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): August 2, 1994
SHAWMUT NATIONAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 1-10102 06-1212629
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
Incorporation)
777 Main Street, Hartford, Connecticut 06115
One Federal Street, Boston, Massachusetts 02211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 986-2000
(617) 292-2000
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 4 pages
Exhibit Index located on Page 4
<PAGE>
ITEM 5. OTHER EVENTS.
During the second quarter of 1994, Shawmut
National Corporation (the "Corporation") completed
its acquisitions of Peoples Bancorp of Worcester,
Inc. ("Peoples"), New Dartmouth Bank ("New
Dartmouth") and Gateway Financial Corporation
("Gateway"). Each of these transactions was
accounted for as a pooling of interests.
Accordingly, the Corporation's financial
statements and notes thereto as of December 31,
1993 and December 31, 1992 and for the three years
ended December 31, 1993 have been restated as
though the Corporation, Peoples, New Dartmouth and
Gateway had been combined as of the beginning of
the earliest period presented. Such restated
financial statements are contained in Exhibit
99.1, which exhibit is attached hereto and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
The following exhibits are filed with this Current
Report on Form 8-K:
EXHIBIT
NUMBER DESCRIPTION
23.1 Consent of Independent Accountants
99.1 Restated Financial Statements and Notes thereto of
Shawmut National Corporation as of December
31, 1993 and December 31, 1992 and for the
three years ended December 31, 1993.
<PAGE> 2
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.
SHAWMUT NATIONAL CORPORATION
By: (Joel B. Alvord)
___________________
Joel B. Alvord
Chairman and Chief
Executive Officer
Dated: August 2, 1994
3
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
23.1 Consent of Independent Accountants 5
99.1 Restated Financial Statements and Notes 6
thereto of Shawmut National Corporation
as of December 31, 1993 and December 31, 1992
and for the three years ended December 31, 1993.
<PAGE> 4
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Propectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-17765-02
and 33-20387) and Form S-3 (Nos. 33-50710, 33-50708 and 33-51311) of Shawmut
National Corporation of our report dated January 19, 1994, except as to Note
2 as to which the date is July 28, 1994, relating to the combined consolidated
financial statements of Shawmut National Corporation, which appears in the
Current Report on Form 8-K of Shawmut National Corporation dated August 1,
1994.
(Price Waterhouse LLP)
Hartford, Connecticut
August 1, 1994
<PAGE> 5
Exhibit 99.1
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Shawmut National Corporation
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Shawmut National Corporation as of
December 31, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993, appearing on pages F-4 to F-39 of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 (which statements are
not presented herein); and, in our report dated January 19, 1993, we expressed
an unqualified opinion on those consolidated financial statements.
As described in Note 2, the Corporation merged with Peoples Bancorp of
Worcester, Inc. on May 23, 1994, New Dartmouth Bank on June 7, 1994 and Gateway
Financial Corporation on June 27, 1994 in transactions accounted for as
poolings of interests. The accompanying combined consolidated financial
statements give retroactive effect to the mergers of Shawmut National
Corporation with Peoples Bancorp of Worcester, Inc., New Dartmouth Bank and
Gateway Financial Corporation.
In our opinion, the accompanying combined consolidated balance sheet and the
related combined statements of income, of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Shawmut National Corporation and its subsidiaries at December 31,
1993 and 1992, the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for the opinion expressed above.
(PRICE WATERHOUSE)
Hartford, Connecticut
January 19, 1994,
except for Note 2, as to which the date is July 28, 1994
<PAGE>F-1 6
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, (in thousands, except per share data) 1993 1992 1991
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C>
Loans $ 1,242,683 $ 1,301,564 $ 1,468,113
Securities
At lower of aggregate cost or fair value 236,455 232,406 40,675
Held to maturity 303,217 272,007 456,208
Residential mortgages held for sale 29,636 27,312 19,243
Federal funds sold and securities purchased
under agreements to resell 12,590 19,550 35,729
Interest-bearing deposits in other banks 839 2,123 5,926
Trading account securities 1,562 1,564 2,176
Total 1,826,982 1,856,526 2,028,070
INTEREST EXPENSE
Interest on deposits
Savings, money market and NOW accounts 183,287 272,665 403,085
Domestic time 232,533 347,255 526,572
Foreign time 5,146 2,516 4,008
Total 420,966 622,436 933,665
Other borrowings 262,413 192,240 217,739
Notes and debentures 72,040 59,321 60,436
Total 755,419 873,997 1,211,840
NET INTEREST INCOME 1,071,563 982,529 816,230
Provision for loan losses 55,944 242,128 486,441
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,015,619 740,401 329,789
NONINTEREST INCOME
Customer service fees 187,022 187,459 183,316
Trust and agency fees 116,845 115,103 112,030
Securities gains, net 12,468 94,103 80,063
Other 97,471 126,140 169,731
Total 413,806 522,805 545,140
NONINTEREST EXPENSES
Compensation and benefits 500,254 474,725 455,250
Occupancy and equipment 163,792 179,507 169,251
Foreclosed properties provision and expense 105,173 177,813 120,247
Other 370,730 322,536 299,404
Total 1,139,949 1,154,581 1,044,152
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY CREDIT AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 289,476 108,625 (169,223)
Income taxes 6,628 40,898 4,076
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 282,848 67,727 (173,299)
Extraordinary credit 18,378
Cumulative effect of changes in methods of accounting 46,200
NET INCOME (LOSS) $ 329,048 $ 86,105 $ (173,299)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 313,579 $ 81,322 $ (175,561)
COMMON SHARE DATA
Income (loss) before extraordinary credit and
cumulative effect of accounting changes $ 2.35 $ 0.60 $ (2.04)
Net income (loss) 2.75 0.78 (2.04)
Weighted average shares outstanding 113,908 104,380 85,858
</TABLE>
The accompanying notes are an integral part of this combined
financial statement.
<PAGE>F-2 7
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, (in thousands) 1993 1992
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,539,690 $ 1,463,728
Interest-bearing deposits in other banks 13,252 115,258
Federal funds sold and securities purchased
under agreements to resell 71,500 688,000
Trading account securities 19,625 36,444
Residential mortgages held for sale 472,450 476,330
Securities
Available for sale, at fair value 3,189,616
At lower of aggregate cost or fair value
(fair value $3,691,086) 3,608,895
Held to maturity
(fair value $7,228,796 and $3,683,528) 7,152,326 3,673,264
Loans, less reserve for loan
losses of $669,156 and $908,394 16,928,532 16,442,743
Premises and equipment 332,960 363,180
Foreclosed properties 64,518 266,242
Customers' acceptance liability 13,747 27,553
Other assets 1,304,589 2,094,438
Total assets $ 31,102,805 $ 29,256,075
LIABILITIES
Deposits
Demand $ 4,755,036 $ 4,725,927
Savings, money market and NOW accounts 8,976,640 9,145,952
Domestic time 4,763,463 5,995,660
Foreign time 246,740 126,702
Total deposits 18,741,879 19,994,241
Other borrowings 9,282,951 5,432,523
Acceptances outstanding 13,747 27,553
Accrued taxes and other liabilities 202,916 1,260,382
Notes and debentures 758,941 809,833
Total liabilities 29,000,434 27,524,532
SHAREHOLDERS' EQUITY
Preferred stock, without par value
Authorized - 10,000,000 shares
Issued - 1,275,000 shares 178,750 178,750
Preferred stock, $.01 par value
Authorized - 193,000 and 370,000 shares
Issued - 170,073 and 347,073 shares 15,215 31,050
Common stock, $.01 par value
Authorized - 150,000,000 shares
Issued - 117,550,211 and 112,802,027 shares 1,176 1,128
Surplus 1,237,177 1,181,545
Retained earnings 658,607 409,322
Net unrealized gain (loss) on securities 13,789 (23,654)
Treasury stock, common stock at cost
(106,487 and 1,658,467 shares) (2,343) (46,598)
Total shareholders' equity 2,102,371 1,731,543
Total liabilities and shareholders' equity $ 31,102,805 $ 29,256,075
</TABLE>
The accompanying notes are an integral part of this combined
financial statement.
<PAGE>F-3 8
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year ended December 31, (in thousands) 1993 1992 1991
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY at beginning of year, as restated $ 1,731,543 $ 1,268,631 $ 1,354,546
PREFERRED STOCK
Issuance of preferred stock (575,000 and 347,073 shares) 143,750 31,050
Redemption of preferred stock (177,000 shares) (15,835)
COMMON STOCK , $.01 par value
Shares issued under Dividend Reinvestment
and Stock Purchase Plans (962,946 shares) 9
Shares issued under stock option and employee
benefit plans (551,730; 438,469 and 40,149 shares) 6 4 1
Issuance of common stock
(3,233,508; 18,569,760 and 6,429,599 shares) 33 186 64
SURPLUS
Additional proceeds from:
Shares issued under Dividend Reinvestment
and Stock Purchase Plans 22,334
Shares issued under stock option
and employee benefit plans 5,062 2,869 (867)
Issuance of common stock 28,236 211,638 40,290
Preferred stock issuance costs (5,731)
RETAINED EARNINGS
Net income (loss) 329,048 86,105 (173,299)
Cash dividends declared by SNC
Preferred stock (15,469) (4,783) (2,262)
Common stock (47,205)
Cash dividends declared by merged companies prior to mergers (4,411) (3,870) (3,350)
Restricted stock awards 31 (1,496) 928
Reissuance of common stock from treasury (11,106) (15,444) (2,465)
Redemption of preferred stock (1,603)
NET UNREALIZED GAIN (LOSS) ON SECURITIES
Unrealized appreciation on securities available for sale 13,789
Unrealized appreciation on securities at lower of
aggregate cost or fair value 23,654 16,045 20,720
TREASURY STOCK
Purchase of common stock (114,009 and 672 shares) (2,509) (10)
Reissuance of common stock under
Dividend Reinvestment and Stock Purchase Plans
(1,665,989; 1,202,954 and 124,455 shares) 46,764 33,649 3,275
SHAREHOLDERS' EQUITY at end of year $ 2,102,371 $ 1,731,543 $ 1,268,631
</TABLE>
The accompanying notes are an integral part of this combined
financial statement.
<PAGE>F-4 9
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, (in thousands) 1993 1992 1991
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 329,048 $ 86,105 $ (173,299)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Extraordinary credit (18,378)
Cumulative effect of changes in methods of accounting (46,200)
Provision for loan losses 55,944 242,128 486,441
Provision for foreclosed properties 76,598 140,417 81,982
Depreciation, amortization and other 129,952 71,916 61,838
Deferred income taxes (15,247) 35,366 18,097
Gains from the sale of securities held to maturity (76,617) (80,063)
Gains from the sale of loans, premises and equipment
and other assets (10,575) (44,194) (91,878)
Decrease in securities reported at the lower of
aggregate cost or fair value 39,880 1,501,695
Decrease (increase) in trading account securities 16,819 (17,942) 15,951
Decrease (increase) in residential mortgages held for sale 3,880 (198,353) (104,081)
Decrease (increase) in other assets and accrued taxes
and other liabilities (263,494) 68,064 53,510
CASH PROVIDED BY OPERATING ACTIVITIES 316,605 1,790,207 268,498
FINANCING ACTIVITIES
Decrease in total deposits (1,252,362) (249,361) (1,008,419)
Increase in other borrowings 3,850,428 1,132,497 1,993,507
Proceeds from issuance of subordinated notes 149,700 149,631
Principal payments on notes and debentures (200,802) (4,981) (9,162)
Proceeds from issuances of common and preferred stock 91,338 370,921 71,348
Purchases of common and preferred stock (19,947) (10)
Cash dividends paid (47,279) (5,779) (5,020)
CASH PROVIDED BY FINANCING ACTIVITIES 2,571,076 1,392,918 1,042,254
INVESTING ACTIVITIES
Decrease (increase) in short-term investments 718,506 (487,201) 285,783
Maturities of securities held to maturity 2,214,542 1,427,693 536,630
Proceeds from sales of securities held to maturity 1,560,902 1,908,615 3,972,907
Purchases of securities held to maturity (6,845,381) (6,057,170) (5,530,143)
Proceeds from sales of loans 560,178 926,597 260,358
Purchases of loans (427,611) (437,208) (420,180)
Loans originated less principal collected (645,216) (1,212,373) (1,005,507)
Purchases of premises and equipment and other assets (54,123) (58,472) (37,557)
Proceeds from the sale of premises and equipment
and other assets 106,484 197,714 153,533
CASH USED BY INVESTING ACTIVITIES (2,811,719) (3,791,805) (1,784,176)
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 75,962 (608,680) (473,424)
Cash and due from banks at beginning of year 1,463,728 2,072,408 2,545,832
CASH AND DUE FROM BANKS AT END OF YEAR $ 1,539,690 $ 1,463,728 $ 2,072,408
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 747,857 $ 907,382 $ 1,159,043
Income taxes paid $ 26,176 $ 41,224 $ 12,884
</TABLE>
Securities aggregating $708,172, previously reported at the lower of
aggregate cost or fair value or at amortized cost, were transferred
during 1993 to securities classified as held to maturity.
Securities aggregating $286,118 were also transferred during 1993 from the
held to maturity portfolio to securities available for sale. Securities
aggregating $4,910,631, previously classified as held to maturity, were
transferred during 1992 to securities reported at the lower of aggregate
cost or fair value. Loans totaling $37,214, $275,566 and $368,872 were
transferred to foreclosed properties during 1993, 1992 and 1991,
respectively.
The accompanying notes are an integral part of this combined
financial statement.
<PAGE>F-5 10
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Shawmut National Corporation and
its subsidiaries (the Corporation) are in conformity with generally
accepted accounting principles followed within the banking industry.
Certain amounts for prior years have been reclassified to conform to
current year presentation. As more fully discussed in "Note 2 -
Acquisitions", the Corporation consummated the acquisitions of three
banking organizations accounted for as poolings of interests. These
combined consolidated financial statements and notes thereto give effect
to the acquisitions and, therefore, the financial position, results of
operations and cash flows are presented as if the Corporation and
the acquired banking organizations had been combined for all periods
presented. The significant accounting policies followed by the Corporation
are summarized below.
PRINCIPLES OF CONSOLIDATION - The combined consolidated financial
statements include the accounts of Shawmut National Corporation and its
subsidiaries after elimination of material intercompany balances and
transactions.
TRADING ACCOUNT SECURITIES - Trading account securities include debt
securities that are purchased and held principally for the purpose of
selling them in the near term and are stated at fair value, as determined
by quoted market prices. Gains and losses realized on the sale of
trading account securities and adjustments to fair value are included in
trading account profits.
RESIDENTIAL MORTGAGES HELD FOR SALE - Residential mortgages held for
sale are primarily one to four family real estate mortgage loans which
are reported at the lower of cost or market, as determined by outstanding
commitments from investors or current investor yield requirements,
calculated on an aggregate basis. Forward mandatory, standby and put
option contracts are entered into to limit market risk on residential
mortgages held for sale. Gains and losses from sales of residential
mortgages held for sale are recognized upon settlement with investors and
recorded in noninterest income. These activities, together with
underwriting and servicing of residential mortgage loans, comprise the
Corporation's mortgage banking business.
SECURITIES - The Corporation adopted, as of December 31, 1993, Statement
of Financial Accounting Standards (FAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Debt securities that the
Corporation has the positive intent and ability to hold to maturity are
classified as held to maturity and reported at cost, adjusted for the
amortization of premiums and accretion of discounts. Debt and equity
securities which are not classified as held to maturity or as trading
securities are classified as available for sale and reported at fair
value, with unrealized gains and losses excluded from the results of
operations and reported as a separate component of shareholders' equity,
net of income taxes. See "Note 3 - Securities".
Prior to adoption of this new accounting standard, debt securities that
were to be held for indefinite periods of time, including securities that
management intended to use as part of its asset/liability strategy or
that may be sold in response to changes in interest rates, prepayment
risk or other factors, were reported at the lower of aggregate cost or
fair value. Changes in net unrealized losses were included in the
Corporation's results of operations. Equity securities were stated at
the lower of aggregate cost or fair value with net unrealized losses
reported as a reduction of retained earnings.
<PAGE>F-6 11
Fair values of securities are determined by prices obtained from
independent market sources. Realized gains and losses on securities sold
are computed on the identified cost basis on the trade date and are
included in the results of operations.
FOREIGN EXCHANGE TRADING - Foreign exchange trading positions, including
spot, forward and option contracts, are reported at market value. The
resulting realized and unrealized gains and losses from foreign exchange
trading are included in other noninterest income.
INTEREST RATE INSTRUMENTS - Interest rate instruments, such as futures
contracts and forward rate agreements, are used in conjunction with
foreign exchange trading activities. These instruments are carried at
market value with realized and unrealized gains and losses recognized
currently in other noninterest income.
Interest rate swap and cap agreements and futures contracts are used to
manage the Corporation's interest rate risk. The periodic net settlements
on interest rate swap and cap agreements are recorded as an adjustment to
interest expense. Deferred gains or losses on futures contracts are
amortized over the expected remaining life of the underlying asset or
liability.
The Corporation also utilizes combination options, which involve a group
of options consisting of at least one put and one call entered into as a
unit in relation to specific underlying securities classified as
available for sale, in order to limit the market risk of the securities.
The market value of the options are included with the valuation of
securities available for sale.
LOANS - Loans are stated at the principal amounts outstanding, net of
unearned income.
Interest on undiscounted loans is recognized primarily utilizing the
simple interest method based upon the principal amount outstanding.
Interest on discounted loans is recognized utilizing the effective yield
method.
The net amount of loan origination and commitment fees and direct costs
incurred to underwrite and issue a loan are deferred and amortized as an
adjustment of the related loan's yield over the contractual life of the
loan in a manner which approximates the interest method.
When a loan is past due 90 days or more or the ability of the borrower to
repay principal or interest is in doubt, the Corporation discontinues the
accrual of interest and reverses any unpaid accrued amounts. If there is
doubt as to subsequent collectibility, cash interest payments are applied
to reduce principal. A loan is not restored to accruing status until the
borrower has brought the loan current and demonstrated the ability to
make payments of principal and interest, and doubt as to the
collectibility of the loan is not present. The Corporation may continue
to accrue interest on loans past due 90 days or more which are well
secured and in the process of collection.
Restructured loans are loans with original terms which have been modified
as a result of a change in the borrower's financial condition. Interest
income on restructured loans is accrued at the modified rates.
<PAGE>F-7 12
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
A commitment to extend credit is a binding agreement to make a loan to a
customer in the future if certain conditions are met and is subject to
the same risk, credit review and approval process as a loan. Many
commitments expire without being used and, therefore, do not represent
future funding requirements.
Certain loans of acquired institutions are subject to protection under
agreements with federal banking regulatory agencies and are discussed
more fully in "Note 4 - Loans and Reserve for Loan Losses" and "Note 17 -
FDIC Assisted Transactions".
RESERVE FOR LOAN LOSSES - The reserve for loan losses is maintained at a
level determined by management to be adequate to provide for probable
losses inherent in the loan portfolio, including commitments to extend
credit. The reserve is maintained through the provision for loan losses,
which is a charge to operations. When a loan, or a portion of a loan, is
considered uncollectible, the loss is charged to the reserve. Recoveries
of previously charged off loans are credited to the reserve. The
potential for loss in the portfolio reflects the risks and uncertainties
inherent in the extension of credit.
The determination of the adequacy of the reserve is based upon
management's assessment of risk elements in the portfolio, factors
affecting loan quality and assumptions about the economic environment in
which the Corporation operates. The process includes identification and
analysis of loss potential in various portfolio segments utilizing a
credit risk grading process and specific reviews and evaluations of
significant individual problem credits. In addition, management reviews
overall portfolio quality through an analysis of current levels and
trends in charge-off, delinquency and nonaccruing loan data, and a review
of forecasted economic conditions and the overall banking environment.
These reviews are of necessity dependent upon estimates, appraisals and
judgments, which may change quickly because of changing economic
conditions, and the Corporation's perception as to how these factors may
affect the financial condition of debtors.
PREMISES AND EQUIPMENT - Premises, leasehold improvements and equipment
are stated at cost less accumulated depreciation and amortization
computed primarily on the straight-line method. Depreciation of
buildings and equipment is based on the estimated useful lives of the
assets. Amortization of leasehold improvements is based on the term of
the related lease or the estimated useful lives of the improvements,
whichever is shorter. Major renewals and betterments are capitalized and
recurring repairs and maintenance are charged to operations. Gains or
losses on dispositions of premises and equipment are included in income
as realized.
FORECLOSED PROPERTIES - Properties acquired through foreclosure or in
settlement of loans and in-substance foreclosures are classified as
foreclosed properties and are valued at the lower of the loan value or
estimated fair value of the property acquired less estimated selling
costs. An in-substance foreclosure occurs when a borrower has little or
no equity in the collateral, repayment can only be expected to come from
the operation or sale of the collateral and the borrower has effectively
abandoned the collateral or has doubtful ability to rebuild equity in the
collateral. At the time of foreclosure the excess, if any, of the loan
value over the estimated fair value of the property acquired less
estimated selling costs is charged to the reserve for loan losses.
Additional decreases in the carrying values of foreclosed properties or
changes in estimated selling costs, subsequent to the time of
foreclosure, are recognized through a provision charged to operations. A
valuation reserve is maintained for estimated selling costs and to record
the excess of the carrying values over the fair market values of
properties if changes in the carrying values are judged to be temporary.
<PAGE>F-8 13
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of foreclosed properties is determined based upon
appraised value, which primarily utilizes the selling price of properties
for similar purposes, or discounted cash flow analyses of the properties'
operations.
GOODWILL - The excess cost over the fair value of assets acquired from
acquisitions accounted for as purchases is included in other assets and
amortized on a straight-line basis over periods of up to 25 years.
PENSION AND OTHER EMPLOYEE BENEFIT PLANS - The Corporation maintains a
noncontributory defined benefit pension plan, which covers substantially
all full-time employees. Pension expense is based upon an actuarial
computation of current and future benefits for employees. The pension
plan is funded annually in an amount consistent with the funding
requirements of federal law and regulations.
The Corporation adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective January 1, 1993.
The Corporation sponsors postretirement health care and life insurance
benefit plans that provide health care and life insurance benefits for
retired employees that have met certain age and service requirements.
Postretirement health care and life insurance benefits expense is based
upon an actuarial computation of current and future benefits for
employees and retirees. See "Note 11 - Pension and Other Employee
Benefit Plans".
The Corporation also adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits", during the fourth quarter of 1993, retroactive
to January 1, 1993. The Corporation provides disability and workers'
compensation related benefits to former or inactive employees after
employment but before retirement and had also provided supplemental
severance benefits to certain former employees. Postemployment benefits
expense is determined based upon various criteria depending on the type
of benefit. See "Note 11 - Pension and Other Employee Benefit Plans".
INCOME TAXES - The Corporation adopted FAS No. 109, "Accounting for
Income Taxes", prospectively, effective January 1, 1993. Income tax
expense is based on estimated taxes payable or refundable on a tax return
basis for the current year and the changes in the amount of deferred tax
assets and liabilities during the year. Deferred tax assets and
liabilities are established for temporary differences between the
accounting basis and the tax basis of the Corporation's assets and
liabilities at enacted tax rates expected to be in effect when the
amounts related to such temporary differences are realized or settled.
Prior to January 1, 1993, the Corporation recognized income taxes based
on income reported in the financial statements. See "Note 13 - Income
Taxes".
PER COMMON SHARE CALCULATIONS - Income (loss) per common share is
calculated by dividing net income (loss) less preferred stock dividends
by the weighted average common shares outstanding for each period
presented.
CASH FLOWS STATEMENT - For the purpose of reporting cash flows, the
Corporation has defined cash equivalents as those amounts included in the
balance sheet caption "Cash and due from banks".
<PAGE>F-9 14
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
FAIR VALUE OF FINANCIAL INSTRUMENTS - FAS No. 107, "Disclosures about
Fair Value of Financial Instruments", requires the disclosure of the fair
value of financial instruments. A financial instrument is defined as
cash, evidence of an ownership interest in an entity, or a contract that
conveys or imposes the contractual right or obligation to either receive
or deliver cash or another financial instrument. Examples of financial
instruments included in the Corporation's balance sheet are cash, federal
funds sold or purchased, debt and equity securities, loans, demand,
savings and other interest-bearing deposits, notes and debentures and
foreign exchange contracts. Examples of financial instruments which are
not included in the Corporation's balance sheet are commitments to extend
credit, standby letters of credit, loans sold with recourse and interest
rate swap, cap and option agreements.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation, and is best evidenced by a quoted market
price if one exists.
The statement requires the fair value of deposit liabilities with no
stated maturity, such as demand deposits, NOW and money market accounts,
to equal the carrying value of these financial instruments and does not
allow for the recognition of the inherent value of core deposit
relationships, when determining fair value. While the statement does not
require disclosure of the fair value of nonfinancial instruments, such as
the Corporation's premises and equipment, its banking and trust
franchises and its core deposit relationships, the Corporation believes
these nonfinancial instruments have significant fair value.
The Corporation has estimated fair value based on quoted market prices
where available. In cases where quoted market prices were not available,
fair values were based on the quoted market price of a financial
instrument with similar characteristics, the present value of expected
future cash flows or other valuation techniques. Each of these
alternative valuation techniques utilize assumptions which are highly
subjective and judgmental in nature. Subjective factors include, among
other things, estimates of cash flows, the timing of cash flows, risk and
credit quality characteristics and interest rates. Accordingly, the
results may not be precise and modifying the assumptions may
significantly affect the values derived. In addition, fair values
established utilizing alternative valuation techniques may or may not be
substantiated by comparison with independent markets. Further, fair
values may or may not be realized if a significant portion of the
financial instruments were sold in a bulk transaction or a forced
liquidation. Therefore, any aggregate unrealized gains or losses should
not be interpreted as a forecast of future earnings or cash flows.
Furthermore, the fair values disclosed should not be interpreted as the
aggregate current value of the Corporation. The fair value of financial
instruments is disclosed in the related notes to the consolidated
financial statements except for time deposits, which is disclosed below.
The methodology and assumptions utilized to estimate the fair value of
the Corporation's financial instruments, not previously discussed in the
policy statements above, are described below.
Financial instruments with fair value approximate to carrying value - The
carrying value of cash and due from banks, interest-bearing deposits in
other banks, federal funds sold and securities purchased under agreements
to resell, residential mortgages held for sale, demand deposits, savings,
NOW and money market deposits, foreign time deposits, other borrowings
and accrued interest income and expense approximates fair value due to
the short-term nature of these financial instruments.
<PAGE>F-10 15
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Loans - The fair value of loans was estimated for groups of similar loans
based on the type of loan, interest rate characteristics, credit risk and
maturity. The fair value of performing fixed-rate commercial and
commercial real estate loans was estimated by discounting expected future
cash flows utilizing risk-free rates of return, adjusted for credit risk
and servicing costs. The carrying value of performing variable-rate
commercial and commercial real estate loans was estimated to approximate
fair value due to the short-term and frequent repricing characteristics
of these loans. Prepayments were not anticipated for either fixed-rate
or variable-rate commercial and commercial real estate loans. The fair
value of performing residential mortgage, home equity and installment
loans was estimated utilizing quoted market values for securities backed
by similar loans. The fair value of nonaccruing loans was estimated by
discounting expected future cash flows utilizing risk-free rates of
returns, adjusted for credit risk and servicing costs commensurate with a
portfolio of nonaccruing loans. Where appropriate, the fair values
reflect any FDIC loss protection arrangements.
Deposits - The fair value of time deposits with fixed maturities was
estimated by discounting expected future cash flows utilizing interest
rates currently being offered on deposits with similar characteristics
and maturities. The fair value of these deposits was approximately $5.0
billion and $6.0 billion at December 31, 1993 and 1992, respectively.
Notes and debentures - The fair value of notes and debentures was
estimated based on quoted market prices.
Off-balance sheet financial instruments - The fair value of interest rate
swap agreements was based on the amount the Corporation would receive or
pay to terminate the agreements as of the reporting date based on the
terms of the agreements, the creditworthiness of the counterparties and
interest rates. The fair value of commitments to extend credit and
standby letters of credit was determined based on the discounted value of
fees currently charged for similar agreements. The fair value of other
off-balance sheet financial instruments, such as interest rate cap and
option agreements, was based on quoted market prices.
NOTE 2 - ACQUISITIONS
The Corporation completed its acquisitions of the following banking
organizations during the second quarter of 1994:
<TABLE>
<CAPTION> Common
Assets at shares Exchange
(in thousands, except exchange ratio) March 31, 1994 issued ratio
<S> <C> <C> <C>
Peoples Bancorp of Worcester, Inc. (Peoples)-(May 23, 1994) $ 870,673 8,320 2.444
New Dartmouth Bank (New Dartmouth)-(June 7, 1994) $ 1,724,458 6,430 15.157
Gateway Financial Corporation (Gateway)-(June 27, 1994) $ 1,259,563 7,421 0.559
</TABLE>
<PAGE>F-11 16
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
These acquisitions were accounted for as poolings of interests and as
such are reflected in the consolidated financial statements as though the
Corporation, Peoples, New Dartmouth and Gateway had been combined as of
the beginning of the earliest period presented.
Merger related charges of $100.9 million were recorded to reflect the
integration of these acquisitions during the second quarter of 1994. The
merger related charges include $18.9 million for severance and benefits
costs for workforce reductions; $39.4 million for the closure of
duplicative branches and facilities and cancellation of vendor contracts;
$11.1 million for financial advisory, legal and accounting expenses; and
$7.0 million for losses on the anticipated sales of foreclosed
properties. In addition, the sales of securities and anticipated
disposition of residential loans of the acquired entities to maintain an
interest rate risk profile consistent with that of the Corporation
resulted in losses of $12.5 million and $12.0 million, respectively.
The following table sets forth the results of operations of Peoples, New
Dartmouth, Gateway and the Corporation for the years ended December
31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
Net interest income:
<S> <C> <C> <C>
Peoples $ 37,232 $ 36,598 $ 33,327
New Dartmouth 62,743 69,128 15,673
Gateway 46,958 51,475 29,940
Corporation 924,630 825,328 737,290
Combined $ 1,071,563 $ 982,529 $ 816,230
Net income (loss):
Peoples $ 10,787 $ 11,034 $ 7,227
New Dartmouth 19,088 20,264 5,221
Gateway 8,421 (20,402) (15,103)
Corporation 290,752 75,209 (170,644)
Combined $ 329,048 $ 86,105 $ (173,299)
</TABLE>
<PAGE>F-12 17
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SECURITIES
<TABLE>
A summary of the amortized cost and fair value of securities classified
as available for sale at December 31, 1993 is as follows:
<CAPTION>
Amortized Unrealized Unrealized Fair
(in thousands) cost gains losses value
U.S. Government and agency securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,695,536 $ 1,694 $ 4,077 $ 1,693,153
Mortgage backed 730,321 27,689 1,757 756,253
State and municipal obligations 142 16 4 154
Equity securities 254,194 3,552 4,567 253,179
Corporate mortgage backed
and other securities 488,286 752 2,161 486,877
Total $ 3,168,479 $ 33,703 $ 12,566 $ 3,189,616
</TABLE>
The net unrealized gain on securities classified as available for sale at
December 31, 1993 of $13.8 million, which is net of income taxes of $7.3
million, is reported as a separate component of shareholder equity.
U.S. Treasury securities with an aggregate carrying amount of $786.0
million, included in the table above, were subject to combination options
at December 31, 1993, which limited the risk of changes in the market
value of these securities. U.S. Treasury securities with a carrying
amount of $311.0 million were put to the counterparty on January 5, 1994
upon expiration of the option, resulting in no realized gain or loss.
The combination options on the remainder of the securities expired on
January 6, 1994, unexercised by either party.
A summary of the carrying amount and fair value of securities reported at
the lower of aggregate cost or fair value at December 31, 1992 is as
follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Fair
(in thousands) amount gains losses value
U.S. Government and agency securities
<S> <C> <C> <C> <C>
Mortgage backed $ 931,391 $ 9,464 $ 9,749 $ 931,106
U.S. Treasury 2,221,607 75,826 825 2,296,608
State and municipal obligations 4,088 0 403 3,685
Equity securities 192,891 0 0 192,891
Corporate mortgage backed and
other securities 258,918 8,353 475 266,796
Total $ 3,608,895 $ 93,643 $ 11,452 $ 3,691,086
</TABLE>
Unrealized depreciation on equity securities of $23.7 million at December
31, 1992 is reported as a reduction of shareholders' equity.
<PAGE>F-13 18
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
The amortized cost and fair value of securities classified as held to
maturity at December 31, 1993 and 1992 are summarized as follows:
<captiion>
Amortized Unrealized Unrealized Fair
(in thousands) cost gains losses value
December 31, 1993
U.S. Government and agency securities
<S> <C> <C> <C> <C>
Mortgage backed $ 3,332,189 $ 61,427 $ 1,392 $ 3,392,224
U.S. Treasury 1,713,534 3,072 7,067 1,709,539
State and municipal obligations 1,649 2 1,651
Asset backed and other securities 2,104,954 26,752 6,324 2,125,382
Total $ 7,152,326 $ 91,253 $ 14,783 $ 7,228,796
</TABLE>
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
(in thousands) cost gains losses value
December 31, 1992
U.S. Government and agency securities
<S> <C> <C> <C> <C>
Mortgage backed $ 2,122,161 $ 9,050 $ 446 $ 2,130,443
U.S. Treasury 287,708 1,827 163 289,494
Asset backed and other securities 1,263,395 9,247 9,251 1,263,591
Total $ 3,673,264 $ 20,124 $ 9,860 $ 3,683,528
</TABLE>
Securities with a carrying amount of $6.5 billion were pledged to secure
public deposits, borrowings and for other purposes required by law at
December 31, 1993.
Proceeds from sales of debt securities during 1993, 1992 and 1991 totaled
approximately $4.5 billion, $4.7 billion and $2.6 billion, respectively,
and resulted in gains of $19.3 million, $94.4 million and $89.3 million
and losses of $2.8 million, $1.2 million and $1.2 million.
The amortized cost and fair value of securities at December 31, 1993, by
maturity date, are summarized below. Mortgage backed securities are
included in the table based upon contractual maturity.
<TABLE>
<CAPTION>
Available for sale Held to maturity
Amortized Fair Amortized Fair
(in thousands) cost value cost value
<S> <C> <C> <C> <C>
Due in one year or less $ 150,799 $ 152,224 $ 86,962 $ 87,438
Due after one year through five years 897,703 898,400 2,358,615 2,360,205
Due after five years through ten years 735,727 732,458 3,518,538 3,588,776
Due after ten years 1,130,056 1,153,355 1,188,211 1,192,377
2,914,285 2,936,437 7,152,326 7,228,796
Equity securities 254,194 253,179
Total $ 3,168,479 $ 3,189,616 $ 7,152,326 $ 7,228,796
</TABLE>
<PAGE>F-14 19
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS AND RESERVE FOR LOAN LOSSES
The components of the Corporation's loan portfolio at December 31, 1993
and 1992, net of unearned income of $12.8 million and $27.1 million,
respectively, are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
Commercial and industrial $ 6,393,501 $ 5,967,813
Owner-occupied commercial real estate 1,492,820 1,724,312
Real estate investor/developer
Commercial mortgage 1,526,457 1,697,714
Construction and other 160,740 374,424
Total investor/developer 1,687,197 2,072,138
Consumer
Residential mortgage 5,325,904 5,288,302
Home equity 1,637,773 1,478,610
Installment and other 1,060,493 819,962
Total consumer 8,024,170 7,586,874
Total 17,597,688 17,351,137
Less reserve for loan losses 669,156 908,394
Total $ 16,928,532 $ 16,442,743
</TABLE>
The fair value of the Corporation's loan portfolio was approximately
$17.6 billion and $17.1 billion at December 31, 1993 and 1992,
respectively.
Loans outstanding to directors, executive officers, principal holders of
equity securities or to any of their associates totaled $22.7 million at
December 31, 1993 and $19.2 million at December 31, 1992. A total of
$48.4 million in loans were made or added, while a total of $44.9 million
were repaid or deducted during 1993. Changes in the composition of the
board of directors or the group comprising executive officers result in
additions to or deductions from loans outstanding to directors, executive
officers or principal holders of equity securities.
At December 31, 1993 and 1992 the Corporation had $227.4 million and
$331.9 million loans respectively subject to "put" protection provisions.
Loans subject to small loan protection provisions amounted to $454.0
million and $634.3 million at December 31, 1993 and 1992 respectively.
Small loan and put protection provisions are more fully discussed at
"Note 17 - FDIC Assisted Transactions".
<PAGE>F-15 20
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
The details of the Corporation's nonaccruing loans, restructured loans
and accruing loans past due 90 days or more at December 31, 1993 and 1992
are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
Commercial and industrial $ 85,008 $ 165,827
Owner-occupied commercial real estate 79,561 153,044
Real estate investor/developer
Commercial mortgage 97,346 222,194
Construction and other 25,054 69,390
Total investor/developer 122,400 291,584
Consumer
Residential mortgage 71,722 121,901
Home equity 8,673 11,552
Installment and other 5,536 13,904
Total consumer 85,931 147,357
Total nonaccruing loans $ 372,900 $ 757,812
Restructured loans $ 73,345 $ 172,129
Accruing loans past due 90 days or more $ 42,616 $ 45,251
</TABLE>
At December 31, 1993 and 1992 the Corporation had $6.5 million and $12.4
million, respectively, of nonaccruing loans subject to "put" protection
provisions. Nonaccruing loans subject to small loan protection provisions
were to $15.9 million and $34.0 million at December 31, 1993 and 1992,
respectively.
Interest income related to nonaccruing and restructured loans would have
been approximately $48.0 million in 1993 and $78.3 million in 1992 had
these loans been current and the terms of the loans had not been
modified. Interest income recorded on these loans totaled approximately
$11.0 million in 1993 and $26.9 million in 1992. Interest income
received on these loans and applied as a reduction of principal totaled
approximately $15.1 million and $31.4 million in 1993 and 1992,
respectively. The yield on the portfolio of restructured loans was 7.07
percent in 1993 and 7.85 percent in 1992.
Changes affecting the reserve for loan losses for the years ended
December 31, 1993, 1992 and 1991, respectively, are summarized below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year $ 908,394 $ 1,043,689 $ 970,906
Transfer of reserve from FDIC 17,507
Provision charged to operations 55,944 242,128 486,441
Loans charged off (349,631) (423,051) (473,534)
Recoveries on loans charged off 54,449 45,628 42,369
Balance at end of year $ 669,156 $ 908,394 $ 1,043,689
</TABLE>
<PAGE>F-16 21
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The Financial Accounting Standards Board issued FAS No. 114, "Accounting
By Creditors for Impaired Loans", in May 1993. The new accounting
standard will require that impaired loans, which are defined as loans
where it is probable that a creditor will not be able to collect both the
contractual interest and principal payments, be measured at the present
value of expected future cash flows discounted at the loan's effective
rate when assessing the need for a loss accrual. The new accounting
standard is effective for the Corporation's financial statements
beginning January 1, 1995. The effect on the Corporation of adopting
this new accounting standard is currently being evaluated.
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31, 1993 and 1992
are summarized below:
<TABLE>
<CAPTION>
Estimated
(in thousands) useful life 1993 1992
<S> <C> <C> <C>
Land $ 30,563 $ 32,112
Buildings 10 to 40 years 191,558 195,462
Leasehold improvements 5 to 10 years 144,233 152,088
Equipment 4 to 15 years 400,263 412,926
Total 766,617 792,588
Less accumulated depreciation and amortization 433,657 429,408
Total $ 332,960 $ 363,180
</TABLE>
Depreciation and amortization expense of $52.3 million in 1993, $54.7
million in 1992 and $51.0 million in 1991 is included in occupancy
expense or equipment expense, depending upon the nature of the asset.
The Corporation occupies certain other premises and rents equipment,
primarily data processing equipment, under leases that are accounted for
as operating leases. These leases have expiration dates through 2023.
Operating lease rentals aggregated $54.2 million in 1993, $59.9 million
in 1992 and $58.5 million in 1991. Such amounts are recorded net of
sublease income totaling $1.5 million in 1993 and $1.2 million in 1992
and 1991.
The minimum rental commitments of the Corporation at December 31, 1993
under the terms of operating leases in excess of one year were as
follows: $40.2 million in 1994; $35.6 million in 1995; $29.1 million in
1996; $23.1 million in 1997; $16.3 million in 1998; and $43.3 million
after 1998.
NOTE 6 - FORECLOSED PROPERTIES
Foreclosed properties of $64.5 million and $266.2 million are stated net
of reserves of $15.2 million and $39.5 million at December 31, 1993 and
1992, respectively. Provisions charged to operations for changes in the
carrying value of foreclosed properties amounted to $76.6 million, $140.4
million and $82.0 million in 1993, 1992 and 1991, respectively.
<PAGE>F-17 22
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTE 7 - OTHER ASSETS AND ACCRUED TAXES AND OTHER LIABILITIES
The components of other assets at December 31, 1993 and 1992 are
presented below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
Receivable for securities sold $ 219,111 $ 1,033,346
Net deferred income taxes 200,871 134,795
Accrued interest income 171,084 163,872
Prepaid pension expense 128,302 126,111
Goodwill 109,671 116,573
Other 475,550 519,741
Total $ 1,304,589 $ 2,094,438
</TABLE>
Net deferred income taxes of $134.8 million at December 31, 1992
represent amounts computed under the prior accounting standard for income
taxes. Effective January 1, 1993, net deferred income taxes computed
under the new accounting standard were $188.8 million. See "Note 13 -
Income Taxes".
The components of accrued taxes and other liabilities at December 31,
1993 and 1992 are presented below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
Payable for securities purchased $ 83 $ 1,102,027
Accrued interest expense 70,887 64,169
Accrued dividends payable 24,090 4,284
Accrued restructuring expenses 6,854
Accrued postemployment benefits expense 8,400
Accrued postretirement health care and life insurance benefits expense 8,057 1,675
Other 84,545 88,227
Total $ 202,916 $ 1,260,382
</TABLE>
<PAGE>F-18 23
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - OTHER BORROWINGS
Other borrowings of the Corporation at December 31, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
Federal funds purchased $ 1,709,315 $ 260,779
Securities sold under agreements to repurchase 5,784,932 4,363,980
Treasury tax and loan funds 599,962 271,458
Private placement notes 174,996 150,256
Federal Home Loan Bank of Boston borrowings 1,013,746 386,050
Total $ 9,282,951 $ 5,432,523
</TABLE>
The scheduled maturities of Federal Home Loan Bank of Boston borrowings
are as follows: $802.0 million due in 1994 with interest rates at 3.20
to 3.97 percent; and $211.7 million due in 1995 and thereafter with
interest rates at 4.12 to 9.01 percent.
Securities sold under agreements to repurchase, representing primarily
U.S. Government agency securities, at December 31, 1993 are detailed
below by due date:
<TABLE>
<CAPTION>
Less than 30-90
(in thousands) Overnight 30 days days Total
Securities sold
<S> <C> <C> <C> <C>
Amortized cost $ 1,052,821 $ 4,725,415 $ 45,117 $ 5,823,353
Fair value 1,057,845 4,776,400 45,348 5,879,593
Repurchase borrowings 1,019,591 4,720,207 45,134 5,784,932
Average borrowing interest rate 2.41 % 3.10 % 3.12 % 2.98 %
</TABLE>
<PAGE>F-19
24
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
NOTE 9 - NOTES AND DEBENTURES
The Corporation's notes and debentures at December 31, 1993 and 1992 are
summarized below:
<CAPTION>
(in thousands) 1993 1992
<S> <C> <C>
8 7/8% notes due 1996, net of discount $ 149,769 $ 149,680
8 1/8% notes due 1997, net of discount 99,880 99,848
Floating rate subordinated notes due 1997 50,000 50,000
9.85% subordinated capital notes due 1999, net of discount 149,915 149,900
8 5/8% subordinated notes due 1999, net of discount 149,684 149,631
7.20% subordinated notes due 2003, net of discount 149,720
8 1/4% notes due 1993 114,680
11 3/4% notes due 1995 50,000
8 5/8% sinking fund debentures due 1999 17,961
Other 9,973 28,133
Total $ 758,941 $ 809,833
</TABLE>
The fair value of the Corporation's notes and debentures was
approximately $827.4 million and $828.4 million at December 31, 1993 and
1992, respectively.
Both the 8 7/8% and 8 1/8% notes are unsecured obligations with interest
payable semiannually. The floating rate subordinated notes bear interest
at a rate of 3/8 percent above LIBOR (London Inter Bank Offered Rate).
Both the 8 5/8% and 7.20% subordinated notes may not be redeemed prior to
maturity. Interest is payable semiannually. The 7.20% subordinated
notes were issued during April 1993.
The agreement for the 9.85% subordinated capital notes provides that, on
the maturity date of June 1, 1999, the notes, at the Corporation's
option, will either be exchanged for common stock, preferred stock or
certain other primary capital securities of the Corporation having a
market value equal to the principal amount of the notes, or will be
repaid from the proceeds of other issuances of such securities. The
Corporation may, however, at its option, revoke its obligation to redeem
the notes with capital securities based upon the capital treatment of the
notes by its primary regulator or consent by its primary regulator for
such revocation. The holders of the capital notes are subordinate in
rights to depositors and other creditors.
The Corporation redeemed the outstanding balances of the following notes
with balances aggregating $85.2 million during 1993: 11 3/4% notes due
1995; 8 5/8% sinking fund debentures due 1999; 8 1/2% sinking fund
debentures due 1996 and 8 1/8% promissory notes due 1998 included in
other notes above. The redemption of these notes did not have a material
effect on the Corporation's results of operations or financial condition.
During 1993, the 8 1/4% notes matured and were fully paid.
Certain of the Corporation's note and debenture agreements include
provisions that limit the ability of the Corporation to sell the capital
stock of its subsidiary banks or dispose of significant portions of
assets of these subsidiaries.
<PAGE>F-20 25
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The Corporation has agreed to guarantee payment of certain notes and
debentures of Hartford National Corporation totaling $149.9 million and
of Shawmut Corporation totaling $249.6 million at December 31, 1993. See
"Note 19 - Summarized Financial Information of Certain Note and Debenture
Issuers".
The scheduled maturities of the Corporation's notes and debentures for
each of the next five years are as follows: $.4 million in 1994; $.4
million in 1995; $150.2 million in 1996; $150.4 million in 1997; $.5
million in 1998; and $457.0 million after 1998.
NOTE 10 - SHAREHOLDERS' EQUITY
The payment of dividends is determined by the Board of Directors in light
of the earnings, capital levels, cash requirements and the financial
condition of the Corporation and its subsidiaries, applicable government
regulations and policies and other factors deemed relevant by the Board
of Directors, including the amount of dividends payable to the
Corporation by its subsidiary banks. Various federal laws, regulations
and policies limit the ability of the Corporation's subsidiary banks to
pay dividends. See "Note 16 - Regulatory Matters".
Shawmut National Corporation's Board of Directors is authorized to issue
up to 10,000,000 shares of preferred stock without par value in series
and to determine the designation, dividend rates, redemption provisions,
liquidation preferences, sinking fund provisions and all other rights of
each series. Shawmut National Corporation had outstanding at December
31, 1993 a series of 575,000 shares of 9.30% Cumulative Preferred Stock
with a stated value of $250 per share represented by Depositary Shares
and a series of 700,000 shares of Preferred Stock with Cumulative and
Adjustable Dividends with a stated value of $50 per share. Both series
of preferred stock rank senior to the Corporation's common stock as to
dividends and liquidation preference. As discussed below, the
Corporation's New Hampshire banking subsidiary issued preferred stock in
connection with the acquisition of certain assets and assumption of
certain liabilities from the FDIC (see Note 17 - "FDIC Assisted
Transactions").
The Depositary Shares represent a one-tenth interest in a share of 9.30%
Cumulative Preferred Stock and are not subject to any mandatory
redemption or sinking fund provisions. The 9.30% Cumulative Preferred
Stock will be redeemable on at least 30 but not more than 60 days notice,
at the option of the Corporation, as a whole or in part, at any time on
and after October 15, 1997 at a redemption price equal to $250 per share
plus dividends accrued and accumulated but unpaid to the redemption date.
The dividend rate on the Preferred Stock with Cumulative and Adjustable
Dividends is established quarterly and is based on a rate that is 2.25
percent below the highest interest rate of selected short- and long-term
U. S. Treasury securities prevailing at the time the rate is set. The
dividend rate for any dividend period will in no event be less than 6.00
percent or greater than 12.00 percent per annum. This series of
preferred stock is redeemable, at the Corporation's option, at $50.00 per
share.
<PAGE>F-21 26
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
Dividends of $23.25 and $4.65 per share were declared on the 9.30%
Cumulative Preferred Stock during 1993 and 1992, respectively. Dividends
of $3.00, $3.01 and $3.23 per share were declared during 1993, 1992 and
1991, respectively, on the Preferred Stock with Cumulative and Adjustable
Dividends. Dividends declared per common share were $.50 during 1993.
There were no dividends declared on common shares during 1992 or 1991.
On October 10, 1991 New Dartmouth Bank (which was subsequently merged
with Shawmut Bank NH upon consummation of the acquisition discussed in
"Note 2 - Acquisitions") issued 347,073 shares of non-voting,
convertible, redeemable, preferred stock ("FDIC Preferred Stock") to the
FDIC at a price of $89.46 per share. The shares of FDIC Preferred Stock
were redeemable at New Dartmouth's option. During 1993, New Dartmouth
redeemed 177,000 shares of FDIC Preferred Stock at the stipulated
redemption prices. On May 27, 1994, New Dartmouth redeemed the remaining
shares of FDIC Preferred Stock from the FDIC at a redemption price of
$107.77 per share.
The Corporation's Board of Directors previously adopted a rights plan
which provides for the distribution of one right for each outstanding
share of common stock. Each right entitles common stockholders to buy
one-one hundredth of a newly issued share of Series A Junior
Participating Preferred Stock of the Corporation at an exercise price of
$100 per share, subject to adjustment. The rights, which will expire
March 10, 1999, can be redeemed by the Corporation under certain
circumstances at one cent per right. The rights become exercisable if
certain events relating to the acquisition or proposed acquisition of
common shares of the Corporation occur. When exercisable, under certain
circumstances, each right will enable its holder to purchase, at the
right's then current exercise price, common shares of the Corporation
(or, under certain circumstances, a combination of cash, property, common
shares or other securities) having a value of twice the right's exercise
price. In addition, if thereafter the Corporation is involved in a
merger or other business combination transaction with another person in
which its shares are changed or exchanged, or if the Corporation sells
more than 50 percent of its assets, cash flow, or earning power to
another person or persons, each right (with certain exceptions) that has
not previously been exercised will entitle its holder to purchase, at the
right's then current exercise price, common shares of such other person
having a value of twice the right's exercise price.
Common shares totaling 20,669,749 at December 31, 1993 were reserved for
issuance under the Dividend Reinvestment and Stock Purchase Plan and the
Corporation's Stock Option and Restricted Stock Award Plan.
In connection with the settlement of certain litigation, on January 18, 1994
the Corporation issued warrants for the purchase of up to 1,329,115
shares of common stock. The warrants have an exercise price of $22.11
per share, are listed on the New York Stock Exchange, are freely tradable
and are exercisable for a period of one year, commencing January 18,
1995. See "Note 15 - Litigation".
At the annual meeting of shareholders of the Corporation held on April 26,
1994, the Corporation's shareholders approved a proposal to increase the number
of authorized shares of common stock from 150 million shares to 300 million
shares.
<PAGE>F-22 27
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - PENSION AND OTHER EMPLOYEE BENEFIT PLANS
Pension and Thrift Plans - The Corporation has noncontributory, qualified
defined benefit pension plans covering substantially all full-time
employees meeting certain requirements as to age and length of service.
For those vested, the plans provide a monthly benefit upon retirement
based on compensation during the five consecutive highest paid years of
employment and years of credited service. It is the Corporation's policy
to fund annually an amount consistent with the funding requirements of
federal law and regulations and not to exceed an amount which would be
deductible for federal income tax purposes. Contributions are intended
to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. The assets of the plans
are primarily invested in listed stocks.
The Corporation also has supplemental retirement plans that cover certain
employees and pay benefits that supplement any benefits paid under the
qualified plans. Benefits under the supplemental plans are generally
based on compensation not includible in the calculation of benefits to be
paid under the qualified plans.
<TABLE>
The following table sets forth the funding status and the prepaid pension
expense of the Corporation's pension and supplemental benefit plans
recognized in the balance sheet at December 31, 1993 and 1992:
<CAPTION>
(in thousands) 1993 1992
Actuarial present value of benefit obligations
<S> <C> <C>
Vested benefit obligation $ (119,942) $ (87,669)
Accumulated benefit obligation $ (136,727) $ (103,209)
Projected benefit obligation for services rendered to date $ (192,107) $ (146,727)
Plan assets at fair market value 262,629 259,450
Plan assets in excess of projected benefit obligation 70,522 112,723
Unrecognized net actuarial (gain) loss 46,225 (58)
Unrecognized prior service cost 15,928 17,949
Unrecognized net asset (4,373) (4,503)
Prepaid pension expense $ 128,302 $ 126,111
</TABLE>
The Corporation's net pension expense (income) was $1.7 million in 1993,
$(1.4) million in 1992, and $(1.8) million in 1991.
<PAGE>F-23 28
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
The components of net pension expense (income) for the years ended
December 31, 1993, 1992 and 1991 for all plans were as follows:
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 10,374 $ 9,820 $ 8,478
Interest cost on projected benefit obligation 12,385 9,998 8,395
Actual return on plan assets (25,686) (21,832) (21,450)
Net amortization and deferral of gains and losses 4,644 1,633 2,769
Settlement and curtailment gains, net (1,049)
Net pension expense (income) $ 1,717 $ (1,430) $ (1,808)
</TABLE>
<TABLE>
Significant rate assumptions as of December 31, 1993, 1992 and 1991, used
in determining 1993, 1992 and 1991 net pension income and related pension
obligations were as follows:
<CAPTION>
1993 1992 1991
Discount rate used in determining
<S> <C> <C> <C>
projected benefit obligation 7.5 % 8.5 % 8.5 %
Rate of increase in compensation levels 4.5 4.5 5.0
Long-term rate of return on plan assets 10.0 10.0 10.0
</TABLE>
The Corporation also sponsors defined contribution plans covering
substantially all employees. Contributions under such plans totaled $6.8
million in 1993, $6.3 million in 1992 and $6.6 million in 1991.
Postretirement Health Care and Life Insurance Benefits - The Corporation
sponsors primarily four postretirement benefit plans that provide health
care and life insurance benefits for retired employees that have met
certain age and service requirements. One plan provides medical benefits
and the other three plans provide life insurance benefits. The
postretirement medical plan and one of the life insurance plans are
contributory with contributions adjusted annually to reflect certain
cost-sharing provisions of the plans. The remaining two postretirement
life insurance plans are noncontributory. It is the Corporation's policy
to fund the postretirement benefit plans as claims are paid. Plan assets
represent the cash surrender value of life insurance policies related to
one of the plans described above.
The Corporation adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective January 1, 1993.
This new accounting standard requires the expected cost of these
postretirement health care and life insurance benefits to be accrued and
charged to operations during the years the employees render the service.
The Corporation is amortizing the transition obligation of $95.5 million
on a straight-line basis over 20 years. The postretirement benefit
expense for 1993 was $14.9 million. Previously, the Corporation's
postretirement benefits were expensed as claims were paid and totaled
approximately $5.0 million for 1992 and $4.5 million for 1991.
<PAGE>F-24 29
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table sets forth the funded status and the accrued
postretirement health care and life insurance benefits expense of the
Corporation's postretirement benefit plans recognized in the balance
sheet at December 31, 1993:
<CAPTION>
(in thousands) 1993
Accumulated postretirement benefit obligation
<S> <C>
Retirees $ (65,870)
Fully eligible active plan participants (19,899)
Other active plan participants (16,526)
Total (102,295)
Plan assets at fair market value 2,292
Accumulated postretirement benefit obligation
in excess of plan assets (100,003)
Unrecognized net actuarial gain 1,173
Unrecognized transition obligation 90,773
Accrued postretirement health care and life insurance benefits expense $ (8,057)
</TABLE>
<TABLE>
Significant rate assumptions as of December 31, 1993 used in determining
1993 postretirement health care and life insurance benefits expense and
related obligation were as follows:
<CAPTION>
1993
Discount rate used in determining
<S> <C>
accumulated postretirement benefit obligation 7.5 %
Rate of increase in compensation levels 4.5
Long-term rate of return on plan assets 5.0
Medical cost trend rate 12.0
Medicare benefits trend rate 10.5
</TABLE>
The assumptions for medical costs and Medicare benefits trend to 5.0
percent by the year 2001 and remain constant thereafter. Increasing the
assumed health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation at December
31, 1993 by $5.6 million and increase the aggregate of the service and
interest cost components of net periodic postretirement benefits expense
for 1993 by $.8 million.
<TABLE>
The components of the annual postretirement health care and life
insurance benefits expense for the year ended December 31, 1993 are
summarized below:
<CAPTION>
(in thousands) 1993
<S> <C>
Service cost for benefits earned during the period $ 2,398
Interest cost on projected benefit obligation 7,821
Actual return on plan assets (112)
Net amortization of the transition obligation 4,778
Postretirement health care and life insurance benefits expense $ 14,885
</TABLE>
<PAGE>F-25
30
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
Postemployment Benefits - The Corporation provides disability and
workers' compensation related benefits to former or inactive employees
after employment but before retirement and had also provided supplemental
severance benefits to certain former employees. The Corporation adopted,
in the fourth quarter of 1993 retroactive to January 1, 1993, FAS No.
112, "Employers' Accounting for Postemployment Benefits". The new
accounting standard requires that the cost of these benefits be accrued
and charged to operations if the obligation is attributable to services
already rendered, rights to such benefits accumulate or vest, payment of
the benefits is probable and the amount of the benefits can be reasonably
estimated. Previously, the Corporation's postemployment benefits were
expensed as payments were made. The Corporation recognized an after-tax
charge of $6.6 million recorded as a cumulative effect of a change in
method of accounting for 1993 relating to the adoption of this new
accounting standard.
Stock Option and Restricted Stock Award Plan - The Corporation has a
Stock Option and Restricted Stock Award Plan (the Plan), which provides
for the granting of incentive and nonqualified stock options to certain
employees for the purchase of Shawmut National Corporation common stock
at 100 percent of fair market value at the date of grant. Options granted
under the Plan are exercisable after a minimum of one year but within ten
years of the date of grant. Also, options granted may be accompanied by
stock appreciation rights (SARs) or limited stock appreciation rights
(LSRs), or both. SARs and LSRs entitle the holder to receive payment
equal to the increase in the market value of the common stock from the
date of grant to the date of exercise. LSRs may be exercised only during
the 60-day period following a change of control. SARs and LSRs may be
granted only in tandem with stock options and may be paid in cash or
common stock at the election of the employee.
The Plan also provides for the granting of restricted stock and
performance share units to certain key executives. A performance share
unit represents an interest in a restricted share of common stock and any
dividends declared. Grants of performance share units are determined
using certain guidelines based on salary and responsibility levels, as
well as predetermined performance criteria. A total of 7,600,000 shares
of common stock have been reserved for the Plan, including the
performance share units. Charges for the Plan related to restricted
stock awards totaled $1.0 million in 1993 and $.8 million in 1992. There
were no charges associated with the Plan in 1991. A grant of 308,200
shares of performance share units occurred on October 28, 1993, for the
performance periods beginning January 1, 1994 through December 31, 1995.
Compensation expense will be recognized based on the fair value of the
performance share units over this period.
<PAGE>F-26 31
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Transactions in the Corporation's stock options for the three year period
ended December 31, 1993 are summarized below:
<CAPTION>
Option
Number of price Total
shares per share (in thousands)
<S> <C> <C> <C>
Outstanding December 31, 1990 2,947,288 $ 4 - 31 $ 45,711
Granted in 1991 57,126 5 - 9 351
Cancelled in 1991 (305,095) 4 - 30 (4,624)
Exercised in 1991 (144,239) 5 - 6 (754)
Outstanding December 31, 1991 2,555,080 5 - 31 40,686
Granted in 1992 888,116 8 - 19 9,274
Cancelled in 1992 (397,871) 4 - 30 (7,846)
Exercised in 1992 (282,782) 4 - 11 (1,740)
Outstanding December 31, 1992 2,762,543 5 - 31 40,374
Granted in 1993 1,462,027 10 - 25 32,234
Cancelled in 1993 (290,136) 4 - 31 (6,950)
Exercised in 1993 (475,310) 4 - 23 (3,423)
Outstanding December 31, 1993 3,459,124 $ 4 - 30 $ 62,234
Options exercisable
at December 31, 1993 1,515,066 $ 4 - 30 $ 25,634
Shares available for future grants
at December 31, 1993 3,708,523
</TABLE>
At December 31, 1993, SARs had previously been issued in tandem with
605,000 outstanding stock options. Common stock issued relating to
restricted stock awards amounted to 48,000 shares in 1993 and 226,000
shares in 1992. There were no restricted stock awards in 1991.
NOTE 12 - OTHER NONINTEREST INCOME AND NONINTEREST EXPENSES
<TABLE>
The components of other noninterest income for the years ended December
31, 1993, 1992 and 1991 were as follows:
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Loan servicing $ 11,225 $ 20,222 $ 33,287
Foreign exchange trading 2,948 9,288 5,586
Trading account profits 6,379 6,559 7,078
Residential mortgage sales 26,129 10,042 2,275
Loan securitizations and sales 22,335
Gain on sale of credit card portfolio and merchant card business 71,471
FDIC assistance 13,792 5,010
Other 36,998 52,684 50,034
Total $ 97,471 $ 126,140 $ 169,731
</TABLE>
<PAGE>F-27 32
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
The components of noninterest expenses for the years ended December 31,
1993, 1992 and 1991 were as follows:
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Compensation $ 414,074 $ 402,198 $ 386,380
Benefits 86,180 72,527 68,870
Total $ 500,254 $ 474,725 $ 455,250
Occupancy $ 105,389 $ 112,257 $ 101,785
Equipment 58,403 67,250 67,466
Total $ 163,792 $ 179,507 $ 169,251
Foreclosed properties
Provision $ 76,598 $ 140,417 $ 81,982
Expense 28,575 37,396 38,265
Total $ 105,173 $ 177,813 $ 120,247
Federal Deposit Insurance Corporation premiums $ 52,302 $ 44,937 $ 42,689
Communications 45,890 48,195 47,038
Restructuring charges 36,319
Advertising 22,240 16,004 12,318
Other 213,979 213,400 197,359
Total $ 370,730 $ 322,536 $ 299,404
</TABLE>
NOTE 13 - INCOME TAXES
The Corporation adopted FAS No. 109, "Accounting for Income Taxes" (FAS
109), prospectively, effective January 1, 1993. The cumulative effect of this
accounting change was the recognition of a $52.8 million income tax benefit in
the first quarter of 1993. Prior to January 1, 1993, two of the Corporation's
acquired entities adopted FAS 109 and the effects on prior period combined
consolidated results of operations and financial position were not material.
The Corporation's deferred tax asset (deferred tax assets less deferred tax
liabilities) at December 31, 1992 was $134.8 million. The Corporation's
deferred tax asset represents future deductible temporary differences
attributable primarily to provisions for loan losses in excess of the
deductible amounts for tax purposes. The Corporation's deferred federal tax
asset recorded upon adoption of FAS 109 (prior to valuation allowance) at
January 1, 1993 was $285.1 million. The income tax benefits of these
deductible temporary differences recognized under FAS 109 were subjected to an
evaluation of whether it was more likely than not that the income tax benefits
will be realized and, as a result, a valuation allowance of $96.3 million was
established, resulting in a net deferred tax asset of $188.8 million at
January 1, 1993. The level of the valuation allowance reflected
management's best judgment regarding the amounts and timing of future
taxable income and the estimated reversal pattern of these temporary
differences. At year end 1993, deferred state tax assets, net of related
federal tax and a valuation allowance of $115.1 million, were nil.
<PAGE>F-28 33
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1993, the Corporation's net deferred tax asset was
$200.9 million and is deemed realizable based upon management's best
judgment regarding the amounts and timing of future taxable income and the
estimated pattern of temporary differences. The valuation allowance of $126.4
million relates primarily to the realization of state tax benefits. As a
result of state tax laws, the corporation believes that uncertainty remains
concerning the realization of tax benefits in various state jurisdictions.
These benefits may be recorded in the future as realized or as it becomes more
likely than not, in management's best judgement, that such tax benefits will
be realized.
<TABLE>
The components of deferred income taxes at December 31, 1993 were as
follows:
<CAPTION>
Deferred Deferred
tax tax
(in thousands) assets liabilities
<S> <C> <C>
Loan loss reserve $ 232,535 $ 9,771
State deferred taxes, net of federal amounts 115,119
Writedowns for foreclosed properties 22,766
Employee benefits 38,049
Net operating loss carryforward 6,726
Excess of book over tax basis of assets acquired 10,246
Loan discount accretion 4,836
Federal financial assistance 7,390
Depreciation and leasing 23,856
Other, net 19,771
Total deferred income taxes 409,143 81,922
Less valuation allowances:
Federal (11,231)
State (115,119)
Total $ 282,793 $ 81,922
</TABLE>
<TABLE>
The current and deferred components of income taxes for the
years ended December 31, 1993, 1992 and 1991 were as follows:
<CAPTION>
(in thousands) 1993 1992 1991
Current
<S> <C> <C> <C>
Federal $ 17,943 $ 1,136 $ (17,629)
State and other 3,932 4,396 3,608
Total current income taxes 21,875 5,532 (14,021)
Deferred
Federal (14,459) 35,211 18,434
State and other (788) 155 (337)
Total deferred income taxes (15,247) 35,366 18,097
Total income taxes $ 6,628 $ 40,898 $ 4,076
</TABLE>
<PAGE>F-29 34
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
The components of deferred income tax expense under the prior accounting
standard for income taxes for each of the two years in the period ended
December 31, 1992 were as follows:
<CAPTION>
(in thousands) 1992 1991
<S> <C> <C>
Provision for loan losses $ 58,193 $ (18,439)
Provision for foreclosed properties (24,915) (13,433)
Direct leasing (6,415) (3,510)
Pension expense 972 (61)
Gain on assets securitized and sold 5,618 (5,301)
Excess of book over tax basis of assets acquired 15,908
Federal financial assistance (12,196)
Loan discount accretion (3,343)
Operating loss generating no current tax benefit 66,319
Other, net 1,544 (7,478)
Total deferred income taxes $ 35,366 $ 18,097
</TABLE>
A reconciliation of the difference between consolidated income tax
expense (benefit) and the amount computed by applying the federal
statutory rate of 35 percent for the year ended December 31, 1993 and 34
percent for the years ended December 31, 1992 and 1991 is presented
below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate on income (loss) $ 101,317 $ 36,933 $ (57,536)
Tax-exempt securities and loan income,
net of interest disallowance (3,451) (3,987) (6,181)
Dividend received exclusion (3,615) (3,839) (4,564)
Effect of change in tax rates (7,928)
Reduction in valuation allowance (85,000)
State income tax expense, net of federal tax benefit 2,943 3,017 2,164
Operating loss generating no current tax benefit (1,175) 6,627 66,319
Purchase accounting adjustment 775 511
Other items 3,537 1,372 3,363
Total income tax expense $ 6,628 $ 40,898 $ 4,076
</TABLE>
Income tax expense associated with securities gains and losses, computed
by applying the federal statutory rate of 35 percent (34 percent in 1992
and 1991) to securities transactions, was $4.4 million, $32.0 million and
$27.2 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
<PAGE>F-30 35
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
The Corporation provides deposit and loan products and other financial
services to consumer and commercial customers located principally in New
England. The Corporation's loan portfolio at December 31, 1993 consisted
of commercial and industrial loans (36 percent), consumer loans (46
percent), real estate investor/developer loans (10 percent) and
owner-occupied commercial real estate loans (8 percent). Securities,
short-term investments and off-balance sheet interest rate instruments,
such as futures contracts and interest rate swaps, option and cap
agreements, are among the financial instruments used by the Corporation
in its balance sheet management activities.
Securities and short-term investment activities are conducted with a
diverse group of domestic and foreign governments, corporations and
depository and other financial institutions. The Corporation evaluates
the counterparty's creditworthiness and the need for collateral on a case
by case basis.
The Corporation manages its loan portfolio to avoid concentration by
industry or loan size to minimize its credit exposure. Commercial loans
may be collateralized by the assets underlying the borrowers' business
such as accounts receivable, equipment, inventory and real property.
Consumer loans such as residential mortgage and installment loans are
generally secured by the real or personal property financed. Commercial
real estate loans are generally secured by the underlying real property
and rental agreements.
<TABLE>
A summary of certain financial instruments at December 31, 1993 and 1992
is presented below:
<CAPTION>
(in thousands) 1993 1992
Financial instruments whose contract amounts
represent credit risk
<S> <C> <C>
Commitments to extend credit $ 7,907,890 $ 5,796,719
Standby letters of credit 1,366,373 790,932
Residential mortgage loans sold with recourse 283,722 414,137
Financial instruments whose contract amounts
do not represent credit risk
Commitments to purchase and sell foreign exchange 11,034,179 5,573,824
Notional balance of interest rate swap agreements 1,983,500 702,800
Notional balance of interest rate cap agreements
Written 2,446,907
Purchased 3,396,907 45,000
Notional balance of futures contracts 2,528,000
Notional balance of option contracts
Written 786,000 1,244,000
Purchased 786,000 1,244,000
</TABLE>
<PAGE>F-31 36
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
Commitments to extend credit at December 31, 1993 included commercial and
industrial lines of $6.5 billion, consumer home equity credit lines of
$1.2 billion and commercial real estate lines of $190.6 million. The
fair value of these commitments at December 31, 1993 and 1992,
representing the discounted value of potential fee income, was
approximately $26.0 million and $13.6 million, respectively.
Standby letters of credit are obligations to make payments under certain
conditions to meet contingencies related to customers' contractual
agreements and are subject to the same risk, credit review and approval
process as a loan. Letters of credit are primarily used to enhance credit
for public and private borrowing arrangements and to guarantee a
customer's financial performance. The fair value of the Corporation's
standby letters of credit, representing the discounted value of potential
fee income, was approximately $6.4 million and $5.4 million at December
31, 1993 and 1992, respectively.
Residential mortgage loans sold with recourse represent loans sold to
U.S. Government agencies which allows the purchaser the option of
requiring the Corporation to reacquire a loan in the event of default by
the borrower. The option may extend for a period of five years or for
the life of the loan. The Corporation has determined that the liability
under the terms of the option agreements is not material. Residential
mortgage loans are primarily underwritten and sold by the Corporation's
mortgage banking subsidiary.
Foreign exchange contracts are entered into primarily for trading
activities. The risk associated with foreign exchange contracts arises
from the counterparties' failure to meet the terms of the contracts. An
additional risk is that the value of a foreign currency might change in
relation to the U.S. dollar. In the event of a default by a
counterparty, the cost to the Corporation, if any, would be the
replacement cost of the contract at the current market rate. Exposure to
changes in market rate is substantially lessened since the Corporation
limits its risk by entering into offsetting contracts. The Corporation's
foreign exchange contracts are valued monthly at current market value and
changes in market value are included in other noninterest income.
Interest rate swap agreements are used by the Corporation to manage its
interest rate risk. These agreements involve the exchange of fixed and
variable rate interest payments based upon a notional principal amount
and maturity date. Interest rate cap agreements are similar to interest
rate swap agreements except that interest payments are only made or
received if current interest rates rise above a predetermined rate.
Included in both written and purchased interest rate cap agreements are
approximately $2.4 billion in notional balances of interest rate cap
agreements which consist of a simultaneous purchase and sale of a cap.
This combination of agreements are also known as interest rate corridors.
The risk associated with these agreements arises from the counterparties'
failure to meet the terms of the agreements. Limits are set on the
exposure to any one counterparty. The Corporation estimated it would pay
approximately $21.5 million and $30.0 million at December 31, 1993 and
1992, respectively, if it were to terminate the interest rate swap
agreements at these dates. The fair value of interest rate cap
agreements at December 31, 1993 was approximately $4.2 million, which
represents the amount that the Corporation would realize as a loss if the
agreements were terminated at that date.
<PAGE>F-32 37
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Futures contracts are also used by the Corporation to manage interest
rate exposure. These instruments are exchange-traded contracts for the
future delivery of securities, other financial instruments or cash
settlement at a specified price or yield. The fair value of the futures
contracts at December 31, 1993 was approximately $.3 million, which
represents the amount that the Corporation would receive if the contracts
were terminated at that date.
The Corporation utilizes option contracts to limit its exposure to market
fluctuations on securities classified as available for sale. Options
give the holder the right to purchase or sell securities at a specified
price at a future date. The risk associated with options arises from the
counterparties' failure to meet the terms of the agreements. The fair
value of the Corporation's option contracts approximated the carrying
amount, or the net unamortized premium, at December 31, 1993 and 1992.
NOTE 15 - LITIGATION
The Corporation and certain of its officers and directors were named as
defendants in several complaints during 1990 and 1991, purportedly
brought on behalf of purchasers of the Corporation's common stock between
December 8, 1988 and January 24, 1991. Among other things, the complaint
in the actions alleged violations of federal securities laws and
negligent misrepresentation based upon certain allegedly false and
misleading public statements relating to the Corporation's financial
position and omissions in the Corporation's public reports.
The Corporation and the plaintiffs entered into a settlement which was
approved by the court on October 27, 1992. The settlement provided that,
in full and complete settlement of all claims had been or could
have been brought in the class actions, the defendants would distribute to
the members of the class including all persons who purchased the
Corporation's common stock during the period December 8, 1988 to January
24, 1991, inclusive, warrants to purchase the Corporation's common stock.
On January 18, 1994 the Corporation issued warrants for the purchase of
up to 1,329,115 shares of common stock. The warrants have an exercise
price of $22.11 per share, are listed on the New York Stock Exchange, are
freely tradable and are exercisable for a period of one year, commencing
January 18, 1995.
Defendants denied all allegations of wrongdoing contained in the
pleadings in these actions and agreed to settle these actions solely to
avoid the time and expense of contesting this burdensome litigation. The
settlement did not have a material effect on the Corporation's results of
operations or financial condition.
During 1993, Shawmut Mortgage Company, the Corporation's mortgage banking
subsidiary, was the subject of an investigation of possible
discriminatory lending by the United States Department of Justice (DOJ)
and the Federal Trade Commission (FTC). On December 13, 1993, without
admitting any wrongdoing, Shawmut Mortgage Company entered into a consent
decree with the DOJ and FTC regarding past lending practices. Pursuant
to the consent decree, Shawmut Mortgage Company established a $960
thousand monetary fund to compensate minority loan applicants who were
denied mortgages between January 1990 and October 1992 but whose
applications would be approved under the Corporation's more recent
flexible underwriting criteria. This settlement did not have a material
effect on the Corporation's results of operations or financial condition.
<PAGE>F-33
38
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
The Corporation's Shawmut Bank Connecticut subsidiary, which served as
indenture trustee for certain healthcare receivable backed bonds issued
by certain special purpose subsidiaries of Towers Financial Corporation,
and another defendant, have been named in a lawsuit in federal court in
Manhattan by purchasers of the bonds. The suit seeks damages in an
undetermined amount equal to the difference between the current value of
the bonds and their face amount of approximately $200 million, plus
interest, as well as punitive damages. The Corporation believes its
actions were reasonable and appropriate and were not the cause of any
loss by the bondholders, and is vigorously defending the action.
The Corporation is subject to various other pending and threatened
lawsuits in which claims for monetary damages are asserted. Management,
after consultation with legal counsel, does not anticipate that the
ultimate liability, if any, arising out of such other pending and threatened
lawsuits will have a material effect on the Corporation's results of
operations or financial condition.
NOTE 16 - REGULATORY MATTERS
The Corporation is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the
Board) under the Bank Holding Company Act of 1956. As a bank holding
company, the Corporation's activities and those of its banking and
nonbanking subsidiaries are limited to the business of banking and
activities closely related or incidental to banking.
The Corporation's subsidiary banks, Shawmut Bank Connecticut, National
Association (Shawmut Bank Connecticut) and Shawmut Bank, National
Association (Shawmut Bank Massachusetts), are subject to supervision and
examination by the Office of the Comptroller of the Currency (OCC). The
Corporation's other subsidiary bank, Shawmut Bank NH, is
subject to supervision and examination by the Federal Deposit Insurance
Corporation (FDIC) and the State of New Hampshire. The deposits of the
Corporation's subsidiary banks are insured by, and therefore the
subsidiary banks are subject to the regulations of, the Federal Deposit
Insurance Corporation (FDIC). The banks are also subject to requirements
and restrictions under federal and state law, including requirements to
maintain reserves against deposits, restrictions on the types and amounts
of loans that may be granted and the interest that may be charged
thereon, limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Corporation's subsidiary
banks. In October 1993, the Federal Reserve Bank of Boston (FRB) and the
OCC removed certain regulatory agreements under which the Corporation and
certain of its subsidiary banks had been operating. The regulatory
agreements focused on the need to improve asset quality and credit
administration policies, as well as prior approval by the regulators for
dividend payments.
The Board and the OCC have adopted minimum risk-based capital and
leverage guidelines for bank holding companies and national banks. The
minimum Total capital ratio requirement is 8.00 percent, of which
one-half must be Tier 1 capital. The minimum Leverage ratio requires
Tier 1 capital of at least 3.00 percent of average quarterly assets less
goodwill and other intangibles. This Leverage ratio is the minimum
requirement for the most highly rated banking organizations and other
banking organizations are expected to maintain an additional level of at
least 100 to 200 basis points.
<PAGE>F-34 39
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The Board, OCC and FDIC implemented regulations, pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), effective
on December 19, 1992, concerning prompt supervisory and regulatory
actions to be taken against undercapitalized depository institutions.
FDICIA establishes five capital categories: "well-capitalized";
"adequately capitalized"; "undercapitalized"; "significantly
undercapitalized"; and "critically undercapitalized". Under these
regulations, an institution will be deemed "well-capitalized" if it has a
Risk-based Total capital ratio of 10.00 percent or greater, a Risk-based
Tier 1 capital ratio of 6.00 percent or greater and a Leverage ratio of
5.00 percent or greater. In addition, the institution cannot be subject
to an order, written agreement, capital directive or prompt correction
action directive.
The Tier 1 capital, Total capital and Leverage ratios for the Corporation
at December 31, 1993 were 8.79 percent, 12.73 percent and 6.47 percent,
respectively. The Tier 1 capital, Total capital and Leverage ratios for
Shawmut Bank Connecticut were 10.19 percent, 11.47 percent and 7.73
percent, respectively, while these ratios for Shawmut Bank Massachusetts
were 10.17 percent, 11.71 percent and 7.54 percent, respectively, at
December 31, 1993. These ratios for Shawmut Bank NH were 17.30 percent,
18.56 percent and 5.64 percent, respectively, at December 31, 1993. The
Corporation and its subsidiary banks at December 31, 1993 met the
definition for a "well-capitalized" institution.
The Corporation's subsidiary banks are required to maintain reserves
against certain deposit liabilities in either cash or balances on deposit
with the Federal Reserve System. The Corporation's subsidiary banks
maintained combined average reserves of approximately $565 million in
1993 with the FRB.
The Board issued proposed revisions to its capital adequacy guidelines in
February 1993 which proposes to limit the amount of deferred tax assets
recorded under FAS 109 that can be used to meet risk-based capital
requirements. This proposal would limit deferred tax assets to those
assets which may be realized from income taxes paid in prior carryback
years, the reversal of future taxable temporary differences and the
lesser of: (1) the amount of deferred tax assets expected to be realized
within one year of the quarter-end date based on future taxable income
(exclusive of tax carryforwards and reversals of existing temporary
differences) for that year, or (2) ten percent of Tier 1 capital. The
Corporation believes the deferred tax asset at December 31, 1993 would be
allowable in computing regulatory risk-based capital because the deferred
tax asset would not exceed the amount of income taxes previously paid in
prior carryback years. The Corporation cannot determine whether, or in
what form, this proposal may be enacted.
Principal sources of revenues for the Corporation are dividends received
directly and indirectly from its banks and other subsidiaries and
interest earned on short-term investments and advances to subsidiaries.
Federal law imposes limitations on the payment of dividends by the
subsidiaries of the Corporation that are national banks. Two different
calculations are performed to measure the amount of dividends that may be
paid: a recent earnings test and an undivided profits test. Under the
recent earnings test, a dividend may not be paid if the total of all
dividends declared by a national bank in any calendar year is in excess
of the current year's net profits combined with the retained net profits
of the two preceding years, unless the bank obtains the approval of the
OCC. Under the undivided profits test, a dividend may not be paid in
excess of a bank's undivided profits then on hand, after deducting bad
debts in excess of the reserve for loan losses. Under the recent
earnings test at January 1, 1994, which is the more restrictive of the
two tests, Shawmut Bank Connecticut could pay up to $103.2 million in
dividends to its parent holding company without prior approval. Shawmut
Bank Massachusetts, under the recent earnings test at January 1, 1994,
could pay up to $223.7 million in dividends to its parent holding company
without prior approval. Shawmut Bank Connecticut and Shawmut Bank
Massachusetts had undivided profits of $272.9 million and $521.2 million,
respectively, at December 31, 1993.
<PAGE>F-35 40
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
The Corporation's subsidiary banks are also restricted under federal law
with respect to the transfer of funds from the subsidiary banks to the
Corporation and its nonbanking subsidiaries. Such transfers are limited
to certain percentages of the subsidiary bank's capital and surplus.
Loans and extensions of credit must be secured in specified amounts. The
Corporation had no borrowings outstanding from either of its subsidiary
banks at December 31, 1993.
NOTE 17 - FDIC ASSISTED TRANSACTIONS
New Dartmouth Bank was merged with Shawmut Bank NH concurrent with the
acquisition of New Dartmouth further discussed in "Note 2 -
Acquisitions". New Dartmouth, concurrent with its formation on October
10, 1991, acquired certain assets and assumed certain liabilities of a
number of failed institutions from the FDIC as receiver of these failed
banks (the "1991 P&A Transaction"). New Dartmouth acquired from the FDIC
$1.7 billion in assets and assumed $2.1 billion in deposits. The FDIC
paid New Dartmouth $55.3 million in federal financial assistance to
complete the transaction in addition to a payment of $400.8 million for
the assumption of net liabilities. As part of the 1991 P&A Transaction,
the FDIC provided certain assistance to New Dartmouth that included the
ability to "put" classified loans to the FDIC upon certain conditions and
the sharing of losses on certain consumer and residential loans through
October 10, 1994.
New Dartmouth allocated approximately $39.0 million of the federal
financial assistance it received from the FDIC as a discount on the
acquired loan portfolio representing the estimate of potential future
losses in excess of the protection provided by the FDIC. In addition,
New Dartmouth allocated approximately $3.6 million of federal financial
assistance it received from the FDIC as part of another assisted
transaction as a discount on the acquired loan portfolio. The accretion
of these discounts commenced in the second half of 1993 based on the expected
future cash flows associated with these loans.
As discussed in "Note 2 - Acquisitions", the Corporation acquired
Gateway Financial Corporation and merged its banking subsidiary into
Shawmut Bank Connecticut. Previously, Gateway acquired certain assets
and assumed certain liabilities of a failed institution from the FDIC as
receiver of the failed bank. Under the terms of this acquisition, the
FDIC agreed to repurchase from Gateway any acquired commercial loans and
commercial mortgages that became delinquent, as defined, prior to
December 13, 1993. Through that date, approximately $58.1 million
of loans had been "put" to the FDIC, of which $21.1 million is
classified as a receivable from the FDIC and included in other assets at
December 31, 1993.
<PAGE>F-36 41
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information of Shawmut National Corporation
(parent company only) is presented below:
<TABLE>
CONDENSED BALANCE SHEET
<CAPTION>
December 31, (in thousands) 1993 1992
ASSETS
<S> <C> <C>
Cash and short-term investments with subsidiary banks $ 293,984 $ 339,126
Equity securities 48,700
Investments in and advances to consolidated subsidiaries (equity basis) 2,382,111 1,856,390
Accrued income and other assets 24,985 7,262
Total $ 2,749,780 $ 2,202,778
LIABILITIES AND SHAREHOLDERS' EQUITY
Private placement notes $ 174,996 $ 150,256
Borrowings from subsidiary 143,917 153,000
Other liabilities 29,092 18,348
Subordinated notes 299,404 149,631
Shareholders' equity 2,102,371 1,731,543
Total $ 2,749,780 $ 2,202,778
</TABLE>
<TABLE>
CONDENSED STATEMENT OF INCOME
<CAPTION>
Year ended December 31, (in thousands) 1993 1992 1991
REVENUES
<S> <C> <C> <C>
Dividend income from subsidiary $ 81,900
Interest and dividend income
Advances to subsidiaries 4,578 $ 2,883 $ 4,918
Short-term investments 8,896 8,146 5,851
Equity securities 2,307
Other 7,973 8,588 10,783
Total 105,654 19,617 21,552
EXPENSES
Interest 30,279 10,563 14,906
Other 9,293 12,420 16,491
Total 39,572 22,983 31,397
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT),
EQUITY IN UNDISTRIBUTED INCOME (LOSS) OF
SUBSIDIARIES, EXTRAORDINARY CREDIT
AND ACCOUNTING CHANGES 66,082 (3,366) (9,845)
Income taxes (benefit) (7,744) (864) 584
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
INCOME(LOSS) OF SUBSIDIARIES, EXTRAORDINARY
CREDIT AND ACCOUNTING CHANGES 73,826 (2,502) (10,429)
Equity in undistributed income (loss) of subsidiaries
before extraordinary credit and accounting changes 209,022 70,229 (162,870)
INCOME (LOSS) BEFORE EXTRAORDINARY
CREDIT AND ACCOUNTING CHANGES 282,848 67,727 (173,299)
Extraordinary credit 18,378
Cumulative effect of changes
in methods of accounting 46,200
NET INCOME (LOSS) $ 329,048 $ 86,105 $ (173,299)
</TABLE>
<PAGE>F-37 42
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<CAPTION>
Year ended December 31, (in thousands) 1993 1992 1991
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 329,048 $ 86,105 $ (173,299)
Equity in undistributed (income) loss of subsidiaries (209,022) (69,056) 161,907
Extraordinary (credit) charge on income (loss) of subsidiaries (17,917) 963
Cumulative effect of accounting changes of subsidiaries (40,431) (1,544)
Other 4,573 7,620 9,720
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 84,168 5,208 (709)
FINANCING ACTIVITIES
Increase (decrease) in borrowings (15,657) 39,320 1,696
Proceeds from issuance of subordinated notes 149,700 149,631
Proceeds from issuances of common and preferred stock 61,955 356,599 847
Purchases of common stock (2,509) (10)
Cash dividends paid (42,918) (2,131) (1,715)
CASH PROVIDED BY FINANCING ACTIVITIES 150,571 543,409 828
INVESTING ACTIVITIES
Increase in equity securities (48,700)
Decrease (increase) in investments in and
advances to consolidated subsidiaries (231,181) (320,100) 11,130
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (279,881) (320,100) 11,130
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (45,142) 228,517 11,249
Cash and short-term investments at beginning of year 339,126 110,609 99,360
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 293,984 $ 339,126 $ 110,609
</TABLE>
<PAGE>F-38 43
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SUMMARIZED FINANCIAL INFORMATION OF CERTAIN NOTE AND DEBENTURE
ISSUERS
The Corporation has guaranteed payment of certain notes and debentures of
Hartford National Corporation (HNC) and Shawmut Corporation (SC), whose
subsidiaries include Shawmut Bank Connecticut and Shawmut Bank
Massachusetts. See "Note 16 - Regulatory Matters" about the ability of
subsidiary banks to pay dividends. The summarized financial information
of Hartford National Corporation and Shawmut Corporation (parent companies
only) is presented below.
<TABLE>
<CAPTION>
CONDENSED COMBINED BALANCE SHEET
HNC SC
December 31, (in thousands) 1993 1992 1993 1992
ASSETS
Investments in and advances to consolidated subsidiaries
(equity basis)
<S> <C> <C> <C> <C>
Bank subsidiaries $1,236,079 $ 964,470 $1,103,880 $ 973,855
Nonbank subsidiaries 221,317 264,464 34,891 33,003
Equity securities and other investments 146,070 167,276 19,071 28,226
Advances to affiliates 143,702 162,350
Cash, accrued income and other assets 13,875 9,205 5,060 3,530
Total $1,617,341 $1,405,415 $1,306,604 $1,200,964
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings from affiliate $ 239,581 $ 94,500
Other liabilities 19,253 12,049 $ 13,945 $ 15,452
Notes and debentures 149,915 324,780 299,649 324,489
Shareholders' equity 1,208,592 974,086 993,010 861,023
Total $1,617,341 $1,405,415 $1,306,604 $1,200,964
</TABLE>
<PAGE>F-39 44
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED COMBINED STATEMENT OF INCOME
<CAPTION>
HNC SC
Year ended December 31, (in thousands) 1993 1992 1991 1993 1992 1991
REVENUES
Income from bank subsidiaries
<S> <C> <C> <C> <C> <C> <C>
Dividend $ 3,129 $ 83,171 $ 4,000 $ 3,990
Interest 301 $ 1,778 $ 3,394 3,345 4,219 6,029
Interest and dividend income from
nonbank subsidiaries 18,054 9,071 484
Other 12,795 11,107 15,517 (365) 8,341 6,227
Total 34,279 21,956 19,395 86,151 16,560 16,246
EXPENSES
Interest 29,659 33,732 35,864 25,142 27,028 28,156
Other 1,018 653 1,828 210 621 843
Total 30,677 34,385 37,692 25,352 27,649 28,999
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT, EQUITY IN
UNDISTRIBUTED INCOME (LOSS)
OF SUBSIDIARIES, EXTRAORDINARY
CREDIT AND ACCOUNTING CHANGES 3,602 (12,429) (18,297) 60,799 (11,089) (16,743)
Income tax benefit (156) (10,132) (11,123) (9,833) (6,078) (1,071)
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED INCOME (LOSS)
OF SUBSIDIARIES, EXTRAORDINARY
CREDIT AND ACCOUNTING CHANGES 3,758 (2,297) (7,174) 70,632 (5,011) (11,682)
Equity in undistributed income (loss) of
subsidiaries before extraordinary credit
and accounting changes
Bank subsidiaries 92,309 (28,681) (142,675) 113,049 85,515 (22,788)
Nonbank subsidiaries 581 5,148 14,431 1,624 635 2,417
INCOME (LOSS) BEFORE
EXTRAORDINARY CREDIT AND
ACCOUNTING CHANGES 96,648 (25,830) (135,418) 185,305 81,139 (32,053)
Extraordinary credit 2,479 15,869
Cumulative effect of changes
in methods of accounting 32,874 7,543
NET INCOME (LOSS) $ 129,522 $ (23,351) $ (135,418) $ 192,848 $ 97,008 $ (32,053)
</TABLE>
<PAGE>F-40 45
