<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, 1996 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 30, 1996, 19,705,487 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.
<TABLE>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................................. $ 872,677 $ 922,031 $ 658,022
Trading account securities.............................................. 36,340 50,755 18,368
Securities portfolios
Interest-bearing deposits and other short-term investments............ 210,875 361,164 196,831
Securities available for sale -- amortized cost $2,187,804 at
March 31, 1996, $2,518,199 at December 31, 1995, and $221,299 at
March 31, 1995........................................................ 2,202,876 2,549,127 222,015
Investment securities -- market value $52,612 at March 31, 1996,
$54,398 at December 31, 1995, and $2,644,529 at March 31, 1995...... 52,612 54,398 2,675,403
----------- ----------- -----------
2,466,363 2,964,689 3,094,249
Loans, net of unearned income and fees
Commercial............................................................ 1,570,836 1,604,031 1,580,403
Commercial real estate................................................ 1,202,729 1,167,043 977,986
Residential mortgage.................................................. 2,163,366 2,053,635 1,376,372
Instalment............................................................ 2,932,918 2,946,384 2,839,733
----------- ----------- -----------
7,869,849 7,771,093 6,774,494
Less allowance for loan losses........................................ 151,680 153,688 146,348
----------- ----------- -----------
7,718,169 7,617,405 6,628,146
Premises and equipment, net............................................. 213,151 215,714 193,785
Goodwill and other intangibles.......................................... 54,624 54,869 4,282
Other assets............................................................ 231,855 238,038 246,906
----------- ----------- -----------
Total assets................................................... $11,593,179 $12,063,501 $10,843,758
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand................................................................ $ 2,209,027 $ 2,383,823 $ 2,100,424
NOW accounts.......................................................... 1,599,149 1,657,825 1,407,048
Savings............................................................... 1,539,254 1,498,596 1,460,247
Money market deposit accounts......................................... 2,663,653 2,599,295 2,493,856
Consumer time......................................................... 1,899,501 1,862,611 1,299,848
Time -- $100,000 or more.............................................. 190,812 215,257 182,532
----------- ----------- -----------
10,101,396 10,217,407 8,943,955
Federal funds purchased and other short-term borrowings................. 415,628 718,941 961,883
Accrued expenses and other accounts payable............................. 82,591 104,831 66,815
Long-term debt.......................................................... 14,871 64,849 51,146
Guarantee of ESOP indebtedness.......................................... 2,941 6,289 6,289
Stockholders' equity:
Common stock, par value $2.00 per share
Shares authorized -- 50,000,000
Shares issued -- 19,729,361 at March 31, 1996, 19,642,774
at December 31, 1995, and 19,006,032 at March 31, 1995............ 39,459 39,286 38,012
Surplus............................................................... 364,464 360,969 315,660
Retained earnings..................................................... 566,268 539,711 465,867
Net unrealized gain on securities available for sale, net of tax...... 8,663 17,678 420
Treasury stock at cost -- 1,525 shares at March 31, 1996, and 1,841
shares at December 31, 1995......................................... (161) (171) --
Guarantee of ESOP indebtedness........................................ (2,941) (6,289) (6,289)
----------- ----------- -----------
Total stockholders' equity..................................... 975,752 951,184 813,670
----------- ----------- -----------
Total liabilities and stockholders' equity..................... $11,593,179 $12,063,501 $10,843,758
=========== =========== ===========
</TABLE>
2
<PAGE> 3
BAYBANKS, INC.
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
FIRST QUARTER
ENDED MARCH 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Income on interest-bearing deposits and other short-term investments......... $ 3,560 $ 2,863
Interest on securities available for sale and investment securities.......... 34,094 37,932
Interest and fees on loans................................................... 167,778 148,589
---------- ----------
Total income on earning assets............................................... 205,432 189,384
Interest expense on deposits and borrowings
Deposits................................................................... 64,532 49,327
Short-term borrowings...................................................... 8,081 16,272
Long-term debt............................................................. 922 831
---------- ----------
Total interest expense....................................................... 73,535 66,430
---------- ----------
Net interest income.......................................................... 131,897 122,954
Provision for loan losses.................................................... 6,900 6,500
---------- ----------
Net interest income after provision for loan losses.......................... 124,997 116,454
Noninterest income
Service charges and fees on deposit accounts............................... 27,692 26,643
Other noninterest income................................................... 31,478 24,798
---------- ----------
Total noninterest income..................................................... 59,170 51,441
Net securities gains......................................................... 5 1
Operating expenses
Salaries and benefits...................................................... 63,587 60,318
Occupancy and equipment.................................................... 24,729 22,598
Other operating expenses................................................... 34,701 33,636
---------- ----------
Total operating expenses..................................................... 123,017 116,552
Provision for OREO reserve, net.............................................. (398) 1,000
---------- ----------
Total operating expenses after OREO provision................................ 122,619 117,552
---------- ----------
Income before taxes.......................................................... 61,553 50,344
Provision for income taxes................................................... 23,174 19,869
---------- ----------
NET INCOME................................................................... $ 38,379 $ 30,475
========== ==========
Earnings Per Share........................................................... $ 1.92 $ 1.58
========== ==========
Average shares outstanding................................................... 19,978,541 19,261,941
</TABLE>
3
<PAGE> 4
BAYBANKS, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
NET
UNREALIZED
GAIN ON
SECURITIES
COMMON RETAINED AVAILABLE TREASURY ESOP LOAN
STOCK SURPLUS EARNINGS FOR SALE STOCK GUARANTEE TOTAL
------- -------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31,
1994........................... $37,999 $314,924 $444,891 $ 276 $ (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* $465,867 $ 420 $ -- $(6,289) $813,670
======== ======== ======== ======= ======= ======= ========
BALANCE AS OF DECEMBER 31,
1995........................... $39,286 $360,969* $539,711 $ 17,678 $ (171) $(6,289) $951,184
Net income -- first quarter
1996......................... 38,379 38,379
Cash dividends declared ($.60
per share)................... (11,822) (11,822)
Net change in valuation reserve
related to securities
available
for sale portfolio, net of
deferred income taxes........ (9,015) (9,015)
Other, principally employee
benefit plans................ 173 3,495 10 3,348 7,026
-------- -------- -------- ------- ------- ------- --------
BALANCE AS OF MARCH 31, 1996..... $39,459 $364,464* $566,268 $ 8,663 $ (161) $(2,941) $975,752
======== ======== ======== ======= ======= ======= ========
<FN>
- ---------------
* Net of unamortized restricted stock compensation expense of $4,456, $5,290,
and $5,550 at March 31, 1996, December 31, 1995, and March 31, 1995,
respectively. Upon approval of the merger with Bank of Boston Corporation (see
Note 4) by the Company's shareholders on April 25, 1996, restriction periods
on outstanding awards of restricted stock lapsed. Accordingly, the unamortized
restricted stock compensation, net of applicable tax benefits, at April 25,
1996 will be recognized during the second quarter of 1996.
</TABLE>
4
<PAGE> 5
BAYBANKS, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
FIRST QUARTER ENDED
MARCH 31
---------------------------
1996 1995
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................................ $ 38,379 $ 30,475
Adjustments to reconcile net income to net cash provided by operating activities:
Proceeds from sales and maturities of trading account securities(1)................. 2,090,563 556,338
Purchases of trading account securities............................................. (2,076,148) (556,052)
Net amortization of security premium and borrowings discount........................ 999 3,677
Net securities gains................................................................ (5) (1)
Fixed-rate mortgages sold........................................................... 72,474 7,760
Fixed-rate mortgages originated for sale, net of principal payments................. (104,681) (5,038)
Student loans transferred from portfolio and sold................................... 15,400 --
Provision for loan losses........................................................... 6,900 6,500
Amortization of goodwill and other intangibles...................................... 1,302 138
Depreciation and amortization of premises and equipment............................. 6,541 6,558
Gain on sales of premises and equipment............................................. (339) (1,057)
Provision for OREO reserve, net..................................................... (398) 1,000
Deferred income taxes............................................................... 1,157 (413)
Change in other assets.............................................................. (4,141) (2,356)
Change in interest receivable....................................................... 14,374 (5,623)
Change in accrued expenses and other accounts payable............................... (19,830) (5,292)
Change in interest payable.......................................................... (1,503) 1,645
----------- ---------
Net cash provided by operating activities....................................... 41,044 38,259
----------- ---------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale.................................. 6,075 45,110
Proceeds from maturities of securities available for sale............................. 1,005,504 48
Purchases of securities available for sale(1)......................................... (682,150) (37,500)
Proceeds from maturities of investment securities..................................... 2,399 335,540
Purchases of investment securities.................................................... (613) (458,432)
Net cash provided (used) by:
Short-term investments.............................................................. 150,289 (30,545)
Loans(2)(3)(4)...................................................................... (91,428) (110,871)
Proceeds from sales of premises and equipment......................................... 534 1,605
Purchases of premises and equipment................................................... (4,173) (5,461)
Proceeds from sales and payments related to OREO(3)(4)................................ 2,962 5,094
----------- ---------
Net cash provided (used) by investing activities................................ 389,399 (255,412)
----------- ---------
FINANCING ACTIVITIES
Net cash provided (used) by:
Demand deposits, NOW, and savings accounts.......................................... (192,814) (201,195)
Money market deposits............................................................... 64,358 (66,569)
Consumer time deposits.............................................................. 36,890 204,491
Time -- $100,000 or more............................................................ (24,445) 6,869
Short-term borrowings............................................................... (303,313) 112,366
Long-term debt...................................................................... (50,009) (8)
Dividends paid........................................................................ (11,822) (9,499)
Other equity transactions............................................................. 1,358 (450)
----------- ---------
Net cash provided (used) by financing activities................................ (479,797) 46,005
----------- ---------
Net change in cash and cash equivalents................................................. (49,354) (171,148)
Cash and cash equivalents at beginning of year(5)....................................... 922,031 829,170
----------- ---------
Cash and cash equivalents at March 31(5)................................................ $ 872,677 $ 658,022
========== =========
Supplemental disclosure of cash flow information
Interest paid......................................................................... $ 75,038 $ 64,785
Taxes paid............................................................................ 14,043 9,020
<FN>
- ---------------
(1) Excludes transfers of trading account securities to the securities available
for sale portfolio of $8.8 million in 1995.
(2) Excludes transfers of loans to the other real estate owned category of $.6
million in 1996 and 1995.
(3) Excludes loan originations in conjunction with OREO sales of $1.0 million in
1995.
(4) 1995 amount 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.
(5) 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, prepared in accordance with generally accepted accounting
principles. Certain 1995 amounts have been reclassified to conform with the 1996
presentation. These financial statements are unaudited.
NOTE 2. SECURITIES PORTFOLIOS
<TABLE>
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:
<CAPTION>
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>
MARCH 31, 1996(1)
SECURITIES AVAILABLE FOR SALE
U.S. Government securities, maturing
Within 1 year........................... $ 622,541 $ 36 $ (1,918) $ 620,659 4.79%
After 1 year but within 5 years......... 919,288 16,815 (194) 935,909 6.76
After 5 years but within 10 years....... 1,998 -- (71) 1,927 5.77
---------- ------- -------- ----------
1,543,827 16,851 (2,183) 1,558,495 5.96
---------- ------- -------- ----------
State and local government securities,
maturing
Within 1 year........................... 65,248 41 (4) 65,285 6.21
After 1 year but within 5 years......... 60,402 537 (189) 60,750 6.79
After 5 years but within 10 years....... 49,620 755 (385) 49,990 7.28
After 10 years.......................... 20 -- -- 20 7.03
---------- ------- -------- ----------
175,290 1,333 (578) 176,045 6.71
---------- ------- -------- ----------
Corporate, maturing
Within 1 year........................... 308,646 11 (2) 308,655 5.63
After 1 year but within 5 years......... 6,557 8 (17) 6,548 6.21
---------- ------- -------- ----------
315,203 19 (19) 315,203 5.64
---------- ------- -------- ----------
U.S. Agency mortgage-backed securities.... 89,977 199 (430) 89,746 6.08
Asset-backed securities................... 25,125 -- (128) 24,997 4.22
Other(2).................................. 38,382 8 -- 38,390 6.30
---------- ------- -------- ----------
Total securities available for
sale.......................... $2,187,804 $ 18,410 $ (3,338) $2,202,876 5.96%
========== ======= ======== ========== =====
INVESTMENT SECURITIES
Industrial revenue bonds.................. $ 39,150 $ -- $ -- $ 39,150 10.51%
Other..................................... 13,462 -- -- 13,462 6.00
---------- ------- -------- ----------
Total investment securities..... $ 52,612 $ -- $ -- $ 52,612 9.36%
========== ======= ======== ========== =====
<FN>
- ---------------
(1) The period-end maturity distribution excludes industrial revenue bonds,
which are not regarded as principal debt securities, asset-backed
securities, mortgage-backed securities, and other securities that do not
have a stated maturity.
(2) BayBank, N.A., the Company's principal bank subsidiary, and BayBank FSB, a
New Hampshire bank subsidiary, are members of the Federal Home Loan Bank
(FHLB). As of March 31, 1996, $38.3 million 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, 1996, total advances
of $18.8 million were outstanding from the FHLB at an average interest rate
of 5.14% and with an average maturity of 1.38 years. These outstanding
advances are included on the consolidated balance sheet in the other short-
term borrowings and long-term debt categories.
</TABLE>
6
<PAGE> 7
<TABLE>
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, 1995(1)
SECURITIES AVAILABLE FOR SALE
U.S. Government securities................... $1,798,465 $ 32,247 $ (2,304) $1,828,408
Corporate.................................... 317,737 50 -- 317,787
State and local government securities........ 225,954 1,710 (165) 227,499
U.S. Agency mortgage-backed securities....... 98,120 194 (515) 97,799
Asset-backed securities...................... 44,051 -- (297) 43,754
Other(2)..................................... 33,872 8 -- 33,880
---------- ------ -------- ----------
Total securities available for
sale............................. $2,518,199 $ 34,209 $ (3,281) $2,549,127
========== ====== ======== ==========
INVESTMENT SECURITIES
Industrial revenue bonds..................... $ 41,544 $ -- $ -- $ 41,544
Other........................................ 12,854 -- -- 12,854
---------- ------ -------- ----------
Total investment securities........ $ 54,398 $ -- $ -- $ 54,398
========== ====== ======== ==========
MARCH 31, 1995
SECURITIES AVAILABLE FOR SALE
State and local government securities........ $ 16,045 $ 16 $ (1) $ 16,060
Corporate.................................... 177,600 -- -- 177,600
Other(2)..................................... 27,654 701 -- 28,355
---------- ------ -------- ----------
Total securities available for
sale............................. $ 221,299 $ 717 $ (1) $ 222,015
========== ====== ======== ==========
INVESTMENT SECURITIES
U.S. Government securities................... $2,168,149 $ 3,278 $ (29,892) $2,141,535
State and local government securities........ 214,366 348 (596) 214,118
Asset-backed securities...................... 193,466 -- (2,755) 190,711
U.S. Agency mortgage-backed securities....... 49,518 -- (1,257) 48,261
Industrial revenue bonds..................... 48,062 -- -- 48,062
Corporate and other.......................... 1,842 -- -- 1,842
---------- ------ -------- ----------
Total investment securities........ $2,675,403 $ 3,626 $ (34,500) $2,644,529
========== ====== ======== ==========
<FN>
- ---------------
(1) During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed a one-time reassessment of the classification of securities, and the
Company reclassified $2.0 billion from investment securities to securities
available for sale.
(2) As of December 31, 1995, and March 31, 1995, $33.6 million and $27.6
million, respectively, 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. ADOPTION OF ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to such assets being held
and used and for such assets and certain identifiable intangibles to be disposed
of. The implementation of this statement did not have a material effect on the
Company's results of operations or financial condition.
7
<PAGE> 8
NOTE 4. PENDING MERGER
On December 12, 1995, the Company and Bank of Boston Corporation (Bank of
Boston) entered into an agreement and plan of merger, pursuant to which a
subsidiary of Bank of Boston will merge with and into the Company and the
Company will become a wholly-owned subsidiary of Bank of Boston (the Merger). In
addition, related Stock Option Agreements were executed pursuant to which Bank
of Boston granted the Company a conditional option to purchase up to 22,400,761
shares of Bank of Boston common stock and the Company granted to Bank of Boston
a conditional option to purchase up to 3,907,120 shares of the Company's common
stock, in each case equaling 19.9% of the outstanding shares of the respective
granting company's stock. As a result of the Merger, each share of the common
stock of the Company outstanding immediately prior to the effective time of the
Merger will be converted into the right to receive 2.2 newly issued shares of
Bank of Boston common stock. Outstanding options to purchase common stock of the
Company will be converted to options to purchase common stock of Bank of Boston
on the same basis.
The Merger is intended to constitute a tax-free transaction and to be
accounted for as a pooling of interests. The Merger was approved by the
shareholders of both companies on April 25, 1996. This transaction is subject to
approval by federal and state bank regulators and is expected to close in the
third quarter of 1996. Subsequent to completion of the Merger, Bank of Boston's
principal banking subsidiary will operate as BayBank of Boston, N.A.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Except as noted, the discussion in this report does not give effect to the
planned consummation of the Company's Merger Agreement with Bank of Boston (see
Note 4 to Item 1 above).
PERFORMANCE OVERVIEW
- BayBanks' net income was $38.4 million for the first quarter of 1996, or
$1.92 per share, compared with net income of $30.5 million for the first
quarter of 1995, or $1.58 per share, an increase of 22% on a per share
basis.
- Reflected in the Company's first quarter 1996 earnings were the results
of operations of BayBank FSB and BayBank NH, the two New Hampshire banks
that became subsidiaries of the Company during the second half of 1995.
These acquisitions were accounted for as purchases.
- Reflected in net income for the first quarter of 1996 was a favorable
court decision on a Company tax refund claim which resulted in a net
after-tax benefit of $2.5 million, or $.13 per share.
EARNINGS ANALYSIS
Operating Income
Operating income (TABLE A, page 9) was $71.3 million in the first quarter
of 1996 compared with $60.6 million in the first quarter of 1995. The 18%
increase in the first quarter of 1996 from the first quarter of 1995 resulted
primarily from a 7% increase in net interest income and a 15% increase in
noninterest income, offset by operating expenses that were 6% above first
quarter 1995 levels. Reflected in 1996's first quarter were the results of
operations of BayBank FSB and BayBank NH, the two New Hampshire banks that
became subsidiaries of the Company during the second half of 1995.
8
<PAGE> 9
<TABLE>
TABLE A
SUMMARY OF OPERATIONS
FOR THE FIRST QUARTERS ENDED MARCH 31
TAX EQUIVALENT BASIS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Income on earning assets............................................... $208,686 $192,179
Interest expense on deposits and borrowings............................ 73,535 66,430
-------- --------
Net interest income.................................................... 135,151 125,749
Noninterest income..................................................... 59,170 51,441
-------- --------
Total income from operations........................................... 194,321 177,190
Operating expenses..................................................... 123,017 116,552
-------- --------
Operating Income Before Net Securities Gains and Provisions for Loan
Losses and OREO Reserve.............................................. 71,304 60,638
-------- --------
Net securities gains................................................... 5 1
-------- --------
Provision for loan losses.............................................. 6,900 6,500
Provision for OREO reserve, net........................................ (398) 1,000
-------- --------
Total credit provisions................................................ 6,502 7,500
-------- --------
Pre-tax income......................................................... 64,807 53,139
Income taxes and tax equivalent adjustment............................. 26,428 22,664
-------- --------
Net Income............................................................. $ 38,379 $ 30,475
======== ========
Earnings Per Share..................................................... $ 1.92 $ 1.58
</TABLE>
Net Interest Income
Net interest income was $135.2 million in the first quarter of 1996
compared with $125.7 million in the first quarter of 1995. The net interest
margin in the first quarter of 1996 was 5.14%, compared with 5.16% in the first
quarter of 1995 and 5.07% in the fourth quarter of 1995.
The growth in net interest income in the first quarter of 1996 compared
with that of the first quarter of 1995 was primarily the result of a 7% increase
in average earning assets. Average loans increased 9%, excluding the loans at
BayBank FSB and BayBank NH. While there was growth in both corporate and
consumer lending, residential real estate lending was the most significant
contributor (TABLE D, page 13). In addition, the acquisitions of BayBank FSB and
BayBank NH added $505 million in loans and $226 million in securities.
The yield on earning assets was 7.94% in the first quarter of 1996,
compared with 7.89% in the first quarter of 1995, as a result of a more
favorable mix of earning assets.
BayBanks' funding costs increased during the first quarter of 1996,
compared with the first quarter of 1995, due to higher rates on certain core
deposits (which include money market deposit accounts [MMDAs] and consumer
certificates of deposit) as a result of market conditions. The increase in
funding costs was partially offset by a reduction in the level of borrowings. In
addition during 1995, some customers moved balances from transaction accounts
and MMDAs to higher-yielding certificates of deposit, resulting in a larger
portion of funding provided by consumer certificates of deposit in the first
quarter of 1996. The costs of total interest-bearing liabilities (as a
percentage of average earning assets) increased 7 basis points to 2.80% in the
first quarter of 1996, compared with 2.73% in the first quarter of 1995.
The 5 basis point increase in the yield on earning assets from the first
quarter of 1995 to the first quarter of 1996 was offset by the 7 basis point
increase in the cost of total interest-bearing liabilities. This resulted in a
slight decline in the net interest margin from 5.16% in the first quarter of
1995 to 5.14% in the first quarter of 1996.
The net interest margin increased from 5.07% in the fourth quarter of 1995
to 5.14% in the first quarter of 1996. This increase was primarily due to the
maturity of lower-yielding securities which were not reinvested, but used
instead to reduce the level of borrowed funds.
9
<PAGE> 10
Fees, Service Charges, and Other Noninterest Income
Noninterest income consists primarily of service charges on deposit
accounts and fees from credit and non-credit services. The income is well
diversified among consumer, corporate, and small business banking activities.
Noninterest income, detailed in TABLE B, increased to $59.2 million in the first
quarter of 1996 from $51.4 million in the first quarter of 1995.
Service charges and fees on deposit accounts continued to provide
approximately one-half of noninterest income. Total service charges and fees on
deposit accounts were $27.7 million in the first quarter of 1996, compared with
$26.6 million in the first quarter of 1995. The increase in service charges and
fees on deposit accounts in the first quarter of 1996 was largely the result of
an increase in overdraft fees due to higher volume and a price increase.
Other components of noninterest income experienced growth during the first
quarter of 1996. Credit card fees increased 15% to $5.9 million in the first
quarter of 1996 from $5.1 million in the first quarter of 1995. The increase
resulted primarily from an increase in transaction volume. Processing fees
increased 13% to $4.5 million in the first quarter of 1996 from $4.0 million in
the first quarter of 1995, primarily the result of an increased volume of
point-of-sale transactions. Investment management and brokerage fees increased
29% to $3.0 million in the first quarter of 1996 from $2.3 million in the first
quarter of 1995, due primarily to increased third party mutual fund sales, and
investment advisory and shareholder servicing fees from BayFunds(R), the
Company's proprietary mutual fund family. Total assets under management in
BayFunds were $1.7 billion at March 31, 1996, compared with $1.4 billion at
March 31, 1995.
Mortgage banking fees were $2.9 million in the first quarter of 1996,
compared with $1.7 million in the first quarter of 1995. The increase from the
first quarter of 1995 was due to increased application volume and a higher level
of secondary market sales.
The Company periodically sells student loans when these primarily
government-guaranteed loans are no longer in a deferred payment status. During
the first quarter of 1996, the Company sold $15 million in student loans,
resulting in a gain of $427 thousand. There were no student loan sales in the
first quarter of 1995.
Other noninterest income was $4.3 million in the first quarter of 1996 and
$1.9 million in the first quarter of 1995. Noninterest income in the first
quarter of 1996 included $2.6 million of interest related to a favorable court
decision on a state tax refund claim.
TABLE B
NONINTEREST INCOME
FOR THE FIRST QUARTER ENDED MARCH 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 CHANGE
------- ------- ------
<S> <C> <C> <C>
Service charges and fees on deposit accounts................... $27,692 $26,643 $1,049
Credit card fees............................................... 5,887 5,103 784
Processing fees................................................ 4,499 3,985 514
Trust fees..................................................... 3,857 3,617 240
Investment management and brokerage fees....................... 2,986 2,306 680
Mortgage banking fees.......................................... 2,918 1,705 1,213
International fees............................................. 1,671 1,671 --
All other fees................................................. 4,944 4,557 387
Student loan sales gains....................................... 427 -- 427
Other noninterest income....................................... 4,289 1,854 2,435
------- ------- ------
Total noninterest income............................. $59,170 $51,441 $7,729
======= ======= ======
</TABLE>
Operating Expenses
The operating expense analysis presented in TABLE C (page 11) separates
OREO and loan workout expenses from other expenses. Operating expenses,
excluding OREO and loan workout, were $122.1 million in the first quarter of
1996, compared with $114.8 million in the first quarter of 1995.
10
<PAGE> 11
Salaries and benefits expenses increased 5% to $63.6 million in the first
quarter of 1996, compared with $60.3 million in the first quarter of 1995,
primarily as the result of normal salary and benefit increases and the
acquisitions of BayBank FSB and BayBank NH in the second half of 1995. These
increases were partially offset by the lower cost of certain compensation
programs, one of which is tied to the price of the Company's common stock and
which benefited from the increase in the market price of the Company's common
stock since the first quarter of 1995. Unamortized restricted stock compensation
of $2.4 million (after tax benefit) will be recognized during the second quarter
of 1996 upon the lapsing of restriction periods as a result of the approval by
the Company's stockholders on April 25, 1996 of the pending merger with Bank of
Boston.
Occupancy and equipment expenses were $24.7 million in the first quarter of
1996, compared with $22.6 million in the first quarter of 1995. The increase was
primarily the result of the New Hampshire acquisitions, increased snow removal
costs in the first quarter of 1996, an increase in rent expense due to the
opening of new branch locations, including supermarket branches, and costs
associated with branch closings. Marketing and public relations expenses
increased to $8.9 million in the first quarter of 1996 from $5.3 million in the
first quarter of 1995 due to the promotion of new and existing products and
services, including BayBank HomeLinkTM, a home banking product, BayPlus(R)
Banking, a service initiative designed to give selected customers a higher level
of service, and BayBank X-Press Check(R), a debit card that is used like a check
to make purchases.
Postage and supplies increased 16% to $6.6 million in the first quarter of
1996, compared with $5.7 million in the first quarter of 1995, due primarily to
increased volume as a result of recent acquisitions and the higher costs of
paper, printed forms, and other supplies.
Other operating expenses were $18.2 million in the first quarter of 1996,
compared with $20.8 million in the first quarter of 1995. The decrease in other
operating expenses is primarily due to a decrease in deposit insurance expense,
due to the Federal Deposit Insurance Corporation's (FDIC) reduction in the
premiums charged to Bank Insurance Fund (BIF) members, and decreases in data
processing expenses. These decreases were partially offset by an increase in
contract staff due to a hiring freeze associated with the pending merger with
Bank of Boston and the amortization of intangible assets resulting from the
acquisitions of BayBank FSB and BayBank NH.
OREO and loan workout expenses were $1.0 million in the first quarter of
1996, compared with $1.7 million in the first quarter of 1995, reflecting the
disposition of OREO properties and impaired loans (see Nonperforming Loans on
page 19).
<TABLE>
TABLE C
OPERATING EXPENSES
FOR THE FIRST QUARTERS ENDED MARCH 31
(IN THOUSANDS)
<CAPTION>
1996 1995 CHANGE
-------- -------- -------
<S> <C> <C> <C>
Salaries and benefits....................................... $ 63,587 $ 60,318 $ 3,269
Occupancy and equipment..................................... 24,729 22,598 2,131
Marketing and public relations.............................. 8,926 5,339 3,587
Postage and supplies........................................ 6,646 5,722 924
Other....................................................... 18,176 20,832 (2,656)
-------- -------- -------
Operating expenses excluding OREO expenses.................. 122,064 114,809 7,255
OREO and loan workout expenses.............................. 953 1,743 (790)
-------- -------- -------
Total operating expenses.......................... $123,017 $116,552 $ 6,465
======== ======== =======
</TABLE>
Provisions for Loan Losses and the OREO Reserve
The provisions for loan losses and the OREO reserve (see TABLE A, page 9)
declined in the first quarter of 1996 to $6.5 million, compared with $7.5
million in the first quarter of 1995, reflecting the improvement in credit
quality from March 31, 1995. The provision for loan losses was $6.9 million in
the first quarter of 1996
11
<PAGE> 12
compared with $6.5 million in the first quarter of 1995. The net provision for
the OREO reserve was a credit of $398 thousand in the first quarter of 1996,
compared with an expense of $1.0 million in the first quarter of 1995.
Provisions made were offset by net gains on sales of properties of $472 thousand
in the first quarter of 1996 and $1.5 million in the first quarter of 1995.
The provisions for loan losses and the OREO reserve were $5.4 million in
the fourth quarter of 1995.
Income Taxes
The Company's provision for income taxes was $23.2 million in the first
quarter of 1996, compared with $19.9 million in the first quarter of 1995. The
1996 tax provision included a $1.6 million adjustment for the favorable
settlement of a tax refund claim.
In July 1995, the Commonwealth of Massachusetts passed a tax reform bill
that reduced the state tax rate for banks. Under the new tax law, the rate that
banks pay will be reduced over a four-year period from 12.54% to 10.50% in 1999.
In accordance with the new tax law, the rate was reduced from 12.54% to 12.13%
in the third quarter of 1995 retroactive to January 1, 1995 and to 11.72%
effective January 1, 1996.
The effective tax rate for the first quarter of 1996 was 37.6%, compared
with 39.5% in the first quarter of 1995. The decrease in the effective tax rate
in the first quarter of 1996 compared with that of the same period of 1995 was
primarily due to the tax refund settlement adjustment and the reduction in the
state tax rate.
BALANCE SHEET REVIEW
Trends in Earning Assets
Average earning assets increased to $10.5 billion in the first quarter of
1996, compared with $9.8 billion in the first quarter of 1995, due to growth in
the average loan balances. The acquisitions of BayBank FSB and BayBank NH in the
second half of 1995 added $505 million of loans. Average loans, excluding the
impact of BayBank FSB and BayBank NH, increased in both the commercial and
consumer areas.
Loan Portfolio
Consumer loans represented 65% of the quarter-end loan portfolio, with $2.2
billion in residential loan balances and $2.9 billion in various types of
instalment loan balances. Consumer lending activities are primarily focused on
the Massachusetts and New Hampshire markets. Commercial and commercial real
estate loans were 35% of the portfolio. The majority of these loans are to New
England-based companies, primarily local middle market companies and small
businesses in Massachusetts and New Hampshire.
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 these primarily
government-guaranteed loans are in a deferred payment status. Student loans held
for sale at March 31, 1996 were $129 million. The Company sold $15 million of
student loans in the first quarter of 1996. There were no student loan sales in
the first quarter of 1995.
An analysis of the changes in major loan categories for the first quarter
of 1996 and 1995 is presented in TABLE D (page 13). Loan business volume was
$202 million in the first quarter of 1996, compared with $121 million in the
first quarter of 1995. Residential mortgage activity was the largest contributor
to this volume, principally as the result of fixed-rate refinancings. The
Company underwrote and sold $72 million of fixed-rate residential mortgage loans
during the first quarter of 1996, compared with $8 million in the first quarter
of 1995. At March 31, 1996, loans held for sale were $56 million, compared with
$2 million at March 31, 1995. Instalment net loan business volume was $11
million, compared with $19 million in the first quarter of 1995, as indirect
automobile lending increased while home equity and student lending declined.
Home equity lending declined due to increased competition. In addition, the net
seasonal decline in credit card balances was not as significant as that in the
first quarter of 1995. Commercial loan volume declined by $29 million in the
first quarter of 1996, compared with an increase of $52 million in the first
quarter of 1995. Commercial loans
12
<PAGE> 13
declined as certain maturing loans were not renewed as a result of pricing
decisions and loans were repaid by local customers who were consolidated with
out-of-region companies. An increase in international outstandings during the
first quarter of 1996 partially offset reductions in domestic commercial loans.
The Company's international loan portfolio, which is primarily focused on
Mexico, Brazil and other South American countries, was $163 million at March 31,
1996, compared with $138 million at December 31, 1995 and $172 million at March
31, 1995. These international credits are predominantly trade related and
primarily with well-known and established foreign banks. Business volume in the
commercial real estate portfolio was $36 million in the first quarter of 1996,
compared with $6 million in the first quarter of 1995. The change in volume was
primarily the result of two major transactions in the first quarter of 1996.
<TABLE>
TABLE D
CHANGES IN THE LOAN PORTFOLIO
(IN THOUSANDS)
<CAPTION>
FIRST QUARTER 1996
INCREASE ANALYSIS OF CHANGE IN LOAN CATEGORIES NET BUSINESS
(DECREASE) ---------------------------------------- VOLUME
FOR THE GROSS NET FIRST
MARCH 31 FIRST CHARGE- TRANSFERS BUSINESS QUARTER
1996 QUARTER OFFS TO OREO SALES VOLUME 1995
---------- ---------- -------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial..................... $1,570,836 $(33,195) $ (4,029) $ -- $ -- $(29,166) $ 51,596
Commercial real estate......... 1,202,729 35,686 (209) -- -- 35,895 6,301
Residential mortgage........... 2,163,366(1) 109,731 (1,472) (571) (72,474) 184,248 44,376
Instalment loans
Automobile and other......... 1,392,310 7,954 (2,775) -- -- 10,729 (27,555)
Home equity.................. 777,470 (22,138) (474) -- -- (21,664) 14,333
Credit card.................. 300,208 (14,108) (3,492) -- -- (10,616) (22,890)
Student loans................ 319,390(2) 18,230 -- -- (15,400) 33,630 55,784
Reserve credit............... 143,540 (3,404) (1,875) -- -- (1,529) (868)
---------- -------- -------- ----- -------- -------- --------
Total instalment loans....... 2,932,918 (13,466) (8,616) -- (15,400) 10,550 18,804
---------- -------- -------- ----- -------- -------- --------
Total loans.................... $7,869,849 $ 98,756 $(14,326) $(571) $(87,874) $201,527 $121,077
========== ======== ======== ===== ======== ======== ========
<FN>
- ---------------
(1) Includes residential mortgage loans held for sale of $56 million at March
31, 1996.
(2) Includes student loans held for sale of $129 million at March 31, 1996.
</TABLE>
Securities Portfolios
The securities portfolios (TABLE E, page 14) totaled $2.5 billion at March
31, 1996, $3.0 billion at December 31, 1995, and $3.1 billion at March 31, 1995.
The weighted average maturity of the securities portfolios was 1.3 years at
March 31, 1996 and December 31, 1995, compared to 1.5 years at March 31, 1995.
Short-term investments were $211 million at March 31, 1996, compared with
$361 million at December 31, 1995, and $197 million at March 31, 1995.
In November of 1995, the Financial Accounting Standards Board (FASB) issued
a special report that allowed for a one-time reassessment of the appropriateness
of the classifications of all securities held at the time. As a result of its
reassessment, the Company reclassified $2.0 billion from investment securities
to securities available for sale.
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. Securities available for
sale were $2.2 billion at March 31, 1996, $2.5 billion at December 31, 1995, and
$222 million at March 31, 1995. At March 31, 1996, securities available for sale
had gross unrealized gains of $18 million and gross unrealized losses of $3
million.
13
<PAGE> 14
The Company's securities available for sale portfolio contains primarily
U.S. Government securities, state and local government securities, asset-backed
securities, and U.S. Agency mortgage-backed securities. The total state and
local government portfolio, which is concentrated primarily in Massachusetts,
was $176 million at March 31, 1996, with the single largest issue being
approximately $5 million. All securities were either rated investment grade or,
in the case of unrated securities, determined by management to be equivalent to
investment grade.
The investment securities portfolio, consisting principally of industrial
revenue bonds and Federal Reserve Bank stock at March 31, 1996, is stated at
amortized cost. The Company's investment securities portfolio was $53 million at
March 31, 1996, $54 million at December 31, 1995, and $2.7 billion at March 31,
1995. At March 31, 1996, the market value of the investment securities portfolio
approximated the amortized cost of the portfolio.
The Company also has a trading account securities portfolio consisting
principally of short-term state and local government securities recorded at
market value, which was $36 million, $51 million, and $18 million at March 31,
1996, December 31, 1995, and March 31, 1995, respectively. Trading account gains
were $629 thousand in the first quarter of 1996, compared with $723 thousand in
the first quarter of 1995.
<TABLE>
TABLE E
SECURITIES PORTFOLIOS
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1996 1995 1995
---------- ----------- ----------
<S> <C> <C> <C>
Short-term investments..................................... $ 210,875 $ 361,164 $ 196,831
---------- ----------- ----------
Securities available for sale(1)
U.S. Government securities............................... 1,558,495 1,828,408 --
State and local government securities.................... 176,045 227,499 16,060
U.S. Agency mortgage-backed securities................... 89,851 97,799 --
Asset-backed securities.................................. 24,997 43,754 --
Corporate and other...................................... 353,488 351,667 205,955
---------- ----------- ----------
2,202,876 2,549,127 222,015
---------- ----------- ----------
Investment securities(1)
U.S. Government securities............................... -- -- 2,168,149
Asset-backed securities.................................. -- -- 193,466
State and local government securities.................... -- -- 214,366
Industrial revenue bonds................................. 39,150 41,544 48,062
U.S. Agency mortgage-backed securities................... -- -- 49,518
Other.................................................... 13,462 12,854 1,842
---------- ----------- ----------
52,612 54,398 2,675,403
---------- ----------- ----------
Total...................................................... $2,466,363 $ 2,964,689 $3,094,249
========== =========== ==========
Weighted average maturity of securities available for sale
and investment securities in years(2).................... 1.5 1.5 1.6
Weighted average maturity of total securities in
years(2)................................................. 1.3 1.3 1.5
<FN>
- ---------------
(1) During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed a one-time reassessment of the classification of securities, and the
Company reclassified $2.0 billion from investment securities to securities
available for sale.
(2) The weighted average maturity calculation excludes amortizing industrial
revenue bonds and reflects estimated prepayments for U.S. Agency
mortgage-backed securities and asset-backed securities.
</TABLE>
14
<PAGE> 15
Deposits and Other Sources of Funds
The Company's extensive product lines, Customer Sales and Service Center,
and banking network of 238 full-service offices and 456 remote banking
facilities generate significant core deposits. Core deposits accounted for 98%
of total average deposits during the first quarter of 1996 and 1995.
Core deposits include transaction accounts (demand, NOW, and savings
accounts), money market deposit accounts, and consumer time certificates.
Average core deposits were $9.7 billion in the first quarter of 1996, compared
with $8.5 billion in the first quarter of 1995. Average transaction accounts
were $5.2 billion in the first quarter of 1996 compared with $4.8 billion in the
first quarter of 1995 and $5.1 billion in the fourth quarter of 1995. Average
money market deposit accounts increased from $2.5 billion in the first quarter
of 1995 and the fourth quarter of 1995 to $2.6 billion in the first quarter of
1996. Average consumer certificates of deposit increased to $1.9 billion in the
first quarter of 1996, compared with $1.2 billion in the first quarter of 1995
and $1.8 billion in the fourth quarter of 1995. The acquisitions of BayBank FSB
and BayBank NH in the second half of 1995 added $315 million of certificates of
deposit.
Average corporate certificates of deposit in excess of $100 thousand (CDs),
which represent a small portion of the Company's total funding, were $209
million in the first quarter of 1996, compared with $175 million in the first
quarter of 1995 and $217 million in the fourth quarter of 1995.
Average purchased funds decreased to $598 million in the first quarter of
1996, compared with $1.1 billion in the first quarter of 1995 and $807 million
in the fourth quarter of 1995 as the funds from the maturity of lower-yielding
securities were used to reduce the level of borrowings.
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 generally indicates that
liabilities will reprice more quickly than assets, and a positive gap generally
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 (page
16), is based on contractual maturities and repricing opportunities for loans,
securities, deposits, and borrowings. 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 (primarily savings, NOW, and money
market deposit accounts) has 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 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. The management adjustment is based upon the
relationship of the expected movement in core deposit rates relative to market
rates and is reviewed periodically and adjusted to reflect changes in trends.
During the third quarter of 1995, the management adjustment was modified to
further reflect the lower sensitivity of rates on core deposits to changes in
market interest rates.
At March 31, 1996, the Company's adjusted gap for the total within-180-day
period had moved from a positive $958 million at December 31, 1995, to a
positive gap position of $1.1 billion. The total within-one-year gap moved from
a positive $1.6 billion at December 31, 1995, to a positive $1.7 billion at
March 31, 1996.
15
<PAGE> 16
<TABLE>
TABLE F
INTEREST RATE SENSITIVITY POSITION
AT PERIOD-END
(IN MILLIONS)
<CAPTION>
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN
DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR
------- ------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1996
Total assets........................ $ 3,960 $ 778 $697 $ 5,435 $1,081 $ 6,516
Total liabilities................... 6,890 418 506 7,814 407 8,221
------- ------- ---- ------- ------ -------
Net contractual gap position........ (2,930) 360 191 (2,379) 674 (1,705)
Net interest rate swaps............. -- 2 -- 2 -- 2
------- ------- ---- ------- ------ -------
Net gap position including interest
rate swaps at March 31, 1996..... (2,930) 362 191 (2,377) 674 (1,703)
Management adjustment............... 4,601 (1,061) (60) 3,480 (48) 3,432
------- ------- ---- ------- ------ -------
Management adjusted gap
at March 31, 1996................... $ 1,671 $ (699) $131 $ 1,103 $ 626 $ 1,729
======= ======= ==== ======= ====== =======
Management adjusted gap at
December 31, 1995................... $ 1,260 $ (579) $277 $ 958 $ 681 $ 1,639
======= ======= ==== ======= ====== =======
Management adjusted gap
at March 31, 1995................... $ 1,255 $(1,154) $513 $ 614 $ 551 $ 1,165
======= ======= ==== ======= ====== =======
</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 banking 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 $1.3 billion, or 13% of total deposits and
borrowings, at March 31, 1996, compared with $1.7 billion, or 16% of total
deposits and borrowings, at December 31, 1995, and $1.8 billion, or 18% of total
deposits and borrowings, at March 31, 1995. The Company's strong liquidity
position allowed for a reduction in the level of borrowings and the expansion of
the loan portfolio in the first quarter of 1996. The Company derives additional
liquidity flexibility from the relatively short average maturity (1.3 years) of
its securities portfolios (page 14).
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 $38.4 million in net income
for the first quarter of 1996, 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 $922 million at December 31, 1995. During
the first quarter of 1996, net cash provided by operating activities was $41
million, net cash provided by investing activities totaled $389 million, and net
cash used in financing activities was $480 million. Cash and cash equivalents
were $873 million at March 31, 1996.
The parent company's primary source of liquidity is dividends received from
its subsidiaries and income earned on its securities portfolios. The most
significant uses of the parent company's resources are capital
16
<PAGE> 17
contributions to banking and other subsidiaries when appropriate, dividends paid
to stockholders, and the acquisition of subsidiaries. In the first quarter of
1996, the parent company was repaid $15 million in advances to a nonbank
subsidiary. Dividends received from banking subsidiaries were $14 million during
the first quarter of 1996. The parent company paid $12 million in dividends to
its stockholders in the first quarter of 1996. In addition, during the first
quarter of 1996, the parent company repaid $50 million in floating-rate notes,
which were scheduled to mature in September 1997. At March 31, 1996, the parent
company had $117 million in cash, short-term investments, and other securities.
The Merger Agreement with Bank of Boston requires the Company to obtain the
consent of Bank of Boston before incurring indebtedness, disposing of assets, or
making material investments, in each case other than in the ordinary course
consistent with past practice. The Company does not believe that these
restrictions will have a material effect on its liquidity or operations during
the period before the merger is consummated.
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 loan grades, or risk ratings, and, if necessary, a specific loan loss
reserve calculated under the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." An independent Loan Review Department
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 entered into prior to the adoption of SFAS No. 114
and accruing loans 90 days or more past due) include nonperforming loans
(including impaired loans, as defined below) and OREO and were $87 million at
March 31, 1996, $83 million at December 31, 1995, and $112 million at March 31,
1995. In accordance with SFAS No. 114, included in nonperforming loans at March
31, 1996 are loans totaling $9.0 million which were restructured during the
first quarter of 1996. These loans, which are on accrual status, bear market
rates of interest and are performing under the restructured terms. Of the $9.0
million, $4.5 million previously had been reported as nonaccrual and $2.9
million previously had been reported as restructured, accruing loans.
17
<PAGE> 18
<TABLE>
TABLE G
NONPERFORMING ASSETS; RESTRUCTURED, ACCRUING LOANS; AND
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<CAPTION>
March 31 DECEMBER 31 MARCH 31
1996 1995 1995
-------- ------------ --------
<S> <C> <C> <C>
Nonperforming loans
Nonaccrual loans........................................ $61,529 $63,830 $ 75,512
Restructured, accruing loans(1)......................... 9,009 -- --
------- ------- --------
70,538 63,830 75,512
Other real estate owned
In-substance foreclosures............................... 4,864 5,272 11,617
Foreclosed property..................................... 21,219 23,688 41,418
------- ------- --------
26,083 28,960 53,035
Less OREO reserve....................................... 9,280 10,164 16,542
------- ------- --------
OREO, net of reserve.................................... 16,803 18,796 36,493
------- ------- --------
Total nonperforming assets................................ $87,341 $82,626 $112,005
======= ======= ========
Restructured, accruing loans(2)........................... $ 2,332 $ 5,949 $ 6,765
======= ======= ========
Accruing loans 90 days or more past due................... $38,009 $40,472 $ 30,427
======= ======= ========
Nonperforming assets as a percentage of loans and OREO.... 1.1% 1.1% 1.6%
Nonperforming assets as a percentage of total assets...... 0.8 0.7 1.0
<FN>
- ---------------
(1) In accordance with SFAS No. 114, included in nonperforming loans at March
31, 1996 are loans totaling $9.0 million which were restructured during the
first quarter of 1996. These loans, which are on accrual status, bear market
rates of interest and are performing under the restructured terms. Of the
$9.0 million, $4.5 million had been previously reported as nonaccrual.
(2) Restructured, accruing loans entered into prior to the adoption of SFAS No.
114 are not reported as nonperforming loans.
</TABLE>
The change in nonperforming assets is shown in TABLE H (page 19). Favorable
resolutions, including property sales and payments on nonperforming loans, were
$10 million in the first quarter of 1996, or 12% of nonperforming assets at the
beginning of the year. Additions to nonperforming assets were $21 million in the
first quarter of 1996.
18
<PAGE> 19
<TABLE>
TABLE H
CHANGE IN ASSET QUALITY
(IN THOUSANDS)
<CAPTION>
1996 1995
------- -----------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonperforming assets(1)(2)................ $87,341 $ 82,626 $ 76,877 $ 96,814 $112,005
======= ======== ======== ======== ========
Nonperforming asset activity:
Additions............................... $21,283(2) $ 23,883 $ 12,715 $ 21,870 $ 7,573
------- -------- -------- -------- --------
Payments................................ (6,436) (9,492) (16,087) (13,567) (5,721)
Returns to accrual...................... -- (307) (2,251) (1,227) (104)
OREO sales.............................. (3,448) (3,928) (12,022) (13,863) (6,645)
------- -------- -------- -------- --------
Total improvements..................... (9,884) (13,727) (30,360) (28,657) (12,470)
------- -------- -------- -------- --------
Net inflow (outflow)................... 11,399 10,156 (17,645) (6,787) (4,897)
------- -------- -------- -------- --------
Charge-offs............................... (7,568) (5,695) (6,697) (9,089) (4,884)
Net change in OREO reserve................ 884 1,288 4,405 685 (240)
------- -------- -------- -------- --------
Total increase (decrease) in nonperforming
assets.................................. $ 4,715 $ 5,749 $(19,937) $(15,191) $(10,021)
======= ======== ======== ======== ========
<FN>
- ---------------
(1) At period-end, excluding restructured, accruing loans entered into prior to
the adoption of SFAS No. 114 and accruing loans 90 days or more past due.
(2) In accordance with SFAS No. 114, included in nonperforming loans at March
31, 1996 are loans totaling $9.0 million which were restructured during the
first quarter of 1996. These loans, which are on accrual status, bear market
rates of interest and are performing under the restructured terms. Of the
$9.0 million, $4.5 million had been previously reported as nonaccrual.
</TABLE>
Nonperforming Loans
A commercial or commercial real estate 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 not individually reported as
impaired. Total impaired loans were $53 million at March 31, 1996, compared with
$48 million at December 31, 1995 and $59 million at March 31, 1995. Impaired
loans at March 31, 1996 include $9.0 million of loans restructured in the first
quarter of 1996 which are on accrual status.
Total nonperforming loans (TABLE I), including impaired loans, were $71
million at March 31, 1996, compared with $64 million at December 31, 1995 and
$76 million at March 31, 1995.
<TABLE>
TABLE I
NONPERFORMING LOANS(1)
AT PERIOD-END
(DOLLARS IN THOUSANDS)
<CAPTION>
DECEMBER 31,
MARCH 31, 1996 1995 MARCH 31, 1995
---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Commercial.............................. $20,008 29% $22,227 35% $16,363 22%
Commercial real estate.................. 32,674 46 25,832 41 42,255 56
Residential mortgage.................... 14,049 20 13,068 20 15,278 20
Instalment.............................. 3,807 5 2,703 4 1,616 2
------- --- ------- --- ------- ---
Total nonperforming loans..... $70,538 100% $63,830 100% $75,512 100%
======= === ======= === ======= ===
<FN>
- ---------------
(1) Excludes restructured, accruing loans entered into prior to the adoption of
SFAS No. 114 and accruing loans 90 days or more past due.
</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. In-substance foreclosures are assets for which the Company has received
physical possession of the collateral. OREO (net of a valuation reserve)
declined to $17 million at March 31, 1996, from $19 million at December 31, 1995
and $36 million at March 31, 1995. The decline is primarily due 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. Nonaccrual loans that have been restructured remain on
nonaccrual status unless the customer has demonstrated a period of performance
and there is reasonable assurance of collection of principal and interest.
Troubled debt restructurings entered into after December 31, 1994, 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 amount of
troubled debt restructurings entered into during the first quarter of 1996 was
$9.0 million. These loans have been accounted for as impaired loans and have
been disclosed as nonperforming loans. 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 on January 1,
1995, are exempt from the provisions of that statement provided they are
performing under the restructured terms. Pre-SFAS No. 114 restructured, accruing
loans are not reported as nonperforming loans and were $2 million at March 31,
1996, compared with $6 million at December 31, 1995 and $7 million at March 31,
1995.
Accruing Loans 90 Days or More Past Due
Accruing loans 90 days or more past due, presented in TABLE J, were $38
million at March 31, 1996, $40 million at December 31, 1995, and $30 million at
March 31, 1995. The increase from the first quarter of 1995 was the result of
the New Hampshire acquisitions and an increase in consumer credit delinquencies.
Of the $38 million in accruing loans 90 days or more past due at March 31, 1996,
residential real estate loans and instalment loans together represented 91% of
the total. Residential real estate and instalment loans by their nature include
a large number of smaller loans. Of the $11 million in such residential real
estate loans, $10 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, 1996 1995 MARCH 31, 1995
---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Commercial.............................. $ 1,069 3% $ 1,710 4% $ 624 2%
Commercial real estate.................. 2,385 6 831 2 1,974 6
Residential mortgage.................... 11,206 29 13,238 33 8,492 28
Instalment.............................. 23,349 62 24,693 61 19,337 64
------- --- ------- --- ------- ---
Total......................... $38,009 100% $40,472 100% $30,427 100%
======= === ======= === ======= ===
</TABLE>
Allowance for Loan Losses
The allowance for loan losses (TABLE K, page 21) was $152 million at March
31, 1996. The coverage of nonperforming loans (allowance for loan losses as a
percentage of nonperforming loans) increased to 215% at March 31, 1996 from 194%
at March 31, 1995. The coverage of nonperforming loans was 241% at December 31,
1995. The coverage of nonperforming loans; restructured, accruing loans; and
accruing loans 90
20
<PAGE> 21
days or more past due was 137% at March 31, 1996, 139% at December 31, 1995, and
130% at March 31, 1995.
<TABLE>
TABLE K
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<CAPTION>
1996 1995(1)
---------- ----------
<S> <C> <C>
Loans outstanding at March 31......................................... $7,869,849 $6,774,494
========== ==========
Average loans......................................................... $7,775,154 $6,710,187
========== ==========
Allowance for loan losses:
Balance at beginning of period........................................ $ 153,688 $ 146,835
Loans charged off
Commercial......................................................... 4,029 961
Commercial real estate............................................. 209 1,713
Residential mortgage............................................... 1,472 1,387
Instalment......................................................... 8,616 7,187
---------- ----------
Total loans charged off............................................ 14,326 11,248
---------- ----------
Recoveries
Commercial....................................................... 1,422 1,013
Commercial real estate........................................... 1,309 1,296
Residential mortgage............................................. 807 440
Instalment....................................................... 1,880 1,512
---------- ----------
Total recoveries................................................. 5,418 4,261
---------- ----------
Net loans charged off............................................ 8,908 6,987
Provision for loan losses........................................... 6,900 6,500
---------- ----------
Balance at March 31................................................... $ 151,680 $ 146,348
========== ==========
Annualized net charge-offs as a percentage of average period-to-date
loans............................................................... 0.5% 0.4%
Allowance for loan losses as a percentage of period-end loans......... 1.9 2.2
Allowance for loan losses as a percentage of nonperforming loans...... 215.0 193.8
Allowance for loan losses as a percentage of nonperforming loans;
restructured, accruing loans; and accruing loans past due 90 days or
more................................................................ 136.8 129.9
<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>
CAPITAL AND DIVIDENDS
BayBanks' consolidated risk-based capital ratios were 13.23% for total
capital and 11.97% for core capital at March 31, 1996, compared with 13.36% and
11.81%, respectively, at March 31, 1995. At December 31, 1995, the consolidated
risk-based capital ratios were 12.80% for total capital and 11.41% for core
capital. The consolidated leverage ratio was 7.95%, 7.66%, and 7.55% at March
31, 1996, December 31, 1995, and March 31, 1995, respectively (TABLE L, page
22).
21
<PAGE> 22
<TABLE>
TABLE L
CAPITAL RATIOS
MARCH 31, 1996
<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% 11.97% n/a% 13.23% n/a% 7.95%
BayBank, N.A. (Note).......... 6.00 10.17 10.00 11.43 5.00 6.92
BayBank FSB (Note)............ 6.00 13.19 10.00 14.45 5.00 8.11
BayBank NH (Note)............. 6.00 22.33 10.00 23.61 5.00 9.89
- ------------------------
BayBank, N.A. Pro Forma
(Note)...................... 6.00 10.43 10.00 11.69 5.00 7.03
<FN>
* Under Federal Prompt Corrective Action and Risk-based Deposit Insurance
Assessment Regulations.
n/a - not applicable
Note: During the second quarter of 1996, BayBank NH was converted to a
nationally chartered bank (BayBank NH, N.A.). In addition, applications
have been filed to convert BayBank FSB to a nationally chartered bank, to
merge BayBank NH, N.A. into BayBank FSB (after conversion of charter) and
to merge the surviving New Hampshire national bank into BayBank, N.A. The
Pro Forma BayBank, N.A. capital ratios assume these mergers were effective
March 31, 1996.
</TABLE>
The Company paid a dividend in the first quarter of 1996 of $.60 per share
and on April 25, 1996, declared a quarterly dividend of $.60 per share payable
June 1, 1996. Under the Company's Merger Agreement with Bank of Boston, the
Company's quarterly dividend may not be increased without the consent of Bank of
Boston.
22
<PAGE> 23
<TABLE>
BAYBANKS, INC.
AVERAGE BALANCES AND CAPITAL RATIOS(1)
(DOLLARS IN MILLIONS)
<CAPTION>
1996 1995
------- -------------------------------------
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.............................................. $ 271 $ 432 $ 366 $ 215 $ 205
Securities available for sale(2)........................... 2,432 1,147 337 225 231
Investment securities(2)................................... 53 1,418 2,303 2,574 2,687
Loans(3)
Commercial............................................... 1,546 1,587 1,609 1,615 1,533
Commercial real estate................................... 1,191 1,085 1,090 981 980
Residential mortgage..................................... 2,097 1,991 1,831 1,415 1,357
Instalment............................................... 2,941 2,895 2,846 2,820 2,840
------- ------- ------- ------- -------
7,775 7,558 7,376 6,831 6,710
Less allowance for loan losses........................... 155 155 157 146 151
------- ------- ------- ------- -------
7,620 7,403 7,219 6,685 6,559
------- ------- ------- ------- -------
Total earning assets.............................. 10,531 10,555 10,382 9,845 9,833
Cash and due from banks.................................... 705 711 690 667 632
Other assets............................................... 501 482 495 442 440
------- ------- ------- ------- -------
Total assets...................................... $11,582 $11,593 $11,410 $10,808 $10,754
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand................................................... $ 2,122 $ 2,134 $2,090 $2,013 $1,998
NOW accounts............................................. 1,538 1,472 1,439 1,377 1,383
Savings.................................................. 1,504 1,484 1,479 1,431 1,451
Money market deposit accounts............................ 2,611 2,545 2,539 2,468 2,512
Consumer time............................................ 1,887 1,838 1,789 1,401 1,189
Time -- $100,000 or more................................. 209 217 216 210 175
------- ------- ------- ------- -------
9,871 9,690 9,552 8,900 8,708
Federal funds purchased and other short-term borrowings.... 598 807 799 947 1,114
Long-term debt............................................. 62 65 65 51 51
------- ------- ------- ------- -------
Total deposits and borrowings..................... 10,531 10,562 10,416 9,898 9,873
Other liabilities(4)....................................... 104 115 103 86 81
Stockholders' equity....................................... 947 916 891 824 800
------- ------- ------- ------- -------
Total liabilities and stockholders' equity........ $11,582 $11,593 $11,410 $10,808 $10,754
======= ======= ======= ======= =======
CAPITAL RATIOS
Risk-Based
Core (Min. regulatory standard -- 4.00%)................. 11.97% 11.41% 11.57% 11.99% 11.81%
Total (Min. regulatory standard -- 8.00%)................ 13.23 12.80 13.10 13.53 13.36
Leverage................................................... 7.95 7.66 7.59 7.75 7.55
<FN>
- ---------------
(1) Average balances exclude the impact of average unrealized gains on
securities available for sale, net of tax.
(2) During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed a one-time reassessment of the classification of securities, and the
Company reclassified $2.0 billion from investment securities to securities
available for sale.
(3) Nonperforming loans are included in the average balances.
(4) Includes guarantee of ESOP indebtedness.
</TABLE>
23
<PAGE> 24
BAYBANKS, INC.
<TABLE>
SUMMARY OF OPERATIONS
(DOLLARS IN THOUSANDS ON A TAX EQUIVALENT BASIS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1996 1995
-------- --------------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income on earning assets.......................... $208,686 $212,404 $209,826 $197,045 $192,179
Interest expense on deposits and borrowings....... 73,535 77,945 76,738 70,885 66,430
-------- -------- -------- -------- --------
Net interest income............................... 135,151 134,459 133,088 126,160 125,749
Noninterest income................................ 59,170 54,714 57,344 55,752 51,441
-------- -------- -------- -------- --------
Total income from operations...................... 194,321 189,173 190,432 181,912 177,190
Operating expenses................................ 123,017 117,288 125,109 119,926 116,552
-------- -------- -------- -------- --------
OPERATING INCOME BEFORE NET SECURITIES GAINS
(LOSSES) AND PROVISIONS FOR LOAN LOSSES AND OREO
RESERVE......................................... 71,304 71,885 65,323 61,986 60,638
-------- -------- -------- -------- --------
Net securities gains (losses)..................... 5 (3) 42 -- 1
-------- -------- -------- -------- --------
Provision for loan losses......................... 6,900 6,000 6,000 6,500 6,500
Provision for OREO reserve, net................... (398) (592) (229) -- 1,000
-------- -------- -------- -------- --------
Credit provisions................................. 6,502 5,408 5,771 6,500 7,500
-------- -------- -------- -------- --------
Pre-tax income.................................... 64,807 66,474 59,594 55,486 53,139
Less tax equivalent adjustment included above..... 3,254 3,395 2,891 2,943 2,795
-------- -------- -------- -------- --------
Income before taxes............................... 61,553 63,079 56,703 52,543 50,344
Provision for income taxes........................ 23,174 25,257 21,984 18,185 19,869
-------- -------- -------- -------- --------
NET INCOME........................................ $ 38,379 $ 37,822 $ 34,719 $ 34,358 $ 30,475
======== ======== ======== ======== ========
EARNINGS PER SHARE................................ $ 1.92 $ 1.90 $ 1.74 $ 1.78 $ 1.58
DIVIDENDS PAID PER SHARE.......................... $ 0.60 $ 0.60 $ 0.60 $ 0.50 $ 0.50
FINANCIAL RATIOS
Return on average equity.......................... 16.0% 16.3% 15.5% 16.7% 15.5%
Return on average assets.......................... 1.33 1.29 1.21 1.28 1.15
COMMON STOCK DATA
Period-end book value per share................... $ 49.46 $ 48.43 $ 46.18 $ 44.09 $ 42.81
Period-end tangible book value per share.......... 46.69 45.64 43.74 43.84 42.59
Dividend payout ratio............................. 31.3% 31.6% 34.5% 28.1% 31.6%
Range of BayBanks, Inc., last sale price
High............................................ $ 108.00 $ 98.25 $ 83.75 $ 79.50 $ 64.50
Low............................................. 88.75 75.88 74.75 60.50 52.00
Close........................................... 107.50 98.25 75.88 79.25 64.50
</TABLE>
24
<PAGE> 25
BAYBANKS, INC.
<TABLE>
AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN(1)
<CAPTION>
1996 1995
------- -------------------------------------------
FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits and other short-term
investments.................................. 5.40% 5.74% 5.78% 6.04% 5.84%
Securities available for sale(2)............... 5.90 5.89 6.24 6.64 6.80
Investment securities.......................... 9.38 5.94 5.81 5.72 5.51
Loans.......................................... 8.67 8.83 8.92 8.99 8.94
Commercial................................... 8.36 8.59 8.68 8.85 8.92
Commercial real estate....................... 8.92 9.26 9.26 9.31 8.98
Residential mortgage......................... 7.64 7.62 7.70 7.69 7.62
Instalment................................... 9.44 9.62 9.70 9.61 9.57
Total earning assets........................... 7.94% 7.99% 8.03% 8.01% 7.89%
Interest-bearing funds......................... 3.51% 3.66% 3.65% 3.60% 3.41%
NOW accounts................................. 1.21 1.32 1.37 1.36 1.37
Savings...................................... 2.26 2.33 2.30 2.29 2.25
Money market deposit accounts................ 3.44 3.47 3.44 3.37 3.22
Consumer time................................ 5.63 5.67 5.61 5.46 4.83
Time -- $100,000 or more..................... 5.29 5.58 5.65 5.84 5.78
Short-term borrowings........................ 5.35 5.68 5.77 5.99 5.84
Long-term debt............................... 5.93 6.01 6.22 6.35 6.50
Interest expense as a percentage of average
earning assets............................... 2.80% 2.92% 2.93% 2.88% 2.73%
Net interest margin............................ 5.14% 5.07% 5.10% 5.13% 5.16%
<FN>
- ---------------
(1) Tax equivalent basis.
(2) Yields based on average amortized 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 April 19, 1996, reporting that the
Company issued a press release on April 18, 1996 containing its
operating results for the first quarter of 1996.
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 13, 1996
26
<PAGE> 27
BAYBANKS, INC.
EXHIBIT LIST AND INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
MISCELLANEOUS
10.1 -- Certificate of Vote Modifying 1990 Stock Plan for Directors.
11.1 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 28.
27 -- Financial Data Schedule.
</TABLE>
27
<PAGE> 1
Exhibit 10.1
------------
C E R T I F I C A T E
---------------------
I, Ilene Beal, Clerk and Secretary of BayBanks, Inc., hereby certify
that at a meeting of the Board of Directors of said Corporation held at the
offices of BayBanks, Inc., 175 Federal Street, Boston, Massachusetts, on
Thursday, January 25, 1996, at which meeting a quorum was present and acting
throughout, the following vote was duly adopted by said Board of Directors:
VOTED: That no grant of stock under the 1990 Stock Plan for Directors
----- be made for the year 1996 and that the annual retainer payable
to non-employee directors of the Corporation for 1996 be paid in
cash.
I further certify that said vote has not been altered, amended, or
rescinded since the date thereof.
Witness my hand and the seal of said Corporation this third day of
May, 1996.
/s/ Ilene Beal
--------------------------
Ilene Beal
Clerk and Secretary
<PAGE> 1
EXHIBIT 11.1
BAYBANKS, INC.
<TABLE>
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE QUARTERS ENDED MARCH 31
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY:
Weighted average shares......................................... 19,685,821 18,998,610
Common stock equivalents
Stock options.............................................. 292,720 263,331
----------- -----------
Primary weighted average shares................................. 19,978,541 19,261,941
=========== ===========
Net income...................................................... $ 38,379 $ 30,475
=========== ===========
Primary earnings per share...................................... $ 1.92 $ 1.58
=========== ===========
FULLY DILUTED:
Weighted average shares......................................... 19,685,821 18,998,610
Common stock equivalents:
Stock options................................................. 305,195 293,110
----------- -----------
Fully diluted weighted average shares........................... 19,991,016 19,291,720
=========== ===========
Net income...................................................... $ 38,379 $ 30,475
=========== ===========
Fully diluted earnings per share................................ $ 1.92 $ 1.58
=========== ===========
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This statement contains summary financial information extracted from the
consolidated financial statements of BayBanks, Inc. for the three-month
period ended March 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 872,677
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 210,875
<TRADING-ASSETS> 36,340
<INVESTMENTS-HELD-FOR-SALE> 2,202,876
<INVESTMENTS-CARRYING> 52,612
<INVESTMENTS-MARKET> 52,612
<LOANS> 7,869,849
<ALLOWANCE> 151,680
<TOTAL-ASSETS> 11,593,179
<DEPOSITS> 10,101,396
<SHORT-TERM> 415,628
<LIABILITIES-OTHER> 85,532
<LONG-TERM> 14,871
<COMMON> 39,459
0
0
<OTHER-SE> 936,293
<TOTAL-LIABILITIES-AND-EQUITY> 11,593,179
<INTEREST-LOAN> 167,778
<INTEREST-INVEST> 34,094
<INTEREST-OTHER> 3,560
<INTEREST-TOTAL> 205,432
<INTEREST-DEPOSIT> 64,532
<INTEREST-EXPENSE> 73,535
<INTEREST-INCOME-NET> 131,897
<LOAN-LOSSES> 6,900
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 122,619
<INCOME-PRETAX> 61,553
<INCOME-PRE-EXTRAORDINARY> 38,379
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,379
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.14
<LOANS-NON> 61,529
<LOANS-PAST> 38,009
<LOANS-TROUBLED> 11,341
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 153,688
<CHARGE-OFFS> 14,326
<RECOVERIES> 5,418
<ALLOWANCE-CLOSE> 151,680
<ALLOWANCE-DOMESTIC> 8,466
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 143,214
</TABLE>
