1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16947
PEOPLES HERITAGE FINANCIAL GROUP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Maine 01-0437984
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Portland Square, Portland, Maine 04112
------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(207) 761-8500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares outstanding of the Registrant's common stock as of August
1, 1998 is:
Common stock, par value $.01 per share 87,712,357
- -------------------------------------- ------------
(Class) (Outstanding)
1
2
INDEX
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income - Three
and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Changes in
Shareholders' Equity - Six months ended June 30, 1998 5
Consolidated Statements of Cash Flows - Six months
ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about 26
Market Risk
PART II. OTHER INFORMATION
-----------------
Item 1. Legal proceedings 27
Item 2. Changes in securities 27
Item 3. Defaults upon senior securities 27
Item 4. Submission of matters to a vote of security holders 27
Item 5 Other information 27
Item 6 Exhibits and reports on Form 8-K 27
2
3
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
June 30, December 31,
1998 1997
---------- ----------
ASSETS (Unaudited)
Cash and due from banks $ 410,460 $ 424,567
Federal funds sold 211,236 13,091
Securities available for sale, at market value 1,614,254 1,802,758
Securities held to maturity - 28,184
Loans and leases held for sale 633,672 398,369
Loans and leases:
Residential real estate mortgages 2,467,758 2,635,663
Commercial real estate mortgages 1,404,890 1,405,357
Commercial business loans and leases 864,980 786,578
Consumer loans and leases 1,651,976 1,696,623
---------- ----------
6,389,604 6,524,221
Less: Allowance for loan and lease losses 88,075 89,983
---------- ----------
Net loans and leases 6,301,529 6,434,238
---------- ----------
Premises and equipment 107,705 114,729
Goodwill and other intangibles 122,324 127,416
Mortgage servicing rights 95,157 59,702
Other assets 271,742 265,188
---------- ----------
$9,768,079 $9,668,242
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Regular savings $1,071,852 $1,084,158
Money Market and NOW accounts 1,664,865 1,522,252
Certificates of deposit (including certificates
of $100 or more of $728,880 and $732,055) 3,024,848 3,171,442
Demand deposits 1,089,618 969,567
---------- ----------
Total deposits 6,851,183 6,747,419
Federal funds purchased and securities sold
under repurchase agreements 408,925 568,535
Borrowings from the Federal Home Loan Bank of Boston 1,534,117 1,394,746
Other borrowings 27,495 18,909
Other liabilities 122,902 117,850
---------- ----------
Total liabilities 8,944,622 8,847,459
---------- ----------
Company obligated, mandatory redeemable securities of
subsidiary trust holding solely parent junior
subordinated debentures 100,000 100,000
Shareholders' Equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares
authorized, none issued) - -
Common stock (par value $0.01 per share, 200,000,000 shares
authorized, 89,941,188 and 89,324,737 shares issued) 900 893
Paid in capital 441,922 436,367
Retained earnings 320,240 303,864
Accumulated other comprehensive income:
Net unrealized gain on securities available for sale 4,537 5,805
Treasury stock, at cost (2,376,054 shares and 1,739,347 shares) (44,142) (26,146)
---------- ----------
Total shareholders' equity 723,457 720,783
---------- ----------
$9,768,079 $9,668,242
========== ==========
See accompanying Notes to Consolidated Financial Statements.
3
4
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Interest and dividend income:
Interest on loans and leases $ 150,982 $ 123,010 $ 302,967 $ 241,955
Interest and dividends on securities 26,741 30,879 54,682 58,890
----------- ----------- ----------- -----------
Total interest and dividend income 177,723 153,889 357,649 300,845
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 61,111 53,118 121,436 104,799
Interest on borrowed funds 25,776 16,342 53,556 30,516
----------- ----------- ----------- -----------
Total interest expense 86,887 69,460 174,992 135,315
----------- ----------- ----------- -----------
Net interest income 90,836 84,429 182,657 165,530
Provision for loan and lease losses 2,983 1,020 5,981 1,962
----------- ----------- ----------- -----------
Net interest income after provision
for loan and lease losses 87,853 83,409 176,676 163,568
----------- ----------- ----------- -----------
Noninterest income:
Customer services 8,202 7,317 16,022 14,281
Mortgage banking services 8,676 4,963 14,378 10,469
Insurance commissions 2,790 - 5,688 -
Trust and investment advisory services 3,982 2,927 7,356 5,488
Net securities gains - 475 2,050 778
Other noninterest income 3,284 2,249 6,345 4,980
----------- ----------- ----------- -----------
26,934 17,931 51,839 35,996
----------- ----------- ----------- -----------
Noninterest expenses:
Salaries and employee benefits 33,550 31,799 70,141 62,394
Occupancy 5,422 4,514 11,443 9,776
Data processing 4,238 3,989 8,813 8,233
Equipment 3,864 4,422 8,771 8,777
Amortization of goodwill and other
intangibles 2,914 1,659 5,776 3,318
Distributions on securities of
subsidiary trust 2,286 2,265 4,530 3,775
Advertising and marketing 2,312 2,213 4,501 4,204
Merger expenses 34,474 - 35,374 -
Other noninterest expenses 13,622 11,813 26,589 22,869
----------- ----------- ----------- -----------
102,682 62,674 175,938 123,346
----------- ----------- ----------- -----------
Income before income tax expense 12,105 38,666 52,577 76,218
Applicable income tax expense 3,795 13,214 17,227 26,257
----------- ----------- ----------- -----------
Net income $ 8,310 $ 25,452 $ 35,350 $ 49,961
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 88,349,666 86,617,570 88,369,091 87,804,083
Diluted 89,795,035 88,950,788 89,814,460 89,405,924
Earnings per share:
Basic $ 0.09 $ 0.29 $ 0.40 $ 0.57
Diluted $ 0.09 $ 0.29 $ 0.39 $ 0.56
See accompanying Notes to Consolidated Financial Statements.
4
5
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
(UNAUDITED)
Net
Unrealized
Par Paid in Retained Gain Treasury
Value Capital Earnings (Loss) Stock Total
-------- --------- --------- ---------- --------- --------
Balances at December 31, 1997 $ 893 $ 436,367 $ 303,864 $ 5,805 $(26,146) $ 720,783
Cancellation of CFX treasury shares at
acquisition (110,586 shares) (1) (1,879) -- -- 1,880 --
Issuance of 727,038 shares of common stock
under stock option and purchase plans and
related tax effects 8 7,434 -- -- -- 7,442
Treasury stock issued for employee benefit plans
(300,748 shares at an average price of $12.70 -- -- (762) -- 4,584 3,822
Treasury stock purchased (1,048,040 shares at
an average price of $23.34) -- -- -- -- (24,460) (24,460)
Change in unrealized gains on securities
available for sale, net of tax -- -- -- (1,268) -- (1,268)
Net income 35,350 35,350
Cash dividends -- (18,212) - - (18,212)
-------- --------- --------- -------- -------- --------
Balances at June 30, 1998 $ 900 $ 441,922 $ 320,240 $ 4,537 $(44,142) $ 723,457
======== ========= ========= ======== ======== =========
See accompanying Notes to Consolidated Financial Statements.
5
6
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
- --------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 35,350 $ 49,961
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses 5,981 1,962
Provision for depreciation 7,764 7,764
Amortization of goodwill and other intangibles 5,776 3,318
Net increase (decrease) in net deferred tax liabilities 31,011 6,806
Net (gains) losses realized from sales of securities and consumer loans (2,050) (1,579)
Net (gains) realized from sales of loans held for sale (a component of
mortgage banking services) 14,481 (3,983)
Net decrease (increase) in mortgage servicing rights (35,455) (1,321)
Proceeds from sales of loans held for sale 1,525,533 863,762
Residential loans originated and purchased for sale (1,775,317) (894,765)
Net decrease (increase) in interest and dividends receivable and other (7,239) (5,144)
assets
Net increase (decrease) in other liabilities (25,157) (32,918)
------------ ---------
Net cash provided (used) by operating activities $ (219,322) $ (6,137)
------------ ---------
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities and principal repayments of investment securities - 20,460
Purchase of investment securities - (27,860)
Proceeds from sales of securities available for sale 302,562 209,079
Proceeds from maturities and principal repayments of securities available for 416,286 291,374
sale
Purchases of securities available for sale (502,182) (778,441)
Net (increase) decrease in loans and leases 126,731 (334,561)
Proceeds from sales of loans - 42,634
Net additions to premises and equipment (740) (6,369)
------------ ---------
Net cash provided (used) by investing activities $ 342,657 $(583,684)
------------ ---------
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits $ 103,764 $ 154,315
Net increase (decrease) in securities sold under repurchase agreements (44,764) 85,253
Proceeds from Federal Home Loan Bank of Boston borrowings 2,055,488 897,902
Payments on Federal Home Loan Bank of Boston borrowings (1,916,117) (703,543)
Net increase (decrease) in other borrowings 8,586 (6,122)
Proceeds from issuance of subsidiary trust - 98,333
Issuance of stock 11,264 7,224
Purchase of treasury stock (24,460) (35,721)
Cash dividends paid to shareholders (18,212) (18,118)
------------ ---------
Net cash provided by financing activities $ 175,549 $ 479,523
------------ ---------
Increase (decrease) in cash and cash equivalents $ 298,884 $(110,298)
Cash and cash equivalents at beginning of period 322,812 491,388
------------ ---------
Cash and cash equivalents at end of period $ 621,696 $ 381,090
============ =========
- --------------------------------------------------------------------------------------------------------------
For the six months ended June 30, 1998 and 1997, interest of $179,463 and
$126,918 and income taxes of $16,208 and $24,440 were paid, respectively.
See accompanying Notes to Consolidated Financial Statements.
6
7
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and predominant
practices within the banking industry. The Company has not changed its
accounting and reporting policies from those disclosed in its 1997 Annual Report
on Form 10-K or its 1997 Supplemental Consolidated Financial Statements included
in the Current Report on Form 8-K filed on July 23, 1998.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations and other data for the
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 1998. Certain amounts in the prior periods have been reclassified
to conform to the current presentation.
On April 10, 1998, the Company completed its merger with CFX Corporation, which
was accounted for under the pooling-of-interests method. Accordingly, the
consolidated financial statements of the Company have been restated to reflect
the acquisition at the beginning of each period presented. At December 31, 1997,
CFX had total assets of $2.9 billion and total shareholders' equity of $245.7
million. Effective April 10, 1998, the Company transferred all securities
considered by CFX to be held to maturity to available for sale. This was done to
be consistent with the Company's interest rate risk profile. The Company also
reclassified $122 million of automobile lease receivables from CFX to loans and
leases held for sale, reflecting the Company's intention to exit this business
and sell such receivables. A valuation allowance of $6.5 million was recorded to
reflect these receivables at the lower of cost or market and was recorded as a
component of merger expenses.
NOTE 2: OTHER COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130. "Reporting
Comprehensive Income," was issued in July 1997. The Company adopted SFAS No. 130
on January 1, 1998, as required. SFAS No. 130 established standards for the
reporting and display of comprehensive income and its components. The main
objective of the statement is to report a measure of all changes in equity that
result from transactions and other economic events of the period other than
transactions with owners. The components of total comprehensive income for the
Company are net income and unrealized gains on securities available for sale,
net of tax.
The following is a reconciliation of comprehensive income for the three and six
month periods ended June 30, 1998 and 1997.
Six Months Ended
June 30,
-------------------
1998 1997
---- ----
Net income $35,350 $49,961
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period 65 688
Less: reclassification adjustment for gains included in net income 1,333 506
------- -------
Net (1,268) 182
------- -------
Comprehensive income $34,082 $50,143
======= =======
7
8
Accumulated Other comprehensive income Unrealized
Gains on
Securities
----------
Balance at December 31, 1997 $ 5,805
Change, net of tax (1,268)
--------
Balance at June 30, 1998 $ 4,537
========
NOTE 3: SHAREHOLDERS' EQUITY
On April 28, 1998, stockholders of the Company approved an amendment to the
Company's articles of incorporation to increase the number of authorized shares
of common stock from 100,000,000 to 200,000,000 and the Board of Directors of
the Company approved a 2 for 1 split of the outstanding common stock effective
as of May 18, 1998. The shares herein have been restated as if the split had
occurred during the earliest period shown. References to authorized common stock
and outstanding shares in the Consolidated Financial Statements have been
adjusted to reflect these actions.
NOTE 4: SUBSEQUENT EVENT - SALE OF SERVICING
Subsequent to June 30, 1998, the Company agreed to sell the rights to service
$2.2 billion of residential mortgage loans. The rights were carried on the
Company's books at June 30, 1998, at $42.6 million.
NOTE 5: OTHER MATTERS
In July 1998, the Company reached a definitive agreement to acquire SIS Bancorp,
Inc., a $1.8 billion bank holding company based in Springfield, Massachusetts.
Under terms of the agreement, shareholders of SIS will receive 2.25 shares of
Peoples Heritage Common Stock for each whole share of SIS Common stock plus cash
in lieu of any fractional share. Approximately 16.8 million shares of Peoples
Heritage common stock will be issued in the transaction. The exchange is
expected to be tax free and accounted for as a pooling-of-interests. The
transaction, which is subject to approval by SIS shareholders and various
regulatory agencies, is anticipated to be completed by the end of 1998 or early
1999.
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9
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
On April 10, 1998, the Company completed its merger with the CFX Corporation
("CFX"),which was accounted for under the pooling-of-interests method.
Accordingly, the consolidated financial statements of the Company have been
restated to reflect the acquisition at the beginning of each period presented.
The Company recognized $24.0 million of after-tax merger-related charges in the
second quarter. Results excluding these and other merger-related charges are
referred to herein as operating. At December 31, 1997, CFX had total assets of
$2.9 billion and total shareholders' equity of $245.7 million.
The results of Atlantic Bancorp ("Atlantic"), the parent company of Atlantic
Bank N.A., and Morse, Payson and Noyes, an insurance agency, which were acquired
in transactions accounted for as purchases, are included from the date of
acquisition, October 1, 1997 and October 10, 1997, respectively.
SUMMARY
Peoples Heritage Financial Group, Inc. (the "Company") reported net income of
$8.3 million, or $0.09 per diluted share, for the second quarter of 1998. This
compares with $25.5 million, or $0.29 per diluted share for the second quarter
of 1997 and $27.0 million, or $.30 per diluted share, for the first quarter of
1998. The Company reported operating income of $32.4 million, or $0.36 per
diluted share for the second quarter of 1998. This compares with $25.5 million,
or $0.29 per diluted share, for the second quarter of 1997 and $27.0 million, or
$.30 per diluted share for the first quarter of 1998. This represents a 24%
increase in operating earnings per diluted share, compared to the same period
last year and 20% compared to the first quarter.
Second quarter operating return on equity was 17.96%, which compared to 14.86%
in the second quarter of 1997 and 15.36% in the first quarter of 1998. The
second quarter operating return on assets was 1.33%, which compared to 1.26% for
the same period in 1997 and 1.16% in the first quarter of 1998.
The improved operating results for the second quarter of 1998 reflect strong
revenue growth coupled with cost savings achieved as a result of the CFX merger.
Net interest income grew 8% and non-interest income grew 50% compared to the
second quarter of 1997. However, operating non-interest expense grew just 9%,
resulting in an efficiency ratio (exclusive of distributions on securities of
subsidiary trust, special charges, and net securities gains) of 55.98% for the
second quarter of 1998 compared to 59.28% for the second quarter of 1997 and
61.06% for the first quarter of 1998. Selected quarterly data and ratios and per
share data including merger related charges are provided in Table 1.
The Company reported net income for the six months ended June 30, 1998 of $35.4
million or $.39 per diluted share compared to $50.0 million or $.56 per diluted
share for the same period last year. Return on average equity was 9.86% and
14.74% for the six months ended June 30, 1998 and 1997, respectively. Return on
average assets was 0.73% and 1.27% for the six months ended June 30, 1998 and
1997, respectively.
The Company's operating income was $60.0 million or $.67 per diluted share, and
$50.0 million or $.56 per diluted share for the six months ended June 30, 1998
and 1997, respectively. Operating return on average equity and operating return
on average assets were 16.73% and 1.24% for the six months ended June 30, 1998,
respectively, compared to 14.74% and 1.27% for the six months ended June 30,
1997, respectively.
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- ---------------------------------------------------------------------------------------------------------------------
TABLE 1 - SELECTED QUARTERLY DATA 1998 1998 1997 1997 1997 1997
Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Net interest income $90,836 $91,821 $91,611 $87,335 $84,429 $81,101
Provision for loan and lease losses 2,983 2,998 1,163 1,423 1,020 942
------- ------- ------- ------- ------- -------
Net interest income after loan and lease
loss provision 87,853 88,823 90,448 85,912 83,409 80,159
------- ------- ------- ------- ------- -------
Noninterest income (excluding securities
transactions) 26,934 22,855 24,983 19,899 17,456 17,763
Securities gains - 2,050 1,196 594 475 302
Noninterest expenses (excluding special
charges) 68,208 72,356 72,714 66,093 62,674 60,672
Special charges (1) 34,474 900 7,560 11,031 - -
------- ------- ------- ------- ------- -------
Income before income taxes 12,105 40,472 36,353 29,281 38,666 37,552
Income tax expense 3,795 13,432 12,412 10,848 13,214 13,043
------- ------- ------- ------- ------- -------
Net income $ 8,310 $27,040 $23,941 $18,433 $25,452 $24,509
======= ======= ======= ======= ======= =======
Earnings per share:
Basic $ 0.09 $ 0.31 $ 0.27 $ 0.22 $ 0.29 $ 0.28
Diluted 0.09 0.30 0.27 0.21 0.29 0.27
Earnings per share (excluding special charges)(1):
Basic $ 0.37 $ 0.31 $ 0.33 $ 0.29 $ 0.29 $ 0.28
Diluted 0.36 0.31 0.32 0.29 0.29 0.27
Return on average assets (2) 0.34% 1.13% 1.03% 0.86% 1.27% 1.27%
Return on average equity (2) 4.58 15.04 13.61 10.60 14.86 14.45
Return on average assets (excluding special
charges) (2) 1.33 1.16 1.24 1.19 1.26 1.27
Return on average equity (excluding special
charges) (2) 17.96 15.36 16.41 14.72 14.86 14.45
Efficiency ratio (3) 55.98 61.06 60.44 59.51 59.28 61.30
- ---------------------------------------------------------------------------------------------------------------------
(1) Special charges consists of merger-related expenses and charges related to
CFX Funding.
(2) Annualized.
(3) Excludes distributions on securities of subsidiary trust, special charges
and net securities gains.
10
11
RESULTS OF OPERATIONS
NET INTEREST INCOME
The Company's fully-taxable-equivalent net interest income in the second quarter
of 1998 increased 8% from the second quarter of 1997 due to loan growth and the
impact of the acquisition of Atlantic in the fourth quarter of 1997. Table 2
shows the quarterly amounts of net interest income by category and Table 3 shows
the changes in tax equivalent net interest income by category due to changes in
rate and volume. The second quarter of 1998 net interest margin was 4.09%
compared to 4.54% for the second quarter of 1997 and 4.18% in the first quarter
of 1998. The decline in the margin from the second quarter of 1997 primarily
reflects the significant increase in mortgage loans held for sale, relatively
low yielding assets, which were funded by FHLB borrowings, relatively expensive
funding, as well as a 7 basis point increase in deposit rates in 1998 compared
to 1997 as a result of the addition of $160 million of average brokered deposits
at an average rate of 5.65%. It is expected that the average balance of mortgage
loans held for sale and brokered deposits will decline somewhat in the third
quarter, but competitive pressure on pricing of loans and deposits will
continue. The fully-taxable equivalent net interest margin decreased slightly
from the first quarter of 1998 primarily due to decreasing yields on earning
assets. See "Interest Rate Risk and Asset Liability Management" below.
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. For purposes of the tables 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) nonaccrual loans have been included in the appropriate average balance loan
category, but unpaid interest on nonaccrual loans has not been included for
purposes of determining interest income. Information is based on average daily
balances during the indicated periods.
11
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- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
1998 1998
Second First
Quarter Quarter
----------------------------------- -----------------------------------
Average Yield/(1) Average Yield (1)
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- -------
(Dollars in Thousands)
Loans and leases (2):
Residential real estate mortgages $3,108,026 $ 57,458 7.39% $3,116,182 $ 60,224 7.73%
Commercial real estate mortgages 1,418,750 33,655 9.51 1,408,203 33,421 9.63
Commercial loans and leases 851,950 20,103 9.46 798,535 18,529 9.41
Consumer loans and leases 1,838,076 40,823 8.91 1,800,883 40,052 9.02
---------- -------- ---------- --------
Total loans and leases 7,216,802 152,039 8.44 7,123,803 152,226 8.62
---------- -------- ---------- --------
Securities (3) 1,662,019 26,110 6.29 1,683,576 27,389 6.55
Federal funds sold 54,549 104 5.54 47,054 675 5.82
---------- -------- ---------- --------
Total earning assets 8,933,370 178,253 7.99 8,854,433 180,290 8.21
---------- -------- ---------- --------
Nonearning assets 844,238 821,175
---------- ----------
Total assets $9,777,608 $9,675,608
========== ==========
Interest-bearing deposits:
Regular savings $1,092,867 $ 6,745 2.48% $1,084,150 $ 6,995 2.62%
NOW and money market accounts 1,694,273 11,663 2.76 1,541,061 10,015 2.64%
Certificates of deposits 3,094,179 42,703 5.54 3,148,063 43,314 5.58%
---------- ---------- --------
Total interest-bearing deposits 5,881,319 61,111 4.17 5,773,274 60,324 4.24
Borrowed funds 1,901,454 25,776 5.44 2,024,437 27,781 5.57
---------- -------- ---------- --------
Total interest-bearing liabilities 7,782,773 86,887 4.48 7,797,711 88,105 4.58
---------- -------- ----------
Demand deposits 1,067,278 963,234
Other liabilities (3) 96,919 85,381
Securities of subsidiary trust 100,000 100,000
Shareholders' equity (3) 730,638 729,282
---------- ----------
Total liabilities and shareholders'
equity $9,777,608 $9,675,608
========== ==========
Net earning assets $1,150,597 $1,056,722
========== ==========
Net interest income (fully-taxable 91,366 92,185
equivalent)
Less: fully-taxable equivalent (530) (364)
adjustments -------- --------
Net interest income $ 90,836 $ 91,821
======== ========
Net interest rate spread (fully-taxable
equivalent) 3.51% 3.63%
==== ====
Net interest margin (fully-taxable equivalent) 4.09% 4.18%
==== ====
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
(3) Excludes effect of unrealized gains or losses on securities available
for sale.
12
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- --------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
1997 1997
Fourth Third
Quarter Quarter
----------------------------------- -----------------------------------
Average Yield/(1) Average Yield (1)
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- -------
(Dollars in Thousands) Loans and leases (2):
Residential real estate mortgages $2,784,525 $ 54,524 7.83% $2,425,850 $ 47,896 7.90%
Commercial real estate mortgages 1,391,087 34,059 9.71 1,259,455 30,589 9.64
Commercial loans and leases 771,305 18,724 9.63 763,083 18,359 9.55
Consumer loans and leases 1,724,577 39,598 9.11 1,532,816 35,573 9.21
---------- --------- ---------- --------
Total loans and leases 6,671,494 146,905 8.76 5,981,204 132,417 8.81
---------- --------- ---------- --------
Securities (3) 1,833,909 30,668 6.66 1,868,673 30,288 6.43
Federal funds sold 42,689 644 5.99 22,905 163 4.83
---------- --------- ---------- --------
Total earning assets 8,548,092 178,217 8.30 7,872,782 162,868 8.23
--------- ---------- --------
Nonearning assets 769,989 628,148
---------- ----------
Total assets $9,318,081 $8,500,930
========== ==========
Interest-bearing deposits:
Regular savings $1,080,708 $ 7,219 2.65% $1,047,442 $ 6,982 2.64%
NOW and money market accounts 1,458,878 9,387 2.55 1,379,506 7,817 2.25
Certificates of deposits 3,105,400 43,683 5.58 2,851,787 39,691 5.52
---------- --------- ---------- --------
Total interest-bearing deposits 5,644,986 60,289 4.24 5,278,735 54,490 4.10
Borrowed funds 1,812,396 26,106 5.71 1,512,913 20,827 5.46
---------- --------- ---------- --------
Total interest-bearing liabilities 7,457,382 86,395 4.60 6,791,648 75,317 4.40
---------- --------- ---------- --------
Demand deposits 923,978 841,667
Other liabilities (3) 128,147 77,740
Securities of subsidiary trust 103,093 100,000
Shareholders' equity (3) 705,481 689,875
---------- ----------
Total liabilities and shareholders' equity 9,318,081 $8,500,930
========== ==========
Net earning assets $1,090,710 $1,081,134
========== ==========
Net interest income (fully-taxable
equivalent) 91,822 87,551
Less: fully-taxable equivalent adjustments (211) (216)
--------- --------
Net interest income $ 91,611 $ 87,335
========= ========
Net interest rate spread (fully-taxable
equivalent) 3.70% 3.83%
Net interest margin (fully-taxable ==== ====
equivalent) 4.29% 4.44%
==== ====
- --------------------------------------------------------------------------------------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
(3) Excludes effect of unrealized gains or losses on securities available
for sale.
13
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- --------------------------------------------------------------------------------
TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
1997 1997
Second First
Quarter Quarter
----------------------------------- -----------------------------------
Average Yield/(1) Average Yield (1)
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- -------
(Dollars in Thousands)
Loans and leases (2):
Residential real estate mortgages $ 2,207,376 $ 43.951 7.96% $ 2,185,645 $ 43,355 7.93%
Commercial real estate mortgages 1,219,730 29,217 9.61 1,208,268 28,616 9.60
Commercial loans and leases 738,777 17,653 9.58 706,154 16,750 9.62
Consumer loans and leases 1,416,075 32,450 9.19 1,352,888 30,396 9.11
----------- -------- ----------- --------
Total loans and leases 5,581,958 123,271 8.85 5,452,955 119,117 8.81
----------- -------- ----------- --------
Securities (3) 1,856,902 30,731 6.63 1,693,222 27,640
Federal funds sold 18,185 210 4.63 30,517 494 6.57
----------- -------- ----------- --------
Total earning assets 7,457,045 154,212 8.29 7,176,694 147,251 6.57
----------- -------- ----------- --------
Nonearning assets 605,015 656,784 8.28
----------- -----------
Total assets $ 8,062,060 7,833,478
=========== ===========
Interest-bearing deposits:
Regular savings $ 1,053,675 $ 6,929 2.64% $ 1,059,471 $ 6,866 2.63%
NOW and money market accounts 1,377,839 8,338 2.43 1,354,440 8,275 2.48
Certificates of deposits 2,762,321 37,852 5.50 2,711,567 36,540 5.47
----------- -------- ----------- --------
Total interest-bearing deposits 5,193,835 53,119 4.10 5,125,478 51,681 4.09
Borrowed funds 1,193,979 16,481 5.54 1,097,988 14,330 5.29
----------- -------- ----------- --------
Total interest-bearing
liabilities 6,387,814 69,600 4.37 6,223,466 66,011 4.30
----------- -------- ----------- --------
Demand deposits 797,533 740,847
Other liabilities (3) 89,887 130,339
Securities of subsidiary trust 100,000 50,806
Shareholders' equity (3) 686,826 688,020
----------- -----------
Total liabilities and
shareholders' equity $ 8,062,060 $ 7,833,478
=========== ===========
Net earning assets $ 1,069,231 $ 953,228
=========== ===========
Net interest income (fully-taxable
equivalent) $ 84,612 81,240
Less: fully-taxable equivalent
adjustments (183) (139)
-------- --------
Net interest income $ 84,429 $ 81,101
======== ========
Net interest rate spread (fully-taxable
equivalent) 3.92% 3.98%
==== ====
Net interest margin (fully-taxable
equivalent) 4.54% 4.55%
==== ====
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.
(3) Excludes effect of unrealized gains or losses on securities available for
sale.
14
15
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 3 - RATE VOLUME ANALYSIS
Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Quarterly
Change from Previous Year due to Changes in:
------------------------------------------------------------------
Total
Volume Rate (1) Change
------ -------- ------
(Dollars in Thousands)
Interest income:
Loans and leases $ 36,072 $ (7,304) $ 28,768
Securities available for sale (3,222) (1,400) (4,622)
Federal funds sold 420 (526) (106)
-------- -------- --------
Total interest income 33,270 (9,230) 24,040
-------- -------- --------
Interest expense:
Interest-bearing deposits
Regular savings 258 (442) (184)
NOW and money market accounts 1,917 1,408 3,325
Certificates of deposit 4,551 300 4,851
-------- -------- --------
Total interest-bearing deposits 6,726 1,266 7,992
Borrowed funds 9,771 (477) 9,294
-------- -------- --------
Total interest expense 16,497 789 17,286
-------- -------- --------
Net interest income (fully taxable equivalent) $ 16,773 $(10,019) $ 6,754
======== ======== ========
(1) Includes changes in interest income and expense not due solely to volume or
rate changes.
NON-INTEREST INCOME
Second quarter non-interest income of $26.9 million increased $9.0 million, or
50%, from the second quarter of 1997 and 8% from the first quarter of 1998. The
second quarter of 1998 included $2.8 million of insurance commissions from
Morse, Payson and Noyes, an insurance agency acquired in October 1997 in a
transaction which was accounted for as a purchase. Consequently, its income and
expenses is not reflected in the second quarter of 1997. Other significant
increases from the second quarter were a $885 thousand increase in customer
service income, a $1.1 million increase in trust and investment advisory
services income and a $3.7 million increase in mortgage banking services income.
Customer services income of $8.2 million increased $885 thousand, or 12%, from
the second quarter of 1997 and 5% from the first quarter of 1998. The increases
were primarily attributable to growth in the number of transaction accounts and
increases in ATM fees.
Trust and investment advisory services income increased $1.1 million, or 36%,
from the second quarter of 1997 and 18% from the first quarter of 1998. The
increase in income reflects the continued growth in trust assets under
management. Assets under management were $2.9 billion , $2.7 billion and $1.7
billion at June 30, 1998, December 31, 1997 and June 30, 1997, respectively.
Mortgage banking services income of $8.7 million, $5.8 million, and $5.0 million
provided 32%, 23% and 28% of noninterest income for the quarters ended June 30,
1998, March 31, 1998 and June 30, 1997, respectively. The Company recorded a
gain of $1.7 million on the sale of servicing rights during the quarter ended
June 30, 1998 while no gain was recorded during the quarters ended March 31,
1998 and June 30, 1997. The Company expects to continue to sell servicing rights
periodically in the future. The Company had $2.8 million in mortgage servicing
income in the second quarter of 1998 compared to $3.5 million in
15
16
the first quarter of 1998 and $2.3 million in the second quarter of 1997. The
increase from last year was due to the increase in residential mortgages
serviced for investors to $6.6 billion at June 30, 1998 from $4.1 billion at
June 30, 1997. The decrease from the first quarter of 1998 was due to the timing
of the sale of serviced loans.
Capitalized mortgage servicing rights amounted to $95 million at June 30, 1998,
which compared to $79 million at March 31, 1998, $60 million at December 31,
1997 and $42 million at June 30, 1997. Loan origination volumes and loans sold
with servicing retained continued to increase in 1998. Consequently, capitalized
mortgage servicing rights increased $35 million since the beginning of the year
and increased $53 million when compared to the second quarter of 1997. See Table
4 for details. Subsequent to June 30, the Company agreed to sell the rights to
service $2.2 billion of residential mortgage loans. The rights were carried on
the Company's books at June 30, at $42.6 million. Because mortgage servicing
rights are an interest-rate sensitive asset, the value of the Company's mortgage
servicing rights and the related mortgage banking income may be adversely
impacted if mortgage interest rates decline and actual or expected loan
prepayments increase. To mitigate the prepayment risk associated with adverse
changes in interest rates and the resultant impairment to mortgage servicing
rights and effects on mortgage banking income, the Company has established a
hedge program against a portion of its mortgage servicing rights to protect its
value and mortgage banking income. Notwithstanding the foregoing, there can be
no assurance that significant declines in interest rates will not have a
material impact on the Company's mortgage servicing rights and mortgage banking
income or that the hedge program will be successful in mitigating the effects of
such a decline.
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE 4 - MORTGAGE BANKING SERVICES
At or for the Three Months Ended
June 30, March 31 December 31, September 30, June 30, March 31,
1998 1998 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Residential mortgages serviced for
investors at end of period $6,648,233 $6,242,085 $5,381,003 $4,637,704 $4,107,607 $4,627,562
========== ========== ========== ========== ========== ==========
Residential mortgage sales income $ 4,231 $ 2,164 $ 4,970 $ 2,978 $ 2,625 $ 1,920
Residential mortgage servicing income, net 2,764 3,538 2,650 2,712 2,337 2,334
Gain on sale of mortgage servicing 1,681 -- 325 802 -- 1,253
---------- ---------- ---------- ---------- ---------- ----------
Total $ 8,676 $ 5,702 $ 7,945 $ 6,492 $ 4,962 $ 5,507
========== ========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE SERVICING RIGHTS
Balance at beginning of period $ 79,365 $ 59,702 $ 44,814 $ 42,038 $ 35,288 $ 40,958
Mortgage servicing rights capitalized and
purchased 24,327 35,679 25,111 15,278 9,840 8,226
Amortization charged against mortgage
servicing fee income (3,596) (3,865) (2,517) (2,011) (1,702) (1,695)
Mortgage servicing rights sold (4,939) (12,151) (7,706) (10,491) (1,388) (12,201)
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period $ 95,157 $ 79,365 $ 59,702 $ 44,814 $ 42,038 $ 35,288
========== ========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
16
17
NON-INTEREST EXPENSE
Non-interest expense increased $4.3 million from the second quarter of 1997 and
decreased $4.2 million from the first quarter of 1998, excluding special
charges, amortization of intangibles and distribution on securities of
subsidiary trust. The increase from the second quarter of 1997 was primarily
related to the acquisitions of Atlantic and Morse Payson and Noyes in the fourth
quarter of 1997. Since both were accounted for as purchases, the amortization of
goodwill increased $1.2 million when compared to the second quarter of last
year. The efficiency ratio was 55.98%, 59.28% and 61.06% for the quarters ended
June 30, 1998, June 30, 1997 and March 31, 1998, respectively, excluding special
charges, distributions on securities, of subsidiary trust and net securities
gains.
Salaries and benefits expense of $33.6 million increased $1.8 million from the
second quarter of last year and decreased $3.0 million from the first quarter of
1998. Second quarter full-time equivalent employees decreased at June 30, 1998
compared to March 31, 1998. The increase in salaries and benefits
expense from last year is reflective of the recent acquisitions.
Occupancy expense increased $908 thousand from the second quarter of 1997 and
decreased $599 thousand from the first quarter of 1998. The increased expenses
were to accommodate the expansion of operations as the recent acquisitions were
assimilated. The decrease from the first quarter was primarily reflective of the
divestiture of five branches related to the CFX acquisition. The Company had 194
branch offices and 3 loan production offices at June 30, 1998 compared to 188
branch offices and 3 loan production offices at June 30, 1997 and 197 branch
offices and 3 loan production offices at March 31, 1998. The Company merged
eight branch offices in July 1998.
Data processing expense increased $249 thousand from the second quarter of last
year and decreased $337 thousand from the first quarter of 1998. The decrease
from the first quarter was due to cost savings realized from the CFX
acquisition. The increase over the second quarter of 1997 was primarily due to
increased volume from the acquisition of Atlantic in the fourth quarter of 1997.
Equipment expense decreased $558 thousand from the second quarter of last year
and decreased $1 million from the first quarter of 1998. The decrease in
equipment expenses was primarily due to cost savings related to the CFX
acquisition. Advertising and marketing expense increased $99 thousand and $123
thousand from the second quarter of 1997 and first quarter of 1998,
respectively. The increases in advertising and marketing expenses were primarily
due to the effect of the acquisitions in the fourth quarter of 1997.
Amortization of goodwill and other intangibles during the second quarter of 1998
increased $1.2 million from the second quarter of 1997 due to the goodwill
associated with the recent acquisitions which were accounted for as purchases.
Merger expenses of $34.5 million pre-tax incurred during the second quarter of
1998 relate to the acquisition of CFX on April 10, 1998. Merger expenses were
$24.0 million on an after-tax basis and represent reorganization and
restructuring costs net of an estimated $8.1 million after-tax gain from the
sale of five CFX branches in connection with the transaction. The after-tax
reorganization and restructuring costs consisted of costs relating to
termination of employment contracts and severance obligations ($7.8 million),
professional fees ($6.8 million), writedown of assets $10.4 million), data
processing/integration costs ($4.8 million) and charges related to CFX Funding
($2.3 million). These expenses reduced the Company's income during the quarter
ended June 30, 1998 by approximately $24.0 million or $0.27 per diluted share.
The following table summarizes the activity in the merger and restructuring
accrual for the quarter ended June 30, 1998.
Three Months Ended June 30, 1998
--------------------------------
(in thousands)
Balance at beginning of period $ --
Establishment of accrual 34,474
Cash payments 5,182
Non-cash items 15,705
-------
Balance at June 30, 1998 $13,587
=======
Other noninterest expenses, which consist of general and administrative
expenses, increased during the second quarter of 1998 by $1.8 million from the
second quarter of 1997 and $671 thousand from the first quarter of 1998 due to
significant increases in loan costs associated with the increase in the volume
of residential mortgage loan originations. See Table 5 for details.
17
18
- -----------------------------------------------------------------------------------------------------------------------
TABLE 5 - OTHER NON-INTEREST EXPENSES
1998 1998 1997 1997 1997 1997
Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Miscellaneous loan costs $2,288 $1,116 $1,385 $1,266 $1,440 $1,113
Telephone 1,628 1,758 1,838 1,527 1,443 1,395
Postage and freight 1,583 1,574 1,367 1,198 1,336 1,373
Office supplies 1,594 1,518 1,690 1,305 1,360 1,323
Deposits and other assessments 629 663 510 579 584 493
Collection and carrying costs of
non-performing assets 846 668 893 508 228 391
Other 5,054 5,670 6,945 5,628 5,422 4,547
------- ------- ------- ------- ------- -------
Total $13,622 $12,967 $14,628 $12,011 $11,813 $10,635
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------
TAXES
The second quarter effective tax rate was 31% compared to 34% for the second
quarter of 1997 and 33% in the first quarter of 1998. The lower rate for 1998
was due primarily to the reorganization of certain corporate entities, increased
levels of bank-owned life insurance (BOLI) and lower state taxes.
IMPACT OF THE YEAR 2000 ISSUE
The Company's Year 2000 project is authorized by a Year 2000 senior management
committee. They provide direct oversight of the Year 2000 initiative and are
updated monthly on the project's progress. The Company's Board of Directors
receives project updates on a quarterly basis.
The Company started its Year 2000 initiative in early 1997. It has completed its
assessment of Year 2000 issues, developed a plan, and arranged for the required
resources to complete the necessary remediation efforts. The Company will
utilize both internal and external resources to reprogram, or replace, and test
the software and hardware for Year 2000 modification.
The Company is in the process of remediating, testing, and returning to
production of all its critical applications. This activity continues to track in
accordance with the original plan and the Company expects to have substantially
completed the remediation of all critical applications by the end of 1998. The
Company established a separate test environment to accommodate its Year 2000
testing activity and the anticipated need to test with its customers and other
third parties during 1999.
The Company relies on several third party service providers for key business
processes. It continues to work closely with these companies to monitor the
progress of their Year 2000 efforts. The Company's Year 2000 project management
has contacted all critical service providers to discuss and assess their Year
2000 readiness. In addition, the Company is receiving written and verbal
verification from its significant third party service providers and vendors as
to their Year 2000 readiness.
The Company will begin Year 2000 testing with several of these key vendors in
the fourth quarter of 1998 and plans to complete internal testing of service
providers by the end of the first quarter of 1999. This activity continues to
track in line with the Year 2000 project plan. Validation of Year 2000 readiness
of all the Company's vendors continues with a particular focus on the readiness,
where possible, for vendors that have been identified as critical.
While the Company continues to discuss these matters with, obtain written
certification from and test the systems of such other companies as to the Year
2000 compliance, there can be no assurance that any potential impact associated
with incompatible systems after December 31, 1999 would not have a material
adverse effect on the Company's business, financial condition or results of
operations.
18
19
The Company had already established business continuity plans for its lines of
business. The Company is in the process of assessing these plans for the
possible impact of Year 2000 failures. It will adjust its existing business
continuity plans where appropriate and possible for those scenarios that may
have the most severe impact on its operations. This activity is expected to be
substantially complete in the first quarter of 1999.
The Company continues to anticipate that the cost of the Year 2000 project will
not exceed $1.7 million. The Company has incurred $858 thousand of expenses to
date.
19
20
FINANCIAL CONDITION
LOANS AND LEASES
Average loans of $7.2 billion during the second quarter of 1998 increased 1.3%
from the first quarter of 1998 and 29% from the second quarter of 1997. The
increase from the second quarter of 1997 was primarily a result of the
acquisition of Atlantic and internal growth in residential and consumer loans.
Loans as a percent of average earning assets increased from 78% at the end of
1997 to 81% at June 30, 1998.
Average residential real estate loans (which includes mortgage loans held for
sale) of $3.1 billion grew 41% from the second quarter of last year. Excluding
$156 million of loans from the acquisition of Atlantic, residential real estate
loans increased 34% from the second quarter of 1997. Large volume increases in
mortgages held for sale accounted for the growth as lower long-term interest
rates resulted in an increase in retail and correspondent originations. Mortgage
loans held for sale amounted to $512 million at June 30, 1998 and $398 million
at December 31, 1997.
Average commercial real estate loans of $1.4 billion increased 16% from the
second quarter of last year. Excluding $102.0 million of loans from the
acquisition of Atlantic, commercial real estate loans grew 8%. The average yield
on commercial real estate loans during the second quarter of 1998 was 9.51% as
compared to 9.61% in the second quarter of 1997, which is indicative of
increased competition and falling interest rates.
Average commercial loans of $852 million during the second quarter of 1998
increased 15% from the second quarter of 1997. Excluding the Atlantic
acquisition, commercial loans increased 11% from the second quarter of 1997. The
yield on commercial loans decreased to 9.46% in the second quarter of 1998 from
9.58% in the second quarter of 1997.
Average consumer loans of $1.8 billion during the second quarter of 1998
increased 30% from the second quarter of 1997. Excluding the Atlantic
acquisition, consumer loans increased 25%. The increase was primarily in
indirect automobile, student and home equity loans. Mobile home loans continue
to decline as the Company has emphasized other types of consumer loan products.
The average yield on consumer loans continued to decline from 9.19% in the
second quarter of 1997 to 9.02% in the first quarter of 1998, and to 8.91% in
the second quarter of 1998.
SECURITIES AND OTHER EARNING ASSETS
The Company's securities portfolio averaged $1.7 billion during the first and
second quarters of 1998 and $1.9 billion in the second quarter of 1997 and
consisted primarily of U.S. Treasury securities and mortgage-backed securities,
most of which are seasoned 15 year agency securities. Other securities consisted
of collateralized mortgage obligations and asset-backed securities.
Substantially all securities are AAA or equivalently rated. The average yield on
securities was 6.29%, 6.55% and 6.63% for the quarters ended June 30, 1998,
March 31, 1998 and June 30, 1998, respectively. The decline in yields was due to
reinvestment of maturing securities at lower yields during a declining interest
rate environment. Securities available for sale are carried at fair value and
had a pre-tax unrealized gain of $7.1 million and $9.1 million at June 30, 1998
and March 31, 1998, respectively.
ASSET QUALITY
As shown in Table 6, nonperforming assets were $66.8 million at June 30, 1998,
which represented 0.68% of total assets. This compares to $72.6 million at March
31, 1998 and $64.1 million at June 30, 1997. The decrease from the previous
quarter resulted from decreases in non-performing loans in all loan types, which
were offset by a slight increase in other real estate owned. The increase from
the second quarter of 1997 was primarily due to the Atlantic acquisition. The
Company continues to monitor asset quality with regular reviews of its portfolio
in accordance with its lending and credit policies.
The Company's residential loan portfolio accounted for 39% of the total loan
portfolio at June 30, 1998 as compared with 38% at June 30, 1997. The Company's
residential loans are generally secured by 1-4 family homes and have a maximum
loan to value ratio of 80%, unless they are protected by mortgage insurance. At
June 30, 1998, 0.39% of the Company's residential loans were nonperforming, as
compared with 0.47% at June 30, 1997.
The Company's commercial real estate loan portfolio accounted for 22% of the
total loan portfolio at June 30, 1998, and 1997. It is the intention of the
Company to maintain commercial real estate loans as a percentage of the overall
loan portfolio at the same or
20
21
lower levels in the future. At June 30, 1998, 1.48% of the Company's commercial
real estate loans were nonperforming, as compared with 1.82% at June 30, 1997.
The Company's commercial business loan portfolio accounted for 13% of the total
loan portfolio at June 30, 1998 and 14% at June 30, 1997. Commercial business
loans are not concentrated in any particular industry, but reflect the
broad-based economies of Maine, New Hampshire and northern Massachusetts. The
Company's commercial business loans are generally to small and medium size
businesses located within its geographic market area. At June 30, 1998, 1.95% of
the Company's commercial business loans were non-performing, as compared with
1.25% at June 30, 1997.
The Company's consumer loan portfolio accounted for 26% of the total loan
portfolio at June 30, 1998. The Company has a diversified consumer loan
portfolio consisting of home equity, automobile, mobile home, boat and
recreational vehicles and education loans. At June 30, 1998, 0.49% of the
Company's consumer loans were nonperforming, as compared with 0.48% at June 30,
1997.
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 6 - NONPERFORMING ASSETS
June 30, March 31, December 31, September 30, June 30, March 31,
1998 1998 1997 1997 1997 1997
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Residential real estate loans:
Nonaccrual loans $ 9,735 $12,688 $15,323 $13,259 $ 9,735 $10,540
Commercial real estate loans:
Nonaccrual loans 19,714 20,700 19,582 19,314 20,127 19,717
Troubled debt restructurings 1,044 2,178 2,304 2,285 2,520 2,637
------- ------- ------- ------- ------- -------
Total 20,758 22,878 21,886 21,599 22,647 22,354
------- ------- ------- ------- ------- -------
Commercial business loans and leases:
Nonaccrual loans 16,810 17,442 13,255 9,880 9,326 8,573
Troubled debt restructurings 71 207 114 118 193 199
------- ------- ------- ------- ------- -------
Total 16,881 17,649 13,369 9,998 9,519 8,772
------- ------- ------- ------- ------- -------
Consumer loans and leases:
Nonaccrual loans 8,075 9,771 8,473 7,020 6,966 6,737
------- ------- ------- ------- ------- -------
Total nonperforming loans:
Nonaccrual loans 54,334 60,601 56,633 49,473 46,154 45,567
Troubled debt restructurings 1,115 2,385 2,418 2,403 2,713 2,836
------- ------- ------- ------- ------- -------
Total 55,449 62,986 59,051 51,876 48,867 48,403
------- ------- ------- ------- ------- -------
Other nonperforming assets:
Other real estate owned, net of
related reserves 6,949 5,453 7,158 8,671 12,380 10,408
In-substance foreclosures, net of allowance -- -- -- -- -- 1,964
Repossessions, net of related reserves 4,380 4,158 3,218 1,837 2,843 199
------- ------- ------- ------- ------- -------
Total other nonperforming assets 11,329 9,611 10,376 10,508 15,223 12,571
------- ------- ------- ------- ------- -------
Total nonperforming assets $66,778 $72,597 $69,427 $62,384 $64,090 $60,974
======= ======= ======= ======= ======= =======
Accruing loans which are 90 days overdue $ 9,969 $ 8,953 $ 8,355 $ 6,324 $ 5,866 $ 6,398
======= ======= ======= ======= ======= =======
Total nonperforming loans as a percentage of
total loans and leases (1) .87% 0.98% 0.91% 0.89% 0.88% 0.91%
Total nonperforming assets as a percentage of
total assets .68% 0.72% 0.72% 0.70% 0.77% 0.76%
Total nonperforming assets as a percentage of
total loans and leases (1) and total other
nonperforming assets 1.04% 1.13% 1.06% 1.07% 1.15% 1.15%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Total loans and leases are exclusive of loans held for sale.
21
22
PROVISION/ALLOWANCE FOR LOAN LOSSES
The Company provided $3 million for loan and lease losses in the second quarter
of 1998, compared to $1 million in the second quarter of 1997. As shown in Table
7, net charge-offs for the second quarter of 1998 were $4.4 million, or 24 basis
points of average loans outstanding, compared to $2.3 million, or 17 basis
points of average loans outstanding, for the second quarter of 1997.
At June 30, 1998, the allowance for loan and lease losses amounted to $88.1
million or 1.38% of total portfolio loans and leases, as compared to 1.54% at
June 30, 1997. The ratio of the allowance for loan and lease losses to
nonperforming loans was 159% at June 30, 1998 and 176% at June 30, 1997.
Management considers the allowance appropriate and adequate to cover potential
losses inherent in the loan portfolio based on the current economic environment.
Provisions for loan losses are attributable to management's ongoing evaluation
of the adequacy of the allowance for loan and lease losses, which includes,
among other procedures, consideration of the character and size of the loan
portfolio, monitoring trends in nonperforming loans, delinquent loans and net
charge-offs, as well as new loan originations and other asset quality factors.
Although management utilizes its best judgment in providing for possible losses,
there can be no assurance that the Company will not have to change its
provisions for loan losses in subsequent periods. Changing economic and business
conditions in northern New England, fluctuations in local markets for real
estate, future changes in nonperforming asset trends, large upward movements in
market-based interest rates or other reasons could affect the Company's future
provisions for loans losses. Based on anticipated growth in assets, it is likely
that the Company will continue providing for loan losses in 1998.
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TABLE 7 - ALLOWANCE FOR LOAN AND LEASE LOSSES
1998 1998 1997 1997 1997 1997
Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Average loans and leases outstanding during
the period (1) $7,216,802 $7,123,803 $6,671,494 $5,981,204 $5,581,958 $5,452,955
========== ========== ========== ========== ========== ==========
Allowance at beginning of period $ 89,454 $ 89,983 $ 84,370 $ 85,736 $ 87,038 $ 87,820
Additions due to acquisitions and purchases -- -- 7,361 -- -- --
Charge-offs:
Real estate mortgages 2,070 1,487 1,534 791 799 1,622
Commercial business loans and leases 1,270 519 2,827 1,787 1,295 482
Consumer loans and leases 2,879 3,651 2,784 3,794 1,620 1,866
---------- ---------- ---------- ---------- ---------- ----------
Total loans charged off 6,219 5,657 7,145 6,372 3,714 3,970
---------- ---------- ---------- ---------- ---------- ----------
Recoveries:
Real estate mortgages 1,004 743 2,420 1,598 557 1,248
Commercial business loans and leases 476 709 958 1,454 574 721
Consumer loans and leases 377 678 856 541 251 277
---------- ---------- ---------- ---------- ---------- ----------
Total loans recovered 1,857 2,130 4,234 3,593 1,382 2,246
---------- ---------- ---------- ---------- ---------- ----------
Net charge-offs 4,362 3,527 2,911 2,779 2,332 1,724
Additions charged to operating expenses 2,983 2,998 1,163 1,413 1,030 942
---------- ---------- ---------- ---------- ---------- ----------
Allowance at end of period $ 88,075 $ 89,454 $ 89,983 $ 84,370 $ 85,736 $ 87,038
========== ========== ========== ========== ========== ==========
Ratio of net charge-offs to average loans and leases
outstanding during the period-annualized (1) 0.24% 0.20% 0.17% 0.19% 0.17% 0.13%
Ratio of allowance to total loans and leases
at end of period (2) 1.38% 1.40% 1.38% 1.45% 1.54% 1.64%
Ratio of allowance to nonperforming loans at 159% 142% 152% 166% 176% 182%
end of period
Ratio of net chargeoffs as a percent of average
outstanding loans-annualized (1):
Real estate mortgages .09% 0.07% (0.09%) (0.09%) 0.03% 0.04%
Commercial business loans and leases .37% (0.10%) 0.97% 0.17% 0.39% (0.14%)
Consumer loans and leases .55% 0.66% 0.45% 0.85% 0.39% 0.47%
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(1) Average loans and leases include portfolio loans and loans held for sale.
(2) Total loans and leases are exclusive of loans held for sale.
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DEPOSITS
Average deposits of $6.9 billion during the second quarter of 1998 increased 15%
from the second quarter of 1997 primarily as a result of the assumption of
$354.4 million of Atlantic deposits in the fourth quarter of 1997 and increased
brokered deposits. The portfolio loan to deposit ratio was 93% and 97% at June
30, 1998, and December 31, 1997, respectively.
Average transaction accounts (demand deposit, NOW and money market accounts) of
$2.8 billion during the second quarter of 1998 increased 27% from the second
quarter of 1997. The increase included the purchase of $126 million in brokered
money market deposits in the first quarter of 1998, assumption of Atlantic's $98
million of transaction deposits as well as significant internal growth in both
commercial and retail deposit balances. The average rates paid on NOW and money
market accounts during the second quarter of 1998 was 2.76%, as compared to
2.43% in the second quarter of 1997. The increase in the 1998 quarter was
reflective of the rates paid on the brokered money market deposits of 5.5% and
growth in higher-rate tiered money market accounts.
Average savings and time deposit balances of $4.2 billion during the second
quarter of 1998 increased 9.7% from the second quarter of 1997. The average
rates paid on savings deposits decreased slightly while time deposit rates
increased slightly due to the higher rates paid on brokered certificates of
deposit.
OTHER FUNDING SOURCES
The Company's primary source of funding, other than deposits, are securities
sold under repurchase agreements and advances from the Federal Home Loan Bank of
Boston ("FHLB"). Average FHLB borrowings for the second quarter of 1998 were
$1.5 billion, which was relatively unchanged from the first quarter of 1998 as
the growth in earning assets was funded by increased deposits. FHLB collateral
consists primarily of first mortgage loans secured by 1 - 4 family properties,
certain unencumbered securities and other qualified assets. At June 30, 1998,
the Company's FHLB borrowings amounted to $1.5 billion and its additional
borrowing capacity was $1.0 billion.
Average balances for securities sold under repurchase agreements were $356
million and $490 million for the quarters ended June 30, 1998 and March 31,
1998, respectively. These borrowings are secured by mortgage-backed securities
and U.S. Government obligations.
LIQUIDITY
For banks, liquidity represents the ability to meet both loan commitments and
deposit withdrawals. Funds to meet these needs generally can be obtained by
converting liquid assets to cash or by attracting new deposits or other sources
of funding. 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 in-market deposit sources, the Company has many other
sources of liquidity, including proceeds from maturing securities and loans, the
sale of securities, asset securitizations and other non-relationship funding
sources, such as FHLB borrowings, senior or subordinated debt, commercial paper
and wholesale purchased funds. Management believes that the high proportion of
residential and installment consumer loans in the Company's loan portfolio
provides it with an additional amount of contingent liquidity through the
conventional securitization programs that exist today. Management believes that
the level of liquidity is sufficient to meet current and future funding
requirements.
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CAPITAL
At June 30, 1998, shareholders' equity amounted to $723 million. In addition,
through a subsidiary trust, the Company has issued $100 million of Capital
Securities which mature in 2027 and qualify as Tier 1 Capital. The Company paid
a $0.11 per share dividend during the second quarter of 1998.
In April 1998, the Company's Board of Directors declared a two-for-one split of
the issued and outstanding shares of the Company's common stock. In addition, in
June 1998, the Company completed the repurchase of one million shares of the
Company's common stock on the open market pursuant to the Board of Director's
approval. The Company no longer has in effect a share repurchase program.
Capital guidelines issued by the Federal Reserve Board require the Company to
maintain certain ratios, set forth in Table 8. As indicated in such table, the
Company's regulatory capital currently substantially exceeds all applicable
requirements.
The Company's banking subsidiaries are also subject to federal, and in certain
cases state, regulatory capital requirements. At June 30, 1998, each of the
Company's banking subsidiaries was deemed to be "well capitalized" under the
regulations of the applicable federal banking agency and in compliance with
applicable state capital requirements.
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TABLE 8 - REGULATORY CAPITAL REQUIREMENTS
For Capital
Actual Adequacy Excess
Purposes
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
As of June 30, 1998:
Total capital (to risk weighted assets) $766,936 12.36% $495,458 8.00% $271,478 4.36%
Tier 1 capital (to risk weighted assets) 689,235 11.11 247,723 4.00 441,512 7.11
Tier 1 leverage capital ratio (to average 689,235 7.16 385,049 4.00 304,186 3.16
assets)
As of December 31, 1997:
Total capital (to risk weighted assets) 762,391 12.65% 482,056 8.00% 280,335 4.65%
Tier 1 capital (to risk weighted assets) 687,421 11.41 241,028 4.00 446,393 7.41
Tier 1 leverage capital (to average assets) 687,421 7.51 366,124 4.00 321,297 3.51
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INTEREST RATE RISK AND ASSET-LIABILITY MANAGEMENT
The Company's interest rate risk and asset and liability management are the
responsibility of the Company's Liquidity and Funds Management Committee, which
reports to the Liquidity and Funds Management Committee of the Board of
Directors and is comprised of members of the Company's senior management. The
Committee is actively involved in formulating the economic projections used by
the Company in its planning and budgeting process and establishes policies which
monitor and coordinate the Company's sources, uses and pricing of funds.
Interest-rate-risk, including mortgage prepayment risk, is by far the most
significant non-credit related risk to which the Company is exposed. Net
interest income, the Company's primary source of revenue, is affected by changes
in interest rates as well as fluctuations in the level and duration of assets
and liabilities on the Company's balance sheet.
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Interest rate risk can be defined as the exposure of the Company's net interest
income or financial position to adverse movements in interest rates. 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, which tend to increase when loan
rates are substantially higher than rates on existing loans and, conversely,
decrease when rates on existing loans are substantially lower than current loan
rates (due to refinancing of loans at lower rates), (iv) the value of the
institution's investment securities and mortgage loans and the resultant ability
to realize gains on the sale of such assets, (v) the carrying value of
investment securities classified as available for sale and the resultant
adjustments to shareholders' equity and (vi) the value of mortgage servicing
rights.
The primary objective of the Company's asset-liability management is to maximize
net interest income while maintaining acceptable levels of interest-rate
sensitivity. To accomplish this the Company monitors the Company's interest rate
sensitivity by use of a sophisticated simulation model which analyzes resulting
net interest income under various interest rate scenarios and anticipated levels
of business activity. Complicating management's efforts to measure interest rate
risk is the uncertainty of the maturity, repricing and/or runoff characteristics
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 (NOW accounts, savings and money market deposits) have no contractual
maturity and based on historical experience generally have 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 based on historical experience are built into the model.
Another major assumption built into the model involves the right customers have
to prepay loans, often without penalty. 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. The Company utilizes market consensus prepayment assumptions
related to residential mortgages.
The Company uses simulation analysis to measure the sensitivity of net interest
income over a specified time period (generally 1 year) under various
interest-rate scenarios using various assumptions such as those discussed above.
The Company's policy on interest rate risk specifies that if interest rates were
to shift immediately up or down 300 basis points, estimated net interest income
should change by less than 10%. Management estimates, based on its simulation
model, that an instantaneous 300 basis point increase in interest rates at June
30, 1998 would result in less than a 3% decrease in net interest income over the
next 12 months while a 3% decrease in rates would result in approximately a 4%
decrease in net interest income over the next 12 months. The Company estimates
that the exposure of the Company's net interest income to gradual and/or modest
changes in interest rates is relatively small. For example, using the Company's
"most likely" rate scenario, which reflects only modest changes in interest
rates for the next twelve months, the net interest income of the Company
fluctuates less than 1% compared to a flat scenario. It should be emphasized
that the foregoing results are highly dependent on material assumptions such as
those discussed above.
The Company, as a result of acquisitions, has acquired two interest rate floors
with a combined notional amount of $20 million, expiring from 1999-2000. The
Company has no direct or contingent liability as a result of these floors which
were purchased to protect certain rate-sensitive assets against falling
interest rate.
The Company has purchased interest rate floors tied to the CMT index to mitigate
the prepayment risk associated with mortgage servicing rights. The value of the
CMT floors is inversely related to movements in interest rates, while the value
of the servicing rights is positively related to movements in interest rates.
When rates decline, people are more likely to refinance their mortgages, which
reduces the value of the servicing rights to the Company. When rates increase,
the opposite is true. While not accorded hedge accounting treatment due to the
uncertainty of strict correlation, in the event that interest rates fall, any
resulting increase in the value of the CMT floors are intended to offset, in
part, the prospective impairment of the servicing rights. At June 30, 1998, the
Company had $100 million in notional amount of CMT floors which expire in 2003.
COMPLETED ACQUISITION
On April 10, 1998, the Company completed the acquisition of CFX Corporation. The
acquisition was effected by means of the merger of CFX with and into the
Company. Each share of common stock of CFX outstanding prior to the merger
(other than dissenting shares) was converted into the right to receive 0.667 of
a share of the Company's common stock, which approximated 32.8 million shares of
common stock. The merger was accounted for as a pooling-of-interests.
PENDING ACQUISITION
On July 20, 1998, the Company announced that it had reached a definitive
agreement to acquire SIS Bancorp, Inc. ("SIS"). Under the terms of the
agreement, the shareholders of SIS will receive 2.25 shares of the Company's
common stock plus cash in lieu of any fractional shares. Consummation of the
acquisition is subject to, among other things, all necessary regulatory
approvals, SIS shareholder approval and other customary conditions. The SIS
acquisition is expected to be completed by the end of 1998 or early 1999 and
will be accounted for as a pooling-of-interests.
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IMPACT OF NEW ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post Retirement Benefits", which revises the required
disclosures for employee benefit plans. This Statement will become effective for
the Company's 1998 annual financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which sets accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This Statement is effective
for years beginning January 1, 2000.
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,"
"anticipate," "continue," or similar terms or variations on those terms or the
negative of those 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 policies 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 events or circumstances
after the date of such statements.
ITEM 3. 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 - Interest Rate Risk
and Asset - Liability Management" is incorporated herein by reference.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Like some of the larger financial institutions across the country, Peoples
Heritage Bank, the Company's Maine-based banking subsidiary, has been served
with a class action suit challenging the validity of its mortgage escrow
practices. The plaintiff, James Greenwood, filed suit on August 29, 1996 in the
United States District Court for the Northern District of New York. The suit
seeks an unspecified amount of damages on behalf of the plaintiff and a
purported class of similarly situated persons. Management currently is
conducting a full assessment of the action and, based on its review to date,
believes that the action will not be material to the financial condition or
operations of the Company. Management currently believes the action to be
without merit and is vigorously defending the action.
Other than as set forth above, the Company is involved in routine legal
proceedings occurring the ordinary course of business which in the aggregate are
believed by management to be immaterial to the financial condition and results
of operations of the Company.
Item 2. Changes in securities - not applicable.
Item 3. Defaults upon senior securities - not applicable.
Item 4. Submission of matters to a vote of security holders - not applicable.
Item 5. Other Information.
The following information is provided pursuant to Rule 14a-8
under the Securities Exchange act of 1934, as amended effective
June 29, 1998:
The deadline for submitting shareholder proposals for inclusion
in the Company's proxy statement and form of proxy for the Company's
annual meeting of stockholders is November 22, 1998; and, pursuant to
the Company's Bylaws, the date after which notice of a shareholder
proposal submitted outside of the processes of Rule 14a-8 is
considered untimely is the date which is 90 days in advance of the
immediately preceding annual meeting of shareholders, or January 27,
1999. All proposals must comply with the applicable requirements or
conditions established by the Securities and Exchange Commission and
the Company's Bylaws, which require, among other things, certain
information to be provided in connection with the submission of
shareholder proposals.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule.
(b) The Company filed Current Reports on Form 8-K on April 22, 1998,
April 28, 1998, July 20, 1998, which was amended on July 24, 1998,
and July 23, 1998:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
Date August 14, 1998 By: /s/ William J. Ryan
-------------------------------------
William J. Ryan
Chairman, President and
Chief Executive Officer
Date August 14, 1998 By: /s/ Peter J. Verrill
-------------------------------------
Peter J. Verrill
Executive Vice President,
Chief Financial Officer
(principal financial and
accounting officer)
28