<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the quarter ended March 31, 1995 Commission File No. 0-959
</TABLE>
------------------------
BAYBANKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2008039
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
175 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code (617) 482-1040
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 twelve months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of April 26, 1995, 19,007,398 shares of the registrant's common stock,
$2.00 par value, were outstanding.
The list of exhibits to this report appears on page 27.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BAYBANKS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1995 1994 1994
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................................................... $ 658,022 $ 829,170 $ 575,551
Trading accounts............................................................ 18,368 27,416 21,974
Securities portfolios
Interest-bearing deposits and other short-term investments.................. 196,831 166,286 390,948
Securities available for sale -- amortized cost $221,299 at March 31, 1995,
$220,132 at December 31, 1994 and $625,159 at March 31, 1994 (Note 2)..... 222,015 220,602 628,263
Investment securities -- market value $2,644,529 at March 31, 1995,
$2,481,584 at December 31, 1994, and $2,236,417 at March 31, 1994
(Note 2).................................................................. 2,675,403 2,556,249 2,255,736
----------- ----------- -----------
3,094,249 2,943,137 3,274,947
Loans, net of unearned income and fees (Note 3)
Commercial................................................................ 1,580,403 1,528,265 1,324,429
Commercial real estate.................................................... 977,986 956,596 919,664
Residential mortgage...................................................... 1,376,372 1,335,466 1,182,028
Instalment................................................................ 2,839,733 2,828,193 2,626,014
----------- ----------- -----------
6,774,494 6,648,520 6,052,135
Less allowance for loan losses............................................ 146,348 146,835 165,221
----------- ----------- -----------
6,628,146 6,501,685 5,886,914
Premises and equipment, net................................................. 193,785 195,430 192,604
Other real estate owned and in-substance foreclosures, net (Note 3)......... 36,493 67,399 99,139
Other assets................................................................ 214,695 206,710 188,167
----------- ----------- -----------
Total assets............................................................ $10,843,758 $10,770,947 $10,239,296
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand.................................................................... $ 2,100,424 $ 2,214,761 $ 2,022,422
NOW accounts.............................................................. 1,407,048 1,491,694 1,424,830
Savings................................................................... 1,460,247 1,462,459 1,520,999
Money market deposit accounts............................................. 2,493,856 2,560,425 2,721,482
Consumer time............................................................. 1,299,848 1,095,357 956,006
Time -- $100,000 or more.................................................. 182,532 175,663 40,123
----------- ----------- -----------
8,943,955 9,000,359 8,685,862
Federal funds purchased and other short-term borrowings..................... 961,883 849,517 714,975
Accrued expenses and other accounts payable................................. 66,815 71,854 51,073
Long-term debt.............................................................. 51,146 51,154 54,038
Guarantee of ESOP indebtedness.............................................. 6,289 9,451 9,451
Stockholders' equity:
Common stock, par value $2.00 per share
Shares authorized -- 50,000,000
Shares issued -- 19,006,032 at March 31, 1995, 18,999,354 at
December 31, 1994, and 18,800,354 at March 31, 1994.................... 38,012 37,999 37,601
Surplus................................................................... 315,660 314,924 311,646
Retained earnings......................................................... 466,287 445,167 384,138
----------- ----------- -----------
819,959 798,090 733,385
Less treasury stock at cost -- 1,431 at December 31, 1994, and 665 at
March 31, 1994.......................................................... -- 27 37
Less guarantee of ESOP indebtedness....................................... 6,289 9,451 9,451
----------- ----------- -----------
Total stockholders' equity.............................................. 813,670 788,612 723,897
----------- ----------- -----------
Total liabilities and stockholders' equity.............................. $10,843,758 $10,770,947 $10,239,296
============ ============ ============
</TABLE>
2
<PAGE> 3
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED MARCH 31
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Income on interest-bearing deposits and other short-term
investments........................................................ $ 2,863 $ 2,485
Interest on securities available for sale and investment
securities......................................................... 37,932 26,990
Interest and fees on loans........................................... 148,589 117,010
-------- --------
Total income on earning assets....................................... 189,384 146,485
Interest expense on deposits and borrowings
Deposits........................................................... 49,327 33,878
Short-term borrowings.............................................. 16,272 3,416
Long-term debt..................................................... 831 524
-------- --------
Total interest expense............................................... 66,430 37,818
-------- --------
Net interest income.................................................. 122,954 108,667
Provision for loan losses............................................ 6,500 6,000
-------- --------
Net interest income after provision for loan losses.................. 116,454 102,667
Noninterest income
Service charges and fees on deposit accounts....................... 26,643 26,258
Other noninterest income........................................... 24,798 23,457
-------- --------
Total noninterest income............................................. 51,441 49,715
Net securities gains................................................. 1 39
Operating expenses
Salaries and benefits.............................................. 60,318 56,383
Occupancy and equipment............................................ 22,126 22,487
Other operating expenses........................................... 34,108 33,325
-------- --------
Total operating expenses............................................. 116,552 112,195
Provision for OREO reserve, net...................................... 1,000 2,937
-------- --------
Total operating expenses after OREO provision........................ 117,552 115,132
-------- --------
Income before taxes and cumulative effect of accounting change....... 50,344 37,289
Provision for income taxes........................................... 19,869 15,078
-------- --------
Income before cumulative effect of accounting change................. 30,475 22,211
Less cumulative effect of accounting change (net of tax benefit of
$683
in 1994)........................................................... -- 932
-------- --------
NET INCOME........................................................... $ 30,475 $ 21,279
======== ========
Earnings Per Share
Income before accounting change.................................... $ 1.58 $ 1.16
Less cumulative effect of accounting change........................ -- 0.05
-------- --------
Net Income......................................................... $ 1.58 $ 1.11
======== ========
Average shares outstanding........................................... 19,261,941 19,093,447
</TABLE>
3
<PAGE> 4
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY ESOP LOAN
STOCK SURPLUS EARNINGS STOCK GUARANTEE TOTAL
------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1993.............. $37,486 $310,355 $367,662 $ -- $(12,241 ) $703,262
Net income -- First quarter 1994........... 21,279 21,279
Cash dividends declared ($0.35 per
share)................................... (6,576) (6,576)
Net change in valuation reserve related to
securities available for sale portfolio,
net of deferred income taxes............. 1,773 1,773
Other, principally employee benefit
plans.................................... 115 1,291 (37) 2,790 4,159
------- -------- -------- -------- --------- --------
BALANCE AS OF MARCH 31, 1994................. $37,601 $311,646* $384,138 $(37) $ (9,451 ) $723,897
======== ========= ========= ======== =========== =========
BALANCE AS OF DECEMBER 31, 1994.............. $37,999 $314,924* $445,167 $(27) $ (9,451 ) $788,612
Net income -- First quarter 1995........... 30,475 30,475
Cash dividends declared ($.50 per share)... (9,499) (9,499)
Net change in valuation reserve related to
securities available for sale portfolio,
net of deferred income taxes............. 144 144
Other, principally employee benefit
plans.................................... 13 736 27 3,162 3,938
------- -------- -------- -------- --------- --------
BALANCE AS OF MARCH 31, 1995................. $38,012 $315,660* $466,287 $ -- $ (6,289 ) $813,670
======== ========= ========= ======== =========== =========
<FN>
- ---------------
* Net of unamortized restricted stock compensation expense of $5,550, $6,150,
and $1,223 at March 31, 1995, December 31, 1994, and March 31, 1994,
respectively.
</TABLE>
4
<PAGE> 5
<TABLE>
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
FIRST QUARTER
ENDED MARCH 31
--------------------------
1995 1994
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................. $ 30,475 $ 21,279
Adjustments to reconcile net income to net cash provided by operating
activities:
Proceeds from sales and maturities of trading account assets.......... 556,338 592,246
Purchases of trading account assets................................... (556,052) (601,901)
Amortization of security premium...................................... 3,677 6,847
Net securities gains.................................................. (1) (39)
Fixed-rate mortgages sold............................................. 7,760 171,363
Fixed-rate mortgages originated for sale, net of principal payments... (5,038) (86,179)
Student loans transferred from portfolio and sold..................... -- 333
Provision for loan losses............................................. 6,500 6,000
Depreciation and amortization of premises and equipment............... 6,558 6,376
Gain on sales of premises and equipment............................... (1,057) (225)
Provision for OREO reserve, net....................................... 1,000 2,937
Deferred income taxes................................................. (413) 6,476
Change in other assets................................................ (2,218) 50
Change in interest receivable......................................... (5,623) (6,040)
Change in accrued expenses and other accounts payable................. (5,292) 1,113
Change in interest payable............................................ 1,645 (212)
-------- ---------
Net cash provided by operating activities........................... 38,259 120,424
-------- ---------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale.................... 45,110 41,772
Proceeds from maturities of securities available for sale............... 48 1,011
Purchases of securities available for sale.............................. (37,500) (36,572)
Proceeds from maturities of investment securities....................... 335,540 63,471
Purchases of investment securities...................................... (458,432) (726,617)
Net cash provided (used) by:
Short-term investments................................................ (30,545) 412,120
Loans(1)(2)(3)........................................................ (110,871) (54,512)
Customer acceptances.................................................. 777 3,553
Proceeds from sales of premises and equipment........................... 1,605 473
Purchases of premises and equipment..................................... (5,461) (6,674)
Proceeds from sales and payments related to OREO(2)(3).................. 5,094 19,358
-------- ---------
Net cash used by investing activities............................... (254,635) (282,617)
-------- ---------
FINANCING ACTIVITIES
Net cash provided (used) by:
Demand deposits, NOW, and savings accounts............................ (201,195) (49,948)
Money market deposits................................................. (66,569) (10,238)
Consumer time deposits................................................ 204,491 (37,939)
Time -- $100,000 or more.............................................. 6,869 5,166
Short-term borrowings................................................. 112,366 207,155
Customer acceptances.................................................. (777) (3,553)
Long-term debt........................................................ (8) (409)
Dividends paid.......................................................... (9,499) (6,576)
Other equity transactions............................................... (450) 1,101
-------- ---------
Net cash provided by financing activities........................... 45,228 104,759
-------- ---------
Net change in cash and cash equivalents................................. (171,148) (57,434)
Cash and cash equivalents at beginning of year(4)....................... 829,170 632,985
-------- ---------
Cash and cash equivalents at March 31(4)................................ $658,022 $ 575,551
-------- ---------
Supplemental disclosure of cash flow information
Interest paid......................................................... $ 64,785 $ 38,030
Taxes paid............................................................ 9,020 5,364
<FN>
- ---------------
(1) Excludes transfers of loans to the other real estate owned category of $.6
million and $8.9 million in 1995 and 1994, respectively.
(2) Excludes loan originations in conjunction with OREO sales of $1.0 million
and $2.1 million in 1995 and 1994, respectively.
(3) Excludes $33.2 million of in-substance foreclosures and related reserves of
$8.7 million reclassified to loans and the allowance for loan losses,
respectively, as a result of the adoption of SFAS No. 114 on January 1,
1995.
(4) Cash and cash equivalents consist of cash on hand and due from banks.
</TABLE>
5
<PAGE> 6
BAYBANKS, INC.
NOTE 1. ACCOUNTING ADJUSTMENTS
In the opinion of management, all of the adjustments (consisting of normal
recurring accruals unless otherwise indicated) necessary for a fair statement of
the results of operations have been included in the accompanying financial
statements. Certain 1994 amounts have been reclassified to conform with the 1995
presentation.
NOTE 2. SECURITIES PORTFOLIOS
<TABLE>
<CAPTION>
GROSS GROSS WEIGHTED
AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
COST GAINS LOSSES VALUE YIELD*
---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MARCH 31, 1995
SECURITIES AVAILABLE FOR SALE
State and local government securities,
maturing
Within 1 year........................... $ 16,045 $ 16 $ (1) $ 16,060 6.42%
Corporate, maturing
Within 1 year........................... 177,600 -- -- 177,600 6.58
Other**................................... 27,654 701 -- 28,355 7.17
---------- ------- --------- ----------
Total securities available for
sale.......................... $ 221,299 $ 717 $ (1) $ 222,015 6.64%
========== ======= ========= ========== =====
INVESTMENT SECURITIES
U.S. Government securities, maturing
Within 1 year........................... $ 764,523 $ 25 $ (7,446) $ 757,102 4.62%
After 1 year but within 5 years......... 1,403,626 3,253 (22,446) 1,384,433 6.04
---------- ------- --------- ----------
2,168,149 3,278 (29,892) 2,141,535 5.54
---------- ------- --------- ----------
State and local government securities,
maturing
Within 1 year........................... 164,787 45 (102) 164,730 6.52
After 1 year but within 5 years......... 34,616 131 (388) 34,359 6.93
After 5 years but within 10 years....... 14,963 172 (106) 15,029 8.01
---------- ------- --------- ----------
214,366 348 (596) 214,118 6.69
---------- ------- --------- ----------
Asset-backed securities................... 193,466 -- (2,755) 190,711 4.33
Mortgage-backed securities................ 49,518 -- (1,257) 48,261 5.14
Industrial revenue bonds.................. 48,062 -- -- 48,062 11.32
Corporate and other....................... 1,842 -- -- 1,842 --
---------- ------- --------- ----------
Total investment securities..... $2,675,403 $3,626 $ (34,500) $2,644,529 5.64%
========== ======= ========= ========== =====
<FN>
- ---------------
* Tax equivalent basis.
** BayBank, the Company's principal bank subsidiary, is a member of the Federal
Home Loan Bank (FHLB). As of March 31, 1995, $27,555,500 in stock of the FHLB
is included in the Securities Available for Sale portfolio in the Other
category at cost, which approximates market value. As of March 31, 1995,
BayBank had a $25,000,000 outstanding advance from the FHLB, at an interest
rate of 6.15% and with a maturity of .2 years. This outstanding advance is
included on the consolidated balance sheet in the other short-term borrowings
category.
</TABLE>
6
<PAGE> 7
<TABLE>
BAYBANKS, INC.
NOTE 2. SECURITIES PORTFOLIOS (CONTINUED)
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
SECURITIES AVAILABLE FOR SALE
State and local government securities... $ 8,578 $ -- $ (14) $ 8,564
Corporate............................... 183,900 -- -- 183,900
Other*.................................. 27,654 484 -- 28,138
---------- ------ --------- ----------
Total securities available for
sale........................ $ 220,132 $ 484 $ (14) $ 220,602
========== ====== ========= ==========
INVESTMENT SECURITIES
U.S. Government securities.............. $2,083,519 $ 10 $ (65,101) $2,018,428
Asset-backed securities................. 200,386 -- (5,652) 194,734
State and local government securities... 171,436 89 (1,250) 170,275
Mortgage-backed securities.............. 49,503 -- (2,761) 46,742
Industrial revenue bonds................ 49,548 -- -- 49,548
Other................................... 1,857 -- -- 1,857
---------- ------ --------- ----------
Total investment securities... $2,556,249 $ 99 $ (74,764) $2,481,584
========== ====== ========= ==========
MARCH 31, 1994
SECURITIES AVAILABLE FOR SALE
U.S. Government securities.............. $ 320,602 $1,437 $ (6) $ 322,033
Mortgage-backed securities.............. 28,502 893 -- 29,395
State and local government securities... 6,578 -- (1) 6,577
Corporate............................... 269,375 -- -- 269,375
Other................................... 102 781 -- 883
---------- ------ --------- ----------
Total securities available for
sale........................ $ 625,159 $3,111 $ (7) $ 628,263
========== ====== ========= ==========
INVESTMENT SECURITIES
U.S. Government securities.............. $1,768,281 $1,284 $ (16,720) $1,752,845
Asset-backed securities................. 204,235 -- (2,750) 201,485
State and local government securities... 173,540 151 (669) 173,022
Mortgage-backed securities.............. 49,457 -- (615) 48,842
Industrial revenue bonds................ 58,365 -- -- 58,365
Other................................... 1,858 -- -- 1,858
---------- ------ --------- ----------
Total investment securities... $2,255,736 $1,435 $ (20,754) $2,236,417
========== ====== ========= ==========
<FN>
- ---------------
* BayBank, the Company's principal bank subsidiary, is a member of the Federal
Home Loan Bank (FHLB). As of December 31, 1994, $27,555,500 in stock of the
FHLB is included in the Securities Available for Sale portfolio in the Other
category at cost, which approximates market value.
</TABLE>
NOTE 3. IMPAIRED LOANS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (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 require changes in
both the disclosure and impairment measurement of nonperforming loans. Certain
loans which had previously been reported as nonperforming and certain
in-substance foreclosures are now required to be disclosed as impaired loans. At
adoption, the Company reclassified $33,173,000 of in-substance foreclosures and
related reserves of $8,669,000 to loans and the allowance for loan losses,
respectively. In accordance with the provisions of SFAS No. 114 and SFAS No.
118, prior year balances were not reclassified since taken as a whole they were
immaterial to the financial statements.
7
<PAGE> 8
NOTE 3. IMPAIRED LOANS -- (CONTINUED)
Restructured, accruing loans entered into prior to the adoption of these
statements are not required to be reported as impaired loans unless such loans
are not performing in accordance with the restructured terms at adoption of SFAS
No. 114. Restructured, accruing loans entered into subsequent to the adoption of
these statements are reported as impaired loans. In the year subsequent to
restructure these loans may be removed from the impaired loan disclosure
provided that the loan bears a market rate of interest at the time of
restructure and is performing under the restructured terms. The Company had no
new restructured, accruing loans in the first quarter of 1995.
Commercial and commercial real estate loans are considered impaired, and
are placed on nonaccrual, when it is probable that the Company will not be able
to collect all amounts due according to the contractual terms of the loan
agreement. The amount of impairment for all impaired loans is determined by the
difference between the present value of the expected cash flows related to the
loan, using the original contractual interest rate, and its recorded value, or,
as a practical expedient in the case of collateralized loans, the difference
between the fair value of the collateral and the recorded amount of the loan.
When foreclosure is probable, impairment is measured based on the fair value of
the collateral.
Loans are placed on nonaccrual when payment of principal or interest is
considered to be in doubt or is past due 90 days or more, except for certain
consumer loans and those loans which, in management's judgement, 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.
At March 31, 1995, total impaired loans were $58,618,000, comprised of
$23,628,000 that had related allowances of $9,882,000 and $34,990,000 that did
not require a related allowance since there was no impairment as measured by the
provisions of SFAS No. 114. During the period ended March 31, 1995, the average
recorded investment in impaired loans was $63,180,000; impaired loans did not
contribute to interest income in the first quarter of 1995 since all cash
receipts were applied to principal.
Activity in the allowance for loan losses account during the period ended
March 31, 1995 was:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Balance, December 31, 1994........................................ $146,835
Provision......................................................... 6,500
Loan losses charged off........................................... (11,248)
Less recoveries................................................... 4,261
-------
Net charge-offs................................................... (6,987)
Reclassification upon adoption of SFAS No. 114.................... $ 8,669
Charge-offs of reclassified in-substance foreclosures............. (8,669)
-------
Net impact of adoption of SFAS No. 114....................... --
--------
Balance, March 31, 1995........................................... $146,348
========
</TABLE>
NOTE 4. PENDING ACQUISITIONS OF FINANCIAL INSTITUTIONS
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, an aggregate of $55.8
million in cash and 683,239 shares of BayBanks, Inc. common stock. 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
8
<PAGE> 9
NOTE 4. PENDING ACQUISITIONS OF FINANCIAL INSTITUTIONS -- (CONTINUED)
or more than $63.00 per share. The acquisition, approved by the boards of
directors of both companies, was approved by the stockholders of NFS on April
25, 1995. This transaction is subject to the approval of various federal and
state regulatory agencies. NFS had total assets of approximately $618 million at
March 31, 1995. The acquisition will be accounted for as a purchase.
On March 24, 1995, the Company announced that it had agreed to acquire
Cornerstone Financial Corporation (Cornerstone), parent company of Cornerstone
Bank of Derry, NH. The stockholders of Cornerstone will receive $8.80 in cash
for each outstanding share of common stock held, an aggregate of approximately
$18.5 million. The acquisition, approved by the boards of directors of both
companies, is subject to approval by the stockholders of Cornerstone and various
federal and state regulatory agencies. Cornerstone had total assets of
approximately $141 million at March 31, 1995. The acquisition will be accounted
for as a purchase.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PERFORMANCE OVERVIEW
BayBanks' net income was $30.5 million for the first quarter of 1995, or
$1.58 per share, compared with net income of $21.3 million, or $1.11 per share,
for the first quarter of 1994, an increase of 42% on a per share basis. The
increase in net income was affected by the following items:
- Operating income (defined below) increased by 26% in the first quarter of
1995, compared with the first quarter of 1994.
- Net income for the first quarter of 1994 included an after-tax charge of
$932 thousand, or $.05 per share, reflecting the cumulative effect of the
Company's adoption of Statement of Financial Accounting Standards (SFAS)
No. 112, "Employers' Accounting for Postemployment Benefits."
EARNINGS ANALYSIS
Operating Income (tax equivalent basis)
Operating income, presented in TABLE A (page 10) excludes net securities
gains, the provisions for loan losses and the other real estate owned (OREO)
reserve, and is before income taxes. For the first quarter of 1995, operating
income was $60.6 million compared with $48.2 million in the first quarter of
1994. The 26% increase in operating income resulted from a 14% increase in net
interest income and a 3% growth in noninterest income, offset by a 4% growth in
operating expenses.
9
<PAGE> 10
TABLE A
SUMMARY OF OPERATIONS
FOR THE FIRST QUARTERS ENDED MARCH 31
TAX EQUIVALENT BASIS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Income on earning assets............................................... $192,179 $148,458
Interest on deposits and borrowings.................................... 66,430 37,818
-------- --------
Net interest income.................................................... 125,749 110,640
Noninterest income..................................................... 51,441 49,715
-------- --------
Total income from operations........................................... 177,190 160,355
Operating expenses..................................................... 116,552 112,195
-------- --------
Operating Income Before Net Securities Gains and Provisions for
Loan Losses and OREO Reserve......................................... 60,638 48,160
-------- --------
Net securities gains................................................... 1 39
-------- --------
Provision for loan losses.............................................. 6,500 6,000
Provision for OREO reserve, net........................................ 1,000 2,937
-------- --------
Credit provisions...................................................... 7,500 8,937
-------- --------
Income before taxes and cumulative effect of accounting change......... 53,139 39,262
Income taxes and tax equivalent adjustment............................. 22,664 17,051
-------- --------
Income before cumulative effect of accounting change................... 30,475 22,211
Less cumulative effect of accounting change (net of tax benefit of
$683)................................................................ -- 932
-------- --------
Net Income............................................................. $ 30,475 $ 21,279
======== ========
Earnings Per Share
Income before accounting change................................... $ 1.58 $ 1.16
Less cumulative effect of accounting change....................... -- 0.05
-------- --------
Net Income........................................................ $ 1.58 $ 1.11
======== ========
</TABLE>
Net Interest Income
Net interest income was $125.7 million in the first quarter of 1995,
compared with $110.6 million in the first quarter of 1994. The net interest
margin in the first quarter of 1995 was 5.16%, compared with 5.00% in the first
quarter of 1994 and 5.08% in the fourth quarter of 1994. Net interest income and
the net interest margin are affected by both the quantity and mix of
interest-bearing assets and liabilities and movements in interest rates.
The growth in net interest income in the first quarter of 1995 compared
with the first quarter of 1994 resulted from a 10% growth in average earning
assets and higher interest rates. Average loans increased 11%; the growth was
balanced between corporate and consumer lending. In addition, the average
securities portfolios grew by 9%.
The yield on earning assets was 7.89% in the first quarter of 1995,
compared with 6.72% in the first quarter of 1994, as a result of overall higher
interest rates on the loan portfolios and increases in yields on the securities
portfolios as scheduled maturities were reinvested at higher rates.
BayBanks' funding costs increased during the first quarter of 1995,
compared with the first quarter of 1994 due to increased market interest rates
and an increased level of purchased funds. Rates on core deposits (which include
money market deposit accounts and consumer certificates of deposit) increased in
the first quarter of 1995 compared with the first quarter of 1994 due to market
competition. In addition, customers moved balances from transaction accounts to
higher yielding certificates of deposit. The cost of total interest-bearing
liabilities (as a percentage of average earning assets) increased 101 basis
points to 2.73% in the first quarter of 1995, compared with 1.72% in the first
quarter of 1994.
10
<PAGE> 11
Noninterest Income
Noninterest income consists primarily of service charges on deposit
accounts and fees from credit and non-credit services and is well diversified
among consumer, corporate, and small business banking activities. Noninterest
income (TABLE B) increased 3% to $51.4 million in the first quarter of 1995,
compared with $49.7 million in the first quarter of 1994.
Service charges and fees on deposit accounts continued to provide over
one-half of noninterest income. Total service charges and fees on deposit
accounts were $26.6 million in the first quarter of 1995, up slightly from $26.3
million in the first quarter of 1994. The increase was due to higher service
charges and fees on consumer accounts resulting from selected repricings,
partially offset by a decline in corporate service charges due to higher
earnings credit rates on compensating deposit balances.
Processing fees increased 18% to $4.0 million in the first quarter of 1995
from $3.4 million in the first quarter of 1994. The increase resulted primarily
from an increased volume of point-of-sale transactions.
Investment management and brokerage fees increased 12% to $2.3 million in
the first quarter of 1995 from $2.1 million in the first quarter of 1994. This
increase was primarily from investment advisory fees earned on higher
BayFunds(R) balances. Total assets under management in BayFunds(R) were $1.4
billion at March 31, 1995, as compared with $1.2 billion at March 31, 1994.
Mortgage banking fees were $1.7 million in the first quarter of 1995,
compared with $2.3 million in the first quarter of 1994 and were up slightly
from $1.5 million in the fourth quarter of 1994. The decline from the first
quarter of 1994 was primarily due to a decrease in secondary marketing activity
resulting from a decrease in refinance volume as interest rates increased.
International fees increased 36% to $1.7 million in the first quarter of
1995, from $1.2 million in the first quarter of 1994. This increase resulted
primarily from an increase in international activity including net gains from
foreign exchange transactions.
Other noninterest income increased to $1.9 million in the first quarter of
1995 from $1.1 million in the first quarter of 1994. The increase was primarily
due to gains on sales of branch buildings no longer utilized by the Company.
TABLE B
NONINTEREST INCOME
FOR THE FIRST QUARTERS ENDED MARCH 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 CHANGE
------- ------- -------
<S> <C> <C> <C>
Service charges and fees on deposit accounts... $26,643 $26,258 $ 385
Credit card fees............................... 5,103 5,075 28
Processing fees................................ 3,985 3,381 604
Trust fees..................................... 3,617 3,773 (156)
Investment management and brokerage fees....... 2,306 2,067 239
Mortgage banking fees.......................... 1,705 2,296 (591)
International fees............................. 1,671 1,226 445
All other fees................................. 4,557 4,540 17
Other noninterest income....................... 1,854 1,099 755
------- ------- ------
Total noninterest income............. $51,441 $49,715 $1,726
======= ======= ======
</TABLE>
Operating Expenses
The operating expense analysis presented in TABLE C (page 12) separates
OREO and loan workout expenses from other operating expenses. Operating
expenses, excluding OREO and loan workout, were $114.8 million in the first
quarter of 1995, compared with $108.6 million in the first quarter of 1994.
11
<PAGE> 12
Salaries and benefits were $60.3 million in the first quarter of 1995,
compared with $56.4 million in the first quarter of 1994. The increase was
primarily the result of normal salary and benefit increases and accruals for
performance awards.
Occupancy and equipment expenses were $22.1 million in the first quarter of
1995 compared with $22.5 million in the first quarter of 1994. The decrease was
primarily the result of savings realized from the renegotiation of
telecommunications and other equipment rental contracts during 1994, as well as
from lower maintenance expenses due to milder weather in 1995. These savings
were partially offset by an increase in rent expense due to the opening of new
branch locations.
Postage and supplies expenses were $5.7 million in the first quarter of
1995, compared with $4.8 million in the first quarter of 1994. This increase was
the result of increased postal rates in 1995, combined with an increased volume
and higher paper costs of printed forms and supplies.
FDIC insurance expense declined 11% to $4.9 million in the first quarter of
1995, from $5.5 million in the first quarter of 1994. The decrease was
attributable to improved FDIC risk classifications at the Company's bank
subsidiaries that resulted in lower insurance rates in 1995. The benefit of
lower insurance rates was partially offset by an increase in the insured deposit
base.
Other operating expenses were $16.4 million in the first quarter of 1995,
compared with $14.3 million in the first quarter of 1994. Included in the first
quarter of 1995 are expenses associated with system enhancements.
OREO and loan workout expenses decreased 51% to $1.7 million in the first
quarter of 1995, from $3.6 million in the first quarter of 1994, reflecting the
continued disposition of OREO properties and impaired loans.
TABLE C
OPERATING EXPENSES
FOR THE FIRST QUARTERS ENDED MARCH 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 CHANGE
-------- -------- -------
<S> <C> <C> <C>
Salaries and benefits..................................... $ 60,318 $ 56,383 $ 3,935
Occupancy and equipment................................... 22,126 22,487 (361)
Postage and supplies...................................... 5,722 4,838 884
Marketing and public relations............................ 5,339 5,117 222
FDIC insurance............................................ 4,875 5,451 (576)
Other..................................................... 16,429 14,344 2,085
-------- -------- -------
Operating expenses excluding OREO expenses................ 114,809 108,620 6,189
OREO and loan workout expenses............................ 1,743 3,575 (1,832)
-------- -------- -------
Total operating expenses........................ $116,552 $112,195 $ 4,357
======== ======== =======
</TABLE>
Provisions for Loan Losses and the OREO Reserve
The provisions for loan losses and the OREO reserve (credit provisions)
declined in the first quarter of 1995 to $7.5 million, compared with $8.9
million in the first quarter of 1994. The provision for loan losses was $6.5
million in the first quarter of 1995, compared with $6.0 million in the first
quarter of 1994. The net provision for the OREO reserve was $1.0 million in the
first quarter of 1995, compared with $2.9 million in the first quarter of 1994.
The OREO provision was offset by net gains on sales of properties of $1.5
million in the first quarter of 1995 and $563 thousand in the first quarter of
1994 as net reserves required for OREO properties continued to decline.
12
<PAGE> 13
Income Taxes
The Company's provision for income taxes was $19.9 million in the first
quarter of 1995, compared with $15.1 million in the first quarter of 1994. The
effective tax rate was 39.5% in the first quarter of 1995, compared with 40.4%
in the first quarter of 1994 due to a somewhat higher level of municipal income
in 1995.
BALANCE SHEET REVIEW
Trends in Earning Assets
Average earning assets increased 10% to $9.8 billion during the first
quarter of 1995, compared with $8.9 billion in the first quarter of 1994, due
primarily to growth in the average loan balances to $6.7 billion in the first
quarter of 1995 from $6.0 billion in the first quarter of 1994. The growth was
balanced between the commercial and consumer loan portfolios.
Loan Portfolio
Consumer loans represented 62% of the Company's quarter-end loan portfolio,
with $1.4 billion in residential loan balances and $2.8 billion in various types
of instalment loan balances. Consumer lending activities are focused primarily
on the Massachusetts market. Commercial and commercial real estate loans were
38% of the loan portfolio. The majority of these loans are to New England-based
companies, primarily local middle-market companies and small businesses in
Massachusetts.
The Company originates fixed-rate and adjustable-rate residential mortgage
loans. The majority of fixed-rate residential mortgage loan originations are
securitized and sold to the secondary market with servicing retained. The
remainder of the fixed-rate and adjustable-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. Student loans held for possible sale at March 31, 1995 were $249
million.
An analysis of changes in major loan categories from December 31, 1994, to
March 31, 1995, is presented in TABLE D (page 14). Loan business volume was $121
million compared with $146 million in the first quarter of 1994. Commercial loan
volumes were $52 million in the first quarter of 1995, compared with $2 million
in the first quarter of 1994. Commercial loan growth was widely distributed, but
included increases with major retailers in the Company's market area and
expansion of the Company's automobile dealer financing. The Company's
international loan portfolio, which is focused primarily on Mexico and South
America, stood at $172 million at March 31, 1995 compared with $160 million at
December 31, 1994 and $92 million at March 31, 1994. These international
facilities are predominantly trade related and primarily with well-known and
established foreign banks. Business volume in the commercial real estate
portfolio was $6 million during the first quarter of 1995, compared with an
outflow of $6 million during the first quarter of 1994. Residential mortgage
volume was principally the result of purchase money mortgages, mostly
adjustable-rate. The Company underwrote and sold $8 million of fixed-rate
residential mortgage loans during the first quarter of 1995, compared with $171
million in the first quarter of 1994. At March 31, 1995, loans held for sale
were $2 million, compared with $40 million at March 31, 1994. The decline in
secondary market activity is due to a decline in fixed-rate refinancing as
market interest rates increased. Instalment net loan business volume was $19
million, compared with $33 million in the first quarter of 1994, as automobile
lending declined in response to increased interest rates. In addition, credit
card business volume reflected a seasonal decline in balances, while student
loan volumes and home equity lending were strong.
13
<PAGE> 14
<TABLE>
TABLE D
CHANGES IN THE LOAN PORTFOLIO
(IN THOUSANDS)
<CAPTION>
FIRST QUARTER 1995
ANALYSIS OF CHANGE IN LOAN CATEGORIES NET BUSINESS
--------------------------------------------------------- VOLUME
INCREASE OTHER NET FIRST
MARCH 31 FOR THE FIRST GROSS TRANSFERS TRANSFERS, BUSINESS QUARTER
1995 QUARTER CHARGE-OFFS TO OREO SALES NET(1) VOLUME 1994
---------- ------------- ----------- --------- ------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................ $1,580,403 $ 52,138 $ (961) $ (22) $ -- $ 1,525 $ 51,596 $ 2,003
Commercial real estate.... 977,986 21,390 (1,713) -- -- 16,802 6,301 (5,741)
Residential mortgage...... 1,376,372(2) 40,906 (1,387) (500) (7,760) 6,177 44,376 116,373
Instalment loans
Automobile and other.... 1,289,459 (29,286) (1,731) -- -- -- (27,555) 13,387
Home equity............. 755,949 13,745 (511) (77) -- -- 14,333 (6,010)
Credit card............. 293,495 (26,031) (3,141) -- -- -- (22,890) (25,458)
Student loans........... 367,102(3) 55,631 (153) -- -- -- 55,784 51,201
Reserve credit.......... 133,728 (2,519) (1,651) -- -- -- (868) 98
---------- --------- --------- ----- ------- -------- -------- --------
Total instalment
loans................. 2,839,733 11,540 (7,187) (77) -- -- 18,804 33,218
---------- --------- --------- ----- ------- -------- -------- --------
Total loans............... $6,774,494 $ 125,974 $ (11,248) $(599) $(7,760) $ 24,504 $121,077 $145,853
========== ========= ========= ===== ======= ======== ======== ========
<FN>
- ---------------
(1) As a result of the adoption of SFAS No. 114 on January 1, 1995, the Company
reclassified $33.2 million of in-substance foreclosures and $8.7 million of
related reserves to loans and the allowance for loan losses, respectively.
Charge-offs of $8.7 million were subsequently recorded during the first
quarter of 1995.
(2) Includes residential mortgage loans held for sale of $2 million at March 31,
1995.
(3) Includes student loans held for sale of $249 million at March 31, 1995.
</TABLE>
Securities Portfolios
The securities portfolios (TABLE E) totaled $3.1 billion at March 31, 1995,
$2.9 billion at December 31, 1994, and $3.3 billion at March 31, 1994. The
weighted average maturity of the securities portfolios was 1.5 years at March
31, 1995 compared with 1.6 years and 1.1 years at December 31, 1994 and March
31, 1994, respectively.
Short-term investments were $197 million at March 31, 1995, compared with
$166 million at December 31, 1994, and $391 million at March 31, 1994. The
decline in the balance since the first quarter of 1994 reflects the reinvestment
of certain 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. 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 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 $2.7 billion at March 31, 1995,
and $2.3 billion at March 31, 1994. At March 31, 1995, gross unrealized gains
were $4 million and gross unrealized losses were $34 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 concentrated primarily in Massachusetts,
was $214 million at March 31, 1995, with the single largest issue being
approximately $8 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.
The Company also has a trading account securities portfolio consisting of
debt securities recorded at market value, which was $18 million at March 31,
1995 and $22 million at March 31, 1994. Trading account gains were $723 thousand
in the first quarter of 1995, compared with $465 thousand in the first quarter
of 1994.
14
<PAGE> 15
<TABLE>
TABLE E
SECURITIES PORTFOLIOS
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1995 1994 1994
---------- ------------ ----------
<S> <C> <C> <C>
Short-term investments................................ $ 196,831 $ 166,286 $ 390,948
---------- ------------ ----------
Securities available for sale
U.S. Government securities.......................... -- -- 322,033
U.S. Agency mortgage-backed securities.............. -- -- 29,395
State and local government securities............... 16,060 8,564 6,577
Corporate and other................................. 205,955 212,038 270,258
---------- ---------- ----------
222,015 220,602 628,263
---------- ---------- ----------
Investment securities
U.S. Government securities.......................... 2,168,149 2,083,519 1,768,281
Asset-backed securities............................. 193,466 200,386 204,235
State and local government securities............... 214,366 171,436 173,540
Industrial revenue bonds............................ 48,062 49,548 58,365
U.S. Agency mortgage-backed securities.............. 49,518 49,503 49,457
Corporate and other................................. 1,842 1,857 1,858
---------- ---------- ----------
2,675,403 2,556,249 2,255,736
---------- ---------- ----------
Total................................................. $3,094,249 $2,943,137 $3,274,947
========== ========== ==========
Weighted average maturity of securities available for
sale and investment securities in years*............ 1.6 1.7 1.3
Weighted average maturity of total securities in
years*.............................................. 1.5 1.6 1.1
<FN>
- ---------------
* The weighted average maturity calculation excludes amortizing IRBs and
reflects estimated prepayments for mortgage-backed securities
</TABLE>
Deposits and Other Sources of Funds
The Company's extensive product lines, Customer Sales and Service Center,
and banking network of 205 full-service offices and 372 automated banking
facilities generate significant core deposits, which accounted for 98% of total
average deposits during the first quarter of 1995.
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 the first quarters of
1995 and 1994. Average transaction accounts were $4.8 billion in the first
quarters of 1995 and 1994, down slightly from $4.9 billion in the fourth quarter
of 1994, as certain customers moved balances to higher yielding certificates of
deposit. Average consumer certificates of deposit were $1.2 billion during the
first quarter of 1995, compared with $1.0 billion in the first quarter of 1994
and $1.1 billion in the fourth quarter of 1994.
Average corporate certificates of deposit in excess of $100 thousand (CDs)
were $175 million in the first quarter of 1995, compared with $37 million in the
first quarter of 1994 and $136 million in the fourth quarter of 1994.
Average purchased funds were $1.1 billion for the quarters ended March 31,
1995 and December 31, 1994, an increase from $425 million for the quarter ended
March 31, 1994 as the average loan and securities portfolios increased.
15
<PAGE> 16
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. A negative gap indicates that
liabilities will reprice more quickly than assets and a positive gap indicates
that assets will reprice in aggregate before liabilities. 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 environments, are considered in the asset and liability
management decision process.
The Company's interest sensitivity gap position, as shown in TABLE F, is
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, the cost of certain interest-bearing core deposit categories may lag
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 these expected repricing lags, and for the notion that interest
rate changes in many of these core deposit categories, particularly certain
transaction accounts, have not been as sensitive to changes in market interest
rates.
At March 31, 1994, the Company's adjusted gap for the total within-180 day
period had moved from a positive gap position of $76 million at December 31,
1994, to a positive gap position of $614 million at March 31, 1995. The total
within-one-year gap moved from a positive $648 million at December 31, 1994 to a
positive $1.2 billion at March 31, 1995.
TABLE F
INTEREST RATE SENSITIVITY POSITION
AT PERIOD-END
(IN MILLIONS)
<TABLE>
<CAPTION>
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN
DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR
------ ------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1995
Total assets......................... $3,551 $ 706 $817 $ 5,074 $1,145 $6,219
Total liabilities.................... 6,789 202 190 7,181 365 7,546
------ ------- ---- -------- ------ ------
Net contractual gap position......... (3,238) 504 627 (2,107) 780 (1,327)
Net interest rate swaps.............. 5 -- -- 5 -- 5
------ ------- ---- -------- ------ ------
Net gap position including interest
rate swaps at March 31, 1995...... (3,233) 504 627 (2,102) 780 (1,322)
Management adjustment................ 4,488 (1,658) (114) 2,716 (229 ) 2,487
------ ------- ---- -------- ------ ------
Management adjusted gap at
March 31, 1995....................... $1,255 $(1,154) $513 $ 614 $ 551 $1,165
====== ======= ==== ======== ====== ======
Management adjusted gap at
December 31, 1994.................... $1,084 $(1,275) $267 $ 76 $ 572 $ 648
====== ======= ==== ======== ====== ======
Management adjusted gap at
March 31, 1994....................... $2,189 $(2,378) $187 $ (2) $ (59 ) $ (61)
====== ======= ==== ======== ====== ======
</TABLE>
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.
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
16
<PAGE> 17
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 $1.8 billion, or 18% of total deposits and
borrowings, at March 31, 1995. The Company's strong liquidity position, allowed
for the expansion of the loan portfolio during the first quarter of 1995. The
Company derives additional liquidity flexibility from the relatively short
average maturity (1.5 years) of its securities portfolios.
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 included $30.5 million in net income
for the first quarter of 1995, 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 deposit activity in the Company's
various accounts and short-term borrowings, as well as dividends paid.
Cash and cash equivalents were $829 million at December 31, 1994. During
the first quarter of 1995, net cash provided by operating activities was $38
million, net cash used in investing activities totaled $254 million, and net
cash provided by financing activities was $45 million. Cash and cash equivalents
were $658 million at March 31, 1995.
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, the
acquisition of subsidiaries, and dividends paid to stockholders. During the
first quarter of 1995 BayBank, the Company's largest bank subsidiary, repaid a
$46.5 million floating rate note to the parent company. The parent company
contributed $1 million of capital to a nonbank subsidiary during the first
quarter of 1995. Dividends received from bank subsidiaries were $8 million and
dividends received from nonbank subsidiaries were $2 million during the first
quarter of 1995. The parent company paid $9 million in dividends to its
stockholders. At March 31, 1995 the parent company had $129 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 calculated under the provisions of SFAS No. 114. An independent
Loan Review Department then 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, presented in TABLE G (page 18) (which exclude
restructured, accruing loans and accruing loans 90 days or more past due),
include nonperforming loans (including impaired loans) and OREO and were $112
million at March 31, 1995, an 8% decrease from $122 million at December 31, 1994
and a 45% decrease from $204 million at March 31, 1994, continuing the favorable
trend that began in 1991.
17
<PAGE> 18
TABLE G
NONPERFORMING ASSETS, RESTRUCTURED, ACCRUING LOANS, AND
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1995 1994 1994
-------- ------------ --------
<S> <C> <C> <C>
Nonperforming loans................................... $ 75,512 $ 54,627 $104,605
Other real estate owned
In-substance foreclosures........................... 11,617 44,610 62,163
Foreclosed property................................. 41,418 47,760 63,944
-------- -------- --------
53,035 92,370 126,107
Less OREO reserve................................... 16,542 24,971 26,968
-------- -------- --------
OREO, net of reserve................................ 36,493 67,399 99,139
-------- -------- --------
Total nonperforming assets............................ $112,005 $122,026 $203,744
======== ======== ========
Restructured, accruing loans.......................... $ 6,765 $ 13,537 $ 12,878
======== ======== ========
Accruing loans 90 days or more past due............... $ 30,427 $ 36,193 $ 49,130
======== ======== ========
Nonperforming assets as a percentage of loans and
OREO................................................ 1.6% 1.8% 3.3%
Nonperforming assets as a percentage of total
assets.............................................. 1.0 1.1 2.0
</TABLE>
The decline in nonperforming assets is shown in TABLE H. 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 $12 million in the first quarter of
1995, or 10% of nonperforming assets at the beginning of the period. Additions
to nonperforming assets were $8 million in the first quarter of 1995, a decrease
of 63% compared with $21 million in the first quarter of 1994. As of March 31,
1995, the Company had OREO property sales pending of $5.3 million.
18
<PAGE> 19
TABLE H
CHANGE IN ASSET QUALITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- -----------------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonperforming assets (1)............ $112,005 $122,026 $137,104 $172,921 $203,744
======== ======== ======== ======== ========
Nonperforming asset activity:
Additions......................... $ 7,573 $ 19,554 $ 10,233 $ 23,446 $ 20,656
-------- -------- -------- -------- --------
Payments.......................... (5,721) (6,797) (10,428) (10,879) (8,070)
Returns to accrual................ (104) (7,098) (11,990) (9,992) (4,349)
OREO sales........................ (6,645) (14,244) (15,058) (19,525) (21,477)
-------- -------- -------- -------- --------
Total improvements............. (12,470) (28,139) (37,476) (40,396) (33,896)
-------- -------- -------- -------- --------
Net outflow.................... (4,897) (8,585) (27,243) (16,950) (13,240)
-------- -------- -------- -------- --------
Charge-offs......................... (4,884)(2) (8,378) (7,911) (14,648) (9,504)
Net change in OREO reserve.......... (240)(2) 1,885 (663) 775 2,808
-------- -------- -------- -------- --------
Total decrease in nonperforming
assets............................ $(10,021) $(15,078) $(35,817) $(30,823) $(19,936)
======== ======== ======== ======== ========
<FN>
- ---------------
(1) At period-end, excluding restructured, accruing loans and accruing loans 90
days or more past due.
(2) The transfer of $8.7 million of reserves related to in-substance
foreclosures reclassified to loans upon adoption of SFAS No. 114 and
subsequent charge-offs of $8.7 million recorded during the first quarter of
1995 had no effect on total nonperforming assets and are not reflected in
the table above.
</TABLE>
Nonperforming Loans
Effective 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". Under SFAS No.
114, a loan is impaired when it is probable that the Company will not be able to
collect all amounts due according to the contractual terms of the loan
agreement. Large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment, such as residential mortgage and
instalment loans, are exempt from the provisions of SFAS No. 114.
Total nonperforming loans (TABLE I) were $76 million at March 31, 1995 as
compared with $55 million at December 31, 1994 and $105 million at March 31,
1994. Nonperforming loans at March 31, 1995 include the net reclassification of
$24 million from in-substance foreclosure as a result of the adoption of SFAS
No. 114, as further discussed below. Excluding this reclassification,
nonperforming loans declined approximately 5% from December 31, 1994 as the
resolution of problem assets continued to exceed new additions.
TABLE I
NONPERFORMING LOANS
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1995 1994 MARCH 31, 1994
--------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Commercial.............................. $ 16,363 22% $ 17,480 32% $ 42,223 40%
Commercial real estate.................. 42,255 56 26,638 49 47,855 46
Residential mortgage.................... 15,278 20 8,971 16 12,681 12
Instalment.............................. 1,616 2 1,538 3 1,846 2
-------- --- -------- --- --------- ---
Total nonperforming loans..... $ 75,512 100% $ 54,627 100% $ 104,605 100%
======== === ======== === ========= ===
</TABLE>
19
<PAGE> 20
Other Real Estate Owned
OREO consists of foreclosed properties and in-substance foreclosures.
Foreclosed properties are being prepared for sale or are currently listed for
sale. Under SFAS No. 114, the definition of in-substance foreclosure has been
narrowed 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 million of in-substance foreclosures and $9 million of related
reserves to loans and the allowance for loan losses, respectively. OREO (net of
a valuation reserve) which reflects this reclassification declined to $36
million during the first quarter of 1995 from $67 million at December 31, 1994
and $99 million at March 31, 1994. Excluding the impact of the SFAS. No. 114
reclassification, OREO continued to decline due primarily to property sales.
Restructured, Accruing Loans
The Company restructures credits with troubled borrowers if such
arrangements are likely to minimize losses the Company may otherwise incur on a
particular credit. Loans that have been restructured generally remain on
nonaccrual status until the customer has demonstrated a period of performance
under the new contractual terms. Restructured, accruing loans were $7 million at
March 31, 1995, compared with $13 million at March 31, 1994.
The adoption of SFAS No. 114 also impacts the accounting for troubled debt
restructurings. Restructured, accruing loans entered into after January 1, 1995
are 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 Company did not
enter into any restructured, accruing loan agreements during the first quarter
of 1995. Loans restructured prior to the adoption of SFAS No. 114 are exempt
from the provisions of that statement provided that they are performing under
the restructured terms.
At March 31, 1995, restructured, accruing loans which were entered into
prior to the adoption of SFAS No. 114 and which were performing under the
restructured terms were $7 million; restructured, accruing loans were $14
million at December 31, 1994.
Accruing Loans 90 Days or More Past Due
Accruing loans 90 days or more past due declined 16% to $30 million at
March 31, 1995, from $36 million at December 31, 1994, and 38% from $49 million
at March 31, 1994. (TABLE J).
Of the $30 million in accruing loans past due 90 days or more at March 31,
1995, residential real estate loans and instalment loans together represented
92% of the total. Residential real estate and instalment loans by their nature
include a large number of smaller loans. Of the $8 million in residential real
estate loans, $7 million were in owner-occupied properties.
<TABLE>
TABLE J
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<CAPTION>
DECEMBER 31,
MARCH 31, 1995 1994 MARCH 31, 1994
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Commercial............................... $ 624 2% $ 348 1% $ 3,811 8%
Commercial real estate................... 1,974 6 4,626 13 6,109 12
Residential mortgage..................... 8,492 28 10,104 28 17,715 36
Instalment............................... 19,337 64 21,115 58 21,495 44
------- --- ------- --- ------- ---
Total.................................. $30,427 100% $36,193 100% $49,130 100%
======= === ======= === ======= ===
</TABLE>
20
<PAGE> 21
Allowance for Loan Losses
Since older problem assets are being resolved and the amount of emerging
problem assets declined, the allowance for loan losses (TABLE K) was not
replenished to the full extent of charge-offs. While the overall allowance
declined, its coverage of nonperforming loans increased to 194% at March 31,
1995, from 158% at March 31, 1994. The coverage of nonperforming loans was 269%
at December 31, 1994. However, on a pro forma basis, assuming the adoption of
SFAS No. 114 on December 31, 1994 and the subsequent charge-off of ISF reserves
reclassified to the allowance for loan losses, the year end coverage ratio would
have been 186%. As such, on a comparable basis, the coverage of nonperforming
loans increased during the first quarter of 1995.
<TABLE>
TABLE K
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<CAPTION>
FIRST QUARTER
---------------------
1995(1) 1994
------- ----
<S> <C> <C>
Loans outstanding at March 31....................................... $6,774,494 $6,052,135
========== ==========
Average loans....................................................... $6,710,187 $6,042,317
========== ==========
Allowance for loan losses:
Balance at beginning of period...................................... $ 146,835 $ 171,496
Loans charged off
Commercial..................................................... 961 1,448
Commercial real estate......................................... 1,713 6,051
Residential mortgage........................................... 1,387 1,787
Instalment..................................................... 7,187 7,005
---------- ----------
Total loans charged off........................................ 11,248 16,291
---------- ----------
Recoveries
Commercial..................................................... 1,013 1,680
Commercial real estate......................................... 1,296 242
Residential mortgage........................................... 440 672
Instalment..................................................... 1,512 1,422
---------- ----------
Total recoveries............................................... 4,261 4,016
---------- ----------
Net loans charged off.......................................... 6,987 12,275
Provision for loan losses........................................... 6,500 6,000
---------- ----------
Balance at March 31................................................. $ 146,348 $ 165,221
========== ==========
Annualized net charge-offs as a percentage of average period-to-date
loans............................................................. 0.4% 0.8%
Allowance for loan losses as a percentage of period-end loans....... 2.2 2.7
Allowance for loan losses as a percentage of nonperforming loans.... 193.8 157.9
Allowance for loan losses as a percentage of nonperforming loans,
restructured, accruing loans, and accruing loans past due 90 days
or more........................................................... 129.9 99.2
<FN>
- ---------------
(1) As a result of the adoption of SFAS No. 114 on January 1, 1995, $33.2
million of in-substance foreclosures and related reserves of $8.7 million
were reclassified to loans and the allowance for loan losses, respectively.
Charge-offs of $8.7 million were subsequently recorded during the first
quarter of 1995. The reclassification of in-substance foreclosures reserves
and subsequent charge-offs had no effect on the allowance for loan losses
and are not reflected in the table above.
</TABLE>
21
<PAGE> 22
CAPITAL AND DIVIDENDS
BayBanks' consolidated risk-based capital ratios were 13.36% for total
capital and 11.81% for core capital at March 31, 1995, compared with 13.06% and
11.32%, respectively, at March 31, 1994. At December 31, 1994, the consolidated
risk-based capital ratios were 13.06% for total capital and 11.51% for core
capital. The consolidated leverage ratio was 7.55%, 7.35%, and 7.33% at March
31, 1995, December 31, 1994, and March 31, 1994, respectively. (TABLE L).
TABLE L
CAPITAL RATIOS
MARCH 31, 1995
<TABLE>
<CAPTION>
RISK-BASED RATIOS
-----------------------------------------------------
TIER 1 CAPITAL TOTAL CAPITAL LEVERAGE RATIO
-------------------------- -------------------------- --------------------------
REQUIRED TO BE REQUIRED TO BE REQUIRED TO BE
WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED
----------------- -------- ----------------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
BayBanks, Inc........... n/a% 11.81% n/a% 13.36% n/a% 7.55%
BayBank................. 6.00 9.90 10.00 11.16 5.00 6.36
BayBank Boston, N.A..... 6.00 11.11 10.00 12.83 5.00 6.79
BayBank Connecticut, N.A... 6.00 13.12 10.00 14.38 5.00 12.11
<FN>
- ---------------
* Under Federal Prompt Corrective Action and Risk-based Deposit Insurance
Assessment Regulations.
n/a - not applicable
</TABLE>
BayBanks paid a dividend in the first quarter of 1995 of $.50 per share. On
April 27, 1995, BayBanks declared a quarterly dividend of $.50 per share payable
June 1, 1995.
22
<PAGE> 23
BAYBANKS, INC.
AVERAGE BALANCES AND CAPITAL RATIOS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994
------- -------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits and other
short-term investments.................. $ 205 $ 176 $ 175 $ 204 $ 315
Securities available for sale, at cost.... 231 190 420 597 618
Investment securities, at cost............ 2,687 2,849 2,840 2,347 1,938
Loans(1)
Commercial.............................. 1,533 1,499 1,372 1,360 1,294
Commercial real estate.................. 980 928 915 908 926
Residential mortgage.................... 1,357 1,302 1,256 1,193 1,209
Instalment.............................. 2,840 2,776 2,659 2,594 2,613
------ ------ ------ ------ ------
6,710 6,505 6,202 6,055 6,042
Less allowance for loan losses.......... 151 150 155 164 172
------ ------ ------ ------ ------
6,559 6,355 6,047 5,891 5,870
------ ------ ------ ------ ------
Total earning assets............ 9,833 9,720 9,637 9,203 8,913
Cash and due from banks................... 632 672 651 622 602
Other assets.............................. 440 463 480 480 495
------ ------ ------ ------ ------
Total assets.................... $10,754 $10,705 $10,613 $10,141 $9,838
======= ======= ======= ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand.................................. $1,998 $2,037 $1,992 $1,946 $1,955
NOW accounts............................ 1,383 1,397 1,388 1,399 1,391
Savings................................. 1,451 1,477 1,502 1,509 1,481
Money market deposit accounts........... 2,512 2,577 2,655 2,700 2,742
Consumer time........................... 1,189 1,059 981 945 975
Time -- $100,000 or more................ 175 136 125 63 37
------ ------ ------ ------ ------
8,708 8,683 8,643 8,562 8,581
Federal funds purchased and other
short-term borrowings................... 1,114 1,107 1,086 728 425
Long-term debt............................ 51 51 54 54 54
------ ------ ------ ------ ------
Total deposits and borrowings... 9,873 9,841 9,783 9,344 9,060
Other liabilities(2)...................... 81 89 77 66 66
Stockholders' equity...................... 800 775 753 731 712
------ ------ ------ ------ ------
Total liabilities and
stockholders' equity.......... $10,754 $10,705 $10,613 $10,141 $9,838
======= ======= ======= ======= ======
CAPITAL RATIOS
Risk-Based
Core (Min. regulatory standard-4.00%)... 11.81 % 11.51 % 11.74 % 11.71 % 11.32 %
Total (Min. regulatory
standard-8.00%)...................... 13.36 13.06 13.46 13.45 13.06
Leverage.................................. 7.55 7.35 7.21 7.32 7.33
<FN>
- ---------------
(1) Nonperforming loans are included in the average balances.
(2) Includes guarantee of ESOP indebtedness.
</TABLE>
23
<PAGE> 24
BAYBANKS, INC.
SUMMARY OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
-------- -----------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income on earning assets (tax equivalent
basis).................................... $192,179 $184,387 $174,632 $158,305 $148,458
Interest expense on deposits and
borrowings................................ 66,430 58,805 52,812 43,423 37,818
-------- -------- -------- -------- --------
Net interest income......................... 125,749 125,582 121,820 114,882 110,640
Noninterest income.......................... 51,441 50,985 52,557 54,031 49,715
-------- -------- -------- -------- --------
Total income from operations................ 177,190 176,567 174,377 168,913 160,355
Operating expenses.......................... 116,552 115,557 114,706 114,712 112,195
-------- -------- -------- -------- --------
Operating Income Before Net Securities Gains
(Losses) and Provisions for Loan Losses
and OREO Reserve.......................... 60,638 61,010 59,671 54,201 48,160
Net securities gains (losses)............... 1 (272) -- 436 39
Provision for loan losses................... 6,500 6,000 6,000 6,000 6,000
Provision for OREO reserve, net............. 1,000 1,520 2,415 2,500 2,937
-------- -------- -------- -------- --------
Credit provisions........................... 7,500 7,520 8,415 8,500 8,937
-------- -------- -------- -------- --------
Pre-tax income.............................. 53,139 53,218 51,256 46,137 39,262
Less tax equivalent adjustment included
above..................................... 2,795 2,126 1,816 2,067 1,973
-------- -------- -------- -------- --------
Income before taxes and cumulative effect of
accounting change......................... 50,344 51,092 49,440 44,070 37,289
Provision for income taxes.................. 19,869 20,389 20,407 17,648 15,078
-------- -------- -------- -------- --------
Income before cumulative effect of
accounting change......................... 30,475 30,703 29,033 26,422 22,211
Less cumulative effect of accounting change
(net of tax benefit of $683).............. -- -- -- -- 932
-------- -------- -------- -------- --------
Net Income.................................. $ 30,475 $ 30,703 $ 29,033 $ 26,422 $ 21,279
======== ======== ======== ======== ========
Earnings Per Share
Income before accounting change........... $ 1.58 $ 1.59 $ 1.51 $ 1.38 $ 1.16
Less cumulative effect of accounting
change................................. -- -- -- -- 0.05
-------- -------- -------- -------- --------
Net Income................................ $ 1.58 $ 1.59 $ 1.51 $ 1.38 $ 1.11
======== ======== ======== ======== ========
Dividends Paid Per Share.................... $ 0.50 $ 0.45 $ 0.45 $ 0.35 $ 0.35
Financial Ratios
Return on average equity.................... 15.5% 15.7% 15.3% 14.5% 12.1%
Return on average assets.................... 1.15 1.14 1.09 1.05 0.88
Common Stock Data
Period-end book value per share............. $ 42.81 $ 41.51 $ 40.30 $ 39.47 $ 38.51
Dividend payout ratio....................... 31.6% 28.3% 29.7% 25.4% 31.5%
Range of BayBanks, Inc., last sale price
High...................................... $ 64.50 $ 59.50 $ 63.00 $ 64.13 $ 57.25
Low....................................... 52.00 51.00 54.25 54.50 50.00
Close..................................... 64.50 52.75 55.00 60.25 54.50
</TABLE>
24
<PAGE> 25
BAYBANKS, INC.
AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN (1)
<TABLE>
<CAPTION>
1995 1994
------- -------------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits and other
short-term investments................. 5.84% 5.24% 4.38% 3.94% 3.32%
Securities available for sale(2)......... 6.80 6.27 5.42 4.98 4.64
Investment securities.................... 5.51 5.23 5.13 4.80 4.55
Loans.................................... 8.94 8.55 8.35 7.98 7.81
Commercial............................. 8.92 8.29 7.68 7.19 6.57
Commercial real estate................. 8.98 8.89 8.54 8.05 7.58
Residential mortgage................... 7.62 7.49 7.48 7.24 7.35
Instalment............................. 9.57 9.07 9.03 8.72 8.71
Total earning assets..................... 7.89% 7.47% 7.20% 6.89% 6.72%
Interest-bearing funds................... 3.41% 2.98% 2.68% 2.35% 2.16%
NOW accounts........................... 1.37 1.37 1.37 1.34 1.33
Savings................................ 2.25 2.17 1.96 1.93 1.90
Money market deposit accounts.......... 3.22 2.72 2.50 2.20 2.04
Consumer time.......................... 4.83 4.21 3.80 3.46 3.45
Time -- $100,000 or more............... 5.78 5.08 4.29 3.69 2.91
Short-term borrowings.................. 5.84 5.14 4.50 3.97 3.21
Long-term debt......................... 6.50 5.54 5.05 4.44 3.88
Interest expense as a percentage of
average
earning assets......................... 2.73% 2.39% 2.17% 1.89% 1.72%
Net interest margin...................... 5.16% 5.08% 5.03% 5.00% 5.00%
<FN>
- ---------------
(1) Tax equivalent basis.
(2) Yields based on average cost.
</TABLE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit List and Index on page 27.
(b) 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.
A report on Form 8-K was filed on April 3, 1995, reporting the
execution of an Acquisition Agreement on March 23, 1995, under which
the Company would acquire Cornerstone Financial Corporation
("Cornerstone"), and a related Option Agreement under which Cornerstone
granted to the Company an option to purchase up to 14% of the
outstanding shares of Cornerstone common stock.
25
<PAGE> 26
SIGNATURE
Pursuant to the requirements 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
and Chief Financial Officer
(Duly Authorized and
Principal Financial Officer)
Date: May 9, 1995
26
<PAGE> 27
BAYBANKS, INC.
EXHIBIT LIST AND INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------
<C> <C> <S>
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.
2.2 -- Agreement and Plan of Merger dated March 23, 1995 by and between the
Registrant and Cornerstone Financial Corporation. Filed as Exhibit 2(a) to
the Registrant's Current Report on Form 8-K filed with the Commission on
April 3, 1995 and incorporated herein by reference. 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.
MISCELLANEOUS
11.1 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 28.
27 -- Financial Data Schedule.
</TABLE>
27
<PAGE> 1
EXHIBIT 11.1
BAYBANKS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE QUARTERS ENDED MARCH 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Primary:
Weighted average shares............................................ 18,998,610 18,778,400
Common stock equivalents (CSE):
Stock options.................................................... 263,331 315,047
---------- ----------
Primary weighted average shares.................................... 19,261,941 19,093,447
========== ==========
Income before cumulative effect of accounting change............... $ 30,475 $ 22,211
Less cumulative effect of accounting change........................ -- 932
---------- ----------
Net income......................................................... $ 30,475 $ 21,279
========== ==========
Primary earnings per share:
Income before cumulative effect of accounting change.......... $ 1.58 $ 1.16
Less cumulative effect of accounting change................... -- 0.05
---------- ----------
Net income.................................................... $ 1.58 $ 1.11
========== ==========
Fully Diluted:
Weighted average shares............................................ 18,998,610 18,778,400
Common stock equivalents (CSE):
Stock options.................................................... 263,331 315,047
Stock options not CSE.............................................. 29,779 9,958
----------- -----------
Fully diluted weighted average shares.............................. 19,291,720 19,103,405
=========== ===========
Income before cumulative effect of accounting change............... $ 30,475 $ 22,211
Less cumulative effect of accounting change........................ -- 932
---------- ----------
Net income......................................................... 30,475 21,279
========== ==========
Fully diluted earnings per share:
Income before cumulative effect of accounting change.......... $ 1.58 $ 1.16
Less cumulative effect of accounting change................... -- 0.05
---------- ----------
Net income.................................................... $ 1.58 $ 1.11
========== ==========
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
OF BAYBANKS, INC. FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 658,022
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 196,831
<TRADING-ASSETS> 18,368
<INVESTMENTS-HELD-FOR-SALE> 222,015
<INVESTMENTS-CARRYING> 2,675,403
<INVESTMENTS-MARKET> 2,644,529
<LOANS> 6,774,494
<ALLOWANCE> 146,348
<TOTAL-ASSETS> 10,843,758
<DEPOSITS> 8,943,955
<SHORT-TERM> 961,883
<LIABILITIES-OTHER> 73,104
<LONG-TERM> 51,146
<COMMON> 38,012
0
0
<OTHER-SE> 775,658
<TOTAL-LIABILITIES-AND-EQUITY> 10,843,758
<INTEREST-LOAN> 148,589
<INTEREST-INVEST> 37,932
<INTEREST-OTHER> 2,863
<INTEREST-TOTAL> 189,384
<INTEREST-DEPOSIT> 49,327
<INTEREST-EXPENSE> 66,430
<INTEREST-INCOME-NET> 122,954
<LOAN-LOSSES> 6,500
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 117,552
<INCOME-PRETAX> 50,344
<INCOME-PRE-EXTRAORDINARY> 30,475
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,475
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.16
<LOANS-NON> 75,512
<LOANS-PAST> 30,427
<LOANS-TROUBLED> 6,765
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 146,835
<CHARGE-OFFS> 11,248
<RECOVERIES> 4,261
<ALLOWANCE-CLOSE> 146,348
<ALLOWANCE-DOMESTIC> 10,563
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 135,785
</TABLE>
