SECOND QUARTER 1995
_______________________________________________________________________
_______________________________________________________________________
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, 1995
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
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(Exact name of registrant as specified in its charter)
Delaware 06-1212629
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(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) 986-2000
(617) 292-2000
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(Registrant's telephone numbers, including area codes)
Not applicable
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(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 __.
125,063,375 shares of the registrant's common stock, par value $0.01, were
outstanding as of July 31, 1995.
_____________________________________________________________________________
Total number of pages: 46
The Exhibits index, filed as a part of this report, appears on page 2.
_____________________________________________________________________________
_____________________________________________________________________________
<PAGE> 1
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
June 30 June 30
(in millions, except per share data) 1995 1994
<S> <C> <C>
Three Months Ended
Net income (loss) $ 82.6 $ (18.7)
Return on average assets .95 % (.24)%
Return on average common equity 13.92 (4.49)
Net interest margin (taxable-equivalent basis) 3.39 3.76
Efficiency ratio 61.41 65.37
Per Common Share
Net income (loss) $ .61 $ (.19)
Dividends declared .22 .20
Book value 17.95 15.93
End of Period Balances
Loans $ 22,371 $ 17,329
Reserve for credit losses 541 590
Total assets 35,960 30,692
Deposits 22,684 19,314
Common shareholders' equity 2,275 1,890
Shareholders' equity 2,578 2,068
Capital Ratios
Common shareholders' equity to total assets 6.33 % 6.16 %
Shareholders' equity to total assets 7.17 6.74
Tier 1 capital 6.96 8.49
Total capital 10.56 12.07
Leverage 6.08 6.38
</TABLE>
TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX
Page
Part I - Financial Information
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Item 2) 3
Financial Statements (Item 1):
Consolidated Statement of Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Changes in Shareholders' Equity 25
Consolidated Statement of Cash Flows 26
Notes to Consolidated Financial Statements 27
Selected Statistical Information:
Consolidated Average Balance Sheet, Net Interest Income
and Interest Rates 36
Part II - Other Information
Legal Proceedings (Item 1) 38
Submission of Matters to a Vote of Security Holders (Item 4) 40
Other Information (Item 5) 41
Exhibits and Reports on Form 8-K (Item 6) 41
Signatures 44
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 45
Exhibit 27 - Financial Data Schedule 46
<PAGE> 2
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Shawmut National Corporation (the "Corporation") reported net income
for the second quarter of 1995 of $82.6 million, or $.61 per common
share, compared with a net loss of $18.7 million, or $.19 per common
share, for the second quarter of 1994. Included in second quarter 1995
results was a $13.6 million pre-tax charge ($8.5 million after-tax, or
$.07 per common share) related to the settlement of certain
compensation expenses as a result of shareholder approval of the
agreement to merge with Fleet Financial Group, Inc. ("Fleet").
Excluding this charge, net income for the second quarter of 1995 would
have been $91.1 million, or $.68 per common share. 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 three banking organizations
which were acquired and accounted for as poolings of interests and the
expansion of a cost management program. Excluding these charges, net
income for the second quarter of 1994 would have been $81.1 million, or
$.65 per common share.
For the first six months of 1995, net income was $145.2 million, or
$1.08 per common share, compared with net income of $58.6 million, or
$.43 per common share for the comparable period of 1994. The results
for the first six months of 1995 included a total of $50.5 million
pre-tax charges ($31.6 million after-tax, or $.25 per common share)
related to the settlement of certain employee retirement benefits and
compensation expenses as a result of the agreement to merge with Fleet.
Excluding these charges, net income for the first six months of 1995
would have been $176.8 million, or $1.33 per common share, an increase
of $18.4 million, or 12 percent, compared with net income of $158.4
million, or $1.28 per common share, for the first six months of 1994
before the merger and restructuring charges discussed above.
On June 9, 1995, the Corporation completed its acquisition of Northeast
Federal Corp. ("Northeast") of Farmington, Connecticut, with assets of
$3.3 billion. The acquisition was accounted for under the purchase
method of accounting. Also, as previously reported, on January 31,
1995, the Corporation purchased substantially all the assets and
assumed certain liabilities of the Business Finance Division of
Barclays Business Credit, Inc., which was renamed Shawmut Capital
Corporation. This acquisition was also accounted for under the
purchase method of accounting. The results of Shawmut Capital
Corporation and Northeast are included in the Corporation's
consolidated financial statements for 1995 only from the respective
dates of purchase.
Net interest income on a taxable-equivalent basis for the second
quarter of 1995 was $271.5 million, an increase of $2.8 million, or 1
percent, compared with $268.7 million for the second quarter of 1994.
The increase in taxable-equivalent net interest income was due to a
$3.5 billion, or 12 percent, increase in average interest-earning
assets from the second quarter of 1994, offsetting a 37 basis point
decline in taxable-equivalent net interest margin to 3.39 percent from
3.76 percent for the same periods. Net interest margin declined in the
second quarter of 1995 when compared with the prior year period
reflecting the effects of the rising interest rate environment on the
Corporation's liability sensitive balance sheet over this period.
There was no provision for credit losses for the second quarter of both 1995
and 1994. Nonaccruing loans plus foreclosed properties at June 30,
1995 totaled $194.9 million, down $47.9 million, or 20 percent, from
$242.8 million at December 31, 1994. The ratio of nonaccruing loans
plus foreclosed properties to loans plus foreclosed properties declined
to .87 percent at June 30, 1995 from 1.31 percent at December 31, 1994.
The ratio of the reserve for credit losses to nonaccruing loans was 283
percent at June 30, 1995, compared with 242 percent at December 31,
1994.
<PAGE> 3
Noninterest income, excluding securities gains and losses, was $110.4
million for the second quarter of 1995, compared with $93.9 million for
the prior year period, an increase of $16.5 million, or 18 percent.
The increase in the 1995 period reflects higher customer service fees,
other fees and revenues from Shawmut Capital Corporation, Northeast and
financial institutions purchased during 1994.
Noninterest expenses, excluding merger and restructuring related
charges, were $234.5 million for the second quarter of 1995, a decrease
of $3.5 million, or 1 percent, from $238.0 million for the second
quarter of 1994. The efficiency ratio, a measure of operating expenses
before special charges to net revenue, improved to 61.4 percent for the
second quarter of 1995 from 65.4 percent for the prior year period.
Return on average common equity and return on average assets for the
second quarter of 1995 were 13.92 percent and .95 percent,
respectively, compared with a loss on average common equity of 4.49
percent and a loss on average assets of .24 percent for the comparable
1994 period. Excluding merger and restructuring related charges,
return on average common equity and return on average assets were 15.49
percent and 1.05 percent, respectively, for the second quarter of 1995,
compared with 15.40 percent and 1.05 percent, respectively, for the
second quarter of 1994.
The Corporation's common stock closed at $31.875 per share on June 30,
1995, representing 178 percent of the $17.95 book value per common
share, compared with $16.375 per share and 98 percent of the $16.72
book value per common share at December 31, 1994.
On February 20, 1995, the Corporation and Fleet entered into an
agreement and plan of merger pursuant to which the Corporation will
merge with and into Fleet (the "Merger"). As a result of the Merger,
each share of the Corporation's $.01 par value common stock outstanding
will be converted into the right to receive .8922 shares of
Fleet common stock, which at that time will have a par value of $.01 per
share. Each share of the various series of the Corporation's preferred
stock will be converted into the right to receive an equivalent series of
Fleet preferred stock. The Merger is intended to constitute a tax-free
transaction and to be accounted for as a pooling of interests. On June 21,
1995, common stock shareholders of both Fleet and the Corporation voted
to approve the Merger. The Merger, which is expected to be completed in
the fourth quarter of 1995, is subject to the receipt of various regulatory
approvals and the satisfaction (or, where permissible, waiver) of certain
other standard closing conditions. For further information on the
Corporation's pending merger with Fleet and completed acquisitions, see
Note 2 of Notes to Consolidated Financial Statements on page 27.
<PAGE> 4
<TABLE>
TABLE 1 - SUMMARY OF RESULTS OF OPERATIONS
<CAPTION>
Quarter ended
TAXABLE-EQUIVALENT BASIS Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions, except per share data) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Interest income $ 617.2 $ 584.3 $ 524.6 $ 492.8 $ 474.6
Interest expense 345.7 311.1 258.7 223.9 205.9
Net interest income 271.5 273.2 265.9 268.9 268.7
Provision for credit losses
Net interest income after provision for credit losses 271.5 273.2 265.9 268.9 268.7
Noninterest income 111.7 95.3 104.2 91.7 93.9
Merger related charges 13.6 36.9 100.9
Restructuring related charges 39.8
Other noninterest expenses 234.5 228.7 224.5 226.4 238.0
Income (loss) before income taxes 135.1 102.9 145.6 134.2 (16.1)
Taxable-equivalent adjustment 3.1 2.9 2.5 3.0 3.0
Income taxes (benefit) 49.4 37.4 49.6 45.9 (.4)
Net income (loss) $ 82.6 $ 62.6 $ 93.5 $ 85.3 $ (18.7)
Return on average assets:
Before merger and restructuring related charges 1.05 % 1.04 % 1.17 % 1.09 % 1.05 %
Based on net income (loss) .95 .76 1.17 1.09 (.24)
Return on average common equity:
Before merger and restructuring related charges 15.49 15.45 17.59 16.52 15.40
Based on net income (loss) applicable to
common shares 13.92 10.98 17.59 16.52 (4.49)
Net interest margin 3.39 3.55 3.65 3.78 3.76
Efficiency ratio 61.41 62.05 60.55 62.75 65.37
Common share data:
Net income (loss) $ .61 $ .47 $ .74 $ .68 $ (.19)
Dividends declared .22 .22 .22 .20 .20
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENT OF INCOME ANALYSIS
Net Interest Income
The Corporation's taxable-equivalent net interest income was $271.5
million for the second quarter of 1995, an increase of $2.8 million, or
1 percent, from $268.7 million for the second quarter of 1994. This
increase in taxable-equivalent net interest income was due to an
increase in the Corporation's average interest-earning assets,
primarily loans, which was largely offset by a decline in net interest
margin, discussed more fully below. Average loans increased $3.9
billion to $21.5 billion for the second quarter of 1995 from $17.7
billion for the comparable prior year period. The increase in average
loans included $2.9 billion due to the acquisitions of Shawmut Capital
Corporation and Northeast and growth of $1.3 billion in commercial
loans and $202.8 million in consumer lending and a decrease in real
estate investor/developer lending of $264.0 million. Average
securities decreased $356 million to $10.0 billion for the second
quarter of 1995 from $10.4 billion for the second quarter of 1994 as a
result of maturities being used to fund loan growth. Average
interest-bearing liabilities were $27.7 billion for the second quarter
of 1995, compared with $24.2 billion for the second quarter of 1994,
reflecting higher levels of interest-bearing deposits and notes and
debentures which supported the increase in average interest-earning
assets. An analysis of net interest income is presented in Table 2.
<TABLE>
TABLE 2 - ANALYSIS OF NET INTEREST INCOME
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
INTEREST AND DIVIDEND INCOME
(taxable-equivalent basis)
<S> <C> <C> <C> <C> <C>
Loans $ 457.9 $ 422.1 $ 360.6 $ 333.8 $ 320.7
Securities
Available for sale, at fair value 37.8 35.8 35.5 32.1 39.9
Held to maturity 113.4 116.8 117.9 115.5 107.2
Residential mortgages held for sale 1.4 1.0 1.2 5.3 2.9
Short-term investments 6.1 8.1 8.9 5.9 3.7
Trading account securities .6 .5 .5 .2 .2
Total interest income 617.2 584.3 524.6 492.8 474.6
INTEREST EXPENSE
Deposits 168.9 146.5 122.3 107.7 90.6
Other borrowings 135.3 124.8 104.0 88.9 95.4
Notes and debentures 41.5 39.8 32.4 27.3 19.9
Total interest expense 345.7 311.1 258.7 223.9 205.9
NET INTEREST INCOME
(taxable-equivalent basis) 271.5 273.2 265.9 268.9 268.7
Taxable-equivalent adjustment 3.1 2.9 2.5 3.0 3.0
NET INTEREST INCOME $ 268.4 $ 270.3 $ 263.4 $ 265.9 $ 265.7
INTEREST RATE SPREAD
(taxable-equivalent basis) 2.71 % 2.88 % 3.01 % 3.21 % 3.23 %
NET INTEREST MARGIN
(taxable-equivalent basis) 3.39 % 3.55 % 3.65 % 3.78 % 3.76 %
</TABLE>
<PAGE> 6
The net interest margin on a taxable-equivalent basis for the second
quarter of 1995 was 3.39 percent, a decrease of 37 basis points from
3.76 percent for the comparable prior year quarter. Net interest
margin for the first quarter of 1995 was 3.55 percent. The decline in
net interest margin from the second quarter of 1994 reflects the effect
of the rising interest rate environment on the Corporation's liability
sensitive balance sheet over this period, resulting in interest-bearing
liabilities repricing faster than interest-earning assets. The
Corporation utilizes short-term borrowings, including securities sold
under agreements to repurchase and federal funds purchased, as a source
of funding for a portion of its interest-earning assets. The average
interest rate paid on securities sold under agreements to repurchase
increased from 3.91 percent for the second quarter of 1994 to 5.89
percent for the second quarter of 1995, or an increase of 198 basis
points. Similarly, the average interest rate paid on federal funds
purchased increased from 3.93 percent to 6.25 percent, or 232 basis
points, over the same period. During this same period, the Corporation
extended certain funding maturities while shortening asset maturities
to largely eliminate this balance sheet liability sensitivity. These
risk reduction activities have also contributed to the decline in net
interest margin. A discussion of interest rate risk appears on page
13. An analysis of net interest margin is presented in Table 3.
Taxable-equivalent net interest income was $544.7 million for the first
six months of 1995, an increase of $.6 million, or less than 1 percent,
from $544.1 million for the first six months of 1994. The net interest
margin was 3.46 percent for the six months ended June 30, 1995,
compared with 3.84 percent for the comparable period a year ago.
<TABLE>
TABLE 3 - ANALYSIS OF NET INTEREST MARGIN
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Net interest income (taxable-equivalent basis) $ 271.5 $ 273.2 $ 265.9 $ 268.9 $ 268.7
Average interest-earning assets supported by:
Interest-bearing liabilities $ 27,676 $ 26,539 $ 24,639 $ 24,034 $ 24,174
Noninterest-bearing liabilities 4,361 4,362 4,440 4,361 4,408
Total average interest-earning assets $ 32,037 $ 30,901 $ 29,079 $ 28,395 $ 28,582
Average yields and average rates
(taxable-equivalent basis):
Interest-earning assets yield 7.72 % 7.63 % 7.18 % 6.91 % 6.65 %
Rate paid on interest-bearing liabilities 5.01 4.75 4.17 3.70 3.42
Interest rate spread 2.71 % 2.88 % 3.01 % 3.21 % 3.23 %
Net interest margin 3.39 % 3.55 % 3.65 % 3.78 % 3.76 %
</TABLE>
Provision for Credit Losses
There was no provision for credit losses in the second quarter of both 1995
and 1994. With continuing increases in reserve coverage of nonaccruing
loans and the credit quality of the loan portfolio, the Corporation
does not currently anticipate that provisions for credit losses will be
necessary in the second half of 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> 7
<TABLE>
TABLE 4 - NONINTEREST INCOME
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Customer service fees:
Deposit transaction and other services $ 27.6 $ 25.2 $ 25.1 $ 25.6 $ 24.2
Cash management services 15.3 16.0 15.2 15.2 16.4
Credit and trade related services 8.3 7.0 5.9 5.5 5.2
Investment services and commissions 3.6 3.4 3.6 2.4 3.0
Total 54.8 51.6 49.8 48.7 48.8
Trust and agency fees:
Personal 19.7 18.4 17.3 17.9 19.2
Institutional 4.4 4.5 4.3 4.9 4.7
Corporate 5.4 5.7 6.9 3.6 2.9
Not-for-profit 1.9 2.2 2.0 2.1 2.3
Total 31.4 30.8 30.5 28.5 29.1
Other income:
Loan servicing 10.6 4.3 12.6 4.6 10.5
Trading account profits 1.0 1.3 1.0 1.0 1.3
Foreign exchange trading .4 (1.2) 2.8 (1.1)
Residential mortgage sales .2 (.1) (.1) .9 .1
Other 12.0 8.7 7.6 7.2 5.2
Total 24.2 13.0 23.9 13.7 16.0
Subtotal 110.4 95.4 104.2 90.9 93.9
Securities gains (losses), net 1.3 (.1) .8
Total noninterest income $ 111.7 $ 95.3 $ 104.2 $ 91.7 $ 93.9
</TABLE>
Noninterest income, excluding securities gains and losses, was $110.4
million for the second quarter of 1995, an increase of $16.5 million,
or 18 percent, from $93.9 million for the second quarter of 1994,
reflecting increases in customer service fees, other fees and the
acquisitions of Shawmut Capital Corporation, Northeast and financial
institutions purchased during 1994.
Customer service fees increased $6.0 million to $54.8 million for the
second quarter of 1995 from $48.8 million for the comparable prior year
period. Credit and trade related fees increased $3.1 million given
higher levels of customer credit facilities and the impact of Shawmut
Capital Corporation. Deposit transaction and other service fees
increased $3.4 million due to price increases on consumer transaction
fees in mid-1994, increased usage of the Corporation's Convenience Plus
Card and the impact of fee standardization at acquired institutions.
Offsetting these increases was a decrease in cash management fees of
$1.1 million which reflects higher earnings credit rates for customer
deposit balances maintained in lieu of direct payments.
Trust and agency fees increased $2.3 million to $31.4 million for the
second quarter of 1995 from $29.1 million for the prior year quarter.
The improvement in the 1995 period resulted from the acquisition of the
processing services division of Poorman-Douglas (bankruptcy claims
processing) in the fourth quarter of 1994. Trust and other assets
under management totaled $16.4 billion at June 30, 1995, compared with
$15.0 billion at June 30, 1994.
Other income increased $8.2 million to $24.2 million for the second
quarter of 1995 from $16.0 million for the second quarter of 1994
principally due to the inclusion of Shawmut Capital Corporation and
Northeast for the 1995 period. Loan servicing income for the second
quarter of 1995 and 1994 includes $5.8 million and $5.3 million,
respectively, of gains from the sale of mortgage servicing rights.
Noninterest income, excluding securities gains and losses, for the
first six months of 1995 increased $22.4 million, or 12 percent, to
$205.8 million from $183.4 million for the first six months of 1994.
<PAGE> 8
During the second quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards ("FAS") No. 122, "Accounting for
Mortgage Servicing Rights" ("FAS 122"). The new accounting standard
requires that the Corporation's mortgage banking enterprise recognize
the rights to service mortgage loans for others as a separate asset by
allocating the total cost of originated mortgage loans to the mortgage
servicing rights and the mortgage loans based on their relative fair
values. The Corporation's criteria for, and policies relating to,
estimating the fair value of mortgage servicing rights are consistent
with the methods utilized for estimating the fair value of purchased
mortgage servicing rights as determined by reference to independent
third party sources. Retroactive capitalization of mortgage servicing
rights for transactions prior to the adoption of FAS 122 is not
permitted. The adoption of FAS 122 had an insignificant effect on the
Corporation's results of operations.
<TABLE>
TABLE 5 - NONINTEREST EXPENSES
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Compensation $ 98.5 $ 100.1 $ 91.9 $ 97.9 $ 100.0
Benefits 21.9 19.6 19.0 20.9 22.6
Occupancy 23.3 23.8 24.2 23.8 25.0
Equipment 14.2 14.8 14.5 14.2 13.1
FDIC insurance premiums 11.0 11.0 10.5 10.3 11.1
Communications 12.3 11.4 12.2 10.3 10.1
Advertising 6.1 6.0 4.3 4.5 6.6
Goodwill amortization 5.3 4.0 2.6 2.0 1.8
Foreclosed properties expense .7 1.6 1.0 .5 2.5
Other 41.2 36.4 43.8 41.4 44.3
Total 234.5 228.7 224.0 225.8 237.1
Merger related charges 13.6 36.9 100.9
Restructuring related charges 39.8
Foreclosed properties provision .5 .6 .9
Total noninterest expenses $ 248.1 $ 265.6 $ 224.5 $ 226.4 $ 378.7
Efficiency ratio 61.4 % 62.0 % 60.5 % 62.8 % 65.4 %
Full-time equivalent employees 9,885 9,536 9,565 9,970 10,495
</TABLE>
Noninterest expenses, excluding foreclosed properties provision and
merger and restructuring related charges, were $234.5 million for the
second quarter of 1995, a decrease of $2.6 million, or 1 percent, from
$237.1 million for the second quarter of 1994. Excluding the effects
of Shawmut Capital Corporation, Northeast and financial institutions
purchased during 1994, noninterest expenses declined $24.7 million, or
10 percent, reflecting the Corporation's continuing cost management
initiatives which included workforce reductions, branch consolidations
and other expense control actions as well as acquisition consolidations
that occurred during the second half of 1994. Compensation and benefits
expense decreased $2.2 million, or 2 percent, to $120.4 million for the
second quarter of 1995 from $122.6 million for the comparable prior
year period. Compensation and benefits expense decreases are
attributable to reductions in personnel from the cost management
initiatives and acquisition consolidations discussed above and reflect
$9.9 million of Shawmut Capital Corporation and Northeast expenses.
Full-time equivalent employees totaled 9,885 at June 30, 1995, compared
with 10,495 at June 30, 1994, and include the addition of approximately
1,000 employees through acquisitions in this time period.
Advertising expense was $6.1 million for the second quarter of 1995,
down $.5 million from $6.6 million for the prior year period. Goodwill
amortization increased $3.5 million for the second quarter of 1995 from
$1.8 million for the second quarter of 1994, reflecting goodwill
associated with the acquisitions of Shawmut Capital Corporation and
Northeast as well as financial institutions purchased in the latter
part of 1994.
<PAGE> 9
Foreclosed properties expense declined $1.8 million, or 72 percent, to
$.7 million for the second quarter of 1995 from $2.5 million in the
comparable prior year quarter. There was no provision for foreclosed
properties for the second quarter of 1995, compared with $.9 million
for the second quarter of 1994. The decline in foreclosed properties
expense and provision reflects the decline in the level of foreclosed
properties at June 30, 1995 from the comparable prior year period.
Noninterest expenses, excluding foreclosed properties provision and
merger and restructuring related charges, totaled $463.2 million for
the first six months of 1995, compared with $476.9 million for the
first six months of 1994.
Merger related charges of $13.6 million for the three months ended June
30, 1995 relate to the settlement of certain compensation expenses as a
result of shareholder approval of the agreement to merge with Fleet.
As previously reported, merger related charges of $36.9 million
recognized in the first quarter of 1995 related to the settlement of
certain employee retirement benefits, also in connection with the
agreement to merge with Fleet. Total merger related charges for the
six months ended June 30, 1995 were $50.5 million. Merger related
charges of $100.9 million recorded during the second quarter of 1994
reflect the costs to integrate three banking organizations which were
acquired and accounted for as poolings of interests. The merger
related charges included severance and benefits costs for workforce
reductions, closure of duplicative branches and facilities,
cancellation of vendor contracts, financial and advisory fees and
losses for disposition of loans and securities.
Restructuring related charges of $39.8 million, also recorded in the
second quarter of 1994, reflect the expansion of the Corporation's cost
management program and other cost initiatives. Restructuring related
charges included severance and benefit related costs for workforce
reductions, branch and operational facilities consolidation and other
costs.
Merger and restructuring related charges recorded during the second
quarter of 1994 are more fully discussed in the Corporation's 1994
Annual Report on Form 10-K. Accrued merger and restructuring expenses
totaled $6.8 million and $6.7 million, respectively, at June 30, 1995.
Income Taxes
The provision for income taxes for the second quarter of 1995 was $49.4
million, representing an effective income tax rate of 37.4 percent.
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 acquisitions
completed in the quarter. Excluding this tax expense, the effective
income tax rate was 28.2 percent. The increase in the effective income
tax rate for the 1995 period was due to a decline in the level of
nontaxable income and an increase in state income taxes.
The provision for income taxes for the six months ended June 30, 1995
and 1994 was $86.8 million and $38.8 million, respectively,
representing an effective income tax rate of 37.4 percent and 34.7
percent (which excludes the $5.0 million acquisition related tax
expense), respectively. The 1994 period reflects a reduction in the
deferred tax asset valuation allowance of $1.5 million in the first
quarter of 1994.
The Corporation's net deferred federal tax asset at June 30, 1995 was
$170.9 million, compared with $165.0 million at December 31, 1994.
Taxable income necessary to be generated in future periods to realize
this net deferred federal tax asset at June 30, 1995 would be
approximately $457 million. Deferred state taxes, net of related
federal tax, totaled $81.0 million at June 30, 1995 and were reduced in
their entirety by a valuation allowance of the same amount.
<PAGE> 10
CONSOLIDATED BALANCE SHEET ANALYSIS
Total assets at June 30, 1995 were $36.0 billion, up $3.6 billion, or
11 percent, from $32.4 billion at December 31, 1994. The increase is
largely attributable to the acquisitions of Shawmut Capital Corporation
and Northeast.
Total loans were $22.4 billion at June 30, 1995, an increase of $3.9
billion, or 21 percent, from $18.5 billion at December 31, 1994. The
increase in loans from year-end 1994 was primarily due to the
acquisition of Shawmut Capital Corporation, which contributed $2.4
billion in loans outstanding at January 31, 1995, and Northeast, which
contributed $913.5 million in loans outstanding. Commercial and
industrial loans increased from $7.0 billion at year-end to $10.2
billion at June 30, 1995, due to the acquisition of Shawmut Capital
Corporation and modest growth in core lending sectors such as
asset-based and specialized lending. Consumer lending, which includes
residential mortgage, home equity and installment loans, increased
$684.7 million, or 8 percent, from year-end to $9.3 billion due
primarily to the acquisition of Northeast. Owner-occupied real estate
loans increased from $1.4 billion at year-end to $1.5 billion at June
30, 1995, an increase of $95.3 million, primarily due to loans added as
part of the Shawmut Capital Corporation acquisition.
Investor/developer real estate loans declined by $79.9 million from
year-end, reflecting a selective reduction in certain segments of this
portfolio.
The Corporation has a diversified loan portfolio with the commercial
and industrial portfolio representing 46 percent of total loans at June
30, 1995. Consumer loans represented 41 percent of total loans at that
date. Owner-occupied commercial real estate and investor/developer
real estate loans were 7 percent and 6 percent, respectively. An
analysis of the Corporation's loan portfolio is presented in Table 13
and by type in Tables 14 through 17. A discussion of the credit
quality of the Corporation's loan portfolio begins on page 16.
Total securities decreased $490.3 million, or 5 percent, to $9.5
billion at June 30, 1995 from $10.0 billion at December 31, 1994.
Securities classified as held to maturity and reported at amortized
cost decreased $472.5 million to $7.5 billion at June 30, 1995 from
$8.0 billion at December 31, 1994. Securities classified as available
for sale totaled $2.0 billion at June 30, 1995 and December 31, 1994.
Securities totaling $2.0 billion acquired in the Northeast acquisition
were sold and the proceeds were utilized to decrease other borrowings.
The Corporation uses a duration concept to quantify the exposure within
its securities portfolio to changes in the level of interest rate risk.
Duration is generally quoted in years and represents the price risk of
an equivalent maturity zero coupon bond. The higher the duration
value, the greater the interest rate risk. The hedge-adjusted duration
of the Corporation's available for sale and held to maturity securities
portfolio was 1.12 years and 2.07 years, respectively, at June 30, 1995
compared with 1.36 years and 2.37 years, respectively, at December 31,
1994. Additional information regarding the Corporation's securities
portfolio is presented in Note 3 of Notes to Consolidated Financial
Statements on page 28.
Total deposits at June 30, 1995 were $22.7 billion, up $2.0 billion, or
10 percent, from $20.7 billion at year-end 1994. Demand deposits
decreased by $441.6 million, or 9 percent, to $4.7 billion at June 30,
1995 from year-end 1994. Demand deposits at December 31, 1994 reflected
seasonally higher transaction related balances of corporate and
financial institution customers. Core deposits, which do not include
large denomination certificates of deposit, brokered retail deposits or
foreign time deposits, were $19.7 billion at June 30, 1995, compared
with $18.3 billion at December 31, 1994. Domestic time deposits were
$8.5 billion at June 30, 1995, up $2.4 billion, or 40 percent, from
year-end 1994, reflecting the Northeast acquisition, the use of
brokered retail deposits to reduce the Corporation's reliance on
short-term funding sources and, to a lesser extent, a shifting of
balances from savings and money market accounts. Domestic time
deposits purchased in the Northeast acquisition were $1.8 billion.
Foreign time deposits were $912.3 million at June 30, 1995, up $36.0
million, or 4 percent, from year-end 1994.
<PAGE> 11
Other borrowings, primarily securities sold under agreements to
repurchase and federal funds purchased, increased $828.9 million to
$7.9 billion at June 30, 1995 from $7.1 billion at December 31, 1994.
The increase in other borrowings was primarily due to funding for the
acquisition of Shawmut Capital Corporation. In addition to other
borrowings, the Corporation's Shawmut Bank Connecticut subsidiary
completed an offering of $250 million of subordinated bank notes on
February 14, 1995 to partially fund the Shawmut Capital Corporation
acquisition. As a result of this offering and notes issued under an
existing bank note program, notes and debentures increased from $2.0
billion at year-end 1994 to $2.3 billion at June 30, 1995. On April
27, 1995, the Corporation's principal subsidiary banks established a
$3.0 billion bank note program which will provide for future bank note
issuances.
TABLE 6 - INTEREST RATE SENSITIVITY GAP ANALYSIS
The table below depicts the Corporation's interest rate sensitivity as
of June 30, 1995. 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, caps and floors 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 $ 1,024 $ 55 $ 1,079
Securities 1,327 307 $ 879 $ 367 $ 348 $ 6,274 9,502
Loans 8,325 4,422 1,562 972 998 6,092 22,371
Total interest-
earning assets 10,676 4,784 2,441 1,339 1,346 12,366 32,952
Interest-bearing
deposits 2,273 2,043 2,463 1,902 1,749 7,535 17,965
Other borrowings 6,140 1,121 226 294 10 125 7,916
Notes and debentures 448 825 55 150 861 2,339
Noninterest-bearing
sources of funds 900 535 3,297 4,732
Total 9,761 4,524 2,689 2,251 1,909 11,818 32,952
Off-balance sheet
financial instruments (336) 1,665 (465) (36) (232) (596)
Interest rate
sensitivity gap $ 579 $ 1,925 $ (713) $ (948) $ (795) $ (48)
Cumulative gap $ 579 $ 2,504 $ 1,791 $ 843 $ 48 $ 0
Interest rate sensitivity
gap as a percent of
interest-earning assets 1.8 % 5.8 % (2.2)% (2.8)% (2.5)%
Cumulative gap as
a percent of
interest-earning assets 1.8 % 7.6 % 5.4 % 2.6 % .1 %
</TABLE>
<PAGE> 12
Interest Rate Risk
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 asset
sensitive in the amount of $48 million at June 30, 1995. An asset
sensitive interest rate gap would tend to increase earnings over a
period of rising interest rates, while declining rates would reduce
earnings. The effects of interest rate caps and corridors are included
in the interest sensitivity table to the extent that these instruments
have become operative. However, certain interest rate agreements have
not been included in the interest rate sensitivity table as the level
of interest rate indices at which these agreements become operative has
not been reached. Based on an analysis of a 100 basis point increase
in interest rates, the twelve-month cumulative gap at June 30, 1995 would
change from $48 million asset sensitive to a $152 million liability
sensitive interest rate gap when giving effect to these interest rate
agreements. 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 decrease in interest rates, the effect on net interest income
would be a reduction of approximately $6.7 million when compared with
the amount of net interest income assumed to be earned absent such an
interest rate decrease for the twelve-month period following June 30,
1995.
The use of interest rate instruments such as interest rate swaps, caps
and floors and futures contracts are integrated into the Corporation's
interest rate risk management. 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 for purposes of analyzing interest rate risk.
At June 30, 1995, the Corporation had approximately $4.3 billion in
notional amounts of interest rate swap agreements outstanding utilized
for the management of interest rate risk, an increase of $664 million
from $3.7 billion at December 31, 1994. During the second quarter of
1995, $.5 billion in notional amounts of fixed receive interest rate
swaps, $.4 billion in notional amounts of basis swaps and $.2 billion
in notional amounts of fixed pay interest rate swaps were executed.
Interest rate swap agreements involve the exchange of fixed and
variable rate interest payments based upon a notional principal amount
and maturity date. Interest rate swap agreements are used to
synthetically alter the maturity and repricing characteristics of
assets and liabilities.
In addition to interest rate swap agreements, the Corporation utilizes
interest rate cap and floor agreements to manage interest rate risk.
At June 30, 1995, the Corporation had approximately $1.0 billion in
notional amounts of purchased interest rate cap agreements outstanding.
In addition, approximately $.9 billion in notional amounts of interest
rate cap agreements which consist of a simultaneous purchase and sale
of a cap, the combination of which are known as interest rate
corridors, were outstanding at June 30, 1995. 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.
Exchange-traded futures contracts are also used by the Corporation to
manage interest rate risk on the Corporation's funding sources. The
notional amounts of futures contracts sold at June 30, 1995 were
approximately $1.3 billion, a decrease of $4.7 billion from $6.0
billion at December 31, 1994, due to contract settlements during the
first six months of 1995. The unrealized gain related to these
Eurodollar futures contracts at June 30, 1995, which has been deferred,
was approximately $.5 million. Maturities of the notional amounts of
futures contracts sold are as follows: $.6 billion in 1995; $.6 billion
in 1996; and $.1 billion in 1997.
<PAGE> 13
Activity for interest rate agreements utilized for the management of
interest rate risk for the first six months of 1995 follows:
<TABLE>
<CAPTION>
Swaps
Plain Plain Amortizing
fixed fixed fixed
Notional amounts (in millions) pay receive receive Basis
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 1,659 $ 60 $ 1,349 $ 605
Additions 232 500 370
Maturities 50 37 88 300
Balance, June 30, 1995 $ 1,891 $ 510 $ 1,261 $ 675
Weighted average receive rate at period end 6.71 % 5.82 % 4.58 % 6.11 %
Weighted average pay rate at period end 6.04 % 6.08 % 5.88 % 6.13 %
Average final maturity at period end 2.65 years 2.58 years 1.73 years .67 years
</TABLE>
<TABLE>
<CAPTION>
Other
Futures
contracts
Notional amounts (in millions) Caps Corridors Collars sold
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 1,775 $ 1,031 $ 500 $ 6,005
Additions 2,771
Maturities 800 88 500 361
Settlements 7,139
Balance, June 30, 1995 $ 975 $ 943 $ - $ 1,276
Average final maturity at period end 1.15 years 1.08 years .96 years
</TABLE>
The fair value of interest rate instruments at June 30, 1995, which
exclude exchange-traded futures contracts, was approximately $43.1
million, and represents the estimated amount that the Corporation would
pay if the agreements were terminated at that date. The unamortized
premium recorded in the Corporation's balance sheet related to interest
rate risk management agreements was $25.5 million at June 30, 1995.
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 company (Shawmut National
Corporation) level.
The Corporation primarily manages its liquidity using an
uncollateralized purchased funds concept, consistent with the condition
of the Corporation's earnings, capital, asset quality and economic
environment. 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). At June 30, 1995, UPFs were $3.1 billion. This was offset
by $4.4 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 $1.3 billion. Short-term investments and unused repurchase
agreement collateral exceeded the volume of UPFs by $1.5 billion at
December 31, 1994. During the second quarter of 1994, the Corporation,
through its principal subsidiary banks, expanded its available funding
alternatives by establishing a $2.0 billion bank note program which
provided access to other diversified funding sources. On April 27,
1995, the banks established a $3.0 billion bank note program which will
provide for future bank note issuances. Bank note issuances totaled
$1.3 billion at June 30, 1995.
<PAGE> 14
The Corporation manages the parent company's liquidity by measuring the
difference between the volume of short-term investments and short-term
funding sources and ongoing obligations, including debt maturities,
interest payments and dividends. The parent company had short-term
borrowings of $215.7 million and notes and debentures of $749.3 million
at June 30, 1995. The parent company had cash and cash equivalents at
June 30, 1995 of $341.2 million and securities with a fair value of
$193.6 million. There are no scheduled maturities on notes and
debentures in 1995. Scheduled maturities are $150 million in both 1996
and 1997. On July 18, 1995, the Corporation established a $150 million
revolving credit agreement with a maturity of December 31, 1996.
Capital
The Corporation's total shareholders' equity at June 30, 1995 was $2.6
billion, or 7.17 percent of total assets, compared with $2.2 billion,
or 6.78 percent of total assets, at December 31, 1994, an increase of
$381.0 million. As a result of the acquisition of Northeast on June 9,
1995, the Corporation issued 6,483,665 shares of common stock. The fair
value of the Corporation's common stock issued as consideration for
Northeast common stock and options was $192.8 million. Also, in
connection with the acquisition of Shawmut Capital Corporation, on
January 26, 1995, the Corporation completed a $125 million offering of
500,000 shares of 9.35% cumulative preferred stock with a stated value
of $250 per share, represented by depositary shares. The increase in
shareholders' equity for the first six months of 1995 also reflects a
$41.2 million decline in the net after-tax unrealized loss on the
Corporation's $2.0 billion available for sale securities portfolio.
Volatility in shareholders' equity may occur in future periods as the
fair value of the Corporation's available for sale securities portfolio
changes with market conditions.
During the second quarter of 1995, the Corporation announced its
intention to repurchase approximately 9 million shares of common stock
in connection with shares issued as part of the Northeast acquisition
and expected issuances for employee stock options. As of June 30,
1995, 3.1 million common shares had been repurchased at a cost of $99.3
million.
<TABLE>
The Corporation's Risk-based capital and Leverage ratios were as follows:
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Shareholders' equity $ 2,577.7 $ 2,385.1 $ 2,197.2 $ 2,129.3 $ 2,068.3
Tier 1 capital 2,076.9 2,061.4 2,091.0 2,017.3 1,979.1
Total capital 3,151.0 3,142.7 2,919.3 2,857.7 2,813.6
Risk-weighted assets 29,826.9 27,960.1 25,284.4 23,824.6 23,303.3
Ratios:
Shareholders' equity to assets 7.17 % 6.98 % 6.78 % 6.79 % 6.74 %
Risk-based capital
Tier 1 capital 6.96 7.37 8.27 8.47 8.49
Total capital 10.56 11.24 11.55 11.99 12.07
Leverage 6.08 6.21 6.62 6.54 6.38
</TABLE>
The Corporation's Risk-based Tier 1 and Total capital ratios were 6.96
percent and 10.56 percent at June 30, 1995, respectively, compared with
8.27 percent and 11.55 percent at December 31, 1994, respectively. The
Leverage ratio, a measure of Tier 1 capital to quarterly average
assets, was 6.08 percent at June 30, 1995, compared with 6.62 percent
at December 31, 1994. The decline in the Risk-based capital and
Leverage ratios from year-end 1994 was due to the increase in
risk-weighted and other assets as a result of the acquisitions of
Shawmut Capital Corporation and Northeast and common stock repurchases.
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, 1995.
<PAGE> 15
<TABLE>
The Corporation's principal subsidiary banks' (Shawmut Bank Connecticut and Shawmut Bank Massachusetts)
Risk-based capital and Leverage ratios were as follows:
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
SHAWMUT BANK CONNECTICUT
<S> <C> <C> <C> <C> <C>
Shareholder's equity $ 1,476.8 $ 1,428.4 $ 1,236.4 $ 1,201.3 $ 1,203.2
Tier 1 capital 1,191.6 1,183.5 1,202.9 1,166.0 1,161.6
Total capital 1,649.1 1,627.7 1,371.2 1,323.6 1,315.8
Risk-weighted assets 16,242.4 15,417.2 13,353.3 12,468.1 12,183.2
Ratios:
Shareholder's equity to assets 7.77 % 7.65 % 7.22 % 7.60 % 7.64 %
Risk-based capital
Tier 1 capital 7.34 7.68 9.01 9.35 9.53
Total capital 10.15 10.56 10.27 10.62 10.80
Leverage 6.57 6.62 7.51 7.43 7.55
SHAWMUT BANK MASSACHUSETTS
Shareholder's equity $ 1,154.1 $ 1,147.5 $ 1,156.9 $ 1,151.2 $ 1,051.1
Tier 1 capital 1,058.3 1,099.6 1,113.1 1,099.4 1,026.0
Total capital 1,222.3 1,258.5 1,273.4 1,255.6 1,176.2
Risk-weighted assets 12,004.6 11,669.1 11,165.2 10,810.3 10,322.5
Ratios:
Shareholder's equity to assets 7.71 % 7.88 % 8.02 % 8.09 % 7.76 %
Risk-based capital
Tier 1 capital 8.82 9.42 9.97 10.17 9.94
Total capital 10.18 10.78 11.40 11.61 11.39
Leverage 7.31 7.78 7.93 8.17 7.45
</TABLE>
The Corporation's subsidiary banks' Risk-based capital and Leverage
ratios exceeded the requirements for a well-capitalized financial
institution at June 30, 1995.
CREDIT QUALITY
Nonaccruing loans were $190.9 million at June 30, 1995, compared with
$224.0 million at December 31, 1994. Approximately 24 percent of
nonaccruing loans were less than 30 days past due at June 30, 1995,
compared with approximately 26 percent at December 31, 1994. The
acquisitions of Shawmut Capital Corporation and Northeast resulted in
$10.7 million and $27.9 million, respectively, of nonaccruing loans and
foreclosed properties held for accelerated disposition at June 30, 1995,
which have been reported at the lower of cost or fair market value and
are included with other assets. The ratio of nonaccruing loans to
loans improved to .85 percent at June 30, 1995 from 1.21 percent at
December 31, 1994. The ratio of the reserve for credit losses to
nonaccruing loans was 283 percent at June 30, 1995, compared with 242
percent at December 31, 1994. Nonaccruing loans by loan type are
presented in Table 8. Changes in nonaccruing loans are presented in
Table 9.
Restructured loans, which are loans with original terms that have been
modified as a result of a change in the borrower's financial condition,
totaled $28.1 million at June 30, 1995, compared with $41.8 million at
the end of 1994. Restructured loans included real estate
investor/developer loans and owner-occupied commercial real estate
loans of $21.3 million and $3.3 million, respectively, at June 30,
1995.
<PAGE> 16
Accruing loans past due 90 days or more, which are well secured and in
the process of collection, were $46.4 million at June 30, 1995,
compared with $43.3 million at December 31, 1994. These loans
represented less than .3 percent of loans outstanding at June 30, 1995.
Consumer loans represented 63 percent and 49 percent of accruing loans
past due 90 days or more at June 30, 1995 and December 31, 1994,
respectively.
<TABLE>
TABLE 7 - 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) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Commercial / real estate loans:
Current $ 42.5 $ 51.2 $ 51.5 $ 46.0 $ 50.8
From 30 to 89 days past due 15.7 19.1 13.0 16.7 14.2
90 or more days past due 91.0 105.9 112.0 146.4 154.6
Total 149.2 176.2 176.5 209.1 219.6
Consumer loans:
Current 3.3 3.6 5.9 5.6 9.2
From 30 to 89 days past due 1.7 2.7 2.1 4.2 3.9
90 or more days past due 36.7 45.9 39.5 47.0 52.5
Total 41.7 52.2 47.5 56.8 65.6
Total nonaccruing loans $ 190.9 $ 228.4 $ 224.0 $ 265.9 $ 285.2
Restructured loans $ 28.1 $ 29.8 $ 41.8 $ 31.1 $ 63.8
Accruing loans past due 90 days or more $ 46.4 $ 55.6 $ 43.3 $ 53.1 $ 47.8
Nonaccruing loans to loans .85 % 1.08 % 1.21 % 1.50 % 1.65 %
Reserve for credit losses to
nonaccruing loans 283.00 245.00 242.00 214.00 207.00
</TABLE>
<TABLE>
TABLE 8 - NONACCRUING LOANS BY LOAN TYPE
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 47.1 $ 55.0 $ 36.0 $ 59.3 $ 60.6
Owner-occupied commercial real estate 47.4 52.0 57.6 59.8 67.5
Real estate investor/developer
Commercial mortgage 50.8 64.5 66.9 65.9 70.6
Construction and other 3.9 4.7 16.0 24.1 20.9
Total investor/developer 54.7 69.2 82.9 90.0 91.5
Consumer
Residential mortgage 28.9 42.6 38.4 46.2 48.8
Home equity 9.4 7.2 6.5 7.0 8.2
Installment and other 3.4 2.4 2.6 3.6 8.6
Total consumer 41.7 52.2 47.5 56.8 65.6
Total $ 190.9 $ 228.4 $ 224.0 $ 265.9 $ 285.2
</TABLE>
<PAGE> 17
<TABLE>
TABLE 9 - CHANGES IN NONACCRUING LOANS
The changes in the Corporation's nonaccruing loans are summarized below:
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 228.4 $ 224.0 $ 265.9 $ 285.2 $ 328.6
New nonaccruing loans 57.3 66.1 49.5 64.5 65.4
Additions for loans purchased 1.4 14.1
Decreases in nonaccruing loans
Charge-offs 36.1 27.4 34.8 31.0 52.5
Payments 25.5 34.7 40.5 35.9 35.4
Returns to accruing loans 15.3 4.9 11.6 6.5 12.3
Sales 16.1 1.7 .4 5.8
Transfers to foreclosed properties 3.2 5.8 4.4 7.5 1.4
Transfers to restructured loans 1.3 .1 2.5 1.4
Total 96.2 75.8 91.4 83.8 108.8
Balance at end of period $ 190.9 $ 228.4 $ 224.0 $ 265.9 $ 285.2
</TABLE>
Foreclosed properties decreased $14.8 million, or 79 percent, to $4.0
million at June 30, 1995 from $18.8 million at December 31, 1994.
Nonaccruing loans plus foreclosed properties totaled $194.9 million at
June 30, 1995, a decline of $47.9 million, or 20 percent, from $242.8
million at December 31, 1994. The ratio of nonaccruing loans plus
foreclosed properties to loans plus foreclosed properties was .87
percent at June 30, 1995, down from 1.31 percent at December 31, 1994.
<TABLE>
TABLE 10 - NONACCRUING LOANS PLUS FORECLOSED PROPERTIES
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ 190.9 $ 228.4 $ 224.0 $ 265.9 $ 285.2
Foreclosed properties 4.0 11.9 18.8 32.1 42.5
Total $ 194.9 $ 240.3 $ 242.8 $ 298.0 $ 327.7
Nonaccruing loans plus foreclosed properties
to loans plus foreclosed properties .87 % 1.14 % 1.31 % 1.68 % 1.89 %
</TABLE>
<PAGE> 18
RESERVE FOR CREDIT LOSSES
The reserve for credit losses was $541.2 million at June 30, 1995,
compared with $542.1 million at December 31, 1994. The reserve for
credit losses reflects the addition of $53.3 million of reserves
purchased as part of the Shawmut Capital Corporation and Northeast
acquisitions after net loan charge-offs of $54.2 million for the six
months ended June 30, 1995. Changes in the Corporation's reserve for
credit losses is presented in Table 11. The ratio of the reserve for
credit losses to loans was 2.42 percent at June 30, 1995, compared with
2.93 percent at December 31, 1994. An analysis of the Corporation's
credit loss experience is presented in Table 12. Net charge-offs,
including $4.7 million related to a bulk sale of residential mortgages,
were $29.6 million for the second quarter of 1995, equal to an
annualized rate of .55 percent of average loans, compared with $48.7
million and 1.10 percent for the same period a year ago. A discussion
of the provision for credit losses is presented on page 7.
The Corporation adopted, on a prospective basis, FAS No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"),
effective January 1, 1995. 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 at the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, the fair value of collateral for collateral
dependent loans, when assessing the need for an impairment reserve.
The Corporation had previously considered the methods prescribed by FAS
114, as well as other matters, when assessing the adequacy of the
reserve for credit losses. As a result, there was no effect on the
Corporation's results of operations from the adoption of this accounting
standard. A further discussion of the adoption of FAS 114 is included
in Note 4 of Notes to Consolidated Financial Statements on page 29.
<TABLE>
TABLE 11 - RESERVE FOR CREDIT LOSSES
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at beginning of period $ 559.2 $ 542.1 $ 567.8 $ 589.8 $ 638.5
Provision charged to operations
Addition for loans purchased 11.6 41.7 4.3
Loans charged off
Gross (42.5) (33.4) (43.7) (40.7) (60.5)
Recoveries 12.9 8.8 18.0 14.4 11.8
Net (29.6) (24.6) (25.7) (26.3) (48.7)
Reserve for credit losses at end of period $ 541.2 $ 559.2 $ 542.1 $ 567.8 $ 589.8
Net charge-offs (annualized)
to average loans .55 % .49 % .57 % .60 % 1.10 %
Reserve for credit losses to
net charge-offs (annualized) 4.57 x 5.67 x 5.28 x 5.40 x 3.03 x
Reserve for credit losses to loans 2.42 % 2.65 % 2.93 % 3.20 % 3.40 %
</TABLE>
<PAGE> 19
<TABLE>
TABLE 12 - CREDIT LOSS EXPERIENCE
<CAPTION>
Quarter ended
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at beginning of period $ 559.2 $ 542.1 $ 567.8 $ 589.8 $ 638.5
Provision charged to operations
Addition for loans purchased 11.6 41.7 4.3
Loans charged off:
Commercial and industrial 8.7 2.7 4.6 4.6 6.0
Owner-occupied commercial real estate 7.4 6.0 7.1 4.5 3.0
Real estate investor/developer
Commercial mortgage 8.1 14.6 14.5 14.2 20.8
Construction and other .8 3.0 5.4 4.0 2.6
Total investor/developer 8.9 17.6 19.9 18.2 23.4
Consumer
Residential mortgage 14.0 4.2 7.5 9.4 12.8
Home equity .8 .7 1.7 1.4 12.0
Installment and other 2.7 2.2 2.9 2.6 3.3
Total consumer 17.5 7.1 12.1 13.4 28.1
Total loans charged off 42.5 33.4 43.7 40.7 60.5
Recoveries on loans charged off:
Commercial and industrial 2.6 3.0 5.8 5.3 3.9
Owner-occupied commercial real estate 1.7 1.4 2.0 1.2 .6
Real estate investor/developer 5.6 1.7 5.6 2.1 1.2
Consumer 3.0 2.7 4.6 5.8 6.1
Total recoveries 12.9 8.8 18.0 14.4 11.8
Net loans charged off 29.6 24.6 25.7 26.3 48.7
Reserve for credit losses at end of period $ 541.2 $ 559.2 $ 542.1 $ 567.8 $ 589.8
</TABLE>
PORTFOLIO STATISTICS
The following tables set forth loan statistical information:
<TABLE>
TABLE 13 - LOAN PORTFOLIO
<CAPTION>
Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
(in millions) 1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 10,190.2 $ 9,644.2 $ 7,006.4 $ 6,201.3 $ 5,992.7
Owner-occupied commercial real estate 1,507.3 1,564.5 1,412.0 1,423.4 1,407.1
Real estate investor/developer
Commercial mortgage 1,261.3 1,231.6 1,309.2 1,401.3 1,461.0
Construction and other 125.4 136.4 157.4 150.5 150.9
Total investor/developer 1,386.7 1,368.0 1,466.6 1,551.8 1,611.9
Consumer
Residential mortgage 6,212.5 5,541.2 5,592.1 5,608.1 5,474.0
Home equity 1,618.6 1,582.9 1,625.7 1,628.8 1,609.9
Installment and other 1,455.7 1,434.0 1,384.3 1,322.5 1,233.5
Total consumer 9,286.8 8,558.1 8,602.1 8,559.4 8,317.4
Total 22,371.0 21,134.8 18,487.1 17,735.9 17,329.1
Reserve for credit losses (541.2) (559.2) (542.1) (567.8) (589.8)
Total $ 21,829.8 $ 20,575.6 $ 17,945.0 $ 17,168.1 $ 16,739.3
</TABLE>
<PAGE> 20
<TABLE>
TABLE 14 - COMMERCIAL AND INDUSTRIAL LOANS - BY INDUSTRY SECTOR
<CAPTION>
June 30, 1995 Net charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Manufacturing $ 2,831.9 $ 14.2 $ .7 $ .3
Wholesale 1,654.5 13.7 1.4 1.2
Finance, insurance and
real estate 1,577.4 1.7 .2 .1
Communications 1,567.9 5.1 .4 .6
Services 1,167.3 6.9 .2 .1
Retail 607.8 4.3 2.5 2.6
Other 783.4 1.2 .7 .9
Total $ 10,190.2 $ 47.1 $ 6.1 $ 5.8
</TABLE>
<TABLE>
TABLE 15 - OWNER-OCCUPIED COMMERCIAL REAL ESTATE LOANS - BY INDUSTRY SECTOR
<CAPTION>
June 30, 1995 Net charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Services $ 416.9 $ 9.7 $ 1.1 $ 1.3
Manufacturing 278.2 6.8 .5 1.2
Finance, insurance and
real estate 251.9 10.9 .9 2.0
Retail 199.6 10.1 1.1 2.7
Wholesale 147.4 3.0 .9 1.1
Communications 52.4 .8 .2 .6
Other 160.9 6.1 1.0 1.4
Total $ 1,507.3 $ 47.4 $ 5.7 $ 10.3
</TABLE>
<PAGE> 21
<TABLE>
TABLE 16 - REAL ESTATE INVESTOR/DEVELOPER LOANS - BY PROJECT
<CAPTION>
Net charge-offs
June 30, 1995 (recoveries)
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Apartment/rental $ 287.1 $ 6.0 $ 1.3 $ 4.0
Offices 280.0 9.1 (.3) 3.1
Retail 275.6 9.8 1.0 3.0
Mixed use 185.8 9.7 1.1 3.4
Industrial 116.4 2.7 .7 3.3
Special purposes 47.3 6.6 (.2) (.1)
Residential developers
Condominium 44.8 .2 .1 .2
Single family 29.5 3.6 (.1) .2
Research and development space 35.4 .1 .1
Hotels, resorts, inns 30.3 .8 (.2) .1
Land 25.0 3.8 (.9) (.3)
Other 29.5 2.4 .7 2.2
Total $ 1,386.7 $ 54.7 $ 3.3 $ 19.2
</TABLE>
<TABLE>
TABLE 17 - CONSUMER LOANS - BY TYPE
<CAPTION>
June 30, 1995 Net charge-offs
Loans Second Year to
(in millions) outstanding Nonaccruing quarter date
<S> <C> <C> <C> <C>
Residential mortgages $ 6,212.5 $ 28.9 $ 12.5 $ 15.4
Home equity lines 1,237.0 7.3 .6 1.2
Indirect automobile 1,098.7 1.8 .5 1.2
Home equity loans 381.6 2.1 .1 .1
Direct installment 290.2 .9 .4 .5
Other 66.8 .7 .4 .5
Total $ 9,286.8 $ 41.7 $ 14.5 $ 18.9
</TABLE>
<PAGE> 22
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) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 456,707 $ 319,492 $ 877,680 $ 619,866
Securities
Available for sale, at fair value 36,049 38,083 70,248 80,409
Held to maturity 113,369 107,199 230,165 210,480
Residential mortgages held for sale 1,443 2,916 2,430 8,301
Federal funds sold and securities
purchased under agreements to resell 5,054 1,569 9,284 2,830
Interest-bearing deposits in other banks 1,054 2,148 4,950 3,677
Trading account securities 389 234 731 432
Total 614,065 471,641 1,195,488 925,995
INTEREST EXPENSE
Deposits 168,880 90,600 315,427 176,268
Other borrowings 135,282 95,440 260,052 175,519
Notes and debentures 41,506 19,859 81,275 35,971
Total 345,668 205,899 656,754 387,758
NET INTEREST INCOME 268,397 265,742 538,734 538,237
Provision for credit losses 3,000
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 268,397 265,742 538,734 535,237
NONINTEREST INCOME
Customer service fees 54,798 48,844 106,378 97,317
Trust and agency fees 31,411 29,065 62,256 58,482
Securities gains (losses), net 1,320 1,219 (768)
Other 24,126 15,998 37,065 27,600
Total 111,655 93,907 206,918 182,631
NONINTEREST EXPENSES
Compensation and benefits 120,368 122,604 239,992 248,395
Occupancy and equipment 37,499 38,113 76,098 77,831
Merger related charges 13,588 100,900 50,441 100,900
Restructuring related charges 39,800 39,800
Foreclosed properties provision and
expense 705 3,375 2,284 9,105
Other 75,918 73,882 144,830 144,473
Total 248,078 378,674 513,645 620,504
INCOME (LOSS) BEFORE INCOME TAXES 131,974 (19,025) 232,007 97,364
Income taxes (benefit) 49,366 (356) 86,778 38,759
NET INCOME (LOSS) $ 82,608 $ (18,669) $ 145,229 $ 58,605
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ 75,373 $ (22,528) $ 132,025 $ 50,887
COMMON SHARE DATA
Net income (loss) $ .61 $ (.19) $ 1.08 $ .43
Weighted average shares outstanding 123,748 118,445 122,699 118,136
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (unaudited)
<TABLE>
<CAPTION>
June 30 December 31
(in thousands) 1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,212,821 $ 1,986,182
Interest-bearing deposits in other banks 85,054 439,936
Federal funds sold and securities purchased
under agreements to resell 853,000 308,700
Trading account securities 31,061 27,859
Residential mortgages held for sale 109,808 72,205
Securities
Available for sale, at fair value 1,974,074 1,991,853
Held to maturity (fair value $7,431,090 and $7,561,890) 7,527,910 8,000,382
Loans, less reserve for credit
losses of $541,243 and $542,116 21,829,804 17,945,027
Premises and equipment 337,526 329,780
Customers' acceptance liability 16,783 5,166
Other assets 1,982,410 1,291,521
Total assets $ 35,960,251 $ 32,398,611
LIABILITIES
Deposits
Demand $ 4,719,589 $ 5,161,182
Savings, money market and NOW accounts 8,583,519 8,649,988
Domestic time 8,468,939 6,058,769
Foreign time 912,298 876,314
Total deposits 22,684,345 20,746,253
Other borrowings 7,915,473 7,086,579
Acceptances outstanding 16,783 5,166
Accrued expenses and other liabilities 426,498 341,652
Notes and debentures 2,339,441 2,021,788
Total liabilities 33,382,540 30,201,438
SHAREHOLDERS' EQUITY
Preferred stock, without par value
Authorized - 10,000,000 shares
Outstanding - 1,763,700 and 1,263,700 shares 303,185 178,185
Common stock, $.01 par value
Authorized - 300,000,000 shares
Issued - 129,416,336 and 120,770,774 shares 1,294 1,208
Surplus 1,515,557 1,288,825
Retained earnings 857,108 783,223
Net unrealized loss on securities available for sale (13,019) (54,268)
Treasury stock, common stock at cost (2,714,797 shares) (86,414)
Total shareholders' equity 2,577,711 2,197,173
Total liabilities and shareholders' equity $ 35,960,251 $ 32,398,611
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
(in thousands) 1995 1994
<S> <C> <C>
SHAREHOLDERS' EQUITY at beginning of period $ 2,197,173 $ 2,102,371
PREFERRED STOCK
Issuance of preferred stock (500,000 shares) 125,000
Purchase of preferred stock (11,300 shares) (565)
Redemption of preferred stock (170,073 shares) (15,215)
COMMON STOCK, $.01 par value
Shares issued under Dividend Reinvestment
and Stock Purchase Plans (835,981 and 720,623 shares) 8 7
Shares issued under stock option and employee
benefit plans (1,325,916 and 349,718 shares) 13 3
Shares issued for Northeast acquisition (6,483,665 shares) 65
SURPLUS
Additional proceeds from:
Shares issued under Dividend Reinvestment
and Stock Purchase Plans 14,324 15,162
Shares issued under stock option
and employee benefit plans 23,909 3,199
Shares issued for Northeast acquisition 192,687
Preferred stock issuance costs (4,188)
RETAINED EARNINGS
Net income 145,229 58,605
Cash dividends declared by the Corporation on:
Preferred stock (13,204) (7,718)
Common stock (55,193) (42,908)
Cash dividends declared by merged companies prior to merger (1,143)
Restricted stock awards 1,008 629
Reissuance of common stock from treasury (3,955) (177)
Redemption of preferred stock (3,114)
NET UNREALIZED LOSS ON SECURITIES
Unrealized appreciation (depreciation) on securities available
for sale 41,249 (43,120)
TREASURY STOCK
Purchase of common stock (3,267,396 and 66,584 shar (103,264) (1,558)
Reissuance of common stock under Dividend Reinvestment
and Stock Purchase Plans (552,599 and 171,527 sha 16,850 3,865
SHAREHOLDERS' EQUITY at end of period $ 2,577,711 $ 2,068,323
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
(in thousands) 1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 145,229 $ 58,605
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Provision for credit losses 3,000
Provision for foreclosed properties 2,929
Provision for merger and restructuring related charges 50,441 140,700
Depreciation, amortization and other 65,441 53,588
Gains from the sale of loans, premises and equipment and
other assets (12,640) (9,210)
Increase in trading account securities (3,202) (10,752)
Decrease (increase) in residential mortgages held for sale (37,603) 377,477
Decrease (increase) in other assets and accrued expenses
and other liabilities (443,991) 39,073
CASH PROVIDED (USED) BY OPERATING ACTIVITIES (236,325) 655,410
FINANCING ACTIVITIES
Increase (decrease) in total deposits (609,365) 571,714
Increase (decrease) in other borrowings 275,341 (1,971,457)
Proceeds from issuances of bank notes, net 15,000 850,000
Proceeds from issuance of subordinated bank notes 249,668
Principal payments on notes and debentures (184) (188)
Proceeds from issuances of common and preferred stock 171,961 22,059
Purchases of common and preferred stock (103,264) (20,452)
Cash dividends paid (63,720) (48,792)
CASH USED BY FINANCING ACTIVITIES 64,563 (597,116)
INVESTING ACTIVITIES
Increase in short-term investments (189,418) (639,954)
Proceeds from sales of securities available for sale 3,665,887 2,449,689
Maturities of securities available for sale 43,885 463,048
Purchases of securities available for sale (1,481,874) (1,863,600)
Maturities of securities held to maturity 521,557 914,461
Purchases of securities held to maturity (62,567) (1,549,977)
Proceeds from sales of loans 79,571 13,112
Purchases of loans (2,415,844) (243,890)
Loans originated less principal collected (648,841) 167,908
Purchases of premises and equipment and other assets (15,350) (20,397)
Proceeds from the sale of premises and equipment
and other assets 30,521 31,808
CASH USED BY INVESTING ACTIVITIES (472,473) (277,792)
DECREASE IN CASH AND DUE FROM BANKS (773,361) (219,498)
Cash and due from banks at beginning of period 1,986,182 1,539,690
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,212,821 $ 1,320,192
ADDITIONAL CASH FLOW INFORMATION
Interest paid $ 593,888 $ 397,316
Income taxes paid $ 95,812 $ 32,715
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
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 1994 Annual Report on Form 10-K.
NOTE 2 - MERGER AND ACQUISITIONS
Completed Acquisitions
On June 9, 1995, the Corporation completed its acquisition of Northeast
Federal Corp. ("Northeast") of Farmington, Connecticut, with assets of $3.3
billion and liabilities of $3.2 billion. The Corporation issued 6,483,665
shares of common stock in connection with the acquisition. The fair value
of the Corporation's common stock issued as consideration for Northeast
common stock and options was $192.8 million. The acquisition was accounted
for under the purchase method of accounting. The excess of the purchase
price over the fair value of the net assets acquired of $159.2 million has
been recorded as goodwill and is being amortized over a 15 year period.
Northeast's banking subsidiary, Northeast Savings, F.A., was merged with and
into a newly formed national bank, Shawmut Bank New York, N.A.
On January 31, 1995, the Corporation purchased substantially all of the
assets and assumed certain of the liabilities of the Business Finance
Division of Barclays Business Credit, Inc., which was renamed Shawmut
Capital Corporation, for $2.6 billion, equal to the net book value of the
assets acquired and the liabilities assumed plus a premium of $290 million.
Shawmut Capital Corporation, based in Glastonbury, Connecticut, provides
asset-based financing to middle market companies through a network of
offices nationwide. The acquisition was accounted for under the purchase
method of accounting. The excess of the purchase price, including
acquisition costs, over the fair value of the net assets acquired of $201.1
million has been recorded as goodwill and is being amortized over a 25 year
period.
The following pro forma information presents the consolidated results of
operations for the Corporation for the six-month periods ended June 30,
1995 and 1994 as if the Northeast and Shawmut Capital Corporation
acquisitions had occurred at the beginning of the periods presented. In
addition to combining the historical results of operations of the
Corporation, Northeast and Shawmut Capital Corporation, the pro forma
information reflects adjustments for the estimated effects of purchase
accounting. The pro forma information may not be indicative of the results
of operations that would have occurred if the acquisitions had been
consummated at the beginning of the periods presented.
<TABLE>
<CAPTION>
Six months ended
June 30,
(in thousands, except per share data) 1995 1994
<S> <C> <C>
Net interest income $ 572,909 $ 597,714
Net income applicable to
common shares $ 133,650 $ 56,052
Earnings per share $ 1.04 $ .45
</TABLE>
<PAGE> 27
Agreement and Plan of Merger
On February 20, 1995, the Corporation and Fleet Financial Group, Inc.
("Fleet"), a corporation organized and existing under the laws of the State
of Rhode Island, entered into an agreement and plan of merger pursuant to
which the Corporation will merge with and into Fleet (the "Merger"). As a
result of the Merger, each share of the $.01 par value common stock of the
Corporation outstanding immediately prior to the effective time of the
Merger, other than shares held directly or indirectly by the Corporation or
Fleet, will be converted into the right to receive .8922 shares of Fleet
common stock, which at that time will have a par value of $.01 per share.
Each share of the Corporation's Preferred Stock with Cumulative and
Adjustable Dividends with a stated value of $50 per share, 9.30% Cumulative
Preferred Stock and 9.35% Cumulative Preferred Stock outstanding immediately
prior to the effective time of the Merger will be converted into the right
to receive one equivalent share of each of the respective series of Fleet
preferred stock.
The Merger is intended to constitute a tax-free transaction and to be
accounted for as a pooling of interests. It is anticipated that the Merger
will be consummated in the fourth quarter of 1995. On June 21, 1995,
common stock shareholders of both Fleet and the Corporation voted to
approve the Merger. The Merger is subject to the receipt of various
regulatory approvals and the satisfaction (or, where permissible, waiver)
of certain other standard closing conditions.
NOTE 3 - SECURITIES
The amortized cost and fair value of securities classified as available for
sale at June 30, 1995 and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
Amortized Fair Amortized Fair
(in thousands) cost value cost value
<S> <C> <C> <C> <C>
U.S. Government and agency
securities
U.S. Treasury $ 1,175,082 $ 1,168,519 $ 1,275,041 $ 1,222,712
Mortgage backed 25,973 25,973 204,498 206,093
Equity securities 196,384 190,772 149,521 140,400
Corporate mortgage backed and
other securities 596,689 588,381 446,186 422,553
State and municipal obligations 426 429 96 95
Total $ 1,994,554 $ 1,974,074 $ 2,075,342 $ 1,991,853
</TABLE>
The amortized cost of securities classified as available for sale exceeded
fair value by approximately $20.5 million at June 30, 1995, consisting of
unrealized losses of approximately $21.2 million and unrealized gains of
approximately $.7 million, and $83.5 million at December 31, 1994,
consisting of unrealized losses of approximately $86.3 million and
unrealized gains of approximately $2.8 million. As a result, net
unrealized losses of $13.0 million and $54.3 million on securities
classified as available for sale at June 30, 1995 and December 31, 1994,
respectively, after applicable income taxes, were included as a separate
component of shareholders' equity.
<PAGE> 28
The amortized cost and fair value of securities classified as held to
maturity at June 30, 1995 and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
Amortized Fair Amortized Fair
(in thousands) cost value cost value
<S> <C> <C> <C> <C>
U.S. Government and agency
securities
Mortgage backed $ 3,387,530 $ 3,350,854 $ 3,556,103 $ 3,345,768
U.S. Treasury 1,927,023 1,908,009 1,953,820 1,838,679
Asset backed and other securities 2,213,357 2,172,227 2,490,459 2,377,443
Total $ 7,527,910 $ 7,431,090 $ 8,000,382 $ 7,561,890
</TABLE>
The amortized cost of securities classified as held to maturity exceeded
fair value by approximately $96.8 million at June 30, 1995, consisting of
unrealized losses of approximately $114.7 million and unrealized gains of
approximately $17.9 million, and $438.5 million at December 31, 1994,
consisting of unrealized losses of approximately $439.6 million and
unrealized gains of approximately $1.1 million.
NOTE 4 - LOANS
The components of the Corporation's loan portfolio at June 30, 1995 and
December 31, 1994, net of unearned income of $65.5 million and $32.8
million, respectively, are summarized below:
<TABLE>
<acpation>
June 30, December 31,
(in thousands) 1995 1994
<S> <C> <C>
Commercial and industrial $ 10,190,162 $ 7,006,396
Owner-occupied commercial real estate 1,507,378 1,412,007
Real estate investor/developer
Commercial mortgage 1,261,259 1,309,224
Construction and other 125,404 157,391
Total investor/developer 1,386,663 1,466,615
Consumer
Residential mortgage 6,212,469 5,592,084
Home equity 1,618,635 1,625,662
Installment and other 1,455,740 1,384,379
Total consumer 9,286,844 8,602,125
Total 22,371,047 18,487,143
Less reserve for credit losses 541,243 542,116
Total $ 21,829,804 $ 17,945,027
</TABLE>
<PAGE> 29
The details of the Corporation's nonaccruing loans, restructured loans and
accruing loans past due 90 days or more at June 30, 1995 and December 31,
1994 are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1995 1994
<S> <C> <C>
Nonaccruing loans
Commercial and industrial $ 47,160 $ 35,982
Owner-occupied commercial real estate 47,387 57,560
Real estate investor/developer 54,684 82,921
Subtotal 149,231 176,463
Consumer 41,711 47,488
Total nonaccruing loans $ 190,942 $ 223,951
Restructured loans $ 28,099 $ 41,752
Accruing loans past due 90 days or more $ 46,422 $ 43,264
</TABLE>
The Corporation adopted, on a prospective basis, Statement of Financial
Accounting Standards ("FAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" ("FAS 114"), effective January 1, 1995. 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 at the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, the fair value of collateral
for collateral dependent loans, when assessing the need for an impairment
reserve. FAS 114 excludes smaller-balance homogeneous loans that are
collectively evaluated for impairment, such as residential mortgage and
consumer installment loans. The Corporation had previously considered the
methods prescribed by FAS 114, as well as other matters, when assessing the
adequacy of the reserve for credit losses. As a result, there was no
effect on the Corporation's results of operations from the adoption of this
accounting standard.
FAS 114 does not address when a creditor should record a direct write-down
of an impaired loan, nor does it address how a creditor should assess the
overall adequacy of the reserve for credit losses. Therefore, the
impairment reserves determined in accordance with FAS 114 should not be
interpreted as the overall reserve for credit losses.
The Corporation's criteria for and policies relating to nonaccruing loans
are consistent with the definition of impaired loans under FAS 114.
Accordingly, the Corporation considers its nonaccruing loans to be impaired
loans as defined by FAS 114. Upon adoption of FAS 114, the Corporation did
not change its method of recognizing interest income on impaired loans.
As indicated in the table above, at June 30, 1995 the recorded investment
in impaired loans, excluding consumer amounts, was $149.2 million.
Impairment reserves at June 30, 1995, determined in accordance with FAS 114
and included as part of the Corporation's reserve for credit losses,
approximated $10.9 million. At June 30, 1995, approximately $62.3 million
of impaired loans which have been subjected to a specific review did not
require an impairment reserve, due primarily to prior charge-offs. The average
recorded investment in impaired loans, excluding consumer amounts, during
the quarter ended June 30, 1995 was $168.0 million. For the quarter ended
June 30, 1995, the amount of interest income recognized on impaired loans
was immaterial.
<PAGE> 30
Restructured loans are loans with original terms which have been modified
as a result of a change in the borrower's financial condition and are also
required to be accounted for and reported in accordance with FAS 114 for
restructurings that occur subsequent to January 1, 1995. As indicated in
the table above, at June 30, 1995 restructured loans totaled $28.1 million.
There were no loans included in this amount that were restructured
subsequent to January 1, 1995.
NOTE 5 - OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The components of other assets at June 30, 1995 and December 31, 1994 are
presented below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1995 1994
<S> <C> <C>
Goodwill and other intangibles $ 510,312 $ 154,488
Receivable for securities sold 223,382 10,000
Accrued interest income 220,723 227,654
Net deferred income taxes 170,913 164,958
Cash surrender value of life insurance 160,280 156,913
Prepaid pension expense 92,488 128,614
Rhode Island covered assets 75,290
Assets held for accelerated disposition 41,816
Foreclosed properties 4,020 18,831
Other 483,186 430,063
Total $ 1,982,410 $ 1,291,521
</TABLE>
Northeast's banking subsidiary had previously acquired certain assets of
four Rhode Island financial institutions which were in receivership
proceedings ("Rhode Island covered assets"). The Corporation, through its
acquisition of Northeast, is protected against losses incurred through 1999
relative to all loans acquired from the institutions, including loans
foreclosed upon subsequent to acquisition. Accordingly, Rhode Island
covered assets are segregated and reported separately from the Corporation's
loans and foreclosed properties. At June 30, 1995, Rhode Island covered
assets included loans of $72.9 million, of which $3.6 million are nonaccruing
loans, and $2.4 million of foreclosed properties.
The components of accrued expenses and other liabilities at June 30, 1995
and December 31, 1994 are presented below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1995 1994
<S> <C> <C>
Accrued interest expense $ 158,948 $ 96,082
Accrued dividends payable 35,106 30,429
Accrued postretirement health care and life insurance
benefits expense 16,568 13,117
Accrued postemployment benefits expense 10,476 8,645
Accrued merger expenses 6,765 13,772
Accrued restructuring expenses 6,723 19,045
Payable for securities purchased 3,000 2,000
Other 188,912 158,562
Total $ 426,498 $ 341,652
</TABLE>
<PAGE> 31
NOTE 6 - NOTES AND DEBENTURES
The Corporation's notes and debentures at June 30, 1995 and December 31,
1994 are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1995 1994
<S> <C> <C>
Bank Holding Companies:
9.85% subordinated capital notes due June 1, 1999, net of discout $ 149,939 $ 149,931
8 7/8% notes due April 1, 1996, net of discount 149,914 149,866
7.20% subordinated notes due April 15, 2003, net of discount 149,765 149,750
8 5/8% subordinated notes due December 15, 1999, net of discount 149,763 149,736
8 1/8% notes due February 1, 1997, net of discount 99,934 99,916
Floating rate subordinated notes due February 14, 1997 50,000 50,000
Other 46,751
Total 796,066 749,199
Bank Subsidiaries:
Floating rate senior notes due 1995 and 1996 $ 1,228,000 $ 1,038,000
7.03% senior note due February 23, 1996 50,000 225,000
8 5/8% subordinated bank notes due February 15, 2005,
net of discount 249,680
Other 15,695 9,589
Total 1,543,375 1,272,589
Total $ 2,339,441 $ 2,021,788
</TABLE>
Floating rate senior notes issued under the Corporation's subsidiary banks'
note program at June 30, 1995 mature from 4 to 12 months and currently have
interest rates of 5.61 to 6.31 percent. The weighted average interest rate
on the floating rate notes at June 30, 1995 was 6.06 percent.
On February 14, 1995, Shawmut Bank Connecticut completed a $250 million
offering of 8 5/8% subordinated bank notes due February 15, 2005. On April
27, 1995, Shawmut Bank Connecticut and Shawmut Bank Massachusetts
established a $3.0 billion bank note program which will provide for future
bank note issuances.
<PAGE> 32
NOTE 7 - OTHER NONINTEREST INCOME AND NONINTEREST EXPENSES
The components of other noninterest income for the three and six months
ended June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Loan servicing $ 10,613 $ 10,530 $ 14,906 $ 15,033
Trading account profits 1,080 1,297 2,334 2,462
Foreign exchange trading 451 (1,117) (786) (1,832)
Residential mortgage sales 266 87 141 1,052
Other 11,716 5,201 20,470 10,885
Total $ 24,126 $ 15,998 $ 37,065 $ 27,600
</TABLE>
The components of noninterest expenses, excluding merger and restructuring
related charges, for the three and six months ended June 30, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Compensation $ 98,512 $ 100,061 $ 198,572 $ 202,218
Benefits 21,856 22,543 41,420 46,177
Total $ 120,368 $ 122,604 $ 239,992 $ 248,395
Occupancy $ 23,335 $ 24,966 $ 47,161 $ 51,330
Equipment 14,164 13,147 28,937 26,501
Total $ 37,499 $ 38,113 $ 76,098 $ 77,831
Foreclosed properties
Provision $ 884 $ 2,929
Expense $ 705 2,491 $ 2,284 6,176
Total $ 705 $ 3,375 $ 2,284 $ 9,105
Communications $ 12,269 $ 10,147 $ 23,655 $ 20,547
FDIC insurance premiums 10,961 11,142 21,922 22,912
Advertising 6,052 6,593 12,063 11,071
Other 46,636 46,000 87,190 89,943
Total $ 75,918 $ 73,882 $ 144,830 $ 144,473
</TABLE>
<PAGE> 33
Merger and Restructuring Related Charges
Merger related charges of $13.6 million for the three months ended June 30,
1995 relate to the settlement of certain compensation expenses as a result
of shareholder approval of the agreement to merge with Fleet. Merger
related charges of $36.9 million recognized in the first quarter of 1995
related to the settlement of certain of the Corporation's employee
retirement benefits as a result of the execution of the agreement to merge
with Fleet. Total merger related charges for the six months ended June 30,
1995 were $50.5 million.
Merger related charges of $100.9 million recorded during the second quarter
of 1994 reflect the costs to integrate three banking organizations which
were acquired and accounted for as poolings of interests. The merger
related charges included severance and benefits costs for workforce
reductions, closure of duplicative branches and facilities, cancellation of
vendor contracts, financial and advisory fees and losses for disposition of
loans and securities.
Restructuring related charges of $39.8 million, also recorded in the second
quarter of 1994, reflect the expansion of the Corporation's cost management
program and other cost initiatives. Restructuring related charges included
severance and benefit related costs for workforce reductions, branch and
operational facilities consolidation and other costs.
NOTE 8 - NEW ACCOUNTING STANDARD
During the second quarter of 1995, the Corporation adopted FAS No. 122,
"Accounting for Mortgage Servicing Rights" ("FAS 122"). The new accounting
standard requires that the Corporation's mortgage banking enterprise
recognize the rights to service mortgage loans for others as a separate
asset by allocating the total cost of originated mortgage loans to the
mortgage servicing rights and the mortgage loans based on their relative
fair values. The Corporation's criteria for, and policies relating to,
estimating the fair value of mortgage servicing rights are consistent with
the methods utilized for estimating the fair value of purchased mortgage
servicing rights as determined by reference to independent third party
sources. Retroactive capitalization of mortgage servicing rights for
transactions prior to the adoption of FAS 122 is not permitted. The
adoption of FAS 122 had an insignificant effect on the Corporation's
results of operations.
<PAGE> 34
[This Page Intentionally Left Blank]
<PAGE> 35
<TABLE>
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:
<CAPTION>
Three months ended Three months ended
June 30, 1995 March 31, 1995
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 21,548 $ 457.9 8.52 % $ 20,248 $ 422.1 8.42 %
Securities
Available for sale, at fair value 2,330 37.8 6.51 2,138 35.8 6.75
Held to maturity 7,672 113.4 5.91 7,888 116.8 5.94
Residential mortgages held for sale 71 1.4 8.15 48 1.0 8.21
Short-term investments
Time deposits in other banks 60 1.0 7.02 259 3.9 6.10
Federal funds sold and securities
purchased under agreements to resell 326 5.1 6.21 294 4.2 5.84
Trading account securities 30 .6 7.99 26 .5 8.30
Total interest-earning assets 32,037 617.2 7.72 30,901 584.3 7.63
Reserve for credit losses (553) (563)
Cash and due from banks 1,418 1,350
Other assets 1,885 1,836
Total assets $ 34,787 $ 33,524
LIABILITIES
Savings, money market and
NOW accounts $ 8,142 46.8 2.31 % $ 8,307 45.7 2.23 %
Time certificates of deposit
of $100 thousand or more 2,189 35.9 6.57 1,994 31.4 6.39
Domestic time deposits 5,096 67.2 5.29 4,596 53.6 4.73
Foreign time deposits 1,233 19.0 6.18 1,068 15.8 6.00
Total interest-bearing deposits 16,660 168.9 4.07 15,965 146.5 3.72
Federal funds purchased and securities
sold under agreements to repurchase 7,438 111.7 6.02 7,227 104.6 5.87
Other borrowings 1,289 23.6 7.34 1,113 20.2 7.34
Total other borrowings 8,727 135.3 6.22 8,340 124.8 6.06
Notes and debentures 2,289 41.5 7.26 2,234 39.8 7.17
Total interest-bearing liabilities 27,676 345.7 5.01 26,539 311.1 4.75
Demand deposits 4,231 4,218
Other liabilities 405 406
Total liabilities 32,312 31,163
Shareholders' equity 2,475 2,361
Total liabilities and shareholders'
equity $ 34,787 $ 33,524
Net interest income
(taxable-equivalent basis) 271.5 3.39 273.2 3.55
Less taxable-equivalent adjustment 3.1 2.9
Net interest income $ 268.4 $ 270.3
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, 1994 September 30, 1994
Average Average Average Average
(in millions) balance Interest rate balance Interest rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 18,174 $ 360.6 7.89 % $ 17,516 $ 333.8 7.58 %
Securities
Available for sale, at fair value 2,120 35.5 6.74 1,989 32.1 6.44
Held to maturity 8,106 117.9 5.81 8,090 115.5 5.70
Residential mortgages held for sale 31 1.2 7.36 285 5.3 7.44
Short-term investments
Time deposits in other banks 318 4.9 5.94 346 4.1 4.81
Federal funds sold and securities
purchased under agreements to resell 301 4.0 5.36 146 1.8 4.89
Trading account securities 29 .5 6.05 23 .2 3.87
Total interest-earning assets 29,079 524.6 7.18 28,395 492.8 6.91
Reserve for credit losses (562) (595)
Cash and due from banks 1,475 1,478
Other assets 1,670 1,701
Total assets $ 31,662 $ 30,979
LIABILITIES
Savings, money market and
NOW accounts $ 8,780 45.4 2.05 % $ 8,923 42.3 1.88 %
Time certificates of deposit
of $100 thousand or more 1,383 19.9 5.71 1,041 14.1 5.39
Domestic time deposits 4,474 49.3 4.37 4,493 46.4 4.09
Foreign time deposits 596 7.7 5.14 431 4.9 4.50
Total interest-bearing deposits 15,233 122.3 3.19 14,888 107.7 2.87
Federal funds purchased and securities
sold under agreements to repurchase 6,631 86.0 5.15 6,513 73.6 4.48
Other borrowings 915 18.0 7.74 1,014 15.3 6.01
Total other borrowings 7,546 104.0 5.47 7,527 88.9 4.69
Notes and debentures 1,860 32.4 6.94 1,619 27.3 6.72
Total interest-bearing liabilities 24,639 258.7 4.17 24,034 223.9 3.70
Demand deposits 4,442 4,462
Other liabilities 382 349
Total liabilities 29,463 28,845
Shareholders' equity 2,199 2,134
Total liabilities and shareholders'
equity $ 31,662 $ 30,979
Net interest income
(taxable-equivalent basis) 265.9 3.65 268.9 3.78
Less taxable-equivalent adjustment 2.5 3.0
Net interest income $ 263.4 $ 265.9
</TABLE>
<TABLE>
<CAPTION>
Three months ended
June 30, 1994
Average Average
(in millions) balance Interest rate
<S> <C> <C> <C>
ASSETS
Loans $ 17,674 $ 320.7 7.27 %
Securities
Available for sale, at fair value 2,615 39.9 6.09
Held to maturity 7,743 107.2 5.54
Residential mortgages held for sale 168 2.9 6.92
Short-term investments
Time deposits in other banks 215 2.1 3.96
Federal funds sold and securities
purchased under agreements to resell 146 1.6 4.30
Trading account securities 21 .2 4.55
Total interest-earning assets 28,582 474.6 6.65
Reserve for credit losses (633)
Cash and due from banks 1,464
Other assets 1,696
Total assets $ 31,109
LIABILITIES
Savings, money market and
NOW accounts $ 8,827 38.2 1.74 %
Time certificates of deposit
of $100 thousand or more 531 7.0 5.31
Domestic time deposits 4,352 43.0 3.96
Foreign time deposits 255 2.4 3.79
Total interest-bearing deposits 13,965 90.6 2.60
Federal funds purchased and securities
sold under agreements to repurchase 8,000 78.0 3.91
Other borrowings 1,101 17.4 6.35
Total other borrowings 9,101 95.4 4.21
Notes and debentures 1,108 19.9 7.17
Total interest-bearing liabilities 24,174 205.9 3.42
Demand deposits 4,457
Other liabilities 278
Total liabilities 28,909
Shareholders' equity 2,200
Total liabilities and shareholders'
equity $ 31,109
Net interest income
(taxable-equivalent basis) 268.7 3.76
Less taxable-equivalent adjustment 3.0
Net interest income $ 265.7
</TABLE>
<PAGE> 37
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 Towers subsidiaries
defaulted on the bonds and Towers and the
subsidiaries later filed for bankruptcy protection.
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 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.
Shortly following the announcement on February 21,
1995 that Fleet Financial Group, Inc. ("Fleet") and
the Corporation had executed an agreement and plan
of merger (the "Merger Agreement") pursuant to
which the Corporation will merge with and into
Fleet (the "Merger"), certain alleged stockholders
of the Corporation filed seven purported class
action lawsuits in the Court of Chancery of the
State of Delaware in and for New Castle County (the
"Court") against the Corporation, the members of
the Corporation's board of directors and Fleet. The
complaints all make similar allegations concerning
the proposed Merger. The plaintiffs allege, among
other things, that the defendants have engaged in a
plan and scheme to enrich themselves at the expense
of the Corporation's public stockholders; that the
defendants have failed to fully disclose the true
value of the Corporation's assets and earnings
power and the future financial benefits which the
defendants expect to derive from the proposed
Merger; that the defendants have wrongfully failed
and refused to seek a purchase of the Corporation
at the highest possible price and have sought to
chill potential offers for the Corporation; that
the defendant members of the Corporation's board of
directors have breached the fiduciary duties owed
by them to the plaintiffs and the members of the
purported class; and that defendant Fleet has
induced and aided and abetted breaches of fiduciary
duty by the members of the Corporation's board of
directors. The plaintiffs seek, among other things, a
<PAGE> 38
declaration that the proposed transaction is
unfair, unjust and inequitable; an injunction
preliminarily enjoining the defendants from taking
any steps necessary to accomplish or implement the
proposed Merger; and an order requiring the
defendants to compensate plaintiffs and the members
of the class for all losses and damages suffered
and to be suffered by them as a result of the acts
and transactions complained of in the complaints.
The plaintiffs also seek the award of the costs and
disbursements of the action, including reasonable
attorneys', accountants' and experts' fees. The
defendants believe the allegations contained in the
complaints are entirely without merit and intend to
contest them vigorously.
In addition, an alleged former stockholder of the
Corporation who claims to have sold shares of the
Corporation's common stock between December 11,
1994 and February 21, 1995 filed a purported class
action lawsuit on behalf of himself and all other
persons who sold the Corporation's common stock
between such dates in the United States District
Court for the Eastern District of New York against
the Corporation. The plaintiff alleges, among other
things, that, prior to the execution of the Merger
Agreement, the Corporation violated Section 10(b)
of the Exchange Act and Rule 10b-5 promulgated
thereunder by disseminating false information
and/or failing to disclose material facts necessary
in order not to mislead the investing public and by
artificially depressing the market price of the
Corporation's common stock as a result of these
alleged acts and omissions. In particular, the
plaintiff alleges that on December 11, 1994 a
newspaper article reported that Mr. Alvord had
"stated that a merger for Shawmut was not in the
cards and that he would be charting a course for
Shawmut as an independent institution." The
plaintiff contends that this newspaper article
constituted a representation by the Corporation,
that such alleged representation was materially
false and misleading when made and/or became
materially misleading, and that the Corporation had
a duty to correct this alleged representation as
soon as it believed that the alleged representation
was no longer accurate. The plaintiff seeks an
order requiring the Corporation to compensate
plaintiff and the members of the class for all
losses and damages suffered by them as a result of
the acts and omissions complained of in the
complaint. The plaintiff also seeks an award of the
costs and disbursements of the action, including
reasonable attorneys', accountants' and experts'
fees. The Corporation denies that the newspaper
article referred to by the plaintiff contains any
such statement by Mr. Alvord and further believes
the allegations contained in the complaint are
entirely without merit and intends to contest them
vigorously.
<PAGE> 39
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 June 21, 1995.
(b) Each of the persons named in the proxy statement as a nominee
for director was elected.
(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 107,497,162 1,430,676 308,369
Stillman B. Brown 107,903,729 1,024,109 7,187
John T. Collins 107,906,597 1,021,241 5,284
Ferdinand Colloredo-
Mansfeld 107,905,302 1,022,536 6,087
Bernard M. Fox 107,891,159 1,036,679 11,667
Robert J. Matura 107,901,242 1,026,596 6,564
Gunnar S. Overstrom, Jr. 107,725,278 1,202,560 150,842
Lois D. Rice 107,877,918 1,049,920 35,106
Maurice Segall 107,897,502 1,030,336 14,544
Samuel O. Thier 107,848,510 1,079,328 59,731
Paul R. Tregurtha 107,903,231 1,024,607 7,361
Wilson Wilde 107,900,145 1,027,693 10,163
Appointment of
Price Waterhouse as
Independent Accountant
for 1995 107,979,271 328,109 620,458
Proposal to Approve and Adopt
the Agreement and Plan of Merger,
by and between Shawmut National
Corporation and Fleet Financial Group,
Inc., and the Consummation of the
Transactions contemplated thereby,
including the Merger. 92,292,111 1,307,855 360,579 14,967,29
</TABLE>
<PAGE> 40
The text of the matters referred to under this Item 4 is set
forth in the proxy statement dated May 8, 1995 previously
filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
Item 5. Other Information
On June 9, 1995, the Corporation completed its
acquisition of $3.4 billion-asset Northeast Federal
Corp. of Farmington, Connecticut, parent of
Northeast Savings, F.A. Effective June 12, 1995,
all 33 Northeast Savings branches -- located in New
York, Massachusetts and Connecticut -- became units
of the Shawmut Bank in each of these states.
On July 18, 1995, the Corporation established a
$150 million revolving credit agreement with an
unrelated party. Borrowings under the revolving
credit facility will be used for general corporate
purposes, including the previously reported
repurchase of shares of Corporation common stock.
The revolving credit facility commitment will
expire, and all borrowings then outstanding will be
payable, on the earlier of the ninetieth day after
the Merger is consummated or December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-
K are listed in the Table of Contents and Form
10-Q Cross-reference Index on page 2 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 June 30, 1995.
The report dated April 13, 1995 (Items 5 and
7) reported that on February 20, 1995, the
Corporation and Fleet Financial Group, Inc.
("Fleet") entered into an Agreement and Plan
of Merger providing, among other things, for
the merger (the "Merger") of the Corporation
with and into Fleet, with Fleet surviving the
Merger. In addition, it was reported that the
Corporation entered into an agreement with
Northeast Federal Corp. ("Northeast"), dated
as of June 13, 1994, to acquire Northeast.
The report filed:
(1) Consent of KPMG Peat Marwick LLP.
(2) Consent of Deloitte & Touche LLP.
(3) Consent of Price Waterhouse LLP.
<PAGE> 41
(4) Financial Statements of Fleet Financial
Group, Inc. as of December 31, 1994 and
1993.
(5) Financial Statements of Business Finance
Division of Barclays Business Credit,
Inc. as of December 31, 1994 and 1993.
(6) Shawmut National Corporation and
Subsidiaries, Fleet Financial Group,
Inc., Northeast Federal Corp. and
Subsidiaries and Business Finance
Division of Barclays Business Credit,
Inc. Unaudited Pro Forma Condensed
Combined Financial Information.
The report dated April 19, 1995 (Item 7),
filed a press release of the Corporation,
dated April 19, 1995, entitled "Shawmut
National Corporation reports first quarter
operating results of $85.7 million, or $.66
per common share."
The report dated May 25, 1995 (Items 5 and 7)
noted the previously reported pending mergers
of Northeast Federal Corp. with and into the
Corporation (which merger closed June 9,
1995), and the Corporation with and into Fleet
Financial Group, Inc. and filed:
(1) Unaudited Pro Forma Condensed Combined
Financial Information for Fleet Financial
Group and Subsidiaries and Shawmut
National Corporation and Subsidiaries and
Notes thereto.
(2) The following unaudited financial
statements of Fleet and accompanying
notes incorporated by reference from
Fleet's quarterly report on Form 10-Q for
the quarter ended March 31, 1995 (File
No. 1-6366): Consolidated Balance Sheet
- March 31, 1995, Consolidated Statement
of Income for the three months ended
March 31, 1995, Consolidated Statement of
Cash Flows and Consolidated Statement of
Changes in Stockholders' Equity for the
three months ended March 31, 1995; Notes
to Consolidated Financial Statements (to
the extent applicable to the foregoing
Financial Statements). (Portions of
Fleet's Form 10-Q not specifically
incorporated by reference were not
required for this current report and were
not incorporated by reference.)
<PAGE> 42
(3) The following unaudited financial
statements of Northeast and accompanying
notes incorporated by reference from
Northeast's quarterly report on Form 10-Q
for the quarter ended March 31, 1995
(File No. 1-10571); Consolidated
Statements of Financial Condition - March
31, 1995; Consolidated Statement of
Operations for the three months ended
March 31, 1995, Consolidated Statement of
Cash Flows and Consolidated Statement of
Changes in Stockholders' Equity for the
three months ended March 31, 1995; Notes
to Consolidated Financial Statements (to
the extent applicable to the foregoing
Financial Statements). (Portions of
Northeast's Form 10-Q not specifically
incorporated by reference were not
required for this current report and were
not incorporated by reference.)
The report dated June 21, 1995 (Item 7), filed:
(1) Press Release of Shawmut National
Corporation, dated June 21, 1995
(reporting that the Corporation's
stockholders voted to approve the
previously announced strategic merger
with Fleet Financial Group, Inc.).
(2) Press Release of Shawmut National
Corporation, dated June 21, 1995
(reporting that the Corporation's board
of directors has authorized the
repurchase of shares of the Corporation's
common stock).
<PAGE> 43
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 10, 1995 By (Joel B. Alvord)
----------------------------
Joel B. Alvord
Chairman and
Chief Executive Officer
Date: August 10, 1995 By (Susan E. Lester)
----------------------------------
Susan E. Lester
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE> 44
<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,
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of accounting changes $ 232,007 $ 371,604 $ 289,476 $ 108,625 $ (169,223) $ (155,672)
Portion of rents representative
of the interest factor 8,145 16,891 18,037 19,525 19,491 19,903
Interest on other borrowings 260,052 368,347 262,413 192,240 217,739 340,650
Interest on notes and debentures 80,785 94,807 70,646 59,321 60,436 63,105
Amortization of debt issuance cost 490 844 1,394 594 618 578
Earnings including interest on deposits 581,479 852,493 641,966 380,305 129,061 268,564
Interest on deposits 315,427 406,346 420,966 622,436 933,665 1,253,609
Earnings excluding interest on deposits $ 896,906 $ 1,258,839 $ 1,062,932 $ 1,002,741 $ 1,062,726 $ 1,522,173
FIXED CHARGES
Portion of rents representative
of the interest factor $ 8,145 $ 16,891 $ 18,037 $ 19,525 $ 19,491 $ 19,903
Interest on other borrowings 260,052 368,347 262,413 192,240 217,739 340,650
Interest on notes and debentures 80,785 94,807 70,646 59,321 60,436 63,105
Amortization of debt issuance cost 490 844 1,394 594 618 578
Fixed charges excluding interest on deposits 349,472 480,889 352,490 271,680 298,284 424,236
Interest on deposits 315,427 406,346 420,966 622,436 933,665 1,253,609
Fixed charges including interest on deposits $ 664,899 $ 887,235 $ 773,456 $ 894,116 $ 1,231,949 $ 1,677,845
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND
REQUIREMENTS
Fixed charges excluding interest on deposits $ 349,472 $ 480,889 $ 352,490 $ 271,680 $ 298,284 $ 424,236
Preferred stock dividend requirements 21,093 24,117 23,438 15,952 2,262 2,328
$ 370,565 $ 505,006 $ 375,928 $ 287,632 $ 300,546 $ 426,564
Fixed charges including interest on deposits $ 664,899 $ 887,235 $ 773,456 $ 894,116 $ 1,231,949 $ 1,677,845
Preferred stock dividend requirements 21,093 24,117 23,438 15,952 2,262 2,328
$ 685,992 $ 911,352 $ 796,894 $ 910,068 $ 1,234,211 $ 1,680,173
RATIOS
Earnings to fixed charges
Excluding interest on deposits 1.66 x 1.77 x 1.82 x 1.40 x 0.43 x 0.63 x
Including interest on deposits 1.35 1.42 1.37 1.12 0.86 0.91
Earnings to combined fixed charges and
preferred stock dividend requirements
Excluding interest on deposits 1.57 1.69 1.71 1.32 0.43 0.63
Including interest on deposits 1.31 1.38 1.33 1.10 0.86 0.91
</TABLE>
<PAGE> 45
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