SECOND 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 June 30, 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 Identification No.)
incorporation or organization)
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 .
119,254,768 shares of the registrant's common stock, par
value $0.01, were outstanding as of August 5, 1994.
___________________________________________________________
Page 1 of 40 pages.
The Exhibits Index, filed as a part of this report, appears on
page 7.
____________________________________________________________
<PAGE> 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The information required by this item appears on pages
F-23 through F-31 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-1 through F-22 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 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on
April 26,1994.
(b) Each of the persons named in the proxy statement as
a nominee for director was elected.
<PAGE> 2
(c) The following are the voting results on each of the
matters which were submitted to the shareholders:
<TABLE>
<caption
Against
or Broker
Election of Directors For Withheld Abstain Non-Votes
<S> <C> <C> <C> <C>
Joel B. Alvord 79,560,069 1,241,954
Stillman B. Brown 79,695,919 1,106,105
John T. Collins 79,704,812 1,097,210
Ferdinand Colloredo-
Mansfeld 79,711,294 1,090,729
Bernard M. Fox 79,719,009 1,083,013
Robert J. Matura 79,696,633 1,105,390
Gunnar S. Overstrom, Jr. 79,644,907 1,157,116
Lois D. Rice 79,670,294 1,131,729
Maurice Segall 79,716,010 1,086,013
Paul R. Tregurtha 79,697,380 1,104,643
Wilson Wilde 79,676,304 1,125,719
Appointment of
Price Waterhouse as
Independent Accountants
for 1994 79,798,813 251,739 735,313
Proposal to Amend the
Restated Certificate
of Incorporation 72,721,830 6,955,893 1,057,163 11,234,752
</TABLE>
The text of the matters referred to under this Item 4 is set forth in
the proxy statement dated March 19, 1994 previously filed with the
Securities and Exchange Commission, and is incorporated herein by
reference.
Item 5. Other Information
During the second quarter of 1994, the Corporation completed
its acquisitions of three banking organizations. Peoples
Bancorp of Worcester, Inc., ("Peoples") located in Worcester,
Massachusetts, was acquired on May 23, 1994 and Peoples'
subsidiary, Peoples Savings Bank, was merged into the
Corporation's bank subsidiary, Shawmut Bank, National
Association ("SBM"). New Dartmouth Bank, located in
Manchester, New Hampshire ("New Dartmouth") was acquired on
June 6, 1994 through the merger of New Dartmouth into Shawmut
Bank NH, the Corporation's bank subsidiary that was established
for that purpose. Gateway Financial Corporation, located in
Norwalk, Connecticut ("Gateway") was acquired on June 27, 1994
and Gateway's subsidiary, Gateway Bank, was merged into the
Corporation's bank subsidiary, Shawmut Bank Connecticut,
National Association ("SBC").
<PAGE> 3
On June 11, 1994, SBC acquired five branches in Rhode Island,
and SBM acquired five branches in Massachusetts, from Northeast
Savings, F.A. On June 13, 1994, the Corporation announced that
it had entered into a definitive agreement to purchase
Northeast Federal Corp., parent of Northeast Savings, F.A.
On July 15, 1994, the Corporation announced that the Resolution
Trust Corporation had accepted its bid, through its newly
formed subsidiary, Shawmut Bank, FSB, to assume $25 million of
deposits of The Guardian Bank, FSB of Boca Raton, Florida. The
transaction was effective at the close of business on July 15,
1994.
As part of the Corporation's simplification of its
organizational structure, the primary purpose of which was to
have the Corporation's principal bank subsidiaries become
direct subsidiaries of the Corporation, the Corporation assumed
the obligations of its subsidiaries, Hartford National
Corporation ("HNC") and Shawmut Corporation ("SC"), and SBC and
SBM (subsidiaries of HNC and SC, respectively) became direct
subsidiaries of the Corporation. The obligations assumed by
the Corporation were (i) HNC's obligations under the Indenture,
dated as of May 15, 1987 between HNC and United Jersey Bank, as
trustee, and the 9.85% Subordinated Capital Notes issued and
outstanding thereunder, (ii) SC's obligations under the
Indenture, dated as of March 14, 1986 between SC and The First
National Bank of Boston, as trustee, and the 8 7/8% Notes
and 8 1/8% Notes issued and outstanding thereunder, and (iii)
SC's obligations under the Indenture, dated as of February 1,
1985, between SC and Citibank, N.A., as trustee, and the
Floating Rate Subordinated Notes issued and outstanding
thereunder.
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 three
reports on Form 8-K during the quarter ended June 30,
1994.
The report dated April 19, 1994 (Item 7), filed the
Corporation's Notice of Annual Meeting of Shareholders
April 26, 1994 and Proxy Statement.
<PAGE> 4
The report dated April 28, 1994 (Items 5 and 7)
reported that on April 28, 1994, the Board of
Governors of the Federal Reserve System approved the
Corporation's application to acquire all of the
outstanding voting shares of New Dartmouth Bank. The
report filed a copy of the Corporation's April 28,
1994 press release.
The report dated June 13, 1994 (Items 5 and 7)
reported that on June 13, 1994, the Corporation issued
a press release relating to its proposed acquisition of
Northeast Federal Corp. The report filed a copy of
the Corporation's June 13, 1994 press release.
<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: August 11, 1994 By (Joel B. Alvord)
_________________________
Joel B. Alvord
Chairman and
Chief Executive Officer
Date: August 11, 1994 By (Susan E. Lester)
_________________________
Susan E. Lester
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 40
<PAGE> 7
[This Page Intentionally Left Blank]
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Shawmut National Corporation (the Corporation) completed its acquisitions
of the following banking organizations during the second quarter of 1994:
Peoples Bancorp of Worcester, Inc. (May 23, 1994); New Dartmouth Bank (June
6, 1994); and Gateway Financial Corporation (June 27, 1994), each of which
has been accounted for as a pooling of interests transaction. All
financial information in this report, except dividends per share and market
prices, has been restated to reflect these acquisitions. The Corporation
also completed its purchase of 10 branches from Northeast Savings, F.A.,
with deposits of approximately $427 million, on June 11, 1994, which did
not have a material effect on second quarter 1994 results of operations.
The Corporation reported a net loss for the second quarter of 1994 of $18.7
million, or $.19 per common share, compared with net income of $64.0 million,
or $.54 per common share, reported in the second quarter of last year. The
1994 second quarter results of operations included $140.7 million ($99.8
million after tax, or $.84 per common share) of merger and restructuring
charges related to the costs to integrate the three acquisitions and the
expansion of a cost management program. Excluding these charges,
income for the second quarter of 1994 would have been $81.1 million, or
$.65 per common share.
For the first six months of 1994, net income was $58.6 million, or $.43 per
common share, compared with $100.2 million, or $.83 per common share for
the comparable period of 1993. The results for the first six months of
1993 included restructuring charges totaling $36.3 million primarily related
to branch closings and personnel reductions, a $20.0 million provision for
foreclosed properties related to the bulk sale of real estate loans and
foreclosed properties and a $14.1 million write down in the value of excess
servicing rights in various securitized loan portfolios. Also included in
the results for the first six months of 1993 is a credit of $52.8 million
representing the cumulative effect of a change in accounting for income
taxes and an after-tax charge of $6.6 million relating to the adoption of a
new accounting standard for postemployment benefits. Income before the
cumulative effect of accounting changes was $54.0 million, or $.41 per
share, for the first six months of 1993.
Asset quality continued to improve as nonaccruing loans plus foreclosed
properties decreased $109.7 million, or 25 percent, to $327.7 million at
June 30, 1994 from $437.4 million at December 31, 1993. The ratio of
nonaccruing loans plus foreclosed properties to loans plus foreclosed
properties declined to 1.89 percent at June 30, 1994 from 2.48 percent at
December 31, 1993.
The reserve for credit losses was $589.8 million at June 30, 1994, compared
with $669.2 million at December 31, 1993. There was no provision for credit
losses in the second quarter of 1994, compared with a $16.4 million
provision in the second quarter of 1993.
Net charge-offs were $48.7 million for the second quarter of 1994, equal to
an annualized rate of 1.10 percent of average loans outstanding, compared
with $52.5 million of net charge-offs, excluding $108.6 million of
charge-offs related to the bulk sale of real estate loans, for the second
quarter of 1993 and a rate of 1.22 percent of average loans outstanding.
The ratio of the reserve for credit losses to nonaccruing loans was 207
percent at June 30, 1994, compared with 179 percent at December 31, 1993.
Shareholders' equity decreased $34.1 million to $2.07 billion, or 6.74
percent of total assets at June 30, 1994 from $2.1 billion, or 6.76 percent
of assets at December 31, 1993. The Corporation's and principal subsidiary
banks' Risk-based capital and Leverage ratios exceeded the requirements for
a well-capitalized financial institution at June 30, 1994.
<PAGE>F-1 9
The Corporation's common stock closed at $22.00 per share on June 30, 1994,
representing 138 percent of the $15.93 book value per common share,
compared with $21.75 per share and 134 percent of the $16.25 book value per
common share at December 31, 1993.
The Corporation announced on June 13, 1994 the signing of a definitive
agreement to acquire Northeast Federal Corp. of Hartford, Connecticut,
with assets of $3.3 billion at June 30, 1994. The transaction
will be accounted for under the purchase method of accounting and is
subject to approval by Northeast's shareholders and various regulatory
agencies. The transaction is expected to be completed in the fourth
quarter of 1994.
SUMMARY OF RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter ended
TAX-EQUIVALENT BASIS Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions, except per share data) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Interest income $ 474.6 $ 457.3 $ 466.2 $ 464.9 $ 463.8
Interest expense 205.9 181.9 183.4 188.1 190.9
Net interest income 268.7 275.4 282.8 276.8 272.9
Provision for credit losses --- 3.0 10.2 11.3 16.4
Net interest income after provision
for credit losses 268.7 272.4 272.6 265.5 256.5
Noninterest income 93.9 88.7 97.3 100.3 104.6
Merger related charges 100.9
Restructuring related charges 39.8
Fair lending related charges 3.5
Other noninterest expenses 238.0 241.8 250.8 261.9 269.2
Income (loss) before income taxes (16.1) 119.3 115.6 103.9 91.9
Tax-equivalent adjustment 3.0 2.9 3.1 3.6 3.5
Income taxes (benefit) (0.4) 39.1 (33.7) 17.7 24.4
Net income (loss) $ (18.7) $ 77.3 $ 146.2 $ 82.6 $ 64.0
Return on average assets:
Before merger, restructuring and
other charges 1.05 % 1.02 % 1.92 % 1.10 % 0.88 %
Based on net income (0.24) 1.02 1.89 1.10 0.88
Return on average common equity:
Before merger, restructuring and
other charges 15.40 15.47 32.07 18.60 15.18
Based on net income applicable to
common shares (4.49) 15.47 31.57 18.60 15.18
Net interest margin 3.76 3.91 3.99 4.05 4.07
Efficiency ratio 65.37 65.72 64.50 66.92 68.14
Common share data:
Net income (loss) $ (0.19) $ 0.62 $ 1.22 $ 0.69 $ 0.54
Dividends declared 0.20 0.20 0.20 0.10 0.10
</TABLE>
<PAGE>F-2 10
RESULTS OF OPERATIONS
NET INTEREST INCOME
The Corporation's tax-equivalent net interest income was $268.7 million for
the second quarter of 1994, a decrease of $4.2 million, or 2 percent, from
$272.9 million in the second quarter of 1993. The decrease in tax-equivalent
net interest income reflects a higher level of interest-earning assets,
primarily securities, offset by an increase in the Corporation's cost of
funds, which outpaced the repricing of interest-earning assets. Average
loans increased $447 million to $17.7 billion in the second quarter of 1994
from $17.2 billion in the comparable prior year period. Average securities
increased $1.7 billion to $10.4 billion in the second quarter of 1994 from
$8.7 billion in the second quarter of 1993. The growth in the securities
portfolio resulted from a strategy of maintaining balance sheet leverage
while management began to selectively adjust the composition of the loan
portfolio. This adjustment of the loan portfolio included the deliberate
reduction of approximately $1.0 billion in money market priced commercial
loans with narrow profit margins. The Corporation expects that as loan
demand increases, maturities from the securities portfolio will be used to
fund loan growth. An analysis of net interest income is presented below.
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
INTEREST AND DIVIDEND INCOME
(tax-equivalent basis)
<S> <C> <C> <C> <C> <C>
Loans $ 320.7 $ 301.5 $ 310.0 $ 312.3 $ 315.3
Securities
Available for sale, at fair value 39.9 44.1
At lower of aggregate cost or
fair value 62.7 58.9 56.9
Held to maturity 107.2 103.3 84.2 82.6 80.0
Residential mortgages held for sale 2.9 5.4 6.1 7.3 7.8
Short-term investments 3.7 2.8 2.7 3.4 3.4
Trading account securities 0.2 0.2 0.5 0.4 0.4
Total interest income 474.6 457.3 466.2 464.9 463.8
INTEREST EXPENSE
Deposits 90.6 85.7 92.7 98.3 108.1
Other borrowings 95.4 80.1 73.4 71.4 64.3
Notes and debentures 19.9 16.1 17.3 18.4 18.5
Total interest expense 205.9 181.9 183.4 188.1 190.9
NET INTEREST INCOME
(tax-equivalent basis) 268.7 275.4 282.8 276.8 272.9
Tax-equivalent adjustment 3.0 2.9 3.1 3.6 3.5
NET INTEREST INCOME $ 265.7 $ 272.5 $ 279.7 $ 273.2 $ 269.4
INTEREST RATE SPREAD
(tax-equivalent basis) 3.23 % 3.42 % 3.50 % 3.55 % 3.56 %
NET INTEREST MARGIN
(tax-equivalent basis) 3.76 % 3.91 % 3.99 % 4.05 % 4.07 %
</TABLE>
<PAGE>F-3 11
The net interest margin for the second quarter of 1994 was 3.76 percent, a
decrease of 31 basis points from 4.07 percent in the comparable prior year
quarter. The decline reflects a shift in the mix of average
interest-earning assets from loans to securities and increased funding
costs. During the second quarter of 1994, the Corporation's short-term
borrowing costs continued to increase as a result of a rise in overall
interest rates, which contributed to the decrease in the net interest
margin. If further increases in interest rates occur, then the resultant
contraction of the spread between the Corporation's interest-earning assets
and funding sources could continue to reduce the net interest margin. A
discussion of interest rate risk appears on page F-11. An analysis of net
interest margin is presented below.
Tax-equivalent net interest income was $544.1 million for the first six
months of 1994, an increase of 4 percent from $525.4 million for the first
six months of 1993. The net interest margin was 3.84 percent for the six
months ended June 30, 1994, compared with 4.04 percent for the comparable
period a year ago.
ANALYSIS OF NET INTEREST MARGIN
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Net interest income
(tax-equivalent basis) $ 268.7 $ 275.4 $ 282.8 $ 276.8 $ 272.9
Average interest-earning assets
supported by:
Interest-bearing liabilities $ 24,174 $ 23,831 $ 23,757 $ 23,175 $ 22,710
Noninterest-bearing liabilities 4,408 4,455 4,494 4,208 4,113
Total interest-earning assets $ 28,582 $ 28,286 $ 28,251 $ 27,383 $ 26,823
Average yields and average rates
(tax-equivalent basis):
Interest-earning assets yield 6.65 % 6.51 % 6.57 % 6.77 % 6.93 %
Rate paid on interest-bearing
liabilities 3.42 3.09 3.07 3.22 3.37
Interest rate spread 3.23 % 3.42 % 3.50 % 3.55 % 3.56 %
Net interest margin 3.76 % 3.91 % 3.99 % 4.05 % 4.07 %
</TABLE>
PROVISION FOR CREDIT LOSSES
There was no provision for credit losses in the second quarter of 1994. The
provision for credit losses was $16.4 million in the second 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 credit losses will be necessary
for the remainder of 1994 and possibly into 1995. Future levels of the
reserve for credit losses and provisions for credit losses may be affected by
changes in economic conditions and loan quality.
<PAGE>F-4 12
NONINTEREST INCOME
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Customer service fees:
Deposit transaction and other
services $ 24.2 $ 22.8 $ 23.0 $ 23.4 $ 23.4
Cash management services 16.4 17.8 17.6 18.4 17.7
Credit and trade related services 5.2 5.0 2.2 2.4 2.2
Investment services and commissions 3.0 2.9 3.2 2.9 3.1
Total 48.8 48.5 46.0 47.1 46.4
Trust and agency fees:
Personal 19.2 18.7 18.2 18.4 18.6
Institutional 4.7 4.8 4.2 5.3 4.6
Corporate 2.9 3.6 4.7 3.9 3.3
Not for profit 2.3 2.3 2.4 2.3 2.3
Total 29.1 29.4 29.5 29.9 28.8
Other income:
Loan servicing 10.5 4.5 1.0 3.8 4.8
Trading account profits 1.3 1.2 1.3 1.5 1.8
Foreign exchange trading profits
(losses) (1.1) (0.7) 2.7 0.2 (0.1)
Residential mortgage sales gains 0.1 1.0 2.8 4.5 7.1
FDIC assistance --- --- 2.2 3.5 6.9
Other 5.2 5.6 10.3 7.3 6.7
Total 16.0 11.6 20.3 20.8 27.2
Total 93.9 89.5 95.8 97.8 102.4
Securities gains (losses), net --- (0.8) 1.5 2.5 2.2
Total noninterest income $ 93.9 $ 88.7 $ 97.3 $ 100.3 $ 104.6
</TABLE>
Noninterest income (excluding securities gains and losses) was $93.9 million
for the second quarter of 1994, a decrease of $8.5 million, or 8 percent,
from $102.4 million for the second quarter of 1993.
Customer service fees increased $2.4 million to $48.8 million for the second
quarter of 1994 from $46.4 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 second quarter of 1994. Deposit
transaction and other services increased $.8 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 $1.3 million which
reflects competitive price concessions. Trust and agency fees increased $.3
million to $29.1 million in the second quarter of 1994 from $28.8 million a
year ago.
Other income declined $11.2 million to $16.0 million in the second quarter of
1994 from $27.2 million in the second quarter of 1993. Gains on residential
mortgage loan sales declined $7.0 million, reflecting a lower level of
secondary market activity as rising interest rates in the first half of 1994
slowed mortgage sales. Loan servicing income for the second quarter of 1994
includes $5.3 million of gains from the sale of mortgage servicing rights.
Foreign exchange trading losses contributed $1.0 million to the decline in
other income. FDIC assistance, which relates to agreements between the FDIC
and New Dartmouth Bank, decreased by $6.9 million as the loan portfolio
subject to regulatory assistance continues to decline.
Noninterest income (excluding securities gains and losses) for the first six
months of 1994 decreased $21.3 million, or 10 percent, to $183.4 million from
$204.7 million for the first six months of 1993.
<PAGE>F-5 13
NONINTEREST EXPENSES
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Compensation $ 100.0 $ 102.2 $ 105.2 $ 105.2 $ 102.2
Benefits 22.6 23.6 20.0 21.9 22.7
Occupancy 25.0 26.3 25.7 25.8 26.3
Equipment 13.1 13.4 14.3 13.2 14.7
Federal Deposit Insurance Corporation
premiums 11.1 11.8 12.6 12.5 13.3
Communications 10.1 10.4 11.0 11.2 11.9
Advertising 6.6 4.5 5.8 4.8 4.7
Foreclosed properties expense 2.5 3.7 3.1 5.1 9.7
Other 46.1 43.9 46.6 50.9 50.2
Total 237.1 239.8 244.3 250.6 255.7
Merger related charges 100.9
Restructuring charges 39.8
Fair lending related charges 3.5
Foreclosed properties provision 0.9 2.0 6.5 11.3 13.5
Total noninterest expenses $ 378.7 $ 241.8 $ 254.3 $ 261.9 $ 269.2
</TABLE>
Noninterest expenses (excluding foreclosed properties provision and merger
and restructuring related expenses) were $237.1 million for the second
quarter of 1994, a decrease of $18.6 million, or 7 percent, from $255.7
million for the second quarter of 1993. This reduction reflects the
implementation of a cost management program in the first quarter of 1993 that
included certain workforce reductions, branch closings and consolidations and
other expense reduction initiatives as well as declining problem asset
resolution costs.
Compensation expense decreased $2.2 million, or 2 percent, to $100.0 million
for the second quarter of 1994 from $102.2 million for the comparable prior
year period. Compensation expense reflects 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 referred to above. Full-time equivalent employees
totaled 10,495 at June 30, 1994, compared with 11,794 at June 30, 1993.
Foreclosed properties expense declined $7.2 million from $9.7 million in the
second quarter of 1993 to $2.5 million in the 1994 period and reflects the
decline in the level of foreclosed properties at June 30, 1994 from the
comparable prior year period.
Merger related charges of $100.9 million reflect the integration of three
acquisitions in Connecticut, Massachusetts and New Hampshire completed during
the second quarter of 1994, further discussed in Note 2 of Notes to
Consolidated Financial Statements on page F-26. 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
accelerated 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, which are included in merger related charges.
Restructuring related charges of $39.8 million reflect the expansion of the
Corporation's cost management program. The program includes an
organizational streamlining and the elimination of more than 600 full-time
equivalent positions. The expanded program has also identified cost
reductions to be achieved through improved management of occupancy costs and
consolidation of purchasing activities. The restructuring related charges
include $26.6 million for severance and benefit related costs and $13.2
million for the consolidation of branch and operations facilities and other
costs. It is anticipated that the restructuring program will be
substantially completed by the end of the first quarter of 1995.
<PAGE>F-6 14
Noninterest expenses (excluding foreclosed properties provision and merger
and restructuring related charges) totaled $476.9 million for the first six
months of 1994, compared with $511.6 million for the first six months of
1993. Included in total noninterest expenses for the first six months of
1993 are restructuring and other charges consisting of $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.
PROVISION FOR FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Provision for foreclosed properties $ 0.9 $ 2.0 $ 6.5 $ 11.3 $ 13.5
</TABLE>
The provision for foreclosed properties was $.9 million for the second
quarter of 1994, compared with $13.5 million for the second quarter of
1993, or a decrease of $12.6 million. The decline in the foreclosed
properties provision during the second quarter of 1994 reflects primarily
the decline in the level of foreclosed properties from period to period.
The provision for foreclosed properties for the first six months of 1994
was $2.9 million, compared with $58.8 million for the same period in
1993. Included in the foreclosed properties provision for the 1993
period are provisions of $20.0 million for the bulk sales of foreclosed
properties and $7.7 million relating to a $29.8 million pool of
commercial properties that were sold at auction.
INCOME TAXES
The income tax benefit for the second quarter of 1994 was $.4 million and
is net of a $5.0 million tax expense related to the recently completed
acquisitions. Excluding this tax expense, the effective income tax rate
for the second quarter of 1994 was 28.2 percent. This compares to a
provision for income taxes of $24.4 million for the second quarter of
1993, representing an effective income tax rate of 27.6 percent,
inclusive of a reduction in the deferred tax asset valuation allowance of
$4.8 million. There were no reductions in the deferred tax asset
valuation allowance in the second quarter of 1994.
The provision for income taxes for the six months ended June 30, 1994 and
1993 was $38.8 million and $22.6 million, respectively, representing an
effective income tax rate of 34.7 percent (which excludes the $5.0
million acquisition related tax expense) and 29.5 percent, respectively.
The 1994 and 1993 periods reflect a reduction in the deferred tax asset
valuation allowance of $1.5 million in the first quarter of 1994 and $4.8
million in the second quarter of 1993, respectively. The Corporation
adopted the new accounting standard for income taxes during the first
quarter of 1993 and the cumulative effect of this accounting change was
the recognition of a $52.8 million income tax benefit in the first
quarter of 1993.
The Corporation's net deferred federal tax asset and valuation allowance
were $217.2 million and $9.7 million, respectively, at June 30, 1994.
Taxable income necessary to be generated in future periods to realize
this net deferred federal tax asset would be approximately $621 million.
Deferred state tax assets, net of related federal tax, totaled $115.5
million at June 30, 1994 and were reduced in their entirety by a
valuation allowance of the same amount.
<PAGE>F-7 15
FINANCIAL CONDITION
LOANS
The Corporation's loan portfolio was $17.3 billion at June 30, 1994,
relatively unchanged from $17.6 billion at December 31, 1993. The
Corporation has a diversified loan portfolio with the consumer portfolio
representing 48 percent of total loans at June 30, 1994. Commercial and
industrial loans represented 35 percent of total loans at that date.
Owner-occupied commercial real estate and investor developer real estate
loans were 8 percent and 9 percent, respectively. The table on page F-16
presents an analysis of the loan portfolio by type. The tables on pages
F-18 and F-19 present an analysis of the loan portfolio by industry
sector.
While the total amount of the loan portfolio remained unchanged at June
30, 1994 compared with December 31, 1993, the mix of loans has changed.
Consumer lending, which includes residential mortgage, home equity and
installment loans, increased $293.2 million from $8.0 billion at year end
1993 to $8.3 billion at June 30, 1994, primarily as a result of growth in
residential mortgages and automobile loans.
In connection with the recently completed acquisitions, the Corporation
transferred approximately $244.0 million of fixed-rate residential
mortgages from consumer loans to residential mortgages held for sale in
anticipation of disposal during the third quarter of 1994. The
Corporation recognized a loss of $12.0 million (included in merger
related charges) to record these loans at the lower of cost or market
value.
Commercial and industrial loans declined from $6.4 billion at year end
1993 to $6.0 billion at June 30, 1994, or $400.8 million. Certain
sectors of the Corporation's commercial loan portfolio reflected growth
as specialized lending (radio, television and cable) and asset based
lending increased $338.3 million and $136.2 million, respectively. These
increases were offset by reductions of approximately $1.0 billion in
certain money market priced commercial loans with narrow profit margins since
year end 1993.
Owner-occupied commercial real estate and investor/developer real estate
loans declined $85.7 million from $1.5 billion at year end 1993 to $1.4
billion at June 30, 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-14.
SECURITIES
Securities classified as held to maturity and reported at amortized cost
increased $900.6 million to $8.1 billion at June 30, 1994 from $7.2
billion at December 31, 1993. Securities classified as available for sale
totaled $1.8 billion at June 30, 1994, compared with $3.2 billion at
December 31, 1993. Securities available for sale declined as sales and
maturities were reinvested in the held to maturity securities portfolio.
In connection with the recently completed acquisitions, the Corporation
realigned the securities portfolio of the acquired institutions to
maintain its interest rate risk profile through certain sales and
reclassifications. Additional information regarding the Corporation's
securities portfolio is presented in Note 3 of Notes to Consolidated
Financial Statements on page F-28.
<PAGE>F-8 16
DEPOSITS AND OTHER SOURCES OF FUNDS
Interest-bearing liabilities averaged $24.2 billion for the second
quarter of 1994, compared with $22.7 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 $18.2 billion at June 30, 1994,
compared with $18.1 billion at December 31, 1993.
Other borrowings, primarily securities sold under agreements to
repurchase and federal funds purchased, decreased $2.0 billion to $7.3
billion at June 30, 1994 from $9.3 billion at December 31, 1993 as other
borrowings have been replaced with note issuances under a bank note
facility. Notes and debentures increased $849.9 million to $1.6 billion
at June 30, 1994 from $758.9 million at December 31, 1993 as a result of
notes issued under a $2.0 billion bank note facility which was
established during the first quarter of 1994.
CAPITALIZATION
The Corporation's Risk-based capital and Leverage ratios were as follows:
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Shareholders' equity $ 2,068.3 $ 2,130.0 $ 2,102.4 $ 1,943.1 $ 1,825.3
Tier 1 capital 1,979.1 2,043.3 1,977.0 1,830.2 1,712.2
Total capital 2,812.5 2,903.8 2,862.0 2,706.4 2,584.0
Risk-weighted assets 23,227.1 22,956.4 22,490.8 21,805.1 21,392.5
Ratios:
Shareholders' equity to assets 6.74 % 6.82 % 6.76 % 6.30 % 6.15 %
Risk-based capital ratios
Tier 1 capital 8.52 8.90 8.79 8.39 8.00
Total capital 12.11 12.65 12.73 12.41 12.08
Leverage ratio 6.38 6.66 6.48 6.17 5.90
</TABLE>
The Corporation's total shareholders' equity at June 30, 1994 was $2.07
billion, or 6.74 percent of assets, compared with $2.1 billion, or 6.76
percent of assets, at December 31, 1993, a decrease of $34.1 million.
This decline for the first half of 1994 reflects a $43.1 million charge
reflecting the net after-tax unrealized loss on the Corporation's $1.8
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 Risk-based Tier 1 and Total capital ratios were 8.52
percent and 12.11 percent at June 30, 1994, respectively, compared with
8.79 percent and 12.73 percent at December 31, 1993, respectively. The
Leverage ratio, a measure of Tier 1 capital to average quarterly assets,
decreased to 6.38 percent at June 30, 1994 from 6.48 percent at December
31, 1993 which reflects an increase in average quarterly assets. 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
exceeded the requirements for a well-capitalized financial institution at
June 30, 1994.
Bank regulatory agencies have issued proposed revisions to capital
adequacy guidelines for comment. One proposal would limit the amount of
deferred tax assets that could be used to meet risk-based capital
requirements. Another proposal would consider unrealized gains or losses
relating to securities classified as available for sale, which are
recorded as a separate component of shareholders' equity, as part of the
risk-based capital calculation. If both of these proposals were adopted
by bank regulatory agencies at June 30, 1994, the Corporation's Risk-based
Tier 1 capital, Total capital and Leverage ratios would have been 8.19
percent, 11.78 percent and 6.15 percent, respectively. The Corporation
cannot determine whether, or in what form, these proposals may be enacted.
<PAGE>F-9 17
The Corporation's two principal subsidiary banks' (Shawmut Bank
Connecticut and Shawmut Bank Massachusetts) Risk-based capital and
Leverage ratios were as follows:
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
SHAWMUT BANK CONNECTICUT
<S> <C> <C> <C> <C> <C>
Shareholder's equity $ 1,203.2 $ 1,233.0 $ 1,225.6 $ 1,096.5 $ 972.9
Tier 1 capital 1,161.6 1,190.1 1,165.4 1,037.8 912.9
Total capital 1,315.5 1,339.7 1,311.0 1,170.8 1,043.7
Risk-weighted assets 12,152.4 11,769.3 11,431.4 10,394.8 10,191.8
Ratios:
Shareholder's equity to assets 7.64 % 7.82 % 7.76 % 7.43 % 6.92 %
Risk-based capital ratios
Tier 1 capital 9.56 10.11 10.19 9.98 8.96
Total capital 10.82 11.38 11.47 11.26 10.24
Leverage ratio 7.55 7.81 7.73 7.44 6.68
SHAWMUT BANK MASSACHUSETTS
Shareholders' equity $ 1,051.1 $ 1,072.8 $ 1,074.8 $ 1,013.6 $ 985.6
Tier 1 capital 1,026.0 1,048.8 1,033.7 983.2 954.7
Total capital 1,176.2 1,199.5 1,189.9 1,141.4 1,112.5
Risk-weighted assets 10,322.5 10,357.6 10,163.1 10,353.5 10,297.9
Ratios:
Shareholders' equity to assets 7.76 % 7.58 % 7.81 % 7.12 % 6.89 %
Risk-based capital ratios
Tier 1 capital 9.94 10.13 10.17 9.50 9.27
Total capital 11.39 11.58 11.71 11.02 10.80
Leverage ratio 7.45 7.55 7.54 7.15 7.03
</TABLE>
The Corporation's principal subsidiary banks' Risk-based capital and
Leverage ratios exceeded the requirements for a well-capitalized financial
institution at June 30, 1994.
<PAGE>F-10 18
INTEREST RATE SENSITIVITY
The table below depicts the Corporation's interest rate sensitivity as of
June 30, 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, adjusted periodically to reflect actual experience.
Those gaps are then adjusted for the net effect of off-balance sheet
financial instruments such as interest rate swaps, U.S. Treasury
combination option agreements and futures contracts.
<TABLE>
<CAPTION>
Repricing Periods
Two- Four- Seven- Ten- Over
One three six nine twelve one
(in millions) month months months months months year Total
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term investments
and other interest-
earning assets $ 542 $ 552 $ 1,094
Securities 482 479 $ 505 $ 449 $ 428 $ 7,504 9,847
Loans 6,206 2,581 1,743 819 759 5,221 17,329
Total interest-
earning assets 7,230 3,612 2,248 1,268 1,187 12,725 28,270
Interest-bearing
deposits 1,674 2,200 1,737 1,312 1,805 5,975 14,703
Other borrowings 6,643 491 4 134 1 38 7,311
Notes and debentures 300 300 100 200 709 1,609
Noninterest-bearing
sources of funds 651 102 407 407 407 2,673 4,647
Total 9,268 3,093 2,248 1,853 2,413 9,395 28,270
Off-balance sheet
financial instruments 51 103 (10) (68) (49) (27)
Interest rate
sensitivity gap $ (1,987) $ 622 $ (10) $ (653) $ (1,275) $ 3,303
Cumulative gap $ (1,987) $ (1,365) $ (1,375) $ (2,028) $ (3,303) $ 0
Interest rate sensitivity
gap as a percent
of interest-earning
assets (7.0)% 2.2 % (0.1)% (2.3)% (4.5)%
Cumulative gap as
a percent of
interest-earning assets (7.0)% (4.8)% (4.9)% (7.2)% (11.7)%
</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 June 30, 1994, the Corporation had approximately $2.4 billion in
notional balances of interest rate swap contracts outstanding, an increase
of $400 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 June 30, 1994 was approximately 2.3 years and 3.2 years, respectively.
Basis interest rate swap agreements have a final maturity of approximately
one year. The Corporation also purchased options to enter into
interest rate swap contracts in future periods (swaptions). The notional
balances of interest rate swap contracts subject to option were $700
million at June 30, 1994, with exercise dates of September 15, 1994 and
December 15, 1994.
<PAGE>F-11 19
In addition to the interest rate swap contracts, the Corporation utilizes
interest rate cap and floor agreements to manage interest rate risk. At
June 30, 1994, the Corporation had approximately $950 million in notional
balances of purchased interest rate cap 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 $1.0 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 average final maturity of the
interest rate cap portfolio at June 30, 1994 was approximately 1.6 years.
The average final maturities of the interest rate collar agreements at
June 30, 1994 were less than one year. The unamortized premium recorded
in the Corporation's balance sheet related to interest rate risk
management agreements was $28.7 million at June 30, 1994.
Exchange-traded futures contracts are also used by the Corporation to
manage interest rate exposure. The notional balances of futures contracts
at June 30, 1994 were approximately $3.7 billion, an increase of $1.2
billion from $2.5 billion at December 31, 1993. At June 30, 1994, the
Corporation had entered into U.S. Treasury rate futures contracts with
approximately $580 million in notional balances to manage the risk
associated with the available for sale securities portfolio. The
unrealized gain of approximately $3.8 million at June 30, 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
June 30, 1994 was approximately $11.9 million. Maturities of the notional
balances of futures contracts are as follows: $1.6 billion in 1994; $1.4
billion in 1995; and $.7 billion in 1996.
<TABLE>
Activity for interest rate agreements utilized for the management of interest rate risk for the first
six months of 1994 follows:
<CAPTION>
Swaps
Notional Plain Plain Amortizing
amounts fixed fixed fixed Caps and Futures
(millions) pay receive receive Basis corridors Floors Collars contracts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
12/31/93 $ 943 $ 141 $ 900 $ 3,356 $ 2,528
Additions 500 $ 300 275 $ 500 $ 500 24,014
Maturities 279 67 1,650 500
Settlements 22,841
Balance,
6/30/94 $ 664 $ 74 $ 1,400 $ 300 $ 1,981 $ --- $ 500 $ 3,701
</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 $3.3 billion at June 30, 1994. 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 and corridors which
are not included in the interest rate sensitivity table 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 June 30, 1994 would decrease from $3.3 billion
to $1.6 billion through the use of interest rate caps and corridors. The
Corporation also utilizes modeling and other analytical techniques to
measure the effect on net interest income under different interest rate
scenarios. Given an immediate 100 basis point increase in interest rates,
the effect on net interest income would be a reduction of approximately
$17.2 million for the twelve-month period following June 30, 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 principal 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-12 20
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 and is managed consistent with the condition of the
Corporation's earnings, capital, asset quality and economic factors. At
June 30, 1994, UPFs were $2.3 billion. This was offset by $4.7 billion in
short-term investments and unused repurchase agreement collateral, leaving
the Corporation with an excess of short-term investments and unused
repurchase agreement collateral over UPFs of $2.4 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
$850 million at June 30, 1994.
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 combined short-term borrowings of $133.4 million at June 30, 1994.
The parent companies had combined cash and cash equivalents at June
30, 1994 of $218.7 million and securities, consisting of preferred stock
holdings, with a fair value of $304.9 million. Notes and debentures
totaled $749.1 million at June 30, 1994. There are no scheduled
maturities on notes and debentures in 1994 and 1995. Scheduled maturities
are $150 million in 1996.
RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at
beginning of period $ 638.5 $ 669.2 $ 694.1 $ 725.6 $ 870.3
Provision charged to operations --- 3.0 10.2 11.3 16.4
Bulk sale charge-offs (108.6)
Loans charged off
Gross (60.5) (45.7) (53.0) (53.9) (65.9)
Recoveries 11.8 12.0 17.9 11.1 13.4
Net (48.7) (33.7) (35.1) (42.8) (52.5)
Reserve for credit losses at
end of period $ 589.8 $ 638.5 $ 669.2 $ 694.1 $ 725.6
Net charge-offs (annualized)
to average loans (1) 1.10 % 0.78 % 0.82 % 1.00 % 1.22 %
Reserve for credit losses to
net charge-offs (annualized) (1) 3.03 x 4.75 x 4.76 x 4.06 x 3.46 x
Reserve for credit losses to loans 3.40 % 3.64 % 3.80 % 3.95 % 4.17 %
</TABLE>
(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.
The reserve for credit losses was $589.8 million at June 30, 1994,
compared with $669.2 million at December 31, 1993. The reserve for credit
losses to total loans was 3.40 percent at June 30, 1994, compared with
3.80 percent at December 31, 1993. An analysis of the provision and
reserve for credit losses is presented on page F-17. Net charge-offs were
$48.7 million for the second quarter of 1994, equal to an annualized rate
of 1.10 percent of average loans, compared with $52.5 million and 1.22
percent for the same period a year ago. Net charge-offs relating to the
acquired entities were $24.7 million and $12.6 million for the second
quarter of 1994 and 1993, respectively. A discussion of the provision for
credit losses is presented on page F-4.
<PAGE>F-13 21
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.
CREDIT QUALITY
<TABLE>
NONACCRUING LOANS, RESTRUCTURED LOANS AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Commercial / real estate loans:
Current $ 50.8 $ 53.1 $ 63.6 $ 76.1 $ 105.9
From 30 to 89 days past due 14.2 21.9 25.7 33.3 32.2
90 or more days past due 154.6 178.3 197.7 240.3 262.1
Total 219.6 253.3 287.0 349.7 400.2
Consumer loans:
Current 9.2 9.8 12.5 12.8 13.1
From 30 to 89 days past due 3.9 5.4 5.1 7.1 8.8
90 or more days past due 52.5 60.1 68.3 67.7 70.3
Total 65.6 75.3 85.9 87.6 92.2
Total nonaccruing loans $ 285.2 $ 328.6 $ 372.9 $ 437.3 $ 492.4
Restructured loans $ 63.8 $ 63.6 $ 73.3 $ 87.7 $ 79.9
Accruing loans past due 90 days
or more $ 47.8 $ 46.4 $ 42.6 $ 61.5 $ 57.9
Nonaccruing loans to loans 1.65 % 1.87 % 2.12 % 2.49 % 2.83 %
Reserve for credit losses to
nonaccruing loans 207.00 194.00 179.00 159.00 147.00
</TABLE>
Nonaccruing loans were $285.2 million at June 30, 1994, compared with
$372.9 million at December 31, 1993. Approximately 21 percent of
nonaccruing loans were less than 30 days past due at June 30, 1994,
compared with approximately 20 percent at December 31, 1993. The ratio of
nonaccruing loans to loans improved to 1.65 percent at June 30, 1994 from
2.12 percent at December 31, 1993. The ratio of the reserve for credit
losses to nonaccruing loans was 207 percent at June 30, 1994, compared
with 179 percent at December 31, 1993. The table on page F-16 presents
nonaccruing loans by loan type. Changes in nonaccruing loans are
presented in the table on page F-17.
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 $63.8 million at June 30, 1994, compared with $73.3 million at the
end of 1993. Restructured loans included real estate investor/developer
loans and owner-occupied commercial real estate loans of $50.4 million and
$5.1 million, respectively, at June 30, 1994. The yield from the
portfolio of restructured loans was 6.70 percent for the quarter ended
June 30, 1994, compared with 7.22 percent for the quarter ended June 30,
1993.
<PAGE>F-14 22
Accruing loans past due 90 days or more, which are well secured and in the
process of collection, were $47.8 million at June 30, 1994, compared with
$42.6 million at December 31, 1993. These loans represented .27 percent
of loans outstanding at June 30, 1994. Consumer loans represented 28
percent and 33 percent of accruing loans past due 90 days or more at June
30, 1994 and December 31, 1993, respectively.
The Corporation seeks to limit its exposure to individual and affiliated
borrowers. The ten largest nonaccruing loans totaled $41.2 million, or
.24 percent, of loans outstanding at June 30, 1994 and are presented in
the table on page F-19. The ten largest nonaccruing loans at December 31,
1993 totaled $35.9 million.
FORECLOSED PROPERTIES BY PROJECT TYPE
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Residential $ 10.6 $ 11.8 $ 12.8 $ 16.7 $ 22.8
Retail 8.0 3.5 4.0 5.7 11.8
Land 7.1 9.4 10.7 13.5 20.0
Offices 5.0 4.4 8.6 13.1 20.8
Industrial 3.9 3.9 5.6 10.9 19.5
Mixed use 3.1 1.1 2.1 4.4 8.0
Hotels, resorts, inns 2.7 2.1 5.7 5.9 5.9
Residential developers
Condominium 1.1 1.6 1.6 1.9 2.1
Single family 0.3 1.6 1.6 2.0 2.5
Apartment/rental 0.2 0.5 0.9 2.4 2.3
Other 0.5 11.6 10.9 18.2 23.1
Total $ 42.5 $ 51.5 $ 64.5 $ 94.7 $ 138.8
</TABLE>
Foreclosed properties decreased $22.0 million, or 34 percent, to $42.5
million at June 30, 1994, from $64.5 million at December 31, 1993,
primarily from continuing disposition efforts.
NONACCRUING LOANS PLUS FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ 285.2 $ 328.6 $ 372.9 $ 437.3 $ 492.4
Foreclosed properties 42.5 51.5 64.5 94.7 138.8
Total $ 327.7 $ 380.1 $ 437.4 $ 532.0 $ 631.2
Nonaccruing loans plus foreclosed
properties to loans plus foreclosed
properties 1.89 % 2.16 % 2.48 % 3.01 % 3.60 %
</TABLE>
Nonaccruing loans plus foreclosed properties totaled $327.7 million at
June 30, 1994, a decline of $109.7 million, or 25 percent, from $437.4
million at December 31, 1993. The ratio of nonaccruing loans plus
foreclosed properties to loans plus foreclosed properties was 1.89 percent
at June 30, 1994, down from 2.48 percent at December 31, 1993.
<PAGE>F-15 23
PORTFOLIO STATISTICS
The following tables set forth loan statistical information:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 5,992.7 $ 6,188.7 $ 6,393.5 $ 6,163.2 $ 6,117.2
Owner-occupied commercial
real estate 1,407.1 1,421.8 1,492.8 1,536.7 1,571.4
Real estate investor/developer
Commercial mortgage 1,461.0 1,518.7 1,526.5 1,558.9 1,524.4
Construction and other 150.9 152.1 160.7 178.6 275.6
Total investor/developer 1,611.9 1,670.8 1,687.2 1,737.5 1,800.0
Consumer
Residential mortgage 5,474.0 5,570.3 5,325.9 5,431.0 5,363.8
Home equity 1,609.9 1,580.1 1,637.8 1,692.5 1,577.2
Installment and other 1,233.5 1,127.5 1,060.5 1,000.6 950.9
Total consumer 8,317.4 8,277.9 8,024.2 8,124.1 7,891.9
Total 17,329.1 17,559.2 17,597.7 17,561.5 17,380.5
Reserve for credit losses (589.8) (638.5) (669.2) (694.1) (725.6)
Total $ 16,739.3 $ 16,920.7 $ 16,928.5 $ 16,867.4 $ 16,654.9
</TABLE>
NONACCRUING LOANS BY LOAN TYPE
<TABLE>
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 60.6 $ 63.6 $ 85.0 $ 94.7 $ 124.0
Owner-occupied commercial
real estate 67.5 72.8 79.6 97.2 106.3
Real estate investor/developer
Commercial mortgage 70.6 92.0 97.4 116.5 133.6
Construction and other 20.9 24.9 25.0 41.3 36.3
Total investor/developer 91.5 116.9 122.4 157.8 169.9
Consumer
Residential mortgage 48.8 61.2 71.7 71.0 73.9
Home equity 8.2 9.2 8.7 9.3 9.6
Installment and other 8.6 4.9 5.5 7.3 8.7
Total consumer 65.6 75.3 85.9 87.6 92.2
Total $ 285.2 $ 328.6 $ 372.9 $ 437.3 $ 492.4
</TABLE>
<PAGE>F-16 24
CHANGES IN NONACCRUING LOANS
The changes in the Corporation's nonaccruing loans are summarized below:
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 328.6 $ 372.9 $ 437.3 $ 492.4 $ 716.5
New nonaccruing loans 65.4 49.7 59.3 76.8 105.2
Decreases in nonaccruing loans
Sales 5.8 80.9
Payments 34.2 33.4 60.7 45.3 96.5
Returns to accruing loans 12.3 9.9 20.2 36.8 45.8
Transfers to restructured loans 1.4 4.6 2.2 0.6
Transfers to foreclosed properties 2.6 5.0 2.8 3.2 4.4
Charge-offs 52.5 45.7 35.4 44.4 101.1
Total 108.8 94.0 123.7 131.9 329.3
Balance at end of period $ 285.2 $ 328.6 $ 372.9 $ 437.3 $ 492.4
</TABLE>
PROVISION AND RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1994 1994 1993 1993 1993 (1)
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at
beginning of period $ 638.5 $ 669.2 $ 694.1 $ 725.6 $ 870.3
Provision charged to operations --- 3.0 10.2 11.3 16.4
Loans charged off:
Commercial and industrial 6.0 8.3 12.7 11.7 18.6
Owner-occupied commercial
real estate 3.0 5.5 8.9 8.1 23.3
Real estate investor/developer
Commercial mortgage 20.8 11.6 11.3 14.3 84.0
Construction and other 2.6 1.4 3.4 5.0 26.5
Total investor/developer 23.4 13.0 14.7 19.3 110.5
Consumer
Residential mortgage 12.8 14.2 7.8 9.9 16.7
Home equity 12.0 1.8 1.2 1.0 1.4
Installment and other 3.3 2.9 7.7 3.9 4.0
Total consumer 28.1 18.9 16.7 14.8 22.1
Total loans charged off 60.5 45.7 53.0 53.9 174.5
Recoveries on loans charged off:
Commercial and industrial 3.9 4.0 10.6 5.0 4.4
Owner-occupied commercial
real estate 0.6 1.2 1.5 2.1 2.5
Real estate investor/developer 1.2 1.1 2.9 1.3 3.4
Consumer 6.1 5.7 2.9 2.7 3.1
Total recoveries 11.8 12.0 17.9 11.1 13.4
Net loans charged off 48.7 33.7 35.1 42.8 161.1
Reserve for credit losses at
end of period $ 589.8 $ 638.5 $ 669.2 $ 694.1 $ 725.6
</TABLE>
(1) Includes $108.6 million of charge-offs for the quarter ended June 30,
1993 relating to the bulk sale of nonaccruing loans.
<PAGE>F-17 25
COMMERCIAL AND INDUSTRIAL LOANS - BY INDUSTRY SECTOR
<TABLE>
<CAPTION>
June 30, 1994 Charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Manufacturing $ 1,342.0 $ 19.3 $ 0.2 $ 3.5
Communications 1,238.8 4.9
Finance, insurance and
real estate 1,018.7 4.9 0.3 2.3
Services 808.5 6.7 0.1 0.8
Wholesale 553.5 9.2
Retail 411.6 3.8 0.3 1.3
Other 619.6 11.8 5.1 6.4
Total $ 5,992.7 $ 60.6 $ 6.0 $ 14.3
</TABLE>
OWNER-OCCUPIED COMMERCIAL REAL ESTATE LOANS - BY INDUSTRY SECTOR
<TABLE>
<CAPTION>
June 30, 1994 Charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Services $ 375.4 $ 5.9 $ 0.3 $ 0.6
Finance, insurance and
real estate 281.8 18.8 0.7 2.7
Manufacturing 191.5 8.4 0.5
Retail 170.9 17.7 0.8 1.9
Wholesale 104.8 2.9 0.1
Communications 40.5 1.3 0.2
Other 242.2 12.5 1.2 2.5
Total $ 1,407.1 $ 67.5 $ 3.0 $ 8.5
</TABLE>
REAL ESTATE INVESTOR/DEVELOPER LOANS - BY PROJECT
<TABLE>
<CAPTION>
June 30, 1994 Charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Offices $ 261.1 $ 18.1 $ 2.1 $ 3.8
Apartment/rental 253.6 13.5 2.1 3.5
Retail 241.2 6.4 0.9 1.3
Mixed use 183.7 11.7 2.8 3.7
Industrial 131.8 9.7 3.1 4.7
Special purposes 50.3 3.4 0.6 1.1
Research and development space 43.5
Land 32.4 11.3 1.2 1.6
Residential developers
Condominium 40.7 1.7 0.9
Single family 26.9 4.0 0.1 0.1
Hotels, resorts, inns 22.4 0.1 0.3 0.4
Other 324.3 11.6 10.2 15.3
Total $ 1,611.9 $ 91.5 $ 23.4 $ 36.4
</TABLE>
<PAGE>F-18 26
CONSUMER LOANS - BY TYPE
<TABLE>
<CAPTION>
June 30, 1994 Charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Residential mortgages $ 5,474.0 $ 48.8 $ 12.8 $ 27.0
Home equity lines 1,149.4 6.5 1.5 2.0
Indirect automobile 731.0 5.9 1.2 2.6
Home equity loans 304.6 1.7 10.5 11.8
Direct installment 581.3 0.6 0.4 0.7
Other 77.1 2.1 1.7 2.9
Total $ 8,317.4 $ 65.6 $ 28.1 $ 47.0
</TABLE>
TEN LARGEST NONACCRUING LOANS AS OF JUNE 30, 1994
<TABLE>
<CAPTION>
Loan Type (in millions)
<S> <C>
Real estate investor/developer: mixed use $ 6.5
Commercial: service 6.4
Commercial: manufacturing 6.2
Real estate investor/developer: office, mixed use 4.5
Real estate investor/developer: office 4.1
Owner-occupied commercial real estate: industrial use 3.3
Commercial: wholesale 3.0
Real estate investor/developer: retail, industrial use 2.6
Commercial: communications, real estate 2.4
Owner-occupied commercial real estate: retail 2.2
Total $ 41.2
</TABLE>
<PAGE>F-19 27
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:
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1994 March 31, 1994
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans $ 17,674 $ 320.7 7.27 % $ 17,170 $ 301.5 7.09 %
Securities
Available for sale, at fair value 2,615 39.9 6.09 2,960 44.1 5.73
At lower of aggregate cost or
fair value
Held to maturity 7,743 107.2 5.54 7,486 103.3 5.61
Residential mortgages held for sale 168 2.9 6.92 312 5.4 6.90
Short-term investments
Time deposits in other banks 215 2.1 3.96 172 1.5 3.62
Federal funds sold and securities
purchased under agreements to resell 146 1.6 4.30 169 1.3 3.19
Trading account securities 21 0.2 4.55 17 0.2 4.52
Total interest-earning assets 28,582 474.6 6.65 28,286 457.3 6.51
Reserve for credit losses (633) (668)
Cash and due from banks 1,464 1,551
Other assets 1,696 1,584
Total assets $ 31,109 $ 30,753
LIABILITIES
Savings, money market and
NOW accounts $ 8,827 38.2 1.74 % $ 8,842 37.4 1.71 %
Time certificates of deposit
of $100 thousand or more 531 7.0 5.31 476 4.7 4.05
Domestic time deposits 4,352 43.0 3.96 4,259 42.0 4.00
Foreign time deposits 255 2.4 3.79 202 1.6 3.10
Total interest-bearing deposits 13,965 90.6 2.60 13,779 85.7 2.52
Federal funds purchased and securities
sold under agreements to repurchase 8,000 78.0 3.91 8,003 63.9 3.24
Other borrowings 1,101 17.4 6.35 1,289 16.2 5.11
Total other borrowings 9,101 95.4 4.21 9,292 80.1 3.50
Notes and debentures 1,108 19.9 7.17 760 16.1 8.48
Total interest-bearing liabilities 24,174 205.9 3.42 23,831 181.9 3.09
Demand deposits 4,457 4,540
Other liabilities 278 264
Total liabilities 28,909 28,635
Shareholders' equity 2,200 2,118
Total liabilities and
shareholders' equity $ 31,109 $ 30,753
Net interest income
(tax-equivalent basis) 268.7 3.76 275.4 3.91
Less tax-equivalent adjustment 3.0 2.9
Net interest income $ 265.7 $ 272.5
</TABLE>
<PAGE>F-20 28
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:
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, 1993 September 30, 1993
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans $ 17,124 $ 310.0 7.19 % $ 17,077 $ 312.3 7.29 %
Securities
Available for sale, at fair value
At lower of aggregate cost or
fair value 4,374 62.7 5.79 3,877 58.9 6.16
Held to maturity 6,004 84.2 5.56 5,537 82.6 5.91
Residential mortgages held for sale 351 6.1 6.86 412 7.3 7.13
Short-term investments
Time deposits in other banks 14 0.1 2.98 36 0.2 2.96
Federal funds sold and securities
purchased under agreements to resell 341 2.6 3.04 401 3.2 3.14
Trading account securities 43 0.5 4.49 43 0.4 3.81
Total interest-earning assets 28,251 466.2 6.57 27,383 464.9 6.77
Reserve for credit losses (696) (724)
Cash and due from banks 1,576 1,522
Other assets 1,496 1,580
Total assets $ 30,627 $ 29,761
LIABILITIES
Savings, money market and
NOW accounts $ 8,990 39.2 1.84 % $ 9,062 42.6 1.90 %
Time certificates of deposit
of $100 thousand or more 465 5.1 4.38 518 6.2 4.76
Domestic time deposits 4,463 46.3 4.11 4,688 47.9 4.05
Foreign time deposits 271 2.1 3.01 205 1.6 3.00
Total interest-bearing deposits 14,189 92.7 2.59 14,473 98.3 2.70
Federal funds purchased and securities
sold under agreements to repurchase 7,500 55.0 2.91 6,973 54.8 3.12
Other borrowings 1,253 18.4 5.83 855 16.6 7.68
Total other borrowings 8,753 73.4 3.33 7,828 71.4 3.62
Notes and debentures 815 17.3 8.47 874 18.4 8.43
Total interest-bearing liabilities 23,757 183.4 3.07 23,175 188.1 3.22
Demand deposits 4,612 4,436
Other liabilities 275 275
Total liabilities 28,644 27,886
Shareholders' equity 1,983 1,875
Total liabilities and
shareholders' equity $ 30,627 $ 29,761
Net interest income
(tax-equivalent basis) 282.8 3.99 276.8 4.05
Less tax-equivalent adjustment 3.1 3.6
Net interest income $ 279.7 $ 273.3
</TABLE>
<PAGE>F-21 29
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:
<TABLE>
<CAPTION>
Three months ended
June 30, 1993
Average Average
(in millions) balance Interest rate
ASSETS
<S> <C> <C> <C>
Loans $ 17,227 $ 315.3 7.32 %
Securities
Available for sale, at fair value
At lower of aggregate cost or
fair value 3,341 56.9 6.92
Held to maturity 5,339 80.0 5.94
Residential mortgages held for sale 427 7.8 7.35
Short-term investments
Time deposits in other banks 38 0.3 2.97
Federal funds sold and securities
purchased under agreements to resell 416 2.1 3.04
Trading account securities 35 0.4 7.86
Total interest-earning assets 26,823 463.8 6.93
Reserve for credit losses (859)
Cash and due from banks 1,474
Other assets 1,695
Total assets $ 29,133
LIABILITIES
Savings, money market and
NOW accounts $ 9,057 45.2 2.16 %
Time certificates of deposit
of $100 thousand or more 534 6.3 4.73
Domestic time deposits 5,046 55.7 4.43
Foreign time deposits 120 0.9 2.90
Total interest-bearing deposits 14,757 108.1 2.94
Federal funds purchased and securities
sold under agreements to repurchase 6,404 49.7 3.12
Other borrowings 690 14.6 8.44
Total other borrowings 7,094 64.3 3.64
Notes and debentures 859 18.5 8.60
Total interest-bearing liabilities 22,710 190.9 3.37
Demand deposits 4,346
Other liabilities 290
Total liabilities 27,346
Shareholders' equity 1,787
Total liabilities and
shareholders' equity $ 29,133
Net interest income
(tax-equivalent basis) 272.9 4.07
Less tax-equivalent adjustment 3.5
Net interest income $ 269.4
</TABLE>
<PAGE>F-22 30
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
(in thousands, except per share data) 1994 1993 1994 1993
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C> <C>
Loans $ 319,492 $ 313,856 $ 619,866 $ 623,138
Securities
Available for sale, at fair value 38,083 80,409
At lower of aggregate cost or fair value 56,176 115,916
Held to maturity 107,199 78,545 210,480 139,404
Residential mortgages held for sale 2,916 7,841 8,301 16,267
Federal funds sold and securities purchased
under agreements to resell 1,569 3,154 2,830 6,799
Interest-bearing deposits in other banks 2,148 283 3,677 472
Trading account securities 234 439 432 673
Total 471,641 460,294 925,995 902,669
INTEREST EXPENSE
Deposits 90,600 108,159 176,268 229,985
Other borrowings 95,440 64,297 175,519 117,667
Notes and debentures 19,859 18,458 35,971 36,357
Total 205,899 190,914 387,758 384,009
NET INTEREST INCOME 265,742 269,380 538,237 518,660
Provision for credit losses 16,368 3,000 34,497
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 265,742 253,012 535,237 484,163
NONINTEREST INCOME
Customer service fees 48,844 46,432 97,317 93,368
Trust and agency fees 29,065 28,766 58,482 57,393
Securities gains (losses), net 2,216 (768) 8,463
Other 15,998 27,242 27,600 54,021
Total 93,907 104,656 182,631 213,245
NONINTEREST EXPENSES
Compensation and benefits 122,604 124,850 248,395 247,963
Occupancy and equipment 38,113 41,014 77,831 84,749
Merger related charges 100,900 100,900
Restructuring charges 39,800 39,800 36,319
Foreclosed properties provision and
expense 3,375 23,185 9,105 79,100
Other 73,882 80,201 144,473 172,677
Total 378,674 269,250 620,504 620,808
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (19,025) 88,418 97,364 76,600
Income taxes (benefit) (356) 24,447 38,759 22,571
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES (18,669) 63,971 58,605 54,029
Cumulative effect of changes in methods
of accounting 46,200
NET INCOME (LOSS) $ (18,669) $ 63,971 $ 58,605 $ 100,229
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (22,528) $ 60,104 $ 50,887 $ 92,495
COMMON SHARE DATA
Income (loss) before cumulative effect
of accounting changes $ (0.19) $ 0.54 $ 0.43 $ 0.41
Net income (loss) (0.19) 0.54 0.43 0.83
Weighted average shares outstanding 118,445 112,142 118,136 111,865
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-23 31
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (unaudited)
<TABLE>
<CAPTION>
June 30 December 31
(in thousands) 1994 1993
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,320,192 $ 1,539,690
Interest-bearing deposits in other banks 247,406 13,252
Federal funds sold and securities purchased
under agreements to resell 477,300 71,500
Trading account securities 30,377 19,625
Residential mortgages held for sale 338,973 472,450
Securities
Available for sale, at fair value 1,793,440 3,189,616
Held to maturity
(fair value $7,822,281 and $7,228,796) 8,052,907 7,152,326
Loans, less reserve for credit
losses of $589,802 and $669,156 16,739,327 16,928,532
Premises and equipment 328,609 332,960
Foreclosed properties 42,482 64,518
Customers' acceptance liability 37,950 13,747
Other assets 1,283,379 1,304,589
Total assets $ 30,692,342 $ 31,102,805
LIABILITIES
Deposits
Demand $ 4,610,188 $ 4,755,036
Savings, money market and NOW accounts 9,105,152 8,976,640
Domestic time 5,273,755 4,763,463
Foreign time 324,498 246,740
Total deposits 19,313,593 18,741,879
Other borrowings 7,311,494 9,282,951
Acceptances outstanding 37,950 13,747
Accrued expenses and other liabilities 352,114 202,916
Notes and debentures 1,608,868 758,941
Total liabilities 28,624,019 29,000,434
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
Preferred stock, $.01 par value
Authorized - 193,000 shares
Outstanding - 170,073 shares 15,215
Common stock, $.01 par value
Authorized - 150,000,000 shares
Issued - 118,620,552 and 117,550,211 shares 1,186 1,176
Surplus 1,255,538 1,237,177
Retained earnings 662,781 658,607
Net unrealized gain (loss) on securities available for sale (29,331) 13,789
Treasury stock, common stock at cost (1,544 and 106,487 shares) (36) (2,343)
Total shareholders' equity 2,068,323 2,102,371
Total liabilities and shareholders' equity $ 30,692,342 $ 31,102,805
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-24 32
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
(in thousands) 1994 1993
<S> <C> <C>
SHAREHOLDERS' EQUITY at beginning of period, as restated $ 2,102,371 $ 1,731,543
PREFERRED STOCK
Purchase of preferred stock (11,300 shares) (565)
Redemption of preferred stock (170,073 and 137,000 shares) (15,215) (12,256)
COMMON STOCK, $.01 par value
Shares issued under Dividend Reinvestment
and Stock Purchase Plans (720,623 shares) 7
Shares issued under stock option and employee
benefit plans (349,718 and 190,426 shares) 3 2
SURPLUS
Additional proceeds from:
Shares issued under Dividend Reinvestment
and Stock Purchase Plans 15,162
Shares issued under stock option
and employee benefit plans 3,199 1,601
RETAINED EARNINGS
Net income 58,605 100,229
Cash dividends declared by the Corporation on:
Preferred stock (7,718) (7,734)
Common stock (42,908) (18,679)
Cash dividends declared by merged companies prior to mergers (1,143) (2,180)
Restricted stock awards 629 278
Reissuance of common stock from treasury (177) (8,615)
Redemption of preferred stock (3,114) (1,085)
NET UNREALIZED GAIN (LOSS) ON SECURITIES
Unrealized depreciation on securities available for sale (43,120)
Unrealized appreciation on securities at lower of
aggregate cost or fair value 13,869
TREASURY STOCK
Purchase of common stock (66,584 and 5,235 shares) (1,558) (111)
Reissuance of common stock under
Dividend Reinvestment and Stock Purchase Plans
(171,527 and 989,837 shares) 3,865 28,420
SHAREHOLDERS' EQUITY at end of period $ 2,068,323 $ 1,825,282
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-25 33
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
(in thousands) 1994 1993
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 58,605 $ 100,229
Adjustments to reconcile net income to cash
provided by operating activities:
Cumulative effect of changes in methods of accounting (46,200)
Provision for credit losses 3,000 34,497
Provision for foreclosed properties 2,929 58,766
Provision for merger and restructuring charges 140,700 36,319
Depreciation, amortization and other 53,588 59,773
Gains from the sale of loans, premises and equipment
and other assets (9,210) (12,258)
Decrease in securities reported at the lower of
aggregate cost or fair value 422,884
Increase in trading account securities (10,752) (19,601)
Decrease (increase) in residential mortgages held for sale 377,477 (56,957)
Decrease (increase) in other assets and accrued expenses
and other liabilities 39,073 (15,423)
CASH PROVIDED BY OPERATING ACTIVITIES 655,410 562,029
FINANCING ACTIVITIES
Increase (decrease) in total deposits 571,714 (1,122,353)
Increase (decrease) in other borrowings (1,971,457) 2,331,220
Proceeds from issuances of bank notes 850,000
Proceeds from issuance of subordinated notes 149,700
Principal payments on notes and debentures (188) (85,941)
Proceeds from issuances of common stock 22,059 21,408
Purchases of common and preferred stock (20,452) (13,452)
Cash dividends paid (48,792) (18,555)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (597,116) 1,262,027
INVESTING ACTIVITIES
Decrease (increase) in short-term investments (639,954) 252,761
Proceeds from sales of securities available for sale 2,449,689
Maturities of securities available for sale 463,048
Purchases of securities available for sale (1,863,600)
Maturities of securities held to maturity 914,461 882,406
Proceeds from sales of securities held to maturity 736,104
Purchases of securities held to maturity (1,549,977) (3,861,372)
Proceeds from sales of loans 13,112 469,290
Purchases of loans (243,890) (228,290)
Loans originated less principal collected 167,908 (456,606)
Purchases of premises and equipment and other assets (20,397) (16,792)
Proceeds from the sale of premises and equipment
and other assets 31,808 61,127
CASH USED BY INVESTING ACTIVITIES (277,792) (2,161,372)
DECREASE IN CASH AND DUE FROM BANKS (219,498) (337,316)
Cash and due from banks at beginning of period 1,539,690 1,463,728
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,320,192 $ 1,126,412
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 397,316 $ 389,736
Income taxes paid $ 32,715 $ 16,059
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-26 34
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 as restated to give effect to the
acquisitions further discussed in "Note 2 - Acquisitions".
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 6, 1994) $ 1,724,458 6,430 15.157
Gateway Financial Corporation (Gateway) -
(June 27, 1994) $ 1,259,563 7,421 0.559
</TABLE>
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 accelerated
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.
Net interest income and net income, as previously reported, for the
three months ended March 31, 1994 and 1993 and the three and six
months ended June 30, 1993 are restated below:
<TABLE>
<CAPTION>
Three months Three months Three months Six months
ended ended ended ended
(in thousands) March 31, 1994 March 31, 1993 June 30, 1993 June 30, 1993
<S> <C> <C> <C> <C>
Net interest income:
Peoples $ 9,484 $ 9,069 $ 9,334 $ 18,403
New Dartmouth 16,685 16,404 15,267 31,671
Gateway 11,576 11,600 11,659 23,259
The Corporation, as previously reported 234,750 212,207 233,120 445,327
Combined $ 272,495 $ 249,280 $ 269,380 $ 518,660
Net income (loss):
Peoples $ 2,521 $ 2,676 $ 2,969 $ 5,645
New Dartmouth 4,079 4,829 4,559 9,388
Gateway 3,869 (969) 181 (788)
The Corporation, as previously reported 66,805 29,722 56,262 85,984
Combined $ 77,274 $ 36,258 $ 63,971 $ 100,229
</TABLE>
<PAGE>F-27 35
NOTE 3 - SECURITIES
A summary of the amortized cost and fair value of securities
classified as available for sale at June 30, 1994 and December 31,
1993 is as follows:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
Amortized Fair Amortized Fair
(in thousands) cost value cost value
<S> <C> <C> <C> <C>
U.S. Government and agency securities
U.S. Treasury $ 869,539 $ 837,016 $ 1,695,536 $ 1,693,153
Mortgage backed 229,815 237,652 730,321 756,253
Corporate mortgage backed and other
securities 436,458 418,923 488,286 486,877
Equity securities 302,618 299,712 254,194 253,179
State and municipal obligations 135 137 142 154
Total $ 1,838,565 $ 1,793,440 $ 3,168,479 $ 3,189,616
</TABLE>
The amortized cost of securities classified as available for sale
exceeded fair value by approximately $45.1 million at June 30, 1994,
consisting of unrealized losses of approximately $58.2 million and
unrealized gains of approximately $13.1 million. Included as a
separate component of shareholders' equity were net unrealized losses
of $29.3 million and net unrealized gains of $13.8 million on
securities classified as available for sale at June 30, 1994 and
December 31, 1993, respectively. These net unrealized losses and
gains are net of income tax effects of $15.8 million and $7.3 million,
respectively.
The amortized cost and fair value of securities classified as held to
maturity at June 30, 1994 and December 31, 1993 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
Amortized Fair Amortized Fair
(in thousands) cost value cost value
<S> <C> <C> <C> <C>
U.S. Government and agency securities
Mortgage backed $ 3,736,249 $ 3,636,733 $ 3,332,189 $ 3,392,224
U.S. Treasury 1,953,781 1,871,947 1,713,534 1,709,539
Asset backed and other securities 2,362,877 2,313,601 2,106,603 2,127,033
Total $ 8,052,907 $ 7,822,281 $ 7,152,326 $ 7,228,796
</TABLE>
The amortized cost of securities classified as held to maturity
exceeded fair value by approximately $230.6 million at June 30, 1994,
consisting of unrealized losses of approximately $234.8 million and
unrealized gains of approximately $4.2 million.
As part of the acquisitions completed during the second quarter of 1994,
certain securities previously classified as held to maturity by the
acquired entities were transferred to securities classified as available
for sale and certain securities classified as available for sale were sold
in order to maintain the Corporation's interest rate risk profile. The net
loss recognized upon the sale of these securities of $12.5 million is
included in merger related charges. The amortized cost and fair value of
the securities transferred from the held to maturity category to available
for sale were $112.1 million and $106.9 million, respectively. Also,
securities previously classified as available for sale by the acquired
entities, with a fair value of $377.5 million, were transferred to securities
classified as held to maturity.
The proceeds from sales of the securities classified as available for sale,
inclusive of certain securities previously classified as held to maturity by
the acquired entities, were $264.0 million, which resulted in gross realized
losses of $14.7 million and gross realized gains of $2.2 million.
<PAGE>F-28 36
NOTE 4 - LOANS
The components of loans at June 30, 1994 and December 31, 1993, net of
unearned income of $11.8 million and $12.8 million, respectively, are
summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Commercial and industrial $ 5,992,658 $ 6,393,501
Owner-occupied commercial real estate 1,407,089 1,492,820
Real estate investor/developer
Commercial mortgage 1,461,016 1,526,457
Construction and other 150,887 160,740
Total investor/developer 1,611,903 1,687,197
Consumer
Residential mortgage 5,473,992 5,325,904
Home equity 1,609,955 1,637,773
Installment and other 1,233,532 1,060,493
Total consumer 8,317,479 8,024,170
Total 17,329,129 17,597,688
Less reserve for credit losses 589,802 669,156
Total $ 16,739,327 $ 16,928,532
</TABLE>
In connection with the acquisitions completed during the second quarter of
1994, fixed-rate residential mortgage loans with a carrying amount of
approximately $244.0 million were transferred to residential mortgages held
for sale in anticipation of disposition during the third quarter of 1994.
The Corporation recognized a loss of $12.0 million to record these loans
at the lower of cost or market value, which is included in merger related
charges.
Loans totaling $7.6 million and $32.6 million were transferred to
foreclosed properties during the six months ended June 30, 1994 and
1993, respectively.
NOTE 5 - OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The components of other assets at June 30, 1994 and December 31, 1993
are presented below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Receivable for securities sold $ 89,047 $ 219,111
Net deferred income taxes 217,204 200,871
Accrued interest income 178,135 171,084
Cash surrender value of life insurance 153,590
Prepaid pension expense 125,941 128,302
Goodwill and other intangibles 118,516 109,671
Other 400,946 475,550
Total $ 1,283,379 $ 1,304,589
</TABLE>
<PAGE>F-29 37
The components of accrued expenses and other liabilities at June 30,
1994 and December 31, 1993 are presented below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Accrued interest expense $ 61,329 $ 70,887
Accrued dividends payable 27,067 24,090
Accrued postemployment benefits expense 9,584 8,400
Accrued postretirement health care and life
insurance benefits expense 11,292 8,057
Accrued restructuring expenses 38,028 6,854
Accrued merger expenses 57,380
Payable for securities purchased 52,593 83
Other 94,841 84,545
Total $ 352,114 $ 202,916
</TABLE>
NOTE 6 - NOTES AND DEBENTURES
The Corporation's notes and debentures at June 30, 1994 and December 31, 1993
are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1994 1993
<S> <C> <C>
Floating rate senior notes due April 15, 1996 $ 250,000
Floating rate senior notes due June 21, 1995 200,000
5.50% senior notes due June 30, 1995 200,000
9.85% subordinated capital notes due June 1, 1999, net of discount 149,923 $ 149,915
8 7/8% notes due April 1,1996, net of discount 149,818 149,769
7.20% subordinated notes due April 15, 2003, net of discount 149,735 149,720
8 5/8% subordinated notes due December 15, 1999, net of discount 149,710 149,684
Floating rate senior notes due March 24, 1995 100,000
Floating rate senior notes due June 14, 1995 100,000
8 1/8% notes due February 1, 1997, net of discount 99,898 99,880
Floating rate subordinated notes due February 14, 1997 50,000 50,000
Other 9,784 9,973
Total $ 1,608,868 $ 758,941
</TABLE>
<PAGE>F-30 38
NOTE 7 - OTHER NONINTEREST INCOME AND NONINTEREST EXPENSES
The components of other noninterest income for the three and six
months ended June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Loan servicing $ 10,530 $ 4,837 $ 15,033 $ 11,200
Trading account profits 1,297 1,829 2,462 3,640
Foreign exchange trading profits (losses) (1,117) (142) (1,832) (3)
Residential mortgage sales gains 87 7,106 1,052 19,583
FDIC assistance 6,957 8,109
Other 5,201 6,655 10,885 11,492
Total $ 15,998 $ 27,242 $ 27,600 $ 54,021
</TABLE>
The components of noninterest expenses for the three and six months
ended June 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Compensation $ 100,061 $ 102,159 $ 202,217 $ 203,666
Benefits 22,543 22,691 46,177 44,697
Total $ 122,604 $ 124,850 $ 248,395 $ 247,963
Occupancy $ 24,966 $ 26,277 $ 51,330 $ 53,811
Equipment 13,147 14,737 26,501 30,938
Total $ 38,113 $ 41,014 $ 77,831 $ 84,749
Foreclosed properties
Provision $ 884 $ 13,509 $ 2,929 $ 58,766
Expense 2,491 9,676 6,176 20,334
Total $ 3,375 $ 23,185 $ 9,105 $ 79,100
Federal Deposit Insurance Corporation
premiums $ 11,142 $ 13,252 $ 22,912 $ 27,189
Communications 10,147 11,903 20,547 23,676
Advertising 6,593 4,751 11,071 11,624
Excess servicing writedowns 14,150
Other 46,000 50,295 89,943 96,038
Total $ 73,882 $ 80,201 $ 144,473 $ 172,677
</TABLE>
<PAGE>F-31 39
<TABLE>
SHAWMUT NATIONAL CORPORATION Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
<CAPTION>
Six months
ended
(in thousands) June 30, Year ended December 31,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before income taxes,
extraordinary credit and
cumulative effect of accounting
changes $ 97,364 $ 289,476 $ 108,625 $ (169,223) $ (155,672) $ (203,206)
Portion of rents representative
of the interest factor 8,747 18,037 19,525 19,491 19,903 21,874
Interest on other borrowings 175,519 262,413 192,240 217,739 340,650 634,175
Interest on notes and debentures 35,549 70,646 59,321 60,436 63,105 66,287
Amortization of debt issuance cost 422 1,394 594 618 578 563
Earnings including interest on deposits 317,601 641,966 380,305 129,061 268,564 519,693
Interest on deposits 176,268 420,966 622,436 933,665 1,253,609 1,173,931
Earnings excluding interest on deposits $ 493,869 $ 1,062,932 $ 1,002,741 $ 1,062,726 $ 1,522,173 $ 1,693,624
FIXED CHARGES
Portion of rents representative
of the interest factor $ 8,747 $ 18,037 $ 19,525 $ 19,491 $ 19,903 $ 21,874
Interest on other borrowings 175,519 262,413 192,240 217,739 340,650 634,175
Interest on notes and debentures 35,549 70,646 59,321 60,436 63,105 66,287
Amortization of debt issuance cost 422 1,394 594 618 578 563
Fixed charges excluding interest on
deposits 220,237 352,490 271,680 298,284 424,236 722,899
Interest on deposits 176,268 420,966 622,436 933,665 1,253,609 1,173,931
Fixed charges including interest on
deposits $ 396,505 $ 773,456 $ 894,116 $ 1,231,949 $ 1,677,845 $ 1,896,830
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND
REQUIREMENTS
Fixed charges excluding interest
on deposits $ 220,237 $ 352,490 $ 271,680 $ 298,284 $ 424,236 $ 722,899
Preferred stock dividend requirements 12,863 23,438 15,952 2,262 2,328 2,341
$ 233,100 $ 375,928 $ 287,632 $ 300,546 $ 426,564 $ 725,240
Fixed charges including interest
on deposits $ 396,505 $ 773,456 $ 894,116 $ 1,231,949 $ 1,677,845 $ 1,896,830
Preferred stock dividend requirements 12,863 23,438 15,952 2,262 2,328 2,341
$ 409,368 $ 796,894 $ 910,068 $ 1,234,211 $ 1,680,173 $ 1,899,171
RATIOS
Earnings to fixed charges
Excluding interest on deposits 1.44 x 1.82 x 1.40 x 0.43 x 0.63 x 0.72 x
Including interest on deposits 1.25 1.37 1.12 0.86 0.91 0.89
Earnings to combined fixed charges and
preferred stock dividend requirements
Excluding interest on deposits 1.36 1.71 1.32 0.41 0.63 0.70
Including interest on deposits 1.21 1.33 1.10 0.86 0.91 0.89
</TABLE>
<PAGE> 40
