CFX: Earnings News Release Contact: Mark A. Gavin, EVP/COO - (603) 355-8604 Gregg R. Tewksbury, CFO - (603) 355-8607 CFX CORPORATION ANNOUNCES FOURTH QUARTER EARNINGS Keene, N.H., January 30, 1998 -- CFX CORPORATION (AMEX: CFX) today announced, exclusive of charges related to CFX Funding L.L.C. which are discussed below, earnings of $8,367,000, or $.35 per share, for the quarter ended December 31, 1997, compared to earnings of $7,519,000, or $.32 per share, for the corresponding period a year ago, an earnings increase of 11%. Exclusive of charges for mergers and those related to CFX Funding, the Company's earnings for the year ended December 31, 1997, amounted to $31,729,000, or $1.33 per share, compared to earnings of $27,275,000 or $1.17 per share, for the corresponding period a year ago, an earnings increase of 16%. After charges for mergers and those related to CFX Funding, earnings were $3,944,000, or $.16 per share, and $18,934,000, or $.79 per share, for the quarter and year ended December 31, 1997, respectively, compared to earnings of $7,519,000, or $.32 per share, and $23,553,000, or $1.01 per share, for the corresponding periods a year ago,respectively. A reconciliation of net income available to common stock to net income available to common stock before charges for mergers and charges related to CFX Funding for the quarters and the years ended December 31, 1997 and 1996 is summarized as follows: EARNINGS RECONCILIATION December 31, Three Months Ended Year Ended Dollars in thousands, except per share data) 1997 1996 1997 1996 Net Income Available to Common Stock $3,944 $7,519 $18,934 $23,553 Add Back After-Tax Charges: Merger Costs (1) - - 8,372 3,722 Charges related to CFX Funding 4,423 - 4,423 - ------- ------ ------ ------ 4,423 - 12,795 3,722 ------- ------ ------ ------ Net Income Available to Common Stock Before Merger and Other Charges $8,367 $7,519 $31,729 $27,275 ======= ======= ======== ======= BASIC EARNINGS PER COMMON SHARE: Net Income Available to Common Stock $ .16 $ .32 $ .79 $ 1.01 ======= ======== ====== ======= Net Income Available to Common Stock Exclusive of Merger and Other Charges $ .35 $ .32 $ 1.33 $ 1.17 ======= ======= ======= ======== (1) Merger-related charges associated with the acquisitions of Community Bankshares, Inc. and Portsmouth Bank Shares, Inc. completed August 29, 1997 and The Safety Fund Corporation and Milord Co/operative Bank completed on July 1,1996. (2) The Company recorded a $4.4 million after-tax charge related to CFX Funding, L.L.C., a 51% owned subsidiary involved in lease financing and securitization. The $4.4 million after-tax charge recorded by the Company for the quarter ended December 31, 1997, covers the cost of resolving a dispute between the Company and American Credit Indemnity Company ("ACI"), a credit insurer, regarding the origination and servicing by CFX Funding, a 51% subsidiary of the Company, of certain equipment leases held in four securitized lease pools insured by ACI, as well as the discontinuance of future operations of CFX Funding with respect to its securitization business. Company spokesman and Chief Operating Officer, Mark A. Gavin, said, "The Company continues its strong operating performance, exclusive of charges for mergers and other matters. The annual loan growth of 28% and a continued strong efficiency ratio were the driving factors behind the 11% increase in earnings." The financial highlights for the fourth quarter of 1997 before merger costs and other matters are as follows: * The Company's overall performance ratios remained strong with return on assets, return on equity, and the efficiency ratio of 1.17%, 13.29% and 59.83%, respectively. * Other income, including trust revenues and mortgage banking fees, increased by 30% over the prior year's quarter. * Core earnings (net interest and dividend and other income) increased by $3.9 million during the fourth quarter of 1997 over the year ago quarter. The lower net interest margin is primarily the result of increased balance sheet leverage employed to utilize the excess capital acquired with the Portsmouth Bankshares, Inc. acquisition. * Total loans and leases grew by $440 million, or 28%, in 1997 to $2.0 billion as of December 31, 1997. CFX previously announced that it signed a definitive agreement to merge with Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK). Peoples Heritage is a bank holding company headquartered in Portland, Maine. The merger is expected to occur in March or April of 1998 and is subject to regulatory and shareholder approvals. The charges related to CFX Funding will not affect the terms, timing or consummation of the merger. CFX Corporation is a multi-bank holding company with total assets of $2.9 billion as of December 31, 1997. The Company's three banking subsidiaries are CFX Bank, headquartered in Keene, New Hampshire, Orange Savings Bank, headquartered in Orange, Massachusetts, and The Safety Fund National Bank, headquartered in Fitchburg, Massachusetts. CFX Bank's mortgage banking division, services approximately $1.4 billion in mortgage loans for others. The Company operates 56 full service offices, 3 loan production offices, and 100 automated teller and remote service banking locations in New Hampshire and central Massachusetts, and operates a trust division with $506 million in assets. SELECTED FINANCIAL HIGHLIGHTS At or for the Three Months Ended December 31, 1997 1996 1997 (Dollars and shares in thousands, except per share data) As Reported Excluding Adjustment(2) Operating and Performance Ratios: Return on average assets (1) .55% 1.26% 1.17% Return on average common equity (1) 6.26 12.47 13.29 Other income/average assets (1) 1.11 1.03 1.11 Other expense/average assets (1) 3.78 2.90 2.77 Efficiency ratio 81.47 59.37 59.83 Tier 1 leverage capital 8.32 9.70 8.48 Asset Quality: Nonperforming assets/total assets .59% .60% Nonperforming loans as a percent of total loans and leases .69 .68 Allowance for loan and lease losses /nonperforming loans 156.56 188.56 Allowance for loan and lease losses/total loans and leases 1.08 1.28 Net charge offs/average loans and leases(1) .13 .24 Stock Performance Indicators: Common shares outstanding 24,071 23,581 24,071 Basic weighted average shares outstanding 24,024 23,505 24,024 Diluted weighted average shares outstanding 24,518 24,012 24,518 Closing price $30.63 $15.50 $30.63 Basic earnings per common share $.16 $.32 $.35 Diluted earnings per common share $.16 $.31 $.34 Dividends declared per common share $.22 $.21 $.22 Dividend yield per common share (1) 2.87% 5.42% 2.87% Book value per common share $10.21 $10.17 N/A Tangible book value per common shares $9.85 $9.78 N/A Price/book value per common share 300.00% 152.41% N/A Price/tangible book value per common share 310.96% 158.49% N/A Price/earnings ratio (1) 48 12 22 Market capitalization $737,295 $365,506 $737,295 (1) Annualized The Company has made, and may continue to make, various forward- looking statements with respect to earnings per share, cost savings related to acquisitions, credit quality and other financial business matters for 1998 and,in certain instances, subsequent periods. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and that statements for periods subsequent to 1998 are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements. In addition to those factors previously disclosed by the Company and those factors identified elsewhere herein, the following factors could cause actual results to differ materially from such forward-looking statements: continued pricing pressure on loans and deposit products, actions of competitors, changes in economic conditions, the extent and timing of actions of the Federal Reserve, customers' acceptance of the Company's products and services and the extent and timing oflegislative and regulatory actions and reforms. The Company's forward-looking statements speak only as of the date on which such statements are made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changing or unanticipated events or circumstances. CONSOLIDATED BALANCE SHEETS Year Ended December 31, (Dollars and shares outstanding in thousands) 1997 1996 Assets Cash and federal funds sold $94,672 $131,393 Trading and investment securities 562,735 519,578 Mortgage loans held for sale 37,737 16,967 Nonperforming loans 13,987 10,783 Other loans and leases 2,020,868 1,583,616 Allowance for loan and lease losses (21,898) (20,332) Premises and equipment 38,761 38,195 Mortgage servicing rights 9,142 7,644 Goodwill and deposit base intangibles 8,698 9,235 Foreclosed assets 2,996 3,349 Bank-owned life insurance 63,226 30,975 Other assets 42,843 37,854 ---------- ---------- Total Assets $2,873,767 $2,369,257 ========== ========== Liabilities Deposits $1,941,996 $1,751,141 Borrowed funds 652,365 351,343 Other liabilities 33,689 26,936 __________ __________ Total Liabilities 2,628,050 2,129,420 ---------- ---------- Shareholders' Equity Common stock 16,077 15,740 Paid-in capital 149,107 142,829 Retained earnings 79,080 81,198 Net unrealized gains on securities available for sale, after tax effects 2,240 489 Cost of common stock in treasury (787) (419) ---------- ---------- Total Shareholders' Equity 245,717 239,837 --------- --------- Total Liabilities and Shareholders' Equity $2,873,767 $2,369,257 ========== ========== Common shares outstanding 24,071 23,581 ========== ========== Common shareholders'equity per share $10.21 $10.17 ========== ========== CONSOLIDATED INCOME STATEMENTS Three Months Ended Year Ended December 31, (Dollars and shares outstanding in thousands) 1997 1996 1997 1996 Interest and dividend income $53,043 $44,183 $199,539 $168,305 Interest expense 28,020 21,189 101,252 79,583 ------- ------- -------- -------- Net Interest and Dividend Income 25,023 22,994 98,287 88,722 Provision for loan and lease losses 1,163 1,075 4,548 4,285 ------- ------- ------- ------- Net Interest and Dividend Income After Provision for Loan and Lease Losses 23,860 21,919 93,739 84,437 ------- ------- ------- ------- Other income: Service charges on deposit accounts 1,306 1,155 5,113 4,952 Mortgage Banking activities 2,336 1,390 6,996 4,716 Net gains on trading and investment securities 1,126 957 2,547 2,780 Leasing activities 220 667 1,663 2,487 Trust fees 1,117 634 3,015 2,351 Pension settlement gain - - - 877 Bank-owned life insurance 879 417 2,251 975 Other 1,015 939 3,957 3,124 ------- ------ ------- ------- 7,999 6,159 25,542 22,262 Other expense: Salaries and employee benefits 9,852 8,772 38,730 34,076 Occupancy expense and equipment expense 3,214 3,021 12,127 10,306 Professional fees 859 1,459 2,761 3,030 Advertising and marketing expense 554 574 2,322 2,366 Goodwill and deposit base intangible amortization 158 151 623 653 Operation of foreclosed real estate 221 71 648 508 Merger expenses - - 11,031 4,522 Charges related to CFX Funding 7,206 - 7,206 - SAIF special assessment - (217) - 691 Other 5,067 3,427 17,102 15,118 ------- ------- ------- ------- 27,131 17,258 92,550 71,270 ======= ======= ======= ======= Income Before Income Taxes 4,728 10,820 26,731 35,429 Income taxes 784 3,301 7,797 11,876 -------- ------- -------- -------- Net Income $ 3,944 $ 7,519 $ 18,934 $ 23,553 ======== ======= ======== ======== Basic weighted average common shares outstanding 24,024 23,505 23,866 23,383 ======== ======= ======== ======== Basic earnings per common share $ .16 $ .32 $ .79 $ 1.01 ======== ======= ======== ======== Diluted earnings per common share $ .16 $ .31 $ .78 $ .99 ======== ======= ======== ======== CONSOLIDATED AVERAGE BALANCE SHEETS Three Months Ended December 31, 1997 1996 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense(1) Rate Balance Expense(1) Rate Assets Interest earning assets Loans and leases $1,999,851 $42,112 8.35% $1,564,588 $34,033 8.65% Tax-exempt loans and leases 13,343 349 10.38 9,250 257 11.05 Taxable securities 602,618 10,291 6.78 545,555 9,020 6.58 Tax-exempt securities 21,803 415 7.55 21,785 371 6.78 Other 9,955 155 6.18 60,332 736 4.85 ---------- ------ ----- --------- ------ ----- Total interest earning assets 2,647,570 53,322 7.99 2,201,510 44,417 8.03 Noninterest earning assets 201,200 167,362 ---------- --------- Total $2,848,770 $2,368,872 ========== ========== Liabilities and Shareholders' Equity Interest bearing liabilities: Savings deposits $ 672,719 3,998 2.36 $ 697,441 4,066 2.32 Time deposits 1,026,591 14,705 5.68 876,555 12,291 5.58 Advances from Federal Home Loan Bank of Boston 438,275 6,654 6.02 248,208 3,513 5.63 Other borrowed funds 201,960 2,663 5.23 113,134 1,319 4.64 Total interest bearing liabilities 2,339,545 28,020 4.75 1,935,338 21,189 4.36 ------- ------- Noninterest bearing liabilities: Demand deposits 235,286 180,706 Other 24,150 12,959 Shareholders' equity 249,789 239,870 --------- --------- Total $2,848,770 $2,368,873 ========== ========== Net interest and dividend income $ 25,302 $ 23,228 ========== ========== Interest rate spread 3.24% 3.67% Net interest margin 3.79% 4.20% (1) Income from tax-exempt securities and tax-exempt loans and leases has been restated to a taxequivalent basis using a 38.62% and 34.00% tax rate, respectively. CONSOLIDATED AVERAGE BALANCE SHEETS Year Ended December 31, 1997 1996 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense(1) Rate Balance Expense(1) Rate Assets Interest earning assets Loans and leases $1,814,156 $154,730 8.53% $1,458,970 $127,860 8.76% Tax-exempt loans and leases 10,984 1,136 10.34 8,925 1,019 11.42 Taxable securities 594,193 40,787 6.86 535,450 34,665 6.47 Tax-exempt securities 21,791 1,615 7.41 30,228 1,780 5.89 Other 49,608 2,281 4.60 76,468 3,930 5.14 --------- ------- --------- ------- Total interest earning assets 2,490,732 200,549 8.05 2,110,041 169,254 8.02 Noninterest earning assets 194,390 156,998 ---------- ---------- Total $2,685,122 $2,267,039 ========== ========== Liabilities and Shareholders' Equity Interest bearing liabilities: Savings deposits $ 668,218 15,758 2.36 $ 684,801 16,323 2.38 Time deposits 984,071 55,251 5.61 849,926 47,311 5.57 Advances from Federal Home Loan Bank of Boston 374,620 21,915 5.85 197,312 11,196 5.67 Other borrowed funds 163,554 8,328 5.09 99,863 4,753 4.76 --------- ------- --------- ------- Total interest bearing liabilities 2,190,463 101,252 4.62 1,831,902 79,583 4.34 --------- ------- ---- --------- ------- ---- Noninterest bearing liabilities: Demand deposits 214,661 176,423 Other 31,740 23,952 Shareholders' equity 248,258 234,762 ---------- ---------- Total $2,685,122 $2,267,039 ========== ========== Net interest and dividend income $ 99,297 $ 89,671 ========= ========= Interest rate spread 3.43% 3.68% Net interest margin 3.99% 4.25% (1) Income from tax-exempt securities and tax-exempt loans and leases has been restated to a taxequivalent basis using a 38.62% and 34.00% tax rate, respectively. - END - Page 4 of 4 Ends.