<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): MAY 16, 1996
BANK OF BOSTON CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 1-6522 04-2471221
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 434-2200
================================================================================
<PAGE> 2
-2-
ITEM 5. OTHER EVENTS.
- ---------------------
As previously reported in its Current Report on Form 8-K dated December 12,
1995, Bank of Boston Corporation ("Bank of Boston") has entered into an
agreement to acquire BayBanks, Inc. ("BayBanks"). The stockholders of Bank of
Boston and BayBanks approved the transaction at their respective annual meetings
of the stockholders, both of which were held on April 25, 1996.
Bank of Boston's and BayBanks' Joint Proxy Statement - Prospectus dated March
18, 1996 (the "Proxy") included thereto and incorporated by reference therein,
certain pro forma combined financial information for Bank of Boston and
BayBanks, and certain historical consolidated financial information for Bank of
Boston and BayBanks. In order to update that information, attached hereto as
exhibits and incorporated by reference herein are (i) pro forma combined
financial information for Bank of Boston and BayBanks as of March 31, 1996; and
(ii) BayBanks historical consolidated financial information as of March 31,
1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
- ------------------------------------------
(c) Exhibits.
23 Consent of KPMG Peat Marwick LLP (with respect to report on consolidated
financial statements of BayBanks, Inc.).
99(a) Pro Forma Combined Balance Sheet for Bank of Boston and BayBanks at March
31, 1996 and Pro Forma Combined Statements of Income for the Three Months
Ended March 31, 1996 and the Years Ended December 31, 1995, 1994 and 1993
(and the Notes to Pro Forma Combined Financial Information).
99(b) BayBanks Consolidated Balance Sheets at March 31, 1996, December
31, 1995 and March 31, 1995; Consolidated Statements of Income for the
Three Months Ended March 31, 1996 and 1995; Consolidated Statements of
Changes in Stockholders' Equity for the Three Months Ended March 31, 1996
and 1995; and Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 (and the Notes to Consolidated Financial
Statements).
<PAGE> 3
-3-
SIGNATURES
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 hereunto duly authorized.
BANK OF BOSTON CORPORATION
Dated: May 16, 1996 /s/ Robert T. Jefferson
-----------------------
Robert T. Jefferson
Comptroller
<PAGE> 1
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
To the Board of Directors
BayBanks, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-29515 and 33-52571) on Forms S-3 and in the registration statements
(Nos. 333-00297, 33-1899, 33-11186, 33-64462, 33-65850 and 33-66012) on Forms
S-8 of Bank of Boston Corporation of our report dated January 18, 1996, with
respect to the consolidated balance sheets of BayBanks, Inc. and subsidiaries
as of December 31, 1995 and 1994 and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1995, which report has been
incorporated by reference in the Bank of Boston Corporation and BayBanks, Inc.
Joint Proxy Statement-Prospectus dated March 18, 1996.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 15, 1996
<PAGE> 1
EXHIBIT 99(a)
-------------
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information combines the
historical Consolidated Financial Statements of Bank of Boston and BayBanks
giving effect to the proposed merger, as if it had been effective on March 31,
1996, with respect to the Pro Forma Combined Balance Sheet, and as of the
beginning of the periods indicated herein, with respect to the Pro Forma
Combined Statements of Income. The proposed merger is expected to be accounted
for as a pooling of interests. This information should be read in conjunction
with the historical consolidated financial statements of Bank of Boston and
BayBanks, including their respective notes thereto. The effect of estimated
restructuring costs has been reflected in the pro forma combined balance sheet;
however, since the estimated costs are nonrecurring, they have not been
reflected in the pro forma combined statements of income. This pro forma
combined financial information does not give effect to any anticipated cost
savings in connection with the merger. The pro forma combined balance sheet is
not necessarily indicative of the actual financial position that would have
existed had the merger been consummated on March 31, 1996 or that may exist in
the future. The pro forma combined statements of income are not necessarily
indicative of the results that would have occurred had the merger been
consummated on the dates indicated or that may be achieved in the future.
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF MARCH 31, 1996
<CAPTION>
BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------ ----------- -------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,208 $ 873 $ 3,081
Interest bearing deposits in other banks 1,425 53 1,478
Federal funds sold and securities purchased
under agreements to resell 1,426 158 1,584
Securities held to maturity 647 13 660
Securities available for sale 5,064 2,203 7,267
Trading account securities 1,302 36 1,338
Loans held for sale 96 56 152
Loans and leases 31,402 7,853 39,255
Reserve for credit losses (732) (152) (884)
Premises and equipment 620 213 833
Due from customers on acceptances 377 2 379
Other assets 2,622 285 2,907
------- ------- -------
Total assets $46,457 $11,593 $58,050
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $31,235 $10,101 $41,336
Funds borrowed 7,201 416 7,617
Acceptances outstanding 378 2 380
Other liabilities 1,433 83 $ 83 (2) 1,599
Notes payable 2,499 15 2,514
------- ------- ---- -------
Total liabilities 42,746 10,617 83 53,446
------- ------- ---- -------
Stockholders' equity:
Preferred stock 508 508
Common stock 253 40 58 (3) 351
Surplus 926 364 (58)(3) 1,232
Retained earnings 2,077 563 (83)(2) 2,557
Net unrealized gain on
securities available for sale 41 9 50
Treasury stock, at cost (89) (89)
Cumulative translation adjustments (5) (5)
------- ------- ---- -------
Total stockholders' equity 3,711 976 (83) 4,604
------- ------- ---- -------
Total liabilities and stockholders' equity $46,457 $11,593 $58,050
======= ======= ==== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 2
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED -----------------------------
MARCH. 31, 1996 1995 1994 1993
--------------- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 979 $ 3,877 $ 3,117 $ 2,588
Securities 177 683 492 358
Loans held for sale 16 31 43 85
Federal funds sold and securities purchased under agreements to resell 43 303 605 147
Deposits in other banks 26 224 119 152
-------- -------- -------- --------
Total interest income 1,241 5,118 4,376 3,330
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 421 1,791 1,301 1,177
Funds borrowed 210 920 906 268
Notes payable 44 159 132 116
-------- -------- -------- --------
Total interest expense 675 2,870 2,339 1,561
-------- -------- -------- --------
Net interest revenue 566 2,248 2,037 1,769
Provision for credit losses 57 275 154 107
-------- -------- -------- --------
Net interest revenue after provision
for credit losses 509 1,973 1,883 1,662
-------- -------- -------- --------
NONINTEREST INCOME:
Financial service fees 57 717 580 529
Trust and agency fees 55 231 215 193
Trading profits and commissions 13 25 18 26
Net securities gains 13 9 14 32
Other income 147 328 208 165
-------- -------- -------- --------
Total noninterest income 285 1,310 1,035 945
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 293 1,145 1,043 984
Occupancy and equipment expense 88 332 317 312
Other real estate owned expense 2 11 38 82
Acquisition and restructuring expense 28 21 85
Other expense 145 560 526 539
-------- -------- -------- --------
Total noninterest expense 528 2,076 1,945 2,002
-------- -------- -------- --------
Income before income taxes, extraordinary
item and cumulative effect of
accounting change 266 1,207 973 605
Provision for income taxes 111 529 423 262
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 155 $ 678 $ 550 $ 343
======== ======== ======== ========
PER COMMON SHARE:
Income before extraordinary item and cumulative effect of accounting change:
Primary $ .94 $ 4.17 $ 3.44 $ 2.09
Fully diluted .93 4.09 3.37 2.05
Average number of common shares (in thousands):
Primary 154,988 153,856 148,913 147,033
Fully diluted 156,844 156,768 153,616 152,067
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 3
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1996
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------ ----------- -------------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 810 $ 169 $ 979
Securities 144 33 177
Loans held for sale 16 16
Federal funds sold and securities
purchased under agreements to resell 41 2 43
Deposits in other banks 24 2 26
-------- ------- --------
Total interest income 1,035 206 1,241
-------- ------- --------
INTEREST EXPENSE:
Deposits 356 65 421
Funds borrowed 202 8 210
Notes payable 43 1 44
-------- ------- --------
Total interest expense 601 74 675
-------- ------- --------
Net interest revenue 434 132 566
Provision for credit losses 50 7 57
-------- ------- --------
Net interest revenue after provision
for credit losses 384 125 509
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 7 50 57
Trust and agency fees 51 4 55
Trading profits and commissions 12 1 13
Net securities gains 13 13
Other income 143 4 147
-------- ------- --------
Total noninterest income 226 59 285
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 229 64 293
Occupancy and equipment expense 63 25 88
Other real estate owned expense 2 2
Other expense 111 34 145
-------- ------- --------
Total noninterest expense 405 123 528
-------- ------- --------
Income before income taxes 205 61 266
Provision for income taxes 88 23 111
-------- ------- --------
NET INCOME $ 117 $ 38 $ 155
======== ======= ========
PER COMMON SHARE:
Net income:
Primary $ .97 $ 1.92 $ .94
Fully diluted .95 1.92 .93
Average number of common shares (in thousands):
Primary 111,034 19,979 154,988
Fully diluted 112,864 19,991 156,844
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 4
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------ ----------- -------------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 3,240 $ 637 $ 3,877
Securities 539 144 683
Loans held for sale 30 1 31
Federal funds sold and securities
purchased under agreements to resell 293 10 303
Deposits in other banks 217 7 224
-------- ------- --------
Total interest income 4,319 799 5,118
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,557 234 1,791
Funds borrowed 866 54 920
Notes payable 155 4 159
-------- ------- --------
Total interest expense 2,578 292 2,870
-------- ------- --------
Net interest revenue 1,741 507 2,248
Provision for credit losses 250 25 275
-------- ------- --------
Net interest revenue after provision
for credit losses 1,491 482 1,973
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 523 194 717
Trust and agency fees 217 14 231
Trading profits and commissions 22 3 25
Net securities gains 9 9
Other income 320 8 328
-------- ------- --------
Total noninterest income 1,091 219 1,310
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 897 248 1,145
Occupancy and equipment expense 240 92 332
Other real estate owned expense 9 2 11
Acquisition and restructuring expense 28 28
Other expense 423 137 560
-------- ------- --------
Total noninterest expense 1,597 479 2,076
-------- ------- --------
Income before income taxes 985 222 1,207
Provision for income taxes 444 85 529
-------- ------- --------
NET INCOME $ 541 $ 137 $ 678
======== ======= ========
PER COMMON SHARE:
Net income:
Primary $ 4.55 $ 7.01 $ 4.17
Fully diluted 4.43 6.99 4.09
Average number of common shares (in thousands):
Primary 110,716 19,609 153,856
Fully diluted 113,560 19,640 156,768
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 5
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------ ----------- -------------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 2,606 $ 511 $ 3,117
Securities 355 137 492
Loans held for sale 41 2 43
Federal funds sold and securities
purchased under agreements to resell 600 5 605
Deposits in other banks 116 3 119
-------- ------- --------
Total interest income 3,718 658 4,376
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,148 153 1,301
Funds borrowed 868 38 906
Notes payable 130 2 132
-------- ------- --------
Total interest expense 2,146 193 2,339
-------- ------- --------
Net interest revenue 1,572 465 2,037
Provision for credit losses 130 24 154
-------- ------- --------
Net interest revenue after provision for credit losses 1,442 441 1,883
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 396 184 580
Trust and agency fees 201 14 215
Trading profits and commissions 16 2 18
Net securities gains 14 14
Other income 201 7 208
-------- ------- --------
Total noninterest income 828 207 1,035
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 813 230 1,043
Occupancy and equipment expense 231 86 317
Other real estate owned expense 22 16 38
Acquisition and restructuring expense 21 21
Other expense 392 134 526
-------- ------- --------
Total noninterest expense 1,479 466 1,945
-------- ------- --------
Income before income taxes, extraordinary item and
cumulative effect of accounting change 791 182 973
Provision for income taxes 349 74 423
-------- ------- --------
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 442 $ 108 $ 550
======== ======= ========
PER COMMON SHARE:
Income before extraordinary item and cumulative effect of accounting
change:
Primary $ 3.79 $ 5.65 $ 3.44
Fully diluted 3.67 5.65 3.37
Average number of common shares (in thousands):
Primary 106,730 19,174 148,913
Fully diluted 111,427 19,177 153,616
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 6
<TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------ ----------- -------------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 2,112 $ 476 $ 2,588
Securities 271 87 358
Loans held for sale 76 9 85
Federal funds sold and securities
purchased under agreements to resell 139 8 147
Deposits in other banks 141 11 152
-------- ------- --------
Total interest income 2,739 591 3,330
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,016 161 1,177
Funds borrowed 264 4 268
Notes payable 114 2 116
-------- ------- --------
Total interest expense 1,394 167 1,561
-------- ------- --------
Net interest revenue 1,345 424 1,769
Provision for credit losses 70 37 107
-------- ------- --------
Net interest revenue after provision for credit losses 1,275 387 1,662
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 350 179 529
Trust and agency fees 178 15 193
Trading profits and commissions 24 2 26
Net securities gains 32 32
Other income 162 3 165
-------- ------- --------
Total noninterest income 746 199 945
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 771 213 984
Occupancy and equipment expense 224 88 312
Other real estate owned expense 44 38 82
Acquisition and restructuring expense 85 85
Other expense 407 132 539
-------- ------- --------
Total noninterest expense 1,531 471 2,002
-------- ------- --------
Income before income taxes and
cumulative effect of accounting change 490 115 605
Provision for income taxes 215 47 262
-------- ------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 275 $ 68 $ 343
======== ======= ========
PER COMMON SHARE:
Income before cumulative effect of accounting change:
Primary $ 2.28 $ 3.57 $ 2.09
Fully diluted 2.22 3.56 2.05
Average number of common shares (in thousands):
Primary 105,336 18,953 147,033
Fully diluted 110,258 19,004 152,067
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Certain historical data of BayBanks have been reclassified on a pro forma
basis to conform to Bank of Boston's classifications. Transactions between Bank
of Boston and BayBanks are not material in relation to the pro forma combined
financial statements, and have not been eliminated from the pro forma combined
amounts.
(2) Reflects preliminary estimated restructuring costs of $140 million ($83
million net of taxes) expected to be incurred in connection with the proposed
merger. Such costs include estimated investment banking and other professional
fees, stock issuance costs and other expenses and other costs associated with
the merger and estimated facilities and operations consolidation and severance
costs associated with expected reorganizations following the merger.
(3) Pursuant to the merger agreement, each outstanding share (19,727,836 shares
at March 31, 1996) of BayBanks Common Stock will be converted into 2.2 shares of
Bank of Boston Common Stock, subject to adjustment in certain circumstances.
<PAGE> 1
EXHIBIT 99(b)
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>
<PAGE> 2
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>
<PAGE> 3
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>
<PAGE> 4
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>
<PAGE> 5
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>
<PAGE> 6
<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.
<PAGE> 7
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.
