<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-959
BAYBANKS, INC.
(REGISTRANT)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2008039
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
175 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 482-1040
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $2.00 PAR VALUE
(TITLE OF CLASS)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 10, 1994:
COMMON STOCK, $2.00 PAR -- $1,015,129,206
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 10, 1994:
COMMON STOCK, $2.00 PAR -- 18,798,689
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1993 Annual Report to stockholders are incorporated by
reference in Parts I and II.
Portions of the proxy statement for the annual meeting of stockholders to
be held on April 28, 1994 are incorporated by reference in Part III.
The list of exhibits to this report appears on pages 17 and 18.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL COMPANY INFORMATION
As used herein, the "Company" means BayBanks, Inc. alone or BayBanks, Inc.
together with its consolidated subsidiaries, depending on the context, and the
"BayBanks" means the Company's three bank subsidiaries.
BayBanks, Inc., established in 1928, is one of the largest bank holding
companies in Massachusetts and is headquartered in Boston, Massachusetts. At
December 31, 1993, the Company had total assets of $10.1 billion, total deposits
of $8.8 billion, total stockholders' equity of $703 million, and 5,571 full-time
equivalent employees. The Company's largest subsidiary is BayBank, a
Massachusetts commercial bank based in Burlington, Massachusetts, that had total
assets of $9.2 billion at December 31, 1993. BayBank Boston, N.A. is based in
the Company's headquarter's city and BayBank Connecticut, N.A. is located in
Hartford, Connecticut. The Company also maintains a loan production office in
Portland, Maine.
The Company has an extensive banking network with 201 full-service offices
and 356 automated banking facilities serving 156 cities and towns in
Massachusetts and two in Connecticut. The Company uses state-of-the-art computer
and telecommunications technology to process customer transactions, provide
customer information, and increase the efficiency of its data processing
activities. BayBank Systems, Inc., a nonbank subsidiary of the Company, engages
in data processing, product and systems development, and other technologically
oriented operations, principally for the Company but also for franchisees and
correspondents. In particular, BayBank Systems, Inc., operates the Company's
proprietary X-Press 24(R) automated teller machine ("ATM") network. BayBanks
Credit Corp. (a subsidiary of BayBank Systems, Inc.) and BayBanks Mortgage Corp.
(a subsidiary of BayBank) provide instalment loan, credit card, and mortgage
loan operations and services, and BayBanks Mortgage Corp. also services
approximately $2.0 billion of residential mortgage loans originated by the
BayBanks and placed in the secondary market. Other subsidiaries provide
brokerage, investment management, and general management services to the
BayBanks and other affiliates.
The following presents selected financial information for the Company's
three banking subsidiaries:
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------
CONNECTICUT
MASSACHUSETTS -----------
-------------------------------
BAYBANK BAYBANK
BAYBANK BOSTON CONNECTICUT
----------------- ----------- -----------
1993 1992 1993 1992 1993 1992
------ ------ ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits and other
short-term investments................... $ 785 $1,092 $ 55 $ 88 $ 2 $ 2
Securities portfolios...................... 2,132 1,592 42 34 1 1
Total loans................................ 5,479 5,373 586 521 75 93
Total earning assets....................... 8,396 8,057 684 643 79 96
Total assets............................... 9,179 8,905 896 835 86 105
Total deposits............................. 8,077 8,278 764 680 59 55
Subordinated debt.......................... 47 47 5 5 -- --
Stockholders' equity....................... 542 482 55 48 10 10
</TABLE>
GENERAL BANKING BUSINESS
The Company provides a complete range of banking and related financial
services, with particular emphasis on retail and middle market business
customers. In addition to its normal deposit and lending activities, the Company
aggressively pursues fee income opportunities, both in traditional and automated
banking services and in the investment field, including acting as investment
adviser and shareholder servicing agent for BayFunds(R), a proprietary mutual
fund family.
1
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Retail Banking
The Company -- a recognized leader in consumer banking -- has the largest
retail market share in Massachusetts. More households in Massachusetts do
business with the BayBanks than with any other banking organization. The Company
offers a wide variety of retail banking products, including FDIC-insured
checking, money market, savings, and time deposit accounts; credit cards; home
mortgages and home equity financing; instalment loans; and trust and private
banking services.
The Company's proprietary X-Press 24 network, the 11th largest ATM network
in the country, operates over 1,000 ATMs in Massachusetts and Connecticut and
produces approximately 11 million transactions per month; the Company has
approximately 1 million ATM cards in use. In addition, the BayBank X-Press 24
Cash(R) network operates cash machines located in major retail stores in
Massachusetts. Approximately 88 nonaffiliated financial institutions are X-Press
24 network members. X-Press 24 cardholders can perform automated banking
transactions at over 65,000 CIRRUS(R) and NYCE(R) terminals worldwide.
Qualifying cardholders can also use their cards to make point-of-sale purchases
at retail establishments worldwide, including Mobil(R) stations, grocery stores
and, through BayBank X-Press Check(R), anywhere MasterCard(R) is accepted. The
Company provides a broad range of support and maintenance services to the
X-Press 24 network member institutions. In addition to its branch and ATM
networks, the Company operates a customer service center twenty-four hours a
day, seven days a week, that provides customer service and product information,
opens consumer banking accounts, and fills customer orders, including those from
its catalog of banking services.
Corporate Banking
The Company provides a comprehensive range of cash management, credit,
deposit, international banking, and related services to businesses, hospitals,
educational institutions, and local governments, with particular emphasis on the
Massachusetts middle market. Specialized products available to BayBanks'
business and governmental customers include personal computer-based cash
management services with which a customer may perform a range of deposit account
transactions; X-Press Trade(R), offering automated international letter of
credit services; BayBank X-Press Tax(R) for automated payroll tax depositing; a
Collateralized Municipal Money Market Account; and the Escrow Client Account
Service. BayBank also acts as corporate trustee for bond offerings and as
trustee or custodian for employee benefit and pension plans.
Specific lending groups focus on healthcare and educational institutions,
municipalities, retailers, automobile dealers, and emerging technology
companies. The Company also provides secured financing, in the form of
asset-based lending, leasing, and real estate lending, for commercial customers.
The Company's general corporate lending activities are directed toward small and
middle market companies in the New England region, with a primary emphasis on
Massachusetts enterprises.
Investment Services
The Company's subsidiaries offer a wide range of investment services to
individuals and business customers. The government and municipal securities
dealerships at BayBank Boston, N.A., participate in the underwriting of
Massachusetts municipal obligations and engage in private placement activities.
BayBanks Brokerage Services, Inc., provides retail brokerage services. BayBanks
Investment Management, Inc., a registered investment adviser, provides portfolio
advice and asset management for individuals and businesses and manages the
BayBank trust department's common and collective trust funds. As of December 31,
1993, the BayBank trust department had total assets of $5.2 billion under
management or in custody. BayBanks Investment Management, Inc., acts as
investment adviser to several portfolios of BayFunds, a proprietary mutual fund
family, and BayBank Boston, N.A. acts as investment adviser to one other
BayFunds portfolio. BayFunds added equity and bond portfolios to its existing
money market portfolio during the first quarter of 1993.
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COMPETITION
The BayBanks operate in a highly competitive banking market. All of the
banks compete with other commercial banks in their respective service areas,
with several large commercial banks located in the City of Boston, and with a
number of large regional and national commercial banks located throughout the
country. Legislation enacted in recent years and changing regulatory
interpretations have substantially increased the geographic and product
competition among commercial banks, thrift institutions, mortgage companies,
leasing companies, credit unions, finance companies, and nonbanking
institutions, including mutual funds, insurance companies, brokerage firms,
investment banks, and a variety of financial services and advisory companies. In
the international business, the BayBanks compete with other domestic banks
having foreign operations and with major foreign banks and other financial
institutions.
GOVERNMENT MONETARY POLICY
The earnings and growth of the banking industry in general are affected by
the policies of regulatory authorities, including the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). An important function of the
Federal Reserve Board is to regulate the national money supply. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
its objectives are open market operations in U.S. Government securities, changes
in the discount rates on member bank borrowings, and changes in amount or
methods of calculating reserve requirements against member banks' deposits.
These means, used in varying combinations, influence the overall growth of bank
loans, investments, and deposits as well as the rates charged on loans or paid
for deposits. The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to have such an effect in the future. The effect of
such policies upon the future business and earnings of the Company cannot be
predicted.
GENERAL BANKING REGULATION
The Company is a bank holding company subject to supervision and regulation
by the Federal Reserve Board under the Bank Holding Company Act of 1956. As a
bank holding company, the activities of the Company and its bank and nonbank
subsidiaries are limited to the business of banking and activities closely
related or incidental to banking. The Company may not acquire the ownership or
control of more than 5% of any class of voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of the
Federal Reserve Board. The Company is also subject to the Massachusetts and
Connecticut bank holding company laws that, respectively require the Company to
obtain the prior approval of the Massachusetts Board of Bank Incorporation and
the Connecticut Banking Commissioner for holding company mergers and bank
acquisitions.
The Company's largest subsidiary bank, BayBank, is subject to supervision
and examination by the Federal Deposit Insurance Corporation ("FDIC") and the
Commissioner of Banks of the Commonwealth of Massachusetts ("Bank
Commissioner"). BayBank Boston, N.A. and BayBank Connecticut, N.A., are national
banking associations subject to supervision and examination by the Office of the
Comptroller of the Currency ("OCC"). All of the Company's subsidiary banks are
insured by and subject to certain regulations of the FDIC. They are also subject
to various requirements and restrictions under federal and state law, which
include requirements to obtain regulatory approval of certain business
transactions, including establishing and closing bank branches; requirements to
maintain reserves against deposits; restrictions on the types and amounts of
loans that may be granted and the interest that may be charged thereon; and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also affect
the operations of the Company's subsidiary banks.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989, a depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. Because the Company is
a holding company, its right to participate in the assets of any
3
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subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of the subsidiary's creditors (including depositors in the case
of bank subsidiaries), except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provided for increased funding for FDIC deposit insurance and for
expanded regulation of the banking industry.
Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action with respect to depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital ratio
categories: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure, and critically undercapitalized if it
fails to meet any critical capital level set forth in the regulations. The
critical capital level must be a level of tangible equity equal to at least 2%
of total assets, but may be fixed at a higher level by regulation. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating and may be reclassified to a lower category by action based
on other supervisory criteria. For an institution to be well capitalized it must
have a total risk-based capital ratio of at least 10%, a Tier 1 risk-based
capital ratio of at least 6%, and a leverage ratio of at least 5% and not be
subject to any specific capital order or directive. For an institution to be
adequately capitalized it must have a total risk-based capital ratio of at least
8%, a Tier 1 risk-based capital ratio of at least 4%, and a leverage ratio of at
least 4% (3% in some cases).
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
increased regulatory monitoring and growth limitations and are required to
submit capital restoration plans. A depository institution's holding company
must guarantee the capital plan, up to an amount equal to the lesser of 5% of
the depository institution's assets at the time it becomes undercapitalized or
the amount needed to comply with the plan. The federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Each of the bank subsidiaries of the Company exceeds current minimum
regulatory capital requirements and qualify as well capitalized under the
regulations relating to prompt corrective action (see "Regulatory Capital
Requirements").
The FDIC has adopted regulations governing the receipt of brokered deposits
that require certain banks, depending on their capital ratios and other factors,
to obtain a waiver from the FDIC before they may accept brokered deposits, and
that limit the interest rates certain banks can offer on deposits. Although the
Company does not solicit brokered deposits, all of its bank subsidiaries are
free to do so without restraint under the regulation.
Under FDIC's risk-based deposit insurance premium system for the Bank
Insurance Fund ("BIF"), which went into effect on January 1, 1993, banks
currently pay within a range of 23 cents per $100 of domestic deposits (the
prior rate for all institutions) to 31 cents per $100 of domestic deposits,
depending on their risk classification. To arrive at a risk-based assessment for
each bank, the FDIC places the bank in one of nine risk categories, using a
two-step process based first on capital ratios and then on other relevant
supervisory information. Each institution is assigned to one of three groups
(well capitalized, adequately capitalized, or undercapitalized) based on its
capital ratios. For these purposes, a well capitalized institution is one that
has at
4
<PAGE> 6
least a 10% total risk-based capital ratio, a 6% Tier 1 risk-based capital
ratio, and a 5% Tier 1 leverage capital ratio. An adequately capitalized
institution must have at least an 8% total risk-based capital ratio, a 4% Tier 1
risk-based capital ratio, and a 4% Tier 1 leverage capital ratio. An
undercapitalized institution is one that does not meet either of the foregoing
definitions. Each institution is also assigned to one of three supervisory
subgroups based on an evaluation of the risk posed by the institution to the
BIF. Well capitalized banks presenting the lowest risk to the BIF pay the lowest
assessment rate, while undercapitalized banks presenting the highest risk pay
the highest rate. The BayBanks' capital ratios at December 31, 1993, placed them
in the well capitalized category for assessment purposes. The assessment will
depend upon the level of deposit balances and the BayBanks' applicable risk
categories (see "Regulatory Capital Requirements").
Other significant provisions of FDICIA require federal banking regulators
to draft standards in a number of areas to assure bank safety and soundness,
including internal controls; credit underwriting; asset growth; management
compensation; ratios of classified assets to capital; and earnings. The
legislation also contains provisions that require the adoption of capital
guidelines applicable to interest rate risks; tighten independent auditing
requirements; restrict the activities and investments of state-chartered insured
banks; strengthen various consumer banking laws; limit the ability of
undercapitalized banks to borrow from the Federal Reserve's discount window; and
require regulators to perform annual on-site bank examinations and set standards
for real estate lending.
The full impact of FDICIA will not be completely known until the adoption
by the various federal banking agencies of all of the implementing regulations.
However, FDICIA has resulted in increased costs for the banking industry due to
higher FDIC assessments and increased compliance burdens. Otherwise, FDICIA has
not had an adverse effect on the Company's operations.
REGULATORY CAPITAL REQUIREMENTS
Under the three federal banking regulators' risk-based capital measures for
banks and bank holding companies a banking organization's reported balance sheet
is converted to risk-based amounts by assigning each asset to a risk category,
which is then multiplied by the risk weight for that category. Off-balance sheet
exposures are converted to risk-based amounts through a two-step process. First,
off-balance sheet assets and credit equivalent amounts (e.g., interest rate
swaps) are multiplied by a credit conversion factor depending on the defined
categorization of the particular item. Then the converted items are assigned to
a risk category that weights the items according to their relative risk.
The total of the risk-weighted on-and off-balance sheet amounts represents
a banking organization's risk-adjusted assets for purposes of determining
capital ratios under the risk-based guidelines. Risk-adjusted assets can either
exceed or be less than reported assets, depending on the risk profile of the
banking organization. Risk-adjusted assets for institutions such as the Company
will generally be less than reported assets because retail banking activities
include proportionally more residential real estate loans with a lower risk
rating and a relatively small off-balance sheet position.
A banking organization's total qualifying capital includes two components,
core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core
capital, which must comprise at least half of total capital, includes common
stockholders' equity, qualifying perpetual preferred stock, and minority
interests, less goodwill. Supplementary capital includes the allowance for loan
losses (subject to certain limitations), other perpetual preferred stock,
certain other capital instruments, and term subordinated debt, which is
discounted at 20% a year during its final five years of maturity. The Company's
major capital components include stockholders' equity in core capital, and the
allowance for loan losses and grandfathered floating rate notes, subject to a
40% discounting in the fourth quarter of 1993, in supplementary capital.
At December 31, 1993, the minimum risk-based capital requirements were
4.00% for core capital and 8.00% for total capital. Federal banking regulators
have also adopted leverage capital guidelines to supplement the risk-based
measures. The leverage ratio is determined by dividing Tier 1 capital as defined
under the risk-based guidelines by average total assets (not risk-adjusted) for
the preceding quarter. The minimum leverage ratio is 3.00%, although banking
organizations are expected to exceed that amount by 100 or 200 basis points or
more, depending upon their circumstances.
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At December 31, 1993, the Company's consolidated risk-based capital ratios
were 10.68% for core capital and 12.40% for total capital, and at December 31,
1992, were 10.37% and 12.30%, respectively. The Company's consolidated leverage
ratio was 7.26% at December 31, 1993, and 6.79% at December 31, 1992. These
ratios exceeded the minimum regulatory guidelines.
During the fourth quarter of 1992, the Company completed a public offering
of 2.3 million shares of common stock that raised $79.3 million in capital. The
Company contributed $8 million in capital to its subsidiaries during 1992 and
$22 million during 1993, with the remaining funds held in the parent company's
cash and securities portfolios. The Company reinstated its quarterly cash
dividend in the first quarter of 1993 at an initial rate of $.20 per share; an
equal amount was paid in the second quarter. In the third quarter of 1993, the
Company increased its quarterly cash dividend to $.25 per share, which dividend
was also paid in the fourth quarter. Total dividends declared for 1993 were $.90
per share. On January 27, 1994, the Board of Directors raised the quarterly
dividend amount when it declared a dividend of $.35 per share paid on March 1,
1994.
The following table presents the risk-based and leverage capital ratios
required for depository institutions to be considered well capitalized under
applicable federal regulations and the reported capital ratios of the Company
and its bank subsidiaries at December 31, 1993:
<TABLE>
<CAPTION>
RISK-BASED RATIOS
-------------------------------------------------------------
TIER 1 CAPITAL TOTAL CAPITAL LEVERAGE RATIO
----------------------------- ----------------------------- -----------------------------
REQUIRED TO BE REQUIRED TO BE REQUIRED TO BE
WELL CAPITALIZED(1) REPORTED WELL CAPITALIZED(1) REPORTED WELL CAPITALIZED(1) REPORTED
------------------- -------- ------------------- -------- ------------------- --------
<S> <C> <C> <C> <C> <C> <C>
BayBanks,
Inc.......... n/a% 10.68% n/a% 12.40% n/a% 7.26%
BayBank........ 6.00 8.99 10.00 10.72 5.00 6.18
BayBank Boston,
N.A.......... 6.00 10.24 10.00 12.19 5.00 6.14
BayBank
Connecticut,
N.A.......... 6.00 14.05 10.00 15.34 5.00 9.83
</TABLE>
- ---------------
(1) Under Federal Prompt Corrective Action and Risk-based Deposit Insurance
Assessment Regulations.
n/a -- not applicable
The Company and its bank subsidiaries are not subject to any agreements or
understandings with their regulatory authorities and all prior regulatory
commitments made have been fulfilled.
STATISTICAL DISCLOSURES
Securities Act Guide 3, Statistical Disclosure by Bank Holding Companies,
requires certain statistical disclosures. The statistical information required
is either incorporated by reference from the Company's 1993 Annual Report as
indicated in the index below, presented in statistical tables within this
section, or is not applicable. This information should be read in conjunction
with the Financial Review incorporated by reference in Item 7 and the
consolidated financial statements and related notes incorporated by reference in
Item 8 in this report.
<TABLE>
<CAPTION>
PAGE OF 1993
ANNUAL REPORT
INCORPORATED BY PAGE IN
REFERENCE THIS REPORT
--------------- -----------
<S> <C> <C>
Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differential
Average balances....................................................... 34 --
Summary of operations*................................................. 35 --
Average yields and rates paid.......................................... 36 --
- ---------------
<FN>
* The caption "Dividends paid per share" in the Summary of operations should read "Dividends declared per
share."
</TABLE>
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<TABLE>
<CAPTION>
PAGE OF 1993
ANNUAL REPORT
INCORPORATED BY PAGE IN
REFERENCE THIS REPORT
--------------- -----------
<S> <C> <C>
Analysis of net interest income........................................ -- 8
Securities Portfolios
Book value by security type............................................ -- 9
Year-end maturities and yields of principal debt securities............ 25 --
Securities of an issuer in excess of 10% of stockholders' equity....... -- n/a
Loan Portfolio
Distribution of loans.................................................. 37 --
Maturity distribution of commercial and commercial real estate loans... -- 9
Nonperforming assets and accruing loans 90 days or more past due....... 37 --
Policy for placing loans on nonaccrual status.......................... 24 --
Interest income which would have been recorded on nonperforming loans
had they performed in accordance with their original terms vs.
interest income actually recorded on nonperforming loans............... 24 --
Foreign outstandings................................................... -- n/a
Loan concentrations.................................................... -- n/a
Other interest-bearing assets.......................................... -- n/a
Summary of Loan Loss Experience
Summary of loan loss experience........................................ -- 10
Discussion of additions to the allowance............................... 14-15 --
Distribution of allowance for loan losses.............................. -- 10
Deposits
Average balances of deposit categories................................. 34 --
Rates paid............................................................. 36 --
Foreign deposits in domestic offices................................... -- n/a
Remaining maturities of time deposits -- $100,000 or more.............. -- 11
Amount outstanding of time deposits -- $100,000 or more, issued by a
foreign office........................................................ -- n/a
Return on Equity and Assets
Return on average stockholders' equity................................. 35 --
Return on average total assets......................................... 35 --
Dividend payout ratio.................................................. -- *
Average equity to average assets ratio................................. -- **
Short-Term Borrowings...................................................... -- 11
</TABLE>
- ---------------
n/a -- not applicable
* The dividend payout ratio was 25.2% in 1993 and 45.6% in 1989; the dividend
payout ratio was not meaningful in 1990. There were no dividends paid in 1991
or 1992.
** The average equity to average assets ratio was 7.01% in 1993, 5.67% in 1992,
5.10% in 1991, 5.55% in 1990, and 6.05% in 1989.
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ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
CHANGE DUE TO:
--------------------------
CHANGE LOWER
INCREASE IN INTEREST
(DECREASE) BALANCES RATES
--------- -------- ---------
<S> <C> <C> <C>
(IN THOUSANDS ON A TAX EQUIVALENT BASIS)
1993 COMPARED WITH 1992(1)
Short-term investments........................... $ (2,994) $ (1,002) $ (1,992)
Securities portfolios(2)......................... (1,871) 10,670 (12,541)
Loans(3)......................................... (59,980) (12,128) (47,852)
--------- -------- ---------
Total.......................................... (64,845) (2,460) (62,385)
--------- -------- ---------
NOW & savings accounts........................... (15,264) 5,591 (20,855)
Money market deposit accounts.................... (31,255) (3,896) (27,359)
Consumer time.................................... (25,113) (9,876) (15,237)
Time--$100,000 or more........................... (1,162) (644) (518)
Short-term borrowings & long-term debt........... (567) 44 (611)
--------- -------- ---------
Total.......................................... (73,361) (8,781) (64,580)
--------- -------- ---------
Net interest income.............................. $ 8,516 $ 6,321 $ 2,195
--------- -------- ---------
--------- -------- ---------
1992 COMPARED WITH 1991
Short-term investments........................... $ (17,094) $ (3,105) $ (13,989)
Securities portfolios(2)......................... (13,392) 14,151 (27,543)
Loans(3)......................................... (126,652) (57,696) (68,956)
--------- -------- ---------
Total.......................................... (157,138) (46,650) (110,488)
--------- -------- ---------
NOW & savings accounts........................... (27,240) 19,085 (46,325)
Money market deposit accounts.................... (76,137) (12,008) (64,129)
Consumer time.................................... (48,241) (22,273) (25,968)
Time--$100,000 or more........................... (9,308) (7,871) (1,437)
Short-term borrowings and long-term debt......... (17,027) (12,214) (4,813)
--------- -------- ---------
Total.......................................... (177,953) (35,281) (142,672)
--------- -------- ---------
Net interest income.............................. $ 20,815 $(11,369) $ 32,184
--------- -------- ---------
--------- -------- ---------
</TABLE>
- ---------------
(1) The rate/volume variance is allocated to the average balance category.
(2) Presented on a tax equivalent basis at the combined effective federal and
state tax rate of 43.2% for 1993 and 42.3% for 1992.
(3) Loan income includes loan fees, primarily related to commercial and
residential real estate loans, of $6.2 million in 1993, $6.8 million in
1992, and $7.4 million in 1991. Nonperforming loans (nonaccrual loans) are
included in average loan balances. Interest income is recorded on an
accrual basis. Thus, nonperforming loans do not contribute to net interest
income and affect the net interest margin.
8
<PAGE> 10
SECURITIES AVAILABLE FOR SALE (1)
AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government............ $ 322,707 $ 325,984 $1,433,945 $1,440,821
State and local
governments.............. 18,964 18,968 -- --
Corporate and other........ 256,500 256,500 -- --
Mortgage-backed
securities............... 30,832 31,994 88,932 90,096
---------- ---------- ---------- ----------
$ 629,003 $ 633,446 $1,522,877 $1,530,917
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) There were no securities available for sale as of December 31, 1991.
INVESTMENT SECURITIES
AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992 1991
--------------------- ----------------------- -----------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
--------- --------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government............ $1,203,315 $1,209,703 $ -- $ -- $ 627,050 $ 657,249
State and local
governments.............. 128,997 129,352 37,869 38,401 25,547 26,258
Mortgage-backed
securities............... -- -- -- -- 651,381 679,224
Asset-backed securities.... 204,798 204,086 -- -- -- --
Industrial revenue bonds... 59,958 59,958 75,938 75,938 91,345 91,345
Corporate and other........ 1,992 1,992 42,685 42,685 2,038 2,038
--------- --------- ---------- ---------- ---------- ----------
$1,599,060 $1,605,091 $ 156,492 $ 157,024 $1,397,361 $1,456,114
--------- --------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ----------
</TABLE>
MATURITY DISTRIBUTION OF COMMERCIAL AND COMMERCIAL REAL ESTATE LOANS
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
AFTER ONE OVER
ONE YEAR BUT WITHIN FIVE
OR LESS FIVE YEARS(1) YEARS(1) TOTAL(2)
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Commercial..................................... $ 837,203 $ 401,474 $ 38,540 $1,277,217
Commercial real estate......................... 216,486 512,733 157,238 886,457
---------- ------------- ---------- ----------
$1,053,689 $ 914,207 $195,778 $2,163,674
---------- ------------- ---------- ----------
---------- ------------- ---------- ----------
</TABLE>
- ---------------
(1) Of the total commercial and commercial real estate loans above with
remaining maturities in excess of one year, 50% have adjustable rates of
interest.
(2) Excludes $47,751 of commercial and $49,014 of commercial real estate
nonperforming loans.
9
<PAGE> 11
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at December 31..... $6,103,170 $5,937,999 $6,353,034 $7,130,341 $8,012,894
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average loans........................ $5,910,489 $6,152,838 $6,735,040 $7,456,250 $7,816,071
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Allowance for Loan Losses
Beginning balance at January 1..... $ 192,700 $ 212,500 $ 214,203 $ 84,732 $ 52,732
Loans charged off:
Commercial...................... 24,231 62,437 73,833 57,735 24,158
Commercial real estate.......... 15,513 29,237 48,885 74,116 9,799
Residential mortgage............ 11,203 12,861 17,250 5,680 --
Instalment...................... 29,016 36,255 35,686 28,015 11,888
---------- ---------- ---------- ---------- ----------
Total loans charged off.... 79,963 140,790 175,654 165,546 45,845
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial...................... 11,778 6,660 2,254 1,081 990
Commercial real estate.......... 2,339 778 965 71 --
Residential mortgage............ 2,062 974 79 -- --
Instalment...................... 6,080 5,742 5,253 3,907 1,855
---------- ---------- ---------- ---------- ----------
Total recoveries........... 22,259 14,154 8,551 5,059 2,845
---------- ---------- ---------- ---------- ----------
Net loans charged off.............. 57,704 126,636 167,103 160,487 43,000
Provision for loan losses.......... 36,500 106,836 165,400 289,958 75,000
---------- ---------- ---------- ---------- ----------
Balance at December 31............. $ 171,496 $ 192,700 $ 212,500 $ 214,203 $ 84,732
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratio of net loans charged off during
period to average loans
outstanding........................ 0.98% 2.06% 2.48% 2.15% 0.55%
</TABLE>
DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES (1)
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL
COMMERCIAL REAL ESTATE MORTGAGE INSTALMENT
LOANS LOANS LOANS LOANS TOTAL
---------- ----------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1993
Allowance amount.............. $ 47,298 $66,455 $21,621 $ 36,122 $171,496
Loan category to total
loans...................... 21.7% 15.3% 20.4% 42.6% 100.0%
December 31, 1992
Allowance amount.............. $ 67,800 $73,707 $22,060 $ 29,133 $192,700
Loan category to total
loans...................... 23.8% 17.2% 21.0% 38.0% 100.0%
December 31, 1991
Allowance amount.............. $ 90,444 $68,670 $22,641 $ 30,745 $212,500
Loan category to total
loans...................... 26.0% 19.1% 20.1% 34.8% 100.0%
December 31, 1990
Allowance amount.............. $ 96,499 $84,016 $ 9,712 $ 23,976 $214,203
Loan category to total
loans...................... 28.6% 19.9% 20.3% 31.2% 100.0%
December 31, 1989
Allowance amount.............. $ 30,909 $36,823 $ 2,000 $ 15,000 $ 84,732
Loan category to total
loans...................... 31.1% 19.8% 23.4% 25.7% 100.0%
</TABLE>
- ---------------
(1) The distribution of the allowance for loan losses is based on an assessment
of an aggregate potential for future losses in the respective year-end loan
portfolios. While the allowance has been distributed to individual loan
categories, it is available to absorb losses in the total portfolio. The
distribution of the allowance includes both allocations assigned to
specifically identified problem loans and unallocated amounts that are not
specifically identified as to any individual loan. The unallocated amounts
related to commercial and commercial real estate loans were $85 million as
of December 31, 1993, as described in the CREDIT QUALITY section
incorporated by reference in Item 7 (see 1993 Annual Report, "Allowance for
Loan Losses," page 15).
10
<PAGE> 12
REMAINING MATURITIES OF TIME DEPOSITS -- $100,000 OR MORE
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
TOTAL TIME
DEPOSITS--
$100,000 OR MORE
--------------------
<S> <C>
(IN THOUSANDS)
90 days or less....................................................... $ 53,563
91-180 days........................................................... 9,030
181-365 days.......................................................... 7,296
Over one year......................................................... 10,201
----------
Total....................................................... $ 80,090(1)
----------
----------
</TABLE>
- ---------------
(1) Included in this amount are $35 million of large certificates of deposits
and $45 million of consumer certificates of deposit of $100,000 or more.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT AVERAGE WEIGHTED WEIGHTED
BALANCE OUTSTANDING OUTSTANDING AVERAGE AVERAGE
OUTSTANDING AT DURING INTEREST RATE INTEREST RATE
AT DECEMBER 31 ANY MONTH-END THE YEAR AT YEAR-END DURING THE YEAR
-------------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
1993........ $507,820 $ 507,820 $ 150,608 3.10% 2.72%
1992........ 139,969 267,225 147,856 2.43 2.90
1991........ 122,829 553,744 367,934 3.91 5.44
</TABLE>
11
<PAGE> 13
ITEM 2. PROPERTIES.
BayBanks, Inc., and its subsidiaries occupy both owned and leased premises.
The offices occupied by the Company in Boston, Massachusetts, include its
principal executive offices and are leased from nonaffiliated companies.
Property occupied by the three subsidiary banks represents the majority of the
Company's property, and is generally considered to be in good condition and
adequate for the purpose for which it is used. Bank properties include bank
buildings and branches, and free-standing automated banking facilities. The
Company owns the 11-story 208,000 square foot headquarters building of BayBank,
its principal bank subsidiary, of which 5% is leased to nonaffiliates. Of the
201 branch offices of the subsidiary banks at December 31, 1993, 98 were located
in owned buildings and 103 were located in leased buildings. In addition, the
Company leases sites for 356 automated banking facilities.
In 1992, BayBank Systems, Inc., the Company's principal nonbank subsidiary,
occupied a new $38 million, 185,000 square foot owned technology center that
enabled the Company to consolidate personnel located in various leased and owned
locations, thereby increasing operating efficiency. Also during 1992, BayBank
Systems updated an adjoining 121,000 square foot owned facility that houses its
principal data processing equipment. At December 31, 1993, there was an
aggregate $38 million mortgage on these facilities to an affiliated bank at
market terms and in conformity with banking regulations that cover transactions
between affiliated parties.
ITEM 3. LEGAL PROCEEDINGS.
There were no material pending legal proceedings other than ordinary
routine litigation incidental to the conduct of the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) The stock of BayBanks, Inc. is traded over the counter through the
NASDAQ National Market System under the symbol BBNK. The Quarterly Share
Data information that appears on page 38 in the Company's 1993 Annual
Report is incorporated herein by reference.
(b) As of March 10, 1994, there were approximately 4,500 holders of record
of the Company's common stock.
(c) The Company paid dividends of $.90 per share during 1993. The Company
paid a dividend quarterly from 1928 through 1990. During 1991 and 1992,
the Company did not pay any dividends. For additional information on
dividend payments, reference is made to the CAPITAL AND DIVIDENDS
section that is incorporated by reference from pages 15 and 16 of the
Company's 1993 Annual Report, and Note 1 to the consolidated financial
statements, incorporated by reference under Item 8.
ITEM 6. SELECTED FINANCIAL DATA.
The Average Balances and Summary of Operations* appearing on pages 34 and
35 of the Company's 1993 Annual Report are incorporated herein by reference.
* The caption "Dividends paid per share" in the Summary of operations should
read "Dividends declared per share."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The Financial Review appearing on pages 4 through 16 of the Company's 1993
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and notes thereto of the
Company and its subsidiaries appearing on pages 17 through 32 of the Company's
1993 Annual Report are incorporated herein by reference:
<TABLE>
<CAPTION>
PAGE OF 1993
ANNUAL
REPORT
------------
<S> <C>
Independent Auditors' Report............................................. 17
Consolidated Balance Sheet -- December 31, 1993 and 1992................. 18
Consolidated Statement of Income -- Years Ended December 31, 1993, 1992,
and 1991............................................................... 19
Consolidated Statement of Changes in Stockholders' Equity -- Years Ended
December 31, 1993, 1992, and 1991...................................... 20
Consolidated Statement of Cash Flows -- Years Ended December 31, 1993,
1992, and 1991......................................................... 21
Notes to Financial Statements............................................ 22-32
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or matters of disagreement on accounting and
financial disclosure with the Company's independent auditors.
13
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning directors on pages 1 through 4 of the Company's
proxy statement dated March 21, 1994, is incorporated herein by reference. The
following are the executive officers of the registrant as of March 15, 1994:
<TABLE>
<CAPTION>
AGE TITLE
---
<S> <C> <C>
William M. Crozier, Jr... 61 Chairman and President
John J. Arena............ 56 Vice Chairman
Donald L. Isaacs......... 46 Vice Chairman
Richard F. Pollard....... 61 Vice Chairman
Ilene Beal............... 48 Executive Vice President
Michael W. Vasily........ 49 Executive Vice President and Chief Financial
Officer
Joan E. Tonra............ 47 Senior Vice President and Controller
</TABLE>
Mr. Crozier has been an officer of BayBanks, Inc. since 1967 and was
elected Chairman of the Board and Director in 1974. In 1977, Mr. Crozier was
elected to the additional post of President.
Mr. Arena has been a director since 1977 and was elected Vice Chairman in
1992 when he joined the Company to head its investment, private banking, and
personal trust services activities. Prior to joining the Company, Mr. Arena was
an independent investment management consultant from 1990 to 1992 and a trustee
of an investment management firm from 1987 to 1990.
Mr. Isaacs was elected Vice Chairman in 1992, Executive Vice President in
1985, Senior Vice President in 1979, and Vice President in 1978, and joined the
Company in 1974. Mr. Isaacs is also the Chairman and CEO of BayBank Systems,
Inc., the Company's technology subsidiary.
Mr. Pollard was elected Vice Chairman and Director in 1983 and Executive
Vice President in 1979 and had been a Senior Vice President since 1976. Mr.
Pollard is also President and CEO of BayBank Boston, N.A., and is the senior
lending officer of the Company.
Ms. Beal was elected Executive Vice President in 1985, Senior Vice
President in 1979, and Vice President in 1977, and has been with the Company
since 1972.
Mr. Vasily was elected Chief Financial Officer in 1991, Executive Vice
President in 1987, Senior Vice President in 1980, and Vice President upon
joining the Company in 1978, and was the Controller of the Company from 1983 to
1989.
Ms. Tonra was elected Senior Vice President of BayBanks, Inc., in 1985 and
Controller in 1989, and joined the Company in 1985. She is the Principal
Accounting Officer of the Company.
Information concerning reports of transactions in BayBanks, Inc. stock on
page 12 of the Company's proxy statement dated March 21, 1994 is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning management remuneration and transactions on pages 5
through 7 of the Company's proxy statement dated March 21, 1994, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning securities ownership of management on pages 1 and 2,
and concerning securities ownership of certain beneficial owners on page 12, of
the Company's proxy statement dated March 21, 1994, is incorporated herein by
reference.
14
<PAGE> 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning relationships and transactions of the Company's
executive officers and directors on page 4 of the Company's proxy statement
dated March 21, 1994, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following financial statements of the Company and its subsidiaries
included in its 1993 Annual Report are incorporated by reference in
Item 8:
Independent Auditors' Report
Consolidated Balance Sheet-December 31, 1993 and 1992
Consolidated Statement of Income-Years Ended December 31, 1993, 1992,
and 1991
Consolidated Statement of Changes in Stockholders' Equity-Years Ended
December 31, 1993, 1992, and 1991
Consolidated Statement of Cash Flows-Years Ended December 31, 1993,
1992, and 1991
Notes to Financial Statements
2. Financial Statement Schedules
All schedules are omitted because either the required information is
shown in the financial statements or notes incorporated by reference,
or they are not applicable, or the data is not significant.
3. Appendix containing narrative descriptions of graphical and image
material omitted from text of Form 10-K and from Exhibit 13 thereto.
4. Exhibits
See the Exhibit List and Index on pages 17 and 18.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1993.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAYBANKS, INC.
(Registrant)
By: /s/ MICHAEL W. VASILY
MICHAEL W. VASILY
Executive Vice President
March 24, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 24, 1994, by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ WILLIAM M. CROZIER, JR. /s/ MICHAEL W. VASILY
WILLIAM M. CROZIER, JR. MICHAEL W. VASILY
Chairman of the Board, Executive Vice President and
President, and Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ JOHN J. ARENA /s/ JOAN E> TONRA
JOHN J. ARENA JOAN E. TONRA
Vice Chairman of the Board and Director Senior Vice President and Controller
(Principal Accounting Officer)
/s/ DONALD L. ISAACS /s/ RICHARD F. POLLARD
DONALD L. ISAACS RICHARD F. POLLARD
Vice Chairman of the Board and Director Vice Chairman of the Board and Director
/s/ JOHN A. CERVIERI JR. /s/ THOMAS R. PIPER
JOHN A. CERVIERI JR. THOMAS R. PIPER
Director Director
/s/ SAMUEL J. GERSON /s/ GLENN P. STREHLE
SAMUEL J. GERSON GLENN P. STREHLE
Director Director
/s/ NORMAN E. MACNEIL /s/ JOSEPH H. TORRAS
NORMAN E. MACNEIL JOSEPH H. TORRAS
Director Director
</TABLE>
16
<PAGE> 18
BAYBANKS, INC.
EXHIBIT LIST AND INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ARTICLES OF INCORPORATION AND BY-LAWS
3.1(a)* -- Articles of Organization as amended, through June 28, 1988 (Exhibit 4 to
Registration Statement No. 33-22834).
(b) -- Certificate of Vote of Directors Establishing a Series of a Class of Stock
filed
March 10, 1989.
(c)* -- Certificate of Vote of Directors adopted July 26, 1990, electing to have
certain Massachusetts legislation concerning the classification of boards of
directors apply to the Corporation (Exhibit 4.1(d) to June 30, 1990 Form
10-Q).
3.2* -- By-Laws as amended through August 24, 1989 (Exhibit 4 to September 30, 1989
Form 10-Q).
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1* -- Indenture dated as of January 15, 1969 (Exhibit 4(c) to Registration Statement
No. 2-31176).
4.2* -- Indenture dated as of September 15, 1985 (Exhibit 4.1 to Registration
Statement No. 33-00130).
4.3* -- Rights Agreement dated December 23, 1988 (Exhibit 1 to Registration Statement
on Form 8-A filed December 23, 1988).
4.4* -- Specimen Common Stock Certificate (Exhibit 4.5 of Registration Statement No.
33-50558).
4.5* -- The Registrant has certain long-term debt instruments under which the total
amount of securities authorized does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Registrant hereby
agrees to furnish a copy of any such instruments to the Commission upon
request.
MATERIAL CONTRACTS-EXECUTIVE COMPENSATION PLANS
10.1* -- 1978 Stock Option Plan for Key Employees of BayBanks, Inc., and Affiliates, as
amended (Exhibit 10.1 to 1991 Form 10-K).
10.2* -- 1988 Stock Option Plan for Key Employees of BayBanks, Inc., and Affiliates, as
amended. (Exhibit 10.2 to 1992 Form 10-K).
10.3* -- BayBanks, Inc., Incentive Compensation Plan, as amended (Exhibit 19.4 to June
30, 1991 Form 10-Q).
10.4* -- BayBanks, Inc., Compensation Plan for Directors, as amended (Exhibit 19.5 to
June 30, 1991 Form 10-Q).
10.5* -- 1990 Stock Plan for Directors as amended, renamed, and restated (Exhibit 19.1
to March 31, 1991 Form 10-Q).
10.6* -- 1982 Restricted Stock Plan for Key Employees of BayBanks, Inc., and
Affiliates, as amended (Exhibit 10.1 to June 30, 1993 Form 10-Q).
10.7 -- BayBanks Inc., 1994 Restricted Stock Plan.
10.8* -- BayBanks Supplemental Executive Retirement Plan (Exhibit 19.6 to June 30, 1991
Form 10-Q).
10.9* -- First Amendment dated February 26, 1992, to BayBanks Supplemental Executive
Retirement Plan (Exhibit 10.8 to 1991 Form 10-K).
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C> <C> <C>
10.10* -- BayBanks Profit Sharing Excess Benefit Plan (Exhibit 10.1 to March 31, 1993
Form 10-Q).
10.11* -- BayBanks, Inc., Severance Benefits Plan, as amended and renamed (Exhibit 10.2
to June 30, 1993 Form 10-Q).
10.12* -- BayBanks Deferred Payment Plans Trust Agreement (Exhibit 19 to June 30, 1992
Form 10-Q).
MATERIAL CONTRACTS -- OTHER
10.13* -- ESOP Stock Purchase Agreement dated as of January 22, 1990, between the
Company and Marine Midland Bank, N.A., as Co-Trustee of the Savings, Profit
Sharing and Stock Ownership Plan for Employees of BayBanks, Inc., and
Affiliated Companies (Exhibit 10.8 to 1989 Form 10-K).
MISCELLANEOUS
11 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 19.
13 -- Portions of BayBanks, Inc., 1993 Annual Report to Stockholders.
22 -- Subsidiaries of the Registrant. See Page 20.
23 -- Consent of Independent Auditors. See Page 21.
99 -- Earnings Statement required by Section 11(a) of the Securities Act of 1933:
Consolidated Statement of Income for the year ended December 31, 1993 included
in Exhibit 13.
</TABLE>
- ---------------
* Incorporated by reference to the document indicated in parentheses.
18
<PAGE> 1
EXHIBIT 3.1(b)
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
04-2008039
NO. __________________
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
-----------
We, William M. Crozier, Jr., President and John P. Weitzel, Clerk of
BayBanks, Inc.
(Name of Corporation)
located at 175 Federal Street, Boston, Massachusetts 02110 do hereby certify
that at a meeting of the directors of the corporation held on
December 15, 1988, the following vote establishing and designating a
series of a class of stock and determining the relative rights and
preferences thereof was duly adopted:
See Continuation Sheets 1A to 1H, inclusive.
Note: Votes for which the space provided above is not sufficient should
be set out on continuation sheets to be numbered 2A, 2B, etc.
Continuation sheets must have a left hand margin 1 inch wide for
binding and shall be 8.5" x 11". Only one side should be used.
==========
<PAGE> 2
CONTINUATION SHEET
TO
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK OF BAYBANKS, INC.
ADOPTED DECEMBER 15, 1988
VOTED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Articles of Organization, the Board of Directors does
hereby provide for the issue of a series of Junior Participating Preferred
Stock, $10.00 par value, of the Corporation, to be designated "Series A Junior
Participating Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock"), initially consisting of 200,000 shares, and to the extent
that the designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions of the Series A
Preferred Stock are not stated and expressed in the Articles of Organization,
does hereby fix and herein state express such designations, powers, preferences
and relative and other special rights and the qualifications, limitations and
restrictions thereof, as follows (all terms used herein which are defined in
the Articles of Organization shall be deemed to have the meanings provided
therein):
"Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the number of
shares constituting such series shall be 200,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; PROVIDED, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the prupose, quarterly dividends
payable in cash on the 1st day of February, May, August and November in each
year.
1A
<PAGE> 3
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this ninth day of March in the year 1989.
William M. Crozier, Jr. , President
- ------------------------------------------------------
John P. Weitzel , Clerk
- ------------------------------------------------------
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the filing fee in the
amount of $100.00 having been paid, said ceritficate is hereby filed this 10th
day of March 1989.
Michael J. Connolly
Michael Joseph Connolly
Secretary of State
TO BE FILED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO: John P. Weitzel
Palmer & Dodge
-------------------------------------------
One Beacon Street
-------------------------------------------
Boston, MA 02108
-------------------------------------------
Telephone (617) 573-0301
---------------------------------
Copy Mailed
<PAGE> 5
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, $2.00
par value per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after December 15, 1988 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior
to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(a) above immediately after it delcares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, subject to the requirements of applicable law and the Articles
of Organization, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Junior
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
1B
<PAGE> 6
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Partcipating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Junior
Partcipating Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the number of votes per share to which holders
of shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
1C
<PAGE> 7
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares
1D
<PAGE> 8
of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Participating
Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among respective series
or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, and may be reissued
as part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and
1E
<PAGE> 9
unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (c) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one (1) with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(c) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
1F
<PAGE> 10
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. RANKING. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
Section 10. AMENDMENT. The Articles of Organization of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Junior Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
1G
<PAGE> 11
Section 11. FRACTIONAL SHARES. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred
Stock."
1H
<PAGE> 1
EXHIBIT 10.7
1994 RESTRICTED STOCK PLAN
1. PURPOSE.
The purpose of this Restricted Stock Plan (the "Plan") is to attract,
motivate, and retain outstanding individuals as employees of BayBanks, Inc.
(the "Corporation") and its Subsidiaries, as hereinafter defined, to align
their future interests with those of the Corporation's stockholders, and to
reward appropriately those who make substantial contributions to the success
and welfare of the Corporation.
2. STOCK SUBJECT TO THE PLAN.
The stock that may be granted under the Plan shall be the Common Stock,
$2.00 par value, of the Corporation. The maximum total number of shares of
such stock that may be issued under the Plan shall be 500,000 shares (except
as such amount may be adjusted in accordance with the provisions of Section 9
hereof). Such shares may be either unissued shares or reacquired shares.
If previously awarded shares are forfeited to the Corporation by reason of
termination of employment during the applicable Restriction Period, or for any
other reason, such shares shall not again be awarded under the Plan unless the
respective grant recipient has not had the benefits of ownership thereof
(other than voting rights). In the event the Corporation acquires or merges or
consolidates with another company, Common Stock issuable under the Plan as a
result of the Corporation's assumption of outstanding awards from such other
company or the substitution of grants under the Plan for outstanding awards of
such other company shall not reduce the shares available for grant under the
Plan.
3. ELIGIBILITY AND PARTICIPATION.
Individuals eligible to receive grants of Restricted Stock, as hereinafter
defined, under the Plan shall be those employees of the Corporation and its
Subsidiaries selected from time to time by the Plan's administrative
committee, provided, however, that each grant recipient must have been
employed by the Corporation or a Subsidiary for a period of at least six
months immediately preceding the date of grant. No person who is not an
officer or salaried employee of the Corporation or a Subsidiary shall be
eligible to receive a grant under the Plan. Grants made under the Plan in any
year shall neither preclude nor require selection of a grantee to receive
future grants or require that the grantee receive the same type or amount of
award as at any other time, or as may be received by any other grant recipient
at any time. Neither the Plan nor any action taken under the Plan shall be
construed as giving any grantee the right to be retained in the employ of the
Corporation or a Subsidiary.
4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a Committee (the "Committee") appointed
by, and to serve at the pleasure of, the Board of Directors of the Corporation
and consisting of three or more directors, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, or any successor provision, as applicable to the
Corporation at the time. Until the Board of Directors shall otherwise
determine, that Committee shall be the Corporate Compensation Committee.
Subject to the express provisions hereof, the Committee shall have sole and
complete authority to make grants of Restricted Stock. Such authority shall
include, but not be limited to, selecting individuals to receive grants under
the Plan, determining the number of shares of Common Stock (subject to the
limitations in Section 2 hereof) to be awarded to each grant recipient under
the Plan and the terms and conditions under which such grants shall be made,
and determining the duration and terms of each Restriction Period.
The Committee also shall have authority to adopt rules and regulations for
carrying out the Plan and to interpret, construe, implement, and otherwise
administer the provisions of the Plan. Decisions of the Committee shall be
final. A majority of the Committee shall constitute a quorum. The acts of a
majority of the members present at any meeting at which a quorum is present
(or acts approved in writing by a majority of the Committee) shall be the acts
of the Committee. The Committee shall keep minutes of its proceedings and from
time to time make such reports to the Board of Directors as the Board shall
direct.
1
<PAGE> 2
5. EFFECTIVE DATE.
The Effective Date of the Plan shall be the date upon which the Plan is
adopted by the Board of Directors of the Corporation. The Plan shall terminate
if it is not approved within twelve months after the Effective Date by vote of
the holders of a majority of the stock of the Corporation present in person or
by proxy and entitled to vote at a special or annual meeting of the
stockholders of the Corporation.
6. TERMS AND CONDITIONS OF GRANTS.
6.1 Grants under the Plan shall consist of Restricted Stock, which shall
be shares of Common Stock of the Corporation transferred to grant recipients
in furtherance of the purposes of the Plan without, unless otherwise provided,
other payment and subject to the restrictions referred to in this Section 6.
All shares of Restricted Stock granted under the Plan shall be so granted for,
and in consideration of, past services rendered to the Corporation or a
Subsidiary and shall be subject to the following terms and conditions and to
such other terms and conditions, not inconsistent with the Plan, as shall be
prescribed by the Committee in its sole discretion and as shall be contained
in the Agreement referred to in Section 6.1(d) hereof.
(a) At the time of a grant of shares of Restricted Stock, the
Committee shall establish for all such shares received by a grantee (or,
if it is the intent that the total of such shares shall be divided into
separate parts, for each part of such total) a period of time (the
"Restriction Period") commencing with the date of the grant of such shares
during which time the shares may not be sold, assigned, transferred,
pledged, or otherwise encumbered, except as herein provided. Different
Restriction Periods may be fixed for different parts of the shares that
are being granted to a recipient, and the Restriction Period for one grant
may differ from the Restriction Period for other grants. Except for such
restrictions, unless otherwise determined by the Committee, the grant
recipient as owner of such Restricted Stock shall have all the rights of a
stockholder, including but not limited to the right to receive all
dividends paid on such Restricted Stock and the right to vote such
Restricted Stock. Unless otherwise determined by the Committee, the
restrictions shall terminate upon the earliest to occur of the expiration
of the Restriction Period or the grantee's death, disability, or
retirement, or in any other circumstances determined by the Committee at
the time of the grant or at any time thereafter.
(b) If a grant recipient ceases to be an employee of the Corporation
or a Subsidiary, all shares of Restricted Stock theretofore granted to him
as to which the restrictions imposed under this Section 6 have not
terminated or do not thereby terminate shall, except as provided in
Section 7 hereof, upon such cessation of employment be forfeited and
returned to the Corporation unless the Committee, in its discretion,
otherwise determines.
(c) Each certificate issued in respect of shares of Restricted Stock
granted under the Plan shall be registered in the name of the grantee and
deposited by him, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms, conditions and
restrictions (including forfeiture) contained in a Plan and an
Agreement between the registered owner and BayBanks, Inc. A copy of
such Plan and Agreement will be furnished to the holder of this
certificate upon written request and without charge."
2
<PAGE> 3
(d) The grant recipient shall enter into an Agreement with the
Corporation, in a form not inconsistent with the Plan, agreeing to the
terms and conditions of the grant and such other matters as the Committee
shall in its sole discretion determine. The Agreement may be amended by
the Committee at any time to modify the Restriction Period with respect to
any shares of Restricted Stock the restrictions on which have not then
lapsed or in any other respect; provided that, except as provided in
Section 12, no amendment shall adversely affect the terms and conditions
of an outstanding grant without the written consent of the grant
recipient.
(e) Upon the termination of the restrictions imposed under this
Section 6, the Corporation shall return to the grantee (or his legal
representative, beneficiary, or heir) certificates, without a legend, for
the shares of Common Stock deposited with it pursuant to subsection (c)
hereof.
6.2 The Corporation or a Subsidiary, as the case may be, shall have the
right to deduct from amounts payable to the grantee, or to require the grantee
to pay, any taxes required by law to be withheld with respect to such
Restricted Stock. In the Committee's discretion such tax obligations may be
paid in whole or in part in shares of Common Stock, including shares retained
from the grant creating the tax obligation, valued at their fair market value
on the date of delivery.
6.3 No rights or interests of a grant recipient under the Plan may be
assigned, encumbered, or transferred except by will or the laws of descent and
distribution.
7. CHANGE IN CONTROL.
In order to preserve the rights of a grant recipient in the event of a
merger or consolidation of the Corporation with another corporation or of a
Change in Control of the Corporation, the Committee may in its discretion
include in the grant Agreement or in any amendment thereto (subject to the
proviso of Section 6.1(d)) provisions: (i) permitting restrictions on
Restricted Stock to lapse, in whole or in part, immediately prior to such
event, (ii) adjusting the terms of a grant in a manner determined by the
Committee to reflect the Change in Control, (iii) causing a grant to be
assumed, or new rights substituted therefor, by another entity, and/or (iv)
making such other provision as the Committee may consider equitable and in the
best interests of the Corporation. After a Change in Control of the
Corporation, the Corporation shall pay all reasonable legal fees, costs, and
other expenses incurred by any grantee in enforcing rights under this Plan or
the grant Agreement. The term "Change in Control" shall have such meaning with
respect to any grant of Restricted Stock as the Committee determines and is
specified in the Agreement for such grant.
3
<PAGE> 4
8. SECURITIES AND OTHER LAWS.
In any case where in the opinion of the Committee, the issue and/or
delivery of shares of Common Stock under the Plan would violate requirements
of Federal or state securities or other laws, or the requirements of any
exchange on which the securities are listed, the Corporation shall be entitled
to postpone such issue and/or delivery until such requirements have been met.
The Committee may require representations and agreements from any grant
recipient in order to ensure compliance with Federal or state securities or
other laws.
9. ADJUSTMENT IN NUMBER OF SHARES.
In the event that there are any changes in the outstanding Common Stock of
the Corporation by reason of stock dividends, stock splits, or
recapitalizations (whether by way of mergers, consolidations, combinations, or
exchanges of shares or the like) the aggregate number and kind of shares
available under the Plan shall be appropriately adjusted by the Committee, if
necessary, to reflect equitably such change or changes. Any shares of stock or
other securities received by a grant recipient with respect to shares still
subject to the restrictions imposed by Section 6 will be subject to the same
restrictions and shall be deposited with the Corporation in accordance with
Section 6.
10. NOTICE OF ELECTION UNDER SECTION 83(B).
Each grant recipient making an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, and the regulations and rulings
promulgated thereunder, will provide a copy thereof to the Corporation within
thirty days of the filing of such election with the Internal Revenue Service
and the Agreement referred to in Section 6 shall so provide.
11. TERM OF PLAN.
Unless sooner terminated the Plan shall terminate ten years from the
Effective Date and no Restricted Stock shall be granted thereafter.
12. AMENDMENTS AND TERMINATION.
The Plan or any portion hereof may be amended at any time and from time to
time or terminated by the Board of Directors, subject to such approval of the
stockholders as the Board of Directors shall deem necessary or advisable. No
amendment or termination shall adversely affect the terms and conditions of
outstanding grants without the written consent of the grantee, except that the
Plan and any Agreement may be amended without the consent of any grant
recipient in order to conform to restrictions or limitations imposed by
securities or tax laws or regulations, or any other laws or regulations deemed
by the Corporation to be binding upon it.
4
<PAGE> 5
13. MISCELLANEOUS.
13.1 Transfer of Employment. The transfer of employment of an employee
from the Corporation to a Subsidiary or from a Subsidiary to the Corporation
or to another Subsidiary shall not constitute a termination of employment for
the purposes of the Plan.
13.2 Definition of Subsidiary. For all purposes of the Plan, the term
"Subsidiary" means any corporation of which the Corporation owns or controls
more than 50% of the outstanding shares of capital stock entitled ordinarily
(rather than in some contingency) to vote for the election of directors
(counting shares owned or controlled by a Subsidiary within this definition as
being owned or controlled by the Corporation).
5
<PAGE> 1
EXHIBIT 11
BAYBANKS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Primary:
Weighted average shares........................................... 18,671,222 16,425,440
Common stock equivalents (CSE):
Stock options................................................... 282,175 150,328
----------- -----------
Primary weighted average shares................................... 18,953,397 16,575,768
----------- -----------
----------- -----------
Net income........................................................ $ 67,651 $ 59,237
----------- -----------
----------- -----------
Earnings per share................................................ $ 3.57 $ 3.57
----------- -----------
----------- -----------
Fully diluted:
Weighted average shares........................................... 18,671,222 16,425,440
Common stock equivalents (CSE):
Stock options................................................... 282,175 150,328
Additional stock options.......................................... 47,283 89,183
5% convertible debentures......................................... 3,709(1) 102,182(2)
----------- -----------
Fully diluted weighted average shares............................. 19,004,389 16,767,133
----------- -----------
----------- -----------
Net income........................................................ $ 67,651 $ 59,237
5% debentures interest expense -- net of tax...................... 2 41
----------- -----------
Net income -- fully diluted basis................................. $ 67,653 $ 59,278
----------- -----------
----------- -----------
Fully diluted earnings per share.................................. $ 3.56 $ 3.54
----------- -----------
----------- -----------
</TABLE>
- ---------------
(1) $51 convertible at $13.75 per share.
(2) $1,405 convertible at $13.75 per share.
19
<PAGE> 1
PORTIONS OF 1993 ANNUAL REPORT EXHIBIT 13
FINANCIAL REVIEW
PERFORMANCE OVERVIEW
BayBanks' net income was $67.7 million in 1993, or $3.57 per share, up
significantly from 1992 after excluding the effect of securities gains. Net
income for 1992, which included after-tax securities gains of $44.4 million, or
$2.67 per share, was $59.2 million, also $3.57 per share. Securities gains for
1993 were only $234 thousand (after-tax), or $.01 per share. Earnings per share
in 1993 also reflected a 14% increase in average shares outstanding, primarily
as a result of BayBanks' 2.3 million common share offering in the fourth
quarter of 1992. Net income in 1991 was $9.7 million, or $.60 per share,
including after-tax securities gains of $23.7 million, or $1.48 per share.
The key factors that affected net income were as follows:
o Operating income (as defined below) was $181.0 million in 1993, compared
with $175.2 million in 1992 and $171.2 million in 1991.
o There were virtually no securities gains in 1993, compared with $76.9
million in 1992 and $41.0 million in 1991.
o Credit provisions (the provision for loan losses and net additions to the
other real estate owned reserve) declined by $91.0 million, from $152.3
million in 1992 to $61.3 million in 1993. Credit provisions were $192.9
million in 1991.
o The lower credit provisions were due to the significant improvement in
credit quality over the past three years. Nonperforming assets declined 41%
to $224 million at year-end 1993 from $376 million at year-end 1992 and
$469 million at year-end 1991.
Most importantly, BayBanks' quarterly dividend was reinstated in the first
quarter of 1993 and has been increased twice since that time. For the first two
quarters of 1993, a dividend was paid at a rate of $.20 per share, increasing
to $.25 per share during the third and fourth quarters of the year. The
full-year dividend was $.90 per share. On January 27, 1994, the Board of
Directors raised the quarterly dividend to $.35 per share payable March 1,
1994.
<TABLE>
EARNINGS ANALYSIS
Operating Income
Operating income includes net interest income (on a tax equivalent basis)
and noninterest income and is after operating expenses, but excludes net
securities gains, the provision for loan losses, and net additions to the other
real estate owned (OREO) reserve and is before income taxes.
Operating income (TABLE A) was $181.0 million in 1993, up from $175.2
million in 1992 and $171.2 million in 1991. In 1993, higher noninterest income
and net interest
<CAPTION>
TABLE A
- ----------------------------------------------------------------------------------------------------------------------------
Summary of Operations
Tax equivalent basis
(Dollars in thousands except
per share amounts) INCREASE (DECREASE) INCREASE (DECREASE)
1993 FROM 1992 1992 FROM 1991 1991
--------- ------------------ --------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income on earning assets . . . . . . $ 595,829 $ (64,845) (10)% $ 660,674 $(157,138) (19)% $ 817,812
Interest on deposits and borrowings . 166,648 (73,361) (31) 240,009 (177,953) (43) 417,962
--------- --------- --------- --------- ---------
Net interest income . . . . . . . . . 429,181 8,516 2 420,665 20,815 5 399,850
Noninterest income . . . . . . . . . 198,524 14,643 8 183,881 14,128 8 169,753
--------- --------- --------- --------- ---------
Total income from operations . . . . 627,705 23,159 4 604,546 34,943 6 569,603
Operating expenses . . . . . . . . . 446,705 17,389 4 429,316 30,957 8 398,359
--------- --------- --------- --------- ---------
OPERATING INCOME BEFORE NET
SECURITIES GAINS AND PROVISION FOR
LOAN LOSSES AND OREO RESERVE . . . 181,000 5,770 3 175,230 3,986 2 171,244
--------- --------- --------- --------- ---------
Net securities gains . . . . . . . . 411 (76,518) (99) 76,929 35,966 88 40,963
--------- --------- --------- --------- ---------
Provision for loan losses . . . . . . 36,500 (70,336) (66) 106,836 (58,564) (35) 165,400
Provision for OREO reserve, net . . . 24,830 (20,652) (45) 45,482 18,032 66 27,450
--------- --------- --------- --------- ---------
Total credit provisions . . . . . . . 61,330 (90,988) (60) 152,318 (40,532) (21) 192,850
--------- --------- --------- --------- ---------
Pre-tax income . . . . . . . . . . . 120,081 20,240 99,841 80,484 19,357
Less tax equivalent adjustment
included above . . . . . . . . . . 5,358 1,205 4,153 1,199 2,954
--------- --------- --------- --------- ---------
Income before taxes . . . . . . . . . 114,723 19,035 95,688 79,285 16,403
Income taxes . . . . . . . . . . . . 47,072 10,621 36,451 29,703 6,748
--------- --------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . $ 67,651 $ 8,414 $ 59,237 $ 49,582 $ 9,655
========= ========= ========= ========= =========
EARNINGS PER SHARE . . . . . . . . . $ 3.57 $ -- $ 3.57 $ 2.97 $ 0.60
========= ========= ========= ========= =========
</TABLE>
4
<PAGE> 2
income were partially offset by expenses associated with the introduction of
BayFunds in the first quarter of the year, increased personnel required to
process higher levels of consumer lending (primarily automobile finance and
residential mortgage volumes), and additional sales staff in the Customer Sales
and Service Center due to increasing sales activity.
Net Interest Income (tax equivalent basis)
Net interest income, the primary contributor to operating income, is affected by
many factors, including the volume, interest rates, and relative mix of both
earning assets and interest-bearing and noninterest-bearing sources of funds.
These factors also affect the net interest margin, as does the size of the
balance sheet. Net interest income increased in 1993 as consumer credit balances
grew, deposit rates declined, and the mix of deposits shifted to lower-cost
categories. Net interest income increased to $429.2 million in 1993 from $420.7
million in 1992 and $399.9 million in 1991 (TABLE B). The increase in net
interest income in 1993 from 1992 was primarily attributed to lower deposit
costs, increased instalment lending activities, principally automobile lending,
and increased average securities portfolios balances and was partially offset by
lower overall earning asset yields. During the first half of 1993, net interest
income was below prior year levels due to a 1992 fourth quarter securities
portfolio repositioning. That action, which resulted in a $41.1 million gain
from the sale of $1.1 billion in securities, nevertheless led to the
reinvestment of sale proceeds in securities with shorter maturities and lower
yields, thus lowering interest income on securities beginning in the fourth
quarter of 1992.
In the second half of 1993,
[FIGURE 1]
The lower income from securities was offset by higher interest income
from growth in consumer loans, declining deposit costs, and a shift to
lower-cost deposit categories.
BayBanks' funding costs have continued to decline as deposit rates have
fallen and customers' liquidity preferences have resulted in a shift to
lower-rate NOW and savings accounts. From 1992 to 1993, the cost of
interest-bearing liabilities (as a percentage of average earning assets)
declined 91 basis points, while earning assets yields declined 90 basis points
due to a lower overall rate structure and the impact of the repositioning of
BayBanks' securities portfolios in the fourth quarter of 1992. Thus, the 1993
net interest margin of 5.00%, which compares favorably to industry margins
(FIGURE 1), ended the year one basis point above the net
<TABLE>
TABLE B
- ---------------------------------------------------------------------------------------------------------------------------------
Analysis of Net Interest Income
(In thousands on a tax equivalent basis)
<CAPTION>
NET
INTEREST INTEREST INTEREST
INCOME EXPENSE INCOME
---------- ---------- ----------
<S> <C> <C> <C>
1991 AS REPORTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 817,812 $ 417,962 $ 399,850
1992 increase (decrease) due to:
Changes in balances . . . . . . . . . . . . . . . . . . . . . . . . . . (46,650) (35,281) (11,369)
Lower interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . (110,488) (142,672) 32,184
---------- ---------- ----------
(157,138) (177,953) 20,815
---------- ---------- ----------
1992 AS REPORTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 660,674 240,009 420,665
1993 increase (decrease) due to:
Changes in balances . . . . . . . . . . . . . . . . . . . . . . . . . . (2,460) (8,781) 6,321
Lower interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . (62,385) (64,580) 2,195
---------- ---------- ----------
(64,845) (73,361) 8,516
---------- ---------- ----------
1993 AS REPORTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 595,829 $ 166,648 $ 429,181
========== ========== ==========
</TABLE>
5
<PAGE> 3
interest margin for 1992; the margin was 5.08% in the fourth quarter of 1993,
compared with 4.85% in the same quarter in 1992. The net interest margin was
4.57% in 1991.
Fees, Service Charges, and Other Noninterest Income
Noninterest income consists primarily of service charges on deposit
accounts and fees from credit and non-credit services and is well diversified
among consumer, corporate and small business, and investment services
activities. Noninterest income (TABLE C) increased 8% to $198.5 million in 1993
from $183.9 million in 1992; noninterest income was $169.8 million in 1991.
Service charges and fees on deposit accounts, contributing over one-half
of noninterest income, increased 9% to $105.2 million in 1993 from $96.7
million in 1992. This increase was attributable to higher sales levels due in
large part to the growing contribution by BayBanks' state-of-the-art Customer
Sales and Service Center and selective repricing of consumer and corporate
payment and cash management products.
Credit card fees were $18.9 million in 1993, compared with $19.4 million
in 1992. This slight decline in fees was due to slightly lower transaction
volumes and promotions that included selected annual fee waivers.
Trust fees were $14.6 million in 1993 and $14.8 million in 1992. The
decline in trust fees in 1993 was due to the decrease in income from the
management of corporate employee benefit plan assets, which are now invested in
BayFunds. Investment management and brokerage fees increased 56% to $6.6
million in 1993 from $4.2 million in 1992. Increases were attributed to
stronger sales through the Company's discount brokerage and increased sales of
BayFunds, for which affiliates of the Company act as advisors for a fee based
on balances in the funds.
Processing fees increased due to higher income from non-BayBank
cardholders using BayBank ATMs and BayBank cardholders using network ATMs.
Mortgage banking fees were $12.0 million in 1993, compared with $10.2 million
in 1992, due to continued strong refinancing volumes. International fees
reflected a slightly lower volume of letter of credit fees.
BayBanks periodically sells student loans when these loans reach a stage
when processing can be more efficiently handled by agencies set up for that
purpose. During 1993, student loan sales gains were $1.8 million, compared with
$1.0 million in 1992 and $1.2 million in 1991.
Operating Expenses
The operating expense analysis, presented in TABLE D (page 7), separates
expense categories of a more recurring nature from OREO and legal expenses
related to the workout of problem assets. Operating expenses, excluding OREO
and legal expenses, were $429.2 million in 1993, compared with $410.9 million
in 1992 and $381.1 million in 1991. The more significant changes in operating
expenses are discussed below.
Salaries and benefits increased in 1993 to accommodate expanded business
opportunities. Furthermore, prior to the first quarter launch of BayFunds, a
qualified professional sales staff was recruited and trained. Mortgage staff
was added to handle the strong mortgage refinancing volume in 1993, and
additional personnel were necessary to handle higher consumer lending
activities, primarily automobile lending. Additional professional staff was
also required to accommodate higher sales volumes through BayBanks' Customer
Sales and Service Center. In addition, salaries and benefits included normal
salary increases and higher employee benefit costs.
<TABLE>
<CAPTION>
TABLE C
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
(Dollars in thousands)
% INCREASE (DECREASE)
-----------------------------
1993 1992 1991 1993 VS. 1992 1992 VS. 1991
---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Service charges and fees on deposit accounts . . . $ 105,211 $ 96,671 $ 88,533 9% 9%
Credit card fees . . . . . . . . . . . . . . . . . 18,892 19,398 19,354 (3) --
Trust fees . . . . . . . . . . . . . . . . . . . . 14,559 14,810 14,891 (2) (1)
Processing fees . . . . . . . . . . . . . . . . . . 13,788 12,624 12,220 9 3
Mortgage banking fees . . . . . . . . . . . . . . . 11,972 10,207 6,035 17 69
Investment management and brokerage fees . . . . . 6,561 4,197 1,949 56 115
International fees . . . . . . . . . . . . . . . . 5,845 6,035 5,890 (3) 2
All other fees . . . . . . . . . . . . . . . . . . 14,676 13,517 12,756 9 6
Student loan sales gains . . . . . . . . . . . . . 1,762 997 1,208 77 (17)
Other noninterest income . . . . . . . . . . . . . 5,258 5,425 6,917 (3) (22)
---------- ---------- ----------
Total noninterest income . . . . . . . . . . . . $ 198,524 $ 183,881 $ 169,753 8 8
========== ========== ==========
</TABLE>
6
<PAGE> 4
Occupancy and equipment expenses declined due to reduced rent from
favorable lease renegotiations and expirations, lower telephone expenses due to
prior year realignments, and reduced equipment maintenance expenses.
The increase in FDIC insurance expense in 1993 and 1992 was due to an
increase in FDIC insurance rates and an increased level of deposits. Marketing
and public relations expense increased in 1993 from 1992 due to higher
promotional activities associated with the launch of BayFunds and increased
advertising of consumer credit products. Service bureau and other data
processing expense increased due to increased processing volumes, and
professional services reflected a decline in general legal costs in 1993, which
had increased in 1992 from 1991 levels.
The expense of administering, managing, and disposing of OREO properties
was $17.5 million in 1993, down from $18.5 million in 1992, as a result of a
reduction in legal expenses and the number of properties owned.
Provisions for Loan Losses and the OREO Reserve
The provisions for loan losses and the OREO reserve (credit provisions)
declined substantially in 1993 from 1992 due to the continued improvement in
BayBanks' credit quality.
Credit provisions were $61.3 million in 1993, down $91 million, or 60%,
from $152.3 million in 1992; credit provisions were $192.9 million in 1991. The
decline in the provision for loan losses from $106.8 million in 1992 to $36.5
million in 1993 accounted for the largest portion of the reduction. The OREO
provision was $24.8 million in 1993, down from $45.5 million in 1992. The OREO
provisions were net of gains from the sale of properties of $7.6 million in
1993 and $54 thousand in 1992.
Income Taxes
The effective income tax rates for 1993 and 1992 were 41.0% and 38.1%,
respectively. BayBanks' current combined federal and state statutory tax rate
is approximately 43%. The lower rate in 1992 was affected by a federal
alternative minimum tax credit. The 1993 provision included a higher marginal
state tax rate for the Company due to proportionately higher Massachusetts bank
income in 1993, which is taxed at 12.54%, compared with 9.5% for nonbank
income, and also reflected the increase in the federal income tax rate from 34%
to 35%.
During 1993, the Internal Revenue Service (IRS) completed a review of the
Company's tax returns for the years 1986 through 1990 and has proposed certain
adjustments, primarily related to the timing of income and expense recognition,
that could result in additional taxes and interest payments. Should the IRS
prevail, a majority of the proposed adjustments would result in shifting tax
deductions from prior years to 1991 and 1992. The Company believes it has
strong support for its positions and has filed an appeal of the proposed
adjustments. The Company does not believe that future interest or tax payments
related to the proposed adjustments, if any, would have a material impact on
its results of operations or financial condition.
Also during 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as described in Note 2 to the
financial statements. Adoption of Statement No. 109 did not have a material
effect on the Company's results of operations or financial condition.
<TABLE>
<CAPTION>
TABLE D
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
(Dollars in thousands)
% INCREASE (DECREASE)
---------------------------
1993 1992 1991 1993 VS. 1992 1992 VS. 1991
----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Salaries and benefits . . . . . . . . . . . . . . . $ 212,954 $ 199,604 $ 184,399 7% 8%
Occupancy and equipment . . . . . . . . . . . . . . 87,116 88,950 85,465 (2) 4
FDIC insurance . . . . . . . . . . . . . . . . . . 21,949 19,289 18,329 14 5
Marketing and public relations . . . . . . . . . . 21,341 17,033 13,466 25 26
Service bureau and other data processing . . . . . 16,538 15,602 13,444 6 16
Professional services . . . . . . . . . . . . . . . 13,744 12,482 8,577 10 46
Printing and supplies . . . . . . . . . . . . . . . 12,997 12,557 11,879 4 6
Postage . . . . . . . . . . . . . . . . . . . . . . 8,290 8,201 8,213 1 --
Travel and courier . . . . . . . . . . . . . . . . 7,748 7,649 7,273 1 5
Legal and consulting . . . . . . . . . . . . . . . 6,609 9,763 7,933 (32) 23
Insurance . . . . . . . . . . . . . . . . . . . . . 4,367 5,161 5,306 (15) (3)
Other . . . . . . . . . . . . . . . . . . . . . . . 15,584 14,575 16,829 7 (13)
----------- ---------- ----------
Total operating expenses excluding OREO expenses . 429,237 410,866 381,113 4 8
OREO and legal expenses related to workout . . . . 17,468 18,450 17,246 (5) 7
----------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . $ 446,705 $ 429,316 $ 398,359 4 8
=========== =========== ==========
</TABLE>
7
<PAGE> 5
[FIGURE 2] [FIGURE 3]
BALANCE SHEET REVIEW
Trends in Earning Assets
Average earning assets increased to $8.6 billion in 1993 from $8.4
billion in 1992. During 1993, the mix of average earning assets reflected the
smallest shift from loans to securities since 1989 (FIGURE 2). For 1993,
average loans were $5.9 billion, compared with $6.2 billion in 1992 (FIGURE 3).
However, average loan balances rose during the year, for a total average
increase of $106 million from the first to the fourth quarter of the year, and
at year-end 1993, total loans were $6.1 billion, up from $5.9 billion at
year-end 1992. Average securities portfolios increased from $2.3 billion in
1992 to $2.7 billion in 1993.
Loan Portfolio
The Company maintains a diversified loan portfolio, with the consumer
portfolios representing 63% of the 1993 year-end portfolio, up from 59% at 1992
year-end. The commercial portfolios, commercial and commercial real estate
loans, account for the remaining 37% of the portfolio, compared with 41% in
1992. At December 31, 1993, the consumer portfolios included $2.6 billion in
instalment loans and $1.2 billion in residential mortgage loans. The majority
of the Company's commercial loans are to New England-based companies, primarily
local middle-market companies and small businesses in Massachusetts.
Instalment loans were the source of BayBanks' loan portfolio growth
during 1993. Instalment lending benefited from increased promotional activities
and BayBanks' Customer Sales and Service Center, which operates 24 hours a day,
seven days a week, all year.
The majority of residential real estate loans are sold to the secondary
market. Fixed-rate residential mortgage loans, approximately 75% of total loan
originations in 1993, are generally securitized and sold with servicing rights
retained. Floating-rate residential real estate mortgage loans and some
selected 10- and 15-year fixed-rate loans are held in the residential real
estate loan portfolio or may be securitized and transferred to the securities
available for sale portfolio.
From 1992 to 1993, loan portfolio net business volume increased from $708
million to $1.2 billion (TABLE E, page 9). During 1993, the increase in
instalment loan net business volume was $441 million, up substantially from
$145 million in 1992, led by gains in indirect automobile lending, where
BayBanks has a very strong market position. Student loan activity also
increased, from $118 million in 1992 to $135 million in 1993. Home equity
lending had a net business volume change of $104 million as the decline in 1992
reversed to a small increase in 1993. The majority of the growth in residential
mortgage loan portfolio net business volume was in fixed-rate refinancings sold
to the secondary market. Commercial loan volumes fluctuated somewhat during
1993 due to selected overnight money market-priced loans, international trade
finance activities, principally with Mexican banks (approximately $85 million
at 1993 year-end compared
8
<PAGE> 6
with $45 million a year ago), and payments on nonperforming loans. However,
the rate of decline in the commercial loan portfolio slowed from $165 million
in 1992 to $53 million in 1993 as Massachusetts businesses showed some signs of
recovery. Commercial real estate balances continued to reflect payments on
nonperforming loans and scheduled amortization that exceeded new loan volume.
Securities Portfolios
TABLE F presents the securities portfolios, which are comprised of
short-term investments, securities available for sale, and investment
securities. The total portfolio increased to $3.0 billion at December 31, 1993,
from $2.8 billion at year-end 1992 and $2.0 billion at year-end 1991. During
the past three years, BayBanks has shortened the
<TABLE>
<CAPTION>
TABLE E
- ---------------------------------------------------------------------------------------------------------------------------------
Changes in the Loan Portfolio
At Year-End -- 1993 vs. 1992
(In thousands)
ANALYSIS OF CHANGE IN LOAN CATEGORIES --1993
---------------------------------------------- 1992
DECEMBER 31 GROSS TRANSFERS NET NET
------------------------- INCREASE CHARGE- TO SALES AND BUSINESS BUSINESS
1993 1992 (DECREASE) OFFS OREO SECURITIZATION VOLUME VOLUME
---------- ------------ ---------- --------- --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . $1,324,968 $ 1,411,120 $ (86,152) $ (24,231) $ (9,018) $ -- $ (52,903) $ (165,162)
Commercial real estate . . . 935,471 1,022,515 (87,044) (15,513) (11,751) -- (59,780) (108,818)
Residential mortgage . . . . 1,242,597* 1,247,633* (5,036) (11,203) (18,821) (815,722) 840,710 836,753
Instalment loans
Automobile and other. . . . 1,200,596 928,461 272,135 (9,403) -- -- 281,538 77,195
Home equity . . . . . . . 673,409 669,969 3,440 (2,987) (870) -- 7,297 (96,828)
Credit card . . . . . . . 325,794 332,351 (6,557) (11,316) -- -- 4,759 38,778
Student loans . . . . . . 276,923 209,539 67,384 (245) -- (67,363) 134,992 117,572
Reserve credit . . . . . . 123,412 116,411 7,001 (5,065) -- -- 12,066 8,552
---------- ------------ --------- --------- --------- ---------- ---------- ----------
Total instalment loans 2,600,134 2,256,731 343,403 (29,016) (870) (67,363) 440,652 145,269
---------- ------------ --------- --------- --------- ---------- ---------- ----------
Total loans . . . . . . . . . $6,103,170 $ 5,937,999 $ 165,171 $ (79,963) $ (40,460) $ (883,085) $1,168,679 $ 708,042
========== ============ ========= ========= ========= ========== ========== ==========
</TABLE>
* Includes residential mortgage loans held for sale of $138 million in 1993 and
$186 million in 1992.
<TABLE>
<CAPTION>
TABLE F
- -----------------------------------------------------------------------------------------------------------------------
Securities Portfolios
At December 31
(Dollars in thousands)
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . $ 803,068 $1,091,985 $ 579,912
---------- ---------- ----------
Securities available for sale
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,707 1,433,945 --
U.S. Agency mortgage-backed securities . . . . . . . . . . . . . . . . 30,832 88,932 --
State and local governments . . . . . . . . . . . . . . . . . . . . . 18,964 -- --
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . 256,500 -- --
---------- ---------- ----------
629,003 1,522,877 --
---------- ---------- ----------
Investment securities
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,203,315 -- 627,050
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . 204,798 -- 651,381
State and local governments . . . . . . . . . . . . . . . . . . . . . 128,997 37,869 25,547
Industrial revenue bonds . . . . . . . . . . . . . . . . . . . . . . . 59,958 75,938 91,345
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . 1,992 42,685 2,038
---------- ---------- ----------
1,599,060 156,492 1,397,361
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,031,131 $2,771,354 $1,977,273
========== ========== ==========
Weighted average maturity of securities available for sale
and investment securities in years* . . . . . . . . . . . . . . . . . 1.1 1.5 5.2
Weighted average maturity of total securities in years * . . . . . . . . 0.8 1.0 3.8
</TABLE>
* The weighted average maturity calculation excludes amortizing IRBs and
reflects estimated prepayments for mortgage-backed securities.
9
<PAGE> 7
weighted average maturity of its securities portfolios in conjunction with the
portfolio repositioning previously discussed in the Net Interest Income
section, thus increasing its liquidity and responsiveness to potential changes
in interest rates. The weighted average maturity of the securities available
for sale and investment securities declined to 1.1 years at year-end 1993 from
1.5 years at year-end 1992. When short-term investments are included, the
weighted average maturity declined to .8 years at year-end 1993. Since the
repositioning reduced the average maturity of the securities portfolios, the
yields on these portfolios were also reduced.
Short-term investments were $803 million at December 31, 1993,
compared with $1.1 billion at December 31, 1992. The decline in the balance of
short-term investments reflects the reinvestment of certain proceeds from
maturing short-term investments into the securities available for sale and
investment securities portfolios during 1993.
Securities available for sale, consisting primarily of debt
securities, are stated at the lower of aggregate cost or market value.
Decisions to purchase or sell these securities are part of the Company's asset
and liability management process and are based on the assessment of changes in
economic and financial market conditions, interest rate environments, the
Company's balance sheet structure, interest sensitivity position, liquidity,
and capital. Securities available for sale were $629 million at December 31,
1993, compared with $1.5 billion at year-end 1992 as maturities were reinvested
in the investment securities portfolio. At December 31, 1993, securities
available for sale had gross unrealized gains of $4 million and gross
unrealized losses of $5 thousand.
The investment securities portfolio, principally debt securities, is
stated at amortized cost. This basis for valuation reflects management's
intention and ability to hold these securities until maturity. The Company's
investment securities portfolio was $1.6 billion at December 31, 1993, compared
with $156 million at December 31, 1992. During 1993, investment securities
increased due to purchases and the transfer of $495 million in securities
available for sale to this category. These securities were transferred at
amortized cost since they had an unrealized gain. At December 31, 1993, gross
unrealized gains in the investment securities portfolio were $7 million, and
gross unrealized losses were $911 thousand.
BayBanks' investment securities portfolio includes U.S. Treasury and
Agency securities, as well as state and
[FIGURE 4]
local government securities (principally tax anticipation notes) and industrial
revenue bonds. State and local government securities totaled $129 million at
December 31, 1993, with the single largest issue being under $7 million. Of
this total portfolio, $113 million were securities rated investment grade and
$16 million were unrated. All municipal securities are subject to an internal
credit review process that assigns a rating to the securities. Industrial
revenue bonds, $60 million at December 31, 1993, are also subject to an
internal credit review process. While there is no ready market for the
Company's holdings of industrial revenue bonds, management has determined that,
based on periodic private placement quotes, their amortized cost is a
reasonable estimate of market value.
Trading account securities, consisting of debt securities, are
recorded at market value, which was $15 million at December 31, 1993. Trading
account gains were $2.3 million in 1993 and $2.2 million in 1992.
Deposits and Other Sources of Funds
The Company's extensive banking system includes 201 full-service
offices and 356 automated banking facilities, with a total of 1,009 ATMs that
generate significant core deposits, which accounted for over 99% of total
average deposits in 1993 and 1992. Contributing to this strong core deposit
position is BayBanks' state-of-the-art Customer Sales and Service Center.
Core deposits include transaction accounts (demand, NOW, and savings
accounts), money market deposit accounts (MMDA), and consumer time certificates
(FIGURE 4).
10
<PAGE> 8
Average core deposits were $8.6 billion in 1993. Within the core
deposit categories, there has been a shift in mix to lower-cost transaction
accounts, with average balances increasing $464 million in 1993 to $4.6
billion, which had a positive effect on the Company's net interest margin.
Higher-cost MMDA accounts and consumer certificates of deposit
declined by $431 million in 1993. Average MMDAs declined $169 million to $2.9
billion in 1993 from 1992, and average consumer time deposits declined $262
million to $1.1 billion. In addition, average certificates of deposit in excess
of $100 thousand (CDs) remain at relatively low levels, $33 million in 1993,
compared with $58 million in 1992.
In addition, BayFunds, the Company's family of six mutual funds,
extends BayBanks' product lines and provides additional balance sheet
flexibility and fee income. At December 31, 1993, BayFunds had increased by
$390 million to $1.1 billion (from initial fund balances that were converted to
BayFunds). The conversion included three employee benefit plan funds, and a
corporate cash management product that includes a corporate sweep feature, that
with an existing money market fund aggregated $730 million at the date of
transfer. Cash management balances fluctuated during 1993 according to the
liquidity preferences of BayBanks' business customers, while consumer accounts
have grown steadily.
Purchased funds increased to $508 million at December 31, 1993, from
$140 million a year ago as the Company increased its short-term investments
late in the fourth quarter. The Company may continue to maintain this slightly
higher shorter-term investment position funded by purchased funds as a way of
taking advantage of its strong capital position. While net interest income
should increase, the net interest margin may decline somewhat, reflecting lower
spreads on these additional investments.
Interest Rate Risk Management and Liquidity
BayBanks' Capital Markets Committee closely monitors and manages the
overall on- and off-balance sheet interest sensitivity position, short-term
investments and the securities portfolios, funding, and liquidity. Interest
sensitivity, as measured by the Company's gap position, is affected by the
level and direction of interest rates and current liquidity preferences of its
customers. These factors, as well as projected balance sheet growth, current
and potential pricing actions, competitive influences, national monetary and
fiscal policy, the national and regional economic environment, and current and
expected behavior of financial and capital markets, are considered in the asset
and liability management decision process.
The Company's interest sensitivity gap position in TABLE G is first
presented based on contractual maturities and repricing opportunities. In a
period of rising or falling interest rates this basis of presentation does not
reflect lags that may occur in the repricing of certain loans and deposits. For
example, certain interest-bearing core deposit categories may lag changes in
market interest rates, although the Company contractually could change the
rates at any time. A management adjustment provides for these expected
repricing lags. The management adjustment also recognizes that interest rate
changes in these core deposit categories are not as sensitive to changes in
market interest rates.
In addition to the gap analysis presented in the table, the Company
also uses a simulation model under varying interest rate scenarios, including
the effect of rapid changes (both increases and decreases up to 200 basis
points) in interest rates on its net interest income and net interest margin.
The Company's policy is to minimize volatility in its net interest income and
net interest margin.
<TABLE>
TABLE G
- ------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Position
At December 31, 1993
(In millions)
<CAPTION>
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN
DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . $ 3,697 $ 604 $ 544 $ 4,845 $ 1,147 $ 5,992
Total liabilities . . . . . . . . . . . . . . . 6,490 210 263 6,963 201 7,164
-------- -------- ------- -------- ------- --------
Net contractual gap position . . . . . . . . . (2,793) 394 281 (2,118) 946 (1,172)
Net interest rate swaps . . . . . . . . . . . . -- 8 -- 8 -- 8
-------- -------- ------- -------- ------- --------
Net gap position including interest
rate swaps at December 31, 1993 . . . . . . $ (2,793) $ 402 $ 281 $ (2,110) $ 946 $ (1,164)
Management adjustment . . . . . . . . . . . . . 5,418 (2,727) (465) 2,226 (930) 1,296
-------- -------- ------- -------- ------- --------
Management-adjusted gap at
December 31, 1993 . . . . . . . . . . . . . $ 2,625 $ (2,325) $ (184) $ 116 $ 16 $ 132
======== ======== ======= ======== ======= ========
Management-adjusted gap at
December 31, 1992 . . . . . . . . . . . . . $ 2,517 $ (2,643) $ (178) $ (304) $ (54) $ (358)
======== ======== ======= ======== ======= ========
</TABLE>
11
<PAGE> 9
[FIGURE 5]
At December 31, 1993, the Company's adjusted gap for the total
within-180-day period decreased from a negative gap of $304 million at December
31, 1992, to a positive gap of $116 million at December 31, 1993, primarily as
the result of the continued shortening of the securities portfolio during 1992.
The total within-one-year gap reflected similar changes, moving from negative
$358 million to a positive $132 million. The Company believes its overall
management-adjusted gap is essentially neutral, and therefore the effect of a
change in market interest rates on net interest income should not be
significant.
Liquidity, for commercial banking activities, is the ability to
respond to maturing obligations, deposit withdrawals, and loan demand. The
liquidity positions of the Company's bank subsidiaries are closely monitored by
the Company's Capital Markets Committee. BayBanks' retail network provides a
stable base of in-market core deposits and limits the need to raise funds from
the national market.
The Company's net liquidity position (short-term investments,
securities available for sale, and investment securities, less pledged
securities, large CDs, and federal funds purchased) continues to be strong and
was $2.3 billion at December 31, 1993 and 1992 (FIGURE 5). The Company has
additional liquidity flexibility due to the relatively short average maturity
of less than one year of its combined short-term investments and securities
portfolios. This substantial liquidity position enabled BayBanks to increase
its investment securities portfolio during 1993 as described above.
An analysis of the changes in cash flows provides additional
information on liquidity. The statement of cash flows presented elsewhere in
this report includes operating, investing, and financing categories. Operating
activities included $67.7 million in net income for 1993, before adjustments
for noncash items. Investing activities are primarily comprised of both
proceeds from and purchases of securities, short-term investment activity, and
net loan originations. Financing activities present the net change in the
Company's various deposit accounts, short-term borrowings, and dividends paid.
Cash and cash equivalents were $734 million on January 1, 1993. During
1993, net cash provided by operating activities was $284 million, net cash used
by investing activities totaled $529 million, and net cash provided by
financing activities was $144 million. Cash and cash equivalents were $633
million at December 31, 1993.
The parent company's primary sources of liquidity are dividend and
interest income received from its subsidiaries. The most significant uses of
the parent company's resources are capital contributions to subsidiaries when
appropriate and dividends paid to stockholders. In managing liquidity,
regulatory limitations on the extent to which bank subsidiaries can pay
dividends or supply funds to the parent company are taken into account, as
discussed in Note 1 to the financial statements. During 1993, the parent
company provided $22 million in capital to its subsidiaries. During 1993, the
parent company received a total of $17 million in dividends from its
subsidiaries, of which $10 million was from a banking subsidiary and $7 million
was from a nonbank subsidiary, and paid $17 million in dividends to its
stockholders. At December 31, 1993, the parent company had approximately $69
million in cash, short-term investments, and other securities. The parent
company does not sell commercial paper and does not have any revolving credit
lines or short-term debt outstanding.
CREDIT QUALITY REVIEW
Overview
The Company continually monitors its loan portfolios. Employing a
standard system for grading loans, individual account officers are responsible
for assigning their loans a grade and, if necessary, a specific loan loss
reserve. An independent Loan Review Department reviews loan grades and specific
reserves. Any loan or portion of a loan determined to be uncollectible is
charged off. On a quarterly basis, senior management reviews the loan
portfolio, with particular emphasis on higher-risk loans,
12
<PAGE> 10
to assess the quality and loss potential inherent in the portfolio, considering
the Company's market and economic conditions in general. Also considered in
this review are historic loan loss experience, delinquency trends, and other
factors. The size of the allowance for loan losses and the related provision
for loan losses reflect this analysis.
Nonperforming assets (which exclude restructured, accruing loans and
accruing loans 90 days or more past due) include nonperforming loans and OREO
and were $224 million at December 31, 1993, a 41% decrease from $376 million at
December 31, 1992. Nonperforming assets continued the downward trend that
began in 1991 (FIGURE 6). While the Company expects to experience continued
improvement in nonperforming assets, the pace of that improvement will depend
on many factors, including the national and regional economy and local real
estate market conditions.
During 1993, the decline in nonperforming assets (TABLE H) was
attributed to continued successful workout activities that included an increase
in property sales, payments on nonperforming loans, and loans that qualified
for return to accrual status. These favorable resolutions climbed to $181
million in 1993 from $138 million in 1992, while at the same time there has
been a reduction in net
[FIGURE 6]
new nonperforming assets, which were down from $181 million in 1992 to $106
million in 1993. The combination of these two favorable trends resulted in a
net outflow of nonperforming assets of $75 million in 1993, compared with a net
inflow of $43 million in 1992.
<TABLE>
<CAPTION>
TABLE H
- -----------------------------------------------------------------------------------------------------------------------
Changes in Asset Quality
(In thousands)
SIX MONTHS ENDED SIX MONTHS ENDED
---------------------- -----------------------
1993 12/31/93 6/30/93 1992 12/31/92 6/30/92
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming assets* . . . . . . . . . . $ 223,680 $ 223,680 $ 308,374 $ 376,166 $ 376,166 $ 426,758
========== ========== ========= ========== ========== ==========
Nonperforming asset activity:
Additions . . . . . . . . . . . . . . $ 106,205 $ 41,786 $ 64,419 $ 181,253 $ 66,568 $ 114,685
---------- ---------- --------- ---------- ---------- ----------
Payments . . . . . . . . . . . . . . . (66,934) (25,347) (41,587) (39,879) (25,201) (14,678)
Return to accrual . . . . . . . . . . (24,004) (17,566) (6,438) (19,992) (7,246) (12,746)
OREO sales . . . . . . . . . . . . . . (90,066) (48,165) (41,901) (78,589) (39,836) (38,753)
---------- ---------- --------- ---------- ---------- ----------
Total improvements . . . . . . . . . . (181,004) (91,078) (89,926) (138,460) (72,283) (66,177)
---------- ---------- --------- ---------- ---------- ----------
Net (outflow) inflow . . . . . . . . . (74,799) (49,292) (25,507) 42,793 (5,715) 48,508
---------- ---------- --------- ---------- ---------- ----------
Charge-offs . . . . . . . . . . . . . . . (55,744) (28,101) (27,643) (127,320) (39,111) (88,209)
Change in OREO reserve . . . . . . . . . (21,943) (7,301) (14,642) (7,833) (5,766) (2,067)
---------- ---------- --------- ---------- ---------- ----------
Total decrease in nonperforming assets . $ (152,486) $ (84,694) $ (67,792) $ (92,360) $ (50,592) $ (41,768)
========== ========== ========= ========== ========== ==========
</TABLE>
* Nonperforming assets include nonperforming loans and OREO and exclude
restructured, accruing loans and accruing loans 90 days or more past due.
<TABLE>
<CAPTION>
TABLE I
- ------------------------------------------------------------------------------------------------------------------------
Nonperforming Loans
At December 31
(Dollars in thousands)
1993 1992 1991
---------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . $ 47,751 43% $ 82,110 46% $ 109,710 49%
Commercial real estate . . . . . . . . . 49,014 45 79,144 44 98,214 44
Residential mortgage . . . . . . . . . . 11,473 10 14,889 8 10,254 5
Instalment . . . . . . . . . . . . . . . 1,763 2 4,437 2 4,547 2
---------- --- ---------- --- ---------- ---
Total nonperforming loans . . . . . . $ 110,001 100% $ 180,580 100% $ 222,725 100%
========== === ========== === ========== ===
</TABLE>
13
<PAGE> 11
Nonperforming Loans
Nonperforming loans (TABLE I, page 13) declined 39% to $110 million at
December 31, 1993, from $181 million at December 31, 1992; nonperforming
commercial loans decreased 42% to $48 million while nonperforming commercial
real estate loans declined 38% to $49 million during this period. Trends in
nonperforming consumer portfolios (residential mortgage and instalment loans)
were also positive, as they declined 32% to $13 million during the year.
Other Real Estate Owned (OREO)
OREO consists of foreclosed properties and in-substance foreclosures.
Foreclosed properties are being prepared for sale or are currently listed for
sale. The Company is also involved in managing in-substance foreclosures,
taking operating control to stabilize values while the properties are being
prepared for sale, or working closely with borrowers to obtain new equity.
OREO (net of a valuation reserve) declined by $82 million, or 42%,
from $196 million at December 31, 1992, to $114 million at December 31, 1993,
primarily due to property sales. OREO declined in all major property types. The
five largest properties ranged from $5 million down to $3 million, with the
majority of OREO comprised of smaller dollar properties.
Restructured, Accruing Loans
The Company restructures credits with troubled borrowers if such
arrangements are likely to minimize losses the Company may incur on a
particular credit. Loans that have been restructured remain on nonaccrual
status until the borrower has demonstrated a period of performance under the
new contractual terms. The restructured, accruing category is reported as a
separate component of the Company's credit quality information, and income on
restructured loans is recognized in interest income based upon the restructured
terms. Restructured, accruing loans were $18 million at year-end 1993, compared
with $12 million at year-end 1992.
Accruing Loans 90 Days or More Past Due
Accruing loans 90 days or more past due (TABLE J) were $52 million at
December 31, 1993, compared with $92 million at December 31, 1992. Of the $52
million in accruing loans past due 90 days or more at December 31, 1993, $21
million were residential mortgages and $22 million were instalment loans; these
consumer portfolios together represented 83% of the total. Of the $21 million
in residential mortgages, $17 million were in owner-occupied properties.
Residential mortgages and instalment loans by their nature include a large
number of smaller loans. Commercial and commercial real estate accruing loans
90 days or more past due at December 31, 1993, declined significantly from
December 31, 1992, from $36 million to $9 million.
Allowance for Loan Losses
The allowance for loan losses is increased by the provision for loan
losses and is reduced by net loans charged off. Net loans charged off were $58
million in 1993, compared with $127 million in 1992. Most of the reduction in
charge-offs was in commercial and commercial real estate loans. The provision
for loan losses was $36.5 million in 1993, compared with $106.8 million in
1992. Since older problem assets are being resolved and the rate of emerging
problem assets continued to decline, the allowance for loan losses was not
replenished to the full extent of net charge-offs. The allowance for loan
losses was $171 million at December 31, 1993, and $193 million at December 31,
1992. While the overall allowance declined, its coverage of nonperforming loans
increased to 156% at December 31, 1993, from 107% at December 31, 1992, and 95%
at December 31, 1991.
<TABLE>
<CAPTION>
TABLE J
- -----------------------------------------------------------------------------------------------------------------------
Accruing Loans 90 Days or More Past Due
At December 31
(Dollars in thousands)
1993 1992 1991
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . $ 3,558 7% $ 11,480 12% $ 20,237 17%
Commercial real estate . . . . . . . . . 5,093 10 24,824 27 14,895 13
Residential mortgage . . . . . . . . . . 20,698 40 28,914 32 39,963 34
Instalment . . . . . . . . . . . . . . . 22,400 43 26,677 29 41,719 36
--------- --- --------- --- ---------- ---
Total . . . . . . . . . . . . . . . . $ 51,749 100% $ 91,895 100% $ 116,814 100%
========= === ========= === ========== ===
</TABLE>
14
<PAGE> 12
<TABLE>
<CAPTION>
TABLE K
- -------------------------------------------------------------------------------------------------------------------------
Allocation of the Allowance for Loan Losses
At December 31, 1993
(Dollars in thousands)
SPECIFIC
LOAN CATEGORY ALLOCATIONS UNALLOCATED TOTAL
------------ ----------- -----------
<S> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,012 $ 31,286 $ 47,298
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . 13,162 53,293 66,455
------------ ---------- -----------
Total corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,174 84,579 113,753
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . -- 21,621 21,621
Instalment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 36,122 36,122
------------ ---------- -----------
Total allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,174 $ 142,322 $ 171,496
============ ========== ===========
Percentage of total allowance . . . . . . . . . . . . . . . . . . . . 17% 83% 100%
============ ========== ===========
</TABLE>
The allowance for loan losses consists of both allocated and unallocated
portions. The allocated portion represents amounts within the total allowance
assigned to specifically identified problem loans. The unallocated portion is
the amount set aside to cover the risk of loss that is not specifically
identified as to any individual loan, but that is inherent in any loan
portfolio. The unallocated allowance is calculated by migrating each loan
category by that category's recent loan loss experience. The process involves
analysis of loan grade loss histories and trends for each type of loan.
Economic factors and trends are also considered when determining the total
unallocated portion of the allowance. Statistical modeling is the primary
methodology for determining the amount of the allowance apportioned to the
consumer portfolios (residential and instalment loans). However, it is
considered unallocated in nature. TABLE K presents the allocation of the
allowance for loan losses at December 31, 1993.
CAPITAL AND DIVIDENDS
BayBanks' consolidated risk-based capital ratios were 12.40% for total
capital and 10.68% for core capital at December 31, 1993, compared with 12.30%
and 10.37% at December 31, 1992 (FIGURE 7). The leverage ratio was 7.26% at
December 31, 1993, compared with 6.79% at December 31, 1992. These ratios
exceeded regulatory capital guidelines.
During 1992, the Company completed a public offering of 2.3 million
shares of common stock that raised $79 million in capital. The Company
contributed $22 million in capital to its subsidiaries during 1993 and $8
million in 1992. The remaining funds were held by the parent company in cash
and securities portfolios at December 31, 1993. The parent company from time to
time may contribute additional capital to its subsidiaries.
The Company reinstated its quarterly cash dividend in the first
quarter of 1993 at an initial rate of $.20 per share; an equal amount was paid
in the second quarter. In the third quarter of 1993, the Company increased its
quarterly cash dividend to $.25 per share, which dividend was also paid in the
fourth quarter. Total dividends declared for 1993 were $.90. On January 27,
1994, the Board of Directors raised the quarterly dividend amount when it
declared a dividend of $.35 per
[FIGURE 7]
15
<PAGE> 13
[FIGURE 8]
share payable on March 1, 1994. BayBanks' stock performance for the last three
years is presented in FIGURE 8. The closing price on December 31, 1993, was
$50.75.
IMPENDING ACCOUNTING CHANGES
In 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 112, "Employers' Accounting for Postemployment Benefits."
Statement No. 112 is effective for fiscal years beginning after December 15,
1993. In management's opinion, the adoption of Statement No. 112, as further
described in Note 11 to the financial statements, will not have a material
effect on the Company's results of operations or financial condition.
In May 1993, the FASB issued Statement No. 114, "Accounting by
Creditors for Impairment of a Loan." This statement is effective for fiscal
years beginning after December 15, 1994. Adoption of Statement No. 114 will
require changes in the disclosure of nonperforming assets. Loans currently
being reported as nonperforming and in-substance foreclosures will be reported
as impaired loans in a note to the financial statements. Restructured loans,
reported as troubled debt restructuring prior to the adoption of Statement No.
114, will not be regarded as impaired loans when the statement is adopted if
they are performing under the restructured terms. Troubled debt restructurings
entered into after the adoption of Statement No. 114 will be accounted for as
impaired loans. The amount of impairment will be determined by the difference
between the present value of the expected cash flows related to the loan using
the contract rate and its recorded value, or in the case of collateralized
loans, the difference between the appraised value of the collateral and the
recorded amount of the loan. Any additional impairment will be recorded as an
adjustment to the existing allowance for loan losses account. The adoption of
Statement No. 114 is not expected to have a material effect on the Company's
results of operations or financial condition.
In May of 1993, the FASB issued Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement is effective
for fiscal years beginning after December 15, 1993. The adoption of Statement
No. 115 requires securities available for sale to be recorded at fair value.
Changes in the fair value of securities available for sale will be recorded in
a valuation account in the stockholders' equity section of the balance sheet,
net of tax. The adoption of Statement No. 115 is expected to have an effect on
the Company's financial condition, as changes in the fair value of securities
available for sale will occur and will be reflected in stockholders' equity. If
Statement No. 115 had been adopted as of December 31, 1993, the estimated
after-tax effect on the Company's stockholders' equity for the unrealized gain
on the securities available for sale portfolio would have been to increase the
stockholders' equity account by approximately $2.5 million.
16
<PAGE> 14
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
- ---------------------------------------------------------
<S> <C>
Auditors' Report . . . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheet . . . . . . . . . . . . . 18
Consolidated Statement of Income . . . . . . . . . . 19
Consolidated Statement of Changes in
Stockholders' Equity . . . . . . . . . . . . . . . 20
Consolidated Statement of Cash Flows . . . . . . . . 21
Notes to Financial Statements . . . . . . . . . . . . 22
</TABLE>
[LOGO]
KPMG PEAT MARWICK
Certified Public Accountants
One Boston Place
Boston, MA 02108
To the Board of Directors and Stockholders of BayBanks, Inc.:
We have audited the accompanying consolidated balance sheets of BayBanks, Inc.,
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BayBanks, Inc., and
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1993 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK
January 24, 1994
17
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(In thousands except share amounts) BAYBANKS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
----------------------------
1993 1992
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 632,985 $ 733,726
Interest-bearing deposits and other short-term investments (Note 2) . . . . . . . . . . . . . . . 803,068 1,091,985
Trading accounts (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,595 74,694
Securities available for sale--market value $633,446 in 1993 and $1,530,917 in 1992 (Notes 2 and 4) 629,003 1,522,877
Investment securities--market value $1,605,091 in 1993 and $157,024 in 1992 (Notes 2 and 4) . . 1,599,060 156,492
Loans--net of unearned income and fees (Notes 2 and 5)
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324,968 1,411,120
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935,471 1,022,515
Residential mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,242,597 1,247,633
Instalment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600,134 2,256,731
----------- -----------
6,103,170 5,937,999
Less allowance for loan losses (Notes 2 and 6) . . . . . . . . . . . . . . . . . . . . . . . . 171,496 192,700
----------- -----------
5,931,674 5,745,299
Premises and equipment, net (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,554 198,430
Customers' acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,467 11,778
Other real estate owned and in-substance foreclosures, net (Notes 2 and 6) . . . . . . . . . . . 113,679 195,586
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,499 165,419
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,110,584 $ 9,896,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,077,206 $ 1,978,102
NOW accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481,859 1,442,820
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,459,134 1,320,633
Money market deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,731,720 2,967,291
Consumer time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 993,945 1,234,747
Time--$100,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,957 38,955
----------- -----------
8,778,821 8,982,548
Federal funds purchased and other short-term borrowings (Note 8) . . . . . . . . . . . . . . . . 507,820 139,969
Acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,467 11,778
Accrued expenses and other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,485 48,111
Long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,488 55,188
Guarantee of ESOP indebtedness (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,241 14,473
Stockholders' equity (Notes 1 and 10):
Common stock: par value $2.00 per share
Shares authorized--50,000,000
Shares issued--18,742,934 in 1993 and 18,507,952 in 1992 . . . . . . . . . . . . . . . . . . 37,486 37,016
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,355 304,890
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367,662 316,812
----------- -----------
715,503 658,718
Less treasury stock at cost--950 shares in 1992 . . . . . . . . . . . . . . . . . . . . . . . -- 26
Less guarantee of ESOP indebtedness (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . 12,241 14,473
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703,262 644,219
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . $10,110,584 $ 9,896,286
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(In thousands except share amounts) BAYBANKS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Income on interest-bearing deposits and other
short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,002 $ 22,416 $ 39,937
Interest on securities portfolios
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,510 86,304 95,542
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,301 7,163 12,089
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . 480,658 540,638 667,290
------------ ------------ ------------
Total income on earning assets . . . . . . . . . . . . . . . . . . . . . . . . 590,471 656,521 814,858
Interest expense on deposits and borrowings
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,441 233,235 394,161
Short-term borrowings (Note 8) . . . . . . . . . . . . . . . . . . . . . . . 4,098 4,285 19,941
Long-term debt (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,109 2,489 3,860
------------ ------------ ------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,648 240,009 417,962
------------ ------------ ------------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423,823 416,512 396,896
Provision for loan losses (Note 6) . . . . . . . . . . . . . . . . . . . . . . 36,500 106,836 165,400
------------ ------------ ------------
Net interest income after provision for loan losses . . . . . . . . . . . . . . 387,323 309,676 231,496
Noninterest income
Service charges and fees on deposit accounts . . . . . . . . . . . . . . . . 105,211 96,671 88,533
Other noninterest income (Note 12) . . . . . . . . . . . . . . . . . . . . . 93,313 87,210 81,220
------------ ------------ ------------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,524 183,881 169,753
Net securities gains (Notes 2 and 4) . . . . . . . . . . . . . . . . . . . . . 411 76,929 40,963
Operating expenses
Salaries and benefits (Notes 10 and 11) . . . . . . . . . . . . . . . . . . . 212,954 199,604 184,399
Occupancy and equipment (Note 7) . . . . . . . . . . . . . . . . . . . . . . 87,116 88,950 85,465
Other operating expenses (Note 13) . . . . . . . . . . . . . . . . . . . . . 146,635 140,762 128,495
------------ ------------ ------------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 446,705 429,316 398,359
Provision for OREO reserve, net (Notes 2 and 6) . . . . . . . . . . . . . . . . 24,830 45,482 27,450
------------ ------------ ------------
Total operating expenses after OREO provision . . . . . . . . . . . . . . . . . 471,535 474,798 425,809
------------ ------------ ------------
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,723 95,688 16,403
Provision for income taxes (Notes 2 and 14) . . . . . . . . . . . . . . . . . . 47,072 36,451 6,748
------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,651 $ 59,237 $ 9,655
============ ============ ============
EARNINGS PER SHARE (NOTE 2) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.57 $ 3.57 $ 0.60
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 18,953,397 16,575,768 16,021,645
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands except share amounts) BAYBANKS, INC.
- ----------------------------------------------------------------------------------------------------------------------------
COMMON RETAINED TREASURY
STOCK SURPLUS EARNINGS STOCK
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1990 . . . . . . . . . . . . . . . . . . $ 32,046 $ 227,100 $ 246,564 $ (264)
Net income--1991 . . . . . . . . . . . . . . . . . . . . . . . 9,655
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . .
Stock issued (1,091 shares) in conversion of
debentures . . . . . . . . . . . . . . . . . . . . . . . . . 2 13
Stock issued (8,577 shares) in payment of fees . . . . . . . . 4 (144) 264
Deferred compensation expense recorded for stock
issued (1,000 shares) in connection with restricted
stock plan . . . . . . . . . . . . . . . . . . . . . . . . . 2 (2)
Amortization of deferred compensation expense (Note 10) . . . . 1,170
Recognition of prior unrealized loss on equity
security held for investment . . . . . . . . . . . . . . . . 1,356
Treasury shares acquired (9,000 shares) . . . . . . . . . . . . (319)
--------- --------- --------- ----------
BALANCE AS OF DECEMBER 31, 1991 . . . . . . . . . . . . . . . . . . 32,054 228,137 257,575 (319)
Net income--1992 . . . . . . . . . . . . . . . . . . . . . . . 59,237
Proceeds from common stock offering, net of issuance
costs of $3,494 (2,300,000 shares) . . . . . . . . . . . . . 4,600 74,706
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options (20,336 shares) . . . . . . . . . . . 8 (170) 520
Stock issued (3,360 shares) in payment of fees . . . . . . . . 7 94
Deferred compensation expense recorded for stock
issued (173,700 shares) in connection with restricted
stock plan . . . . . . . . . . . . . . . . . . . . . . . . . 347 (347)
Amortization of deferred compensation expense (Note 10) . . . . 2,332
Treasury shares acquired (8,500 shares) . . . . . . . . . . . . 138 (227)
--------- --------- --------- ----------
BALANCE AS OF DECEMBER 31, 1992 . . . . . . . . . . . . . . . . . . 37,016 304,890 316,812 (26)
Net income--1993 . . . . . . . . . . . . . . . . . . . . . . . 67,651
Cash dividends declared ($0.90 per share) . . . . . . . . . . . (16,801)
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options (157,414 shares) . . . . . . . . . . 269 2,706 940
Stock issued (98,471 shares) in conversion of debentures . . . . 197 1,156
Stock issued (2,156 shares) in payment of fees . . . . . . . . 4 101
Amortization of deferred compensation expense (Note 10) . . . . 1,364
Treasury shares acquired (22,109 shares) . . . . . . . . . . . 138 (914)
--------- --------- --------- ----------
BALANCE AS OF DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . $ 37,486 $ 310,355 $ 367,662 $ --
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
ESOP Loan
Guarantee Total
---------- ---------
<S> <C> <C>
BALANCE AS OF DECEMBER 31, 1990 . . . . . . . . . . . . . . . . . . $ (17,170) $ 488,276
Net income--1991 . . . . . . . . . . . . . . . . . . . . . . . 9,655
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . . 1,023 1,023
Stock issued (1,091 shares) in conversion of
debentures . . . . . . . . . . . . . . . . . . . . . . . . . 15
Stock issued (8,577 shares) in payment of fees . . . . . . . . 124
Deferred compensation expense recorded for stock
issued (1,000 shares) in connection with restricted
stock plan . . . . . . . . . . . . . . . . . . . . . . . . . --
Amortization of deferred compensation expense (Note 10) . . . . 1,170
Recognition of prior unrealized loss on equity
security held for investment . . . . . . . . . . . . . . . . 1,356
Treasury shares acquired (9,000 shares) . . . . . . . . . . . . (319)
---------- ---------
BALANCE AS OF DECEMBER 31, 1991 . . . . . . . . . . . . . . . . . . (16,147) 501,300
Net income--1992 . . . . . . . . . . . . . . . . . . . . . . . 59,237
Proceeds from common stock offering, net of issuance
costs of $3,494 (2,300,000 shares) . . . . . . . . . . . . . 79,306
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . . 1,674 1,674
Exercise of stock options (20,336 shares) . . . . . . . . . . . 358
Stock issued (3,360 shares) in payment of fees . . . . . . . . 101
Deferred compensation expense recorded for stock
issued (173,700 shares) in connection with restricted
stock plan . . . . . . . . . . . . . . . . . . . . . . . . . --
Amortization of deferred compensation expense (Note 10) . . . . 2,332
Treasury shares acquired (8,500 shares) . . . . . . . . . . . . (89)
---------- ---------
BALANCE AS OF DECEMBER 31, 1992 . . . . . . . . . . . . . . . . . . (14,473) 644,219
Net income--1993 . . . . . . . . . . . . . . . . . . . . . . . 67,651
Cash dividends declared ($0.90 per share) . . . . . . . . . . . (16,801)
Payment on ESOP note . . . . . . . . . . . . . . . . . . . . . 2,232 2,232
Exercise of stock options (157,414 shares) . . . . . . . . . . 3,915
Stock issued (98,471 shares) in conversion of debentures . . . . 1,353
Stock issued (2,156 shares) in payment of fees . . . . . . . . 105
Amortization of deferred compensation expense (Note 10) . . . . 1,364
Treasury shares acquired (22,109 shares) . . . . . . . . . . . (776)
---------- ---------
BALANCE AS OF DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . $ (12,241) $ 703,262
========== =========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands) BAYBANKS, INC.
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------
OPERATING ACTIVITIES 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,651 $ 59,237 $ 9,655
Adjustments to reconcile net income to net cash
provided by operating activities:
Fixed-rate mortgages sold . . . . . . . . . . . . . . . . . 815,722 779,000 295,000
Fixed-rate mortgages originated for sale . . . . . . . . . . (783,000) (906,000) (346,000)
Student loans transferred from portfolio and sold . . . . . 67,363 53,827 106,091
Proceeds from sales and maturities of trading account assets 1,863,350 659,000 702,000
Purchases of trading account assets . . . . . . . . . . . . (1,803,249) (694,000) (704,000)
Provision for loan losses . . . . . . . . . . . . . . . . . 36,500 106,836 165,400
Amortization (accretion) of security premium (discount) . . (7,149) 18,073 --
Provision for OREO reserve, net . . . . . . . . . . . . . . 24,830 45,482 27,450
Deferred income taxes . . . . . . . . . . . . . . . . . . . 2,675 (1,839) (1,259)
Depreciation and amortization of premises and equipment . . 24,218 24,246 23,599
Net securities gains . . . . . . . . . . . . . . . . . . . . (411) (76,929) (40,963)
Change in other assets . . . . . . . . . . . . . . . . . . . (23,184) 14,379 22,655
Change in accrued expenses . . . . . . . . . . . . . . . . . 6,411 9,263 9,085
Change in interest receivable . . . . . . . . . . . . . . . (3,573) 6,871 15,599
Change in interest payable . . . . . . . . . . . . . . . . . (3,673) (10,072) (17,105)
---------- ---------- ----------
Net cash provided by operating activities . . . . . . . . 284,481 87,374 267,207
---------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of securities . . . . . . . . . . . . . . . 331,550 2,453,685 1,710,102
Proceeds from maturities of securities . . . . . . . . . . . . 792,843 74,989 165,000
Purchases of securities . . . . . . . . . . . . . . . . . . . . (1,665,527) (2,703,169) (1,461,472)
Net cash provided (used) by:
Short-term investments . . . . . . . . . . . . . . . . . . . 288,917 (512,073) (471,556)
Loans (2)(3)(4) . . . . . . . . . . . . . . . . . . . . . . (333,598) 249,442 232,857
Customer acceptances . . . . . . . . . . . . . . . . . . . . 7,311 (528) 110
Net purchases of premises and equipment . . . . . . . . . . . . (18,342) (26,017) (35,933)
Deposits assumed from a thrift institution (5) . . . . . . . . -- 254,372 52,817
Proceeds from sales of OREO (3) . . . . . . . . . . . . . . . . 67,715 54,808 43,863
---------- ---------- ----------
Net cash (used) provided by investing activities . . . . . (529,131) (154,491) 235,788
---------- ---------- ----------
FINANCING ACTIVITIES
Net cash provided (used) by:
Demand deposits, NOW, and savings accounts . . . . . . . . 276,644 648,095 417,899
Money market deposits . . . . . . . . . . . . . . . . . . . (235,571) (186,194) (135,232)
Consumer time deposits . . . . . . . . . . . . . . . . . . . (240,802) (415,086) (315,959)
Time deposits greater than $100,000 . . . . . . . . . . . . (3,998) (65,964) (222,265)
Short-term borrowings . . . . . . . . . . . . . . . . . . . 367,851 17,140 (366,434)
Customer acceptances . . . . . . . . . . . . . . . . . . . . (7,311) 528 (110)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . (700) (81) 266
Net proceeds from common stock offering . . . . . . . . . . . -- 79,306 --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (16,801) -- --
Other equity transactions . . . . . . . . . . . . . . . . . . 4,597 285 (988)
---------- ---------- ----------
Net cash provided (used) by financing activities . . . . . 143,909 78,029 (622,823)
---------- ---------- ----------
Net change in cash and cash equivalents . . . . . . . . . . . (100,741) 10,912 (119,828)
Cash and cash equivalents at beginning of year (1) . . . . . . 733,726 722,814 842,642
---------- ---------- ----------
Cash and cash equivalents at end of year (1) . . . . . . . . . $ 632,985 $ 733,726 $ 722,814
========== ========== ==========
Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . $ 170,321 $ 250,081 $ 435,067
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . 58,026 20,551 12,818
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
(1) Cash and cash equivalents consist of cash on hand and due from banks.
(2) Excludes transfers of loans to the other real estate owned category of
$40.5 million, $89.7 million, and $153.7 million in 1993, 1992, and 1991,
respectively.
(3) Excludes loan originations in conjunction with OREO sales of $22.4
million, $23.8 million, and $14.0 million in 1993, 1992, and 1991,
respectively.
(4) Excludes transfers of securitized residential mortgage loans to the
investment securities portfolio of $50.0 million in 1992 and $182.4
million in 1991.
(5) Deposits assumed from failed thrift institutions are net of cash paid,
which was an immaterial amount in each case. The Company did not assume
any material assets or liabilities in conjunction with these transactions.
</TABLE>
21
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
NOTE 1. CONDENSED FINANCIAL INFORMATION OF THE PARENT
The condensed balance sheet is presented for 1993 and 1992, and a statement of
income and statement of cash flows are presented for the years 1991 through
1993, for BayBanks, Inc. (the parent company).
<TABLE>
<CAPTION>
BALANCE SHEET DECEMBER 31
---------------------------
(In thousands except share amounts) 1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Cash and short-term investments . . . . . . . $ 15,865 $ 36,289
Securities available for sale
market value $30,000 in 1993
and $9,858 in 1992 . . . . . . . . . . . . 30,000 9,858
Investment securities
market value $22,790 in 1993
and $40,100 in 1992 . . . . . . . . . . . 22,758 40,100
Investment in capital stock
of subsidiaries
Banking subsidiaries . . . . . . . . . . 605,488 538,452
Nonbank subsidiaries . . . . . . . . . . 37,356 32,976
---------- ----------
642,844 571,428
---------- ----------
Notes and advances due from
subsidiaries . . . . . . . . . . . . . . . 52,600 51,600
Other assets . . . . . . . . . . . . . . . . 2,305 1,704
---------- ----------
Total assets . . . . . . . . . . . . . . . $ 766,372 $ 710,979
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accrued expenses and
other accounts payable . . . . . . . . . . $ 818 $ 882
Long-term debt . . . . . . . . . . . . . . . 50,051 51,405
Guarantee of ESOP indebtedness . . . . . . . 12,241 14,473
Stockholders' equity . . . . . . . . . . . . 715,503 658,718
Less treasury stock at cost
950 shares in 1992 . . . . . . . . . . . -- 26
Less guarantee of ESOP
indebtedness . . . . . . . . . . . . . . . 12,241 14,473
---------- ----------
Total stockholders' equity . . . . . . . . 703,262 644,219
---------- ----------
Total liabilities and
stockholders' equity . . . . . . . . . . $ 766,372 $ 710,979
========== ==========
</TABLE>
NOTE 1. (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF INCOME YEAR ENDED DECEMBER 31
-------------------------------------------
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C>
Income:
Dividends from subsidiaries
Banking subsidiaries . . . . . . . . . . $ 10,000 $ -- $ 903
Nonbank subsidiaries . . . . . . . . . . 6,500 1,400 2,950
---------- ---------- ----------
16,500 1,400 3,853
---------- ---------- ----------
Fee income
from subsidiaries . . . . . . . . . . . 547 416 304
Interest from
subsidiaries . . . . . . . . . . . . . . 1,775 2,137 3,388
Interest on short-term
investments . . . . . . . . . . . . . . 443 551 454
Interest and dividends on
securities portfolios . . . . . . . . . 1,271 91 --
Writedown of marketable
equity security held
for investment . . . . . . . . . . . . . -- -- (1,392)
Other income . . . . . . . . . . . . . . . -- 2 44
---------- ---------- ----------
Total income . . . . . . . . . . . . . . 20,536 4,597 6,651
---------- ---------- ----------
Expenses:
Interest on debentures
and notes payable . . . . . . . . . . . 1,743 2,166 3,393
General and
administrative . . . . . . . . . . . . . 700 791 668
---------- ---------- ----------
Total expenses . . . . . . . . . . . . . 2,443 2,957 4,061
---------- ---------- ----------
Income before income taxes
and equity in undistributed
income of subsidiaries . . . . . . . . . . 18,093 1,640 2,590
Income tax expense . . . . . . . . . . . . . 358 145 65
---------- ---------- ----------
Income before equity
in undistributed income
of subsidiaries . . . . . . . . . . . . . 17,735 1,495 2,525
Equity in subsidiaries'
undistributed income . . . . . . . . . . . 49,916 57,742 7,130
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 67,651 $ 59,237 $ 9,655
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31
-------------------------------------------
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Dividends from subsidiaries
Banking subsidiaries . . . . . . . . . . $ 10,000 $ -- $ 903
Nonbank subsidiaries . . . . . . . . . . 6,500 1,400 2,950
---------- ---------- ----------
16,500 1,400 3,853
---------- ---------- ----------
Fees from subsidiaries . . . . . . . . . . 547 416 400
Interest received . . . . . . . . . . . . 3,323 2,700 3,842
Interest paid . . . . . . . . . . . . . . (1,779) (2,193) (3,437)
Operating expenditures . . . . . . . . . . (814) (474) (3,826)
Income tax expense . . . . . . . . . . . . (463) (135) (377)
---------- ---------- ----------
Net cash provided by
operating activities . . . . . . . . . . 17,314 1,714 455
---------- ---------- ----------
</TABLE>
(Statement of Cash Flows continued next page)
22
<PAGE> 20
NOTE 1. (CONTINUED)
STATEMENT OF CASH FLOWS (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1993 1992 1991
--------- ------------ ----------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Purchases of securities . . . . . . (166,082) (49,958) --
Sales and maturities of
securities . . . . . . . . . . . 163,355 -- --
Sale of premises and
equipment to
subsidiaries . . . . . . . . . . -- -- 2,110
Net advances (to) from
subsidiaries . . . . . . . . . . (1,000) (600) 6,000
Investments in
subsidiaries . . . . . . . . . . (21,500) (8,000) (5,500)
--------- ----------- -----------
Net cash flow (used) provided
by investing activities (25,227) (58,558) 2,610
--------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid . . . . . . . . . . (16,801) -- --
Net proceeds from
common stock offering -- 79,306 --
Proceeds from exercise of
stock options . . . . . . . . . 3,296 358 --
Proceeds from affiliates
for stock compensation
plan . . . . . . . . . . . . . . 1,099 2,230 1,095
Deferred payment plan (105) (642) --
--------- ----------- -----------
Net cash flow (used) provided
by financing activities (12,511) 81,252 1,095
--------- ----------- -----------
Net change in cash and
cash equivalents . . . . . . . . (20,424) 24,408 4,160
Cash and cash equivalents
at beginning of year 36,289 11,881 7,721
--------- ----------- -----------
Cash and cash equivalents
at end of year . . . . . . . . . $ 15,865 $ 36,289 $ 11,881
========= =========== ===========
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . $ 67,651 $ 59,237 $ 9,655
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in subsidiaries'
undistributed income (49,916) (57,742) (7,130)
Net change in accrued
expenses . . . . . . . . . . . . . (340) 176 (2,927)
Net change in accrued
income taxes . . . . . . . . . . . (105) 10 (312)
Writedown of marketable
equity security . . . . . . . . . . -- -- 1,392
All other . . . . . . . . . . . . . . 24 33 (223)
--------- ----------- -----------
Total adjustments . . . . . . . . . (50,337) (57,523) (9,200)
--------- ----------- -----------
Net cash provided
by operating activities $ 17,314 $ 1,714 $ 455
========= =========== ===========
</TABLE>
NOTE 1. (CONTINUED)
BayBanks, Inc., the parent company, has not sold commercial paper and does not
have any revolving credit lines or other short-term debt outstanding that
relies on credit ratings from public rating agencies. A significant source of
funds used by the parent company for operating activities and the payment of
dividends to shareholders is dividends received from its banking and other
subsidiaries.
The payment of dividends by national and state banks is generally limited by
statute to their retained earnings, after deducting losses and statutorily
defined bad debts in excess of established allowances for loan losses. The
payment of dividends by national banks is further limited by statute to the
current year's net income plus the undistributed net income of the two
preceding years. The Company's bank subsidiaries are also required to achieve
and maintain certain minimum capital ratios under applicable regulatory
guidelines. Banking regulators also have authority to prohibit banks and bank
holding companies from paying dividends if they deem payment to be an unsafe or
unsound practice. As of December 31, 1993, the Company's bank subsidiaries
could have declared dividends of approximately $53 million while remaining in
compliance with the foregoing statutory limitations and remaining "well
capitalized" under regulatory capital guidelines. Any decision to declare a
dividend by the Company or any of its subsidiaries must also consider
additional factors, including the amount of current period net income,
liquidity, asset quality, and economic conditions and trends.
Federal law also imposes limitations on the extent to which the Company's bank
subsidiaries may finance or otherwise supply funds to the Company and its
nonbank subsidiaries. Such transactions with the Company and each of its
nonbank subsidiaries are limited to 10% of each subsidiary bank's capital and
surplus. There is also a 20% limit on each bank's aggregate covered
transactions with the Company and all of its nonbank subsidiaries. At December
31, 1993, the Company had no borrowings outstanding from any of its
subsidiaries, and one of the Company's nonbank subsidiaries had a secured loan
of $38,021,000 outstanding from a bank subsidiary, representing 6.3% of the
aggregate capital and surplus of the bank subsidiaries.
The Company has a Stockholders Rights Plan under which stock purchase rights
have been distributed to the Company's stockholders. The rights may become
exercisable in the event of certain unsolicited attempts to acquire the
Company. The rights, which expire in December 1998, become exercisable 10
business days after a person, including a group, acquires 20% or more of the
Company's outstanding common stock or commences a tender offer that would
result in such person owning 25% or more of such stock or the Board of
Directors determines that a person owning 10% or more of such stock is an
"adverse person." If any person becomes the owner of 25% or more of the
outstanding common stock or the Board determines that a person is an adverse
person, the rights of holders other than such owner or adverse person become
rights to buy shares of common stock of the Company (or of the acquiring
company if the Company is acquired in certain mergers or other business
combinations) having a market value of twice the exercise price of each right,
with the result that such owner's or adverse person's interest in the Company
would be substantially diluted. The Company may redeem the right, at a price of
$.01 per right, until 10 business days after a person acquires 20% or more of
the outstanding common stock or the Board has determined that a person is an
adverse person.
23
<PAGE> 21
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements of the Company
and its subsidiaries follow generally accepted accounting principles and
reporting practices applicable to the banking industry. Material intercompany
transactions have been eliminated. Certain prior years' amounts have been
reclassified to conform with the current year presentation.
INTEREST-BEARING DEPOSITS AND OTHER SHORT-TERM INVESTMENTS - Consists of
federal funds sold and securities purchased under resale agreements of
$541,260,000 in 1993 and $368,750,000 in 1992, respectively, and debt
securities with maturities of less than 90 days. Debt securities are reported
at amortized cost, which approximates market value.
TRADING ACCOUNT SECURITIES - Consists primarily of municipal securities held
for resale to customers. These securities are recorded at market value.
SECURITIES - Securities available for sale, consisting principally
of debt securities, are stated at the lower of aggregate amortized cost or
market value. Decisions to purchase or sell these securities as part of the
Company's ongoing asset and liability management process are based on
management's assessment of changes in economic and financial market conditions,
interest rate environments, the Company's balance sheet and its interest
sensitivity position, liquidity, and capital. The cost of securities sold is
determined by the specific identification method.
The investment securities portfolio, principally debt securities, is stated at
cost, adjusted for amortization of premium and accretion of discount using a
level yield method. This basis for valuation reflects management's intention
and ability to hold these securities until maturity.
INTEREST RATE SWAP AGREEMENTS - The Company uses interest rate swap agreements
to manage its interest rate exposure. Income or expense on these agreements is
recorded as an adjustment to the yield on the underlying asset or liability.
LOANS - Interest income on most loans is accrued on the principal amount of
loans outstanding. Unearned income on leases and loans made on a discount
basis, $24,248,000 at year-end 1993 and $25,819,000 at year-end 1992, is
credited to interest income on a basis that results in approximately level
rates of return over the term of the lease or loan. Certain loan fees and
credit card fees, net of qualifying origination costs, are deferred and
amortized over the life of the related loan or commitment period. Deferred loan
and credit card fees, included in unearned income, were $11,353,000 and
$10,577,000 at year-end 1993 and 1992, respectively.
The Company engages in certain mortgage banking activities through a mortgage
subsidiary. Mortgage loans originated and held for sale are carried at the
lower of aggregate cost or market value, and gains and losses are determined
using the specific identification method. Loans sold with servicing retained
may give rise to a mortgage servicing asset that is amortized over the period
during which the servicing income is expected to be earned. Prepayment
assumptions that affect the determination of mortgage servicing rights are
reviewed periodically, and the amortization is adjusted to reflect current
circumstances. At December 31, 1993, mortgage loans held for sale were
$138,376,000, loans serviced for others were $2.0 billion, and excess mortgage
servicing rights were $4,213,000.
Loans are placed on nonaccrual and are considered nonperforming when payment of
principal or interest is considered to be in doubt. In addition, all loans past
due 90 days or more as to principal or interest are placed on nonaccrual status
except for certain consumer loans and those loans which, in management's
judgment, are adequately secured and for which collection is probable.
Previously accrued income that has not been collected is
NOTE 2. (CONTINUED)
reversed from current income, and subsequent cash receipts are applied to
reduce the unpaid principal balance. Loans are returned to accrual status when
collection of all contractual principal and interest is reasonably assured and
there has been sustained repayment performance. Nonperforming loans were
$110,001,000 at year-end 1993 and $180,580,000 at year-end 1992. Interest
income earned during the year on year-end nonperforming loans was approximately
$960,000; if these loans had been performing under contractual terms, interest
would have been approximately $8,300,000. In 1992, these amounts were
$4,300,000 and $14,900,000, respectively.
Loans are classified as restructured, accruing loans when the Company has
granted, for economic or legal reasons related to the borrower's financial
difficulties, a concession to the customer that the Company would not otherwise
consider. Such concessions can be any one or a combination of the following
modifications to the terms of the debt: the reduction of the stated interest
rate for the remaining original life of the debt; extension of the maturity
date at a stated interest rate lower than the current market rate for new debt
with similar risk; reduction of the face amount or maturity amount of the debt
as stated in the debt instrument; and reduction of accrued interest.
Restructured, accruing loans were $18,398,000 and $12,084,000 at December 31,
1993 and 1992, respectively. During 1993 and 1992, interest income recorded on
these loans approximated a market interest rate and in the aggregate was not
significantly different had these loans performed according to their original
terms. There are no commitments to lend additional funds to these borrowers.
ALLOWANCE FOR LOAN LOSSES - Loans considered to be uncollectible are charged to
the allowance for loan losses. Additions to the allowance are provided by
recoveries of previously charged-off loans and by the provision for loan losses
in amounts sufficient to maintain the adequacy of the allowance. The adequacy
is determined by management's evaluation of potential losses in the portfolio,
economic conditions, historical net charge-offs, and anticipated portfolio
growth. Included in the allowance are amounts allocated to specific loans,
amounts allocated to other loans that may become uncollectible but cannot be
individually identified, and unallocated amounts. Management believes that the
allowance for loan losses is adequate.
Various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses of the Company's
subsidiaries. Such agencies can require the Company to recognize additions to
the allowance based on regulatory judgments of information available at the
time of their examination.
OTHER REAL ESTATE OWNED - Other real estate owned (OREO) consists of foreclosed
properties and in-substance foreclosures. Loans are classified as in-substance
foreclosures under the following circumstances: when the debtor has little or
no equity in the collateral, considering the current fair value of the
collateral; and when proceeds for repayment of the loan can be expected to come
only from the operation or sale of the collateral; and when the debtor has
either formally or effectively abandoned control of the collateral to the
creditor or retained control of the collateral, but, because of the current
financial condition of the debtor, or the economic prospects for the debtor
and/or the collateral in the foreseeable future, it is doubtful that the debtor
will be able to rebuild equity in the collateral or otherwise repay the loan in
the foreseeable future.
Other real estate owned is recorded at the lower of the book value of the loan
or the fair value of the asset acquired, less estimated disposition costs. The
excess, if any, of the loan amount over the fair value of the asset acquired is
charged off against the allowance for loan losses. Pursuant to the adoption of
accounting Statement
24
<PAGE> 22
NOTE 2. (CONTINUED)
of Position (SOP) 92-3, "Accounting for Foreclosed Assets," which became
effective for periods ending after December 15, 1992, subsequent changes in the
value of OREO (including in-substance foreclosures) are recorded directly to an
OREO reserve. These changes in the OREO reserve are included in total operating
expenses. Proceeds in excess of the carrying value at the time of sale are
recorded as a reduction in the provision for the OREO reserve. Prior to the
adoption of SOP 92-3 at December 31, 1992, changes in the value of OREO were
recorded directly to the value of the property. Expenses to administer these
properties are charged to operating expense as incurred.
INCOME TAXES - In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," effective January 1, 1993. The Company adopted Statement No. 109
as of January 1, 1993.
Statement No. 109 changed the Company's method of accounting for income taxes
from the deferred method to the asset and liability method. The objective of
the asset and liability method is to establish
deferred tax assets and liabilities for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. A valuation allowance, if necessary, is established to
provide for
NOTE 2. (CONTINUED)
deferred tax assets that are not expected to be realized. Adoption
of Statement No. 109 did not have a material effect on the Company's results of
operations or financial condition.
Prior to adoption of Statement No. 109, the Company accounted for income taxes
under Accounting Principles Board (APB) Opinion No. 11. Under APB Opinion No.
11, deferred taxes were provided for all significant items of income and
expense that were recognized in different periods for financial reporting and
income tax purposes.
EARNINGS PER SHARE - Earnings per common share are computed by dividing net
income by the weighted average number of common shares outstanding and dilutive
common stock equivalents (stock options) for each period presented. Average
dilutive common stock equivalents were 282,175 for 1993 and 150,328 for 1992.
The dual presentation of primary and fully diluted earnings per common share is
not presented, since the difference from earnings per share is less than 3%.
NOTE 3. FEDERAL RESERVE ACCOUNT BALANCES
The Company's banks are required to maintain average reserve balances with the
Federal Reserve Bank. These balances can be either in the form of vault cash or
funds left on deposit with the Federal Reserve Bank. The average amount of
these balances was $305,379,000 for 1993 and $290,287,000 for 1992.
NOTE 4. SECURITIES PORTFOLIOS
The amortized cost, estimated market values, and yields of the following
securities portfolios by maturity (excluding interest-bearing deposits and
other short-term investments) were:
<TABLE>
<CAPTION>
YEAR-END SECURITIES PORTFOLIOS
--------------------------------------------------------------
GROSS GROSS WEIGHTED
DECEMBER 31, 1993 CARRYING UNREALIZED UNREALIZED MARKET AVERAGE
(Dollars in thousands on a tax equivalent basis) VALUE GAINS LOSSES VALUE YIELD
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Government securities, maturing
Within 1 year . . . . . . . . . . . . . . . $ 322,707 $ 3,280 $ (3) $ 325,984 4.91%
----------- ---------- -------- -----------
322,707 3,280 (3) 325,984 4.91
----------- ---------- -------- -----------
State and local governments, maturing
Within 1 year . . . . . . . . . . . . . . . 18,944 6 (2) 18,948 3.92
After 1 year but within 5 years . . . . . . 20 -- -- 20 7.39
----------- ---------- -------- -----------
18,964 6 (2) 18,968 3.92
----------- ---------- -------- -----------
CORPORATE AND OTHER, MATURING
Within 1 year . . . . . . . . . . . . . . . 256,500 -- -- 256,500 4.02
----------- ---------- -------- -----------
256,500 -- -- 256,500 4.02
----------- ---------- -------- -----------
Mortgage-backed securities . . . . . . . . . . 30,832 1,162 -- 31,994 6.32
----------- ---------- -------- -----------
Total securities available for sale . . . . $ 629,003 $ 4,448 $ (5) $ 633,446 4.59%
=========== ========== ======== ===========
INVESTMENT SECURITIES
U.S. Government securities, maturing
Within 1 year . . . . . . . . . . . . . . . $ 464,118 $ 3,026 $ -- $ 467,144 4.32%
After 1 year but within 5 years . . . . . . 739,197 3,421 (59) 742,559 4.34
----------- ---------- -------- ----------
1,203,315 6,447 (59) 1,209,703 4.33
----------- ---------- -------- ----------
State and local governments, maturing
Within 1 year . . . . . . . . . . . . . . . 112,576 98 (9) 112,665 4.20
After 1 year but within 5 years . . . . . . 12,755 209 (12) 12,952 6.77
After 5 years but within 10 years . . . . . 3,666 73 (4) 3,735 7.17
----------- ---------- -------- ----------
128,997 380 (25) 129,352 4.54
----------- ---------- -------- ----------
Asset-backed securities . . . . . . . . . . . . 204,798 115 (827) 204,086 4.33
Industrial revenue bonds . . . . . . . . . . . 59,958 -- -- 59,958 5.34
Corporate and other . . . . . . . . . . . . . . 1,992 -- -- 1,992 --
----------- ---------- -------- ----------
Total investment securities . . . . . . . . $ 1,599,060 $ 6,942 $ (911) $1,605,091 4.38%
=========== ========== ======== ==========
</TABLE>
(Note 4 continued next page)
25
<PAGE> 23
NOTE 4. (CONTINUED)
<TABLE>
<CAPTION>
YEAR-END SECURITIES PORTFOLIOS
-------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1992 CARRYING UNREALIZED UNREALIZED MARKET
(In Thousands) VALUE GAINS LOSSES VALUE
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Government securities . . . . . . . . $ 1,433,945 $ 9,074 $ (2,198) $ 1,440,821
Mortgage-backed securities . . . . . . . . 88,932 1,164 -- 90,096
------------- ------------ ------------ ---------------
Total securities available for sale . . . $ 1,522,877 $ 10,238 $ (2,198) $ 1,530,917
============= ============ ============ ===============
INVESTMENT SECURITIES
State and local governments . . . . . . . . $ 37,869 $ 532 $ -- $ 38,401
Industrial revenue bonds . . . . . . . . . 75,938 -- -- 75,938
Corporate and other . . . . . . . . . . . . 42,685 -- -- 42,685
------------- ------------ ------------ ---------------
Total investment securities . . . . . . . $ 156,492 $ 532 $ -- $ 157,024
============= ============ ============ ===============
</TABLE>
The year-end maturity distribution excludes industrial revenue bonds, which are
not regarded as principal debt securities, and mortgage-backed and asset-backed
securities.
The book value of securities pledged to secure public and trust deposits and
repurchase agreements, and to meet other legal requirements was $676,934,000 at
December 31, 1993.
During 1993, proceeds from sales of securities available for sale were
$331,550,000, resulting in realized gains of $439,000. There were $28,000 in
realized losses from the sales of these securities.
During 1992, proceeds from sales of securities available for sale were
$1,192,000,000, and proceeds from sales of investment securities were
$1,262,000,000, resulting in realized gains of $41,123,000 and $37,506,000,
respectively. There were $1,700,000 in realized losses from the sales of
investment securities.
In 1993, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Statement No. 115, which will be effective in 1994, changes
the accounting for short-term investments and the securities portfolios. The
Company's current balance sheet classifications conform with Statement No.
115. However, beginning in 1994, changes in the fair value of the securities
available for sale portfolio will be recorded directly to a separate category
of stockholders' equity. Currently, securities available for sale are valued at
the lower of aggregate cost or market, and changes therein are recorded
directly to earnings. At December 31, 1993, the fair value of the securities
available for sale exceeded their cost by $4,443,000, or $2,526,000 on an
after-tax basis, and thus, stockholders' equity would have increased by that
amount if Statement No. 115 had been in effect at year-end.
NOTE 5. LOANS TO RELATED PARTIES
Loans outstanding to executive officers and directors of the Company and its
principal subsidiaries consist primarily of loans made to executive officers
and related business interests of certain directors; these loans were
$32,193,000 and $20,954,000 at December 31, 1993, and December 31, 1992,
respectively. An analysis of the activity during the year for loans outstanding
at year-end is as follows:
NOTE 5. (CONTINUED)
<TABLE>
<CAPTION>
(In thousands) 1993
--------
<S> <C>
Balance, January 1 . . . . . . . . . . . . . $ 20,954
Additions during the year . . . . . . . . . 21,188
Reductions during the year . . . . . . . . . (9,949)
--------
Balance, December 31 . . . . . . . . . . . . $ 32,193
========
</TABLE>
These loans were made in the ordinary course of business under normal credit
terms, including interest rates and collateralization prevailing at the time
for comparable transactions with other persons, and do not represent more than
a normal risk of collection.
NOTE 6. ALLOWANCE FOR LOAN LOSSES AND OREO RESERVE
Activity in the allowance for loan loss account was:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1 . . . . . . . . . . . . $ 192,700 $ 212,500 $ 214,203
Provision . . . . . . . . . . . . . . . . . 36,500 106,836 165,400
Loan losses charged off . . . . . . . . . . (79,963) (140,790) (175,654)
Less recoveries . . . . . . . . . . . 22,259 14,154 8,551
---------- ---------- ----------
Net charge-offs . . . . . . . . . . . . . . (57,704) (126,636) (167,103)
---------- ---------- ----------
Balance, December 31 . . . . . . . . . . . $ 171,496 $ 192,700 $ 212,500
========== ========== ==========
</TABLE>
Activity in the other real estate owned reserve was:
<TABLE>
<CAPTION>
1993
----------
<S> <C>
Balance, January 1 . . . . . . . . . . . . $ 7,833
Additions to the OREO reserve . . . . . . . 32,471
Reductions related to sales . . . . . . . . (10,528)
----------
Balance, December 31 . . . . . . . . . . . $ 29,776
==========
</TABLE>
NOTE 7. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation on buildings is computed primarily on a
straight-line basis with estimated lives ranging from 25 to 50 years. Furniture
and equipment useful lives generally range from 3 to 10 years. Leasehold
improvements are amortized over their useful life or lease term, whichever is
shorter.
26
<PAGE> 24
NOTE 7. (CONTINUED)
Premises and equipment were comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
---------- ----------
<S> <C> <C>
Buildings . . . . . . . . . . . . . . . . . $ 160,770 $ 155,513
Land . . . . . . . . . . . . . . . . . . . 15,694 15,770
Equipment . . . . . . . . . . . . . . . . . 233,393 222,841
---------- ----------
409,857 394,124
Accumulated
depreciation . . . . . . . . . . . . . . 217,303 195,694
---------- ----------
Net premises
and equipment . . . . . . . . . . . . . . $ 192,554 $ 198,430
========== ==========
</TABLE>
Depreciation and amortization expense of premises, equipment, and leasehold
improvements was $24,218,000 in 1993, $24,246,000 in 1992, and $23,599,000 in
1991.
Total rental expense was $26,346,000 in 1993, $27,367,000 in 1992, and
$28,180,000 in 1991, net of $1,705,000, $2,232,000, and $2,496,000 in rental
income from subleases, respectively. Contingent rentals were negligible. As of
December 31, 1993, the Company and its subsidiaries were obligated, under
non-cancelable operating leases (primarily for premises), for minimum rentals
in future periods as follows:
<TABLE>
<CAPTION>
(In thousands) TOTAL RENTAL NET
OBLIGATION INCOME OBLIGATION
---------- --------- -----------
<S> <C> <C> <C>
1994 . . . . . . . . . . . $ 11,619 $ 1,118 $ 10,501
1995 . . . . . . . . . . . 11,583 1,012 10,571
1996 . . . . . . . . . . . 10,673 899 9,774
1997 . . . . . . . . . . . 9,785 776 9,009
1998 . . . . . . . . . . . 7,346 688 6,658
Thereafter . . . . . . . . 17,559 2,074 15,485
</TABLE>
Most leases contain escalation of rent clauses based on increases in real
estate taxes or equipment usage. Many leases include renewal provisions.
NOTE 8. FEDERAL FUNDS PURCHASED AND OTHER
SHORT-TERM BORROWINGS
Balances outstanding as of December 31, 1993 and 1992,
consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) FEDERAL U.S.
FUNDS REPURCHASE TREASURY
TOTAL PURCHASED AGREEMENTS AND OTHER
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1993
Year-end
balance . . . . . . . . . $ 507,820 $ 54,235 $ 448,182 $ 5,403
Maximum
month-end
balance . . . . . . . . . 507,820 88,620 448,182 7,058
Average daily
balance . . . . . . . . 150,608 71,770 74,654 4,184
Weighted average
interest rates:
As of
year-end . . . . . . . 3.10% 2.78% 3.18% -
During
the year . . . . . . . 2.72 2.79 2.81 -
</TABLE>
Note 8. (Continued)
<TABLE>
<CAPTION>
(Dollars in thousands) FEDERAL U.S.
FUNDS REPURCHASE TREASURY
TOTAL PURCHASED AGREEMENTS AND OTHER
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1992
Year-end
balance . . . . . . . . . $ 139,969 $ 91,655 $ 41,019 $ 7,295
Maximum
month-end
balance . . . . . . . . . 267,225 97,407 196,357 7,295
Average daily
balance . . . . . . . . . 147,856 84,639 61,221 1,996
Weighted average
interest rates:
As of
year-end . . . . . . . 2.43% 2.72% 2.13% --
During
the year . . . . . . . 2.90 3.29 2.44 --
</TABLE>
NOTE 9. LONG-TERM DEBT
In September 1985, the Company issued $50,000,000 in floating-rate notes. The
notes will mature on September 30, 1997, and pay interest at a rate, adjusted
quarterly, of 1/8 of 1% above the London Interbank Offered Rate (LIBOR) for
three-month Eurodollar deposits. During 1993 the weighted average rate paid was
3.43%, and at December 31, 1993, the rate was 3.44%. The proceeds were used in
the funding of the affiliate banks on identical terms. The notes may be
redeemed by the Company in whole or in part at any time at 100% of the
principal amount plus accrued interest.
The Company's 5% debentures, due January 15, 1994, were convertible into common
stock of the Company at $13.75 per share, for which purpose 3,709 shares were
reserved at December 31, 1993, and were redeemable at the option of the Company
at 100% of the principal amount. At December 31, 1993, the debentures totaled
$51,000. The debentures were paid in full at maturity.
The balance of long-term debt at December 31, 1993, includes mortgage debt at
two subsidiaries totaling $4,097,000. The monthly payment amounts of the
mortgages totaled $40,000 in 1993 with final maturities from 1994 to 2013.
Obligations on capitalized leases totaled $340,000 at December 31, 1993.
NOTE 10. EMPLOYEE STOCK OPTION PLANS
The Company offers shares of common stock to key employees under stock option
plans. Options are awarded by a committee of the Board of Directors. The
following is a summary of the changes in options outstanding for the last three
years:
<TABLE>
<CAPTION>
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Options outstanding at
the beginning of the year . . . . . . . . 916,348 817,684 729,184
Options granted . . . . . . . . . . . . . . 97,500 182,000 176,500
Options exercised . . . . . . . . . . . . . (157,414) (20,336) --
Options forfeited . . . . . . . . . . . . . (26,000) (63,000) (88,000)
-------- ------- -------
Options outstanding at
the end of the year . . . . . . . . . . . 830,434 916,348 817,684
======== ======= =======
</TABLE>
27
<PAGE> 25
NOTE 10. (CONTINUED)
Prices of shares under option at December 31, 1993, ranged from $13.75 to
$45.00, and options for 426,228 shares were exercisable. Unless exercised, the
options will expire at varying dates through 2003. There was no compensation
expense recorded in the years presented related to stock options.
In addition to the above, the Company had a restricted stock plan, which
expired in 1992. As of December 31, 1993, 400,000 shares had been awarded.
Certificates for shares awarded were issued in the name of the employee, who
has all the rights of a shareholder, with the shares subject to certain
restrictions. At December 31, 1993, such restrictions remained on 181,395
shares outstanding. The certificates are held by the Company until the
restrictions lapse or the shares are forfeited. Restriction periods vary from 1
to 10 years from the date of grant. During 1993, restrictions on 59,328 shares
lapsed, and 11,446 shares were forfeited. The fair market value of awarded
shares was previously recorded as deferred compensation as a segregation of
surplus that is amortized to benefits expense over the restriction period. The
unamortized amounts were $1,451,000 at December 31, 1993, $2,952,000 at
December 31, 1992, and $1,337,000 at December 31, 1991. Compensation expense
related to restricted stock grants, net of forfeitures, was $1,099,000 in 1993,
$2,232,000 in 1992, and $860,000 in 1991.
NOTE 11. BENEFITS
The Company and its subsidiaries provide a noncontributory defined benefit
pension plan that covers substantially all employees. Benefits are based upon
length of service and qualifying compensation during the final years of
employment. Contributions are made to the plan as costs are accrued. Assets
held by the plan consist primarily of government securities and common stock.
The table below sets forth the plan's funded status and amounts recognized at
December 31, 1993, 1992, and 1991.
<TABLE>
<CAPTION>
(In thousands) December 31
------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligations . . . . . . . . . . . . . . . $ 69,418 $ 54,765 $ 44,093
========== ========== ==========
Accumulated benefit
obligations . . . . . . . . . . . . . . . $ 71,160 $ 56,479 $ 45,636
========== ========== ==========
Projected benefit
obligations . . . . . . . . . . . . . . . $ 91,816 $ 78,667 $ 64,267
Plan assets (primarily
marketable securities)
at market value . . . . . . . . . . . . . 120,041 111,021 97,202
---------- ---------- ----------
Net assets in excess of
projected benefit
obligations . . . . . . . . . . . . . . . 28,225 32,354 32,935
Unrecognized experience
gain . . . . . . . . . . . . . . . . . . (5,316) (7,988) (7,288)
Unrecognized prior service
cost . . . . . . . . . . . . . . . . . . 1,831 2,112 2,392
Unamortized net excess
pension assets at
transition recognized
over 15 years . . . . . . . . . . . . . . (11,809) (13,286) (14,761)
---------- ---------- ----------
Prepaid pension cost
recorded in
other assets . . . . . . . . . . . . . . $ 12,931 $ 13,192 $ 13,278
========== ========== ==========
</TABLE>
NOTE 11. (CONTINUED)
Assumptions used in determining the actuarial present value of the projected
benefit obligation as of December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . . . . . 7.25% 8.00% 9.00%
Rate of increase in future
compensation levels . . . . . . . . . . . 4.70 5.20 6.20
</TABLE>
Net periodic pension expense (credit) consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Service costs
earned during
period . . . . . . . . . . . . . . . . . $ 4,083 $ 3,724 $ 3,615
Interest cost on
projected benefit
obligation . . . . . . . . . . . . . . 6,304 6,071 5,314
Actual return
on plan
assets . . . . . . . . . . . . . . . . . (11,113) (15,382) (18,631)
Net amortization
and deferral. . . . . . . . . . . . . . . 987 5,673 9,584
--------- --------- ---------
Net pension
expense
(credit) . . . . . . . . . . . . . . . . $ 261 $ 86 $ (118)
========= ========= =========
</TABLE>
Assumptions used in determining the net pension expense (credit) were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Rate of return on plan assets . . . . . . . 9.00% 9.50% 9.50%
Discount rate . . . . . . . . . . . . . . . 8.00 9.00 9.00
Rate of increase in future
compensation levels . . . . . . . . . . . 5.20 6.20 6.20
</TABLE>
In addition to the above, the Company provides supplemental retirement
benefits, the cost of which was $480,969 in 1993, $419,250 in 1992, and
$376,000 in 1991.
The Company has a savings and profit sharing plan that is interrelated with an
employee stock ownership plan (ESOP). Under these plans, employees of the
Company and its subsidiaries are eligible to receive benefits upon completion
of certain service requirements, with a portion of such benefits payable under
the ESOP in shares of the Company's common stock. In 1989, the ESOP borrowed
$18,600,000 from a third party to purchase 800,000 shares of the Company's
common stock. This loan, unconditionally guaranteed by the Company, is payable
in eight increasing instalments that began on January 31, 1990.
At December 31, 1993, the balance of the ESOP loan was $12,241,000, and
unallocated ESOP shares were 526,495. During 1993, ESOP expense of $2,566,000
included an accrual to cover the loan payment due on January 31, 1994, and
interest expense on the ESOP loan of $455,000. The amount of dividends used to
service the debt, which were paid on shares held by the ESOP, was $697,000 in
1993; there were no dividends paid in 1992 and 1991.
Apart from the contributions to the ESOP, the Company made no contributions to
the savings and profit sharing plan in 1993, 1992, or 1991. As of December 31,
1993, accumulated ESOP benefits totaling $2,647,000 will reduce future
contributions to the savings and profit sharing plan.
28
<PAGE> 26
NOTE 11. (CONTINUED)
The Company has a plan providing severance benefits for certain employees of
the Company and its subsidiaries with respect to certain terminations of
employment within two years after a change in control of the Company.
Approximately 3,500 employees are potentially eligible for benefits under the
plan. Existing compensation and benefit plans have been amended to protect
previously earned compensation and future benefits in the event of a change in
control of the Company.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" as of
January 1, 1993. Statement No. 106 requires a calculation of the present value
of expected benefits to be paid to employees after their retirement and an
allocation of those benefits to the periods in which employees render service
to earn the benefits. For employees retiring prior to December 31, 1993, the
Company provided $5,000 of life insurance and a Medicare premium supplement and
permitted those under 65 to participate in the Company's medical plan by paying
the full group rate; full-time employees pay approximately 25% of the group
rate. Those retiring after December 31, 1993, will not receive the Medicare
supplement and will pay premiums for life and medical insurance reflecting the
Company's full cost of coverage for retirees.
The initial transition obligation associated with the adoption of Statement No.
106 was $3,600,000. In accordance with the statement, the Company will
recognize this liability over the remaining service periods of plan
participants. Since eligibility for these Company-subsidized benefits ceased at
December 31, 1993, this period ranges from approximately five years for the
medical insurance to thirteen years for the life insurance and Medicare
supplements.
The table below sets forth the plan's funded status and amounts recognized at
December 31, 1993.
Accumulated Postretirement Benefit Obligation:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Life insurance . . . . . . . . . . . . . . $ (2,445)
Early retirement medical . . . . . . . . . (244)
Medicare supplement . . . . . . . . . . . . (908)
---------
Total . . . . . . . . . . . . . . . . . . $ (3,597)
=========
Plan assets . . . . . . . . . . . . . . . . $ --
=========
Accumulated postretirement
benefit obligation in excess of
assets . . . . . . . . . . . . . . . . . $ (3,597)
Unrecognized net loss . . . . . . . . . . . 186
Unrecognized prior service cost . . . . . . --
Unrecognized net transition
obligation . . . . . . . . . . . . . . . 3,152
---------
Net postretirement benefit liability. . . . $ (259)
=========
</TABLE>
Postretirement benefit expense was $619,000 in 1993.
In 1992, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." Statement No. 112, which will be effective in 1994, covers all
postemployment benefits not already covered by the two prior accounting
pronouncements. Adoption of Statement No. 112 will result in an additional
accrual of postemployment benefits of $1,600,000, of which the after-tax amount
of approximately $1,000,000 will be recorded in the first quarter of 1994. The
recurring annual cost of postemployment benefits to former employees is
estimated at approximately $250,000. This amount is comparable to the annual
cost incurred in 1993.
NOTE 12. OTHER NONINTEREST INCOME
The major components of other noninterest income were:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
(In thousands) 1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Credit card fees . . . . . . . . . $ 18,892 $ 19,398 $ 19,354
Trust fees . . . . . . . . . . . . 14,559 14,810 14,891
Processing fees . . . . . . . . . . 13,788 12,624 12,220
Mortgage banking fees . . . . . . . 11,972 10,207 6,035
Investment management
and brokerage fees . . . . . . . 6,561 4,197 1,949
International fees . . . . . . . . 5,845 6,035 5,890
Other noninterest
income . . . . . . . . . . . . . 21,696 19,939 20,881
-------- -------- --------
$ 93,313 $ 87,210 $ 81,220
======== ======== ========
</TABLE>
NOTE 13. OTHER OPERATING EXPENSES
The major components of other operating expenses were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
(In thousands) 1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
FDIC insurance . . . . . $ 21,949 $ 19,289 $ 18,329
Marketing and public
relations . . . . . . . 21,341 17,033 13,466
Service bureau and
other data processing . 16,538 15,602 13,444
Professional services . . 13,744 12,482 8,577
Printing and supplies . . 12,997 12,557 11,879
Postage . . . . . . . . . 8,290 8,201 8,213
Legal and consulting . . 6,609 9,763 7,933
Other operating expenses. 27,699 27,385 29,408
--------- --------- ---------
129,167 122,312 111,249
OREO and legal expenses
related to workout. . . 17,468 18,450 17,246
--------- --------- ---------
$ 146,635 $ 140,762 $ 128,495
========= ========= =========
</TABLE>
NOTE 14. INCOME TAXES
The provision for income taxes was comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Provision for:
Federal income tax . . . . . . . $ 32,254 $ 25,101 $ 2,720
State income tax . . . . . . . 14,818 11,350 4,028
--------- --------- ---------
$ 47,072 $ 36,451 $ 6,748
========= ========= =========
</TABLE>
The current and deferred components of the provision were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C> <C>
Current taxes payable:
Federal . . . . . . . . . . . . . $ 31,084 $ 26,940 $ 3,743
State . . . . . . . . . . . . . . 13,313 11,350 4,264
--------- --------- ---------
$ 44,397 $ 38,290 $ 8,007
========= ========= =========
Deferred taxes (benefit):
Federal . . . . . . . . . . . . . $ 1,170 $ (1,839) $ (1,023)
State . . . . . . . . . . . . . . 1,505 -- (236)
--------- --------- ---------
$ 2,675 $ (1,839) $ (1,259)
========= ========= =========
</TABLE>
29
<PAGE> 27
NOTE 14. (CONTINUED)
The major components of deferred income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
Loan losses . . . . . . . $ 9,360 $ 6,628 $ 907
Depreciation . . . . . . (1,859) (1,408) (1,004)
Loan fees, net . . . . . (348) (211) 644
Pension credit . . . . . (360) (31) 33
Lease financing . . . . . (2,973) (439) 543
Provision for OREO
reserve, net . . . . . (3,300) (4,947) (3,046)
Other, net . . . . . . . 2,155 (1,431) 664
--------- --------- ---------
$ 2,675 $ (1,839) $ (1,259)
========= ========= =========
</TABLE>
The differences between the effective income tax rate and the nominal federal
tax rate on income before taxes are reconciled as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
Nominal federal tax rate 35.0% 34.0% 34.0%
State tax rate, net of
federal tax benefit . . 8.4 7.8 16.2
Tax-exempt income . . . . (2.3) (2.6) (24.3)
Alternative minimum tax . - (1.4) 8.1
Non-deductible goodwill . .2 0.6 4.4
Other . . . . . . . . . . (.3) (0.3) 2.7
----------- ----------- -----------
41.0% 38.1% 41.1%
=========== =========== ===========
</TABLE>
At December 31, 1993, and January 1, 1993, the Company had gross deferred tax
assets and gross deferred tax liabilities as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
(In thousands) 1993 1993
--------- ----------
<S> <C> <C>
Deferred tax assets:
Loan losses . . . . . . . . . . . . . . $ 73,900 $ 83,260
OREO reserve . . . . . . . . . . . . . 12,972 9,672
Loan fees, net . . . . . . . . . . . . 5,128 4,780
Other, net . . . . . . . . . . . . . . 3,859 4,448
--------- ---------
95,859 102,160
--------- ---------
Deferred tax liabilities:
Lease financing . . . . . . . . . . . . 13,365 16,338
Depreciation . . . . . . . . . . . . . 8,928 10,787
Pension credit . . . . . . . . . . . . 5,575 5,935
Other, net . . . . . . . . . . . . . . 2,606 1,040
--------- ---------
30,474 34,100
--------- ---------
Net deferred tax asset . . . . . . . $ 65,385 $ 68,060
========= =========
</TABLE>
NOTE 15. FINANCIAL INSTRUMENTS WITH CREDIT RISK AND OFF-BALANCE SHEET RISK
CONCENTRATION OF CREDIT RISK - The Company is a commercial banking
organization, providing diversified financial services to individuals,
businesses, governmental units, and other banks. The Company provides a
comprehensive range of credit, non-credit, and international banking products
and services to the New England region, with particular emphasis in the
Commonwealth of Massachusetts, and accordingly is affected by general economic
conditions in the region.
OFF-BALANCE SHEET RISK - In the normal course of business, the Company uses
various off-balance sheet commitments and financial
NOTE 15. (CONTINUED)
instruments for interest rate risk management purposes and to accommodate
certain financing requirements of customers. These commitments and financial
instruments may include loan commitments, interest rate swaps, standby letters
of credit, loans sold with recourse, letters of credit, forward contracts,
interest rate caps, and interest rate floors. These instruments involve varying
degrees of credit and market risk in excess of the amounts included in the
consolidated balance sheet. The contract or notional amounts of these
instruments reflect the extent of the Company's involvement in each particular
class of financial instrument.
The Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees under recourse arrangements
is represented by the contractual amount of those instruments. The Company uses
the same credit policies in extending commitments and conditional obligations
as it does for on-balance sheet instruments. For interest rate swaps, caps, and
floors, the contract or notional amounts do not represent an exposure to credit
loss. The Company controls the credit risk of its interest rate swap agreements
through credit approvals, limits, and monitoring procedures in conjunction with
its interest rate risk management activities. Unless otherwise noted, the
Company does not require collateral or other security to support financial
instruments with credit risk.
Off-balance sheet financial instruments at December 31, 1993 and 1992, were as
follows:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
----------------------------------
(In thousands) 1993 1992
----------- -----------
<S> <C> <C>
Loan commitments . . . . . . . . . . . . $ 2,763,000 $ 2,810,000
Standby letters of credit . . . . . . . . 164,000 172,000
Forward commitments . . . . . . . . . . . 163,000 244,000
Loans sold with recourse . . . . . . . . 46,000 68,000
Foreign exchange
commitment contracts . . . . . . . . . 44,000 37,000
Letters of credit . . . . . . . . . . . . 15,000 25,000
Interest rate swaps . . . . . . . . . . . 8,000 21,000
Securities purchase and sell
commitments . . . . . . . . . . . . . . -- 1,000
</TABLE>
LOAN COMMITMENTS, LETTERS OF CREDIT, AND STANDBY LETTERS OF CREDIT - Loan
commitments and letters of credit are granted under the same credit policies
used for on-balance sheet outstandings. Commitments are subject to various
terms and conditions that have to be met before being drawn upon and have a
fixed expiration date. The nature of many commitments is such that they are
expected to expire without being drawn upon, thus not requiring future funding
by the Company.
Letters of credit are documents, principally related to export and import trade
transactions, issued by the Company on behalf of its customers in favor of
third parties, who can present demands on the Company within specified terms
and conditions. Standby letters of credit are conditional commitments to
guarantee the performance of a customer to a third party.
FORWARD COMMITMENTS - The Company enters into forward contract commitments to
reduce the market risk associated with originating residential mortgage loans
for sale. Contractual terms of forward commitments specify the aggregate amount
of contract, the interest rate or prices at which loans are to be delivered,
and the period covered. The market risk to the Company is the potential
inability to originate loans at prices specified in the contract within
30
<PAGE> 28
NOTE 15. (CONTINUED)
the commitment period, thus resulting in a potential difference between loan
origination requirements under contract terms and those loans acquired at
market prices to fulfill the commitment.
LOANS SOLD WITH RECOURSE - The Company sells residential mortgage loans to the
secondary market in connection with its mortgage banking business. While the
majority of these loans are sold on a nonrecourse basis, there is a nominal
amount of recourse loans. All residential mortgage loans are subject to the
same credit policies, and off-balance sheet loans with recourse have the same
credit risk as on-balance sheet loans. If a borrower defaults on a loan sold
with recourse, it is sold back to the Company to initiate normal collection
efforts.
FOREIGN EXCHANGE COMMITMENT CONTRACTS - The Company periodically enters into
offsetting agreements to purchase foreign currency and, in turn, to sell it to
customers. Credit risk exists because in the event the customer fails to take
delivery of the foreign currency, the Company is thus required to resell it to
the market.
INTEREST RATE SWAPS - The Company uses interest rate swap contracts in
conjunction with asset and liability management activities and to adjust
interest rate risk associated with specific customer transactions. These
contracts allow the Company to exchange fixed or variable interest rate payment
amounts on existing assets or liabilities without changing the terms or amount
of the underlying principal. Interest rate swaps are stated in notional terms,
which represent the aggregate amount of the specific asset or liability being
hedged by the interest rate swap transaction. However, the actual exposure to
credit risk is the stream of interest payments under the contractual terms of
the swap, not the notional amount. The Company manages the credit risk by
entering into interest rate swap agreements only with highly regarded
counterparties after a credit review process.
SECURITIES PURCHASE AND SELL COMMITMENTS - In connection with its capital
markets activities, the Company regularly commits to purchase and sell
securities issued by the U.S. Government and its agencies and by
municipalities.
NOTE 16. DISCLOSURES ABOUT THE FAIR VALUE OF
FINANCIAL INSTRUMENTS
Under the provisions of Statement of Financial Accounting Standards No. 107,
"Disclosures about the Fair Value of Financial Instruments," the Company is
required to estimate and disclose the fair value of certain of its on- and
off-balance sheet financial instruments. Statement No. 107 defines what
constitutes a financial instrument and recommends general methodologies to
determine fair value.
The fair value of a financial instrument as defined in Statement No. 107 is the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Quoted
market prices are used to establish fair value when they are available for a
particular financial instrument, and present value and other valuation
techniques are utilized to estimate the fair value of financial instruments
that do not have quoted market prices.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which disclosure is required by
Statement No. 107.
CASH AND DUE FROM BANKS AND INTEREST-BEARING DEPOSITS AND OTHER SHORT-TERM
INVESTMENTS - The current fair value of these financial instruments is defined
as the amount recorded in the balance sheet categories.
SECURITIES PORTFOLIOS - Securities available for sale, investment securities,
and trading account securities are financial instruments
NOTE 16. (CONTINUED)
that are usually traded in broad markets. Fair values are based upon market
prices and dealer quotes. If a quoted market price is not available for a
particular security, the fair value is determined by reference to quoted market
prices for securities with similar characteristics.
LOANS - For certain homogeneous categories of instalment loans, including
student loans and credit card receivables, fair value has been estimated using
quoted market prices for similar loans. The fair value of other instalment
loans, including automobile financing, was determined by discounted cash flow
techniques using interest rates for similar loans at December 31, 1993. Credit
risk factors were incorporated in the discount rates used for these loans and
reflected in the market prices obtained for homogeneous loans.
The fair value of residential mortgage loans, including ARMs and fixed-rate
loans, was determined using discounted cash flow techniques with year-end
interest rates, and by comparison with quoted market prices for mortgage-backed
securities with similar interest rates and terms. The analysis also reflected
estimated prepayment factors.
The fair value of both fixed- and variable-rate commercial and commercial real
estate loans was determined by discounted cash flow techniques. Year-end 1993
interest rates were used that incorporated the risk of credit loss associated
with each type of loan, based on an evaluation performed as of December 31,
1993.
DEPOSITS - The fair value of demand deposits, NOW and savings accounts, and
money market deposits is defined by Statement No. 107 as the amount payable on
demand at the reporting date. Therefore, for these financial instruments, the
amounts recorded in the balance sheet are also reported as their fair value
under the provisions of the statement, and no core deposit value was derived
for fair value disclosure purposes.
The fair value of certificates of deposit with fixed interest rates is
estimated by the use of present value techniques. These techniques considered
the cash flow related to these certificates, year-end interest rates at which
similar certificates were issued with similar remaining maturities, and the
probability of early withdrawal if interest rates were to rise.
SHORT-TERM BORROWINGS - The carrying amounts of federal funds purchased and
other short-term borrowings are defined to approximate their fair values.
LONG-TERM DEBT - The fair value of long-term debt was established by market
prices of the debt and present value techniques that consider the debt's
remaining maturity and yield and the current credit ratings of the Company.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - These financial instruments generally
are not sold or traded, and there is no standard methodology for determining
their fair values. The Company's loan commitments are not beyond normal market
terms and do not include fees or conditions other than those associated with
customary market practices. The fair value of loan commitments was calculated
by determining the discounted present value of the remaining contractual fees
over the unexpired commitment period, generally not more than one year. The
fair value of securities purchase and sell commitments was determined by
reference to the price of the underlying securities. The fair value of standby
letters of credit was determined by reference to the current fees charged to
issue similar letters of credit. The fair value of forward commitments and
interest rate swaps was determined by reference to the market for similar
instruments.
31
<PAGE> 29
NOTE 16. (CONTINUED)
At December 31, 1993, the estimated fair values of off-balance sheet financial
instruments, consisting primarily of loan commitments, were not considered to
be material.
The fair value of the financial instruments presented, and as determined under
the guidelines established by Statement No. 107 as previously described, depend
highly on assumptions as they existed as of December 31, 1993 and 1992, and on
the related methodologies applied and do not purport to represent actual
economic value in a bona fide transaction with a legitimate buyer under normal
market conditions. It should also be noted that different financial
institutions will use different assumptions and methodologies in determining
fair values such that comparisons between institutions may be difficult. The
Company did not attempt to determine the fair value of its substantial base of
core deposits, as their disclosure is not required and due to the lack of
generally accepted, industry-wide methodology for determining such values. With
that understanding, the financial statement amounts and estimated fair values
of financial instruments at December 31, 1993 and 1992, were as follows:
<TABLE>
<CAPTION>
1993 1992
-------------------------- -------------------------
FINANCIAL FAIR FINANCIAL FAIR
STATEMENT VALUE STATEMENT VALUE
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and due
from banks . . . . . $ 632,985 $ 632,985 $ 733,726 $ 733,726
Interest-bearing
deposits and
other short-term
investments . . . . 803,068 803,068 1,091,985 1,091,985
Trading accounts . . 14,595 14,595 74,694 74,694
Securities
portfolios . . . . . 2,228,063 2,238,537 1,679,369 1,687,941
Loans (net of
allowance): . . . . .
Commercial
and commercial
real estate . . . . 2,146,686 2,210,000 2,292,128 2,345,000
Consumer . . . . . . 3,784,988 3,980,000 3,453,171 3,676,000
----------- ----------- ----------- ----------
5,931,674 6,190,000 5,745,299 6,021,000
Financial liabilities
Deposits:
Demand, NOW,
savings, and money
market deposit
accounts . . . . . . $ 7,749,919 $ 7,749,919 $ 7,708,846 $7,708,846
Consumer time . . . . 993,945 1,003,000 1,234,747 1,250,000
Time - $100,000
or more . . . . . . . 34,957 34,957 38,955 38,955
Federal funds
purchased
and other
short-term
borrowings . . . . . 507,820 507,820 139,969 139,969
Long-term debt . . . 54,488 54,000 55,188 52,000
</TABLE>
NOTE 17. CONTINGENCIES
The Company and its subsidiaries are involved in a number of legal proceedings
arising in the normal course of business. After reviewing such matters, the
Company believes that their resolution will not materially affect its results
of operations or financial position.
NOTE 18. QUARTERLY DATA (UNAUDITED)
Summarized quarterly financial data for years 1991 through 1993 are as follows:
<TABLE>
<CAPTION>
(In thousands except for
share amounts) YEAR ENDED DECEMBER 31
-------------------------------------------
1993 1992 1991
---------- ----------- ----------
<S> <C> <C> <C>
Net interest income
First Quarter . . . . $ 101,528 $ 101,271 $ 97,303
Second Quarter . . . . 104,917 104,548 98,799
Third Quarter . . . . 108,282 107,428 98,477
Fourth Quarter . . . . 109,096 103,265 102,317
--------- --------- ----------
$ 423,823 $ 416,512 $ 396,896
========= ========= ==========
Noninterest income
First Quarter . . . . $ 46,896 $ 43,309 $ 40,339
Second Quarter . . . . 48,751 46,484 42,142
Third Quarter . . . . 51,904 46,801 43,832
Fourth Quarter . . . . 50,973 47,287 43,440
--------- --------- ----------
$ 198,524 $ 183,881 $ 169,753
========= ========= ==========
Net securities gains
First Quarter . . . . $ -- $ 35,413 $ 228
Second Quarter . . . . 358 393 2,357
Third Quarter . . . . 49 -- 8,988
Fourth Quarter . . . . 4 41,123 29,390
--------- --------- ----------
$ 411 $ 76,929 $ 40,963
========= ========= ==========
Provision for loan losses and
OREO reserve
First Quarter . . . . $ 18,500 $ 60,210 $ 34,914
Second Quarter . . . . 16,892 38,619 42,646
Third Quarter . . . . 16,800 27,754 49,786
Fourth Quarter . . . . 9,138 25,735 65,504
--------- --------- ----------
$ 61,330 $ 152,318 $ 192,850
========= ========= ==========
Net income
First Quarter . . . . $ 12,761 $ 8,229 $ 1,001
Second Quarter . . . . 14,207 6,515 1,124
Third Quarter . . . . 18,001 10,436 1,063
Fourth Quarter . . . . 22,682 34,057 6,467
--------- --------- ----------
$ 67,651 $ 59,237 $ 9,655
========= ========= ==========
Earnings per share
First Quarter . . . . $ .68 $ .51 $ .06
Second Quarter . . . . .75 .40 .07
Third Quarter . . . . .95 .64 .07
Fourth Quarter . . . . 1.19 1.97 .40
--------- --------- ----------
$ 3.57 $ 3.57* $ 0.60
========= ========= ==========
</TABLE>
* The sum of the quarters' earnings per share for 1992 does not equal the
full-year amount due to the effect of the issuance of additional common stock
in the fourth quarter of 1992.
32
<PAGE> 30
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL AND STATISTICAL INFORMATION
- ------------------------------------------------
<S> <C>
Average Balances . . . . . . . . . . . . . . . . . . . 34
Summary of Operations . . . . . . . . . . . . . . . . . 35
Average Yields, Rates Paid, and Net Interest Margin . . 36
Distribution of Loans . . . . . . . . . . . . . . . . . 37
Credit Quality . . . . . . . . . . . . . . . . . . . . 37
Other Data . . . . . . . . . . . . . . . . . . . . . . 38
Quarterly Share Data . . . . . . . . . . . . . . . . . 38
</TABLE>
33
<PAGE> 31
<TABLE>
<CAPTION>
Average Balances BAYBANKS, INC.
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except share amounts) (1) 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits and
other short-term investments (2) . . . . . $ 593,317 $ 623,200 $ 675,655 $ 436,888 $ 120,583 $ 22,065
Securities available for sale
U.S. Government . . . . . . . . . . . . . . 1,158,347 303,306 -- -- -- --
Corporate and other . . . . . . . . . . . . 83,424 15,344 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
1,241,771 318,650 -- -- -- --
Investment securities
U.S. Government . . . . . . . . . . . . . . 622,387 782,293 536,255 327,103 342,587 182,191
Mortgage-backed securities . . . . . . . . -- 412,396 623,476 567,500 149,320 135,846
Asset-backed securities . . . . . . . . . . 67,130 -- -- -- -- --
State and local governments . . . . . . . . 74,190 50,192 87,792 142,117 154,759 290,246
Industrial revenue bonds . . . . . . . . . 68,921 84,757 98,644 114,042 129,245 151,007
Corporate and other . . . . . . . . . . . . 1,976 4,917 1,886 13,528 113,606 125,090
---------- ---------- ---------- ---------- ---------- ----------
834,604 1,334,555 1,348,053 1,164,290 889,517 884,380
Loans (3)
Commercial . . . . . . . . . . . . . . . . 1,364,807 1,553,643 1,849,960 2,251,316 2,495,733 2,250,770
Commercial real estate . . . . . . . . . . 956,991 1,117,933 1,343,300 1,545,502 1,551,012 1,327,703
Residential mortgage . . . . . . . . . . . 1,171,044 1,256,553 1,357,703 1,549,862 1,790,472 1,540,256
Instalment . . . . . . . . . . . . . . . . 2,417,647 2,224,709 2,184,077 2,109,570 1,978,854 1,817,261
---------- ---------- ---------- ---------- ---------- ----------
5,910,489 6,152,838 6,735,040 7,456,250 7,816,071 6,935,990
Less allowance for loan losses . . . . . . 188,191 213,949 228,192 139,603 61,070 49,865
---------- ---------- ---------- ---------- ---------- ----------
5,722,298 5,938,889 6,506,848 7,316,647 7,755,001 6,886,125
---------- ---------- ---------- ---------- ---------- ----------
Total earning assets . . . . . . . . . . . 8,580,181 8,429,243 8,758,748 9,057,428 8,826,171 7,842,435
Cash and due from banks . . . . . . . . . . . 629,428 604,115 553,945 570,755 565,418 567,519
Other assets . . . . . . . . . . . . . . . . 548,223 615,396 590,896 443,036 356,241 319,692
---------- ---------- ---------- ---------- ---------- ----------
Total assets . . . . . . . . . . . . . . . $9,569,641 $9,434,805 $9,675,397 $9,931,616 $9,686,760 $8,679,781
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand . . . . . . . . . . . . . . . . . . $1,886,914 $1,717,345 $1,501,448 $1,481,019 $1,491,246 $1,543,244
NOW accounts . . . . . . . . . . . . . . . 1,336,270 1,218,252 1,038,135 932,851 869,409 860,662
Savings . . . . . . . . . . . . . . . . . 1,399,886 1,223,626 993,305 919,678 972,190 1,116,344
Money market deposit accounts . . . . . . 2,865,209 3,034,586 3,260,294 3,184,659 2,577,672 2,041,353
Consumer time . . . . . . . . . . . . . . 1,102,025 1,363,997 1,692,020 1,821,337 1,857,656 1,241,756
Time - $100,000 or more . . . . . . . . . 33,322 57,547 187,863 407,320 471,424 528,552
---------- ---------- ---------- ---------- ---------- ----------
8,623,626 8,615,353 8,673,065 8,746,864 8,239,597 7,331,911
Federal funds purchased and other
short-term borrowings (4) . . . . . . . . 150,608 147,856 366,262 474,026 658,100 629,867
Long-term debt . . . . . . . . . . . . . . . 54,437 55,226 55,052 53,691 53,372 51,757
---------- ---------- ---------- ---------- ---------- ----------
Total deposits and borrowings . . . . . . 8,828,671 8,818,435 9,094,379 9,274,581 8,951,069 8,013,535
Other liabilities (5) . . . . . . . . . . . . 69,937 81,366 87,381 106,033 149,957 132,067
Stockholders' equity . . . . . . . . . . . . 671,033 535,004 493,637 551,002 585,734 534,179
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $9,569,641 $9,434,805 $9,675,397 $9,931,616 $9,686,760 $8,679,781
========== ========== ========== ========== ========== ==========
CAPITAL RATIOS
Risk-based (6)
Core (minimum regulatory standard - 4.00%) 10.68% 10.37% 7.28% 6.40% n/a n/a
Total (minimum regulatory standard - 8.00%) 12.40 12.30 9.29 8.33 n/a n/a
Leverage ratio (6) . . . . . . . . . . . . . 7.26 6.79 5.38 4.83 n/a n/a
Prior measures (6)
Primary . . . . . . . . . . . . . . . . . n/a n/a n/a 6.80 6.60 6.50
Total . . . . . . . . . . . . . . . . . . n/a n/a n/a 7.30 7.10 7.00
Year-end book value per share . . . . . . . . $ 37.52 $ 34.81 $ 31.30 $ 30.49 $ 37.67 $ 35.43
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Substantially all balances are derived from daily averages. In certain
instances, a method approximating daily averages was used.
(2) Includes interest-bearing deposits in other banks, federal funds sold,
securities purchased under agreement to resell, bankers' acceptances
purchased, and trading account assets.
(3) Nonperforming loans are included in the average balances. Interest income
is recorded on an accrual basis. Thus, loans that are nonperforming do not
contribute to net interest income and affect the net interest margin.
(4) Includes federal funds purchased, securities sold under agreement to
repurchase, and demand notes issued to the U.S. Treasury.
(5) Other liabilities include guarantee of ESOP indebtedness in 1993, 1992,
1991, and 1990.
(6) The risk-based capital ratios and the leverage capital ratio were phased
in December 31, 1990.
</TABLE>
34
<PAGE> 32
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS BAYBANKS, INC.
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands on a tax equivalent basis 1993 1992 1991 1990 1989 1988
except share amounts) (7) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income on interest-bearing deposits and other
short-term investments . . . . . . . . . $ 19,931 $ 22,925 $ 40,019 $ 35,879 $ 11,334 $ 1,679
Interest on securities portfolios
Taxable . . . . . . . . . . . . . . . . . 84,510 86,304 95,542 81,417 44,117 26,367
Tax-exempt . . . . . . . . . . . . . . . . 10,730 10,807 14,961 27,686 42,304 53,697
---------- ---------- ---------- ---------- ---------- ----------
95,240 97,111 110,503 109,103 86,421 80,064
---------- ---------- ---------- ---------- ---------- ----------
Interest and fees on loans
Commercial (8) . . . . . . . . . . . . . . 89,383 109,048 161,156 231,046 281,336 230,023
Commercial real estate . . . . . . . . . . 74,353 92,548 122,519 146,705 173,229 141,131
Residential mortgage . . . . . . . . . . . 92,451 111,390 132,725 155,384 178,470 148,096
Instalment . . . . . . . . . . . . . . . . 224,471 227,652 250,890 256,015 242,005 204,430
---------- ---------- ---------- ---------- ---------- ----------
480,658 540,638 667,290 789,150 875,040 723,680
---------- ---------- ---------- ---------- ---------- ----------
Total income on earning assets . . . . . . . 595,829 660,674 817,812 934,132 972,795 805,423
Interest expense on deposits and borrowings
NOW and savings accounts . . . . . . . . . 52,040 67,304 94,544 96,926 97,143 102,690
Money market deposit accounts . . . . . . 66,001 97,256 173,393 223,861 201,878 132,566
Consumer time . . . . . . . . . . . . . . 41,514 66,627 114,868 147,752 163,986 101,103
Time - $100,000 or more . . . . . . . . . 886 2,048 11,356 32,804 42,189 40,627
Short-term borrowings . . . . . . . . . . 4,098 4,285 19,941 36,477 59,180 46,026
Long-term debt . . . . . . . . . . . . . . 2,109 2,489 3,860 4,622 5,059 4,130
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense . . . . . . . . . . . 166,648 240,009 417,962 542,442 569,435 427,142
---------- ---------- ---------- ---------- ---------- ----------
Net interest income . . . . . . . . . . . . 429,181 420,665 399,850 391,690 403,360 378,281
Noninterest income (8)
Service charges and fees on deposit accounts 105,211 96,671 88,533 70,823 64,200 53,842
Other noninterest income . . . . . . . . . 93,313 87,210 81,220 84,988 76,837 79,977
---------- ---------- ---------- ---------- ---------- ----------
Total noninterest income (8) . . . . . . . 198,524 183,881 169,753 155,811 141,037 133,819
---------- ---------- ---------- ---------- ---------- ----------
Total income from operations . . . . . . . . 627,705 604,546 569,603 547,501 544,397 512,100
Operating expenses
Salaries and benefits . . . . . . . . . . 212,954 199,604 184,399 179,723 178,630 165,440
Occupancy and equipment . . . . . . . . . 87,116 88,950 85,465 87,326 85,305 78,174
Other operating expenses . . . . . . . . . 146,635 140,762 128,495 111,454 107,320 99,500
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . 446,705 429,316 398,359 378,503 371,255 343,114
---------- ---------- ---------- ---------- ---------- ----------
Operating Income before Net Securities Gains
and Provisions for Loan Losses and OREO
Reserve . . . . . . . . . . . . . . . . . 181,000 175,230 171,244 168,998 173,142 168,986
---------- ---------- ---------- ---------- ---------- ----------
Net securities gains . . . . . . . . . . . . 411 76,929 40,963 19,582 10,878 254
---------- ---------- ---------- ---------- ---------- ----------
Provision for loan losses . . . . . . . . . . 36,500 106,836 165,400 289,958 75,000 16,600
Provision for OREO reserve, net . . . . . . . 24,830 45,482 27,450 14,582 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total credit provisions . . . . . . . . . . . 61,330 152,318 192,850 304,540 75,000 16,600
---------- ---------- ---------- ---------- ---------- ----------
Pre-tax income (loss) . . . . . . . . . . . . 120,081 99,841 19,357 (115,960) 109,020 152,640
Less tax equivalent adjustment
included above . . . . . . . . . . . . . 5,358 4,153 2,954 9,058 13,703 17,287
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes . . . . . . . . . 114,723 95,688 16,403 (125,018) 95,317 135,353
Provision for income taxes (benefit) . . . . 47,072 36,451 6,748 (55,216) 32,173 46,819
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 67,651 $ 59,237 $ 9,655 $ (69,802) $ 63,144 $ 88,534
========== ========== ========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE (9) . . . . . . . . $ 3.57 $ 3.57 $ 0.60 $ (4.37) $ 3.95 $ 5.57
Dividends Paid Per Share . . . . . . . . . . 0.90 - - 1.05 1.80 1.60
PERFORMANCE RATIOS
Operating profit margin . . . . . . . . . . . 28.8% 29.0% 30.1% 30.9% 31.8% 33.0%
Return on average stockholders' equity . . . 10.1 11.1 2.0 (12.7) 10.8 16.6
Return on average total assets . . . . . . . 0.71 0.63 0.10 (0.70) 0.65 1.02
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(7) Certain items in the summary that are tax-exempt have been restated to
include the federal tax benefit derived from income on obligations of state
and local governments, industrial revenue bonds, and certain other
securities, thus facilitating the comparison between returns on alternative
types of earning assets and between totals that contain varying mixtures of
fully taxable and federal tax-exempt income. Because of the interplay of
federal and Massachusetts income taxes, $1.00 of federal tax-exempt income
was the fully taxable equivalent of $1.55 in 1993.
(8) There were no significant items (excluding net securities gains) considered
by management to be of a nonrecurring nature included in the Summary of
Operations above for 1991-1993. In 1990, the Company recognized a $4.8
million pension settlement gain and a $1.2 million gain from the sale of
its payroll processing service. In 1989, the Company recognized a $2.5
million gain from liquidation of loans acquired at a discount in 1987. In
1988, the Company also recognized a gain of $7.4 million from liquidation
of these loans, $4.2 million in gains from property sales, and a gain of
$4.0 million from the sale of the Company's investment in the CIRRUS(R)
automated teller network.
(9) For 1988-1993, the difference between earnings (loss) per share as reported
and fully diluted was less than 3%.
</TABLE>
35
<PAGE> 33
<TABLE>
<CAPTION>
AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN (Tax equivalent basis) BAYBANKS, INC.
- -----------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits and other short-term investments 3.36% 3.68% 5.92% 8.21% 9.40% 7.61%
Securities available for sale . . . . . . . . . . . . . 4.48% 4.79% --% --% --% --%
U.S. Government . . . . . . . . . . . . . . . . . 4.54 4.70 -- -- -- --
Corporate and other. . . . . . . . . . . . . . . . 3.73 6.45 -- -- -- --
Investment securities . . . . . . . . . . . . . . . . . 4.74% 6.13% 8.20% 9.37% 9.72% 9.05%
U.S. Government . . . . . . . . . . . . . . . . . 4.29 5.65 7.47 8.52 9.24 8.54
Mortgage-backed securities . . . . . . . . . . . . -- 6.46 8.88 9.44 8.35 7.95
Asset-backed securities . . . . . . . . . . . . . 4.44 -- -- -- -- --
State and local governments . . . . . . . . . . . 5.53 7.16 7.51 9.29 9.42 8.90
Industrial revenue bonds . . . . . . . . . . . . . 8.26 8.49 8.48 11.44 12.45 10.93
Corporate and other . . . . . . . . . . . . . . . 6.22 4.33 5.67 10.64 10.25 9.09
Loans . . . . . . . . . . . . . . . . . . . . . . . . . 8.13% 8.79% 9.91% 10.58% 11.20% 10.43%
Commercial . . . . . . . . . . . . . . . . . . . 6.55 7.02 8.71 10.26 11.27 10.22
Commercial real estate . . . . . . . . . . . . . . 7.77 8.28 9.12 9.49 11.17 10.63
Residential mortgage . . . . . . . . . . . . . . . 7.89 8.86 9.78 10.03 9.97 9.62
Instalment . . . . . . . . . . . . . . . . . . . . 9.28 10.23 11.49 12.14 12.23 11.25
Total earning assets . . . . . . . . . . . . . . . . . 6.94% 7.84% 9.34% 10.31% 11.02% 10.27%
Interest-bearing funds . . . . . . . . . . . . . . . . 2.40% 3.38% 5.50% 6.96% 7.63% 6.60%
NOW and savings accounts . . . . . . . . . . . . . 1.90 2.76 4.65 5.23 5.28 5.18
Money market deposit accounts . . . . . . . . . . 2.30 3.20 5.32 7.03 7.83 6.49
Consumer time . . . . . . . . . . . . . . . . . . 3.77 4.88 6.79 8.11 8.83 8.14
Time - $100,000 or more . . . . . . . . . . . . . 2.66 3.56 6.04 8.05 8.95 7.69
Short-term borrowings (4) . . . . . . . . . . . . 2.72 2.90 5.44 7.70 8.99 7.31
Long-term debt . . . . . . . . . . . . . . . . . . 3.87 4.51 7.01 8.60 9.48 7.98
Interest expense as a percentage of average
earning assets . . . . . . . . . . . . . . . . . . 1.94% 2.85% 4.77% 5.99% 6.45% 5.45%
Net interest margin . . . . . . . . . . . . . . . . . . 5.00% 4.99% 4.57% 4.32% 4.57% 4.82%
</TABLE>
36
<PAGE> 34
<TABLE>
<CAPTION>
DISTRIBUTION OF LOANS BAYBANKS, INC.
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . $ 1,324,968 $ 1,411,120 $ 1,654,118 $ 2,036,426 $ 2,489,158 $ 2,413,693
Commercial real estate
Commercial mortgages . . . . . . . . . 877,834 965,134 1,132,466 1,172,848 1,173,877 1,008,024
Construction loans . . . . . . . . . . 57,637 57,381 79,483 247,025 410,649 477,722
----------- ----------- ------------ ----------- ----------- ------------
Total commercial real estate . . . . . 935,471 1,022,515 1,211,949 1,419,873 1,584,526 1,485,746
Residential mortgage . . . . . . . . . . 1,242,597 1,247,633 1,274,591 1,447,043 1,878,335 1,719,049
Instalment . . . . . . . . . . . . . . . 2,600,134 2,256,731 2,212,376 2,226,999 2,060,875 1,950,200
----------- ----------- ------------ ----------- ----------- ------------
Total loans . . . . . . . . . . . . . . . $ 6,103,170 $ 5,937,999 $ 6,353,034 $ 7,130,341 $ 8,012,894 $ 7,568,688
=========== =========== ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
CREDIT QUALITY
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1990 1989 1988
---------- --------- --------- --------- --------- --------
Nonperforming Assets; Restructured,
Accruing Loans; and Accruing Loans
90 Days or More Past Due
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans . . . . . . . . . . . . . $ 110,001 $ 180,580 $ 222,725 $ 365,261 $ 146,669 $ 53,839
Other real estate owned
In-substance foreclosures . . . . . . . . 72,505 100,669 146,638 143,301 -- --
Foreclosed property . . . . . . . . . . . 70,950 102,750 99,163 34,005 8,588 2,348
---------- --------- --------- --------- --------- --------
143,455 203,419 245,801 177,306 8,588 2,348
Less OREO reserve . . . . . . . . . . . . 29,776 7,833 -- -- -- --
---------- --------- --------- --------- --------- --------
OREO, net of reserve . . . . . . . . . . . 113,679 195,586 245,801 177,306 8,588 2,348
---------- --------- --------- --------- --------- --------
Total nonperforming assets . . . . . . . . . $ 223,680 $ 376,166 $ 468,526 $ 542,567 $ 155,257 $ 56,187
========== ========= ========= ========= ========= ========
Restructured, accruing loans . . . . . . . . $ 18,398 $ 12,084 $ 39,066 $ 467 $ 543 $ 518
========== ========= ========= ========= ========= ========
Accruing loans 90 days or more past due . . . $ 51,749 $ 91,895 $ 116,814 $ 99,348 $ 114,434 $ 41,114
========== ========= ========= ========= ========= ========
Nonperforming assets as a percentage
of loans and OREO . . . . . . . . . . . . 3.6% 6.1% 7.1% 7.4% 1.9% 0.7%
Nonperforming assets as a percentage
of total assets . . . . . . . . . . . . . 2.2 3.8 4.9 5.4 1.6 0.6
Allowance for loan losses as a percentage
of year-end loans . . . . . . . . . 2.8 3.2 3.3 3.0 1.1 0.7
Allowance for loan losses as a percentage
of nonperforming loans . . . . . . . . . . 155.9 106.7 95.4 58.6 57.8 97.9
Allowance for loan losses and OREO
reserve as a percentage of nonperforming
loans and OREO . . . . . . . . . . . . . . 79.4 52.2 45.4 39.5 54.6 93.9
Allowance for loan losses as a percentage
of nonperforming loans; restructured,
accruing loans; and accruing loans past
due 90 days or more . . . . . . . . . . . 95.2 67.7 56.1 46.1 32.4 55.2
</TABLE>
37
<PAGE> 35
<TABLE>
<CAPTION>
OTHER DATA BAYBANKS, INC.
- -----------------------------------------------------------------------------------------------
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Average number of common
shares outstanding . . . . . . . . . . 18,953,397 16,575,768 16,021,645
Range of BayBanks, Inc.,
common stock - last sale price . . . . $52 1/8-38 1/4 $40 3/4-18 3/4 $19 1/2-9 5/8
Number of common stockholders
of record (approximate) . . . . . . . 4,600 4,900 5,300
Number of full-time equivalent
employees at year-end (approximate) . 5,571 5,527 5,531
Number of full-service offices
at year-end . . . . . . . . . . . . . 201 204 211
Number of automated banking
facilities at year-end . . . . . . . . 356 349 339
Number of automated teller
machines at year-end . . . . . . . . . 1,009 994 991
Book value of trust assets at year-end
(in thousands) . . . . . . . . . . . . $5,195,741 $4,483,643 $3,784,282
</TABLE>
<TABLE>
<CAPTION>
Other Data BAYBANKS, INC.
- --------------------------------------------------------------------------------------------
1990 1989 1988
---------- ------------ ----------
<S> <C> <C> <C>
Average number of common
shares outstanding . . . . . . . . . . 15,965,653 15,929,658 15,892,306
Range of BayBanks, Inc.,
common stock - last sale price . . . . $32-11 3/8 $46 1/4-26 1/4 $48-36
Number of common stockholders
of record (approximate) . . . . . . . 5,800 6,000 5,700
Number of full-time equivalent
employees at year-end (approximate) . 5,733 5,748 5,665
Number of full-service offices
at year-end . . . . . . . . . . . . . 228 225 229
Number of automated banking
facilities at year-end . . . . . . . . 331 302 270
Number of automated teller
machines at year-end . . . . . . . . . 991 972 919
Book value of trust assets at year-end
(in thousands) . . . . . . . . . . . . $3,599,402 $3,290,090 $2,587,797
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average number of outstanding shares 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
----------- ----------- ----------- -----------
1993 . . . . . . . . . . . . . . . . . . . . . . . . 19,004,540 19,000,208 18,937,724 18,871,018
1992 . . . . . . . . . . . . . . . . . . . . . . . . 17,329,351 16,204,906 16,203,022 16,137,694
1991 . . . . . . . . . . . . . . . . . . . . . . . . 16,022,503 16,025,342 16,022,188 16,016,439
Net income
1993 . . . . . . . . . . . . . . . . . . . . . . . . $1.19 $0.95 $0.75 $0.68
1992 . . . . . . . . . . . . . . . . . . . . . . . . 1.97 0.64 0.40 0.51
1991 . . . . . . . . . . . . . . . . . . . . . . . . 0.40 0.07 0.07 0.06
Dividends declared
1993 . . . . . . . . . . . . . . . . . . . . . . . . $0.25 $0.25 $0.20 $0.20
1992 . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
1991 . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Dividends paid
1993 . . . . . . . . . . . . . . . . . . . . . . . . $0.25 $0.25 $0.20 $0.20
1992 . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
1991 . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- --
Range of BayBanks, Inc., common stock - last sale price
1993 . . . . . . . . . . . . . . . . . . . . . . . . $50 3/4 - 43 1/4 $50 1/2 - 43 1/4 $51 1/4 - 38 1/4 $52 1/8 - 38 3/4
1992 . . . . . . . . . . . . . . . . . . . . . . . . 40 3/4 - 30 1/8 36 1/2 - 28 3/4 36 7/8 - 26 3/4 31 1/4 - 18 3/4
1991 . . . . . . . . . . . . . . . . . . . . . . . . 19 1/2 - 16 1/8 19 1/2 - 12 3/4 18 3/4 - 13 19 1/2 - 9 5/8
</TABLE>
38
<PAGE> 36
APPENDIX
Narrative descriptions of graphical image material omitted from text of
Form 10-K and from Exhibit 13, portions of the BayBanks, Inc. 1993 Annual Report
to Stockholders.
Annual Report Figure 1 - Net Interest Margin
Figure 1 compares the Company's net interest margin from 1988 through 1993 to
the net interest margin of the Keefe, Bruyette and Woods, Inc., Bank Index for
banks with assets ranging from $10-25 billion. The graph is a line graph with
the following data points:
<TABLE>
<CAPTION>
Keefe, Bruyette and
BayBanks, Inc. Woods, Inc. Bank Index
-------------- ----------------------
<S> <C> <C>
1988 4.82% 4.50%
1989 4.57 4.46
1990 4.32 4.13
1991 4.57 4.33
1992 4.99 4.57
1993 5.00 4.70
</TABLE>
The y-axis of the graph ranges from 4.00% to 5.00% in .10% intervals. The
information on this graph is shown on a tax equivalent basis.
Annual Report Figure 2 - Average Earning Assets
Figure 2 is a bar graph comparing the Company's mix of average earning assets
from 1989 through 1993. The graph shows the amounts of securities available for
sale, short-term investments, investment securities, and loans. The data points
are as follows:
<TABLE>
<CAPTION>
(In millions) 1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Securities
available for
sale $ ---- $ ---- $ ---- $ 319 $1,242
Short-term
investments 121 437 676 623 593
Investment
securities 890 1,164 1,348 1,335 835
Loans 7,816 7,456 6,735 6,153 5,910
------ ------ ------ ------ ------
Total $8,580 $8,429 $8,759 $9,057 $8,826
====== ====== ====== ====== ======
</TABLE>
<PAGE> 37
The y-axis ranges from $0 to $10,000 million in intervals of $1,000 million.
The data points for each year are stacked on top of each other to come to a bar
the height of the total as shown above.
Annual Report Figure 3 - Average Loans
Figure 3 shows a bar for each of the years 1989 through 1993. The bars are
split horizontally to depict the mix in average loans among commercial,
commercial real estate, residential mortgage, and instalment loans. The data
points are as follows:
<TABLE>
<CAPTION>
(In millions) 1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $2,496 $2,251 $1,850 $1,554 $1,365
Commercial
real estate 1,551 1,546 1,343 1,118 960
Residential
mortgage 1,790 1,550 1,358 1,257 1,171
Instalment 1,979 2,110 2,184 2,225 2,418
------ ------ ------ ------ ------
Total loans $7,816 $7,456 $6,735 $6,153 $5,910
====== ====== ====== ====== ======
</TABLE>
The data points for each year are stacked on top of each other to come to a bar
the height of the total as shown above. The y-axis ranges from $0 to $8,000
million in intervals of $1,000 million.
<PAGE> 38
Annual Report Figure 4 - Average Core Deposits and Borrowings
Figure 4 is a bar graph with a bar for each year from 1989 through 1993. Each
bar is made up of the following components: Debt, Large CDs and other
borrowings, MMDA and consumer time, and demand, NOW and savings. The height of
each bar is the average core deposits and borrowings for that year. The data
points are as follows:
<TABLE>
<CAPTION>
(In millions) 1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Debt $ 53 $ 54 $ 55 $ 55 $ 54
Large CDs and
other borrowings 1,130 881 554 205 184
MMDA and consumer
time 4,435 5,006 4,952 4,399 3,967
Demand, NOW, and
savings 3,333 3,334 3,533 4,159 4,623
------ ------ ------ ------ ------
Total $8,951 $9,275 $9,094 $8,818 $8,829
====== ====== ====== ====== ======
</TABLE>
The data points for each year are stacked on top of each other to come to a bar
height equal to the totals shown above.The y-axis ranges from $0 to $10,000
million in intervals of $1,000 million.
Annual Report Figure 5 - Short-term Investments and Securities Portfolios
Compared with Non-Core Funding
Figure 5 is a combination bar and line graph with a bar for each of the years
from 1991 through 1993. The height of the bars is the total of the year-end
short-term investments and securities portfolios, net of pledged securities
amounts, for each year. The bars are split horizontally between year-end
short-term investments and year-end securities available for sale and investment
securities, net of pledged amounts. The line runs through the data points
representing year-end federal funds purchased and large CDs for each year.
<PAGE> 39
The data points are as follows:
<TABLE>
<CAPTION>
(In millions) 1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Short-term investments $ 580 $1,092 $ 803
Securities available for sale
and investment securities* 1,033 1,293 1,551
------ ------ -----
1,613 2,385 2,354
Federal funds purchased and
large CDs 154 131 89
</TABLE>
* Net of pledged securities.
The y-axis ranges from $0 to $2,500 million in intervals of $500 million.
Annual Report Figure 6 - Nonperforming Assets
Figure 6 is a bar graph showing nonperforming assets for each of the years from
1991 through 1993. The height of the bars is the total nonperforming assets
for each year-end. The bars are split horizontally showing the mix of OREO and
nonperforming loans for each year. The data points are as follows:
<TABLE>
<CAPTION>
(In millions) 1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
OREO $ 246 $ 195 $ 114
Nonperforming loans 223 181 110
----- ------ -----
Total $ 469 $ 376 $ 224
===== ====== =====
</TABLE>
The y-axis ranges from $0 to $500 million in intervals of $100 million.
Annual Report Figure 7 - Capital Ratios
Figure 7 is a bar graph showing capital ratios with three bars side by side for
each year from 1991 through 1993. The first bar in each year is the height of
the leverage ratio at year-end; the second bar is the height of the core
risk-based capital ratio at year-end, and the third bar is the height of the
total risk-based capital ratio at year-end. The data points are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Leverage 5.38% 6.79% 7.26%
Core risk-based 7.28 10.37 10.68
Total risk-based 9.29 12.30 12.40
</TABLE>
The y-axis ranges from 0-15% in intervals of 5%.
<PAGE> 40
Annual Report Figure 8 - Stock Performance
Figure 8 is a bar graph showing the range of the last sale price of the
Company's common stock for each of the years from 1991 through 1993. The bar
height is the difference between the high last sale price and the low last sale
price for each year. The bars begin at the low last sale price and end at the
high last sale price. There is a line going through each bar at the position of
the closing price as of December 31 for each year. The data points are as
follows:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
High last sale price $19.50 $40.75 $52.13
Low last sale price 9.63 18.75 38.25
Closing price 19.13 40.75 50.75
</TABLE>
The y-axis ranges from $0 to $60 in intervals of $10.
<PAGE> 1
EXHIBIT 22
BAYBANKS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
BayBanks, Inc..................................................... Massachusetts
BayBank........................................................... Massachusetts
BayBanks Mortgage Corp. ........................................ Massachusetts
BayBanks Finance & Leasing Co., Inc. ........................... Massachusetts
X-Press 24, Inc. ............................................... Massachusetts
BayBank Boston, N.A............................................... United States of America
BayBanks Brokerage Services, Inc................................ Massachusetts
BayBank Connecticut, N.A. ........................................ United States of America
BayBank Systems, Inc. ............................................ Massachusetts
BayBanks Credit Corp. .......................................... Massachusetts
BayBanks Investment Management, Inc. ............................. Massachusetts
BayBanks Life Insurance Company................................... Arizona
</TABLE>
All such subsidiaries are included in the consolidated financial statements
filed as part of this report. Certain other subsidiaries have been omitted
above, since considered in the aggregate as a single subsidiary, they would not
constitute a significant subsidiary.
20
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
BayBanks, Inc.:
We consent to incorporation by reference in Registration Statements Nos.
2-38598, 2-63815, 2-82945, 2-89461, 33-6964, and 33-22834 on Forms S-8 of
BayBanks, Inc. of our report dated January 24, 1994, relating to the
consolidated balance sheets of BayBanks, Inc. and subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1993 which report is incorporated by reference in the
December 31, 1993 Annual Report on Form 10-K of BayBanks, Inc.
/S/ KPMG PEAT MARWICK
BOSTON, MASSACHUSETTS
MARCH 24, 1994
21
