-0437984 -------------------------------- ----------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) P.O. Box 9540 Two Portland Square Portland, Maine 04112-9540 - - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (207) 761-8500 Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE ---------------------------- Title of Class PREFERRED STOCK PURCHASE RIGHTS ------------------------------- Title of Class Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 14, 2001, the aggregate market value of the 140,788,877 shares of Common Stock of the Registrant issued and outstanding on such date, excluding the 1,910,954 shares held by all directors and executive officers of the Registrant as a group (which does not include unexercised stock options), was $2.71 billion. This figure is based on the last sale price of $19.50 per share of the Registrant's Common Stock on March 14, 2001, as reported in THE WALL STREET JOURNAL on March 15, 2001. Although directors of the Registrant and executive officers of the Registrant and its subsidiaries were assumed to be "affiliates" of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status. Number of shares of Common Stock outstanding as of March 14, 2001: 140,788,877 DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) Portions of the Annual Report to Stockholders for the year ended December 31, 2000 are incorporated by reference into Part II, Items 5-8 and Part IV, Item 14 of this Form 10-K. (2) Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 2001 are incorporated by reference into Part III, Items 10-13 of this Form 10-K. ================================================================================ 2 BANKNORTH GROUP, INC. 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE ---- Item 1. BUSINESS..................................................... 1 General...................................................... 1 Business of the Company...................................... 2 Acquisitions................................................. 3 Subsidiaries................................................. 3 Competition.................................................. 4 Employees.................................................... 5 Regulation of the Company.................................... 5 Regulation of Banking Subsidiaries........................... 8 Taxation..................................................... 11 Item 2. PROPERTIES................................................... 11 Item 3. LEGAL PROCEEDINGS............................................ 12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 12 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................ 12 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA......................... 12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 12 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................ 12 Item 8. FINANCIAL STATEMENTS......................................... 12 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................ 13 (i) 3 BANKNORTH GROUP, INC. 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS (CONTINUED) PART III PAGE ---- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT............... 13 Item 11. EXECUTIVE COMPENSATION....................................... 13 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 13 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 13 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................................ 13 SIGNATURES................................................... 20 (ii) 4 FORWARD-LOOKING STATEMENTS IN THE NORMAL COURSE OF BUSINESS, THE COMPANY, IN AN EFFORT TO HELP KEEP ITS SHAREHOLDERS AND THE PUBLIC INFORMED ABOUT THE COMPANY'S OPERATIONS, MAY FROM TIME TO TIME ISSUE OR MAKE CERTAIN STATEMENTS, EITHER IN WRITING OR ORALLY, THAT ARE OR CONTAIN FORWARD-LOOKING STATEMENTS, AS THAT TERM IS DEFINED IN THE U.S. FEDERAL SECURITIES LAWS. GENERALLY, THESE STATEMENTS RELATE TO BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS FROM ACQUISITIONS MADE BY OR TO BE MADE BY THE COMPANY, PROJECTIONS INVOLVING ANTICIPATED REVENUES, EARNINGS, PROFITABILITY OR OTHER ASPECTS OF OPERATING RESULTS OR OTHER FUTURE DEVELOPMENTS IN THE AFFAIRS OF THE COMPANY OR THE INDUSTRY IN WHICH IT CONDUCTS BUSINESS. THESE FORWARD-LOOKING STATEMENTS, WHICH ARE BASED ON VARIOUS ASSUMPTIONS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL), MAY BE IDENTIFIED BY REFERENCE TO A FUTURE PERIOD OR PERIODS OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "ANTICIPATE," "BELIEVE," "COMMITMENT," CONSIDER," "CONTINUE," "COULD," "ENCOURAGE," "ESTIMATE," "EXPECT," " INTEND," "IN THE EVENT OF," "MAY," "PLAN," "PRESENT," "PROPOSE," "PROSPECT," "UPDATE," "WHETHER," "WILL," "WOULD," FUTURE OR CONDITIONAL VERB TENSES, SIMILAR TERMS, VARIATIONS ON SUCH TERMS OR NEGATIVES OF SUCH TERMS. ALTHOUGH THE COMPANY BELIEVES THAT THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCE THAT THOSE RESULTS OR EXPECTATIONS WILL BE ATTAINED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH STATEMENTS DUE TO RISKS, UNCERTAINTIES AND CHANGES WITH RESPECT TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING: - COMPETITIVE PRESSURE AMONG DEPOSITORY AND OTHER FINANCIAL INSTITUTIONS MAY INCREASE SIGNIFICANTLY; - CHANGES IN THE INTEREST RATE ENVIRONMENT MAY REDUCE INTEREST MARGINS AND NET INTEREST INCOME, AS WELL AS ADVERSELY AFFECT LOAN ORIGINATIONS AND SALES ACTIVITIES AND THE VALUE OF CERTAIN ASSETS, SUCH AS INVESTMENT SECURITIES AND MORTGAGE SERVICING RIGHTS; - GENERAL ECONOMIC OR BUSINESS CONDITIONS, EITHER NATIONALLY OR IN THE STATES OR REGIONS IN WHICH THE COMPANY DOES BUSINESS, MAY BE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY OR A REDUCED DEMAND FOR CREDIT; - LEGISLATION OR CHANGES IN REGULATORY REQUIREMENTS, INCLUDING WITHOUT LIMITATION CAPITAL REQUIREMENTS, OR ACCOUNTING STANDARDS MAY ADVERSELY AFFECT THE COMPANY AND THE BUSINESSES IN WHICH IT IS ENGAGED; - ADVERSE CHANGES MAY OCCUR IN THE SECURITIES MARKETS; - COMPETITORS OF THE COMPANY MAY HAVE GREATER FINANCIAL RESOURCES AND DEVELOP PRODUCTS AND TECHNOLOGY THAT ENABLE THOSE COMPETITORS TO COMPETE MORE SUCCESSFULLY THAN THE COMPANY; - THE GROWTH AND PROFITABILITY OF THE COMPANY'S NONINTEREST INCOME MAY BE LESS THAN EXPECTED; (iii) 5 - COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF THE COMPANY AND ITS MERGER PARTNERS MAY BE GREATER THAN EXPECTED; - ESTIMATED COST SAVINGS AND REVENUE ENHANCEMENTS FROM MERGERS INVOLVING THE COMPANY MAY NOT BE FULLY REALIZED WITHIN THE EXPECTED TIME FRAMES; AND - DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING MERGERS INVOLVING THE COMPANY MAY BE GREATER THAN EXPECTED. THE COMPANY CAUTIONS THAT THE FOREGOING LIST OF FACTORS IS NOT EXCLUSIVE, AND NEITHER SUCH LIST NOR ANY SUCH FORWARD-LOOKING STATEMENT TAKES INTO ACCOUNT THE IMPACT THAT ANY FUTURE ACQUISITIONS MAY HAVE ON THE COMPANY AND ANY SUCH FORWARD-LOOKING STATEMENT. IN ADDITION, THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS. (iv) 6 PART I. ITEM 1. BUSINESS GENERAL Banknorth Group, Inc. (the "Company") is a multi-bank and financial services holding company which is incorporated under the laws of the State of Maine. The Company conducts business from its executive offices in Portland, Maine and, as of December 31, 2000, 285 offices located in Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. At December 31, 2000, the Company had consolidated assets of $18.2 billion and consolidated shareholders' equity of $1.3 billion. Based on total assets at December 31, 2000, the Company is the largest bank holding company headquartered in northern New England and is one of the country's 50 largest commercial banking companies. The Company offers a broad range of commercial and consumer banking services and products and trust, investment advisory and insurance brokerage services through eight wholly-owned banking subsidiaries, all of which are national banks. These subsidiaries are noted below. - Peoples Heritage Bank, NA ("PHB") operates offices throughout Maine and, through subsidiaries, engages in financial planning, insurance brokerage and equipment leasing activities. At December 31, 2000, PHB had consolidated assets of $4.4 billion and consolidated shareholder's equity of $327 million. - Bank of New Hampshire, NA ("BNH") operates offices throughout New Hampshire. At December 31, 2000, BNH had consolidated assets of $4.6 billion and consolidated shareholder's equity of $303 million. - First Massachusetts Bank, NA ("FMB") operates offices in central and western Massachusetts, southern New Hampshire and, through its GBT division, central Connecticut. At December 31, 2000, FMB had consolidated assets of $6.2 billion and consolidated shareholder's equity of $438 million. - The Howard Bank, NA, Franklin Lamoille Bank, NA and First Vermont Bank, NA (collectively the "Vermont Banks") collectively operate offices throughout Vermont. At December 31, 2000, in the aggregate the Vermont Banks had consolidated assets of $2.1 billion and consolidated shareholder's equity of $160 million. - Evergreen Bank, NA ("EB") operates offices in upstate New York. At December 31, 2000, EB had consolidated assets of $1.3 billion and consolidated shareholder's equity of $77 million. - The Stratevest Group, NA ("Stratevest") is a non-depository trust company which provides a variety of personal and corporate fiduciary services. Stratevest is 7 headquartered in Burlington, Vermont and conducts business in each of the states in which the Company's depository subsidiaries have offices. At December 31, 2000, Stratevest had approximately $8.8 billion of assets under management. Unless the context otherwise requires, references herein to the Company include its direct and indirect subsidiaries. BUSINESS OF THE COMPANY The principal business of the Company consists of attracting deposits from the general public through its offices and using such deposits to originate loans secured by first mortgage liens on existing single-family (one-to-four units) residential real estate and existing multi-family (over four units) residential and commercial real estate, construction loans, commercial business loans and leases and consumer loans and leases. The Company also provides various mortgage banking services and, as discussed below, various trust and investment advisory services, as well as engages in equipment leasing, financial planning, securities brokerage and insurance brokerage activities. The Company also invests in investment securities and other permitted investments. The Company derives its income principally from interest charged on loans and leases and, to a lesser extent, from interest and dividends earned on investments, fees received in connection with the sale and servicing of loans, deposit services, trust services, investment advisory services and other services, insurance commissions and gains on the sale of assets. The Company's principal expenses are interest expense on deposits and borrowings, operating expenses, provisions for loan and lease losses and income tax expense. Funds for activities are provided principally by deposits, advances from the Federal Home Loan Bank ("FHLB"), securities sold under repurchase agreements, amortization and prepayments of outstanding loans, maturities and sales of investments and other sources. The Company, through Stratevest and the Company's full-service banking subsidiaries, provides trust services to its customers. The Company offers employee benefit trust services in which it acts as trustee, custodian, administrator and/or investment advisor, among other things, for employee benefit plans for corporate, self-employed, municipal and not-for-profit employers throughout the Company's market areas. In addition, the Company's serves as trustee of both living trust and trusts under wills and as such holds, accounts for and manages financial assets, real estate and special assets. Custody, estate settlement and fiduciary tax services, among others, also are offered by the Company. Assets held in a fiduciary capacity by Stratevest and the trust departments of its banking subsidiaries are not included in the Company's consolidated balance sheet for financial reporting purposes. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA"), and as such is subject to regulation and examination by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). The Company and 2 8 its subsidiaries are subject to regulation and supervision by various U.S. federal and state banking and other regulatory authorities. ACQUISITIONS Acquisitions have been, and are expected to continue to be, an important part of the expansion of the Company's business. Since January 1, 1994, the Company has completed five acquisitions which have been accounted for under the pooling-of-interests method and ten acquisitions which have been accounted for under the purchase method. The Company continually evaluates acquisition opportunities and frequently conducts due diligence in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values and, therefore, some dilution of book value and net income per share of common stock of the Company may occur in connection with any future transactions. SUBSIDIARIES At December 31, 2000, the Company's only direct subsidiaries were its eight banking subsidiaries, North Group Realty, Inc., an acquired subsidiary which holds certain commercial real estate located in Burlington, Vermont, and the financing vehicles Peoples Heritage Capital Trust I and Banknorth Capital Trust I. For additional information on these trusts, see Note 12 to the Consolidated Financial Statements included in Item 8 hereof. Set forth below is a brief description of certain of the indirect non-banking subsidiaries of the Company. Investments in Real Estate. The Company's banking subsidiaries hold certain investments in real estate. Exclusive of other real estate owned and investments in office properties and facilities, which are discussed under Item 2 hereof, at December 31, 2000 the Company's banking subsidiaries' investments in real estate consisted entirely of interests in limited partnerships formed for the purpose of investing in real estate for lower-income families, elderly housing projects and/or the preservation or restoration of historically or architecturally significant buildings or structures. At December 31, 2000, the Company's banking subsidiaries investments in these limited partnerships had a carrying value of $44.8 million. Equipment Leasing Activities. PHB conducts equipment leasing activities through Banknorth Leasing Corp. ("BLC"). BLC is headquartered in Portland, Maine and engages in direct equipment leasing activities, primarily involving office equipment, in the States of Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. At December 31, 2000, BLC had $63.9 million of leases outstanding. 3 9 Financial Planning and Securities Brokerage Activities. PHB conducts investment planning and securities brokerage activities through Heritage Investment Planning Group, Inc. ("HIPG"). PHB also offers through HIPG investments in mutual funds and annuities throughout the Company's market areas. HIPG offers its services to individuals and small businesses from its office located in Portland, Maine and from certain of the Company's other locations in Maine, Massachusetts, New Hampshire, Vermont, New York and Connecticut. Sales professionals at HIPG are registered representatives of Compulife Investor Services, Inc., a registered broker/dealer, and all securities brokerage activities are conducted through Compulife Investor Services, Inc. The sales professionals receive referrals from the Company's branch offices throughout its market areas. In addition to the foregoing, HIPG conducts insurance sales activities through its wholly-owned insurance agency, First Massachusetts Insurance Agency, Inc., and certain other agencies in Maine, Massachusetts, New Hampshire, Connecticut, Vermont and New York. HIPG either directly or through other agencies offers life insurance and long-term care insurance products in conjunction with the sales of investments and annuities. Insurance Brokerage Activities. PHB conducts insurance brokerage activities through Morse, Payson & Noyes ("MPN"), which is the largest insurance brokerage firm in Maine. MPN also conducts business in (i) New Hampshire under the trade name A.D. Davis, Incorporated, (ii) Massachusetts through Catalano Insurance Agency ("Catalano"), a wholly-owned subsidiary of MPN, and the Palmer Goodell Division of Catalano, and (iii) Connecticut through Arthur A. Watson & Co., Inc., a wholly-owned subsidiary of MPN. COMPETITION The Company and its banking subsidiaries are subject to vigorous competition in all aspects and areas of their business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. The Company and its banking subsidiaries also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services than that of the Company and its banking subsidiaries. The Company and its banking subsidiaries generally have been able to compete effectively with other financial institutions by emphasizing customer service, including local decision-making, by establishing long-term customer relationships and building customer loyalty and by providing products and services designed to address the specific needs of our customers. No assurance can be given, however, that the Company and its banking subsidiaries will continue to be able to compete effectively with other financial institutions in the future. 4 10 The financial services industry is likely to become even more competitive as further technological advances enable more companies to provide financial services. These technical advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. EMPLOYEES The Company had approximately 5,000 full-time equivalent employees as of December 31, 2000. None of these employees is represented by a collective bargaining agent, and the Company believes that it enjoys good relations with its personnel. REGULATION OF THE COMPANY THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE COMPANY. THE REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS AND THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE PROTECTION OF SECURITY HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES. General. The Company, as a bank holding company, is subject to regulation and supervision by the Federal Reserve Board. Under the BHCA, a bank holding company is required to file annually with the Federal Reserve Board a report of its operations and, with its subsidiaries, is subject to examination by the Federal Reserve Board. Activities and Other Limitations. The BHCA generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, without prior approval of the Federal Reserve Board. The Federal Reserve Board generally may approve an application by a bank holding company that is adequately capitalized and adequately managed to acquire control of, or to acquire all or substantially all of the assets of, a bank located in a state other than the home state of such bank holding company, without regard to whether such transaction is prohibited under the law of any state, provided, however, that the Federal Reserve Board may not approve any such application that would have the effect of permitting an out-of-state bank holding company to acquire a bank in a host state that has not been in existence for any minimum period of time, not to exceed five years, specified in the statutory law of the host state. 5 11 The BHCA also generally prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve Board had determined, by regulation or by order, to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto as of November 11, 2000, the day before the date of enactment of the Gramm-Leach Bliley Act, discussed below. In making such determinations, the Federal Reserve Board is required to weigh the expected benefit to the public, such as greater convenience, increased competition or gains in efficiency, against the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. Capital Requirements. The Federal Reserve Board has issued risk-based and leverage capital guidelines applicable to bank holding companies. In addition, the Federal Reserve Board may from time to time require that a bank holding company maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve Board's risk-based guidelines define a three-tier capital framework. Tier 1 capital consists of common and qualifying preferred shareholders' equity, less certain intangibles and other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, subordinated and other qualifying debt, and the allowance for credit losses up to 1.25 percent of risk-weighted assets. Tier 3 capital includes subordinated debt that is unsecured, fully paid, has an original maturity of at least two years, is not redeemable before maturity without prior approval by the Federal Reserve Board and includes a lock-in clause precluding payment of either interest or principal if the payment would cause the issuing entity's risk-based capital ratio to fall or remain below the required minimum. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents qualifying total capital, at least 50 percent of which must consist of Tier 1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The minimum Tier 1 capital ratio is 4 percent and the minimum total capital ratio is 8 percent. The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. Although the stated minimum ratio is 3 percent, most banking organizations are required to maintain ratios of at least 100 to 200 basis points above 3 percent. At December 31, 2000, the Company's capital ratios substantially exceeded applicable requirements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital" included in Item 7 hereof and Note 13 to the Consolidated Financial Statements included in Item 8 hereof. Affiliated Institutions. Under Federal Reserve Board policy, the Company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each subsidiary bank in circumstances when it might not do so absent such policy. The Federal Reserve 6 12 Board takes the position that in implementing this policy it may require bank holding companies to provide such support when the holding company otherwise would not consider itself able to do so. A bank holding company is a legal entity separate and distinct from its subsidiary bank or banks. Normally, the major source of a holding company's revenue is dividends a holding company receives from its subsidiary banks. The right of a bank holding company to participate as a stockholder in any distribution of assets of its subsidiary banks upon their liquidation or reorganization or otherwise is subject to the prior claims of creditors of such subsidiary banks. The subsidiary banks are subject to claims by creditors for long-term and short-term debt obligations, including substantial obligations for federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, in the event of a loss suffered by the Federal Deposit Insurance Corporation ("FDIC") in connection with a banking subsidiary of a bank holding company (whether due to a default or the provision of FDIC assistance), other banking subsidiaries of the holding company could be assessed for such loss. Federal laws limit the transfer of funds by a subsidiary bank to its holding company in the form of loans or extensions of credit, investments or purchases of assets. Transfers of this kind are limited to 10% of a bank's capital and surplus with respect to each affiliate and to 20% in the aggregate, and are also subject to certain collateral requirements. These transactions, as well as other transactions between a subsidiary bank and its holding company, also must be on terms substantially the same as, or at least as favorable as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms or under circumstances, including credit standards, that would be offered to, or would apply to, non-affiliated companies. Financial Modernization. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act, which permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is "well capitalized" and "well managed," as defined, and has at least a satisfactory rating under the Community Reinvestment Act by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Gramm-Leach-Bliley Act defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through 7 13 a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better. As of December 31, 2000, the Company had not elected to become a financial holding company. State Regulation. The Company is registered as a Maine financial institution holding company under Maine law and as such is subject to regulation and examination by the Superintendent of Banking of the State of Maine. The Company also is subject to varying degrees of regulation under the laws of New Hampshire, Massachusetts, Vermont, New York and Connecticut as a result of its ownership of banks which are located in these states. REGULATION OF BANKING SUBSIDIARIES General. As national banks each of the Company's banking subsidiaries is subject to regulation and examination by the Office of the Comptroller of the Currency ("OCC"). Each of the Company's banking subsidiaries also is subject to regulation and examination by the FDIC, which insures the deposits of each of the Company's deposit-taking banking subsidiaries to the maximum extent permitted by law, and certain requirements established by the Federal Reserve Board. The federal laws and regulations which are applicable to national banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for loans. Capital Requirements. Each of the Company's banking subsidiaries is subject to regulatory capital requirements of the OCC which are substantially comparable to the regulatory capital requirements of the Federal Reserve Board applicable to bank holding companies such as the Company, as discussed above. At December 31, 2000, the regulatory capital of each of the Company's banking subsidiaries substantially exceeded applicable requirements. See Note 13 to the Consolidated Financial Statements included in Item 8 hereof. Prompt Corrective Action. Section 38 of the Federal Deposit Insurance Act ("FDIA") provides the federal banking regulators with broad power to take "prompt corrective action" to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Under regulations adopted by the federal banking regulators, an institution shall be deemed to be (i) "well capitalized" if it has total risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital 8 14 ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. The regulations also provide that a federal banking regulator may, after notice and an opportunity for a hearing, reclassify a "well capitalized" institution as "adequately capitalized" and may require an "adequately capitalized" institution or an "undercapitalized" institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. The federal banking regulator may not, however, reclassify a "significantly undercapitalized" institution as "critically undercapitalized." An institution generally must file a written capital restoration plan which meets specified requirements, as well as a performance guaranty by each company that controls the institution, with an appropriate federal banking regulator within 45 days of the date that the institution receives notice or is deemed to have notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Immediately upon becoming undercapitalized, an institution becomes subject to statutory provisions which, among other things, set forth various mandatory and discretionary restrictions on the operations of such an institution. At December 31, 2000, each of the Company's full-service banking subsidiaries had capital levels which qualified it as a "well-capitalized" institution under applicable laws and regulations. FDIC Insurance Premiums. Each of the Company's banking subsidiaries is a member of the Bank Insurance Fund ("BIF") administered by the FDIC, although certain deposits of certain of these entities acquired in acquisitions are insured by the Savings Association Insurance Fund ("SAIF") administered by the FDIC. As an FDIC-insured institution, each of the Company's banking subsidiaries is required to pay deposit insurance premiums to the FDIC. Effective January 1, 1997, the assessment schedule for both BIF and SAIF ranges from 0 basis points (subject to a $2,000 annual minimum) to 27 basis points. In addition, both BIF-insured institutions and SAIF-insured institutions are assessed amounts in order for a federally-chartered Finance Corporation to make payments on it bonds. Brokered Deposits. The FDIA restricts the use of brokered deposits by certain depository institutions. Under the FDIA and applicable regulations, (i) a "well capitalized insured depository institution" may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) 9 15 an "adequately capitalized insured depository institution" may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the FDIC and (iii) an "undercapitalized insured depository institution" may not (x) accept, renew or roll over any brokered deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution's normal market area or in the market area in which such deposits are being solicited. The term "undercapitalized insured depository institution" is defined to mean any insured depository institution that fails to meet the minimum regulatory capital requirement prescribed by its appropriate federal banking agency. The FDIC may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. The Company's banking subsidiaries had $169 million of brokered deposits outstanding at December 31, 2000. Community Investment and Consumer Protection Laws. In connection with its lending activities, each of the Company's banking subsidiaries is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the federal Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and Community Reinvestment Act ("CRA"). The CRA requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a "Community Reinvestment Act Statement" pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator must conduct regular CRA examinations of insured financial institutions and assign to them a CRA rating of "outstanding," "satisfactory," "needs improvement" or "unsatisfactory." In 2000, the CRA rating of the Company's banking subsidiaries was either "outstanding" or "satisfactory." Limitations on Dividends. The Company is a legal entity separate and distinct from its banking and other subsidiaries. The Company's principal source of revenue consists of dividends from its banking subsidiaries. The payment of dividends by the Company's banking subsidiaries is subject to various regulatory requirements. Miscellaneous. The Company's banking subsidiaries are subject to certain restrictions on loans to the Company or its non-bank subsidiaries, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of credit on behalf of the Company or its non-bank subsidiaries. The Company's banking subsidiaries also are subject to certain restrictions on most types of transactions with the Company or its non-bank subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. 10 16 Regulatory Enforcement Authority. The enforcement powers available to federal banking regulators is substantial and includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. TAXATION The Company and its banking subsidiaries are subject to those rules of federal income taxation generally applicable to corporations under the Code. The Company and its banking subsidiaries, as members of an affiliated group of corporations within the meaning of Section 1504 of the Code, file a consolidated federal income tax return, which has the effect of eliminating or deferring the tax consequences of inter-company distributions, including dividends, in the computation of consolidated taxable income. The Company also is subject to various forms of state taxation under the laws of Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut as a result of its ownership of banks located in these states. For additional information regarding the business of the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 hereof. ITEM 2. PROPERTIES At December 31, 2000, the Company conducted its business from its executive offices at Two Portland Square, Portland, Maine and 285 offices located in Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. For information regarding the Company's premises and equipment and its lease obligations, see Notes 6 and 14 respectively, to the Consolidated Financial Statements included in Item 8 hereof. The following table sets forth certain information with respect to the offices of the Company as of December 31, 2000. Number of State Banking Offices Deposits ----- --------------- -------- (Dollars in Thousands) Maine 61 $ 2,779,434 New Hampshire 80 3,464,010 Massachusetts 74 3,051,450 Vermont 37 1,569,719 New York 27 987,744 Connecticut 6 254,899 --- ----------- Total 285 $12,107,256 === =========== 11 17 ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine legal proceedings occurring in the ordinary course of business which in the aggregate are believed by management to be immaterial to the financial condition and results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information contained under the section captioned "Common Stock Prices" on the inside back cover of the Company's Annual Report to Shareholders for the year ended December 31, 2000 (the "Annual Report") is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information contained in the table captioned "Selected Consolidated Financial Highlights" on page 17 of the Company's Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 through 33 of the Company's Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset Liability Management" on pages 31 and 32 of the Company's Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required are contained on pages 34 through 60 of the Company's Annual Report and are incorporated herein by reference. 12 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to "Election of Directors" on pages 2 through 5 and "Executive Officers who are not Directors" on pages 8 through 10 of the definitive Proxy Statement of the Company, dated March 21, 2001 (the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to "Compensation of Executive Officers and Transactions with Management" on pages 14 through 18 of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to "Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management" on pages 11 and 12 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to "Certain Transactions" on page 22 of the Proxy Statement. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following financial statements are incorporated by reference from Item 8 hereof and the Annual Report to Shareholders included herein as Exhibit 13: Consolidated balance sheets at December 31, 2000 and 1999 Consolidated statements of income for each of the years in the three-year period ended December 31, 2000 Consolidated statements of changes in shareholders' equity for each of the years in the three-year period ended December 31, 2000 13 19 Consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2000 Notes to Consolidated Financial Statements Independent Auditors' Report (a)(2) All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements and related notes thereto. (a)(3) The following exhibits are included as part of this Form 10-K. EXHIBIT NO. EXHIBIT LOCATION - - ----------- ------- -------- 3(a)(1) Amended and Restated Articles of Incorporation of the Company (1) 3(a)(2) Amendments to the Articles of Incorporation of the Company (2) 3(b) Bylaws of the Company 4(a) Specimen Common Stock certificate (3) 4(b) Certificate of Trust of Peoples Heritage Capital Trust I (4) 4(c) Amended and Restated Declaration of Trust relating to Peoples Heritage Capital Trust I, dated as of January 31, 1997, between the Company and the trustees named therein (4) 4(d) Form of Common Securities and form of Capital Securities of Peoples Heritage Capital Trust I (included as Exhibits to the Amended and Restated Declaration included as Exhibit 4(d)) (4) 4(e) Indenture, dated as of January 31, 1997, between the Company and The Bank of New York, as trustee, relating to Junior Subordinated Deferrable Interest Debentures due 2027 of the Company (4) 4(f) Form of Junior Subordinated Deferrable Interest Debentures due 2027 of the Company (included as Exhibit A to the Indenture included as Exhibit 4(f)) (4) 14 20 EXHIBIT NO. EXHIBIT LOCATION - - ----------- ------- -------- 4(g) Series A Capital Securities Guarantee Agreement, dated as of January 31, 1997, relating to the Series A Capital Securities of Peoples Heritage Capital Trust I (5) 4(h) Common Securities Guarantee Agreement, dated as of January 31, 1997, relating to the Common Securities of Peoples Heritage Capital Trust I (5) 4(i) Certificate of Trust of Banknorth Capital Trust I (6) 4(j) Amended and Restated Declaration of Trust relating to Banknorth Capital Trust I, dated as of May 1, 1997, between Banknorth Group, Inc. and the trustees named therein (6) 4(k) Form of Capital Security of Banknorth Capital Trust I (6) 4(l) Indenture, dated as of May 1, 1997, between Banknorth Group, Inc. and First National Bank of Chicago, as trustee (6) 4(m) Form of Junior Subordinated Debenture due 2027 of Banknorth Group, Inc. (6) 4(n) Form of Guarantee Agreement (6) 10(a) Form of Severance Agreement between the Company and each of Messrs. Ryan and Verrill (7) 10(b) Severance Agreement between the Company and Thomas J. Pruitt (8) 10(c) Severance Agreement between the Company and Christopher W. Bramley 10(d) Severance Agreement between the Company and Richard J. Fitzpatrick (8) 10(e) Form of Severance Agreement between the Company and each other executive officer of the Company identified in the Proxy Statement 10(f)(1) Supplemental Retirement Agreement among the Company, its subsidiaries and William J. Ryan (9) 10(f)(2) Amendment to the Supplemental Retirement Agreement among the Company, its subsidiaries and William J. Ryan 10(g)(1) Supplemental Retirement Agreement among the Company, its subsidiaries and Peter J. Verrill (9) 15 21 EXHIBIT NO. EXHIBIT LOCATION - - ----------- ------- -------- 10(g)(2) Amendment to the Supplemental Retirement Agreement among the Company, its subsidiaries and Peter J. Verrill 10(h) Supplemental Retirement Agreement among the Company, its subsidiaries and John W. Fridlington (10) 10(i)(1) Form of Supplemental Retirement Agreement among the Company, its subsidiaries and each executive officer of the Company named in the Proxy Statement (other than Messrs. Ryan, Verrill, Fridlington and Pruitt) (11) 10(i)(2) Form of Amendment to Supplemental Retirement Agreement among the Company, its subsidiaries and each executive officer of the Company named in the Proxy Statement (other than Messrs. Ryan, Verrill and Fridlington) 10(j) Amended and Restated 2000 Deferred Compensation Plan for Non-Employee Directors and Key Employees 10(k) 1986 Stock Option and Stock Appreciation Rights Plan, as amended (1)(12) 10(l) 1986 Employee Stock Purchase Plan, as amended (1)(12) 10(m) Amended and Restated Restricted Stock Plan for Non- Employee Directors (5) 10(n)(1) Amended and Restated 1995 Stock Option Plan for Non- Employee Directors, as amended (13) 10(n)(2) Amendment to Amended and Restated 1995 Stock Option Plan for Non-employee Directors, as amended (14) 10(o)(1) Amended and Restated 401(k) Plan (5) 10(o)(2) First Amendment to Amended and Restated 401(k) Plan (5) 10(o)(3)-(8) Second through the Seventh Amendments to the Amended and Restated 401(k) Plan, respectively 10(p)(1) Profit Sharing Employee Stock Ownership Plan (15) 10(p)(2) First Amendment to Profit Sharing Employee Stock Ownership Plan (16) 10(p)(3) Second Amendment to Profit Sharing Employee Stock Ownership Plan (16) 10(p)(4) Third Amendment to Profit Sharing Employee Stock Ownership Plan 10(q) 1996 Equity Incentive Plan, as amended (17) 16 22 EXHIBIT NO. EXHIBIT LOCATION - - ----------- ------- -------- 10(r) Bank of New Hampshire Corporation Executive Excess Benefit Plan for Paul R. Shea (18) 10(s) Supplemental Executive Retirement Plan agreement between The Family Mutual Savings Bank and David D. Hindle (19) 10(t) Split Dollar Insurance Agreement between The Family Mutual Savings Bank and David D. Hindle (20) 10(u) Consulting Agreement between the Company and David D. Hindle (21) 10(v) Banknorth Group, Inc. Supplemental Employee Retirement Plan, dated January 1, 1995 (which covers only Mr. Pruitt) (22) 10(w) Supplemental Executive Retirement Plan of Evergreen Bancorp, Inc. (which covers only Director Dougan) (23) 10(x) Stockholder Rights Agreement, dated as of September 12, 1989 and amended and restated as of July 27, 1999 and as of July 25, 2000, between the Company and American Stock Transfer & Trust Company, as Rights Agent (24) 13 Annual Report to Shareholders for 2000 21 Subsidiaries of the Company 23 Consent of KPMG LLP - - -------------- (1) Incorporated by reference to the Agreement and Plan of Merger, dated as of October 27, 1997, between the Company and CFX Corporation, which is included as Exhibit A to the Prospectus/Proxy Statement included in the Form S-4 Registration Statement (No. 333-23991) filed by the Company with the Securities and Exchange Commission ("SEC") on December 31, 1997. (2) Exhibits are incorporated by reference to (i) the proxy statement filed by the Company with the SEC on March 23, 1998, (ii) the proxy statement filed by the Company with the SEC on March 22, 2000 and (iii) the Form S-4 Registration Statement (No. 333-95587) filed by the Company with the SEC on January 28, 2000, which describes an amendment which changed the name of the Company to "Banknorth Group, Inc." (3) Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 333-95587) filed by the Company with the SEC on January 28, 2000. (4) Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 333-23991) filed by Peoples Heritage Capital Trust I with the SEC on March 26, 1997. 17 23 (5) Exhibit is incorporated by reference to the Company's Form 10-K report for the year ended December 31, 1996, filed with the SEC on March 31, 1997. (6) Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 333-36257-01) filed by Banknorth Capital Trust I with the SEC on September 24, 1997. (7) Exhibit is incorporated by reference to the Company's Form 10-Q report for the three months ended March 31, 2000, filed with the SEC on May 15, 2000. (8) Exhibit is incorporated by reference to the Company's Form 8-K report, filed with the SEC on May 11, 2000. (9) Exhibit is incorporated by reference to the Company's Form 10-K report for the year ended December 31, 1990, filed with the SEC on March 23, 1991. (10) Exhibit is incorporated by reference to the Company's Form 10-K report for the year ended December 31, 1994, filed with the SEC on March 30, 1995. (11) Exhibit is incorporated by reference to the Company's Form 10-K report for the year ended December 31, 1997, filed with the SEC on March 27, 1998. (12) An amendment to the 1986 Stock Option and Stock Appreciation Rights Plan is incorporated by reference to the proxy statement filed by the Company with the SEC on March 24, 1994, and an amendment to the Employee Stock Purchase Plan is incorporated by reference to the proxy statement filed by the Company with the SEC on March 24, 1993. (13) Exhibit is incorporated by reference to the proxy statement filed by the Company with the SEC on March 21, 1997. (14) Exhibit is incorporated by reference to the proxy statement filed by the Company with the SEC on March 22, 2000. (15) Exhibit is incorporated by reference to the Form S-1 Registration Statement (No. 33-53236) filed by the Company with the SEC on November 23, 1992. (16) Exhibit is incorporated by reference to the Company's Form 10-K report for the year ended December 31, 1995, filed with the SEC on March 29, 1996. (17) Exhibit is incorporated by reference to the proxy statement filed by the Company with the SEC on March 21, 2001. (18) Exhibit is incorporated by reference to the Form 10-K report filed by Bank of New Hampshire Corporation (File No. 0-9517) for the year ended December 31, 1994. 18 24 (19) Exhibit is incorporated by reference to the Form 10-K report filed by Family Bancorp (File No. 0-17252) for the year ended December 31, 1993. (20) Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 33-18613) filed by Family Bancorp. (21) Exhibit is incorporated by reference to the Form 10-K report filed by the Company for the year ended December 31, 1999. (22) Exhibit is incorporated by reference to the Form 10-K report filed by Banknorth Group, Inc. (which merged into the Company on May 10, 2000) for the year ended December 31, 1994. (23) Exhibit is incorporated by reference to the Form 10-K report filed by Evergreen Bancorp, Inc. for the year ended December 31, 1996. (24) Exhibit is incorporated by reference to the Form 8-A/A report filed by the Company with the SEC on July 28, 2000. The Company's management contracts or compensatory plans or arrangements consist of Exhibit Nos. 10(a)-(w). (b) Not applicable. (c) See (a)(3) above for all exhibits filed herewith and the Exhibit Index. (d) There are no other financial statements and financial statement schedules which were excluded from the Annual Report to Shareholders which are required to be included herein. 19 25 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BANKNORTH GROUP, INC. By: /s/ William J. Ryan Date: March 27, 2001 ---------------------------------- William J. Ryan Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Date: - - ---------------------------------- Thomas J. Amidon, Esq. Director /s/ Gary G. Bahre Date: March 27, 2001 - - ------------------------------------- Gary G. Bahre Director /s/ P. Kevin Condron Date: March 27, 2001 - - ------------------------------------- P. Kevin Condron Director /s/ Susan C. Crampton Date: March 27, 2001 - - -------------------------------------- Susan C. Crampton, C.P.A. Director /s/George W. Dougan Date: March 27, 2001 - - ------------------------------------- George W. Dougan Director Date: - - ------------------------------------- Katherine M. Greenleaf Director /s/ Luther F. Hackett Date: March 27, 2001 - - ------------------------------------- Luther F. Hackett Director /s/ Douglas S. Hatfield Date: March 27, 2001 - - ------------------------------------- Douglas S. Hatfield Director /s/ David D. Hindle Date: March 27, 2001 - - ------------------------------------- David D. Hindle Director 20 26 /s/ Dana S. Levenson Date: March 27, 2001 - - ------------------------------------- Dana S. Levenson Director /s/ Philip A. Mason Date: March 27, 2001 - - ------------------------------------- Philip A. Mason Director /s/ John M. Naughton Date: March 27, 2001 - - ------------------------------------- John M. Naughton Director /s/ Malcolm W. Philbrook, Jr. Date: March 27, 2001 - - ------------------------------------- Malcolm W. Philbrook, Jr. Director /s/ Angelo Pizzagali Date: March 27, 2001 - - ------------------------------------- Angelo Pizzagali Director /s/ Pamela P. Plumb Date: March 27, 2001 - - ------------------------------------- Pamela P. Plumb Vice Chairman /s/ Seth A. Resnicoff Date: March 27, 2001 - - ------------------------------------- Seth A. Resnicoff Director /s/ William J. Ryan Date: March 27, 2001 - - ------------------------------------- William J. Ryan Chairman, President and Chief Executive Officer (principal executive officer) Date: - - ------------------------------------- Curtis M. Scribner Director /s/ Paul R. Shea Date: March 27, 2001 - - ------------------------------------- Paul R. Shea Director /s/ John E. Veasey Date: March 27, 2001 - - ------------------------------------- John E. Veasey Director 21 27 Date: - - ------------------------------------- Patrick E. Welch Director /s/ Peter J. Verrill Date: March 27, 2001 - - ------------------------------------- Peter J. Verrill Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial officer) /s/ Steven J. Boyle Date: March 27, 2001 - - ------------------------------------- Steven J. Boyle Executive Vice President and Controller (principal accounting officer) 22 EX-3.(B) 2 b38140bgex3-b.txt BY-LAWS OF BANKNORTH GROUP,INC 1 Exhibit 3(b) BYLAWS OF BANKNORTH GROUP, INC. (AMENDED AS OF MARCH 27, 2001) ARTICLE I OFFICES SECTION 1. REGISTERED AND OTHER OFFICES. The registered office of Banknorth Group, Inc. (hereinafter called the "Corporation") in the State of Maine shall be at Two Portland Square, City of Portland, County of Cumberland. The Corporation may also have an office or offices and keep the books and records of the Corporation, in accordance with the laws of the State of Maine, at such other place or places either within or without the State of Maine as the Board of Directors of the Corporation (hereinafter called the "Board") may from time to time determine or the business may require. The principal office of the Corporation shall be located at Two Portland Square, Portland, Maine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders shall be held at the principal office of the Corporation at Two Portland Square, Portland, Maine, or at such other place within or without the State of Maine as may from time to time be fixed by the Board. SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held either (i) at 10:00 A.M. on the fourth Tuesday of April of each year, if not a legal holiday, and if a legal holiday then on the next succeeding day not a legal holiday, or (ii) at such other time as the Board shall designate. SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, may be called at any time by the Chairman of the Board, the President or a majority of the Board and shall be called by the Chairman of the Board, the President or the Clerk upon the written request of the holders of not less than 50% of the issued and outstanding capital stock of the Corporation entitled to vote on the matter for which the meeting is called, voting together as a single class; provided, however, that special meetings of stockholders also may be called in the manner specified in the Maine Business Corporation Act. 2 SECTION 4. NOTICES OF MEETINGS. Except as may otherwise be required by law, notice of each meeting of stockholders, annual or special, shall be in writing and shall state the place where it is to be held, the date and hour of the meeting, and, in the case of a special meeting or when otherwise required by law, the purpose or purposes thereof, and a copy thereof shall be served either personally, by mail or any other means permitted by law upon each stockholder of record entitled to vote at such meeting, not less than 10 nor more than 60 days before the meeting. If mailed, it shall be directed to such stockholder at his address as it appears on the records of the Corporation. Attendance of a stockholder at a meeting, in person or by proxy, shall of itself constitute waiver of notice and call, and of any defects therein, except when the stockholder attends the meeting for the express and sole purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or that insufficient notice thereof was given. Notice of any adjourned meeting of stockholders need not be given except as otherwise provided in this Article II. SECTION 5. QUORUM. Except as otherwise required by law, at each meeting of stockholders of the Corporation the holders of shares sufficient to cast a majority of the votes represented by all voting shares of the Corporation issued and outstanding and entitled to vote at such meeting, present in person or by proxy, shall constitute a quorum. Stockholders present at a duly called or held meeting at which a quorum was once present may continue to do business at the meeting or any adjournment thereof, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 6. ADJOURNMENTS. Whether or not a quorum is present at any annual or special meeting of stockholders, a majority in interest of those present in person or by proxy and entitled to vote may adjourn the meeting from time to time to another time or place, at which time, if a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days or a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. ORGANIZATION. Each meeting of the stockholders shall be presided over by the Chairman of the Board, or in his absence by the President, or if neither the Chairman nor the President is present, by an Executive or Senior Vice President. The Clerk, or in his absence a temporary Clerk, shall act as secretary of each meeting of the stockholders. In the absence of the Clerk and any temporary Clerk, the chairman of the meeting may appoint any person present to act as secretary of the meeting. The chairman of any meeting of the stockholders, unless prescribed by law or regulation or unless the Chairman of the Board has otherwise determined, shall determine the order of the business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussions as seem to him in order. 2 3 SECTION 8. PROPOSALS. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Clerk of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the anniversary date of the immediately preceding annual meeting. A stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything herein to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Article II, Section 8. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, Section 8, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. This provision is not a limitation on any other applicable laws and regulations. At a special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a special meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board or such other person or persons as are authorized to call special meetings of stockholders of the Corporation pursuant to Article II, Section 3 of these Bylaws. SECTION 9. VOTING LIST. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list shall be in written or other form which may be translated to readable form. The requirement of a list may be satisfied by a card index showing the required information and alphabetically arranged; and the list may be classified by classes and series of stock held. If the Corporation maintains its stockholder records by means of electronic data processing equipment, such list may be printed or prepared on microfilm, provided that the Corporation shall provide the means of reducing or projecting such list to readable form so as to permit inspection by any stockholder in accordance with these Bylaws. The list of stockholders shall be subject to inspection by any stockholder at any time during usual business hours, for a period of not less than 10 days prior to such meeting. The list also shall be produced and kept open at the time and place of the meeting and subject to the inspection of any stockholder during such meeting. The original stock transfer books shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders. 3 4 SECTION 10. VOTING. At each meeting of the stockholders, every stockholder of record of the Corporation entitled to vote at such meeting shall be entitled to vote the common or other shares of voting stock standing in his name on the books of the Corporation and entitled to be voted at such meeting: (i) at the time fixed pursuant to Article VIII of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been fixed, then at the close of business on the next day preceding the day on which notice of such meeting is given, or (iii) if notice of such meeting shall have been waived, then at the close of business on the day next preceding the day on which such meeting is held. Each share of Common Stock shall be entitled to one vote per share, and there shall be no cumulative voting in elections of directors. Except as permitted by law, shares of its own stock belonging to the Corporation shall not be voted directly or indirectly. Every stockholder entitled to vote at any meeting of stockholders may cast such vote in person or by proxy appointed by an instrument in writing, signed by such stockholder or his duly authorized attorney delivered to the secretary of the meeting; provided, however, that no proxy shall be voted after 11 months from its date, unless the proxy expressly and conspicuously provides for a longer duration. At all meetings of the stockholders all matters, except elections of directors and where other provision is made by law or by the Amended and Restated Articles of Incorporation of the Corporation, as amended (hereinafter called the "Articles of Incorporation"), or by these Bylaws, shall be decided by a majority of the votes cast by the stockholders present in person or by proxy and entitled to vote thereon, provided that a quorum is present. Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. If, at any meeting of stockholders, due to a vacancy or vacancies or otherwise, directors of more than one class of the Board are to be elected, each class of directors to be elected at the meeting shall be elected in a separate election by a plurality vote. SECTION 11. INSPECTORS. For each meeting of stockholders, the Board shall appoint one or more inspectors of election. If for any meeting the inspector(s) appointed by the Board shall be unable to act or the Board shall fail to appoint such inspector(s), inspector(s) may be appointed at the meeting by the chairman thereof. No director or candidate for the office of director shall act as an inspector for the election of directors; and inspectors need not be stockholders. The inspector(s) appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspector(s) at such meeting with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. The inspector(s) shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; they shall receive votes, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, determine and announce the 4 5 results, and otherwise see that the vote or election is conducted with fairness to all stockholders. Upon request of the person presiding at the meeting or of any stockholder entitled or claiming to be entitled to vote thereat, the inspector(s) shall report in writing on any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by the inspector(s) shall be prima facie evidence of the facts stated therein and of the vote as certified by them. SECTION 12. INFORMAL ACTION. Any action required to be taken at a meeting of the stockholders, or any other action which may be taken at a meeting of the stockholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the stockholders entitled to vote with respect to the subject matter thereof and filed with the Clerk of the Corporation as part of the corporate records. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS AND NUMBER. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, the Articles of Incorporation or these Bylaws directed or required to be exercised or done by the stockholders. The number of directors of the Corporation shall be determined as provided in the Articles of Incorporation. SECTION 2. CLASSIFICATION AND TERM. The Board shall be divided into three classes as nearly equal in number as the then total number of directors constituting the Board permits, with the term of office of one class expiring each year. At each annual meeting of stockholders, directors selected to succeed those whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified. SECTION 3. QUALIFICATIONS AND COMPENSATION. (a) No person may be elected as a director who, at the time of his election, is over 72 years of age; provided that if any director shall reach 72 years of age during his term of office as director, such director shall serve as director only until the next annual meeting of stockholders of the Corporation next following his attainment of age 72. (b) Members of the Board of the Corporation may receive a fee for the services rendered as a director, including a fixed sum and expenses for attendance at each meeting of the Board or committees thereof. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 5 6 SECTION 4. NOMINATIONS OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board or a committee appointed by the Board or by any stockholder entitled to vote generally in an election of directors. However, any stockholder entitled to vote generally in an election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid to the Clerk of the Corporation not later than (i) 90 days prior to the anniversary date of the immediately preceding annual meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. SECTION 5. QUORUM. At any meeting of the Board, a majority of the directors then holding office shall constitute a quorum for the transaction of business except where otherwise provided by law, the Articles of Incorporation or these Bylaws. In the absence of a quorum, a majority of the directors present may adjourn the meeting to some future time not more than 30 days later. SECTION 6. VOTING. At all meetings of the Board, each director present shall have one vote. At all meetings of the Board, all questions, the manner of deciding which is not otherwise specifically regulated by law, the Articles of Incorporation or these Bylaws, shall be determined by a majority of the directors present at the meeting. SECTION 7. PLACE OF MEETING. The Board may hold its meetings at such place or places within or without the State of Maine as the Board from time to time may determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 8. ANNUAL MEETING. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual election of directors, on the same day and at the same place at which such election is held or at such other time or place as shall be specified in a notice given as hereinafter provided for special meetings of the Board or in a consent and waiver of notice thereof signed by all directors. 6 7 SECTION 9. REGULAR MEETINGS. Regular meetings of the Board shall be held at such times and places as the Board may from time to time determine by resolution. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at said place at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. SECTION 10. SPECIAL MEETINGS; NOTICE. Special meetings of the Board shall be held whenever called by a majority of the Board, the Chairman of the Board or the President. Notice of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least three days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable or wireless, or be delivered personally or by telephone not later than the day before the day on which the meeting is to be held. Except as otherwise expressly required by law or these Bylaws, the purpose of any special meeting shall not be required to be stated in the notice thereof. Notice of any meeting of the Board shall not be required to be given to any director who signs a waiver of notice, either before or after the meeting, or who shall be present at such meeting, unless the director states his objection to the transaction of that item of business, on the ground of insufficiency of notice thereof, when the item of business is first brought before the meeting, and refrains from voting on or votes against such item of business. SECTION 11. TELEPHONIC MEETINGS. The Board may hold a meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Notice of such meeting, if any, shall be given as provided in Section 10 and shall give each director the telephone number at which, or other manner in which, he will be called. SECTION 12. ORGANIZATION. At each meeting of the Board, the Chairman of the Board or in his absence the President, or in his absence a director chosen by a majority of the directors present, shall act as chairman of such meeting and preside thereat. The Clerk, or in the absence of the Clerk any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof. At all meetings of the Board, business shall be transacted in the order and in the manner determined by the chairman of the meeting, subject to the approval of the Board. SECTION 13. INFORMAL ACTION. Any action required to be taken at a meeting of the directors or any action which may be taken at a meeting of the directors or of a committee of the directors, may be taken without a meeting if all of the directors, or all of the members of the committee, as the case may be, sign written consents setting forth the action taken or to be taken, at any time before or after the intended effective date of such action. Such consents shall be filed with the minutes of directors' meetings or committee meetings, as the case may be, and shall have the same effect as a unanimous vote. SECTION 14. RESIGNATION. Any director may resign at any time by giving written notice to the Chairman or to the Clerk of the Corporation. Such resignation shall take effect upon receipt of such notice or any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 7 8 SECTION 15. REMOVAL OF DIRECTORS. At a duly constituted meeting of stockholders called expressly for the purpose, any director may be removed with or without cause by a vote of the holders of at least 67% of the shares then entitled to vote in an election of directors, voting as a single class; provided, however, that any director also may be removed for cause in the manner specified in the Maine Business Corporation Act. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the Articles of Incorporation of the Corporation and any resolutions adopted pursuant thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. SECTION 16. VACANCIES. Any vacancies occurring in the Board by reason of an increase in the number of directors may be filled by the Board, and any directors so chosen shall hold office until the next election of directors by the stockholders. Any other vacancy in the Board, whether by reason of death, resignation, removal or otherwise, may be filled by the remaining directors, or by a sole remaining director, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders and vacancies created with respect to any directorship of the directors so elected may be filled in the manner specified by the resolution or resolutions of the Board establishing such Preferred Stock. SECTION 17. LIABILITY. A director shall not be held personally liable for monetary damages for failure to discharge any duty as a director unless the director is found not to have acted honestly or in the reasonable belief that the action was in or not opposed to the best interests of the Corporation or its stockholders. No amendment, modification or repeal of this Article III, Section 17 shall be inconsistent with applicable law or adversely affect the rights provided hereby with respect to any claim, issue or matter in any action, suit or proceeding that is based in any respect on any action or omission, or alleged action or omission, prior to such amendment, modification or repeal. ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SECTION 1. EXECUTIVE COMMITTEE. (a) The Board may appoint from the Board an Executive Committee of not less than two members, and may delegate to such committee, except as otherwise provided by law or the Articles of Incorporation, the powers of the Board in the management of the business and affairs of the Corporation in the intervals between meetings of the Board in all cases in which specific directions 8 9 shall not have been given by the Board, as well as the power to authorize the seal of the Corporation to be affixed to all papers which may require it. (b) Meetings of the Executive Committee shall be held at such times and places as the Chairman of the Executive Committee may determine. The Executive Committee, by a vote of a majority of its members, may appoint a Chairman and fix its rules of procedure, determine its manner of acting and specify what notice, if any, of meetings shall be given, except as the Board shall by resolution otherwise provide. (c) The Executive Committee shall keep minutes of all business transacted by it. All completed action by the Executive Committee shall be reported to the Board at its meeting next succeeding such action or at its meeting held in the month following the taking of such action, and shall be subject to revision or alteration by the Board. SECTION 2. AUDIT COMMITTEE. The Board shall designate not less than three members of the Board who are not employed by the Corporation and otherwise meet the requirements of the National Association of Securities Dealers to constitute an Audit Committee. The Audit Committee shall receive and evaluate internal and independent auditor's reports, monitor the Corporation's adherence in accounting and financial reporting to generally accepted accounting principles and perform such other duties as may be delegated to it by the Board. Meetings of the Audit Committee shall be held at such times and places as the Audit Committee may determine as set forth in its Charter. The Audit Committee, by a vote of a majority of its members, may appoint a Chairman and fix its rules of procedure, determine its manner of acting and specify what notice, if any, of meetings shall be given, except as the Board shall by resolution otherwise provide. SECTION 3. OTHER COMMITTEES. The Board may, by resolutions passed by a majority of the Board, designate members of the Board to constitute other committees which shall in each case consist of two or more directors, and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them. A majority of all the members of any such committee may appoint a Chairman and fix its rules of procedure, determine its manner of acting and fix the time and place, whether within or without the State of Maine, of its meetings and specify what notice thereof, if any, shall be given, unless the Board shall otherwise by resolution provide. A majority of the Board shall have the power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time. ARTICLE V OFFICERS SECTION 1. TITLES. The principal officers of the Corporation shall be a Chairman of the Board, a President and a Treasurer. Other officers may be appointed in accordance with the provisions of this Article V and any two or more offices may be held by the same person. Officers 9 10 of the Corporation shall furnish to the Board a bond in such amount as the Board shall deem necessary, and shall, upon taking office, take and subscribe to an oath as provided under Maine law. SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The principal officers shall be elected annually by the Board. Each officer, except as may be appointed in accordance with the provisions of this Article V, shall hold office until his successor shall have been chosen and shall qualify or until his death or until he shall have resigned or until he shall have been removed in the manner hereinafter provided. SECTION 3. APPOINTIVE OFFICERS. The Board may from time to time appoint or delegate the appointment of such other officers and assistant officers and agents as it may deem necessary. Such officers shall hold office for such period, have such authority and perform such duties, subject to the control of the Board, as are in these Bylaws provided or as the Chief Executive Officer designated by the Board or the Board may from time to time prescribe. The Chief Executive Officer shall have authority to appoint and remove appointive officers, agents and employees and to prescribe their powers and duties and may authorize any other officer or officers to do so. SECTION 4. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the stockholders and the Board, and the Chairman shall perform such duties as the Board may from time to time prescribe. SECTION 5. THE PRESIDENT. In the absence or inability to act of the Chairman of the Board, the President shall, when present, act as ex officio chairman and shall preside at all meetings of the Board and the stockholders. Unless the Chairman of the Board is designated by the Board as the Corporation's Chief Executive Officer, the President shall be the Chief Executive Officer of the Corporation and shall have general charge of the business affairs and property of the Corporation. He shall have such other powers and perform such duties as may from time to time be assigned to him by the Board or as may be prescribed by these Bylaws. SECTION 6. THE TREASURER. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and shall deposit all such funds in the name of the Corporation in such banks or other depositories as shall be selected or authorized to be selected by the Board; shall render or cause to be rendered a statement of the condition of the finances of the Corporation at all regular meetings of the Board, and a full financial report at the annual meeting of stockholders, if called upon so to do; shall receive and give receipt for moneys due and payable to the Corporation from any source whatsoever; and, in general, shall perform or cause to be performed all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or as may be prescribed in these Bylaws. SECTION 7. THE CLERK. In addition to the foregoing officers, the Board shall appoint a Clerk of the Corporation, who shall be a resident of the State of Maine. The Clerk shall perform the functions required by law, shall not be deemed an officer of the Corporation as a result of serving in such capacity and shall not be liable in that capacity for any liabilities of the Corporation, 10 11 including without limitation debts, claims, taxes, fines or penalties. The Clerk shall keep, at the registered office of the Corporation or at another office of the Corporation to which he has ready access, in a book kept for such purpose, the records of all stockholders' meetings, including records of all votes and minutes of such meetings. He may keep the stock transfer book and shall keep on file a list of stockholders entitled to vote at each meeting and the most recent list of stockholders. He may certify all votes, resolutions and actions of the stockholders and of the Board. He shall attend the meetings of the directors and the stockholders and record the proceedings in books kept for that purpose; and, in his absence, a temporary Clerk shall be appointed and shall record such meetings. He may give or cause to be given notice of all stockholders' and directors' meetings. He shall have custody of the corporate seal and he shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. SECTION 8. RESIGNATION. Any officer may resign at any time by giving written notice to the President or the Clerk. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective. SECTION 9. REMOVAL. Except as otherwise required by law, any officer elected or appointed directly by the Board may only be removed, either with or without cause, at any time by the vote of the majority of the Board at any meeting of the Board called for that purpose. Any officer otherwise appointed pursuant to this Article V may be removed, either with or without cause, by the Board, the Executive Committee or the Chief Executive Officer. SECTION 10. VACANCIES. A vacancy in any office because of death, resignation, removal or other causes shall be filled for the unexpired portion of the term in the manner prescribed by these Bylaws for regular election or appointment to such office. ARTICLE VI INDEMNIFICATION SECTION 1. INDEMNIFICATION. Without limitation, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, against expenses, including attorney's fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the full extent permitted by the Maine Business Corporation Act, provided that the Corporation shall not be liable for any amount which may be due to any person in connection 11 12 with a settlement of any action, suit or proceeding effected without its prior written consent or any action, suit or proceeding initiated by an indemnified person without its prior written consent, other than an action, suit or proceeding seeking indemnification from the Corporation. SECTION 2. EXPENSES. Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt by the Corporation of a written undertaking by or on behalf of the director, officer, employee, agent, trustee, partner or fiduciary to repay such amount under the circumstances specified in the Maine Business Corporation Act and which otherwise meets the requirements of such Act. Such undertaking shall be an unlimited general obligation of the person seeking the advance, but need not be secured and may be accepted by the Corporation without reference to financial ability to make the repayment. SECTION 3. OTHER RIGHTS AND REMEDIES. The indemnification and entitlement to advances of expenses provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in that person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, agent, trustee, partner or fiduciary and shall inure to the benefit of the heirs, executors and administrators of such a person. A right to indemnification hereunder may be enforced by a separate action against the Corporation, if an order for indemnification has not been entered by a court in any action, suit or proceeding in respect to which indemnification is sought. SECTION 4. INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, against any liability asserted against that person and incurred by that person in any such capacity, or arising out of that person's status as such, whether or not the Corporation would have the power to indemnify that person against such liability under this Article VI. SECTION 5. OTHER. For purposes of this Article VI, references to the "Corporation" shall include, in addition to the surviving corporation or new corporation, any participating corporation in a consolidation or merger. SECTION 6. MODIFICATION. The duties of the Corporation to indemnify and to advance expenses to any person provided in this Article VI shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article VI shall alter, to the detriment of such person, the right of such person to the advancement of expenses or indemnification related to a claim based on an act or omission, or alleged act or omission, which took place prior to such amendment or repeal. 12 13 ARTICLE VII CONTRACTS, CHECKS, BANK ACCOUNTS, ETC. SECTION 1. EXECUTION OF CONTRACTS. The Board may authorize any officer, employee or agent, in the name and on behalf of the Corporation, to enter into any contract or execute and satisfy any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. SECTION 2. LOANS. The President, or any officer, employee or agent authorized by the President or by the Board, may effect loans and advances at any time for the Corporation from any bank, trust company or other institutions or from any firm, corporation or individual and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and when authorized so to do may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board or the President may be general or confined to specific instances, or otherwise limited. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the payment of money out of funds of the Corporation and all notes or other evidences of the Corporation shall be signed on behalf of the Corporation in such a manner as shall from time to time be determined by resolution of the Board. SECTION 4. DEPOSITS. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation in such banks, trust companies or other depositories as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board. SECTION 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board or the President or any other officer designated by the Board or appointed by the President and authorized by the Board or the President may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as may be selected by the President or any other officer or officers or agent or agents to whom power in that respect shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VIII CAPITAL STOCK SECTION 1. CERTIFICATES OF STOCK. Every holder of shares of stock shall be entitled to have a certificate, in such form as the Board shall prescribe, certifying the number and class of shares of stock of the Corporation owned by him. Each such certificate shall be signed in the name of the 13 14 Corporation by the Chairman of the Board, the President or an Executive or Senior Vice President or a Vice President, and the Treasurer or an Assistant Treasurer or the Clerk. Signatures of such officers may be facsimiles to the extent permitted by the Maine Business Corporation Act. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who shall have signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by certificates for stock of the Corporation, the number of shares represented by such certificates, respectively, and the respective dates thereof, and, in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled and a new certificate or certificates shall not be issued in exchange for any existing certificates until such existing certificate shall have been so canceled, except in cases otherwise provided for in this Article VIII. SECTION 2. TRANSFER OF SHARES. Each transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Clerk of the Corporation, or with a transfer agent appointed as in this Article VIII provided, upon the payment of any taxes thereon and the surrender of the certificate or certificates for such shares properly endorsed. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided that whenever any transfer of shares shall be made for collateral security and not absolutely, such fact, if known to the Corporation or to any such agent, shall be so expressed in the entry of transfer if requested by both the transferor and the transferee. SECTION 3. DATE FOR DETERMINING STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of any shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor, and the Board may, in its discretion, and after the expiration of such period of time as it may determine to be advisable, cause to be issued to him a new certificate or certificates for shares of stock, upon the surrender of the mutilated certificate, or in case of loss or destruction of the certificate, upon proof satisfactory to the Board of such loss or destruction, and the Board may, in its discretion, require the owner of the lost, destroyed or mutilated certificate, or his legal 14 15 representatives, to give the Corporation a bond, in such sum and with such surety or sureties as it may direct, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, destruction or mutilation of any such certificate or the issuance of such new certificate. SECTION 5. EXAMINATION OF BOOKS BY STOCKHOLDERS OR BONDHOLDERS. The Board shall, subject to any applicable laws, have the power to determine, from time to time, whether and to what extent and at what times and places and under what conditions and regulations the accounts and books and documents of the Corporation, or any of them, shall be open to the inspection of the stockholders or bondholders of the Corporation; and no stockholder or bondholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by any such law, unless and until authorized so to do by resolution of the Board or of the stockholders of the Corporation. SECTION 6. STOCKHOLDERS TO BE REGISTERED. Only those persons whose names are registered on the transfer books of the Corporation shall be entitled to be treated by the Corporation as holders of the stock listed in their respective names. The Corporation shall not be required to recognize any other equitable or legal claim to or interest in any shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Maine. ARTICLE IX WAIVER OF NOTICE Whenever any notice is required to be given by these Bylaws or Articles of Incorporation, or by statute, the person entitled thereto may in person, or in the case of a stockholder by his attorney thereunto duly authorized, waive such notice in writing, whether before or after the meeting, or other matter in respect of which such notice is to be given, and in such event such notice need not be given to such person and such waiver shall be equivalent to such notice, and any action to be taken after such notice or after the lapse of a prescribed period of time may be taken without such notice and without the lapse of any period of time. ARTICLE X SEAL The seal of the Corporation shall be in the form of a circle and shall bear the name of the Corporation and the year of its incorporation. 15 16 ARTICLE XI FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of January and end on the last day of December in each year. ARTICLE XII EMERGENCY PREPAREDNESS In the event of an emergency in the conduct of the business of the Corporation resulting from an attack on the continental United States or any nuclear or atomic disaster: A. The officers and employees of the Corporation shall continue to conduct the business of the Corporation under such guidance from the Board as may be available, except as to matters which by statute require specific approval of the Board, and subject to any directive of duly constituted authority during the emergency. B. In the absence or disability of any officer, or upon the refusal of any officer to act, the Board may delegate for the time being that officer's powers and duties to any other officer or director. C. In the event of an emergency so severe as to prevent the conduct and management of the business of the Corporation by the Board and the officers as contemplated by these Bylaws, any two or more available directors shall constitute an interim Executive Committee for the full conduct and management of the business of the Corporation, subject to such regulations as the Board may from time to time adopt for emergency preparedness, until such time as the interim Executive Committee determines that the Corporation can resume the conduct and management of the business of the Corporation in the manner contemplated by these Bylaws. D. If, as a consequence of an emergency, the Chief Executive Officer of the Corporation cannot be located or is unable to assume and continue his normal executive duties, then his powers and duties shall, without further action of the Board, be assumed by one of the following officers in the seniority set forth: (1) President (unless he is serving as Chief Executive Officer); (2) Executive Vice President; (3) Senior Vice Presidents (in order of seniority); and (4) Treasurer. 16 17 The officer so assuming the powers and duties of the Chief Executive Officer shall continue to serve until the majority of the available directors certify in writing that either he is unable to serve longer in that capacity or an officer senior to him is available to assume the powers and duties of the Chief Executive Officer. E. If, as a consequence of an emergency, the Treasurer of the Corporation cannot be located or is unable to assume and continue his normal duties, then the powers and duties of the Treasurer shall, without further action of the Board, be assumed by one of the following officers in the seniority set forth: (1) President (unless he is serving as Chief Executive Officer); (2) Executive Vice President; (3) Senior Vice Presidents (in order of seniority); and (4) Assistant Treasurer. The officer so assuming the powers and duties of the Treasurer shall continue to serve until the majority of the available directors certify in writing that either he is unable to serve longer in that capacity or an officer senior to him is available to assume the powers and duties of the Treasurer. Anyone dealing with the Corporation may accept a certificate of two or more officers that a specified individual is the acting Treasurer hereunder and rely upon that certificate to remain in full force and effect until modified or cancelled by a certificate of change signed by three officers of the Corporation. F. If during such emergency, or as a consequence thereof, the business of the Corporation cannot be conducted and managed at its main office or at a duly authorized branch office, its business may be conducted and managed at such temporary location or locations as may be designated by the Board or by its interim Executive Committee for which provision is made above; and the business of the Corporation shall be returned from the temporary location or locations to the main office of the Corporation and its duly authorized branch offices as soon as practicable. ARTICLE XIII AMENDMENTS These Bylaws (including, without limitation, this Article XIII) may be altered, amended or repealed or new Bylaws may be adopted only by the Board. 17 18 ARTICLE XIV USE OF PRONOUNS Use of the masculine gender in these Bylaws shall be considered to represent either masculine or feminine gender whenever appropriate. 18 EX-10.(C) 3 b38140bgex10-c.txt SEVERANCE AGREEMENT W/CHRISTOPHER W. BRAMLEY 1 Exhibit 10(c) PEOPLES HERITAGE FINANCIAL GROUP, INC. SEVERANCE AGREEMENT CHRISTOPHER W. BRAMLEY This AGREEMENT, made and entered into as of the 1st day of January, 2000, by and among PEOPLES HERITAGE FINANCIAL GROUP, INC. (the "Company") and Christopher W. Bramley (the "Executive"); W I T N E S S E T H: WHEREAS, the Executive is employed by the Company in a key executive capacity and possesses intimate knowledge of the business and affairs of the Company; and WHEREAS, the Company desires to ensure, insofar as possible, that it will continue to have the benefit of the Executive's services and to protect its confidential information and goodwill; and WHEREAS, the Company recognizes that circumstances may arise in which a change in the control of the Company occurs, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions; and WHEREAS, the Company and the Executive wish to provide reasonable security to the Executive against changes in the Executive's relationship with the Company in the event of such change in control; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS 2 (a) ACCRUED BENEFITS means: (i) All salary earned or accrued through the date the Executive's employment is terminated; (ii) reimbursement for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive through the date the Executive's employment is terminated; (iii) any and all other compensation previously earned and deferred at the election of the Executive or pursuant to any deferred compensation plans then in effect together with any interest or desired earnings thereon; (iv) annual bonus, if any, accrued for a Year prior to the Year in which employment terminates, but not yet paid to the Executive, under any bonus or incentive compensation plan or plans in which the Executive is a participant; (v) a pro rata portion of the maximum bonus payable to the Executive for the Year in which employment terminates under any bonus or incentive compensation plan or plans in which the Executive is a participant, determined as if the Executive had remained in employment for the full Year and prorated based upon weeks, including partial weeks, of employment during that Year; (vi) all other payments and benefits to which the Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company. (b) ACT means the Securities Exchange Act of 1934, as amended. (c) AFFILIATE of any specified persons means any other person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under direct or 2 3 indirect common control with such specified person. For the purposes of this definition, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (d) ANNUAL COMPENSATION shall mean the sum of: (i) the Executive's annual base salary at the rate in effect on the date of a termination of employment as described in Section 3 or in Section 7(d) (or, in the event of a termination for Good Reason under Section 1(k)(i)(A) below, the annual base salary as in effect immediately before the actions giving rise to Good Reason); plus (ii) the greatest of the bonuses either paid or accrued in either the Year of the Change in Control or the immediately preceding Year. (e) BASE AMOUNT means an amount equal to the Executive's Annualized Includable Compensation for the Base Period as defined in Section 280G(d)(1) and (2) of the Code (as hereinafter defined). (f) CAUSE means (i) the executive's conviction of, or plea of nolo contendere to, a felony; or (ii) willful and intentional misconduct, willful neglect, or gross negligence, in the performance of the Executive's duties, which has caused a demonstrable and serious injury to the Company, monetary or otherwise. The Executive shall be given written notice that the Company intends to terminate his employment for Cause. Such written notice shall specify the particular acts, or failures to act, on the basis of which the decision to so terminate employment was made. In the case of a termination for Cause as described in Clause (ii), above, the Executive shall 3 4 be given the opportunity within 30 days of the receipt of such notice to meet with the Board to defend such acts, or failures to act, prior to termination. The Company may suspend the Executive's title and authority pending such meeting, and such suspension shall not constitute "Good Reason," as defined in subsection (k) below. (g) CHANGE IN CONTROL of the Company shall mean a Change in Control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Act or any successor thereto, provided that without limiting the foregoing, a Change in Control of the Company also shall mean the occurrence of any of the following events: (i) any "person" (as defined under Section 3(a)(9) of the Act) or "group" of persons (as provided under Rule 13d-3 of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 or otherwise under the Act), directly or indirectly (including as provided in Rule 13d-3(d)(1) of the Act), of capital stock of the Company the holders of which are entitled to vote for the election of directors ("voting stock") representing that percentage of the Company's then outstanding voting stock (giving effect to the deemed ownership of securities by such person or group, as provided in Rule 13d-3(d)(1) of the Act, but not giving effect to any such deemed ownership of securities by another person or group) equal to or greater than twenty-five percent (25%) of all such voting stock; (ii) During any period of twenty four consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board 4 5 of Directors of the Company (excluding any Board seat that is vacant or otherwise unoccupied). (iii) There shall be consummated any consolidation, merger, stock for stock exchange or similar transaction (collectively, "Merger Transactions") involving securities of the Company in which holders of voting stock of the Company immediately prior to such consummation own, as a group, immediately after such consummation, voting stock of the Company (or, if the Company does not survive the Merger Transaction, voting securities of the corporation surviving such transaction) having less than 50% of the total voting power in an election of directors of the Company (or such other surviving corporation). (h) CODE means the Internal Revenue Code of 1986, including any amendments thereto. (i) COMPANY RETIREMENT PLAN is defined in Section 1(r)(vi) below. (j) EFFECTIVE DATE means the date this Agreement is executed by the parties. (k) EMPLOYMENT PERIOD means a period commencing on the date of a Change in Control of the Company and ending on the earlier of (i) the last day of the twenty-fourth month following the month in which the Change in Control occurs, or (ii) the Executive's Normal Retirement Date. (l) GOOD REASON means: (i) any breach of this Agreement by the Company, including without limitation (A) any reduction during the employment period in the amount of the Executive's base salary or aggregate benefits as in effect from time to time, (B) failure to provide the Executive with the same fringe benefits that were provided to the Executive immediately prior to a Change in Control of the Company, or with a package of fringe benefits (including paid vacations) that, though one or more of such benefits may vary from those in effect immediately prior to such a Change in 5 6 Control, is substantially comparable in all material respects to such fringe benefits taken as a whole, or (C) any other breach by the Company of its obligations contained in Section 6 below; (ii) without the Executive's express written consent, the assignment to the Executive of any duties which are materially inconsistent with the Executive's positions, duties, responsibilities and status immediately prior to the Change in Control of the Company, a material change in the Executive's reporting responsibilities, titles or offices as an employee and as in effect immediately prior to the Change in Control, or a significant reduction, in the Executive's title, duties or responsibilities, or in the level of his support services; (iii) the relocation of the Executive's principal place of employment, without the Executive's written consent, to a location outside the same metropolitan area in which the Executive was employed at the time of such Change in Control, or the imposition of any requirement that the Executive spend more than ninety business days per year at a location other than such principal place of employment; or (iv) any purported termination of the Executive's employment for Cause, Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (m) below. Upon the occurrence of any of the events described in (i), (ii), (iii), or (iv) above, the Executive shall give the Company written notice that such event constitutes Good Reason, and the Company shall thereafter have thirty (30) days in which to cure. If the Company has not cured in that time, the event shall constitute Good Reason. (m) NORMAL RETIREMENT DATE means Normal Retirement Date as defined in the Peoples Heritage Financial Group, Inc. Retirement Plan. (n) NOTICE OF TERMINATION shall mean a notice which shall indicate the specific 6 7 termination provision relied upon in this Agreement and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (o) PERSON or GROUP means a "person" or "group," as defined in Section 1(g)(i) hereof. (p) PLAN YEAR with respect to any of the Retirement Plan, the Thrift Plan (as defined below) or the Employee Stock Ownership Plan, the "plan year" as defined in such plan. (q) RETIREMENT PLAN means the Peoples Heritage Financial Group, Inc. Retirement Plan or any successor plan. (r) SERP AGREEMENT means the Supplemental Retirement Agreement between the Executive and the Company. (s) YEAR means a calendar year unless otherwise specifically provided. 7 8 2. TERM OF AGREEMENT. This Agreement shall begin on the Effective Date and shall continue until the third anniversary of such date, provided that, on the first anniversary of the Effective Date, and on each succeeding anniversary, the term shall be renewed for an additional period of one year unless either party has given written notice that the term is not so renewed, which notice must be delivered to the other party at least ninety (90) days prior to the date of any such renewal, and further provided that if a Change in Control of the Company occurs during such term, the term shall in all events continue through the last day of the Employment Period. This Agreement is also subject to earlier termination as provided in Section 3 below. All rights and obligations hereunder shall survive to the extent necessary to the intended enforcement thereof. 3. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. (a) The Company and the Executive shall each retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company. In the event the Executive's employment is terminated prior to a Change in Control of the Company, this Agreement shall, except as provided in Subsection (b) below, be terminated and of no further force and effect, and any and all rights and obligations of the parties hereunder shall cease. (b) If the Executive's employment is terminated by the Company prior to the occurrence of a Change in Control of the Company, and if it can be shown that the Executive's termination (i) was at the direction or request of a third party that had taken steps reasonably calculated to effect the Change in Control of the Company thereafter, or (ii) otherwise occurred in connection with, or in anticipation of, the Change in Control of the Company, the Executive shall have the rights described in Section 7(d) below, as if a Change in Control of the Company had 8 9 occurred on the date immediately preceding such termination. 4. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. If a Change in Control of the Company occurs when the Executive is employed by the Company, the Company will continue thereafter to employ the Executive, and the Executive will remain in the employ of the Company, during the Employment Period, in accordance with the terms and provisions of this Agreement. 5. DUTIES. During the Employment Period, the Executive shall serve in such capacities and positions as may be assigned by the Company consistent with the Executive's capacities and positions on the Effective Date and shall devote the Executive's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Company, as such business and affairs now exist and as they may hereafter be conducted. 6. COMPENSATION. During the Employment Period, the Executive shall be compensated by the Company as follows: (a) the Executive shall receive, at such intervals and in accordance with such standard policies as in effect on the date of the Change in Control of the Company, an annual base salary not less than the Executive's annual base salary as in effect on the date of the Change in Control of the Company, subject to adjustment as hereinafter provided; (b) the Executive shall be included in all plans providing incentive compensation to executives, including but not limited to bonus, deferred compensation, annual or other incentive compensation, supplemental pension, stock ownership, stock option, stock appreciation, stock bonus and similar or comparable plans as any such plans are extended by the Company from time to time 9 10 to senior corporate officers, key employees and other employees of comparable status; (c) the Executive shall be reimbursed, at such intervals and in accordance with such standard policies as may be in effect on the date of the Change in Control of the Company, for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company, including travel expenses; (d) the Executive shall be included, to the extent eligible thereunder, in any and all plans providing but not limited to, group life insurance, hospitalization, disability, medical, dental, pension, profit sharing and stock bonus plans, and shall be provided any and all other benefits and perquisites made available to other employees of comparable status and position at the expense of the Company on a comparable basis; (e) the Executive shall receive annually not less than the amount of paid vacation and not fewer than the number of paid holidays received annually immediately prior to the Change in Control of the Company or available annually to other employees of comparable status and position with the Company; and (f) During the Employment Period the Board of Directors of the Company, or an appropriate committee thereof, will consider and appraise, at least annually, the contributions of the Executive to the Company's operating efficiency, growth, production and profits and, in accordance with past practice, due consideration shall be given to the upward adjustment of the Executive's compensation rate, at least annually, commensurate with increases generally given to other senior corporate officers and key employees and as the scope of the Executive's duties expands. 7. TERMINATION OF EMPLOYMENT. Any termination by the Company or the Executive of the Executive's employment during the Employment Period shall be communicated by written Notice of Termination to the Executive if 10 11 such notice is delivered by the Company and to the Company if such notice is delivered by the Executive. The Notice of Termination shall comply with the requirements of Section 17 below. (a) TERMINATION FOR DISABILITY. If during the Employment Period, the Executive's employment is terminated on account of the Executive's disability, as determined under the Company's long-term disability plan (as in effect on the date of a Change in Control of the Company), the Executive shall receive all Accrued Benefits, if any, and shall remain eligible for all benefits as provided pursuant to the terms of any long-term disability programs of the Company in effect at the time of such termination. (b) TERMINATION ON THE EXECUTIVE'S DEATH. If, during the Employment Period, the Executive's employment is terminated on account of the Executive's death, the Executive's estate or his designated beneficiary (or beneficiaries), as applicable, shall receive the Accrued Benefits. (c) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. If, during the Employment Period, (i) the Executive shall terminate employment with the Company other than for Good Reason, or (ii) the Executive's employment is terminated for Cause, the Executive shall receive from the Company only the Accrued Benefits. (d) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Executive's employment with the Company is terminated by the Company other than for Cause, or by the Executive for Good Reason, then: (i) the Executive shall be entitled to receive from the Company the Accrued Benefits, except that, for this purpose, Accrued Benefits shall not include any entitlement to severance under any Company severance policy generally applicable to the Company's salaried employees; (ii) the Executive shall receive from the Company, no less than ten (10) 11 12 days following termination of his employment, a lump sum payment (the "Termination Payment") equal to three times the Annual Compensation; (iii) for purposes of determining the Executive's benefit under the SERP Agreement, the Executive shall be credited with 36 additional months of age and of service determined as follows: (A) The additional 36 months of age and service shall be applied for purposes of benefit accrual, vesting, eligibility for early retirement, subsidized early retirement factors, actuarial equivalence and any other purposes under the Retirement Plan and the SERP Agreement. (B) Any provision under the Retirement Plan or the SERP Agreement prohibiting the accrual of any additional benefits after the Executive has been credited with more than a stated number of years of service shall be disregarded. (C) For purposes of determining the amount of the Executive's benefit under the SERP Agreement, the reduction in respect of the benefit paid under the Retirement Plan shall be based on the Executive's actual Retirement Plan benefit (that is, without any additional deemed service). (D) For purposes of determining the Early Retirement Benefit (as defined in the SERP Agreement) and other optional forms of benefit under the SERP Agreement, if the Executive is less than fifty-five (55) years of age, the Executive shall be deemed to be at least fifty- five (55) years of age on the date his employment with the Company terminates, notwithstanding the Executive's actual age, if less. (E) the Benefit Computation Base (as defined in the SERP 12 13 Agreement) shall be determined as if it were being calculated at the end of the 36 month period of service credited to the Executive under this Section 7(d)(iii) and as if during such 36 additional month period the Executive's annualized compensation was the same as such compensation for (I) the Year during which the Executive's employment is terminated, or, (II) any Year before the Change in Control occurred, whichever is greater. (F) Any amendment to the Retirement Plan within the twelve (12) month period prior to the termination of the Executive's employment shall be disregarded to the extent that the application of such amendment would decrease the total amount of the benefits provided for in this Section 7(d)(iii). (G) The Executive shall be entitled to a lump sum distribution of his SERP in all events, and the Company shall not be entitled to require payment over a longer period. If the Executive elects a lump sum payment (i) the actuarial equivalent benefit shall be determined in accordance with the provisions of the Retirement Plan as in effect immediately prior to the Change in Control, or as in effect on termination of the Executive's employment, whichever creates the greater benefit, and (ii) payment shall be made within thirty (30) days following the later of (A) termination of the Executive's employment, or (B) the date the Executive gives written notice of the Executive's intent to elect a lump sum. (iv) the Executive shall be paid a lump sum amount equal to (A) the sum of (I) the aggregate contributions and forfeitures allocated to the Executive's account under the Peoples Heritage Financial Group, Inc. Profit Sharing and Employee Stock Ownership Plan (the "Employee Stock Ownership Plan") for the Plan Year ending immediately prior to the Change of Control, or, if different, the Plan Year ending immediately prior to the termination of the Executive's employment, whichever Plan Year would produce the greater aggregate value, (II) the total aggregate 13 14 value of all contributions, other than elective contributions by the Executive and employer matching contributions relating thereto, and forfeitures allocated to the Executive's account under the Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Thrift Plan") for the Plan Year ending immediately prior to the Change of Control, or, if different, the Plan Year ending immediately prior to the termination of the Executive's employment, whichever Plan Year would produce the greater aggregate value, and (III) (A) the matching contributions under the Thrift Plan (or its successor) which would have been credited under such plan on Executive's behalf, if the Executive had contributed the maximum salary deferral contribution allowable under Section 402(g) of the Code, for the calendar year in which he terminated employment with the Company, multiplied by (B) three (3). (v) all rights under any equity or long-term incentive plan shall be fully vested; (vi) the Executive shall (A) continue to be covered at the expense of the Company by the same or equivalent hospital, medical, dental, accident, disability and life insurance coverage as in effect for the Executive immediately prior to termination of his employment, until the earlier of (I) 36 months following termination of employment, or (II) the date the Executive has commenced new employment and has thereby become eligible for comparable benefits; provided that, with respect to any of the coverages described above, if such coverage is provided through an insurance policy with an insurance company unaffiliated with the initial Company, and if under the terms of the applicable policy, it is not possible to provide continued coverage (including if continued coverage under the policy would increase the Company's cost allocable to the Executive by more than 100%), then the Company shall pay the Executive a lump sum cash amount, no later than sixty (60) days following termination of employment an amount equal to twice the aggregate 14 15 allocable cost of such coverage as applicable immediately prior to termination of employment, such payment to be made without any discount for present value. 8. CERTAIN SUPPLEMENTAL PAYMENTS BY THE COMPANY. (a) In the event the Executive's employment is terminated pursuant to Section 7(d) above, and if in connection therewith it is determined that (i) part or all of the compensation and benefits to be paid to the Executive constitute "parachute payments" under Section 280G of the Code, and (ii) the payment thereof will cause the Executive to incur excise tax under Section 4999 of the Code, the Company, on or before the date for payment of such excise tax, shall pay the Executive, in lump sum, an amount (the "Gross-Up Amount") such that, after payment of all federal, state and local income tax and any additional excise tax under Section 4999 of the Code in respect of the Gross-Up Amount payment, the Executive will be fully reimbursed for the amount of such excise tax. (b) The determination of the Parachute Amount, the Base Amount and the Gross- Up Amount, as well as any other calculations necessary to implement this Section 8 shall be made by a nationally recognized accounting or benefits consulting firm selected by the Executive and reasonably satisfactory to the Company and which has not performed services, other than minor indirect or incidental services, for either the Company or the Executive for three years prior to the date the Consultant is retained for this purpose. The Consultant's fee shall be paid by the Company. (c) As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such amounts as become due to the Executive under this Agreement. 15 16 (d) As a result of the uncertainty in the application of Section 280G of the Code at the time of an initial determination hereunder, it is possible that payments will not have been made by the Company which should have been made under clause (a) of this Section 8 ("Underpayment"). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Underpayment has been made and the Executive thereafter is required to make any payment of an excise tax, income tax, any interest or penalty, the accounting or benefits consulting firm selected under clause (b) above shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 9. FURTHER OBLIGATIONS OF THE EXECUTIVE. (a) CONFIDENTIALITY. During and following the Executive's employment by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company, except to the extent authorized in writing by the Board of Directors of the Company or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials or copies thereof, relating to the Company's business which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. 16 17 (b) NON-SOLICITATION. For the period from the Effective Date until the second anniversary of the termination of the Executive's employment, the Executive will not, directly or indirectly, contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) any officer of the Company, or its affiliates, other than on the Company's behalf, without the prior written consent of the Company. 10. EQUITABLE RELIEF. Executive acknowledges and agrees that in the event of a breach by Executive of any of the provisions of Section 9 hereof, the Company shall suffer irreparable harm for which monetary damages alone will constitute an insufficient remedy. Consequently, in the event of any such breach, the Company may, in addition to other rights and remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages. 17 18 11. EXPENSES AND INTEREST. If, after a Change in Control of the Company, a good faith dispute arises with respect to the enforcement of the Executive's rights under this Agreement, or if any legal or arbitration proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, the Executive shall recover from the Company any reasonable attorney's fees and necessary costs and disbursements incurred as a result of such dispute, and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by Peoples Heritage Bank, or the successor thereto, from time to time as its prime rate from the date that payments to him should have been made under this Agreement. 12. PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation during and after the Employment Period to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company will not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reason whatever except as provided in Section 8(d) above. 13. SUCCESSORS. (a) If the Company sells, assigns, or transfers all or substantially all of its business and assets to any Person, excluding Affiliates of the Company, or if the Company merges into or consolidates or otherwise combines with any Person which is a continuing or successor entity, then the Company shall assign all of its rights, title and interest in this Agreement as of the date of such 18 19 event to the Person which is either the acquiring or successor Company, and such Person shall assume in writing and perform from and after the date of such written assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such written assignment shall be a breach of this Agreement. In case of such assignment by the Company and of written assumption and agreement by such Person, all further rights as well as all other obligations of the Company under this Agreement thenceforth shall cease and terminate and thereafter the expression "the Company" wherever used herein shall be deemed to mean such Person or Persons. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive hereunder shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. This Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor, surviving or resulting Company or other entity to which all or substantially all of the Company's business and assets shall be transferred. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. 14. ENFORCEMENT. The provisions of this Agreement shall be regarded as divisible, and if any such provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 15. AMENDMENT. This Agreement may not be amended or modified at any time except by a written instrument executed by the Company and the Executive if such amendment or modification occurs before any Change in Control, or by the Executive and the Company after any 19 20 Change in Control. 16. WITHHOLDING. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes, or charge which it is from time to time required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 17. GOVERNING LAW This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Maine. 18. ARBITRATION. Any dispute arising out of this Agreement shall be determined by arbitration in the State of Maine under the rules of the American Arbitration Association then in effect and judgment upon any award pursuant to such arbitration may be enforced in any court having jurisdiction thereof. 19. NOTICE. Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received and, if mailed, shall be mailed by United States registered or certified mail, return receipt requested, addressee only postage prepaid, to the Company at: Peoples Heritage Financial Group, Inc. P.O. Box 9540 One Portland Square Portland, ME 04112 Attn: Clerk or if to the Executive, at the address included in the Company's records, or to such other address as the party to be notified shall have given to the other. 20. NO WAIVER. No waiver by any party at any time of any breach by another party of, or compliance with, 20 21 any condition or provision of this Agreement to be performed by another party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time. 21. HEADINGS. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including but not limited to summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby; provided however, that the terms of the SERP Agreement, the Retirement Plan, the Thrift Plan, the Employee Stock Ownership Plan, and any effective applicable employment agreement shall be incorporated herein and made a part hereof to the extent not inconsistent with the terms hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. THE COMPANY PEOPLES HERITAGE FINANCIAL GROUP, INC. By: - - ---------------------------------- -------------------------------------- Witness William J. Ryan Chairman, President and Chief Executive Officer - - ---------------------------------- -------------------------------------- Witness Christopher W. Bramley 21 22 JAY/WORD/SEVAGREE/BRAMLYSA.DOC 22 EX-10.(E) 4 b38140bgex10-e.txt FORM OF EXECUTIVE SERVERANCE AGREEMENT 1 Exhibit 10(e) BANKNORTH GROUP, INC. SEVERANCE AGREEMENT (NAME) This AGREEMENT, made and entered into as of the 10th day of July, 2000, by and among BANKNORTH GROUP, INC. (the "Company") and (NAME) (the "Executive"); W I T N E S S E T H: WHEREAS, the Executive is employed by the Company in a key executive capacity and possesses intimate knowledge of the business and affairs of the Company; and WHEREAS, the Company desires to ensure, insofar as possible, that it will continue to have the benefit of the Executive's services and to protect its confidential information and goodwill; and WHEREAS, the Company recognizes that circumstances may arise in which a change in the control of the Company occurs, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions; and WHEREAS, the Company and the Executive wish to provide reasonable security to the Executive against changes in the Executive's relationship with the Company in the event of such change in control; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 2 1. DEFINITIONS (a) ACCRUED BENEFITS means: (i) All salary earned or accrued through the date the Executive's employment is terminated; (ii)reimbursement for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive through the date the Executive's employment is terminated; (iii) any and all other compensation previously earned and deferred at the election of the Executive or pursuant to any deferred compensation plans then in effect together with any interest or desired earnings thereon; (iv) annual bonus, if any, accrued for a Year prior to the Year in which employment terminates, but not yet paid to the Executive, under any bonus or incentive compensation plan or plans in which the Executive is a participant; (v) a pro rata portion of the maximum bonus payable to the Executive for the Year in which employment terminates under any bonus or incentive compensation plan or plans in which the Executive is a participant, determined as if the Executive had remained in employment for the full Year and prorated based upon weeks, including partial weeks, of employment during that Year; (vi)all other payments and benefits to which the Executive may be entitled under the terms of any applicable compensation arrangement or benefit plan or program of the Company. (b) ACT means the Securities Exchange Act of 1934, as amended. (c) AFFILIATE of any specified persons means any other person that, directly or 2 3 indirectly, through one or more intermediaries, controls, or is controlled by, or is under direct or indirect common control with such specified person. For the purposes of this definition, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (d) ANNUAL COMPENSATION shall mean the sum of: (i) the Executive's annual base salary at the rate in effect on the date of a termination of employment as described in Section 3 or in Section 7(d) (or, in the event of a termination for Good Reason under Section 1(l)(i)(A) below, the annual base salary as in effect immediately before the actions giving rise to Good Reason); plus (ii) the greatest of the bonuses either paid or accrued in either the Year of the Change in Control or the immediately preceding Year. (e) BASE AMOUNT means an amount equal to the Executive's Annualized Includable Compensation for the Base Period as defined in Section 280G(d)(1) and (2) of the Code (as hereinafter defined). (f) CAUSE means (i) the executive's conviction of, or plea of nolo contendere to, a felony; or (ii) willful and intentional misconduct, willful neglect, or gross negligence, in the performance of the Executive's duties, which has caused a demonstrable and serious injury to the Company, monetary or otherwise. The Executive shall be given written notice that the Company intends to terminate his employment for Cause. Such written notice shall specify the particular acts, or failures to act, on the basis of which the decision to so terminate employment was made. 3 4 In the case of a termination for Cause as described in Clause (ii), above, the Executive shall be given the opportunity within 30 days of the receipt of such notice to meet with the Board to defend such acts, or failures to act, prior to termination. The Company may suspend the Executive's title and authority pending such meeting, and such suspension shall not constitute "Good Reason," as defined in subsection (l) below. (g) CHANGE IN CONTROL of the Company shall mean a Change in Control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Act or any successor thereto, provided that without limiting the foregoing, a Change in Control of the Company also shall mean the occurrence of any of the following events: (i) any "person" (as defined under Section 3(a)(9) of the Act) or "group" of persons (as provided under Rule 13d-3 of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 or otherwise under the Act), directly or indirectly (including as provided in Rule 13d-3(d)(1) of the Act), of capital stock of the Company the holders of which are entitled to vote for the election of directors ("voting stock") representing that percentage of the Company's then outstanding voting stock (giving effect to the deemed ownership of securities by such person or group, as provided in Rule 13d-3(d)(1) of the Act, but not giving effect to any such deemed ownership of securities by another person or group) equal to or greater than twenty- five percent (25%) of all such voting stock; (ii) During any period of twenty four consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Company (including for this purpose any new director whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still 4 5 in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors of the Company (excluding any Board seat that is vacant or otherwise unoccupied). (iii) There shall be consummated any consolidation, merger, stock for stock exchange or similar transaction (collectively, "Merger Transactions") involving securities of the Company in which holders of voting stock of the Company immediately prior to such consummation own, as a group, immediately after such consummation, voting stock of the Company (or, if the Company does not survive the Merger Transaction, voting securities of the corporation surviving such transaction) having less than 50% of the total voting power in an election of directors of the Company (or such other surviving corporation). (h) CODE means the Internal Revenue Code of 1986, including any amendments thereto. (i) COMPANY RETIREMENT PLAN is defined in Section 1(q) below. (j) EFFECTIVE DATE means the date this Agreement is executed by the parties. (k) EMPLOYMENT PERIOD means a period commencing on the date of a Change in Control of the Company and ending on the earlier of (i) the last day of the twenty-fourth month following the month in which the Change in Control occurs, or (ii) the Executive's Normal Retirement Date. (l) GOOD REASON means: (i) any breach of this Agreement by the Company, including without limitation (A) any reduction during the employment period in the amount of the Executive's base salary or aggregate benefits as in effect from time to time, (B) failure to provide the Executive with the same fringe benefits that were provided to the Executive immediately prior to a Change 5 6 in Control of the Company, or with a package of fringe benefits (including paid vacations) that, though one or more of such benefits may vary from those in effect immediately prior to such a Change in Control, is substantially comparable in all material respects to such fringe benefits taken as a whole, or (C) any other breach by the Company of its obligations contained in Section 6 below; (ii) without the Executive's express written consent, the assignment to the Executive of any duties which are materially inconsistent with the Executive's positions, duties, responsibilities and status immediately prior to the Change in Control of the Company, a material change in the Executive's reporting responsibilities, titles or offices as an employee and as in effect immediately prior to the Change in Control, or a significant reduction, in the Executive's title, duties or responsibilities, or in the level of his support services; (iii) the relocation of the Executive's principal place of employment, without the Executive's written consent, to a location outside the same metropolitan area in which the Executive was employed at the time of such Change in Control, or the imposition of any requirement that the Executive spend more than ninety business days per year at a location other than such principal place of employment; or (iv) any purported termination of the Executive's employment for Cause, Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (n) below. Upon the occurrence of any of the events described in (i), (ii), (iii), or (iv) above, the Executive shall give the Company written notice that such event constitutes Good Reason, and the Company shall thereafter have thirty (30) days in which to cure. If the Company has not cured in that time, the event shall constitute Good Reason. 6 7 (m) NORMAL RETIREMENT DATE means Normal Retirement Date as defined in the Peoples Heritage Financial Group, Inc. Retirement Plan. (n) NOTICE OF TERMINATION shall mean a notice which shall indicate the specific termination provision relied upon in this Agreement and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (o) PERSON or GROUP means a "person" or "group," as defined in Section 1(g)(i) hereof. (p) PLAN YEAR with respect to any of the Retirement Plan, the Thrift Plan (as defined below) or the Employee Stock Ownership Plan, the "plan year" as defined in such plan. (q) RETIREMENT PLAN means the Peoples Heritage Financial Group, Inc. Retirement Plan or any successor plan. (r) SERP AGREEMENT means the Supplemental Retirement Agreement between the Executive and the Company. (s) YEAR means a calendar year unless otherwise specifically provided. 7 8 2. TERM OF AGREEMENT. This Agreement shall begin on the date first set forth above and shall continue until January 1, 2003, provided that, on that date, and on each succeeding January 1, the term shall be renewed for an additional period of one year unless either party has given written notice that the term is not so renewed, which notice must be delivered to the other party at least ninety (90) days prior to the date of any such renewal, and further provided that if a Change in Control of the Company occurs during such term, the term shall in all events continue through the last day of the Employment Period. This Agreement is also subject to earlier termination as provided in Section 3 below. All rights and obligations hereunder shall survive to the extent necessary to the intended enforcement thereof. 3. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. (a) The Company and the Executive shall each retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company. In the event the Executive's employment is terminated prior to a Change in Control of the Company, this Agreement shall, except as provided in Subsection (b) below, be terminated and of no further force and effect, and any and all rights and obligations of the parties hereunder shall cease. (b) If the Executive's employment is terminated by the Company prior to the occurrence of a Change in Control of the Company, and if it can be shown that the Executive's termination (i) was at the direction or request of a third party that had taken steps reasonably calculated to effect the Change in Control of the Company thereafter, or (ii) otherwise occurred in connection with, or in anticipation of, the Change in Control of the Company, the Executive shall have the rights described in Section 7(d) below, as if a Change in Control of the Company 8 9 had occurred on the date immediately preceding such termination. 4. EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. If a Change in Control of the Company occurs when the Executive is employed by the Company, the Company will continue thereafter to employ the Executive, and the Executive will remain in the employ of the Company, during the Employment Period, in accordance with the terms and provisions of this Agreement. 5. DUTIES. During the Employment Period, the Executive shall serve in such capacities and positions as may be assigned by the Company consistent with the Executive's capacities and positions on the Effective Date and shall devote the Executive's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Company, as such business and affairs now exist and as they may hereafter be conducted. 6. COMPENSATION. During the Employment Period, the Executive shall be compensated by the Company as follows: (a) the Executive shall receive, at such intervals and in accordance with such standard policies as in effect on the date of the Change in Control of the Company, an annual base salary not less than the Executive's annual base salary as in effect on the date of the Change in Control of the Company, subject to adjustment as hereinafter provided; (b) the Executive shall be included in all plans providing incentive compensation to executives, including but not limited to bonus, deferred compensation, annual or other incentive compensation, supplemental pension, stock ownership, stock option, stock appreciation, stock bonus and similar or comparable plans as any such plans are extended by the 9 10 Company from time to time to senior corporate officers, key employees and other employees of comparable status; (c) the Executive shall be reimbursed, at such intervals and in accordance with such standard policies as may be in effect on the date of the Change in Control of the Company, for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company, including travel expenses; (d) the Executive shall be included, to the extent eligible thereunder, in any and all plans providing but not limited to, group life insurance, hospitalization, disability, medical, dental, pension, profit sharing and stock bonus plans, and shall be provided any and all other benefits and perquisites made available to other employees of comparable status and position at the expense of the Company on a comparable basis; (e) the Executive shall receive annually not less than the amount of paid vacation and not fewer than the number of paid holidays received annually immediately prior to the Change in Control of the Company or available annually to other employees of comparable status and position with the Company; and (f) During the Employment Period the Board of Directors of the Company, or an appropriate committee thereof, will consider and appraise, at least annually, the contributions of the Executive to the Company's operating efficiency, growth, production and profits and, in accordance with past practice, due consideration shall be given to the upward adjustment of the Executive's compensation rate, at least annually, commensurate with increases generally given to other senior corporate officers and key employees and as the scope of the Executive's duties expands. 10 11 7. TERMINATION OF EMPLOYMENT. Any termination by the Company or the Executive of the Executive's employment during the Employment Period shall be communicated by written Notice of Termination to the Executive if such notice is delivered by the Company and to the Company if such notice is delivered by the Executive. The Notice of Termination shall comply with the requirements of Section 1(n). (a) TERMINATION FOR DISABILITY. If during the Employment Period, the Executive's employment is terminated on account of the Executive's disability, as determined under the Company's long-term disability plan (as in effect on the date of a Change in Control of the Company), the Executive shall receive all Accrued Benefits, if any, and shall remain eligible for all benefits as provided pursuant to the terms of any long-term disability programs of the Company in effect at the time of such termination. (b) TERMINATION ON THE EXECUTIVE'S DEATH. If, during the Employment Period, the Executive's employment is terminated on account of the Executive's death, the Executive's estate or his designated beneficiary (or beneficiaries), as applicable, shall receive the Accrued Benefits. (c) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. If, during the Employment Period, (i) the Executive shall terminate employment with the Company other than for Good Reason, or (ii) the Executive's employment is terminated for Cause, the Executive shall receive from the Company only the Accrued Benefits. (d) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Executive's employment with the Company is terminated by the Company other than for Cause, or by the Executive for Good Reason, then: 11 12 (i) the Executive shall be entitled to receive from the Company the Accrued Benefits, except that, for this purpose, Accrued Benefits shall not include any entitlement to severance under any Company severance policy generally applicable to the Company's salaried employees; (ii) the Executive shall receive from the Company, no less than ten (10) days following termination of his employment, a lump sum payment (the "Termination Payment") equal to three times the Annual Compensation; (iii) for purposes of determining the Executive's benefit under the SERP Agreement, the Executive shall be credited with 36 additional months of age and of service determined as follows: (A) The additional 36 months of age and service shall be applied for purposes of benefit accrual, vesting, eligibility for early retirement, subsidized early retirement factors, actuarial equivalence and any other purposes under the Retirement Plan and the SERP Agreement. (B) Any provision under the Retirement Plan or the SERP Agreement prohibiting the accrual of any additional benefits after the Executive has been credited with more than a stated number of years of service shall be disregarded. (C) For purposes of determining the amount of the Executive's benefit under the SERP Agreement, the reduction in respect of the benefit paid under the Retirement Plan shall be based on the Executive's actual Retirement Plan benefit (that is, without any additional deemed service). (D) For purposes of determining the Early Retirement Benefit (as 12 13 defined in the SERP Agreement) and other optional forms of benefit under the SERP Agreement, if the Executive is less than fifty-five (55) years of age, the Executive shall be deemed to be at least fifty-five (55) years of age on the date his employment with the Company terminates, notwithstanding the Executive's actual age, if less. (E) the Benefit Computation Base (as defined in the SERP Agreement) shall be determined as if it were being calculated at the end of the 36 month period of service credited to the Executive under this Section 7(d)(iii) and as if during such 36 additional month period the Executive's annualized compensation was the same as such compensation for (I) the Year during which the Executive's employment is terminated, or, (II) any Year before the Change in Control occurred, whichever is greater. (F) Any amendment to the Retirement Plan within the twelve (12) month period prior to the termination of the Executive's employment shall be disregarded to the extent that the application of such amendment would decrease the total amount of the benefits provided for in this Section 7(d)(iii). (G) The Executive shall be entitled to a lump sum distribution of his SERP in all events, and the Company shall not be entitled to require payment over a longer period. If the Executive elects a lump sum payment (i) the actuarial equivalent benefit shall be determined in accordance with the provisions of the Retirement Plan as in effect immediately prior to the Change in Control, or as in effect on termination of the Executive's employment, whichever creates the greater benefit, and (ii) payment shall be made within thirty (30) days following the later of (A) termination of the Executive's employment, or (B) the date the Executive gives written notice of the Executive's intent to elect a lump sum. (iv) the Executive shall be paid a lump sum amount equal to (A) the 13 14 sum of (I) the aggregate contributions and forfeitures allocated to the Executive's account under the Peoples Heritage Financial Group, Inc. Profit Sharing and Employee Stock Ownership Plan (the "Employee Stock Ownership Plan") for the Plan Year ending immediately prior to the Change of Control, or, if different, the Plan Year ending immediately prior to the termination of the Executive's employment, whichever Plan Year would produce the greater aggregate value, (II) the total aggregate value of all contributions, other than elective contributions by the Executive and employer matching contributions relating thereto, and forfeitures allocated to the Executive's account under the Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Thrift Plan") for the Plan Year ending immediately prior to the Change of Control, or, if different, the Plan Year ending immediately prior to the termination of the Executive's employment, whichever Plan Year would produce the greater aggregate value, and (III) (A) the matching contributions under the Thrift Plan (or its successor) which would have been credited under such plan on Executive's behalf, if the Executive had contributed the maximum salary deferral contribution allowable under Section 402(g) of the Code, for the calendar year in which he terminated employment with the Company, multiplied by (B) three (3). (v) all rights under any equity or long-term incentive plan shall be fully vested; (vi) the Executive shall (A) continue to be covered at the expense of the Company by the same or equivalent hospital, medical, dental, accident, disability and life insurance coverage as in effect for the Executive immediately prior to termination of his employment, until the earlier of (I) 36 months following termination of employment, or (II) the date the Executive has commenced new employment and has thereby become eligible for comparable benefits; provided that, with respect to any of the coverages described above, if such 14 15 coverage is provided through an insurance policy with an insurance company unaffiliated with the initial Company, and if under the terms of the applicable policy, it is not possible to provide continued coverage (including if continued coverage under the policy would increase the Company's cost allocable to the Executive by more than 100%), then the Company shall pay the Executive a lump sum cash amount, no later than sixty (60) days following termination of employment an amount equal to twice the aggregate allocable cost of such coverage as applicable immediately prior to termination of employment, such payment to be made without any discount for present value. 8. CERTAIN SUPPLEMENTAL PAYMENTS BY THE COMPANY. (a) In the event the Executive's employment is terminated pursuant to Section 7(d) above, and if in connection therewith it is determined that (i) part or all of the compensation and benefits to be paid to the Executive constitute "parachute payments" under Section 280G of the Code, and (ii) the payment thereof will cause the Executive to incur excise tax under Section 4999 of the Code, the Company, on or before the date for payment of such excise tax, shall pay the Executive, in lump sum, an amount (the "Gross-Up Amount") such that, after payment of all federal, state and local income tax and any additional excise tax under Section 4999 of the Code in respect of the Gross-Up Amount payment, the Executive will be fully reimbursed for the amount of such excise tax. (b) The determination of the Parachute Amount, the Base Amount and the Gross-Up Amount, as well as any other calculations necessary to implement this Section 8 shall be made by a nationally recognized accounting or benefits consulting firm selected by the Executive and reasonably satisfactory to the Company and which has not performed services, other than minor indirect or incidental services, for either the Company or the Executive for three 15 16 years prior to the date the Consultant is retained for this purpose. The Consultant's fee shall be paid by the Company. (c) As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement and shall promptly pay to or distribute for the benefit of the Executive in the future such amounts as become due to the Executive under this Agreement. (d) As a result of the uncertainty in the application of Section 280G of the Code at the time of an initial determination hereunder, it is possible that payments will not have been made by the Company which should have been made under clause (a) of this Section 8 ("Underpayment"). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Underpayment has been made and the Executive thereafter is required to make any payment of an excise tax, income tax, any interest or penalty, the accounting or benefits consulting firm selected under clause (b) above shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 9. FURTHER OBLIGATIONS OF THE EXECUTIVE. (a) CONFIDENTIALITY. During and following the Executive's employment by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company, except to the extent authorized in writing by the Board of Directors of the Company or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the 16 17 Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials or copies thereof, relating to the Company's business which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. (b) NON-SOLICITATION. For the period from the Effective Date until the second anniversary of the termination of the Executive's employment, the Executive will not, directly or indirectly, contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) any officer of the Company, or its affiliates, other than on the Company's behalf, without the prior written consent of the Company. 10. EQUITABLE RELIEF. Executive acknowledges and agrees that in the event of a breach by Executive of any of the provisions of Section 9 hereof, the Company shall suffer irreperable harm for which monetary damages alone will constitute an insufficient remedy. Consequently, in the event of any such breach, the Company may, in addition to other rights and remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages. 17 18 11. EXPENSES AND INTEREST. If, after a Change in Control of the Company, a good faith dispute arises with respect to the enforcement of the Executive's rights under this Agreement, or if any legal or arbitration proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, the Executive shall recover from the Company any reasonable attorney's fees and necessary costs and disbursements incurred as a result of such dispute, and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by Peoples Heritage Bank, N.A. or the successor thereto, from time to time as its prime rate from the date that payments to him should have been made under this Agreement. 12. PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation during and after the Employment Period to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company will not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reason whatever except as provided in Section 8(d) above. 13. SUCCESSORS. (a) If the Company sells, assigns, or transfers all or substantially all of its business and assets to any Person, excluding Affiliates of the Company, or if the Company merges into or consolidates or otherwise combines with any Person which is a continuing or 18 19 successor entity, then the Company shall assign all of its rights, title and interest in this Agreement as of the date of such event to the Person which is either the acquiring or successor Company, and such Person shall assume in writing and perform from and after the date of such written assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such written assignment shall be a breach of this Agreement. In case of such assignment by the Company and of written assumption and agreement by such Person, all further rights as well as all other obligations of the Company under this Agreement thenceforth shall cease and terminate and thereafter the expression "the Company" wherever used herein shall be deemed to mean such Person or Persons. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive hereunder shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. This Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor, surviving or resulting Company or other entity to which all or substantially all of the Company's business and assets shall be transferred. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. 14. ENFORCEMENT. The provisions of this Agreement shall be regarded as divisible, and if any such provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 15. AMENDMENT. This Agreement may not be amended or modified at any time except by a written instrument executed by the Company and the Executive if such amendment 19 20 or modification occurs before any Change in Control, or by the Executive and the Company after any Change in Control. 16. WITHHOLDING. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes, or charge which it is from time to time required to withhold. The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. 17. GOVERNING LAW This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Maine. 18. ARBITRATION. Any dispute arising out of this Agreement shall be determined by arbitration in the State of Maine under the rules of the American Arbitration Association then in effect and judgment upon any award pursuant to such arbitration may be enforced in any court having jurisdiction thereof. 19. NOTICE. Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received and, if mailed, shall be mailed by United States registered or certified mail, return receipt requested, addressee only postage prepaid, to the Company at: Banknorth Group, Inc P.O. Box 9540 One Portland Square Portland, ME 04112 Attn: Clerk or if to the Executive, at the address included in the Company's records, or to such other address as the party to be notified shall have given to the other. 20 21 20. NO WAIVER. No waiver by any party at any time of any breach by another party of, or compliance with, any condition or provision of this Agreement to be performed by another party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time. 21. HEADINGS. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including but not limited to summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby; provided however, that the terms of the SERP Agreement, the Retirement Plan, the Thrift Plan, the Employee Stock Ownership Plan, and any effective applicable employment agreement shall be incorporated herein and made a part hereof to the extent not inconsistent with the terms hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. THE COMPANY BANKNORTH GROUP, INC. By: - - ----------------------------- ------------------------------------- Witness William J. Ryan Chairman, President and Chief Executive Officer - - ----------------------------- ------------------------------------- Witness (NAME) 21 EX-10.(F)(2) 5 b38140bgex10-f2.txt 1ST AMENDMENT TO SUPP RETIREMENT AGREEMENT 1 Exhibit 10(f)(2) FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT THIS FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT (this "Amendment") is made and entered into as of this _____ day of February, 2001 by and between Banknorth Group, Inc. (formerly known as Peoples Heritage Financial Group, Inc. and hereinafter referred to as the "Company"), and William J. Ryan (the "Executive"). RECITALS: A. The Company and the Executive are parties to a certain Supplemental Retirement Agreement dated as of January 1, 1996 (the "Original Agreement"). The Original Agreement, as amended by this Agreement is referred to as the "Agreement." B. Since the date of the Original Agreement, the Company has adopted the Banknorth Group. Inc. Supplemental Retirement Plan (as amended, the "SERP Plan") and the Company and the Executive now wish to amend the Original Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree and amend the Original Agreement as follows: 1. AMENDMENTS. 1.1 ALTERNATIVE BENEFIT. Notwithstanding anything to the contrary in the Original Agreement or in the SERP Plan (including, without limitation, 1 2 Article Three thereof), if on the date that benefits become payable under the Original Agreement, the actuarial equivalent of the aggregate amount of the benefits payable to the Executive under the terms of the Original Agreement is less than the actuarial equivalent of the aggregate amount of the benefits to which the Executive would be entitled under the SERP Plan if he were "Participant" (as defined in the SERP Plan) in the SERP Plan (such amount, the "Alternative Benefit"), the Executive shall be entitled to benefits payable in accordance with the terms of the Original Agreement but in an aggregate amount equal to the actuarial equivalent of the Alternative Benefit instead of in an aggregate benefit amount determined under the Original Agreement. Whenever an "actuarial equivalent" is required to be determined under this Amendment, such actuarial equivalent shall be determined in the manner prescribed for determining actuarial equivalents under the Original Agreement. 1.2 OPTIONAL FORMS OF PAYMENT. Section 2.04 of the Agreement is hereby amended by deleting the second to last sentence thereof in its entirety and replacing it with the following: "In addition, the Executive may elect a lump sum under this plan." The purpose of the amendment set forth in this Section 1.2 is to make clear that, if the Executive elects lump sum payment, the Company shall not have any right to require that payment be made over a period of five years. 2. NO FURTHER MODIFICATION. Except as expressly amended hereby, the Agreement remains unmodified and in full force and effect. 2 3 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Maine without regard to its conflicts of laws principles. 4. SEVERABILITY. Each provision of this Amendment is intended to be severable and the invalidity, illegality or unenforceability of any portion of this Amendment shall not affect the validity, legality and enforceability of the remainder. 3 4 IN WITNESS WHEREOF, the Company and the Executive have caused this Amendment to be executed as of the date and year first above written. BANKNORTH GROUP, INC. f/k/a PEOPLES HERITAGE FINANCIAL GROUP, INC. By: - - ---------------------------------- ---------------------------------------- Witness Name: Title: - - ---------------------------------- ---------------------------------------- Witness William J. Ryan 4 EX-10.(G)(2) 6 b38140bgex10-g2.txt 1ST AMENDMENT TO SUPP RETIREMENT AGGREMENT 1 Exhibit 10(g)(2) FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT THIS FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT (this "Amendment") is made and entered into as of this _____ day of ________, 2001 by and between Banknorth Group, Inc. (formerly known as Peoples Heritage Financial Group, Inc. and hereinafter referred to as the "Company"), and Peter Verrill (the "Executive"). RECITALS: A. The Company and the Executive are parties to a certain Supplemental Retirement Agreement dated as of ____________ (the "Original Agreement"). The Original Agreement, as amended by this Agreement is referred to as the "Agreement." B. Since the date of the Original Agreement, the Company has adopted the Banknorth Group. Inc. Supplemental Retirement Plan (as amended, the "SERP Plan") and the Company and the Executive now wish to amend the Original Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree and amend the Original Agreement as follows: 1. AMENDMENTS. 1.1 ALTERNATIVE BENEFIT. Notwithstanding anything to the contrary in the Original Agreement or in the SERP Plan (including, without limitation, Article Three thereof), if 1 2 on the date that benefits become payable under the Original Agreement, the actuarial equivalent of the aggregate amount of the benefits payable to the Executive under the terms of the Original Agreement is less than the actuarial equivalent of the aggregate amount of the benefits to which the Executive would be entitled under the SERP Plan if he were "Participant" (as defined in the SERP Plan) in the SERP Plan (such amount, the "Alternative Benefit"), the Executive shall be entitled to benefits payable in accordance with the terms of the Original Agreement but in an aggregate amount equal to the actuarial equivalent of the Alternative Benefit instead of in an aggregate benefit amount determined under the Original Agreement. Whenever an "actuarial equivalent" is required to be determined under this Amendment, such actuarial equivalent shall be determined in the manner prescribed for determining actuarial equivalents under the Original Agreement. 1.2 OPTIONAL FORMS OF PAYMENT. Section 2.04 of the Agreement is hereby amended by deleting the second to last sentence thereof in its entirety and replacing it with the following: "In addition, the Executive may elect a lump sum under this plan." The purpose of the amendment set forth in this Section 1.2 is to make clear that, if the Executive elects lump sum payment, the Company shall not have any right to require that payment be made over a period of five years. 2. NO FURTHER MODIFICATION. Except as expressly amended hereby, the Agreement remains unmodified and in full force and effect. 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Maine without regard to its conflicts of laws principles. 4. SEVERABILITY. Each provision of this Amendment is intended to be severable and the 2 3 invalidity, illegality or unenforceability of any portion of this Amendment shall not affect the validity, legality and enforceability of the remainder. 3 4 IN WITNESS WHEREOF, the Company and the Executive have caused this Amendment to be executed as of the date and year first above written. BANKNORTH GROUP, INC. f/k/a PEOPLES HERITAGE FINANCIAL GROUP, INC. By: - - ---------------------------------- ---------------------------------------- Witness Name: Title: - - ---------------------------------- ---------------------------------------- Witness Peter Verrill 4 5 S:\BACHELDE\Banknorth\SERP\Special Project\Verrill SERP Amendment.3-15.01.doc Anthony H. Dowling 15 March 01 05:36 PM 5 EX-10.(I)(2) 7 b38140bgex10-i2.txt 1ST AMENDMENT TO SUPP RETIREMENT AGREEMENT 1 Exhibit 10(i)(2) FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT THIS FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT (this "Amendment") is made and entered into as of this _____ day of ________, 2001 by and between Banknorth Group, Inc. (formerly known as Peoples Heritage Financial Group, Inc. and hereinafter referred to as the "Company"), and ___________ (the "Executive"). RECITALS: A. The Company and the Executive are parties to a certain Supplemental Retirement Agreement dated as of ____________ (the "Original Agreement"). The Original Agreement, as amended by this Agreement is referred to as the "Agreement." B. The Company and the Executive wish to amend the Original Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree and amend the Original Agreement as follows: 1. AMENDMENT. Section 2.04 of the Agreement is hereby amended by deleting the second to last sentence of thereof in its entirety and replacing it with the following: "In addition, the Executive may elect a lump sum under this plan." The purpose of this Amendment is to make clear that, if the Executive elects lump sum payment, the 1 2 Company shall not have any right to require that payment be made over a period of five years. 2. NO FURTHER MODIFICATION. Except as expressly amended hereby, the Agreement remains unmodified and in full force and effect. 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Maine without regard to its conflicts of laws principles. 4. SEVERABILITY. Each provision of this Amendment is intended to be severable and the invalidity, illegality or unenforceability of any portion of this Amendment shall not affect the validity, legality and enforceability of the remainder. 2 3 IN WITNESS WHEREOF, the Company and the Executive have caused this Amendment to be executed as of the date and year first above written. BANKNORTH GROUP, INC. f/k/a PEOPLES HERITAGE FINANCIAL GROUP, INC. By: - - ---------------------------------- ---------------------------------------- Witness Name: Title: - - ---------------------------------- ---------------------------------------- Witness 3 EX-10.(J) 8 b38140bgex10-j.txt AMENDED AND RESTATED DEFERRED COMPENSATION PLAN 1 Exhibit 10(j) AMENDED AND RESTATED BANKNORTH GROUP, INC. 2000 DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS AND KEY EMPLOYEES ARTICLE ONE - GENERAL The name of the Plan was originally the Peoples Heritage Financial Group, Inc. 1998 Deferred Compensation Plan for Non-Employee Directors and Key Employees (the "Plan"). Pursuant to this Amendment and Restatement, the name of the Plan is the Banknorth Group, Inc. 2000 Deferred Compensation Plan for Non-Employee Directors and Key Employees. The purpose of the Plan is to provide a deferred compensation program for Non-Employee Directors of Banknorth Group, Inc. ("Banknorth") and affiliates of Banknorth whose inclusion in this Plan has been approved by Banknorth's Board of Directors (the "Designated Affiliates"), and certain Key Employees. (Banknorth and the Designated Affiliates are hereinafter collectively referred to as the "Companies" or individually as the "Company".) ARTICLE TWO - ADMINISTRATION 2.01 ADMINISTRATOR. Subject to Section 6.05, the Plan shall be administered by Banknorth's Board of Directors (the "Board") or a committee thereof (the Board or committee is hereinafter referred to as the "Administrator"). The Administrator shall interpret the Plan, shall prescribe, amend and rescind rules relating to it from time to time as it deems proper and in the best interests of the Company, and shall take any other action necessary for the administration of the Plan. Any decision or interpretation adopted by the Administrator shall be final and conclusive, and shall be binding upon all Participants. ARTICLE THREE - PARTICIPATION 2 3.01 PARTICIPATION. Any individual who, as of the Effective Date, is (a) a Non-Employee Director, as defined in Section 3.02(b) below, or (b) a Key Employee, as defined in Section 3.02(c) below, shall be eligible to become a Participant on the Effective Date. Any individual who, after the Effective Date, becomes a Non-Employee Director or a Key Employee shall become eligible on the date determined by guidelines established by the Administrator. Eligible individuals who elect to defer Compensation shall be referred to as "Participants". 3.02 KEY DEFINITIONS. For purposes of the Plan: (a) "COMPENSATION" (i) when applied to Non-Employee Directors shall mean annual retainer and meeting fees, if any, for each regular or special meeting and for any committee meetings attended, and (ii) when applied to Key Employees shall mean annual base salary and bonus. (b) "NON-EMPLOYEE DIRECTOR" means a person who is a member of the Board of Directors of: (i) Banknorth, or (ii) a Designated Affiliate provided such person is not otherwise employed by any of the Companies. (c) "KEY EMPLOYEE" means an employee of any of the Companies (i) whose position is designated at Level 20 or above, or (ii) who deferred compensation according to the terms and conditions of the Peoples Heritage Financial Group, Inc. Senior Management Deferred Compensation Plan, as Amended and Restated as of June 1, 1990. 3 ARTICLE FOUR - DEFERRAL 4.01 ELECTION. Subject to the limitations stated below, each Participant shall be given the opportunity to elect to defer a portion of his or her Compensation to be earned in a given calendar year (a "Year"). Any such election shall be on a form provided by the Administrator and, except as provided below, shall be filed in the Year prior to the Year in which the Compensation is earned. (An election to defer Compensation as provided herein shall be referred to as a "Deferral Election" or an "Election".) A Deferral Election shall be effective to defer compensation for only the single Year to which it relates. 4.02 LIMIT. A Non-Employee Director may elect to defer up to one hundred percent (100%) of his or her Compensation for a Year. A Key Employee may elect to defer up to, but no more than, twenty-five percent (25%) of his or her base salary for a Year, and up to one hundred percent (100%) of his or her bonus for a Year. 4.03 IRREVOCABILITY. Any Deferral Election under this Plan shall be irrevocable. 4.04 SPECIAL RULE. The Administrator, in its sole discretion, may establish guidelines enabling Participants to file Deferral Elections with respect to bonus earned in the same Year as the Election, provided the Election is filed prior to the time when, in the determination of the Administrator, the amount of such bonus is determinable. 4.05 MANDATORY BONUS DEFERRALS From time to time the Company may require the deferral of all or a portion of 4 bonuses paid to certain members of senior management of Banknorth in order to comply with provisions of Federal income tax law. If payment of all or a portion of any bonus earned by a Key Employee is thus deferred by the Company under an applicable bonus plan, such deferral shall be referred to herein as a "Mandatory Deferral". A Mandatory Deferral shall be invested and paid according to the terms of the Deferral Election made with respect to it. Should a Key Employee who is then a Participant fail to make such an election, the Mandatory Deferral shall be according to the terms and conditions of his or her most recent Deferral Election. In all other cases, the Mandatory Deferral shall be treated as prescribed in ARTICLE FIVE for Deferral Elections that fail to state a Payment Commencement Date, a Payment Election or an Investment Election, as applicable." ARTICLE FIVE - DEFERRED COMPENSATION 5.01 DEFERRAL PERIOD. (a) If a Participant makes a Deferral Election, the amount of Compensation deferred shall be reflected in a Deferral Account, as defined in Section 5.02 below, until the date provided in this Section 5.01 (the "Payment Commencement Date"). The Payment Commencement Date for a Participant means the date elected by such Participant, provided that the date elected must be: (i) the tenth (10th) business day after the date on which such Participant ceases to be a Non-Employee Director or Key Employee, as applicable, (ii) the first business day on or after the fifth anniversary of the date on which such Participant ceases to be a Non-Employee Director or Key Employee, as applicable, or (iii) the first business day on or after such Participant's sixty-fifth (65th) 5 birthday. (b) A Participant must make such election (the "Payment Commencement Date Election") on a form and in the manner prescribed by the Administrator, which may be the same as the form described in Section 4.01 above. In the absence of a timely Payment Commencement Date Election, the Payment Commencement Date for such Participant shall be the date described in Section 5.01(a)(i) above. Once a Participant's Payment Commencement Date has been established, it shall apply to all deferred amounts, except as provided in Section 5.01(c) or Section 5.05 below. If a Participant selects a different Payment Commencement Date in a subsequent Deferral Election, such change shall be treated as an amendment, and shall only take effect as provided in Section 5.01(c) below. (c) A Participant may amend his or her Payment Commencement Date Election only as permitted by the Administrator, provided: (i) such amendment or Election shall relate to the Participant's entire Deferral Account; and (ii) unless otherwise permitted by the Administrator in its discretion, (taking into consideration the purposes of the Plan) no such amendment or Election shall take effect until the first anniversary of the date such amendment or Election is filed. (d) The Company shall pay to the Participant (or the Participant's beneficiary in the case of the Participant's death) an amount as described in Section 5.01(f) below, commencing on the Payment Commencement Date, in accordance with an election (a "Payment Election") which shall indicate which of the following payment options the Participant selects: (i) one lump sum payment within ten (10) business days following the Payment Commencement Date; or (ii) one hundred twenty (120) monthly installments 6 as described in Section 5.01(f) below, commencing on the first day of the month next following the month in which the Payment Commencement Date falls. (e) A Payment Election shall be made at the same time and shall be subject to the same provisions as applicable to the Payment Commencement Date Election under Section 5.01(a), (b) and (c) above. In the absence of a timely Payment Election, the Administrator shall pay the entire balance of such Participant's Deferral Account within ten (10) business days following the Payment Commencement Date. (f) The amount of any payments to be made under Section 5.01(d) shall be determined as follows: (i) If a Participant's Deferral Account is to be paid in a lump sum, the amount of such lump sum shall equal the full value of the Participant's Deferral Account on the last day of the calendar month immediately preceding the month in which the Payment Commencement Date occurs. (ii) If a Participant's Deferral Account is to be paid in installments, the amount of each installment shall be determined as follows: (A) With respect to the Participant's Company Stock Account, each installment shall reflect a pro-rata portion of the Participant's "Stock Units", as defined in Section 5.03(a) below, credited to the Participant at the Payment Commencement Date, the value of each installment being determined by reference to the value of shares of "Common Stock", as defined in Section 5.03(b) below. Specifically, each installment shall be in an amount equal to the Price Per Share on the applicable installment payment date multiplied by a fraction, the numerator of which is the total number of Stock Units in such Account on the Participant's Payment Commencement 7 Date, and the denominator of which is the total number of installments; (B) With respect to the Participant's Diversified Account, all installments shall be in substantially equal amounts based on the value of the Diversified Account on the Payment Commencement Date, adjusted for interim income, gains and losses as described in Section 5.04 below through the date of each installment payment. (g) At the sole discretion of the Administrator, payments allocable to the Participant's Company Stock Account may be paid in shares of Common Stock or cash. If the Administrator elects to pay in shares of Common Stock, the number of shares of Common Stock to be paid shall be determined by dividing the cash value of the Participant's Company Stock Account as of the relevant payment date by the Price Per Share, as defined in Section 5.03(b) below, on that date. Payments allocable to the Diversified Account shall be made in cash. 5.02 DEFERRAL ACCOUNT. (a) The Administrator shall cause Banknorth, or other Company, as applicable, to establish a ledger account (the "Deferral Account") for each Participant for the purpose of recording the Company's obligation to pay the Compensation deferred hereunder. (b) Each Deferral Account shall be composed of up to two sub-accounts, a Company Stock Account and a Diversified Account. The value of a Participant's Deferral Account shall equal the sum of the value of the Company Stock Account plus the value of the Diversified Account. The value of the Company Stock Account and the value of the Diversified Account shall be determined according to the provisions of Sections 5.03 and 5.04 hereof respectively. 8 (c) With the Deferral Election, a Participant shall allocate the amount of such deferred Compensation to be credited to the Company Stock Account and the amount to be credited to the Diversified Account (the "Investment Election"). The Investment Election shall be made in the manner and form prescribed by the Administrator. (d) If a Participant fails to make an Investment Election with a Deferral Election, all Compensation deferred pursuant to the Deferral Election will be credited to the Diversified Account. (e) A Participant may elect to transfer some or all of the value of the Participant's Diversified Account to the Participant's Company Stock Account at such times and in such manner as shall be prescribed by the Administrator. Any such election shall be on a form provided by the Administrator (the "Transfer Notice"). Once received by the Administrator, the Transfer Notice shall be irrevocable. (f) Amounts credited to a Participant's Company Stock Account may not be transferred to the Participant's Diversified Account. 9 5.03 COMPANY STOCK ACCOUNT. (a) A Participant's Company Stock Account shall be credited with any amount allocated thereto as follows: on any date on which deferred amounts would otherwise have been paid to the Participant (an "Allocation Date") the Participant's Company Stock Account shall be credited with a number of units ("Stock Units") equal to (i) the amount allocated the Company Stock Account, divided by (ii) the "Price per Share", as defined below, on the Allocation Date. Fractional Stock Units shall be rounded to the nearest 1/10 (one-tenth) of a Stock Unit. On any given day, the value of the Company Stock Account shall equal the number of Stock Units then credited to the Company Stock Account multiplied by the Price per Share on such date. Stock Units do not constitute shares of Common Stock, interests in Common Stock or any other security of the Company. They merely reflect an unfunded promise to pay deferred Compensation in the future. (b) The "Price per Share" shall equal the closing sale price per share at which shares of the common stock of Banknorth, par value $.01 per share ("Common Stock"), are sold on the National Association of Securities Dealers Automated Quotations system ("NASDAQ") on such date or, if no Common Stock was traded on the NASDAQ on such date, the closing sale price at which the Common Stock is sold on the next preceding date the Common Stock was so traded. (c) A Participant's Company Stock Account shall be credited with additional Stock Units on every date Banknorth issues a dividend with respect to its Common Stock. The number of Stock Units so credited will equal (i) the product of (A) the dividend per share of Common Stock times (B) the number of Stock Units in the Participant's 10 Company Stock Account immediately before the dividend is issued, divided by (ii) the Price per Share on the dividend date. A Participant's Company Stock Account shall be reduced by the amount of any distribution to the Participant from such account. (d) In the event of any recapitalization, stock split, stock dividend, exchange of shares, merger, reorganization, change in corporate structure or change in shares of Banknorth or similar event, the Board, upon recommendation of the Administrator, may make appropriate adjustments to the number of Stock Units credited to each Participant's Company Stock Account. 5.04 DIVERSIFIED ACCOUNT. (a) If a Participant has elected to have all or a portion of his or her deferred amount allocated to the Diversified Account, then, on the applicable Allocation Date, the Participant's Diversified Account shall be credited with the amount so allocated. A Participant's Diversified Account shall thereafter be increased by hypothetical earnings and gains, and reduced by hypothetical losses, on such investments as shall be designated by the Administrator from time to time. The method for determining and applying such earnings, gains and losses shall be set by the Administrator in advance. 11 5.05 ACCELERATION OF PAYMENT. (a) The Administrator, in its discretion, may accelerate the payment of the unpaid balance of a Participant's Deferral Account in the event of the Participant's death or Permanent Disability, as defined in Section 6.03 below, or upon its determination that the Participant, or his or her beneficiary, as described in Section 6.02 below, in the case of his or her death, has incurred a severe financial hardship. The Administrator in making its determination may consider such factors and require such information as it deems appropriate. (b) Notwithstanding any contrary provision of this Article Five, in the event of a Change in Control, as defined below, the entire value of each Participant's Deferral Account, determined as of (and taking into account) the Change in Control shall be paid to the Participant in a lump sum within ten (10) days after the date of the Change in Control, provided that at any time prior to a Change in Control, any Participant may elect, on a form provided by the Administrator, that the provisions of Sections 5.01 through 5.04 shall continue to apply in lieu of the lump sum payment described herein (a "Post-Change Deferral Election"). If a Participant makes a Post-Change Deferral Election, the Participant may further elect that if he or she ceases to be a Non-Employee Director or Key Employee, as applicable, involuntarily within one year following a Change in Control, the Payment Commencement Date shall be the fifth Anniversary of the Change in Control. Elections under this Section 5.05 (b) may be changed in accordance with procedures established by the Administrator. No change may be made in any election after the election period ends as provided above. Notice shall be deemed given when (i) delivered by hand, (ii) sent by overnight courier, (iii) or received by certified or registered 12 mail. The address for courier or mail shall be the address on the Company's payroll or other applicable records at the time. For purposes of this Plan a "Change in Control" shall have the meaning provided in the Peoples Heritage Financial Group, Inc. Change- in-Control Protection Plan. (c) If, on the date a Participant ceases to be a Key Employee or, if later, the date the Participant ceases to be a Director (the "Separation Date"), the aggregate value of a Participant's accounts hereunder is no greater than Five Thousand Dollars ($5,000), the Administrator may, in its discretion, accelerate the payment of the entire balance in such Accounts into a single lump sum payment to be made on or promptly following such Separation Date. ARTICLE SIX - GENERAL PROVISIONS 6.01 UNFUNDED OBLIGATION. Any deferred amount to be paid to Participants pursuant to the Plan is an unfunded obligation of the Companies. No Company is required to segregate any monies from its general funds, to create any trusts, or to make any special deposits with respect to its obligation. Any investments and the creation or maintenance of any trust or memorandum accounts shall not create or constitute a trust or a fiduciary relationship between the Administrator or the Company and a Participant, or otherwise create any vested or beneficial interest as to any Participant or the Participant's beneficiary or the Participant's creditors. The Participants shall have no claim against the Company for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan. Neither the Company nor any member of the Board shall be liable to any person for any action taken or omitted in connection with the interpretation 13 and administration of the Plan unless attributable to the Company's or that Board member's own willful misconduct or lack of good faith. 6.02 BENEFICIARY. In the event of a Participant's death, payment of amounts otherwise due hereunder shall be made to the Participant's beneficiary, and in such case all references to a Participant shall, where applicable, apply to the beneficiary. The designation of a beneficiary shall be on a form provided by the Administrator. A Participant may change his or her beneficiary designation at any time. If no beneficiary is designated, if the designation is ineffective, or if the beneficiary dies before the balance of the Deferral Account is paid, the balance shall be paid to the Participant's estate. 6.03 PERMANENT DISABILITY. A Participant shall be deemed to have become disabled for purposes of the Plan if the Administrator finds, upon the basis of medical evidence satisfactory to it, that the Participant is totally disabled, whether due to physical or mental condition, so as to be prevented from engaging in further service to the Company or any of its subsidiaries and that such disability will be permanent and continuous during the remainder of the Participant's life. 6.04 NONASSIGNMENT. The right of a Participant or beneficiary to the payment of any amounts under the Plan may not be assigned, transferred, pledged or encumbered, nor shall such right or other interest be subject to attachment, garnishment, execution or other legal process. 6.05 TERMINATION AND AMENDMENT. The Board may from time to time amend, suspend or terminate the Plan, or any 14 Participant's participation in the Plan, in whole or in part, and if the Plan is suspended or terminated, the Board may reinstate any or all of its provisions. No amendment, suspension or termination may impair the right of a Participant or the Participant's designated beneficiary to receive benefits accrued prior to the effective date of such amendment, suspension or termination, provided that on termination of the Plan, or any Participant's termination therein, the entire unpaid balance of the affected Participant's Deferral Accounts may be forthwith paid in a single lump sum. The Administrator may amend the Plan, without Board approval, to ensure that the Company may obtain any regulatory approval or to accomplish any other reasonable purpose, provided that the Administrator may not effect a change that would materially increase the cost of the Plan to the Company. Notwithstanding the foregoing, the Board and the Administrator may not amend the Plan without the approval of the stockholders of the Company to materially modify the eligibility for participation in the Plan, or otherwise materially increase the benefits accruing to the Participants under the Plan. 15 6.06 EFFECT ON PRIOR PLANS As of the date this Plan becomes effective or, at the discretion of the Committee, such later date as the Administrator secures written consent from all affected participants in Peoples Heritage Financial Group. Inc. Senior Management Deferred Compensation Plan (amended and Restated as of June 1, 1990) or the Peoples Heritage Financial Group. Inc. Directors Deferred Compensation Plan (Amended and Restated as of June 1, 1990)( the "Prior Plans"), all amounts deferred under the Prior Plans shall be treated as amounts deferred under this Plan and shall be allocated to either or both of a Company Stock Account or Diversified Account as elected by each participant pursuant to forms and procedures established by the Administrator. Thereafter, such amounts shall be governed by all terms and conditions of this Plan, participants in the Prior Plans shall become Participants in this Plan and the Prior Plans shall terminate. 6.07 APPLICABLE LAW. The Plan shall be construed and governed in accordance with the laws of the State of Maine. IN WITNESS WHEREOF, the Company has caused the Plan to be executed effective on__________________, 2000. PEOPLES HERITAGE FINANCIAL GROUP, INC. By ------------------------------ Title Executive Vice President ATTEST: EX-10.(O)(3) 9 b38140bgex10-o3.txt 2ND AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(3) SECOND AMENDMENT TO THE PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by a First Amendment effective as of the dates set forth therein. The Plan is hereby further amended as set forth herein, effective January 1, 1997. The terms used in this Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 1. Section 1.4 shall be amended by adding the following sentences at the end thereof: "For purposes of this Section, 'Earnings' shall mean earnings as defined in Section 4.4(a)(iv) and, for Plan Years beginning before January 1, 1998, may, at the election of the Plan Administrator, include amounts excludable from gross income under Sections 125, 402(e)(3) and 402(h)(1)(B) of the Code. For Plan Years beginning on or after January 1, 1998, the Plan Administrator may elect not to include such amounts." 2. Section 1.5 shall be amended by adding the following sentences at the end thereof: "For purposes of this Section, 'Earnings' shall mean earnings as defined in Section 4.4(a)(iv) and, for Plan Years beginning before January 1, 1998, may, at the election of the Plan Administrator, include amounts excludable from gross income under Sections 125, 402(e)(3) and 402(h)(1)(B) of the Code. For Plan Years beginning on or after January 1, 1998, the Plan Administrator may elect not to include such amounts." 3. Section 1.24 shall be amended to read in its entirety as follows: "1.24 'Forfeiture.' The portion of the Company Matching Contribution Account that is forfeited on account of one or more of the following events: (a) distribution of a Participant's entire Vested Interest in his or her Company Matching Contribution Account under Article VIII, (b) the occurrence of the last day of the Plan Year coincident with or next following five (5) consecutive Breaks in Service, or (c) a reduction of Company Matching Contributions under Section 3.7(c). Subject to Section 7.2(c), Forfeitures shall be applied to reduce future Company Matching Contributions." 4. The second paragraph of Section 1.17 shall be amended to read in its entirety as follows: "Notwithstanding the foregoing to the contrary, effective January 1, 1989, the annual Earnings of any Employee in excess of Two Hundred Thousand Dollars ($200,000.00) (or such higher amount as the Secretary of the Treasury may prescribe) shall not be taken into account under the Plan, and, effective January 1, 1994, the annual Earnings of any Employee in excess of One Hundred Fifty Thousand Dollars ($150,000.00) (or such higher amount as the Secretary may prescribe) shall not be taken into account under the Plan. In the event Earnings are determined based on a period of time which contains fewer than twelve (12) calendar months, the annual Earnings limit 2 shall be an amount equal to the annual Earnings limit for the calendar year in which the period begins multiplied by a fraction, the numerator of which is the number of full calendar months and the denominator of which is twelve (12). Effective for Plan Years beginning before January 1, 1997, for purposes of the annual Earnings limit, any Earnings paid to an Employee who is the spouse or a lineal descendant (who has not attained age nineteen (19) by the close of the Plan Year) of an Employee who is a five percent owner (as defined in Section 416(i)(1) of the Code) or one of the ten (10) Highly Compensated Employees paid the highest earnings (as defined in Section 4.4) for the Plan Year shall be treated as paid to or on behalf of such five percent owner or Highly Compensated Employee. If Earnings for a prior Plan Year are taken into account for any Plan Year, such Earnings shall be subject to the annual Earnings limit in effect for such prior Plan Year." 5. Section 1.20 shall be amended by adding the following sentences at the end thereof: "The determination whether an individual is a director or independent contractor under clauses (a) and (b) shall be based upon the classification by the Employer (without regard to the classification of such individual by a third party). Effective upon the acquisition of Morse, Payson & Noyes by the Company, individuals employed by Morse, Payson & Noyes shall not be Employees under the Plan." 6. Section 1.25 shall be amended to read in its entirety as follows: "1.25. 'Highly Compensated Employee' means, effective January 1, 1997 (and, on and after such date, for purposes of determining whether an employee was a Highly Compensated Employee for the Plan Year beginning January 1, 1996), any employee of the Employer or any Affiliate who (a) at any time during the Plan Year or the preceding Plan Year owns (or is considered to own within the meaning of Section 318 of the Code, as modified by Section 416(i)(1)(A)(iii) of the Code) more than five percent (5%) of the outstanding stock of the Company or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Company; or (b) for the preceding Plan Year received compensation (as defined hereinafter in this Section) from the Employer or any Affiliate in excess of eighty thousand dollars ($80,000) (or such higher amount as the Secretary of the Treasury may prescribe) and was in the group consisting of the top twenty percent (20%) of the employees of the Employer and all Affiliates when ranked on the basis of compensation paid during the Plan Year. A former employee of the Employer or an Affiliate shall be treated as a "highly compensated employee" if that employee was a "highly compensated employee" when the employee separated from Service or that employee was a "highly compensated employee" at any time after attaining age fifty-five (55). For purposes of this Section, the term "compensation" means Compensation as defined Section 3.10(g)(ii). The determination of who is a Highly Compensated Employee, including the number and identity of employees in the group consisting of the top twenty percent (20%) of employees described above, shall be made in accordance with Section 414(q) of the Code and the regulations thereunder." 2 3 7. Section 1.49(a)(ii) shall be amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing to the contrary, in the case of a Employee who commences participation in the Plan on or after January 1, 1998, the computation period for vesting purposes shall be the Plan Year." 8. Section 1.49 shall be amended by the addition of the following Paragraphs (e), (f) and (g) at the end thereof: "(e) Effective July 1, 1996, all Years of Service with Bank of New Hampshire Corporation or Bank of New Hampshire prior to the date on which such bank was acquired by the Company shall be recognized for participation and vesting purposes under this Plan. "(f) Effective January 1, 1997, all Years of Service with Family Bancorp or Family Mutual Savings Bank, FSB, prior to the date on which such bank was acquired by the Company shall be recognized for participation and vesting purposes under this Plan. "(g) Effective October 1, 1997, all Years of Service with Atlantic Bancorp or Atlantic Bank, N.A., prior to the date on which such bank was acquired by the Company shall be recognized for participation and vesting purposes under this Plan." 9. Section 2.4 shall be amended by the addition of the following Paragraphs (c), (d), (e) and (f) at the end thereof: "(c) Each Employee who was previously employed by Bank of New Hampshire Corporation or Bank of New Hampshire, immediately prior to the date on which such bank was acquired by the Company, shall be eligible to participate in the Plan as of the later of July 1, 1996, or the first day of the Calendar Quarter coincident with or next following completion of a Year of Service, provided that a Participation Agreement has been filed with the Plan Administrator by the fifteenth day of the month immediately preceding such Calendar Quarter. For purposes of determining whether an Employee described in this Section has completed a Year of Service, his or her service with Bank of New Hampshire Corporation or Bank of New Hampshire shall be taken into account. "(d) Each Employee who was previously employed by Family Bancorp or Family Mutual Savings Bank, FSB, immediately prior to the date on which such bank was acquired by the Company, shall be eligible to participate in the Plan as of the later of January 1, 1997, or the first day of the Calendar Quarter coincident with or next following completion of a Year of Service, provided that a Participation Agreement has been filed with the Plan Administrator by the fifteenth day of the month immediately preceding such Calendar Quarter. For purposes of determining whether an Employee described in this Section has completed a Year of Service, his or her service with Family Bancorp or Family Mutual Savings Bank, FSB, shall be taken into account. 3 4 "(e) Each Employee who was previously employed by Atlantic Bancorp or Atlantic Bank, N.A., immediately prior to the date on which such bank was acquired by the Company, shall be eligible to participate in the Plan as of the late of October 1, 1997, or the first day of the Calendar Quarter coincident with or next following completion of a Year of Service, provided that a Participation Agreement has been filed with the Plan Administrator by the fifteenth day of the month immediately preceding such Calendar Quarter. For purposes of determining whether an Employee described in this Section has completed a Year of Service, his or her service with Atlantic Bancorp or Atlantic Bank, N.A., shall be taken into account." 10. Section 3.6 shall be amended to read in its entirety as follows: "3.6 LIMITATIONS ON ACTUAL DEFERRAL PERCENTAGE. In the event a Participant who is a Highly Compensated Employee participates in two or more cash or deferred arrangements (under Section 401(k) of the Code) that have different plan years, for purposes of this Section, all such arrangements ending with or within the same calendar year shall be treated as a single arrangement. For purposes of this Section, this Plan and any other Code Section 401(k) plan maintained by the Company or any of its Affiliates shall be treated as a single plan if such plans are treated as one plan for purposes of Section 401(a)(4) or Section 410(b) of the Code or if a Highly Compensated Employee participates in such other plan. Plans may be aggregated to satisfy Section 401(k) of the Code only if such plans have the same Plan Year. "(a) The Actual Deferral Percentage for Participants who are Highly Compensated Employees for any Plan Year commencing after December 31, 1996, shall not exceed the greater of: "(i) the Actual Deferral Percentage for all other Participants for the preceding Plan Year multiplied by 1.25; or "(ii) the lesser of the Actual Deferral Percentage for all other Participants for the preceding Plan Year multiplied by 2, or the Actual Deferral Percentage for such Participants for the preceding Plan Year plus two percent (2%). "(b) The sum of the Actual Deferral Percentage for Participants who are Highly Compensated Employees and the Contribution Percentage for Participants who are Highly Compensated Employees for any Plan Year commencing after December 31, 1996, shall not exceed the greater of: "(i) the sum of (A) the greater of the Actual Deferral Percentage for all other Participants for the preceding Plan Year multiplied by 1.25 or the Contribution Percentage for all other Participants for the preceding Plan Year multiplied by 1.25, and (2) the lesser of the Actual Deferral Percentage for all other Participants for the preceding Plan Year plus 2 or the Contribution Percentage for all other Participants for the preceding Plan Year plus 2, provided 4 5 that in no event shall such percentage plus 2 exceed such percentage multiplied by 2. "(ii) the sum of (1) the lesser of the Actual Deferral Percentage for all other Participants for the preceding Plan Year multiplied by 1.25 or the Contribution Percentage for all other Participants for the preceding Plan Year multiplied by 1.25, and (2) the greater of the Actual Deferral Percentage for all other Participants for the preceding Plan Year plus 2 or the Contribution Percentage for all other Participants for the preceding Plan Year plus 2, provided that in no event shall such percentage plus 2 exceed such percentage multiplied by 2. "Paragraph (b) of this Section shall not apply if the respective Actual Deferral Percentage and Average Contribution Percentage of the Highly Compensated Employees for any Plan Year commencing after December 31, 1996, does not exceed the respective Actual Deferral Percentage and Average Contribution Percentage of all other Participants for the preceding Plan Year multiplied by 1.25. "Notwithstanding the foregoing provisions of this Section to the contrary, with respect to the Plan Year commencing January 1, 1997, the Plan Administrator may elect, pursuant to IRS Notice 97-2, to apply Paragraphs (a) and (b) of this Section by substituting the phrase "such Plan Year" for the phrase "the preceding Plan Year" in said Paragraphs and in the sentence immediately following Paragraph (b). "For purposes of this Section, Salary Deferrals and Company Matching Contributions must be made before the last day of the twelve (12) month period immediately following the Plan Year to which such contributions relate. For purposes of this Section, any Salary Deferrals returned to a Participant pursuant to Section 4.4 shall be disregarded. "The Company shall maintain records sufficient to demonstrate compliance with this Section and the amount of any Company Matching Contributions used to satisfy this Section. The determination and treatment of the contributions on behalf of any Participant that are taken into account for purposes of this Section shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury." 11. Section 3.8 shall be amended to read in its entirety as follows: "3.8 SPECIAL RULES FOR COMPANY MATCHING CONTRIBUTIONS. "(a) The Contribution Percentage for Participants who are Highly Compensated Employees for any Plan Year commencing after December 31, 1996, shall not exceed the greater of: "(i) the Contribution Percentage for all other Participants for the preceding Plan Year multiplied by 1.25; or 5 6 "(ii) the lesser of the Contribution Percentage for all other Participants for the preceding Plan Year multiplied by 2, or the Contribution Percentage for such Participants for the preceding Plan Year plus two percent (2%). "Notwithstanding the foregoing provisions to the contrary, with respect to the Plan Year beginning January 1, 1997, the Plan Administrator may elect, pursuant to IRS Notice 97-2, to apply this Paragraph (a) by substituting the phrase "such Plan Year" for the phrase "the preceding Plan Year." "(b) For purposes of this Section, if two or more qualified plans maintained by the Company or any of its Affiliates are treated as one plan to meet the requirements of Section 401(a)(4), Section 410(b) or Section 401(m) of the Code, such plans shall be treated as a single plan. If a Participant who is a Highly Compensated Employee participates in any other qualified plan maintained by the Company to which Company Matching Contributions or Employee contributions are made, all such contributions for Plan Years ending with or within the same calendar year shall be aggregated for purposes of this Section. If a Participant who is a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same plan year. "(c) To the extent Salary Deferrals are taken into account under this Section, any Salary Deferrals returned to a Participant pursuant to Section 4.4 shall be disregarded. "(d) Notwithstanding Section 7.3 to the contrary, any Company Matching Contribution which is attributable to an excess deferral under Section 3.2 or an Excess Salary Deferral shall be forfeited and shall be disregarded for purposes of Paragraph (a) of this Section. Forfeitures shall be used to reduce future Company Matching Contributions. "(e) For purposes of this Section, Company Matching Contributions shall be treated as made for a Plan Year if such contributions are made no later than the end of the twelve (12) month period beginning on the day after the close of the Plan Year. The Company shall maintain records sufficient to demonstrate satisfaction of this Section and the amount of any Salary Deferrals taken into account under this Section. The determination and treatment of the individual contribution percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. "(f) In the event that the Average Contribution Percentage of the Participants who are Highly Compensated Employees for any Plan Year exceeds the limitation of Paragraph 3.8 (a) above, the Plan Administrator shall, within two and one 6 7 half (2 1/2) months after the end of such year, distribute the Excess Aggregate Contributions to the extent nonforfeitable (plus any income and minus any loss allocable thereto) to such Participants on the basis of the respective portions of the Excess Aggregate Contributions attributable to each such Participant and shall designate such distribution as a distribution of Excess Aggregate Contributions (plus any income and minus any loss allocable thereto). To the extent the Excess Aggregate Contributions are forfeitable, they shall be forfeited in accordance with the provisions of Section 7.3; provided, however, that forfeitures of Excess Aggregate Contributions may not be allocated to the Aggregate Accounts of Participants whose Company Matching Contributions are reduced pursuant to this paragraph 3.8(g). "Notwithstanding the foregoing provisions of this Section to the contrary, in lieu of distributing Excess Aggregate Contributions to the extent nonforfeitable (plus any income and minus any loss allocable thereto) to Participants who are Highly Compensated Employees or forfeiting Excess Aggregate Contributions (to the extent forfeitable) in order to comply with Paragraph 3.8(a) above for any Plan Year, the Company may make qualified nonelective contributions as provided in Section 3.4. "(g) Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Aggregate Contributions shall be determined by the same manner in which income or loss is allocated to Participants' Aggregate Accounts under Article IV. "(h) The amount of Excess Aggregate Contributions of any Participant who is a Highly Compensated Employee shall be determined by reducing contributions on behalf of all such Participants in the order of their respective amounts, beginning with the highest such amount. The determination of the amount of Excess Aggregate Contributions with respect to the Plan shall be made after first determining the amount of excess deferrals under Section 3.2 and second determining the amount of Excess Salary Deferrals under Section 3.6." 12. Section 3.10 shall be amended by deleting the phrase "and the amount transferred is One Thousand Dollars ($1,000) or more" wherever such phrase appears in Section 3.10. 13. Section 4.4(a)(iv) shall be amended by adding at the end thereof the following paragraph: "For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this Section 4.4, 'earnings' for a Limitation Year shall also include any elective deferrals within the meaning of Section 402(g)(3) of the Code and any amount that is contributed or deferred by the Employer or an Affiliate at the election of an Employee and which is not includable in the gross income of the Employee by reason of Section 125 of the Code." 7 8 14. Section 6.1 shall be amended to read in its entirety as follows: "6.1 IN-SERVICE WITHDRAWALS. A Participant may withdraw all or any part of his or her Vested Interest attributable to Salary Deferrals and Rollover Contributions after attaining 59 1/2 years of age and, effective January 1, 1998, may withdraw all or any part of his or her Vested Interest in his or her Aggregate Account after attaining Normal Retirement Age. The Plan Administrator shall establish reasonable procedures for handling withdrawal requests under this section." 15. Effective January 1, 1998, Section 6.3 shall be amended to read in its entirety as follows: "6.3 LOANS. The Plan Administrator may, upon the request of a Participant or Beneficiary who is a "party in interest" as defined in Section 3(14) of ERISA, direct the Trustee to make a loan to such Participant or Beneficiary from the Participant's Salary Deferral Contribution Account, Company Matching Contribution Account, and Rollover Contribution Account, if any, subject to the following: "(a) The amount of each loan shall be determined with reference to the fair market value of the Participant's Aggregate Account as of the most recent Valuation Date for which valuation data has been received by the Plan Administrator. "(b) Any loan made on or after January 1, 1987, when added to the balance of all other outstanding loans with respect to a Participant's Aggregate Account, shall not exceed the lesser of: "(i) Fifty Thousand Dollars ($50,000), reduced by the excess, if any, of: "(A) the Participant's highest outstanding loan balance under the Plan for the one (1) year period ending on the day before such loan is made, over "(B) the Participant's loan balance under the Plan on the day such loan is made, or "(ii) Fifty percent (50%) of the sum of the Participant's Salary Deferral Contribution Account, the nonforfeitable portion of his or her Company Matching Contribution Account, and his or her Rollover Contribution Account. "The total unpaid balance of all loans (including accrued but unpaid interest) made with respect to a Participant's Aggregate Account under the Plan and all other qualified plans maintained by his or her Employer shall not exceed the maximum amount permitted under Section 72(p) of the Code. 8 9 "(c) Effective January 1, 1998, no loan shall be made in an amount less than One Thousand Dollars ($1,000), nor shall a loan be made if a Participant has any other loan outstanding with respect to his or her Aggregate Account under the Plan. "(d) Each loan shall be evidenced by a promissory note bearing a reasonable rate of interest as determined by the Plan Administrator, taking into consideration interest rates currently being charged by commercial lenders for loans made under similar circumstances, and shall be adequately secured in such manner as the Plan Administrator may determine. Collateral for a loan may consist of an assignment of not more than fifty percent (50%) of a Participant's Vested Interest in his or her Aggregate Account, provided such collateral adequately secures repayment of the loan. In the event of a default on a loan, the Plan Administrator shall, after giving the Participant or Beneficiary written notice of the default and an opportunity to cure the default, in accordance with the terms and conditions of such loan, foreclose upon the collateral to the extent necessary to satisfy the Participant's obligation. If the collateral for such loan is the Participant's interest in his or her Aggregate Account, such foreclosure may not occur prior to the Participant's termination of employment. "(e) Each loan shall be made for such term and, subject to (d) above, upon such terms and conditions as the Plan Administrator shall determine; provided that substantially level amortization, with payments not less frequently than quarterly, shall be required over the term of any loan; and further provided that the term shall not exceed five (5) years unless the loan is used to acquire a principal residence for the Participant, in which case the term shall not exceed fifteen (15) years. "(f) Each loan to a Participant or Beneficiary shall be treated and accounted for as an investment of such Participant's Aggregate Account, and loans shall be charged against the Investment Funds in which the Participant's Aggregate Account is invested as of the date such loan is made. Amounts of principal and interest paid on any loan shall be transferred to the Investment Funds in accordance with the Participant's investment direction in effect at the time of payment. "(g) No loan shall be made to any owner-employee or shareholder-employee. For purposes of this subsection (g), an "owner-employee" means a self-employed individual who is a sole proprietor or who is a partner in an Employer who owns more than ten percent (10%) of either the capital or profits interest in such Employer, and a "shareholder-employee" means an employee or officer of an electing small business corporation (S corporation) who owns (or is considered as owning within the meaning of Section 318(a)(1) of the Code), on any day during the taxable year of such corporation, more than five percent (5%) of the outstanding stock of the corporation. "(h) No distribution (other than a deemed distribution under Section 72(p) of the Code) shall be made to any Participant or Former Participant or to a Beneficiary of any Participant until all unpaid loans with respect to the Participant's Aggregate Account, including accrued interest thereon, have been paid in full. In the event a Participant or Beneficiary becomes entitled to a distribution of his or her Aggregate Account under the Plan, and at the 9 10 time of such distribution there remain outstanding any unpaid loans with respect to his or her Aggregate Account, then "(i) such unpaid loan shall be treated as due and payable immediately as of the date distribution is made or commences; "(ii) the Aggregate Account of the Participant or Beneficiary shall be reduced prior to any such distribution by the amount of the principal and accrued interest outstanding on such loan; "(iii) the loan shall be deemed to be paid in full as of the date the distribution is made or commences; and "(iv) such Participant or Beneficiary shall be treated as receiving or commencing to receive a distribution of his or her entire Aggregate Account. "(i) The Plan Administrator shall suspend the obligation to repay any loan made to a Participant pursuant to this Section 6.3 for any period during which such Participant is performing service in the uniformed services (within the meaning of the Uniformed Services Employment and Reemployment Rights Act), and such suspension shall not be taken into account for purposes of Sections 72(p), 401(a), or 4975(d)(1) of the Code. "(j) The Plan Administrator shall follow a uniform and nondiscriminatory policy in making loans to assure that loans are available to all Participants and Beneficiaries who are "parties in interest" on a reasonably equivalent basis as required under 29 C.F.R. Section 2550.408b-1 and to further assure that the Plan meets the requirements of Section 401(a)(4) of the Code. "(k) The Plan Administrator shall establish, in writing, administrative procedures to carry out the provisions of this Section 6.3. A request for a loan shall be made by such written, telephonic or electronic means as may be prescribed by the Plan Administrator. "(l) The provisions of this Section shall be applicable to loans granted or renewed under the Plan on or after January 1, 1998, and loans granted or renewed prior to such date shall be governed by the provisions of the Plan as in effect on the date of such grant or renewal; provided that, with respect to a Predecessor Plan Account, the provisions of this Section shall be applicable to loans granted or renewed after the Plan Affiliation Date, if later." 16. Section 8.3(a) and (b) shall be amended to read in their entirety as follows: "8.3 BENEFIT ON TERMINATION OF EMPLOYMENT. "(a) If a Participant terminates his or her employment prior to Normal Retirement Age for any reason other than on account of Disability or death, and his or her Vested Interest has never exceeded the applicable cash-out amount, such Participant shall 10 11 receive a single lump sum payment in cash equal to his or her Vested Interest as soon as administratively feasible after the Valuation Date following such termination of employment. The remaining nonvested portion of such Participant's Aggregate Account shall be immediately forfeited. For purposes of this Paragraph, if the value of the Participant's vested interest in his or her Company Matching Contribution Account upon terminating employment is zero, such Participant shall be deemed to have received an immediate distribution of such interest. "(b) If a Participant terminates employment prior to Normal Retirement Age for any reason other than on account of Disability or death and his or her Vested Interest at any time has exceeded the applicable cash-out amount, such Participant shall be entitled to receive his or her Vested Interest in one or more of the forms of benefit provided under Section 8.5(a). A Participant electing to receive a distribution shall forfeit the nonvested portion of his or her Aggregate Account. "For purposes of Paragraphs (a) and (b), the 'applicable cash-out amount' means three thousand five hundred dollars ($3,500) before January 1, 1998, and five thousand dollars ($5,000) (or such higher amount as may be permitted by Code Section 417(e)(1) on or after January 1, 1998." 17. The first sentence of Section 8.5(b) shall be amended to read in its entirety as follows: "(b) Any distribution to a Participant who has a Vested Interest that exceeds the applicable cash-out amount (within the meaning of Section 8.3), or that exceeded the applicable cash-out amount at the time of any prior distribution, shall require such Participant's written consent if such distribution commences prior to Normal Retirement Age." 18. Section 8.5(c)(i) shall be amended to read in its entirety as follows: "(i) A Participant's benefits shall be distributed commencing not later than the required beginning date or shall be distributed, beginning not later than the required beginning date, over a period not extending beyond the life expectancy of such Participant or the life expectancy of the Participant and the joint annuitant of the Participant. For purposes of this Paragraph (c), the required beginning date is the date prescribed by Section 401(a)(9) with respect to the Participant." 19. Section 14.2 shall be amended to read in its entirety as follows: "14.2 PREDECESSOR PLANS. The plans identified on Appendix A to the Plan shall be Predecessor Plans as of their respective Plan Affiliation Dates stated therein." 20. Article XIV shall be amended by the addition of new Sections 14.5 and 14.6 at the end thereof, reading in their entirety as follows: 11 12 "14.5 DISTRIBUTION OF PREDECESSOR PLAN ACCOUNTS. Notwithstanding any other provision of the Plan to the contrary, with respect to his or her Predecessor Plan Account only, and in lieu of the methods of distribution described in Sections 6.1, 6.2 and Article VIII, a Predecessor Plan Participant may elect an optional form of payment made available under the applicable Predecessor Plan as in effect immediately prior to the Plan Affiliation Date. For purposes of this Section, an "optional form of payment" is a distribution form with respect to a Predecessor Plan Account, including all features relating to such form that are protected under Section 411(d)(6) of the Code and Treasury Regulation Section 1.411(d)-4. "14.6 PREDECESSOR PLAN ACCOUNTS SUBJECT TO SURVIVOR ANNUITY REQUIREMENTS. The Plan shall be a "transferee plan" (within the meaning of Treasury Regulation Section 1.401(a)-20) with respect to each Predecessor Plan Account attributable to the SBERA 401(k) Plan As Adopted by Family Mutual Savings Bank, and each other Predecessor Plan Account that may be held under this Plan as a result of a merger, spinoff, or other transaction having the effect of a transfer that is subject to the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code. Notwithstanding any other provision of the Plan to the contrary, if the Plan is a transferee plan with respect to any portion of a Participant's Aggregate Account, then his or her entire Aggregate Account shall be subject to such survivor annuity requirements and, with respect to such requirements, shall be administered in accordance with the applicable Predecessor Plan as in effect on the date immediately preceding the Plan Affiliation Date. Each such Aggregate Account shall be accounted for in the manner described in Treasury Regulation Section 1.401(a)-20, Q&A-5(b)." 21. Section 16.2 shall be amended to read in its entirety as follows: "16.2 NON-ASSIGNABILITY OF THE RIGHT TO RECEIVE BENEFITS. "(a) Except with respect to the creation, assignment, or recognition of a right to a benefit payable with respect to a Participant pursuant to a Qualified Domestic Relations Order under Section 8.9, and subject to Paragraph (b), no benefit payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. No such benefit shall be in any manner liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any person nor shall it be subject to attachment or legal process for or against any person, and the same shall not be recognized under the Plan, except to the extent as may be provided pursuant to a Qualified Domestic Relations Order or an order or requirement to pay described in Paragraph (b), or otherwise required by law. "(b) Effective August 5, 1997, Paragraph (a) shall not apply to any offset of a Participant's Aggregate Account balance against an amount that the Participant is ordered or required to pay to the Plan, and the Plan shall not be treated as failing to 12 13 meet the requirements of Code Sections 401(a)(13) or 409(d) solely by reason of such an offset, provided: "(i) the order or requirement to pay arises (A) under a judgment of conviction for a crime involving the Plan; (B) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA; or (C) pursuant to a settlement agreement between the Secretary of Labor and the Participant, or a settlement agreement between the Pension Benefit Guaranty Corporation and the Participant, in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA by a fiduciary or any other person; "(ii) the judgment, order, decree or settlement agreement expressly provides for the offset of all or a part of the amount ordered or required to be paid to the Plan against the Participant's Aggregate Account balance; and "(iii) in the event that the survivor annuity requirements of Code Section 401(a)(11) apply with respect to distribution of the Participant's Aggregate Account, if the Participant has a spouse at the time at which the offset is to be made, the requirements of Code Section 401(a)(13)(C)(iii) are satisfied." 22. Article XVI shall be amended by the addition of new Section 16.10 at the end thereof, reading in its entirety as follows: "16.10 USERRA REQUIREMENTS. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code." 23. Appendix A shall be amended to read in its entirety in the manner appended to this Second Amendment. * * * * * * * * * * * IN WITNESS WHEREOF, to record the adoption of this Second Amendment as of the effective date stated herein, Peoples Heritage Financial Group, Inc. has caused this instrument to be executed by its duly authorized officer this 18th day of December, 1997. PEOPLES HERITAGE FINANCIAL GROUP, INC. By /s/ Carol Mitchell ----------------------------------- Its Senior Vice President 13 14 PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN APPENDIX A Each of the following Schedules sets forth certain benefits, rights, and features under Predecessor Plans that remain in effect solely with respect to a Participant's Predecessor Plan Account in accordance with Article XIV of the Plan, and, to the extent applicable with respect to any Predecessor Plan Participant, for purposes of Section 14.6 of the Plan.
SCHEDULE PREDECESSOR PLAN PLAN AFFILIATION DATE - - -------- ---------------- --------------------- 1 Mid Maine Savings Bank, FSB 401(k) Savings Plan January 1, 1996 2 Bank of New Hampshire Corporation Tax Deferred Savings & July 1, 1996 Investment Plan 3 SBERA 401(k) Plan As Adopted By Family Mutual Savings Bank April 1, 1997 4 Atlantic Bank 401(k) Profit Sharing Plan December 1, 1997
SCHEDULE NO. 1 RELATING TO THE MID MAINE SAVINGS BANK, FSB 401(K) SAVINGS PLAN The Mid Maine Savings Bank, FSB 401(k) Savings Plan (the "Mid Maine Plan") was merged into the Plan effective January 1, 1996. The provisions of the Mid Maine Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Mid Maine Plan on December 31, 1995, shall be as set forth in the Mid Maine Plan as in effect on such date, which is incorporated by reference herein. SCHEDULE NO. 2 RELATING TO THE BANK OF NEW HAMPSHIRE CORPORATION TAX DEFERRED SAVINGS & INVESTMENT PLAN The Bank of New Hampshire Corporation Tax Deferred Savings & Investment Plan (the "Bank of New Hampshire Plan") was merged into the Plan effective July 1, 1996. The provisions of the Bank of New Hampshire Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Bank of New Hampshire Plan on June 30, 1996, shall be as set forth in the Bank of New Hampshire Plan as in effect on such date, which is incorporated by reference herein. SCHEDULE NO. 3 RELATING TO THE SBERA 401(K) PLAN AS ADOPTED BY FAMILY MUTUAL SAVINGS BANK 14 15 The SBERA 401(k) Plan as Adopted By Family Mutual Savings Bank (the "Family Bank Plan") was merged into the Plan effective April 1, 1997. The provisions of the Family Bank Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Family Bank Plan on March 31, 1997, shall be as set forth in the Family Bank Plan as in effect on such date, which is incorporated by reference herein. SCHEDULE NO. 4 RELATING TO THE ATLANTIC BANK 401(K) PROFIT SHARING PLAN The Atlantic Bank 401(k) Profit Sharing Plan (the "Atlantic Bank Plan") shall be merged into the Plan effective December 1, 1997. The provisions of the Atlantic Bank Plan remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the Atlantic Bank Plan on November 30, 1997, shall be as set forth in the Atlantic Bank Plan as in effect on such date, which is incorporated by reference herein. 15 EX-10.(O)(4) 10 b38140bgex10-o4.txt 3RD AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(4) THIRD AMENDMENT TO THE PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by a First Amendment effective as of the dates set forth therein and a Second Amendment effective January 1, 1997. The terms used in this Third Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 1. Section 1.49 shall be amended by the addition of the following Paragraph (h) at the end thereof: "(h) Effective July 1, 1998, all Years of Service credited to an Employee under the CFX Corporation Employees' Savings & Profit Sharing Plan (the "CFX Plan") or the Concord Savings Bank 401(k) Plan (the "Concord Plan") as of the date on which CFX Corporation and its subsidiaries were acquired by the Company shall be recognized for participation and vesting purposes under this Plan." 2. Section 2.4 shall be amended by the addition of the following Paragraph (g) at the end thereof: "(g) (i) Each Employee who was previously employed by CFX Corporation or any of its subsidiaries (collectively, "CFX"), immediately prior to the date on which CFX was acquired by the Company, shall be eligible to participate in the Plan as of the later of July 1, 1998, or the first day of the Calendar Quarter coincident with or next following completion of a Year of Service, provided that either (A) a Participation Agreement has been filed with the Plan Administrator by the fifteenth day of the month immediately preceding such Calendar Quarter or (B) clause (ii) or (iii) applies to the Employee. For purposes of determining whether an Employee described in this Section has completed a Year of Service, his or her service credited under the CFX Plan or the Concord Plan shall be taken into account. "(ii) Notwithstanding clause (i) to the contrary, if an Employee described in clause (i) is both employed by any former CFX subsidiary except Safety Fund National Bank on June 30, 1998, and a participant receiving elective deferrals under the CFX Plan or the Concord Plan on such date, then his or her deferral election in effect under the applicable plan on such date shall constitute his or her initial Participation Agreement under this Plan, provided that any terms of such deferral election that are not consistent with the provisions of this Plan shall be of no effect hereunder, and provided further that the Employee may file a new Participation Agreement in accordance with clause (i). "(iii) Notwithstanding clause (i) to the contrary, if an Employee described in clause (i) is both employed by Safety Fund National Bank on May 22, 1998, and a participant receiving elective deferrals under the CFX Plan on such date, then such Employee shall be eligible to participate in this Plan as of May 22, 1998, and his or her deferral election in effect under the CFX Plan on such date shall constitute his or her initial Participation Agreement under 2 this Plan, provided that any terms of such deferral election that are not consistent with the provisions of this Plan shall be of no effect hereunder." IN WITNESS WHEREOF, to record the adoption of this Third Amendment as of the effective date stated herein, Peoples Heritage Financial Group, Inc. has caused this instrument to be executed by its duly authorized officer this 22nd day of May, 1998. PEOPLES HERITAGE FINANCIAL GROUP, INC. By /s/ Carol Mitchell -------------------------------------- Its Executive Vice President 2 EX-10.(O)(5) 11 b38140bgex10-o5.txt 4TH AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(5) FOURTH AMENDMENT TO THE PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by a First Amendment, a Second Amendment, and a Third Amendment effective as of the dates set forth in the respective amendments, and shall be further amended as set forth herein. 1. The terms used in this Fourth Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Section 8.5(c)(i) shall be amended to read in its entirety as follows: "(i) A Participant's benefits shall be distributed commencing not later than the required beginning date or shall be distributed, beginning not later than the required beginning date, over a period not extending beyond the life expectancy of such Participant or the life expectancy of the Participant and the joint annuitant of the Participant. For purposes of this Paragraph (c), the "required beginning date" means the following, effective January 1, 1998: "(A) For a Participant who attains age seventy and one half (70 1/2) before January 1, 1999, April 1 of the calendar year following the calendar year in which the Participant attains age seventy and one half (70 1/2). "(B) For a Participant who attains age seventy and one half (70 1/2) after December 31, 1998, April 1 of the calendar year following the later of (1) the calendar year in which the Participant attains age seventy and one half (70 1/2), or (2) the calendar year in which the Participant retires; provided that this clause (2) shall not apply in the case of a Participant who is a five percent (5%) owner (within the meaning of Section 416(i) of the Code) with respect to the Plan Year ending in the calendar year in which the Participant attains age seventy and one half (70 1/2); and provided further that in the case of a Participant to whom this clause (2) applies and who retires in a calendar year after the calendar year in which he or she attains age seventy and one half (70 1/2), the Participant's Accrued Benefit shall be actuarially increased, in the manner prescribed by the Secretary of the Treasury, to take into account the period after age seventy and one half (70 1/2) in which the Participant was not receiving any benefits under the Plan." 3. Section 14.5 shall be amended by adding the following sentence at the end thereof: "Effective January 1, 1998, the "required beginning date" for any distribution under this Section shall be determined under Section 8.5(c)(i)." 4. Appendix A shall be amended to read in its entirety as follows: 2 "PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN APPENDIX A "Each of the following Schedules sets forth certain benefits, rights, and features under Predecessor Plans that remain in effect solely with respect to a Participant's Predecessor Plan Account in accordance with Article XIV of the Plan, and, to the extent applicable with respect to any Predecessor Plan Participant, for purposes of Section 14.6 of the Plan.
SCHEDULE PREDECESSOR PLAN PLAN AFFILIATION DATE -------- ---------------- --------------------- 1 Mid Maine Savings Bank, FSB 401(k) Savings Plan January 1, 1996 2 Bank of New Hampshire Corporation Tax Deferred Savings July 1, 1996 & Investment Plan 3 SBERA 401(k) Plan As Adopted By Family Mutual Savings April 1, 1997 Bank 4 Atlantic Bank 401(k) Profit Sharing Plan December 1, 1997 5 Concord Savings Bank 401(k) Plan November 1, 1998 6 CFX Corporation 401(k) Plan December 15, 1998
"SCHEDULE NO. 1 RELATING TO THE MID MAINE SAVINGS BANK, FSB 401(K) SAVINGS PLAN "The Mid Maine Savings Bank, FSB 401(k) Savings Plan (the "Mid Maine Plan") was merged into the Plan effective January 1, 1996. The provisions of the Mid Maine Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Mid Maine Plan on December 31, 1995, shall be as set forth in the Mid Maine Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998. "SCHEDULE NO. 2 RELATING TO THE BANK OF NEW HAMPSHIRE CORPORATION TAX DEFERRED SAVINGS & INVESTMENT PLAN "The Bank of New Hampshire Corporation Tax Deferred Savings & Investment Plan (the "Bank of New Hampshire Plan") was merged into the Plan effective July 1, 1996. The provisions of the Bank of New Hampshire Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Bank of New Hampshire Plan on June 30, 1996, shall be as set forth in the Bank of New Hampshire Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998. 2 3 "SCHEDULE NO. 3 RELATING TO THE SBERA 401(K) PLAN AS ADOPTED BY FAMILY MUTUAL SAVINGS BANK "The SBERA 401(k) Plan as Adopted By Family Mutual Savings Bank (the "Family Bank Plan") was merged into the Plan effective April 1, 1997. The provisions of the Family Bank Plan remaining in effect under Article XIV of this Plan with respect to the Predecessor Plan Account of a participant in the Family Bank Plan on March 31, 1997, shall be as set forth in the Family Bank Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998. "SCHEDULE NO. 4 RELATING TO THE ATLANTIC BANK 401(K) PROFIT SHARING PLAN "The Atlantic Bank 401(k) Profit Sharing Plan (the "Atlantic Bank Plan") shall be merged into the Plan effective December 1, 1997. The provisions of the Atlantic Bank Plan remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the Atlantic Bank Plan on November 30, 1997, shall be as set forth in the Atlantic Bank Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998. "SCHEDULE NO. 5 RELATING TO THE CONCORD SAVINGS BANK 401(K) PLAN "The Concord Savings Bank 401(k) Plan (the "Concord Plan") shall be merged into the Plan effective November 1, 1998. The provisions of the Concord Plan remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the Concord Plan on October 31, 1998, shall be as set forth in the Concord Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998. "SCHEDULE NO. 6 RELATING TO THE CFX CORPORATION 401(K) PLAN "The CFX Corporation 401(k) Plan (the "CFX Plan") shall be merged into the Plan effective December 15, 1998. The provisions of the CFX Plan remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the CFX Plan on December 14, 1998, shall be as set forth in the CFX Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998." 3 4 5. This Fourth Amendment shall be generally effective January 1, 1998, except that provisions relating to the merger of the Concord Plan into the Plan shall be effective November 1, 1998, and provisions relating to the merger of the CFX Plan into the Plan shall be effective December 15, 1998. IN WITNESS WHEREOF, to record the adoption of this Fourth Amendment as of the effective dates stated herein, Peoples Heritage Financial Group, Inc. has caused this instrument to be executed by its duly authorized officer this 7th day of December, 1998. PEOPLES HERITAGE FINANCIAL GROUP, INC. By /s/ Susan G. Shorey -------------------------------------- Its Vice President 4 EX-10.(O)(6) 12 b38140bgex10-o6.txt 5TH AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(6) FIFTH AMENDMENT TO THE PEOPLES HERITAGE FINANCIAL GROUP, INC. THRIFT INCENTIVE PLAN The Peoples Heritage Financial Group, Inc. Thrift Incentive Plan (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by First, Second, Third, and Fourth Amendments effective as of the dates set forth in the respective amendments, and shall be further amended as set forth herein. 1. The terms used in this Fifth Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Section 6.3(c) shall be amended to read in its entirety as follows: "(c) Effective January 1, 1998, no loan shall be made in an amount less than One Thousand Dollars ($1,000), nor shall a loan be made if a Participant has any other loan outstanding with respect to his or her Aggregate Account under the Plan. Notwithstanding the preceding sentence to the contrary, a loan may be made in an amount less than One Thousand Dollars ($1,000) if the Participant is also a participant or beneficiary who is a "party in interest" as defined in Section 3(14) of ERISA with respect to the SIS Bank Employees' Savings Incentive Plan ("SIS Plan"); his or her Aggregate Account balance under this Plan is not sufficient to permit a loan to be made in the amount of at least One Thousand Dollars ($1,000); and each of the following requirements is satisfied: (i) the sum of the Participant's account balance under the SIS Plan plus the Participant's Aggregate Account balance under this Plan would be sufficient to permit a loan to be made in the amount of at least One Thousand Dollars ($1,000) if the separate accounts were treated as a single account; (ii) the Participant does not have any other loan outstanding with respect to either his or her Aggregate Account under this Plan or his or her account under the SIS Plan; (iii) the loan is made during the period beginning July 15, 1999, and ending on the SIS Plan Affiliation Date; and (iv) the loan is made in compliance with all provisions of this Section 6.3 except for the One Thousand Dollar ($1,000) minimum amount requirement." 3. The table of Predecessor Plans included in Appendix A shall be amended to read in its entirety as follows: 2
SCHEDULE PREDECESSOR PLAN PLAN AFFILIATION DATE -------- ---------------- --------------------- 1 Mid Maine Savings Bank, FSB 401(k) Savings Plan January 1, 1996 2 Bank of New Hampshire Corporation Tax Deferred Savings July 1, 1996 & Investment Plan 3 SBERA 401(k) Plan As Adopted By Family Mutual Savings April 1, 1997 Bank 4 Atlantic Bank 401(k) Profit Sharing Plan December 1, 1997 5 Concord Savings Bank 401(k) Plan November 1, 1998 6 CFX Corporation 401(k) Plan December 15, 1998 7 SIS Bank Employees' Savings Incentive Plan December 31, 1999
4. The following Schedule 7 shall be added at the end of Appendix A: "SCHEDULE NO. 7 RELATING TO THE SIS BANK EMPLOYEES' SAVINGS INCENTIVE PLAN "The SIS Bank Employees' Savings Incentive Plan (the "SIS Plan") shall be merged into the Plan effective December 31, 1999. The provisions of the SIS Plan remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the SIS Plan on December 30, 1999, shall be as set forth in the SIS Plan as in effect on such date, which is incorporated by reference herein; except that Section 8.5(c) of this Plan shall apply to the determination of the required beginning date for distribution of the Predecessor Plan Account for any Participant who attains age seventy and one half (70 1/2) after December 31, 1998." 5. This Fifth Amendment shall be effective as of January 1, 1999, except as is otherwise specifically provided herein or may be required by applicable law. 1. IN WITNESS WHEREOF, to record the adoption of this Fifth Amendment as of the effective dates stated herein, Peoples Heritage Financial Group, Inc. has caused this instrument to be executed by its duly authorized officer this 27th day of August, 1999. PEOPLES HERITAGE FINANCIAL GROUP, INC. By /s/ Susan G. Shorey --------------------------------------- Its Vice President and Benefits Manager 2 EX-10.(O)(7) 13 b38140bgex10-o7.txt 6TH AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(7) SIXTH AMENDMENT TO THE BANKNORTH GROUP, INC. THRIFT INCENTIVE PLAN The Banknorth Group, Inc. Thrift Incentive Plan (known before May 10, 2000, as the Peoples Heritage Financial Group, Inc. Thrift Incentive Plan) (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by First, Second, Third, Fourth and Fifth Amendments effective as of the dates set forth in the respective amendments, and shall be further amended as set forth herein. 1. The terms used in this Sixth Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Section 2.1 shall be amended to read in its entirety as follows: 2.1 ELIGIBILITY. (a) SALARY REDUCTION CONTRIBUTIONS. Effective October 1, 2000, each Eligible Employee shall become a Participant with respect to Salary Reduction Contributions on the first day of the month coincident with or next following his or her completion of one month of service (measured from the date on which he or she first performs an Hour of Service to the corresponding date in the following month) ("initial entry date"), provided that a timely Participation Agreement has been filed with the Plan Administrator. If the Eligible Employee does not commence participation on his or her initial entry date, then he or she may commence participation on the first day of any month coincident with or following completion of one month of service by filing a timely Participation Agreement. For purposes of the Plan, a Participation Agreement is timely if it is filed with the Plan Administrator not later than the fifteenth (15th) day of the month immediately preceding the date participation is to begin. (b) MATCHING CONTRIBUTIONS AND DISCRETIONARY CONTRIBUTIONS. Each Eligible Employee shall become a Participant with respect to Matching Contributions and Discretionary Contributions on the first day of the Calendar Quarter coincident with or next following his or her completion of one Year of Service. IN WITNESS WHEREOF, to record the adoption of this Sixth Amendment as of October 1, 2000, Banknorth Group, Inc. has caused this instrument to be executed by its duly authorized officer this 26th day of July, 2000. BANKNORTH GROUP, INC. By /s/ Susan G. Shorey ------------------------------------ Its Senior Vice President EX-10.(O)(8) 14 b38140bgex10-o8.txt 7TH AMENDMENT TO THE 401 (K) PLAN 1 Exhibit 10(o)(8) SEVENTH AMENDMENT TO THE BANKNORTH GROUP, INC. 401(k) PLAN The Banknorth Group, Inc. 401(k) Plan (known before May 10, 2000, as the Peoples Heritage Financial Group, Inc. Thrift Incentive Plan) (the "Plan") was last amended and restated effective generally January 1, 1996, and subsequently amended by First, Second, Third, Fourth, Fifth and Sixth Amendments effective as of the dates set forth in the respective amendments, and shall be further amended as set forth herein. 1. The terms used in this Seventh Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Effective May 10, 2000, the Plan shall be formally known as the Banknorth Group, Inc. 401(k) Plan. 3. Section 1.49 shall be amended by adding the following new subsections (i) and (j) at the end thereof: "(i) Effective December 31, 1999, all Years of Service credited to an Employee under the SIS Bank Employees' Savings Incentive Plan as of the date on which SIS Bancorp and its subsidiaries were acquired by the Company shall be recognized for participation and vesting purposes under this Plan. "(j) Effective October 1, 2000, all Years of Service credited to an Employee under the Banknorth Group, Inc. Employee Savings Plan as of the date on which Banknorth Group, Inc. and its subsidiaries were acquired by the Company shall be recognized for participation and vesting purposes under this Plan." 3. Section 8.5(a) shall be amended by adding two new sentences at the end thereof, which shall read in their entirety as follows: "Notwithstanding the preceding sentence or any other provision of the Plan to the contrary, effective with respect to any Participant as of January 1, 2001, the Annuity form of distribution shall be eliminated pursuant to subsection (e) of Q&A-2 of Treasury Regulation ss. 1.411(d)-4; provided this provision shall not apply to any distribution that is made or commences before the earlier of: (i) the ninetieth (90th) day after the date such Participant has been furnished a summary of material modifications (or summary plan description) that reflects this provision, or (ii) January 1, 2002; and provided further that this provision shall not apply to any Predecessor Plan Participant whose Aggregate Account is subject to survivor annuity requirements under Section 14.6. In the case of such a Predecessor Plan Participant (who is a Participant as of January 1, 2001), the normal form of distribution on and after January 1, 2000, shall continue to be determined in accordance with the applicable Predecessor Plan and the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code, but all optional forms of distribution shall be eliminated and shall be replaced by a single-sum form of distribution that is otherwise identical to the optional forms of benefit that have been eliminated, pursuant to subsection (e) of Q&A-2 of Treasury Regulation ss. 1.411(d)-4; provided this provision 2 shall not apply to any distribution that is made or commences before the earlier of: (i) the ninetieth (90th) day after the date such Participant has been furnished a summary of material modifications (or summary plan description) that reflects this provision, or (ii) January 1, 2002." 3. Section 8.6(a) shall be amended by adding two new sentences at the end thereof, which shall read in its entirety as follows: "Notwithstanding the preceding sentence or any other provision of the Plan to the contrary, effective with respect to any Participant whose date of death is on or after January 1, 2001, the Annuity form of distribution shall be eliminated pursuant to subsection (e) of Q&A-2 of Treasury Regulation ss. 1.411(d)-4; provided this provision shall not apply to any distribution that is made or commences before the earlier of: (i) the ninetieth (90th) day after the date such Participant has been furnished a summary of material modifications (or summary plan description) that reflects this provision, or (ii) January 1, 2002; and provided further that this provision shall not apply to with respect to any Predecessor Plan Participant whose Aggregate Account is subject to survivor annuity requirements under Section 14.6. In the case of such a Predecessor Plan Participant (whose date of death is on or after January 1, 2001), the normal form of death benefit on and after January 1, 2000, shall continue to be determined in accordance with the applicable Predecessor Plan and the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code, but all optional forms of death benefit (if any) shall be eliminated, and any optional form of death benefit that has been eliminated shall be replaced by a single-sum form of distribution that is otherwise identical to such optional form, pursuant to subsection (e) of Q&A-2 of Treasury Regulation ss. 1.411(d)-4; provided this provision shall not apply to any distribution that is made or commences before the earlier of: (i) the ninetieth (90th) day after the date such Participant has been furnished a summary of material modifications (or summary plan description) that reflects this provision, or (ii) January 1, 2002." 4. Section 8.10 shall be amended by adding a new subsection (f) at the end thereof, which shall read in its entirety as follows: "(f) A direct rollover shall be made in cash; provided, however, with respect to a Participant who ceases to be employed by the Company (and is no longer employed by the Company or an Affiliate) as a result of the sale of certain branches of Peoples Heritage Bank to Katahdin Trust Company on November 17, 2000, and who elects a direct rollover of his or her Vested Interest to the Katahdin Trust Company 401(k) Plan ("Katahdin Plan"), and at the time of such distribution there remain any outstanding loans with respect to his or her Aggregate Account that are not in default, then, notwithstanding Section 6.3(g) to the contrary, such unpaid loans shall not be treated as due and payable immediately as of the date such distribution is made and instead shall be transferred to the Katahdin Plan. The promissory note(s) evidencing such loan(s) shall be assigned to the Katahdin Plan, and the Participant's obligation to this Plan shall be deemed to be paid in full as of the date distribution is made. Such a Participant shall be treated as receiving a distribution of his or her entire Aggregate Account." 2 3 5. Article XIV shall be amended by adding a new Section 14.7 at the end thereof, which shall read in its entirety as follows: "14.7 PREDECESSOR PLAN ESOP ACCOUNTS. Each Predecessor Plan Account or portion thereof that is an ESOP account under the Banknorth Group, Inc. Employee Savings Plan (the "KSOP") immediately prior to the Plan Affiliation Date of the KSOP, including a matching contribution account under the KSOP that is attributable to any period beginning on or after January 1, 1999, shall, notwithstanding any other provision of this Plan to the contrary, be subject to all applicable provisions of Article XVII of the KSOP and shall be administered in accordance with such Article XVII as in effect on the date immediately preceding the Plan Affiliation Date." 6. The table of Predecessor Plans included in Appendix A shall be amended to read in its entirety as follows:
SCHEDULE PREDECESSOR PLAN PLAN AFFILIATION DATE -------- ---------------- --------------------- 1 Mid Maine Savings Bank, FSB 401(k) Savings Plan January 1, 1996 2 Bank of New Hampshire Corporation Tax Deferred Savings July 1, 1996 & Investment Plan 3 SBERA 401(k) Plan As Adopted By Family Mutual Savings April 1, 1997 Bank 4 Atlantic Bank 401(k) Profit Sharing Plan December 1, 1997 5 Concord Savings Bank 401(k) Plan November 1, 1998 6 CFX Corporation 401(k) Plan December 15, 1998 7 SIS Bank Employees' Savings Incentive Plan December 31, 1999 8 Banknorth Group, Inc. Employee Savings Plan October 1, 2000
7. The following Schedule 8 shall be added at the end of Appendix A: "SCHEDULE NO. 8 RELATING TO THE BANKNORTH GROUP, INC. EMPLOYEE SAVINGS PLAN "The Banknorth Group, Inc. Employee Savings Plan (the "KSOP") shall be merged into the Plan effective October 1, 2000. The provisions of the KSOP remaining in effect under this Plan with respect to the Predecessor Plan Account of a participant in the KSOP on September 30, 2000, shall be as set forth in the KSOP as in effect on such date, which is incorporated by reference herein." 3 4 IN WITNESS WHEREOF, to record the adoption of this Seventh Amendment, Banknorth Group, Inc. has caused this instrument to be executed by its duly authorized officer this 29th day of December, 2000. BANKNORTH GROUP, INC. By /s/ Susan G. Shorey ------------------------------------ Its Senior Vice President 4 EX-10.(P)(4) 15 b38140bgex10-p4.txt 3RD AMENDMENT TO PROFIT SHARING AND EMPLOYEE STOCK 1 Exhibit 10(p)(4) THIRD AMENDMENT TO THE BANKNORTH GROUP, INC. PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN The Banknorth Group, Inc. Profit Sharing and Employee Stock Ownership Plan (known before May 10, 2000, as the Peoples Heritage Financial Group, Inc. Profit Sharing and Employee Stock Ownership Plan) (the "Plan") was last amended and restated effective generally January 1, 1997, and subsequently amended by First and Second Amendments effective as of the dates set forth in the respective amendments, and shall be further amended as set forth herein. 1. The terms used in this Third Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Effective May 10, 2000, the Plan shall be formally known as the Banknorth Group, Inc. Profit Sharing and Employee Stock Ownership Plan. IN WITNESS WHEREOF, to record the adoption of this Third Amendment, Banknorth Group, Inc. has caused this instrument to be executed by its duly authorized officer this 29th day of December, 2000. BANKNORTH GROUP, INC. By /s/ Susan G. Shorey -------------------------------------- Its Senior Vice President EX-13 16 b38140bgex13.txt 2000 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13 [BANKNORTH GROUP, INC. LOGO] 2000 ANNUAL REPORT DIRECTIONS NEW REDEFINING COMMUNITY BANKING [graphic] 2 NEW DIRECTIONS WITH THE ACQUISITION OF ONE OF THE NORTHEAST'S MOST RESPECTED FINANCIAL SERVICES PROVIDERS, THE FORMER PEOPLES HERITAGE FINANCIAL GROUP IS NOW BANKNORTH GROUP. WE ARE NOW ONE OF THE 50 LARGEST COMMERCIAL BANKS IN THE COUNTRY. WE ARE THE THIRD LARGEST BANKING COMPANY HEADQUARTERED IN NEW ENGLAND, AND THE REGION'S NUMBER ONE COMMUNITY BANKING COMPANY. AND BY COMBINING OUR PERSONALIZED COMMUNITY BANKING APPROACH WITH AN INCREASINGLY SOPHISTICATED ARRAY OF FINANCIAL SERVICES, WE ARE BROADENING THE WAY CUSTOMERS ACROSS THE NORTHEAST THINK ABOUT THEIR COMMUNITY BANK. WE ARE TRULY TAKING COMMUNITY BANKING IN NEW DIRECTIONS. ABOUT BANKNORTH GROUP, INC. FORMERLY PEOPLES HERITAGE FINANCIAL GROUP, INC., BANKNORTH GROUP, INC. HEADQUARTERED IN PORTLAND, MAINE, IS ONE OF THE COUNTRY'S 50 LARGEST COMMERCIAL BANKING COMPANIES WITH OVER $18 BILLION IN ASSETS. ITS MAINE AND NEW HAMPSHIRE BANKING SUBSIDIARIES, PEOPLES HERITAGE BANK, NA, AND BANK OF NEW HAMPSHIRE, NA, RESPECTIVELY, EACH HAVE THE NUMBER ONE DEPOSIT MARKET POSITION IN THEIR RESPECTIVE STATES. THE COMPANY'S VERMONT BANKS, THE HOWARD BANK, NA, FRANKLIN LAMOILLE BANK, NA, AND FIRST VERMONT BANK, NA, COMBINED HAVE THAT STATE'S SECOND LARGEST DEPOSIT MARKET SHARE. FIRST MASSACHUSETTS BANK, NA, IS ONE OF THE FIVE LARGEST BANKS IN MASSACHUSETTS. THE COMPANY ALSO OPERATES IN UPSTATE NEW YORK THROUGH EVERGREEN BANK, NA, AND IN NORTH CENTRAL CONNECTICUT WITH GBT, A DIVISION OF FIRST MASSACHUSETTS BANK, NA. THE COMPANY ALSO OPERATES A VARIETY OF INSURANCE AGENCIES IN NEW ENGLAND AS SUBSIDIARIES OF MORSE, PAYSON & NOYES INSURANCE, ITS LEAD AGENCY, A MONEY MANAGEMENT FIRM, THE STRATEVEST GROUP, NA, AN INVESTMENT SUBSIDIARY, HERITAGE INVESTMENT GROUP, AND A LEASING COMPANY, BANKNORTH LEASING. OTHER SUBSIDIARIES AND DIVISIONS PROVIDE SERVICES IN MORTGAGE BANKING, ASSET BASED LENDING, PRIVATE BANKING, MERCHANT SERVICES AND OTHER FINANCIAL SERVICES. BANKNORTH GROUP, INC., IS TRADED ON THE NASDAQ NATIONAL MARKET SYSTEM UNDER THE SYMBOL: BKNG 3 SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS EVEN WHILE COMPLETING THE LARGEST ACQUISITION IN OUR HISTORY, WE WERE ABLE TO TURN IN A RECORDSETTING FINANCIAL PERFORMANCE. IN 2000, BANKNORTH ACHIEVED ITS SEVENTH CONSECUTIVE RECORD EARNINGS YEAR ON AN OPERATING BASIS. OPERATING EARNINGS, EXCLUSIVE OF MERGER RELATED AND OTHER SPECIAL CHARGES, WERE $234.7 MILLION, OR $1.62 PER DILUTED SHARE, UP 9% ON A PER DILUTED SHARE BASIS FROM 1999. [BAR CHART] OPERATING DILUTED EARNINGS YEAR PER SHARE* 1996 $0.93 1997 $1.08 1998 $1.25 1999 $1.48 2000 $1.62 *Exclusive of special items
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) - - ------------------------------------------------------------------------------------------------------------------------------------ FOR THE YEAR 2000 1999 % Change 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income $613,011 $624,229 (2)% $590,516 $566,346 $482,081 Provision for loan and lease losses 23,819 23,575 1 23,775 15,763 15,850 Noninterest income (excluding securities transactions) 226,644 191,140 19 161,124 134,144 104,789 Securities gains (losses) (15,456) 655 NM 6,423 2,837 3,520 Noninterest expenses (excluding special charges) 468,846 470,140 (0) 458,326 440,329 378,205 Special charges (1) 43,007 28,002 54 61,140 23,559 11,210 Net income 191,734 196,958 (3) 141,744 145,488 123,044 Operating income (net income excluding special items) (1) 234,686 217,774 8 186,946 161,035 131,826 - - ------------------------------------------------------------------------------------------------------------------------------------ SHARE DATA (2) - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share: Basic $1.33 $1.35 (1)% $0.97 $1.00 $0.88 Diluted 1.32 1.34 (1) 0.95 0.98 0.87 Operating diluted earnings per share (1) 1.62 1.48 9 1.25 1.08 0.93 Operating diluted cash basis earnings per share (1)(3) 1.76 1.62 9 1.37 1.18 1.00 Dividends per share 0.50 0.47 6 0.44 0.38 0.34 Book value per share at year end 9.42 8.22 15 8.37 7.97 7.39 Tangible book value per share at year end . 8.11 6.95 17 6.97 6.88 6.59 Stock price: High 21.06 20.25 4 26.75 23.81 14.32 Low 10.44 14.31 (27) 12.81 12.94 9.50 Close 19.94 15.06 32 20.00 23.00 14.00 Weighted average shares outstanding: Basic 144,270 145,758 (1) 146,119 145,481 139,187 Diluted 145,194 147,428 (2) 148,965 148,600 141,658 - - ------------------------------------------------------------------------------------------------------------------------------------ KEY PERFORMANCE RATIOS - - ------------------------------------------------------------------------------------------------------------------------------------ Return on average assets 1.05% 1.12% (6)% 0.90% 1.05% 1.08% Return on average equity 15.69 16.42 (4) 11.96 13.01 12.53 Operating return on average assets (1) 1.28 1.24 3 1.19 1.16 1.16 Operating return on average equity (1) 19.20 18.16 6 15.78 14.40 13.42 Net interest margin (4) 3.65 3.86 (5) 4.10 4.42 4.58 Average equity to average assets 6.66 6.81 (2) 7.55 8.07 8.66 Efficiency ratio (5) 54.72 56.45 (3) 59.35 61.37 64.44 Noninterest income as a percent of total income (6) 26.99 23.44 15 21.44 19.15 17.86 Tier 1 leverage capital ratio 7.02 6.75 4 7.22 7.65 8.11 Dividend payout ratio (7) 36.91 33.19 11 40.38 39.60 33.86 - - ------------------------------------------------------------------------------------------------------------------------------------
NM Not Meaningful (1) Special items consist of (i) special charges and (ii) losses on restructuring the investment portfolio of $10.4 million on an after-tax basis in 2000. Special charges consist of merger charges, costs to discontinue the correspondent mortgage business, asset write-downs and branch closing costs and on an after-tax basis amounted to $32,591, $20,816, $45,202, $15,547 and $8,782 during 2000, 1999, 1998, 1997 and 1996, respectively, See note 9 to the Consolidated Financial Statements. (2) Where appropriate amounts have been adjusted for a two-for-one split of the common stock in May 1998. (3) Earnings before amortization of goodwill and core deposit premiums. (4) Net interest income divided by average interest-earnings assets, calculated on a fully-taxable equivalent basis. (5) Excludes distribution on securities of subsidiary trusts, special items and securities transactions. (6) Excludes securities transactions. (7) Cash dividends paid divided by net income. 1 4 [PHOTO] "IN LESS THAN A DECADE, WE HAVE GROWN FROM THE THIRD LARGEST BANK IN MAINE TO THE THIRD LARGEST BANKING COMPANY HEADQUARTERED IN NEW ENGLAND." DEAR SHAREHOLDERS: 2000 was perhaps the most momentous year in our history - yet dramatic change and growth have become something of a practiced routine for our organization. In 2000, we changed the name of our multi-state banking and financial services holding company from Peoples Heritage Financial Group, Inc., to Banknorth Group, Inc. - a name that is more descriptive of our new prominence as a diversified Northeast financial services leader. We acquired one of the Northeast's most respected financial services providers, Banknorth Group, Inc. Our largest acquisition ever broadened our market leadership, vaulted our assets to over $18 billion, and positioned us as the third largest banking company based in New England and one of the nation's 50 largest commercial banking companies. In addition, we achieved record operating earnings for the seventh consecutive year. During the period, we significantly expanded our franchise while maintaining our focus on profitability as demonstrated by our loan growth, fee income expansion, enhanced expense control and continued strong asset quality performance. A NORTHEAST BANKING LEADER In less than a decade, we have grown from the third largest bank in Maine to the third largest banking company headquartered in New England. While Peoples Heritage remains the name of our Maine banking subsidiary, the new Banknorth name now represents the dominant financial services organization in northern New England. Our acquisition of Banknorth Group expanded our franchise into two new states, Vermont and upstate New York, and strengthened our franchises in New Hampshire and Massachusetts. We now hold the number one deposit market share in Maine and New Hampshire and the number two deposit market share in Vermont. We are among the top five in market share in Massachusetts and have the potential for growth in Connecticut and upstate New York. In Massachusetts, the Banknorth acquisition also solidified our position in the Worcester area, the second largest city in New England, and linked our franchise in the Haverhill and Springfield areas to provide us with a strong presence across the state. 2 5 A YEAR OF ACCOMPLISHMENT At Banknorth, in keeping with the tradition established by Peoples Heritage Financial Group, we only seek growth with profitability. To that end, in 2000, we increased our profitability by continuing to expand and diversify our loan portfolio as evidenced by strong commercial and consumer loan growth. We enjoyed great success with "Simply Free Checking" - our fastest growing account. In addition, our development as a diversified financial services company significantly enhanced our fee income. To reflect our emergence as a commercial bank and expanded earnings capacity, we also changed all our bank charters to OCC commercial bank charters. The new charters reflect our greater earnings capacity over thrifts and the lending diversification well beyond mortgage loans. Since commercial banks generally trade at higher earnings multiples than thrifts, the change is also designed to deliver greater shareholder value. We also repurchased more than 5.5 million shares of our common stock in 2000, further reflecting our commitment to shareholders. REDEFINING COMMUNITY BANKING For us, community banking has always meant staying close to our customers - serving them in the ways they want to be served. As we look ahead, we will continue to maintain that commitment to our customers. Yet the ways in which we connect with our customers will continue to evolve. In 2001, we will leverage new ways to deliver seamlessly integrated financial services including electronic banking, insurance and investing services that bring together the entire range of Banknorth resources. We will seek to continue to deliver sales and service that set the standard in the markets we serve. By focusing on delivering for our customers while driving profitability, we have become the premier community banking and financial services company in the Northeast. For our customers, employees and shareholders, our opportunities for success continue to grow with us. Sincerely yours, /s/ William J. Ryan William J. Ryan Chairman, President and Chief Executive Officer [BAR CHART] YEAR FEE INCOME AS A % OF TOTAL INCOME* 1996 17.86% 1997 19.15% 1998 21.44% 1999 23.44% 2000 26.99% *As a percentage of total income excluding losses on securities restructuring [BAR CHART] YEAR OPERATING RETURN ON AVERAGE EQUITY* 1996 13.42% 1997 14.40% 1998 15.78% 1999 18.16% 2000 19.20% *Exclusive of special items 3 6 WE'RE NOW THE NUMBER ONE COMMUNITY BANK IN THE NORTHEAST [BAR CHART] YEAR OPERATING RETURN ON AVERAGE ASSETS* 1996 1.16% 1997 1.16% 1998 1.19% 1999 1.24% 2000 1.28% *Exclusive of special items RECORD FINANCIAL PERFORMANCE 2000 was another year of outstanding financial performance at Banknorth Group. Record earnings. We achieved our seventh consecutive earnings year on an operating basis. Operating earnings, exclusive of merger-related and other special charges, were $234.7 million, or $1.62 per diluted share in 2000, up 9% on a diluted share basis from 1999's operating earnings of $217.8 million, or $1.48 per diluted share. Total assets. The acquisition of Banknorth Group - our largest acquisition ever with assets of $4.6 billion - strengthened our market leadership and increased our assets to $18.2 billion at year end. Net income. Our net income for the year was $191.7 million, or $1.32 per diluted share, down 3% from 1999, mostly due to costs related to the acquisition of Banknorth by the former Peoples Heritage Financial Group which took on the Banknorth name. Expense control. Executing our largest bank acquisition in the past five years, we again achieved cost savings while enhancing revenues. Operating noninterest expenses actually declined slightly during 2000. Increased dividend. Following the fourth quarter of 2000, we increased our quarterly dividend by 4% over the dividend paid for the previous quarter. Loan growth. Loans were up 10% in 2000, led by a 20% increase in commercial business loans. Consumer loans increased by 12% and commercial real estate loans by 10%. Mortgage loans decreased by 1% for the year as a result of new loans being sold into the secondary market. Asset quality. Our asset quality remains strong. Nonperforming assets as a percentage of total assets stood at 0.37% at the end of 2000, level with year end 1999. Our loan growth did not come at the expense of asset quality. Fee income. Noninterest income, exclusive of securities restructuring, increased 19% for the year. With the acquisitions of insurance agencies in Massachusetts and Connecticut, insurance commissions jumped 27%. In addition, merchant and card product income and deposit services income were both up 17%, and trust and investment advisory services fees increased by 8% for the year. All combined, fee income increased to nearly 30% of revenue in the fourth quarter of 2000, up from 18% just four years ago. Return on Average Equity. Our profitability ratios continue to improve year to year. Operating Return on Average Equity (ROE) for the year reached 19.20%, up from 18.16% for the previous year. 4 7 Return on Average Assets. Operating Return on Average Assets (ROA) was 1.28% in 2000, up from 1.24% in 1999. Efficiency ratio. Maintaining our trend of better efficiency, in 2000 our efficiency ratio improved to 54.7% from 56.5% in 1999 - down 10 points in the past four years. THE NEW BANKNORTH Formerly Peoples Heritage Financial Group, Inc., the new Banknorth Group, Inc. is the third largest banking company headquartered in New England. We are one of the nation's 50 largest commercial banks with over $18.2 billion in assets, nearly 300 branches and 400 ATMs. Along with adopting the Banknorth Group name in 2000 to reflect our growing strength in the Northeast, this year's acquisition of Banknorth expanded our franchise and solidified our position as a Northeast community banking leader. We hold the number one market position in Maine and New Hampshire, number two in Vermont, we're among the top five in Massachusetts, and we have a growing presence in upstate New York and Connecticut. We also hold the largest combined market share in Maine, New Hampshire and Vermont. [GRAPHIC] 5 8 WE'RE NOW ONE OF THE NATION'S 50 LARGEST COMMERCIAL BANKS [BAR CHART] YEAR EFFICIENCY RATIO 1996 64.44% 1997 61.37% 1998 59.35% 1999 56.45% 2000 54.72% Maine. Our Maine subsidiary, Peoples Heritage Bank, strengthened our leading market position. The Bank was once again recognized as the number one lender to first-time homebuyers in Maine by the Maine State Housing Authority. The Government Banking Division now has 50% of the market share of municipal accounts in the state. And the Maine Development Foundation recognized our commitment to the state with their annual leadership award, The Champion for Economic Growth. Reflecting our profitable expansion, we opened a new corporate headquarters in Portland. New Hampshire. In New Hampshire, our affiliate, Bank of New Hampshire, received national recognition for its Small Business Solutions program. We are now taking the program throughout our banking network. The American Bankers Association recognized Bank of New Hampshire's commitment to the development of affordable housing programs and community projects. For the third consecutive year, we won the New Hampshire Business Finance Authority's number one lender award for large banks. Massachusetts. In Massachusetts, in addition to expanding our franchise, we unified our presence to strengthen our identity in the state by converting to a single name, First Massachusetts Bank. First Massachusetts was the name of the bank acquired in 2000 as part of the Banknorth acquisition. To reflect our wider geographic presence in Massachusetts, we also moved the headquarters of our Massachusetts bank to Worcester. Vermont. Our Vermont banks, The Howard Bank, Franklin Lamoille Bank, and First Vermont Bank, combined have that state's second largest deposit market share. With demographics similar to Maine and New Hampshire where we continue to thrive, we expect our products and services to enjoy great success. New York. In upstate New York, where we operate as Evergreen Bank, we are continuing to expand our breadth of products and services. Connecticut. And in Connecticut, GBT, a division of First Massachusetts Bank, provides a presence in an important market and affords us new opportunities. OUR STRATEGY FOR SUCCESS With the advent of our largest acquisition ever and new opportunities presented by the strength of our expanded franchise, 2000 was a year in which we once again reviewed our strategic plan and vision. To us, planning is an opportunity to evaluate our accomplishments, renew our vision, and expect more from ourselves. Our history is one of growth and success by combining our community banking philosophy with an increasingly sophisticated array of services - and we continue to take steps to strengthen our franchise for the future. Understandably, our plan is more one of refinement than major revision. 6 9 [GRAPHIC] Our Banknorth strategic plan is to build on our position as the premier community financial services company in the Northeast by focusing on performance, customers, employees and information. Greater performance. By performance, we mean we will look for ways to continue our strong growth in earnings by focusing on growing existing core businesses, by controlling costs, by strengthening noninterest income to improve revenue balance, and by establishing, acquiring, and partnering with complementary businesses. In 2000, we made strides on all counts. Our growth came from more than acquisitions. We continued to increase the number of 7 10 WE'RE NOW THE THIRD LARGEST BANKING COMPANY HEADQUARTED IN NEW ENGLAND products sold to each customer by improving our cross-sell ratios. We are also taking successful products and approaches among our subsidiary banks and rolling them out to other states to increase our success. As we expand as a diversified financial services company, our corresponding increase in noninterest income continues to improve our revenue balance. While we will continue to maintain our highly disciplined approach to acquisitions, we will seek out new opportunities to expand our size, strength, and ability to serve our customers and deliver shareholder value. Customer commitment. Our strategic plan is also a commitment to our customers. For all our customers, we pledge to deliver sales and service that set the standard in the markets we serve. Additionally, for our Relationship Customers, we will seek to deliver seamlessly integrated financial services that bring together the entire range of Banknorth resources. Employee strength. For our valued and talented employees, we have committed to further strengthening our ranks. We will ensure Banknorth is a place where each employee is and feels valued. We will empower managers to lead and to take action, and we will recognize and reward all employees for superlative performance. Enhanced information. Finally, we are committed to improving the accuracy, scope, availability, and ease-of-use of information in order to know and serve customers better, to strengthen decision-making, and to improve process quality, speed, and consistency. Our Internet Banking Services, discussed on the pages that follow, are just one example. REDEFINING COMMUNITY BANKING Community banking is not what it used to be - and that is just the way we want it at Banknorth. We are taking the concept of community banking - personalized, local service that is close to customers - and changing the way customers think about it. We are redefining community banking to include an increasingly sophisticated array of financial services, ones not usually available with the level of personalized service that has come to define the local banks of Banknorth Group. New directions. At Banknorth, our definition of community banking includes our expanded insurance and investing services, our individual and corporate trust services, our new Internet Banking program, our PhoneBank that handles over a million calls each month, our successful low-cost deposit products, local decision-making capabilities, and much more. To us, community banking simply has new aspects. Whenever we bring customers community banking, we always bring it to a community of one - even if that one is sitting at a home computer accessing our Internet Banking Services. 8 11 [GRAPHIC] 9 12 WE'VE NOW ACHIEVED RECORD EARNINGS 7 YEARS IN A ROW [BAR CHART] YEAR OPERATING INCOME* 1996 $131,826 1997 $161,035 1998 $186,946 1999 $217,774 2000 $234,686 *Net income excluding special items [BAR CHART] YEAR FEE INCOME GROWTH* 1996 $104,789 1997 $134,144 1998 $161,124 1999 $191,140 2000 $226,644 *Excluding losses on securities restructuring Strengthening relationships. Community banking is also about relationships. By getting to know our customers better, we are able to strengthen and deepen our relationships by increasing the number of products and services used by each customer. It is simply about helping our customers manage their finances better. At Banknorth, we are broadening the notion of community banking, so that it includes the full array of services that make us a one-stop financial resource for our customers - all available at or through their local community bank. OUR COMMERCIAL BANKING STRENGTH Banknorth provides a comprehensive range of commercial financial services. As a result, we are a leading choice for commercial borrowers across the Northeast. With an average commercial loan size of approximately $400,000, our lending expertise and systems are ideal for the mid-size and small businesses that comprise so much of our market area. We serve the large segment of commercial borrowers that bigger banks tend to ignore with a full range of commercial financial services that smaller banks simply cannot match. All with a level of service that demonstrates we care about each of our customers and value their business. At December 31, 2000, commercial business loans reached $2.3 billion, up 20% over December 31, 1999. Asset Based Lending. In addition to our traditional lending services that are typically collateral-based, the Asset Based Lending Group of Banknorth experienced significant growth in 2000. Driven by merger related market opportunities, our geographic expansion and the hiring of experienced asset based lending professionals, our asset based loan commitments reached $340 million, loans outstanding exceeded $200 million and fee income exceeded $1 million - all up over 100% from just one year ago. Cash Management. As an integral part of our commercial banking services, our cash management program keeps our customers' business capital working to maximize cash flow and investment income. In 2000, cash management fees grew 13% to $7.7 million. We have the majority of the cash management market share in Maine, have bolstered our market share in New Hampshire, and added new customer relationships in Massachusetts. Merchant Credit Card Processing. Our merchant credit card processing business has achieved tremendous growth and profitability increases over the past several years. In 2000, our merchant business contributed over $3.7 million in net fee income and we acquired over 2,500 new merchant customers, bringing our merchant customer total to nearly 12,000. 10 13 Leasing Services. In 2000, we changed the name of our leasing organization to Banknorth Leasing Company and opened a new office in Avon, Connecticut. We remain a strong municipal lessor in the New England market and have expanded our territory to include all of the Northeast. Commercial charters. Our change in 2000 to commercial banking charters with the Office of the Comptroller of Currency (OCC) reflects our strength as a commercial bank, our greater earnings capacity over thrifts and lending diversification well beyond mortgage loans. Internet Banking for business. Internet Banking services will be introduced to commercial customers in the second quarter of 2001. CONSUMER BANKING THE WAY OUR CUSTOMERS WANT IT At Banknorth we offer a full complement of consumer banking services, as well as less traditional consumer services one might not expect from community banks. Services such as trust, insurance and investment planning services, a delivery network that includes branches, ATMs, supermarket branches, and a PhoneBank - and now increasingly sophisticated Internet Banking Services that bring our capabilities right into the home. These are new directions for community banks as we continue to offer our customers the widest array of services delivered when and where they need and want them. Consumer lending. With growth in both Indirect Auto and Home Equity Lending, consumer lending increased 12% in 2000. One of our greatest strengths is our ability to take our consumer lending expertise to new markets. Banknorth is the leading indirect auto lender in most of the markets we serve. That is because we have developed a corporate expertise in working with car dealers and we understand and deliver what they need. For example, we provide a consistently high volume of loans, we review and approve loans quickly, usually in less than 20 minutes, and we're open on weekends and evenings, when the dealers are. As a home equity lender, we are a leading choice for those customers who need to turn some of the equity in their homes into cash - whether for a college education, home expansion, or another important expenditures. Mortgage lending. As the Northeast's leading community bank, we continue to lead the way in providing home mortgages. We are the number one mortgage originator in both Maine and New Hampshire. Deposit products. In 2000, we opened over 130,000 new "Simply Free Checking" accounts, as we executed our plan to leverage successful products across our markets. Expanded branch and ATM network. The acquisition of Banknorth Group brought our banking network to 285 branches and expanded our ATM network to 400 throughout the Northeast. In addition, we provide 11 14 WE'VE NOW GROWN TO OVER $18 BILLION IN ASSETS [BAR CHART] YEAR AVERAGE ASSETS 1996 $13,344,023 1997 $13,857,897 1998 $15,696,234 1999 $17,607,244 2000 $18,393,226 a network of supermarket branches offering weekend and evening hours. To improve efficiencies, we closed or sold branches that no longer met our business goals. Private Banking. We offer a full range of Private Banking services for those customers who require a higher level of specialized and personal banking service. PhoneBank. Another way we offer services when and where our customers want them is through our PhoneBank that handles over one million calls each month. Internet Banking for consumers. Our new Internet Banking service for retail customers, launched in early 2001, is one more way we are bringing our services right to our customers where they want them. INSURANCE SERVICES THAT BROADEN OUR SCOPE In 2000, we broadened our revenue stream by expanding our ability to provide insurance services throughout several of our markets. Accordingly, insurance commissions rose 27% in 2000 over 1999. Our insurance brokerage subsidiary completed key acquisitions of leading insurance agencies in Massachusetts and Connecticut to enhance and broaden our revenue base through the growth of fee-based income. In Massachusetts, our insurance brokerage subsidiary, Morse, Payson & Noyes Insurance, acquired the Palmer Goodell Insurance Agency headquartered in Springfield. The acquisition expanded our insurance agency presence into southwestern Massachusetts and expanded our capabilities in employee payroll deduction programs, disability insurance, and the insuring of schools, nonprofit organizations and health and human service agencies. In Connecticut, Morse, Payson & Noyes Insurance acquired one of the state's largest insurance agencies, the Watson Group located in Wethersfield. The purchase represents our initial entry into the Connecticut insurance brokerage business. With our increased size and corporate expertise, we gain greater leverage with underwriters to negotiate better pricing. In turn, we can increase our revenues while offering attractive rates to customers. GOVERNMENT BANKING THAT KEEPS ON GROWING Our expertise in Government Banking, formerly called Public Finance, continues to fuel our expansion in public sector deposits. In 2000, Government Banking deposits exceeded $1 billion, up from $626 million in 1999. Our new business includes the State of Maine account, Maine Turnpike Authority, and the State of Vermont account. Our Government Banking group now holds a 50% market share in Maine - much more than any other bank, and the number two market position in New Hampshire. 12 15 [GRAPHIC] EXPANDING TRUST AND INVESTMENT SERVICES Our new directions in community banking also include trust and investment services to provide all the services our customers need through their local community bank. Trust Services. In 2000, trust assets under management doubled with the acquisition of Banknorth and its money management firm, The Stratevest Group, NA. Investment Planning Services. Whether our customers are looking for mutual funds, stocks, bonds or annuities, they can find it through our Heritage Investment Planning Group. In 2000, our investment advisory services income rose 15% over 1999. 13 16 WE NOW HAVE OVER ONE MILLION CUSTOMERS [GRAPHIC] 14 17 INTERNET BANKING FOR CONSUMERS AND COMPANIES The successful launch of Internet Banking is yet another way we are bringing our consumer and commercial services to customers wherever they need them. Our recently launched Internet Banking service for retail customers now provides online account summaries and balances, account transfers, deposit account transaction histories, bill payment, link to credit card information, check reorders, change of address, and e-mail for problem resolution. Our Internet business services online will include full bank relationship access, account transaction history, bill payment, a link to account officers for loans and leases, and links to insurance brokerage and investment information. NEW DIRECTIONS FOR GROWTH We believe we are only beginning to realize the benefits of the tremendous opportunities resulting from the acquisition of Banknorth. We've gained new economies of scale, greater access to capital, and strengthened our franchise for the future. With mid-size loans at the heart of our commercial lending business, we can now provide more loans and larger dollar amounts. A greater range of customers now view us as a source for business lending. And our expanded size enables our customers to grow with us through our enhanced capabilities. We now have a greater opportunity to share successful products across markets and cross-sell services as appropriate. For example, the acquisition enabled us to bring new services to our acquired markets. In addition to opening tens of thousands of new checking accounts, we are rapidly expanding services such as home equity lending and indirect auto lending. Our insurance, investment and trust services also represent opportunities to expand as a one-stop financial resource. You could say we are doing what we have always done, sticking to our roots and our proven approach to community banking. To better serve our customers, our shareholders, and our employees, we are just branching out in new directions. 15 18 16 19 Banknorth Group, Inc. and Subsidiaries
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA) - - ------------------------------------------------------------------------------------------------------------------------------------ RESULTS FOR THE YEAR 2000 1999 % Change 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income $613,011 $624,229 (2)% $590,516 $566,346 $482,081 Provision for loan and lease losses 23,819 23,575 1 23,775 15,763 15,850 Noninterest income (excluding securities transactions) 226,644 191,140 19 161,124 134,144 104,789 Securities gains (losses) (15,456) 655 NM 6,423 2,837 3,520 Noninterest expenses (excluding special charges) 468,846 470,140 (0) 458,326 440,329 378,205 Special charges(1) 43,007 28,002 54 61,140 23,559 11,210 Net income 191,734 196,958 (3) 141,744 145,488 123,044 Operating income (net income excluding special items)(1) 234,686 217,774 8 186,946 161,035 131,826 - - ------------------------------------------------------------------------------------------------------------------------------------ SHARE DATA(2) - - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share: Basic $1.33 $1.35 (1)% $0.97 $1.00 $0.88 Diluted 1.32 1.34 (1) 0.95 0.98 0.87 Operating diluted earnings per share(1) 1.62 1.48 9 1.25 1.08 0.93 Operating diluted cash basis earnings per share(1)(3) 1.76 1.62 9 1.37 1.18 1.00 Dividends per share 0.50 0.47 6 0.44 0.38 0.34 Book value per share at year end 9.42 8.22 15 8.37 7.97 7.39 Tangible book value per share at year end 8.11 6.95 17 6.97 6.88 6.59 Stock price: High 21.13 20.25 4 26.75 23.81 14.32 Low 10.38 14.31 (27) 12.81 12.94 9.50 Close 19.94 15.06 32 20.00 23.00 14.00 Weighted average shares outstanding: Basic 144,270 145,758 (1) 146,119 145,481 139,187 Diluted 145,194 147,428 (2) 148,965 148,600 141,658 - - ------------------------------------------------------------------------------------------------------------------------------------ KEY PERFORMANCE RATIOS - - ------------------------------------------------------------------------------------------------------------------------------------ Return on average assets 1.05% 1.12% (6)% 0.90% 1.05% 1.08% Return on average equity 15.69 16.42 (4) 11.96 13.01 12.53 Operating return on average assets(1) 1.28 1.24 3 1.19 1.16 1.16 Operating return on average equity(1) 19.20 18.16 6 15.78 14.40 13.42 Net interest margin(4) 3.65 3.86 (5) 4.10 4.42 4.58 Average equity to average assets 6.66 6.81 (2) 7.55 8.07 8.66 Efficiency ratio(5) 54.72 56.45 (3) 59.35 61.37 64.44 Noninterest income as a percent of total income 26.99 23.44 15 21.44 19.15 17.86 Tier 1 leverage capital ratio 7.02 6.75 4 7.22 7.65 8.11 Dividend payout ratio(7) 36.91 33.19 11 40.38 39.60 33.86 - - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE BALANCES - - ------------------------------------------------------------------------------------------------------------------------------------ Assets $18,343,226 $17,607,344 4% $15,696,234 $13,857,897 $11,344,023 Loans and leases 10,485,289 9,908,177 6 10,679,544 9,328,963 7,799,062 Earning assets 16,954,605 16,315,233 4 14,503,172 12,906,106 10,601,537 Deposits 11,891,481 11,784,103 1 11,435,942 10,341,582 9,004,618 Shareholders' equity 1,222,378 1,199,496 2 1,184,770 1,117,953 982,204 - - ------------------------------------------------------------------------------------------------------------------------------------ AT YEAR END - - ------------------------------------------------------------------------------------------------------------------------------------ Assets $18,233,810 $18,508,264 (1)% $16,453,120 $15,332,821 $12,894,769 Loans and leases, gross 10,845,662 9,854,656 10 9,925,137 10,012,718 8,524,522 Debt and equity securities 5,880,658 6,873,182 (14) 4,379,774 3,617,236 3,031,996 Deposits 12,107,256 11,710,501 3 12,016,212 11,088,410 9,996,458 Borrowings 4,560,615 5,367,478 (15) 2,910,173 2,774,286 1,648,026 Shareholders' equity 1,330,857 1,192,274 12 1,222,390 1,164,383 1,087,890 Common shares outstanding 141,245 144,974 (3) 146,105 146,133 147,231 Nonperforming assets(8) 67,132 69,192 (3) 89,021 98,125 97,007 - - ------------------------------------------------------------------------------------------------------------------------------------
NM Not meaningful (1) Special items consist of (i) special charges and (ii) losses on restructuring the investment portfolio of $10.4 million on an after-tax basis in 2000. Special charges consist of merger charges, costs to discontinue the correspondent mortgage business, asset write-downs and branch closing costs and on an after-tax basis amounted to $32,591, $20,816, $45,202, $15,547and $8,782 during 2000, 1999, 1998, 1997 and 1996, respectively. See Note 9 to the Consolidated Financial Statements. (2) Where appropriate amounts have been adjusted for a two-for-one split of the common stock in May 1998. (3) Earnings before amortization of goodwill and core deposit premiums. (4) Net interest income divided by average interest-earning assets, calculated on a fully-taxable equivalent basis. (5) Excludes distribution on securities of subsidiary trusts, special items and securities transactions. (6) Excludes securities transactions. (7) Cash dividends paid divided by net income (8) Nonperforming assets consist of nonperforming loans, other real estate owned and repossessed assets. 17 20 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis which follows focuses on the factors affecting Banknorth Group, Inc.'s (the "Company") results of operations during 2000, 1999, and 1998 and financial condition at December 31, 2000 and 1999. The Consolidated Financial Statements and related notes should be read in conjunction with this review. Certain amounts in years prior to 2000 have been reclassified to conform to the 2000 presentation. GENERAL Banknorth Group, Inc. is a multi-bank holding company which conducts business from its headquarters in Portland, Maine and, as of December 31, 2000, 285 offices located in Maine, New Hampshire, Massachusetts, Connecticut, Vermont and upstate New York. The Company is the largest bank holding company headquartered in northern New England and one of the Country's 50 largest commercial banking companies. The Company offers a broad range of commercial and consumer banking services and products as well as trust, investment advisory and insurance brokerage services through eight wholly-owned banking subsidiaries, all of which are national banks: Peoples Heritage Bank, N.A. ("PHB"), Bank of New Hampshire, N.A. ("BNH"), First Massachusetts Bank, N.A. ("First Massachusetts"), Franklin Lamoille Bank, N.A. ("Franklin Lamoille"), First Vermont Bank, N.A. ("First Vermont"), The Howard Bank, N.A. ("Howard"), Evergreen Bank, N.A. ("Evergreen") and The Stratevest Group, N.A ("Stratevest"), a nondepository trust company. PHB operates offices throughout Maine and, through subsidiaries, engages in financial planning, insurance brokerage and equipment leasing activities. At December 31, 2000, PHB had assets of $4.4 billion and equity of $327 million. BNH operates offices throughout New Hampshire. At December 31, 2000, BNH had assets of $4.6 billion and equity of $303 million. First Massachusetts operates offices in Massachusetts, southern New Hampshire and, through its GBT division, central Connecticut. At December 31, 2000, First Massachusetts had assets of $6.2 billion and equity of $438 million. Franklin Lamoille, Howard and First Vermont operate offices throughout Vermont. At December 31, 2000, Franklin Lamoille, Howard and First Vermont Bank had assets of $341 million, $1.0 billion and $753 million, respectively, and equity of $23 million, $77 million and $60 million, respectively. Evergreen operates offices in upstate New York and had assets of $1.3 billion and equity of $77 million at December 31, 2000. Stratevest is headquartered in Vermont and conducts business in each of the states in which the Company's depository subsidiaries have offices. At December 31, 2000, Stratevest had approximately $8.8 billion in assets under management. Each of the depository banks is a member of the Bank Insurance Fund ("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC"). Business Strategy The principal business of the Company consists of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business loans and leases, commercial real estate loans, residential mortgage loans and a variety of consumer loans. In addition to keeping loans for its own portfolio, the Company sells loans into the secondary market. The Company also invests in mortgage-backed securities and securities issued by the United States Government and agencies thereof, as well as other securities. In addition, the Company engages in trust, investment advisory and insurance brokerage activities. The Company's goal is to sustain profitable, controlled growth by focusing on increasing loan and deposit market share in New England and upstate New York, developing new financial products, services and delivery channels, closely managing yields on earning assets and rates on interest-bearing liabilities, increasing noninterest income through, among other things, expanded trust, investment advisory and insurance brokerage services, and controlling the growth of non-interest expenses. It is also part of the business strategy of the Company to supplement internal growth with targeted acquisitions of other financial institutions and insurance agencies in its market area. During the period covered by this discussion, the Company engaged in numerous merger and acquisition related activities. For further information, see Note 2 to the Consolidated Financial Statements and "Completed Acquisitions" below. The Company regularly evaluates potential acquisitions and, as a general rule, announces acquisitions only after a definitive agreement has been reached. Economic Conditions The Company believes that its market area has witnessed steady economic growth since 1992. Although the Company's market area has witnessed steady economic growth, bank regulatory agencies are noting increased risk in loan portfolios at banks across the country. In addition, oil and gas price increases and other factors may result in an overall slow-down of the economy. There can be no assurance that the economies and real estate markets in the Company's primary market areas will continue to grow and be significant determinants of the quality of the Company's assets in future periods and, thus, its results of operations, liquidity and financial condition. Completed Acquisitions During the third quarter of 2000, the Company completed the acquisition of Palmer Goodell Insurance Agency, Inc. (based in Springfield, Massachusetts) and Arthur A. Watson & Co., Inc. (an insurance agency based in Wethersfield, Connecticut). These agencies, which were acquired for a combination of cash and stock, had combined annual revenues of approximately $18 million in 1999. The acquisitions resulted in the recording of goodwill of $22.5 million, which is being amortized over 20 years. These insurance agency acquisitions are an important part of the Company's strategy to offer its customers a full range of financial services in all the markets it serves. On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc. ("Banknorth"), which was effected by the merger of Banknorth with and into People Heritage Financial Group, Inc., which changed its name to "Banknorth Group, Inc." as a result of the merger. Approximately 42.9 million shares of common stock of the Company ("Common Stock") were issued in connection with this transaction. As of December 31, 1999, Banknorth had total assets of $4.6 billion and total shareholders' equity of $341 million. The acquisition was accounted for using the pooling-of-interests method and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods. 18 21 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- On January 1, 1999, the Company completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of Common Stock were issued in connection with this acquisition. SIS had total assets of $2.0 billion and shareholders' equity of $139 million at December 31, 1998. The acquisition of SIS was accounted for as a pooling-of-interests and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods. During 1998, the Company completed the acquisition of three insurance agencies for an aggregate of 454,864 shares of Common Stock. These acquisitions were accounted for as purchases and, accordingly, the Company's financial statements reflect their operations from the date of acquisition. The Company recorded $9.3 million of goodwill in connection with these purchases. On April 10, 1998, the Company completed the acquisition of CFX Corporation ("CFX"). Approximately 32.8 million shares of Common Stock were issued in connection with this transaction. At December 31, 1997, CFX had total assets of $2.9 billion and total shareholders' equity of $245.7 million. The acquisition of CFX was accounted for as a pooling-of-interests and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods. The Company incurred various merger related and restructuring charges in connection with the foregoing acquisitions and in connection with acquisitions effected by acquired companies such as Banknorth, SIS and CFX (collectively, "special charges"). On an after-tax basis special charges amounted to $32.6 million, $20.8 million and $45.2 million in 2000, 1999 and 1998, respectively. Included in the 2000 special charges were $31.5 million of mergerrelated expenses and $1.1 million of expenses related to the closing of 11 branches. Special charges in 1999 included $5.3 million of after-tax costs to discontinue the Company's correspondent mortgage business. For additional information, see "Results of Operations - Special Charges" and Note 9 to the Consolidated Financial Statements. The Company also incurred a $15.9 million pre-tax loss on the restructuring of the securities portfolio in the second quarter of 2000, which along with special charges comprise special items. RESULTS OF OPERATIONS Comparison of 2000 and 1999 Overview The Company reported net income of $191.7 million or $1.32 per diluted share in 2000, compared to $197.0 million or $1.34 per diluted share in 1999. Excluding special items, the Company earned $234.7 million or $1.62 per diluted share in 2000 compared to $217.8 million or $1.48 per diluted share during 1999, an increase of 9%. Return on average equity excluding special items was 19.20% in 2000 compared to 18.16% in 1999. The improved results were attributable to increased noninterest income and improved efficiency. Total revenues, excluding securities transactions, increased 10% during 2000 as a result of increased noninterest income. Noninterest income excluding securities transactions increased 19% during 2000, primarily as a result of increases in income from deposit services, and insurance commissions. Net interest income decreased 2% during 2000, as compared to 1999. The decrease was attributable to a decrease in net interest margin due to increased short-term interest rates. The decline in net interest margin reflected an increase in the average rates paid on interest-bearing liabilities, particularly higher rates on Federal Home Loan Bank advances. Noninterest expenses, excluding special items, remained flat in 2000 while total revenues increased 9%. Factors affecting the results included the acquisition of two insurance agencies offset by the sale, merger or closing of branches and merger synergies throughout the year. Net Interest Income Net interest income on a fully taxable-equivalent basis decreased by $10.3 million, or 2%, during 2000 due primarily to a 61 basis point increase in average rates paid on interest-bearing liabilities. The net interest margin declined to 3.65% in 2000 from 3.86% during 1999 due primarily to rising short-term interest rates during the year. Average loans and leases increased by $577.1 million, or 6%, in 2000 compared to 1999. Commercial and consumer loans experienced significant growth while residential real estate loans declined. Residential real estate loans declined largely due to the Company's discontinuance of the correspondent mortgage business in January 1999 and the April 1999 conversion of $633 million of residential loans into mortgage-backed securities, which are classified as securities held to maturity. Average securities increased $146 million, or 2%, in 2000. Average deposits increased 1% during 2000. Average interest-bearing liabilities increased $569.2 million, or 4%, in 2000 compared to 1999. Information on average balances, yields and rates for the past three years can be found in Table 1. Table 2 shows the changes from 1999 to 2000 in tax equivalent net interest income by category due to changes in rate and volume. 19 22 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 1 -- THREE YEAR AVERAGE BALANCE SHEETS - - -------------------------------------------------------------------------------- The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income on 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. 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 securities to make them equivalent to income and yields earned on fully-taxable investments, assuming a federal income tax rate of 35%, and (ii) unpaid interest on nonaccrual loans has not been included for purposes of determining interest income. Information is based on average daily balances during the indicated periods.
- - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE YIELD/ Average Yield/ Average Yield/ (Dollars in Thousands) BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate - - ------------------------------------------------------------------------------------------------------------------------------------ Loans and leases (1) $10,485,289 $898,447 8.57% $9,908,177 $829,883 8.38% $10,679,544 $912,102 8.54% Investment securities 6,405,415 434,225 6.78% 6,259,436 395,616 6.32% 3,667,733 231,881 6.32% Federal funds sold and other short-term investments 63,901 3,677 5.75% 147,620 7,154 4.85% 155,895 6,890 4.42% ----------- --------- ----------- --------- ----------- --------- Total earning assets 16,954,605 1,336,349 7.88% 16,315,233 1,232,653 7.56% 14,503,172 1,150,873 7.94% --------- --------- --------- Noninterest earning assets 1,388,621 1,292,111 1,193,062 ----------- ----------- ----------- Total assets $18,343,226 $17,607,344 $15,696,234 =========== =========== =========== Interest-bearing deposits: Certificates of deposit $4,521,217 244,985 5.42% $4,617,521 231,755 5.02% $4,696,446 255,745 5.45% Brokered deposits 118,791 7,604 6.40% 179,760 9,653 5.37% 283,499 16,535 5.83% Other interest-bearing deposits 5,309,325 158,661 2.99% 5,179,164 132,118 2.55% 4,813,522 133,136 2.77% ----------- --------- ----------- --------- ----------- --------- Total interest-bearing deposits 9,949,333 411,250 4.13% 9,976,445 373,526 3.74% 9,793,467 405,416 4.14% Borrowed funds 5,005,268 306,026 6.11% 4,408,944 229,764 5.21% 2,761,451 150,228 5.44% ----------- --------- ----------- --------- ----------- --------- Total interest-bearing liabilities 14,954,601 717,276 4.80% 14,385,389 603,290 4.19% 12,554,918 555,644 4.43% --------- --------- --------- Non-interest bearing deposits 1,942,148 1,807,658 1,642,475 Other liabilities 125,324 111,723 184,071 Securities of subsidiary trusts 98,775 103,078 130,000 Shareholders' equity 1,222,378 1,199,496 1,184,770 ----------- ----------- ----------- Total liabilities and shareholders' equity $18,343,226 $17,607,344 $15,696,234 =========== =========== =========== Net earning assets $2,000,004 $1,929,844 $1,948,254 =========== =========== =========== Net interest income (fully-taxable equivalent) 619,073 629,363 595,229 Less: fully-taxable equivalent adjustments (6,062) (5,134) (4,713) --------- --------- --------- Net interest income $613,011 $624,229 $590,516 ========= ========= ========= Net interest rate spread (fully-taxable equivalent) 3.08% 3.37% 3.51% Net interest margin (fully-taxable equivalent) 3.65% 3.86% 4.10% - - ------------------------------------------------------------------------------------------------------------------------------------
(1) Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans, but unpaid interest on nonperforming loans has not been included for purposes of determining interest income. 20 23 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 2 -- CHANGES IN NET INTEREST INCOME - - -------------------------------------------------------------------------------- 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, 2000 vs 1999 Year Ended December 31, 1999 vs 1998 Increase (Decrease) Due To Increase (Decrease) Due To - - ------------------------------------------------------------------------------------------------------------------------------------ Rate/ Rate/ (Dollars in Thousands) Rate Volume Volume Total Rate Volume Volume Total - - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: Loans and leases(1) $ 18,826 $ 48,362 $ 1,376 $ 68,564 $(17,087) $(65,875) $ 743 $(82,219) Investment securities 28,793 9,226 590 38,609 -- 163,796 (61) 163,735 Federal funds sold and other short-term investments 1,329 (4,060) (746) (3,477) 670 (366) (40) 264 -------- -------- ------- -------- -------- -------- ------- -------- Total earning assets 48,948 53,528 1,220 103,696 (16,417) 97,555 642 81,780 -------- -------- ------- -------- -------- -------- ------- -------- Interest-bearing liabilities: Deposits: Regular savings and money market access and NOW accounts 22,788 3,319 436 26,543 (10,590) 10,128 (556) (1,018) Certificates of deposit 18,470 (4,834) (406) 13,230 (20,195) (4,301) 506 (23,990) Brokered deposits 1,852 (3,274) (627) (2,049) (1,304) (6,048) 470 (6,882) -------- -------- ------- -------- -------- -------- ------- -------- Total interest-bearing deposits 43,110 (4,789) (597) 37,724 (32,089) (221) 420 (31,890) Borrowed funds 39,680 31,068 5,514 76,262 (6,351) 89,624 (3,737) 79,536 -------- -------- ------- -------- -------- -------- ------- -------- Total interest-bearing liabilities 82,790 26,279 4,917 113,986 (38,440) 89,403 (3,317) 47,646 -------- -------- ------- -------- -------- -------- ------- -------- Net interest income (fully taxable equivalent) $(33,842) $ 27,249 $(3,697) $(10,290) $ 22,023 $ 8,152 $ 3,959 $ 34,134 ======== ======== ======= ======== ======== ======== ======= ======== - - ------------------------------------------------------------------------------------------------------------------------------------
(1) Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans, but unpaid interest on nonperforming loans has not been included for purposes of determining interest income. Provision and Allowance for Loan and Lease Losses The Company recorded a provision for loan and lease losses in 2000 of $23.8 million, as compared to a $23.6 million provision in 1999. Net chargeoffs to average loans outstanding was 0.24% in 2000, consistent with 1999. Net chargeoffs were $25.3 million in 2000 compared to $23.6 million in 1999, due to lower recoveries in 2000. The allowance for loan and lease losses amounted to $153.6 million at December 31, 2000, as compared to $155.1 million at December 31, 1999. Nonperforming assets were down $2 million from December 31, 1999 to $67.1 million, or 0.37% of total assets. Accruing loans 90 days past due were $6.0 million at December 31, 2000, down 51% from the prior year. The allowance for loan and leases losses is maintained at a level determined to be adequate by management to absorb future charge-offs of loans and leases deemed uncollectable. This allowance is increased by provisions charged to income 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 and is determined based on management's ongoing evaluation. The ongoing evaluation process includes a formal analysis of the allowance each quarter, which considers, among other factors, the character and size of the loan portfolio, current economic and market conditions, loan growth, delinquency trends, nonperforming loan trends, charge-off experience, portfolio migration data and other asset quality factors. The Company evaluates specific loan status reports on certain commercial and commercial real estate loans rated "substandard" or worse in excess of a specified dollar amount. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. The remaining commercial and commercial real estate loans are provided for as part of pools of similar loans using a combination of historical loss experience and migration analysis, which considers the probability of a loan moving from one risk rating category to another over the passage of time, transition matrix and qualitative adjustments. For the residential real estate and consumer loan portfolios, the range of reserves is calculated by applying historical charge-offs and recovery experience to the current outstanding balance in each type of loan category, with consideration given to loan growth over the preceding twelve months. Although management utilizes its judgment in providing for losses, for the reasons discussed under "Asset Quality - Nonperforming Assets," there can be no assurance that the Company will not have to change the amount of its provision for loan and lease losses in future periods. 21 24 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 3-- FIVE YEAR TABLE OF ACTIVITY IN THE ALLOWANCE FOR LOAN AND LEASE LOSSES - - -------------------------------------------------------------------------------- The following sets forth information concerning the activity in the Company's allowance for loan and lease losses during the periods indicated.
- - --------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - - --------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 1997 1996 - - --------------------------------------------------------------------------------------------------------------------------- Average loans and leases outstanding $10,485,289 $9,908,177 $10,679,544 $9,328,963 $7,799,062 =========== ========== =========== ========== ========== Allowance at the beginning of period $ 155,048 $ 155,098 $ 150,615 $ 142,682 $ 133,043 Additions due to acquisitions -- -- 2,200 7,361 13,015 Charge-offs: Real estate loans 5,394 8,698 10,233 6,991 21,336 Commercial business loans and leases 7,790 5,125 7,718 9,052 6,552 Consumer loans and leases 21,508 22,211 20,459 19,169 12,141 ----------- ---------- ----------- ---------- ---------- Total loans charged off 34,692 36,034 38,410 35,212 40,029 ----------- ---------- ----------- ---------- ---------- Recoveries: Real estate loans 2,478 3,153 6,912 9,676 13,735 Commercial business loans and leases 2,334 3,188 4,040 5,126 3,213 Consumer loans and leases 4,563 6,068 5,966 5,219 3,855 ----------- ---------- ----------- ---------- ---------- Total loans recovered 9,375 12,409 16,918 20,021 20,803 ----------- ---------- ----------- ---------- ---------- Net charge-offs 25,317 23,625 21,492 15,191 19,226 Provision for loan and lease losses 23,819 23,575 23,775 15,763 15,850 ----------- ---------- ----------- ---------- ---------- Allowance at the end of the period $ 153,550 $ 155,048 $ 155,098 $ 150,615 $ 142,682 =========== ========== =========== ========== ========== Ratio of net charge-offs to average loans and leases outstanding 0.24% 0.24% 0.20% 0.16% 0.25% Ratio of allowance to total portfolio loans and leases at end of period 1.42% 1.57% 1.56% 1.50% 1.67% Ratio of allowance to nonperforming loans and leases at end of period 249.13% 266.74% 206.71% 179.85% 183.69% - - ---------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------ TABLE 4-- ALLOCATION OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES-- FIVE YEAR SCHEDULE - - ------------------------------------------------------------------------------------------------------------------------------------ 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. 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. - - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------ December 31, - - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ PERCENT OF Percent of Percent of Percent of Percent of LOANS IN EACH Loans in Each Loans in Each Loans in Each Loans in Each CATEGORY TO Category to Category to Category to Category to AMOUNT TOTAL LOANS Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans - - ------------------------------------------------------------------------------------------------------------------------------------ Real estate loans $ 81,026 47.98% $ 79,147 50.40% $ 77,516 54.13% $ 79,958 59.83% $ 78,871 60.23% Commercial business loans and leases 50,486 21.29 49,316 19.53 46,753 18.50 36,161 15.67 37,317 15.88 Consumer loans and leases 22,038 30.73 26,585 30.07 30,829 27.37 27,254 24.50 20,237 23.89 Unallocated allowance -- -- -- -- -- -- 7,242 -- 6,257 -- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- $153,550 100.00% $155,048 100.00% $155,098 100.00% $150,615 100.00% $142,682 100.00% ======== ======= ======== ======= ======== ======= ======== ======= ======== ======= - - ------------------------------------------------------------------------------------------------------------------------------------
22 25 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- The unallocated components in the preceding table relate to reserves acquired in connection with the acquisition of CFX. These reserves were allocated during 1998 in accordance with the Company's analysis of the CFX loan portfolio. Noninterest Income Noninterest income was $211.2 million in 2000 compared to $191.8 million in 1999. Excluding losses on securities restructuring, noninterest income increased $35.3 million or 19% in 2000, including increases of $11.8 million in deposit services income, and $5.5 million in insurance commissions. Deposit services income of $81.0 million increased 17% from 1999 and was attributable to volume driven increases in checking account income, particularly increases in overdraft fees and ATM fee income. Trust and investment advisory services income of $42.4 million increased 8% during 2000 primarily due to sales of investment products. Assets under management were $8.8 billion and $7.4 billion at December 31, 2000 and 1999, respectively, an increase of 19%. Insurance commissions income was $25.7 million and $20.3 million in 2000 and 1999, respectively, an increase of 27%. The Company's acquisitions of insurance agencies in Massachusetts and Connecticut at the end of third quarter of 2000 accounted for $4.8 million of the increase. Income from bank owned life insurance ("BOLI") was $17.7 million and $15.5 million in 2000 and 1999, respectively. This 14% increase reflects additional income from purchases in late 1999, as well as investment appreciation which resulted in higher cash surrender value. BOLI covers certain employees of the Company or its bank subsidiaries. The cash surrender value of BOLI was $306.4 million at December 31, 2000 compared to $288.8 million at December 31, 1999. Most of the Company's BOLI is invested in the `general account' of quality insurance companies. All such companies were rated AA-or better by Standard and Poors at December 31, 2000. Merchant and card product income of $15.4 million increased 17% from 1999 due to increases in transaction volume. This income represents fees and interchange income generated by the use of Company-issued debit cards and charges to merchants for credit card transactions processed. Mortgage banking services income of $22.0 million increased $1.5 million or 8% during 2000. The increase in 2000 resulted from higher gains on the sale of mortgage servicing rights which were substantially offset by lower gains on sales of loans into the secondary market. See the discussion below on capitalized mortgage servicing rights. The Company's portfolio of residential mortgages serviced for investors was $1.6 billion at December 31, 2000 compared to $4.5 billion and $5.2 billion at December 31, 1999 and 1998, respectively. Mortgage loans serviced for others decreased in 2000 primarily as a result of the sale of mortgage servicing rights, as discussed below. Capitalized mortgage servicing rights decreased from $52.7 million at December 31, 1999 to $23.2 million at December 31, 2000. After a comprehensive review of its mortgage banking operations, the Company decided to sell virtually all of its mortgage servicing rights and to sell mortgage servicing rights on new loan originations on a flow basis in the future. The Company sold this asset after it determined that it could no longer meet its internal investment targets because of the relatively small size of its loans serviced for others portfolio, the increasing level of sophistication of the national competitors and the volatility due to changes in interest rates inherent in the mortgage servicing rights asset. In the fourth quarter of 2000, the Company reached an agreement to sell the servicing rights on substantially all residential mortgage loans which it services for others. The sale will be in two installments and is expected to be completed by March 31, 2001. In the fourth quarter of 2000, the Company recorded a $5.2 million gain on sale of $1.8 billion of loans serviced for others, which was reduced by a $1.5 million loss on the sale of certain principal only securities and interest rate floor contracts which were used to hedge the prepayment risk related to the mortgage servicing rights asset. - - -------------------------------------------------------------------------------- TABLE 5 -- MORTGAGE BANKING SERVICES INCOME - - -------------------------------------------------------------------------------- The following table sets forth certain information relating to the Company's mortgage banking activities at the dates or for the periods indicated.
- - -------------------------------------------------------------------------------- At or for the Year Ended December 31, - - -------------------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 Residential mortgages serviced for investors $ 1,618,610 $ 4,540,948 $ 5,178,281 =========== =========== =========== Residential mortgage sales income $ 2,811 $ 8,617 $ 26,629 Residential mortgage servicing income, net 8,414 8,322 13,243 Change in impairment reserve for mortgage servicing rights 2,895 4,800 (11,586) Valuation adjustment- interest rate floor (197) (3,950) 2,380 Gain on sale of mortgage servicing rights 8,040 2,634 2,028 ----------- ----------- ----------- Mortgage banking services income $21,963 $20,423 $32,694 =========== =========== ===========
Net securities gains amounted to $439 thousand and $655 thousand during 2000 and 1999, respectively. Gains from the sale of securities are subject to market and economic conditions and, as a result, there can be no assurance that gains reported in prior periods will be achieved in the future. In 2000, the Company incurred a $15.9 million ($10.3 million after-tax) loss on restructuring parts of its securities portfolio by selling $104 million of securities available for sale coincident with the acquisition of Banknorth. The securities, which had a weighted average yield of 5.73%, were primarily perpetual preferred stocks acquired in prior acquisitions, treasury bonds (remaining maturity greater than 10 years) and below investment grade debt securities. After the restructuring, the Company no longer holds any of these types of securities. Other noninterest income amounted to $22.4 million and $13.2 million during 2000 and 1999, respectively, and consisted primarily of loan fee income, gains on sales of certain assets and commissions on official checks. The $9.2 million increase in 2000 consisted primarily of a $4.7 million gain on the sale of $29 million of credit card loans in the second quarter of 2000, a $1.2 million gain on sale of eight branches during the fourth quarter of 2000, realized gains on venture capital and limited partnership investments and increased loan fee income. 23 26 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- Noninterest Expense Noninterest expense was $511.9 million in 2000 compared to $498.1 million in 1999. Excluding special charges, noninterest expense in 2000 was slightly lower than 1999. The efficiency ratio, which excludes special items, distributions on securities of subsidiary trusts and securities transactions, improved to 54.72% during 2000 from 56.45% in 1999 primarily as a result of the efficiencies created by the assimilation of recent acquisitions, as well as operating improvements. Salaries and benefits expense of $230.2 million decreased by $1.3 million or 0.6% during 2000. The decline was due to merger-related savings, favorable pension experience and lower incentive compensation which were partially offset by normal merit increases. Data processing expense decreased 3% to $37.6 million in 2000 from $38.8 million during 1999. The decrease was primarily attributable to the absence in the current period of costs incurred in 1999 in order to ensure that the Company's computer systems properly recognized the year 2000, as well as merger-related savings. Occupancy expense in 2000 was essentially unchanged from that in 1999. Savings from the closing or sale of several branches during the year were offset by increased rent expense at other locations. Equipment expense increased $1.5 million or 5% in 2000 compared to 1999 due to increased maintenance and depreciation on new equipment and software. Amortization of goodwill and deposit premiums increased $374 thousand or 2% during 2000, due primarily to the purchase of two insurance agencies at the end of the third quarter of 2000. Advertising and marketing expense decreased $2.2 million or 15% during 2000, reflecting the synergies from recent acquisitions. Other noninterest expense, which is comprised primarily of general and administrative expenses, increased $2.0 million or 2% in 2000. Special Charges Special charges consist of merger-related expenses of $43.0 million, $20.6 million and $61.1 million during 2000, 1999 and 1998, respectively, as well as $1.6 million of expenses related to the closing of 11 branches in 2000 and $7.4 million of costs related to the discontinuation of the Company's correspondent mortgage lending business in 1999. On an after-tax basis, special charges amounted to $32.6 million, $20.8 million and $45.2 million for the years ended 2000, 1999 and 1998, respectively. For a tabular analysis of the Company's special charges, see Note 9 to the Consolidated Financial Statements. Taxes The Company's effective tax rate was 33.5% in 2000 compared to 33.1% in 1999. Comprehensive Income The Company's comprehensive income amounted to $282.6 million and $69.7 million during 2000 and 1999, respectively. Comprehensive income differed from the Company's net income in 2000 because of a $90.7 million net unrealized gain on securities and a $250 thousand adjustment to the minimum pension liability during 2000 and in 1999 due to a $127.3 million increase in net unrealized losses on securities. For additional information, see the Consolidated Financial Statements. COMPARISON OF 1999 AND 1998 The Company reported net income of $197.0 million for 1999, or $1.34 per diluted share, compared with net income of $141.7 million, or $0.95 per diluted share, reported for 1998. Excluding the impact of special charges, net income and diluted earnings per share were $217.8 million and $1.48, respectively, for 1999 and $186.9 million and $1.25, respectively, for 1998 (a per share increase of 18%). Excluding special charges, return on average assets and return on average equity were 1.24% and 18.16%, respectively, for 1999 and 1.19% and 15.78%, respectively, for 1998. Net interest income on a fully taxable-equivalent basis totaled $629.4 million during 1999, as compared with $595.2 million in 1998. The $34.1 million, or 6%, increase in 1999 was primarily attributable to deposit costs declining faster than loan yields, increased levels of noninterest bearing deposits and an increase in the average amount of investment securities outstanding. The provision for loan and lease losses was $23.6 million in 1999 compared to a $23.8 million provision in 1998 as a result of a decrease in residential real estate loans outstanding and the Company's estimate of future losses. The ratio of the allowance to nonperforming loans at December 31, 1999 was 267% compared to 207% at December 31, 1998. The allowance for loan and lease losses represented 1.57% of total loans at December 31, 1999 compared to 1.56% at December 31, 1998. The improved coverage resulted primarily from a decrease in the amount of the net loan portfolio, due primarily to a lower level of residential real estate loans. Noninterest income was $191.8 million and $167.5 million for the years ended December 31, 1999 and 1998, respectively. Increases of $14.3 million in deposit services income, $10.0 million in trust and investment advisory services income and $7.3 million in insurance commissions contributed to the $24.2 million, or 14%, increase in 1999. Deposit services income of $69.2 million reflected 26% growth from 1998. The 34% increase in trust and investment advisory services income was primarily due to increased assets under management and the acquisition of approximately $1.0 billion in investment assets in conjunction with the purchase of 10 branches in November 1998, as well as strong sales and market conditions throughout the year. The 56% increase in insurance commissions reflected the Company's acquisitions of insurance agencies in Massachusetts and New Hampshire in the fourth quarter of 1998, which were accounted for as purchases. Noninterest expense was $498.1 million for 1999 compared with $519.5 million for 1998, a 4% decrease. The 1999 decrease was primarily attributable to a decrease in special charges and distributions on securities of subsidiary trusts, which were substantially offset by increases in salaries and benefits, higher data processing expense and higher amortization of goodwill and deposit premiums due to recent purchase acquisitions. The efficiency ratio, which excludes special charges, distributions on securities of subsidiary trusts and securities transactions, improved from 59.35% in 1998 to 56.45% in 1999. Average earning assets increased $1.8 billion or 12% in 1999 primarily due to growth in investment securities due to additional investments in federal agency mortgage-backed securities. Average interest-bearing liabilities increased 15% in 1999 in order to fund the growth in assets. 24 27 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- FINANCIAL CONDITION The Company's consolidated total assets decreased by $274 million, or 1%, from $18.5 billion at December 31, 1999 to $18.2 billion at December 31, 2000 primarily due to investment maturities. Shareholders' equity totaled $1.3 billion and $1.2 billion at December 31, 2000 and 1999, respectively. The increase in shareholders' equity was attributable to earnings for 2000 of $192 million in addition to a decrease in the net unrealized loss on available for sale securities of $90.7 million, which were partially offset by the effects of dividends and share repurchases. Investment Securities and Other Earning Assets The average balance of the securities portfolio, which consists of securities available for sale and securities held to maturity, was $6.4 billion in 2000 and $6.3 billion in 1999, an increase of $146 million. The portfolio is comprised primarily of U.S. Government securities and mortgage-backed securities, most of which are seasoned 15-year federal agency securities. Other bonds and notes consist of asset-backed securities, corporate bonds and trust preferred securities. Other equity securities in 1999 and 1998 consisted primarily of preferred securities which were sold in 2000 as part of the securities restructuring. Securities available for sale are carried at fair value and had a net unrealized loss of $53.1 million and $193.3 million at December 31, 2000 and 1999, respectively. See Note 3 to the Consolidated Financial Statements. These unrealized losses do not impact net income or regulatory capital but are recorded as adjustments to shareholders' equity, net of related deferred income taxes. Unrealized losses, net of related deferred income taxes, are a component of the Company's "Comprehensive Income" contained in the Consolidated Statement of Changes in Shareholders' Equity. The Company does not consider any of the unrealized losses to be other than temporary. - - -------------------------------------------------------------------------------- TABLE 6 -- SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY - - -------------------------------------------------------------------------------- The following table sets forth the Company's investment securities at the dates indicated.
- - -------------------------------------------------------------------------------------------------- December 31, - - -------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 - - -------------------------------------------------------------------------------------------------- Securities available for sale: U.S. Government and federal agencies $544,392 $709,497 $518,105 Tax-exempt bonds and notes 83,133 56,903 42,455 Other bonds and notes 426,199 455,435 193,167 Mortgage-backed securities 3,591,923 4,264,364 2,674,133 Collateralized mortgage obligations 575,091 723,290 471,159 ----------- ----------- ----------- Total debt securities 5,220,738 6,209,489 3,899,019 ----------- ----------- ----------- Federal Home Loan Bank stock 242,632 261,391 163,227 Federal Reserve Bank stock 13,312 5,062 4,807 Other equity securities 1,488 33,360 43,697 ----------- ----------- ----------- Total equity securities 257,432 299,813 211,731 ----------- ----------- ----------- Net unrealized gain (loss) (53,059) (193,271) 3,246 ----------- ----------- ----------- Fair value of securities available for sale $5,425,111 $6,316,031 $4,113,996 =========== =========== =========== Securities held to maturity: U.S. Government and federal agencies $-- $2,797 $3,582 Tax-exempt bonds and notes -- 7,753 9,612 Other bonds and notes -- 1,480 2,171 Asset-backed securities -- -- 65,350 Mortgage-backed securities -- 3,789 174,064 Collateralized mortgage obligations 455,547 541,332 10,999 ----------- ----------- ----------- Amortized cost of securities held to maturity $455,547 $557,151 $265,778 =========== =========== =========== Fair value of securities held to maturity $457,110 $535,605 $267,161 =========== =========== =========== Excess of fair value over recorded value $1,563 $(21,546) $1,383 =========== =========== =========== Fair value as a % of amortized cost 100.3% 96.1% 100.5% - - --------------------------------------------------------------------------------------------------
25 28 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 7 -- MATURITIES OF SECURITIES - - -------------------------------------------------------------------------------- The following table sets forth the contractual maturities and fully-taxable weighted average yields of the Company's debt securities at December 31, 2000.
- - ------------------------------------------------------------------------------------------------------------------------------------ Amortized Cost Maturing in - - ------------------------------------------------------------------------------------------------------------------------------------ More than More than Less than 1 Year 1 to 5 Years 5 to 10 Years 10 Years Total - - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield - - ------------------------------------------------------------------------------------------------------------------------------------ AVAILABLE FOR SALE: U.S. Government and federal agencies $182,056 5.45% $286,830 6.12% $ 61,242 6.80% $ 14,264 7.75% $ 544,392 6.02% Tax-exempt bonds and notes 54,236 6.73% 12,234 6.84% 5,766 6.88% 10,897 7.93% 83,133 6.92% Other bonds and notes 116 5.47% 107,508 6.75% 111,025 6.92% 207,550 7.52% 426,199 7.17% Mortgage-backed securities 2,402 5.57% 25,000 6.39% 154,766 6.61% 3,409,755 6.43% 3,591,923 6.44% Collateralized mortgage obligations 2,986 6.14% 9,846 6.14% 46,998 6.07% 515,261 6.29% 575,091 6.27% -------- -------- -------- ---------- ---------- Total $241,796 5.30% $441,418 6.25% $379,797 6.64% $4,157,727 6.47% $5,220,738 6.41% ======== ======== ======== ========== ========== HELD TO MATURITY: Collateralized mortgage obligations -- -- -- -- -- -- $ 455,547 7.57% $ 455,547 7.57% ======== ======== ======== ========== ========== - - ------------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations ("CMOs") increased in 1999 primarily due to the Company's securitization of $633 million of single-family residential loans during the period. CMOs generally are backed by residential mortgages with original maturities in excess of 10 years. Loans Residential real estate loans (including loans held for sale) averaged $2.3 billion in 2000 compared to $2.8 billion in 1999, a decrease of 16%. The decrease in the 2000 average balance was primarily attributable to lower loans held for sale. Commercial real estate loans averaged $2.9 billion in 2000 and $2.6 billion in 1999, an 11% increase. The Company is continuing to focus primarily on lending to small and medium size business customers within its geographic markets. These loans consist of loans secured primarily by income-producing commercial real estate, service industry real estate, multi-family residential real estate and retail trade real estate, as well as loans for the acquisition, development and construction of such commercial real estate. Commercial loans and leases averaged $2.1 billion in 2000 and $1.8 billion in 1999, an increase of 19%. The increase in 2000 was largely attributable to additional opportunities in certain market areas due to industry consolidation. Included in these amounts are commercial business leases originated through a subsidiary of one of the Company's banking subsidiaries. These leases are direct equipment leases, primarily office equipment, and amounted to $63.9 million at December 31, 2000. Consumer loans and leases averaged $3.2 billion in 2000 and $2.8 billion in 1999, an increase of 13%. The growth in consumer loans was primarily in indirect automobile loans and home equity loans. Mobile home loans, which amounted to $161.3 million at December 31, 2000, continue to decline, reflecting the Company's strategy to emphasize other types of consumer loans. In June 2000, the Company ceased originating automobile leases. Automobile lease receivables totaled $81.6 million at December 31, 2000 compared to $138.2 million at December 31, 1999. 26 29 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 8 -- COMPOSITION OF LOAN PORTFOLIO - - -------------------------------------------------------------------------------- The following table sets forth the composition of the Company's loan portfolio at the dates indicated.
- - ------------------------------------------------------------------------------------------------------------------------------------ December 31, - - ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------------------------------------------ % OF % of % of % of % of (Dollars in Thousands) AMOUNT LOANS Amount Loans Amount Loans Amount Loans Amount Loans - - ------------------------------------------------------------------------------------------------------------------------------------ Residential real estate loans $ 2,248,714 20.73% $2,270,417 23.04% $3,088,864 31.12% $ 3,798,423 37.94% $3,170,151 37.19% Commercial real estate loans: Permanent first mortgage loans 2,663,775 24.56 2,493,492 25.30 2,078,725 20.94 2,022,896 20.20 1,847,814 21.68 Construction and development loans 291,388 2.69 202,825 2.06 204,372 2.06 169,053 1.69 116,707 1.37 ----------- ------ ---------- ------ ---------- ------ ----------- ------ ---------- ------ Total 2,955,163 27.25 2,696,317 27.36 2,283,097 23.00 2,191,949 21.89 1,964,521 23.05 ----------- ------ ---------- ------ ---------- ------ ----------- ------ ---------- ------ Commercial business loans and leases 2,308,904 21.29 1,924,201 19.53 1,836,412 18.50 1,569,429 15.67 1,353,451 15.88 Consumer loans and leases 3,332,881 30.73 2,963,721 30.07 2,716,764 27.37 2,452,917 24.50 2,036,399 23.89 ----------- ------ ---------- ------ ---------- ------ ----------- ------ ---------- ------ Total loans receivable $10,845,662 100.00% $9,854,656 100.00% $9,925,137 100.00% $10,012,718 100.00% $8,524,522 100.00% =========== ====== ========== ====== ========== ====== =========== ====== ========== ====== - - ------------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------- TABLE 9-- SCHEDULED CONTRACTUAL AMORTIZATION OF CERTAIN LOANS AT DECEMBER 31, 2000 - - -------------------------------------------------------------------------------------------------------------- The following table sets forth the scheduled contractual amortization of the Company's construction and development loans and commercial business loans and leases at December 31, 2000, as well as the amount of such loans which are scheduled to mature after one year which have fixed or adjustable interest rates.
- - -------------------------------------------------------------------------------------------------------------- Real Estate Construction Commercial Business (Dollars in Thousands) and Development Loans Loans and Leases Total - - -------------------------------------------------------------------------------------------------------------- Amounts due: Within one year $ 81,661 $1,087,183 $1,165,095 After one year through five years 122,116 824,123 939,313 Beyond five years 87,611 397,598 495,884 ---------- ---------- ---------- Total $ 291,388 $2,308,904 $2,600,292 ========== ========== ========== Interest rate terms on amounts due after one year: Fixed $ 81,868 $ 640,088 $ 721,956 Adjustable 127,859 581,633 709,492 - - --------------------------------------------------------------------------------------------------------------
ASSET QUALITY General The Company monitors its asset quality with lending and credit policies which require the regular review of its loan portfolio. The Company maintains an internal rating system which provides a mechanism to regularly monitor the credit quality of its loan portfolio. The total loan portfolio increased in 2000 due to increases in commercial real estate loans, commercial business loans and leases and consumer loans and leases, while residential real estate loans remained flat when compared to last year. The Company's residential loan portfolio accounted for 21% of the total loan portfolio at December 31, 2000, down from 23% at the end of 1999. The Company's residential loans are generally secured by single-family homes (one-to-four units) and have a maximum loan to value ratio of 80%, unless they are protected by mortgage insurance. At December 31, 2000, 0.44% of the Company's residential loans were nonperforming, as compared to 0.76% at December 31, 1999, as nonperforming residential real estate loans decreased by $7.4 million while the total residential loan portfolio declined by $21.7 million due to prepayments, scheduled amortization, and, to a lesser extent, loan sales. The Company's commercial real estate loan portfolio accounted for 27% of the total loan portfolio at December 31, 2000 and 1999. The portfolio increased $258.8 million in 2000 compared to 1999. This portfolio consists primarily of loans secured by income-producing commercial real estate (including office and industrial buildings), service industry real estate (including hotels and health care facilities), multi-family (over four units) residential properties and retail trade real estate (food stores). These loans generally are secured by properties located in the New England states and New York, particularly Maine, Massachusetts, New Hampshire and Vermont. At December 31, 2000, 0.43% of the Company's commercial real estate loans were nonperforming, as compared to 0.66% at December 31, 1999. 27 30 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- The Company's commercial business loan and lease portfolio accounted for 21% of the total loan portfolio at December 31, 2000, compared to 20% at December 31, 1999. Commercial business loans and leases are generally made to small to medium size businesses located within the Company's geographic market area. These loans are not concentrated in any particular industry, but reflect the broad-based economy of New England and upstate New York. Commercial loans consist primarily of loans secured by various equipment, machinery and other corporate assets, as well as loans to provide working capital to business in the form of lines of credit. The Company generally does not emphasize the purchase of participations in syndicated commercial loans. At December 31, 2000, the Company had $161 million of participations in syndicated commercial loans and commitments to purchase an additional $151 million of such participations. At December 31, 2000, 1.41% of the Company's commercial business loans were nonperforming, as compared to 0.89% at December 31, 1999. The increase was primarily due to the addition of a $12.3 million commercial loan during the fourth quarter of 2000. Consumer loans and leases accounted for 31% of the Company's total loan portfolio at December 31, 2000, compared to 30% at December 31, 1999. At December 31, 2000, the Company's diversified consumer loan portfolio included $1.3 billion of automobile and other vehicle loans and leases, $1.1 billion of home equity loans, $161 million of mobile home loans, $144 million of education loans and $94 million of loans to finance certain medical/dental procedures (vision, dental and orthodontia fee plan loans). The increase in consumer loans over the prior year was due primarily to growth in automobile and home equity loans. The growth was consistent with the Company's strategy to provide a full range of financial services to its customers and to originate loans which are short-term and offer a higher yield than longer-term mortgage loans. At December 31, 2000, 0.19% of the Company's consumer loans were nonperforming, as compared to 0.20% at December 31, 1999. Nonperforming Assets Nonperforming assets consist of nonperforming loans (which do not include accruing loans 90 days or more overdue), other real estate owned and repossessed assets. Total nonperforming assets as a percentage of total assets were 0.37% at December 31, 2000 and 1999. Total nonperforming assets as a percentage of total loans and other nonperforming assets was 0.62% and 0.70% at December 31, 2000 and 1999, respectively. See Table 11 for a summary of nonperforming assets for the last five years. 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 focus on the reduction of nonperforming assets. Despite the ongoing focus on asset quality and 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 charge-offs, decreased accrual of interest income and increased noninterest expenses as a result of the allocation of resources to the collection and workout of nonperforming assets. Residential real estate loans are generally placed on nonaccrual when reaching 120 days past due or in process of foreclosure. All closed-end consumer loans 90 days or more past due and any equity line in the process of foreclosure are placed on nonaccrual status. Consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. 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. At December 31, 2000, the Company had $6.0 million of accruing loans which were 90 days or more delinquent, as compared to $12.1 million and $24.5 million of such loans at December 31, 1999 and 1998, respectively. The decrease was primarily attributable to a decrease in residential real estate loans over 90 days delinquent, which the Company believes are well secured and in the process of collection. The Company also may 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. Net Charge-offs Net charge-offs were $25.3 million during 2000, as compared to $23.6 million in 1999. Net charge-offs represented 0.24% of average loans and leases outstanding in 2000 and 1999. Net charge-offs on commercial business loans and leases in 2000 was substantially higher than 1999 due primarily to a $2.8 million charge-off on one commercial loan during the fourth quarter of 2000. See Table 3. - - -------------------------------------------------------------------------------- TABLE 10-- NET CHARGE-OFFS AS A PERCENT OF AVERAGE LOANS OUTSTANDING - - -------------------------------------------------------------------------------- The following table sets forth net charge-offs to average loans outstanding by type of loan during the periods indicated.
- - -------------------------------------------------------------------------------- Net Charge-offs to Average Loans Outstanding - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Real estate loans 0.06% 0.10% Commercial business loans and leases 0.26 0.11 Consumer loans and leases 0.54 0.58 Total 0.24 0.24 - - --------------------------------------------------------------------------------
See Table 3 for more information concerning charge-offs and recoveries during each of the past five years. 28 31 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE 11 -- FIVE YEAR SCHEDULE OF NON PERFORMING ASSETS - - -------------------------------------------------------------------------------- The following table sets forth information regarding nonperforming assets at the dates indicated.
- - ------------------------------------------------------------------------------------------------- December 31, - - ------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 1997 1996 - - ------------------------------------------------------------------------------------------------- Residential real estate loans: Nonaccrual loans $ 9,894 $17,283 $15,503 $24,344 $21,568 Troubled debt restructurings -- 28 32 36 39 ------- ------- ------- ------- ------- Total 9,894 17,311 15,535 24,380 21,607 ------- ------- ------- ------- ------- Commercial real estate loans: Nonaccrual loans 12,155 16,754 22,481 23,769 26,410 Troubled debt restructurings 635 1,002 5,946 3,428 5,181 ------- ------- ------- ------- ------- Total 12,790 17,756 28,427 27,197 31,591 ------- ------- ------- ------- ------- Commercial business loans and leases: Nonaccrual loans 32,583 17,027 18,736 22,305 18,046 Troubled debt restructurings 38 82 874 114 615 ------- ------- ------- ------- ------- Total 32,621 17,109 19,610 22,419 18,661 ------- ------- ------- ------- ------- Consumer loans and leases: Nonaccrual loans 6,329 5,951 11,455 9,743 5,805 Troubled debt restructurings -- -- 5 6 10 ------- ------- ------- ------- ------- Total 6,329 5,951 11,460 9,749 5,815 ------- ------- ------- ------- ------- Total nonperforming loans: Nonaccrual loans 60,961 57,015 68,175 80,161 71,829 Troubled debt restructurings 673 1,112 6,857 3,584 5,845 ------- ------- ------- ------- ------- Total 61,634 58,127 75,032 83,745 77,674 ------- ------- ------- ------- ------- Other nonperforming assets: Other real estate owned, net of related reserves 4,074 8,154 10,354 10,508 17,008 Repossessions, net of related reserves 1,424 2,911 3,635 3,872 2,325 ------- ------- ------- ------- ------- Total 5,498 11,065 13,989 14,380 19,333 ------- ------- ------- ------- ------- Total nonperforming assets $67,132 $69,192 $89,021 $98,125 $97,007 ======= ======= ======= ======= ======= Accruing loans 90 days overdue $ 5,973 $12,131 $24,450 $11,048 $11,090 ======= ======= ======= ======= ======= Total nonperforming loans as a percentage of total loans 0.57% 0.59% 0.76% 0.84% 0.91% Total nonperforming assets as a percentage of total assets 0.37% 0.37% 0.54% 0.64% 0.75% Total nonperforming assets as a percentage of total loans and other non performing assets 0.62% 0.70% 0.90% 0.98% 1.14% - - -------------------------------------------------------------------------------------------------
29 32 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- Deposits Average demand deposit accounts increased 7% in 2000 to $1.9 billion from $1.8 billion in 1999. The increase in demand deposits was consistent with the Company's marketing focus on these accounts. Average interest-bearing deposits decreased by $27 million during 2000 to $9.9 billion. Average retail certificates of deposit decreased $96.3 million during 2000 to $4.5 billion. The average rate paid on certificates of deposit increased from 5.02% in 1999 to 5.42% in 2000. See Table 13 for the scheduled maturities of certificates of deposits of $100,000 or more. As part of its overall funding strategy, the Company uses deposits obtained through investment banking firms which obtain funds from their customers for deposit with the Company ("brokered deposits"). These brokered deposits (which include short-term certificates of deposit and money market accounts) averaged $119 million and $180 million in 2000 and 1999, respectively. The average rate paid on brokered deposits was 6.40% in 2000 compared to 5.37% in 1999. Other interest-bearing deposits (savings, NOW and money market accounts) increased 2% in 2000 to $5.3 billion from $5.2 billion in 1999. The average rate paid on these deposits increased from 2.55% in 1999 to 2.99% in 2000. - - -------------------------------------------------------------------------------- TABLE 12 -- CHANGE IN DEPOSIT BALANCES BY CATEGORY OF DEPOSITS - - -------------------------------------------------------------------------------- The following table presents the changes in the balances of deposits outstanding at the dates indicated.
- - ----------------------------------------------------------------------------------------------------- December 31, 2000-1999 Change - - ----------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2000 1999 1998 Amount Percent - - ----------------------------------------------------------------------------------------------------- Demand deposits $ 2,114,600 $ 1,821,764 $ 1,851,929 $ 292,836 16.07% Money market access/NOW accounts 3,975,318 3,698,934 3,564,737 276,384 7.47% Savings accounts 1,386,286 1,567,776 1,613,060 (181,490) (11.58%) Certificates of deposit 4,461,983 4,448,229 4,728,916 13,754 0.31% Brokered deposits 169,069 173,798 257,570 (4,729) (2.72%) ----------- ----------- ----------- ----------- Total deposits $12,107,256 $11,710,501 $12,016,212 $ 396,755 3.39% =========== =========== =========== =========== - - -----------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------- TABLE 13-- MATURITY OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE AT DECEMBER 31, 2000 - - -------------------------------------------------------------------------------- The following table sets forth the scheduled maturity of certificates of deposit of $100,000 or more at December 31, 2000. - - -------------------------------------------------------------------------------- (Dollars in Thousands) Balance Percent - - -------------------------------------------------------------------------------- 3 months or less $ 453,909 39% Over 3 to 6 months 281,462 24 Over 6 to 12 months 292,721 25 More than 12 months 141,625 12 ---------- --- $1,169,717 100% ========== === - - -------------------------------------------------------------------------------- Other Funding Sources Average borrowed funds for 2000 were $5.0 billion, compared with $4.4 billion in 1999. The increase in borrowed funds was utilized in part to fund higher levels of earning assets. The Company's primary sources of funds, other than deposits, are advances from the Federal Home Loan Bank ("FHLB") and securities sold under repurchase agreements. Average FHLB borrowings increased because growth in average earning assets exceeded growth in deposits. FHLB collateral consists primarily of first mortgage loans secured by single-family properties, certain unencumbered securities and other qualified assets. At December 31, 2000, FHLB borrowings amounted to $3.3 billion. The Company's additional borrowing capacity with the FHLB at December 31, 2000 was approximately $1.6 billion. See Note 11 to the Consolidated Financial Statements. At December 31, 2000 and 1999, securities sold under repurchase agreements amounted to $986.6 million and $1.3 billion, respectively, and were collaterallized by mortgage-backed securities and U.S. Government obligations. See Note 10 to the Consolidated Financial Statements. 30 33 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- RISK MANAGEMENT The primary goal of the Company's risk management program is to determine how certain existing or emerging issues facing the Company or the financial services industry affect the nature and extent of the risks faced by the Company. Based on a periodic self-evaluation, the Company determines key issues and develops plans and/or objectives to address risk. The Board of Directors (the "Board") and management believe that there are seven applicable "risk categories," consisting of credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk and reputation risk. Each risk category is viewed from a quantity of risk perspective (high, medium or low) coupled with a quality of risk perspective. In addition, an aggregate level of risk is assigned to the Company as a whole as well as the direction of risk (stable, increasing or decreasing). Each risk category and the overall risk level is compared to regulatory views on a regular basis and then reported to the Board with an accompanying explanation as to the existence of any differences. The risk program includes risk identification, measurement, control and monitoring. The Board has established the overall strategic direction of the Company. It approves the overall risk policies of the Company and oversees the overall risk management process for the Company. The Board has delegated authority to three Board Committees, consisting of Audit, Board Risk Management and Asset Review Committees, and has charged each Committee with overseeing key risks. The executive risk management committee, which reports to the Board, evaluates the seven key risk areas of the Company and makes recommendations to the Board Risk Management Committee. ASSET LIABILITY MANAGEMENT The goal of asset-liability management is the prudent control of market risk, liquidity and capital. Asset-liability management is governed by policies reviewed and approved annually by the Company's Board of Directors (the "Board") and monitored periodically by a committee of the Board. The Board delegates responsibility for asset-liability management to the Asset Liability Management Committee ("ALCO"), which is comprised of members of senior management who set strategic directives that guide the day-to-day asset-liability management activities of the Company. The ALCO also reviews and approves all major risk, liquidity and capital management programs, except for product pricing. Product pricing is reviewed and approved by the Pricing Committee, which is comprised of a subset of ALCO members. Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. The Company has no trading operations and thus is only exposed to non-trading market risk. Interest-rate risk, including mortgage prepayment risk, is by far the most significant non-credit risk to which the Company is exposed. Interest-rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company's primary source of revenue. This risk arises directly from the Company's core banking activities - lending, deposit gathering and loan servicing. In addition to directly impacting net interest income, changes in the level of interest rates can also affect (i) the amount of loans originated and sold by the institution, (ii) the ability of borrowers to repay adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the rate of amortization of capitalized mortgage servicing rights and premiums paid on securities, (v) the amount of unrealized gains and losses on securities available for sale and (vi) the fair value of the Company's saleable assets and derivatives and the resultant ability to realize gains. The primary objective of interest-rate risk management is to control the Company's exposure to interest-rate risk both within limits approved by the Board of Directors and guidelines established by the ALCO. These limits and guidelines reflect the Company's tolerance for interest-rate risk over both short-term and long-term horizons. The Company attempts to control interest-rate risk by identifying, quantifying and, where appropriate, hedging its exposure. The Company quantifies and measures interest-rate exposure using a model to dynamically simulate net interest income under various interest rate scenarios over a 12-month period. Simulated scenarios include deliberately extreme interest rate "shocks" and more gradual interest rate "ramps." Key assumptions in these simulation analyses relate to behavior of interest rates and spreads, increases or decreases of product balances and the behavior of the Company's deposit and loan customers. The most material assumption relates to the prepayment of mortgage assets (including mortgage loans, mortgage-backed securities and mortgage servicing rights). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, the resultant interest rate sensitivity of loan assets cannot be determined exactly. Complicating management's efforts to measure interest rate risk is the uncertainty of the maturity, repricing and/or runoff of some of the Company's assets and liabilities. To cope with these uncertainties, management gives careful attention to its assumptions. For example, many of the Company's interest-bearing deposit products (e.g. interest checking, savings and money market deposits) have no contractual maturity and based on historical experience have only a limited sensitivity to movements in market rates. Because management believes it has some control with respect to the extent and timing of rates paid on non-maturity deposits, certain assumptions regarding rate changes are built into the model. In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The Company manages the interest-rate risk inherent in its core banking operations primarily using on-balance sheet instruments that sometimes contain embedded options, mainly fixed-rate portfolio securities and borrowed fund maturities. When appropriate, the Company will utilize off-balance sheet interest rate instruments such as interest-rate swaps, interest rate floors and interest rate corridor agreements, among other instruments. All derivatives hedging the mortgage servicing rights were sold in the third and fourth quarters of 2000. As a result, the Company currently has no material exposure to the new accounting requirements for the hedging of derivative securities, as set forth in Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Investments and Hedging Activities." The Company's policy on interest-rate risk simulation specifies that if interest rates were to shift gradually up or down 200 basis points, estimated net interest income for the subsequent 12 months should decline by less than 5%. The Company was in compliance with this limit at December 31, 2000. The following table reflects the 31 34 Banknorth Group, Inc. and Subsidiaries - - --------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------- 200 Basis Point 100 Basis Point 100 Basis Point 200 Basis Point Rate Increase Rate Increase Rate Decrease Rate Decrease - - ------------------------------------------------------------------------------------------------- DECEMBER 31, 2000 (3.18%) (1.46%) 0.51% 0.70% ====== ====== ==== ==== December 31, 1999 (3.11%) (1.72%) 1.57% 0.96% ====== ====== ==== ==== - - -------------------------------------------------------------------------------------------------
estimated percentage exposure of the Company's net interest income for the 12 months following the date indicated assuming a gradual shift in market interest rates of 100 and 200 basis points, respectively. The results implied in the above table indicate estimated changes in simulated net interest income for the subsequent 12 months assuming a gradual shift up or down in market rates of 100 and 200 basis points across the entire yield curve. Assuming a downward shift in rates, savings, money market and NOW accounts have implied interest rate floors and it is assumed that the related interest expense on these accounts will not decrease in proportion to the downward shift in rates. Assuming an upward shift in rates of 200 basis points, the simulated increase in interest income would be less than the simulated increase in interest expense as the Company's fixed-rate earning assets exceed its fixed-cost paying liabilities. It should be emphasized, however, that the results are dependent on material assumptions such as those discussed above. In the fourth quarter of 2000, the Company entered into an agreement to sell substantially all of its mortgage servicing rights (see "Non-Interest Income" for further details). Substantially all of the Company's remaining mortgage servicing rights at December 31, 2000 were sold in January 2001. Future mortgage servicing rights originated will be sold on a flow basis shortly after the mortgages are sold. As a result, future earnings exposure to the value of mortgage servicing rights is not expected to be material. The most significant factors affecting market risk exposure of net interest income during 2000 has been (i) the exposure created by changes in interest rates, (ii) changes in the shape of the U.S. Government securities yield curve, (iii) changes in the composition of mortgage assets (iv) increases in borrowings with embedded options and (v) the sale of mortgage servicing rights and its corresponding hedges. The Company's earnings are not directly and materially impacted by movements in foreign currency rate or commodity prices. Virtually all transactions are denominated in the U.S. dollar. Movements in equity prices may have an indirect but modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related businesses. LIQUIDITY On a parent-only basis, the Company's commitments and debt service requirements at December 31, 2000 consisted primarily of $98.8 million of junior subordinated debentures (including accrued interest) issued to two subsidiaries, $68.8 million to Peoples Heritage Capital Trust I and $30 million to Banknorth Capital Trust I, in connection with the issuance of 9.06% Capital Securities due 2027 and 10.52% Capital Securities due 2027, respectively. See Notes 12 and 18 to the Consolidated Financial Statements. The principal sources of funds for the Company to meet parent-only obligations are dividends from its banking subsidiaries, which are subject to regulatory limitations, and borrowing from public and private sources, including a $60 million unsecured line of credit which is renewable every 364 days and, if used, carries interest at 3 month LIBOR plus 0.75%. The line has not been used to date. For information on restrictions on the payment of dividends by the Company's banking subsidiaries, see Note 13 to the Consolidated Financial Statements. Banking Subsidiaries For banking subsidiaries of the Company, liquidity represents the ability to fund asset growth and accommodate deposit withdrawals. Liquidity risk is the danger that the banks cannot meet anticipated or unexpected funding requirements or can meet them only at excessive cost. Liquidity is measured by the ability to raise cash when needed at a reasonable cost. Many factors affect a bank's ability to meet liquidity needs, including variations in the markets served, its asset-liability mix, its reputation and credit standing in the market and general economic conditions. In addition to traditional retail deposits, the banks have various other liquidity sources, including proceeds from maturing securities and loans, the sale of securities, asset securitizations and borrowed funds such as FHLB advances, reverse repurchase agreements and brokered deposits. The Company continually monitors and forecasts its liquidity position. There are several interdependent methods used by the Company for this purpose, including daily review of fed funds positions, monthly review of balance sheet changes, monthly review of liquidity ratios, periodic liquidity forecasts and periodic review of contingent funding plans. As of December 31, 2000, the banks had in the aggregate $1.9 billion of "immediately accessible liquidity," defined as cash that could be raised within 1-3 days through collateralized borrowings or security sales. This represents 16% of deposits or 11% of assets. The Company's current policy minimum is 10% of deposits. Also as of December 31, 2000, the banks had in the aggregate "potentially volatile funds" of $1.3 billion. These are funds that might flow out of the banks over a 90-day period in an adverse environment. Management estimates this figure by applying adverse probabilities to its various credit-sensitive and economically-sensitive funding sources. As of December 31, 2000, the ratio of "immediately accessible liquidity" to "potentially volatile funds" was 150%, versus a policy minimum of 100%. In addition to the liquidity sources discussed above, management believes that its consumer loan portfolios provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sale or securitization. The banks also have significant untapped access to the national brokered deposit market. Both of these sources are contemplated as secondary liquidity in the Company's contingent funding plan. Management believes that the level of liquidity is 32 35 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- sufficient to meet current and future funding requirements. For additional information regarding off-balance sheet risks and commitments, see Note 14 to the Consolidated Financial Statements. CAPITAL At December 31, 2000 and 1999, shareholders' equity totaled $1.3 billion and $1.2 billion, respectively, or 7.30% and 6.44% of total assets, respectively. In addition, through subsidiary trusts, the Company had outstanding at such dates $98.8 million of capital securities which mature in 2027 and qualify as Tier 1 Capital. The changes in shareholders' equity included net income for the year ended December 31, 2000 of $191.7 million, a $90.7 million net unrealized gain on securities available for sale, which were partially offset by $96.6 million of stock repurchases (5,545,000 shares) and $70.8 million in dividends to shareholders. On January 23, 2001, the Company's Board of Directors authorized the repurchase of up to eight million shares, or approximately 6%, of the issued and outstanding Common Stock. Capital guidelines issued by the Federal Reserve Board require the Company to maintain certain ratios. The Company's Tier 1 Capital, as defined by the Federal Reserve Board, was $1.3 billion or 7.02% of average assets at December 31, 2000, compared to $1.2 billion or 6.75% of average assets at December 31, 1999. The Company also is required to maintain capital ratios based on the level of its assets, as adjusted to reflect their perceived level of risk. The Company's regulatory capital ratios currently exceed all applicable requirements. See Note 13 to the Consolidated Financial Statements. The Company's banking subsidiaries also are subject to federal regulatory capital requirements. At December 31, 2000, each of the Company's depository institution subsidiaries was deemed to be "well capitalized" under the regulations of the applicable federal banking agency and all of its banking subsidiaries were in compliance with applicable regulatory capital requirements. IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which sets accounting and reporting standards for derivative instruments and hedging activities. This Statement, as amended by SFAS No. 138, requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company adopted the Statement effective January 1, 2001. The Company estimates that it will report an after-tax loss from cumulative effect of adoption of approximately $286 thousand. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No. 125. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of the provisions of SFAS No. 125. SFAS No. 140 is effective for transactions occurring after March 31, 2001 and for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not expect the impact to be material to the financial statements. FORWARD LOOKING STATEMENTS Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions (some of which are beyond the Company's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "antici-pate," "continue," or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary polices of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. 33 36 Banknorth Group, Inc. and Subsidiaries - - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS - - ------------------------------------------------------------------------------------------------------ December 31, - - ------------------------------------------------------------------------------------------------------ (In Thousands, Except Number of Shares and Per Share Data) 2000 1999 - - ------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 515,934 $ 546,816 Federal funds sold and other short-term investments 29,058 229,579 Securities available for sale, at market value 5,425,111 6,316,031 Securities held to maturity, market value $457,110 in 2000 and $535,605 in 1999 455,547 557,151 Loans held for sale, market value $51,823 in 2000 and $82,382 in 1999 51,131 82,318 Loans and leases 10,845,662 9,854,656 Less: Allowance for loan and lease losses 153,550 155,048 ------------ ------------ Net loans and leases 10,692,112 9,699,608 ------------ ------------ Premises and equipment 201,192 192,540 Goodwill and other intangibles 185,520 184,381 Mortgage servicing rights 23,225 52,724 Bank owned life insurance 306,411 288,783 Other assets 348,569 358,333 ------------ ------------ Total assets $ 18,233,810 $ 18,508,264 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Savings accounts $ 1,386,286 $ 1,567,776 Money market access and NOW accounts 3,975,318 3,698,934 Certificates of deposit (including certificates of $100 or more of $1,169,717 in 2000 and $952,546 in 1999) 4,461,983 4,448,229 Brokered deposits 169,069 173,798 Demand deposits 2,114,600 1,821,764 ------------ ------------ Total deposits 12,107,256 11,710,501 Federal funds purchased and securities sold under repurchase agreements 1,138,629 1,302,821 Borrowings from the Federal Home Loan Bank 3,348,242 3,997,819 Other borrowings 73,744 66,838 Other liabilities 136,307 139,236 ------------ ------------ Total liabilities 16,804,178 17,217,215 ------------ ------------ Company obligated, mandatorily redeemable securities of subsidiary trusts holding solely parent junior subordinated debentures 98,775 98,775 Shareholders' equity: Preferred stock, par value $0.01; 5,000,000 shares authorized, none issued -- -- Common stock, par value $0.01; 400,000,000 and 200,000,000 shares authorized, 149,584,159 issued in 2000 and 149,623,204 issued in 1999 1,496 1,496 Paid-in capital 617,234 617,523 Retained earnings 897,214 787,238 Unearned compensation (1,354) (2,751) Treasury stock at cost (8,339,556 shares in 2000 and 4,649,306 shares in 1999) (149,246) (85,838) Accumulated other comprehensive income (34,487) (125,394) ------------ ------------ Total shareholders' equity 1,330,857 1,192,274 ------------ ------------ Total liabilities and shareholders' equity $ 18,233,810 $ 18,508,264 ============ ============ - - ------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 34 37 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, - - ------------------------------------------------------------------------------------------------- (In Thousands, Except Per Share Data) 2000 1999 1998 - - ------------------------------------------------------------------------------------------------- Interest and dividend income: Interest and fees on loans and leases $ 894,449 $ 826,565 $ 908,944 Interest and dividends on securities 435,838 400,954 237,216 ----------- ----------- ----------- Total interest and dividend income 1,330,287 1,227,519 1,146,160 ----------- ----------- ----------- Interest expense: Interest on deposits 411,250 373,526 405,416 Interest on borrowed funds 306,026 229,764 150,228 ----------- ----------- ----------- Total interest expense 717,276 603,290 555,644 ----------- ----------- ----------- Net interest income 613,011 624,229 590,516 Provision for loan and lease losses 23,819 23,575 23,775 ----------- ----------- ----------- Net interest income after provision for loan and lease losses 589,192 600,654 566,741 ----------- ----------- ----------- Noninterest income: Deposit services 80,987 69,197 54,897 Mortgage banking services 21,963 20,423 32,694 Trust and investment advisory services 42,434 39,378 29,428 Insurance commissions 25,748 20,289 13,006 Bank owned life insurance 17,701 15,522 5,934 Merchant and card product income 15,384 13,126 9,615 Net securities gains 439 655 6,423 Losses on securities restructuring (15,895) -- -- Other noninterest income 22,427 13,205 15,550 ----------- ----------- ----------- 211,188 191,795 167,547 ----------- ----------- ----------- Noninterest expenses: Salaries and employee benefits 230,184 231,500 230,433 Data processing 37,607 38,806 32,288 Occupancy 39,198 39,326 36,637 Equipment 31,740 30,205 30,013 Amortization of goodwill and deposit premiums 21,016 20,642 17,354 Advertising and marketing 12,010 14,172 14,675 Distributions on securities of subsidiary trusts 9,387 9,834 12,216 Special charges 43,007 28,002 61,140 Other noninterest expenses 87,704 85,655 84,710 ----------- ----------- ----------- 511,853 498,142 519,466 ----------- ----------- ----------- Income before income tax expense 288,527 294,307 214,822 Applicable income tax expense 96,793 97,349 73,078 ----------- ----------- ----------- Net income $ 191,734 $ 196,958 $ 141,744 =========== =========== =========== Weighted average shares outstanding Basic 144,270 145,758 146,119 Diluted 145,194 147,428 148,965 Earnings per share: Basic $ 1.33 $ 1.35 $ 0.97 Diluted 1.32 1.34 0.95 - - -------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 35 38 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Other Par Paid-in Retained Unearned Treasury Comprehensive (Dollars In Thousands) Value Capital Earnings Compensation Stock Income (Loss) Total - - ------------------------------------------------------------------------------------------------------------------------------------ Balances at December 31, 1997 $1,484 $602,634 $588,783 $(5,313) $(34,461) $ 11,256 $1,164,383 Net income -- -- 141,744 -- -- -- 141,744 Unrealized losses on securities, net of reclassification adjustment (1) -- -- -- -- -- (9,148) (9,148) Minimum pension liability (250) (250) --------- Comprehensive income -- -- -- -- -- -- 132,346 --------- Cancellation of treasury shares at acquisition (3) (4,996) -- -- (41) -- (5,040) Common stock issued for employee benefit plans 11 10,387 -- (545) -- -- 9,853 Treasury stock issued for employee benefit plans -- -- (4,164) -- 17,479 -- 13,315 Treasury stock purchased -- -- -- -- (50,300) -- (50,300) Issuance of restricted stock -- 426 (37) (254) 213 -- 348 Amortization of employee restricted stock -- 259 -- 538 -- -- 797 Common stock issued for acquisitions 4 8,538 -- -- -- -- 8,542 Decrease in unearned compensation--ESOP -- 1,376 -- 1,818 -- -- 3,194 Cash dividends -- -- (57,231) -- -- -- (57,231) Pooled company transactions -- -- 262 -- 1,921 -- 2,183 ------ -------- -------- ------- -------- -------- ---------- Balances at December 31, 1998 1,496 618,624 669,357 (3,756) (65,189) 1,858 1,222,390 Net income -- -- 196,958 -- -- -- 196,958 Unrealized losses on securities, net of reclassification adjustment (1) -- -- -- -- -- (127,252) (127,252) --------- Comprehensive income -- -- -- -- -- -- 69,706 --------- Premium on repurchase of trust preferred securities -- (1,801) -- -- -- -- (1,801) Treasury stock issued for employee benefit plans -- (4) (13,396) -- 31,752 -- 18,352 Treasury stock purchased -- -- -- -- (53,745) -- (53,745) Issuance of restricted stock -- 176 (313) (655) 1,344 -- 552 Amortization of employee restricted stock -- (813) -- 929 -- -- 116 Decrease in unearned compensation--ESOP -- 1,341 -- 731 -- -- 2,072 Cash dividends -- -- (65,368) -- -- -- (65,368) ------ -------- -------- ------- -------- -------- ---------- Balances at December 31, 1999 1,496 617,523 787,238 (2,751) (85,838) (125,394) 1,192,274 Net income -- -- 191,734 -- -- -- 191,734 Unrealized gains on securities, net of reclassification adjustment (1) -- -- -- -- -- 90,657 90,657 Minimum pension liability -- -- -- -- -- 250 250 --------- Comprehensive income -- -- -- -- -- -- 282,641 --------- Cancellation of treasury shares at acquisition (1) (2,206) -- -- 2,207 -- -- Treasury stock issued for employee benefit plans -- -- (10,790) -- 30,486 -- 19,696 Treasury stock purchased -- -- -- -- (96,585) -- (96,585) Issuance and distribution of restricted stock -- (119) (195) -- 484 -- 170 Amortization of employee restricted stock -- (390) -- 992 -- -- 602 Common stock issued for acquisitions 1 1,324 -- -- -- -- 1,325 Decrease in unearned compensation--ESOP -- 1,122 -- 405 -- -- 1,527 Payment of fractional shares -- (20) -- -- -- -- (20) Cash dividends -- -- (70,773) -- -- -- (70,773) ------ -------- -------- ------- -------- -------- ---------- Balances at December 31, 2000 $1,496 $617,234 $897,214 $(1,354) $(149,246) $(34,487) $1,330,857 ====== ======== ======== ======= ========= ======== ========== - - ------------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------- December 31, - - ---------------------------------------------------------------------------------------------------------------------- (1) Disclosure of reclassification amount (all amounts net of tax): 2000 1999 1998 - - ---------------------------------------------------------------------------------------------------------------------- Unrealized holding gains (losses) arising during the period $ 80,611 $(126,842) $ (4,946) Less: reclassification adjustment for net gains (losses) included in net income (10,046) 410 4,202 --------- --------- --------- Net unrealized gains (losses) on securities $ 90,657 $(127,252) $ (9,148) ========= ========= ========= - - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements. 36 39 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, - - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars In Thousands) 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 191,734 $ 196,958 $ 141,744 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses 23,819 23,575 23,775 Provision for depreciation 20,466 26,975 25,939 Amortization of goodwill and other intangibles 21,016 20,642 17,354 Net (increase) decrease in net deferred tax assets (3,445) (920) 18,693 ESOP and restricted stock expense 1,527 2,072 3,194 Amortization of employee restricted stock 602 116 797 Issuance of restricted stock units 170 552 348 Net (gains) losses realized from sales of securities and consumer loans 10,726 (655) (6,423) Net (gains) losses realized from sales of loans held for sale 915 415 (21,870) Earnings from bank owned life insurance (17,701) (14,133) (5,934) Net decrease (increase) in mortgage servicing rights 29,499 (7,285) 20,164 Proceeds from sales of loans held for sale 308,191 1,118,166 5,532,324 Residential loans originated and purchased for sale (277,919) (640,149) (5,639,625) Net decrease (increase) in interest and dividends receivable and other assets (24,790) (11,300) (42,290) Net increase (decrease) in other liabilities (10,396) 13,957 6,796 ------------ ------------ ------------ Net cash provided by operating activities 274,414 728,986 74,986 ------------ ------------ ------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Proceeds from maturities and principal repayments of securities held to maturity 98,510 96,226 134,625 Purchase of securities held to maturity -- -- (148,553) Proceeds from sales of securities available for sale 278,984 44,330 787,459 Proceeds from maturities and principal repayments of securities available for sale 971,099 1,754,826 1,434,137 Purchases of securities available for sale (231,383) (3,958,537) (2,983,722) Net (increase) decrease in loans and leases (1,045,822) (586,876) 173,153 Proceeds from sales of loans 34,234 -- -- Net additions to premises and equipment (32,235) (24,006) (27,992) Purchase of bank owned life insurance -- (165,400) -- Payment for acquisitions, net of cash acquired (22,274) -- 122,526 ------------ ------------ ------------ Net cash provided (used) by investing activities 51,113 (2,839,437) (508,367) ------------ ------------ ------------ - - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net increase (decrease) in deposits 396,755 (305,711) 637,791 Net increase (decrease) in securities sold under repurchase agreements (316,195) 502,340 88,569 Proceeds from Federal Home Loan Bank of Boston borrowings 12,799,452 5,003,333 3,357,550 Payments on Federal Home Loan Bank of Boston borrowings (13,449,029) (3,038,162) (3,197,979) Proceeds from issuance (repurchase) of securities of subsidiary trusts -- (33,026) -- Net increase (decrease) in other borrowings 6,441 20,238 (8,052) Issuance of common stock 21,001 18,353 23,673 Purchase of treasury stock (96,585) (53,745) (55,340) Cash dividends paid to shareholders (70,773) (65,368) (57,231) ------------ ------------ ------------ Net cash (used) provided by financing activities (708,933) 2,048,252 788,981 ------------ ------------ ------------ - - ------------------------------------------------------------------------------------------------------------------------------------ (Decrease) increase in cash and cash equivalents (383,406) (62,199) 355,600 Cash and cash equivalents at beginning of period 776,395 838,594 482,994 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 392,989 $ 776,395 $ 838,594 ============ ============ ============ - - ------------------------------------------------------------------------------------------------------------------------------------ In conjunction with the purchase acquisitions detailed in Note 2 to the Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows: Fair value of assets acquired 13,534 -- $ 123,311 Less liabilities assumed 12,263 -- 292,079
- - -------------------------------------------------------------------------------- For the years ended December 31, 2000, 1999 and 1998, interest of $712,843, $599,981 and $563,557 and income taxes of $92,970, $77,436 and $56,995 were paid, respectively. During 2000 and 1999, $3,094 and $245,233 of investment securities were transferred to securities available for sale. During 1999, $632,735 of portfolio loans were transferred to loans held to maturity. - - -------------------------------------------------------------------------------- See accompanying notes to Consolidated Financial Statements. 37 40 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts expressed in thousands, except per share data) - - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Banknorth 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 and commercial banking as well as trust, investment advisory and insurance brokerage services, and are conducted through the Company's direct and indirect subsidiaries located in Maine, New Hampshire, Massachusetts and Connecticut, Vermont and New York. The Company and its subsidiaries are subject to regulation of, and periodic examination by, the Office of the Comptroller of Currency and the Federal Reserve Board, among other agencies. The following is a description of the more significant accounting policies. Financial Statement Presentation The Consolidated Financial Statements include the accounts of Banknorth Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current presentation. The Consolidated Financial Statements have been restated to reflect the Company's (formerly Peoples Heritage Financial Group, Inc.) acquisition of Banknorth Group, Inc. on May 10, 2000, which was accounted for as a pooling-of-interests. In accordance with accounting requirements for pooling-of-interests business combinations, the financial statements of the Company and Banknorth have been combined based on historical financial statements as previously reported by each company. See Note 2 "Acquisitions." Assets held in a fiduciary capacity are not assets of the Company and, accordingly, are not included in the Consolidated Balance Sheets. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect 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 loan and lease losses, deferred tax assets and the valuation of mortgage servicing rights. Cash and Cash Equivalents The Company is required to comply with various laws and regulations of the Federal Reserve Board which require that the Company maintain certain amounts of cash on deposit and is restricted from investing those amounts. For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and other short-term investments minus federal funds purchased. Generally, federal funds are sold or purchased for one-day periods. Securities Investments in debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and reflected at amortized cost. Investments not classified as "held to maturity" are classified as "available for sale." Securities available for sale consist of debt and equity securities that are available for sale in order to respond 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 of available for sale securities, net of applicable income taxes, are reported as a separate component of shareholders' equity and comprehensive income. 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 income as a writedown. Premiums and discounts are amortized and accreted over the term of the securities on a level yield method adjusted for prepayments. Gains and losses on the sale of securities are recognized at the time of the sale using the specific identification method. Loans and Leases Loans are carried at the principal amounts outstanding adjusted by partial charge-offs and net deferred loan costs or fees. Residential real estate loans are generally placed on nonaccrual when reaching 120 days past due or in process of foreclosure. All closed-end consumer loans 90 days or more past due and any equity line in the process of foreclosure are placed on nonaccrual status. Consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. 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. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is reversed against 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. 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. Loan origination and commitment fees and certain direct origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield using the interest method over the estimated lives of the related loans. Consumer lease financing loans are carried at the amount of minimum lease payments plus residual values, less unearned income which is amortized into interest income using the interest method. 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 and leases deemed uncollectable. 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 and leases. 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 losses. The Company evaluates specific loan status reports on certain commercial and commercial real estate loans rated "substandard" or worse in excess of a 38 41 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- specified dollar amount. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. The remaining commercial and commercial real estate loans are provided for as part of pools of similar loans based on a combination of historical loss experience and migration analysis, which considers the probability of a loan moving from one risk rating category to another over the passage of time, transition matrix and qualitative adjustments. Each of residential real estate loans and consumer loans are evaluated as a group by applying historical charge-off and recovery experience to the current outstanding balance in each loan category, with consideration given to loan growth over the preceding twelve months. 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. Bank Owned Life Insurance Bank owned life insurance ("BOLI") represents life insurance on the lives of certain employees. The Company is the beneficiary of the insurance policies. Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in other income, and are not subject to income taxes. The cash value is included in other assets. 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. Long-lived assets are evaluated periodically for impairment. An assessment of recoverability is performed prior to any writedown of the asset. If circumstances suggest that their value may be impaired, an expense would then be charged in the current period. Goodwill and Other Intangibles Goodwill is amortized on a straight-line basis over various periods not exceeding 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 it is determined that events or changed circumstances may affect the underlying basis of the asset. Mortgage Banking and Loans Held for Sale Loans originated for sale are classified as held for sale. These loans are specifically identified and carried at the lower of aggregate cost or estimated market value. Forward commitments to sell residential real estate mortgages are contracts that the Company enters into for the purpose of reducing the market risk associated with originating loans for sale. Market value is estimated based on outstanding investor commitments or, in the absence of such commitments, current investor yield requirements. Gains and losses on sales of mortgage loans 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. 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. 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. Derivative Financial Instruments From time to time the Company may use certain hedging strategies which include the use of derivative financial instruments. The primary objective of the Company's hedging strategies is to reduce net interest rate exposure arising from the Company's asset and liability structure. The Company uses a variety of off-balance sheet derivatives as part of its interest rate risk management strategy. The instruments most frequently used are interest rate swap, floor and corridor contracts. These contracts are designated and are effective as hedges of existing risk positions. These instruments are used to modify the repricing or maturity characteristics of specified assets or liabilities, and are linked to the related assets or liabilities being hedged. Changes in the fair value of the derivative are not included in the consolidated financial statements. The net interest income or expense associated with such derivatives is accrued and recognized as an adjustment to the interest income or interest expense of the asset or liability being hedged. The related interest receivable or payable from such contracts is recorded in accrued interest receivable or payable on the consolidated balance sheet. Premiums paid are amortized as an adjustment to the interest income or interest expense of the asset or liability being hedged. Realized gains and losses, if any, resulting from early termination of derivatives are deferred as an adjustment to the carrying value of the hedged item and recognized as an adjustment to the yield or interest cost of the hedged item over the remaining term of the original swap, floor or corridor contract. The Company may purchase interest rate floors tied to the CMT index to mitigate the prepayment risk associated with mortgage servicing rights which are accounted for as trading instruments and are carried at fair value. Changes in fair value are reported as a component of mortgage banking income. The Company also utilizes Treasury options to modify its forward mortgage commitments. Changes in fair value of the options are included in the calculation of the carrying value of loans held for sale. The Company also utilizes mortgage-backed securities options to modify its forward mortgage commitments. Changes in fair value of the options are included in the calculation of the carrying value of loans held for sale. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, 39 42 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- "Accounting for Derivative Instruments and Hedging Activities," which sets accounting and reporting standards for derivative instruments and hedging activities. The Statement, as amended by SFAS No. 138, requires the Company to recognize all derivatives on the balance sheet at fair value. The Company adopted the Statement effective January 1, 2001. The Company estimates that it will report an after-tax loss from cumulative effect of adoption of approximately $286 thousand. Investments in Limited Partnerships The Company has several investments in tax advantaged limited partnerships. These investments are included in other assets and are amortized over the same period the tax benefits are expected to be received. Pension, 401(k), and Other Employee Benefit Plans The Company and its subsidiaries have non-contributory defined benefit pension plans which cover most employees. The benefits are based on years of service and the employee's career average earnings. 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 Company maintains Section 401(k) savings plans for substantially all employees of the Company and its subsidiaries. Under the plans, the Company makes a matching contribution of a portion of the amount contributed by each participating employee, up to a percentage of the employee's annual salary. The plans allow for supplementary profit sharing contributions by the Company, at its discretion, for the benefit of participating employees. The Company has a Profit Sharing Employee Stock Ownership Plan (the "ESOP") which is designed to invest primarily in Common Stock of the Company (the "Common Stock"). Substantially all employees are eligible to participate in the ESOP following one year of service. Employees may not make contributions to the ESOP but may receive a discretionary contribution from the Company based on their pro-rata share of eligible compensation. The Company previously sponsored a leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the ESOP's debt service and the unallocated shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The Company accounts for this ESOP in accordance with AICPA SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." Accordingly, the debt of the ESOP is recorded as long-term debt and the shares pledged as collateral are reported as unearned compensation on the balance sheet. As shares are released from collateral, the Company records compensation expense equal to the current market price of the shares, and the shares are treated as outstanding for purposes of calculating earnings per share. Stock Compensation Plans Statement of Financial Accounting Standards SFAS No. 123, "Accounting for Stock-Based Compensation" encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The pro forma disclosures include the effects of all awards granted on or after January 1, 1995. See Note 15 - Stock Based Compensation Plans. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this 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. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is 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. Income taxes are allocated to each entity in the consolidated group based on its share of taxable income. Tax credits generated from limited partnerships are reflected in earnings when realized for federal income tax purposes. Earnings Per Share Earnings per share have been computed in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share have been calculated by dividing net income by weighted average shares outstanding before any dilution and adjusted to exclude the weighted average number of unallocated shares held by the ESOP. Diluted earnings per share have been calculated by dividing net income by weighted average shares outstanding after giving effect to the potential dilution that could occur if the potential common shares were converted into common stock using the treasury stock method. Segment Reporting An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. The Company's primary business is banking, which provides over 90% of its revenues and profits. Banking services are provided within the framework of seven full-service community banks which have similar economic characteristics, products and services, distribution channels and regulatory environments. Accordingly disaggregated segment information is not presented. 40 43 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 2. ACQUISITIONS During the third quarter of 2000, the Company completed the acquisition of two insurance agencies based in Massachusetts and Connecticut for a combination of cash and stock. These acquisitions were accounted for under the purchase method and, as a result, the acquired assets and liabilities were added to those of the Company at their respective fair values and the excess of the purchase price over the fair value of net assets acquired, which aggregated $22.5 million, was recorded as goodwill and is being amortized to expense over 20 years. In addition, under this method of accounting the results of operations of the acquired agencies are included in the Company's results of operations only from their respective dates of acquisition. On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc. ("Banknorth"). Banknorth was headquartered in Burlington, Vermont and had 100 offices located throughout Vermont, Massachusetts, New Hampshire and upstate New York. Shareholders of Banknorth exchanged their shares for 1.825 newly issued shares of the Company's common stock, plus cash in lieu of any fractional share interests. Approximately 42.9 million shares of Common Stock were issued in connection with this acquisition, which was accounted for as a pooling-of-interests. As of December 31, 1999, Banknorth had total assets of $4.6 billion and total shareholders' equity of $341 million. On January 1, 1999, the Company completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of Common Stock were issued in connection with this acquisition, which was accounted for as a pooling-of-interests. SIS had total assets of $2.0 billion and shareholders' equity of $139 million at December 31, 1998. During 1998, the Company completed the acquisition of three insurance agencies for an aggregate of 454,864 shares of Common Stock. These acquisitions were accounted for as purchases and, accordingly, the Company's financial statements reflect them from the date of acquisition. The Company recorded $9.3 million of goodwill in connection with these purchases. The acquired agencies have been integrated into the Company's existing insurance agency operations. On April 10, 1998, the Company completed the acquisition of CFX Corporation ("CFX"). Approximately 32.8 million shares of Common Stock were issued in connection with this transaction. At December 31, 1997, CFX had total assets of $2.9 billion and total shareholders' equity of $245.7 million. The acquisition of CFX was accounted for as a pooling-of-interests and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods. The Company incurred various merger related and restructuring charges in connection with the foregoing acquisitions and certain other matters (collectively, "special charges"). On a pre-tax basis special charges amounted to $43.0 million, $28.0 million and $61.1 million in 2000, 1999 and 1998, respectively. For additional information, see Note 9 - Special Charges. 41 44 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 3. SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY A summary of the amortized cost and market values of securities available for sale and held to maturity follows:
- - ------------------------------------------------------------------------------------------------------------------------------------ Amortized Gross Unrealized Gross Unrealized Market Cost Gains Losses Value - - ------------------------------------------------------------------------------------------------------------------------------------ AVAILABLE FOR SALE DECEMBER 31, 2000: U. S. Government obligations and obligations of U.S.Government agencies and corporations $ 544,392 $ 2,872 $ (7,873) $ 539,391 Tax-exempt bonds and notes 83,133 760 (659) 83,234 Other bonds and notes 426,199 2,260 (17,191) 411,268 Mortgage-backed securities 3,591,923 10,940 (33,544) 3,569,319 Collateralized mortgage obligations 575,091 207 (10,820) 564,478 ---------- ---------- ---------- ---------- Total debt securities 5,220,738 17,039 (70,087) 5,167,690 Federal Home Loan Bank stock 242,632 -- (11) 242,621 Federal Reserve Bank stock 13,312 -- -- 13,312 Other equity securities 1,488 -- -- 1,488 ---------- ---------- ---------- ---------- Total equity securities 257,432 -- (11) 257,421 ---------- ---------- ---------- ---------- Total securities available for sale $5,478,170 $ 17,039 $ (70,098) $5,425,111 ========== ========== ========== ========== - - ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1999: U. S. Government obligations and obligations of U.S.Government agencies and corporations $ 709,497 $ 21 $ (22,702) $ 686,816 Tax-exempt bonds and notes 56,903 82 (322) 56,663 Other bonds and notes 455,435 141 (12,159) 443,417 Mortgage-backed securities 4,264,364 1,629 (133,354) 4,132,639 Collateralized mortgage obligations 723,290 190 (23,914) 699,566 ---------- ---------- ---------- ---------- Total debt securities 6,209,489 2,063 (192,451) 6,019,101 Federal Home Loan Bank stock 261,391 -- -- 261,391 Other equity securities 38,422 74 (2,957) 35,539 ---------- ---------- ---------- ---------- Total equity securities 299,813 74 (2,957) 296,930 ---------- ---------- ---------- ---------- Total securities available for sale $6,509,302 $ 2,137 $ (195,408) $6,316,031 ========== ========== ========== ========== - - ------------------------------------------------------------------------------------------------------------------------------------ HELD TO MATURITY: DECEMBER 31, 2000: Collateralized mortgage obligations 455,547 1,563 -- 457,110 ---------- ---------- ---------- ---------- Total securities held to maturity $ 455,547 $ 1,563 -- $ 457,110 ========== ========== ========== ========== DECEMBER 31, 1999: U. S. Government obligations and obligations of U.S.Government agencies and corporations $ 2,797 $ 5 $ (35) $ 2,767 Tax-exempt bonds and notes 7,753 114 (29) 7,838 Other bonds and notes 1,480 70 -- 1,550 Mortgage-backed securities 3,789 46 (110) 3,725 Collateralized mortgage obligations 541,332 -- (21,607) 519,725 ---------- ---------- ---------- ---------- Total securities held to maturity $ 557,151 $ 235 $ (21,781) $ 535,605 ========== ========== ========== ========== - - ------------------------------------------------------------------------------------------------------------------------------------
42 45 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- The amortized cost and market values of debt securities available for sale at December 31, 2000 by contractual maturities 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. At December 31, 2000, the Company had $265.5 million of securities available for sale with call provisions.
- - ------------------------------------------------------------------------------------------------------------ Available for Sale Held to Maturity - - ------------------------------------------------------------------------------------------------------------ Amortized Cost Market Value Amortized Cost Market Value - - ------------------------------------------------------------------------------------------------------------ DECEMBER 31, 2000: Due in one year or less $ 241,796 $ 241,954 $ -- $ -- Due after one year through five years 441,418 441,516 -- -- Due after five years through ten years 379,797 375,573 -- -- Due after ten years 4,157,727 4,108,647 455,547 457,110 ---------- ---------- -------- -------- Total debt securities $5,220,738 $5,167,690 $455,547 $457,110 ========== ========== ======== ======== - - ------------------------------------------------------------------------------------------------------------
A summary of realized gains and losses on securities available for sale for 2000, 1999 and 1998 follows: - - -------------------------------------------------------------------------------- Gross Realized - - -------------------------------------------------------------------------------- Gains Losses - - -------------------------------------------------------------------------------- 2000 $ 443 $15,899 1999 885 361 1998 7,003 696 - - -------------------------------------------------------------------------------- 4. LOANS AND LEASES The Company's lending activities are conducted principally in New England and upstate New York. 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, - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Residential real estate mortgages $ 2,248,714 $ 2,270,417 Commercial real estate mortgages: Commercial real estate 2,663,775 2,493,492 Construction and development 291,388 202,825 ----------- ----------- 2,955,163 2,696,317 Commercial business loans and leases 2,308,904 1,924,201 Consumer loans and leases 3,332,881 2,963,721 ----------- ----------- Total loans and leases $10,845,662 $ 9,854,656 =========== =========== - - -------------------------------------------------------------------------------- Loans and leases include net deferred charges of $4.3 million at December 31, 2000 and $4.5 million at December 31, 1999. Deferred charges included deferred loan origination costs, net of deferred loan origination fees, and unearned income on leases. 43 46 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- NON PERFORMING LOANS - - -------------------------------------------------------------------------------- The following table sets forth information regarding nonperforming loans and accruing loans 90 days or more overdue at the dates indicated:
- - -------------------------------------------------------------------------------- December 31, - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Residential real estate mortgages: Nonaccrual loans $ 9,894 $17,283 Troubled debt restructurings -- 28 ------- ------- Total 9,894 17,311 ------- ------- Commercial real estate loans: Nonaccrual loans 12,155 16,754 Troubled debt restructurings 635 1,002 ------- ------- Total 12,790 17,756 ------- ------- Commercial business loans and leases: Nonaccrual loans 32,583 17,027 Troubled debt restructurings 38 82 ------- ------- Total 32,621 17,109 ------- ------- Consumer loans: Nonaccrual loans 6,329 5,951 Troubled debt restructurings -- -- ------- ------- Total 6,329 5,951 ------- ------- Total nonperforming loans: Nonaccrual loans 60,961 57,015 Troubled debt restructurings 673 1,112 ------- ------- Total $61,634 $58,127 ======= ======= Accruing loans which are 90 days overdue $ 5,973 $12,131 ======= ======= - - --------------------------------------------------------------------------------
The ability and willingness of borrowers to repay loans is generally dependent on current economic conditions and real estate values within the borrowers' geographic areas. Interest income that would have been recognized for 2000 and 1999 if nonperforming loans at December 31, 2000 and 1999 had been performing in accordance with their original terms approximated $5.6 million in 2000 and 1999. Impaired loans are commercial and commercial real estate loans which the Company believes probably will not result in the collection of 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. All commercial and commercial real estate nonaccrual loans are impaired, but not all impaired loans are on nonaccrual. Accrual of interest is discontinued when collectibility of principal or interest is uncertain or on which 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. The amount of reserves for impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original contractual interest rate, and its recorded value, or, 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. At December 31, 2000 and 1999, total impaired loans were $46.5 million and $49.5 million, of which $29.7 million and $25.9 million had related allowances of $7.8 million and $4.3 million, respectively. During the years ended December 31, 2000 and 1999, the income recognized related to impaired loans was $373 thousand and $4.3 million respectively, and the average balance of outstanding impaired loans was $39.4 million and $59.6 million, respectively. The Company generally applies cash received on impaired loans to the principal balance of the loan. 5. ALLOWANCE FOR LOAN AND LEASE LOSSES A summary of changes in the allowance for loan and lease losses follows:
- - -------------------------------------------------------------------------------- Year Ended December 31, - - -------------------------------------------------------------------------------- 2000 1999 1998 - - -------------------------------------------------------------------------------- Balance at beginning of period $ 155,048 $ 155,098 $ 150,615 Allowance on acquired loans -- -- 2,200 Provisions charged to operations 23,819 23,575 23,775 Loans and leases charged off (34,692) (36,034) (38,410) Recoveries 9,375 12,409 16,918 --------- --------- --------- Balance at end of period $ 153,550 $ 155,048 $ 155,098 ========= ========= ========= - - --------------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT A summary of premises and equipment follows:
- - -------------------------------------------------------------------------------- December 31, - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Land $ 20,458 $ 20,571 Buildings and leasehold improvements 196,014 198,221 Furniture, fixtures and equipment 203,764 194,777 ------- ------- 420,236 413,569 Less accumulated depreciation and amortization 219,044 221,029 -------- -------- $201,192 $192,540 ======== ======== - - --------------------------------------------------------------------------------
44 47 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 7. MORTGAGE SERVICING RIGHTS An analysis of mortgage servicing rights for the years ended December 31, 2000, 1999, and 1998 follows:
- - ------------------------------------------------------------------------------------------------------------------------- Mortgage Servicing Rights Valuation Allowance Total - - ------------------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1997 $ 65,288 $ -- $ 65,288 Mortgage servicing rights capitalized 84,041 -- 84,041 Amortization charged against mortgage servicing fee income (15,731) -- (15,731) Impairment reserve charged against mortgage servicing fee income -- (11,586) (11,586) Mortgage servicing rights sold (76,573) -- (76,573) -------- -------- -------- Balance as of December 31, 1998 57,025 (11,586) 45,439 Mortgage servicing rights capitalized 16,149 -- 16,149 Amortization charged against mortgage servicing fee income (12,498) -- (12,498) Reduction of impairment reserve (credit to mortgage servicing fee income) -- 5,300 5,300 Mortgage servicing rights sold (1,666) -- (1,666) -------- -------- -------- Balance as of December 31, 1999 59,010 (6,286) 52,724 MORTGAGE SERVICING RIGHTS CAPITALIZED 3,977 -- 3,977 AMORTIZATION CHARGED AGAINST MORTGAGE SERVICING FEE INCOME (8,306) -- (8,306) REDUCTION OF IMPAIRMENT RESERVE (CREDIT TO MORTGAGE SERVICING FEE INCOME) -- 2,895 2,895 MORTGAGE SERVICING RIGHTS SOLD (28,065) -- (28,065) -------- -------- -------- BALANCE AS OF DECEMBER 31, 2000 $ 26,616 $ (3,391) $ 23,225 ======== ======== ======== - - ------------------------------------------------------------------------------------------------------------------------- December 31, - - ------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------- Residential real estate loans serviced for investors $1,618,610 $4,540,948 $5,178,281 ========== ========== ========== - - -------------------------------------------------------------------------------------------------------------------------
The Company generally continues to service residential real estate loans after the loans have been sold into the secondary market. The Company pays the investor that purchased the loan a pass-through rate which 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 loans. The Company capitalizes mortgage servicing rights at their allocated cost, based on relative fair values upon sale of the related loans. In the fourth quarter of 2000, the Company reached an agreement to sell the servicing rights on substantially all residential mortgage loans which it services for others. The sale will be in two installments and is expected to be completed by March 31, 2001. In the fourth quarter of 2000, the Company recorded a $5.2 million gain on sale of $1.8 billion of loans serviced for others which was reduced by a $1.5 million loss on the sale of related hedge instruments. 45 48 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 8. INCOME TAXES The current and deferred components of income tax expense follow:
- - ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - - ------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------- Current Federal $ 95,015 $ 90,930 $ 48,125 State 5,223 7,339 4,350 Deferred Federal (4,733) (572) 17,039 State 1,288 (348) 3,564 -------- -------- -------- $ 96,793 $ 97,349 $ 73,078 ======== ======== ======== - - -------------------------------------------------------------------------------------------------------------------------
The following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate to income before taxes) to recorded income tax expense:
- - ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, - - ------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------- Computed federal tax expense $ 100,984 $ 103,007 $ 75,188 State income tax, net of federal benefits 4,232 4,544 5,144 Benefit of tax-exempt income (4,553) (3,211) (2,778) Nondeductible merger expenses 3,043 1,740 4,908 Amortization of goodwill and other intangibles 3,369 3,519 3,034 Low income/rehabilitation credits (4,362) (4,913) (4,152) Restructuring of legal entities within affiliated group -- -- (5,069) Increase in cash surrender value of life insurance (6,195) (5,433) (2,077) Other, net 275 (1,904) (1,120) --------- --------- --------- Recorded income tax expense $ 96,793 $ 97,349 $ 73,078 ========= ========= ========= - - -------------------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities which are included in Other Assets and Other Liabilities, respectively, at December 31, 2000 and 1999 follow:
- - ------------------------------------------------------------------------------------------------------------------------- 2000 1999 - - ------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Allowance for loan and lease losses $ 55,053 $ 55,574 Reserve for mobile home dealers 574 806 Accrued pension expense -- 2,559 Difference of tax and book basis of other real estate owned 133 129 Interest accrued and payments received on non-performing loans for tax purposes 809 760 Compensation and employee benefits 12,955 15,213 Book reserves not yet realized for tax purposes 1,499 478 Unrealized depreciation on securities 18,659 68,112 Intangible asset 5,163 2,228 Other 6 942 -------- -------- Total gross deferred tax assets 94,851 146,801 -------- -------- Deferred tax liabilities Leases 12,838 26,407 Premises and equipment 12,466 8,503 Partnership investments 7,333 6,165 Loans 7,825 6,431 Mortgage servicing rights 4,779 11,397 Deferred income 3,287 -- Tax bad debt reserve 5,996 977 Other 1,182 1,768 -------- -------- Total gross deferred tax liabilities 55,706 61,648 -------- -------- Net deferred tax asset $ 39,145 $ 85,153 ======== ======== - - -------------------------------------------------------------------------------------------------------------------------
46 49 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 9. SPECIAL CHARGES Special charges totaled $43.0 million, $28.0 million and $61.1 million in 2000, 1999 and 1998, respectively. Special charges included merger expenses of $35.2 million, $20.6 million and $61.1 million in 2000, 1999 and 1998, respectively, and $7.4 million of costs to discontinue the correspondent mortgage lending business in 1999. The following table summarizes special charges recorded in 2000 by type of expense and shows the activity in the accrued liability account during 2000.
- - --------------------------------------------------------------------------------------------------------------------------------- Amount Other Amounts Balance at Included in Cash Applied Balance at 12/31/1999 Expense Reallocations Payments to Reserve 12/31/2000 - - --------------------------------------------------------------------------------------------------------------------------------- Banknorth Merger Charges - - --------------------------------------------------------------------------------------------------------------------------------- Severance costs $ -- $ 13,050 $ 919 $ 12,565 $ 725 $ 679 Gain on curtailment of benefit plans (8,100) (400) -- (8,500) -- Data processing/systems integration -- 4,667 (1,050) 3,517 -- 100 Professional fees and transaction costs -- 8,250 542 8,792 -- -- Asset write-downs/facility costs -- 11,083 (1,011) 2,981 4,972 2,119 Gain on divestiture of branch -- (4,250) -- (4,250) -- -- Other costs -- 9,276 1,000 10,059 -- 217 -------- -------- -------- -------- -------- -------- $ -- $ 33,976 $ -- $ 33,664 ($ 2,803) $ 3,115 ======== ======== ======== ======== ======== ======== -------- Branch closings - - --------------------------------------------------------------------------------------------------------------------------------- Severance and salary costs $ -- $ 68 $ (48) $ 20 $ -- $ -- Asset write-downs/lease terminations -- 1,063 -- 310 753 -- Other costs -- 256 48 134 -- 170 -------- -------- -------- -------- -------- -------- -- $ 1,387 $ -- $ 464 $ 753 $ 170 ======== ======== ======== ======== ======== ======== - - --------------------------------------------------------------------------------------------------------------------------------- Other Special Charges - - --------------------------------------------------------------------------------------------------------------------------------- Write-down of auto lease residuals $ -- $ 3,700 $ -- $ -- $ 3,700 $ -- Facility write-downs --Evergreen merger -- 1,253 -- -- 1,253 -- Contract termination --merchant processing -- 3,091 -- 3,091 -- -- Balance forward from CFX/SIS mergers 1,628 (400) -- 1,228 -- -- -------- -------- -------- -------- -------- -------- $ 1,628 $ 7,644 $ -- $ 4,319 $ 4,953 $ -- ======== ======== ======== ======== ======== ======== - - ---------------------------------------------------------------------------------------------------------------------------------
The severance payments made in connection with the Banknorth merger covered approximately 100 employees whose positions were eliminated as a result of the merger. Asset write-downs and facility costs related mainly to duplicate facilities and fixed assets. 47 50 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 10. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS - - -------------------------------------------------------------------------------- A summary of federal funds purchased and securities sold under repurchase agreements follows:
- - -------------------------------------------------------------------------------- December 31, - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Federal funds purchased $ 152,003 $ -- Securities sold under repurchase agreements 986,626 1,302,821 ---------- ---------- $1,138,629 $1,302,821 ========== ==========
- - -------------------------------------------------------------------------------- A summary of securities sold under short term repurchase agreements follows:
- - -------------------------------------------------------------------------------- At or for the Year Ended December 31, - - -------------------------------------------------------------------------------- 2000 1999 1998 - - -------------------------------------------------------------------------------- Balance outstanding at end of period $ 986,626 $1,302,821 $ 800,481 Market value of collateral at end of period 1,194,365 1,536,101 941,634 Amortized cost of collateral at end of period 1,194,606 1,579,486 942,449 Average balance outstanding during the year 995,193 768,500 736,714 Maximum outstanding at any month end during the year 1,261,442 1,302,821 828,377 Average interest rate during the year 5.24% 4.34% 4.68% Average interest rate at end of year 4.99% 4.58% 4.26%
- - -------------------------------------------------------------------------------- Securities sold under repurchase agreements generally have maturities of 365 days or less and are collateralized by mortgage-backed securities and U.S. Government obligations. - - -------------------------------------------------------------------------------- 11. BORROWINGS FROM THE FEDERAL HOME LOAN BANK - - -------------------------------------------------------------------------------- A summary of the borrowings from the Federal Home Loan Bank follows: - - -------------------------------------------------------------------------------- December 31, 2000 - - -------------------------------------------------------------------------------- Maturity Dates Principal Amounts Interest Rates 2001 $2,423,001 4.95 - 6.63% 2002 210,118 6.63 - 7.79% 2003 171,246 4.98 - 6.43% 2004 239,163 5.28 - 7.72% 2005 161,466 6.14 - 7.15% 2006-2020 143,248 3.60 - 8.14% ---------- $3,348,242 ========== - - -------------------------------------------------------------------------------- December 31, 1999 - - -------------------------------------------------------------------------------- Maturity Dates Principal Amounts Interest Rates 2000 $795,445 4.70 - 7.75% 2001 562,100 5.38 - 6.44% 2002 2,090,130 5.12 - 7.79% 2003 149,077 5.00 - 6.43% 2004 235,405 5.28 - 7.11% 2005-2018 165,662 3.60 - 8.14% ---------- $3,997,819 ========== Callable borrowings of $150 million are shown in their respective periods assuming that the callable debt is redeemed at the initial call date while all other borrowings are shown in the periods corresponding to their scheduled maturity date. Short and long-term borrowings from the Federal Home Loan Bank, 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 one to four family properties, certain unencumbered investment securities and other qualified assets. The Company has the ability to prepay most of its borrowings without penalty. 48 51 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 12. CAPITAL TRUST SECURITIES On January 24, 1997, the Company sponsored the creation of Peoples Heritage Capital Trust I (the "Trust"), a statutory business trust created under the laws of Delaware. The Company is the owner of all of the common securities of the Trust (the "Common Securities"). On January 31, 1997, the Trust issued $100 million of 9.06% Capital Securities (the "Capital Securities," and with the common securities, the "Trust Securities"), the proceeds from which were used by the Trust, along with the Company's $3.1 million capital contribution for the Trust's Common Securities, to acquire $103.1 million aggregate principal amount of the Company's 9.06% Junior Subordinated Deferrable Interest Debentures due February 1, 2027 (the "Debentures"), which constitute the sole assets of the Trust. The Company has, through the Declaration of Trust establishing the Trust, Common Securities and Capital Securities Guarantee Agreements, the Debentures and a related Indenture, taken together, fully irrevocably and uncondition-ally guaranteed all of the Trust's obligations under the Trust Securities. In 1999, the Company repurchased $31.2 million of the Capital Securities. On May 1, 1997, Banknorth (now the Company) sponsored the creation of Banknorth Capital Trust I ("Trust 1"), a statutory business trust created under the laws of Delaware. The Company is the owner of all of the common securities of Trust 1 (the "Common Securities"). Trust 1 issued $30 million of 10.52% Capital Securities (the "Capital Securities," and with the common securities, the "Trust Securities"), the proceeds from which were used by Trust 1, along with the Company's $928 thousand capital contribution for Trust Common Securities, to acquire $31 million aggregate principal amount of the Company's 10.52% Junior Subordinated Deferrable Interest Debentures due February 1, 2027 (the "Debentures"), which constitute the sole assets of Trust 1. The Company has, through the Declaration of Trust establishing the Trust, Common Securities and Capital Securities Guarantee Agreements, the Debentures and a related Indenture, taken together, fully irrevocably and unconditionally guaranteed all of Trust 1's obligations under the Trust Securities. Separate financial statements of the Trusts are not required pursuant to Staff Accounting Bulletin 53 of the Securities and Exchange Commission. 13. SHAREHOLDERS' EQUITY In April 2000, the stockholders of the Company approved an increase in the authorized number of shares of Common Stock from 200,000,000 to 400,000,000. On January 23, 2001, the Company's Board of Directors authorized the repurchase of up to 8 million shares, or approximately 6%, of the Common Stock. Regulatory Capital Requirements Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitoring and control of the industry. Certain of these standards relate capital to level of risk by assigning different weightings to assets and certain off-balance sheet activity. The Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.
- - -------------------------------------------------------------------------------------------------------------------------------- Actual Capital Requirements Excess - - -------------------------------------------------------------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio - - -------------------------------------------------------------------------------------------------------------------------------- As of December 31, 2000 Total capital (to risk weighted assets) $1,428,814 11.81% $ 967,752 8.00% $ 461,062 3.81% Tier 1 capital (to risk weighted assets) 1,277,574 10.56% 483,876 4.00% 793,698 6.56% TIER 1 leverage capital ratio (to average assets) 1,277,574 7.02% 727,852 4.00% 549,722 3.02% As of December 31, 1999 Total capital (to risk weighted assets) $1,376,171 12.02% 916,232 8.00% 459,939 4.02% Tier 1 capital (to risk weighted assets) 1,232,863 10.76% 458,115 4.00% 774,748 6.76% Tier 1 leverage capital ratio (to average assets) 1,232,863 6.75% 730,693 4.00% 502,170 2.75% - - --------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000 and 1999, the Company and each of its banking subsidiaries were well-capitalized and in compliance with all applicable regulatory capital requirements. 49 52 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 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 banking subsidiaries are subject to certain requirements imposed by 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 banking subsidiaries 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 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. On July 27, 1999 the Board of Directors amended and restated the Stockholder Rights Plan to, among other things, extend the expiration date of the rights to September 25, 2009. On July 25, 2000, the Company again amended and restated the Stockholder Rights Plan to reflect its acquisition of Banknorth. Earnings per share The following table presents a reconciliation of earnings per share as of the dates indicated:
- - -------------------------------------------------------------------------------- For the Year Ended December 31, - - -------------------------------------------------------------------------------- (In thousands, except per share amounts) 2000 1999 1998 - - -------------------------------------------------------------------------------- Net income $191,734 $196,958 $141,744 ======== ======== ======== Weighted average shares outstanding: Basic 144,270 145,758 146,119 Effect of dilutive securities: Stock options 924 1,670 2,846 -------- -------- -------- Diluted 145,194 147,428 148,965 ======== ======== ======== Net income per share: Basic $ 1.33 $ 1.35 $ 0.97 Diluted 1.32 1.34 0.95 - - --------------------------------------------------------------------------------
14. 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 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, 2000 and 1999 follow:
- - -------------------------------------------------------------------------------- Contract or Notional Amount at December 31, - - -------------------------------------------------------------------------------- 2000 1999 - - -------------------------------------------------------------------------------- Financial instruments with notional or contract amounts which represent credit risk: Commitments to originate loans, unused lines, standby letters of credit and unadvanced portions of construction loans $3,388,399 $3,132,878 Loans serviced with recourse 155,179 196,777 Loans sold with credit enhancements 28 706 Leases serviced with credit enhancements -- 4,933 Financial instruments with notional or contract amounts which exceed the amount of credit risk: Forward commitments to sell loans 92,363 73,700 Interest rate floors: notional amount 145,000 495,000 fair value 10 1,354 Interest rate swap agreements (pay fixed): notional amount -- 50,000 fair value -- 1,749 Interest rate corridor agreements (pay fixed): notional amount -- 50,000 fair value -- 898 - - --------------------------------------------------------------------------------
50 53 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 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. 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. 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. At December 31, 2000, the Company was committed to invest up to $27.0 million in real estate development limited partnerships. At December 31, 2000 and 1999 the Company had $44.8 million and $32.8 million, respectively, invested in such partnerships, which are included in other assets. 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, results of operations or liquidity 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 $18.1 million, $16.5 million and $13.3 million for the years ended 2000, 1999 and 1998, respectively. The following table sets forth the approximate minimum lease payments over the remaining terms of the leases at December 31, 2000. - - -------------------------------------------------------------------------------- 2001 $ 14,703 2002 13,041 2003 10,191 2004 9,548 2005 8,168 2006 and after 31,537 -------- $ 87,188 ======== - - -------------------------------------------------------------------------------- 51 54 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 15. STOCK-BASED COMPENSATION PLANS Stock Option Plans In 1995, the Company adopted a stock option plan for non-employee directors, which was amended and restated in 2000 to authorize the issuance of up to an additional 530,000 shares. The maximum number of shares which may be granted under the amended plan is 1,060,000 shares, of which 100,000 were granted in 2000 at an exercise price of $14.13 per share, 114,000 were granted in 1999 at $18.06 per share and 110,000 were granted in 1998 at $24.31 per share. Since inception, a total of 50,600 shares had been issued upon exercise of the stock options granted pursuant to this plan through December 31, 2000. At December 31, 2000, there were 669,250 shares available for future grant. The Company has adopted various stock option plans for key employees. These plans include a stock option plan adopted in 1996 (the "1996 Option Plan"). The 1996 Option Plan, as amended, authorizes grants of options and other stock awards covering up to 6,000,000 shares of Common Stock. Stock options are granted with an exercise price equal to the stock's fair market value at the date of the grant and expire 10 years from the date of the grant. At December 31, 2000, there were 1,585,248 additional shares available for grant under the 1996 Option Plan. The per share weighted-average fair value of all stock options granted by the Company during 2000, 1999 and 1998 was $5.23, $5.72 and $6.61 on the date of the grants using the Black Scholes option-pricing model with the following average assumptions:
- - -------------------------------------------------------------------------------- 2000 1999 1998 - - -------------------------------------------------------------------------------- Expected dividend yield 3.24% 2.74% 2.50% Risk-free interest rate 6.14 5.53 5.50 Expected life 5.00 YEARS 5.00 years 5.00 years Volatility 38.27% 35.90% 32.87% - - --------------------------------------------------------------------------------
The Company applies APB Opinion No. 25 in accounting for its stock option plans and, accordingly, no cost has been recognized for its stock options in the financial statements. Had the Company determined cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated as follows:
- - -------------------------------------------------------------------------------- Year Ended December 31, - - -------------------------------------------------------------------------------- 2000 1999 1998 - - -------------------------------------------------------------------------------- Net Income As reported $191,734 $196,958 $141,744 Pro forma $188,146 $191,396 $136,856 Basic Earnings per share As reported $ 1.33 $ 1.35 $ 0.97 Pro forma $ 1.30 $ 1.31 $ 0.94 Diluted Earnings per share As reported: $ 1.32 $ 1.34 $ 0.95 Pro forma $ 1.30 $ 1.30 $ 0.92 - - --------------------------------------------------------------------------------
Stock option activity is as follows:
- - -------------------------------------------------------------------------------- Number of Weighted Average Shares Exercise Price - - -------------------------------------------------------------------------------- Balance at December 31, 1997 8,537,701 $ 8.53 Granted 1,857,424 18.55 Exercised 2,302,194 6.71 Forfeited 87,548 14.76 --------- Balance at December 31, 1998 8,005,383 $ 11.83 Granted 1,680,656 $ 17.83 Exercised 1,713,368 8.26 Forfeited 281,540 16.72 --------- Balance at December 31, 1999 7,691,131 $ 13.72 Granted 1,632,212 $ 16.17 Exercised 1,530,041 8.60 Forfeited 597,363 18.66 --------- Balance at December 31, 2000 7,195,939 $ 15.00 ========= - - --------------------------------------------------------------------------------
52 55 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- The range of per share prices for outstanding and exercisable stock options at December 31, 2000 was as follows: - - -------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable - - -------------------------------------------------------------------------------------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Outstanding Weighted Average Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price - - -------------------------------------------------------------------------------------------------------- up to $5.00 183,196 2.3 years $3.79 183,196 $3.90 $5.01 - $10.00 879,782 4.4 7.61 879,782 7.61 $10.01 - $15.00 1,351,879 5.6 11.75 1,213,379 11.64 $15.01 - $20.00 4,513,832 8.4 17.38 2,576,217 17.96 Over $20.00 267,250 7.1 23.10 266,150 23.12 --------- --------- 7,195,939 7.2 15.00 5,118,724 14.46 ========= ========= - - --------------------------------------------------------------------------------------------------------
Employee Stock Ownership Plans In 1989 the Company adopted a Profit Sharing Employee Stock Ownership Plan (the "ESOP") which is designed to invest primarily in Common Stock. Substantially all employees are eligible to participate in the ESOP following one year of service. Employees may not make contributions to the ESOP but may receive a discretionary contribution from the Company based on their pro-rata share of eligible compensation. The Company previously sponsored a leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the ESOP's debt service and the unallocated shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The Company accounts for this ESOP in accordance with AICPA SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." Accordingly, the debt of the ESOP is recorded as long-term debt and the shares pledged as collateral are reported as unearned compensation on the balance sheet. As shares are released from collateral, the Company records compensation expense equal to the current market price of the shares, and the shares are treated as outstanding for purposes of calculating earnings per share. For 2000, 1999 and 1998, the Company contributed 2%, 2% and 3% of eligible compensation, respectively. The approximate expense of this contribution for 2000, 1999 and 1998 was $1.6 million, $1.8 million and $2.1 million, respectively. Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan is available to employees with one year of service. The maximum number of shares which may be issued under the Employee Stock Purchase Plan is 1,352,000 shares. Employees have the right to authorize payroll deductions up to 10% of their salary. As of December 31, 2000, 1,106,549 shares had been purchased under this plan. Restricted Stock Plan In 1990, the Company adopted a Restricted Stock Plan under which up to $10,000 of the annual fee payable to each non-employee Director of the Company and participating subsidiaries is payable solely in shares of Common Stock. Shares issued were 12,066, 7,376 and 6,420 in 2000, 1999 and 1998, respectively. 16. RETIREMENT AND OTHER BENEFIT PLANS Pension Plans The Company and its subsidiaries have noncontributory defined benefit plans covering most permanent, full-time 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. The Company has adopted supplemental retirement plans for certain key officers. These plans were designed to offset the impact of changes in the Pension Plans which reduced benefits for highly paid employees. The Company also has entered into deferred compensation agreements with certain key officers. The cost of these agreements is accrued but not funded. The Company holds corporate-owned life insurance policies on the lives of certain executives. The death benefits are payable to the Company and will assist in the funding of the deferred compensation liability. The Company will recover the costs of premium payments from the cash value of these policies. Post Retirement Benefits Other Than Pensions The Company and its subsidiaries sponsor post-retirement benefit programs which provide medical coverage and life insurance benefits to a closed group of employees and directors who meet minimum age and service requirements. The Company and its subsidiaries recognize 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. 53 56 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- The following tables set forth the funded status and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 2000 and 1999 for the pension plans and other post retirement benefit plans:
- - -------------------------------------------------------------------------------------------------------------------------------- Pension Plans Other Post Retirement Benefits - - -------------------------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 - - -------------------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 119,209 $ 128,017 $ 12,104 $ 11,388 Service cost 5,636 7,537 312 336 Interest cost 9,296 8,945 1,019 852 Assumption changes -- (12,921) -- (833) Actuarial loss 900 1,666 1,349 1,380 Curtailment gain (5,875) (8,935) (1,600) -- Acquisitions -- 3,253 -- -- Benefits paid (9,300) (8,353) (1,230) (1,019) --------- --------- --------- --------- Benefit obligation at end of year $ 119,866 $ 119,209 $ 11,954 $ 12,104 ========= ========= ========= ========= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 131,589 $ 123,078 $ -- $ -- Actual return on plan assets (3,315) 16,039 -- -- Employer contribution 2,046 1,057 1,230 1,019 Benefits paid (9,301) (8,353) (1,230) (1,019) Administrative expenses -- (232) -- -- --------- --------- --------- --------- Fair value of plan assets at end of year $ 121,019 $ 131,589 $ -- $ -- ========= ========= ========= ========= FUNDED STATUS $ 1,153 $ 12,380 $ (11,954) $ (12,104) Unrecognized net actuarial (gain) loss (12,679) (29,623) 1,216 (94) Unrecognized prior service cost 1,236 1,660 1,493 1,633 Unrecognized net transition obligation (1,378) (1,675) 4,864 5,257 --------- --------- --------- --------- Accrued benefit cost $ (11,668) $ (17,258) $ (4,381) $ (5,308) ========= ========= ========= ========= WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.75% 7.75% 7.75% 7.75% Expected return on plan assets 8.50% 8.50% -- -- Rate of compensation increase 4.50% 4.50% -- --
- - ------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 2000 1999 1998 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 5,636 $ 7,537 $ 6,789 $ 312 $ 336 $ 262 Interest cost 9,296 8,945 7,969 1,019 852 733 Expected return on plan assets (11,018) (10,464) (9,435) -- -- -- Net amortization and deferral (1,842) (207) (305) 571 545 523 Curtailment gain -- -- 668 -- -- -- Amortization of net gain -- -- (75) -- -- -- -------- -------- -------- -------- -------- -------- Net periodic benefit cost $ 2,072 $ 5,811 $ 5,611 $ 1,902 $ 1,733 $ 1,518 ======== ======== ======== ======== ======== ======== - - ------------------------------------------------------------------------------------------------------------------------
Curtailment gains of $7.5 million and $8.0 million in 2000 and 1999, respectively, were recorded as a reduction of special charges relating to acquisitions. Multi-Employer Pension Plan An acquired company participated in a multi-employer pension plan in 1998. The plan was fully funded in 1998 and there is no future obligation relating to this plan. Pension expense attributable to the plan for the year ended December 31, 1998 was $377,000. 401 (k) Plan The Company has a contributory 401(k) Plan covering substantially all permanent employees after completion of one month of service. The Company matches employee contributions based on a predetermined formula and may make additional discretionary contributions. The total expense for these plans in 2000, 1999 and 1998 was $3.4 million, $3.2 million and $4.7 million, respectively. 54 57 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 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 certain 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, SHORT-TERM INVESTMENTS 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 AND LOANS HELD FOR SALE. Fair values 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 and leases 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 the carrying value approximates fair value. 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 at December 31, 2000 was based on the expected present value of future mortgage servicing income, net of estimated servicing costs, considering market consensus loan prepayment predictions at that date. The fair value of the Company's mortgage servicing rights at December 31, 2000 was largely based on the terms of a contract to sell substantially all remaining mortgage servicing rights during the first quarter of 2001. 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 AND OTHER BORROWINGS. The fair value of the Company's long-term borrowings is estimated based on quoted market prices for 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: 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 under-lying 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 servicing rights recognizable upon sale of loans net of any cost to the Company if it fails to meet its sale obligation. Of the $92 million of forward sales commitments at December 31, 2000, the Company had $51 million in loans available to sell at that date as well as sufficient loan originations subsequent to December 31, 2000 to fulfill the commitments. Consequently, the Company has no unmet sales obligation to value and due to the short-term nature of the commitments and 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 foreclo-sure 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. 55 58 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- A summary of the fair values of the Company's significant financial instruments at December 31, 2000 and 1999 follows:
- - ---------------------------------------------------------------------------------------------------------------------- 2000 1999 - - ---------------------------------------------------------------------------------------------------------------------- CARRYING FAIR Carrying Fair VALUE VALUE Value Value - - ---------------------------------------------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 544,992 $ 544,992 $ 776,395 $ 776,395 Securities--available for sale 5,425,111 5,425,111 6,316,031 6,316,031 Securities--held to maturity 455,547 457,110 557,151 535,605 Loans held for sale 51,131 51,823 82,318 82,382 Loans and leases, net 10,692,112 10,930,029 9,699,608 9,626,579 Mortgage servicing rights 23,225 24,926 52,724 59,254 Interest rate swaps, floor and corridor contracts -- 10 2,023 4,001 Liabilities: Deposits (with no stated maturity) 7,540,655 7,540,655 7,212,557 7,212,557 Time deposits 4,566,601 4,584,201 4,497,944 4,506,223 Borrowings 4,560,615 4,567,845 5,367,478 5,340,259 - - ----------------------------------------------------------------------------------------------------------------------
56 59 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 18. CONDENSED PARENT INFORMATION Condensed Financial Statements of the Parent Company
- - ----------------------------------------------------------------------------------------------------------- December 31, - - ----------------------------------------------------------------------------------------------------------- Balance Sheets 2000 1999 - - ----------------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ 4,134 $ 5,612 Interest bearing deposits with subsidiaries 67,894 65,885 Securities purchased under agreements to resell to a subsidiary bank -- 12,250 Securities available for sale 34,038 36,892 Investment in subsidiaries 1,315,385 1,159,979 Goodwill and other intangibles 11,057 12,910 Amounts receivable from subsidiaries 3,832 61,537 Other assets 56,854 41,329 ---------- ---------- Total assets $1,493,194 $1,396,394 ========== ========== Liabilities and shareholders' equity Amounts payable to subsidiaries $ 6,949 $ 28,720 Subordinated debentures supporting mandatory redeemable trust securities 134,021 134,021 Other liabilities 21,367 41,379 Shareholders' equity 1,330,857 1,192,274 ---------- ---------- Total liabilities and shareholders' equity $1,493,194 $1,396,394 ========== ==========
- - ---------------------------------------------------------------------------------------------- Year Ended December 31, - - ---------------------------------------------------------------------------------------------- Statements of Income 2000 1999 1998 - - ---------------------------------------------------------------------------------------------- Operating income: Dividends from subsidiaries $ 140,480 $ 203,983 $ 132,091 Other operating income 7,909 6,931 6,277 --------- --------- --------- Total operating income 148,389 210,914 138,368 --------- --------- --------- Operating expenses: Interest on borrowings 12,712 13,222 13,343 Amortization of intangibles 1,853 1,847 1,843 Merger expenses 7,758 14,710 26,299 Other operating expenses 336 6,595 11,220 --------- --------- --------- Total operating expenses 22,659 36,374 52,705 --------- --------- --------- Income before income taxes and equity in undistributed net income of subsidiaries 125,730 174,540 85,663 Income tax expense (benefit) (2,319) (10,733) (11,964) --------- --------- --------- Income before equity in undistributed net income of subsidiaries 128,049 185,273 97,627 Equity in undistributed net income of subsidiaries 63,685 11,685 44,117 --------- --------- --------- Net income $ 191,734 $ 196,958 $ 141,744 ========= ========= ========= - - ----------------------------------------------------------------------------------------------
57 60 Banknorth Group, Inc. and Subsidiaries - - --------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------ Year Ended December 31, - - ------------------------------------------------------------------------------------------------------------ Statements of Cash Flows 2000 1999 1998 - - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 191,734 $ 196,958 $ 141,744 Adjustments to reconcile net income to net cash (used) provided by operating activities: Undistributed net income from subsidiaries (63,685) (11,685) (44,117) Amortization of goodwill and other intangibles 1,853 1,847 1,844 Securities losses (gains) -- -- (187) Decrease in unearned compensation 1,527 2,072 177 (Increase) decrease in amounts receivable from subsidiaries 57,705 (47,177) (6,173) Decrease (increase) in other assets (15,525) (11,661) (1,465) Increase (decrease) in amounts payable to subsidiaries (21,771) 19,767 19,366 Increase (decrease) in other liabilities (18,785) 17,466 (3,589) Other, net (42) 668 1,182 --------- --------- --------- Net cash provided by operating activities $ 133,011 $ 168,255 $ 108,782 --------- --------- --------- Cash flows from investing activities: Net decrease (increase) in interest bearing deposits with subsidiaries $ (2,009) $ (37,961) $ (4,210) Maturities of securities available for sale -- -- 4,556 Sales of available for sale securities -- 1,432 4,494 Purchase of available for sale securities -- (34,119) -- Sales of held to maturity securities 2,854 -- -- Maturity of securities purchased under agreements to resell 12,250 -- -- Capital contribution from (to) subsidiary -- 11,890 (46,498) --------- --------- --------- Net cash provided (used) by investing activities $ 13,095 $ (58,758) $ (41,658) --------- --------- --------- Cash flows from financing activities: Issuance of notes payable (net) $ -- $ 0 $ 0 Payment of notes payable (1,227) (10,805) (4,517) Dividends paid to shareholders (70,773) (65,368) (57,231) Treasury stock acquired (96,585) (53,745) (55,340) Common stock issued 21,001 18,352 19,291 --------- --------- --------- Net cash (used) provided by financing activities $(147,584) $(111,566) $ (97,797) --------- --------- --------- Net increase (decrease) in cash due from banks $ (1,478) $ (2,069) $ (30,673) Cash and due from banks at beginning of year 5,612 7,681 38,354 --------- --------- --------- Cash and due from banks at end of year $ 4,134 $ 5,612 $ 7,681 ========= ========= ========= Supplemental disclosure information: Interest paid on borrowings $ 12,712 $ 13,210 $ 13,053 - - ------------------------------------------------------------------------------------------------------------
58 61 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 19. SELECTED QUARTERLY DATA (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 - - ----------------------------------------------------------------------------------------------------------------------------------- FOURTH THIRD SECOND FIRST Fourth Third Second First QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter - - ----------------------------------------------------------------------------------------------------------------------------------- Interest income $ 337,281 $ 336,559 $ 331,054 $ 325,393 $ 323,286 $ 317,329 $ 298,798 $ 288,106 Interest expense 183,321 185,846 177,889 170,220 163,425 157,329 145,470 137,066 --------- --------- --------- --------- --------- --------- --------- --------- Net interest income 153,960 150,713 153,165 155,173 159,861 160,000 153,328 151,040 Provision for loan and lease losses 6,651 6,250 5,849 5,068 6,005 6,165 5,840 5,565 --------- --------- --------- --------- --------- --------- --------- --------- Net interest income after provision for loan and lease losses 147,309 144,463 147,316 150,105 153,856 153,835 147,488 145,475 Noninterest income 64,067 56,067 56,782 50,168 49,910 47,780 50,743 43,361 Losses on securities restructuring -- -- (15,895) -- -- -- -- -- Special charges (15) 414 37,271 5,337 (3,889) -- 60 31,831 Noninterest expenses 119,473 111,635 117,730 120,010 121,183 117,209 117,637 114,110 --------- --------- --------- --------- --------- --------- --------- --------- Income before income taxes 91,918 88,481 33,202 74,926 86,472 84,406 80,534 42,895 Income tax expense 29,554 27,890 14,323 25,026 27,637 28,132 25,633 15,947 --------- --------- --------- --------- --------- --------- --------- --------- Net income $ 62,364 $ 60,591 $ 18,879 $ 49,900 $ 58,835 $ 56,274 $ 54,901 $ 26,948 ========= ========= ========= ========= ========= ========= ========= ========= Earnings per share: Basic $ 0.43 $ 0.42 $ 0.13 $ 0.35 $ 0.41 $ 0.39 $ 0.37 $ 0.18 Diluted $ 0.43 $ 0.42 $ 0.13 $ 0.34 $ 0.40 $ 0.38 $ 0.37 $ 0.18 Operating earnings per share(1): Basic $ 0.43 $ 0.42 $ 0.40 $ 0.37 $ 0.39 $ 0.39 $ 0.37 $ 0.34 Diluted $ 0.43 $ 0.42 $ 0.40 $ 0.37 $ 0.39 $ 0.38 $ 0.37 $ 0.34 - - -----------------------------------------------------------------------------------------------------------------------------------
(1) Earnings before special charges and losses on securities restructuring. 59 62 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT The Board of Directors Banknorth Group, Inc.: We have audited the accompanying consolidated balance sheets of Banknorth Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banknorth Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Boston, Massachusetts January 12, 2001 60 63 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- CORPORATE DIRECTORY - - -------------------------------------------------------------------------------- BANKNORTH GROUP, INC. BOARD OF DIRECTORS WILLIAM J. RYAN Chairman of the Board President & CEO Banknorth Group, Inc. ANGELO P. PIZZAGALLI Vice Chairman of the Board Co-Chairman, Pizzagalli Construction Company THOMAS J. AMIDON Attorney GARY G. BAHRE President & CEO New Hampshire International Speedway P. KEVIN CONDRON President & CEO The Granite Group LLC SUSAN G. CRAMPTON Principal The Vermont Partnership GEORGE W. DOUGAN Retired President Evergreen Bank, N.A. KATHERINE M. GREENLEAF Senior Vice President Wright Express LUTHER F. (FRED) HACKETT President Hackett, Valine & MacDounald DOUGLAS S. HATFIELD, JR. Attorney, President & Treasurer Hatfield, Moran & Barry, PA DAVID D. HINDLE Retired President & Chief Executive Officer Family Bank DANA S. LEVENSON Principal Levenson Business Group President Quatro Realty Corp. PHILIP A. MASON Attorney Mason & Martin, L.L.P. JOHN M. NAUGHTON Retired Executive Massachusetts Mutual Life Insurance Company MALCOLM W. PHILBROOK, JR. Attorney & President Crockett, Philbrook & Crouch, P.A. PAMELA P. PLUMB Pamela Plumb & Associates SETH A. RESNICOFF, MD Surgeon & President Concord Surgical Associates, P.A. CURTIS M. SCRIBNER President C. M. Scribner & Company PAUL R. SHEA Retired President & CEO Bank of New Hampshire Corp. JOHN E. VEASEY President Cedardale Athletic Club PATRICK E. WELCH Chairman & CEO National Life Insurance Company 61 64 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- [GRAPHIC] Left to right: J. Menario, A. Greene, T. Pruitt, W.Suehrstedt, P. Verrill, W. Ryan, J. Fridlington, C. Mitchell, D. Ott BANKNORTH GROUP, INC. SENIOR MANAGEMENT WILLIAM J. RYAN Chairman, President & Chief Executive Officer PETER J. VERRILL, CPA Executive Vice President Chief Operating Officer & Chief Financial Officer JOHN W. FRIDLINGTON Executive Vice President Chief Lending Officer ANDREW W. GREENE Executive Vice President Insurance and Investments CAROL L. MITCHELL, ESQ. Executive Vice President General Counsel, Clerk & Secretary DAVID J. OTT Executive Vice President Chief Banking Officer THOMAS J. PRUITT Executive Vice President & Chief Administrative Officer WENDY P. SUEHRSTEDT Executive Vice President Retail Delivery JOHN E. MENARIO Special Assistant to the President - - -------------------------------------------------------------------------------- BANKNORTH SUBSIDIARIES MAINE PEOPLE HERITAGE BANK, N.A. MICHAEL MCNAMARA President & CEO NEW HAMPSHIRE BANK OF NEW HAMPSHIRE, N.A. R. SCOTT BACON President & CEO MASSACHUSETTS FIRST MASSACHUSETTS BANK, N.A. CHRISTOPHER W. BRAMLEY President & CEO VERMONT/NEW YORK RICHARD J. FITZPATRICK President Vermont/ New York NEW YORK EVERGREEN BANK, N.A. DANIEL J. BURKE President & CEO VERMONT FIRST VERMONT BANK, N.A. JAMES R. KEYES President & CEO THE HOWARD BANK, N.A. PHILIP R. DANIELS President & CEO FRANKLIN LAMOILLE BANK, N.A. STEVEN J. BOURGEOIS President & CEO - - -------------------------------------------------------------------------------- BANKNORTH FINANCIAL SERVICES SUBSIDIARIES THE STRATEVEST GROUP, N.A. (MONEY MANAGEMENT) ROBERT B. ESAU President & CEO MORSE, PAYSON & NOYES INSURANCE PETER L. SPARTA President HERITAGE INVESTMENT PLANNING GROUP ANNE DUNNE President BANKNORTH LEASING TOBY COOK President 62 65 Banknorth Group, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- SHAREHOLDER INFORMATION - - -------------------------------------------------------------------------------- ANNUAL MEETING The 2001 Annual Meeting of the Shareholders of Banknorth Group, Inc. will be held at 10:30 a.m. on Tuesday, April 24, 2001 at the Portland Marriott at Sable Oaks, 200 Sable Oaks Drive, South Portland, Maine. CORPORATE HEADQUARTERS Two Portland Square Portland, Maine Mailing Address: P.O. Box 9540 Portland, ME 04112-9540 Contact: Brian S. Arsenault, Senior Vice President, Corporate Communications 207-761-8517 or Peter J. Verrill Chief Operating Officer and Chief Financial Officer 207-761-8507 TOLL FREE: 1-800-462-3666 WEB SITE www.banknorth.com STOCK LISTING Banknorth Group, Inc. is traded over the counter on the NASDAQ National Market System under the symbol: BKNG. FORM 10-K AND OTHER REPORTS Banknorth will send a copy of its 2000 Annual Report and Form 10-K to shareholders upon request. Requests should be addressed to Investor Relations at the Corporate Headquarters. TRANSFER AGENT Shareholder inquiries regarding change of address or title should be directed to: American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 Phone: 800-937-5449 x8290 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS KPMG LLP 99 High Street Boston, MA 02110 RESEARCH COVERAGE A.G. Edwards & Sons, Inc., CIBC Oppenheimer, Inc., First Albany Corp., Fox-Pitt, Kelton, Inc., Friedman Billings Ramsey & Co., Johnston, Lemon & Co., Keefe, Bruyette & Woods, Inc., Lehman Brothers, Inc., Maine Securities Corp., Merrill Lynch, Pierce, Fenner & Smith, Parker/Hunter Incorporated, Pennsylvania Merchant Group, Salomon Smith Barney Inc., Sandler O'Neill & Partners, L.P., Tucker Anthony Cleary Gull MARKET MAKERS The following companies have generally been market makers for Banknorth Group, Inc. Common Stock as of December 31, 2000: Advest, Inc. A.G. Edwards & Sons Archipelago, LLC B-Trade Services, LLC Cantor Fitzgerald & Co. Carl P. Sherr & Co. CIBC World Markets Corp. Credit Suisse First Boston Co. First Tennessee Securities Corp. First Union Capital Markets Fleet Securities Fox-Pitt Kelton, Inc. Friedman Billings Ramsey & Co. Herzog, Heine, Geduld, Inc. Instinet Corporation Island Systems Corporation Jeffries & Company, Inc. Johnston Lemon & Co., Inc. Keefe, Bruyette & Woods, Inc. Knight Securities L.P. Legg Mason Wood Walker, Inc. Lehman Brothers Inc. Merrill Lynch, Pierce, Fenner Moors & Cabot, Inc. Morgan Stanley & Co. PaineWebber, Inc. Salomon Smith Barney, Inc. Sandler O'Neill & Partners, L.P. Schwab Capital Markets Sherwood Securities Corp. Southwest Securities, Inc. Spear, Leeds & Kellogg The Brass Utility, LLC Tucker Anthony Cleary Gull Weeden and Co., Inc. - - -------------------------------------------------------------------------------- COMMON STOCK PRICES Market prices for Banknorth Group, Inc.'s common stock and dividends per quarter during 2000 and 1999 are as follows:
- - -------------------------------------------------------------------------------- DIVIDENDS DECLARED MARKET PRICES 2000 QUARTERS PER SHARE HIGH LOW - - -------------------------------------------------------------------------------- FIRST $ 0.125 $ 16.13 $ 10.38 SECOND 0.125 18.00 11.94 THIRD 0.125 18.50 14.88 FOURTH 0.125 21.13 15.56 - - -------------------------------------------------------------------------------- 1999 Quarters - - -------------------------------------------------------------------------------- First $ 0.115 $ 20.25 $ 16.50 Second 0.115 20.13 15.75 Third 0.12 19.81 16.06 Fourth 0.12 19.56 14.31 - - --------------------------------------------------------------------------------
As of December 31, 2000, the Company had approximately 13,738 shareholders of record and 141,244,603 shares outstanding. These numbers do not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms and others. 66 [LOGO] BANKNORTH GROUP, INC. --------------------- Two Portland Square Post Office Box 9540 Portland, Maine 04112-9540 EX-21 17 b38140bgex21.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 Information relating to certain of the subsidiaries of Banknorth Group, Inc. as of December 31, 2000 is set forth below. All of the indicated subsidiaries are directly or indirectly wholly-owned by Banknorth Group, Inc. Direct Subsidiaries: NAME JURISDICTION OF INCORPORATION ---- ----------------------------- Peoples Heritage Bank, NA United States Bank of New Hampshire, NA United States First Massachusetts Bank, NA United States The Howard Bank, NA United States Franklin Lamoille Bank, NA United States First Vermont Bank, NA United States Evergreen Bank, NA United States The Stratevest Group, NA United States Peoples Heritage Capital Trust I Delaware Banknorth Capital Trust I Delaware North Group Realty, Inc. Vermont Indirect Subsidiaries: NAME JURISDICTION OF INCORPORATION ---- ----------------------------- Heritage Investment Planning Group, Inc. (1)(2) Maine Banknorth Leasing Corp. (1) Maine Morse Payson & Noyes Insurance (1)(3) Maine - - -------------------------- (1) Subsidiary of Peoples Heritage Bank, NA. (2) Holds as a subsidiary First Massachusetts Insurance Agency, Inc., a Massachusetts corporation. (3) Holds as a subsidiary Catalano Insurance Agency, Inc. and Arthur A. Watson & Co., Inc., a Massachusetts and a Connecticut corporation, respectively. EX-23 18 b38140bgex23.txt CONSENT OF KMPG 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Banknorth Group, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-22205, 33-22206, 33-80310, 333-17467, 333-46367, 333-49999, 333-70095, 333-72909 and 333-36834), on Form S-3 (Nos. 333-34931, 333-64845 and 333-67961) and on Form S-4 (No. 333-61757) of Banknorth Group, Inc. of our report, dated January 12, 2001, incorporated by reference in the December 31, 2000 Annual Report on Form 10-K of Banknorth Group, Inc. /s/ KPMG LLP Boston, Massachusetts March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----