FIRST QUARTER 1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
"TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10102
SHAWMUT NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1212629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Main Street, Hartford, Connecticut 06115
One Federal Street, Boston, Massachusetts 02211
(Addresses of principal executive offices) (Zip Codes)
(203) 728-2000
(617) 292-2000
(Registrant's telephone numbers, including area codes)
Not applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days. Yes X No .
96,346,701 shares of the registrant's common stock, par
value $0.01, were outstanding as of May 5, 1994.
____________________________________________________________________
Page 1 of 46 pages.
The Exhibits Index, filed as a part of this report, appears
on page 7.
___________________________________________________________________
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information required by this item appears on pages
F-1 through F-8 of this report, and is incorporated
herein by reference.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item appears on pages
F-9 through F-28 of this report, and is incorporated
herein by reference.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Shawmut Bank Connecticut, N.A., one of the Corporation's
subsidiaries, which served as indenture trustee for
certain healthcare receivable backed bonds issued by
certain special purpose subsidiaries (the "Towers
subsidiaries") of Towers Financial Corporation
("Towers"), has been named in a lawsuit filed 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 Towers
subsidiaries defaulted on the bonds and Towers and the
subsidiaries later filed for bankruptcy protection.
The complaint, which also names as a defendant the
company that issued a double-A rating on the bonds,
alleges that Towers engaged in a massive fraud against
bondholders which, according to the complaint, should
have been detected at an early stage by the bond rating
agency and the indenture trustee. The Corporation
believes that its actions were not the cause of any loss
by the bondholders, and it is vigorously defending the
action.
The Corporation is also 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.
Item 5. Other Information
By press release dated March 2, 1994, the Corporation
announced that it had signed a definitive agreement to
acquire Cohasset Savings Bank of Cohasset, Massachusetts,
for $16 in cash per Cohasset share, for a total of $16.9
million. A copy of the press release is incorporated in
this Form 10-Q as Exhibit 99.1 to Part II.
<PAGE> 2
By press release dated March 8, 1994, the Corporation
announced that it had signed a definitive agreement to
acquire West Newton Savings Bank of West Newton,
Massachusetts, for $45.4 million in cash, or $25 per
share, subject to upward adjustment in certain
circumstances. A copy of the press release is
incorporated in this Form 10-Q as Exhibit 99.2
to Part II.
By press release dated March 31, 1994, the Corporation
announced that the Office of the Comptroller of the
Currency had approved the application of Shawmut Bank,
N.A., one of its principal operating subsidiaries, to
acquire Peoples Savings Bank, a wholly owned subsidiary
of Peoples Bancorp of Worcester, Inc. A copy of the
press release is incorporated in this Form 10-Q as
Exhibit 99.3 to Part II.
By press release dated April 7, 1994, the Corporation
announced that Shawmut Bank Connecticut, N.A., one of its
principal operating subsidiaries, issued $250 million in
medium-term bank notes under an existing $2 billion bank
note program for its two principal banking subsidiaries.
A copy of the press release is incorporated in this Form
10-Q as Exhibit 99.4 to Part II.
By press release dated April 28, 1994, the Corporation
announced that it had received regulatory approval from
the Board of Governors of the Federal Reserve System to
acquire New Dartmouth Bank of Manchester, New Hampshire.
A copy of the press release is incorporated in this Form
10-Q as Exhibit 99.5 to Part II.
Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
are listed on the Exhibits Index on page 7 of this
report and are filed herewith or are incorporated
herein by reference.
(b) Reports on Form 8-K - The Corporation filed four
reports on Form 8-K during the quarter ended
March 31, 1994.
The report dated February 28, 1994 (Item 7), filed
the Shawmut National Corporation Split-Dollar Life
Insurance Plan, as adopted September 10, 1991,
effective October 31, 1991, as amended and restated
as of November 24, 1992.
<PAGE> 3
The report dated March 1, 1994 (Item 5), reported
that on March 1, 1994, the Corporation filed with the
Board of Governors of the Federal Reserve System (the
"Board") a petition seeking reconsideration of the
Board's November 15, 1993 decision not to approve the
Corporation's application to acquire all of the
outstanding voting shares of New Dartmouth Bank, and a
request for approval of such application.
The report dated March 7, 1994 (Items 5 and 7),
reported that on March 7, 1994, the Board of
Governors of the Federal Reserve System (the "Board")
announced that it would defer action on a petition by
the Corporation seeking reconsideration of the Board's
November 15, 1993 decision not to approve the
Corporation's application to acquire all of the
outstanding voting shares of New Dartmouth Bank. The
Board said that it expected to consider the petition
no later than May 2, 1994. The report filed a copy of
the Board's March 7, 1994 press release.
The report dated March 28, 1994 (Item 7), filed:
(1) Consent of Independent Accountants of New Dartmouth
Bank.
(2) Consent of Independent Auditors of Peoples Bancorp of
Worcester, Inc. and Subsidiaries.
(3) Consent of Independent Auditors of Gateway
Financial Corporation and Subsidiaries.
(4) Consent of Independent Auditors of Gateway
Financial Corporation and Subsidiaries.
(5) Consent of Independent Accountants of Cohasset
Savings Bank.
(6) Consent of Independent Accountants of West Newton
Savings Bank and Subsidiaries.
(7) Unaudited Financial Information of New Dartmouth Bank
as of December 31, 1993.
(8) Financial Statements of New Dartmouth Bank as of
June 30, 1993.
(9) Financial Statements of Peoples Bancorp of
Worcester, Inc. and Subsidiaries as of
December 31, 1993.
<PAGE> 4
(10) Financial Statements of Gateway Financial
Corporation and Subsidiaries as of December 31,
1993.
(11) Financial Statements of Cohasset Savings Bank as
of December 31, 1993.
(12) Financial Statements of West Newton Savings Bank
and Subsidiaries as of December 31, 1993.
(13) Shawmut National Corporation and Subsidiaries/New
Dartmouth Bank; Peoples Bancorp of Worcester, Inc.
and Subsidiaries; Gateway Financial Corporation
and Subsidiaries; Cohasset Savings Bank and West
Newton Savings Bank and Subsidiaries Unaudited Pro
Forma Condensed Financial Information.
<PAGE> 5
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 thereunto duly authorized.
SHAWMUT NATIONAL CORPORATION
(Registrant)
Date: May 13, 1994 By (Joel B. Alvord)
_____________________________
Joel B. Alvord
Chairman and
Chief Executive Officer
Date: May 13, 1994 By (Bharat Bhatt)
______________________________
Bharat Bhatt
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
<PAGE> 6
EXHIBITS INDEX
FILED AS PART OF THIS REPORT ON FORM 10-Q
PART I None
PART II
Sequentially
Numbered
Exhibit Number Description Page
12 Statements re computation of ratios 36
99.1 Shawmut National Corporation press release
dated March 2, 1994 37
99.2 Shawmut National Corporation press release
dated March 8, 1994 39
99.3 Shawmut National Corporation press release
dated March 31, 1994 42
99.4 Shawmut National Corporation press release
dated April 7, 1994 43
99.5 Shawmut National Corporation press release
dated April 28, 1994 44
<PAGE> 7
<TABLE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
<CAPTION>
Three months ended
March 31
(in thousands, except per share data) 1994 1993
INTEREST AND DIVIDEND INCOME
<S> <C> <C>
Loans $ 254,281 $ 258,368
Securities
Available for sale, at fair value 33,860
At lower of aggregate cost or fair value 53,691
Held to maturity 95,072 50,427
Residential mortgages held for sale 5,385 8,426
Federal funds sold and securities purchased
under agreements to resell 718 2,945
Interest-bearing deposits in other banks 1,490 122
Trading account securities 198 234
Total 391,004 374,213
INTEREST EXPENSE
Deposits 61,030 91,981
Other borrowings 79,112 52,126
Notes and debentures 16,112 17,899
Total 156,254 162,006
NET INTEREST INCOME 234,750 212,207
Provision for loan losses 12,159
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 234,750 200,048
NONINTEREST INCOME
Customer service fees 45,920 44,545
Trust and agency fees 29,417 28,627
Securities gains (losses), net (907) 5,049
Other 9,728 21,775
Total 84,158 99,996
NONINTEREST EXPENSES
Compensation and benefits 114,075 111,597
Occupancy and equipment 35,568 39,522
Foreclosed properties provision and expense 5,168 53,035
Other 61,320 118,778
Total 216,131 322,932
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 102,777 (22,888)
Income taxes (benefit) 35,972 (6,410)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 66,805 (16,478)
Cumulative effect of changes in methods of accounting 46,200
NET INCOME $ 66,805 $ 29,722
NET INCOME APPLICABLE TO COMMON SHARES $ 62,946 $ 25,855
COMMON SHARE DATA
Income (loss) before cumulative effect
of accounting changes $ 0.66 $ (0.22)
Net income 0.66 0.28
Weighted average shares outstanding 95,806 92,950
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> F-1 8
<TABLE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (unaudited)
<CAPTION>
March 31 December 31
(in thousands) 1994 1993
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,272,065 $ 1,435,286
Interest-bearing deposits in other banks 348,490 1,073
Federal funds sold and securities purchased
under agreements to resell 55,650 7,500
Trading account securities 20,195 19,625
Residential mortgages held for sale 233,342 415,812
Securities
Available for sale, at fair value 2,159,107 2,596,382
Held to maturity
(fair value $6,720,870 and $6,470,945) 6,801,605 6,394,201
Loans, less reserve for loan
losses of $607,347 and $633,000 14,763,681 14,751,450
Premises and equipment 303,817 307,033
Foreclosed properties 35,463 47,986
Customers' acceptance liability 31,287 13,747
Other assets 1,376,759 1,254,647
Total assets $ 27,401,461 $ 27,244,742
LIABILITIES
Deposits
Demand $ 3,981,715 $ 4,587,156
Savings, money market and NOW accounts 7,253,276 7,304,708
Domestic time 2,990,473 3,158,631
Foreign time 264,800 246,740
Total deposits 14,490,264 15,297,235
Other borrowings 9,975,398 9,187,606
Acceptances outstanding 31,287 13,747
Accrued expenses and other liabilities 216,034 183,923
Notes and debentures 858,906 758,941
Total liabilities 25,571,889 25,441,452
SHAREHOLDERS' EQUITY
Preferred stock, without par value
Authorized - 10,000,000 shares
Outstanding - 1,263,700 and 1,275,000 shares 178,185 178,750
Common stock, $.01 par value
Authorized - 150,000,000 shares
Issued - 95,927,307 and 95,546,359 shares 959 955
Surplus 1,081,928 1,074,793
Retained earnings 585,299 541,455
Net unrealized gain (loss) on securities available for sale (16,786) 9,680
Treasury stock, common stock at cost (543 and 106,487 shares) (13) (2,343)
Total shareholders' equity 1,829,572 1,803,290
Total liabilities and shareholders' equity $ 27,401,461 $ 27,244,742
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> F-2 9
<TABLE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
<CAPTION>
Three months ended
March 31
(in thousands) 1994 1993
<S> <C> <C>
SHAREHOLDERS' EQUITY at beginning of period $ 1,803,290 $ 1,482,401
PREFERRED STOCK, without par value
Purchase of preferred stock (565)
COMMON STOCK, $.01 par value
Shares issued under Dividend Reinvestment
and Stock Purchase Plans (280,548 shares) 3
Shares issued under stock option and employee
benefit plans (100,400 and 71,743 shares) 1 1
SURPLUS
Additional proceeds from:
Shares issued under Dividend Reinvestment
and Stock Purchase Plans 6,135
Shares issued under stock option
and employee benefit plans 1,000 525
RETAINED EARNINGS
Net income 66,805 29,722
Cash dividends declared on:
Preferred stock (3,859) (3,867)
Common stock (19,186) (9,315)
Restricted stock awards 258 200
Reissuance of common stock from treasury (174) (5,832)
NET UNREALIZED GAIN (LOSS) ON SECURITIES
Unrealized depreciation on securities available for sale (26,466)
Unrealized appreciation on securities at lower of
aggregate cost or fair value 8,435
TREASURY STOCK
Purchase of common stock (61,667 and 4,004 shares) (1,448) (80)
Reissuance of common stock under
Dividend Reinvestment and Stock Purchase Plans
(167,611 and 550,919 shares) 3,778 16,019
SHAREHOLDERS' EQUITY at end of period $ 1,829,572 $ 1,518,209
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> F-3 10
<TABLE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
<CAPTION>
Three months ended
March 31
(in thousands) 1994 1993
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 66,805 $ 29,722
Adjustments to reconcile net income to cash
provided by operating activities:
Cumulative effect of changes in methods of accounting (46,200)
Provision for loan losses 12,159
Provision for foreclosed properties 1,852 43,011
Depreciation, amortization and other 22,358 70,801
Gains from the sale of loans, premises and equipment and other assets (3,677) (7,810)
Decrease in securities reported at the lower of
aggregate cost or fair value 480,083
Decrease (increase) in trading account securities (570) 8,587
Decrease in residential mortgages held for sale 182,470 139,568
Decrease (increase) in other assets and accrued expenses
and other liabilities (75,389) 13,701
CASH PROVIDED BY OPERATING ACTIVITIES 193,849 743,622
FINANCING ACTIVITIES
Decrease in total deposits (806,971) (966,598)
Increase in other borrowings 787,792 1,645,380
Proceeds from issuances of bank notes 100,000
Principal payments on notes and debentures (93) (694)
Proceeds from issuances of common stock 10,743 10,713
Purchases of common and preferred stock (2,013) (80)
Cash dividends paid (23,481) (3,199)
CASH PROVIDED BY FINANCING ACTIVITIES 65,977 685,522
INVESTING ACTIVITIES
Decrease (increase) in short-term investments (395,567) 271,686
Proceeds from sales of securities available for sale 1,105,201
Maturities of securities available for sale 174,755
Purchases of securities available for sale (882,856)
Maturities of securities held to maturity 416,232 83,644
Purchases of securities held to maturity (828,867) (1,785,289)
Proceeds from sales of loans 8,513 109,643
Purchases of loans (142,748)
Loans originated less principal collected 118,855 (269,970)
Purchases of premises and equipment and other assets (7,937) (7,435)
Proceeds from the sale of premises and equipment and other assets 11,372 30,723
CASH USED BY INVESTING ACTIVITIES (423,047) (1,566,998)
DECREASE IN CASH AND DUE FROM BANKS (163,221) (137,854)
Cash and due from banks at beginning of period 1,435,286 1,368,251
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,272,065 $ 1,230,397
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 170,302 $ 159,143
Income taxes paid $ 3,904 $ 449
Loans totaling $5,026 and $20,523 were transferred to foreclosed properties
during the three months ended March 31, 1994 and 1993, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> F-4
11
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Shawmut National Corporation and its subsidiaries (the Corporation).
These financial statements reflect, in management's opinion, all
adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the Corporation's financial position and results of
operations and cash flows for the periods presented. Certain amounts for
prior periods have been reclassified to conform to current period
presentation. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Corporation's 1993 Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS
The Corporation announced on March 2, 1994 the signing of a definitive
agreement to acquire Cohasset Savings Bank of Cohasset, Massachusetts,
with assets of $78.2 million at March 31, 1994. The Corporation
announced on March 8, 1994 the signing of a definitive agreement to
acquire West Newton Savings Bank of West Newton, Massachusetts, with
assets of $254.1 million at March 31, 1994. Both transactions will be
accounted for under the purchase method of accounting, are subject to
approvals by the shareholders of the respective banks and federal and
state regulatory agencies and are expected to be completed during the
third quarter of 1994. The Corporation announced on February 10, 1994
the signing of a definitive agreement to acquire 10 branches located in
Massachusetts and Rhode Island, with total deposits of approximately $427
million at March 31, 1994, from Northeast Savings, F.A. (Northeast). The
transaction was approved by the Corporation's and principal subsidiary banks'
regulators and, subject to approval by Northeast's regulators, is expected
to be completed during the second quarter of 1994.
The Corporation announced during 1993 the signing of definitive
agreements to acquire three banking organizations: New Dartmouth Bank of
Manchester, New Hampshire, with assets of $1.7 billion at March 31, 1994
which was approved by regulators on April 28, 1994; Peoples Bancorp of
Worcester, Inc. (Peoples) of Worcester, Massachusetts, with assets of
$870.7 million at March 31, 1994 which was approved by regulators on March
30, 1994; and Gateway Financial Corporation (Gateway) of Norwalk,
Connecticut, with assets of $1.3 billion at March 31, 1994. The Gateway
merger is subject to approvals by its shareholders and federal and state
regulatory agencies and is expected to be completed no later than the third
quarter of 1994. The New Dartmouth Bank and Peoples mergers will be
completed during the second quarter of 1994. These transactions will be
accounted for as poolings of interest.
NOTE 3 - SECURITIES
<TABLE>
A summary of the amortized cost and fair value of securities classified as
available for sale at March 31, 1994 and December 31, 1993 is as follows:
<CAPTION>
March 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
(in thousands) cost value cost value
U.S. Government and agency securities
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,213,169 $ 1,187,503 $ 1,554,048 $ 1,551,887
Mortgage backed 267,913 278,842 332,566 352,978
Corporate mortgage backed and other securities 467,033 456,237 480,176 478,745
Equity securities 236,679 236,383 214,558 212,618
State and municipal obligations 138 142 142 154
Total $ 2,184,932 $ 2,159,107 $ 2,581,490 $ 2,596,382
</TABLE>
<PAGE> F-5 12
U.S. Treasury securities with an aggregate carrying amount of $476.0
million were subject to combination options at March 31, 1994, which
limited the risk of changes in the market value of these securities.
These U.S. Treasury securities were put to the counterparty on April 4,
1994 upon expiration of the options, resulting in no realized gain or
loss.
The amortized cost of securities classified as available for sale exceeded
fair value by approximately $25.8 million at March 31, 1994, consisting of
unrealized losses of approximately $46.9 million and unrealized gains of
approximately $21.1 million. Included as a separate component of
shareholders' equity were net unrealized losses of $16.8 million and net
unrealized gains of $9.7 million on securities classified as available for
sale at March 31, 1994 and December 31, 1993, respectively. These net
unrealized losses and gains are net of income tax effects of $9.0 million
and $5.2 million, respectively.
<TABLE>
The amortized cost and fair value of securities classified as held to
maturity at March 31, 1994 and December 31, 1993 are summarized as
follows:
<CAPTION>
March 31, 1994 December 31, 1993
Amortized Fair Amortized Fair
(in thousands) cost value cost value
U.S. Government and agency securities
<S> <C> <C> <C> <C>
Mortgage backed $ 3,097,730 $ 3,077,947 $ 3,155,070 $ 3,215,844
U.S. Treasury 1,872,550 1,818,267 1,546,569 1,541,577
Asset backed and other securities 1,831,325 1,824,656 1,692,562 1,713,524
Total $ 6,801,605 $ 6,720,870 $ 6,394,201 $ 6,470,945
</TABLE>
The amortized cost of securities classified as held to maturity exceeded
fair value by approximately $80.7 million at March 31, 1994, consisting of
unrealized losses of approximately $99.9 million and unrealized gains of
approximately $19.2 million.
NOTE 4 - LOANS
<TABLE>
The components of loans at March 31, 1994 and December 31, 1993, net of
unearned income of $2.9 million and $5.4 million, respectively, are
summarized below:
<CAPTION> March 31, December 31,
(in thousands) 1994 1993
<C> <C> <C>
Commercial and industrial $ 6,106,190 $ 6,321,289
Owner-occupied commercial real estate 1,323,845 1,388,065
Real estate investor/developer
Commercial mortgage 1,228,384 1,225,050
Construction and other 144,144 152,849
Total investor/developer 1,372,528 1,377,899
Consumer
Residential mortgage 4,300,764 4,036,791
Home equity 1,344,153 1,387,593
Installment and other 923,548 872,813
Total consumer 6,568,465 6,297,197
Total 15,371,028 15,384,450
Less reserve for loan losses 607,347 633,000
Total $ 14,763,681 $ 14,751,450
</TABLE>
<PAGE> F-6 13
NOTE 5 - OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
The components of other assets at March 31, 1994 and December 31, 1993 are
presented below:
<CAPTION> March 31, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Receivable for securities sold $ 215,388 $ 215,564
Net deferred income taxes 209,378 202,321
Accrued interest income 172,800 154,674
Cash surrender value of life insurance 150,594
Prepaid pension expense 128,971 129,493
Goodwill 103,738 105,104
Other 395,890 447,491
Total $ 1,376,759 $ 1,254,647
The components of accrued expenses and other liabilities at March 31, 1994
and December 31, 1993 are presented below:
March 31, December 31,
(in thousands) 1994 1993
Accrued interest expense $ 53,600 $ 67,648
Accrued dividends payable 22,519 22,955
Accrued taxes payable 20,631
Accrued postemployment benefits expense 8,913 8,400
Accrued postretirement health care and life insurance benefits expense 8,536 6,214
Accrued restructuring expenses 2,698 6,854
Other 99,137 71,852
Total $ 216,034 $ 183,923
</TABLE>
NOTE 6 - OTHER NONINTEREST INCOME AND NONINTEREST EXPENSES
<TABLE>
The components of other noninterest income for the three months ended
March 31, 1994 and 1993 were as follows:
<CAPTION>
Three months ended
March 31,
(in thousands) 1994 1993
<S> <C> <C>
Loan servicing $ 3,817 $ 5,645
Trading account profits 1,165 1,812
Foreign exchange trading profits (losses) (721) 125
Residential mortgage sales gains 678 11,467
Other 4,789 2,726
Total $ 9,728 $ 21,775
</TABLE>
<PAGE> F-7 14
<TABLE>
The components of noninterest expenses for the three months ended
March 31, 1994 and 1993 were as follows:
<CAPTION>
Three months ended
March 31,
(in thousands) 1994 1993
<S> <C> <C>
Compensation $ 92,966 $ 92,422
Benefits 21,109 19,175
Total $ 114,075 $ 111,597
Occupancy $ 23,288 $ 24,426
Equipment 12,280 15,096
Total $ 35,568 $ 39,522
Foreclosed properties
Provision $ 1,852 $ 43,011
Expense 3,316 10,024
Total $ 5,168 $ 53,035
Federal Deposit Insurance Corporation premiums $ 8,968 $ 11,580
Communications 8,908 10,356
Advertising 3,885 6,429
Excess servicing writedowns 14,150
Restructuring charges 36,319
Other 39,559 39,944
Total $ 61,320 $ 118,778
</TABLE>
<PAGE> F-8 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Shawmut National Corporation (the Corporation) reported net income for the
first quarter of 1994 of $66.8 million, or $.66 per common share, an increase
of $37.1 million from the $29.7 million, or $.28 per common share, of net
income reported in the first quarter of last year.
The 1993 first quarter results of operations included the following:
restructuring charges of $36.3 million relating to branch closings
and personnel reductions, foreclosed properties provisions of $20.0
million related to a bulk sale of foreclosed properties and a $14.1
million writedown in the value of excess servicing rights in
various securitized loan portfolios;
an after-tax credit of $52.8 million representing the cumulative
effect of an accounting change resulting from the Corporation's
adoption of the Financial Accounting Standards Board's new
accounting standard for income taxes; and
an after-tax charge of $6.6 million relating to the adoption of
Statement of Financial Accounting Standards (FAS) No. 112,
"Employers' Accounting for Postemployment Benefits".
Income for the first quarter of 1994 did not reflect any cumulative
effects of accounting changes. The loss before the cumulative effect of
accounting changes was $16.5 million, or $.22 per common share, for the
first quarter of 1993.
Asset quality continued to improve as nonaccruing loans plus foreclosed
properties decreased $50.0 million, or 14 percent, to $307.5 million at March
31, 1994 from $357.5 million at December 31, 1993. The ratio of nonaccruing
loans plus foreclosed properties to loans plus foreclosed properties declined
to 2.00 percent at March 31, 1994 from 2.32 percent at December 31, 1993.
The reserve for loan losses was $607.3 million at March 31, 1994, compared
with $633.0 million at December 31, 1993. There was no provision for loan
losses in the first quarter of 1994, compared with a $12.2 million provision
in the first quarter of 1993.
Net charge-offs were $25.7 million for the first quarter of 1994, equal to an
annualized rate of .69 percent of average loans outstanding, compared with
$49.2 million of net charge-offs for the first quarter of 1993 and a rate of
1.34 percent of average loans outstanding. The ratio of the reserve for loan
losses to nonaccruing loans was 223 percent at March 31, 1994, compared with
205 percent at December 31, 1993.
Capital continued to strengthen during the first quarter of 1994 as
shareholders' equity increased $26.3 million to $1.83 billion, or 6.68
percent of total assets at March 31, 1994 from $1.80 billion, or 6.62 percent
of assets at December 31, 1993. The Corporation's and principal subsidiary
banks' Risk-based capital and Leverage ratios exceed the requirements for a
well-capitalized financial institution at March 31, 1994.
The Corporation's common stock closed at $20.25 per share on March 31, 1994,
representing 118 percent of the $17.22 book value per common share, compared
with $21.75 per share and 128 percent of the $17.02 book value per common
share at December 31, 1993.
The Corporation announced during 1994 the signing of definitive agreements to
acquire two banking organizations: Cohasset Savings Bank of Cohasset,
Massachusetts, with assets of $78.2 million at March 31, 1994, was announced on
March 2, 1994; and West Newton Savings Bank of West Newton, Massachusetts,
with assets of $254.1 million at March 31, 1994, was announced on March 8, 1994.
Both transactions will be accounted for under the purchase method of
accounting, are subject to approvals by the shareholders of the respective
banks and federal and state regulatory agencies and are expected to be
completed during the third quarter of 1994. Also announced on February 10,
1994 was the signing of a definitive agreement to acquire 10 branches located
in Massachusetts and Rhode Island, with total deposits of approximately $427
million at quarter end, from Northeast Savings, F.A. Regulatory approval was
received for this transaction from the Corporation's and principal subsidiary
banks' regulators and, subject to approval from Northeast's regulators,
is expected to be completed during the second quarter of 1994.
<PAGE> F-9 16
The Corporation's previously announced acquisitions of New Dartmouth Bank of
Manchester, New Hampshire and Peoples Bancorp of Worcester, Inc. of
Worcester, Massachusetts have been approved by regulators and will be
completed during the second quarter of 1994.
<TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
INTEREST AND DIVIDEND INCOME
(tax-equivalent basis)
<S> <C> <C> <C> <C> <C>
Loans $ 255.4 $ 262.7 $ 263.7 $ 266.1 $ 259.7
Securities
Available for sale, at fair value 35.5
At lower of aggregate cost or fair value 57.5 53.3 51.6 55.5
Held to maturity 95.1 72.8 72.1 68.7 50.4
Residential mortgages held for sale 5.4 6.1 7.3 7.8 8.4
Short-term investments 2.2 1.8 2.3 2.3 3.1
Trading account securities 0.2 0.5 0.4 0.7 0.4
Total interest income 393.8 401.4 399.1 397.2 377.5
INTEREST EXPENSE
Deposits 61.1 66.3 70.5 79.3 92.0
Other borrowings 79.1 72.1 70.1 63.1 52.1
Notes and debentures 16.1 17.4 18.4 18.4 17.9
Total interest expense 156.3 155.8 159.0 160.8 162.0
NET INTEREST INCOME
(tax-equivalent basis) 237.5 245.6 240.1 236.4 215.5
Tax-equivalent adjustment 2.7 3.0 3.4 3.3 3.3
NET INTEREST INCOME $ 234.8 $ 242.6 $ 236.7 $ 233.1 $ 212.2
INTEREST RATE SPREAD
(tax-equivalent basis) 3.35 % 3.48 % 3.52 % 3.53 % 3.37 %
NET INTEREST MARGIN
(tax-equivalent basis) 3.87 % 4.00 % 4.05 % 4.10 % 4.01 %
</TABLE>
The Corporation's tax-equivalent net interest income was $237.5 million for
the first quarter of 1994, an increase of $22.0 million, or 10 percent, from
$215.5 million in the first quarter of 1993. The increase in tax-equivalent
net interest income reflects a higher level of interest-earning assets,
primarily securities. Average securities increased $3.1 billion to $9.1
billion in the first quarter of 1994 from $6.0 billion in the first quarter
of 1993. The growth in the securities portfolio resulted from the
reinvestment of earnings and excess liquidity into available investment
alternatives given the lack of overall loan demand. The Corporation expects
that as loan demand increases, the maturities from the securities portfolio
will be used to fund loan growth. An analysis of the changes in net interest
income due to changes in interest rates and from asset and liability volume
is presented on page F-11.
The net interest margin for the first quarter of 1994 was 3.87 percent, a
decrease of 14 basis points from 4.01 percent in the comparable prior year
quarter. The decline reflects a shift in the mix of average interest-earning
assets from loans to securities. During the first quarter of 1994, the
Corporation's short-term borrowing costs increased as a result of a rise in
overall interest rates which contributed to the decrease in the net interest
margin from 4.00 percent in the fourth quarter of 1993 to 3.87 percent in the
first quarter of 1994. If further increases in interest rates occur, then the
resultant contraction of the spread between the Corporation's interest-earning
assets and funding sources would continue to affect the net interest margin.
<PAGE> F-10 17
RATE - VOLUME ANALYSIS
The following table, which is presented on a tax-equivalent basis, reflects
the changes in net interest income stemming from changes in interest rates
and from asset and liability volume, including mix. The change in interest
attributable to both rate and volume has been allocated to the changes in the
rate and volume on a pro rata basis.
<TABLE>
<CAPTION>
Quarter ended
March 31, 1994 Increase Changes due to Increase Changes due to
(in millions) (Decrease) Rate Volume (Decrease) Rate Volume
from quarter from quarter
ended Dec 31 ended Mar 31
1993 1993
INTEREST AND
DIVIDEND INCOME
CHANGE
<S> <C> <C> <C> <C> <C> <C>
Loans $ (7.3) $ (8.0) $ .7 $ (4.3) $ (8.7) $ 4.4
Securities 0.3 0.3 24.7 (19.0) 43.7
Residential mortgages
held for sale (0.7) (0.7) (3.0) (1.0) (2.0)
Short-term investments 0.4 0.1 0.3 (0.9) 0.3 (1.2)
Trading account
securities (0.3) (0.3) (0.2) (0.1) (0.1)
Total interest
income change (7.6) (7.9) .3 16.3 (28.5) 44.8
INTEREST EXPENSE
CHANGE
Savings, money market
and NOW accounts (1.4) (0.4) (1.0) (16.1) (15.0) (1.1)
Time certificates of
deposit of $100
thousand or more (0.3) (0.3) (3.4) (0.2) (3.2)
Domestic time deposits (3.1) (1.4) (1.7) (12.4) (6.9) (5.5)
Foreign time deposits (0.4) 0.1 (0.5) 1.0 0.1 0.9
Total interest on
deposits change (5.2) (1.7) (3.5) (30.9) (22.0) (8.9)
Other borrowings 7.0 3.2 3.8 27.0 (5.2) 32.2
Notes and debentures (1.3) (1.3) (1.8) (0.7) (1.1)
Total interest
expense change 0.5 1.5 (1.0) (5.7) (27.9) 22.2
NET INTEREST
INCOME CHANGE $ (8.1) $ (9.4) $ 1.3 $ 22.0 $ (0.6) $ 22.6
</TABLE>
<PAGE> F-11 18
PROVISION FOR LOAN LOSSES
There was no provision for loan losses in the first quarter of 1994. The
provision for loan losses was $12.2 million in the first quarter of 1993.
With strong reserve coverage of nonaccruing loans and the continued
improvement in the credit quality of the loan portfolio, the Corporation
does not currently anticipate that provisions for loan losses will be
necessary for the remainder of 1994 other than provisions that may be
appropriate for pending acquisitions. Future levels of the reserve for loan
losses and loan loss provisions may be affected by changes in economic
conditions and loan quality.
<TABLE>
NONINTEREST INCOME
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
Customer service fees:
Deposit transaction and other
<S> <C> <C> <C> <C> <C>
services $ 20.4 $ 20.7 $ 21.1 $ 20.8 $ 19.5
Cash management services 17.7 17.6 18.3 17.7 20.8
Credit and trade related services 5.0 2.2 2.4 2.2 2.0
Investment services and commissions 2.8 3.1 2.8 3.0 2.2
Total 45.9 43.6 44.6 43.7 44.5
Trust and agency fees:
Personal 18.7 18.2 18.4 18.6 17.5
Institutional 4.8 4.2 5.3 4.6 4.9
Corporate 3.6 4.7 3.9 3.3 4.0
Not for profit 2.3 2.4 2.3 2.3 2.2
Total 29.4 29.5 29.9 28.8 28.6
Other income:
Loan servicing 3.8 0.4 2.2 4.2 5.6
Trading account profits 1.2 1.3 1.5 1.8 1.8
Foreign exchange trading profits (losses) (0.7) 2.7 0.2 (0.1) 0.1
Residential mortgage sales gains 0.7 1.8 3.6 6.6 11.5
Other 4.8 9.0 5.2 5.2 2.8
Total 9.8 15.2 12.7 17.7 21.8
Total 85.1 88.3 87.2 90.2 94.9
Securities gains (losses), net (0.9) 0.4 0.1 0.1 5.1
Total noninterest income $ 84.2 $ 88.7 $ 87.3 $ 90.3 $ 100.0
</TABLE>
Noninterest income (excluding securities gains and losses) was $85.1 million
for the first quarter of 1994, a decrease of $9.8 million, or 10 percent,
from $94.9 million for the first quarter of 1993.
Customer service fees increased $1.4 million to $45.9 million for the first
quarter of 1994 from $44.5 million for the comparable prior year quarter.
Higher levels of customer credit facilities increased credit and trade
related service fees $3.0 million for the first quarter of 1994. Deposit
transaction and other services increased $.9 million due to an increase in the
volume of consumer related deposit transaction fees. Offsetting these
increases was a decrease in cash management fees of $3.1 million which
reflects a decline in the customer base and competitive price concessions.
Trust and agency fees increased $.8 million to $29.4 million in the first
quarter of 1994 from $28.6 million a year ago. Personal trust income, which
grew $1.2 million, resulted from higher levels of assets under management and
fee increases.
Other income declined $12.0 million to $9.8 million in the first quarter of
1994 from $21.8 million in the first quarter of 1993. Gains on residential
mortgage loan sales declined $10.8 million as the Corporation increased
its residential mortgage loan portfolio and also reflected a lower level of
secondary market activity as rising interest rates in early 1994 slowed
mortgage sales. Loan servicing income declined $1.8 million due to higher
levels of prepayment activity during the later part of 1993. Foreign
exchange losses contributed $.8 million to the decline in other income as a
result of increases in interest rates in early 1994.
<PAGE> F-12 19
<TABLE>
NONINTEREST EXPENSES
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Compensation $ 93.0 $ 95.5 $ 95.9 $ 93.0 $ 92.4
Benefits 21.1 18.1 19.5 20.3 19.2
Occupancy 23.3 23.6 22.7 22.8 24.4
Equipment 12.3 13.1 12.0 13.5 15.1
Federal Deposit Insurance Corporation premiums 9.0 10.4 10.4 11.1 11.6
Communications 8.9 9.6 9.9 10.3 10.4
Advertising 3.9 5.3 4.6 4.3 6.4
Foreclosed properties expense 3.3 3.2 4.8 9.6 10.0
Other 39.5 41.0 44.9 43.9 40.0
Total 214.3 219.8 224.7 228.8 229.5
Special expenses 3.5 50.4
Foreclosed properties provision 1.9 4.9 8.6 11.6 43.0
Total noninterest expenses $ 216.2 $ 228.2 $ 233.3 $ 240.4 $ 322.9
</TABLE>
Noninterest expenses, excluding foreclosed properties provision and special
expenses in 1993, were $214.3 million for the first quarter of 1994, a
decrease of $15.2 million, or 7 percent, from $229.5 million for the first
quarter of 1993.
Compensation expense increased $.6 million, or .6 percent, to $93.0 million
for the first quarter of 1994 from $92.4 million for the comparable prior
year period. Compensation expense includes normal salary increases and the
addition of new staff in the Corporation's targeted growth area of investment
products and services, offset by reductions in personnel from the
restructuring program announced in the first quarter of 1993. Full-time
equivalent employees totaled 9,710 at March 31, 1994, compared with 10,477 at
March 31, 1993.
Benefits expense increased $1.9 million to $21.1 million for the first
quarter of 1994 from $19.2 million a year ago. Severance benefits of
$1.4 million attributable to selected workforce reductions that occurred
during 1994 as part of ongoing cost saving initiatives increased
benefits expense for the period.
Declines in occupancy, equipment and communications expenses for the first
quarter of 1994 from the comparable 1993 period result from the restructuring
program announced in the first quarter of 1993, which included branch
closings and consolidations, as well as from certain other expense reduction
programs.
Foreclosed properties expense declined $6.7 million from $10.0 million in the
first quarter of 1993 to $3.3 million in the 1994 period and reflects the
decline in the level of foreclosed properties at March 31, 1994 from the
comparable prior year period.
Special expenses of $50.4 million in the first quarter of 1993 included $36.3
million for restructuring costs and a $14.1 million writedown in the value of
excess servicing rights. The carrying values of excess servicing rights of
various securitized consumer loan portfolios were reduced during the first
quarter of 1993 in view of prepayment experience and the decline in interest
rates. The restructuring program included personnel reductions in data
processing and operations, corporate staff and services and credit
administration and has resulted in net reductions of approximately 770
full-time equivalent employees at March 31, 1994 and the closing or
consolidation of approximately 37 branches. At March 31, 1994 the
restructuring program announced in the first quarter of 1993 was substantially
completed.
<PAGE> F-13 20
<TABLE>
PROVISION FOR FORECLOSED PROPERTIES
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Total $ 1.9 $ 4.9 $ 8.6 $ 11.6 $ 43.0
Excluding charges for bulk sales,
auctions and estimated selling costs 1.9 4.9 8.6 11.6 15.3
</TABLE>
The provision for foreclosed properties was $1.9 million for the first
quarter of 1994, compared with $43.0 million for the first quarter of 1993,
or a decrease of $41.1 million. The provision for foreclosed properties for
the 1993 first quarter included a provision of $20.0 million relating to a
bulk sale of foreclosed properties that occurred in the second quarter of
1993 and $7.7 million related to a pool of foreclosed commercial properties
subject to auction. The decline in the foreclosed properties provision
during the first quarter of 1994 reflects the decline in the level of
foreclosed properties from period to period.
INCOME TAXES
The provision for income taxes for the first quarter of 1994 was $36.0
million, representing an effective income tax rate of 35.0 percent. The
income tax benefit for the first quarter of 1993 was $6.4 million,
representing an effective income tax rate of 27.9 percent. The change in the
effective income tax rate reflects the higher corporate income tax rates
enacted in the later part of 1993 and the full utilization of federal income
tax benefits as of December 31, 1993. During the first quarter of 1993, the
Corporation realized an after-tax credit of $52.8 million representing the
cumulative effect of an accounting change resulting from the adoption of FAS
No. 109, "Accounting for Income Taxes".
FINANCIAL CONDITION
LOANS
The Corporation's loan portfolio was $15.4 billion at March 31, 1994,
unchanged from December 31, 1993. The Corporation has a diversified loan
portfolio with the consumer portfolio representing 43 percent of total loans
at March 31, 1994. Commercial and industrial loans represented 40 percent of
total loans at that date. Owner-occupied commercial real estate and investor/
developer real estate loans were 9 percent and 8 percent, respectively. The
table on page F-22 presents an analysis of the loan portfolio by type. The
tables on pages F-24 and F-25 present an analysis of the loan portfolio by
industry sector.
While the overall total amount of the loan portfolio remained unchanged at
March 31, 1994 compared with December 31, 1993, the mix of loans has changed.
Consumer lending, which includes residential mortgage, home equity and
installment loans, increased $271.3 million from $6.3 billion at year end
1993 to $6.6 billion at March 31, 1994, primarily as a result of growth in
the residential mortgage loan portfolio.
Commercial and industrial loans declined from $6.3 billion at year end 1993
to $6.1 billion at March 31, 1994, or $215.1 million. Certain sectors of the
Corporation's commercial loan portfolio reflected growth as specialized
lending (radio, television and cable) and asset based lending increased
$273.6 million and $62.7 million, respectively. These increases were offset
by reductions of $687.0 million in certain money market priced loans with
narrow profit margins.
Owner-occupied commercial real estate and investor/developer real estate
loans declined $69.6 million from $2.8 billion at year end 1993 to $2.7
billion at March 31, 1994, consistent with the overall decline in commercial
real estate lending.
A discussion of the credit quality of the Corporation's loan portfolio begins
on page F-20.
<PAGE> F-14 21
SECURITIES
Securities classified as held to maturity and reported at amortized cost
increased $407.4 million to $6.8 billion at March 31, 1994 from $6.4 billion
at December 31, 1993. Securities classified as available for sale totaled
$2.2 billion at March 31, 1994, compared with $2.6 billion at December 31,
1993. Securities available for sale declined as sales and maturities were
reinvested in the held to maturity securities portfolio. Additional
information regarding the Corporation's securities portfolio is presented in
Note 3 of Notes to Consolidated Financial Statements on page F-5.
DEPOSITS AND OTHER SOURCES OF FUNDS
Interest-bearing liabilities averaged $20.5 billion for the first quarter of
1994, compared with $17.8 billion for the comparable period of 1993,
reflecting higher levels of other borrowings which supported the increase in
average interest earning assets. Core deposits, which do not include large
denomination certificates of deposits, brokered retail deposits or foreign
time deposits, were $13.9 billion at March 31, 1994, compared with $14.8
billion at December 31, 1993.
Other borrowings, primarily securities sold under agreements to repurchase,
increased $787.8 million to $10.0 billion at March 31, 1994 from $9.2 billion
at December 31, 1993 as a result of the decline in core deposits since year
end 1993.
<TABLE>
CAPITALIZATION
The Corporation's Risk-based capital and Leverage ratios were as follows:
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Shareholders' equity $ 1,829.6 $ 1,803.3 $ 1,659.5 $ 1,575.4 $ 1,518.2
Tier 1 capital 1,742.6 1,686.6 1,551.3 1,467.3 1,408.7
Total capital 2,580.2 2,549.0 2,406.1 2,318.2 2,167.0
Risk-weighted assets 21,133.1 20,692.4 20,054.5 19,703.4 18,755.1
Ratios:
Shareholders' equity to assets 6.68 % 6.62 % 6.16 % 6.11 % 6.06 %
Risk-based capital ratios
Tier 1 capital 8.25 8.15 7.74 7.45 7.51
Total capital 12.21 12.32 12.00 11.77 11.55
Leverage ratio 6.50 6.34 6.02 5.84 5.95
</TABLE>
The Corporation's total shareholders' equity at March 31, 1994 was $1.8
billion, or 6.68 percent of assets, compared with $1.8 billion, or 6.62
percent of assets, at December 31, 1993, an increase of $26.3 million. This
increase for the first quarter of 1994 is after a $26.5 million charge
reflecting the net after-tax unrealized loss on the Corporation's $2.2
billion available for sale securities portfolio. Further volatility in
shareholders' equity may occur as the fair value of the Corporation's
available for sale securities portfolio changes with market conditions.
The Corporation's Tier 1 and Total capital ratios were 8.25 percent and 12.21
percent at March 31, 1994, respectively, compared with 8.15 percent and 12.32
percent at December 31, 1993, respectively. The Leverage ratio, a measure of
Tier 1 capital to average quarterly assets, increased to 6.50 percent at
March 31, 1994 from 6.34 percent at December 31, 1993 which reflects the
increase in Tier 1 capital. Under Federal banking regulations, an
institution is deemed to be well-capitalized if it has a Risk-based Tier 1
capital ratio of 6.00 percent or greater, a Risk-based Total capital ratio of
10.00 percent or greater and a Leverage ratio of 5.00 percent or greater.
The Corporation exceeds the requirements for a well-capitalized financial
institution at March 31, 1994.
<PAGE> F-15 22
<TABLE>
The Corporation's principal subsidiary banks' (Shawmut Bank Connecticut and
Shawmut Bank Massachusetts) Risk-based capital and Leverage ratios were as
follows:
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
SHAWMUT BANK CONNECTICUT
<S> <C> <C> <C> <C> <C>
Shareholder's equity $ 1,137.0 $ 1,131.6 $ 1,009.4 $ 917.3 $ 891.1
Tier 1 capital 1,095.6 1,075.0 953.0 859.7 832.3
Total capital 1,235.4 1,210.8 1,076.4 980.9 950.9
Risk-weighted assets 10,989.9 10,652.1 9,635.9 9,439.9 9,216.0
Ratios:
Shareholder's equity to assets 7.85 % 7.80 % 7.49 % 7.19 % 7.08 %
Risk-based capital ratios
Tier 1 capital 9.97 10.09 9.89 9.11 9.03
Total capital 11.24 11.37 11.17 10.39 10.32
Leverage ratio 7.84 7.79 7.53 6.95 7.21
SHAWMUT BANK MASSACHUSETTS
Shareholders' equity $ 987.8 $ 984.6 $ 927.2 $ 901.0 $ 875.0
Tier 1 capital 966.0 948.6 899.9 872.7 845.8
Total capital 1,111.2 1,099.2 1,052.9 1,025.2 992.5
Risk-weighted assets 9,903.9 9,709.4 9,889.7 9,836.4 9,233.4
Ratios:
Shareholders' equity to assets 7.43 % 7.64 % 6.94 % 6.72 % 6.81 %
Risk-based capital ratios
Tier 1 capital 9.75 9.77 9.10 8.87 9.16
Total capital 11.22 11.32 10.65 10.42 10.75
Leverage ratio 7.42 7.39 7.00 6.88 6.97
</TABLE>
The Corporation's principal subsidiary banks' Risk-based capital and Leverage
ratios exceed the requirements for a well-capitalized financial institution at
March 31, 1994.
<PAGE> F-16 23
<TABLE>
INTEREST RATE SENSITIVITY
The table below depicts the Corporation's interest rate sensitivity as of
March 31, 1994. Allocations of assets and liabilities, including
noninterest-bearing sources of funds, to specific periods are based upon
management's assessment of contractual or anticipated repricing
characteristics. Those gaps are then adjusted for the net effect of
off-balance sheet financial instruments such as interest rate swap and U.S.
Treasury combination option agreements and futures contracts.
<CAPTION>
Repricing Periods
Two- Four- Seven- Ten- Over
One three six nine twelve one
(in millions) month months months months months year Total
Short-term investments
and other interest-
<S> <C> <C> <C> <C> <C> <C> <C>
earning assets $ 296 $ 361 $ 657
Securities 873 300 $ 348 $ 315 $ 298 $ 6,827 8,961
Loans 5,637 2,935 1,194 613 528 4,464 15,371
Total interest-
earning assets 6,806 3,596 1,542 928 826 11,291 24,989
Interest-bearing
deposits 4,556 2,609 489 226 248 2,381 10,509
Other borrowings 9,136 622 54 1 134 28 9,975
Notes and debentures 50 100 709 859
Noninterest-bearing
sources of funds 362 723 2,561 3,646
Total 14,104 4,054 543 227 382 5,679 24,989
Off-balance sheet
financial instruments (105) 2,503 100 (2,515) (68) 85
Interest rate
sensitivity gap $ (7,403) $ 2,045 $ 1,099 $ (1,814) $ 376 $ 5,697
Cumulative gap $ (7,403) $ (5,358) $ (4,259) $ (6,073) $ (5,697) $ 0
Interest rate sensitivity
gap as a percent
of interest-earning
assets (29.6)% 8.2 % 4.4 % (7.3)% 1.5 %
Cumulative gap as
a percent of
interest-earning assets(29.6)% (21.4)% (17.0)% (24.3)% (22.8)%
</TABLE>
INTEREST RATE RISK
Integrated into interest rate risk management is the use of interest rate
instruments such as interest rate swaps, U.S. Treasury combination options
and futures contracts. The Corporation actively uses these instruments in
programs designed to achieve its established objectives. The notional amounts
of these instruments are not reflected in the Corporation's balance sheet.
However, these instruments are included in the interest rate sensitivity table
above for purposes of analyzing interest rate risk.
At March 31, 1994, the Corporation had approximately $2.3 billion in notional
balances of interest rate swap contracts outstanding, an increase of $300
million from $2.0 billion at December 31, 1993. The average final maturity
of the fixed-pay and fixed-receive interest rate swap agreements at March 31,
1994 was approximately 2.0 years and 3.2 years, respectively.
<PAGE> F-17 24
In addition to the interest rate swap contracts, the Corporation
utilizes interest rate cap and floor agreements to manage interest rate risk.
At March 31, 1994, the Corporation had approximately $950 million in notional
balances of purchased interest rate cap agreements and approximately $500
million in notional balances of purchased interest rate floor agreements
outstanding. Also outstanding were approximately $500 million in notional
balances of interest rate collar arrangements (consisting of a cap and a
floor). In addition, approximately $2.7 billion in notional balances of
interest rate agreements which consist of a simultaneous purchase and sale of
a cap, the combination of which are known as interest rate corridors, were
outstanding. Interest rate corridors are utilized to protect the Corporation
from a contraction in the interest rate spread due to a moderate rise in
interest rates. The unamortized premium recorded in the Corporation's
balance sheet related to interest rate cap and floor agreements was $23.3
million at March 31, 1994. The average final maturity of the interest rate
cap portfolio at March 31, 1994 was approximately 1.1 years. The average
final maturities of the interest rate floor and collar agreements at March
31, 1994 were less than one year.
Exchange-traded futures contracts are also used by the Corporation to manage
interest rate exposure. The notional balances of futures contracts at
March 31, 1994 were approximately $8.8 billion, an increase of $6.3 billion
from $2.5 billion at December 31, 1993. During the first quarter of 1994, the
Corporation entered into U.S. Treasury rate futures contracts with
approximately $404 million in notional balances to manage the risk associated
with the available for sale securities portfolio. The unrealized gain of
approximately $5.4 million at March 31, 1994 relating to these contracts has
been recorded as part of the fair value of these securities. The remaining
increase is attributed to Eurodollar futures contracts used to manage interest
rate risk on the Corporation's funding sources. The unrealized gain related
to Eurodollar futures contracts at March 31, 1994 was approximately $7.9
million. Maturities of the notional balances of futures contracts are as
follows: $6.8 billion in 1994; $1.4 billion in 1995; and $.6 billion in 1996.
<TABLE>
Activity for interest rate agreements utilized for the management of interest
rate risk for the first quarter of 1994 follows:
<CAPTION>
Plain Plain Amortizing
Notional amounts fixed fixed fixed Caps and Futures
(in millions) pay receive receive corridors Floors Collars contracts
Balance,
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993 $ 942.5 $ 141.0 $ 900.0 $ 3,356.0 $ 2,528.0
Additions 500.0 275.0 $ 500.0 $ 500.0 6,839.0
Maturities (126.0) (67.0)
Closed (483.0)
Balance,
March 31, 1994 $ 816.5 $ 74.0 $ 1,400.0 $ 3,631.0 $ 500.0 $ 500.0 $ 8,884.0
</TABLE>
As indicated in the interest rate sensitivity table, the twelve month
cumulative gap, representing the total net assets and liabilities that are
projected to reprice over the next twelve months, was liability sensitive in
the amount of $5.7 billion at March 31, 1994, compared with $2.7 billion at
December 31, 1993. A liability sensitive interest rate gap would tend to
reduce earnings over a period of rising interest rates, while declining rates
would enhance earnings. However, incorporating the effects of the interest
rate caps, floors and corridors would reduce the Corporation's interest rate
sensitivity. Based on an analysis of a 100 basis point increase in interest
rates, the twelve-month cumulative liability sensitive gap at March 31, 1994
would decrease from $5.7 billion to $3.8 billion and the effect on net
interest income would be a reduction of approximately $33.9 million for the
twelve-month period following March 31, 1994.
LIQUIDITY
Liquidity is the ability to meet cash needs arising from fluctuations in
loans, securities, deposits and other borrowings. The Corporation manages
liquidity on three levels: at a consolidated level; at the subsidiary banks
level; and at the parent companies level. The parent companies include
Shawmut National Corporation and its two bank holding companies, Hartford
National Corporation and Shawmut Corporation. In each case, the objectives
reflect management's most current assessment of economic and financial
factors that could affect funding activities.
<PAGE> F-18
25
The Corporation primarily manages its liquidity using an uncollateralized
purchased funds concept. Uncollateralized purchased funds (UPFs) consist of
federal funds purchased, large denomination certificates of deposit,
Eurodollar deposits and private placement notes. When measuring liquidity,
UPFs are offset by available short-term investments including federal funds
sold, bid-based money market loans, reverse repurchase agreements, and unused
repurchase agreement collateral (U.S. Government and agency securities and
highly liquid marketable securities).
The Corporation manages liquidity at the consolidated level and at the
subsidiary banks level by measuring the difference between the volume of UPFs
and the level of short-term investments and unused repurchase agreement
collateral. This net UPF position is managed consistent with the condition of
the Corporation's earnings, capital, asset quality and economic factors.
Growth in core loan products and a decline in interest-bearing deposits during
the first quarter of 1994 resulted in a reduction of excess liquidity since
year end 1993. At March 31, 1994, UPFs were $3.5 billion. This was offset by
$3.2 billion in short-term investments and unused repurchase agreement
collateral, leaving the Corporation with an excess of UPFs over short-term
investments and unused repurchase agreement collateral of $.3 billion.
Short-term investments and unused repurchase agreement collateral exceeded
the volume of UPFs by $1.5 billion at December 31, 1993. During the first
quarter of 1994, the Corporation expanded its available funding alternatives
by establishing a $2.0 billion bank note facility which provides access to
other diversified funding sources. Notes issued under this facility were
$100 million at March 31, 1994. Subsequent to this date, an additional
$250 million in notes were issued.
The Corporation manages the parent companies' liquidity by measuring the
difference between the volume of short-term investments and short-term
funding sources and the parent companies' ongoing obligations, including debt
maturities, interest payments and dividends.
The parent companies had consolidated short-term borrowings of $144.9 million
and notes and debentures of $749.0 million at March 31, 1994. The parent
companies had consolidated cash and cash equivalents at March 31, 1994 of
$261.2 million and securities, consisting of preferred stock holdings, with a
fair value of $236.7 million. There are no scheduled maturities on notes and
debentures in 1994 and 1995. Scheduled maturities are $150 million in 1996.
<TABLE>
RESERVE FOR LOAN LOSSES
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
Reserve for loan losses at beginning
<S> <C> <C> <C> <C> <C>
of period $ 633.0 $ 657.5 $ 684.5 $ 826.0 $ 863.0
Provision charged to operations -- 5.0 5.0 7.0 12.2
Bulk sale charge-offs (108.6)
Loans charged off
Gross (34.8) (46.6) (42.5) (52.2) (59.8)
Recoveries 9.1 17.1 10.5 12.3 10.6
Net (25.7) (29.5) (32.0) (39.9) (49.2)
Reserve for loan losses at end of period $ 607.3 $ 633.0 $ 657.5 $ 684.5 $ 826.0
Net charge-offs (annualized)
to average loans (1) 0.69 % 0.79 % 0.87 % 1.07 % 1.34 %
Reserve for loan losses to
net charge-offs (annualized) (1) 5.92 x 5.37 x 5.13 x 4.29 x 4.20 x
Reserve for loan losses to loans 3.95 % 4.11 % 4.30 % 4.55 % 5.51 %
(1) The ratios for the quarter ended June 30, 1993 exclude $108.6 million of
charge-offs relating to the bulk sale of nonaccruing loans.
</TABLE>
The reserve for loan losses was $607.3 million at March 31, 1994, compared
with $633.0 million at December 31, 1993. The reserve for loan losses to
total loans was 3.95 percent at March 31, 1994, compared with 4.11 percent at
December 31, 1993. An analysis of the provision and reserve for loan losses
is presented on page F-23. Net charge-offs were $25.7 million for the first
quarter of 1994, equal to an annualized rate of .69 percent of average loans,
compared with $49.2 million and 1.34 percent for the same period a year ago.
A discussion of the provision for loan losses is presented on page F-12.
<PAGE> F-19 26
The Financial Accounting Standards Board issued FAS No. 114, "Accounting By
Creditors for Impaired Loans", in May 1993. The new accounting standard
requires 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 based on 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
Corporation is currently evaluating this new accounting standard.
<TABLE>
CREDIT QUALITY
NONACCRUING LOANS, RESTRUCTURED LOANS AND ACCRUING LOANS PAST DUE 90
DAYS OR MORE
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
Nonaccruing loans
<S> <C> <C> <C> <C> <C>
Current $ 59.4 $ 72.0 $ 85.5 $ 116.6 $ 183.8
From 30 to 89 days past due 24.4 28.4 37.5 37.4 51.7
90 or more days past due 188.3 209.1 238.9 245.7 360.2
Total nonaccruing loans $ 272.1 $ 309.5 $ 361.9 $ 399.7 $ 595.7
Restructured loans $ 53.3 $ 66.2 $ 72.5 $ 70.5 $ 145.2
Accruing loans past due 90 days or more $ 35.9 $ 33.5 $ 51.3 $ 54.7 $ 51.0
Nonaccruing loans to loans 1.77 % 2.01 % 2.37 % 2.65 % 3.97 %
Reserve for loan losses to
nonaccruing loans 223.00 205.00 182.00 171.00 139.00
</TABLE>
Nonaccruing loans were $272.1 million at March 31, 1994, compared with $309.5
million at December 31, 1993. Approximately 22 percent of nonaccruing loans
were less than 30 days past due at March 31, 1994, compared with
approximately 23 percent at December 31, 1993. The ratio of nonaccruing
loans to loans improved to 1.77 percent at March 31, 1994 from 2.01 percent
at December 31, 1993. The ratio of the reserve for loan losses to
nonaccruing loans was 223 percent at March 31, 1994, compared with 205
percent at December 31, 1993. The table on page F-22 presents nonaccruing
loans by loan type. Changes in nonaccruing loans are presented in the table
on page F-23.
Restructured loans, which are loans with original terms that have been
modified as a result of a change in the borrower's financial condition, were
$53.3 million at March 31, 1994, compared with $66.2 million at the end of
1993. Restructured loans included real estate investor/developer loans and
owner-occupied commercial real estate loans of $43.9 million and $2.2
million, respectively, at March 31, 1994. The yield from the portfolio of
restructured loans was 6.78 percent for the quarter ended March 31,
1994, compared with 6.92 percent for the quarter ended March 31, 1993
and 6.36 percent for the fourth quarter of 1993.
Accruing loans past due 90 days or more, which are well secured and in the
process of collection, were $35.9 million at March 31, 1994, compared with
$33.5 million at December 31, 1993. These loans represented .23 percent of
loans outstanding at March 31, 1994. Consumer loans represented 33 percent
and 40 percent of accruing loans past due 90 days or more at March 31, 1994
and December 31, 1993, respectively.
The Corporation seeks to limit its exposure to individual and affiliated
borrowers. The ten largest nonaccruing loan relationships totaled $32.4
million, or .21 percent, of loans outstanding at March 31, 1994 and are
presented in the table on page F-25. The ten largest nonaccruing loan
relationships at December 31, 1993 totaled $35.9 million.
<PAGE> F-20 27
<TABLE>
FORECLOSED PROPERTIES BY PROJECT TYPE
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Land $ 9.4 $ 10.7 $ 13.5 $ 20.0 $ 27.4
Residential mortgage 6.0 6.0 8.0 11.2 12.0
Offices 4.4 8.6 13.1 20.8 33.8
Industrial 3.9 5.6 10.9 19.5 36.5
Retail space 3.5 4.0 5.7 11.8 22.7
Hotels, resorts, inns 2.1 5.7 5.9 5.9 7.1
Residential developers
Single family 1.6 1.6 2.0 2.5 4.1
Condominium 1.6 1.6 1.9 2.1 6.9
Mixed use 1.1 2.1 4.4 8.0 10.8
Apartment/rental 0.5 0.9 2.4 2.3 6.2
Other 1.3 1.2 7.2 9.3 13.9
Total $ 35.4 $ 48.0 $ 75.0 $ 113.4 $ 181.4
</TABLE>
Foreclosed properties (which include in-substance foreclosures and
title-owned properties) decreased $12.6 million, or 26 percent, to $35.4
million at March 31, 1994, from $48.0 million at December 31, 1993, primarily
from continuing disposition efforts.
<TABLE>
NONACCRUING LOANS PLUS FORECLOSED PROPERTIES
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ 272.1 $ 309.5 $ 361.9 $ 399.7 $ 595.7
Foreclosed properties 35.4 48.0 75.0 113.4 181.4
Total $ 307.5 $ 357.5 $ 436.9 $ 513.1 $ 777.1
Nonaccruing loans plus foreclosed properties
to loans plus foreclosed properties 2.00 % 2.32 % 2.85 % 3.38 % 5.12 %
</TABLE>
Nonaccruing loans plus foreclosed properties totaled $307.5 million at
March 31, 1994, a decline of $50.0 million, or 14 percent, from $357.5
million at December 31, 1993. The ratio of nonaccruing loans plus foreclosed
properties to loans plus foreclosed properties was 2.00 percent at March 31,
1994, down from 2.32 percent at December 31, 1993.
<PAGE> F-21 28
<TABLE>
PORTFOLIO STATISTICS
The following tables set forth loan statistical information:
<CAPTION>
LOAN PORTFOLIO
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 6,106.2 $ 6,321.3 $ 6,067.4 $ 6,028.8 $ 5,923.0
Owner-occupied commercial real estate 1,323.8 1,388.0 1,425.6 1,449.5 1,560.3
Real estate investor/developer
Commercial mortgage 1,228.4 1,225.1 1,241.6 1,184.3 1,357.8
Construction and other 144.1 152.8 169.6 247.9 321.1
Total investor/developer 1,372.5 1,377.9 1,411.2 1,432.2 1,678.9
Consumer
Residential mortgage 4,300.8 4,036.8 4,123.2 4,067.0 3,929.3
Home equity 1,344.2 1,387.6 1,426.8 1,310.5 1,236.0
Installment and other 923.5 872.8 819.1 767.8 668.8
Total consumer 6,568.5 6,297.2 6,369.1 6,145.3 5,834.1
Total 15,371.0 15,384.4 15,273.3 15,055.8 14,996.3
Reserve for loan losses (607.3) (633.0) (657.5) (684.5) (826.0)
Total $ 14,763.7 $ 14,751.4 $ 14,615.8 $ 14,371.3 $ 14,170.3
</TABLE>
<TABLE>
NONACCRUING LOANS BY LOAN TYPE
<CAPTION>
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 61.5 $ 72.6 $ 81.6 $ 111.2 $ 137.6
Owner-occupied commercial real estate 68.2 75.6 90.2 97.5 142.4
Real estate investor/developer
Commercial mortgage 74.3 81.9 92.0 95.7 161.1
Construction and other 22.6 23.2 41.2 36.1 66.5
Total investor/developer 96.9 105.1 133.2 131.8 227.6
Consumer
Residential mortgage 36.2 46.5 45.3 46.4 71.9
Home equity 5.1 5.1 5.2 5.1 5.7
Installment and other 4.2 4.6 6.4 7.7 10.5
Total consumer 45.5 56.2 56.9 59.2 88.1
Total $ 272.1 $ 309.5 $ 361.9 $ 399.7 $ 595.7
</TABLE>
<PAGE> F-22 29
<TABLE>
CHANGES IN NONACCRUING LOANS
The changes in the Corporation's nonaccruing loans are summarized below:
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 309.5 $ 361.9 $ 399.7 $ 595.7 $ 618.0
New nonaccruing loans 42.4 59.3 76.8 105.2 135.8
Decreases in nonaccruing loans
Sales 80.9
Payments 33.4 59.4 42.3 61.0 57.5
Returns to accruing loans 9.9 20.2 36.8 45.8 39.4
Transfers to restructured loans 4.6 2.2 0.6 9.8
Transfers to foreclosed properties 5.0 2.8 3.2 4.4 17.0
Charge-offs 34.8 29.0 33.0 87.4 33.3
Total 83.1 116.0 117.5 280.1 157.0
Net other changes (1) 3.3 4.3 2.9 (21.1) (1.1)
Balance at end of period $ 272.1 $ 309.5 $ 361.9 $ 399.7 $ 595.7
(1) For periods prior to March 31, 1994, this amount represents the net change in
nonaccruing consumer loans, including charge-offs.
</TABLE>
<TABLE>
PROVISION AND RESERVE FOR LOAN LOSSES
<CAPTION>
Quarter ended
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
(in millions) 1994 1993 1993 1993 (1) 1993
Reserve for loan losses at beginning
<S> <C> <C> <C> <C> <C>
of period $ 633.0 $ 657.5 $ 684.5 $ 826.0 $ 863.0
Provision charged to operations -- 5.0 5.0 7.0 12.2
Loans charged off
Commercial and industrial 8.2 12.3 10.1 18.5 15.7
Owner-occupied commercial real estate 5.5 7.5 6.4 19.7 8.1
Real estate investor/developer
Commercial mortgage 7.8 9.0 11.4 77.8 14.0
Construction and other 0.6 1.9 4.1 23.4 7.6
Total investor/developer 8.4 10.9 15.5 101.2 21.6
Consumer
Residential mortgage 9.5 7.3 6.1 16.3 8.7
Home equity 0.6 1.1 0.7 1.3 1.2
Installment and other 2.6 7.5 3.7 3.8 4.5
Total consumer 12.7 15.9 10.5 21.4 14.4
Total loans charged off 34.8 46.6 42.5 160.8 59.8
Recoveries on loans charged off
Commercial and industrial 3.8 10.2 4.8 4.2 3.6
Owner-occupied commercial real estate 1.2 1.5 2.1 2.5 0.9
Real estate investor/developer 1.0 2.6 1.3 3.1 3.7
Consumer 3.1 2.8 2.3 2.5 2.4
Total recoveries 9.1 17.1 10.5 12.3 10.6
Net loans charged off 25.7 29.5 32.0 148.5 49.2
Reserve for loan losses at end of period $ 607.3 $ 633.0 $ 657.5 $ 684.5 $ 826.0
(1) Includes $108.6 million of charge-offs for the quarter ended
June 30, 1993 relating to the bulk sale of nonaccruing loans.
</TABLE>
<PAGE> F-23 30
<TABLE>
COMMERCIAL AND INDUSTRIAL LOANS - BY INDUSTRY SECTOR
<CAPTION>
March 31, 1994
Loans First quarter
(in millions) outstanding Nonaccruing charge-offs
<S> <C> <C> <C>
Manufacturing $ 1,519.3 $ 17.5 $ 3.3
Communications 1,257.4 5.2
Finance, insurance and
real estate 1,178.3 6.8 2.0
Services 751.6 8.9 0.7
Wholesale 503.2 10.0
Retail 451.1 4.9 1.0
Other 445.3 8.2 1.2
Total $ 6,106.2 $ 61.5 $ 8.2
</TABLE>
<TABLE>
OWNER-OCCUPIED COMMERCIAL REAL ESTATE LOANS - BY INDUSTRY SECTOR
<CAPTION>
March 31, 1994
Loans First quarter
(in millions) outstanding Nonaccruing charge-offs
<S> <C> <C> <C>
Services $ 355.5 $ 7.1 $ 0.3
Finance, insurance and
real estate 298.6 19.0 2.0
Manufacturing 195.3 7.8 0.5
Retail 175.1 18.9 1.1
Wholesale 99.2 2.7 0.1
Communications 33.2 0.7 0.2
Other 166.9 12.0 1.3
Total $ 1,323.8 $ 68.2 $ 5.5
</TABLE>
<TABLE>
REAL ESTATE INVESTOR/DEVELOPER LOANS - BY PROJECT
<CAPTION>
March 31, 1994
Loans First quarter
(in millions) outstanding Nonaccruing charge-offs
<S> <C> <C> <C>
Offices $ 274.1 $ 14.6 $ 1.7
Retail space 245.1 6.2 0.4
Apartment/rental 244.9 16.1 1.4
Mixed use 185.8 13.9 0.9
Industrial 144.8 12.8 1.6
Special purposes 57.0 4.5 0.5
Research and development space 44.3 1.4
Land 42.4 14.9 0.4
Residential developers
Condominium 33.2 3.6 0.9
Single family 33.0 5.1
Hotels, resorts, inns 23.3 1.6 0.1
Other 44.6 2.2 0.5
Total $ 1,372.5 $ 96.9 $ 8.4
</TABLE>
<TABLE>
<PAGE> F-24 31
CONSUMER LOANS - BY TYPE
<CAPTION>
March 31, 1994
Loans First quarter
(in millions) outstanding Nonaccruing charge-offs
<S> <C> <C> <C>
Residential mortgages $ 4,300.8 $ 36.2 $ 9.5
Home equity lines 1,098.7 4.2 0.5
Indirect automobile 663.3 0.4 1.4
Home equity loans 245.5 0.9 0.1
Direct installment 177.2 0.7 0.3
Other 83.0 3.1 0.9
Total $ 6,568.5 $ 45.5 $ 12.7
</TABLE>
<TABLE>
TEN LARGEST NONACCRUING LOAN RELATIONSHIPS AS OF MARCH 31, 1994
<CAPTION>
Loan Type (in millions)
<S> <C>
Real estate investor/developer: mixed use $ 7.4
Real estate investor/developer: office, mixed use 5.2
Commercial: wholesale 3.0
Real estate investor/developer: condominium, land 2.9
Real estate investor/developer: retail, industrial use 2.7
Commercial: communications, real estate 2.4
Commercial: manufacturing 2.3
Commercial: wholesale 2.2
Owner-occupied commercial real estate: retail 2.2
Real estate investor/developer: apartment 2.1
Total $ 32.4
</TABLE>
<PAGE> F-25 32
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES
The following are the Corporation's average balance sheet, net interest income and interest rates:
Three months ended Three months ended
March 31, 1994 December 31, 1993
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans $ 14,953 $ 255.4 6.90 % $ 14,846 $ 262.7 7.04 %
Securities
Available for sale, at fair value 2,439 35.5 5.82
At lower of aggregate cost or fair value
Subject to federal income taxes 3,596 52.4 5.84
Dividend on equity securities 255 5.1 7.90
Held to maturity 6,657 95.1 5.73 5,205 72.8 5.59
Residential mortgages held for sale 312 5.4 6.90 351 6.1 6.86
Short-term investments
Time deposits in other banks 168 1.5 3.60 3 -- 1.34
Federal funds sold and securities
purchased under agreements to resell 87 0.7 3.34 233 1.8 3.10
Trading account securities 17 0.2 4.52 43 0.5 4.49
Total interest-earning assets 24,633 393.8 6.44 24,532 401.4 6.52
Reserve for loan losses (632) (659)
Cash and due from banks 1,472 1,488
Other assets 1,424 1,351
Total assets $ 26,897 $ 26,712
LIABILITIES
Savings, money market and
NOW accounts $ 7,175 28.3 1.60 % $ 7,315 29.7 1.61 %
Time certificates of deposit
of $100 thousand or more 387 3.9 4.09 373 4.2 4.49
Domestic time deposits 2,775 27.3 3.99 2,931 30.4 4.12
Foreign time deposits 202 1.6 3.10 271 2.0 3.01
Total interest-bearing deposits 10,539 61.1 2.35 10,890 66.3 2.42
Federal funds purchased and securities
sold under agreements to repurchase 7,945 63.5 3.24 7,439 54.5 2.90
Other borrowings 1,249 15.6 5.08 1,197 17.6 5.84
Total other borrowings 9,194 79.1 3.49 8,636 72.1 3.31
Notes and debentures 760 16.1 8.48 815 17.4 8.47
Total interest-bearing liabilities 20,493 156.3 3.09 20,341 155.8 3.04
Demand deposits 4,384 4,446
Other liabilities 205 230
Total liabilities 25,082 25,017
Shareholders' equity 1,815 1,695
Total liabilities and
shareholders' equity $ 26,897 $ 26,712
Net interest income
(tax-equivalent basis) 237.5 3.87 245.6 4.00
Less tax-equivalent adjustment 2.7 3.0
Net interest income $ 234.8 $ 242.6
</TABLE>
<PAGE> F-26 33
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES
The following are the Corporation's average balance sheet, net interest income and interest rates:
Three months ended Three months ended
September 30, 1993 June 30, 1993
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans $ 14,746 $ 263.7 7.12 % $ 14,878 $ 266.1 7.17 %
Securities
Available for sale, at fair value
At lower of aggregate cost or fair value
Subject to federal income taxes 2,974 47.1 6.33 2,670 46.2 6.93
Dividend on equity securities 371 6.2 6.62 255 5.4 8.50
Held to maturity 4,855 72.1 5.94 4,558 68.7 6.03
Residential mortgages held for sale 412 7.3 7.13 427 7.8 7.35
Short-term investments
Time deposits in other banks 3 -- 3.24 6 0.1 3.08
Federal funds sold and securities
purchased under agreements to resell 279 2.3 3.29 291 2.2 3.14
Trading account securities 43 0.4 3.81 35 0.7 7.86
Total interest-earning assets 23,683 399.1 6.72 23,120 397.2 6.88
Reserve for loan losses (684) (816)
Cash and due from banks 1,439 1,394
Other assets 1,422 1,536
Total assets $ 25,860 $ 25,234
LIABILITIES
Savings, money market and
NOW accounts $ 7,398 30.3 1.63 % $ 7,552 35.9 1.91 %
Time certificates of deposit
of $100 thousand or more 467 5.3 4.53 444 5.4 4.86
Domestic time deposits 3,087 33.2 4.27 3,288 37.2 4.53
Foreign time deposits 205 1.7 3.00 120 0.8 2.90
Total interest-bearing deposits 11,157 70.5 2.51 11,404 79.3 2.79
Federal funds purchased and securities
sold under agreements to repurchase 6,929 54.4 3.12 6,369 49.5 3.12
Other borrowings 792 15.7 7.85 620 13.6 8.80
Total other borrowings 7,721 70.1 3.61 6,989 63.1 3.62
Notes and debentures 874 18.4 8.43 859 18.4 8.60
Total interest-bearing liabilities 19,752 159.0 3.20 19,252 160.8 3.35
Demand deposits 4,275 4,200
Other liabilities 228 242
Total liabilities 24,255 23,694
Shareholders' equity 1,605 1,540
Total liabilities and
shareholders' equity $ 25,860 $ 25,234
Net interest income
(tax-equivalent basis) 240.1 4.05 236.4 4.10
Less tax-equivalent adjustment 3.4 3.3
Net interest income $ 236.7 $ 233.1
</TABLE>
<PAGE> F-27 34
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES
The following are the Corporation's average balance sheet, net interest income and interest rates:
Three months ended
March 31, 1993
Average Average
(in millions) balance Interest rate
ASSETS
<S> <C> <C> <C>
Loans $ 14,696 $ 259.7 7.14 %
Securities
Available for sale, at fair value
At lower of aggregate cost or fair value
Subject to federal income taxes 2,636 50.2 7.61
Dividend on equity securities 196 5.3 11.02
Held to maturity 3,210 50.4 6.28
Residential mortgages held for sale 431 8.4 7.81
Short-term investments
Time deposits in other banks 10 0.1 5.45
Federal funds sold and securities
purchased under agreements to resell 381 3.0 3.13
Trading account securities 19 0.4 7.31
Total interest-earning assets 21,579 377.5 7.05
Reserve for loan losses (860)
Cash and due from banks 1,453
Other assets 1,631
Total assets $ 23,803
LIABILITIES
Savings, money market and
NOW accounts $ 7,449 44.4 2.42 %
Time certificates of deposit
of $100 thousand or more 604 7.3 4.86
Domestic time deposits 3,432 39.7 4.69
Foreign time deposits 94 0.6 2.87
Total interest-bearing deposits 11,579 92.0 3.22
Federal funds purchased and securities
sold under agreements to repurchase 4,747 36.6 3.13
Other borrowings 694 15.5 9.04
Total other borrowings 5,441 52.1 3.88
Notes and debentures 809 17.9 8.85
Total interest-bearing liabilities 17,829 162.0 3.68
Demand deposits 4,173
Other liabilities 260
Total liabilities 22,262
Shareholders' equity 1,541
Total liabilities and
shareholders' equity $ 23,803
Net interest income
(tax-equivalent basis) 215.5 4.01
Less tax-equivalent adjustment 3.3
Net interest income $ 212.2
</TABLE>
<PAGE> F-28 35
<TABLE>
Exhibit 12
SHAWMUT NATIONAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
<CAPTION>
Three months
ended
(in thousands) March 31, Year ended December 31,
1994 1993 1992 1991 1990 1989
EARNINGS
Income (loss) before income taxes,
extraordinary credit and
cumulative effect of
<S> <C> <C> <C> <C> <C> <C>
accounting changes $ 102,777 $ 236,952 $ 77,516 $ (169,114) $ (127,304) $ (219,679)
Portion of rents representative
of the interest factor 3,811 15,852 16,937 18,268 18,831 20,841
Interest on other borrowings 79,112 257,411 187,987 206,038 340,650 634,175
Interest on notes and debentures 15,901 70,646 59,321 60,436 63,105 66,287
Amortization of debt issuance cost 211 1,394 594 618 578 563
Earnings including interest on deposits 201,812 582,255 342,355 116,246 295,860 502,187
Interest on deposits 61,030 308,109 473,130 810,131 1,112,007 1,036,433
Earnings excluding interest on deposits $ 262,842 $ 890,364 $ 815,485 $ 926,377 $ 1,407,867 $ 1,538,620
FIXED CHARGES
Portion of rents representative
of the interest factor $ 3,811 $ 15,852 $ 16,937 $ 18,268 $ 18,831 $ 20,841
Interest on other borrowings 79,112 257,411 187,987 206,038 340,650 634,175
Interest on notes and debentures 15,901 70,646 59,321 60,436 63,105 66,287
Amortization of debt issuance cost 211 1,394 594 618 578 563
Fixed charges excluding interest on deposits 99,035 345,303 264,839 285,360 423,164 721,866
Interest on deposits 61,030 308,109 473,130 810,131 1,112,007 1,036,433
Fixed charges including interest
on deposits $ 160,065 $ 653,412 $ 737,969 $ 1,095,491 $ 1,535,171 $ 1,758,299
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND
REQUIREMENTS
Fixed charges excluding interest
on deposits $ 99,035 $ 345,303 $ 264,839 $ 285,360 $ 423,164 $ 721,866
Preferred stock dividend requirements 5,937 23,438 15,952 2,262 2,328 2,341
$ 104,972 $ 368,741 $ 280,791 $ 287,622 $ 425,492 $ 724,207
Fixed charges including interest
on deposits $ 160,065 $ 653,412 $ 737,969 $ 1,095,491 $ 1,535,171 $ 1,758,299
Preferred stock dividend requirements 5,937 23,438 15,952 2,262 2,328 2,341
$ 166,002 $ 676,850 $ 753,921 $ 1,097,753 $ 1,537,499 $ 1,760,640
RATIOS
Earnings to fixed charges
Excluding interest on deposits 2.04 x 1.69 x 1.29 x 0.41 x 0.70 x 0.70 x
Including interest on deposits 1.64 1.36 1.11 0.85 0.92 0.88
Earnings to combined fixed charges and
preferred stock dividend requirements
Excluding interest on deposits 1.92 1.58 1.22 0.41 0.70 0.70
Including interest on deposits 1.58 1.32 1.08 0.84 0.92 0.87
</TABLE>
<PAGE> 36
EXHIIBT 99.1
Contact:
News media contact: Investor contact:
Robert L. Guenther Thomas R. Rice
(203) 240-1267 (203) 728-4872
For Immediate Release
SHAWMUT NATIONAL AGREES TO ACQUIRE
COHASSET SAVINGS BANK FOR $16.9 MILLION
BOSTON, Mass., and HARTFORD, Conn., March 2, 1994 - Shawmut
National Corporation (NYSE: SNC) said that it has signed a
definitive agreement to acquire Cohasset Savings Bank (NASDQ:
CHTB) of Cohasset, Mass., for $16 in cash per fully diluted
Cohasset share, for a total of $16.9 million.
Joel B. Alvord, chairman and chief executive officer of Shawmut,
said, "This acquisition neatly complements Shawmut's branch
network in the attractive South Shore market of greater Boston.
Cohasset Savings Bank has the number two share of the deposit
market in Cohasset and the number three share in North Scituate.
"For Cohasset customers, we will offer the convenience and full
product menu of New England's leading bank serving consumers and
small- to medium-sized businesses," Alvord added.
<PAGE> 37
Shawmut Bank- Page Two
Donald E. Bates, president and chief executive officer of
Cohasset Savings Bank, said, "We look forward to a combination
with Shawmut and believe the transaction is advantageous to both
our customers and shareholders. A combination of Cohasset
Savings Bank's marketplace and customer relationships with
Shawmut's banking products represents a very good business and
community fit."
Cohasset Savings Bank has $78 million in assets and two branches
in Cohasset and North Scituate. The transaction is subject to
various regulatory approvals and is expected to be consummated by
September 30.
After closing, Cohasset Savings Bank will become part of Shawmut
Bank, N.A. Shawmut National is a $27 billion bank holding
company with dual headquarters in Boston and Hartford. The
corporation serves the financial needs of consumers, businesses,
institutions, and state and local government through a network of
more than 250 branches in Massachusetts, Connecticut, and Rhode
Island.
<PAGE> 38
EXHIBIT 99.2
News media contacts:
For Shawmut: Investor contact:
Robert L. Guenther Thomas R. Rice
(203) 240-1267 (203) 728-4872
For West Newton:
Donald Cassidy
(617) 630-2820
For Immediate Release
SHAWMUT NATIONAL AGREES TO ACQUIRE
WEST NEWTON SAVINGS BANK FOR $45.4 MILLION
BOSTON and WEST NEWTON, Mass., March 8, 1994 - Shawmut
National Corporation (NYSE: SNC) said that it has signed a
definitive agreement to acquire West Newton Savings Bank
(NASDAQ: WNSB) of West Newton, MASS., for $45.4 million in
cash, or $25 per share, subject to upward adjustment in
certain circumstances if the acquisition is not completed by
September 30, 1994.
West Newton Savings Bank has $257 million in assets and five
branches in West Newton, Lincoln, Sherborn, Sudbury, and
Wayland.
Joel B. Alvord, chairman and chief executive officer of
Shawmut, said, "West Newton Savings Bank has all the
attributes of the kinds of acquisitions we like, namely, a
leading market share in the communities that it serves, a
high-quality balance sheet,
<PAGE> 39
Shawmut Bank - Page Two
and an attractive market. This acquisition will further
strengthen Shawmut's franchise in Boston's western suburbs.
"Customers of West Newton will continue to receive the same
high standards of service to which they are accustomed. In
addition, we will offer them the convenience and full
product menu of New England's leading bank."
Richard H. Dionne, chairman of West Newton Savings Bank,
said, "The transaction is in the best interests of West
Newton's stockholders, and I believe that West Newton and
its customers will be well-served by Shawmut."
The transaction is subject to approval by West Newton
stockholders and various regulatory agencies and is expected
to be consummated by September 30. Upon completion of the
transaction, West Newton Savings Bank will become part of
Shawmut Bank, N.A. In connection with the agreement, West
Newton has granted Shawmut an option, exercisable under
certain circumstances, to acquire 19.9% of West Newton's
then-outstanding common stock at $21 per share.
<PAGE> 40
Shawmut Bank - Page Three
Shawmut National is a $27 billion bank holding company with
dual headquarters in Boston and Hartford. The corporation
serves the financial needs of consumers, businesses,
institutions, and state and local government through a
network of more than 250 branches in Massachusetts,
Connecticut, and Rhode Island.
<PAGE> 41
EXHIBIT 99.3
News media contact: Investor contact:
Robert L. Guenther Thomas R. Rice
(203) 240-1267 (203) 728-4872
FOR IMMEDIATE RELEASE
COMPTROLLER OF THE CURRENCY APPROVES ACQUISITION
OF PEOPLES SAVINGS BANK OF WORCESTER BY SHAWMUT
BOSTON, Mass., and HARTFORD, Conn., March 31, 1994 - Shawmut
National Corporation (NYSE: SNC) announced today that the Office
of the Comptroller of the Currency had approved the application
of Shawmut Bank, N.A., to acquire Peoples Savings Bank, a wholly
owned subsidiary of Peoples Bancorp of Worcester Inc. (NASDAQ:
PEBW).
A review of the application by the Board of Governors of the
Federal Reserve System and approval by Peoples shareholders is
required before the transaction can be consummated. The
shareholders of Peoples will consider the transaction at a
special meeting to be held on May 4, 1994.
Shawmut National agreed to acquire Peoples in August, 1993, for
common shares of Shawmut having a value of $180 million. Peoples
has more than $890 million in assets and operates 23 branches of
Peoples Savings Bank in central Massachusetts.
Shawmut Bank, N.A., is a principal operating subsidiary of
Shawmut National. With assets of $27 billion, Shawmut National
provides financial services to consumers, businesses,
institutions and governments in southern New England through a
network of about 270 branches and 450 ATM's.
<PAGE> 42
EXHIBIT 99.4
News Media Contact: Investor Contact:
Robert L. Guenther Thomas R. Rice
(203) 240-1267 (203) 728-4872
FOR IMMEDIATE RELEASE
SHAWMUT ISSUES $250 MILLION IN MEDIUM-TERM BANK NOTES
HARTFORD, Conn., and BOSTON, Mass., April 7, 1994 - Shawmut
National Corporation (NYSE: SNC) said that Shawmut Bank
Connecticut, N.A., one of its principal operating subsidiaries,
issued $250 million in medium-term bank notes under an existing $2
billion bank note program for its two principal banking
subsidiaries.
The two-year notes issued today carry a floating rate based on the
three-month London Inter-Bank Offered Rate and are not callable
until after the first year. The issue is rated A2 by Moody's
Investors Service Inc. and BBB-plus by Standard & Poor's Corp.
The proceeds will be used for general corporate purposes. The
issue is being offered and sold only to institutional investors.
Last week, Shawmut Bank Connecticut, N.A., issued $100 million in
one-year floating rate notes as part of the same bank note
proqram.
The selling agents for the bank notes were Lehman Brothers;
Goldman, Sachs & Co.; Kidder, Peabody & Co.; J.P. Morgan
Securities Inc.; Morgan Stanley & Co.; and Smith Barney Shearson
Inc.
<PAGE> 43
EXHIBIT 99.5
Robert L. Guenther FOR IMMEDIATE RELEASE Brent S. Di Giorgio
(203 240-1267 (203) 240-7632
SHAWMUT RECEIVES REGULATORY APPROVAL
FOR NEW DARTMOUTH ACQUISITION
HARTFORD, Conn, and BOSTON, Mass., April 28, 1994 -- Shawmut
National Corporation (NYSE: SNC) announced today that it has
received regulatory approval from the Board of Governors of the
Federal Reserve System to acquire New Dartmouth Bank of
Manchester, New Hampshire.
The transaction is expected to close June 6, when the bank will
be renamed Shawmut Bank NH.
"We're pleased with the Federal Reserve action on our New
Dartmouth application," said Joel B. Alvord, chairman and chief
executive officer of Shawmut National Corporation. "But even more
important than our pleasure with the decision is our confidence
in knowing that the Fed has been fully satisfied with Shawmut's
lending performance. The positive Fed action allows us to proceed
with our plans to make New England's finest banking franchise
even stronger."
<PAGE> 44
Shawmut National Corporation
Fed Approves New Dartmouth Acquisition
Page Two
Robert Keller, New Dartmouth president and chief executive
officer, said, "This merger with Shawmut will provide our
customers with new products and services that could only be made
available by the union of New Dartmouth with a larger
institution. We're please to join forces with Shawmut to form New
Hampshire's premier bank."
Under terms of the acquisition agreement, each share of New
Dartmouth common stock will be exchanged for Shawmut National
common stock having a value of $310.95 plus 177 percent of New
Dartmouth's adjusted net income per fully diluted share from
October 1, 1993 through the closing date. The transaction is
valued at approximately $150 million. As part of the transaction,
Shawmut will acquire loan loss protections provided to New
Dartmouth by the FDIC through October, 1994.
Shawmut National Corporation also has pending agreements to
acquire Peoples Bancorp of Worcester, Inc. in Worcester,
Massachusetts; Gateway Financial Corporation of Norwalk,
Connecticut; Cohasset Savings Bank of Cohasset, Massachusetts;
and West Newton Savings Bank of West Newton, Massachusetts.
<PAGE> 45
Shawmut National Corporation
Fed Approves New Dartmouth Acquisition
Page Three
As of March 31, Shawmut National Corporation had assets of $27.4
billion. Shawmut National is a superregional bank holding company
with more than 250 branches and 450 ATM's in Connecticut,
Massachusetts and Rhode Island. Shawmut National is a leading
provider of financial services to consumers and small- to medium-
sized businesses in the region. It also provides financial
services to corporate customers, correspondent banks, and
government units throughout New England and in select national
markets.
<PAGE> 46
