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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1994
[ ] 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)
RIGHTS TO PURCHASE SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK, NO 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. [ 'X' ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 1995:
COMMON STOCK, $2.00 PAR -- $1,174,286,432
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 1995:
COMMON STOCK, $2.00 PAR -- 19,002,445
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the annual meeting of stockholders to
be held on April 27, 1995 are incorporated by reference in Part III.
The list of exhibits to this report appears on pages 62 and 63.
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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 New England and is headquartered in Boston, Massachusetts. At
December 31, 1994, the Company had total assets of $10.8 billion, total deposits
of $9.0 billion, total stockholders' equity of $789 million, and 5,654 full-time
equivalent employees. The Company's largest subsidiary is BayBank, a
Massachusetts commercial bank based in Burlington, Massachusetts, that had total
assets of $9.7 billion at December 31, 1994. BayBank Boston, N.A. is based in
Boston, Massachusetts 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 205 full-service offices
and 366 automated banking facilities serving 151 cities and towns in
Massachusetts and two in Connecticut. The hallmark of the Company's operating
approach is its use of advanced banking technology, featuring 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 proprietary
X-Press 24(R) and X-Press 24 Cash(R) automated teller machine ("ATM") networks.
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. BayBanks Mortgage Corp. also services
approximately $1.9 billion of residential mortgage loans originated by the
BayBanks that have been 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
------------------------------------------------
MASSACHUSETTS CONNECTICUT
------------------------------- -----------
BAYBANK BAYBANK
BAYBANK BOSTON CONNECTICUT
----------------- ----------- -----------
1994 1993 1994 1993 1994 1993
------ ------ ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Securities portfolios................... $2,877 $2,917 $ 56 $ 97 $ 3 $ 3
Total loans............................. 5,912 5,479 695 586 80 75
Total earning assets.................... 8,789 8,396 750 684 83 79
Total assets............................ 9,700 9,179 992 896 88 86
Total deposits.......................... 8,193 8,077 838 764 55 59
Subordinated debt....................... 47 47 5 5 -- --
Stockholders' equity.................... 601 542 64 55 11 10
</TABLE>
GENERAL BANKING BUSINESS
The Company provides a complete range of banking and related financial
services, with particular emphasis on consumer 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.
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Consumer Banking
The Company -- a recognized leader in consumer banking -- has the largest
consumer 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 consumer 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 operates over 1,000 ATMs in Massachusetts and Connecticut,
including 200 cash machines located in retail stores, and processes
approximately 11 million transactions per month; the Company has over 1 million
ATM cards in use. More than 90 nonaffiliated financial institutions add an
additional 280 ATMs to the X-Press 24 network. X-Press 24 cardholders can
perform automated banking transactions at over 130,000 CIRRUS(R) and NYCE(R)
terminals worldwide. Cardholders can also use their cards to make point-of-sale
purchases at retail establishments worldwide, including grocery stores,
automobile service stations and, through BayBank X-Press Check(R), anywhere a
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 state-of-the-art customer
sales and service center twenty-four hours a day, seven days a week, that
provides customer service and product information, opens consumer bank accounts,
and arranges consumer loans.
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
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 trustee or custodian for employee benefit and pension plans.
Specific lending groups focus on healthcare and educational institutions,
municipalities, automobile dealers, construction and contracting companies,
retailers, emerging technology companies, and international trade finance. 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
and southern New Hampshire 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 trust funds. As of December 31, 1994, the
BayBank trust department had total assets with a book value of $5.3 billion
under management or in custody. BayBanks Investment Management, Inc., and
BayBank Boston, N.A. act as investment advisers to BayFunds(R), the Company's
proprietary mutual fund family, which consists of money market, equity, and bond
portfolios with aggregate assets of more than $1.3 billon at year-end 1994.
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PROPOSED ACQUISITION
In December 1994, the Company executed an agreement to acquire NFS
Financial Corp. ("NFS"), a southern New Hampshire-based holding company with
total assets of $619 million. The acquisition is subject to approval of the
shareholders of NFS and of various federal and state bank regulatory authorities
and is targeted for consummation in the third quarter of 1995. As a result, NFS,
which owns two federal savings banks, would become a wholly-owned subsidiary of
the Company. This will permit the Company to expand its operations directly into
the New Hampshire market through NFS's existing branch systems and
relationships. This will be a natural extension of the Company's already strong
presence in the Massachusetts portion of the Merrimack Valley.
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
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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 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
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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. The FDIC has proposed a potential
reduction in these rates in 1995. 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
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, 1994, placed all
of 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.
REGULATORY CAPITAL REQUIREMENTS
Under the 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
60% discount) in supplementary capital.
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At December 31, 1994, 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.
At December 31, 1994, the Company's consolidated risk-based capital ratios
were 11.51% for core capital and 13.06% for total capital, and at December 31,
1993, were 10.68% and 12.40%, respectively. The Company's consolidated leverage
ratio was 7.35% at December 31, 1994, and 7.26% at December 31, 1993. These
ratios exceeded the minimum regulatory guidelines.
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, 1994:
<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% 11.51% n/a% 13.06% n/a% 7.35%
BayBank.................. 6.00 9.66 10.00 11.22 5.00 6.17
BayBank Boston, N.A...... 6.00 10.94 10.00 12.67 5.00 6.92
BayBank Connecticut,
N.A.................... 6.00 12.47 10.00 13.74 5.00 11.67
<FN>
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(1) Under Federal Prompt Corrective Action and Risk-based Deposit Insurance
Assessment Regulations.
n/a -- not applicable
</TABLE>
The Company increased its quarterly dividend in 1994, a trend that began
with the reinstatement of the quarterly dividend in the first quarter of 1993.
For the first and second quarters of 1994, a dividend of $.35 per share was
paid. The quarterly dividend was increased to $.45 per share for the third and
fourth quarters of 1994. On January 26, 1995, the Board of Directors declared a
first quarter dividend of $.50 per share, payable on March 1, 1995.
STATISTICAL DISCLOSURES
Securities Act Guide 3, Statistical Disclosure by Bank Holding Companies,
requires certain statistical disclosures. As indicated in the index below, the
statistical information required is either presented in statistical tables
within this section, presented elsewhere in this report, or is not applicable.
This information should be read in conjunction with the Financial Review under
Item 7 and the consolidated financial statements and related notes under Item 8
in this report.
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and
Interest Differential
Average balances................................................................ 15
Summary of operations........................................................... 16
Average yields and rates paid................................................... 8
Analysis of net interest income................................................. 9
Securities Portfolios
Book value by security type..................................................... 10
Year-end maturities and yields of principal debt securities..................... 42
Securities of an issuer in excess of 10% of stockholders' equity................ n/a
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Loan Portfolio
Distribution of loans........................................................... 10
Maturity distribution of commercial and commercial real estate loans............ 11
Nonperforming assets; restructured, accruing loans; and accruing loans
90 days or more past due...................................................... 11
Policy for placing loans on nonaccrual status................................... 39
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................................................ 39-40
Foreign outstandings............................................................ n/a
Loan concentrations............................................................. n/a
Other interest-bearing assets................................................... n/a
Summary of Loan Loss Experience
Summary of loan loss experience................................................. 12
Discussion of additions to the allowance........................................ 40
Distribution of allowance for loan losses....................................... 12
Deposits
Average balances of deposit categories.......................................... 15
Average rates paid.............................................................. 8
Foreign deposits in domestic offices............................................ n/a
Remaining maturities of time deposits -- $100,000 or more....................... 13
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.......................................... 16
Return on average total assets.................................................. 16
Dividend payout ratio........................................................... *
Average equity to average assets ratio.......................................... **
Short-Term Borrowings................................................................ 13
<FN>
- ---------------
n/a -- not applicable
* The dividend payout ratio was 28.6% in 1994 and 25.2% in 1993; 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 7.20% in 1994, 7.01% in 1993,
5.67% in 1992, 5.10% in 1991, and 5.55% in 1990.
</TABLE>
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AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN
(TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits and other short-term
investments.......................................... 4.13% 3.36% 3.68% 5.92% 8.21% 9.40%
Securities available for sale*......................... 5.10% 4.48% 4.79% --% --% --%
U.S. Government securities........................... 5.27 4.54 4.70 -- -- --
Corporate and other.................................. 4.91 3.73 6.45 -- -- --
Investment securities.................................. 4.97% 4.74% 6.13% 8.20% 9.37% 9.72%
U.S. Government securities........................... 4.88 4.29 5.65 7.47 8.52 9.24
Mortgage-backed securities........................... 4.88 -- 6.46 8.88 9.44 8.35
Asset-backed securities.............................. 4.48 4.44 -- -- -- --
State and local government securities................ 5.23 5.53 7.16 7.51 9.29 9.42
Industrial revenue bonds............................. 9.60 8.26 8.49 8.48 11.44 12.45
Corporate and other.................................. 5.99 6.22 4.33 5.67 10.64 10.25
Loans**................................................ 8.21% 8.13% 8.79% 9.91% 10.58% 11.20%
Commercial........................................... 7.54 6.55 7.02 8.71 10.26 11.27
Commercial real estate............................... 8.39 7.77 8.28 9.12 9.49 11.17
Residential mortgage................................. 7.39 7.89 8.86 9.78 10.03 9.97
Instalment........................................... 8.89 9.28 10.23 11.49 12.14 12.23
Total earning assets............................... 7.10% 6.94% 7.84% 9.34% 10.31% 11.02%
Interest-bearing funds................................. 2.56% 2.40% 3.38% 5.50% 6.96% 7.63%
NOW and savings accounts............................. 1.68 1.90 2.76 4.65 5.23 5.28
Money market deposit accounts........................ 2.36 2.30 3.20 5.32 7.03 7.83
Consumer time........................................ 3.75 3.77 4.88 6.79 8.11 8.83
Time -- $100,000 or more............................. 4.35 2.66 3.56 6.04 8.05 8.95
Short-term borrowings................................ 4.50 2.72 2.90 5.44 7.70 8.99
Long-term debt....................................... 4.79 3.87 4.51 7.01 8.60 9.48
Interest expense as a percentage of average earning
assets............................................... 2.06% 1.94% 2.85% 4.77% 5.99% 6.45%
Net interest margin.................................... 5.04% 5.00% 4.99% 4.57% 4.32% 4.57%
<FN>
- ---------------
* Yields based on average cost.
** 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.
</TABLE>
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ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
CHANGE DUE TO:
---------------------
CHANGE
CHANGE IN
INCREASE IN INTEREST
(DECREASE) BALANCES RATES
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, ON A TAX EQUIVALENT
BASIS)
1994 COMPARED WITH 1993(1)
Short-term investments..................................... $(10,965) $(15,535) $ 4,570
Securities portfolios(2)................................... 52,073 39,997 12,076
Loans(3)................................................... 28,845 22,756 6,089
-------- -------- --------
Total.................................................... 69,953 47,218 22,735
-------- -------- --------
NOW and savings accounts................................... (3,516) 2,523 (6,039)
Money market deposit accounts.............................. (2,987) (4,652) 1,665
Consumer time.............................................. (4,434) (4,200) (234)
Time--$100,000 or more..................................... 3,063 2,500 563
Short-term borrowings and long-term debt................... 34,084 30,912 3,172
-------- -------- --------
Total.................................................... 26,210 27,083 (873)
-------- -------- --------
Net interest income........................................ $ 43,743 $ 20,135 $ 23,608
======== ======== ========
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 and 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 and long-term debt................... (567) 44 (611)
-------- -------- --------
Total.................................................... (73,361) (8,781) (64,580)
-------- -------- --------
Net interest income........................................ $ 8,516 $ 6,321 $ 2,195
======== ======== ========
</TABLE>
- ---------------
(1) The rate/volume variance is allocated to the Change in Balances category.
(2) Presented on a tax equivalent basis at the combined statutory federal and
state tax rate of 43.2% for 1994 and 1993.
(3) Loan income includes loan fees, primarily related to commercial and
residential real estate loans, of $6.3 million in 1994, $6.2 million in
1993 and $6.8 million in 1992.
9
<PAGE> 11
SECURITIES AVAILABLE FOR SALE
AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- -------------------- ------------------------
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............... $ -- $ -- $ 322,707 $ 325,984 $ 1,433,945 $ 1,440,821
State and local governments... 8,578 8,564 18,964 18,968 -- --
Corporate and other........... 211,554 212,038 256,500 256,500 -- --
Mortgage-backed securities.... -- -- 30,832 31,994 88,932 90,096
--------- --------- --------- --------- ----------- -----------
$ 220,132 $ 220,602 $ 629,003 $ 633,446 $ 1,522,877 $ 1,530,917
======== ======== ======== ======== ========= =========
</TABLE>
- ---------------
* Balance sheet carrying value.
INVESTMENT SECURITIES
AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ------------------------ ------------------------
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......... $ 2,083,519 $ 2,018,428 $ 1,203,315 $ 1,209,703 $ -- $ --
State and local
governments........... 171,436 170,275 128,997 129,352 37,869 38,401
Mortgage-backed
securities............ 49,503 46,742 -- -- -- --
Asset-backed
securities............ 200,386 194,734 204,798 204,086 -- --
Industrial revenue
bonds................. 49,548 49,548 59,958 59,958 75,938 75,938
Corporate and other..... 1,857 1,857 1,992 1,992 42,685 42,685
----------- ----------- ----------- ----------- ----------- -----------
$ 2,556,249 $ 2,481,584 $ 1,599,060 $ 1,605,091 $ 156,492 $ 157,024
========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
* Balance sheet carrying value.
DISTRIBUTION OF LOANS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 1,528,265 $ 1,324,968 $ 1,411,120 $ 1,654,118 $ 2,036,426 $ 2,489,158
Commercial real estate
Commercial mortgages.. 919,271 877,834 965,134 1,132,466 1,172,848 1,173,877
Construction loans.... 37,325 57,637 57,381 79,483 247,025 410,649
----------- ----------- ----------- ----------- ----------- -----------
Total commercial real
estate............. 956,596 935,471 1,022,515 1,211,949 1,419,873 1,584,526
Residential mortgage.... 1,335,466 1,242,597 1,247,633 1,274,591 1,447,043 1,878,335
Instalment.............. 2,828,193 2,600,134 2,256,731 2,212,376 2,226,999 2,060,875
----------- ----------- ----------- ----------- ----------- -----------
Total loans............. $ 6,648,520 $ 6,103,170 $ 5,937,999 $ 6,353,034 $ 7,130,341 $ 8,012,894
========= ========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 12
MATURITY DISTRIBUTION OF COMMERCIAL AND COMMERCIAL REAL ESTATE LOANS
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
AFTER ONE OVER
ONE YEAR BUT WITHIN FIVE
OR LESS FIVE YEARS(1) YEARS(1) TOTAL(2)
---------- ------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial............................... $1,111,082 $ 343,329 $ 56,374 $1,510,785
Commercial real estate................... 168,563 606,675 154,720 929,958
---------- ------------- -------- ----------
$1,279,645 $ 950,004 $211,094 $2,440,743
========= ========== ======== =========
</TABLE>
- ---------------
(1) Of the total commercial and commercial real estate loans above with
remaining maturities in excess of one year, 49% have adjustable rates of
interest.
(2) Excludes $17,480 of commercial and $26,638 of commercial real estate
nonperforming loans.
NONPERFORMING ASSETS; RESTRUCTURED, ACCRUING LOANS;
AND ACCRUING LOANS 90 DAYS OR MORE PAST DUE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans................ $ 54,627 $110,001 $180,580 $222,725 $365,261 $146,669
Other real estate owned
In-substance foreclosures........ 44,610 72,505 100,669 146,638 143,301 --
Foreclosed property.............. 47,760 70,950 102,750 99,163 34,005 8,588
-------- -------- -------- -------- -------- --------
92,370 143,455 203,419 245,801 177,306 8,588
Less OREO reserve................ 24,971 29,776 7,833 -- -- --
-------- -------- -------- -------- -------- --------
OREO, net of reserve............. 67,399 113,679 195,586 245,801 177,306 8,588
-------- -------- -------- -------- -------- --------
Total nonperforming assets......... $122,026 $223,680 $376,166 $468,526 $542,567 $155,257
========= ========= ========= ========= ========= =========
Restructured, accruing loans....... $ 13,537 $ 18,398 $ 12,084 $ 39,066 $ 467 $ 543
========= ========= ========= ========= ========= =========
Accruing loans 90 days or more past
due.............................. $ 36,193 $ 51,749 $ 91,895 $116,814 $ 99,348 $114,434
========= ========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 13
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at December 31..... $6,648,520 $6,103,170 $5,937,999 $6,353,034 $7,130,341
========= ========= ========= ========= =========
Average loans........................ $6,202,289 $5,910,489 $6,152,838 $6,735,040 $7,456,250
========= ========= ========= ========= =========
Allowance for Loan Losses
Beginning balance at January 1..... $ 171,496 $ 192,700 $ 212,500 $ 214,203 $ 84,732
Loans charged off:
Commercial...................... 10,113 24,231 62,437 73,833 57,735
Commercial real estate.......... 22,179 15,513 29,237 48,885 74,116
Residential mortgage............ 7,946 11,203 12,861 17,250 5,680
Instalment...................... 26,356 29,016 36,255 35,686 28,015
---------- ---------- ---------- ---------- ----------
Total loans charged off.... 66,594 79,963 140,790 175,654 165,546
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial...................... 7,815 11,778 6,660 2,254 1,081
Commercial real estate.......... 1,352 2,339 778 965 71
Residential mortgage............ 2,267 2,062 974 79 --
Instalment...................... 6,499 6,080 5,742 5,253 3,907
---------- ---------- ---------- ---------- ----------
Total recoveries........... 17,933 22,259 14,154 8,551 5,059
---------- ---------- ---------- ---------- ----------
Net loans charged off.............. 48,661 57,704 126,636 167,103 160,487
Provision for loan losses.......... 24,000 36,500 106,836 165,400 289,958
---------- ---------- ---------- ---------- ----------
Balance at December 31............. $ 146,835 $ 171,496 $ 192,700 $ 212,500 $ 214,203
========== ========== ========== ========== ==========
Ratio of net loans charged off during
period to average loans
outstanding........................ 0.78% 0.98% 2.06% 2.48% 2.15%
</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, 1994
Allowance amount.............. $45,064 $57,476 $14,348 $29,947 $146,835
Loan category to total
loans...................... 23.0% 14.4% 20.1% 42.5% 100.0%
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%
<FN>
- ---------------
(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 $91 million as
of December 31, 1994, as described in the CREDIT QUALITY section
incorporated by reference in Item 7 (see page 28).
</TABLE>
12
<PAGE> 14
REMAINING MATURITIES OF TIME DEPOSITS -- $100,000 OR MORE
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
TOTAL TIME
DEPOSITS--
$100,000 OR MORE
--------------------
<S> <C>
(IN THOUSANDS)
90 days or less....................................................... $149,206
91-180 days........................................................... 13,366
181-365 days.......................................................... 14,780
Over one year......................................................... 12,252
-----------
Total....................................................... $189,604(1)
====================
</TABLE>
- ---------------
(1) Included in this amount are $176 million of corporate certificates of
deposits and $14 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)
1994........ $849,517 $ 1,137,318 $ 839,070 5.81% 4.50%
1993........ 507,820 507,820 150,608 3.10 2.72
1992........ 139,969 267,225 147,856 2.43 2.90
</TABLE>
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. BayBank,
the Company's principal bank subsidiary, owns the 11-story 208,000 square foot
headquarters building, of which 8% is leased to nonaffiliates. Of the 205 branch
offices of the subsidiary banks at December 31, 1994, 92 were located in owned
buildings and 113 were located in leased buildings. In addition, the Company
leases sites for 366 automated banking facilities.
BayBank Systems, Inc., the Company's principal nonbank subsidiary, occupies
a 185,000 square foot technology center. The Company has relocated personnel
from various leased and owned locations into this owned building, thereby
increasing operating efficiency. BayBank Systems recently updated an adjoining
121,000 square foot owned facility that houses its principal data processing
equipment. At December 31, 1994, 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 1994.
13
<PAGE> 15
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 under the symbol BBNK. The quarterly share data
information is presented in Note 18 to the consolidated financial
statements under Item 8.
(b) As of February 28, 1995, there were approximately 4,500 holders of
record of the Company's common stock.
(c) The Company paid dividends of $1.60 per share during 1994 and $.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 of Management's Discussion and
Analysis under Item 7 and Note 1 to the consolidated financial
statements under Item 8.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
AVERAGE BALANCES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
----------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)(1)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits and other short-term
investments(2).............................. $ 217,122 $ 593,317 $ 623,200 $ 675,655 $ 436,888 $ 120,583
Securities available for sale
U.S. Government securities.................. 242,774 1,158,347 303,306 -- -- --
Corporate and other......................... 212,445 83,424 15,344 -- -- --
----------- ---------- ---------- ---------- ---------- ----------
455,219 1,241,771 318,650 -- -- --
Investment securities
U.S. Government securities.................. 2,047,405 622,387 782,293 536,255 327,103 342,587
Mortgage-backed securities.................. 37,551 -- 412,396 623,476 567,500 149,320
Asset-backed securities..................... 203,558 67,130 -- -- -- --
State and local government securities....... 151,901 74,190 50,192 87,792 142,117 154,759
Industrial revenue bonds.................... 54,722 68,921 84,757 98,644 114,042 129,245
Corporate and other......................... 1,886 1,976 4,917 1,886 13,528 113,606
----------- ---------- ---------- ---------- ---------- ----------
2,497,023 834,604 1,334,555 1,348,053 1,164,290 889,517
Loans(3)
Commercial.................................. 1,381,699 1,364,807 1,553,643 1,849,960 2,251,316 2,495,733
Commercial real estate...................... 919,383 956,991 1,117,933 1,343,300 1,545,502 1,551,012
Residential mortgage........................ 1,240,278 1,171,044 1,256,553 1,357,703 1,549,862 1,790,472
Instalment.................................. 2,660,929 2,417,647 2,224,709 2,184,077 2,109,570 1,978,854
----------- ---------- ---------- ---------- ---------- ----------
6,202,289 5,910,489 6,152,838 6,735,040 7,456,250 7,816,071
Less allowance for loans losses............. 160,077 188,191 213,949 228,192 139,608 61,070
----------- ---------- ---------- ---------- ---------- ----------
6,042,212 5,722,298 5,938,889 6,506,848 7,316,647 7,755,001
----------- ---------- ---------- ---------- ---------- ----------
Total earning assets...................... 9,371,653 8,580,181 8,429,243 8,758,748 9,057,428 8,826,171
Cash and due from banks....................... 636,840 629,428 604,115 553,945 570,755 565,418
Other assets.................................. 479,352 548,223 615,396 590,896 443,036 356,241
----------- ---------- ---------- ---------- ---------- ----------
Total assets.............................. $10,327,768 $9,569,641 $9,434,805 $9,675,397 $9,931,616 $9,686,760
============ ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand...................................... $ 1,982,663 $1,886,914 $1,717,345 $1,501,448 $1,481,019 $1,491,246
NOW accounts................................ 1,394,038 1,336,270 1,218,252 1,038,135 932,851 869,409
Savings..................................... 1,492,200 1,399,886 1,223,626 993,305 919,678 972,190
Money market deposit accounts............... 2,668,275 2,865,209 3,034,586 3,260,294 3,184,659 2,577,672
Consumer time............................... 989,844 1,102,025 1,363,997 1,692,020 1,821,337 1,857,656
Time - $100,000 or more..................... 90,823 33,322 57,547 187,863 407,320 471,424
----------- ---------- ---------- ---------- ---------- ----------
8,617,843 8,623,626 8,615,353 8,673,065 8,746,864 8,239,597
Federal funds purchased and other short-term
borrowings(4)............................... 839,070 150,608 147,856 366,262 474,026 658,100
Long-term debt................................ 53,323 54,437 55,226 55,052 53,691 53,372
----------- ---------- ---------- ---------- ---------- ----------
Total deposits and borrowings............. 9,510,236 8,828,671 8,818,435 9,094,379 9,274,581 8,951,069
Other liabilities(5).......................... 74,429 69,937 81,366 87,381 106,033 149,957
Stockholders' equity.......................... 743,103 671,033 535,004 493,637 551,002 585,734
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity.................................. $10,327,768 $9,569,641 $9,434,805 $9,675,397 $9,931,616 $9,686,760
============ ========== ========== ========== ========== ==========
CAPITAL RATIOS
Risk-based(6)
Core (minimum regulatory
standard - 4.00%)......................... 11.51% 10.68% 10.37% 7.28% 6.40% n/a
Total (minimum regulatory
standard - 8.00%)......................... 13.06 12.40 12.30 9.29 8.33 n/a
Leverage ratio(6)............................. 7.35 7.26 6.79 5.38 4.83 n/a
Year-end book value per share................. $ 41.51 $ 37.52 $ 34.81 $ 31.30 $ 30.49 $ 37.67
</TABLE>
- ---------------
(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 1990 - 1994.
(6) The risk-based capital ratios and the leverage capital ratio were phased in
as of December 31, 1990.
15
<PAGE> 17
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
----------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, ON A TAX EQUIVALENT BASIS, EXCEPT PER SHARE AMOUNTS)(7)
<S> <C> <C> <C> <C> <C> <C>
Income on interest-bearing deposits and
other short-term investments............. $ 8,966 $ 19,931 $ 22,925 $ 40,019 $ 35,879 $ 11,334
Interest on securities portfolios
Taxable.................................. 125,096 82,343 86,304 95,542 81,417 44,117
Tax-exempt............................... 22,217 12,897 10,807 14,961 27,686 42,304
----------- ---------- ---------- ---------- ---------- ----------
147,313 95,240 97,111 110,503 109,103 86,421
----------- ---------- ---------- ---------- ---------- ----------
Interest and fees on loans
Commercial(8)............................ 104,159 89,383 109,048 161,156 231,046 281,336
Commercial real estate................... 77,111 74,353 92,548 122,519 146,705 173,229
Residential mortgage..................... 91,660 92,451 111,390 132,725 155,384 178,470
Instalment............................... 236,573 224,471 227,652 250,890 256,015 242,005
----------- ---------- ---------- ---------- ---------- ----------
509,503 480,658 540,638 667,290 789,150 875,040
----------- ---------- ---------- ---------- ---------- ----------
Total income on earning assets............. 665,782 595,829 660,674 817,812 934,132 972,795
Interest expense on deposits and borrowings
NOW and savings accounts................. 48,524 52,040 67,304 94,544 96,926 97,143
Money market deposit accounts............ 63,014 66,001 97,256 173,393 223,861 201,878
Consumer time............................ 37,080 41,514 66,627 114,868 147,752 163,986
Time - $100,000 or more.................. 3,949 886 2,048 11,356 32,804 42,189
Sort-term borrowings..................... 37,739 4,098 4,285 19,941 36,477 59,180
Long-term debt........................... 2,552 2,109 2,489 3,860 4,622 5,059
----------- ---------- ---------- ---------- ---------- ----------
Total interest expense..................... 192,858 166,648 240,009 417,962 542,442 569,435
----------- ---------- ---------- ---------- ---------- ----------
Net interest income........................ 472,924 429,181 420,665 399,850 391,690 403,360
Noninterest income(8)
Service charges and fees on deposit
accounts............................... 109,918 105,211 96,671 88,533 70,823 64,200
Other noninterest income................. 97,370 93,313 87,210 81,220 84,988 76,837
----------- ---------- ---------- ---------- ---------- ----------
Total noninterest income(8).............. 207,288 198,524 183,881 169,753 155,811 141,037
----------- ---------- ---------- ---------- ---------- ----------
Total income from operations............... 680,212 627,705 604,546 569,603 547,501 544,397
Operating expenses
Salaries and benefits.................... 229,572 212,954 199,604 184,399 179,723 178,630
Occupancy and equipment.................. 86,570 87,116 88,950 85,465 87,326 85,305
Other operating expenses................. 141,028 146,635 140,762 128,495 111,454 107,320
----------- ---------- ---------- ---------- ---------- ----------
Total operating expenses................. 457,170 446,705 429,316 398,359 378,503 371,255
----------- ---------- ---------- ---------- ---------- ----------
Operating income before net securities
gains and provisions for loan losses and
OREO reserve............................. 223,042 181,000 175,230 171,244 168,998 173,142
----------- ---------- ---------- ---------- ---------- ----------
Net securities gains....................... 203 411 76,929 40,963 19,582 10,878
----------- ---------- ---------- ---------- ---------- ----------
Provision for loan losses.................. 24,000 36,500 106,836 165,400 289,958 75,000
Provision for OREO reserve, net............ 9,372 24,830 45,482 27,450 14,582 --
----------- ---------- ---------- ---------- ---------- ----------
Total credit provisions.................... 33,372 61,330 152,318 192,850 304,540 75,000
----------- ---------- ---------- ---------- ---------- ----------
Pre-tax income (loss)...................... 189,873 120,081 99,841 19,357 (115,960) 109,020
Less tax equivalent adjustment included
above.................................... 7,982 5,358 4,153 2,954 9,058 13,703
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes and cumulative
effect of accounting change.............. 181,891 114,723 95,688 16,403 (125,018) 95,317
Provision for income taxes (benefit)....... 73,522 47,072 36,451 6,748 (55,216) 32,173
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
accounting change........................ 108,369 67,651 59,237 9,655 (69,802) 63,144
Less cumulative effect of accounting change
(net of tax benefit of $683)............. 932 -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... $ 107,437 $ 67,651 $ 59,237 $ 9,655 $ (69,802) $ 63,144
=========== ========== ========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE(9)............... $ 5.60(10) $ 3.57 $ 3.57 $ 0.60 $ (4.37) $ 3.95
Dividends Declared Per Share............... 1.60 0.90 -- -- 1.05 1.80
PERFORMANCE RATIOS
Operating profit margin.................... 32.8% 28.8% 29.0% 30.1% 30.9% 31.8%
Return on average stockholders'
equity(11)............................... 14.5 10.1 11.1 2.0 (12.7) 10.8
Return on average total assets(11)......... 1.04 0.71 0.63 0.10 (0.70) 0.65
</TABLE>
- ---------------
(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 $1.51 in 1994.
(8) 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.
(9) For 1989-1994, the difference between earnings (loss) per share as reported
and fully diluted was less than 3%.
(10) Based on net income after accounting change. The per share effect of the
cumulative accounting change was $.05 per share.
(11) 1994 includes the impact of the average unrealized gain on the securities
available for sale portfolio.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FINANCIAL REVIEW
EARNINGS ANALYSIS
OPERATING INCOME
Operating income, presented in Table A, is on a tax equivalent basis,
excludes net securities gains and the provisions for loan losses and the other
real estate owned (OREO) reserve, and is before income taxes and the cumulative
effect of an accounting change. Operating income was $223.0 million in 1994,
compared with $181.0 million in 1993 and $175.2 million in 1992. The 23%
increase in 1994 from 1993 resulted primarily from a 10% increase in net
interest income and a 4% increase in noninterest income, combined with operating
expenses that were only 2% above 1993 levels.
TABLE A
SUMMARY OF OPERATIONS
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) (DECREASE)
1994 FROM 1993 1993 FROM 1992 1992
-------- ---------------- -------- ---------------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income on earning assets..................... $665,782 $ 69,953 12% $595,829 $(64,845) (10)% $660,674
Interest on deposits and borrowings.......... 192,858 26,210 16 166,648 (73,361) (31) 240,009
-------- -------- -------- -------- --------
Net interest income.......................... 472,924 43,743 10 429,181 8,516 2 420,665
Noninterest income........................... 207,288 8,764 4 198,524 14,643 8 183,881
-------- -------- -------- -------- --------
Total income from operations................. 680,212 52,507 8 627,705 23,159 4 604,546
Operating expenses........................... 457,170 10,465 2 446,705 17,389 4 429,316
-------- -------- -------- -------- --------
OPERATING INCOME BEFORE NET SECURITIES GAINS
AND PROVISIONS FOR LOAN LOSSES AND OREO
RESERVE.................................... 223,042 42,042 23 181,000 5,770 3 175,230
-------- -------- -------- -------- --------
Net securities gains......................... 203 (208) (51) 411 (76,518) (99) 76,929
-------- -------- -------- -------- --------
Provision for loan losses.................... 24,000 (12,500) (34) 36,500 (70,336) (66) 106,836
Provision for OREO reserve, net.............. 9,372 (15,458) (62) 24,830 (20,652) (45) 45,482
-------- -------- -------- -------- --------
Total credit provisions...................... 33,372 (27,958) (46) 61,330 (90,988) (60) 152,318
-------- -------- -------- -------- --------
Pre-tax income............................... 189,873 69,792 58 120,081 20,240 20 99,841
Less tax equivalent adjustment included
above...................................... 7,982 2,624 49 5,358 1,205 29 4,153
-------- -------- -------- -------- --------
Income before taxes and cumulative effect of
accounting change.......................... 181,891 67,168 59 114,723 19,035 20 95,688
Income taxes................................. 73,522 26,450 56 47,072 10,621 29 36,451
-------- -------- -------- -------- --------
Income before cumulative effect of accounting
change..................................... 108,369 40,718 60 67,651 8,414 14 59,237
Less cumulative effect of accounting change
(net of tax benefit of $683)............... 932 932 -- -- --
-------- -------- -------- -------- --------
NET INCOME................................... $107,437 $ 39,786 59 $ 67,651 $ 8,414 14 $ 59,237
======== ======== ======== ======== ========
EARNINGS PER SHARE
Income before accounting change............ $ 5.65 $ 2.08 58 $ 3.57 $ -- -- $ 3.57
Less cumulative effect of accounting
change................................... 0.05 0.05 -- -- --
-------- -------- -------- -------- --------
Net Income................................. $ 5.60 $ 2.03 57 $ 3.57 $ -- -- $ 3.57
======== ======== ======== ======== ========
</TABLE>
NET INTEREST INCOME (TAX EQUIVALENT BASIS)
Net interest income (TABLE B, page 18) was $472.9 million in 1994, compared
with $429.2 million in 1993 and $420.7 million in 1992.
Net interest income and the net interest margin are affected by the
quantity and mix of interest-bearing assets and liabilities and movements in
interest rates.
17
<PAGE> 19
The growth in net interest income in 1994 compared with 1993 was primarily
the result of a 9% increase in average earning assets and an increase in
interest rates. Instalment lending played a significant role in earning asset
increases for the year as a whole, while commercial lending activity was
particularly strong in the second half of 1994 (TABLE E, page 22). In addition,
growth was affected by the general expansion of the securities portfolios over
the course of the year.
The yield on earning assets was 7.10% in 1994, compared with 6.94% in 1993,
as the result of higher rates on the commercial and commercial real estate loan
portfolios as market rates increased and to some increases in yields on
securities as maturities were reinvested at higher rates.
BayBanks' funding costs during 1994 increased due to an increased volume of
purchased funds and an atmosphere of rising interest rates. Rates on core
deposits (which include money market deposit accounts and consumer certificates
of deposit) steadily increased during 1994, albeit at a much slower rate than
general market rates. The cost of total interest-bearing liabilities (as a
percentage of average earning assets) increased 12 basis points to 2.06% in 1994
compared with 1993.
TABLE B
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
NET
INTEREST INTEREST INTEREST
INCOME EXPENSE INCOME
-------- -------- --------
(IN THOUSANDS, ON A TAX EQUIVALENT
BASIS)
<S> <C> <C> <C>
1992 AS REPORTED....................................... $660,674 $240,009 $420,665
1993 increase (decrease) due to:
Changes in balances.................................. (2,460) (8,781) 6,321
Changes in interest rates............................ (62,385) (64,580) 2,195
-------- -------- --------
(64,845) (73,361) 8,516
-------- -------- --------
1993 AS REPORTED....................................... $595,829 $166,648 $429,181
1994 increase (decrease) due to:
Changes in balances.................................. 47,218 27,083 20,135
Changes in interest rates............................ 22,735 (873) 23,608
-------- -------- --------
69,953 26,210 43,743
-------- -------- --------
1994 AS REPORTED....................................... $665,782 $192,858 $472,924
======== ======== ========
</TABLE>
FEES, SERVICE CHARGES, AND OTHER NONINTEREST INCOME
Noninterest income consists primarily of service charges and fees on
deposit accounts and fees from credit and non-credit services and is well
diversified among consumer, corporate, and small business banking activities.
Noninterest income (TABLE C, page 19) increased to $207.3 million in 1994 from
$198.5 million in 1993 and $183.9 million in 1992.
Service charges and fees on deposit accounts continued to provide over
one-half of noninterest income. Total service charges and fees on deposits
increased 4% to $109.9 million in 1994, compared with $105.2 million in 1993. An
increase in the number of consumer accounts and selected repricings resulted in
higher service charges and fees from consumer accounts. These increases were
partially offset by a decline in corporate service charges resulting from higher
earnings credit rates on compensating deposit balances.
Other components of noninterest income experienced growth during 1994.
Processing fees increased 17% to $16.2 million in 1994 from $13.8 million in
1993 primarily as the result of an increased volume of point of sale
transactions. Investment management and brokerage fees increased 31% to $8.3
million in 1994 from $6.3 million in 1993 due primarily to investment advisory
fees from higher BayFunds(R) balances on average in 1994 as compared with 1993.
The total amount of assets under management in BayFunds was $1.3 billion at
18
<PAGE> 20
December 31, 1994, compared with $1.1 billion at December 31, 1993, and $243
million at December 31, 1992.
Mortgage banking fees were $7.2 million in 1994, compared with $12.0
million in 1993 and $10.2 million in 1992. A decrease in refinance volumes in
1994, as market interest rates increased, resulted in lower fee income.
Student loan sales gains were $4.5 million in 1994, compared with $1.8
million in 1993 and $1.0 million in 1992, resulting from a higher volume of
sales and more favorable pricing.
TABLE C
NONINTEREST INCOME
<TABLE>
<CAPTION>
% INCREASE (DECREASE)
-------------------------------
1994 1993 1992 1994 VS. 1993 1993 VS. 1992
-------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges and fees on
deposit accounts............... $109,918 $105,211 $ 96,671 4% 9%
Credit card fees................. 19,549 18,892 19,398 3 (3)
Processing fees.................. 16,174 13,788 12,624 17 9
Trust fees....................... 14,127 14,559 14,810 (3) (2)
Investment management and
brokerage fees................. 8,293 6,318 4,197 31 51
Mortgage banking fees............ 7,152 11,972 10,207 (40) 17
International fees............... 6,344 5,845 6,035 9 (3)
All other fees................... 17,000 16,159 15,159 5 7
Student loan sales gains......... 4,543 1,762 997 158 77
Other noninterest income......... 4,188 4,018 3,783 4 6
-------- -------- --------
Total noninterest
income............... $207,288 $198,524 $183,881 4 8
======== ======== ========
</TABLE>
OPERATING EXPENSES
Operating expenses, excluding OREO and legal expenses related to loan
workouts (TABLE D, page 20), were $447.3 million in 1994, compared with $429.2
million in 1993 and $410.9 million in 1992.
Salaries and benefits increased 8% to $229.6 million in 1994, compared with
$213.0 million in 1993, primarily as the result of normal salary increases,
additional staffing requirements, and higher accruals for performance awards.
Marketing and public relations increased due to higher promotional activity
related to corporate and consumer lending, as well as community banking
programs. Service bureau and other data processing expenses increased 5% to
$17.4 million in 1994, compared with $16.5 million in 1993, as a result of
updating processing systems. Professional services declined 21% in 1994 to $10.8
million from $13.7 million in 1993, primarily due to lower utilization of
outside staffing services in the Company's mortgage banking operations. Courier
expenses increased due primarily to an increase in armored carrier costs
associated with additional remote ATMs and extended branch hours. Legal and
consulting expenses reflect increased costs for consumer business projects as
well as an increase in general legal costs in 1994 compared with 1993. The cost
of administering, managing, and disposing of OREO properties and legal expenses
related to such workouts was $9.8 million in 1994, compared with $17.5 million
in 1993, reflecting the continued disposition of OREO and the resolution of
workout credits.
19
<PAGE> 21
TABLE D
OPERATING EXPENSES
<TABLE>
<CAPTION>
% INCREASE (DECREASE)
-------------------------------
1994 1993 1992 1994 VS. 1993 1993 VS. 1992
-------- -------- -------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and benefits............ $229,572 $212,954 $199,604 8% 7%
Occupancy and equipment.......... 86,570 87,116 88,950 (1) (2)
Marketing and public relations... 22,726 21,341 17,033 6 25
FDIC insurance................... 21,708 21,949 19,289 (1) 14
Service bureau and other data
processing..................... 17,443 16,538 15,602 5 6
Printing and supplies............ 12,767 12,997 12,557 (2) 4
Professional services............ 10,807 13,744 12,482 (21) 10
Postage.......................... 8,711 8,290 8,201 5 1
Legal and consulting............. 8,516 6,609 9,763 29 (32)
Courier.......................... 4,666 4,133 4,053 13 2
Other............................ 23,846 23,566 23,332 1 1
-------- -------- --------
Total operating expenses
excluding OREO expenses........ 447,332 429,237 410,866 4 4
OREO and legal expenses related
to workout..................... 9,838 17,468 18,450 (44) (5)
-------- -------- --------
Total operating expenses......... $457,170 $446,705 $429,316 2 4
======== ======== ========
</TABLE>
PROVISIONS FOR LOAN LOSSES AND THE OREO RESERVE
The provisions for loan losses and the OREO reserve (TABLE A, page 17)
declined substantially in 1994 to $33.4 million, compared with $61.3 million in
1993 and $152.3 million in 1992, reflecting continued improvements in credit
quality. The provision for loan losses was $24.0 million in 1994, compared with
$36.5 million in 1993 and $106.8 million in 1992. The provision for the OREO
reserve was $9.4 million in 1994, compared with $24.8 million in 1993 and $45.5
million in 1992. The OREO provision includes net gains on sales of properties of
$6.3 million in 1994, $7.6 million in 1993, and $54 thousand in 1992.
INCOME TAXES
The Company reported a provision for income taxes of $73.5 million in 1994,
compared with $47.1 million in 1993. The effective tax rate in 1994 was 40.4%,
compared with 41.0% in 1993.
During 1993, the Internal Revenue Service (IRS) completed a review of the
Company's tax returns for the years 1986 through 1990 and proposed certain
adjustments that related to the timing of income and expense recognition for tax
purposes. The Company resolved the majority of these adjustments during 1994
through the appeals process, and finalization of the settlement is expected
during the second quarter of 1995. The tax and interest payments associated with
the adjustments did not have a material effect on BayBanks' financial
statements.
BALANCE SHEET REVIEW
TRENDS IN EARNING ASSETS
Average earning assets increased to $9.4 billion in 1994, compared with
$8.6 billion in 1993. The increase was, in part, the result of growth in average
loan balances to $6.2 billion during 1994, as compared with $5.9 billion in
1993, and is the first overall increase since 1989. In addition, earning assets
increased due to the expansion of the average securities portfolios from $2.7
billion to $3.2 billion.
20
<PAGE> 22
LOAN PORTFOLIO
In the loan portfolio of the Company, consumer loans represented 63% of the
year-end loan portfolio, with $2.8 billion in various types of instalment loan
balances and $1.3 billion in residential loan balances. Consumer lending
activities are focused primarily on the Massachusetts market. Commercial and
commercial real estate loans were 37% of the portfolio; the majority of these
loans were to New England-based companies, primarily local middle-market
companies and small businesses in Massachusetts.
The Company originates fixed- and adjustable-rate residential mortgage
loans. The majority of fixed-rate residential real estate loan originations are
securitized and sold to the secondary market with servicing retained. The
remainder of the fixed-rate and floating-rate residential real estate loan
originations are held in the loan portfolio or may be securitized and
transferred to the securities available for sale portfolio. Student loans are
originated and held in the loan portfolio while they are in a deferred payment
status and are periodically sold when they are no longer in a deferred payment
status.
An analysis of the changes in major loan categories for 1994 and 1993 is
presented in TABLE E (page 22). Although net business volume was $1.0 billion in
1994, compared with $1.2 billion in 1993, the components of net loan business
volume were more balanced in 1994 between corporate and consumer product lines.
Corporate loans, which include time and demand loans and commercial real estate,
contributed 26% of the total net business volume, and residential mortgages and
instalment loans each contributed 37% to total net business volume. Residential
real estate loan volume in 1994 was principally the result of purchase money
mortgages, primarily adjustable rate, as mortgage refinance activity continued
to decline. The Company underwrote and sold $270 million of fixed-rate
residential real estate loans during 1994, compared with $816 million in 1993.
At December 31, 1994, loans held for resale were $5 million, compared with $139
million at December 31, 1993. Instalment loan net business volume was $389
million in 1994, compared with $441 million in 1993. The decrease is due to a
decline in automobile lending from an all-time record year in 1993; the volume
in 1994 was the second highest in BayBanks' history. Higher student loan and
home equity volumes offset the automobile lending decline. Net business volume
in the commercial real estate portfolio was $55 million during 1994, compared
with negative $60 million during 1993. A significant portion of 1994's growth
was the result of growth in the Company's lending to real estate investment
trusts. Commercial loan volume was $216 million, primarily related to auto
dealer financing, construction and contracting, and loans to major retailers in
the Company's market area. The Company also had an increase in its international
portfolio, which is focused primarily on Mexico and South America. At December
31, 1994, these international facilities, which are trade related and primarily
with well-known and established foreign banks, totaled $160 million, compared
with $88 million at the end of 1993. These loans are subject to the Company's
normal review process.
21
<PAGE> 23
TABLE E
CHANGES IN THE LOAN PORTFOLIO
AT YEAR-END -- 1994 VS. 1993
<TABLE>
<CAPTION>
ANALYSIS OF CHANGE IN LOAN CATEGORIES -- 1994
INCREASE -------------------------------------------------- 1993
(DECREASE) GROSS TRANSFERS NET NET
FROM YEAR CHARGE- TO SALES AND BUSINESS BUSINESS
1994 END 1993 OFFS OREO SECURITIZATION VOLUME VOLUME
---------- --------- -------- --------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial................. $1,528,265 $203,297 $(10,113) $ (2,984) $ -- $ 216,394 $ (52,903)
Commercial real estate..... 956,596 21,125 (22,179) (11,764) -- 55,068 (59,780)
Residential mortgage....... 1,335,466* 92,869 (7,946) (15,599) (269,995) 386,409 840,710
Instalment loans
Automobile and other..... 1,318,745 144,795 (6,997) -- -- 151,792 281,212
Home equity.............. 742,204 42,149 (1,785) (351) -- 44,285 7,623
Credit card.............. 319,526 (6,268) (11,994) -- -- 5,726 4,759
Student loans............ 311,471 34,548 (370) -- (134,107) 169,025 134,992
Reserve credit........... 136,247 12,835 (5,210) -- -- 18,045 12,066
---------- --------- -------- --------- -------------- ---------- ----------
Total instalment loans... 2,828,193 228,059 (26,356) (351) (134,107) 388,873 440,652
---------- --------- -------- --------- -------------- ---------- ----------
Total loans................ $6,648,520 $545,350 $(66,594) $ (30,698) $ (404,102) $1,046,744 $1,168,679
========== ========== ========= ========= ============ ========== ==========
</TABLE>
- ---------------
* Includes residential mortgage loans held for sale of $5 million in 1994.
SECURITIES PORTFOLIOS
The securities portfolio (TABLE F, page 23) was $2.9 billion at December
31, 1994, $3.0 billion at December 31, 1993, and $2.8 billion at December 31,
1992. The weighted average maturity of the securities portfolio was 1.6 years at
December 31, 1994, compared with .8 years at December 31, 1993, and 1.0 years at
December 31, 1992.
Short-term investments were $166 million at December 31, 1994, compared
with $803 million at December 31, 1993, and $1.1 billion at December 31, 1992.
The decline reflects the reinvestment of proceeds from maturing short-term
investments into the securities available for sale and investment securities
portfolios.
Securities available for sale, consisting principally of debt securities,
are stated at market value in 1994 and at the lower of aggregate cost or market
for previous periods. 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. During 1994, the proceeds from the
sales and maturities of securities available for sale were reinvested in the
investment portfolio and loan portfolio.
At December 31, 1994, securities available for sale had gross unrealized
gains of $484 thousand and gross unrealized losses of $14 thousand.
The investment securities portfolio, consisting principally of 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 $2.6 billion at December 31, 1994,
$1.6 billion at December 31, 1993, and $156 million at December 31, 1992. At
December 31, 1994, gross unrealized gains were $99 thousand, and gross
unrealized losses were $75 million.
The Company's investment securities portfolio contains U.S. Government
securities, state and local government securities, asset-backed securities,
mortgage-backed securities, and industrial revenue bonds. The total state and
local government portfolio, which is primarily concentrated in Massachusetts,
was $171 million
22
<PAGE> 24
at December 31, 1994, with the single largest issue being approximately $5
million. All securities were either rated investment grade or, in the case of
unrated securities, were determined by management to be equivalent to investment
grade.
Trading account securities, consisting of debt securities, are recorded at
market value, which was $27 million at December 31, 1994. Trading account gains
were $2.1 million in 1994 and $2.3 million in 1993.
TABLE F
SECURITIES PORTFOLIOS
AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term investments................................. $ 166,286 $ 803,068 $1,091,985
---------- ---------- ----------
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 government securities................ 8,564 18,964 --
Corporate and other.................................. 212,038 256,500 --
---------- ---------- ----------
220,602 629,003 1,522,877
---------- ---------- ----------
Investment securities
U.S. Government securities........................... 2,083,519 1,203,315 --
Asset-backed securities.............................. 200,386 204,798 --
State and local government securities................ 171,436 128,997 37,869
Industrial revenue bonds............................. 49,548 59,958 75,938
U.S. Agency mortgage-backed securities............... 49,503 -- --
Corporate and other.................................. 1,857 1,992 42,685
---------- ---------- ----------
2,556,249 1,599,060 156,492
---------- ---------- ----------
Total.................................................. $2,943,137 $3,031,131 $2,771,354
========= ========= =========
Weighted average maturity of securities available for
sale and investment securities in years*............. 1.7 1.1 1.5
Weighted average maturity of total securities in
years*............................................... 1.6 0.8 1.0
</TABLE>
- ---------------
* The weighted average maturity calculation excludes amortizing IRBs and
reflects estimated prepayments for mortgage-backed securities.
DEPOSITS AND OTHER SOURCES OF FUNDS
The Company's extensive product lines, important Customer Sales and Service
Center, and banking network of 205 full-service offices and 366 automated
banking facilities generate significant core deposits, which accounted for 99%
of total average deposits during 1994 and 1993.
Core deposits include transaction accounts (demand, NOW, and savings
accounts), money market deposit accounts (MMDAs), and consumer time
certificates. Average core deposits were $8.5 billion in 1994, compared with
$8.6 billion in 1993. However, average transaction accounts increased to $4.9
billion in 1994, compared with $4.6 billion in 1993, reflecting certain
customers' preferences to maintain significant balances in lower-yielding
transaction accounts, thus having a positive impact on the Company's net
interest margin. Money market deposit accounts and consumer certificates of
deposit declined to $3.7 billion in 1994, compared with $4.0 billion in 1993.
Average MMDAs declined to $2.7 billion in 1994 from $2.9 billion in 1993, and
average consumer time deposits declined to $1.0 billion in 1994 from $1.1
billion in 1993. However, during the second half of 1994, customers began to
move towards certificates of deposit as interest rates
23
<PAGE> 25
continued to rise, and as of December 31, 1994, consumer time deposits were $1.1
billion, compared with $1.0 billion at December 31, 1993. Average corporate
certificates of deposit in excess of $100 thousand (CDs), which represent a
small portion of the Company's total funding, were $91 million in 1994, compared
with $33 million in 1993.
Average purchased funds were $839 million in 1994, compared with $151
million in 1993, as the average loans and securities portfolios increased, as
discussed in the TRENDS IN EARNING ASSETS section on page 20.
INTEREST RATE RISK MANAGEMENT AND LIQUIDITY
BayBanks' Capital Markets Committee monitors and manages the Company's
overall balance sheet interest sensitivity position, 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, and the national and regional
economic environment, are considered in the asset and liability management
decision process.
The Company's interest sensitivity gap position, as shown in TABLE G, is
first presented based on contractual maturities and repricing opportunities;
however, 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, in 1994 the costs of certain interest-bearing
core deposit categories lagged changes in market interest rates, although the
Company contractually can change the interest rates on these deposits at any
time. A management adjustment provides for the expected repricing lags and for
the notion that interest rate changes in many of these core deposit categories,
particularly certain transaction accounts, are not as sensitive to changes in
market interest rates.
At December 31, 1994, the Company's adjusted gap for the total
within-180-day period had moved from a positive $116 million at December 31,
1993, to a positive $76 million. The total within-one-year gap moved from a
positive $132 million at December 31, 1993, to a positive $648 million at
December 31, 1994. The increase in the positive adjusted gap position reflects
the fact that experience in 1994 suggests certain core deposit categories are
not repricing as quickly as general market rates.
In addition to the gap analysis presented in the table, the Company also
uses a simulation model that incorporates 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 G
INTEREST RATE SENSITIVITY POSITION
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN
DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR
------- ------- ------ ------------ ------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Total assets.......................... $ 3,619 $ 745 $ 705 $ 5,069 $1,177 $ 6,246
Total liabilities..................... 7,000 201 201 7,402 270 7,672
------- ------- ------ ------------ ------- ------------
Net contractual gap position.......... (3,381) 544 504 (2,333) 907 (1,426)
Net interest rate swaps............... -- 5 -- 5 -- 5
------- ------- ------ ------------ ------- ------------
Net gap position including interest
rate swaps at December 31, 1994..... $(3,381) $ 549 $ 504 $ (2,328) $ 907 $ (1,421)
Management adjustment................. 4,465 (1,824) (237 ) 2,404 (335 ) 2,069
------- ------- ------ ------------ ------- ------------
Management-adjusted gap at December
31, 1994............................ $ 1,084 $(1,275) $ 267 $ 76 $ 572 $ 648
======== ======== ======= ============= ======== =============
Management-adjusted gap at December
31, 1993............................ $ 2,625 $(2,325) $(184 ) $ 116 $ 16 $ 132
======== ======== ======= ============= ======== =============
</TABLE>
24
<PAGE> 26
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' distribution 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 purchased funds) was $1.6 billion, or 16% of total deposits and
borrowings, at December 31, 1994, compared with $2.2 billion, or 24% of total
deposits and borrowings, at December 31, 1993. The decreased liquidity position,
although still strong at December 31, 1994, resulted from the expansion of the
loan portfolio. The Company also has additional liquidity flexibility due to the
relatively short average maturity (1.6 years) of its securities portfolios (page
23).
The statement of cash flows provides additional information on liquidity.
The statement presents the results of the Company's operating, investing, and
financing activities. Operating activities include $107.4 million in net income
for 1994, before adjustment of noncash items. Investing activities consist
primarily of both proceeds from sales and purchases of short-term investments
and securities and net loan originations. Financing activities consist primarily
of the net activity in the Company's various deposit accounts and short-term
borrowings, as well as dividends paid.
Cash and cash equivalents were $633 million at December 31, 1993. During
1994, net cash used in investing activities totaled $772 million, net cash
provided by operating activities was $437 million, and net cash provided by
financing activities was $531 million. Cash and cash equivalents were $829
million at December 31, 1994.
The parent company's sources of liquidity are dividend and interest income
received from its subsidiaries and income earned on its securities portfolios.
The most significant uses of the parent company's resources are capital
contributions to banking and other subsidiaries when appropriate and dividends
paid to stockholders. During 1994 the parent company did not contribute any
capital to its subsidiaries. Dividends received from bank subsidiaries were $25
million and dividends from nonbank subsidiaries were $10 million. During 1994,
the parent company paid $30 million in dividends to its stockholders. At
December 31, 1994, the parent company had $82 million in cash, short-term
investments, and other securities.
CREDIT QUALITY REVIEW
OVERVIEW
The Company continually monitors the credit quality of its loan portfolio.
Employing a standard system for grading loans, individual account officers
assign their loans a grade, or risk rating, and, if necessary, a specific loan
loss reserve. An independent Loan Review Department periodically reviews loan
grades and specific loan loss 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, to
assess the credit quality and loss potential inherent in the portfolio. Also
considered in this review are delinquency trends and the adequacy of reserves.
The size of the allowance for loan losses, the OREO reserve, and the related
provisions 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 $122 million at December 31, 1994, a 45% decrease from $224 million at
December 31, 1993, continuing the favorable trend that began in 1991.
The decline in nonperforming assets is shown in TABLE H (page 26). This
result was achieved by successful workout activities that included property
sales, payments on nonperforming loans, and loans that qualified for, and were
returned to, accrual status. Favorable resolutions were $140 million in 1994, or
63% of nonperforming assets at the beginning of the period. Additions to
nonperforming assets were $74 million in 1994, a decrease of 30% compared with
$106 million in 1993. As of December 31, 1994, the Company had OREO property
sales pending of $6.8 million.
25
<PAGE> 27
TABLE H
CHANGES IN ASSET QUALITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
1994 12/31/94 6/30/94 1993 12/31/93 6/30/93
--------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming assets*........................ $ 122,026 $122,026 $172,921 $ 223,680 $223,680 $308,374
========= ======== ======== ========= ======== ========
Nonperforming asset activity:
Additions.................................. $ 73,889 $ 29,787 $ 44,102 $ 106,205 $ 41,786 $ 64,419
--------- -------- -------- --------- -------- --------
Payments................................... (36,174) (17,225) (18,949) (66,934) (25,347) (41,587)
Return to accrual.......................... (33,429) (19,088) (14,341) (24,004) (17,566) (6,438)
OREO sales................................. (70,304) (29,302) (41,002) (90,066) (48,165) (41,901)
--------- -------- -------- --------- -------- --------
Total improvements......................... (139,907) (65,615) (74,292) (181,004) (91,078) (89,926)
--------- -------- -------- --------- -------- --------
Net outflow................................ (66,018) (35,828) (30,190) (74,799) (49,292) (25,507)
--------- -------- -------- --------- -------- --------
Charge-offs.................................. (40,441) (16,289) (24,152) (55,744) (28,101) (27,643)
Change in OREO reserve....................... 4,805 1,222 3,583 (21,943) (7,301) (14,642)
--------- -------- -------- --------- -------- --------
Total decrease in nonperforming assets....... $(101,654) $(50,895) $(50,759) $(152,486) $(84,694) $(67,792)
========= ======== ======== ========= ======== ========
</TABLE>
- ---------------
* Nonperforming assets include nonperforming loans and OREO and exclude
restructured, accruing loans and accruing loans 90 days or more past due.
NONPERFORMING LOANS
Total nonperforming loans (TABLE I) declined 50% to $55 million at December
31, 1994, compared with $110 million at December 31, 1993. Nonperforming
commercial loans decreased 63% to $17 million at December 31, 1994, compared
with $48 million at December 31, 1993; commercial real estate nonperforming
loans declined 46% during the same period to $27 million at December 31, 1994,
compared with $49 million at December 31, 1993. The nonperforming loans in the
consumer portfolio, which includes residential mortgages and instalment loans,
decreased 21% to $11 million at December 31, 1994, from $13 million at December
31, 1993.
TABLE I
NONPERFORMING LOANS
AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
--------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial............................. $ 17,480 32% $ 47,751 43% $ 82,110 46%
Commercial real estate................. 26,638 49 49,014 45 79,144 44
Residential mortgage................... 8,971 16 11,473 10 14,889 8
Instalment............................. 1,538 3 1,763 2 4,437 2
-------- --- --------- --- --------- ---
Total nonperforming loans.... $ 54,627 100% $ 110,001 100% $ 180,580 100%
======= === ======== === ======== ===
</TABLE>
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 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
reserve) declined 41% to $67 million at December 31, 1994, from $114 million at
December 31, 1993, primarily as the result of property sales.
26
<PAGE> 28
IMPAIRED LOANS
On January 1, 1995, $33 million of assets with $9 million of reserves
classified as in-substance foreclosures at December 31, 1994 (TABLE J), were
reclassified to the loan portfolio and allowance for loan loss accounts,
pursuant to the adoption of Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," (further discussed
under Impending Accounting Changes, page 29). The Company's procedures for
managing these assets, as described above, will remain the same.
TABLE J
CREDIT QUALITY -- PRO FORMA PRESENTATION
<TABLE>
<CAPTION>
PRO
FORMA
12/31/94 12/31/94
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Nonperforming loans -- Corporate................................... $ 44,118 $ --
Nonperforming loans -- Consumer.................................... 10,509 17,828
Impaired loans..................................................... -- 69,972
-------- --------
54,627 87,800
Other real estate owned:
In-substance foreclosures........................................ 44,610 11,437
Foreclosed property.............................................. 47,760 47,760
-------- --------
92,370 59,197
Less OREO reserve................................................ 24,971 16,302
-------- --------
OREO, net of reserve............................................. 67,399 42,895
-------- --------
Total nonperforming assets......................................... $122,026 $130,695
======== ========
Allowance for loan losses.......................................... $146,835 $155,504
======== ========
Allowance for loan losses as a percentage of
nonperforming loans/impaired loans............................... 268.8% 177.1%
Allowance for loan losses and OREO reserve as a percentage
of nonperforming assets.......................................... 116.9% 116.9%
</TABLE>
RESTRUCTURED, ACCRUING LOANS
The Company restructures credits with borrowers experiencing a period of
financial difficulty if such arrangements are likely to minimize losses the
Company may otherwise incur on a particular credit. Loans that have been
restructured remain on nonaccrual status until the customer has demonstrated a
period of performance under the new contractual terms. Restructured, accruing
loans were $14 million at December 31, 1994, compared with $18 million at
December 31, 1993, and $12 million at December 31, 1992.
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
Accruing loans 90 days or more past due, presented in TABLE K (page 28),
declined 30% to $36 million at December 31, 1994, compared with $52 million at
December 31, 1993. Of the $36 million in accruing loans 90 days or more past due
at December 31, 1994, residential real estate and instalment loans together
represented 86% of the total. Residential real estate and instalment loans by
their nature include a large number of smaller loans. Of the $10 million in
residential real estate loans, $9 million were in owner-occupied properties.
27
<PAGE> 29
TABLE K
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial..................................... $ 348 1% $ 3,558 7% $11,480 12%
Commercial real estate......................... 4,626 13 5,093 10 24,824 27
Residential mortgage........................... 10,104 28 20,698 40 28,914 32
Instalment..................................... 21,115 58 22,400 43 26,677 29
------- --- ------- --- ------- ---
Total................................ $36,193 100% $51,749 100% $91,895 100%
======= === ======= === ======= ===
</TABLE>
ALLOWANCE FOR LOAN LOSSES
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 charge-offs. While the overall allowance for
loan losses declined, its coverage of nonperforming loans increased to 269% at
December 31, 1994, from 156% at December 31, 1993.
The allowance for loan losses (TABLE L) 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, the apportioned amount is
considered unallocated in nature.
TABLE L
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
SPECIFIC
LOAN CATEGORY ALLOCATIONS UNALLOCATED TOTAL
----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial................................................. $ 6,223 $ 38,841 $ 45,064
Commercial real estate..................................... 5,229 52,247 57,476
----------- -------- --------
Total corporate.................................. 11,452 91,088 102,540
Residential mortgage....................................... -- 14,348 14,348
Instalment................................................. -- 29,947 29,947
----------- -------- --------
Total allowance.................................. $11,452 $135,383 $146,835
======== ======== ========
Percentage of total allowance.................... 8% 92% 100%
======== ======== ========
</TABLE>
CAPITAL AND DIVIDENDS
BayBanks' consolidated risk-based capital ratios were 13.06% for total
capital and 11.51% for core capital at December 31, 1994, compared with 12.40%
and 10.68% at December 31, 1993. The leverage ratio was 7.35% at December 31,
1994, and 7.26% at December 31, 1993. These ratios exceed regulatory capital
guidelines.
On January 26, 1995, BayBanks declared a quarterly dividend of $.50 per
share payable March 1, 1995. Total dividends declared for 1994 were $1.60, a 78%
increase over the 1993 dividends declared of $.90. The
28
<PAGE> 30
closing price of BayBanks' stock on December 31, 1994, was $52.75, compared with
$50.75 at December 31, 1993, an increase of 3.9%.
IMPENDING ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended
by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures," issued in October 1994. The pro forma effects of
adoption of SFAS No. 114 are presented in TABLE J (page 27). These statements
are effective for fiscal years beginning after December 15, 1994, and will
require changes in the disclosure of nonperforming assets. Loans currently
reported as nonperforming and in-substance foreclosures will be reported as
impaired loans in a financial statement footnote. Restructured loans, reported
as restructured accruing loans prior to the adoption of SFAS No. 114, will not
be regarded as impaired loans when the statement is adopted if they are
performing under the restructured terms. Restructured, accruing loans entered
into after the adoption of SFAS No. 114 will be accounted for as impaired loans
until the year subsequent to restructure, provided that the loan bears a market
rate of interest at the time of restructure and is performing under the
restructured terms.
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
contractual interest rate and its recorded value, or, as a practical expedient
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. Effective January 1, 1995, the Company adopted these statements and
reclassified $33 million of in-substance foreclosures and related reserves of $9
million to loans and the allowance for loan losses, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Independent Auditors' Report............................................... 30
Consolidated Balance Sheet -- December 31, 1994 and 1993................... 31
Consolidated Statement of Income -- Years Ended December 31, 1994, 1993,
and 1992................................................................. 32
Consolidated Statement of Changes in Stockholders' Equity -- Years Ended
December 31, 1994, 1993, and 1992........................................ 33
Consolidated Statement of Cash Flows -- Years Ended December 31, 1994,
1993, and 1992........................................................... 34
Notes to Financial Statements.............................................. 35-58
</TABLE>
29
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
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, 1994 and 1993, 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, 1994.
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, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
January 24, 1995
30
<PAGE> 32
BAYBANKS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1994 1993
----------- -----------
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3)................................ $ 829,170 $ 632,985
Trading accounts (Note 2)....................................... 27,416 14,595
Securities portfolios
Interest-bearing deposits and other short-term investments
(Note 2)................................................... 166,286 803,068
Securities available for sale -- amortized cost $220,132 in
1994 and market value $633,446 in 1993 (Notes 2 and 4)..... 220,602 629,003
Investment securities -- market value $2,481,584 in 1994 and
$1,605,091 in 1993 (Notes 2 and 4)......................... 2,556,249 1,599,060
----------- -----------
2,943,137 3,031,131
Loans -- net of unearned income and fees (Notes 2 and 5)
Commercial.................................................... 1,528,265 1,324,968
Commercial real estate........................................ 956,596 935,471
Residential mortgage.......................................... 1,335,466 1,242,597
Instalment.................................................... 2,828,193 2,600,134
----------- -----------
6,648,520 6,103,170
Less allowance for loan losses (Notes 2 and 6)................ 146,835 171,496
----------- -----------
6,501,685 5,931,674
Premises and equipment, net (Note 7)............................ 195,430 192,554
Other real estate owned and in-substance foreclosures, net
(Notes 2 and 6)............................................... 67,399 113,679
Other assets.................................................... 206,710 193,966
----------- -----------
Total assets.......................................... $10,770,947 $10,110,584
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand........................................................ $ 2,214,761 $ 2,077,206
NOW accounts.................................................. 1,491,694 1,481,859
Savings....................................................... 1,462,459 1,459,134
Money market deposit accounts................................. 2,560,425 2,731,720
Consumer time................................................. 1,095,357 993,945
Time -- $100,000 or more...................................... 175,663 34,957
----------- -----------
9,000,359 8,778,821
Federal funds purchased and other short-term borrowings (Note
8)............................................................ 849,517 507,820
Accrued expenses and other accounts payable..................... 71,854 53,952
Long-term debt (Note 9)......................................... 51,154 54,488
Guarantee of ESOP indebtedness (Note 11)........................ 9,451 12,241
Stockholders' equity (Notes 1 and 10):
Common stock: par value $2.00 per share
Shares authorized -- 50,000,000
Shares issued -- 18,999,354 in 1994 and 18,742,934 in
1993....................................................... 37,999 37,486
Surplus....................................................... 314,924 310,355
Retained earnings............................................. 445,167 367,662
----------- -----------
798,090 715,503
Less treasury stock at cost -- 1,431 shares in 1994........... 27 --
Less guarantee of ESOP indebtedness (Note 11)................. 9,451 12,241
----------- -----------
Total stockholders' equity............................ 788,612 703,262
----------- -----------
Total liabilities and stockholders' equity............ $10,770,947 $10,110,584
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 33
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Income on interest-bearing deposits and other
short-term investments............................ $ 8,467 $ 19,002 $ 22,416
Interest on securities portfolios
Taxable........................................... 125,096 82,343 86,304
Tax-exempt........................................ 14,734 8,468 7,163
Interest and fees on loans.......................... 509,503 480,658 540,638
----------- ----------- -----------
Total income on earning assets...................... 657,800 590,471 656,521
Interest expense on deposits and borrowings
Deposits.......................................... 152,567 160,441 233,235
Short-term borrowings (Note 8).................... 37,739 4,098 4,285
Long-term debt (Note 9)........................... 2,552 2,109 2,489
----------- ----------- -----------
Total interest expense.............................. 192,858 166,648 240,009
----------- ----------- -----------
Net interest income................................. 464,942 423,823 416,512
Provision for loan losses (Note 6).................. 24,000 36,500 106,836
----------- ----------- -----------
Net interest income after provision for loan
losses............................................ 440,942 387,323 309,676
Noninterest income
Service charges and fees on deposit accounts...... 109,918 105,211 96,671
Other noninterest income (Note 12)................ 97,370 93,313 87,210
----------- ----------- -----------
Total noninterest income............................ 207,288 198,524 183,881
Net securities gains (Notes 2 and 4)................ 203 411 76,929
Operating expenses
Salaries and benefits (Notes 10 and 11)........... 229,572 212,954 199,604
Occupancy and equipment (Note 7).................. 86,570 87,116 88,950
Other operating expenses (Note 13)................ 141,028 146,635 140,762
----------- ----------- -----------
Total operating expenses............................ 457,170 446,705 429,316
Provision for OREO reserve, net (Notes 2 and 6)..... 9,372 24,830 45,482
----------- ----------- -----------
Total operating expenses after OREO provision....... 466,542 471,535 474,798
----------- ----------- -----------
Income before taxes and cumulative effect of
accounting change................................. 181,891 114,723 95,688
Provision for income taxes (Notes 2 and 14)......... 73,522 47,072 36,451
----------- ----------- -----------
Income before cumulative effect of accounting
change............................................ 108,369 67,651 59,237
Less cumulative effect of accounting change (net of
tax benefit of $683) (Note 11).................... 932 -- --
----------- ----------- -----------
Net Income.......................................... $ 107,437 $ 67,651 $ 59,237
========== ========== ==========
Earnings Per Share (Note 2)
Income before accounting change................... $ 5.65 $ 3.57 $ 3.57
Less cumulative effect of accounting change....... 0.05 -- --
----------- ----------- -----------
Net income........................................ $ 5.60 $ 3.57 $ 3.57
========== ========== ==========
Average shares outstanding.......................... 19,173,524 18,953,397 16,575,768
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 34
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY ESOP LOAN
STOCK SURPLUS EARNINGS STOCK GUARANTEE TOTAL
------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1991.......... $32,054 $228,137 $257,575 $ (319 ) $(16,147 ) $501,300
Net income -- 1992..................... 59,237 59,237
Proceeds from common stock offering,
net of issuance costs of $3,494
(2,300,000 shares)................... 4,600 74,706 79,306
Payment on ESOP note................... 1,674 1,674
Exercise of stock options (20,336
shares).............................. 8 (170) 520 358
Stock issued (3,360 shares) in payment
of fees.............................. 7 94 101
Stock issued (173,700 shares) in
connection with restricted stock
plan................................. 347 (347) --
Treasury shares acquired (8,500
shares).............................. 138 (227 ) (89)
Other, principally employee benefit
plans (Note 10)...................... 2,332 2,332
------- -------- --------- -------- --------- --------
BALANCE AS OF DECEMBER 31, 1992.......... 37,016 304,890 316,812 (26 ) (14,473 ) 644,219
Net income -- 1993..................... 67,651 67,651
Cash dividends declared ($0.90 per
share)............................... (16,801 ) (16,801)
Payment on ESOP note................... 2,232 2,232
Exercise of stock options (157,414
shares).............................. 269 2,706 940 3,915
Stock issued (98,471 shares) in
conversion of debentures............. 197 1,156 1,353
Stock issued (2,156 shares) in payment
of fees.............................. 4 101 105
Treasury shares acquired (22,109
shares).............................. 138 (914 ) (776)
Other, principally employee benefit
plans (Note 10)...................... 1,364 1,364
------- -------- --------- -------- --------- --------
BALANCE AS OF DECEMBER 31, 1993.......... 37,486 310,355 367,662 -- (12,241 ) 703,262
Net income -- 1994..................... 107,437 107,437
Cash dividends declared ($1.60 per
share)............................... (30,208 ) (30,208)
Payment on ESOP note................... 2,790 2,790
Net change in valuation reserve related
to securities available for sale
portfolio, net of deferred income
taxes (Note 2)....................... 276 276
Exercise of stock options (171,303
shares).............................. 279 2,663 1,700 4,642
Stock issued (2,980 shares) in
conversion of debentures............. 6 35 41
Stock issued (2,088 shares) in payment
of fees.............................. 4 109 113
Stock issued (112,000 shares) in
connection with restricted stock
plan................................. 224 (224) --
Treasury shares acquired (33,382
shares).............................. 48 (1,727 ) (1,679)
Other, principally employee benefit
plans (Note 10)...................... 1,938 1,938
------- -------- --------- -------- --------- --------
BALANCE AS OF DECEMBER 31, 1994.......... $37,999 $314,924 $445,167 $ (27 ) $ (9,451 ) $788,612
========= ========= ========= ========= ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 35
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 107,437 $ 67,651 $ 59,237
Adjustments to reconcile net income to net cash provided by operating
activities:
Proceeds from sales and maturities of trading account assets............. 2,493,752 1,832,047 659,000
Purchases of trading account assets...................................... (2,530,409) (1,803,249) (694,000)
Amortization of security premium......................................... 22,084 10,842 18,073
Net securities gains..................................................... (203) (411) (76,929)
Fixed-rate mortgages sold................................................ 269,995 815,722 779,000
Fixed-rate mortgages originated for sale, net of principal payments...... (123,289) (775,749) (904,318)
Student loans transferred from portfolio and sold........................ 134,107 67,363 53,827
Provision for loan losses................................................ 24,000 36,500 106,836
Depreciation and amortization of premises
and equipment.......................................................... 24,365 24,218 24,246
Gain on sales of premises and equipment.................................. (934) -- (66)
Provision for OREO reserve, net.......................................... 9,372 24,830 45,482
Deferred income taxes.................................................... 9,216 2,675 (1,839)
Change in other assets................................................... (1,281) (26,539) 14,379
Change in interest receivable............................................ (22,997) (107) 6,871
Change in accrued expenses and other accounts payable.................... 17,467 6,163 9,263
Change in interest payable............................................... 4,483 (3,320) (10,072)
---------- ---------- ----------
Net cash provided by operating activities............................ 437,165 278,636 88,990
---------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale....................... 313,796 449,217 1,191,607
Proceeds from maturities of securities available for sale.................. 360,199 605,245 --
Purchases of securities available for sale................................. (246,555) (651,384) (512,095)
Proceeds from sales of investment securities............................... -- -- 1,262,000
Proceeds from maturities of investment securities.......................... 1,006,045 184,280 75,067
Purchases of investment securities......................................... (1,979,848) (1,115,180) (2,191,074)
Net cash provided (used) by:
Short-term investments................................................... 636,782 288,917 (512,073)
Loans(1)(2)(3)........................................................... (897,746) (348,318) 247,760
Customer acceptances..................................................... 2,291 7,311 (528)
Proceeds from sales of premises and equipment.............................. 1,703 125 467
Purchases of premises and equipment........................................ (28,010) (18,467) (26,418)
Proceeds from sales and payments related to OREO(2)........................ 59,830 75,184 54,808
Deposits assumed from a thrift institution(4).............................. -- -- 254,372
---------- ---------- ----------
Net cash used by investing activities................................ (771,513) (523,070) (156,107)
---------- ---------- ----------
FINANCING ACTIVITIES
Net cash provided (used) by:
Demand deposits, NOW, and savings accounts............................... 150,715 276,644 648,095
Money market deposits.................................................... (171,295) (235,571) (186,194)
Consumer time deposits................................................... 101,412 (240,802) (415,086)
Time -- $100,000 or more................................................. 140,706 (3,998) (65,964)
Short-term borrowings.................................................... 341,697 367,851 17,140
Customer acceptances..................................................... (2,291) (7,311) 528
Long-term debt........................................................... (3,293) 653 (81)
Net proceeds from common stock offering.................................... -- -- 79,306
Dividends paid............................................................. (30,208) (16,801) --
Other equity transactions.................................................. 3,090 3,028 285
---------- ---------- ----------
Net cash provided by financing activities............................ 530,533 143,693 78,029
---------- ---------- ----------
Net change in cash and cash equivalents.................................... 196,185 (100,741) 10,912
Cash and cash equivalents at beginning of year(5).......................... 632,985 733,726 722,814
---------- ---------- ----------
Cash and cash equivalents at end of year(5)................................ $ 829,170 $ 632,985 $ 733,726
========= ========= =========
Supplemental disclosure of cash flow information
Interest paid............................................................ $ 188,375 $ 169,968 $ 250,081
Taxes paid............................................................... 64,463 58,026 20,551
<FN>
- ---------------
(1) Excludes transfers of loans to the other real estate owned category of $30.7
million, $40.5 million, and $89.7 million in 1994, 1993, and 1992,
respectively.
(2) Excludes loan originations in conjunction with OREO sales of $7.8 million,
$22.4 million, and $23.8 million in 1994, 1993, and 1992, respectively.
(3) Excludes transfers of securitized residential mortgage loans to the
investment securities portfolio of $50.0 million in 1992.
(4) Deposits assumed from a failed thrift institution are net of cash paid,
which was an immaterial amount. The Company did not assume any material
assets or liabilities in conjunction with this transaction.
(5) Cash and cash equivalents consist of cash on hand and due from banks.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
NOTE 1. CONDENSED FINANCIAL INFORMATION OF THE PARENT
The condensed balance sheet is presented for 1994 and 1993, and a statement of
income and statement of cash flows are presented for the years 1992 through
1994, for BayBanks, Inc. (the parent company).
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and short-term investments........................................ $ 15,472 $ 15,865
Securities available for sale -- amortized cost $2 in 1994 and
market value $30,000 in 1993......................................... 6 30,000
Investment securities -- market value $66,842 in 1994 and $22,790 in
1993................................................................. 66,882 22,758
Investment in capital stock of subsidiaries
Bank subsidiaries.................................................... 675,451 605,488
Nonbank subsidiaries................................................. 38,490 37,356
-------- --------
713,941 642,844
Notes and advances due from subsidiaries............................... 52,600 52,600
Other assets........................................................... 1,311 2,305
-------- --------
Total assets................................................. $850,212 $766,372
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other accounts payable............................ $ 2,149 $ 818
Long-term debt......................................................... 50,000 50,051
Guarantee of ESOP indebtedness......................................... 9,451 12,241
Stockholders' equity................................................... 798,090 715,503
Less treasury stock at cost -- 1,431 shares in 1994.................. 27 --
Less guarantee of ESOP indebtedness.................................. 9,451 12,241
-------- --------
Total stockholders' equity................................... 788,612 703,262
-------- --------
Total liabilities and stockholders' equity................... $850,212 $766,372
======== ========
</TABLE>
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries
Bank subsidiaries....................................... $ 25,440 $10,000 $ --
Nonbank subsidiaries.................................... 10,000 6,500 1,400
-------- ------- -------
35,440 16,500 1,400
Interest from subsidiaries................................. 2,297 1,775 2,137
Interest on short-term investments......................... 504 443 551
Interest and dividends on securities portfolios............ 2,162 1,271 91
Other income............................................... 631 547 418
-------- ------- -------
Total income....................................... 41,034 20,536 4,597
-------- ------- -------
Expenses:
Interest on debentures and notes payable................... 2,251 1,743 2,166
General and administrative................................. 2,344 700 791
-------- ------- -------
Total expenses..................................... 4,595 2,443 2,957
-------- ------- -------
Income before income taxes and equity in undistributed
income of subsidiaries..................................... 36,439 18,093 1,640
Income tax expense........................................... 77 358 145
-------- ------- -------
Income before equity in undistributed income of
subsidiaries............................................... 36,362 17,735 1,495
Equity in subsidiaries' undistributed income................. 71,075 49,916 57,742
-------- ------- -------
Net income................................................... $107,437 $67,651 $59,237
======== ======= =======
</TABLE>
36
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Dividends from subsidiaries
Bank subsidiaries................................... $ 25,440 $ 10,000 $ --
Nonbank subsidiaries................................ 10,000 6,500 1,400
--------- --------- --------
35,440 16,500 1,400
Interest received...................................... 3,715 3,323 2,700
Other income........................................... 631 547 416
Interest paid.......................................... (2,218) (1,779) (2,193)
Operating expenditures................................. (1,945) (814) (474)
Income taxes (paid) received........................... 1,965 (463) (135)
--------- --------- --------
Net cash provided by operating activities.............. 37,588 17,314 1,714
--------- --------- --------
INVESTING ACTIVITIES
Purchases of securities................................ (181,086) (166,082) (49,958)
Sales and maturities of securities..................... 168,692 163,355 --
Net advances to subsidiaries........................... -- (1,000) (600)
Investments in subsidiaries............................ -- (21,500) (8,000)
--------- --------- --------
Net cash flow used by investing activities............. (12,394) (25,227) (58,558)
--------- --------- --------
FINANCING ACTIVITIES
Dividends paid......................................... (30,208) (16,801) --
Payment of debt........................................ (10) -- --
Net proceeds from common stock offering................ -- -- 79,306
Proceeds from exercise of stock options................ 3,197 3,296 358
Proceeds from affiliates for stock compensation plan... 1,552 1,099 2,230
Deferred payment plan.................................. (118) (105) (642)
--------- --------- --------
Net cash flow (used) provided by financing
activities.......................................... (25,587) (12,511) 81,252
--------- --------- --------
Net change in cash and cash equivalents................ (393) (20,424) 24,408
Cash and cash equivalents at beginning of year......... 15,865 36,289 11,881
--------- --------- --------
Cash and cash equivalents at end of year............... $ 15,472 $ 15,865 $ 36,289
========= ========= ========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING
ACTIVITIES
Net income............................................. $ 107,437 $ 67,651 $ 59,237
Adjustments to reconcile net income to net cash
provided by
operating activities:
Equity in subsidiaries' undistributed income........ (71,075) (49,916) (57,742)
Net change in accrued expenses...................... 374 (340) 176
Net change in accrued income taxes.................. 2,042 (105) 10
All other........................................... (1,190) 24 33
--------- --------- --------
Total adjustments.............................. (69,849) (50,337) (57,523)
--------- --------- --------
Net cash provided by operating activities.............. $ 37,588 $ 17,314 $ 1,714
========= ========= ========
</TABLE>
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A significant source of funds used by BayBanks, Inc., the parent company, for
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 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, 1994, the Company's bank subsidiaries could have declared
additional dividends of approximately $91 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 also considers additional factors, including the
amount of current period net income, liquidity, asset quality, and economic
conditions and trends.
Federal law 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, 1994, the Company
had no borrowings outstanding from any of its subsidiaries, and one of the
Company's nonbank subsidiaries had a secured loan of $37,549,000 outstanding
from a bank subsidiary, representing 5.6% of the aggregate capital and surplus
of the bank subsidiaries.
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.
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.
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
$89,216,000 and $541,260,000 in 1994 and 1993, respectively, and money market
mutual funds and other short-term deposits.
38
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
TRADING ACCOUNT SECURITIES -- Consists primarily of municipal securities held
for resale to customers. These securities are recorded at market value; realized
and unrealized gains and losses on trading securities are recorded in the
current period in noninterest income.
SECURITIES -- Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that changes
in the market value of the securities available for sale portfolio be recorded
directly to a separate category of stockholders' equity, net of deferred income
taxes. Prior to the adoption of SFAS No. 115, securities available for sale were
valued at the lower of aggregate cost or market value, and changes therein were
recorded directly to earnings, net of income taxes. At adoption, the market
value of the securities available for sale portfolio exceeded its amortized cost
by $4,443,000, or $2,500,000 on an after-tax basis. At December 31, 1994, the
market value of the securities available for sale portfolio exceeded its
amortized cost by $470,000, or $276,000 on an after-tax basis, reflected in
stockholders' equity. 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 occasionally uses interest rate
swap agreements to manage its interest rate exposure. The net differential paid
or received on the swaps is accounted for as an adjustment to the yield on the
item hedged.
LOANS -- Interest income on most loans is accrued on the principal amount of
loans outstanding. Unearned income on leases and loans, $24,717,000 at year-end
1994 and $24,086,000 at year-end 1993, 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 certain 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 $9,861,000 and $11,353,000 at year-end 1994 and 1993, 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. Gains and losses on loans sold are determined
using the specific identification method. Gains and losses on loans sold with
servicing rights retained are adjusted to reflect the difference between the
present value of future service fee income and a normal service fee. The
resulting excess mortgage servicing rights are amortized using the level yield
method as a reduction of service fee income over the remaining lives of the
loans. Actual prepayment experience is reviewed periodically, and the excess
mortgage servicing rights are adjusted accordingly to reflect current
circumstances. At December 31, 1994 and 1993, mortgage loans held for sale were
$4,571,000 and $138,764,000, respectively; excess mortgage servicing rights were
$3,610,000 and $4,213,000, respectively. Loans serviced for others were $1.9
billion, $2.0 billion, and $1.8 billion at December 31, 1994, 1993, and 1992,
respectively.
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 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 $54,627,000 at year-end 1994 and
$110,001,000 at year-end 1993. Interest income earned during the year on
year-end nonperforming loans was approximately $568,000; if these loans had been
performing under
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contractual terms, interest would have been approximately $4,485,000. In 1993,
these amounts were $960,000 and $8,300,000, respectively.
Loans are classified as restructured, accruing loans, after a period of
performance, 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. In accordance with guidance issued by banking regulators,
restructured, accruing loans that are performing in accordance with the
restructured terms and bear a market rate of interest at the time of restructure
are removed from the disclosure in years subsequent to the restructure.
Restructured, accruing loans were $13,537,000 and $18,398,000 at December 31,
1994 and 1993, respectively. During 1994 and 1993, 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.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures." These statements
specify certain methods for calculating the allowance related to impaired loans.
A loan is impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The adoption of these statements, which will be accounted for
prospectively, is not expected to change the overall amount of the allowance for
loan losses and the other real estate owned reserve and is not expected to have
a material effect on the Company's reported results of operations or financial
condition.
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.
The adoption of SFAS No. 114 impacts the accounting for in-substance
foreclosures beginning January 1, 1995. SFAS No. 114 has narrowed the definition
of in-substance foreclosures to assets for which the Company has received
physical possession of the collateral. Upon adoption of this statement on
January 1, 1995, the Company reclassified $33,173,000 of in-substance
foreclosures and $8,669,000 of related reserves to loans and the allowance for
loan losses, respectively.
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OREO 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 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, 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 -- Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes."
SFAS 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 deferred tax assets that are not
expected to be realized. Adoption of SFAS No. 109 did not have a material effect
on the Company's results of operations or financial condition.
Prior to adoption of SFAS 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 303,286 for 1994 and 282,175 for 1993.
The dual presentation of primary and fully diluted earnings per common share is
not presented, since the difference in 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 in the form of either vault cash or
funds left on deposit with the Federal Reserve Bank. The average amount of these
balances was $309,821,000 for 1994 and $305,379,000 for 1993.
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. SECURITIES PORTFOLIOS
The amortized cost, gross unrealized gains and losses, market values, and
weighted average yields of the following securities portfolios by maturity
(excluding interest-bearing deposits and other short-term investments) were:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------
GROSS GROSS WEIGHTED
AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
COST GAINS LOSSES VALUE YIELD
---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, ON A TAX EQUIVALENT BASIS)
<S> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
State and local government securities,
maturing within 1 year.............. $ 8,578 $ -- $ (14) $ 8,564 6.21%
Corporate, maturing within 1 year..... 183,900 -- -- 183,900 6.76
Other................................. 27,654 484 -- 28,138 8.32
---------- ---------- ---------- ----------
Total securities available
for sale.................. $ 220,132 $ 484 $ (14) $ 220,602 6.94%
========= ======== ======== ========= =======
INVESTMENT SECURITIES
U.S. Government securities, maturing
Within 1 year....................... $ 640,370 $ 10 $ (6,683) $ 633,697 4.56%
After 1 year but within 5 years..... 1,443,149 -- (58,418) 1,384,731 5.58
---------- ---------- ---------- ----------
2,083,519 10 (65,101) 2,018,428 5.27
---------- ---------- ---------- ----------
State and local government securities, maturing
Within 1 year....................... 128,924 25 (151) 128,798 6.44
After 1 year but within 5 years..... 33,200 47 (742) 32,505 6.75
After 5 years but within 10 years... 9,312 17 (357) 8,972 7.79
---------- ---------- ---------- ----------
171,436 89 (1,250) 170,275 6.58
---------- ---------- ---------- ----------
Asset-backed securities............... 200,386 -- (5,652) 194,734 4.33
Mortgage-backed securities............ 49,503 -- (2,761) 46,742 5.14
Industrial revenue bonds.............. 49,548 -- -- 49,548 10.83
Corporate and other................... 1,857 -- -- 1,857 --
---------- ---------- ---------- ----------
Total investment
securities................ $2,556,249 $ 99 $ (74,764) $2,481,584 5.39%
========= ======== ======== ========= =======
</TABLE>
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Government securities................... $ 322,707 $3,280 $ (3) $ 325,984
Mortgage-backed securities................... 30,832 1,162 -- 31,994
State and local government securities........ 18,964 6 (2) 18,968
Corporate.................................... 256,500 -- -- 256,500
---------- ------ ----- ----------
Total securities available for
sale............................. $ 629,003 $4,448 $ (5) $ 633,446
========== ====== ===== ==========
INVESTMENT SECURITIES
U.S. Government securities................... $1,203,315 $6,447 $ (59) $1,209,703
Asset-backed securities...................... 204,798 115 (827) 204,086
State and local government securities........ 128,997 380 (25) 129,352
Industrial revenue bonds..................... 59,958 -- -- 59,958
Corporate and other.......................... 1,992 -- -- 1,992
---------- ------ ----- ----------
Total investment securities........ $1,599,060 $6,942 $(911) $1,605,091
========== ====== ===== ==========
</TABLE>
The year-end maturity distribution excludes industrial revenue bonds, which are
not regarded as principal debt securities, mortgage-backed securities,
asset-backed securities, and other securities that do not have a stated
maturity.
The book value of securities pledged to secure public and trust deposits and to
meet other legal requirements was $1,137,115 at December 31, 1994.
During 1994, proceeds from sales of securities available for sale were
$313,796,000, resulting in gross realized gains of $518,000. There was $3,000 in
gross realized losses from the sales of these securities. Proceeds from sales of
investment securities within 90 days of maturity, regarded as maturities in
accordance with generally accepted accounting principles, were $313,459,000,
resulting in gross realized losses of $312,000.
During 1993, proceeds from sales of securities available for sale were
$449,217,000, resulting in gross realized gains of $439,000. There was $28,000
in gross 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 gross realized gains of $41,123,000 and
$37,506,000, respectively. There was $1,700,000 in gross realized losses from
the sales of investment securities.
During 1994, BayBank, the Company's principal bank subsidiary, became a member
of the Federal Home Loan Bank of Boston (FHLB). As a member of the FHLB, BayBank
is required to invest in the stock of the FHLB in an amount equal to the greater
of 1% of residential mortgage loans or 3/10 of 1% of total assets. As of
December 31, 1994, $27,556,000 in the stock of the FHLB is included in the
securities available for sale portfolio in the other category at cost, which
approximates market value.
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as more fully discussed in Note 2.
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LOANS TO RELATED PARTIES
Loans outstanding to related parties of the Company and its principal
subsidiaries consist primarily of loans made to executive officers and business
interests related to certain directors; these loans totaled $18,899,000 and
$32,045,000 at December 31, 1994, and December 31, 1993, respectively. Activity
during the year on loans outstanding at year-end was as follows:
<TABLE>
<CAPTION>
1994
--------------
(IN THOUSANDS)
<S> <C>
Balance, January 1............................................. $ 32,045
Additions during the year...................................... 41,198
Reductions during the year..................................... (54,344)
--------
Balance, December 31........................................... $ 18,899
========
</TABLE>
These loans were made in the ordinary course of business under normal credit
terms, including collateralization and interest rates 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>
1994 1993 1992
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1................................ $171,496 $192,700 $ 212,500
Provision......................................... 24,000 36,500 106,836
Loan losses charged off........................... (66,594) (79,963) (140,790)
Less recoveries................................. 17,933 22,259 14,154
-------- -------- ---------
Net charge-offs................................... (48,661) (57,704) (126,636)
-------- -------- ---------
Balance, December 31.............................. $146,835 $171,496 $ 192,700
======== ======== =========
</TABLE>
Activity in the OREO reserve account was:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, January 1............................................. $ 29,776 $ 7,833
Additions to the OREO reserve.................................. 15,639 32,471
Reductions related to sales.................................... (20,444) (10,528)
-------- --------
Balance, December 31........................................... $ 24,971 $ 29,776
======== ========
</TABLE>
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 lives or lease terms, whichever is shorter. Premises
and equipment were comprised of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Buildings...................................................... $161,598 $160,770
Leasehold improvements......................................... 59,596 54,807
Land........................................................... 16,974 16,125
Equipment...................................................... 197,818 178,155
-------- --------
435,986 409,857
Less accumulated depreciation.................................. 240,556 217,303
-------- --------
Premises and equipment, net.................................... $195,430 $192,554
======== ========
</TABLE>
Depreciation and amortization expense of premises, equipment, and leasehold
improvements was $24,365,000 in 1994, $24,218,000 in 1993, and $24,246,000 in
1992.
Total rental expense was $24,967,000 in 1994, $26,346,000 in 1993, and
$27,367,000 in 1992, net of $1,473,000, $1,705,000, and $2,232,000 in rental
income from subleases, respectively. Contingent rentals were negligible. As of
December 31, 1994, the Company and its subsidiaries were obligated, under
noncancelable operating leases (primarily for premises), for minimum rentals in
future periods as follows:
<TABLE>
<CAPTION>
TOTAL RENTAL NET
OBLIGATION INCOME OBLIGATION
---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1995.................................................. $ 11,620 $ 1,152 $ 10,468
1996.................................................. 10,598 1,028 9,570
1997.................................................. 9,708 786 8,922
1998.................................................. 7,186 646 6,540
1999.................................................. 5,164 609 4,555
Thereafter............................................ 12,002 1,063 10,939
</TABLE>
Most leases contain escalation of rent clauses based on increases in real estate
taxes or equipment usage. Many leases include renewal provisions.
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. FEDERAL FUNDS PURCHASED AND OTHER SHORT-TERM BORROWINGS
Balances outstanding as of December 31, 1994 and 1993, consisted of the
following:
<TABLE>
<CAPTION>
FEDERAL FEDERAL HOME U.S.
FUNDS REPURCHASE LOAN BANK TREASURY
TOTAL PURCHASED AGREEMENTS BORROWINGS AND OTHER
---------- --------- ---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994
Year-end balance................ $ 849,517 $ 46,800 $ 797,333 $ -- $5,384
Maximum month-end balance....... 1,137,318 109,390 1,066,905 100,000 9,720
Average daily balance........... 839,070 75,405 729,406 29,521 4,738
Weighted average interest rates:
As of year-end................ 5.81% 6.11% 5.80% --% --%
During the year............... 4.50 4.18 4.55 4.71 --
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 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 1994 the weighted average rate paid was
4.44%, and at December 31, 1994, the rate was 6.44%. 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 balance of long-term debt at December 31, 1994, includes mortgage debt at
two subsidiaries totaling $823,000. The monthly payment amounts of the mortgages
totaled $7,000 in 1994 with final maturities from 1997 to 2013. Obligations on
capitalized leases totaled $331,000 at December 31, 1994.
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>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at the beginning of the year........... 830,434 916,348 817,684
Options granted............................................ -- 97,500 182,000
Options exercised.......................................... (171,303) (157,414) (20,336)
Options forfeited.......................................... (43,834) (26,000) (63,000)
-------- -------- --------
Options outstanding at the end of the year................. 615,297 830,434 916,348
======== ======== ========
</TABLE>
Prices of shares under option at December 31, 1994, ranged from $13.75 to
$45.00, and options for 362,584 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.
46
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the above, the Company has a restricted stock plan that was
adopted in 1994. A total of 500,000 shares may be awarded under the plan, which
expires in 2004. As of December 31, 1994, 112,000 shares had been awarded. The
Company also had a restricted stock plan that expired in 1992. Under this plan,
400,000 shares were awarded. Certificates for shares awarded are 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, 1994, such restrictions
remained on 237,543 shares outstanding from these plans. 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 1994,
restrictions on 50,652 shares lapsed, and 5,200 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 $6,150,000 at December 31,
1994, $1,451,000 at December 31, 1993, and $2,952,000 at December 31, 1992.
Compensation expense related to restricted stock grants, net of forfeitures, was
$1,553,000 in 1994, $1,099,000 in 1993, and $2,243,000 in 1992.
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:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations............................... $ 67,099 $ 69,418 $ 54,765
======== ======== ========
Accumulated benefit obligations.......................... $ 68,259 $ 71,160 $ 56,479
======== ======== ========
Projected benefit obligations............................ $ 85,586 $ 91,816 $ 78,667
Plan assets (primarily marketable securities) at market
value.................................................... 120,358 120,041 111,021
-------- -------- --------
Net assets in excess of projected benefit obligations...... 34,772 28,225 32,354
Unrecognized experience gain............................... (12,294) (5,316) (7,988)
Unrecognized prior service cost............................ 573 1,831 2,112
Unamortized net excess pension assets at transition
recognized
over 15 years............................................ (10,333) (11,809) (13,286)
-------- -------- --------
Prepaid pension cost recorded in other assets.............. $ 12,718 $ 12,931 $ 13,192
======== ======== ========
</TABLE>
Assumptions used in determining the actuarial present value of the projected
benefit obligation as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Discount rate.............................................. 8.50% 7.25% 8.00%
Rate of increase in future compensation levels............. 5.25 4.70 5.20
</TABLE>
47
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension expense consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs earned during period.......................... $ 4,551 $ 4,083 $ 3,724
Interest cost on projected benefit obligation............... 6,943 6,304 6,071
Actual return on plan assets................................ (3,290) (11,113) (15,382)
Net amortization and deferral............................... (7,991) 987 5,673
------- -------- --------
Net pension expense......................................... $ 213 $ 261 $ 86
======= ======== ========
</TABLE>
In addition to the above, the Company maintains a nonqualified, supplemental
retirement plan for certain officers. The benefits provided under this plan are
unfunded, and any payments to plan participants are made by the Company. As of
December 31, 1994 and 1993, $4,269,000 and $1,962,000, respectively, were
included in accrued expense and other liabilities for this plan.
The expense associated with this plan as of December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs earned during period.......................... $ 346 $ 79 $ 67
Interest cost on projected benefit obligation............... 400 240 206
Actual return on plan assets................................ -- -- --
Net amortization and deferral............................... 330 162 146
------ ---- ----
Supplemental retirement expense............................. $1,076 $481 $419
====== ==== ====
</TABLE>
Assumptions used in determining the net pension expense and supplemental
retirement expense were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Rate of return on plan assets.................................. 9.00% 9.00% 9.50%
Discount rate.................................................. 7.25 8.00 9.00
Rate of increase in future compensation levels................. 4.70 5.20 6.20
</TABLE>
The Company has a savings and profit sharing plan that is interrelated with an
employee stock ownership plan (ESOP). Employees are eligible to participate in
these plans if they meet certain service requirements. Benefits are based on the
Company's financial performance. A portion of these benefits is payable under
the ESOP in shares of the Company's common stock.
In 1990, 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, bears interest at a rate equal to Reserve Adjusted LIBOR plus .35%
and is payable in eight annual instalments ending January 31, 1997. At December
31, 1994, the balance of the ESOP loan was $9,451,000 at an interest rate of
6.54%, and unallocated ESOP shares were 406,495.
During 1994, ESOP expense included an accrual of $2,450,000 to cover the loan
payment due on January 31, 1995, and interest expense, net of dividends, on the
ESOP loan of $473,000. The dividends used to service the ESOP debt, which were
paid on shares held by the ESOP, were $1,188,000 in 1994 and $697,000 in 1993;
there were no dividends in 1992. The Company accrued additional contributions to
the savings and profit sharing plan of $2,100,000 in 1994; the Company accrued
no such additional contributions in 1993 or 1992.
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 3,800
employees are potentially eligible for benefits under the plan. Existing
48
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" as of January 1, 1993. SFAS 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 SFAS 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 three years for the medical insurance to
thirteen years for the life insurance and Medicare supplements.
The table below sets forth the status of the Company's accumulated
postretirement benefit obligation, which was unfunded as of December 31:
Accumulated Postretirement Benefit Obligation:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation............................ $(3,086) $(3,597)
Unrecognized net (gain) loss............................................. (273) 186
Unrecognized prior service cost.......................................... -- --
Unrecognized net transition obligation................................... 2,801 3,152
------- -------
Net postretirement benefit liability..................................... $ (558) $ (259)
======= =======
</TABLE>
Postretirement benefit expense was $613,000 in 1994 and $619,000 in 1993.
Increasing the health care cost trend by 1% in each year would not materially
affect the accumulated postretirement benefit obligation as of December 31,
1994, or the aggregate of the service and interest components of the net
periodic postretirement benefit cost for the twelve months ended December 31,
1994. The present value of the accumulated benefit obligation assumed a 8.50%
discount rate compounded annually.
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 covers all postemployment
benefits not already covered by the two prior accounting pronouncements.
Adoption of SFAS No. 112 resulted in additional postemployment benefits of
$1,615,000, which were recorded in the first quarter of 1994 at $932,000 on an
after-tax basis. The annual cost of postemployment benefits to former employees
for 1994 was $1,851,000.
49
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. OTHER NONINTEREST INCOME
The major components of other noninterest income were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Credit card fees.............................................. $19,549 $18,892 $19,398
Processing fees............................................... 16,174 13,788 12,624
Trust fees.................................................... 14,127 14,559 14,810
Investment management and brokerage fees...................... 8,293 6,318 4,197
Mortgage banking fees......................................... 7,152 11,972 10,207
International fees............................................ 6,344 5,845 6,035
Other noninterest income...................................... 25,731 21,939 19,939
------- ------- -------
$97,370 $93,313 $87,210
======= ======= =======
</TABLE>
NOTE 13. OTHER OPERATING EXPENSES
The major components of other operating expenses were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Marketing and public relations............................. $ 22,726 $ 21,341 $ 17,033
FDIC insurance............................................. 21,708 21,949 19,289
Service bureau and other data processing................... 17,443 16,538 15,602
Printing and supplies...................................... 12,767 12,997 12,557
Professional services...................................... 10,807 13,744 12,482
Postage.................................................... 8,711 8,290 8,201
Legal and consulting....................................... 8,516 6,609 9,763
Other operating expenses................................... 28,512 27,699 27,385
-------- -------- --------
131,190 129,167 122,312
OREO and legal expenses related to workout................. 9,838 17,468 18,450
-------- -------- --------
$141,028 $146,635 $140,762
======== ======== ========
</TABLE>
NOTE 14. INCOME TAXES
The provision for income taxes was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for:
Federal income tax....................................... $50,449 $32,254 $25,101
State income tax......................................... 23,073 14,818 11,350
------- ------- -------
$73,522 $47,072 $36,451
======= ======= =======
</TABLE>
50
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The current and deferred components of the provision were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes payable:
Federal.................................................. $44,370 $31,084 $26,940
State.................................................... 19,936 13,313 11,350
------- ------- -------
$64,306 $44,397 $38,290
======= ======= =======
Deferred taxes (benefit):
Federal.................................................. $ 6,079 $ 1,170 $(1,839)
State.................................................... 3,137 1,505 --
------- ------- -------
$ 9,216 $ 2,675 $(1,839)
======= ======= =======
</TABLE>
The major components of deferred income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan losses................................................... $10,689 $ 9,360 $ 6,628
Depreciation.................................................. (1,879) (1,859) (1,408)
Loan fees, net................................................ 1,918 (348) (211)
Pension credit................................................ 23 (360) (31)
Lease financing............................................... (2,891) (2,973) (439)
Provision for OREO reserve, net............................... 5,607 (3,300) (4,947)
Deferred compensation......................................... (1,811) 518 (981)
Other, net.................................................... (2,440) 1,637 (450)
------- ------- -------
$ 9,216 $ 2,675 $(1,839)
======= ======= =======
</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>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Nominal federal tax rate........................................... 35.0% 35.0% 34.0%
State tax rate, net of federal tax benefit......................... 8.2 8.4 7.8
Tax-exempt income.................................................. (1.7) (2.3) (2.6)
Alternative minimum tax............................................ -- -- (1.4)
Non-deductible goodwill............................................ .1 .2 .6
Utilization of tax credits......................................... (.7) (.4) (.1)
Other.............................................................. (.5) .1 (.2)
---- ---- ----
40.4% 41.0% 38.1%
==== ==== ====
</TABLE>
51
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994 and 1993, and January 1, 1993, the Company had gross
deferred tax assets and gross deferred tax liabilities as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 1,
1994 1993 1993
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax assets:
Loan losses.......................................... $63,211 $73,900 $ 83,260
OREO reserve......................................... 7,365 12,972 9,672
Loan fees, net....................................... 3,210 5,128 4,780
Deferred compensation................................ 5,447 3,636 4,154
Other, net........................................... 2,754 223 294
------- ------- --------
81,987 95,859 102,160
======= ======= ========
Deferred income tax liabilities:
Lease financing...................................... 10,474 13,365 16,338
Depreciation......................................... 7,049 8,928 10,787
Pension credit....................................... 5,598 5,575 5,935
Other, net........................................... 2,890 2,606 1,040
------- ------- --------
26,011 30,474 34,100
------- ------- --------
Net deferred income tax asset..................... $55,976 $65,385 $ 68,060
======= ======= ========
</TABLE>
It is expected that the existing net deductible temporary differences, which
give rise to the net deferred tax asset, will be realized.
NOTE 15. FINANCIAL INSTRUMENTS WITH CREDIT RISK AND OFF-BALANCE SHEET RISK AND
DERIVATIVE FINANCIAL INSTRUMENTS
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
occasionally uses various off-balance sheet commitments and financial
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 and options,
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.
52
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS -- The Company has only limited involvement
with derivative financial instruments for interest rate risk management and
trading purposes.
Off-balance sheet and derivative financial instruments at December 31, 1994 and
1993, were as follows:
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL
AMOUNT
-------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loan commitments.................................................... $3,065,000 $2,763,000
Standby letters of credit........................................... 146,000 164,000
Foreign exchange contracts.......................................... 99,000 44,000
Loans sold with recourse............................................ 38,000 46,000
Forward commitments................................................. 23,000 134,000
Securities purchase and sell commitments............................ 15,000 29,000
Interest rate swaps and options..................................... 14,000 8,000
Letters of credit................................................... 14,000 15,000
Municipal note purchase agreements.................................. 2,000 4,000
</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. The fair value of loan commitments was $3,500,000 and $2,100,000 at
December 31, 1994 and 1993, respectively.
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. The fair value of letters of
credit was $177,000 and $175,000 at December 31, 1994 and 1993, respectively.
FOREIGN EXCHANGE CONTRACTS -- The Company enters into offsetting agreements to
purchase foreign currency and, in turn, to sell it to customers. Credit risk
exists because in the event that a customer fails to take delivery of the
foreign currency, the Company is required to resell it to the market. The fair
value of foreign exchange contracts was $780,000 and $552,000 at December 31,
1994 and 1993, respectively.
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
dollar 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.
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 the 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 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. The Company also enters into a limited number
of forward rate options with commercial customers, which in turn are hedged in
their entirety.
SECURITIES PURCHASE AND SELL COMMITMENTS -- In connection with its capital
markets activities, the Company regularly commits to purchase and sell
securities.
53
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE SWAPS AND OPTIONS -- The Company uses interest rate swap contracts
and options in conjunction with asset and liability management activities and to
adjust interest rate risk associated with specific customer transactions. These
agreements 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.
MUNICIPAL NOTE PURCHASE AGREEMENTS -- In connection with its capital markets
activities, the Company has committed to purchase certain municipal securities
from investors in the event that the issuing municipality fails to pay principal
or interest when due.
NOTE 16. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Under the provisions of SFAS 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.
SFAS 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 SFAS 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 SFAS 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 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, 1994 and 1993.
Credit risk factors were incorporated in the discount rates used for these loans
and are 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 1994
and 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, 1994 and 1993.
OTHER ASSETS -- Financial instruments classified as other assets that are
subject to the disclosure requirements of SFAS No. 107 consist principally of
interest receivable, excess mortgage servicing rights, and required
54
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
investments in low-income housing limited partnerships. The carrying amounts of
these financial instruments approximate their fair value.
DEPOSITS -- The fair value of demand deposits, NOW and savings accounts, and
money market deposits is defined by SFAS 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 was
estimated by the use of present value techniques. These techniques consider 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.
ACCRUED EXPENSES AND OTHER ACCOUNTS PAYABLE -- Financial instruments included in
accrued expenses and other accounts payable that are subject to the disclosure
requirements of SFAS No. 107 consist principally of interest payable. The
carrying value of interest payable approximates its fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- The estimated fair values of loan
commitments, standby letters of credit, and foreign exchange contracts are
disclosed in Note 15. The fair values of all other off-balance sheet financial
instruments were not considered to be material. 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, foreign exchange contracts, and interest rate swaps was determined
by reference to the market for similar instruments.
The fair values of the financial instruments presented, and as determined under
the guidelines established by SFAS No. 107 as previously described, depend
highly on assumptions as they existed as of December 31, 1994 and 1993, 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 understand-
55
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ing, the financial statement amounts and estimated fair values of financial
instruments at December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
FINANCIAL FAIR FINANCIAL FAIR
STATEMENT VALUE STATEMENT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks................. $ 829,170 $ 829,170 $ 632,985 $ 632,985
Interest-bearing deposits and other
short-term investments................ 166,286 166,286 803,068 803,068
Trading accounts........................ 27,416 27,416 14,595 14,595
Securities portfolios................... 2,776,851 2,702,186 2,228,063 2,238,537
Loans (net of allowance):
Commercial and commercial real estate... 2,382,321 2,425,000 2,146,686 2,210,000
Consumer................................ 4,119,364 4,182,000 3,784,988 3,980,000
---------- ---------- ---------- ----------
6,501,685 6,607,000 5,931,674 6,190,000
Financial liabilities
Deposits:
Demand, NOW, savings, and money
market deposit accounts............... $7,729,339 $7,729,339 $7,749,919 $7,749,919
Consumer time........................... 1,095,357 1,087,000 993,945 1,003,000
Time -- $100,000 or more................ 175,663 175,663 34,957 34,957
Federal funds purchased and other
short-term borrowings................. 849,517 849,517 507,820 507,820
Long-term debt.......................... 51,154 51,000 54,488 54,000
</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 1992 through 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Net interest income
First Quarter................................. $ 108,667 $ 101,528 $ 101,271
Second Quarter................................ 112,815 104,917 104,548
Third Quarter................................. 120,004 108,282 107,428
Fourth Quarter................................ 123,456 109,096 103,265
---------- ---------- ----------
$ 464,942 $ 423,823 $ 416,512
========= ========= =========
</TABLE>
56
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Noninterest income
First Quarter................................. $ 49,715 $ 46,896 $ 43,309
Second Quarter................................ 54,031 48,751 46,484
Third Quarter................................. 52,557 51,904 46,801
Fourth Quarter................................ 50,985 50,973 47,287
---------- ---------- ----------
$ 207,288 $ 198,524 $ 183,881
========== ========== ==========
Net securities gains
First Quarter................................. $ 39 $ -- $ 35,413
Second Quarter................................ 436 358 393
Third Quarter................................. -- 49 --
Fourth Quarter................................ (272) 4 41,123
---------- ---------- ----------
$ 203 $ 411 $ 76,929
========== ========== ==========
Provision for loan losses and OREO reserve
First Quarter................................. $ 8,937 $ 18,500 $ 60,210
Second Quarter................................ 8,500 16,892 38,619
Third Quarter................................. 8,415 16,800 27,754
Fourth Quarter................................ 7,520 9,138 25,735
---------- ---------- ----------
$ 33,372 $ 61,330 $ 152,318
========== ========== ==========
Net income
First Quarter................................. $ 21,279 $ 12,761 $ 8,229
Second Quarter................................ 26,422 14,207 6,515
Third Quarter................................. 29,033 18,001 10,436
Fourth Quarter................................ 30,703 22,682 34,057
---------- ---------- ----------
$ 107,437 $ 67,651 $ 59,237
========== ========== ==========
Average number of outstanding shares
First Quarter................................. 19,093,447 18,871,018 16,137,694
Second Quarter................................ 19,154,620 18,937,724 16,203,022
Third Quarter................................. 19,187,890 19,000,208 16,204,906
Fourth Quarter................................ 19,255,579 19,004,540 17,329,351
Earnings per share
First Quarter................................. $ 1.11 $ .68 $ .51
Second Quarter................................ 1.38 .75 .40
Third Quarter................................. 1.51 .95 .64
Fourth Quarter................................ 1.59 1.19 1.97
---------- ---------- ----------
$ 5.60* $ 3.57 $ 3.57*
========== ========== ==========
Dividends declared
First Quarter................................. $ 0.35 $ 0.20 --
Second Quarter................................ 0.35 0.20 --
Third Quarter................................. 0.45 0.25 --
Fourth Quarter................................ 0.45 0.25 --
</TABLE>
57
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Dividends paid
First Quarter................................. $ 0.35 $ 0.20 --
Second Quarter................................ 0.35 0.20 --
Third Quarter................................. 0.45 0.25 --
Fourth Quarter................................ 0.45 0.25 --
Range of BayBanks, Inc., common stock -- last
sale price
First Quarter................................. $57 1/4-50 $52 1/8-38 3/4 $31 1/4-18 3/4
Second Quarter................................ 64 1/8-54 1/2 51 1/4-38 1/4 36 7/8-26 3/4
Third Quarter................................. 63 -54 1/4 50 1/2-43 1/4 36 1/2-28 3/4
Fourth Quarter................................ 59 1/2-51 50 3/4-43 1/4 40 3/4-30 1/8
</TABLE>
- ---------------
* The sum of the quarters' earnings per share for 1994 and 1992 does not equal
the full-year amount due to the effect of the issuance of common stock.
NOTE 19. PENDING ACQUISITION OF A FINANCIAL INSTITUTION
On December 23, 1994, the Company announced that it had agreed to acquire the
southern New Hampshire-based holding company NFS Financial Corp. (NFS), parent
company of NFS Savings Bank, FSB and Plaistow Cooperative Bank, FSB. The
stockholders of NFS will receive $20.15 in cash and .2038 shares of BayBanks,
Inc., common stock for each share of NFS common stock held. The merger
consideration is subject to adjustment under certain circumstances if the market
value of the Company's stock at the closing date is less than $43.50 or more
than $63.00 per share. The acquisition, approved by the boards of directors of
both companies, is subject to approval by the stockholders of NFS and various
federal and state regulatory agencies. NFS had total assets of approximately
$619,000,000 at December 31, 1994. The acquisition will be accounted for as a
purchase.
58
<PAGE> 60
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning directors is presented in the section titled "Board of
Directors" of the Company's proxy statement for the annual meeting to be held on
April 27, 1995, and is incorporated herein by reference. The following are the
executive officers of the registrant as of February 28, 1995:
<TABLE>
<CAPTION>
AGE TITLE
---
<S> <C> <C>
William M. Crozier, Jr... 62 Chairman and President
Donald L. Isaacs......... 47 Vice Chairman
Richard F. Pollard....... 62 Vice Chairman
Ilene Beal............... 49 Executive Vice President and Secretary
Michael W. Vasily........ 50 Executive Vice President and Chief Financial
Officer
Joan E. Tonra............ 48 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. Isaacs was elected Vice Chairman of the Board 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 of the Board of
BayBank Systems, Inc., the Company's technology subsidiary.
Mr. Pollard was elected Vice Chairman of the Board 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 Chairman
of the Board of BayBank Connecticut, N.A., and is the senior lending officer of
the Company.
Ms. Beal was elected Secretary in 1991, 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.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning management remuneration and transactions is presented in
the section titled "Executive Compensation" of the Company's proxy statement for
the annual meeting to be held on April 27, 1995, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning securities ownership of management and concerning
securities ownership of certain beneficial owners is presented in the sections
titled "Board of Directors" and "Ownership of Common Stock" of the Company's
proxy statement for the annual meeting to be held on April 27, 1995, and is
incorporated herein by reference.
59
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning relationships and transactions of the Company's executive
officers and directors is presented in the section titled "Board of Directors"
of the Company's proxy statement for the annual meeting to be held on April 27,
1995, and 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
are presented in Item 8:
Independent Auditors' Report
Consolidated Balance Sheet-December 31, 1994 and 1993
Consolidated Statement of Income-Years Ended December 31, 1994, 1993,
and 1992
Consolidated Statement of Changes in Stockholders' Equity-Years Ended
December 31, 1994, 1993, and 1992
Consolidated Statement of Cash Flows-Years Ended December 31, 1994,
1993, and 1992
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. Exhibits
See the Exhibit List and Index on pages 62 and 63.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1994.
A report on Form 8-K was filed on January 4, 1995, reporting the execution
of an Acquisition Agreement on December 22, 1994, under which the Company
would acquire NFS Financial Corp. ("NFS"), and a related Option Agreement
under which NFS granted to the Company an option to purchase up to 9.9% of
the outstanding shares of NFS Common Stock.
60
<PAGE> 62
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
February 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 23, 1995, by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ JOHN A. CERVIERI JR. /s/ WILLIAM M. CROZIER, JR.
JOHN A. CERVIERI JR. WILLIAM M. CROZIER, JR.
Director Chairman of the Board,
President, and Director
(Principal Executive Officer)
/s/ ROBERT L. GABLE /s/ DONALD L. ISAACS
ROBERT L. GABLE DONALD L. ISAACS
Director Vice Chairman of the Board and Director
/s/ SAMUEL J. GERSON /s/ RICHARD F. POLLARD
SAMUEL J. GERSON RICHARD F. POLLARD
Director Vice Chairman of the Board and Director
/s/ NORMAN E. MACNEIL /s/ MICHAEL W. VASILY
NORMAN E. MACNEIL MICHAEL W. VASILY
Director Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ ARLENE A. McNAMEE /s/ JOAN E. TONRA
ARLENE A. MCNAMEE JOAN E. TONRA
Director Senior Vice President and Controller
(Principal Accounting Officer)
/s/ THOMAS R. PIPER
THOMAS R. PIPER
Director
/s/ GLENN P. STREHLE
GLENN P. STREHLE
Director
/s/ JOSEPH H. TORRAS
JOSEPH H. TORRAS
Director
</TABLE>
61
<PAGE> 63
BAYBANKS, INC.
EXHIBIT LIST AND INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C> <C> <C>
PLAN OF ACQUISITION
2.1* -- Acquisition Agreement dated December 22, 1994 by and between the Registrant
and NFS Financial Corp. (Exhibit 2(a) to the Registrant's Current Report on
Form 8-K filed with the Commission on January 4, 1995). The schedules referred
to in the Acquisition Agreement are omitted. The Registrant hereby agrees to
furnish a copy of any such schedule to the Commission upon request.
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 (Exhibit 3.1(b) to 1993 Form 10-K).
(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 Registrant (Exhibit 4.1(d) to June 30, 1990 Form 10-Q).
3.2* -- By-Laws as amended through October 27, 1994 (Exhibit 3.1 to September 30, 1994
Form 10-Q).
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1* -- Indenture dated as of September 15, 1985 (Exhibit 4.1 to Registration
Statement No. 33-00130).
4.2* -- Rights Agreement dated December 23, 1988 (Exhibit 1 to Registration Statement
on Form 8-A filed December 23, 1988).
4.3* -- Specimen Common Stock Certificate (Exhibit 4.5 of Registration Statement No.
33-50558).
4.4 -- 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* -- Amendment dated October 27, 1994 to 1978 Stock Option Plan for Key Employees
of BayBanks, Inc. and Affiliates (Exhibit 10.1 to September 30, 1994 Form
10-Q).
10.3* -- 1988 Stock Option Plan for Key Employees of BayBanks, Inc., and Affiliates, as
amended. (Exhibit 10.2 to September 30, 1994 Form 10-Q).
10.4* -- BayBanks, Inc., Incentive Compensation Plan, as amended (Exhibit 10.5 to
September 30, 1994 Form 10-Q).
10.5* -- BayBanks, Inc., Compensation Plan for Directors, as amended (Exhibit 10.6 to
September 30, 1994 Form 10-Q).
10.6* -- 1990 Stock Plan for Directors, as amended (Exhibit 10.7 to September 30, 1994
Form 10-Q).
10.7* -- 1982 Restricted Stock Plan for Key Employees of BayBanks, Inc., and
Affiliates, as amended (Exhibit 10.3 to September 30, 1994 Form 10-Q).
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C> <C> <C>
10.8* -- BayBanks Inc., 1994 Restricted Stock Plan, as amended (Exhibit 10.4 to
September 30, 1994 Form 10-Q).
10.9* -- BayBanks Supplemental Executive Retirement Plan (Exhibit 19.6 to June 30, 1991
Form 10-Q).
10.10* -- First Amendment dated February 26, 1992, to BayBanks Supplemental Executive
Retirement Plan (Exhibit 10.8 to 1991 Form 10-K).
10.11* -- Second Amendment dated July 19, 1994 to BayBanks Supplemental Executive
Retirement Plan (Exhibit 10.2 to June 30, 1994 Form 10-Q).
10.12* -- Third Amendment dated October 27, 1994 to BayBanks Supplemental Executive
Retirement Plan (Exhibit 10.8 to September 30, 1994 Form 10-Q).
10.13* -- BayBanks Profit Sharing Excess Benefit Plan (Exhibit 10.1 to March 31, 1993
Form 10-Q).
10.14* -- First Amendment to BayBanks Profit Sharing Excess Benefit Plan (Exhibit 10.1
to June 30, 1994 Form 10-Q).
10.15* -- BayBank Retirement Excess Benefit Plan (Exhibit 10.3 to June 30, 1994 Form
10-Q).
10.16* -- BayBanks, Inc., Severance Benefits Plan, as amended (Exhibit 10.9 to September
30, 1994 Form 10-Q).
10.17* -- BayBanks Deferred Payment Plans Trust Agreement (Exhibit 19 to June 30, 1992
Form 10-Q).
10.18* -- First Amendment dated October 27, 1994 to BayBanks Deferred Payment Plans
Trust Agreement (Exhibit 10.10 to September 30, 1994 Form 10-Q).
MATERIAL CONTRACTS -- OTHER
10.19* -- ESOP Stock Purchase Agreement dated as of January 22, 1990, between the
Registrant 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 64.
21 -- Subsidiaries of the Registrant. See Page 65.
23 -- Consent of Independent Auditors. See Page 66.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the document indicated in parentheses.
63
<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>
1994 1993
----------- -----------
<S> <C> <C>
Primary:
Weighted average shares........................................... 18,870,238 18,671,222
Common stock equivalents (CSE):
Stock options................................................... 303,286 282,175
----------- -----------
Primary weighted average shares................................... 19,173,524 18,953,397
========== ==========
Income before cumulative effect of accounting change.............. 108,369 67,651
Less cumulative effect of accounting change....................... 932 --
----------- -----------
Net income........................................................ $ 107,437 $ 67,651
========== ==========
Primary earnings per share:
Income before cumulative effect of accounting change............ $ 5.65 $ 3.57
Less cumulative effect of accounting change..................... 0.05 --
----------- -----------
Net income...................................................... $ 5.60 $ 3.57
========== ==========
Fully diluted:
Weighted average shares........................................... 18,870,238 18,671,222
Common stock equivalents (CSE):
Stock options................................................... 303,286 282,175
Stock options not CSE............................................. 3,761 47,283
5% convertible debentures......................................... -- 3,709(1)
----------- -----------
Fully diluted weighted average shares............................. 19,177,285 19,004,389
========== ==========
Income before cumulative effect of accounting change.............. $ 108,369 $ 67,651
Less cumulative effect of accounting change....................... 932 --
----------- -----------
Net income........................................................ 107,437 67,651
5% debentures interest expense -- net of tax...................... -- 2
----------- -----------
Net income -- fully diluted basis................................. $ 107,437 $ 67,653
========== ==========
Fully diluted earnings per share:
Income before cumulative effect of accounting change............ $ 5.65 $ 3.56
Less cumulative effect of accounting change..................... 0.05 --
----------- -----------
Net income...................................................... $ 5.60 $ 3.56
========== ==========
</TABLE>
- ---------------
(1) $51 convertible at $13.75 per share.
64
<PAGE> 1
EXHIBIT 21
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 Associates, 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.
65
<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, 33-22834, and 33-54509 on Forms S-8
of BayBanks, Inc. of our report dated January 24, 1995, relating to the
consolidated balance sheets of BayBanks, Inc. and subsidiaries as of December
31, 1994 and 1993, 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, 1994 which report is included herein.
/S/ KPMG PEAT MARWICK LLP
BOSTON, MASSACHUSETTS
MARCH 8, 1995
66
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BAYBANKS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 829,170
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 166,286
<TRADING-ASSETS> 27,416
<INVESTMENTS-HELD-FOR-SALE> 220,602
<INVESTMENTS-CARRYING> 2,556,249
<INVESTMENTS-MARKET> 2,481,584
<LOANS> 6,648,520
<ALLOWANCE> 146,835
<TOTAL-ASSETS> 10,770,947
<DEPOSITS> 9,000,359
<SHORT-TERM> 849,517
<LIABILITIES-OTHER> 81,305
<LONG-TERM> 51,154
<COMMON> 37,999
0
0
<OTHER-SE> 750,613
<TOTAL-LIABILITIES-AND-EQUITY> 10,770,947
<INTEREST-LOAN> 509,503
<INTEREST-INVEST> 139,830
<INTEREST-OTHER> 8,467
<INTEREST-TOTAL> 657,800
<INTEREST-DEPOSIT> 152,567
<INTEREST-EXPENSE> 192,858
<INTEREST-INCOME-NET> 464,942
<LOAN-LOSSES> 24,000
<SECURITIES-GAINS> 203
<EXPENSE-OTHER> 466,542
<INCOME-PRETAX> 181,891
<INCOME-PRE-EXTRAORDINARY> 108,369
<EXTRAORDINARY> 0
<CHANGES> (932)
<NET-INCOME> 107,437
<EPS-PRIMARY> 5.60
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.04
<LOANS-NON> 54,627
<LOANS-PAST> 36,193
<LOANS-TROUBLED> 13,537
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 171,496
<CHARGE-OFFS> 66,594
<RECOVERIES> 17,933
<ALLOWANCE-CLOSE> 146,835
<ALLOWANCE-DOMESTIC> 11,452
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 135,383
</TABLE>
