<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 1-10102
----------------
SHAWMUT NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1212629
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
777 MAIN STREET, HARTFORD, CONNECTICUT 06115
ONE FEDERAL STREET, BOSTON, 02211
MASSACHUSETTS (ZIP CODES)
(ADDRESSES OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone numbers, including area codes (203) 986-2000 AND (617)
292-2000
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, par value $0.01 New York Stock Exchange
Common Stock Subscription Warrants New York Stock Exchange
Depositary Shares representing a one-tenth interest
in a share of 9.30% cumulative preferred stock
($250 stated value) New York Stock Exchange
Depositary Shares representing a one-tenth interest
in a share of 9.35% cumulative preferred stock
($250 stated value) New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 .
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $3,123,458,975.89 on March 7, 1995.
As of March 7, 1995, 121,867,303 shares of the registrant's common stock,
$0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION REQUIRED TO BE DISCLOSED PURSUANT TO PART III OF THIS REPORT
EITHER SHALL BE (I) DEEMED TO BE INCORPORATED BY REFERENCE FROM SELECTED
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR SHAWMUT NATIONAL CORPORATION'S
1995 ANNUAL MEETING OF SHAREHOLDERS, IF SUCH PROXY STATEMENT IS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A NOT LATER THAN
120 DAYS AFTER THE END OF THE CORPORATION'S MOST RECENTLY COMPLETED FISCAL
YEAR, OR (II) INCLUDED IN AN AMENDMENT TO THIS REPORT FILED WITH THE COMMISSION
ON FORM 10-K/A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SHAWMUT NATIONAL CORPORATION
ANNUAL REPORT FOR 1994 ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 9
Item 3. Legal Proceedings.............................................. 9
Item 4. Submission of Matters To a Vote of Security Holders............ 10
Executive Officers of the Registrant..................................... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 13
Item 6. Selected Financial Data........................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 13
Item 8. Financial Statements and Supplementary Data.................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant............. 14
Item 11. Executive Compensation......................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management. 14
Item 13. Certain Relationships and Related Transactions................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K............................................................. 14
Signatures............................................................... 16
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Shawmut National Corporation ("Corporation") is a multibank holding company
registered under the Bank Holding Company Act of 1956, as amended ("BHCA"), and
the Home Owners' Loan Act of 1933, as amended ("HOLA"). It was organized under
the laws of the State of Delaware in October 1987 and became a bank holding
company on February 29, 1988 through the consummation of a plan of
reorganization between Hartford National Corporation ("HNC") and Shawmut
Corporation ("SC") pursuant to which both HNC and SC became wholly owned
subsidiaries of the Corporation. The Corporation maintains dual headquarters in
the States of Connecticut and Massachusetts.
The principal business of the Corporation is to provide, through its bank
subsidiaries, comprehensive corporate, commercial, correspondent and individual
banking services, and personal and corporate trust services through its network
of approximately 330 branches located principally in Connecticut,
Massachusetts, New Hampshire and Rhode Island. The Corporation's principal
banking subsidiaries are Shawmut Bank Connecticut, National Association
("SBC"), Hartford, Connecticut and Shawmut Bank, National Association ("SBM"),
Boston, Massachusetts. The Corporation also has a bank subsidiary in New
Hampshire, Shawmut Bank NH ("SBNH"). The Corporation's thrift subsidiary is
Shawmut Bank, FSB ("SBFSB"), located in Boca Raton, Florida.
SBC is among the oldest banks in the United States, having opened for
business on August 9, 1792 under a charter granted by the State of Connecticut
to its first predecessor on May 29, 1792. In 1865 SBC converted to a national
banking association, in 1969 it became a subsidiary of HNC, and in 1993, its
present name was adopted. On August 1, 1994, SBC became a direct subsidiary of
the Corporation. At December 31, 1994, SBC had assets of $17.1 billion and
deposits of $10.4 billion. SBC had trust and other assets under management
totaling $9.1 billion as of December 31, 1994.
SBM, also among the oldest banks in the United States, was established in
1836, under a charter granted by the Commonwealth of Massachusetts to its first
predecessor. In 1864 it converted to a national banking association, in 1964 it
became a subsidiary of SC, and in 1986 its present name was adopted. On August
1, 1994, SBM became a direct subsidiary of the Corporation. At December 31,
1994, SBM had assets of $14.4 billion and deposits of $9.7 billion. SBM had
trust and other assets under management totaling $5.5 billion as of December
31, 1994.
New Dartmouth Bank, located in Manchester, New Hampshire, was acquired on
June 6, 1994 through the merger of New Dartmouth Bank into SBNH, the
Corporation's bank subsidiary that was established for that purpose. At
December 31, 1994, SBNH had assets of $1.8 billion and deposits of $1.4
billion.
On July 14, 1994, the Resolution Trust Corporation accepted the Corporation's
bid, through its newly formed subsidiary, SBFSB, to assume $25 million of
deposits of The Guardian Bank, FSB of Boca Raton, Florida. The transaction was
effective July 15, 1994. At December 31, 1994, SBFSB had assets of $33 million
and deposits of $25 million.
Through Shawmut Mortgage Company ("SMC"), the Corporation provides other
financial services. With its principal office in West Hartford, Connecticut,
SMC originates substantially all of the residential mortgages among the
Corporation and its subsidiaries. It also funds, sells and services residential
mortgage loans through its network of 10 offices in Connecticut, Massachusetts,
Rhode Island and New Hampshire. At December 31, 1994 SMC had assets of $157
million.
At December 31, 1994, the Corporation had assets of $32.4 billion, deposits
of $20.7 billion, loans of $18.5 billion and shareholders' equity of $2.2
billion. For a more detailed discussion concerning the Corporation's financial
condition, see "Shawmut National Corporation and Subsidiaries--Management's
Discussion and Analysis" and "Financial Statements."
3
<PAGE>
MERGER AND ACQUISITIONS
Agreement and Plan of Merger
On February 20, 1995, the Corporation and Fleet Financial Group, Inc.
("Fleet") entered into an agreement and plan of merger (the "Merger Agreement")
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 $1.00 par value Fleet common stock. 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 expected
to be completed in the fourth quarter of 1995, and is subject to the approval
of the common stock shareholders of Fleet and the Corporation, the receipt of
various regulatory approvals, and the satisfaction (or, where permissible,
waiver) of certain other standard closing conditions.
Completed Acquisitions
During 1994, the Corporation acquired four banking organizations in addition
to New Dartmouth Bank described above. At the time of acquisition, those four
organizations had total assets of approximately $1.3 billion, $871 million,
$254 million and $78 million, respectively.
The Corporation also acquired ten branches with deposits of approximately
$427 million from Northeast Savings, F.A., a subsidiary of Northeast Federal
Corp. ("Northeast").
On January 31, 1995, the Corporation acquired substantially all of the net
assets of the Business Finance Division of Barclays Business Credit, Inc., a
subsidiary of Barclays Bank PLC. At December 31, 1994, the book value of the
assets acquired and the liabilities assumed by the Corporation in that
transaction was approximately $2.3 billion and approximately $12.7 million,
respectively. The acquired business, which is being conducted by the
Corporation through Shawmut Capital Corporation, a subsidiary of SBC, provides
secured corporate financing to middle-market companies through a network of
offices nationwide.
Pending Acquisition
In June 1994, the Corporation entered into an agreement to acquire Northeast.
As of December 31, 1994, Northeast had assets of $3.3 billion, deposits of $2.4
billion and stockholders' equity of $138.9 million. Northeast has 33 offices
located in Connecticut, Massachusetts and upstate New York. The Northeast
transaction may be terminated if the transaction is not consummated on or
before June 30, 1995.
For further information regarding the completed and pending transactions
referred to above, see Note 2 of Notes to Consolidated Financial Statements on
page 53.
SUPERVISION AND REGULATION
General
The Corporation is a bank holding company subject to regulation and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") pursuant to the BHCA, and files with the Federal
Reserve Board an annual report and such additional reports as the Federal
Reserve Board may require. As a bank holding company, the Corporation's
activities and those of its banking and nonbanking subsidiaries are limited to
the business of banking and activities closely related or incidental to
banking, and the Corporation may not directly or indirectly acquire the
ownership or control of more than 5 percent of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. The Corporation is also a savings
and loan holding company within the meaning of HOLA and, as such, is registered
with, and subject to regulation by, the Office of Thrift Supervision (the
"OTS"). SBC and SBM are national banks subject to regulation and
4
<PAGE>
supervision by the Office of the Comptroller of the Currency (the "OCC"). SBNH
is a New Hampshire bank subject to regulation and supervision by the Federal
Deposit Insurance Corporation ("FDIC") and the Bank Commissioner of the State
of New Hampshire. SBFSB is a federal savings association subject to regulation
and supervision by the OTS. SBC, SBM and SBFSB are also subject to regulation
and supervision by the FDIC, which insures their deposits as well as those of
SBNH.
The federal banking agencies have broad enforcement powers over depository
institutions, including the power to impose substantial fines and other civil
and criminal penalties, to terminate deposit insurance, and to appoint a
conservator or receiver under a variety of circumstances. The Federal Reserve
Board and the OTS also have broad enforcement powers over bank holding
companies and savings and loan holding companies, including the power to impose
substantial fines and other civil and criminal penalties.
The Corporation's subsidiary depository institutions are also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Corporation's subsidiary depository
institutions.
Cross-Guarantee and Holding Company Liability
Any FDIC-insured depository institution may be liable for any loss incurred
by the FDIC, or any loss which the FDIC reasonably anticipates incurring, in
connection with the default of any commonly controlled FDIC-insured depository
institution or any assistance provided by the FDIC to any such institution in
danger of default. Any obligation or liability owed by a subsidiary depository
institution to its parent company is subordinate to the subsidiary
institution's cross-guarantee liability. If any of the Corporation's subsidiary
banks were placed into conservatorship or receivership, because of the cross-
guarantee provisions, the Corporation would likely lose its investment in all
of its subsidiary banks.
The FDIC may provide federal assistance to a "troubled institution" without
placing the institution into conservatorship or receivership. In such case,
pre-existing debtholders and shareholders may be required to make substantial
concessions and the FDIC may succeed to some or all of their interests.
Federal Reserve Board policy requires bank holding companies to serve as a
source of financial strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to subsidiary banks
during periods of financial stress or adversity.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor to
any of the federal banking agencies to maintain the capital of an insured
depository institution, and any claim for a subsequent breach of such
obligation will generally have priority over most other unsecured claims. See
"Prompt Corrective Action" on page 7.
Regulatory Restrictions on Dividends
It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common stock only out of income available over the
past year and only if prospective earnings retention is consistent with the
organization's expected future needs. The policy further provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
subsidiary banks.
One of the principal sources of revenue for the Corporation is dividends
received from its subsidiary banks and other subsidiaries and interest earned
on short-term investments and advances to subsidiaries. Federal law restricts
the amount of dividends that SBC and SBM, the Corporation's principal
subsidiary banks, may lawfully pay. A national bank, such as SBC and SBM, may
not pay a dividend that would impair
5
<PAGE>
its capital. In addition, a dividend may not be paid if the total of all
dividends declared by a national bank in any calendar year is in excess of the
current year's net profits combined with the retained net profits of the two
preceding years (less any required transfers to surplus), unless the bank
obtains the approval of the OCC. A dividend also may not be paid in excess of a
bank's undivided profits then on hand, after deducting bad debts in excess of
the reserve for loan losses. Under the more restrictive of these limitations,
as of January 1, 1995, SBC could have declared dividends of approximately
$170.8 million, and SBM could have declared dividends of approximately $180.4
million.
The payment of dividends on common and preferred stock by a bank holding
company and its bank subsidiaries may also be limited by other factors,
including applicable regulatory capital requirements and broad enforcement
powers of the federal regulatory agencies.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized.
Transactions with Affiliates
The Corporation's subsidiary banks are subject to restrictions under federal
law which limit certain transactions by each of them with the Corporation and
its nonbanking subsidiaries, including loans, other extensions of credit,
investments or asset purchases. Such transactions by any subsidiary bank with
any one affiliate are limited in amount to 10 percent of such subsidiary bank's
capital and surplus and with all affiliates to 20 percent of such subsidiary
bank's capital and surplus. Furthermore, such loans and extensions of credit,
as well as certain other transactions, are required to be secured in accordance
with specific statutory requirements. Federal law also provides that these and
most other transactions with affiliates must be on terms and under
circumstances, including credit standards, that are substantially the same, or
at least as favorable to the institution as those prevailing at the time for
comparable transactions involving other non-qualified companies or, in the
absence of comparable transactions, on terms and under circumstances, including
credit standards, that in good faith would be offered to, or would apply to,
non-affiliated companies. The purchase of low quality assets from affiliates is
generally prohibited.
Capital Requirements
The Corporation and its subsidiary depository institutions are required to
maintain regulatory capital as follows: (i) Tier 1 capital of at least 4
percent of risk-weighted assets (including off-balance sheet items); (ii) Total
capital of at least 8 percent of risk-weighted assets; and (iii) Tier 1 capital
of at least 3 percent to 5 percent (depending on various criteria) of adjusted
total assets. The capital ratios for the Corporation and certain of its
subsidiary depository institutions are set forth under Note 18--"Regulatory
Matters" to the consolidated financial statements on page 77. Bank holding
companies, but not their subsidiary depository institutions, are permitted to
include cumulative perpetual preferred stock in Tier 1 capital, subject to a
limit of 25 percent of the sum of all Tier 1 capital elements including
cumulative perpetual preferred stock. Failure to meet applicable capital
requirements could subject a bank holding company or its subsidiary depository
institutions to various enforcement remedies, including substantial
restrictions on its operations and activities, dividend limitations, issuance
of a directive to increase capital and, for a depository institution,
termination of deposit insurance and the appointment of a conservator or
receiver.
The federal banking agencies have revised their Risk-based capital standards
to ensure that such standards take adequate account of concentration of credit
risk and the risks of nontraditional activities. Effective January 17, 1995,
institutions with high or moderate levels of risks are expected to operate
above minimum capital standards.
In November 1994, the federal banking agencies announced that they had
determined not to adopt a proposed rule to amend regulatory capital regulations
to incorporate the recent change in generally accepted accounting principles
made by Statement of Financial Accounting Standards No. 115 "Accounting for
6
<PAGE>
Certain Investments in Debt and Equity Securities" , which requires that
unrealized gains and losses, net of the related income tax effect, on
securities classified as available for sale be reported as a separate component
of stockholders' equity. Regulations implementing this decision have been
adopted.
On December 19, 1994 the Federal Reserve Board, and on January 31, 1995 the
FDIC, issued amendments to their capital adequacy guidelines to permit the
inclusion of certain deferred tax assets in Tier 1 capital for Risk-based and
Leverage capital purposes. The Federal Reserve and the OCC have also permitted
the recognition of certain bilateral netting contracts for Risk-based capital
purposes.
The OTS has issued a final rule to incorporate an interest rate risk
component into its Risk-based capital standards. The OCC, Federal Reserve Board
and FDIC are still considering rules relating to interest rate risk.
Prompt Corrective Action
FDICIA requires the federal banking regulators to take prompt supervisory and
regulatory actions against undercapitalized depository institutions. FDICIA
establishes five capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Under the regulations, a "well capitalized"
institution has a minimum total capital to total risk-weighted assets ratio of
at least 10 percent, a minimum Tier 1 capital to total risk-weighted assets
ratio of at least 6 percent, a minimum leverage ratio of at least 5 percent and
is not subject to any written order, agreement, or directive; an "adequately
capitalized" institution has a total capital to total risk-weighted assets
ratio of at least 8 percent, a Tier 1 capital to total risk-weighted assets
ratio of at least 4 percent, and a leverage ratio of at least 4 percent (3
percent if given the highest regulatory rating and not experiencing significant
growth), but does not qualify as "well capitalized." An "undercapitalized"
institution fails to meet one of the three minimum capital requirements. A
"significantly undercapitalized" institution has a total capital to total risk-
weighted assets ratio of less than 6 percent, a Tier 1 capital to total risk-
weighted assets ratio of less than 3 percent or a Tier 1 leverage ratio of less
than 3 percent. A "critically undercapitalized" institution has a ratio of
tangible equity to assets of 2 percent or less. Under certain circumstances, a
"well capitalized," "adequately capitalized" or "undercapitalized" institution
may be required to comply with supervisory actions as if the institution was in
the next lowest capital category.
A bank may not accept brokered deposits unless (i) it is well capitalized, or
(ii) it is adequately capitalized and receives a waiver from the FDIC to accept
brokered deposits paying an interest rate not in excess of 75 basis points over
certain prevailing market rates. FDIC regulations define brokered deposits to
include any deposit obtained, directly or indirectly, from any person engaged
in the business of placing deposits with, or selling interests in deposits of,
an insured depository institution, as well any deposit offered by such
institution bearing interest at a rate significantly higher (generally more
than 75 basis points) than the prevailing interest rate offered by depository
institutions having the same type of charter in such institution's normal
market area.
Undercapitalized depository institutions are subject to restrictions on
borrowing from the Federal Reserve System. In addition, undercapitalized
depository institutions are subject to growth and activity limitations and are
required to submit "acceptable" capital restoration plans. Such a plan will not
be accepted unless, among other things, the depository institution's holding
company guarantees the capital plan, up to an amount equal to the lesser of
five percent of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized and
may be placed into conservatorship or receivership.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, more stringent requirements to
reduce total assets, cessation of receipt of deposits from correspondent banks,
further activity
7
<PAGE>
restrictions, prohibitions on dividends to the holding company and requirements
that the holding company divest its bank subsidiary, in certain instances.
Subject to certain exceptions, critically undercapitalized depository
institutions must have a conservator or receiver appointed for them within a
certain period after becoming critically undercapitalized.
FDIC Insurance Assessments
The deposits of SBC, SBM, SBNH and SBFSB are federally insured by the FDIC
and are subject to FDIC deposit insurance assessments.
Substantially all of the deposits of SBC, SBM, and SBNH are insured by the
Bank Insurance Fund (the "BIF") of the FDIC. Deposits assumed by such banks
from thrift institutions are insured by the Savings Association Insurance Fund
(the "SAIF") of the FDIC. The deposits of SBFSB are insured by the SAIF. The
FDIC has the authority to raise or lower assessment rates on BIF- and SAIF-
insured deposits in order to achieve certain statutory mandated reserve ratios
in the respective funds. The range of deposit premium assessments is currently
the same for both BIF- and SAIF-insured deposits. However, because the reserve
ratio of the BIF is approaching the statutory requirement, the FDIC has
proposed reducing the assessment rates on BIF-insured deposits in future
assessment periods. The SAIF reserve ratio is not anticipated to reach the
required ratio for at least several years; and, accordingly, without
congressional action, SAIF insurance premium rates are not expected to be
reduced and could be increased if necessary to cover the possible shortfalls in
insurance premiums.
Interstate Banking and Branching
The recently enacted Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 will permit bank holding companies, with Federal Reserve Board
approval, to acquire banks located in states other than the holding company's
home state without regard to whether the transaction is prohibited under state
law, beginning September 29, 1995. In addition, commencing June 1, 1997,
national and state banks with different home states will be permitted to merge
across state lines, with approval of the appropriate federal banking agency,
unless the home state of a participating bank passes legislation prior to this
date expressly prohibiting interstate bank mergers.
Proposed Legislation
Various legislation, including proposals to overhaul the bank regulatory
system, expand bank and bank holding company powers and limit the investments
that a depository institution may make with insured funds, is from time to time
introduced in Congress. The Corporation cannot determine the ultimate effect
that potential legislation, if enacted, or implementing regulations, would have
upon its financial condition or results of operation.
OTS Regulation
SBFSB is subject to many of the same rules, regulations and restrictions
imposed on the Corporation's subsidiary banks, including capital requirements,
restrictions on transactions with the Corporation and its nonbank subsidiaries,
cross-guarantee liability, prompt corrective action and restrictions on
brokered deposits.
Every savings association subsidiary of a savings and loan holding company
must give the OTS at least 30 days' advance notice of any proposed dividend to
be made on its capital stock. OTS regulations limit certain "capital
distributions," including dividends, by OTS-regulated savings associations.
Such limitations generally depend upon the ability of the association to meet
specified regulatory capital requirements.
COMPETITION
The banking business in New England is highly competitive. All of the
Corporation's subsidiary banks and related financial services subsidiaries
compete actively with national and state banks, savings banks, savings and loan
associations, credit unions, finance companies, money market funds, mortgage
banks, insurance companies, investment banking firms, brokerage firms and other
nonbank institutions that provide one or more of the services offered by the
Corporation's subsidiaries.
8
<PAGE>
In addition to national and regional economic problems, the banking industry
is in a period of consolidation and regulatory reform that will affect banks
in all regions of the country.
The Corporation does not believe that there will be any material effect on
the capital expenditures, results of operations, financial condition or
competitive position of itself or any of its subsidiaries with regard to
compliance with federal, state or local requirements related to the general
protection of the environment.
EMPLOYEES
As of December 31, 1994, the Corporation and its subsidiaries employed 9,565
persons (full-time equivalent).
SUPPLEMENTARY INFORMATION
The following supplementary information, some of which is required under
Guide 3 (Statistical Disclosure by Bank Holding Companies), is found in this
report on the pages indicated below, and should be read in conjunction with
the related financial statements and notes thereto.
<TABLE>
<S> <C>
Selected Financial Data 20
Rate-Volume Analysis 23
Maturity of Securities 29
Securities 30
Credit Risk Management 35
Loan Portfolio 37
Nonaccruing Loans, Restructured Loans and Accruing Loans Past Due 90
Days or More 39
Reserve for Credit Losses 41
Credit Loss Experience 42
Foreclosed Properties 43
Maturity of Loans 84
Consolidated Short-term Borrowings 84
Domestic Time Deposits of $100 Thousand or More 85
Consolidated Average Balance Sheet, Net Interest Income and Interest
Rates 86
</TABLE>
ITEM 2. PROPERTIES.
The principal offices of the Corporation are located at 777 Main Street,
Hartford, Connecticut and One Federal Street, Boston, Massachusetts.
Properties and land owned and used by the Corporation and its subsidiaries
had a net book value at December 31, 1994 of $208.0 million. None of these
properties is subject to any material encumbrance.
The Corporation and its subsidiaries lease properties from other parties
and, during 1994, paid rentals of $49.5 million on these properties, net of
subleases of $1.4 million. See Note 5 (Premises and Equipment) to the
consolidated financial statements, which appears in Part II, Item 8, and on
page 60 of this report.
The premises occupied or leased by the Corporation and its subsidiaries are
considered to be well located and suitably equipped to serve as banking
facilities. Neither the location of any particular office nor the unexpired
term of any lease is deemed material to the business of the Corporation.
ITEM 3. LEGAL PROCEEDINGS.
SBC, 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
9
<PAGE>
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 and the
Corporation had executed the Merger Agreement, 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 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.
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.
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
All executive officers of the Corporation are appointed annually and serve at
the pleasure of the board of directors. The terms of any positions in a
subsidiary company extend until the next annual meeting of that company. The
names, positions, ages and backgrounds of the Corporation's executive officers
as of March 7, 1995, are set forth below.
JOEL B. ALVORD, 56, is chairman and chief executive officer of the
Corporation, chairman and a director of SBM and a director of SBC. He has
served as a director of the Corporation since 1987, and additionally as a
director of SBC since 1978, and SBM since 1988. Mr. Alvord began his 31-year
SBC tenure in 1963. He became an officer in 1965, a vice president in 1967, and
executive vice president in 1976. In January 1978, he was elected president and
director of both the bank and its parent holding company, HNC. From 1986 to
1988, he was president, chief executive officer, and director of HNC and
chairman, chief executive officer, and director of SBC. In February 1988, when
SC and HNC merged and became subsidiaries of Shawmut National Corporation, Mr.
Alvord was named president and chief executive officer of the new combined
corporation. In August 1988, he additionally assumed his current title of
chairman of the Corporation. In September 1994, Mr. Alvord was appointed
chairman of SBM. He is also a member of the community affairs, trust, and loan
and investment committees of SBC and SBM. Mr. Alvord is active in numerous
community, civic, and industry organizations. He is director of the Hartford
Steam Boiler Inspection and Insurance Company, and Jobs for Massachusetts. He
also serves as a trustee of the Wadsworth Atheneum, and is a member of the
Museum of Fine Arts (Boston), the Wang Center for Performing Arts, the
Massachusetts Business Roundtable, The Bankers Roundtable and the Boston
Symphony Orchestra. A native of Manchester, Connecticut, Mr. Alvord is a
graduate of Dartmouth College where he received his undergraduate degree and
earned a Master of Business Administration from the Amos Tuck School of
Business Administration in 1961. He is a member of the community affairs
committee of the Corporation.
GUNNAR S. OVERSTROM, JR., 52, is president and chief operating officer of the
Corporation, chairman, chief executive officer and a director of SBC and
president, chief executive officer and a director of SBM. He has served as a
director of the Corporation since 1987, SBC since 1986 and SBM since 1989. Mr.
Overstrom joined SBC in 1975 as vice president and was promoted to senior vice
president in 1977. In 1979 he was appointed SBC's executive vice president and
chief financial officer. That same year he was named chief financial officer of
HNC and became a director and its executive vice president in 1982. From
1986 to October 1992, Mr. Overstrom served as president of SBC. In 1988, he
also served as chief executive officer of SBC; and in October 1992, he became
chairman of SBC and chief executive officer of SBM. From October 1992 to
September 1994, Mr. Overstrom also served as chairman of SBM. In February 1988,
when SC and HNC merged and became subsidaries of Shawmut National Corporation,
he was appointed vice chairman and chief financial officer of the Corporation,
responsible for Connecticut operations. In August 1988, he assumed his current
title of president and chief operating officer of the Corporation. Mr.
Overstrom is also a member of the community affairs, trust, and loan and
investment committees of SBC and SBM. An active supporter of numerous
organizations, Mr. Overstrom is a corporator of Hartford Hospital, Saint
Francis Hospital, Mount Sinai Hospital and the Institute of Living. He is a
trustee of Babson College and of the Museum of Science, a director of
Connecticut Health Systems, Inc., president of the Old State House in Hartford,
and a member of the Emerging Issues Committee of The Bankers Roundtable. He is
also a member of Boston's Private Industry Council and serves on its Corporate
Diversity Committee. Mr. Overstrom received his undergraduate degree from
Babson College, a law degree from Suffolk University, and a master's degree in
economics from Trinity College.
DAVID L. EYLES, 55, is a vice chairman and chief credit policy officer of the
Corporation, and a vice chairman and a director of SBC and SBM. Mr. Eyles
joined the Corporation in February 1992, following three months of working with
the Corporation as a consultant. Between 1988 and late 1991, he was vice
chairman and chairman of the credit policy committee at Mellon Bank
Corporation/Mellon Bank, N.A. He
served in a variety of executive management positions during his 27-year tenure
at Chemical Bank, the most recent being executive vice president, chief credit
officer and chairman of the credit policy committee.
11
<PAGE>
EILEEN S. KRAUS, 56, is a vice chairman of the Corporation, president and a
director of SBC, and a vice chairman and a director of SBM. Mrs. Kraus joined
SBC in 1979 as vice president of human resources planning and development, and
was appointed senior vice president in 1980. In 1986, Mrs. Kraus was appointed
to the position of executive vice president of SBC, responsible for consumer
banking. From 1988 to 1994 she was responsible for marketing for the
Corporation, and from 1988 to 1995 she was responsible for consumer banking for
the Corporation. In June 1990, Mrs. Kraus became vice chairman of SBC, and in
January 1991, she became vice chairman of SBM. From January 1991 to May 1993,
she was responsible for personal trust. In January 1995, Mrs. Kraus assumed
responsibility for the expansion and integration activities of merged
institutions and for the not-for-profit business activity. Mrs. Kraus was
appointed president of SBC in October 1992, and a vice chairman of the
Corporation in January 1993. Mrs. Kraus has served as a director of SBC since
June 1990, and as a director of SBM since May 1992.
SUSAN E. LESTER, 38, is an executive vice president and chief financial
officer of the Corporation, SBC and SBM. Ms. Lester joined the Corporation in
May 1994 from First Bank System, Inc. in Minneapolis, Minnesota where she was
executive vice president and controller from 1989 to 1994, and vice president
of accounting and tax from 1988 to 1989.
J. MICHAEL SHEPHERD, 39, is an executive vice president, general counsel and
secretary of the Corporation, and an executive vice president of SBC and SBM.
Prior to joining the Corporation in November 1993, Mr. Shepherd held a variety
of positions, including special counsel to the law firm of Sullivan & Cromwell
from 1991 to 1993, senior deputy comptroller of the Currency from 1987 to 1991,
and associate counsel to the President of the United States from 1986 to 1987.
ALAN R. BUFFINGTON, 49, is an executive vice president and head of the
corporate services group of SBC and SBM. Mr. Buffington joined SBC and SBM in
August 1993 from CIGNA Corporation, where he was senior vice president and head
of systems for the employee benefits group from 1990 to 1993. He joined CIGNA
when it acquired Equicor--Equitable HCA Corporation in 1990, where he was head
of technology and administration from 1986 to 1990.
ROBERT B. HEDGES, 36, is an executive vice president and head of the consumer
banking group of SBC and SBM. Mr. Hedges joined SBC and SBM in June 1993 from
First Manhattan Consulting Group, where he was vice president, specializing in
developing business and marketing strategies for banks' consumer, small
business, and credit card businesses from 1992 to 1993. From 1983 to 1992, Mr.
Hedges was vice president and banking practice leader of The MAC Group, New
York, a consulting firm specializing in management consulting. Mr. Hedges also
managed the firm's Chicago office.
JOHN O. HUSTON, 49, is an executive vice president and head of the commercial
markets group of SBC and SBM. Mr. Huston joined SBC and SBM in June 1993 as
chief credit officer of SBC and SBM. From 1991 to 1993, Mr. Huston held FDIC-
appointed positions, including president and chief executive officer of The
Missouri Bridge Bank, Kansas City, Missouri, and chairman, president and chief
executive officer of The Merchants Bank of Kansas City, Kansas City, Missouri.
Mr. Huston was responsible for the integration of the failed banks and their
ultimate sale to Boatman's Bancshares. These positions were preceded by 18
years with Mellon Bank where he held a variety of management positions
including senior credit officer in the credit policy department and senior vice
president and manager of the media/western energy group.
NIELS C. JENSEN, 48, is an executive vice president and head of the financial
institutions business line of SBC and SBM. Mr. Jensen joined SBC and SBM in
October 1993. From 1992 to 1993 he was senior vice president of corporate
financial services at Northern Trust Company. He served in a variety of
management positions during his 22-year tenure at Northern Trust Company,
including overall management of the bank's corporate cash management and
correspondent services, and head of commercial banking operations and systems
development.
12
<PAGE>
MICHAEL J. ROTHMEIER, 45, is an executive vice president and head of the
investment services business line of SBC and SBM. Prior to joining SBC and SBM
in August 1992, Mr. Rothmeier was a member of the office of the president and
was responsible for the financial, human resources, strategic planning,
business implementation, systems technology and administrative functions of
retail telephone operations of Fidelity Investments Inc. from 1991 to 1992.
During 1990 and 1991, he was president and chief executive officer of Fidelity
Retail Distribution Company and Fidelity Brokerage Services, Inc., and
president of Fidelity Retail Marketing Services from 1989 to 1990.
None of the named executive officers has been employed by the Corporation or
one of its subsidiaries during all of the past five years, except for Messrs.
Alvord and Overstrom, and Mrs. Kraus. There are no arrangements or
understandings pursuant to which any of the above named executive officers were
selected to serve in their respective capacities and no family relationships
exist among any of them.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Corporation's common stock is listed and traded principally on the New
York Stock Exchange under the symbol "SNC." Information concerning the range of
high and low sales prices for the Corporation's common stock, and the dividends
declared, for each quarterly period within the past two fiscal years is set
forth below.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
------------- ------ ------ ---------
<S> <C> <C> <C>
1994
March 31........................................... $24.00 $19.75 $.20
June 30............................................ 25.75 19.25 .20
September 30....................................... 23.13 20.25 .20
December 31........................................ 21.13 16.38 .22
1993
March 31........................................... $23.88 $17.88 $.10
June 30............................................ 25.13 19.50 .10
September 30....................................... 26.38 22.50 .10
December 31........................................ 25.13 19.38 .20
</TABLE>
As of March 7, 1995 the closing price of the Corporation's common stock on
the New York Stock Exchange was $25.63 per share. As of that date, there were
approximately 30,259 record holders of the Corporation's common stock.
For a discussion of dividend restrictions on the Corporation's common stock,
see Note 10 (Shareholders' Equity) and Note 18 (Regulatory Matters) to the
consolidated financial statements on pages 63 and 77 of this report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item appears on page 20, under the caption
"SELECTED FINANCIAL DATA," and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information required by this item appears on pages 18 through 45, under
the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS," and is incorporated herein
by reference.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears on pages 46 through 83, and on
page 85 under the caption "QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)," and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item, to the extent not included under the
caption "Executive officers of the Registrant" in Part I of this report, or
below, will appear under the caption "Election of Directors" in the
Corporation's definitive proxy statement for the 1995 annual meeting of
shareholders (the "1995 Proxy Statement"), and such information either shall be
(i) deemed to be incorporated herein by reference to that portion of the 1995
Proxy Statement, if filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of the Corporation's
most recently completed fiscal year, or (ii) included in an amendment to this
report filed with the Commission on Form 10-K/A.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will appear under the captions
"Executive Compensation" and "Transactions with directors and executive
officers" in the 1995 Proxy Statement, and such information either shall be (i)
deemed to be incorporated herein by reference to those portions of the 1995
Proxy Statement, if filed with the Securities and Exchange Commission pursuant
to Regulation 14A not later than 120 days after the end of the Corportion's
most recently completed fiscal year, or (ii) included in an amendment to this
report filed with the Commission on Form 10-K/A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will appear under the caption "Common
stock ownership" in the 1995 Proxy Statement, and such information either shall
be (i) deemed to be incorporated herein by reference to that portion of the
1995 Proxy Statement, if filed with the Securities and Exchange Commission
pursuant to Regulation 14A not later than 120 days after the end of the
Corporation's most recently completed fiscal year, or (ii) included in an
amendment to this report filed with the Commission on Form 10-K/A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will appear under the caption
"Transaction with directors and executive officers" in the 1995 Proxy
Statement, and such information either shall be (i) deemed to be incorporated
herein by reference to that portion of the 1995 Proxy Statement, if filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the Corporation's most recently completed fiscal
year, or (ii) included in an amendment to this report filed with the Commission
on Form 10-K/A. Also see Note 4 (Loans and Reserve for Credit Losses) to the
consolidated financial statements on page 58 of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are part of this report and appear on the pages
indicated.
(1) Financial Statements:
14
<PAGE>
Consolidated Statement of Income 46
Consolidated Balance Sheet 47
Consolidated Statement of Changes in Shareholders' Equity 48
Consolidated Statement of Cash Flows 49
Notes to Consolidated Financial Statements 50
Management's Report 82
Report of Independent Accountants 83
(2) Financial Statement Schedules:
Schedules are omitted because the information is either not required,
not applicable or is included in Part II, Items 6-8 of this report.
(3) Exhibits:
The exhibits listed on the Exhibit Index on page 91 of this report are
filed herewith or are incorporated herein by reference.
(b) Reports on Form 8-K. The Corporation filed one report on Form 8-K during
the quarter ended December 31, 1994.
The report dated December 29, 1994 (Item 7), filed:
(1) Restated Certificate of Incorporation of Shawmut National
Corporation;
(2) Certificate of Amendment to the Restated Certificate of
Incorporation of Shawmut National Corporation;
(3) Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of Shawmut National
Corporation;
(4) Certificate of Designation of 9.30% Cumulative Preferred Stock of
Shawmut National Corporation;
(5) Amended Certificate of Designation of 9.30% Cumulative Preferred
Stock of Shawmut National Corporation; and
(6) Certificate of Correction Filed to Correct a Certain Error in the
Certificate of Designation of 9.30% Cumulative Preferred Stock of
Shawmut National Corporation.
(c) The exhibits listed on the Exhibit Index on page 91 of this report are
filed herewith or are incorporated herein by reference.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
No. 33-20387 (filed March 1, 1988) and 33-17765-02 (filed September 27, 1988).
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 17, 1995.
Shawmut National Corporation
/s/ Joel B. Alvord
By___________________________________
Joel B. Alvord Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 17, 1995.
/s/ Joel B. Alvord
_____________________________________ /s/ Lois D. Rice
JOEL B. ALVORD _____________________________________
CHAIRMAN, CHIEF EXECUTIVE OFFICER LOIS D. RICE
AND DIRECTOR DIRECTOR
/s/ Gunnar S. Overstrom, Jr. /s/ Maurice Segall
_____________________________________ _____________________________________
GUNNAR S. OVERSTROM, JR. MAURICE SEGALL
PRESIDENT, CHIEF OPERATING OFFICER DIRECTOR
AND DIRECTOR
/s/ Samuel O. Thier
/s/ Stillman B. Brown _____________________________________
_____________________________________ SAMUEL O. THIER
STILLMAN B. BROWN DIRECTOR
DIRECTOR
/s/ Paul R. Tregurtha
/s/ John T. Collins _____________________________________
_____________________________________ PAUL R. TREGURTHA
JOHN T. COLLINS DIRECTOR
DIRECTOR
/s/ Wilson Wilde
/s/ Ferdinand Colloredo-Mansfeld _____________________________________
_____________________________________ WILSON WILDE
FERDINAND COLLOREDO-MANSFELD DIRECTOR
DIRECTOR
/s/ Susan E. Lester
/s/ Bernard M. Fox _____________________________________
_____________________________________ SUSAN E. LESTER
BERNARD M. FOX CHIEF FINANCIAL OFFICER
DIRECTOR (PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
/s/ Robert J. Matura
_____________________________________
ROBERT J. MATURA
DIRECTOR
16
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview................................................................ 18
Selected Financial Data................................................. 20
Consolidated Statement of Income Analysis............................... 21
Consolidated Balance Sheet Analysis..................................... 29
Credit Risk Management.................................................. 35
Fourth Quarter Summary.................................................. 44
FINANCIAL STATEMENTS
Consolidated Statement of Income........................................ 46
Consolidated Balance Sheet.............................................. 47
Consolidated Statement of Changes in Shareholders' Equity............... 48
Consolidated Statement of Cash Flows.................................... 49
Notes to Consolidated Financial Statements.............................. 50
Management's Report..................................................... 82
Report of Independent Accountants....................................... 83
SUPPLEMENTARY INFORMATION
Maturity of Loans....................................................... 84
Consolidated Short-term Borrowings...................................... 84
Quarterly Consolidated Financial Information............................ 85
Domestic Time Deposits of $100 Thousand or More......................... 85
Consolidated Average Balance Sheet, Net Interest Income and Interest
Rates.................................................................. 86
Financial Glossary...................................................... 88
</TABLE>
17
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Shawmut National Corporation (the "Corporation") reported net income of
$237.4 million, or $1.87 per common share, for the year ended December 31,
1994, compared with income before cumulative effect of accounting changes of
$282.8 million, or $2.35 per common share for 1993. Net income for 1993 was
$329.0 million, or $2.75 per common share. Income before extraordinary credit
for 1992 was $67.7 million, or $.60 per common share. Net income for 1992 was
$86.1 million, or $.78 per common share.
Net income for 1994 included merger and restructuring charges of $140.7
million ($99.8 million after tax, or $.84 per common share) related to the
costs to integrate the acquisition of Peoples Bancorp of Worcester, Inc.
("Peoples"), New Dartmouth Bank ("New Dartmouth") and Gateway Financial
Corporation ("Gateway") which were completed during 1994 and the expansion of a
cost management program.
Net income for 1993 included restructuring charges totaling $36.3 million
primarily related to branch closings and personnel reductions, a $20.0 million
provision for foreclosed properties related to the bulk sale of real estate
loans, a $14.1 million write down in the value of excess servicing rights in
various securitized consumer loan portfolios and fair lending related charges
of $3.5 million. Also reflected in net income for 1993 were income tax benefits
of $140.7 million, which included $52.8 million related to adopting a new
accounting standard for income taxes, and an after-tax charge of $6.6 million
relating to the adoption of a new accounting standard for postemployment
benefits.
Net income for 1992 included an extraordinary credit of $18.4 million that
represented the realization of net operating loss carryforwards. In addition,
the results for 1992 included gains of $22.3 million from the sale of
automobile and home equity loan pass-through certificates.
Excluding merger and restructuring charges, 1994 net income would have been
$337.2 million, or $2.70 per common share, an increase of $94.2 million, or 39
percent, compared with 1993 net income of $243.0 million, or $2.00 per common
share, before the other items discussed above.
Net interest income on a taxable-equivalent basis for 1994 decreased $6.1
million, or 1 percent, to $1,078.9 million from $1,085.0 million in the prior
year. Net interest margin on a taxable-equivalent basis declined to 3.78
percent from 4.03 percent in the prior year. Net interest income declined as a
result of rising interest rates, increasing the Corporation's cost of funds and
more than offsetting the increase in average interest-earning assets of $1.7
billion, or 6 percent, from the prior year.
The provision for credit losses was $3.0 million in 1994, compared with
provisions of $55.9 million in 1993 and $242.1 million in 1992. The reduction
in provision was due to improving credit quality over this period. The reserve
for credit losses was $542.1 million at December 31, 1994, compared with $669.2
million at December 31, 1993. The ratio of the reserve for credit losses to
nonaccruing loans was 242 percent at December 31, 1994, compared with 179
percent at December 31, 1993.
Nonaccruing loans plus foreclosed properties at December 31, 1994 totaled
$242.8 million, down $194.6 million, or 44 percent, from $437.4 million at
December 31, 1993. The ratio of nonaccruing loans plus foreclosed properties to
loans plus foreclosed properties declined to 1.31 percent at December 31, 1994
from 2.48 percent at December 31, 1993.
18
<PAGE>
Noninterest income, excluding securities gains and losses, was $378.5 million
in 1994, compared with $398.3 million in 1993, a decrease of $19.8 million, or
5 percent. Comparable noninterest income before other gains was $406.4 million
in 1992. The decrease in 1994 reflects lower levels of gains from the sale of
residential mortgage loans and the expiration of regulatory assistance on
certain acquired loans.
Total noninterest expenses in 1994, before the special charges discussed
above and foreclosed properties provision, were $926.7 million, compared with
$1,020.7 million in 1993, a decrease of $94.0 million, or 9 percent. The
efficiency ratio, a measure of operating expenses before special charges to net
revenue, improved to 63.6 percent in 1994 from 67.8 percent in 1993. The
efficiency ratio for the fourth quarter of 1994 was 60.5 percent.
Return on average common equity decreased from 18.90 percent in 1993 to 11.22
percent in 1994 and return on average assets decreased from 1.12 percent to .76
percent over the same period. Excluding merger, restructuring and other charges
and the effect of accounting changes, return on average common equity increased
from 13.71 percent in 1993 to 16.27 percent in 1994 and return on average
assets increased from .83 percent to 1.08 percent for the same period.
The Corporation's common stock closed at $16.375 per share on December 31,
1994, representing 98 percent of the $16.72 book value per common share,
compared with a closing price of $21.75 per share and 134 percent of the $16.25
book value per common share a year ago.
Results for all periods presented have been restated to reflect the
acquisition of Peoples, New Dartmouth and Gateway which were completed in the
second quarter of 1994 and accounted for as poolings of interests. Results for
1994 also include the purchase of: ten branches from Northeast Savings, F.A.,
which had deposits of approximately $427 million, on June 11, 1994; $25 million
in deposits of a failed thrift institution from the Resolution Trust Company on
July 18, 1994 (renamed Shawmut Bank, FSB); Cohasset Savings Bank and West
Newton Savings Bank, with assets of approximately $78 million and $254 million,
respectively, on September 30, 1994; and the processing services division of
Poorman-Douglas, a bankruptcy claims processing company, which was completed on
October 3, 1994.
The Corporation announced in June 1994 the signing of a definitive agreement
to acquire Northeast Federal Corp. of Hartford, Connecticut, with assets of
$3.3 billion at December 31, 1994. The Corporation also announced in November
1994 the signing of a definitive agreement with Barclays Bank PLC and Barclays
Business Credit, Inc. whereby the Corporation agreed to purchase substantially
all of the net assets of the Business Finance Division ("Barclays Finance") of
Barclays Business Credit, Inc. The purchase of Barclays Finance, with net
assets of $2.3 billion at December 31, 1994, was completed on January 31, 1995.
On February 20, 1995, the Corporation and Fleet Financial Group, Inc.
("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 $1.00 par value
Fleet common stock. 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 expected to be completed in the
fourth quarter of 1995, and is subject to the approval of the common stock
shareholders of Fleet and the Corporation, 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 merger and acquisitions, see
Note 2 of Notes to Consolidated Financial Statements on page 53.
19
<PAGE>
TABLE 1--SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- ------- ------- -------
YEAR ENDED DECEMBER 31, (IN MILLIONS,
EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income........... $1,067.5 $1,071.6 $ 982.5 $ 816.2 $ 817.8
Provision for credit losses... 3.0 55.9 242.1 486.4 474.0
-------- -------- ------- ------- -------
Net interest income after
provision for credit losses.. 1,064.5 1,015.7 740.4 329.8 343.8
Securities gains, net......... 12.5 94.1 80.1 23.4
Noninterest income............ 378.5 398.3 428.7 465.0 449.8
Noninterest expenses
(excluding merger and
restructuring charges)....... 930.7 1,100.8 1,154.6 1,044.1 972.7
Merger related charges........ 100.9
Restructuring related charges. 39.8 36.3
-------- -------- ------- ------- -------
Income (loss) before income
taxes, extraordinary credit
and accounting changes....... 371.6 289.4 108.6 (169.2) (155.7)
Income taxes.................. 134.2 6.6 40.9 4.1 .5
-------- -------- ------- ------- -------
Income (loss) before
extraordinary credit and
accounting changes........... 237.4 282.8 67.7 (173.3) (156.2)
Extraordinary credit.......... 18.4
Cumulative effect of
accounting changes........... 46.2
-------- -------- ------- ------- -------
Net income (loss)............. $ 237.4 $ 329.0 $ 86.1 $(173.3) $(156.2)
======== ======== ======= ======= =======
Net income (loss) applicable
to common shares............. $ 221.9 $ 313.6 $ 81.3 $(175.6) $(158.6)
======== ======== ======= ======= =======
COMMON SHARE DATA
Income (loss) before
extraordinary credit and
accounting changes........... $ 1.87 $ 2.35 $ .60 $ (2.04) $ (1.89)
Net income (loss)............. 1.87 2.75 .78 (2.04) (1.89)
Dividends declared............ .82 .50 .75
Book value.................... 16.72 16.25 13.69 13.22 15.65
Average shares................ 119.0 113.9 104.4 85.9 84.1
END OF PERIOD BALANCES
Loans......................... $ 18,487 $ 17,598 $17,351 $17,292 $16,832
Reserve for credit losses..... 542 669 908 1,044 971
Interest-earning assets....... 29,328 28,516 25,949 23,784 22,518
Nonaccruing loans............. 224 373 758 1,177 1,553
Total assets.................. 32,399 31,103 29,256 26,878 25,832
Notes and debentures.......... 2,022 759 810 665 679
Shareholders' equity.......... 2,197 2,102 1,732 1,269 1,355
RATIOS
Return on average assets:
Before merger, restructuring
and other charges and
the effect of accounting
changes...................... 1.08% .83% .26% (.66)% (.57)%
Based on net income (loss).... .76 1.12 .33 (.66) (.57)
Return on average common
equity:
Before merger, restructuring
and other charges and
the effect of accounting
changes...................... 16.27 13.71 4.44 (13.93) (10.32)
Based on net income (loss)
applicable to common shares.. 11.22 18.90 5.73 (13.93) (10.32)
Efficiency.................... 63.59 67.85 71.09 73.79 72.92
Net charge-offs to average
loans outstanding............ .76 1.72 2.30 2.54 1.41
Nonaccruing loans to loans.... 1.21 2.12 4.37 6.80 9.23
Nonaccruing loans plus
foreclosed properties to
loans
plus foreclosed properties... 1.31 2.48 5.81 8.83 10.60
Reserve for credit losses to
nonaccruing loans............ 242.00 179.00 120.00 89.00 63.00
Average shareholders' equity
to average assets............ 6.90 6.34 5.69 5.05 5.69
Dividends declared on common
stock to net income
applicable to common stock... 42.63 16.46
</TABLE>
Amounts previously reported have been restated on a pooling of interests
basis to reflect the acquisition of Peoples Bancorp of Worcester, Inc., New
Dartmouth Bank and Gateway Financial Corporation.
20
<PAGE>
BANKING ACTIVITIES
The Corporation's banking activities primarily include consumer banking,
commercial banking, financial institutions and investment services. Consumer
banking consists of banking services for consumers and small businesses and
includes such products as installment and residential mortgage loans.
Commercial banking consists of various banking services to middle-market and
large corporate customers and includes such products as commercial and real
estate loans and cash management services. Financial institutions includes
loans to enterprises such as insurance companies and correspondent banks, as
well as municipal and governmental entities. Investment services activities
include trust and advisory services to personal, corporate and institutional
clients. Revenues from these banking activities consist primarily of interest
income on loans and fees for services. Refer to "Business Line Results" on page
27 for a discussion of the operating results of these business lines.
CONSOLIDATED STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $1,078.9 million in
1994, compared with $1,085.0 million in 1993 and $997.8 million in 1992. The
decrease in taxable-equivalent net interest income in 1994 reflects higher
levels of average interest-earning assets, primarily securities and loans,
offset by an increase in the Corporation's cost of funds, which outpaced the
repricing of interest-earning assets. Average loans increased $520.8 million to
$17.7 billion in 1994 from $17.1 billion in 1993. Growth in the Corporation's
commercial loan portfolio contributed approximately $285 million of this
increase, while consumer lending, which includes residential mortgage, home
equity and installment loans, grew by approximately $561 million. Offsetting
these increases were declines in owner-occupied and investor/developer
commercial real estate loans of approximately $325 million. Average securities
increased $1.3 billion to $10.3 billion in 1994 compared with $8.9 billion in
1993. The growth in the securities portfolio reflects the strategy of
maintaining balance sheet leverage while the loan portfolio composition has
been selectively adjusted toward higher-yielding lending products. This
adjustment of the loan portfolio included the deliberate reduction of
approximately $1.2 billion in money market priced commercial loans with narrow
profit margins since December 31, 1993. The improvement in taxable-equivalent
net interest income from 1992 to 1993 reflected higher levels of interest-
earning assets, primarily securities, as well as lower funding costs given the
lower interest rate environment during 1993. An analysis of net interest income
is presented in Table 2.
The net interest margin, on a taxable-equivalent basis, was 3.78 percent in
1994, a decrease of 25 basis points from 4.03 percent in 1993 and 37 basis
points from 4.15 percent in 1992. The decline in net interest margin in 1994
reflects the Corporation's interest-bearing liabilities repricing faster than
its interest-earning assets as interest rates have risen during this period.
The Corporation utilizes short-term borrowings as a source of funding for a
portion of its interest-earning assets, including federal funds purchased and
securities sold under agreements to repurchase. The average interest rate paid
on securities sold under agreements to repurchase increased from 3.06 percent
in 1993 to 4.11 percent in 1994, or an increase of 105 basis points. Also, the
average interest rate paid on federal funds purchased increased to 4.21 percent
in 1994 from 3.09 percent in 1993, or an increase of 112 basis points. The
decline in net interest margin from 1992 to 1993 reflected a shift in the mix
of average interest-earning assets from loans to securities. If further
increases in interest rates occur, then the resultant contraction of the spread
between the Corporation's interest-earning assets and funding sources would
reduce the net interest margin. A discussion on interest rate risk appears on
page 31. An analysis of net interest margin and changes in rate and volume is
presented in Table 3 and Table 4, respectively.
21
<PAGE>
TABLE 2--ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
(tax-equivalent basis)
Loans........................ $1,316.6 $1,247.9 $1,308.3 $1,478.2 $1,891.2
Securities
Available for sale, at fair
value..................... 151.6
At lower of aggregate cost
or fair value............. 238.2 239.9 29.5 51.0
Held to maturity........... 443.9 309.7 272.3 479.4 394.0
Residential mortgages held
for sale.................... 14.8 29.6 27.3 19.2 22.4
Short-term investments....... 21.3 13.4 21.6 41.7 151.5
Trading account securities... 1.1 1.6 2.4 2.8 4.8
-------- -------- -------- -------- --------
Total interest income.... 1,949.3 1,840.4 1,871.8 2,050.8 2,514.9
-------- -------- -------- -------- --------
INTEREST EXPENSE
Savings, money market and NOW
accounts.................... 163.3 183.3 272.7 403.1 498.3
Time certificates of deposit
of $100 thousand
or more..................... 45.7 25.7 45.4 103.7 152.3
Domestic time deposits....... 180.7 206.8 301.9 422.9 553.6
Foreign time deposits........ 16.6 5.2 2.5 4.0 20.0
-------- -------- -------- -------- --------
Total interest on deposits. 406.3 421.0 622.5 933.7 1,224.2
Other borrowings............. 368.4 262.4 192.2 217.7 370.0
Notes and debentures......... 95.7 72.0 59.3 60.5 63.1
-------- -------- -------- -------- --------
Total interest expense... 870.4 755.4 874.0 1,211.9 1,657.3
-------- -------- -------- -------- --------
NET INTEREST INCOME (tax-
equivalent basis)........... 1,078.9 1,085.0 997.8 838.9 857.6
Tax-equivalent adjustment.... 11.4 13.4 15.3 22.7 39.8
-------- -------- -------- -------- --------
NET INTEREST INCOME.......... $1,067.5 $1,071.6 $ 982.5 $ 816.2 $ 817.8
======== ======== ======== ======== ========
INTEREST RATE SPREAD
(tax-equivalent basis)...... 3.21% 3.51% 3.54% 2.93% 2.43%
======== ======== ======== ======== ========
NET INTEREST MARGIN (tax-
equivalent basis)........... 3.78% 4.03% 4.15% 3.71% 3.42%
======== ======== ======== ======== ========
TABLE 3--ANALYSIS OF NET INTEREST MARGIN
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net interest income (tax-
equivalent basis)........... $1,078.9 $1,085.0 $ 997.8 $ 838.9 $ 857.6
======== ======== ======== ======== ========
Average interest-earning
assets supported by:
Interest-bearing
liabilities............... $ 24,191 $ 22,749 $ 20,564 $ 20,782 $ 21,827
Noninterest-bearing
liabilities............... 4,422 4,200 3,468 3,079 3,273
-------- -------- -------- -------- --------
Total average interest-
earning assets.............. $ 28,613 $ 26,949 $ 24,032 $ 23,861 $ 25,100
======== ======== ======== ======== ========
Average yields and average
rates
(tax-equivalent basis):
Interest-earning assets
yield..................... 6.81% 6.83% 7.79% 9.05% 10.02%
Rate paid on interest-
bearing liabilities....... 3.60 3.32 4.25 6.12 7.59
-------- -------- -------- -------- --------
Interest rate spread......... 3.21% 3.51% 3.54% 2.93% 2.43%
-------- -------- -------- -------- --------
Net interest margin.......... 3.78% 4.03% 4.15% 3.71% 3.42%
======== ======== ======== ======== ========
</TABLE>
22
<PAGE>
TABLE 4--RATE-VOLUME ANALYSIS
The following table, which is presented on a tax-equivalent basis, reflects
the changes in net interest income stemming from changes in interest rates and
from asset and liability volume, including mix. The change in interest
attributable to both rate and volume has been allocated to the changes in the
rate and volume on a pro rata basis.
<TABLE>
<CAPTION>
1994 CHANGES DUE TO 1993 CHANGES DUE TO
INCREASE --------------- INCREASE ---------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ------ ------- ---------- ------- ------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND
INCOME CHANGE
Loans................... $ 68.7 $ 30.3 $ 38.4 $(60.4) $(116.4) $ 56.0
Securities
Available for sale, at
fair value........... 151.6 151.6
At lower of aggregate
cost or fair value... (238.2) (238.2) (1.7) (51.5) 49.8
Held to maturity...... 134.2 (16.8) 151.0 37.4 (64.4) 101.8
Residential mortgages
held for sale.......... (14.8) .8 (15.6) 2.3 (2.2) 4.5
Short-term investments.. 7.9 7.2 .7 (8.2) (3.0) (5.2)
Trading account
securities............. (.5) .1 (.6) (.8) (1.1) .3
------- ------ ------- ------ ------- ------
Total interest
income change...... 108.9 21.6 87.3 31.4 (238.6) 207.2
------- ------ ------- ------ ------- ------
INTEREST EXPENSE CHANGE
Savings, money market
and NOW accounts....... (20.0) (15.4) (4.6) (89.4) (100.8) 11.4
Time certificates of
deposit of $100
thousand
or more................ 20.0 6.9 13.1 (19.7) (9.1) (10.6)
Domestic time deposits.. (26.1) (12.6) (13.5) (95.1) (41.0) (54.1)
Foreign time deposits... 11.4 3.5 7.9 2.7 (.2) 2.9
------- ------ ------- ------ ------- ------
Total interest on
deposits change...... (14.7) (17.6) 2.9 (201.5) (151.1) (50.4)
Other borrowings........ 106.0 65.2 40.8 70.2 (38.5) 108.7
Notes and debentures.... 23.7 (13.6) 37.3 12.7 (2.1) 14.8
------- ------ ------- ------ ------- ------
Total interest
expense change..... 115.0 34.0 81.0 (118.6) (191.7) 73.1
------- ------ ------- ------ ------- ------
NET INTEREST INCOME
CHANGE................. $ (6.1) $(12.4) $ 6.3 $ 87.2 $ (46.9) $134.1
======= ====== ======= ====== ======= ======
</TABLE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $3.0 million in 1994 (which reflects the
provisions made by acquired institutions), down $52.9 million from the
provision of $55.9 million in 1993 and down $239.1 million from the provision
of $242.1 million in 1992. The decrease in provision is directly related to
improving credit quality over this time period. With continuing increases in
reserve coverage of nonaccruing loans and improving credit quality in the loan
portfolio, the Corporation does not currently anticipate that provisions for
credit losses will be necessary in the first half and possibly all of 1995.
Future levels of the reserve for credit losses and provisions for credit losses
may by affected by changes in economic conditions and loan quality. Refer to
"Reserve for Credit Losses" on page 41 for a discussion of the Corporation's
reserve for credit losses.
23
<PAGE>
TABLE 5--NONINTEREST INCOME
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
YEAR ENDED DECEMBER 31, (IN
MILLIONS)
<S> <C> <C> <C> <C> <C>
Customer service fees:
Deposit transaction and other services..... $ 97.7 $ 91.5 $ 81.5 $ 86.5 $ 75.3
Cash management services................... 64.6 74.6 89.5 82.5 63.6
Credit and trade related services.......... 21.6 8.8 8.9 7.2 11.6
Investment services and commissions........ 11.9 11.6 7.6 7.1 7.2
------ ------ ------ ------ ------
Total.................................... 195.8 186.5 187.5 183.3 157.7
------ ------ ------ ------ ------
Trust and agency fees:
Personal................................... 73.1 72.7 72.0 70.7 68.9
Institutional.............................. 18.7 19.0 18.6 19.4 17.8
Corporate.................................. 17.0 15.8 14.9 13.0 12.4
Not-for-profit............................. 8.7 9.3 9.6 8.9 7.4
------ ------ ------ ------ ------
Total.................................... 117.5 116.8 115.1 112.0 106.5
------ ------ ------ ------ ------
Other income:
Loan servicing............................. 32.2 16.0 20.2 33.3 23.7
Foreign exchange trading................... 1.0 3.0 9.3 5.6 7.4
Residential mortgage sales................. 1.9 26.9 10.0 2.3 28.6
Trading account profits.................... 4.5 6.4 6.6 7.1 6.4
FDIC assistance............................ 13.8 5.0
Other...................................... 25.6 28.9 52.7 44.9 40.4
------ ------ ------ ------ ------
Total.................................... 65.2 95.0 103.8 93.2 106.5
------ ------ ------ ------ ------
Subtotal................................ 378.5 398.3 406.4 388.5 370.7
Loan securitizations and sales............... 22.3 32.4
Other gains.................................. 76.5 46.7
Securities gains, net........................ 12.5 94.1 80.1 23.4
------ ------ ------ ------ ------
Total noninterest income................. $378.5 $410.8 $522.8 $545.1 $473.2
====== ====== ====== ====== ======
</TABLE>
Noninterest income, excluding securities gains and losses, was $378.5 million
in 1994, compared with $398.3 million in 1993, a decrease of $19.8 million, or
5 percent. Comparable noninterest income before other gains was $406.4 million
in 1992.
Customer service fees increased $9.3 million to $195.8 million in 1994 from
$186.5 million in 1993. Customer service fees were $187.5 million in 1992.
Credit and trade related services increased by $12.8 million in 1994 resulting
from higher levels of customer loan facilities and trade services, primarily
letters of credit. Deposit transaction and other services increased by $6.2
million in 1994, which is attributable to price increases on automated teller
transactions and consumer overdraft fees, coupled with increased usage of the
Corporation's Convenience Plus Card product. Investment services and
commissions were relatively unchanged from 1993 to 1994. Offsetting these
increases was a decrease in cash management services of $10.0 million, which
reflects an increase in customer earnings credits for deposit balances and
competitive pricing considerations.
Trust and agency fees increased $.7 million to $117.5 million in 1994 from
$116.8 million in 1993. Trust and agency fees were $115.1 million in 1992. The
improvement in 1994 over the prior year resulted from the acquisition of the
processing services division of Poorman-Douglas, which contributed
approximately $2.2 million in the fourth quarter of 1994. Offsetting this
increase was a decline in not-for-profit fees of $.6 million. Trust and other
assets under management totaled $15.0 billion at December 31, 1994, compared
with $15.4 billion at year-end 1993 and $13.7 billion at year-end 1992.
24
<PAGE>
Other income declined $29.8 million to $65.2 million in 1994 from $95.0
million in 1993. Included in other income for 1993 were gains on residential
mortgage loan sales of $26.9 million, compared with $1.9 million in 1994, and
Federal Deposit Insurance Corporation ("FDIC") assistance of $13.8 million. The
decline in gains on residential mortgage loan sales reflects a lower level of
secondary market activity as rising interest rates during 1994 slowed mortgage
sales. FDIC assistance, which relates to agreements between the FDIC and New
Dartmouth, expired in 1994. Excluding these items, the increase in other income
of $9.0 million in 1994 resulted primarily from an increase of $12.8 million
realized on sales of mortgage servicing rights, offset by a reduction in
foreign exchange trading profits of $2.0 million and trading account revenues
of $1.9 million. Total noninterest income of $522.8 million in 1992 included
gains of $22.3 million from the sale of automobile and home equity loan pass-
through certificates.
TABLE 6--NONINTEREST EXPENSES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- ------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Compensation................... $ 392.0 $ 414.1 $ 402.2 $ 386.4 $406.7
Benefits....................... 86.1 86.2 72.5 68.9 69.1
Occupancy...................... 99.3 105.4 112.3 101.8 107.2
Equipment...................... 55.2 58.4 67.2 67.5 71.7
FDIC insurance premiums........ 43.7 52.3 44.9 42.7 23.4
Communications................. 43.0 45.9 48.2 47.0 52.8
Advertising.................... 19.9 22.2 16.0 12.3 15.4
Foreclosed properties expense.. 7.7 28.6 37.4 38.3 11.3
Other.......................... 179.8 207.6 213.5 197.2 195.8
-------- -------- -------- -------- ------
Subtotal..................... 926.7 1,020.7 1,014.2 962.1 953.4
Merger related charges......... 100.9
Restructuring charges.......... 39.8 36.3
Fair lending related charges... 3.5
Foreclosed properties
provision..................... 4.0 76.6 140.4 82.0 19.3
-------- -------- -------- -------- ------
Total noninterest expenses. $1,071.4 $1,137.1 $1,154.6 $1,044.1 $972.7
======== ======== ======== ======== ======
Efficiency ratio............... 63.6% 67.8% 71.1% 73.8% 72.9%
Full-time equivalent employees. 9,565 11,348 11,926 11,993 11,748
</TABLE>
Noninterest expenses, excluding merger, restructuring and fair lending
related charges and foreclosed properties provision, were $926.7 million in
1994, compared with $1,020.7 million in 1993, a decrease of $94.0 million, or 9
percent. Comparable expenses were $1,014.2 million in 1992. Excluding merger,
restructuring and fair lending related charges and foreclosed properties
provision, the efficiency ratio improved to 63.6 percent in 1994 from 67.8
percent in 1993 and 71.1 percent in 1992.
The reduction in noninterest expenses in 1994 reflects the results of cost
management initiatives implemented in 1993 and 1994 which have included
workforce reductions, branch closings and consolidations and other expense
control actions, in addition to declining problem asset resolution costs. Also
contributing to the reduction in noninterest expenses were savings associated
with the initial consolidation of the acquired entities which were consummated
in the second quarter of 1994.
Compensation and benefits expense decreased $22.2 million, or 4 percent, to
$478.1 million in 1994 from $500.3 million in 1993. The decline in compensation
and benefits expense reflects reductions in personnel from the cost management
initiatives referred to above as well as savings associated with acquisition
consolidations. Full-time equivalent employees totaled 9,565 at December 31,
1994, compared with 11,348 at December 31, 1993.
25
<PAGE>
FDIC insurance premiums totaled $43.7 million for the year ended December 31,
1994, compared with $52.3 million and $44.9 million for the years ended
December 31, 1993 and 1992, respectively. The decrease in premiums of $8.6
million during 1994, or 16 percent, reflects a lower assessment rate charged on
insured deposits under the FDIC's risk-based assessment system. Under this
system, all of the Corporation's insured deposits were subject to the lowest
rate, $.23 per $100 of deposits, at year-end 1994.
Merger related charges of $100.9 million recorded in 1994 reflect the costs
to integrate Peoples, New Dartmouth and Gateway. The merger related charges
include: $18.9 million for severance and benefits costs for workforce
reductions; $39.4 million for the closure of duplicative branches and
facilities and cancellation of vendor contracts; $11.1 million for financial
advisory, legal and accounting expenses; and $7.0 million for losses on the
accelerated sales of foreclosed properties. In addition, the sales of
securities and disposition of residential mortgage loans of the acquired
entities to maintain an interest rate risk profile consistent with that of the
Corporation resulted in losses of $12.5 million and $12.0 million,
respectively, which are included in merger related charges. At December 31,
1994, the integration of Peoples and Gateway were substantially completed. The
integration of New Dartmouth was substantially completed in January 1995.
Accrued merger expenses totaled $13.8 million at December 31, 1994.
Restructuring related charges of $39.8 million recorded in 1994 reflect the
expansion of the Corporation's cost management program. The program included an
organizational streamlining and the elimination of more than 600 full-time
equivalent positions. The expanded program had also identified cost reductions
to be achieved through improved management of occupancy costs and consolidation
of purchasing activities. The restructuring related charges in 1994 include
$26.6 million for severance and benefit related costs and $13.2 million for the
consolidation of branch and operations facilities and other costs. It is
anticipated that the restructuring program will be substantially completed by
the end of the second quarter of 1995. Accrued restructuring expenses totaled
$19.0 million at December 31, 1994.
Included in total noninterest expenses for 1993 are restructuring and other
charges consisting of $36.3 million primarily related to branch closings and
personnel reductions and a $14.1 million write down in the value of excess
servicing rights (included in other expenses) of various securitized consumer
loan portfolios in view of prepayment experience and the decline in interest
rates during early 1993.
The provision for foreclosed properties was $4.0 million in 1994, down $72.6
million from $76.6 million in 1993 and down $136.4 million from $140.4 million
in 1992. The decline in the foreclosed properties provision over this period
reflects the decline in the level of foreclosed properties, the stabilization
of property values in the Corporation's primary markets and the effective
management of these assets. Included in foreclosed properties provision in 1993
were provisions of $20.0 million for the bulk sale of foreclosed properties and
$7.7 million relating to a pool of commercial properties that were sold at
auction. The 1992 provision for foreclosed properties included charges totaling
$23.6 million related primarily to bulk sales of residential and commercial
properties sold at auction.
In 1993, the Corporation adopted Statement of Financial Accounting Standards
("FAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", effective January 1, 1993. This accounting standard requires the
expected cost of postretirement health care and life insurance benefits to be
accrued and charged to operations during the years the employees render the
service. The Corporation is amortizing the transition obligation of $95.5
million on a straight-line basis over 20 years. The postretirement benefits
expense was $15.0 million and $14.9 million in 1994 and 1993, respectively.
Previously, the Corporation's postretirement benefits were expensed as claims
were paid and totaled approximately $5.0 million in 1992.
The Corporation also adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits", in the fourth quarter of 1993, retroactive to January
1, 1993. The Corporation provides disability and workers' compensation related
benefits to former or inactive employees after employment but before retirement
and had also provided supplemental severance benefits to certain former
employees. This accounting standard requires that the cost of these benefits be
accrued and charged to operations if the obligation is attributable to
26
<PAGE>
services already rendered, rights to such benefits accumulate or vest, payment
of the benefits is probable and the amount of the benefits can be reasonably
estimated. The effect of adopting this accounting standard resulted in an
after-tax charge of $6.6 million recorded as a cumulative effect of a change in
method of accounting in 1993. Previously, these benefits were expensed as
payments were made.
INCOME TAXES
The provision for income taxes was $134.2 million in 1994, compared with $6.6
million in 1993 and $40.9 million in 1992. The Corporation had an effective
income tax rate of 37.8 percent in 1994, which excludes a $5.0 million tax
expense related to acquisitions and the reduction of acquired entities'
deferred federal tax asset valuation allowances of $11.2 million.
The Corporation's income tax expense for 1993, prior to the reduction in the
deferred federal tax asset valuation allowance and the benefit of income tax
rate changes, was $97.2 million, representing an effective income tax rate of
33.6 percent. Income tax expense for 1992 was $40.9 million, representing an
effective income tax rate of 37.7 percent. The increase in the effective income
tax rate for 1994, when compared with 1993, was due to a decline in the level
of nontaxable income and an increase in state taxes during 1994. The lower
effective income tax rate for 1993, when compared with 1992, primarily reflects
the net operating loss in 1992 that did not generate a current tax benefit for
financial reporting purposes.
The Corporation adopted FAS No. 109, "Accounting for Income Taxes",
prospectively, during the first quarter of 1993 and the cumulative effect of
this accounting change was the recognition of a $52.8 million income tax
benefit in the first quarter of 1993. Total income tax benefits were $140.7
million in 1993.
The Corporation's net deferred federal tax asset was $165.0 million at
December 31, 1994. Based on management's best judgment regarding the amount and
timing of future taxable income and the estimated pattern of the reversal of
temporary differences, no deferred federal tax valuation allowance was recorded
at December 31, 1994. Taxable income necessary to be generated in future
periods to realize this net deferred federal tax asset would be approximately
$440 million. Estimated taxable income for 1994 was approximately $159 million.
Assuming the Corporation maintained this level of book taxable income generated
in 1994, the net deferred tax asset would be realized in approximately 3 years.
The Corporation's net deferred federal tax asset at December 31, 1993 was
$200.9 million, inclusive of a federal valuation allowance of $11.2 million
relating to acquired entities. Deferred state tax assets, net of related
federal tax, totaled $98.4 million at December 31, 1994 and were reduced in
their entirety by a valuation allowance of the same amount, compared with
$115.1 million at December 31, 1993. For further information regarding income
taxes, see Note 13 of Notes to Consolidated Financial Statements on page 69.
BUSINESS LINE RESULTS
The following table presents the Corporation's business line information for
the year ended December 31, 1994. The Corporation's four primary business lines
are consumer banking, commercial markets, financial institutions and investment
services. Business line financial results are derived from the Corporation's
internal management profitability reporting system, which specifically
allocates assets, deposits and certain results of operations to a business
line. It is not practicable to make an exact separation between business lines;
therefore, various assumptions have been made to arrive at allocations and
adjustments used in presenting this data. Such assumptions are judgmental in
nature and, accordingly, the results may not be precise. The development of
these allocations and adjustments is a continuous process. An internal funds
transfer pricing system allocates cost of funds used or credit for funds
provided to all assets and liabilities using a duration matched funding
concept. Expenses which directly support business line operations are allocated
based on actual usage and volume measurements. Expenses which indirectly
support business line operations as well as those which primarily support the
holding company are allocated based on volumes or percentages. Certain assets
and related funding sources, primarily securities and residential mortgage
loans which are part of the Corporation's capital markets activities, are not
allocated to the four primary business lines and are included
27
<PAGE>
in "Other" as set forth below. The provision for credit losses and reserve for
credit losses are allocated based on factors which consider credit risk and
loan type. Capital is allocated within the internal management profitability
reporting system based upon credit, interest rate, market and operational risk.
The following amounts presented reflect the information derived from the
Corporation's internal management reporting system.
TABLE 7--BUSINESS LINE RESULTS
<TABLE>
<CAPTION>
CONSUMER COMMERCIAL FINANCIAL INVESTMENT
BANKING MARKETS INSTITUTIONS SERVICES OTHER CONSOLIDATED
-------- ---------- ------------ ---------- ------- ------------
YEAR ENDED DECEMBER 31, 1994 (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net interest income..... $456.7 $282.2 $ 74.3 $ 22.2 $ 232.1 $1,067.5
Provision for credit
losses................. 27.9 (.5) 1.3 1.4 (27.1) 3.0
Noninterest income...... 175.5 49.6 54.2 112.3 (13.1) 378.5
Noninterest expense..... 481.5 183.5 90.0 110.8 205.6 1,071.4
------ ------ ------ ------ ------- --------
Income before income
taxes.................. $122.8 $148.8 $ 37.2 $ 22.3 $ 40.5 $ 371.6
====== ====== ====== ====== ======= ========
Total average assets.... $7,257 $8,048 $1,262 $ 488 $14,264 $ 31,319
====== ====== ====== ====== ======= ========
</TABLE>
CONSUMER BANKING
Consumer Banking consists of community, private, small business, urban
business, mortgage banking and indirect auto programs. The Consumer Banking
business line provides basic banking services that satisfy the transaction,
credit, savings and investment needs of both individuals and small businesses.
COMMERCIAL MARKETS
Commercial Markets consists of commercial banking, specialized lending,
asset-based lending, national banking and commercial real estate activities.
The Commercial Markets business line provides commercial and asset-based
lending, and investment and cash management services to companies in selected
industries.
FINANCIAL INSTITUTIONS
Financial Institutions consists of insurance industries, correspondent banks,
corporate trust, government finance and cash management. The Financial
Institutions business line provides credit, cash management and corporate trust
services to insurance, government and correspondent banking customers.
INVESTMENT SERVICES
Investment Services consists of personal investment services, institutional
investment services, personal trust and international treasury activities that
distribute a wide range of asset management and administrative services to a
variety of institutional and retail customers.
OTHER
Other consists primarily of capital markets activities, which include net
interest income related to securities and residential mortgage loans, as well
as certain other expenses such as merger and restructuring related charges that
are not allocated to the four primary business lines. In addition, the
adjustment to the business line allocation for the provision for credit losses
to reflect the consolidated amount, as reported, is included in this amount.
28
<PAGE>
CONSOLIDATED BALANCE SHEET ANALYSIS
Total assets at December 31, 1994 were $32.4 billion, up $1.3 billion, or 4
percent, from $31.1 billion at December 31, 1993.
Total loans increased $889 million, or 5 percent, to $18.5 billion at
December 31, 1994 from $17.6 billion at year-end 1993. Commercial and
industrial loans increased $613 million, primarily due to growth in the
Corporation's specialized lending, financial institutions and national banking
sectors. Consumer lending, which includes residential, home equity and
installment loans, increased $578 million, or 7 percent, to $8.6 billion. In
connection with the acquisitions completed in 1994, the Corporation sold $244.0
million of fixed-rate residential mortgage loans in the third quarter of 1994.
The Corporation recognized a loss of $12.0 million (included in merger related
charges) on the sale of these loans. Average loans totaled $17.7 billion in
1994, up $521 million, or 3 percent from $17.1 billion in the prior year. For a
discussion of credit quality and the composition of the loan portfolio, see
"Credit Risk Management" beginning on page 35. Residential mortgages held for
sale declined to $72.2 million at December 31, 1994, or 85 percent, from $472.5
million at December 31, 1993, reflecting the decline in mortgage loan
originations as a result of increasing interest rates during 1994.
Total securities decreased $350 million, or 3 percent, to $10.0 billion at
December 31, 1994. Securities classified as available for sale declined $1.2
billion, or 38 percent, to $2.0 billion at December 31, 1994 from $3.2 billion
at December 31, 1993. Securities classified as held to maturity increased $848
million, or 12 percent, to $8.0 billion at December 31, 1994. Securities
classified as available for sale declined as a portion of sales and maturities
were reinvested in the securities portfolio classified as held to maturity. 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 portfolios were 1.36 years and 2.37
years, respectively, at December 31, 1994.
As part of the acquisitions completed during the second quarter of 1994,
certain securities previously classified as held to maturity by the acquired
entities were transferred to securities classified as available for sale and
certain securities classified as available for sale were sold in order to
maintain the Corporation's interest rate risk profile. The net loss recognized
upon the sale of these securities of $12.5 million is included in merger
related charges. Additional information regarding the Corporation's securities
portfolio is presented in Note 3 of Notes to Consolidated Financial Statements
on page 55.
Tables 8 and 9 present the maturities of securities available for sale and
securities held to maturity at December 31, 1994 and the weighted average
yields of such securities. Mortgage backed securities are included in the
tables based upon contractual maturity. The weighted average yields were
calculated based on the cost and effective yields to maturity of each security.
The weighted average yield on income from municipal obligations and equity
securities was adjusted to a tax-equivalent basis, using a federal income tax
rate of 35 percent.
TABLE 8--SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
UNDER 1-5 5-10 OVER NO FIXED
1 YEAR YEARS YEARS 10 YEARS MATURITY TOTAL
------ ------ ------ -------- -------- --------
DECEMBER 31, 1994 (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
securities................ $ 87.1 $955.3 $180.2 $206.2 $1,428.8
Equity securities.......... 52.5 $ 87.9 140.4
Other securities........... 33.3 389.3 422.6
State and municipal obliga-
tions..................... .1 .1
------ ------ ------ ------ ------ --------
Total.................. $139.6 $955.3 $213.5 $595.6 $ 87.9 $1,991.9
====== ====== ====== ====== ====== ========
Weighted average yield
(tax-equivalent basis).... 5.99% 6.56% 6.58% 8.09% 10.01% 7.13%
</TABLE>
29
<PAGE>
TABLE 9--SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
UNDER 1-5 5-10 OVER
1 YEAR YEARS YEARS 10 YEARS TOTAL
------ -------- -------- -------- --------
DECEMBER 31, 1994 (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
U.S. Government and agency se-
curities...................... $520.1 $2,299.5 $2,084.6 $ 605.7 $5,509.9
Other securities............... 12.3 983.4 258.5 1,236.3 2,490.5
------ -------- -------- -------- --------
Total...................... $532.4 $3,282.9 $2,343.1 $1,842.0 $8,000.4
====== ======== ======== ======== ========
Weighted average yield (tax-
equivalent basis)............. 4.27% 5.50% 6.40% 6.08% 5.81%
</TABLE>
The following table summarizes the Corporation's securities classified as
available for sale at December 31, 1994 and 1993 and the carrying amount of
securities reported at the lower of aggregate cost or fair value at December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C>
U.S. Government and agency securities
U.S. Treasury...................................... $1,222.7 $1,693.1 $ 931.4
Mortgage backed.................................... 206.1 756.3 2,221.6
Equity securities.................................... 140.4 216.3 192.9
Corporate mortgage backed and other securities....... 422.6 523.7 258.9
State and municipal obligations...................... .1 .2 4.1
-------- -------- --------
Total............................................ $1,991.9 $3,189.6 $3,608.9
======== ======== ========
</TABLE>
The following table summarizes the Corporation's securities classified as
held to maturity for the periods indicated.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C>
U.S. Government and agency securities
Mortgage backed................................... $3,556.1 $3,332.2 $2,122.2
U.S. Treasury..................................... 1,953.8 1,713.5 287.7
State and municipal obligations..................... 1.6
Other securities
Mortgage backed................................... 602.3 345.0 283.8
Asset backed and other............................ 1,888.2 1,760.0 979.6
-------- -------- --------
Total........................................... $8,000.4 $7,152.3 $3,673.3
======== ======== ========
</TABLE>
Total deposits at December 31, 1994 were $20.7 billion, up $2.0 billion, or
11 percent, from $18.7 billion at December 31, 1993. Demand deposits increased
$406 million, or 9 percent, to $5.2 billion at December 31, 1994, primarily due
to customer preferences for maintaining higher deposit balances in lieu of
direct fee payments. Time deposits were $6.1 billion at December 31, 1994, up
$1.3 billion, or 27 percent, from $4.8 billion at year-end 1993. This increase
primarily reflects the Corporation reducing its reliance on short-term funding
sources and expanding its retail brokered deposit program. Other short-term
funding sources, including federal funds purchased, securities sold under
agreements to repurchase and other short-term borrowings, decreased $2.2
billion, or 24 percent, to $7.1 billion at December 31, 1994 from $9.3 billion
at the end of 1993.
Average interest-bearing deposits were $14.5 billion in 1994, compared with
$14.6 billion in 1993. Noninterest-bearing deposits averaged $4.6 billion in
1994, up $219 million from the 1993 average of $4.4 billion. Other borrowings
averaged $8.4 billion in 1994, up $1.0 billion from $7.3 billion in the prior
year.
30
<PAGE>
Notes and debentures totaled $2.0 billion at December 31, 1994, up $1.3
billion from $758.9 million at December 31, 1993, due to notes issued under a
$2.0 billion bank note facility established during the first quarter of 1994.
On February 14, 1995, the Corporation's Shawmut Bank Connecticut subsidiary
completed an offering of $250 million of subordinated bank notes in connection
with the acquisition of Barclays Finance. Refer to "Capital" on page 34 for
further discussion.
INTEREST RATE RISK
Interest rate risk for the Corporation and its subsidiaries is managed by the
Asset and Liability Committee of the Corporation. Interest rate risk
measurement and management techniques incorporate the repricing and cash flow
attributes of balance sheet and off-balance sheet instruments as they relate to
parallel and non-parallel shifts in interest rates, as well as changes in the
spread relationships between asset and liability interest rates. Interest rate
risk is measured in terms of the effect on net interest income and changes in
the market value of the Corporation's assets and liabilities under different
interest rate scenarios through the use of modeling and other analytical
techniques.
Interest rate risk is evaluated and reviewed by the Asset and Liability
Committee at least monthly. The Asset and Liability Committee evaluates the
Corporation's overall risk profile and determines actions required to maintain
and achieve a profile that is consistent with the Corporation's policies and
strategic direction. Actions taken will include utilizing specific asset,
liability and interest rate instruments to achieve directives by the Asset and
Liability Committee.
TABLE 10--INTEREST RATE SENSITIVITY GAP ANALYSIS
The table below depicts the Corporation's interest rate sensitivity as of
December 31, 1994. Allocations of assets and liabilities, including
noninterest-bearing sources of funds, to specific periods are based upon
management's assessment of contractual or anticipated repricing
characteristics. Those gaps are then adjusted for the net effect of off-balance
sheet financial instruments such as interest rate swap and option agreements
and futures contracts.
<TABLE>
<CAPTION>
REPRICING PERIODS
---------------------------------------------------------------
TWO- FOUR- SEVEN- TEN- OVER
ONE THREE SIX NINE TWELVE ONE
MONTH MONTHS MONTHS MONTHS MONTHS YEAR TOTAL
------- ------ ------ ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term investments
and other interest-
earning assets......... $ 472 $ 328 $ 49 $ 849
Securities.............. 243 335 382 $ 353 $ 829 $ 7,850 9,992
Loans................... 5,996 3,314 1,831 822 797 5,727 18,487
------- ------ ------ ------- ------- ------- -------
Total interest-earning
assets............... 6,711 3,977 2,262 1,175 1,626 13,577 29,328
------- ------ ------ ------- ------- ------- -------
Interest-bearing depos-
its.................... 2,166 1,779 2,456 1,484 1,446 6,254 15,585
Other borrowings........ 6,623 365 5 94 7,087
Notes and debentures.... 848 265 200 709 2,022
Noninterest-bearing
sources of funds....... 54 108 431 431 431 3,179 4,634
------- ------ ------ ------- ------- ------- -------
Total................. 9,691 2,517 3,092 1,915 1,877 10,236 29,328
------- ------ ------ ------- ------- ------- -------
Off-balance sheet finan-
cial instruments....... 171 2,619 266 (470) (285) (2,301)
------- ------ ------ ------- ------- -------
Interest rate sensitiv-
ity gap................ $(2,809) $4,079 $ (564) $(1,210) $ (536) $ 1,040
======= ====== ====== ======= ======= =======
Cumulative gap.......... $(2,809) $1,270 $ 706 $ (504) $(1,040) $ 0
======= ====== ====== ======= ======= =======
Interest rate
sensitivity gap as a
percent of interest-
earning assets......... (9.6)% 13.9% (1.9)% (4.1)% (1.8)%
Cumulative gap as a
percent of
interest-earning
assets................. (9.6)% 4.3% 2.4 % (1.7)% (3.5)%
</TABLE>
31
<PAGE>
As indicated in the interest rate sensitivity table, the twelve-month
cumulative gap, representing the total net assets and liabilities that are
projected to reprice over the next twelve months, was liability sensitive in
the amount of $1.0 billion at December 31, 1994. A liability sensitive interest
rate gap would tend to reduce earnings over a period of rising interest rates,
while declining rates would enhance earnings. 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 liability sensitive gap at December
31, 1994 would increase from $1.0 billion to $1.3 billion 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 increase
in interest rates, the effect on net interest income would be a reduction of
approximately $12.0 million when compared with the amount of net interest
income assumed to be earned absent such an interest rate increase for the
twelve-month period following December 31, 1994.
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 above for purposes of analyzing
interest rate risk.
At December 31, 1994, the Corporation had approximately $3.7 billion in
notional amounts of interest rate swap agreements outstanding utilized for the
management of interest rate risk, an increase of $1.7 billion from $2.0 billion
at December 31, 1993. 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 utilized to
synthetically alter the maturity and repricing characteristics of assets and
liabilities. The periodic net settlement on interest rate swap agreements is
recorded as an adjustment to interest expense and resulted in a decrease in net
interest income of $19.7 million in 1994, $20.4 million in 1993 and $23.3
million in 1992.
In addition to interest rate swap agreements, the Corporation utilizes
interest rate cap and floor agreements to manage interest rate risk. Interest
rate cap agreements are similar to interest rate swap agreements except that
interest payments are only made or received if current interest rates rise
above a predetermined interest rate. At year-end 1994, the Corporation had
approximately $1.8 billion in notional amounts of purchased interest rate cap
agreements and approximately $500 million in notional amounts of interest rate
collar arrangements (consisting of a cap and floor) outstanding. The
Corporation also had approximately $1.0 billion in notional amounts of interest
rate cap agreements outstanding, which consist of a cap that is sold for a
higher rate than the one that is purchased. This combination of agreements is
also known as an interest rate corridor. Interest rate corridors are utilized
to protect the Corporation from a contraction in the interest rate spread due
to a moderate rise in interest rates. The periodic net settlement on interest
rate cap and floor agreements, inclusive of premium amortization, resulted in a
decrease in net interest income of $2.4 million in 1994.
Exchange-traded futures contracts are also used by the Corporation to manage
interest rate exposure. The notional amounts of futures contracts sold at
December 31, 1994 were approximately $6.0 billion, an increase of $3.5 billion
from $2.5 billion at December 31, 1993. At December 31, 1994, the Corporation
had entered into U.S. Treasury rate futures contracts with approximately $708
million in notional amounts to manage the risk associated with the available
for sale securities portfolio. The remaining $5.3 billion in notional amounts
of futures contracts are used to manage interest rate risk on the Corporation's
funding sources. Maturities of the notional amounts of futures contracts are as
follows: $4.7 billion in 1995; $1.2 billion in 1996; and $.1 billion in 1997.
32
<PAGE>
Activity for interest rate agreements utilized for the management of interest
rate risk for 1994 follows:
<TABLE>
<CAPTION>
SWAPS
-------------------------------------------
PLAIN PLAIN AMORTIZING
FIXED FIXED FIXED
PAY RECEIVE RECEIVE BASIS
--------- --------- ---------- ---------
NOTIONAL AMOUNTS (IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, December 31, 1993........... $ 943 $ 141 $ 900
Additions............................ 1,150 500 $ 605
Maturities........................... 434 81 51
Settlements..........................
--------- -------- --------- --------
Balance, December 31, 1994........... $ 1,659 $ 60 $ 1,349 $ 605
========= ======== ========= ========
Weighted average receive rate at year
end................................. 5.54% 8.97% 4.59% 6.11%
========= ======== ========= ========
Weighted average pay rate at year
end................................. 6.74% 5.63% 6.73% 6.14%
========= ======== ========= ========
Average final maturity at year end... 3.3 years .5 years 2.2 years .7 years
========= ======== ========= ========
<CAPTION>
OTHER
-------------------------------------------
FUTURES
CONTRACTS
CAPS CORRIDORS COLLARS SOLD
--------- --------- ---------- ---------
NOTIONAL AMOUNTS (IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, December 31, 1993........... $ 950 $ 2,406 $ 2,528
Additions............................ 825 275 $ 500 30,497
Maturities........................... 1,650
Settlements.......................... 27,020
--------- -------- --------- --------
Balance, December 31, 1994........... $ 1,775 $ 1,031 $ 500 $ 6,005
========= ======== ========= ========
Average final maturity at year end... .9 years .7 years .1 years .8 years
========= ======== ========= ========
</TABLE>
The unamortized premium recorded in the Corporation's balance sheet related
to interest rate risk management agreements was $32.8 million at December 31,
1994. For further information regarding interest rate instruments, see Note 15
of Notes to Consolidated Financial Statements on page 72.
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 December 31,
1994, UPFs were $2.8 billion. This was offset by $4.3 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 UPF's of $1.5 billion. During the first quarter of 1994, the
Corporation expanded its available funding alternatives by establishing a $2.0
billion bank note facility which provides access to other diversified funding
sources. Notes issued under this facility totaled $1.3 billion at December 31,
1994.
33
<PAGE>
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 $211.0 million
and notes and debentures of $749.2 million at December 31, 1994. The parent
company had cash and cash equivalents at December 31, 1994 of $328.1 million
and securities with a fair value of $225.9 million. There are no scheduled
maturities on notes and debentures in 1995. Scheduled maturities are $150
million in both 1996 and 1997.
The parent company's long-term ability to meet obligations will depend on the
Corporation's ability to raise funds from outside sources or the ability of the
subsidiary banks to pay dividends. See Note 18 of Notes to Consolidated
Financial Statements on page 77 for further information.
CAPITAL
At December 31, 1994, total shareholders' equity was $2.197 billion, or 6.78
percent of total assets, compared with $2.102 billion, or 6.76 percent, at
December 31, 1993 and $1.732 billion, or 5.92 percent, at year-end 1992.
Included in shareholders' equity at December 31, 1994 is a $54.3 million charge
reflecting the net after-tax unrealized loss on the Corporation's $2.0 billion
available for sale securities portfolio, compared with a net after-tax
unrealized gain of $13.8 million at December 31, 1993, or a reduction in
shareholders' equity of $68.1 million. Further volatility in shareholders'
equity may occur as the fair value of the Corporation's available for sale
securities portfolio changes with market conditions.
The Corporation's Risk-capital and Leverage ratios at December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C>
Shareholders' equity.............................. $ 2,197.2 $ 2,102.4
Tier 1 capital.................................... 2,091.0 1,977.0
Total capital..................................... 2,919.3 2,862.0
Risk-weighted assets.............................. 25,284.4 22,490.8
Ratios:
Shareholders' equity to assets.................. 6.78% 6.76 %
Risk-based capital
Tier 1 capital................................. 8.27 8.79
Total capital.................................. 11.55 12.73
Leverage........................................ 6.62 6.48
</TABLE>
Common shareholders' equity at December 31, 1994 was $2.019 billion, or
$16.72 per common share, compared with $1.908 billion, or $16.25 per common
share, at year-end 1993. The common equity-to-assets ratio increased 9 basis
points to 6.23 percent at year-end 1994 from 6.14 percent at December 31, 1993.
The Corporation's Risk-based capital ratios, which consider the different
credit risks of its various assets and off-balance sheet items, are presented
in the table above. The Tier 1 capital and Total risk-based capital ratios were
8.27 percent and 11.55 percent, respectively, at December 31, 1994, compared
with 8.79 percent and 12.73 percent at December 31, 1993. The decline in both
the Tier 1 capital and Total risk-based capital ratios from 1993 to 1994 was
due primarily to the change in composition of the balance sheet to higher risk-
weighted commercial loans and an increase in standby letters of credit. At
December 31, 1994, the Corporation's Leverage ratio, a measure of Tier 1
capital to total quarterly average assets, was 6.62 percent, compared with 6.48
percent at year-end 1993.
34
<PAGE>
In connection with the acquisition of Barclays Finance, 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 Corporation's Shawmut Bank Connecticut subsidiary
also completed an offering of $250 million of 8 5/8% subordinated bank notes
due 2005 on February 14, 1995. The proceeds from these offerings were used to
partially fund the acquisition of Barclays Finance. On a proforma basis at
December 31, 1994 and giving effect to these offerings, the acquisition of
Barclays Finance would reduce the Corporation's Tier 1 capital and Total risk-
based capital ratios and Leverage ratio by approximately 115 basis points, 60
basis points and 75 basis points, respectively.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a
bank is typically defined as "well capitalized" if it maintains a Tier 1
capital ratio of at least 6.00 percent, a Total risk-based capital ratio of at
least 10.00 percent and a Leverage ratio of at least 5.00 percent. The
Corporation and its principal subsidiary banks, Shawmut Bank Connecticut,
National Association and Shawmut Bank, National Association met the "well
capitalized" definition at December 31, 1994 and 1993.
The following table presents the Risk-based capital and Leverage ratios for
the Corporation's principal subsidiary banks, Shawmut Bank Connecticut,
National Association (Shawmut Bank Connecticut or SBC) and Shawmut Bank,
National Association (Shawmut Bank Massachusetts or SBM).
<TABLE>
<CAPTION>
SBC SBM
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C>
Shareholder's equity................ $ 1,236.4 $ 1,225.6 $ 1,156.9 $ 1,074.8
Tier 1 capital...................... 1,202.9 1,165.4 1,113.1 1,033.7
Total capital....................... 1,371.2 1,311.0 1,273.4 1,189.9
Risk-weighted assets................ 13,353.3 11,431.4 11,165.2 10,163.1
Ratios:
Shareholder's equity to assets.... 7.22% 7.76 % 8.02% 7.81%
Risk-based capital
Tier 1 capital................... 9.01 10.19 9.97 10.17
Total capital.................... 10.27 11.47 11.40 11.71
Leverage............................ 7.51 7.73 7.93 7.54
</TABLE>
Total dividends declared by the Corporation on common stock were $93.5
million in 1994 and $47.2 million in 1993. On a per share basis, common
dividends declared totaled $.82 in 1994 and $.50 in 1993. The quarterly common
dividend was reinstated in the first quarter of 1993 and increased to $.20 per
share in the fourth quarter of 1993. In the fourth quarter of 1994, the
quarterly common dividend was increased to $.22 per share.
The primary source for dividends paid by the Corporation to its shareholders
are dividends received from its bank and nonbank subsidiaries. Payments of
dividends to the Corporation by its subsidiary banks are subject to various
statutory limitations. For further information on statutory dividend
limitations, see Note 18 of Notes to Consolidated Financial Statements on page
77.
CREDIT RISK MANAGEMENT
Credit risk entails both general risk, which is inherent in the process of
lending, and risk specific to individual borrowers. The management of credit
risk involves two fundamental disciplines, loan underwriting and loan
administration. The Corporation manages credit risk through a strategy of
portfolio diversification, which seeks to avoid concentrations of credit by
loan type and industry, and to limit total exposure to individual and
affiliated borrowers. The evaluation of specific risk is a basic function of
underwriting and loan administration and concerns the analysis of the
borrower's ability to service debt as well as the value of pledged collateral.
35
<PAGE>
The Corporation's lending and loan administration staffs are charged with
monitoring the Corporation's loan portfolio and identifying changes in the
economy or in a borrower's circumstances, which may affect the ability to repay
debt or the value of pledged collateral. In order to assess and monitor the
degree of risk in the Corporation's loan portfolio, several credit risk
identification and monitoring processes are utilized. A credit risk assessment
process is employed that assigns a risk grade to each loan based upon an
assessment of the borrower's financial capacity to service the debt and the
presence and value of collateral for the loan. Credit grading of the portfolio
is achieved through loan officers' monitoring of individual loans supplemented
by periodic reviews performed by a credit review department. The Corporation
also engages in various non-lending activities which may give rise to credit
risk, including interest rate swap contracts and foreign exchange transactions
for the benefit of customers. These activities are subject to the same credit
review, analysis and approval processes as discussed above. For additional
information on the Corporation's interest rate swap positions, see "Interest
Rate Risk" on page 31.
Continued progress was made during 1994 regarding the Corporation's credit
quality objectives. Nonaccruing loans and foreclosed properties declined during
1994, which reflect the Corporation's continuing efforts to promptly resolve
problem assets and the improving risk profile of the loan portfolio. The ratio
of nonaccruing loans plus foreclosed properties to loans plus foreclosed
properties improved to 1.31 percent at December 31, 1994 from 2.48 percent at
year-end 1993. The ratio of net charge-offs to average loans decreased to .76
percent in 1994, compared with 1.72 percent in 1993 and 2.30 percent in 1992.
The ratio of the reserve for credit losses to nonaccruing loans increased to
242 percent at December 31, 1994, compared with 179 percent at December 31,
1993.
LENDING ACTIVITIES
The Corporation extends credit primarily to consumers, large corporate
customers and middle market companies. Approximately 80 percent of these
lending relationships are to customers located within New England, while the
remaining lending relationships are to customers diversified throughout the
United States. Commercial and industrial loans, which represented 38 percent of
the Corporation's $18.5 billion loan portfolio at year-end, consist primarily
of loans to a mix of middle market customers, typically with revenues of less
than $150 million, and loans to large corporate customers. Owner-occupied
commercial real estate loans, which represented 8 percent of loans at year-end,
include loans to commercial borrowers for the construction or purchase of
business space, primarily for the borrower's own use, or loans to commercial
borrowers for operating purposes in which the Corporation has taken real estate
as collateral. The operating cash flow of the enterprise, rather than the real
estate, is the primary source of repayment. Real estate investor/developer
loans, which represented 8 percent of loans outstanding at year-end, include a
diverse mix of construction projects and commercial mortgages. Consumer loans,
which represented 46 percent of the loan portfolio at year-end, include
residential mortgages, home equity loans and lines of credit and installment
loans.
An analysis of the Corporation's loan portfolio is presented in Table 11 and
by type in Tables 12 through 15.
36
<PAGE>
TABLE 11--LOAN PORTFOLIO
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 7,006.4 $ 6,393.5 $ 5,967.8 $ 5,164.4 $ 5,518.0
--------- --------- --------- --------- ---------
Owner-occupied
commercial real estate. 1,412.0 1,492.8 1,724.3 1,794.1 1,814.1
--------- --------- --------- --------- ---------
Real estate
investor/developer
Commercial mortgage... 1,309.2 1,526.5 1,697.7 2,254.0 2,140.5
Construction and oth-
er................... 157.4 160.7 374.4 597.9 964.2
--------- --------- --------- --------- ---------
Total
investor/developer. 1,466.6 1,687.2 2,072.1 2,851.9 3,104.7
--------- --------- --------- --------- ---------
Consumer
Residential mortgage.. 5,592.1 5,325.9 5,288.3 4,660.9 3,649.5
Home equity........... 1,625.7 1,637.8 1,478.6 1,325.2 1,206.1
Installment and other. 1,384.3 1,060.5 820.0 1,495.2 1,539.9
--------- --------- --------- --------- ---------
Total consumer...... 8,602.1 8,024.2 7,586.9 7,481.3 6,395.5
--------- --------- --------- --------- ---------
Total............... 18,487.1 17,597.7 17,351.1 17,291.7 16,832.3
Reserve for credit
losses................. (542.1) (669.2) (908.4) (1,043.7) (970.9)
--------- --------- --------- --------- ---------
Total............... $17,945.0 $16,928.5 $16,442.7 $16,248.0 $15,861.4
========= ========= ========= ========= =========
</TABLE>
TABLE 12--COMMERCIAL AND INDUSTRIAL LOANS--BY INDUSTRY SECTOR
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ---------------------------------------
LOANS NET CHARGE-OFFS LOANS NET CHARGE-OFFS
OUTSTANDING NONACCRUING (RECOVERIES) OUTSTANDING NONACCRUING (RECOVERIES)
----------- ----------- --------------- ----------- ----------- ---------------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Finance, insurance and
real estate............ $1,611.0 $ 2.7 $(1.5) $1,351.6 $ 7.3 $ 4.5
Communications.......... 1,456.7 3.5 (.3) 1,173.5 5.8 8.8
Manufacturing........... 1,284.5 11.7 2.4 1,649.9 24.2 2.0
Services................ 900.2 4.5 (1.1) 702.3 10.8 (.6)
Wholesale............... 582.5 7.1 .3 455.3 8.0 4.1
Retail.................. 515.4 2.8 .4 422.4 6.6 6.9
Other................... 656.1 3.7 4.3 638.5 22.3 9.8
-------- ----- ----- -------- ----- -----
Total............... $7,006.4 $36.0 $ 4.5 $6,393.5 $85.0 $35.5
======== ===== ===== ======== ===== =====
</TABLE>
The Corporation's commercial and industrial loan portfolio totaled $7.0
billion at year-end 1994 compared with $6.4 billion at year-end 1993. The
increase in commercial loans of $612.9 million, or 10 percent, reflects growth
in the specialized lending (communications, cable and television), financial
institutions and national banking sectors. The finance, insurance and real
estate, communications and manufacturing industry sectors made up 23 percent,
21 percent and 18 percent, respectively, of the portfolio at December 31, 1994.
At December 31, 1994, commercial loans totaling $36.0 million were included in
nonaccruing loans, down $49.0 million, or 58 percent, from a year ago. Net
charge-offs of commercial loans were $4.5 million in 1994, or approximately .07
percent of the average outstanding balance, declining from $35.5 million, or
approximately .59 percent of the average outstanding balance, in 1993.
37
<PAGE>
TABLE 13--OWNER-OCCUPIED COMMERCIAL REAL ESTATE LOANS--BY INDUSTRY SECTOR
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ---------------------------------------
LOANS NET CHARGE-OFFS LOANS
OUTSTANDING NONACCRUING (RECOVERIES) OUTSTANDING NONACCRUING NET CHARGE-OFFS
----------- ----------- --------------- ----------- ----------- ---------------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Services................ $ 396.4 $ 6.5 $ 2.2 $ 361.6 $ 7.0 $ 5.3
Finance, insurance and
real estate............ 270.7 17.1 3.9 380.9 21.7 16.6
Manufacturing........... 189.2 7.8 .7 170.0 5.9 2.4
Retail.................. 171.7 12.8 3.9 167.1 19.8 3.3
Wholesale............... 116.9 3.2 (.3) 89.0 3.6 1.2
Communications.......... 33.7 1.5 .5 30.4 .9 .1
Other................... 233.4 8.7 4.2 293.8 20.7 12.5
-------- ----- ----- -------- ----- -----
Total............... $1,412.0 $57.6 $15.1 $1,492.8 $79.6 $41.4
======== ===== ===== ======== ===== =====
</TABLE>
Owner-occupied commercial real estate loans represented $1.4 billion and $1.5
billion, respectively, of the Corporation's loan portfolio at year-end 1994 and
1993. Owner-occupied commercial real estate loans are not dependent upon the
underlying real estate for debt service. The primary source of repayment is the
operating cash flow of the enterprise. At December 31, 1994, owner-occupied
commercial real estate loans totaling $57.6 million were included in
nonaccruing loans, down $22.0 million, or 28 percent, from a year ago. Net
charge-offs of owner-occupied commercial real estate loans were $15.1 million
in 1994, or approximately 1.06 percent of the average outstanding balance,
declining from $41.4 million, or approximately 2.67 percent of the average
outstanding balance, in 1993.
TABLE 14--REAL ESTATE INVESTOR/DEVELOPER LOANS--BY PROJECT
<TABLE>
<CAPTION>
1994 1993
----------------------------------- -----------------------------------
LOANS NET CHARGE- LOANS NET CHARGE-
OUTSTANDING NONACCRUING OFFS OUTSTANDING NONACCRUING OFFS
----------- ----------- ----------- ----------- ----------- -----------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Retail space............ $ 273.8 $ 4.5 $ 3.0 $ 253.6 $ 7.6 $ 17.2
Apartment/rental........ 262.3 11.8 8.9 236.7 14.8 20.5
Offices................. 239.8 17.0 14.8 277.5 14.9 48.2
Mixed use............... 189.2 9.1 6.9 180.9 15.1 6.8
Industrial.............. 116.6 7.2 3.9 147.6 13.7 21.7
Special purposes........ 57.8 8.5 3.4 59.3 5.5 2.9
Research and development
space.................. 35.8 .4 44.9 5.9
Residential developers
Condominium........... 35.2 .3 1.1 36.7 4.9 4.0
Single family......... 29.1 3.8 35.1 5.9 2.7
Hotels, resorts, inns... 34.6 1.0 21.6 1.8 4.5
Land.................... 26.7 7.2 2.1 44.8 17.0 3.0
Other................... 165.7 13.5 19.0 348.5 21.2 16.7
-------- ----- ----- -------- ------ ------
Total............... $1,466.6 $82.9 $64.5 $1,687.2 $122.4 $154.1
======== ===== ===== ======== ====== ======
</TABLE>
Loans to real estate investor/developers of $1.5 billion decreased $220.6
million in 1994, or 13 percent, from $1.7 billion at December 31, 1993. The
decrease in loans to real estate investor/developers is primarily attributable
to the decline in the commercial real estate market and management's decision
to curtail lending in this area. At December 31, 1994, real estate
investor/developer loans totaling $82.9 million were included in nonaccruing
loans, down $39.5 million, or 32 percent, from a year ago. Net charge-offs of
real estate investor/developer loans were $64.5 million in 1994, or
approximately 4.06 percent of the average outstanding balance, declining from
$154.1 million, or approximately 8.61 percent of the average outstanding
balance, in 1993.
38
<PAGE>
TABLE 15--CONSUMER LOANS--BY TYPE
<TABLE>
<CAPTION>
1994 1993
--------------------------------------- -----------------------------------
LOANS NET CHARGE-OFFS LOANS NET CHARGE-
OUTSTANDING NONACCRUING (RECOVERIES) OUTSTANDING NONACCRUING OFFS
----------- ----------- --------------- ----------- ----------- -----------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages... $5,592.1 $38.4 $33.2 $5,325.9 $71.7 $40.9
Home equity lines....... 1,272.6 5.2 3.3 1,399.6 7.8 4.7
Indirect automobile..... 932.4 1.1 2.1 807.0 1.4 10.6
Direct installment...... 381.1 .6 .2 159.2 1.0 1.4
Home equity loans....... 353.1 1.3 12.2 238.2 .8 .6
Other................... 70.8 .9 (.7) 94.3 3.2 5.9
-------- ----- ----- -------- ----- -----
Total............... $8,602.1 $47.5 $50.3 $8,024.2 $85.9 $64.1
======== ===== ===== ======== ===== =====
</TABLE>
The Corporation's consumer loan portfolio was $8.6 billion at December 31,
1994, an increase of $577.9 million from $8.0 billion at December 31, 1993. The
residential mortgage loan portfolio grew by $266.2 million, or 5 percent.
Indirect automobile lending increased $125.4 million, while direct installment
products grew by $221.9 million. At December 31, 1994, consumer loans totaling
$47.5 million were included in nonaccruing loans, down $38.4 million, or 45
percent, from a year ago. Net charge-offs of consumer loans were $50.3 million
in 1994, inclusive of $10.5 million of home equity loans related to the Gateway
acquisition, or approximately .60 percent of the average outstanding balance,
declining from $64.1 million, or approximately .83 percent of the average
outstanding balance, in 1993.
NONACCRUING LOANS, RESTRUCTURED LOANS AND ACCRUING LOANS PAST DUE 90 DAYS OR
MORE
When a loan is past due 90 days or more or the ability of a borrower to repay
principal or interest is in doubt, the Corporation's policy is to discontinue
the accrual of interest and reverse any unpaid accrued amounts. If there is
doubt as to collectibility, cash interest payments are applied to reduce
principal. A loan is not restored to accruing status until the borrower has
brought the loan current and demonstrated the ability to make payments of
principal and interest, and doubt as to the collectibility of the loan is not
present. The Corporation may continue to accrue interest on loans past due 90
days or more which are well secured and in the process of collection.
The classification of a loan as nonaccruing does not necessarily indicate
that loan principal and interest will be uncollectible. Nonaccruing loans can
be reduced as a result of payments, restructurings, return to accruing status,
liquidation or sale of collateral and charge-offs.
TABLE 16--NONACCRUING LOANS, RESTRUCTURED LOANS AND ACCRUING LOANS PAST DUE 90
DAYS OR MORE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ -------- --------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Current.......................... $ 57.4 $ 76.1 $201.3 $ 182.1 $ 245.8
From 30 to 89 days past due...... 15.1 30.8 61.7 79.8 173.1
90 or more days past due......... 151.5 266.0 494.8 914.6 1,134.1
------ ------ ------ -------- --------
Total nonaccruing loans........ $224.0 $372.9 $757.8 $1,176.5 $1,553.0
====== ====== ====== ======== ========
Restructured loans (not included
in categories above).............. $ 41.8 $ 73.3 $172.1 $ 110.7 $ 4.6
Accruing loans past due 90 days or
more
(not included in categories
above)............................ 43.3 42.6 45.3 103.8 97.4
Nonaccruing loans to loans......... 1.21% 2.12% 4.37% 6.80% 9.23%
Reserve for credit losses to
nonaccruing loans................. 242.00 179.00 120.00 89.00 63.00
</TABLE>
39
<PAGE>
Nonaccruing loans declined $148.9 million, or 40 percent, to $224.0 million
at December 31, 1994, from $372.9 million at December 31, 1993. The ratio of
nonaccruing loans to loans improved to 1.21 percent at December 31, 1994 from
2.12 percent at December 31, 1993. The ratio of the reserve for credit losses
to nonaccruing loans also improved, increasing to 242 percent at December 31,
1994 from 179 percent at December 31, 1993.
At December 31, 1994, $57.4 million, or 26 percent, of nonaccruing loans were
current, compared with $76.1 million, or 20 percent, at December 31, 1993.
These loans have been classified as nonaccruing because of concerns regarding
future collectibility. Real estate investor/developer loans represented 37
percent of this balance at December 31, 1994.
TABLE 17--NONACCRUING LOANS BY LOAN TYPE
An analysis of the Corporation's nonaccruing loans is presented in the table
below.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ -------- --------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Commercial and industrial................ $ 36.0 $ 85.0 $165.8 $ 238.1 $ 370.0
------ ------ ------ -------- --------
Owner-occupied commercial real estate.... 57.6 79.6 153.0 194.7 204.8
------ ------ ------ -------- --------
Real estate investor/developer
Commercial mortgage.................... 66.9 97.3 222.2 341.7 385.4
Construction and other................. 16.0 25.1 69.4 159.9 396.9
------ ------ ------ -------- --------
Total investor/developer............. 82.9 122.4 291.6 501.6 782.3
------ ------ ------ -------- --------
Consumer
Residential mortgage................... 38.4 71.7 121.9 188.4 139.5
Home equity............................ 6.5 8.6 11.6 17.8 11.8
Installment and other.................. 2.6 5.6 13.9 35.9 44.6
------ ------ ------ -------- --------
Total consumer....................... 47.5 85.9 147.4 242.1 195.9
------ ------ ------ -------- --------
Total................................ $224.0 $372.9 $757.8 $1,176.5 $1,553.0
====== ====== ====== ======== ========
</TABLE>
TABLE 18--CHANGES IN NONACCRUING LOANS
The changes in the Corporation's nonaccruing loans for each of the years
ended December 31, 1994 and 1993, respectively, are summarized below:
<TABLE>
<CAPTION>
1994 1993
------ ------
YEAR ENDED
DECEMBER 31,
(IN MILLIONS)
<S> <C> <C>
Balance at beginning of year..................................... $372.9 $757.8
------ ------
New nonaccruing loans............................................ 229.1 384.7
------ ------
Decreases in nonaccruing loans
Sales.......................................................... 6.2 80.9
Payments....................................................... 144.0 284.6
Returns to accruing loans...................................... 40.3 142.2
Transfers to restructured loans................................ 4.0 17.2
Transfers to foreclosed properties............................. 19.5 37.2
Charge-offs.................................................... 164.0 207.5
------ ------
Total........................................................ 378.0 769.6
------ ------
Balance at end of year........................................... $224.0 $372.9
====== ======
</TABLE>
40
<PAGE>
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
$41.8 million at December 31, 1994, compared with $73.3 million at the end of
1993. The decline in restructured loans was due to loan sales which occurred
during the third quarter of 1994. Restructured loans included real estate
investor/developer loans and owner-occupied commercial real estate loans of
$31.4 million and $3.8 million, respectively, at December 31, 1994.
Interest income related to nonaccruing and restructured loans would have been
approximately $25.0 million in 1994 and $48.0 million in 1993 had these loans
been current and the terms of the loans had not been modified. Interest income
recorded on these loans totaled approximately $3.5 million in 1994 and $11.0
million in 1993. Interest income received on these loans and applied as a
reduction of principal totaled approximately $9.8 million and $15.1 million in
1994 and 1993, respectively.
Accruing loans past due 90 days or more, which are well secured and in the
process of collection, were $43.3 million at December 31, 1994, compared with
$42.6 million at December 31, 1993. These loans represented less than .3
percent of loans at December 31, 1994 and 1993, respectively. Consumer loans
represented 49 percent and 33 percent of loans past due 90 days or more and
still accruing interest at the end of 1994 and 1993, respectively.
RESERVE FOR CREDIT LOSSES
The reserve for credit losses is maintained at a level determined by
management to be adequate to provide for probable losses inherent in the loan
portfolio including commitments to extend credit. The reserve is maintained
through the provision for credit losses, which is a charge to operations. The
potential for loss in the portfolio reflects the risks and uncertainties
inherent in the extension of credit. The Corporation's credit loss experience
is as follows:
41
<PAGE>
TABLE 19--CREDIT LOSS EXPERIENCE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Reserve for credit
losses at beginning of
year................... $ 669.2 $ 908.4 $ 1,043.7 $ 970.9 $ 755.5
--------- --------- --------- --------- ---------
Loans charged off
Commercial and industri-
al..................... 23.5 60.1 113.1 173.8 137.5
--------- --------- --------- --------- ---------
Owner-occupied commer-
cial real estate....... 20.1 48.4 43.8 40.7 12.3
--------- --------- --------- --------- ---------
Real estate
investor/developer
Commercial mortgage... 61.1 124.7 85.1 73.4 49.3
Construction and oth-
er................... 13.4 41.5 50.9 74.5 22.6
--------- --------- --------- --------- ---------
Total
investor/developer... 74.5 166.2 136.0 147.9 71.9
--------- --------- --------- --------- ---------
Consumer
Residential mortgage.. 43.9 45.2 86.3 24.9 5.9
Home equity........... 16.9 5.8 6.0 8.2 3.3
Installment and other. 11.7 23.9 37.9 78.1 52.8
--------- --------- --------- --------- ---------
Total consumer........ 72.5 74.9 130.2 111.2 62.0
--------- --------- --------- --------- ---------
Total loans charged
off.................. 190.6 349.6 423.1 473.6 283.7
--------- --------- --------- --------- ---------
Recoveries on loans
charged off
Commercial and industri-
al..................... 19.0 24.6 18.6 27.7 14.0
Real estate............. 15.0 19.1 17.3 6.4 2.3
Consumer................ 22.2 10.8 9.8 8.4 8.8
--------- --------- --------- --------- ---------
Total recoveries...... 56.2 54.5 45.7 42.5 25.1
--------- --------- --------- --------- ---------
Net loans charged off... 134.4 295.1 377.4 431.1 258.6
--------- --------- --------- --------- ---------
Provision charged to op-
erations............... 3.0 55.9 242.1 486.4 474.0
Addition for loans pur-
chased................. 4.3
Transfer of reserve from
FDIC................... 17.5
--------- --------- --------- --------- ---------
Reserve for credit
losses at end of year.. $ 542.1 $ 669.2 $ 908.4 $ 1,043.7 $ 970.9
========= ========= ========= ========= =========
Loans at end of year.... $18,487.1 $17,597.7 $17,351.1 $17,291.7 $16,832.3
Average loans for the
year................... 17,659.0 17,138.2 16,414.1 16,990.7 18,380.4
Reserve for credit
losses to loans........ 2.93% 3.80% 5.24% 6.04% 5.77%
Net charge-offs to aver-
age loans.............. .76 1.72 2.30 2.54 1.41
</TABLE>
The determination of the adequacy of the reserve is based upon management's
assessment of risk elements in the portfolio, factors affecting loan quality
and assumptions about the economic environment in which the Corporation
operates. The process includes identification and analysis of loss potential in
various portfolio segments utilizing a credit risk grading process and specific
reviews and evaluations of significant individual problem credits. In addition,
management reviews overall portfolio quality through an analysis of current
levels and trends in charge-off, delinquency and nonaccruing loan data, review
of forecasted economic conditions and the overall banking environment. These
reviews are of necessity dependent upon estimates, appraisals and judgments,
which may change quickly because of changing economic conditions and the
Corporation's perception as to how these factors may affect the financial
condition of debtors.
The reserve for credit losses was $542.1 million at December 31, 1994,
compared with $669.2 million at December 31, 1993. The ratio of the reserve for
credit losses to nonaccruing loans increased to 242 percent at December 31,
1994, from 179 percent at the end of 1993. The ratio of the reserve for credit
losses to total loans was 2.93 percent at December 31, 1994, compared with 3.80
percent at December 31, 1993. The reserve for credit losses at December 31,
1994 and 1993 was equal to 4.04 times net charge-offs for 1994 and 2.27 times
net charge-offs for 1993, respectively.
42
<PAGE>
The provision for credit losses was $3.0 million for the year ended December
31, 1994 (which reflects the provisions made by acquired institutions),
compared with $55.9 million and $242.1 million for the years ended December 31,
1993 and 1992, respectively. Net charge-offs for 1994 were $134.4 million,
equal to .76 percent of average loans outstanding. Net charge-offs for 1993 of
$295.1 million, or 1.72 percent of average loans, included a charge-off of
$108.6 million related to a bulk sale of nonaccruing real estate loans.
Excluding this charge-off, net charge-offs for 1993 would have been $186.5
million, equal to 1.09 percent of average loans. The comparable net charge-offs
experienced in 1992 were $344.3 million, or 2.10 percent of average loans,
after excluding a charge-off of $33.1 million related to the bulk sale of
nonaccruing residential mortgage loans. The decrease in net charge-offs
reflects improving asset quality over the periods presented. Refer to Tables 12
through 15 for a discussion of net charge-offs by loan type.
With continuing increases in reserve coverage of nonaccruing loans and
improving credit quality in the loan portfolio, the Corporation does not
currently anticipate that provisions for credit losses will be necessary in the
first half and possibly all of 1995. Management anticipates that net charge-
offs for 1995, as a percent of average loans outstanding, will not exceed 1994
levels, and also anticipates further reduction in the reserve for credit losses
if loan quality trends continue to improve. However, future levels of net
charge-offs and the reserve for credit losses may be affected by changing
economic conditions and loan quality. Continued economic weakness in New
England may adversely affect the level of net charge-offs and the reserve for
credit losses in future periods.
The Financial Accounting Standards Board issued FAS No. 114, "Accounting By
Creditors for Impaired Loans", in May 1993. The new accounting standard will
require that impaired loans, which are defined as loans where it is probable
that a creditor will not be able to collect both the contractual interest and
principal payments, be measured at the present value of expected future cash
flows discounted at the loan's effective rate when assessing the need for a
loss accrual. The new accounting standard is effective for the Corporation's
financial statements beginning January 1, 1995. The Corporation does not
anticipate that adoption of the new accounting standard will have a material
effect on its financial position or results of operations.
FORECLOSED PROPERTIES
Properties acquired through foreclosure or in settlement of loans and in-
substance foreclosures are classified as foreclosed properties. An in-substance
foreclosure occurs when a borrower has little or no equity in the collateral,
repayment can only be expected to come from the operations or sale of the
collateral, and the borrower has effectively abandoned the collateral or has
doubtful ability to rebuild equity in the collateral. A valuation reserve is
maintained for estimated selling costs and to record the excess of the carrying
values over the fair market values of properties if a change in the carrying
values are judged to be temporary.
Foreclosed properties decreased $45.7 million, or 71 percent, to $18.8
million at December 31, 1994 from $64.5 million at December 31, 1993. The
decrease in foreclosed properties resulted primarily from ongoing disposition
efforts in 1994.
43
<PAGE>
TABLE 20--NONACCRUING LOANS PLUS FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ -------- -------- --------
DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans................ $224.0 $372.9 $ 757.8 $1,176.5 $1,553.0
Foreclosed properties............ 18.8 64.5 266.2 384.3 258.7
------ ------ -------- -------- --------
Total.......................... $242.8 $437.4 $1,024.0 $1,560.8 $1,811.7
====== ====== ======== ======== ========
Nonaccruing loans plus foreclosed
properties
to loans plus foreclosed
properties...................... 1.31% 2.48% 5.81% 8.83% 10.60%
</TABLE>
Nonaccruing loans plus foreclosed properties decreased $194.6 million, or 44
percent, during 1994 to $242.8 million at December 31, 1994 from $437.4 million
at December 31, 1993. The decline in these assets was the result of improving
asset quality and ongoing problem resolution efforts. The ratio of nonaccruing
loans plus foreclosed properties to loans plus foreclosed properties declined
to 1.31 percent at December 31, 1994 from 2.48 percent at December 31, 1993.
FOURTH QUARTER SUMMARY
In the fourth quarter of 1994, the Corporation reported net income of $93.5
million, or $.74 per common share, compared with income, excluding $70.2
million of one-time income tax benefits, of $76.0 million, or $.62 per common
share, in the fourth quarter of 1993. Reported net income in the fourth quarter
of 1993 was $146.2 million, or $1.22 per common share.
Net interest income on a taxable-equivalent basis was $265.9 million in the
fourth quarter of 1994, a decrease of $16.9 million, or 6 percent, from $282.8
million in the fourth quarter of 1993. The net interest margin on a taxable-
equivalent basis was 3.65 percent compared with 3.99 percent a year ago. Total
average interest-earning assets were $29.1 billion, up $828 million, from $28.3
billion in the same period of 1993.
There was no provision for credit losses in the fourth quarter of 1994,
compared with $10.2 million in the fourth quarter of 1993. See "Credit Risk
Management" on page 35 for further information regarding the provision and
reserve for credit losses and net charge-offs.
Noninterest income, excluding securities gains, was $104.2 million in the
fourth quarter of 1994, an increase of $8.4 million, or 9 percent, from $95.8
million in the same quarter a year ago. The increase reflects gains of $8.2
million from the sale of mortgage servicing rights that occurred in the fourth
quarter of 1994.
Fourth quarter noninterest expenses, excluding the provision for foreclosed
properties, were $224.0 million, a decrease of $20.3 million, or 8 percent,
from $244.3 million in the fourth quarter of 1993. Noninterest expenses for the
fourth quarter of 1994 include $4.1 million related to acquisitions completed
earlier in the quarter and accounted for as purchases and, accordingly, such
expenses are not reflected in prior quarters. Excluding the provision for
foreclosed properties and special charges in 1993, the efficiency ratio
improved to 60.5 percent in the fourth quarter of 1994, compared with 64.5
percent in the fourth quarter of 1993. The fourth quarter summary is presented
in Table 21.
44
<PAGE>
TABLE 21--FOURTH QUARTER SUMMARY
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
DEC. 31 DEC. 31
1994 1993
---------- ----------
TAX-EQUIVALENT BASIS
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Interest income........................................ $ 524.6 $ 466.2
Interest expense....................................... 258.7 183.4
---------- ----------
Net interest income.................................... 265.9 282.8
Provision for credit losses............................ 10.2
---------- ----------
Net interest income after provision for credit losses.. 265.9 272.6
Noninterest income..................................... 104.2 95.8
Securities gains, net.................................. 1.5
Noninterest expenses................................... 224.0 244.3
Provision for foreclosed properties.................... .5 6.5
Fair lending related charges........................... 3.5
---------- ----------
Income before income taxes............................. 145.6 115.6
Tax-equivalent adjustment.............................. 2.5 3.1
Income taxes (benefit)................................. 49.6 (33.7)
---------- ----------
Net income............................................. $ 93.5 $ 146.2
========== ==========
Return on average assets:
Before income tax benefits and fair lending related
charges............................................. 1.17% 1.01%
Based on net income.................................. 1.17 1.89
Return on average common equity:
Before income tax benefits and fair lending related
charges............................................. 17.59 16.51
Based on net income applicable to common shares...... 17.59 31.57
Net interest margin.................................... 3.65 3.99
Efficiency ratio....................................... 60.55 64.50
Common share data:
Net income........................................... $ .74 $ 1.22
Dividends declared................................... .22 .20
</TABLE>
45
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans................................... $ 1,311,719 $ 1,242,683 $ 1,301,564
Securities
Available for sale, at fair value..... 145,036
At lower of aggregate cost or fair
value................................ 236,455 232,406
Held to maturity...................... 443,946 303,217 272,007
Residential mortgages held for sale..... 14,823 29,636 27,312
Federal funds sold and securities
purchased under agreements to resell... 8,698 12,590 19,550
Interest-bearing deposits in other
banks.................................. 12,610 839 2,123
Trading account securities.............. 1,097 1,562 1,564
------------ ------------ ------------
Total............................... 1,937,929 1,826,982 1,856,526
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits
Savings, money market and NOW ac-
counts............................... 163,345 183,287 272,665
Domestic time......................... 226,434 232,533 347,255
Foreign time.......................... 16,567 5,146 2,516
------------ ------------ ------------
Total............................... 406,346 420,966 622,436
Other borrowings........................ 368,347 262,413 192,240
Notes and debentures.................... 95,651 72,040 59,321
------------ ------------ ------------
Total............................... 870,344 755,419 873,997
------------ ------------ ------------
NET INTEREST INCOME..................... 1,067,585 1,071,563 982,529
Provision for credit losses............. 3,000 55,944 242,128
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES.......................... 1,064,585 1,015,619 740,401
------------ ------------ ------------
NONINTEREST INCOME
Customer service fees................... 195,774 186,452 187,459
Trust and agency fees................... 117,501 116,845 115,103
Securities gains, net................... 12,468 94,103
Other................................... 65,207 95,084 126,140
------------ ------------ ------------
Total............................... 378,482 410,849 522,805
------------ ------------ ------------
NONINTEREST EXPENSES
Compensation and benefits............... 478,142 500,254 474,725
Occupancy and equipment................. 154,511 163,792 179,507
Merger related charges.................. 100,900
Restructuring related charges........... 39,800 36,319
Foreclosed properties provision and ex-
pense.................................. 11,702 105,173 177,813
Other................................... 286,408 331,454 322,536
------------ ------------ ------------
Total............................... 1,071,463 1,136,992 1,154,581
------------ ------------ ------------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY CREDIT
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES................................ 371,604 289,476 108,625
Income taxes............................ 134,252 6,628 40,898
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY CREDIT AND
CUMULATIVE
EFFECT OF ACCOUNTING CHANGES........... 237,352 282,848 67,727
Extraordinary credit.................... 18,378
Cumulative effect of changes in methods
of accounting.......................... 46,200
------------ ------------ ------------
NET INCOME.............................. $ 237,352 $ 329,048 $ 86,105
============ ============ ============
NET INCOME APPLICABLE TO COMMON SHARES.. $ 221,917 $ 313,579 $ 81,322
============ ============ ============
COMMON SHARE DATA
Income before extraordinary credit and
cumulative
effect of accounting changes......... $ 1.87 $ 2.35 $ 0.60
Net income............................ 1.87 2.75 0.78
Weighted average shares outstanding... 118,977 113,908 104,380
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
1994 1993
------------- -------------
DECEMBER 31, (IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.......................... $ 1,986,182 $ 1,539,690
Interest-bearing deposits in other banks......... 439,936 13,252
Federal funds sold and securities purchased under
agreements to resell............................ 308,700 71,500
Trading account securities....................... 27,859 19,625
Residential mortgages held for sale.............. 72,205 472,450
Securities
Available for sale, at fair value.............. 1,991,853 3,189,616
Held to maturity (fair value $7,561,890 and
$7,228,796)................................... 8,000,382 7,152,326
Loans, less reserve for credit losses of $542,116
and $669,156.................................... 17,945,027 16,928,532
Premises and equipment........................... 329,780 332,960
Foreclosed properties............................ 18,831 64,518
Customers' acceptance liability.................. 5,166 13,747
Other assets..................................... 1,272,690 1,304,589
------------- -------------
Total assets................................. $ 32,398,611 $ 31,102,805
============= =============
LIABILITIES
Deposits
Demand......................................... $ 5,161,182 $ 4,755,036
Savings, money market and NOW accounts......... 8,649,988 8,976,640
Domestic time.................................. 6,058,769 4,763,463
Foreign time................................... 876,314 246,740
------------- -------------
Total deposits............................... 20,746,253 18,741,879
Other borrowings................................. 7,086,579 9,282,951
Acceptances outstanding.......................... 5,166 13,747
Accrued expenses and other liabilities........... 341,652 202,916
Notes and debentures............................. 2,021,788 758,941
------------- -------------
Total liabilities............................ 30,201,438 29,000,434
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, without par value
Authorized--10,000,000 shares
Outstanding--1,263,700 and 1,275,000 shares.... 178,185 178,750
Preferred stock, $.01 par value
Authorized--193,000 shares
Outstanding--170,073 shares.................... 15,215
Common stock, $.01 par value
Authorized--300,000,000 and 150,000,000 shares
Issued--120,770,774 and 117,550,211 shares..... 1,208 1,176
Surplus.......................................... 1,288,825 1,237,177
Retained earnings................................ 783,223 658,607
Net unrealized gain (loss) on securities avail-
able for sale................................... (54,268) 13,789
Treasury stock, common stock at cost (106,487
shares)......................................... (2,343)
------------- -------------
Total shareholders' equity................... 2,197,173 2,102,371
------------- -------------
Total liabilities and shareholders' equity... $ 32,398,611 $ 31,102,805
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY AT BEGINNING OF
YEAR................................ $ 2,102,371 $ 1,731,543 $ 1,268,631
PREFERRED STOCK
Issuance of preferred stock (575,000
shares)............................. 143,750
Redemption of preferred stock
(170,073 and 177,000 shares)........ (15,215) (15,835)
Purchase of preferred stock (11,300
shares)............................. (565)
COMMON STOCK, $.01 PAR VALUE
Shares issued under Dividend
Reinvestment and Stock Purchase
Plans (2,190,550 and 962,946
shares)............................. 22 9
Shares issued under stock option and
employee benefit plans (1,030,013;
551,730 and 438,469 shares)......... 10 6 4
Issuance of common stock (3,233,508
and 18,569,760 shares).............. 33 186
SURPLUS
Additional proceeds from:
Shares issued under Dividend
Reinvestment and Stock Purchase
Plans............................. 43,883 22,334
Shares issued under stock option
and employee benefit plans........ 7,765 5,062 2,869
Issuance of common stock........... 28,236 211,638
Preferred stock issuance costs....... (5,731)
RETAINED EARNINGS
Net income........................... 237,352 329,048 86,105
Cash dividends declared by the
Corporation on:
Preferred stock.................... (15,435) (15,469) (4,783)
Common stock....................... (93,471) (47,205)
Cash dividends declared by merged
companies prior to mergers.......... (1,143) (4,411) (3,870)
Restricted stock awards.............. 638 31 (1,496)
Reissuance of common stock from
treasury............................ (211) (11,106) (15,444)
Redemption of preferred stock........ (3,114) (1,603)
NET UNREALIZED GAIN (LOSS) ON
SECURITIES
Unrealized appreciation
(depreciation) on securities
available for sale.................. (68,057) 13,789
Unrealized appreciation on securities
at lower of aggregate cost or fair
value............................... 23,654 16,045
TREASURY STOCK
Purchase of common stock (95,223;
114,009 and 672 shares)............. (2,169) (2,509) (10)
Reissuance of common stock under
Dividend Reinvestment and Stock
Purchase Plans (201,710; 1,665,989
and 1,202,954 shares)............... 4,512 46,764 33,649
------------ ------------ ------------
SHAREHOLDERS' EQUITY AT END OF YEAR.. $ 2,197,173 $ 2,102,371 $ 1,731,543
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................... $ 237,352 $ 329,048 $ 86,105
Adjustments to reconcile net income
to cash provided by operating activities:
Extraordinary credit................. (18,378)
Cumulative effect of changes in
methods of accounting............... (46,200)
Provision for credit losses.......... 3,000 55,944 242,128
Provision for foreclosed properties.. 3,993 76,598 140,417
Depreciation, amortization and other. 102,593 129,952 71,916
Deferred income taxes................ 67,949 (15,247) 35,366
Gains from the sale of securities
held to maturity.................... (76,617)
Losses (gains) from the sale of
loans, securities, premises and
equipment and other assets.......... 15,001 (10,575) (44,194)
Decrease in securities reported at
the lower of aggregate cost or fair
value............................... 39,880 1,501,695
Decrease (increase) in trading
account securities.................. (8,234) 16,819 (17,942)
Decrease (increase) in residential
mortgages held for sale............. 644,245 3,880 (198,353)
Decrease (increase) in other assets
and accrued expenses and other
liabilities......................... 80,201 (263,494) 68,064
------------ ------------ ------------
CASH PROVIDED BY OPERATING ACTIVI-
TIES................................ 1,146,100 316,605 1,790,207
------------ ------------ ------------
FINANCING ACTIVITIES
Increase (decrease) in total
deposits............................ 2,004,374 (1,252,362) (249,361)
Increase (decrease) in other
borrowings.......................... (2,196,372) 3,850,428 1,132,497
Proceeds from issuance of bank notes,
net................................. 1,263,000
Proceeds from issuance of
subordinated notes.................. 149,700 149,631
Principal payments on notes and
debentures.......................... (384) (200,802) (4,981)
Proceeds from issuances of common and
preferred stock..................... 55,981 91,338 370,921
Purchases of common and preferred
stock............................... (21,063) (19,947) (10)
Cash dividends paid.................. (103,710) (47,279) (5,779)
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVI-
TIES................................ 1,001,826 2,571,076 1,392,918
------------ ------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in short-term
investments......................... (663,884) 718,506 (487,201)
Proceeds from sales of securities
available for sale.................. 3,582,694
Maturities of securities available
for sale............................ 560,545
Purchases of securities available for
sale................................ (3,328,586)
Maturities of securities held to
maturity............................ 1,521,887 2,214,542 1,427,693
Proceeds from sales of securities
held to maturity.................... 1,560,902 1,908,615
Purchases of securities held to
maturity............................ (2,118,395) (6,845,381) (6,057,170)
Proceeds from sales of loans......... 62,021 560,178 926,597
Purchases of loans................... (487,415) (427,611) (437,208)
Loans originated less principal
collected........................... (852,302) (645,216) (1,212,373)
Purchases of premises and equipment
and other assets.................... (55,661) (54,123) (58,472)
Proceeds from the sale of premises
and equipment and other assets...... 77,662 106,484 197,714
------------ ------------ ------------
CASH USED BY INVESTING ACTIVITIES.... (1,701,434) (2,811,719) (3,791,805)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS.......................... 446,492 75,962 (608,680)
Cash and due from banks at beginning
of year............................. 1,539,690 1,463,728 2,072,408
------------ ------------ ------------
CASH AND DUE FROM BANKS AT END OF
YEAR................................ $ 1,986,182 $ 1,539,690 $ 1,463,728
============ ============ ============
ADDITIONAL CASH FLOW INFORMATION
Interest paid........................ $ 845,149 $ 747,857 $ 907,382
Income taxes paid.................... $ 28,729 $ 26,176 $ 41,224
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Shawmut National Corporation and its
subsidiaries (the Corporation) are in conformity with generally accepted
accounting principles followed within the banking industry. Certain amounts for
prior years have been reclassified to conform to current year presentation. As
more fully discussed in Note 2--"Merger and Acquisitions", the Corporation
consummated the acquisitions of three banking organizations accounted for as
poolings of interests during 1994. These consolidated financial statements and
notes thereto give effect to the acquisitions and, therefore, the financial
position, results of operations and cash flows are presented as if the
Corporation and the acquired banking organizations had been combined for all
periods presented. The significant accounting policies followed by the
Corporation are summarized below.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Shawmut National Corporation and its subsidiaries after
elimination of material intercompany balances and transactions.
TRADING ACCOUNT SECURITIES--Trading account securities include debt
securities that are purchased and held principally for the purpose of selling
them in the near term and are stated at fair value, as determined by quoted
market prices. Gains and losses realized on the sale of trading account
securities and adjustments to fair value are included in trading account
profits.
RESIDENTIAL MORTGAGES HELD FOR SALE--Residential mortgages held for sale are
primarily one to four family real estate mortgage loans which are reported at
the lower of cost or market, as determined by outstanding commitments from
investors or current investor yield requirements, calculated on an aggregate
basis. Forward mandatory, standby and put option contracts are entered into to
limit market risk on residential mortgages held for sale. Gains and losses from
sales of residential mortgages held for sale are recognized upon settlement
with investors and recorded in noninterest income. These activities, together
with underwriting and servicing of residential mortgage loans, comprise the
Corporation's mortgage banking business.
SECURITIES--Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held to maturity and reported at
cost, adjusted for the amortization of premiums and accretion of discounts.
Debt and equity securities which are not classified as held to maturity or as
trading securities are classified as available for sale and reported at fair
value, with unrealized gains and losses excluded from the results of operations
and reported as a separate component of shareholders' equity, net of income
taxes.
Prior to adoption of Statement of Financial Accounting Standards (FAS) No.
115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS
115), effective December 31, 1993, debt securities that were to be held for
indefinite periods of time, including securities that management intended to
use as part of its asset/liability strategy or that may be sold in response to
changes in interest rates, prepayment risk or other factors, were reported at
the lower of aggregate cost or fair value. Changes in net unrealized losses
were included in the Corporation's results of operations. Equity securities
were stated at the lower of aggregate cost or fair value with net unrealized
losses reported as a reduction of retained earnings.
Fair values of securities are determined by prices obtained from independent
market sources. Realized gains and losses on securities sold are computed on
the identified cost basis on the trade date and are included in the results of
operations.
50
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN EXCHANGE TRADING INSTRUMENTS--Foreign exchange trading positions,
including spot, forward and option contracts, are reported at market value. The
resulting realized and unrealized gains and losses from foreign exchange
trading are included in other noninterest income.
INTEREST RATE INSTRUMENTS--Interest rate instruments, such as futures
contracts and forward rate agreements, are used in conjunction with foreign
exchange trading activities. These instruments are carried at net market value
with realized and unrealized gains and losses recognized currently in other
noninterest income.
Interest rate swap, cap and floor agreements and futures contracts are used
to manage the Corporation's interest rate risk. Those agreements meeting the
criteria for hedge accounting treatment are designated as hedges and are
accounted for on an accrual basis. Premiums paid for interest rate instruments
are amortized as an adjustment to interest expense over the term of the
agreements. The periodic net settlements on interest rate swap, cap and floor
agreements are recorded as an adjustment to interest expense. Gains or losses
on futures contracts that are effective hedges are deferred and amortized over
the expected remaining life of the hedged asset or liability. The market value
of futures contracts used to hedge the available for sale securities portfolio
are included with the valuation of those securities.
Disclosures required under FAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments", are included in
Note 15--"Interest Rate Financial Instruments".
LOANS--Loans are stated at the principal amounts outstanding, net of unearned
income. Interest on undiscounted loans is recognized primarily utilizing the
simple interest method based upon the principal amount outstanding. Interest on
discounted loans is recognized utilizing the effective yield method.
The net amount of loan origination and commitment fees and direct costs
incurred to underwrite and issue a loan are deferred and amortized as an
adjustment of the related loan's yield over the contractual life of the loan in
a manner which approximates the interest method.
When a loan is past due 90 days or more or the ability of the borrower to
repay principal or interest is in doubt, the Corporation discontinues the
accrual of interest and reverses any unpaid accrued amounts. If there is doubt
as to subsequent collectibility, cash interest payments are applied to reduce
principal. A loan is not restored to accruing status until the borrower has
brought the loan current and demonstrated the ability to make payments of
principal and interest, and doubt as to the collectibility of the loan is not
present. The Corporation may continue to accrue interest on loans past due 90
days or more which are well secured and in the process of collection.
Restructured loans are loans with original terms which have been modified as
a result of a change in the borrower's financial condition. Interest income on
restructured loans is accrued at the modified rates.
A commitment to extend credit is a binding agreement to make a loan to a
customer in the future if certain conditions are met and is subject to the same
risk, credit review and approval process as a loan. Many commitments expire
without being used and, therefore, do not represent future funding
requirements.
RESERVE FOR CREDIT LOSSES--The reserve for credit losses is maintained at a
level determined by management to be adequate to provide for probable losses
inherent in the loan portfolio, including commitments to extend credit. The
reserve is maintained through the provision for credit losses, which is a
charge to operations. When a loan, or a portion of a loan, is considered
uncollectible, the loss is charged to the reserve. Recoveries of previously
charged off loans are credited to the reserve. The potential for loss in the
portfolio reflects the risks and uncertainties inherent in the extension of
credit.
51
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The determination of the adequacy of the reserve is based upon management's
assessment of risk elements in the portfolio, factors affecting loan quality
and assumptions about the economic environment in which the Corporation
operates. The process includes identification and analysis of loss potential in
various portfolio segments utilizing a credit risk grading process and specific
reviews and evaluations of significant individual problem credits. In addition,
management reviews overall portfolio quality through an analysis of current
levels and trends in charge-off, delinquency and nonaccruing loan data, and a
review of forecasted economic conditions and the overall banking environment.
These reviews are of necessity dependent upon estimates, appraisals and
judgments, which may change quickly because of changing economic conditions,
and the Corporation's perception as to how these factors may affect the
financial condition of debtors.
PREMISES AND EQUIPMENT--Premises, leasehold improvements and equipment are
stated at cost less accumulated depreciation and amortization computed
primarily on the straight-line method. Depreciation of buildings and equipment
is based on the estimated useful lives of the assets. Amortization of leasehold
improvements is based on the term of the related lease or the estimated useful
lives of the improvements, whichever is shorter. Major renewals and betterments
are capitalized and recurring repairs and maintenance are charged to
operations. Gains or losses on dispositions of premises and equipment are
included in income as realized.
FORECLOSED PROPERTIES--Properties acquired through foreclosure or in
settlement of loans and in-substance foreclosures are classified as foreclosed
properties and are valued at the lower of the loan value or estimated fair
value of the property acquired less estimated selling costs. At the time of
foreclosure the excess, if any, of the loan value over the estimated fair value
of the property acquired less estimated selling costs is charged to the reserve
for credit losses. Additional decreases in the carrying values of foreclosed
properties or changes in estimated selling costs, subsequent to the time of
foreclosure, are recognized through a provision charged to operations. A
valuation reserve is maintained for estimated selling costs and to record the
excess of the carrying values over the fair market values of properties if
changes in the carrying values are judged to be temporary.
The fair value of foreclosed properties is determined based upon appraised
value, which primarily utilizes the selling price of properties for similar
purposes, or discounted cash flow analyses of the properties' operations.
GOODWILL--The excess cost over the fair value of net assets acquired from
acquisitions accounted for as purchases is included in other assets and
amortized on a straight-line basis over periods of up to 25 years.
PENSION AND OTHER EMPLOYEE BENEFIT PLANS--The Corporation maintains a
noncontributory defined benefit pension plan, which covers substantially all
full-time employees. Pension expense is based upon an actuarial computation of
current and future benefits for employees. The pension plan is funded annually
in an amount consistent with the funding requirements of federal law and
regulations.
The Corporation sponsors postretirement health care and life insurance
benefit plans that provide health care and life insurance benefits for retired
employees that have met certain age and service requirements. Postretirement
health care and life insurance benefits expense is based upon an actuarial
computation of current and future benefits for employees and retirees. See Note
11--"Pension and Other Employee Benefit Plans" for discussion of the adoption
of FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", effective January 1, 1993.
52
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation provides disability and workers' compensation related
benefits to former or inactive employees after employment but before
retirement and had also provided supplemental severance benefits to certain
former employees. Postemployment benefits expense is determined based upon
various criteria depending on the type of benefit. See Note 11--"Pension and
Other Employee Benefit Plans" for discussion of the adoption of FAS No. 112,
"Employers' Accounting for Postemployment Benefits", effective January 1,
1993.
INCOME TAXES--Income tax expense is based on estimated taxes payable or
refundable on a tax return basis for the current year and the changes in the
amount of deferred tax assets and liabilities during the year. Deferred income
tax assets and liabilities are established for temporary differences between
the accounting basis and the tax basis of the Corporation's assets and
liabilities at enacted tax rates expected to be in effect when the amounts
related to such temporary differences are realized or settled. See Note 13--
"Income Taxes" for discussion of the adoption of FAS No. 109, "Accounting for
Income Taxes", effective January 1, 1993.
PER COMMON SHARE CALCULATIONS--Income per common share is calculated by
dividing net income less preferred stock dividends by the weighted average
common shares outstanding for each period presented.
CASH FLOWS STATEMENT--For the purpose of reporting cash flows, the
Corporation has defined cash equivalents as those amounts included in the
balance sheet caption "Cash and due from banks".
NOTE 2--MERGER AND ACQUISITIONS
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 $1.00 par value common
stock of Fleet.
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, and is subject to the
approval of the common stock shareholders of Fleet and the Corporation, the
receipt of various regulatory approvals, and the satisfaction (or, where
permissible, waiver) of certain other standard closing conditions.
COMPLETED ACQUISITIONS
The Corporation completed its acquisitions of the following banking
organizations during the second quarter of 1994:
<TABLE>
<CAPTION>
COMMON
ASSETS AT SHARES EXCHANGE
MARCH 31, 1994 ISSUED RATIO
-------------- ------ --------
(IN THOUSANDS, EXCEPT EXCHANGE
RATIO)
<S> <C> <C> <C>
Peoples Bancorp of Worcester, Inc. ("Peoples")--
(May 23, 1994)................................. $ 870,673 8,320 2.444
New Dartmouth Bank ("New Dartmouth")--(June 6,
1994).......................................... $1,724,458 6,430 15.157
Gateway Financial Corporation ("Gateway")--(June
27, 1994)...................................... $1,259,563 7,421 0.559
</TABLE>
53
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These acquisitions were accounted for as poolings of interests and as such
are reflected in the consolidated financial statements as though the
Corporation, Peoples, New Dartmouth and Gateway had been combined as of the
beginning of the earliest period presented.
Merger related charges of $100.9 million were recorded during the second
quarter of 1994 to reflect the costs to integrate these acquisitions. The
merger related charges include: $18.9 million for severance and benefits costs
for workforce reductions; $39.4 million for the closure of duplicative branches
and facilities and cancellation of vendor contracts; $11.1 million for
financial advisory, legal and accounting expenses; and $7.0 million for losses
on the accelerated sales of foreclosed properties. In addition, the sales of
securities and disposition of residential loans of the acquired entities to
maintain an interest rate risk profile consistent with that of the Corporation
resulted in losses of $12.5 million and $12.0 million, respectively, which are
included in merger related charges. Accrued merger expenses totaled $13.8
million at December 31, 1994.
The following table sets forth the results of operations of Peoples, New
Dartmouth, Gateway and the Corporation for the years ended December 31, 1993
and 1992:
<TABLE>
<CAPTION>
1993 1992
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Net interest income:
Peoples.................................................. $ 37,232 $ 36,598
New Dartmouth............................................ 62,743 69,128
Gateway.................................................. 46,958 51,475
The Corporation, as previously reported.................. 924,630 825,328
---------- --------
Combined................................................ $1,071,563 $982,529
========== ========
Net income (loss):
Peoples.................................................. $ 10,787 $ 11,034
New Dartmouth............................................ 19,088 20,264
Gateway.................................................. 8,421 (20,402)
The Corporation, as previously reported.................. 290,752 75,209
---------- --------
Combined................................................ $ 329,048 $ 86,105
========== ========
</TABLE>
The Corporation also completed its acquisitions of West Newton Savings Bank,
with assets of approximately $254 million, and Cohasset Savings Bank, with
assets of approximately $78 million, on September 30, 1994, which were
accounted for as purchases. Also completed during 1994 were the purchases of:
ten branches from Northeast Savings, F.A., which had deposits of approximately
$427 million, on June 11, 1994; $25 million in deposits of a failed thrift
institution from the Resolution Trust Company on July 18, 1994 (renamed Shawmut
Bank, FSB); and the processing services division of Poorman-Douglas, a
bankruptcy claims processing company, on October 3, 1994.
PENDING ACQUISITIONS
In November 1994, the Corporation entered into a purchase agreement with
Barclays Bank PLC and Barclays Business Credit, Inc. pursuant to which the
Corporation agreed to purchase substantially all of the assets and to assume
certain of the liabilities of the Business Finance Division ("Barclays
Finance") of Barclays Business Credit, Inc., for a purchase price equal to the
net book value of the assets to be acquired and the liabilities to be assumed
plus a premium of $290 million. The book value of the assets to be acquired was
approximately $2.3 billion at December 31, 1994, and the book value of the
liabilities to be assumed was approximately $12.7 million at such date.
Barclays Finance, based in Glastonbury, Connecticut, provides
54
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
asset-based financing to middle market companies through a network of offices
nationwide. The acquisition was completed on January 31, 1995 and recorded
under the purchase method of accounting.
In June 1994, the Corporation entered into an agreement to acquire Northeast
Federal Corp. ("Northeast"). Northeast is a unitary savings and loan holding
company which provides financial services through its subsidiary, Northeast
Savings, F.A. As of December 31, 1994, Northeast had assets of $3.3 billion,
deposits of $2.4 billion and stockholders' equity of $138.9 million. Northeast
has 33 offices located in Connecticut, Massachusetts and upstate New York.
Pursuant to the agreement, Northeast stockholders will receive shares of the
Corporation's common stock in exchange for Northeast shares in accordance with
the exchange ratio provisions set forth therein, subject to a minimum exchange
ratio of .415 and a maximum exchange ratio of .507. The Northeast transaction
may be terminated if the transaction is not consummated on or before June 30,
1995 or if the Corporation's common stock average price, as defined, is less
than $21.465 per share for the fifteen consecutive full trading days prior to
the date on which the last regulatory approval required to consummate the
transaction has been obtained and all statutory waiting periods have expired
and, therefore, resulting in Northeast stockholders receiving less than $10.875
of the Corporation's common stock.
On January 11, 1995, Northeast publicly stated that the position of the
Northeast Board of Directors at the time it approved the agreement was to
terminate the agreement after receipt of the last regulatory approval if the
consideration to be received by Northeast stockholders is valued at less than
$10.875 per share of Northeast common stock and that the Northeast Board of
Directors has not changed that position. If Northeast terminates the agreement,
the Corporation's present intention is not to increase the exchange ratio above
.507.
NOTE 3-SECURITIES
A summary of the amortized cost and fair value of securities classified as
available for sale at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government and agency securi-
ties
U.S. Treasury.................... $1,275,041 $ 15 $52,344 $1,222,712
Mortgage backed.................. 204,498 2,046 451 206,093
Equity securities.................. 149,521 746 9,867 140,400
Corporate mortgage backed and other
securities........................ 446,186 23,633 422,553
State and municipal obligations.... 96 1 2 95
---------- ------ ------- ----------
Total.......................... $2,075,342 $2,808 $86,297 $1,991,853
========== ====== ======= ==========
</TABLE>
55
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1993
U.S. Government and agency
securities
U.S. Treasury.................... $1,695,536 $ 1,694 $ 4,077 $1,693,153
Mortgage backed.................. 730,321 27,689 1,757 756,253
Equity securities.................. 217,390 3,390 4,472 216,308
Corporate mortgage backed and other
securities........................ 525,090 914 2,256 523,748
State and municipal obligations.... 142 16 4 154
---------- ------- ------- ----------
Total.......................... $3,168,479 $33,703 $12,566 $3,189,616
========== ======= ======= ==========
</TABLE>
The amortized cost of securities classified as available for sale exceeded
fair value by approximately $83.5 million at December 31, 1994, consisting of
unrealized losses of approximately $86.3 million and unrealized gains of
approximately $2.8 million. The fair value of securities classified as
available for sale exceeded amortized cost by approximately $21.1 million at
December 31, 1993, consisting of unrealized gains of approximately $33.7
million and unrealized losses of approximately $12.6 million. As a result, net
unrealized losses of $54.3 million and net unrealized gains of $13.8 million on
securities classified as available for sale at December 31, 1994 and 1993,
respectively, were included as a separate component of shareholders' equity.
These net unrealized losses and gains are net of income tax effects of $29.2
million and $7.3 million, respectively.
The amortized cost and fair value of securities classified as held to
maturity at December 31, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government and agency securi-
ties
Mortgage backed................. $3,556,103 $ 1,010 $211,345 $3,345,768
U.S. Treasury................... 1,953,820 16 115,157 1,838,679
Asset backed and other securities. 2,490,459 42 113,058 2,377,443
---------- ------- -------- ----------
Total......................... $8,000,382 $ 1,068 $439,560 $7,561,890
========== ======= ======== ==========
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1993
U.S. Government and agency securi-
ties
Mortgage backed................. $3,332,189 $61,427 $ 1,392 $3,392,224
U.S. Treasury................... 1,713,534 3,072 7,067 1,709,539
Asset backed and other securities. 2,106,603 26,754 6,324 2,127,033
---------- ------- -------- ----------
Total......................... $7,152,326 $91,253 $14,783 $7,228,796
========== ======= ======== ==========
</TABLE>
56
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of the acquisitions completed during the second quarter of 1994,
certain securities previously classified as held to maturity by the acquired
entities were transferred to securities classified as available for sale and
certain securities classified as available for sale were sold in order to
maintain the Corporation's interest rate risk profile. The net loss recognized
upon the sale of these securities of $12.5 million is included in merger
related charges. The amortized cost and fair value of the securities
transferred from the held to maturity category to available for sale were
$112.1 million and $106.9 million, respectively. Also, securities previously
classified as available for sale by the acquired entities, with a fair value of
$377.5 million, were transferred to securities classified as held to maturity.
The proceeds from sales of these securities classified as available for sale,
inclusive of certain securities previously classified as held to maturity by
the acquired entities, were $264.0 million, which resulted in gross realized
losses of $14.7 million and gross realized gains of $2.2 million during the
second quarter of 1994.
Proceeds from sales of debt securities during 1994, 1993 and 1992 totaled
approximately $3.1 billion, $4.5 billion and $4.7 billion, respectively, and
resulted in gains of approximately $4.7 million, $19.3 million and $94.4
million and losses of approximately $17.2 million, $2.8 million and $1.2
million. Securities with a carrying amount of $5.7 billion were pledged to
secure public deposits, borrowings and for other purposes required by law at
December 31, 1994.
Upon the adoption of FAS 115 as of December 31, 1993, securities aggregating
$708.2 million, previously reported at the lower of aggregate cost or fair
value or at amortized cost, were transferred to securities classified as held
to maturity. Also, securities aggregating $286.1 million were transferred from
the held to maturity portfolio to securities available for sale.
The amortized cost and fair value of securities at December 31, 1994, by
maturity date, are summarized below. Mortgage backed securities are included in
the table based upon contractual maturity.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less............ $ 87,532 $ 87,128 $ 532,377 $ 518,608
Due after one year through five
years............................. 992,122 955,261 3,282,550 3,103,219
Due after five years through ten
years............................. 231,917 213,549 2,343,130 2,195,847
Due after ten years................ 614,250 595,515 1,842,325 1,744,216
---------- ---------- ---------- ----------
1,925,821 1,851,453 8,000,382 7,561,890
Equity securities.................. 149,521 140,400
---------- ---------- ---------- ----------
Total.......................... $2,075,342 $1,991,853 $8,000,382 $7,561,890
========== ========== ========== ==========
</TABLE>
57
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--LOANS AND RESERVE FOR CREDIT LOSSES
The components of the Corporation's loan portfolio at December 31, 1994 and
1993, net of unearned income of $32.8 million and $12.8 million, respectively,
are summarized below:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial.............................. $ 7,006,396 $ 6,393,501
----------- -----------
Owner-occupied commercial real estate.................. 1,412,007 1,492,820
----------- -----------
Real estate investor/developer
Commercial mortgage.................................. 1,309,224 1,526,457
Construction and other............................... 157,391 160,740
----------- -----------
Total investor/developer........................... 1,466,615 1,687,197
----------- -----------
Consumer
Residential mortgage................................. 5,592,084 5,325,904
Home equity.......................................... 1,625,662 1,637,773
Installment and other................................ 1,384,379 1,060,493
----------- -----------
Total consumer..................................... 8,602,125 8,024,170
----------- -----------
Total.............................................. 18,487,143 17,597,688
Less reserve for credit losses......................... 542,116 669,156
----------- -----------
Total.............................................. $17,945,027 $16,928,532
=========== ===========
</TABLE>
Loans totaling $19.5 million, $37.2 million and $275.6 million were
transferred to foreclosed properties during 1994, 1993 and 1992, respectively.
In connection with the acquisitions completed during the second quarter of
1994, fixed-rate residential mortgage loans with a carrying amount of
approximately $244.0 million were transferred to residential mortgages held for
sale and sold during the third quarter of 1994. The Corporation recognized a
loss of $12.0 million on this sale which is included in merger related charges.
Loans outstanding to directors, executive officers, principal holders of
equity securities or to any of their associates totaled $55.7 million at
December 31, 1994 and $22.7 million at December 31, 1993. A total of $79.4
million in loans were made or added, while a total of $46.4 million were repaid
or deducted during 1994. Changes in the composition of the board of directors
or the group comprising executive officers result in additions to or deductions
from loans outstanding to directors, executive officers or principal holders of
equity securities.
58
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The details of the Corporation's nonaccruing loans, restructured loans and
accruing loans past due 90 days or more at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial.................................... $ 35,982 $ 85,008
-------- --------
Owner-occupied commercial real estate........................ 57,560 79,561
-------- --------
Real estate investor/developer
Commercial mortgage........................................ 66,909 97,346
Construction and other..................................... 16,012 25,054
-------- --------
Total investor/developer................................. 82,921 122,400
-------- --------
Consumer
Residential mortgage....................................... 38,398 71,722
Home equity................................................ 6,548 8,673
Installment and other...................................... 2,542 5,536
-------- --------
Total consumer........................................... 47,488 85,931
-------- --------
Total nonaccruing loans.................................. $223,951 $372,900
======== ========
Restructured loans........................................... $ 41,752 $ 73,345
======== ========
Accruing loans past due 90 days or more...................... $ 43,264 $ 42,616
======== ========
</TABLE>
Interest income related to nonaccruing and restructured loans would have been
approximately $25.0 million in 1994 and $48.0 million in 1993 had these loans
been current and the terms of the loans had not been modified. Interest income
recorded on these loans totaled approximately $3.5 million in 1994 and $11.0
million in 1993. Interest income received on these loans and applied as a
reduction of principal totaled approximately $9.8 million and $15.1 million in
1994 and 1993, respectively.
Changes affecting the reserve for credit losses for the years ended December
31, 1994, 1993 and 1992, respectively, are summarized below:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.................... $669,156 $908,394 $1,043,689
Provision charged to operations................. 3,000 55,944 242,128
Addition for loans purchased.................... 4,287
Loans charged off............................... (190,552) (349,631) (423,051)
Recoveries on loans charged off................. 56,225 54,449 45,628
-------- -------- ----------
Balance at end of year.......................... $542,116 $669,156 $ 908,394
======== ======== ==========
</TABLE>
The Financial Accounting Standards Board issued FAS No. 114, "Accounting By
Creditors for Impaired Loans", in May 1993. The new accounting standard will
require that impaired loans, which are defined as loans where it is probable
that a creditor will not be able to collect both the contractual interest and
principal payments, be measured at the present value of expected future cash
flows discounted at the loan's effective rate when assessing the need for a
loss accrual. The new accounting standard is effective for the Corporation's
financial statements beginning January 1, 1995. The Corporation does not
anticipate that adoption of the new accounting standard will have a material
effect on its financial position or results of operations.
59
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--PREMISES AND EQUIPMENT
The components of premises and equipment at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1994 1993
-------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.......................................... $ 30,070 $ 30,563
Buildings..................................... 10 to 40 years 193,073 191,558
Leasehold improvements........................ 5 to 10 years 125,551 144,233
Equipment..................................... 4 to 15 years 395,834 400,263
-------- --------
Total..................................... 744,528 766,617
Less accumulated depreciation and amortiza-
tion......................................... 414,748 433,657
-------- --------
Total..................................... $329,780 $332,960
======== ========
</TABLE>
Depreciation and amortization expense of $49.2 million in 1994, $52.3 million
in 1993 and $54.7 million in 1992 is included in occupancy expense or equipment
expense, depending upon the nature of the asset.
The Corporation occupies certain other premises and rents equipment,
primarily data processing equipment, under leases that are accounted for as
operating leases. These leases have expiration dates through 2023. Operating
lease rentals aggregated $51.7 million in 1994, $54.2 million in 1993 and $59.9
million in 1992. Such amounts are recorded net of sublease income totaling $1.4
million in 1994, $1.5 million in 1993 and $1.2 million in 1992.
The minimum rental commitments of the Corporation at December 31, 1994 under
the terms of operating leases in excess of one year were as follows: $34.1
million in 1995; $29.8 million in 1996; $23.9 million in 1997; $19.6 million in
1998; $16.8 million in 1999; and $119.5 million after 1999.
NOTE 6--FORECLOSED PROPERTIES
Foreclosed properties of $18.8 million and $64.5 million are stated net of
reserves of $12.6 million and $15.2 million at December 31, 1994 and 1993,
respectively. Provisions charged to operations for changes in the carrying
value of foreclosed properties amounted to $4.0 million, $76.6 million and
$140.4 million in 1994, 1993 and 1992, respectively.
NOTE 7--OTHER ASSETS AND ACCRUED EXPENSES AND OTHER LIABILITIES
The components of other assets at December 31, 1994 and 1993 are presented
below:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accrued interest income.................................. $ 227,654 $ 171,084
Net deferred income taxes................................ 164,958 200,871
Cash surrender value of life insurance................... 156,913
Goodwill and other intangibles........................... 154,488 109,671
Prepaid pension expense.................................. 128,614 128,302
Receivable for securities sold........................... 10,000 219,111
Other.................................................... 430,063 475,550
---------- ----------
Total................................................ $1,272,690 $1,304,589
========== ==========
</TABLE>
60
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of accrued expenses and other liabilities at December 31, 1994
and 1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued interest expense..................................... $ 96,082 $ 70,887
Accrued dividends payable.................................... 30,429 24,090
Accrued restructuring expenses............................... 19,045 6,854
Accrued merger expenses...................................... 13,772
Accrued postretirement health care and life insurance bene-
fits expense................................................ 13,117 8,057
Accrued postemployment benefits expense...................... 8,645 8,400
Other........................................................ 160,562 84,628
-------- --------
Total.................................................... $341,652 $202,916
======== ========
</TABLE>
NOTE 8--OTHER BORROWINGS
Other borrowings of the Corporation at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased.................................. $1,342,961 $1,709,315
Securities sold under agreements to repurchase........... 4,733,847 5,784,932
Treasury tax and loan funds.............................. 323,883 599,962
Private placement notes.................................. 210,997 174,996
Federal Home Loan Bank of Boston borrowings.............. 452,108 1,013,746
Other.................................................... 22,783
---------- ----------
Total................................................ $7,086,579 $9,282,951
========== ==========
</TABLE>
The scheduled maturities of Federal Home Loan Bank of Boston borrowings at
December 31, 1994 are as follows: $254.2 million due in 1995 with interest
rates at 4.12 to 9.01 percent; and $197.9 million due in 1996 and thereafter
with interest rates at 4.88 to 8.51 percent.
Securities sold under agreements to repurchase, representing primarily U.S.
Government agency securities, at December 31, 1994 are detailed below by due
date:
<TABLE>
<CAPTION>
LESS THAN 30-90
OVERNIGHT 30 DAYS DAYS TOTAL
---------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities sold
Amortized cost................... $2,649,686 $2,422,656 $64,341 $5,136,683
Fair value....................... 2,453,220 2,261,054 59,027 4,773,301
Repurchase borrowings.............. 2,447,720 2,227,784 58,343 4,733,847
Average borrowing interest rate.... 5.85% 5.94% 5.47% 5.89%
</TABLE>
61
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9--NOTES AND DEBENTURES
The Corporation's notes and debentures at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
1994 1993
---------- --------
(IN THOUSANDS)
<S> <C> <C>
BANK HOLDING COMPANIES
9.85% subordinated capital notes due June 1, 1999, net of
discount.................................................. $ 149,931 $149,915
8 7/8% notes due April 1, 1996, net of discount............ 149,866 149,769
7.20% subordinated notes due April 15, 2003, net of dis-
count..................................................... 149,750 149,720
8 5/8% subordinated notes due December 15, 1999, net of
discount.................................................. 149,736 149,684
8 1/8% notes due February 1, 1997, net of discount......... 99,916 99,880
Floating rate subordinated notes due February 14, 1997..... 50,000 50,000
---------- --------
Total.................................................. 749,199 748,968
---------- --------
BANK SUBSIDIARIES:
Floating rate senior notes due 1995 and 1996............... 1,038,000
5.50% senior note due June 30, 1995........................ 200,000
5.60% senior note due February 1, 1995..................... 25,000
Other...................................................... 9,589 9,973
---------- --------
Total.................................................. 1,272,589 9,973
---------- --------
Total.............................................. $2,021,788 $758,941
========== ========
</TABLE>
The agreement for the 9.85% subordinated capital notes provides that, on the
maturity date of June 1, 1999, the notes, at the Corporation's option, will
either be exchanged for common stock, preferred stock or certain other primary
capital securities of the Corporation having a market value equal to the
principal amount of the notes, or will be repaid from the proceeds of other
issuances of such securities. The Corporation may, however, at its option,
revoke its obligation to redeem the notes with capital securities based upon
the capital treatment of the notes by its primary regulator or consent by its
primary regulator for such revocation. The holders of the capital notes are
subordinate in rights to depositors and other creditors.
Floating rate senior notes issued under the Corporation's subsidiary banks'
note program at December 31, 1994 mature from three months to two years and
currently have interest rates of 5.64 to 6.58 percent. The weighted average
interest rate on the floating rate senior notes at December 31, 1994 was 6.10
percent.
Both the 8 7/8% and 8 1/8% notes are unsecured obligations with interest
payable semiannually. The floating rate subordinated notes bear interest at a
rate of 3/8 percent above LIBOR (London Inter Bank Offered Rate). Both the 8
5/8% and 7.20% subordinated notes may not be redeemed prior to maturity.
Interest is payable semiannually.
Certain of the Corporation's note and debenture agreements include provisions
that limit the ability of the Corporation to sell the capital stock of its
subsidiary banks or dispose of significant portions of assets of these
subsidiaries.
The scheduled maturities of the Corporation's notes and debentures for each
of the next five years are as follows: $1,013.4 million in 1995; $400.3 million
in 1996; $150.4 million in 1997; $.5 million in 1998; $300.2 million in 1999;
and $157.0 million after 1999.
On February 14, 1995, Shawmut Bank Connecticut completed a $250 million
offering of 8 5/8% subordinated bank notes due 2005.
Refer to Note 20--"Parent Company Financial Information" for further
discussion of parent company notes and debentures.
62
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10--SHAREHOLDERS' EQUITY
The payment of dividends is determined by the Board of Directors in light of
the earnings, capital levels, cash requirements and the financial condition of
the Corporation and its subsidiaries, applicable government regulations and
policies and other factors deemed relevant by the Board of Directors, including
the amount of dividends payable to the Corporation by its subsidiary banks.
Various federal laws, regulations and policies limit the ability of the
Corporation's subsidiary banks to pay dividends. See Note 18--"Regulatory
Matters".
The Corporation's Board of Directors is authorized to issue up to 10,000,000
shares of preferred stock without par value in series and to determine the
designation, dividend rates, redemption provisions, liquidation preferences,
sinking fund provisions and all other rights of each series. The Corporation
had outstanding at December 31, 1994 a series of 575,000 shares of 9.30%
Cumulative Preferred Stock with a stated value of $250 per share represented by
Depositary Shares and a series of 688,700 shares of Preferred Stock with
Cumulative and Adjustable Dividends with a stated value of $50 per share. Both
series of preferred stock rank senior to the Corporation's common stock as to
dividends and liquidation preference.
The Depositary Shares represent a one-tenth interest in a share of 9.30%
Cumulative Preferred Stock and are not subject to any mandatory redemption or
sinking fund provisions. The 9.30% Cumulative Preferred Stock will be
redeemable on at least 30 but not more than 60 days notice, at the option of
the Corporation, as a whole or in part, at any time on and after October 15,
1997 at a redemption price equal to $250 per share plus dividends accrued and
accumulated but unpaid to the redemption date.
The dividend rate on the Preferred Stock with Cumulative and Adjustable
Dividends is established quarterly and is based on a rate that is 2.25 percent
below the highest interest rate of selected short- and long-term U. S. Treasury
securities prevailing at the time the rate is set. The dividend rate for any
dividend period will in no event be less than 6.00 percent or greater than
12.00 percent per annum. This series of preferred stock is redeemable, at the
Corporation's option, at $50.00 per share.
Dividends of $23.25, $23.25 and $4.65 per share were declared on the 9.30%
Cumulative Preferred Stock during 1994, 1993 and 1992, respectively. Dividends
of $3.00, $3.00 and $3.01 per share were declared during 1994, 1993 and 1992,
respectively, on the Preferred Stock with Cumulative and Adjustable Dividends.
Dividends declared per common share were $.82 and $.50 during 1994 and 1993,
respectively. There were no dividends declared on common shares during 1992.
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.
On October 10, 1991, New Dartmouth (which was subsequently merged with
Shawmut Bank NH upon consummation of the acquisition discussed in Note 2--
"Merger and Acquisitions") issued 347,073 shares of non-voting, convertible,
redeemable, preferred stock ("FDIC Preferred Stock") to the Federal Deposit
Insurance Corporation ("FDIC") at a price of $89.46 per share. The shares of
FDIC Preferred Stock were redeemable at New Dartmouth's option. During 1993,
New Dartmouth redeemed 177,000 shares of FDIC Preferred Stock at the stipulated
redemption prices. On May 27, 1994, New Dartmouth redeemed the remaining shares
of FDIC Preferred Stock from the FDIC at a redemption price of $107.77 per
share.
The Corporation's rights plan provides for the distribution of one right for
each outstanding share of common stock. Each right entitles common stockholders
to buy one-one hundredth of a newly issued share of Series A Junior
Participating Preferred Stock of the Corporation at an exercise price of $100
per share, subject to adjustment. The rights, which will expire March 10, 1999,
can be redeemed by the Corporation
63
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under certain circumstances at one cent per right. The rights become
exercisable if certain events relating to the acquisition or proposed
acquisition of common shares of the Corporation occur. When exercisable, under
certain circumstances, each right will enable its holder to purchase, at the
right's then current exercise price, common shares of the Corporation (or,
under certain circumstances, a combination of cash, property, common shares or
other securities) having a value of twice the right's exercise price. In
addition, if thereafter the Corporation is involved in a merger or other
business combination transaction with another person in which its shares are
changed or exchanged, or if the Corporation sells more than 50 percent of its
assets, cash flow, or earning power to another person or persons, each right
(with certain exceptions) that has not previously been exercised will entitle
its holder to purchase, at the right's then current exercise price, common
shares of such other person having a value of twice the right's exercise price.
Common shares totaling 20,531,741 at December 31, 1994 were reserved for
issuance under the Dividend Reinvestment and Stock Purchase Plan and the
Corporation's Stock Option and Restricted Stock Award Plans. Common shares
totaling 8,023,915 at December 31, 1994 were reserved for issuance for the
pending acquisition of Northeast.
In connection with the settlement of certain litigation, the Corporation
issued warrants for the purchase of up to 1,329,115 shares of common stock on
January 18, 1994. The warrants have an exercise price of $22.11 per share, are
listed on the New York Stock Exchange, are freely tradable and are exercisable
for a period of one year, commencing January 18, 1995.
NOTE 11--PENSION AND OTHER EMPLOYEE BENEFIT PLANS
Pension and Thrift Plans--The Corporation has noncontributory, qualified
defined benefit pension plans covering substantially all full-time employees
meeting certain requirements as to age and length of service. For those vested,
the plans provide a monthly benefit upon retirement based on compensation
during the five consecutive highest paid years of employment and years of
credited service. It is the Corporation's policy to fund annually an amount
consistent with the funding requirements of federal law and regulations and not
to exceed an amount which would be deductible for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future. The
assets of the plans are primarily invested in listed stocks.
The Corporation also has supplemental retirement plans that cover certain
employees and pay benefits that supplement any benefits paid under the
qualified plans. Benefits under the supplemental plans are generally based on
compensation not includible in the calculation of benefits to be paid under the
qualified plans.
The following table sets forth the funding status and the prepaid pension
expense of the Corporation's pension and supplemental benefit plans recognized
in the balance sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $(128,213) $(119,942)
========= =========
Accumulated benefit obligation......................... $(139,990) $(136,727)
========= =========
Projected benefit obligation for services rendered to
date.................................................... $(162,273) $(192,107)
Plan assets at fair market value......................... 263,427 262,629
--------- ---------
Plan assets in excess of projected benefit obligation.... 101,154 70,522
Unrecognized net actuarial loss.......................... 17,706 46,225
Unrecognized prior service cost.......................... 13,997 15,928
Unrecognized net asset................................... (4,243) (4,373)
--------- ---------
Prepaid pension expense.................................. $ 128,614 $ 128,302
========= =========
</TABLE>
64
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's net pension expense (income) was $4.3 million in 1994, $1.7
million in 1993 and $(1.4) million in 1992.
The components of net pension expense (income) for the years ended December
31, 1994, 1993 and 1992 for all plans were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned during the peri-
od.............................................. $ 13,577 $ 10,374 $ 9,820
Interest cost on projected benefit obligation.... 14,153 12,385 9,998
Actual return on plan assets..................... (4,041) (17,262) (27,110)
Net amortization and deferral of gains and loss-
es.............................................. (19,396) (3,780) 6,911
Settlement and curtailment gains, net............ (1,049)
-------- -------- --------
Net pension expense (income)..................... $ 4,293 $ 1,717 $ (1,430)
======== ======== ========
</TABLE>
Significant rate assumptions as of December 31, 1994, 1993 and 1992, used in
determining 1994, 1993 and 1992 net pension expense (income) and related
pension obligations were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate used in determining projected benefit obliga-
tion........................................................ 8.5% 7.5% 8.5%
Rate of increase in compensation levels...................... 4.5 4.5 4.5
Long-term rate of return on plan assets...................... 10.0 10.0 10.0
</TABLE>
The Corporation also sponsors defined contribution plans covering
substantially all employees. Contributions under such plans totaled $7.2
million in 1994, $6.8 million in 1993 and $6.3 million in 1992.
Postretirement Health Care and Life Insurance Benefits--The Corporation
provides health care and life insurance benefits for retired employees that
have met certain age and service requirements. The postretirement medical plan
and one of the life insurance plans are contributory with contributions
adjusted annually to reflect certain cost-sharing provisions of the plans. The
remaining two postretirement life insurance plans are noncontributory. It is
the Corporation's policy to fund the postretirement benefit plans as claims are
paid. Plan assets represent the cash surrender value of life insurance policies
related to one of the plans described above.
The Corporation adopted FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective January 1, 1993. This
accounting standard requires the expected cost of these postretirement health
care and life insurance benefits to be accrued and charged to operations during
the years the employees render the service. The Corporation is amortizing the
transition obligation of $95.5 million on a straight-line basis over 20 years.
The postretirement benefits expense was $15.0 million and $14.9 million in 1994
and 1993, respectively. Previously, the Corporation's postretirement benefits
were expensed as claims were paid and totaled approximately $5.0 million in
1992.
65
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the funded status and the accrued
postretirement health care and life insurance benefits expense of the
Corporation's postretirement benefit plans recognized in the balance sheet at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees................................................ $(61,771) $ (65,870)
Fully eligible active plan participants................. (23,123) (19,899)
Other active plan participants.......................... (12,899) (16,526)
-------- ---------
Total................................................. (97,793) (102,295)
Plan assets at fair market value.......................... 2,211 2,292
-------- ---------
Accumulated postretirement benefit obligation in excess of
plan assets.............................................. (95,582) (100,003)
Unrecognized net actuarial (gain) loss.................... (2,857) 1,173
Unrecognized transition obligation........................ 85,322 90,773
-------- ---------
Accrued postretirement health care and life insurance ben-
efits expense............................................ $(13,117) $ (8,057)
======== =========
</TABLE>
The components of the annual postretirement health care and life insurance
benefits expense for the years ended December 31, 1994 and 1993 are summarized
below:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost for benefits earned during the period........... $ 3,010 $ 2,398
Interest cost on projected benefit obligation................ 7,272 7,821
Actual return on plan assets................................. (115) (112)
Net amortization of the transition obligation................ 4,740 4,778
Net amortization and deferral of gains and losses............ 48
------- -------
Postretirement health care and life insurance benefits ex-
pense....................................................... $14,955 $14,885
======= =======
</TABLE>
Significant rate assumptions as of December 31, 1994 and 1993 used in
determining 1994 and 1993 postretirement health care and life insurance
benefits expense and related obligation were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate used in determining accumulated postretirement bene-
fit obligation.................................................... 8.5% 7.5%
Rate of increase in compensation levels............................ 4.5 4.5
Long-term rate of return on plan assets............................ 5.0 5.0
Medical cost trend rate............................................ 12.0 12.0
Medicare benefits trend rate....................................... 10.5 10.5
</TABLE>
The assumptions for medical costs and Medicare benefits trend to 5.0 percent
by the year 2002 and remain constant thereafter. Increasing the assumed health
care cost trend rate by one percentage point would increase the accumulated
postretirement benefit obligation at December 31, 1994 by $5.2 million and
increase the aggregate of the service and interest cost components of net
periodic postretirement benefits expense for 1994 by $.4 million.
66
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Postemployment Benefits--The Corporation provides disability and workers'
compensation related benefits to former or inactive employees after employment
but before retirement and has also provided supplemental severance benefits to
certain former employees. The Corporation adopted, in the fourth quarter of
1993 retroactive to January 1, 1993, FAS No. 112, "Employers' Accounting for
Postemployment Benefits". This accounting standard requires that the cost of
these benefits be accrued and charged to operations if the obligation is
attributable to services already rendered, rights to such benefits accumulate
or vest, payment of the benefits is probable and the amount of the benefits can
be reasonably estimated. The Corporation recognized an after-tax charge of $6.6
million recorded as a cumulative effect of a change in method of accounting in
1993 relating to the adoption of this new accounting standard. Severance
related amounts of $16.3 million were included in restructuring related charges
in 1993. The Corporation's postemployment benefits expense for 1994, including
severance amounts of $26.6 million included in restructuring related charges,
was $28.3 million.
Stock Option and Restricted Stock Award Plans--The Corporation has Stock
Option and Restricted Stock Award Plans (the Plans), which provide for the
granting of incentive and nonqualified stock options to certain employees for
the purchase of Shawmut National Corporation common stock at 100 percent of
fair market value at the date of grant. Options granted under the Plans are
exercisable after a minimum of one year but within ten years of the date of
grant. Also, options granted may be accompanied by stock appreciation rights
(SARs) or limited stock appreciation rights (LSRs), or both. SARs and LSRs
entitle the holder to receive payment equal to the increase in the market value
of the common stock from the date of grant to the date of exercise. LSRs may be
exercised only during the 60-day period following a change of control. SARs and
LSRs may be granted only in tandem with stock options and may be paid in cash
or common stock at the election of the employee. At December 31, 1994, 534,200
outstanding stock options had been issued with SARs attached. Common stock
issued relating to restricted stock awards amounted to 18,000 shares in 1994,
48,000 shares in 1993 and 226,000 shares in 1992.
The Plans also provide for the granting of restricted stock and performance
share units to certain key executives. A performance share unit represents an
interest in a restricted share of common stock and any dividends declared.
Grants of performance share units are determined using certain guidelines based
on salary and responsibility levels, as well as predetermined performance
criteria. A total of 9,382,790 shares of common stock have been reserved for
the Plans at December 31, 1994, including the performance share units. Charges
for the Plans related to restricted stock awards totaled $.9 million in 1994,
$1.0 million in 1993 and $.8 million in 1992. A grant of 163,000 shares of
performance share units occurred in March 1994, for the performance periods
beginning January 1, 1994 through December 31, 1996. A grant of 308,200 shares
of performance share units occurred in October 1993, for the performance
periods beginning January 1, 1994 through December 31, 1995. Compensation
expense is recognized based on the fair value of the performance share units
over these periods and totaled $4.6 million in 1994.
67
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions in the Corporation's stock options for the three year period
ended December 31, 1994 are summarized below:
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE TOTAL
SHARES PER SHARE (IN THOUSANDS)
---------- --------- --------------
<S> <C> <C> <C>
Outstanding December 31, 1991............. 2,555,080 $ 5-31 $40,686
Granted in 1992........................... 888,116 8-19 9,274
Cancelled in 1992......................... (397,871) 4-30 (7,846)
Exercised in 1992......................... (282,782) 4-11 (1,740)
---------- ------ -------
Outstanding December 31, 1992............. 2,762,543 5-31 40,374
---------- ------ -------
Granted in 1993........................... 1,462,027 10-25 32,234
Cancelled in 1993......................... (290,136) 4-31 (6,950)
Exercised in 1993......................... (475,310) 4-23 (3,424)
---------- ------ -------
Outstanding December 31, 1993............. 3,459,124 4-30 62,234
---------- ------ -------
Granted in 1994........................... 1,979,199 7-24 36,309
Cancelled in 1994......................... (440,841) 4-30 (11,111)
Exercised in 1994......................... (1,094,982) 4-24 (9,228)
---------- ------ -------
Outstanding December 31, 1994............. 3,902,500 $ 4-26 $78,204
========== ====== =======
Options exercisable at December 31, 1994.. 1,295,902 $ 4-26 $19,281
========== ====== =======
Shares available for future grants at De-
cember 31, 1994.......................... 5,320,535
==========
</TABLE>
NOTE 12--OTHER NONINTEREST INCOME AND NONINTEREST EXPENSES
The components of other noninterest income for the years ended December 31,
1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan servicing........................................ $32,185 $16,005 $ 20,222
Foreign exchange trading.............................. 989 2,964 9,288
Trading account profits............................... 4,488 6,379 6,559
Residential mortgage sales............................ 1,944 26,933 10,042
FDIC assistance....................................... 13,792 5,010
Loan securitizations and sales........................ 22,335
Other................................................. 25,601 29,011 52,684
------- ------- --------
Total............................................. $65,207 $95,084 $126,140
======= ======= ========
</TABLE>
68
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of noninterest expenses, excluding merger and restructuring
related charges, for the years ended December 31, 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Compensation......................................... $391,994 $414,074 $402,198
Benefits............................................. 86,148 86,180 72,527
-------- -------- --------
Total............................................ $478,142 $500,254 $474,725
======== ======== ========
Occupancy............................................ $ 99,265 $105,389 $112,257
Equipment............................................ 55,246 58,403 67,250
-------- -------- --------
Total............................................ $154,511 $163,792 $179,507
======== ======== ========
Foreclosed properties
Provision.......................................... $ 3,993 $ 76,598 $140,417
Expense............................................ 7,709 28,575 37,396
-------- -------- --------
Total............................................ $ 11,702 $105,173 $177,813
======== ======== ========
FDIC insurance premiums.............................. $ 43,711 $ 52,302 $ 44,937
Communications....................................... 42,983 45,890 48,195
Advertising.......................................... 19,902 22,240 16,004
Other................................................ 179,812 211,022 213,400
-------- -------- --------
Total............................................ $286,408 $331,454 $322,536
======== ======== ========
</TABLE>
MERGER AND RESTRUCTURING RELATED CHARGES
Merger related charges of $100.9 million recorded during the second quarter
of 1994 are discussed more fully in Note 2--"Merger and Acquisitions".
Restructuring related charges of $39.8 million recorded in the second quarter
of 1994 reflect the expansion of the Corporation's cost management program. The
program included an organizational streamlining and the elimination of more
than 600 full-time equivalent positions. The expanded program had also
identified cost reductions to be achieved through improved management of
occupancy costs and consolidation of purchasing activities. The restructuring
related charges include $26.6 million for severance and benefit related costs
and $13.2 million for the consolidation of branch and operations facilities and
other costs. Accrued restructuring expenses totaled $19.0 million at December
31, 1994. It is anticipated that the restructuring program will be
substantially completed by the end of the second quarter of 1995.
NOTE 13--INCOME TAXES
The current and deferred components of income taxes for the years ended
December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................ $ 56,378 $17,943 $ 1,136
State and other.................................... 9,925 3,932 4,396
-------- ------- -------
Total current income taxes....................... 66,303 21,875 5,532
-------- ------- -------
Deferred
Federal............................................ 58,099 (14,459) 35,211
State and other.................................... 9,850 (788) 155
-------- ------- -------
Total deferred income taxes...................... 67,949 (15,247) 35,366
-------- ------- -------
Total income taxes............................... $134,252 $ 6,628 $40,898
======== ======= =======
</TABLE>
69
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of the difference between consolidated income tax expense
and the amount computed by applying the federal statutory rate of 35 percent
for the years ended December 31, 1994 and 1993 and 34 percent for the year
ended December 31, 1992 is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rate on income........... $130,061 $101,317 $36,933
Tax-exempt securities, loan and other income, net
of interest disallowance......................... (4,651) (3,451) (3,987)
Dividend received exclusion....................... (2,992) (3,615) (3,839)
Effect of change in tax rates..................... (7,928)
Reduction in federal valuation allowance.......... (11,231) (85,000)
Acquisition related tax expense................... 5,000
State income tax expense, net of federal tax bene-
fit.............................................. 10,975 2,943 3,017
Operating loss generating no current tax benefit.. (1,175) 6,627
Nondeductible merger expenses..................... 3,833
Purchase accounting adjustment.................... 775
Other items....................................... 3,257 3,537 1,372
-------- -------- -------
Total income tax expense...................... $134,252 $ 6,628 $40,898
======== ======== =======
</TABLE>
Income tax expense associated with net securities gains, computed by applying
the federal statutory rate of 35 percent (34 percent in 1992) to securities
transactions, was $4.4 million and $32.0 million for the years ended December
31, 1993 and 1992, respectively. There were no net securities gains in 1994.
The Corporation has state net operating loss carryforwards of $921.0 million
at December 31, 1994, primarily in one taxing jurisdiction. These carryforwards
will expire during the years 1995 to 1999. Federal net operating loss
carryforwards totaled $21.2 million at December 31, 1994 and will expire in the
years 2007 and 2008.
The Corporation adopted FAS No. 109, "Accounting for Income Taxes",
prospectively, effective January 1, 1993. The cumulative effect of this
accounting change was the recognition of a $52.8 million income tax benefit in
the first quarter of 1993.
The realization of the Corporation's net deferred tax assets is dependent
upon the ability to generate taxable income in future periods. The Corporation
has evaluated the available evidence supporting the realization of its net
deferred federal tax asset of $165.0 million at December 31, 1994, including
the amount and timing of future taxable income, and determined it is more
likely than not that the asset will be realized. Deferred state tax assets, net
of related federal tax, totaled $98.4 million at December 31, 1994 and were
reduced in their entirety by a valuation allowance of the same amount. Given
the nature of state tax laws, the Corporation believes that uncertainty remains
concerning the realization of tax benefits in various state jurisdictions.
These benefits may, however, be recorded in the future as realized or as it
becomes more likely than not, in management's best judgment, that such tax
benefits or portions thereof will be realized.
70
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for the same items for income
tax reporting purposes. Significant components of the Corporation's deferred
tax assets and liabilities as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Credit loss reserves......................................... $177,198 $222,764
State deferred taxes, net of federal amounts................. 98,359 115,119
Writedowns of foreclosed properties.......................... 19,537 22,766
Net operating loss carryforward.............................. 8,903 6,726
Loan discount accretion...................................... 3,831 4,836
Federal financial assistance................................. 7,390
Other, net................................................... 26,395 19,771
-------- --------
Gross deferred tax assets.................................. 334,223 399,372
-------- --------
Deferred tax liabilities:
Employee benefits............................................ 38,336 38,049
Excess of book over tax basis of assets acquired............. 2,856 10,246
Depreciation and leasing..................................... 29,714 23,856
-------- --------
Gross deferred tax liabilities............................. 70,906 72,151
-------- --------
Deferred tax asset valuation allowances:
Federal.................................................... 11,231
State...................................................... 98,359 115,119
-------- --------
Net deferred tax assets...................................... $164,958 $200,871
======== ========
</TABLE>
NOTE 14--CREDIT CONCENTRATIONS AND CREDIT RELATED FINANCIAL INSTRUMENTS
The Corporation provides deposit and loan products and other financial
services to a wide variety of consumer and commercial customers. Approximately
80 percent of the lending relationships are to customers located within New
England, while the remaining lending relationships are to customers diversified
throughout the United States. The Corporation's loan portfolio at December 31,
1994 consisted of commercial and industrial loans (38 percent), consumer loans
(46 percent), real estate investor/developer loans (8 percent) and owner-
occupied commercial real estate loans (8 percent). For details of the
Corporation's loan portfolio by type as of December 31, 1994 and 1993, see
Tables 11 through 15 on pages 37 through 39.
The Corporation manages its loan portfolio to avoid concentration by industry
or loan size to minimize its credit exposure. Commercial loans may be
collateralized by the assets underlying the borrowers' business such as
accounts receivable, equipment, inventory and real property. Consumer loans
such as residential mortgage and installment loans are generally secured by the
real or personal property financed. Commercial real estate loans are generally
secured by the underlying real property and rental agreements.
Credit-related financial instruments that have off-balance sheet credit risk
are used by the Corporation to meet the financing need of its customers. Credit
risk represents the accounting loss that would be recognized at the reporting
date if counterparties failed to perform as contracted and the underlying
collateral is worthless. However, the majority of the Corporation's commitments
to extend credit are secured by collateral with sufficient value as prescribed
by internal underwriting guidelines. Therefore, credit risk should not be
interpreted as the amount of loss the Corporation would incur.
71
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of credit-related financial instruments at December 31, 1994 and
1993 is presented below:
<TABLE>
<CAPTION>
1994 1993
----------------------- ---------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT RISK AMOUNT RISK
----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Instruments whose contract
amounts represent credit risk
Commitments to extend credit.. $12,210,524 $12,210,524 $7,907,890 $7,907,890
Standby letters of credit..... 1,836,381 1,836,381 1,366,373 1,366,373
Residential mortgage loans
sold with recourse........... 153,335 153,335 283,722 283,722
</TABLE>
Commitments to extend credit at December 31, 1994 included commercial and
industrial lines of $10.5 billion, consumer home equity credit lines of $1.2
billion and commercial real estate lines of $.5 billion. Since the Corporation
expects many of its commitments will expire without being drawn upon, total
commitment amounts do not necessarily represent the Corporation's future
liquidity requirements.
Standby letters of credit are obligations to make payments under certain
conditions to meet contingencies related to customers' contractual agreements
and are subject to the same risk, credit review and approval process as a loan.
Letters of credit are primarily used to enhance credit for public and private
borrowing arrangements and to guarantee a customer's financial performance.
Residential mortgage loans sold with recourse represent loans sold to U.S.
Government agencies which allow the purchaser the option of requiring the
Corporation to reacquire a loan in the event of default by the borrower. The
option may extend for a period of five years or for the life of the loan. The
Corporation has determined that the liability under the terms of the option
agreements is not material.
NOTE 15--INTEREST RATE FINANCIAL INSTRUMENTS
A summary of interest rate financial instruments at December 31, 1994 and
1993 is presented below:
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
---------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Trading instruments:
Commitments to purchase foreign ex-
change.............................. $5,345,157 $131,136 $5,581,220 $51,949
Commitments to sell foreign exchange. 5,355,377 34,100 5,589,002 88,838
Futures contracts purchased.......... 1,115,000 557
Futures contracts sold............... 1,115,000 557 400,000 200
Risk management interest rate instru-
ments:
Interest rate swap agreements
Plain fixed-pay...................... 1,658,500 61,123 943,000 435
Plain fixed-receive.................. 60,000 988 141,000 4,603
Amortizing fixed-receive............. 1,349,300 900,000 660
Basis................................ 605,000 437
Interest rate cap agreements........... 1,775,000 42,551 950,000
Interest rate corridor agreements...... 1,031,000 20,197 2,406,000
Interest rate collar agreements........ 500,000
Futures contracts sold................. 6,005,000 8,655 2,528,000 1,264
</TABLE>
72
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notional amounts, except for foreign exchange instruments which represent the
contract amount, do not represent the amounts exchanged by the counterparties
and do not measure the Corporation's exposure to credit or market risks. The
amounts exchanged are based on the notional amounts and other terms of the
financial instruments.
The Corporation's credit exposure from interest rate instruments held for
trading or risk management is represented by the market value of the
instruments with a positive market value. The credit risk of futures contracts
is limited to the daily settlement of the net change in the value of open
contracts with the exchange on which the instruments are traded and the margin
requirement held by the broker. Futures contracts are traded on exchanges,
further reducing the credit risk in comparison with dealing with other
counterparties. Credit risk disclosures relate to accounting losses that would
be recognized if the counterparties completely failed to perform their
obligations. To manage its level of credit risk, the Corporation deals with
counterparties of good credit standing, establishes counterparty credit limits
and enters into netting agreements whenever possible. Credit exposure amounts
are presented gross and disregard any netting agreements. Interest rate
instrument activities are subject to the same credit review, analysis and
approval process as those applied to commercial loans. Netting agreements
contain rights of set-off that provide for the net settlement of certain
contracts with the same counterparty in the event of default. In the event of a
default by a counterparty, the cost to the Corporation, if any, would be the
replacement cost of the contract at the current market rate.
Market risk is the risk that future changes in market conditions may make an
instrument less valuable or more burdensome. Fluctuations in market prices,
interest rates or currency exchange rates change the market value of the
instrument. Exposure to market risk is managed in accordance with risk limits
set by management or by entering into offsetting positions. The fair value of
all financial instruments is discussed more fully in Note 16--"Fair Value of
Financial Instruments".
TRADING INSTRUMENTS
Foreign exchange contracts are entered into primarily for trading activities.
A portion of these trading activities are customer-oriented, and trading
positions, including any offsetting hedges, are established as necessary to
accommodate customers' requirements. Foreign exchange contracts generally
involve the exchange of currencies at agreed upon rates with various
counterparties. The Corporation also enters into Eurodollar futures contracts
for trading purposes. These contracts are commitments to purchase or sell a
financial instrument at a future date for a specified price.
The Corporation's foreign exchange and Eurodollar futures contracts are
valued monthly at current market value and changes in market value are included
in other noninterest income. Net gains realized from the trading of foreign
exchange and Eurodollar futures contracts are included in other noninterest
income. Foreign exchange trading income totaled $1.0 million, $3.0 million and
$9.3 million in 1994, 1993 and 1992, respectively. The average fair values of
commitments to purchase and sell foreign exchange during 1994 were unrealized
gains of $97.6 million and unrealized losses of $97.7 million, respectively.
Comparable amounts for 1993 were unrealized losses of $39.7 million and
unrealized gains of $45.3 million, respectively. The average fair values of
futures contracts purchased and sold during 1994 were $.4 million and $.8
million, respectively.
RISK MANAGEMENT INTEREST RATE INSTRUMENTS
The Corporation's objective in utilizing interest rate instruments is the
management of its interest rate risk. The operations of the Corporation's bank
subsidiaries are subject to risk of interest rate fluctuations to the extent
that interest-earning assets and interest-bearing liabilities mature or reprice
at different times or in differing amounts. Risk management activities are
aimed at optimizing net interest income, given levels of
73
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rate risk consistent with the Corporation's business strategies. To
achieve its risk management objective, the Corporation uses a combination of
interest rate instruments, including interest rate swaps, options and futures
contracts. The instruments utilized are described below.
Interest rate swap agreements involve the exchange of fixed and variable rate
interest payments based upon a notional principal amount and maturity date.
Basis interest rate swaps involve floating interest rates such as U.S. Treasury
bill and LIBOR. Index amortizing interest rate swaps involve the exchange of
fixed and variable rate interest payments based upon a notional principal
amount which amortizes based on an index rate and decreases over the life of
the swap. Interest rate cap agreements are similar to interest rate swap
agreements except that cash interest payments are made or received only if
current interest rates rise above predetermined interest rates. Similarly, in
an interest rate floor agreement, cash interest payments are made or received
only if current interest rates fall below a predetermined interest rate. An
interest rate collar consists of a cap and a floor. Interest rate corridor
agreements consist of a simultaneous purchase and sale of a cap. The
Corporation enters into interest rate swap, cap, floor and corridor agreements
to manage the impact of fluctuating interest rates on earnings. The unamortized
premium recorded in the Corporation's balance sheet related to interest rate
risk management agreements was $32.8 million at December 31, 1994.
Futures contracts are also used by the Corporation to manage interest rate
exposure. These instruments are exchange-traded contracts for the future
delivery of securities, other financial instruments or cash settlement at a
specified price or yield. Initial margin requirements are met in cash or other
instruments. At December 31, 1994, the Corporation had entered into U.S.
Treasury rate futures contracts with approximately $708 million in notional
amounts to manage the risk associated with the available for sale securities
portfolio. The unrealized loss of approximately $.3 million at December 31,
1994 relating to these contracts has been recorded as part of the fair value of
these securities. At December 31, 1994, the Corporation had approximately $100
million in notional amounts of U.S. Treasury rate futures contracts to manage
the interest rate risk associated with the issuance of subordinated bank notes
that occurred during the first quarter of 1995 in connection with the
acquisition of Barclays Finance. At December 31, 1994, an unrealized gain of
$.2 million relating to these contracts had been deferred and recorded in other
liabilities. Upon the issuance of the subordinated bank notes, the futures
contracts will be settled and the resulting gain or loss will be recognized as
an adjustment to interest expense over the life of the subordinated bank notes.
The Corporation also utilizes Eurodollar futures contracts to manage interest
rate risk on the repricing of the Corporation's short-term funding sources. The
unrealized gain relating to these Eurodollar futures contracts at December 31,
1994 of approximately $21.3 million has been deferred and recorded as an
adjustment to the carrying amount of other borrowings. Upon settlement of these
futures contracts, the resulting gain or loss will be recognized as an
adjustment to interest expense over the average period of these short-term
borrowings.
For additional discussion of risk management interest rate instruments, see
"Interest Rate Risk" on page 31.
NOTE 16--FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of the fair value of financial instruments. A financial
instrument is defined as cash, evidence of an ownership interest in an entity,
or a contract that conveys or imposes the contractual right or obligation to
either receive or deliver cash or another financial instrument. Examples of
financial instruments included in the Corporation's balance sheet are cash,
federal funds sold or purchased, debt and equity securities, loans, demand,
savings and other interest-bearing deposits, notes and debentures and foreign
exchange contracts. Examples of financial instruments which are not included in
the Corporation's balance sheet are commitments to extend credit, standby
letters of credit, loans sold with recourse and interest rate swaps, options
and futures contracts.
74
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price if
one exists.
The statement requires the fair value of deposit liabilities with no stated
maturity, such as demand deposits, NOW and money market accounts, to equal the
carrying value of these financial instruments and does not allow for the
recognition of the inherent value of core deposit relationships when
determining fair value. While the statement does not require disclosure of the
fair value of nonfinancial instruments, such as the Corporation's premises and
equipment, its banking and trust franchises and its core deposit relationships,
the Corporation believes these nonfinancial instruments have significant fair
value.
The Corporation has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair values
were based on the quoted market price of a financial instrument with similar
characteristics, the present value of expected future cash flows or other
valuation techniques. Each of these alternative valuation techniques utilize
assumptions which are highly subjective and judgmental in nature. Subjective
factors include, among other things, estimates of cash flows, the timing of
cash flows, risk and credit quality characteristics and interest rates.
Accordingly, the results may not be precise and modifying the assumptions may
significantly affect the values derived. In addition, fair values established
utilizing alternative valuation techniques may or may not be substantiated by
comparison with independent markets. Further, fair values may or may not be
realized if a significant portion of the financial instruments were sold in a
bulk transaction or a forced liquidation. Therefore, any aggregate unrealized
gains or losses should not be interpreted as a forecast of future earnings or
cash flows. Furthermore, the fair values disclosed should not be interpreted as
the aggregate current value of the Corporation.
The methodology and assumptions utilized to estimate the fair value of the
Corporation's financial instruments, not previously discussed in the policy
statements above, are described below.
Financial instruments with fair value approximate to carrying value--The
carrying value of cash and due from banks, interest-bearing deposits in other
banks, federal funds sold and securities purchased under agreements to resell,
residential mortgages held for sale, demand deposits, savings, NOW and money
market deposits, foreign time deposits, other borrowings and accrued interest
income and expense approximates fair value due to the short-term nature of
these financial instruments.
Securities--The fair value of securities was estimated based on prices
obtained from independent market sources.
Loans--The fair value of loans was estimated for groups of similar loans
based on the type of loan, interest rate characteristics, credit risk and
maturity. The fair value of performing fixed-rate commercial and commercial
real estate loans was estimated by discounting expected future cash flows
utilizing risk-free rates of return, adjusted for credit risk and servicing
costs. The carrying value of performing variable-rate commercial and commercial
real estate loans was estimated to approximate fair value due to the short-term
and frequent repricing characteristics of these loans. Prepayments were not
anticipated for either fixed-rate or variable-rate commercial and commercial
real estate loans. The fair value of performing residential mortgage, home
equity and installment loans was estimated utilizing quoted market values for
securities backed by similar loans. The fair value of nonaccruing loans was
estimated by discounting expected future cash flows utilizing risk-free rates
of returns, adjusted for credit risk and servicing costs commensurate with a
portfolio of nonaccruing loans. Where appropriate, the fair value reflects any
FDIC loss protection arrangements.
Deposits--The fair value of time deposits with fixed maturities was estimated
by discounting expected future cash flows utilizing interest rates currently
being offered on deposits with similar characteristics and maturities.
75
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes and debentures--The fair value of notes and debentures was estimated
based on quoted market prices.
Interest rate financial instruments--The fair value of futures contracts and
foreign exchange trading instruments was based on quoted market prices. The
fair value of risk management interest rate instruments was based on the amount
the Corporation would receive or pay to terminate the agreements as of the
reporting date based on the terms of the agreements, the creditworthiness of
the counterparties and interest rates. The fair value of commitments to extend
credit and standby letters of credit was based on the discounted value of fees
currently charged for similar agreements. The fair value of residential
mortgage loans sold with recourse was based on the estimated liability under
the terms of the option agreements and is not material.
The following table presents the carrying amount and fair value of the
Corporation's financial instruments at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks........ $ 1,986,182 $ 1,986,182 $ 1,539,690 $ 1,539,690
Interest-bearing deposits in
other banks................... 439,936 439,936 13,252 13,252
Federal funds sold and
securities purchased under
agreements to resell.......... 308,700 308,700 71,500 71,500
Trading account securities..... 27,859 27,859 19,625 19,625
Residential mortgages held for
sale.......................... 72,205 72,205 472,450 472,450
Available for sale securities.. 1,991,853 1,991,853 3,189,616 3,189,616
Held to maturity securities.... 8,000,382 7,561,890 7,152,326 7,228,796
Loans, less reserve for credit
losses........................ 17,945,027 18,132,000 16,928,532 17,591,000
Foreclosed properties.......... 18,831 18,831 64,518 64,518
Customers' acceptance liabili-
ty............................ 5,166 5,166 13,747 13,747
----------- ----------- ----------- -----------
Total financial assets..... 30,796,141 $30,544,622 29,465,256 $30,204,194
=========== ===========
NONFINANCIAL ASSETS:
Premises and equipment......... 329,780 332,960
Other assets................... 1,272,690 1,304,589
----------- -----------
Total assets............... $32,398,611 $31,102,805
=========== ===========
FINANCIAL LIABILITIES:
Deposits....................... $20,746,253 $20,544,157 $18,741,879 $18,978,416
Other borrowings............... 7,086,579 7,086,579 9,282,951 9,282,951
Acceptances outstanding........ 5,166 5,166 13,747 13,747
Notes and debentures........... 2,021,788 2,014,546 758,941 827,400
----------- ----------- ----------- -----------
Total financial liabili-
ties...................... 29,859,786 $29,650,448 28,797,518 $29,102,514
=========== ===========
NONFINANCIAL LIABILITIES:
Other liabilities.............. 341,652 202,916
----------- -----------
Total liabilities.......... 30,201,438 29,000,434
Shareholders' equity........... 2,197,173 2,102,371
----------- -----------
Total liabilities and
shareholders' equity...... $32,398,611 $31,102,805
=========== ===========
</TABLE>
76
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FAIR VALUE
------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Trading instruments:
Commitments to purchase foreign exchange................. $ 89,572 $(36,598)
Commitments to sell foreign exchange..................... (89,657) 41,449
Futures contracts purchased.............................. (679)
Futures contracts sold................................... 1,174 (30)
Risk management interest rate instruments:
Interest rate swap agreements............................ (42,345) (21,471)
Interest rate cap agreements............................. 42,551 12,648
Interest rate corridor agreements........................ (5,143) 6,177
Interest rate collar agreements.......................... (1,471)
Futures contracts........................................ 21,127 302
Credit-related financial instruments:
Commitments to extend credit............................. 19,724 26,000
Standby letters of credit................................ 8,360 6,400
</TABLE>
NOTE 17--LITIGATION
The Corporation's Shawmut Bank Connecticut subsidiary, which served as
indenture trustee for certain healthcare receivable backed bonds issued by
certain special purpose subsidiaries of Towers Financial Corporation, and
another defendant, have been named in a lawsuit in federal court in Manhattan
by purchasers of the bonds. The suit seeks damages in an undetermined amount
equal to the difference between the current value of the bonds and their face
amount of approximately $200 million, plus interest, as well as punitive
damages. The Corporation believes its actions were reasonable and appropriate
and were not the cause of any loss by the bondholders, and is vigorously
defending the action.
The Corporation is subject to various other pending and threatened lawsuits
in which claims for monetary damages are asserted. Management, after
consultation with legal counsel, does not anticipate that the ultimate
liability, if any, arising out of such other pending and threatened lawsuits
will have a material effect on the Corporation's results of operations or
financial condition.
NOTE 18--REGULATORY MATTERS
The Corporation is a multibank holding company subject to regulation and
supervision by the Board of Governors of the Federal Reserve System ("the
Board") under the Bank Holding Company Act of 1956. As a bank holding company,
the Corporation's activities and those of its banking and nonbanking
subsidiaries are limited to the business of banking and activities closely
related or incidental to banking. The Corporation is also a unitary savings and
loan holding company subject to regulation and supervision by the Office of
Thrift Supervision ("OTS") under the Home Owners' Loan Act of 1933.
77
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's national banks, Shawmut Bank Connecticut, National
Association ("Shawmut Bank Connecticut") and Shawmut Bank, National Association
("Shawmut Bank Massachusetts"), are subject to regulation and supervision by
the Office of the Comptroller of the Currency ("OCC"). The Corporation's state-
chartered bank, Shawmut Bank NH, is subject to regulation and supervision by
the FDIC and the Bank Commissioner of the State of New Hampshire. Shawmut Bank,
FSB, a federal savings bank, is subject to regulation and supervision by the
OTS. The deposits of the Corporation's subsidiary banks are insured by, and
therefore the subsidiary banks are subject to the regulations of, the FDIC. The
banks are also subject to requirements and restrictions under federal and state
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon, and limitations on the types of investments that may be
made and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Corporation's subsidiary banks.
The Board and the OCC have adopted minimum risk-based capital and leverage
guidelines for bank holding companies and national banks. The minimum Total
capital ratio requirement is 8.00 percent, of which one-half must be Tier 1
capital. The minimum Leverage ratio requires Tier 1 capital of at least 3.00
percent of average quarterly assets less goodwill and other intangibles. This
Leverage ratio is the minimum requirement for the most highly rated banking
organizations and other banking organizations are expected to maintain an
additional level of at least 100 to 200 basis points.
The Board, OCC and FDIC implemented regulations, pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), effective on
December 19, 1992, concerning prompt supervisory and regulatory actions to be
taken against undercapitalized depository institutions. FDICIA establishes five
capital categories: "well-capitalized"; "adequately capitalized";
"undercapitalized"; "significantly undercapitalized"; and "critically
undercapitalized". Under these regulations, an institution will be deemed
"well-capitalized" if it has a Risk-based Total capital ratio of 10.00 percent
or greater, a Risk-based Tier 1 capital ratio of 6.00 percent or greater and a
Leverage ratio of 5.00 percent or greater. In addition, the institution cannot
be subject to an order, written agreement, capital directive or prompt
correction action directive.
The Tier 1 capital, Total capital and Leverage ratios for the Corporation at
December 31, 1994 were 8.27 percent, 11.55 percent and 6.62 percent,
respectively. The Tier 1 capital, Total capital and Leverage ratios for Shawmut
Bank Connecticut were 9.01 percent, 10.27 percent and 7.51 percent,
respectively, while these ratios for Shawmut Bank Massachusetts were 9.97
percent, 11.40 percent and 7.93 percent, respectively, at December 31, 1994.
These ratios for Shawmut Bank NH were 13.88 percent, 15.14 percent and 5.67
percent, respectively, at December 31, 1994. The Corporation and its subsidiary
banks at December 31, 1994 met the definition for a "well-capitalized"
institution.
The Corporation's subsidiary banks are required to maintain reserves against
certain deposit liabilities in either cash or balances on deposit with the
Federal Reserve System. The Corporation's subsidiary banks maintained combined
average reserves of approximately $621 million in 1994 with the Federal Reserve
Bank of Boston.
78
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principal sources of revenues for the Corporation are dividends received
directly and indirectly from its banks and other subsidiaries and interest
earned on short-term investments and advances to subsidiaries. Federal law
imposes limitations on the payment of dividends by the subsidiaries of the
Corporation that are national banks. Two different calculations are performed
to measure the amount of dividends that may be paid: a recent earnings test and
an undivided profits test. Under the recent earnings test, a dividend may not
be paid if the total of all dividends declared by a national bank in any
calendar year is in excess of the current year's net profits combined with the
retained net profits of the two preceding years, unless the bank obtains the
approval of the OCC. Under the undivided profits test, a dividend may not be
paid in excess of a bank's undivided profits then on hand, after deducting bad
debts in excess of the reserve for loan losses. Under the recent earnings test
at January 1, 1995, which is the more restrictive of the two tests, Shawmut
Bank Connecticut could pay up to approximately $170.8 million in dividends to
its parent holding company without prior approval. Shawmut Bank Massachusetts,
under the recent earnings test at January 1, 1995, could pay up to
approximately $180.4 million in dividends to its parent holding company without
prior approval. Shawmut Bank Connecticut and Shawmut Bank Massachusetts had
undivided profits of $319.9 million and $558.1 million, respectively, at
December 31, 1994.
The Corporation's subsidiary banks are also restricted under federal law with
respect to the transfer of funds from the subsidiary banks to the Corporation
and its nonbanking subsidiaries. Such transfers are limited to certain
percentages of the subsidiary bank's capital and surplus. Loans and extensions
of credit must be secured in specified amounts. The Corporation had no
borrowings outstanding from either of its subsidiary banks at December 31,
1994.
NOTE 19--FDIC ASSISTED TRANSACTIONS
New Dartmouth was merged with and into Shawmut Bank NH concurrent with the
acquisition of New Dartmouth (See Note 2--"Merger and Acquisitions"). New
Dartmouth, concurrent with its formation on October 10, 1991, acquired certain
assets and assumed certain liabilities of a number of failed institutions from
the FDIC as receiver of these failed banks (the "1991 P&A Transaction"). New
Dartmouth acquired from the FDIC $1.7 billion in assets and assumed $2.1
billion in deposits. The FDIC paid New Dartmouth $55.3 million in federal
financial assistance to complete the transaction in addition to a payment of
$400.8 million for the assumption of net liabilities. As part of the 1991 P&A
Transaction, the FDIC provided certain assistance to New Dartmouth that
included the ability to "put" classified loans to the FDIC upon certain
conditions through October 10, 1994 and the sharing of losses on certain
consumer and residential loans through December 31, 1994. New Dartmouth
allocated approximately $42.6 million of the federal financial assistance it
received from the FDIC as a discount on the acquired loan portfolio
representing the estimate of potential future losses in excess of the
protection provided by the FDIC.
As discussed in Note 2--"Merger and Acquisitions", the Corporation acquired
Gateway and merged its banking subsidiary into Shawmut Bank Connecticut.
Previously, Gateway acquired certain assets and assumed certain liabilities of
a failed institution from the FDIC as receiver of the failed bank. Under the
terms of this acquisition, the FDIC agreed to repurchase from Gateway any
acquired commercial loans and commercial mortgages that became delinquent, as
defined, prior to December 13, 1993. Through that date, approximately $58.1
million of loans had been "put" to the FDIC, of which $21.1 million was
classified as a receivable from the FDIC and included in other assets at
December 31, 1993, which was received in 1994.
79
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20--PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information of Shawmut National Corporation (parent
company only) is presented below:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
1994 1993
------------- -------------
DECEMBER 31, (IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and short-term investments with subsidiary
banks............................................. $ 328,114 $ 293,984
Securities available for sale, at fair value....... 225,895 48,700
Investments in subsidiaries
Banking subsidiaries............................. 2,421,902
Other subsidiaries............................... 319,636 2,140,830
Advances to subsidiaries........................... 241,281
Other assets....................................... 90,779 24,985
------------- -------------
Total.......................................... $ 3,386,326 $ 2,749,780
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Private placement notes............................ $ 210,997 $ 174,996
Borrowings from affiliates......................... 145,734 143,917
Other borrowings................................... 23,594
Other liabilities.................................. 59,629 29,092
Notes and debentures............................... 749,199 299,404
Shareholders' equity............................... 2,197,173 2,102,371
------------- -------------
Total.......................................... $ 3,386,326 $ 2,749,780
============= =============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- ------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Dividend income from subsidiaries.. $ 126,928 $ 81,900
Interest and dividend income
Advances to subsidiaries......... 5,099 4,578 $ 2,883
Short-term investments........... 10,038 8,896 8,146
Securities available for sale, at
fair value...................... 10,704 2,307
Other.............................. 7,802 7,973 8,588
------------- ------------- ------------
Total.......................... 160,571 105,654 19,617
------------- ------------- ------------
EXPENSES
Interest........................... 54,185 30,279 10,563
Other.............................. 17,573 9,293 12,420
------------- ------------- ------------
Total.......................... 71,758 39,572 22,983
------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT, EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES,
EXTRAORDINARY CREDIT AND
ACCOUNTING CHANGES................ 88,813 66,082 (3,366)
Income tax benefit................. (8,454) (7,744) (864)
------------- ------------- ------------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES, EXTRAORDINARY CREDIT
AND ACCOUNTING CHANGES............ 97,267 73,826 (2,502)
Equity in undistributed income of
subsidiaries before extraordinary
credit and accounting changes..... 140,085 209,022 70,229
------------- ------------- ------------
INCOME BEFORE EXTRAORDINARY CREDIT
AND ACCOUNTING CHANGES............ 237,352 282,848 67,727
Extraordinary credit............... 18,378
Cumulative effect of changes in
methods of accounting............. 46,200
------------- ------------- ------------
NET INCOME......................... $ 237,352 $ 329,048 $ 86,105
============= ============= ============
</TABLE>
80
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- ------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................... $ 237,352 $ 329,048 $ 86,105
Equity in undistributed income of
subsidiaries...................... (140,085) (209,022) (70,229)
Extraordinary credit............... (18,378)
Cumulative effect of changes in
methods of accounting............. (46,200)
Other.............................. (34,312) (20,972) 7,710
------------- ------------- ------------
CASH PROVIDED BY OPERATING ACTIVI-
TIES.............................. 62,955 52,854 5,208
------------- ------------- ------------
FINANCING ACTIVITIES
Increase in borrowings............. 61,412 15,657 39,320
Proceeds from issuance of subordi-
nated notes....................... 149,700 149,631
Proceeds from issuances of common
and preferred stock............... 55,981 61,955 356,599
Purchases of common stock and pre-
ferred stock...................... (2,734) (2,509) (10)
Cash dividends paid................ (101,432) (42,918) (2,131)
------------- ------------- ------------
CASH PROVIDED BY FINANCING ACTIVI-
TIES.............................. 13,227 181,885 543,409
------------- ------------- ------------
INVESTING ACTIVITIES
Purchases of securities available
for sale.......................... (741,421) (346,300)
Proceeds from sales and maturities
of securities
available for sale................ 698,011 297,600
Increase in investments in
subsidiaries...................... (61,226) (86,400) (301,400)
Decrease (increase) in advances to
subsidiaries...................... 62,584 (144,781) (18,700)
------------- ------------- ------------
CASH USED BY INVESTING ACTIVITIES.. (42,052) (279,881) (320,100)
------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS............ 34,130 (45,142) 228,517
Cash and short-term investments at
beginning of year................. 293,984 339,126 110,609
------------- ------------- ------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR.................... $ 328,114 $ 293,984 $ 339,126
============= ============= ============
</TABLE>
During 1994, the ownership of Shawmut Bank Connecticut and Shawmut Bank
Massachusetts was transferred to Shawmut National Corporation ("Parent
Company") from the respective bank holding companies, Hartford National
Corporation ("HNC") and Shawmut Corporation ("SC"), which are lower tiered
holding companies of the Parent Company. Noncash transactions affecting
investments in subsidiaries during 1994 included the transfer of $142.2 million
of securities and $449.6 million of notes and debentures from HNC and SC to the
Parent Company and a reduction of $18.3 million related to the redemption of
FDIC Preferred Stock by New Dartmouth. Also, advances to subsidiaries totaling
$178.7 million were converted to investments in subsidiaries during 1994.
81
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S REPORT
MANAGEMENT'S REPORT
The financial statements of Shawmut National Corporation and its subsidiaries
have been prepared by management in accordance with generally accepted
accounting principles. The supplementary financial data included in this annual
report were also prepared by management and are consistent with the data
included in the financial statements.
The Corporation maintains a system of internal accounting controls intended
to provide reasonable assurance that transactions are executed in accordance
with corporate authorization and are properly recorded and reported in the
financial statements and that assets are safeguarded. The concept of reasonable
assurance recognizes that the cost of a system of internal accounting controls
should not exceed the benefits derived. Such costs and benefits are not usually
quantifiable and, accordingly, depend upon estimates and judgment. The internal
control environment includes a framework of processes used to identify and
monitor risk. Such processes include a corporate loan review staff to monitor
compliance with prescribed lending and risk identification policies, an
internal audit function which reviews, evaluates, monitors and makes
recommendations on administrative and accounting control and a compliance
function which establishes and monitors corporate-wide compliance with internal
and regulatory policies.
The financial statements have been reviewed by the audit committee of the
Board of Directors, composed solely of outside directors. The committee
recommends to the board the engaging, subject to shareholder approval, of the
Corporation's independent accountants and reviews with the independent
accountants the scope and results of the audit of the financial statements. The
committee also reviews the scope and results of the Corporation's internal
audit activities, the results of reviews performed by the corporate loan review
staff and the compliance function and other matters involving risk management.
The financial statements have been audited by Price Waterhouse LLP whose
report follows.
/s/ Joel B. Alvord
_____________________________________
JOEL B. ALVORD
CHIEF EXECUTIVE OFFICER
/s/ Susan E. Lester
_____________________________________
SUSAN E. LESTER
CHIEF FINANCIAL OFFICER
82
<PAGE>
[SET LETTERHEAD HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Shawmut National Corporation
In our opinion, the consolidated balance sheets and the related consolidated
statements of income, of changes in shareholders' equity and of cash flows
appearing on pages 46 to 81 of this report present fairly, in all material
respects, the financial position of Shawmut National Corporation and its
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Corporation's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Corporation changed its methods of accounting for postretirement benefits other
than pensions, postemployment benefits and income taxes.
[ART]
Hartford, Connecticut
February 20, 1995
83
<PAGE>
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
MATURITY OF LOANS
The following table presents the maturities of loans at December 31, 1994 and
the interest sensitivity of such loans. The determination of maturities in the
loan portfolio is generally as contained in the contractual note agreements.
Occasionally extensions or renewals of loan obligations are requested. These
are reviewed on an individual basis and granted if deemed appropriate. Such
extensions, however, do not materially alter the anticipated loan maturity
schedule as reported.
<TABLE>
<CAPTION>
UNDER 1-5 OVER
1 YEAR YEARS 5 YEARS TOTAL
-------- -------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial and industrial................. $5,224.0 $1,232.2 $ 550.2 $ 7,006.4
Real estate............................... 617.0 1,415.1 846.5 2,878.6
Consumer.................................. 1,008.3 2,985.3 4,608.5 8,602.1
-------- -------- -------- ---------
Total................................. $6,849.3 $5,632.6 $6,005.2 $18,487.1
======== ======== ======== =========
Interest sensitivity of above loans
Loans with predetermined interest rates. $1,122.1 $2,394.9 $3,122.3 $ 6,639.3
Loans with floating interest rates...... 5,727.2 3,237.7 2,882.9 11,847.8
-------- -------- -------- ---------
Total................................. $6,849.3 $5,632.6 $6,005.2 $18,487.1
======== ======== ======== =========
</TABLE>
CONSOLIDATED SHORT-TERM BORROWINGS
The following table summarizes average outstandings, maximum month-end
outstandings, daily average interest rates and average interest rates on year-
end balances. Average interest rates during each year were computed by dividing
total interest expense by the average amount borrowed.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Federal funds purchased
Average outstanding............................ $2,370.7 $ 610.6 $ 222.7
Maximum outstanding at any month-end........... 2,947.0 1,709.3 386.0
Average interest rate during year.............. 4.21% 3.09% 3.48%
Interest rate at year-end...................... 5.55 3.12 3.01
Securities sold under agreements to repurchase
Average outstanding............................ $4,910.1 $5,814.9 $3,460.2
Maximum outstanding at any month-end........... 6,051.4 7,204.1 4,592.6
Average interest rate during year.............. 4.11% 3.06% 3.44%
Interest rate at year-end...................... 5.89 2.98 3.24
Treasury tax and loan funds
Average outstanding............................ $ 248.7 $ 239.9 $ 221.2
Maximum outstanding at any month-end........... 647.8 600.0 380.4
Average interest rate during year.............. 3.82% 2.82% 3.34%
Interest rate at year-end...................... 5.15 2.75 2.78
Private placement notes
Average outstanding............................ $ 167.2 $ 162.1 $ 118.8
Maximum outstanding at any month-end........... 246.5 189.8 150.3
Average interest rate during year.............. 4.27% 3.16% 3.72%
Interest rate at year-end...................... 5.60 3.06 3.34
</TABLE>
84
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Following is the quarterly financial information of Shawmut National
Corporation and its subsidiaries for 1994 and 1993. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the Corporation's results of operations
for such periods, are reflected.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
---------------- ---------------- --------------- ----------------
1994 1993 1994 1993 1994 1993 1994 1993 (1)
------- ------- ------- ------- ------- ------- ------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income..... $ 272.5 $ 249.3 $ 265.7 $ 269.4 $ 265.9 $ 273.2 $ 263.4 $ 279.7
Provision for credit
losses................. 3.0 18.0 16.4 11.3 10.2
Securities gains (loss-
es), net............... (.8) 6.3 2.2 .8 2.5 1.5
Noninterest income...... 89.5 102.3 93.9 102.4 90.9 97.8 104.2 95.8
Noninterest expenses.... 241.8 315.4 238.0 269.2 226.4 261.9 224.5 254.3
Merger related charges.. 100.9
Restructuring related
charges................ 36.3 39.8
Income taxes (benefit).. 39.1 (1.8) (.4) 24.4 45.9 17.7 49.6 (33.7)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect
of accounting changes.. 77.3 (10.0) (18.7) 64.0 85.3 82.6 93.5 146.2
Cumulative effect of
changes in methods
of accounting.......... 46.2
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 77.3 $ 36.2 $ (18.7) $ 64.0 $ 85.3 $ 82.6 $ 93.5 $ 146.2
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) appli-
cable to common shares. $ 73.4 $ 32.4 $ (22.5) $ 60.1 $ 81.4 $ 78.7 $ 89.6 $ 142.4
======= ======= ======= ======= ======= ======= ======= =======
Common Share Data
Income (loss) before
cumulative effect
of accounting changes. $ .62 $ (.12) $ (.19) $ .54 $ .68 $ .69 $ .74 $ 1.22
Net income (loss)...... .62 .29 (.19) .54 .68 .69 .74 1.22
</TABLE>
- --------
(1) Includes income tax benefits of $70.2 million.
DOMESTIC TIME DEPOSITS OF $100 THOUSAND OR MORE
Domestic time deposits in denominations of $100 thousand or more and the
related maturities at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
LESS THAN THREE SIX TO OVER
THREE TO SIX TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS TOTAL
--------- ------ ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Time certificates of deposit........... $345.7 $162.9 $261.9 $762.5 $1,533.0
Other time deposits.................... 63.9 61.7 48.7 115.1 289.4
</TABLE>
85
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES
The table below presents the Corporation's average balance sheet, net
interest income and interest rates for the years 1990 through 1994. Average
loans outstanding include nonaccruing loans. Interest income and interest rates
on loans and municipal obligations are presented on a tax-equivalent basis,
which reflects a federal income tax rate of 35 percent for 1994 and 1993 and 34
percent for 1992 to 1990. Interest rates earned on securities classified as
available for sale are based upon amortized cost balances.
<TABLE>
<CAPTION>
1994 1993
-------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
YEAR ENDED DECEMBER 31, (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans.................... $17,659 $1,316.6 7.46% $17,139 $1,247.9 7.28%
Securities
Available for sale, at
fair value............ 2,358 151.6 6.43
At lower of aggregate
cost or fair value.... 3,698 238.2 6.44
Held to maturity....... 7,922 443.9 5.60 5,239 309.7 5.91
Residential mortgages
held for sale........... 197 14.8 7.50 405 29.6 7.32
Short-term investments
Time deposits in other
banks................. 265 12.6 4.76 26 .8 3.19
Federal funds sold and
securities purchased
under agreements to
resell................ 189 8.7 4.61 407 12.6 3.09
Trading account securi-
ties.................... 23 1.1 4.84 35 1.6 4.44
------- -------- ------- --------
Total interest-earn-
ing assets.......... 28,613 1,949.3 6.81 26,949 1,840.4 6.83
-------- --------
Reserve for credit loss-
es...................... (614) (796)
Cash and due from
banks................. 1,668 1,520
Other assets........... 1,652 1,647
------- -------
Total assets......... $31,319 $29,320
======= =======
LIABILITIES
Savings, money market and
NOW accounts............ $ 8,862 163.3 1.84% $ 9,096 183.3 2.02%
Time certificates of
deposit of $100 thousand
or more................. 822 45.7 5.56 570 25.7 4.51
Domestic time deposits... 4,433 180.7 4.08 4,754 206.8 4.35
Foreign time deposits.... 372 16.6 4.45 173 5.2 2.97
------- -------- ------- --------
Total interest-bear-
ing deposits........ 14,489 406.3 2.80 14,593 421.0 2.88
------- -------- ------- --------
Federal funds purchased
and securities sold
under agreements to
repurchase.............. 7,281 301.5 4.14 6,426 196.6 3.06
Other borrowings......... 1,080 66.9 6.19 891 65.8 7.39
------- -------- ------- --------
Total other
borrowings.......... 8,361 368.4 4.41 7,317 262.4 3.59
------- -------- ------- --------
Notes and debentures..... 1,341 95.7 7.13 839 72.0 8.58
------- -------- ------- --------
Total interest-bear-
ing liabilities..... 24,191 870.4 3.60 22,749 755.4 3.32
-------- --------
Demand deposits.......... 4,644 4,425
Other liabilities........ 322 287
------- -------
Total liabilities.... 29,157 27,461
Shareholders' equity..... 2,162 1,859
------- -------
Total liabilities and
shareholders' equi-
ty.................. $31,319 $29,320
======= =======
Net interest income (tax-
equivalent basis)....... 1,078.9 3.78 1,085.0 4.03
Less tax-equivalent ad-
justment................ (11.4) (13.4)
-------- --------
Net interest income...... $1,067.5 $1,071.6
======== ========
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990
- -------------------------- -------------------------- -------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$16,414 $1,308.3 7.97% $16,991 $1,478.2 9.24% $18,380 $1,891.2 10.29%
3,002 239.9 7.99 221 29.5 13.33 394 51.0 12.93
3,650 272.3 7.46 5,571 479.4 8.77 4,209 394.0 9.36
344 27.3 7.93 222 19.2 8.67 233 22.4 9.64
52 2.1 4.09 110 5.9 5.38 218 18.1 8.33
538 19.5 3.63 712 35.8 5.87 1,623 133.4 8.22
32 2.4 7.59 34 2.8 8.36 43 4.8 10.99
- ------- -------- ------- -------- ------- --------
24,032 1,871.8 7.79 23,861 2,050.8 9.05 25,100 2,514.9 10.02
-------- -------- --------
(1,005) (1,066) (786)
1,587 1,667 1,774
1,853 1,798 1,524
- ------- ------- -------
$26,467 $26,260 $27,612
======= ======= =======
$ 8,716 272.7 3.13% $ 8,346 403.1 5.04% $ 8,051 498.3 6.19%
778 45.4 5.83 1,352 103.7 7.89 1,746 152.3 8.72
5,910 301.9 5.11 6,849 422.9 6.76 6,647 553.6 8.33
76 2.5 3.30 72 4.0 5.56 237 20.0 8.43
- ------- -------- ------- -------- ------- --------
15,480 622.5 4.02 16,619 933.7 5.98 16,681 1,224.2 7.34
- ------- -------- ------- -------- ------- --------
3,683 126.8 3.44 2,737 152.7 5.59 3,260 263.3 8.08
734 65.4 8.92 757 65.0 8.60 1,199 106.7 8.90
- ------- -------- ------- -------- ------- --------
4,417 192.2 4.35 3,494 217.7 6.24 4,459 370.0 8.30
- ------- -------- ------- -------- ------- --------
667 59.3 8.89 669 60.5 9.04 687 63.1 9.18
- ------- -------- ------- -------- ------- --------
20,564 874.0 4.25 20,782 1,211.9 6.12 21,827 1,657.3 7.59
-------- -------- --------
4,149 3,931 3,945
247 220 268
- ------- ------- -------
24,960 24,933 26,040
1,507 1,327 1,572
- ------- ------- -------
$26,467 $26,260 $27,612
======= ======= =======
997.8 4.15 838.9 3.71 857.6 3.42
(15.3) (22.7) 39.8
-------- -------- --------
$ 982.5 $ 816.2 $ 817.8
======== ======== ========
</TABLE>
87
<PAGE>
FINANCIAL GLOSSARY
BASIS POINT
A basis point is equal to one one-hundredth of one percent (25 basis points
equal 0.25 percent and 100 basis points equal one percent).
BOOK VALUE PER COMMON SHARE
The amount of the Corporation's net worth represented by each share of
outstanding common stock. It is obtained by dividing common shareholders'
equity by the number of shares of common stock outstanding.
CORE DEPOSITS
The deposit base represented by ongoing account relationships maintained by
consumer, commercial, corporate, and institutional customers with the
Corporation's banks. Demand deposits, savings, money market, NOW and domestic
time accounts comprise Core Deposits.
EFFICIENCY RATIO
The efficiency ratio is a measure of relative overhead expense levels and is
computed by dividing total noninterest expenses, excluding special charges and
the foreclosed properties provision, by the sum of tax-equivalent net interest
income plus noninterest income, excluding securities gains and losses.
FEDERAL FUNDS
Immediately available funds on deposit at a Federal Reserve Bank. Banks with
excess reserves lend such funds, generally on an overnight basis, to banks that
are temporarily deficient in required reserves or that want to borrow federal
funds to fund short-term assets.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Interest is a price paid by a borrower to a lender for the use of money. The
Corporation's interest-earning assets result from transactions in which it acts
as a provider of funds. These include loans to customers, purchases of debt and
equity securities and various transactions in the short-term money markets.
Interest-bearing liabilities are those for which the Corporation acts as
borrower and pays interest to depositors and other suppliers of funds.
INTEREST RATE SENSITIVITY
The exposure to financial gain or loss due to a change in the level of
interest rates. In a given period, if more interest-earning assets than
interest-bearing liabilities are subject to a change in interest rates because
the assets are maturing or the contract calls for a rate change, the
Corporation is asset sensitive (or positive) for that period. Rising interest
rates during that time would enhance earnings, while declining interest rates
would reduce earnings. The reverse earnings effect would occur if the
Corporation were liability sensitive.
88
<PAGE>
INTEREST RATE SPREAD
The difference between two interest rates. The phrase is most often used to
refer to the difference between the interest yield on average interest-earning
assets and the interest cost of average interest-bearing liabilities.
LEVERAGE RATIO
The ratio was established by federal bank regulators and is computed by
dividing Tier 1 capital by average quarterly assets less goodwill and other
intangibles. A minimum Leverage ratio of at least 3.00 percent must be
maintained. This Leverage ratio is a minimum requirement for the most highly
rated banking organizations and other banking organizations will be expected to
maintain an additional cushion of at least 100 to 200 basis points.
NET AVAILABLE DEMAND DEPOSITS
The remaining portion of demand deposits available for investment in
interest-earning assets after deducting uncollected checks and federally
mandated reserves required to be kept against such deposits.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on assets
and the interest paid on liabilities. Interest income and expense are affected
by changes in the volume and mix of average interest-earning assets and
interest-bearing liabilities, as well as changes in the level of interest
rates.
NET INTEREST MARGIN
Net interest margin represents the tax-equivalent yield on interest-earning
assets. This is obtained by dividing net interest income for a given accounting
period by the average level of interest-earning assets for the period. This
relationship is usually expressed on a tax-equivalent basis.
NONACCRUING LOANS
Loans on which the accrual of interest income has been discontinued because
of the uncertainty that exists regarding the collection of interest or
principal. This circumstance typically results from the borrower's financial
difficulties. Interest received on such loans is recorded as a reduction of
principal or interest income if there is no doubt as to the collectibility of
the loan.
REPURCHASE AGREEMENT
A transaction in which securities are sold under an agreement that the
selling institution will repurchase the securities from the buyer at a
specified future date and price. In effect, the original seller is borrowing
money for the period, using the securities as collateral.
RESTRUCTURED LOANS
Loans with original terms which have been modified as a result of a change in
the borrower's financial condition. Typically, interest rate concessions are
made or repayment schedules are lengthened in these cases.
89
<PAGE>
RETURN ON AVERAGE ASSETS
A ratio obtained by dividing net income by average assets. It is a measure of
profitability in banking.
RETURN ON AVERAGE COMMON EQUITY
A ratio obtained by dividing net income applicable to common shareholders
(after payment of preferred stock dividends) by average common shareholders'
equity. This is a standard measure of the rate of return on the common
shareholders' investment.
RISK-WEIGHTED ASSETS
Established by federal bank regulators, this is computed based on the sum of
Risk-weighted balance sheet assets and off-balance sheet credit equivalent
amounts calculated in accordance with federal guidelines.
TAX-EQUIVALENT BASIS
An adjustment of income exempt from federal and state taxes or taxed at
preferential rates, such as interest income on state and municipal bonds or
dividends on equity securities, to an amount that would yield the same pre-tax
income had the income been subject to taxation. The result is to equate the
true earnings value of tax-exempt and taxable income.
TIER 1 CAPITAL
Established by federal bank regulators, this is composed of common equity,
retained earnings and perpetual preferred stock reduced by goodwill and certain
nonqualifying intangible assets.
TIER 1 CAPITAL AND TOTAL CAPITAL RATIOS
These measures of capital adequacy have been established by federal bank
regulators, who require institutions to have a minimum ratio of Tier 1 capital
to Risk-weighted assets of 4.00 percent and a minimum ratio of Total capital to
Risk-weighted assets of 8.00 percent. The ratios are obtained by dividing Tier
1 capital or Total capital by Risk-weighted assets.
TOTAL CAPITAL
Established by federal bank regulators, this consists of Tier 1 capital plus
a limited amount of allowable debt, certain other financial instruments and a
limited amount of the reserve for loan losses.
90
<PAGE>
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DESIGNATION DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
3.1 Restated certificate of incorporation (incorporated
by reference to Exhibit 3(i).1 to the
Corporation's current report on Form 8-K (File No.
1-10102) filed on December 29, 1994) N/A
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of Shawmut National
Corporation (incorporated by reference to Exhibit
3(i).2 to the Corporation's current report on Form
8-K (File No. 1-10102) filed on December 29, 1994) N/A
3.3 Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
of Shawmut National Corporation (incorporated by
reference to Exhibit 3(i).3 to the Corporation's
current report on Form 8-K (File No. 1-10102)
filed on December 29, 1994) N/A
3.4 Certificate of Designation of 9.30% Cumulative
Preferred Stock of Shawmut National Corporation
(incorporated by reference to Exhibit 3(i).4 to
the Corporation's current report on Form 8-K (File
No. 1-10102) filed on December 29, 1994) N/A
3.5 Amended Certificate of Designation of 9.30%
Cumulative Preferred Stock of Shawmut National
Corporation (incorporated by reference to Exhibit
3(i).5 to the Corporation's current report on Form
8-K (File No. 1-10102) filed on December 29, 1994) N/A
3.6 Certificate of Correction filed to Correct a
Certain Error in the Certificate of Designation of
9.30% Cumulative Preferred Stock of Shawmut
National Corporation (incorporated by reference to
Exhibit 3(i).6 to the Corporation's current report
on Form 8-K (File No. 1-10102) filed on December
29, 1994) N/A
3.7 Certificate of Increase to the Restated Certificate
of Incorporation of Shawmut National Corporation
(incorporated by reference to Exhibit 3.1 to the
Corporation's current report on Form 8-K (File No.
1-10102) filed on February 7, 1995) N/A
3.8 Certificate of Designation of 9.35% Cumulative
Preferred Stock of Shawmut National Corporation
(incorporated by reference to Exhibit 4.04 to the
Corporation's current report on Form 8-K (File No.
1-10102) filed on January 26, 1995) N/A
3.9 By-laws, as amended (incorporated by reference to
the Corporation's current report on Form 8-K (File
No. 1-10102) filed on November 12, 1993) N/A
4.1 Restated certificate of incorporation, articles
fourth, sixth and seventh (incorporated by
reference to Exhibit 3(i).1 to the Corporation's
current report on Form 8-K (File No. 1-10102)
filed on December 29, 1994) N/A
4.2 Certificate of Amendment to the Restated
Certificate of Incorporation of Shawmut National
Corporation (incorporated by reference to Exhibit
3(i).2 to the Corporation's current report on Form
8-K (File No. 1-10102) filed on December 29, 1994) N/A
4.3 Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
of Shawmut National Corporation (incorporated by
reference to Exhibit 3(i).3 to the Corporation's
current report on Form 8-K (File No. 1-10102)
filed on December 29, 1994) N/A
4.4 Certificate of Designation of 9.30% Cumulative
Preferred Stock of Shawmut National Corporation
(incorporated by reference to Exhibit 3(i).4 to
the Corporation's current report on Form 8-K (File
No. 1-10102) filed on December 29, 1994) N/A
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DESIGNATION DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
4.5 Amended Certificate of Designation of 9.30%
Cumulative Preferred Stock of Shawmut National
Corporation (incorporated by reference to Exhibit
3(i).5 to the Corporation's current report on Form
8-K (File No. 1-10102) filed on December 29, 1994) N/A
4.6 Certificate of Correction filed to Correct a
Certain Error in the Certificate of Designation of
9.30% Cumulative Preferred Stock of Shawmut
National Corporation (incorporated by reference to
Exhibit 3(i).6 to the Corporation's current report
on Form 8-K (File No. 1-10102) filed on December
29, 1994) N/A
4.7 Certificate of Increase to the Restated Certificate
of Incorporation of Shawmut National Corporation
(incorporated by reference to Exhibit 3.1 to the
Corporation's current report on Form 8-K (File No.
1-10102) filed on February 7, 1995) N/A
4.8 Certificate of Designation of 9.35% Cumulative
Preferred Stock of Shawmut National Corporation
(incorporated by reference to Exhibit 4.04 to the
Corporation's current report on Form 8-K (File No.
1-10102) filed on January 26, 1995) N/A
4.9 By-laws, as amended, Sections 1, 2, 3, 4 and 6
(incorporated by reference to the Corporation's
current report on Form 8-K (File No. 1-10102)
filed on November 12, 1993) N/A
4.10 The indentures and other instruments defining the
rights of holders of long-term debt of the
Corporation and its consolidated subsidiaries are
omitted pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K. The Corporation agrees to furnish
copies of such indentures and other instruments to
the Commission upon request N/A
4.11 Shareholder rights plan (incorporated by reference
to Form 8-A Registration Statement dated March 7,
1989, File No. 1-10102) amended as of February 20,
1995 (incorporated by reference to Exhibit 99.3 to
the Corporation's current report on Form 8-K (File
No. 1-10102) filed on February 28, 1995) N/A
4.12 Form of Certificate of 9.30% Cumulative Preferred
Stock (incorporated by reference to the
Corporation's current report on Form 8-K (File No.
1-10102), dated October 27, 1992) N/A
4.13 Deposit agreement, dated as of November 3, 1992,
among the Corporation, Chemical Bank, as
depositary, and the holders from time to time of
the depositary receipts, including the form of
depositary receipt, relating to the 9.30%
Cumulative Preferred Stock (incorporated by
reference to the Corporation's current report on
Form 8-K (File No. 1-10102), dated October 27,
1992) N/A
4.14 Form of Certificate of 9.35% Cumulative Preferred
Stock (incorporated by reference to the
Corporation's current report on Form 8-K (File No.
1-10102) filed January 26, 1995) N/A
4.15 Deposit Agreement, dated January 26, 1995, among
the Corporation, Chemical Bank, as depositary, and
the holders from time to time of the depositary
receipts, including the form of depositary
receipt, relating to the 9.35% Cumulative
Preferred Stock (incorporated by reference to the
Corporation's current report on Form 8-K (File No.
1-10102), dated January 26, 1995) N/A
*10.1 Stock option and restricted stock award plan,
amended and restated as of September 30, 1993 and
June 30, 1994, and further amended July 28, 1994 95
*10.2 Form of executive employment agreement dated
February 24, 1994 107
*10.3 Form of executive severance agreement dated
February 23, 1988 (incorporated by reference to
Form 10-Q for the quarter ended March 31, 1988),
as amended effective June 27, 1989 (incorporated
by reference to the Corporation's annual report
for 1990 on Form 10-K) N/A
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DESIGNATION DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
*10.4 Form of executive severance agreement dated May 16,
1994 119
*10.5 Deferred compensation plan for directors of Shawmut
National Corporation effective February 23, 1988
(incorporated by reference to the Corporation's
annual report for 1990 on Form 10-K) N/A
*10.6 Shawmut National Corporation 1989 nonemployee
directors' restricted stock plan effective April
25, 1989 (incorporated by reference to the 1989
Proxy Statement dated March 13, 1989 and filed
with the Securities and Exchange Commission) N/A
*10.7 Shawmut National Corporation executive supplemental
retirement plan effective July 1, 1990
(incorporated by reference to the Corporation's
annual report for 1990 on Form 10-K), as amended
November 24, 1992, and July 28, 1994 effective
January 1, 1994 129
*10.8 Shawmut National Corporation performance unit plan,
as amended June 27, 1989 (incorporated by
reference to the Corporation's annual report for
1990 on Form 10-K) N/A
*10.9 Shawmut National Corporation executive group life
insurance plan, as adopted September 10, 1991,
effective October 31, 1991 (incorporated by
reference to the Corporation's Form 10-Q for the
quarter ended September 30, 1991) N/A
*10.10 Shawmut National Corporation split-dollar life
insurance plan, as adopted September 10, 1991,
effective October 31, 1991 (incorporated by
reference to the Corporation's current report on
Form 8-K (File No. 1-10102) dated February 28,
1994) N/A
*10.11 Form of executive employment agreement dated March
1, 1992 (incorporated by reference to the
Corporation's annual report for 1992 on Form 10-K) N/A
*10.12 Form of executive employment agreement dated May
11, 1992 (incorporated by reference to the
Corporation's annual report for 1992 on Form 10-K) N/A
*10.13 Performance equity plan, adopted October 28, 1993,
and amended February 19, 1995 132
*10.14 Deferred compensation plan, adopted October 28,
1993, and amended February 19, 1995 142
*10.15 Executive separation policy, adopted October 28,
1993 152
10.16 Agreement and Plan of Merger by and between Shawmut
National Corporation and Northeast Federal Corp.,
dated June 11, 1994 (incorporated by reference to
the Corporation's current report on Form 8-K (File
No. 1-10102), dated January 6, 1995) N/A
10.17 Purchase and Assumption Agreement among Barclays
Business Credit Inc., Barclays Bank PLC, Shawmut
National Corporation and Shawmut Bank Connecticut,
N.A. dated November 12, 1994 (incorporated by
reference to the Corporation's current report on
Form 8-K (File No. 1-10102), dated January 6,
1995) N/A
*10.18 Severance Agreement between Shawmut National
Corporation and Allen W. Sanborn dated September
16, 1994 160
12 Statements re computation of ratios 166
21 Parent and principal subsidiaries 167
23 Consent of independent accountants 168
27 Financial Data Schedule 169
99.1 Notice of 1995 annual meeting of shareholders and
proxy statement to be filed with the Securities
and Exchange Commission N/A
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DESIGNATION DESCRIPTION PAGE
----------- ----------- ------------
<C> <S> <C>
99.2 Shawmut National Corporation press release dated
December 15, 1994, announcing that its board of
directors had voted to increase the quarterly
dividend on its common stock to $.22 a share from
$.20 a share 170
99.3 Shawmut National Corporation press release dated
January 4, 1995, announcing the completion of its
acquisition of the Old Stone Trust Company, based
in Providence, Rhode Island, effective January 1,
1995 171
99.4 Shawmut National Corporation press release dated
January 26, 1995, announcing the completion of an
offering of five million depositary shares, each
representing a one-tenth interest in a share of
9.35% Cumulative Preferred Stock, without par
value, at a stated value of $250 per share 172
99.5 Shawmut National Corporation press release dated
February 1, 1995 announcing that the acquisition
of Barclays Business Credit was completed 173
99.6 Shawmut National Corporation press release dated
February 7, 1995, announcing that Shawmut Bank
Connecticut, National Association priced one
issuance of $250 million in subordinated debt 174
99.7 Shawmut National Corporation press release dated
February 21, 1995, announcing that Fleet Financial
Group and Shawmut National Corporation had signed
a definitive agreement to merge (incorporated by
reference to the Corporation's current report on
Form 8-K (File No. 1-10102), dated February 23,
1995) N/A
99.8 Shawmut National Corporation press release dated
February 21, 1995, announcing the suspension of
its dividend reinvestment and stock purchase plan,
effective February 20, 1995 (incorporated by
reference to the Corporation's current report on
Form 8-K (File No. 1-10102), dated February 23,
1995) N/A
</TABLE>
- --------
* Denotes management contract or compensation plan or arrangement.
94
<PAGE>
EXHIBIT 10.1
SHAWMUT NATIONAL CORPORATION STOCK OPTION AND RESTRICTED STOCK AWARD PLAN
AMENDED AND RESTATED AS OF SEPTEMBER 30, 1993 AND AS OF JUNE 1, 1994
1. Purposes
The purposes of the Shawmut National Corporation Stock Option and Restricted
Stock Award Plan (the "Plan") are to further the long-term growth in earnings
of Shawmut National Corporation (the "Corporation") by providing incentives to
those officers and other employees who are or will be responsible for such
growth; to facilitate the ownership of Corporation stock by such officers and
employees, thereby increasing the identity of their interests with those of the
Corporation's stockholders; and to assist the Corporation in attracting and
retaining officers and other employees with experience and ability.
2. Administration
The Plan shall be administered and interpreted by a committee (the
"Committee") of at least two persons consisting entirely of members of, and
appointed by, the Board of Directors of the Corporation (the "Board"). Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3, as from time to time amended ("Rule 16b-3"), promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and an "outside director" within the meaning of Section 162(m) ("Section
162(m)") of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee shall have full authority to establish regulations for the
administration of the Plan, to select the employees who shall be granted stock
options (sometimes hereinafter referred to as "options"), stock appreciation
rights or limited stock appreciation rights (sometimes hereafter referred to
collectively as "rights") or restricted stock awards or units (sometimes
hereinafter referred to collectively as "restricted awards") under the plan, to
determine the number of options, rights or shares or units of restricted stock
to be granted to each such employee, to interpret the plan and to make any
other determination it deems necessary to administer the Plan, which
determinations shall be binding and conclusive on all parties. The Committee
may delegate to the Chairman or other specified persons the authority to take
specified actions, to the extent consistent with Rule 16b-3 and Section 162(m).
No member of the Committee shall be liable for any action or determination
taken or made in good faith with respect to this Plan or any option, right or
restricted award granted hereunder.
3. Eligibility
Effective as of January 29, 1993, any full-time employee of the Corporation
or its subsidiaries ("Employee") who is determined by the Committee to be in a
position to contribute to the long-term growth in earnings of the Corporation
shall be eligible to receive grants of stock options, rights or restricted
awards under this Plan. For the purposes of this Plan, any corporation of which
the Corporation owns directly or indirectly fifty percent (50%) or more of such
corporation's outstanding voting stock shall be deemed to be a "subsidiary."
4. Employee rights
Nothing in the Plan or in any instrument executed pursuant thereto shall
confer upon any employee any right to continue in the employ of the Corporation
or a subsidiary or shall affect the right of the Corporation or of a subsidiary
to terminate the employment of any employee with or without cause. Nothing in
this Plan is intended to be a substitute for, or shall preclude or limit the
establishment or continuation of, any other plan, practice or arrangement for
the payment of compensation or fringe benefits to employees generally, or to
any class or group of employees, which the Corporation or any subsidiary now
has or may hereafter lawfully put into effect, including, without limitation,
any retirement, pension, insurance, stock option, stock
95
<PAGE>
2
award, stock purchase, incentive compensation or bonus plan. The Corporation
shall not be obligated to issue stock pursuant to an option or award if such
issuance would constitute a violation of any applicable law. The Committee may
postpone any exercise of an option, right or expiration of any restrictions for
such time as the Committee may deem necessary in order to permit the
Corporation, with reasonable diligence, to obtain an exemption from, or
complete any necessary registration of stock under the Securities Act of 1933.
While the Committee may, in its sole discretion, extend the period of exercise
of such option or right for a period not in excess of the time of such
postponement, the Committee shall not be obligated to do so, and neither the
Corporation nor the Committee shall have any obligation or liability to the
grantee of an option or right if such option or right lapses because of such
postponement.
5. Stock subject to this plan
(a) Effective as of January 28, 1993, the maximum number of shares of the
common stock of the Corporation to be reserved for issuance in accordance with
the terms of the Plan is 7,600,000, including the shares subject as of the
effective date hereof (as described in Section 16) to outstanding options
("replaced options") or restricted stock awards ("replaced awards") granted
under the Hartford National Corporation Stock Option and Restricted Stock Award
Plan, the Hartford National Corporation Long-Term Incentive Program, the First
Bancorporation Incentive Stock Option Plan or the Home Bank and Trust Company
1984 Incentive Stock Option Plan. Such reserved shares may be authorized but
unissued shares or any issued shares which have been acquired by the
Corporation and are held in its treasury, as the Corporation may from time to
time determine.
(b) The number and kind of shares reserved for options, rights and restricted
awards, the number and kind of shares subject to outstanding options, rights
and restricted awards, and/or the option price of such optioned shares shall be
adjusted equitably to reflect any change in the issued and outstanding shares
of the Corporation's common stock, through declaration of stock dividends or
distributions with respect to such shares, through restructuring,
recapitalization or other similar event or through stock splits, change in par
value, combination or exchange of shares, or the like, occurring or effective
while such shares are being held in such reserve or are subject to outstanding
options, rights and restricted awards; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated.
(c) If options or rights granted under this Plan are surrendered or for any
other reason cease to be exercisable in whole or in part, or if any shares or
units of restricted stock awarded under the Plan are forfeited, then the shares
which were subject to such options or rights, but as to which the options or
rights cease to be exercisable, and the shares or units of restricted stock
which were forfeited shall again be available for the purposes of this Plan to
the extent permitted under Rule 16b-3.
6. Granting of options
(a) The Committee shall grant options ("substitute options") in substitution
for "replaced options" (as defined in Section 5), on the same terms and
conditions as the replaced options; provided, however, that in the case of
options intended to qualify as Incentive Stock Options (as defined in the
following sentence), terms and conditions shall be adjusted to the extent (if
any) necessary to comply with the applicable requirements of Section 424 of the
Code and the regulations issued thereunder. The Committee may also grant other
options, which may be (i) incentive stock options ("Incentive Stock Options")
within the meaning of Section 422 of the Code, (ii) options which do not
qualify as Incentive Stock Options ("Nonstatutory Stock Options"), or (iii)
both Incentive Stock Options and Nonstatutory Stock Options, as follows:
(i) Incentive Stock Options may be granted to any Employee, provided that
the aggregate Fair Market Value (as defined in Subsection (b) of this
Section 6) of the shares of common stock of the Corporation (determined as
of the date of grant of an Incentive Stock Option) with respect to which
Incentive Stock Options granted after December 31, 1986 under this Plan and
under any other option plan of the Corporation or subsidiary first become
exercisable by such Employee shall not exceed
96
<PAGE>
3
$100,000 during any calendar year. Any Incentive Stock Options granted in
excess of such limitation shall be treated for all purposes as Nonstatutory
Stock Options.
(ii) Nonstatutory Stock Options may be granted to any Employee without
regard to the limitations stated in Paragraph (i) above.
(b) The option price per share for each option granted shall be determined by
the Committee and shall not be less than the Fair Market Value of the shares on
the date the option is granted. For purposes of this Plan, the Fair Market
Value of such shares on any given day shall be the closing price per share of
common stock as reported on the New York Stock Exchange Composite Tape for such
date, or, if there was no trading of such common stock on such date, for the
next preceding date on which there was such trading.
(c) Grants shall be authorized by the Committee and shall be evidenced by
written agreements in such form as the Committee shall from time to time
approve.
7. Exercise of option
(a) Each option shall be granted for, and by its terms shall not be
exercisable after the expiration of, a period of seven years from the date the
option is granted or such lesser period as the Committee may determine.
Effective as of January 28, 1993, each option granted on or after such date
shall be granted for, and by its terms shall not be exercisable after, the
expiration of a period of ten years from the date the option is granted or such
lesser period as the Committee may determine.
(b) No optioned shares shall be issued or transferred to an optionee until
purchased as provided in Subsection (f) of this Section 7, and an optionee
shall have none of the rights of a stockholder with respect to such optioned
shares until the certificates therefor are registered in the name of such
optionee upon exercise of the option.
(c) An option may be exercised in cumulative installments as designated by
the Committee, but no portion of the option shall be exercisable before one
year from the date of grant, unless otherwise determined by the Committee with
respect to an Employee who is not subject to the reporting requirements of
Section 16(a) of the Exchange Act. Notwithstanding the foregoing, an option
shall be exercisable in full from and after the Acceleration Date (as defined
in Section 10(e)(ii)). To the extent an option is not exercised for the total
number of shares with respect to which such option becomes exercisable, the
number of unexercised shares shall accumulate and the option shall be
exercisable, to such extent, at any time thereafter, but in no event after the
expiration of such period as the Committee may have established with respect to
such option pursuant to Subsection (a) of this Section 7.
(d) Except as provided in Subsection (e) of this Section 7, no option granted
under this Plan may be exercised after the holder thereof has ceased to be
employed by the Corporation or a subsidiary. For purposes of this Subsection
(d) and Subsection (e) of this Section 7, with respect to an Employee who has
ceased to perform services for the Corporation by reason of disability (within
the meaning of the Shawmut National Corporation Long-Term Disability Plan)
("Disability"), references to cessation of employment shall be deemed to
include such cessation of the provision of services.
(e) (i) If an Employee ceases to be employed by the Corporation or a
subsidiary for any reason other than death, Disability or termination of his
employment by the Corporation or a subsidiary for cause (as determined by the
Committee in its sole discretion), he or his legal representative may, at any
time within three months after such cessation of employment, exercise any
option granted under this Plan to the extent that the Employee was entitled to
exercise it on the date of his cessation of employment.
(ii) If any Employee ceased to be employed by the Corporation or a
subsidiary by reason of his death or Disability, he or his legal
representative may, at any time within one year after such cessation
97
<PAGE>
4
of employment, exercise any option granted under this Plan to the extent
that the Employee was entitled to exercise it on the date of his cessation
of employment.
(iii) In the case of an Employee whose salary grade is 26 or above, if
such Employee ceases to be employed by the Corporation or a subsidiary by
reason of Disability, death, or retirement in accordance with the
applicable Corporation or subsidiary retirement plan, such Employee (or his
legal representative) may continue to exercise any outstanding options as
though such Employee had remained in the employ of the Corporation or a
subsidiary.
(iv) In the case of an Employee who is not subject to the reporting
requirements of Section 16(a) of the Exchange Act, the Committee may, in
its sole discretion, in the instrument evidencing the grant of an option to
the Employee or on or before the date such Employee ceases to be employed
by the Corporation or a subsidiary, provide that the option may be
exercised subsequent to specified cessations of employment (A) even though
the option was not otherwise exercisable at the time of such cessation of
employment and/or (B) for specified periods in excess of those set forth in
paragraphs (i) and (ii) of this Section 7(e).
(v) Notwithstanding anything to the contrary in this Section 7(e), no
option granted hereunder shall be exercisable after the expiration of such
period as the Committee may have established with respect to such option
pursuant to Subsection (a) of this Section 7.
(f) An Employee who desires to exercise an option, in whole or in part, shall
submit to the Corporation a notice in writing, accompanied by one of the
following:
(i) payment in cash of the full option price of the shares purchased;
(ii) if authorized by the Committee, the delivery of shares of common
stock of the Corporation owned by the purchaser ("Appreciated Stock"),
accompanied by the certificates therefor registered in the name of such
purchaser and properly endorsed for transfer, having a Fair Market Value
equal to the option price;
(iii) if authorized by the Committee, the delivery to the Corporation of
restricted shares or units awarded to the Employee pursuant to Section 10
or Section 11 ("Appreciated Restricted Stock") with respect to which the
Restricted Period or deferral periods, as the case may be, have not lapsed,
having a Fair Market Value equal to the option price, provided that the
shares thereby purchased equal in number to the number of restricted shares
or units delivered shall be subject to the same restrictions as the
delivered shares or units;
(iv) if authorized by the Committee, any combination of cash and
Appreciated Stock and Appreciated Restricted Stock such that the sum of the
amount of cash and the Fair Market Value of the Appreciated Stock and
Appreciated Restricted Stock (as of the date of exercise) is equal to the
option price; or
(v) instructions to a broker promptly to deliver to the Corporation the
amount of sale proceeds sufficient to pay the option price.
8. Stock appreciation rights
(a) The Committee shall have authority to grant stock appreciation rights
("Rights") to the holder of any option granted under the plan (the "Related SAR
Option") with respect to all or some of the shares of stock covered by such
Related SAR Option. A Right may be granted either at the time of grant of the
Related SAR Option or any time thereafter during its term (except as otherwise
provided in Section 16); provided, however, that a Right shall be granted to
the holder of an Incentive Stock Option only if, and to the extent that, such
grant will not cause the disqualification of such Incentive Stock Option. Each
Right shall be exercisable only if, and to the extent that, the Related SAR
Option is exercisable and, in the case of Rights granted in respect of
Incentive Stock Options, only when the Fair Market Value per share of common
stock exceeds the option price per share. Upon the exercise of a Right, the
Related SAR Option shall cease to be exercisable to the extent of the shares of
common stock with respect to which such Right is exercised, but
98
<PAGE>
5
shall be considered to have been exercised to that extent for purposes of
determining the number of shares available for the grant of further awards
under the plan. Upon the exercise or termination of a Related SAR Option, the
Right with respect to such Related SAR Option shall terminate to the extent of
the shares of common stock with respect to which the Related SAR Option was
exercised or terminated.
(b) Upon the exercise of a Right, the holder thereof, subject to Subsection
(e) of this Section 8, shall be entitled at the holder's election to receive
either--
(i) that number of shares of common stock equal to the quotient computed
by dividing the Spread (as defined in Subsection (c) of this Section 8) by
the Fair Market Value per share of common stock on the date of exercise of
the Right; provided, however, that in lieu of fractional shares, the
Corporation shall pay cash equal to the same fraction of the Fair Market
Value per share of common stock on the date of exercise of the Right, or
(ii) an amount in cash equal to the Spread, or
(iii) a combination of cash and a number of shares calculated as provided
in Paragraph (i) of this Subsection (b) (after reducing the Spread by such
cash amount), plus cash in lieu of any fractional shares as above provided.
(c) The term "Spread" as used in this Section 8 shall mean an amount equal to
the product computed by multiplying (i) the excess of (A) the Fair Market Value
per share of common stock on the date the Right is exercised over (B) the
option price per share at which the Related SAR Option is exercisable, by (ii)
the number of shares with respect to which such Right is exercised.
(d) Notwithstanding the provisions of this Section 8, unless otherwise
determined by the Committee, a Right granted to a holder who is subject to the
reporting requirements of Section 16(a) of the Exchange Act may not be
exercised until the expiration of six (6) months from the date of grant of such
Right unless, prior to the expiration of such six (6) month period, the holder
of such Right ceases to be an employee of the Corporation or its subsidiaries
by reason of such holder's death or disability.
(e) Notwithstanding the provisions of Subsection (b) of this Section 8, the
Committee shall have sole discretion to consent to or disapprove an election to
receive cash in whole or in part ("Cash Election") upon the exercise of a
Right. Unless otherwise determined by the Committee, a Cash Election and
related exercise by a holder who is subject to the reporting requirements of
Section 16(a) of the Exchange Act may be made only during the period beginning
on the third business day following the date of release for publication of the
quarterly and annual summary statements of sales and earnings of the
Corporation and ending on the 12th business day following such date.
(f) A Right may be granted to an optionee irrespective of whether such
optionee is being granted or has been granted a Limited Right.
(g) Each Right shall be granted on such terms and conditions not inconsistent
with the Plan as the Committee may determine.
(h) To exercise a Right, the optionee shall (i) give written notice thereof
to the Committee in form satisfactory to the Committee specifying (A) the
number of shares of common stock with respect to which the Right is being
exercised and (B) the amount the optionee elects to receive in cash and shares
of common stock with respect to the exercise of the Right, and (ii) if
requested by the Committee, deliver the option agreement to the Committee, who
shall endorse thereon a notation of such exercise and return the option
agreement to the optionee. The date of exercise of a Right that is validly
exercised shall be deemed to be the date on which there shall have been
delivered the instruments referred to in the first sentence of this Subsection
(h).
99
<PAGE>
6
9. Limited stock appreciation rights
(a) The Committee shall have authority to grant a limited stock appreciation
right (a "Limited Right") to the holder of any option granted under the Plan
(referred to herein as the "Related LSAR Option") with respect to all or some
of the shares of common stock covered by such Related LSAR Option. A Limited
Right may be granted either at the time of grant of the Related LSAR Option or
at any time thereafter during its term (except as otherwise provided in Section
14); provided, however, that a Limited Right shall be granted to the holder of
an Incentive Stock Option only if, and to the extent that, such grant will not
cause the disqualification of such Incentive Stock Option. A Limited Right may
be exercised only during the sixty-day period beginning on an "Acceleration
Date" (as defined in Section 10(e)(ii)). Each Limited Right shall be
exercisable only if, and to the extent that, the Related LSAR Option is
exercisable and, in the case of Limited Right granted in respect of an
Incentive Stock Option, only when the Fair Market Value per share of common
stock exceeds the option price per share. Notwithstanding the provisions of the
two immediately preceding sentences, no Limited Right may be exercised until
the expiration of six (6) months from the date of grant of the Limited Right
unless, prior to the expiration of such six (6) month period, the holder of
such Limited Right ceases to be an employee of the Corporation or its
subsidiaries by reason of such holder's death or disability. Upon the exercise
of a Limited Right, the Related LSAR Option shall cease to be exercisable to
the extent of the shares of common stock with respect to which such Limited
Right is exercised, but shall be considered to have been exercised to that
extent for purposes of determining the number of shares of common stock
available for the grant of further awards under the Plan.
(b) Upon the exercise or termination of a Related LSAR Option, the Limited
Right with respect to such Related LSAR Option shall terminate to the extent of
the shares of common stock with respect to which the Related LSAR Option was
exercised or terminated.
(c) Upon the exercise of a Limited Right, the holder thereof shall receive in
cash whichever of the following amounts is applicable:
(i) in the case of an exercise of Limited Rights by reason of an
acquisition of common stock described in Section 10(e)(ii)(A), an amount
equal to the Acquisition Spread (as defined in Subsection (e) of this
Section 9); or
(ii) in the case of an exercise of Limited Rights by reason of the change
in composition of the Board of Directors described in Section 10(e)(ii)(B),
an amount equal to the Spread (as defined in Subsection (f) of this Section
9).
Notwithstanding the foregoing provisions of this Subsection (b), in the case
of a Limited Right granted in respect of an Incentive Stock Option, the holder
may not receive an amount in excess of the maximum amount that will enable such
option to continue to qualify as an Incentive Stock Option.
(d) The term "Acquisition Price per Share" as used in this Section 9 shall
mean, with respect to the exercise of any Limited Right by reason of an
acquisition of common stock described in Section 10(e)(ii)(A), the greater of
(i) the highest price per share shown on the Statement of Schedule 13D or
amendment thereto filed by the holder of 25% or more of the Corporation's
common stock which gives rise to the exercise of such Limited Right, and (ii)
the highest Fair Market Value per share of common stock during the sixty-day
period ending on the date the Limited Right is exercised.
(e) The term "Acquisition Spread" as used in this Section 9 shall mean an
amount equal to the product computed by multiplying (i) the excess of (A) the
Acquisition Price per Share over (B) the option price per share of common stock
at which the Related LSAR Option is exercisable, by (ii) the number of shares
of common stock with respect to which such Limited Right is being exercised.
(f) The term "Spread" as used in this Section 9 shall mean, with respect to
the exercise of any Limited Right by reason of a change in the composition of
the Board described in Section 10(e)(ii)(B), an amount equal to the product
computed by multiplying (i) the excess of (A) the highest Fair Market Value per
share of common stock during the sixty-day period ending on the date the
Limited Right is exercised over (B) the
100
<PAGE>
7
option price per share of common stock at which the Related LSAR Option is
exercisable, by (ii) the number of shares of common stock with respect to which
the Limited Right is being exercised.
(g) Each Limited Right shall be granted on such terms and conditions not
inconsistent with the Plan as the Committee may determine.
(h) To exercise a Limited Right, the optionee shall (i) give written notice
thereof to the Committee in form satisfactory to the Committee specifying the
number of shares of common stock with respect to which the Limited Right is
being exercised, and (ii) if requested by the Committee, deliver the option
agreement to the Committee who shall endorse thereon a notation of such
exercise and return the option agreement to the optionee. The date of exercise
of a Limited Right that is validly exercised shall be deemed to be the date on
which there shall have been delivered the instruments referred to in the first
sentence of this Subsection (h).
10. Restricted stock
The Committee shall make awards ("substitute awards") of restricted stock in
substitution for "replaced awards" (as defined in Section 5) on the same terms
and conditions as the replaced awards. The Committee may also make other awards
of restricted stock to any Employee. Each award of restricted stock under the
Plan (a "Restricted Stock Award") shall be evidenced by an instrument in such
form as the Committee shall prescribe from time to time in accordance with the
Plan and shall comply with the following terms and conditions (and with such
other terms and conditions not inconsistent with the terms of this Plan as the
Committee, in its discretion, shall establish):
(a) The Committee shall determine the number of shares of the common
stock of the Corporation to be issued to an Employee pursuant to the award.
(b) Except as set forth in Section 7(f), shares of stock issued to an
Employee in accordance with a Restricted Stock Award may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for a period of ten
years, or such shorter period as the Committee shall determine, from the
date on which the award is granted (the "Restricted Period"). The Committee
may also impose such other restrictions and conditions on the shares as it
deems appropriate. Certificates for shares of stock issued pursuant to a
Restricted Stock Award may bear an appropriate legend referring to such
restrictions, and any attempt to dispose of any such shares of stock in
contravention of such restrictions shall be null and void and without
effect. Such certificates may be retained by the Corporation during the
Restricted Period. In determining the Restricted Period of an award, the
Committee may provide that the foregoing restrictions shall lapse with
respect to specified percentages of the awarded shares on successive
anniversaries of the date of such award. In no event shall the Restricted
Period end with respect to a Restricted Stock Award prior to the
satisfaction by the Employee of any liability arising under Section 12.
(c) If the Employee's continuous employment with the Corporation or any
of its subsidiaries shall terminate for any reason prior to the expiration
of the Restricted Period of an award, or if any other conditions
established by the Committee are not met, any shares remaining subject to
restrictions (after taking into account the provisions of Subsections (e)
and (f) of this Section 10) shall thereupon be forfeited by the Employee
and transferred to, and reacquired by, the Corporation or a subsidiary at
no cost to the Corporation or subsidiary. In such event, the Employee, or
in the event of his death, his personal representative, shall forthwith
deliver to the Secretary of the Corporation any certificates in his or and
his representative's possession for the shares of stock remaining subject
to such restrictions, accompanied by such instruments of transfer, if any,
as may reasonably be required by the Secretary of the Corporation.
(d) Upon receipt by an Employee of a Restricted Stock Award, the Employee
shall possess all incidents of ownership of such shares (subject to
Subsection (b) of this Section 10), including the right to receive or
reinvest dividends with respect to such shares and to vote such shares.
101
<PAGE>
8
(e) (i) Upon the occurrence of a "change in control of the Corporation,"
as defined in paragraph (ii) of this Section 10(e), all restrictions then
outstanding with respect to a Restricted Stock Award shall automatically
expire and be of no further force and effect.
(ii) For purposes of the Plan, a "change in control of the
Corporation" shall mean a change in control of the Corporation or any
successor or assign thereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A,
promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"), whether or not the Corporation is subject to such
reporting requirements, or the acquisition of control (within the
meaning of Section 2(a)(2) of the Bank Holding Company Act of 1956, as
amended, 12 U.S.C. (S)1841 or Section 602 of the Change in Bank Control
Act of 1978, 12 U.S.C. (S)1817(J)) of the Corporation by any person,
company or other entity; provided that, without limitation, such a
change in control shall be deemed to have occurred if (A) any "person"
or "group" (as such terms are used in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) (a "Person") other than the Corporation is or becomes
the beneficial owner, directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of
the Corporation's then outstanding securities; (B) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election,
or the nomination of election by the Corporation's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors of the Corporation then still in office who were directors of
the Corporation at the beginning of the period; (C) the stockholders of
the Corporation approve a merger or consolidation of the Corporation
with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit
plan of the Corporation, at least 60% of the combined voting power of
the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no Person acquires more
than 50% of the combined voting power of the Corporation's then
outstanding securities; or (D) the stockholders of the Corporation
approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation of all or
substantially all the Corporation's assets; provided, however, that
consummation of the transactions contemplated by the Agreement and Plan
of Reorganization, dated as of August 26, 1987, between Hartford
National Corporation and Shawmut Corporation shall not constitute such
change in control. "Acceleration Date" shall mean the date on which
public announcement of the acquisition of the percentage set forth
above shall have been made, the date on which the change in the
composition of the Board set forth above shall have occurred, or the
date on which approval of the merger, plan or agreement set forth above
is obtained, whichever is applicable.
(f) The Committee shall have the authority (and the instrument evidencing
a Restricted Stock Award may so provide) to cancel all or any portion of
any outstanding restrictions prior to the expiration of the Restricted
Period with respect to all or part of a Restricted Stock Award on such
terms and conditions as the Committee may deem appropriate.
11. Restricted stock units
(a) The Committee may make awards of restricted stock units ("Restricted
Stock Units") to any Employee, independent of, in addition to or in tandem with
other grants or awards made under the Plan. The Committee may make such awards
at any time, in such number, and subject to deferral for such period (the
"Deferral Period") as the Committee shall in its discretion determine in
connection with each award. The Committee may specify that such awards shall be
subject to forfeiture for all or part of the Deferral Period. Each award of
Restricted Stock Units under the Plan shall be evidenced by an instrument in
such
102
<PAGE>
9
form as the Committee shall from time to time prescribe and be made in
accordance with the following terms and conditions (and such other terms and
conditions not inconsistent with the terms of the Plan as the Committee, in its
discretion, shall establish):
(b) No shares of the common stock of the Corporation shall be issued in
connection with the award of Restricted Stock Units until the close of the
Deferral Period and any subsequent Elective Deferral Period, as defined in
Subsection (g) of this Section 11. Upon the expiration of such periods,
certificates for shares of the common stock of the Corporation shall be
delivered to the Employee, or his legal representative, in number equal to the
number of Restricted Stock Units subject to the award.
(c) The Deferral Period shall be a period of ten years, or such shorter
period as the Committee shall determine, from the date on which the award is
granted. In determining the Deferral Period of an award, the Committee may
provide that the Deferral Period shall expire with respect to specified
percentages of the awarded Restricted Stock Units on successive anniversaries
of the date of such award or on other specified dates. The Committee may also
impose such other restrictions and conditions on Restricted Stock Units as it
deems appropriate. In no event shall the Deferral Period end with respect to
Restricted Stock Units prior to the satisfaction by the Employee of any
liability arising under Section 12.
(d) Prior to the transfer to an Employee of shares of the common stock of the
Corporation, the Employee shall not possess the incidents of ownership of such
shares; provided, however, that unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the Deferral Period or
Elective Deferral Period with respect to shares of common stock of the
Corporation equal in number to the number of Restricted Stock Units awarded and
outstanding at the time of such declaration ("Dividend Equivalents") shall be
paid to the Employee at the time dividends are paid to the stockholders of the
Corporation, or deferred and deemed to be reinvested in additional Restricted
Stock Units, or otherwise reinvested, all as determined by the Committee in the
instrument evidencing the award or at a subsequent time.
(e) If the Employee's continuous employment with the Corporation or any of
its subsidiaries shall terminate for any reason, or upon the occurrence of such
other event as the Committee may select, prior to the expiration of the
Deferral Period of an award, any outstanding Restricted Stock Units remaining
thereunder (after taking into account the provisions of Subsections (f) and (h)
of this Section 11) shall thereupon be forfeited by the Employee (or shall
mature) as determined by the Committee in the instrument evidencing the award
or at a subsequent time.
(f) Unless waived by the Employee, the Deferral Period shall lapse upon the
occurrence of a "change in control of the Corporation," as defined in Section
10(e) (ii) hereof.
(g) An Employee may elect to further defer receipt of shares of common stock
of the Corporation subject to an award (or an installment of an award) or
Dividend Equivalents for a specified period or until a specified event (the
"Elective Deferral Period"), subject in each case to the Committee's approval
and to such terms as are determined by the Committee.
(h) The Committee shall have the authority (in the instrument evidencing an
award or at a subsequent time) to accelerate the expiration of the Deferral
Period or any period or conditions of forfeiture established pursuant to
Subsection (e) of this Section 11 with respect to any or all of the Restricted
Stock Units awarded to an Employee hereunder on such terms and conditions as
the Committee may deem appropriate.
12. Laws and regulations
No shares of the Corporation's common stock shall be issued under this Plan
unless and until all legal requirements applicable to the issuance of such
shares have been complied with. The Corporation shall have the right to
condition any issuance of shares to any employee hereunder on such Employee's
undertaking in
103
<PAGE>
10
writing to comply with such restrictions on the subsequent disposition of such
shares as the Corporation shall deem necessary or advisable as a result of any
applicable law or regulation. The Corporation shall have the right to withhold
from any cash payment made pursuant to the terms of the Plan the amount of any
taxes which the Corporation or a subsidiary is required to withhold with
respect to such stock. In the case of Corporation stock issued upon exercise of
options or in connection with restricted awards the Employee or other person
receiving such stock shall be required to pay to the Corporation or a
subsidiary the amount of any taxes which the Corporation or a subsidiary is
required to withhold with respect to such stock. Effective as of January 28,
1993, an Employee or other person to whom such stock shall be issued may pay
all or part of the amount of any federal, state, or local tax liability that
will result from the exercise of an option, or, with respect to a restricted
award, the expiration of the Restricted Period or deferral periods, as the case
may be, by electing one of the following methods: (a) by delivering to the
Corporation that number of shares of Corporation stock, when multiplied by the
Fair Market Value of such shares on the date of such exercise or expiration, as
the case may be, which equals the amount of the portion of such tax liability
to be paid by this method, assuming for this purpose a tax rate up to the
maximum combined marginal federal, state and local tax rates applicable to such
Employee or other person; or (b) by instructing the Corporation to withhold
from the shares of Corporation stock that would otherwise be issued that number
of shares of Corporation stock, when multiplied by the Fair Market Value of
such shares on the date of such exercise or expiration, as the case may be,
which equals the amount of the portion of such tax liability to be paid by this
method, assuming for this purpose a tax rate up to the maximum combined
marginal federal, state and local tax rates applicable to such Employee or
other person; provided, however, that with respect to an Employee who is
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, (i) this clause (b) shall not take effect until February
15, 1993, and (ii) the number of shares determined in the above-described
manner shall be automatically withheld by the Corporation from the shares to be
so issued, and the Employee shall have no discretion in such matter; and
further provided, however, that, with respect to any Employee or other person,
shares in excess of the minimum number necessary to fulfill the Corporation's
liability under the Code shall be withheld pursuant to this clause (b) only
with the consent of the Committee.
13. Vested rights
To the extent that an Employee's rights under the Plan have become vested in
accordance with the provision hereof, such Employee may not be deprived of such
rights in any manner by any action of the Corporation or the Committee.
14. Nontransferability; compliance with Rule 16b-3 and Section 162(m)
(a) Awards under the Plan, including any option, right, Restricted Stock Unit
(except as provided in Section 7(f)) or other right that constitutes a
"derivative security," as defined in Rule 16a-1(c) promulgated under Section 16
of the Exchange Act, shall not be transferable other than by will or the laws
of descent and distribution, and shall be exercisable during the lifetime of an
Employee only by him or his guardian or legal representative.
(b) The Corporation intends that the Plan shall comply with the requirements
of Rule 16b-3 throughout the term of the Plan. Should any provision of the Plan
not be necessary, or should any additional provisions be necessary, for the
Plan to comply with the requirements of Rule 16b-3, the Board may amend the
Plan to add to or modify the provisions of the Plan accordingly, or, in
appropriate circumstances, the Plan may be construed or deemed amended
accordingly.
(c) The Plan is intended to comply with Section 162(m) and shall be
interpreted accordingly.
15. Amendment or termination of the plan; interpretation
(a) The Board may at any time, and from time to time, terminate, modify or
amend the Plan in any respect, including modifications or amendments to comply
with or take advantage of changes in federal tax
104
<PAGE>
11
laws or regulations, except that without the requisite stockholder approval, no
such modification or amendment may:
(i) increase the maximum number of shares of the Corporation's common
stock which may be issued under the Plan (other than adjustments pursuant
to Section 5);
(ii) reduce below Fair Market Value the price per share at which any
option may be granted;
(iii) extend the term of the Plan or the period during which any option,
right or restricted award may be granted or any option may be exercised; or
(iv) alter in any way the class of persons eligible to participate in the
Plan.
The termination, modification or amendment of the Plan shall not, without the
consent of an Employee, adversely affect his rights under any award previously
made to him.
(b) In the case of options granted as Incentive Stock Options, the terms of
the Plan shall be interpreted wherever possible in such manner as will preserve
the qualified status of such options.
16. Effective date and term of the plan
The Plan shall become effective as of October 6, 1987, subject to the
approval of stockholders within twelve months of that date. No option, right or
restricted award shall be granted pursuant to this Plan later than October 6,
1997, but options, rights or restricted awards theretofore granted may extend
beyond that date in accordance with the terms of the Plan.
105
<PAGE>
AMENDMENT TO THE STOCK OPTION AND RESTRICTED STOCK AWARD PLAN
BOARD OF DIRECTORS' MEETING Thursday, July 28, 1994
1. Section 2 of the 1987 Plan is hereby amended, in the second and fourth
sentences respectively to read as follows:
"Each member of the committee shall be a "disinterested person" within the
meaning of Rule 16b-3, as from time to time amended ("Rule 16b-3"),
promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and an "outside director" within the meaning
of Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986,
as amended (the "Code")."
Committee may delegate to the Chairman or other specified persons the
authority to take specified actions, to the extent consistent with Rule
16b-3 and Section 162(m)."
2. Section 10(e)(ii) of the 1987 Plan is hereby amended to remove all
references to Hartford National Corporation and Shawmut Corporation in the
definition of "change in control."
106
<PAGE>
EXHIBIT 10.2
FORM OF
EMPLOYMENT AGREEMENT
BY AND BETWEEN
SHAWMUT NATIONAL CORPORATION
AND
[ ]
EFFECTIVE AS OF FEBRUARY 24, 1994
107
<PAGE>
i
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
1. Employment.......................................................... 1
2. Term................................................................ 1
3. Position and Duties................................................. 1
4. Place of Performance................................................ 1
5. Compensation and Related Matters.................................... 1
(a) Base Salary..................................................... 1
(b) Bonuses......................................................... 2
(c) Expenses........................................................ 2
(d) Other Benefits.................................................. 2
(e) Vacation........................................................ 2
(f) Services Furnished.............................................. 2
6. Offices............................................................. 2
7. Termination......................................................... 2
(a) Death........................................................... 2
(b) Disability...................................................... 2
(c) Cause........................................................... 2
(d) Good Reason..................................................... 3
8. Termination Procedure............................................... 3
(a) Notice of Termination........................................... 3
(b) Date of Termination............................................. 3
(c) Compensation During Dispute..................................... 4
9. Compensation upon Termination or During Disability.................. 4
(a) Disability; Death............................................... 4
(b) By Corporation without Cause or by the Executive for Good
Reason............................................................. 4
(c) By Corporation for Cause or by the Executive Other than for Good
Reason............................................................. 5
(d) Compensation Plans.............................................. 5
(e) Mitigation...................................................... 5
10. Confidential Information; Noncompetition Requirement................ 5
(a) Confidential Information........................................ 5
(b) Noncompetition Requirement...................................... 6
(c) Nonsolicitation Requirement..................................... 6
11. Indemnification; Legal Fees......................................... 6
12. Successors; Binding Agreement....................................... 6
(a) Corporation's Successors........................................ 6
(b) The Executive's Successors...................................... 6
13. Notice.............................................................. 7
14. Amendment or Modification; Waiver................................... 7
15. Funding............................................................. 7
16. Arbitration......................................................... 7
17. Governing Law....................................................... 7
18. Miscellaneous....................................................... 7
19. Severability........................................................ 7
20. Counterparts........................................................ 7
21. Entire Agreement.................................................... 8
</TABLE>
108
<PAGE>
ii
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
WHERE
TERM DEFINED
- ---- ------------
<S> <C>
Annual Bonus....................................................... (S)5(b)
Base Salary........................................................ (S)5(a)
Board.............................................................. Introduction
Cause.............................................................. (S)7(c)
Corporation........................................................ Introduction
Date of Termination................................................ (S)8(b)
Disability......................................................... (S)7(b)
Disability Period.................................................. (S)9(a)
Effective Date..................................................... (S)2
Executive.......................................................... Introduction
Good Reason........................................................ (S)7(d)
Long-Term Bonus.................................................... (S)5(b)
Notice of Termination.............................................. (S)8(a)
Restricted Period.................................................. (S)10(b)
Severance Agreement................................................ (S)21
Term............................................................... (S)2
</TABLE>
109
<PAGE>
1
EMPLOYMENT AGREEMENT
Agreement, effective as of February 24, 1994, by and between [ ] (the
"Executive") and Shawmut National Corporation, a Delaware corporation (the
"Corporation").
The Executive is presently employed by the Corporation as [ ] and Chief
[ ] Officer.
The Board of Directors of the Corporation (the "Board") recognizes that the
Executive's contribution to the growth and success of the Corporation during
his tenure with the Corporation has been substantial. The Board desires to
provide for the continued employment of the Executive and to make certain
changes in the Executive's employment arrangements with the Corporation that
the Board has determined will reinforce and encourage the continued attention
and dedication to the Corporation of the Executive as a member of the
Corporation's management, in the best interest of the Corporation and its
shareholders. The Executive is willing to commit himself to continue to serve
the Corporation, on the terms and conditions herein provided.
In order to effect the foregoing, the Corporation and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. The Corporation hereby agrees to continue to employ the
Executive, and the Executive hereby accepts such continued employment, on the
terms and conditions hereinafter set forth.
2. Term. The period of employment of the Executive by the Corporation
hereunder (the "Term") shall commence on February 24, 1994 (the "Effective
Date") and shall end on February 23, 1997, unless further extended as provided
in this Section 2 or sooner terminated as provided in Section 7. On February
24, 1995, and on the 24th day of February of each year thereafter, the term of
the Executive's employment shall be automatically extended for one (1)
additional year unless, at least sixty (60) days prior to such 24th day of
February, the Corporation shall have delivered to the Executive or the
Executive shall have delivered to the Corporation written notice that the term
of the Executive's employment hereunder will not be extended.
3. Position and Duties. During the Employment Period, the Executive shall
serve as [ ] and Chief [ ] Officer of the Corporation and shall have such
responsibilities and authority as may from time to time be assigned to the
Executive by the [ ], provided that such responsibilities and authority are
consistent with the Executive's position as Chief [ ] Officer of the
Corporation. The Corporation agrees to sponsor the Executive's reelection to
the Board during the Term. The Executive agrees to devote substantially all of
his working time and efforts to the performance of his duties for the
Corporation; provided, however, that the Executive may (i) serve on the boards
of directors of other organizations to the extent such service is permitted by
applicable law and would not subject the Corporation to any liability with
respect to its business activities under such law, and (ii) may devote a
reasonable amount of time to charitable and community services.
4. Place of Performance. In connection with the Executive's employment by the
Corporation, the Executive shall be based at the dual headquarters of the
Corporation in Hartford, Connecticut and Boston, Massachusetts, except for
required travel on the Corporation's business to an extent substantially
consistent with present business travel obligations.
5. Compensation and Related Matters.
(a) Base Salary. During the Term, the Corporation shall pay the Executive
a base salary at a rate no less than that in effect on the Effective Date
("Base Salary"). Base Salary shall be paid in approximately equal
installments in accordance with the Corporation's customary payroll
practices. Base Salary may be increased from time to time in accordance
with the normal business practices of the Corporation and, if so increased,
shall not thereafter during the Term be decreased. The salary payments
(including any increased salary payments) hereunder shall not in any way
limit or reduce any other
110
<PAGE>
2
obligation of the Corporation hereunder, and no other compensation, benefit
or payment hereunder shall in any way limit or reduce the obligation of the
Corporation to pay the Executive's salary hereunder.
(b) Bonuses. During the Term, the Executive shall be eligible to receive
such annual bonus (the "Annual Bonus") and awards under the Corporation's
Performance Equity Plan or other long-term incentive awards (the "Long-Term
Bonus") as may be provided pursuant to the terms of the applicable
incentive plans of the Corporation, as such plans may from time to time be
revised. The Annual Bonus and the Long-Term Bonus shall be paid in
accordance with the terms of such plans.
(c) Expenses. The Corporation shall promptly reimburse the Executive for
all reasonable business expenses incurred during the Term by the Executive
in performing services hereunder, including all expenses of travel and
living expenses while away from home or business or at the request of and
in the service of the Corporation, provided that such expenses are incurred
and accounted for in accordance with the policies and procedures
established by the Corporation.
(d) Other Benefits. The Executive shall be entitled to continue to
participate, on the same basis as that in effect on the Effective Date, in
all of the employee benefit plans and arrangements in effect, and in which
the Executive participates, on the Effective Date. The Executive shall be
entitled to participate in or receive benefits under any employee benefit
plan or arrangement made available by the Corporation in the future
generally to its executive officers, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be
in lieu of the salary payable to the Executive pursuant to subsection (a)
of this Section 5. [The Board shall from time to time by resolution provide
the Executive with additional, individual benefits, which shall not
thereafter during the term be decreased or discontinued.]
(e) Vacation. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned but
unused vacation days, determined in accordance with the Corporation's
vacation plan. The Executive shall also be entitled to all paid holidays
given by the Corporation to its executives.
(f) Services Furnished. During the Term, the Corporation shall furnish
the Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to the Executive's position
and adequate for the performance of his duties as set forth in Section 3.
6. Offices. Subject to Sections 3 and 4, the Executive agrees to serve
without additional compensation, if elected or appointed thereto, as a director
of the Corporation or any of its subsidiaries and as a member of any committees
of the board of directors of any such corporations, and in one or more
executive positions of any of the Corporation's subsidiaries, provided that the
Executive is indemnified for serving in any and all such capacities on a basis
no less favorable than is currently or may be provided to any other director of
the Corporation, any of its subsidiaries, or in connection with any such
executive position, as the case may be.
7. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the circumstances set forth in
subsections (a), (b), (c) and (d) of this Section 7. In the event of a
termination pursuant to subsection (a), (b) or (c) of this Section 7, the Term
shall end on the Executive's Date of Termination (as defined in Section 8(b)).
(a) Death. The Executive's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of his duties hereunder for the entire period of six
consecutive months, and within thirty (30) days after written Notice of
Termination (as defined in Section 8) is given shall not have returned to
the performance of his duties hereunder on a full-time basis, the
Corporation may terminate the Executive's employment hereunder for
"Disability."
(c) Cause. The Corporation may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Corporation shall
have "Cause" to terminate the Executive's employment hereunder upon the
occurrence of any of the following events:
111
<PAGE>
3
(i) the conviction of the Executive for the commission of a felony
involving dishonesty with respect to the Corporation; or
(ii) the willful misconduct by the Executive (including, but not
limited to, breach by the Executive of the provisions of Section 10)
that is demonstrably and materially injurious to the Corporation or its
subsidiaries, whether monetarily or otherwise.
Cause shall not exist unless and until the Corporation has delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than two-thirds ( 2/3) of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to the
Executive and a opportunity for the Executive, together with his counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
the Executive was guilty of the conduct set forth in this Section 7(c) and
specifying the particulars thereof in detail. For purposes of this Section
7(c), no act or failure to act on the Executive's part shall be considered
"willful" unless done or failed to be done by the Executive in bad faith and
without reasonable belief that the Executive's action or omission was in the
best interest of the Corporation.
(d) Good Reason. The Executive may terminate his employment during the
Term hereunder for "Good Reason" after the occurrence, without the written
consent of the Executive, of an event constituting a material breach of
this Agreement by the Corporation that has not been fully cured within ten
(10) days after written notice thereof has been given by the Executive to
the Corporation, provided that, without limiting the generality of the
foregoing, any one of the following events shall be deemed a material
breach of this Agreement:
(i) failure of the Corporation to continue the Executive in the
position of [ ] and Chief [ ] Officer or the assignment to
the Executive of any duties inconsistent with the Executive's status as
an executive officer of the Corporation or a substantial diminution of
the Executive's responsibilities from those in effect on the Effective
Date;
(ii) the delivery by the Corporation to the Executive of written
notice that the term of the Executive's employment hereunder will not
be extended;
(iii) the failure of the Corporation to nominate, or the shareholders
of the Corporation to elect, the Executive as a member of the Board; or
(iv) the failure of a successor to the Corporation to expressly
assume and agree to perform this Agreement pursuant to Section 12(a).
The Executive's right to terminate his employment hereunder for Good Reason
shall not be affected by his incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any act or failure to act constituting Good Reason
hereunder.
8. Termination Procedure.
(a) Notice of Termination. Any termination of the Executive's employment
by the Corporation or by the Executive (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 13. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
(b) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated pursuant to Section 7(b)
above, thirty (30) days after Notice of Termination (provided that the
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period), (iii) if the
Executive's employment is terminated pursuant to Section 7(c) above, the
date
112
<PAGE>
4
specified in the Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date on which a Notice
of Termination is given or any later date (within 30 days) set forth in
such Notice of Termination; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement
of the parties, by a binding and final arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected).
(c) Compensation During Dispute. If a purported termination occurs during
the Term, and such termination is disputed in accordance with subsection
(b) of this Section 8, the Corporation shall continue to pay the Executive
the full compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans
in which Executive was participating when the notice giving rise to the
dispute was given, until the Date of Termination, determined in accordance
with subsection (b) of this Section 8. Amounts paid under this Section 8(c)
are in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
9. Compensation upon Termination or During Disability.
(a) Disability; Death. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), the Executive shall continue to
receive his full Base Salary at the rate in effect at the beginning of such
period until his employment is terminated pursuant to Section 7(b),
provided that payments so made to the Executive during the disability
period shall be reduced by the sum of the amounts, if any, payable to the
Executive with respect to such period under the disability benefit plans of
the Corporation then in effect or under the Social Security disability
insurance program, and which amounts were not previously applied to reduce
any such payment. Subsequent to the termination of the Executive's
employment pursuant to Section 7(b), or in the event the Executive's
employment is terminated by reason of his death, the Corporation shall pay
to the Executive, his legal representative or his successors (as described
in Section 12(b)) his full salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given. The Corporation
have no further obligations to the Executive under this Agreement, except
as set forth in subsection (a) of this Section 9, and the Executive's
benefits shall be determined under the Corporation's retirement, insurance
and other compensation programs then in effect in accordance with the terms
of such programs.
(b) By Corporation without Cause or by the Executive for Good Reason. If
during the Term the Executive's employment is terminated by the Corporation
other than for Cause or Disability or by the Executive for Good Reason,
then--
(i) the Corporation shall pay the Executive his full salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, the Corporation shall
pay as liquidated damages to the Executive an aggregate amount equal to
the product of (A) the sum of (1) the Executive's annual salary rate in
effect as of the Date of Termination, (2) the highest Annual Bonus
awarded to and earned by the Executive pursuant to Section 5(b) in
respect of any fiscal year during the three fiscal years completed
prior to the Date of Termination, and (3) the highest Long-Term Bonus
awarded to and earned by the Executive pursuant to Section 5(b) in
respect of any performance cycle ending during the three fiscal years
completed prior to the Date of Termination or, if no performance cycle
has ended during such three fiscal years, then the highest Long-Term
Bonus awarded to the Executive with respect to a performance cycle in
effect but not yet ended on the Date of Termination, and (B) the number
113
<PAGE>
5
of years (including partial years) remaining in the Term, such amount
to be paid in a cash lump sum within five (5) days following the Date
of Termination, unless the Executive elects to have such amount paid in
substantially equal monthly installments during the period commencing
with the month immediately following the month in which the Date of
Termination occurs and ending with the month corresponding to the end
of the Term hereunder; and
(iii) each option to purchase shares of the Corporation's common
stock and each share of restricted stock previously awarded to the
Executive and outstanding as of the Effective Date shall become
nonforfeitable on the Date of Termination. Each such option shall
continue to become exercisable, and the restrictions on each such share
of restricted stock shall lapse (without regard to any performance
conditions attached thereto) in accordance with its terms, as if the
Executive were still employed by the Corporation.
(iv) the Corporation shall (A) continue coverage for the Executive
under the Corporation's life insurance, medical, health, disability and
similar welfare benefit plans (or, if continued coverage is barred
under such plans, the Corporation shall provide to the Executive
substantially similar benefits) for the remainder of the Term, and (B)
provide the benefits to which the Executive would have been entitled
pursuant to any supplemental retirement plan or arrangement (including
without limitation the Corporation's Executive Supplemental Retirement
Plan and Split-Dollar Life Insurance Plan) maintained by the
Corporation had his employment continued at the rate of compensation
specified herein for the remainder of the Term, notwithstanding the
Executive's election, if any, to commence receiving benefits under such
plan or arrangement prior to the end of the Term. Benefits otherwise
receivable by the Executive pursuant to clause (A) of this Section 9(b)
(iii) shall be reduced to the extent comparable benefits are actually
received by the Executive from a subsequent employer during the period
during which the Corporation is required to provide such benefits, and
the Executive shall report any such benefits actually received to the
Corporation.
(c) By Corporation for Cause or by the Executive Other than for Good
Reason. If the Executive's employment shall be terminated by the
Corporation for Cause or by the Executive other than for Good Reason, then
the Corporation shall pay the Executive his Base Salary (at the rate in
effect at the time Notice of Termination is given) through the Date of
Termination, and the Corporation shall have no additional obligations to
the Executive under this Agreement except as set forth in subsection (d) of
this Section 9.
(d) Compensation Plans. Following any termination of the Executive's
employment, the Corporation shall pay the Executive all unpaid amounts, if
any, to which the Executive is entitled as of the Date of Termination under
any compensation plan or program of the Corporation, at the time such
payments are due.
(e) Mitigation. Except as is specifically provided in subsection (b)(iii)
of this Section 9, the Executive shall not be required to mitigate the
amount of any payment provided herein by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided
hereunder be reduced by any compensation earned by the Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Corporation,
or otherwise.
10. Confidential Information; Noncompetition Requirement.
(a) Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Corporation all trade secrets, confidential
information, and knowledge or data relating to the Corporation and its
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Corporation and which shall not have been or
now or hereafter have become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this
Agreement). The Executive shall not, without the prior written consent of
the Corporation or as may otherwise be required by law or legal process,
communicate or divulge any such trade secrets, information, knowledge or
data to anyone other than the Corporation and those designated by the
114
<PAGE>
6
Corporation. Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section
10(a).
(b) Noncompetition Requirement. During any period that the Executive is
performing services hereunder or the Executive is entitled to payment
pursuant to Section 9, and for a period of one (1) year following a
termination of the Executive's employment by the Corporation for Cause or
by the Executive other than for Good Reason (the "Restricted Period"), the
Executive agrees that, without the prior written consent of the
Corporation, he will not, directly or indirectly, with or without pay,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, manager, investor, lender,
advisor, owner, associate or in any other individual or representative
capacity, engage or participate in the business of any banking institution
that is located in New England. Notwithstanding anything herein to the
contrary, this Section 10(b) shall not prevent the Executive from acquiring
securities representing not more than 9% of the outstanding voting
securities of any corporation.
(c) Nonsolicitation Requirement. During the Restricted Period, the
Executive shall not induce any employee of the Corporation or its
subsidiaries to terminate employment with the Corporation or its
subsidiaries in order to obtain employment with any person, firm or
corporation affiliated with the Executive.
11. Indemnification; Legal Fees. The Corporation shall indemnify the
Executive to the full extent permitted by law and the by-laws of the
Corporation for all expenses, costs, liabilities and legal fees that the
Executive may incur in the discharge of his duties hereunder, including any
legal fees and expenses incurred by the Executive in contesting or disputing
any termination of the Executive's employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement (or in connection with
any tax audit or proceeding to the extent attributable to the application of
Section 4999 of the Code to any payment or benefit provided hereunder) other
than for any such expenses, costs, liabilities or legal fees incurred as a
result of the Executive's bad faith or gross negligence. Such payments shall be
made within five (5) days after the Executive's request for payment accompanied
with such evidence of fees and expenses incurred as the Corporation reasonably
may require. Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 11.
12. Successors; Binding Agreement.
(a) Corporation's Successors. The Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required
to perform it if no such succession had taken place. Failure of the
Corporation to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement
and shall entitle the Executive to compensation from the Corporation in the
same amount and on the same terms as he would be entitled to hereunder if
he terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this
Agreement, "Corporation" shall mean the Corporation as herein before
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 12 or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) The Executive's Successors. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts unless otherwise provided herein
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
115
<PAGE>
7
13. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
[ ]
If to the Corporation:
Shawmut National Corporation
777 Main Street
Hartford, Connecticut 06115 MSN 205
Attention: General Counsel
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Amendment or Modification; Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer of the
Corporation as may be specifically designated by the Board or its compensation
committee. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
15. Funding. Any payments due hereunder of the type specified in the so-
called rabbi trust or secular trust maintained by the Corporation as of the
date hereof shall be funded throughout the Term through each such trust, as
specified therein, unless such trust shall cease to exist, in which case a
comparable funding arrangement shall be established and maintained by the
Corporation.
16. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators in Hartford, Connecticut, in accordance
with the rules of the American Arbitration Association then in effect or of
such similar organization as the parties hereto may mutually agree. Judgment
may be entered on the arbitrator's award in any court having jurisdiction. The
expense of such arbitration shall be borne by the Corporation.
17. Governing Law. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Connecticut
without regard to its conflicts of law principles.
18. Miscellaneous. All references to sections of any statute shall be deemed
also to refer to any successor provisions to such sections. The obligations of
the Corporation under Section 9 shall survive the expiration of the term of
this Agreement. The compensation and benefits payable to the Executive under
this Agreement shall be in lieu of any other severance benefits to which the
Executive may otherwise be entitled upon his termination of employment under
any severance plan, program, policy or arrangement of the Corporation (other
than the Severance Agreement, as defined in Section 19).
19. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect throughout the Term.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
116
<PAGE>
8
21. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of the
parties hereto in respect of the subject matter contained herein is hereby
terminated and cancelled; provided, however, that this Agreement shall not
supersede or in any way affect the validity of any prior agreement setting
forth the rights of the Executive following a change in control of the
Corporation ("Severance Agreement").
In Witness Whereof, the parties have executed this Agreement on the date
first above written.
Shawmut National Corporation
By: _________________________________
Name:
Title:
_____________________________________
[ ]
117
<PAGE>
The form of agreement attached hereto has been entered into by Shawmut National
Corporation and the following executives as of February 24, 1994:
Joel B. Alvord
Gunnar S. Overstrom, Jr.
118
<PAGE>
1
EXHIBIT 10.4
HARTFORD NATIONAL CORPORATION
777 MAIN STREET
HARTFORD, CONNECTICUT 06115
SHAWMUT CORPORATION
ONE FEDERAL STREET
BOSTON, MASSACHUSETTS 02211
May 16, 1994
[NAME]
Shawmut Bank Connecticut, National Association and
Shawmut Bank, National Association
c/o 777 Main Street
Hartford, Connecticut 06115
Dear :
Hartford National Corporation and Shawmut Corporation (together with their
subsidiary banks, hereinafter jointly and severally referred to as the
"Company"), each a wholly owned subsidiary of Shawmut National Corporation,
consider the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
Shawmut National Corporation and its shareholders. In this connection, the
Company recognizes that, as is the case with many publicly held corporations,
the possibility of a change in control of Shawmut National Corporation may
exist and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure of distraction of the
Company's management personnel to the detriment of the Company and Shawmut
National Corporation and its shareholders. The Company further recognizes that
the financial services industry is currently undergoing structural and
legislative changes, with the expectation of further changes in the future.
These changes would tend to exacerbate the uncertainty among management that a
change of control might create. Accordingly, the Boards of Directors of
Hartford National Corporation and Shawmut Corporation (hereinafter jointly and
severally referred to as the "Board") have determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including yourself, to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of Shawmut
National Corporation.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Section 2(ii) hereof, the Company
agrees that you shall receive the severance benefits set forth in this letter
agreement ("Agreement") in the event your employment with the Company
terminates subsequent to a "change in control" (as defined in Section 2 hereof)
under the circumstances set forth below.
1. TERM. This Agreement shall commence on the date hereof and shall continue
until May 31, 1996; provided, however, that commencing on June 1, 1996 and each
June 1st thereafter, the term of this Agreement shall automatically be extended
for one additional year unless at least 30 days prior to such June 1st date,
the Company shall have given notice that it does not wish to extent this
Agreement; and provided, further, that the term of this Agreement shall expire
on your 65th birthday; and provided, further, that if a change in control (as
defined in Section 2) occurs during the term provided herein, this Agreement
shall remain in effect for an additional two years from the date of such change
in control (but not later than your 65th birthday). It is understood that this
Agreement does not prohibit the Company from terminating your employment at any
time, subject to providing the severance benefits hereinafter specified in
accordance with the terms hereof.
119
<PAGE>
2
2. CHANGE IN CONTROL. (i) For purposes of this Agreement, a "change in
control" shall mean a change in control of Shawmut National Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A, promulgated under the Securities Exchange Act
of 1934, as amended ("Exchange Act"), whether or not Shawmut National
Corporation is subject to such reporting requirements, or the acquisition of
control (within the meaning of Section 2(a)(2) of the Bank Holding Company Act
of 1956, as amended, 12 U.S.C. (S) 1841, or Section 602 of the Change in Bank
Control Act of 1978, 12 U.S.C. (S) 1817(j)) of Shawmut National Corporation by
any person, company or other entity; provided that, without limitation, such a
change in control shall be deemed to have occurred if (i) any "person" or
"group" (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) other than Shawmut National Corporation is or becomes the
beneficial owner, directly or indirectly, of securities of Shawmut National
Corporation representing 25% or more of the combined voting power of its then
outstanding securities; or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of Shawmut National Corporation (the "Shawmut National Corporation
Board") cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for election by Shawmut National Corporation's
shareholders, of each new director was approved by a vote of at least two-
thirds of the directors thereof then still in office who were directors of
Shawmut National Corporation at the beginning of the period.
(ii) For purposes of this Agreement, a "potential change in control" shall be
deemed to have occurred if (A) Shawmut National Corporation enters into an
agreement, the consummation of which would result in the occurrence of a change
in control; (B) any person (including Shawmut National Corporation) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a change in control; (C) any person (other than
Shawmut National Corporation) becomes the beneficial owner, directly or
indirectly, of securities of Shawmut National Corporation representing 9.5% or
more of the combined voting power of its then outstanding securities; or (D)
the Shawmut National Corporation Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in control of Shawmut
National Corporation has occurred. You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change in control,
you will remain in the employ of the Company for a period of at least six (6)
months from the occurrence of such potential change in control or, if earlier,
until a change in control.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events described in
Section 2 hereof constituting a change in control shall have occurred and if
your employment subsequently terminates at any time within two years from the
date of such change in control, you shall be entitled to the benefits provided
in Section 4 hereof unless such termination is (A) because of your death, (B)
by the Company for Cause or Disability, or (C) by you other than for Good
Reason. The following definitions shall apply in connection with a termination
of your employment:
(i) Disability. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from your duties with the
Company on a full time basis for six consecutive months, and within 30 days
after written Notice of Termination (as defined in Section 3 (iv) hereof)
is given you shall not have returned to the performance of your duties on a
full time basis, the Company shall be entitled to terminate your employment
for "Disability."
(ii) Cause. The Company shall be entitled to terminate your employment
for Cause. For the purposes of this Agreement, the Company shall have
"Cause" to terminate your employment hereunder upon (A) the willful and
continued failure by you to substantially perform your duties with the
Company (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure
resulting from your termination for Good Reason), for a period of at least
ten days after a demand for substantial performance is delivered to you by
the Board which specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, or (B) the
willful engaging by you in gross misconduct which is demonstrably and
substantially injurious to the Company. For purposes of this subsection, no
act, or failure to act, on your part shall be
120
<PAGE>
3
considered "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was in the
best interest of the Company. Notwithstanding the foregoing, you shall not
be deemed to have been terminated for Cause unless and until there shall
have been delivered to you (i) a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board (excluding you in the event you are a member of the Board) at
a meeting of the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clauses (A) or (B) of
the first sentence of this subsection and specifying the particulars
thereof in detail; and (ii) an affidavit sworn to by the Secretary of the
Company stating that such resolution was in fact adopted by the affirmative
vote of not less than three-quarters of the entire membership of the Board
(excluding you in the event you are a member of the Board) and that you
were found guilty of conduct set forth in clauses (A) or (B) of the first
sentence of this subsection and specifying the particulars thereof in
detail.
(iii) Good Reason. You shall be entitled to terminate your employment for
Good Reason at any time within two years from the date of a change in
control. For purposes of this Agreement, "Good Reason" shall exist if you
shall determine in good faith that due to a change in control you are not
able effectively to discharge your duties. Your right to terminate your
employment pursuant to this subsection shall not be affected by your
incapacity due to physical or mental illness.
(iv) Notice of Termination. Any termination by the Company pursuant to
Section 3(i) or 3(ii) hereof or by you pursuant to Section 3(iii) hereof
shall be communicated by written Notice of Termination to the other party
hereto; provided that, in the case of a termination for Cause, there shall
also have been delivered to you the other documents required to be
delivered pursuant to Section 3(ii) above. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
this Agreement terminates for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such 30 day period),
(B) if your employment terminates for Good Reason, the date specified in
the Notice of Termination, and (C) if your employment terminates pursuant
to sub-section 3(ii) hereof or for any other reason, the date on which a
Notice of Termination is given; provided that, if within thirty (30) days
after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties,
by a binding arbitration award, or by a final judgment, order or decree of
court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); and provided, further, that
the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable diligence. Notwithstanding
the pendency of any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to the dispute was
given (including, but not limited to, base salary and payments under
Shawmut National Corporation's Short Term Incentive Plan or any similar
plans then in effect (the "Short Term Plan") or Shawmut National
Corporation's Performance Equity Plan or any similar plans then in effect
(the "Performance Equity Plan")) and continue you as a participant in all
compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement, except as required by Section 4(iii)(C) hereof.
For purposes of this Section 3, an action taken, or caused to be taken, by
Shawmut National Corporation shall also be deemed to be an action taken by the
Company.
121
<PAGE>
4
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (i) During any period
that you fail to perform the duties of your employment as a result of
incapacity due to physical or mental illness, you shall continue to receive
your full base salary at the rate then in effect and any bonuses with respect
to any completed period which pursuant to the Short Term Plan or Performance
Equity Plan have been earned by or awarded to you but which have not yet been
paid to you, until your employment is terminated pursuant to Section 3(i)
hereof. Thereafter, your benefits shall be determined in accordance with
Shawmut National Corporation's Long Term Disability Income Plan, Executive
Supplemental Retirement Plan and Split-Dollar Life Insurance Plan (the
"Supplemental Plans"), the Shawmut National Corporation Employees' Retirement
Plan (the "Qualified Plan") and other employee benefit plans of the Company or
Shawmut National Corporation in which you participate (or any substitute plans
then in effect).
(ii) If your employment shall be terminated for Cause, the Company shall pay
you your full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, and you shall receive the accrued
benefits to which you otherwise would have been entitled through the date of
such termination, and the Company shall have no further obligations to you
under this Agreement.
(iii) If the Company shall terminate your employment other than pursuant to
Section 3(i) or 3(ii) hereof or if you shall terminate your employment for Good
Reason pursuant to Section 3(iii) hereof, then you shall be entitled to the
benefits set forth below, which benefits shall be paid to you in a lump sum no
later than the fifth day following the Date of Termination.
(A) The Company shall pay to you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is
given and the bonuses, if any, with respect to any completed period which
pursuant to the Short Term Plan or the Performance Equity Plan have been
earned by or awarded to you but which have not yet been paid to you;
(B) In lieu of any further salary payments to you for periods subsequent
to the Date of Termination, the Company shall pay to you a lump sum
severance payment (together with the payments provided in Section 4(v)
below, the "Severance Payments") in the following amounts:
(1) an amount equal to (a) the sum of your annual base salary at the
rate in effect as of the Date of Termination plus the amount awarded
you (whether or not fully paid) under the Short Term Plan for the year
immediately preceding the Date of Termination (or, if greater,
preceding the change in control), multiplied by (b) the lesser of (x)
the number three or (y) the number of full and fractional years to your
65th birthday; and
(2) notwithstanding any limiting provision to the contrary contained
in the Performance Equity Plan or any other long-term incentive plan
adopted by the Company (or any successor plan thereto), a pro rata
portion of any outstanding award granted under such plan pursuant to
any uncompleted performance award period, calculated by multiplying the
award which you would have earned on the last day of the performance
award period, assuming individual and corporation performance goals
established with respect to such award were 100% met, by the fraction
obtained by dividing the number of full months and any fractional
portion of a month worked during such performance award period by the
number of months contained in such performance award period.
(C) In the event that, by reason of section 280G of the Code any payment
or benefit received or to be received by you in connection with a change in
control or the termination of your employment (whether payable pursuant to
the terms of this Agreement ("Contract Payments") or any other plan,
arrangement or agreement with the Company, its successors, any person whose
actions result in a change in control or any corporation ("Affiliate")
affiliated (or which, as a result of the completion of the transactions
causing a change in control will become affiliated) with the Company within
the meaning of section 1504 of the Code (collectively with the Contract
Payments, "Total Payments")), would not be deductible (in whole or part) by
the Company, an Affiliate or other person making such payment or providing
such benefit, the Severance Payments shall be reduced (and, if Severance
Payments are reduced to zero, other Contract Payments shall first be
reduced and other Total Payments shall thereafter be
122
<PAGE>
5
reduced) until no portion of the Total Payments is not deductible by reason
of section 280G of the Code. For purposes of this limitation (i) no portion
of the Total Payments the receipt or enjoyment of which you shall have
effectively waived in writing prior to the date of payment of the Severance
Payments shall be taken into account, (ii) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by
the Company's independent auditors and acceptable to you does not
constitute a "parachute payment" within the meaning of section 280G(b)(2)
of the Code (without regard to subsection (A)(ii) thereof), (iii) the
Severance Payments (and, thereafter, other Contract Payments and other
Total Payments) shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in clauses (i) and (ii)) in
their entirety constitute reasonable compensation for services actually
rendered within the meaning of section 280G(b)(4) of the Code, in the
opinion of the tax counsel referred to in clause (ii); and (iv) the value
of any noncash benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d) (3) and (4) of the Code.
(iv) If the Company shall terminate your employment other than pursuant to
subsection 3(i) or 3(ii) hereof or if you shall terminate your employment for
Good Reason pursuant to subsection 3(iii) hereof, the Company shall maintain in
full force and effect, for your continued benefit for a three-year period after
the Date of Termination (or such lesser period to the earlier of your 65th
birthday or your reemployment and eligibility for coverage under a plan or
arrangement of your new employer providing the same type of benefits (although
not necessarily at the same level)), all employee life, health, accident,
disability, medical and other employee welfare benefit plans, programs or
arrangements in which you were participating immediately prior to the Date of
Termination, provided that your continued participation is possible under the
general terms and provisions of such plans, programs, and arrangements. In the
event that your participation in any such plan, program or arrangement is
barred, the Company shall arrange to provide you with benefits substantially
similar to those which you are entitled to receive under such plan, program or
arrangement. At the end of the period of coverage, you shall have the option to
have assigned to you at no cost and with no apportionment of prepaid premiums
any assignable insurance policy owned by the Company which relates specifically
to you; provided, however, that you shall not have such option with respect to
any such policy under which the Company is the beneficiary.
(v) If the Company shall terminate your employment other than pursuant to
Section 3(i) or 3(ii) hereof or if you shall terminate your employment for Good
Reason pursuant to Section 3(iii) hereof, then in addition to the retirement
benefits to which you are entitled under the Supplemental Plans or any
successor plans thereto, the Company shall pay you a lump sum amount, in cash,
no later than the fifth day following the Date of Termination, equal to the
actuarial equivalent of the excess of (x) the retirement pension (determined
under the normal form of benefit commencing at the most valuable retirement
age) which you would have accrued under the terms of the Supplemental Plans
(without regard to any amendment to the Supplemental Plans made subsequent to a
Change in Control and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement benefits
thereunder), determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) thirty-six (36) additional months
of service thereunder (but in no event shall you be deemed to have accumulated
additional service after your 65th birthday) at, with respect to the Shawmut
National Corporation's Executive Supplemental Retirement Plan, your highest
annual rate of compensation during the twelve (12) months immediately preceding
the Date of Termination (or, if greater, preceding the Change in Control), plus
the most recent short-term incentive award granted to you prior to the Date of
Termination (or, if greater, prior to the Change in Control), over (y) the
retirement pension (determined under the normal form of benefit commencing at
the most valuable retirement age) which you had then accrued pursuant to the
provisions of the Supplemental Plans. For purposes of this Section 4(v),
"actuarial equivalent" shall be determined using the assumptions set forth on
Schedule B, item I (as from time to time amended), of the trust agreement
entered into by the Corporation and The Chase Manhattan Bank, N.A., dated as of
August 31, 1987, and last restated as of January 1, 1992 (the "secular" trust).
123
<PAGE>
6
(vi) You shall not be required to mitigate the amount of any payment provided
for in this Section 4 by seeking other employment or otherwise, nor, except as
required by Section 4(iv) hereof, shall the amount of any payment provided for
in this Section 4 be reduced by any compensation earned by you as the result of
employment by another employer after the Date of Termination, or otherwise.
(vii) The Company shall also pay to you all legal fees and related expenses
incurred by you as a result of a termination of your employment by the Company
or a termination of your employment for Good Reason pursuant to Section 3(iii)
hereof (including all such fees and expenses, if any, incurred in contesting or
disputing (other than in bad faith) any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement).
For purposes of this Section 4, an action taken, or caused to be taken, by
Shawmut National Corporation shall also be deemed to be an action taken by the
Company.
5. TRUST AGREEMENT; LETTER OF CREDIT PRECEDING TERMINATION. In the event that
the Company or Shawmut National Corporation is or becomes party to a trust
agreement pursuant to which the satisfaction of the obligations of the Company
under this Agreement may in whole or part be secured, the Company will transfer
or cause to be transferred to such trust, in accordance with the terms thereof,
funds in an amount equal to the Contract Payments, plus $100,000. If the
conditions of the preceding sentence shall not have been met and if a potential
change in control shall have occurred, the Company will promptly (and in no
event more than seven days thereafter) establish an irrevocable letter of
credit (the "Letter of Credit") in your favor in the form set forth in Exhibit
A hereto in an amount equal to the aggregate Contract Payments as if you were
immediately entitled to payment thereof, plus $100,000, such Letter of Credit
to be issued by a commercial bank which is not an affiliate of the Company, but
which (x) either is a national banking association or has been established
under the laws of one of the states of the United States, (y) has domestic
deposits of not less than $5 billion, and (z) meets the requirements of an
"adequately capitalized" institution as set forth in Section 131 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the "Bank"). The Letter
of Credit shall be in form and substance reasonably satisfactory to you and the
Company and will provide that the Bank shall pay you the amount of your draft,
at sight, on presentation to the Bank of a statement, signed by you or your
authorized representative, setting forth (i) a statement that pursuant to
Section 3(v) or Section 4 of this Agreement, you are entitled to payments of
not less than the amount of such draft, and (ii) the Date of Termination
(determined without regard to any extension thereof by reason of a notice of
dispute). Each time you shall draw on the Letter of Credit, you shall provide
the Company with a copy of such draft and the accompanying statement referred
to above. The Company shall maintain the Letter of Credit in effect for a
period of three years from the date on which it is issued; provided, however,
that if during any such three-year period any event shall occur which, pursuant
to this Section 5, would have required the Company to establish a Letter of
Credit had none then existed, then the Company shall maintain the Letter of
Credit in effect for a period of three years following such event, unless
further extended pursuant to this Section. During the period in which a Letter
of Credit is required to be maintained, the Company shall, at six-month
intervals commencing with the date the Letter of Credit is established,
calculate the aggregate Contract Payments as if you were immediately entitled
to payment thereof. If the amount so calculated (adjusted to take into account
any amounts previously received under the Letter of Credit), plus $100,000,
exceeds the amount available to be drawn upon under the Letter of Credit then
in effect, the Company shall promptly (and in no event later than seven days
thereafter) cause the amount payable under the Letter of Credit to be increased
by the amount of such excess. The payment by the Bank of the amount of your
draft in accordance with the terms hereof and of the Letter of Credit shall not
constitute a waiver by the Company of, or in any way preclude the Company from
asserting, any claim against you that you are not entitled to some or all of
such payment. In addition, your drawing upon the Letter of Credit shall not
constitute a waiver by you, or in any way preclude you from asserting, any
claim against the Company that you are entitled to amounts pursuant to this
Agreement which were not paid by amounts received under the Letter of Credit.
124
<PAGE>
7
6. SUCCESSORS; BINDING AGREEMENT. (i) This Agreement shall be binding on the
successors and assigns of the Company, and the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to you, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason pursuant to Section 3(iii), except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 6 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amounts
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee, or other designee or, if
there be no such designee, to your estate.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
8. COORDINATION WITH EMPLOYMENT AGREEMENT. The terms of this Agreement shall
be coordinated with and applied in conjunction with the terms of any employment
agreement in effect between you and the Company during the term of this
Agreement. In general, it is the intent of the parties that, subsequent to a
change in control of the Company and during the term of this Agreement, the
provisions of this Agreement shall supersede and substitute for those
provisions of the employment agreement relating to your entitlement to benefits
in connection with any termination of your employment. Nothing in this
Agreement shall be construed to be a commitment or guarantee of future
employment with the Company. Except for circumstances relating to a termination
of employment following a change in control of the Company during the term of
this Agreement, as provided for herein, all terms and conditions of your
employment with the Company shall be governed by the terms of any such
employment agreement.
9. MISCELLANEOUS. This Agreement supersedes any prior communications,
agreements and understandings, written or oral, between you and the Company
covering the subject matter hereof. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Connecticut, without giving
effect to the principles of conflicts of laws thereof.
125
<PAGE>
8
10. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Hartford,
Connecticut, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that you shall be entitled
to seek specific performance of your right, during the pendency of any dispute
or controversy arising under or in connection with this Agreement, to be paid
until the Date of Termination.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company at 777 Main Street, Hartford,
Connecticut 06115 (Attention: Director of Human Resources) the enclosed copy of
this letter which will then constitute our agreement on this subject.
Sincerely,
Hartford National Corporation
By __________________________________
Shawmut Corporation
By __________________________________
AGREED TO AS OF THE DAY OF ,
1994.
_____________________________________
Executive
126
<PAGE>
A-1
EXHIBIT A
[FORM OF LETTER OF CREDIT DESCRIBED IN SECTION 5]
We hereby authorize you to draw upon us in one or more drafts drawn at sight
up to an aggregate amount not to exceed U.S. DOLLARS (U.S. $ ) during
the period from the date of this letter of credit until , 19 (date
specified will be three years subsequent to the date of the letter of credit.)
Each draft will be accompanied by (i) your statement that the amount of the
drawing represents amounts to which you are entitled pursuant to Section 3(v)
or Section 4 of a certain Executive Severance Agreement dated May 16, 1994 (the
"Agreement"), and (ii) your statement of the Date of Termination (as defined in
the Agreement), determined without regard to any extension thereof by reason of
a notice of dispute.
We hereby agree with the drawers, endorsers, and bona fide holders of drafts
drawn under and in compliance with the terms of this credit that such drafts
will be duly honored upon presentation to the drawee.
_____________________________________
127
<PAGE>
The form of agreement attached hereto has been entered into by Hartford
National Corporation, Shawmut Corporation, and the following executives as of
the date indicated:
Alan R. Buffington May 16, 1994
Robert B. Hedges, Jr. January 20, 1995
John O. Huston September 20, 1994
Eileen S. Kraus May 16, 1994
Niels C. Jensen May 16, 1994
Susan E. Lester May 31, 1994
Michael J. Rothmeier May 16, 1994
J. Michael Shepherd January 10, 1995
David L. Eyles March 1, 1992
128
<PAGE>
EXHIBIT 10.7
AMENDMENT
SHAWMUT NATIONAL CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Pursuant to Section 11.1 of the Shawmut National Corporation Employees'
Retirement Plan (the "Plan"), Shawmut National Corporation hereby amends
Article III by adding effective January 1, 1993, to the end thereof a new
section 3.3 as follows:
The Retirement Benefit of each Retired Participant, or the Beneficiary or
Contingent Annuitant of a deceased Retired Participant, who retired prior to
January 1, 1992 shall be increased by a percentage based upon the year in which
such Retired Participant retired determined in accordance with the following:
<TABLE>
<CAPTION>
YEAR OF RETIREMENT PERCENTAGE INCREASE
------------------ -------------------
<S> <C>
1991................................................ 2%
1990................................................ 4%
1989................................................ 6%
1988................................................ 8%
1987................................................ 10%
1986................................................ 12%
1985................................................ 14%
1984................................................ 16%
1983 and before..................................... 18%
</TABLE>
Provided, however that the maximum percentage increase for any Retired
Participant, or Beneficiary or Contingent Annuitant of a deceased Retired
Participant, who retired under the provisions of the Hartford National
Corporation Employees' Retirement Plan, or a predecessor plan, shall be ten
percent (10%); and provided further, that this amendment shall not apply to a
Retired Participant, or the Beneficiary or Contingent Annuitant of a deceased
Retired Participant who retired from terminated vested status.
129
<PAGE>
SECOND AMENDMENT
TO
SHAWMUT NATIONAL CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
The Shawmut National Corporation Executive Supplemental Retirement Plan (the
"Plan"), adopted as of July 1, 1990, is hereby amended, effective as of January
1, 1994, as set forth below.
1. Section 2.7 of the Plan is hereby amended by deleting "consecutive," to
read as follows:
2.7 Compensation shall mean the Salary paid to a Participant during the
Participant's last twelve months of employment, plus the average of the
five highest short-term incentive bonuses awarded to a Participant pursuant
to the Corporation's short term incentive plan in respect of the ten most
recent calendar years after calendar year 1984 and prior to his Retirement
or other termination of employment.
2. Section 2.15 of the Plan is hereby amended by adding thereto a new
Paragraph (c) to read as follows (with conforming changes to Paragraphs (a) and
(b)):
(c) In connection with a "qualified domestic relations order," as defined
in Section 414(p) of the Code, any joint and survivor annuity that is
actuarially equivalent to a single life annuity.
3. Article IV of the Plan is hereby amended by adding thereto a new Section
4.3 to read as follows:
4.3 Notwithstanding the provisions of Section 4.1, a Participant's
Accrued Benefit shall be 100% vested upon the occurrence of a "change in
control" of the Corporation. For purposes of this Section 4.3, a "change in
control of the Corporation" shall mean a change in control of the
Corporation or any successor or assign thereof of a nature that would be
6(e) of Schedule 14A of Regulation 14A, promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), whether or not the
Corporation is subject to such reporting requirements, or the acquisition
of control (within the meaning of Section 2(a)(2) of the Bank Holding
Company Act of 1956, as amended, 12 U.S.C. (S)1841, or Section 602 of the
Change in Bank Control Act of 1978, 12 U.S.C. (S)1817(J)) of the
Corporation by any person, company or other entity; provided that, without
limitation, such a change in control shall be deemed to have occurred if
(a) any "person" or "group" (as such terms are used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) (a "Person") other than the Corporation
is or becomes the beneficial owner, directly or indirectly, of securities
of the Corporation representing 25% or more of the combined voting power of
the Corporation's then outstanding securities; (b) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation cease for any reason
to constitute at least a majority thereof unless the election, or the
nomination of election by the Corporation's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors of
the Corporation then still in office who were directors of the Corporation
at the beginning of the period; (c) the stockholders of the Corporation
approve a merger or consolidation of the Corporation with any other
corporation, other than (i) a merger or consolidation which would result in
the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity), in
combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, at least 60%
of the combined voting power of the voting securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to implement a
recapitalization of the Corporation (or similar transaction) in which no
Person acquires more than 50% of the combined voting power of the
Corporation's then outstanding securities; or (d) the stockholders of the
Corporation approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation of all or
substantially all the Corporations' assets.
130
<PAGE>
2
4. Article IV of the Plan is hereby further amended by adding thereto a new
Section 4.4 to read as follows:
4.4 If a Participant terminates service, and the present value of the
Participant's vested Accrued Benefit is not greater than $3,500, the
Participant shall receive a distribution of the present value of the entire
vested portion of such Accrued Benefit and the nonvested portion shall be
treated as a forfeiture. For purposes of this Section 4.4, if the present
value of a Participant's vested Accrued Benefit is zero, the Participant
shall be deemed to have received a distribution of such vested Accrued
Benefit. For purposes of the foregoing provision, present value shall be
calculated in accordance with section 411(a) (11) of the Code.
If a Participant receives a distribution pursuant to this Section 4.4 and
the Participant resumes covered employment under the Plan, the Participant
shall have the right to restore the Participant's Accrued Benefit
(including all optional forms of benefits and subsidies relating to such
benefits) to the extent forfeited upon the repayment to the Plan of the
full amount of the distribution plus interest, compounded annually from the
date of distribution at the rate determined for purposes of section
411(a)(2)(C) of the Code. Such repayment must be made before the earlier of
five years after the first date on which the Participant is subsequently
reemployed by the Corporation, or the date the Participant incurs a Break
in Service following the date of distribution.
If a Participant is deemed to receive a distribution pursuant to this
Section 4.4, and the Participant resumes employment covered under this Plan
before the date the Participant incurs a Break in Service, upon the
reemployment of such Participant, the Accrued Benefit shall be restored to
the amount of such Accrued Benefit on the date of the deemed distribution.
5. Article IV of this Plan is hereby further amended to restate the title
thereof to read as follows:
ARTICLE IV. VESTING; TERMINATION OF EMPLOYMENT PRIOR TO EARLY RETIREMENT
DATE; CHANGE IN CONTROL; CASHOUT PROVISION
Except as set forth above, the Plan is hereby ratified and conformed in all
respects.
131
<PAGE>
EXHIBIT 10.13
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
PERFORMANCE EQUITY PLAN
- --------------------------------------------------------------------------------
132
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
PERFORMANCE EQUITY PLAN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purposes................................................................ 1
2. Definitions............................................................. 1
3. Administration.......................................................... 2
4. Stock Subject to the Plan............................................... 3
5. Awards.................................................................. 3
6. General Provisions...................................................... 6
7. Change in Control....................................................... 7
8. Compliance with Code Section 162(m)..................................... 7
</TABLE>
133
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
PERFORMANCE EQUITY PLAN
- --------------------------------------------------------------------------------
1. Purposes. The purposes of this Performance Equity Plan (the "Plan") are to
assist Shawmut National Corporation (the "Company") and its subsidiaries in
attracting, retaining, motivating, and rewarding employees who occupy key
executive positions and are responsible for the long-term success of the
Company by providing competitive compensation opportunities with high returns
for high performance, to encourage a team approach by rewarding such key
executives for partnership success through long-term incentives based on
achievement of strategic corporate business goals; to reward such key
executives for the creation of value for the Company's stockholders; and to
promote increased ownership of shares of the Company's common stock, $.01 par
value ("Common Stock"), by such key executives earned on a performance basis.
The Plan is solely intended to implement awards under, and is subject to the
terms and conditions of, the Stock Plan and Secondary Plan (as each is
hereinafter defined) of the Company. Any capitalized terms used and not
otherwise defined herein shall have the meaning set forth in the Stock Plan and
the Secondary Plan.
2. Definitions. In addition to the terms defined in Section 1 hereof, the
following terms used in the Plan shall have the meanings set forth below:
(a) "Annual ROACE" shall mean Net Income (as hereinafter defined) minus
dividends on preferred stock divided by the Company's daily average common
equity for a fiscal year.
(b) "Average ROACE" for a Performance Period shall mean the sum of the Annual
ROACE for each fiscal year in the Performance Period divided by the number of
such fiscal years in the Performance Period.
(c) "Award" shall mean the Performance Shares granted to a Participant
hereunder and those received as a result of Dividend Equivalents paid on
Performance Shares. Such Performance Shares shall in both cases include the
right to Dividend Equivalents during the Performance Period. An Award shall be
subject to the terms and conditions set forth in the Plan, including conditions
to Payout based on achievement of Performance Objectives for the Performance
Period to which such Award relates.
(d) "Beneficiary" shall mean any person (which may include trusts and is not
limited to one person) who has been designated by the Participant in his or her
most recent written beneficiary designation filed with the Company to receive
the benefits specified under the Plan in the event of the Participant's death.
If no Beneficiary has been designated who survives the Participant's death,
then Beneficiary means any person(s) entitled by will or the laws of descent
and distribution to receive such benefits.
(e) "Committee" shall mean the Human Resources Committee of the Board. Each
member of the Committee shall be a "disinterested person" as defined in Rule
16b-3 under the Exchange Act, and an "outside director" for purposes of Section
162(m) of the Code and regulations thereunder (including Proposed Regulation
1.162-27 (e)(3) and (h)(2)).
(f) "Designee" shall mean the Chief Executive Officer of the Company or other
executive to whom the Committee delegates the authority to grant Awards and
take other actions under the Plan.
(g) "Dividend Equivalents" shall mean, with respect to an outstanding Award,
the number of additional Performance Shares equal to the amount of cash (and/or
fair market value at the dividend payment date of any non-cash dividend) paid
from time to time during the Performance Period by the Company as a dividend on
each share of Common Stock, multiplied by the number of Performance Shares
subject to such Award at the record date for such dividend, divided by the Fair
Market Value per share of Common Stock on the dividend payment date.
Performance Shares granted as Dividend Equivalents with respect to a given
Award
134
<PAGE>
2
shall be deemed to be subject to such Award and all of the terms and conditions
thereof, including conditions to Payout based on achievement of Performance
Objectives for the Performance Period to which such Award relates.
(h) "Eligible Employee" shall mean each full-time salaried employee of the
Company or any subsidiary who either is (i) a member of the Company's Senior
Policy Committee or (ii) a senior line officer, staff officer, or other key
executive determined by the Committee to have responsibilities which affect the
long-term success of the Company.
(i) "Net Income" shall mean reported net income for a fiscal year as reported
in the Company's consolidated statement of profit and loss.
(j) "Participant" shall mean an Eligible Employee who is granted an Award for
a specified Performance Period.
(k) "Payout" shall mean the issuance or delivery of shares of Common Stock in
settlement of an Award, or the further elective deferral of such settlement
under the Company's Deferred Compensation Plan or any deferral arrangement the
Committee may make available to Participants, upon achievement of Performance
Objectives for a Performance Period.
(l) "Performance Objectives" shall mean one or more measures of performance
specified by the Committee in accordance with Section 5(b), the achievement of
which is a condition of Payout of Awards.
(m) "Performance Periods" shall mean, unless otherwise determined by the
Committee at or after grant, periods of three consecutive fiscal years during
which the achievement of Performance Objectives is measured under the plan;
provided, however, that the initial three Performance Periods will be comprised
of a one fiscal-year period which will be 1994, a two fiscal-year period of
1994 and 1995, and a three fiscal-year period of 1994, 1995 and 1996.
(n) Performance Shares shall mean awards in the form of Restricted Stock
Units as set forth in Section 11 of the Stock Plan or Section 10 of the
Secondary Plan.
(o) "Secondary Plan" shall mean the Company's Secondary Stock Option and
Restricted Stock Award Plan, as from time to time amended.
(p) "Stock Plan" shall mean the Company's Stock Option and Restricted Stock
Award Plan, as from time to time amended.
3. Administration.
(a) Relationship of Plan to Stock Plan and Secondary Plan. The Plan is
intended to implement and set forth the terms of awards of Performance Shares
under the Stock Plan to Participants who are, at the date of grant or the date
of Payout, then subject to reporting requirements under Section 16(a) of the
Exchange Act. With respect to other Participants, the Plan is intended to
implement and set forth the terms of awards of Performance Shares under the
Secondary Plan. Accordingly, all terms of the Stock Plan and the Secondary Plan
relating to Restricted Stock Units under each such plan are hereby incorporated
by reference and made a part hereof, applicable in each case to Awards made to
such respective Participants. The Company reserves the right to make grants of
Performance Shares or Restricted Stock Units under the Stock Plan and the
Secondary Plan apart from the Plan.
(b) Committee Authority. The Committee shall administer the Plan in
accordance with its terms, and shall have all powers necessary to accomplish
such purpose, including the power and authority to construe and interpret the
Plan, to define the terms used herein, to prescribe, amend, and rescind rules
and regulations, agreements, terms and notices relating to the administration
of the Plan and to make all other determinations
135
<PAGE>
3
necessary or advisable for the administration of the Plan. Any actions of the
Committee with respect to the Plan shall be conclusive and binding upon all
persons interested in the Plan.
(c) Limitation of Liability. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished
to him or her by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional
retained by the Company to assist in the administration of the Plan. Neither a
member of the Committee nor any officer or employee of the Company or a
subsidiary acting on behalf of the Committee shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and such persons shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
(d) Delegation. Except as specifically restricted by the Plan, the Committee
may delegate any functions under the Plan to a Designee, in which case
references to the Committee shall be deemed to include the Designee. The
foregoing and other provisions of the Plan notwithstanding, only the Committee,
and no Designee, shall exercise any discretion under the Plan with respect to
Awards to Participants who, at the time such discretion is to be exercised, are
subject to reporting requirements under Section 16(a) of the Exchange Act.
4. Stock Subject to the Plan. Shares of Common Stock that may be delivered
upon Payout under the Plan to persons who at the time of grant of the Award or
the time of Payout are subject to reporting requirements under Section 16(a) of
the Exchange Act shall be shares granted under the Stock Plan, and shares that
may be delivered upon Payout to other Participants shall be shares granted
under the Secondary Plan. No Award may be granted or Payout made under the Plan
if sufficient shares are not then available under the Stock Plan or the
Secondary Plan, respectively, and any such Award and Payout will be counted
against the shares reserved and available under the Stock Plan or Secondary
Plan, respectively. Awards may be granted under the Stock Plan or Secondary
Plan even though the effect of such grants will be to reduce the number of
shares remaining available for issuance or delivery hereunder. Shares subject
to an Award that is forfeited or otherwise terminated without a Payout of
shares will again be available for grants of Awards under the Plan and under
the Stock Plan or Secondary Plan, respectively, to the extent specified
thereunder.
5. Awards.
(a) Granting of Awards. The Committee shall designate from among Eligible
Employees those persons who will become Participants and be granted Awards for
each Performance Period. Each such Participant shall be granted a number of
Performance Shares (each including the right to Dividend Equivalents) as
determined by the Committee in its sole discretion.
(b) Performance Objectives. Awards granted for a given Performance Period
will be settled by Payout only if and to the extent that Performance Objectives
have been achieved, except as otherwise expressly provided herein.
(i) The percentage of Awards that will be settled by Payout for the
initial three Performance Periods beginning January 1, 1994 shall be based
on Average ROACE actually achieved for the Performance Period and
determined using the table set forth on Schedule 1 hereto, with straight-
line interpolation between points.
(ii) For subsequent Performance Periods, the Committee shall, in its sole
discretion, establish the Performance Objectives and the percentages of
Awards to be settled by Payout based on achievement of all or part of such
Performance Objectives. Such Performance Objectives may be based in whole
or in part on Average ROACE for a Performance Period and for other measures
of performance including earnings per share, earnings per common share,
core earnings, net income, net income applicable to common stock, cash
flow, and return on average assets, as determined by the Committee. The
Committee shall set forth such determinations on additional Schedules which
shall be incorporated into the Plan;
136
<PAGE>
4
provided however, that the Committee may present such determinations in any
reasonable manner, with no need to conform such presentation to the format
of Schedule 1.
(c) Payout. As promptly as practicable following the end of each Performance
Period, the Committee shall determine whether and the extent to which the terms
of Awards have been satisfied, including the extent to which Performance
Objectives have been achieved, and the number of shares of Common Stock to be
issued or delivered to a Participant in connection with such Payout. The
Committee shall certify in writing prior to Payout the extent to which
Performance Objectives have been achieved and that any other material terms
were satisfied.
(i) Except as provided below, each Participant shall receive settlement
of his or her Award, in accordance with the terms of the Plan and the
Committee's determinations in shares of Common Stock issued or delivered as
soon as practicable following the making of such determinations by the
Committee.
(ii) Subject to Section 8 hereof, if and to the extent specified by the
Committee each Participant shall have the right to defer his or her receipt
of shares of Common Stock in connection with an Award, under and in
accordance with the terms and conditions of the Shawmut National
Corporation Deferred Compensation Plan and or other applicable deferral
arrangement, as determined by the Committee.
(iii) Subject to Section 8 hereof, the Committee may alter terms and
conditions of Awards, waive rights of the Company hereunder, or take other
actions intended to fix a Participant's rights under an Award prior to the
end of a Performance Period or Payout in order to cause such Award to be
deemed "granted or awarded" for purposes of Rule 16b-3 at a specified date
earlier than the end of the Performance Period or Payout.
(iv) If and to the extent that an Award or a portion thereof is not to be
settled by Payout in accordance with Section 5(b), (c) or (d) hereof, the
Performance Shares comprising such Award (including those acquired with
Dividend Equivalents) or portion thereof shall be forfeited and canceled
without payment of any consideration by the Company to the Participant.
(d) Termination. Other provisions of this Section 5 notwithstanding, if a
Participant ceases to be employed by the Company or a subsidiary prior to
Payout, Awards shall be settled by Payout only on the terms and to the extent
as follows:
(i) If such Participant's employment is terminated prior to the end of a
Performance Period due to death or Disability, such Participant (or his or
her legal representative or Beneficiary) shall be entitled to receive a
Payout consisting of a pro rata portion of his or her Award, based on the
number of days in the Performance Period during which he or she was
employed, divided by the total number of days in the Performance Period,
but only to the extent that the Performance Objectives applicable to such
Performance Period were achieved (determined in accordance with Section
5(b)) as of the end of the fiscal quarter immediately preceding the
Participant's termination due to death or Disability. If such Participant's
employment terminated after the end of a Performance Period but prior to
Payout due to death or Disability, any shares that would have been issuable
or deliverable upon Payout to such Participant shall be issued or delivered
to the Participant or his or her legal representative or Beneficiary
without regard to any deferral election. In case of death or Disability,
the Committee may, in its discretion, in lieu of a Payout in shares of
Common Stock, pay to the Participant or his or her Beneficiary cash in an
amount equal to the Fair Market Value of such Common Stock at the date of
Payout.
(ii) If such Participant's employment is terminated prior to the end of a
Performance Period due to normal retirement, such Participant shall be
entitled to receive a Payout consisting of a pro rata portion of his Award,
based on the number of days in the Performance Period during which he or
she was employed divided by the total number of days in the Performance
Period, to the extent that the Performance Objectives applicable to such
Performance Period are achieved in accordance with Section 5(b) as
scheduled following the end of the Performance Period. If such
Participant's employment terminated after the end of a Performance Period
but prior to Payout due to normal retirement, such Participant shall be
entitled to receive a Payout in accordance with Section 5(b) hereof without
regard
137
<PAGE>
5
to his or her termination. In either such case, the Payout shall be made at
the time and in the manner specified in Section 5(c) hereof.
(iii) If such Participant's employment was terminated for Cause by the
Company prior to the end of a Performance Period or prior to a Payout, such
Participant shall be entitled to receive no Payout whatsoever for any
Award.
(iv) If such Participant's employment terminated prior to the end of a
Performance Period due to any reason other than those specified in Section
5(d)(i)-(iii), such Participant shall be entitled to receive no Payout for
any Award with respect to any Performance Period not completed as of the
date of termination (except to the extent the Committee may otherwise
determine or, in the case of a Participant not then subject to reporting
under Section 16(a) of the Exchange Act, to the extent the Chairman of the
Board of the Company may otherwise determine), but shall be entitled to
receive a Payout for any Award with respect to a previously completed
Performance Period in accordance with Sections 5(b) and (c) hereof without
regard to his or her termination.
(e) Adjustments. Subject to Section 6(f) and Section 8 hereof, the Committee
is authorized at any time during or after a Performance Period but prior to
Payout, in its sole discretion, to adjust, modify, or specify new Performance
Objectives, the number of Restricted Stock Units in Awards, or any other terms
or conditions of Awards:
(i) in recognition of unusual or nonrecurring events affecting the
Company, any subsidiary, or any operating division or business unit within
the Company or subsidiaries, or the financial statements thereof, including
but not limited to acquisitions that may affect the achievement of
Performance Objectives during a Performance Period and extraordinary items
under generally accepted accounting principles;
(ii) in response to changes in applicable laws (including tax and other
laws), regulations, interpretations thereof, accounting principles, Company
accounting practices, or tax rates, changes in business conditions or
business strategy of the Company, or similar events or circumstances deemed
relevant by the Committee which may affect the Common Stock or Awards under
the Plan;
(iii) in response to dividends or distributions other than regular
quarterly dividends, mergers, spin-offs, recapitalizations, forward or
reverse stock splits, reorganizations, consolidations, combinations,
repurchases or share exchanges, or similar corporate transactions or events
which may affect the Common Stock or Awards under the Plan; and
(iv) with respect to any Eligible Employee or Participant whose position
or duties with the Company or any subsidiary changes during a Performance
Period or any person who first becomes an Eligible Employee or Participant
after the beginning of a Performance Period.
In the case of adjustments relating to Awards to persons who may be "covered
employees" within the meaning of Code Section 162(m) and regulations thereunder
(including Proposed Regulation 1.162-27(c) (2)), the foregoing adjustments are
intended to prevent dilution or enlargement of Participant's rights and,
therefore, to be objectively determinable and nondiscretionary, consistent with
the qualification of such Awards as "performance-based compensation" under Code
Section 162(m). To the extent that it shall be determined that any such
adjustment would likely cause compensation relating to an Award to a covered
employee to fail to be deductible under Section 162(m) of the Code, such
adjustment shall not be authorized or made, unless otherwise determined by the
Committee.
(f) Tax Withholding. The Company and any subsidiary shall have the right to
satisfy any federal, state, local or foreign taxes required to be withheld with
respect to Awards in accordance with Section 12 of the Stock Plan or Section 11
of the Secondary Plan.
138
<PAGE>
6
6. General Provisions.
(a) No Rights to Participate or Receive Awards or Payouts; No Rights as
Stockholder. Until the Committee has determined to grant an Award to an
Eligible Employee, no Eligible Employee shall have any right to participate or
receive an Award hereunder, and the granting of an Award hereunder shall not be
construed as a commitment that any Payout shall be made with respect to such
Award except in accordance with the terms of the Plan and such Award. No
Participant under the Plan shall have any rights of a stockholder until shares
of Common Stock are issued in connection with a Payout.
(b) No Rights to Employment. Nothing contained in the Plan or in any
documents related to the Plan or any Award shall (i) confer upon any Eligible
Employee or Participant any right to continue as an Eligible Employee,
Participant, or in the employ of the Company or a subsidiary, (ii) constitute
any contract or agreement of employment, or (iii) interfere in any way with the
right of the Company or a subsidiary to reduce such person's compensation to
change the position held by such person or to terminate the employment of such
Eligible Employee or Participant, with or without Cause.
(c) Non-Transferability. No Award or right relating to an Award under the
Plan (including any right that may constitute a derivative security within the
general definition set forth in Rule 16a-1 (c) under the Exchange Act) shall be
transferable by a Participant except upon a Participant's death by will or the
laws of descent and distribution or to a Beneficiary, or otherwise be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any such attempted action shall be void.
(d) Unfunded Plan. The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any amount payable to a
Participant pursuant to an Award, nothing contained in the Plan (or in any
agreement or other documents related thereto), nor the creation or adoption of
the Plan, the grant of any Award, or the taking of any other action pursuant to
the provisions of the Plan shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided, however,
that the Committee may authorize the creation of trusts or make other
arrangements to meet the Company's obligations under the Plan pursuant to any
Award, in coordination with the Company's Deferred Compensation Plan or
otherwise, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(e) Governing Law. The Plan and all related documents shall be governed by,
and construed in accordance with, the laws of the State of Connecticut (except
to the extent the Delaware General Corporation Law and provisions of federal
law may be applicable). If any provision hereof (including provisions of the
Stock Plan and Secondary Plan incorporated herein by reference) shall be held
by a court of competent jurisdiction to be invalid and unenforceable, the
remaining provisions of the Plan shall continue to be fully effective.
(f) Amendment and Termination of Plan and Awards. Subject to Section 7(c)
hereof, the Board may, at any time, terminate or, from time to time, amend,
modify, or suspend the Plan, subject to and in accordance with the provisions
of Section 15 of the Stock Plan and Section 14 of the Secondary Plan. Subject
to Section 8, the Committee may modify the terms and provisions of any Awards
theretofore awarded to any Participants, provided that no such modification may
materially and adversely affect the vested rights of a Participant hereunder
without the consent of such Participant.
(g) Effective Date. The Plan shall become effective as of November 18, 1993,
for Performance Periods beginning on or after January 1, 1994, and shall remain
in effect until such time as it may be terminated pursuant to Section 6(f).
139
<PAGE>
7
7. Change in Control.
(a) Payout Relating to Current and Completed Performance Periods.
(i) Any provision of this Plan to the contrary notwithstanding, in the
event of a Change in Control, a Participant shall be entitled to receive
Payouts with respect to target Awards for Performance Periods not ended on
or before the date of such Change in Control determined in accordance with
Section 5(b) hereof but assuming 100% achievement of all Performance
Objectives and calculated on a pro rata basis based on the number of days
in each Performance Period during which he or she was employed, divided by
the number of days in each such Performance Period.
(ii) In the event of a Change in Control prior to Payout for a completed
Performance Period, Payout of the final Award shall be made in full in
accordance with Section 7(b) hereof.
(b) Payments. All amounts payable pursuant to this Section 7 shall be paid in
a cash lump sum no later than thirty days after the date of a Change in
Control. Nothing in the plan shall prevent the Committee from making new Awards
after a Change in Control.
(c) Amendment and Termination of Plan and Awards. Any provision of this Plan
to the contrary notwithstanding, upon the occurrence of a Change in Control and
at all times thereafter, neither the Board of Directors nor the Committee may
suspend, amend, modify, or terminate the Plan, in whole or in part, in any
manner that would adversely affect the right of any Eligible Employee or
Participant to receive Payout of Awards granted under this Plan prior to the
effective date of such action.
(d) Other Plan Provisions Unaffected. Nothing in this Section 7 shall affect
the operation of the provisions of this Plan prior to a Change in Control.
8. Compliance with Code Section 162(m). It is the intent of the Company that
compensation under the Plan to persons who are "covered employees" within the
meaning of Code Section 162(m) and regulations thereunder (including Proposed
Regulation 1.162-27(c)(2)) shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder (including Proposed Regulation 1.162-27(e)(1), (2), and (5), and
subject to the transition rules under Proposed Regulation 1.162-27(h)(3))
thereunder. Accordingly, unless otherwise determined by the Committee in its
sole discretion, if any provision of the Plan or any agreement evidencing an
Award hereunder relating to a "covered employee" does not comply or is
inconsistent with the requirements of Proposed Regulation 1.162-27(e)(1),
(e)(2), (e)(5), or (h)(3), such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements, and no provision shall
be deemed to confer upon the Committee or any other person, authority or
discretion to increase the amount of compensation otherwise payable to a
"covered employee" in connection with an Award; provided, however, that
payments under Sections 5(d) and 7 are intended to be, and shall be construed
as, payments that do not themselves qualify as "performance-based compensation"
under Section 162(m) but which, under proposed Regulation 1.162-27(e)(2)(iv),
may be authorized and made without resulting in the loss of deductibility with
respect to any other compensation payable with respect to the same Award.
As adopted by the Human Resources Committee on October 28, 1993.
140
<PAGE>
AMENDMENT
TO
SHAWMUT NATIONAL CORPORATION
PERFORMANCE EQUITY PLAN
The Shawmut National Corporation Performance Equity Plan (the "Plan"),
adopted as of October 28, 1993, is hereby amended as of February 19, 1995, as
set forth below:
1. The Plan is amended by deleting Section 7 thereof.
Except as set forth above, the Plan is hereby confirmed and ratified in all
respects.
141
<PAGE>
EXHIBIT 10.14
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
142
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purposes.............................................................. 1
2. Definitions........................................................... 1
3. Administration........................................................ 2
4. Participation......................................................... 2
5. Deferrals............................................................. 2
6. Deferral Accounts..................................................... 3
7. Deferral of Certain Stock-Denominated Awards: Rabbi Trusts............ 4
8. Settlement of Deferral Accounts....................................... 4
9. Provisions Relating to Section 16 of the Exchange Act and Section
162(m) of the Code.................................................... 5
10. Statements............................................................ 6
11. Sources of Stock: Limitation on Amount of Stock-Denominated Deferrals. 6
12. Amendments to the Plan................................................ 6
13. General Provisions.................................................... 6
14. Effective Date........................................................ 7
</TABLE>
143
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
1. Purposes. The purposes of this Deferred Compensation Plan (the "Plan") are
to provide certain highly compensated employees of Shawmut National Corporation
(the "Company") and its subsidiaries with the opportunity to elect to defer
receipt of specified portions of cash compensation and stock awards, and to
have the deferred amounts treated as if invested in specified investment
vehicles. The Plan is also intended to specify terms and conditions for
deferral of awards granted under the Company's Stock Option and Restricted
Stock Award Plan (the "Stock Plan"), the Secondary Stock Option and Restricted
Stock Award Plan (the "Secondary Plan"), the Performance Equity Plan, and the
Short Term Incentive Plan.
2. Definitions. In addition to the terms defined in Section 1 above, the
following terms used in the Plan shall have the meanings set forth below:
(a) "Beneficiary" shall mean any person (which may include trusts and is not
limited to one person) who has been designated by the participant in his or her
most recent written beneficiary designation filed with the Company to receive
the benefits specified under the Plan in the event of the Participant's death.
If no Beneficiary has been designated who survives the Participant's death,
then Beneficiary means any person(s) entitled by will or the laws of descent
and distribution to receive such benefits.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Change in control" shall have the same meaning as "change in control of
the Corporation" as defined in Section 10(e)(ii) of the Stock Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions or regulations.
(e) "Committee" shall mean the Human Resources Committee of the Board. Except
as may be otherwise required under Section 9 or by applicable law, any function
of the Committee may be delegated to the Designee. Each member of the Committee
shall be a "disinterested person" as defined in Rule 16b-3 under the Exchange
Act and an "outside director" for purposes of Section 162(m) of the Code and
regulations thereunder (including Proposed Regulation 1.162-27 (e) (3) and (h)
(2)).
(f) "Deferral Account" shall mean the account established and maintained by
the Company for specified deferrals by a Participant, as described in Sections
6(a) and 7(a). Deferral Accounts will be maintained solely as bookkeeping
entries by the Company to evidence unfunded obligations of the Company.
(g) "Designee" shall mean the Company's chief human resources officer or
other executives to whom the Committee has delegated the authority to take
action under the Plan, except as may be otherwise required under Section 9.
(h) "Disability" shall have the meaning set forth in the Company's Long-Term
Disability Plan.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule thereunder
include any successor provisions or rules.
(j) "Participant" shall mean any full-time salaried employee of the Company
or any subsidiary who is either a member of the Senior Policy Committee of the
Company or otherwise selected by the Committee or Designee, who receives or is
to receive compensation or awards permitted to be deferred under the Plan and
who participates or makes an election to participate in the Plan.
144
<PAGE>
2
(k) "Stock" shall mean the common stock of Shawmut National Corporation
Common Stock, par value $0.01 per share.
(l) "Valuation Date" shall mean the close of business on the last business
day of each calendar quarter; provided, however, that in the case of
termination of employment for reasons other than normal retirement or approved
early retirement under the applicable Company or subsidiary retirement plan,
death, or Disability, the Valuation Date means the close of business on the
last business day of the month in which employment terminates, and in the case
of a Change in Control of the Company, the Valuation Date shall be the date of
such Change in Control.
3. Administration.
(a) Committee Authority. The Committee and the Designee shall administer the
Plan in accordance with its terms, and shall have all powers necessary to
accomplish such purpose, including the power and authority to construe and
interpret the Plan, to define the terms used herein, to prescribe, amend and
rescind rules and regulations, agreements, forms, and notices relating to the
administration of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. Any actions of the Committee or
the Designee with respect to the Plan shall be conclusive and binding upon all
persons interested in the Plan. The Committee and Designee may each appoint
agents and delegate thereto powers and duties under the Plan, except as
otherwise limited by the Plan.
(b) Limitation of Liability. Each member of the Committee and the Designee
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any officer or other employee of the
Company or any subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant, legal counsel, or other
professional retained by the Company to assist in the administration of the
Plan. Neither a member of the Committee, the Designee, nor any officer or
employee of the Company or a subsidiary acting on behalf of the Committee or
Designee shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and such
persons shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. Participation. Participation in the Plan is entirely voluntary. The
Designee will notify each employee of his or her eligibility to participate in
the Plan not later than 30 days (or such lesser period as may be practicable in
the circumstances) prior to any deadline for filing of an election form.
5. Deferrals. A Participant may elect to defer compensation or awards which
may be in the form of cash, Stock, Stock-denominated awards or other property
to be received from the Company or a subsidiary, including salary, a short term
incentive award (or bonus), a long term award and compensation payable under
other plans and programs or otherwise, as may be provided under the terms of
such plans and programs or designated by the Committee; provided, however, that
a Participant may defer, with respect to a given year, receipt of only that
portion of the Participant's salary and short term incentive award (or bonus)
that exceeds the FICA maximum taxable wage base plus 1.45% of all other wages
of such Participant. In addition to such limitation, and any terms and
conditions of deferral set forth under plans and programs from which receipt of
compensation or awards is deferred, the Committee may impose limitations on the
amounts permitted to be deferred and other terms and conditions on deferrals
under the Plan. Any such limitations, and other terms and conditions of
deferral, shall be set forth in the rules relating to the Plan or election
forms, other forms, or instructions published by the Committee and/or the
Designee. The Committee and/or Designee is authorized to permit, in its
discretion, further elective deferrals of amounts previously deferred under
this Plan.
(a) Elections. Once an election form, properly completed, is received by the
Company, the elections of the Participant shall be irrevocable; provided,
however, that the Designee may, in its discretion, permit a Participant to
change elections relating to a Deferral Account by filing a later election form
if such changes
145
<PAGE>
3
do not, in the view of tax counsel, cause amounts credited to such Deferral
Account or other Deferral Accounts to be subject to federal income tax prior to
distribution.
(b) Date of Election. An election to defer compensation or awards hereunder
must be received by the Company before such date as may from time to time be
specified by the Designee, upon the advice of counsel, with respect to the
deferral of specific items of compensation or awards.
6. Deferral Accounts. The following provisions shall apply to Deferral
Accounts other than those established under Section 7:
(a) Establishment; Crediting of Amounts Deferred. One or more Deferral
Accounts shall be established for each Participant, as determined by the
Designee. The amount of compensation or awards deferred with respect to each
Deferral Account shall be credited to such Account as of the date on which such
amounts would have been paid to the Participant but for the Participant's
election to defer receipt hereunder. The amounts of hypothetical income and
appreciation and depreciation in value of such account determined in accordance
with paragraphs (b), (c) and (d) of this Section 6 shall be credited and
debited to such Account from time to time. Unless otherwise determined by the
Committee or Designee, cash amounts credited to a Deferral Account after the
first day of a month shall be deemed invested in a hypothetical investment
vehicle as of the first day of the next following month, with such amounts
deemed to accrue interest at a rate determined by the Designee from the initial
date of crediting through the last day of the month in which occurs such date.
(b) Hypothetical Investment Vehicles. Subject to the provisions of Sections
6(c) and 9, amounts credited to a Deferral Account shall be deemed to be
invested, at the Participant's direction, in one or more hypothetical
investment vehicles as may be specified from time to time by the Designee. The
Designee may change or discontinue any hypothetical investment vehicle
available under the Plan in its discretion; provided, however, that each
affected Participant shall be given the opportunity, without limiting or
otherwise impairing any other right of such Participant regarding changes in
investment directions, to redirect the allocation of his or her Deferral
Account deemed invested in the discontinued investment vehicle among the other
hypothetical investment vehicles, including any replacement vehicle.
(c) Allocation and Reallocation of Hypothetical Investments. A participant
may allocate amounts credited to his or her Deferral Account to one or more of
the hypothetical investment vehicles authorized under the Plan. Subject to
Section 9, a Participant may, on the first day of any month but not more often
than twice in any calendar year unless otherwise authorized by the Designee,
reallocate amounts credited to his or her Deferral Account as of the Valuation
Date following the Participant's election to one or more of such hypothetical
investment vehicles, by filing with the Designee a notice, in such form as may
be specified by the Designee, not later than the 15th of the month preceding
such Valuation Date. Unless otherwise determined by the Designee, the amount
that may be allocated or reallocated to any one hypothetical investment shall
be 25%, 50%, 75%, or 100% of any amount to be credited to, or any pre-existing
balance of, the Deferral Account. The foregoing notwithstanding, the Designee
may, in its discretion, restrict allocation into or reallocation by specified
Participants into or out of specified investment vehicles.
(d) Rabbi Trusts. The Designee may, in its discretion, establish a trust that
is subject to the claims of the Company's creditors (a "rabbi trust") (or a
sub-account under a rabbi trust), and deposit therein amounts of cash, Stock,
or other property not exceeding the amount of the Company's obligations with
respect to a Participant's Deferral Account established under this Section 6.
In such case, the amounts of hypothetical income and appreciation and
depreciation in value of such Deferral Account shall be equal to the actual
income on, and appreciation and depreciation of, the assets in such rabbi trust
attributable to such Account (or sub-account) (including without limitation, as
determined by the Committee, charges against such assets to reflect transaction
costs and all or a specified portion of the Company's costs resulting from
payment of taxes on the income on and appreciation of trust assets). Other
provisions of this Section 6 notwithstanding, the timing of allocations and
reallocations of assets in such a Deferral Account, and the investment vehicles
146
<PAGE>
4
available with respect to such Deferral Account, may be varied to reflect the
timing of actual investments of the assets of such rabbi trust and the actual
investments available to such rabbi trust.
7. Deferral of Certain Stock-Denominated Awards: Rabbi Trusts.
(a) Establishment. If authorized by the Committee and subject to any terms
and conditions imposed by the Committee, Participants may elect to defer, under
the Plan, awards denominated in Stock specified by the Committee. In connection
with such deferral of a stock-denominated award, a Deferral Account shall be
established for such Participant and the Designee may, in its discretion,
establish a rabbi trust (or a sub-account under a rabbi trust), on terms
determined by the Designee, into which the Company shall deposit a number of
whole shares of Stock equal to the number of shares subject to such deferred
award (and cash in lieu of any fractional share). In such case, the amounts of
hypothetical income and appreciation and depreciation in value of such Deferral
Account shall be equal to the actual income on, and appreciation and
depreciation of, the assets in such rabbi trust attributable to such Account
(or sub-account), including without limitation, as determined by the Designee,
charges against such assets to reflect transaction costs and all or a specified
portion of the Company's costs resulting from payment of taxes on the income on
and appreciation of trust assets.
(b) Investment of Rabbi Trust Assets. The trustee of such rabbi trust, which
shall be a party unaffiliated with the Company, shall be authorized, in its
sole discretion, to dispose of such Stock and to reinvest the proceeds in one
or more investment vehicles specified by the Designee; provided, however, that
no such disposition may take place prior to the lapse of any risk of forfeiture
relating to, or vesting of, the original Stock-denominated award. The Designee
may determine the Participant's investment objectives and direct hypothetical
investments of amounts credited to such Deferral Account or to otherwise direct
the trustee of the rabbi trust in the investment of the assets thereof. In no
event shall a Participant who is then subject to Section 16(a) of the Exchange
Act have the right to direct a hypothetical or actual sale of Stock.
(c) Settlement. The Participant shall be entitled to receive a cash payment
in settlement of a Deferral Account established under this Section 7; provided,
however, that the trustee may, at the discretion of the Designee, distribute
assets of the rabbi trust (other than a distribution of Stock to a Participant
then subject to Section 16(a) of the Exchange Act) having a fair market value
equal to the amount of cash otherwise payable to the Participant in settlement
of the Company's obligations to the Participant under the Deferral Account if
such distribution, and the authorization thereof, does not cause the rights of
a Participant subject to Section 16(a) of the Exchange Act relating to the
Deferral Account and rabbi trust to be deemed a "derivative security" within
the definition of Rule 16a-1(c)(3) (including subparagraph (i) thereunder)
under the Exchange Act.
8. Settlement of Deferral Accounts.
(a) Form of Payment. The Company shall settle a Participant's Deferral
Account, other than a Deferral Account established under Section 7 hereof, and
discharge all of its obligations to pay deferred compensation under the Plan
with respect to such Deferral Account, by payment of cash or, in the discretion
of the Committee, by delivery of other assets having a fair market value equal
to the amount of cash otherwise payable; provided, however, that Stock may be
delivered in settlement of any Stock-denominated Award deferred under the Stock
Plan or the Secondary Plan if such Award has been continuously deemed invested
in Stock under the Plan, except that Stock may not be delivered to a
Participant who is then subject to Section 16(a) of the Exchange Act in
settlement of an Award subject to Section 7.
(b) Timing of Payments. Payments in settlement of a Deferral Account shall be
made at the date or dates (including upon the occurrence of specified events),
and in such number of installments, as may be directed by the Participant in
his or her election relating to such Deferral Account, or earlier in the event
of termination of employment by the Participant in the following circumstances:
(i) In the event of termination of employment for reasons other than
normal retirement, early retirement approved by the Committee, or
Disability, a single lump sum payment in settlement of any
147
<PAGE>
5
Deferral Account (including a Deferral Account with respect to which one or
more installment payments have previously been made) shall be made as
promptly as practicable following the next Valuation Date, unless otherwise
determined by the Committee; or
(ii) In the event of a Change in Control, payments in settlement of any
Deferral Account (including a Deferral Account with respect to which one or
more installment payments have previously been made) will be made within
thirty (30) business days following such Change in Control.
(c) Financial Emergency Payments. Other provisions of the Plan (except
Section 9) notwithstanding, if the Committee or Designee determines that a
Participant has an unforeseeable financial emergency beyond the individual's
control and of such a substantial nature that payment of amounts previously
deferred under the Plan is necessary to avoid a severe financial hardship to
the Participant, the Committee or Designee may direct the payment to the
Participant of an amount necessary to meet the emergency, whether all or a
portion of the balance of a Deferral Account, and the time and manner of such
payment, and the Committee or Designee may direct such payments in other
circumstances if, in the exercise of its independent judgment, it determines
that unforeseeable circumstances warrant such action; provided, however, that
no such payment shall be authorized if and to the extent that such
authorization would, in the view of tax counsel, cause amounts credited to his
or her Deferral Accounts or other Deferral Accounts to be subject to federal
income tax prior to distribution.
(d) Other Accelerated Payments. Early withdrawal may occur other than for an
unforeseeable emergency and will result in forfeiture from the Participant's
Deferral Account or from the amount withdrawn of ten percent of the amount
withdrawn.
9. Provisions Relating to Section 16 of the Exchange Act and Section 162(m)
of the Code.
(a) Compliance with Section 16. With respect to a Participant who is then
subject to the reporting requirements of Section 16(a) of the Exchange Act:
(i) Any function of the Committee or Designee under the Plan relating to
such Participant shall be performed solely by the Committee, if and to the
extent required to ensure the availability of an exemption under Rule 16b-3
or exclusion under Rule 16a-1(c) for such Participant with respect to the
Plan.
(ii) The provisions of Section 6(c) notwithstanding, no such Participant
may reallocate amounts credited to a Deferral Account into or out of a
Stock-denominated or Stock equivalent investment vehicle, unless otherwise
determined by the Committee.
(iii) To the extent necessary so that transactions by and rights of such
a Participant under the Plan are excluded from reporting under Rule 16a-
1(c) (unless acknowledged by the Participant in writing with respect to a
specified transaction not to be excluded), if any provision of this Plan or
any rule, election form or other form, or instruction does not comply with
the requirements of such Rule as then applicable to such transaction or
right under the Plan, such provision may be construed or deemed amended to
the extent necessary to conform to such requirements.
(b) Compliance with Code Section 162(m). It is the intent of the Company that
any compensation (including any award) deferred under the Plan by a person who
is, with respect to the year of payout, deemed by the Committee to be a
"covered employee" within the meaning of the Code Section 162(m) and
regulations thereunder (including Proposed Regulation 1.162-27(c)(2)), which
compensation constitutes either "qualified performance-based compensation"
within the meaning of Code Section 162(m) and regulations thereunder (including
Proposed Regulation 1.162-27(e)) or compensation not otherwise subject to the
limitation on deductibility under Section 162(m) and regulations thereunder
(including as a result of transition rules under Proposed Regulation 1.162-
27(h)), shall not, as a result of deferral hereunder, become compensation with
respect to which the Company in fact would not be entitled to a tax deduction
under Code Section 162(m). Accordingly, unless otherwise determined by the
Committee, if any compensation would become so disqualified under Section
162(m) as a result of deferral hereunder, the terms of such deferral
148
<PAGE>
6
shall be automatically modified to the extent necessary to ensure that the
compensation would not, at the time of payout, be so disqualified. This
provision shall apply only to the amount of compensation deferred and not to
any amounts payable hereunder as income or appreciation in value of such
deferred compensation.
10. Statements. The Designee will furnish statements to each Participant
reflecting the amount credited to a Participant's Deferral Accounts and
transactions therein not less frequently than once each calendar year.
11. Sources of Stock; Limitation on Amount of Stock-Denominated Deferrals. If
Stock is deposited under the Plan in a rabbi trust pursuant to Section 7 in
connection with a deferral of a Stock-denominated award under the Stock Plan,
the Secondary Plan, or another plan, program or arrangement that provides for
the issuance of shares, the shares so deposited shall be deemed to have
originated, and shall be counted against the number of shares reserved, under
such other plan or program. The number of Stock equivalents credited to such
Deferral Accounts shall in no event exceed the number of shares subject to the
Stock-denominated awards deferred under the Plan. The number of Stock
equivalents otherwise credited to Deferral Accounts of Participants who are
subject to Section 16(a) shall not exceed 5,000,000, subject to appropriate and
proportionate adjustment to reflect stock splits, dividends, and similar
events. Shares actually delivered in settlement of Deferral Accounts shall be
originally issued shares or treasury shares, in the discretion of the
Committee; provided, however, that only treasury shares shall be delivered
hereunder to persons who are then "officers" within the meaning of Section
312.03 of the Listed Company Manual of the New York Stock Exchange (or any
successor thereto).
12. Amendments to the Plan. The Board may amend, alter, suspend, discontinue,
or terminate the Plan without the consent of Participants, stockholders, or any
other person; provided, however, that, without the consent of a Participant, no
such action shall materially and adversely affect the rights of such
Participant with respect to any rights to payment of amounts credited to such
Participant's Deferral Account.
13. General Provisions.
(a) Limits on Transfer of Awards; Beneficiaries. No right of a Participant
under the plan shall be pledged, encumbered, hypothecated, or liable for or
subject to any lien, obligation, or liability of such Participant, or shall be
assignable or transferable by such Participant, otherwise then by will or the
laws of descent and distribution; provided, however, that a Participant may
designate a Beneficiary to receive any payment under the Plan in the event of
death of the Participant.
(b) Receipt and Release. Payments (in any form) to any Participant or
Beneficiary in accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims for the compensation or awards
deferred and relating to the Deferral Account to which the payments relate
against the Company or any subsidiary thereof, the Committee, or the Designee,
and the Designee may require such Participant or Beneficiary, as a condition to
such payments, to execute a receipt and release to such effect.
(c) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for deferred compensation. With respect to any
payment not yet made to a Participant under the Plan, nothing contained in the
Plan shall give a Participant any rights that are greater than those of a
general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts, including but not limited to the trusts
referred to in Sections 6 and 7 hereof, or make other arrangements to meet the
Company's obligations under the Plan, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(d) Compliance. A Participant in the Plan shall have no right to receive
payment (in any form) with respect to his or her Deferral Account until legal
and contractual obligations of the Company relating to establishment of the
Plan and the making of such payments shall have been complied with in full. In
addition, the Company shall impose such restrictions on Stock delivered to a
Participant hereunder and any other
149
<PAGE>
7
interest constituting a security as it may deem advisable in order to comply
with the Securities Act of 1933, as amended, the requirements of the New York
Stock Exchange or any other stock exchange or automated quotation system upon
which the Stock is then listed or quoted, any state securities laws applicable
to such a transfer, any provision of the Company's Certificate of Incorporation
or Bylaws, or any other law, regulation, or binding contract to which the
Company is a party.
(e) Other Participating Rights. No Participant shall have any of the rights
or privileges of a stockholder of the Company under the Plan, including as a
result of the crediting of Stock equivalents or other amounts to a Deferral
Account, or the creation of any rabbi trust and deposit of such Stock therein,
except at such time as Stock may be actually delivered in settlement of a
Deferral Account. No provision of the Plan or transaction hereunder shall
confer upon any Participant any right to be employed by the Company or a
subsidiary thereof, or to interfere in any way with the right of the Company or
a subsidiary to increase or decrease the amount of any compensation payable to
such Participant. Subject to the limitations set forth in Section 13(a) hereof,
the Plan shall inure to the benefit of, and be binding upon, the parties hereto
and their successors and assigns.
(f) Tax Withholding. The Company and any subsidiary shall have the right to
deduct from amounts otherwise payable in settlement of a Deferral Account any
sums that federal, state, local or foreign tax law requires to be withheld with
respect to such payment. Shares may be withheld to satisfy such obligations in
any case where taxation would be imposed upon the delivery of shares, except
that shares issued or delivered under the Stock Plan, the Secondary Plan or any
other plan of the Company may be withheld only in accordance with the terms of
such plan and any applicable rules, regulations, or resolutions thereunder.
(g) Governing Law. The validity, construction, and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Connecticut, without giving effect to principles
of conflicts of laws, and applicable provisions of the Delaware General
Corporation Law and federal law.
14. Effective Date. The Plan shall be effective as of November 18, 1993.
As adopted by the Human Resources Committee on October 28, 1993.
150
<PAGE>
AMENDMENT
TO
SHAWMUT NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
The Shawmut National Corporation Deferred Compensation Plan (the "Plan"),
adopted as of October 28, 1993, is hereby amended as of February 19, 1995, as
set forth below:
1. Section 8(b) of the Plan is amended by deleting paragraph (ii) thereof.
Except as set forth above, the Plan is hereby confirmed and ratified in all
respects.
151
<PAGE>
EXHIBIT 10.15
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
EXECUTIVE SEPARATION POLICY
- --------------------------------------------------------------------------------
152
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
EXECUTIVE SEPARATION POLICY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purpose................................................................ 1
2. Definitions............................................................ 1
3. Severance Payments and Benefits........................................ 3
4. Reduction in Payments.................................................. 4
5. Withholding............................................................ 5
6. No Right to Employment................................................. 5
7. Legal Fees............................................................. 5
8. Amendment and Termination.............................................. 5
9. Governing Law; Arbitration............................................. 5
10. Nontransferability..................................................... 6
11. No Duty to Mitigate.................................................... 6
12. Effective Date......................................................... 6
</TABLE>
153
<PAGE>
SHAWMUT NATIONAL CORPORATION
- --------------------------------------------------------------------------------
EXECUTIVE SEPARATION POLICY
- --------------------------------------------------------------------------------
1. Purpose. The purpose of this Executive Separation Policy (the "Policy") of
the Shawmut National Corporation (the "Company") and its subsidiaries is to
provide certain severance payments and benefits to key executives designated by
the Committee (as hereinafter defined) (the "Participants") in the event of
termination of employment (other than by reason of death or Disability (as
hereinafter defined)) within two years after a Change in Control (as
hereinafter defined) if termination is by the Company other than for Cause (as
hereinafter defined) or by the Participant for Good Reason (as hereinafter
defined). This Policy shall not affect the right of the Company to terminate a
Participant's employment with or without Cause.
2. Definitions. In addition to the terms defined in Section 1 hereof, the
following terms used in the Policy shall have the meanings set forth below:
(a) "Annual Compensation" shall mean the sum of (i) the Participant's annual
salary with the Company (before reduction pursuant to any deferred compensation
plan or agreement with the Company) immediately prior to the date of
termination of employment or, if greater, immediately prior to the date of
Change in Control and (ii) the Participant's highest of the last three annual
short term incentive awards prior to the year of termination assigned under the
Company's Short Term Incentive Plan, as the same may be modified, replaced or
added to by the Company from time to time.
(b) "Beneficiary" shall mean any person (which may include trusts and is not
limited to one person) who has been designated by the Participant in his or her
most recent written beneficiary designation filed with the Company to receive
the benefits specified under the Policy in the event of the Participant's
death. If no Beneficiary has been designated who survives the Participant's
death, then Beneficiary means any person(s) entitled by will or the laws of
descent and distribution to receive such benefits.
(c) "Cause" shall mean (i) the willful and continued failure by the
Participant to substantially perform his duties with the Company or any
subsidiary (other than any such failure resulting from the Participant's
incapacity due to physical or mental illness or any such actual or anticipated
failure resulting from the Participant's termination for Good Reason) for a
period of at least ten days after a written demand for substantial performance
is delivered to the Participant which specifically identifies the manner in
which the Participant has not substantially performed his duties, or (ii) the
willful engaging by the Participant in gross misconduct which is demonstrably
and substantially injurious to the Company. For purposes of this paragraph, no
act, or failure to act, on the Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that such action or omission was in the best interest
of the Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board of Directors of the Company or based
upon the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Participant in good faith and in the best
interests of the Company. Notwithstanding the foregoing, the Participant shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Participant a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Participant and an opportunity for the Participant,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Participant was guilty of conduct set forth
above in clauses (i) or (ii) of this paragraph and specifying the particulars
thereof in detail.
(d) "Change in Control" shall have the meaning set forth in Section 10(e)(ii)
of the Company's Stock Option and Restricted Stock Award Plan.
(e) "Committee" shall mean the Human Resources Committee of the Board.
154
<PAGE>
2
(f) "Designee" shall mean the Chief Executive Officer of the Company or other
executive to whom the Committee delegates the authority to take action under
this Policy.
(g) "Compensation Rate" shall mean the result obtained by dividing the
Participant's Annual Compensation by 12.
(h) "Disability" shall have the meaning set forth in the Long-Term Disability
Plan.
(i) "Good Reason" shall mean:
(i) a reduction by the Company in a Participant's base salary as in
effect immediately prior to the Change in Control except for across-the-
board salary reductions similarly affecting all senior executives of the
Company and all senior executives of any person in control of the Company;
(ii) the failure by the Company, without the Participant's consent, to
pay the Participant any portion of his current compensation except pursuant
to an across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any person in
control of the Company, or to pay to the Participant any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within thirty (30) days of the date such
compensation is due;
(iii) the failure by the Company to continue in effect any Plan (as
hereinafter defined) which is material to the Participant's total
compensation in which the Participant was participating at the time of the
Change in Control, unless such Plan (A) is replaced by a successor Plan
providing substantially similar compensation and benefits (which
replacement Plan shall continue to be subject to this provision) or (B)
terminates as a result of the normal expiration of such Plan in accordance
with its terms, as in effect immediately prior to the Change in Control; or
the taking of any other action, or the failure to act, by the Company which
would materially adversely affect a Participant's continued participation
in any of such Plans as compared to the terms of such participation on the
date of the Change of Control, including by materially reducing the
Participant's compensation opportunities or benefits in the future under
any such Plans;
(iv) the failure by the Company to provide and credit the Participant
with the number of paid vacation days in which he or she is entitled in
accordance with the Company's normal vacation policy as such policy was in
effect immediately prior to the Change in Control;
(v) a change by the Company in the position of the Participant which does
not represent a position commensurate in level, authority and
responsibilities with or a promotion from Participant's position with the
Company or any of its subsidiaries immediately prior to the date of the
Change in Control, or assigning the Participant responsibilities which are
materially inconsistent with such prior position; or
(vi) the Company's requiring the Participant to be based anywhere more
than 50 miles from the location of Participant's office or the location of
the Company's executive offices immediately prior to the Change in Control,
except that the Company may require Participant to be based more than 50
miles from such location if the relocation is to a principal executive
office of the Company or principal office of a major division or subsidiary
of the Company, provided that the Participant is reimbursed, on an after-
tax basis, for all reasonable expenses incurred and losses experienced in
respect of such relocation in accordance with relocation policy of the
Company or its subsidiaries prior to the date of the Change in Control, and
except for required travel on the Company's business to an extent
substantially consistent with the business travel obligations which the
Participant undertook on behalf of the Company prior to the Change in
Control;
In each case after notice in writing from the Participant to the Company
and a period of 30 days after such notice during which the Company fails to
correct such conduct.
(j) "Participant" shall mean a senior line officer, staff officer or other
key executive of the Company or its subsidiaries, who shall have been
designated in writing by the Designee as eligible for severance payments and
benefits under this Policy; provided, however, that in no event shall a
Participant be entitled to receive
155
<PAGE>
3
severance payments and benefits under the Policy to the extent such severance
payments and benefits duplicate payments and benefits actually received or
payable under an effective employment or severance agreement, other arrangement
or any other separation policy, compensation or employee benefit plan of the
Company or its subsidiaries.
(k) "Plan" shall mean any compensation or benefit plan of the Company or its
subsidiaries such as an incentive compensation, stock option or other stock
plan or any employee benefit plan of the Company such as a pension, profit
sharing, medical, dental, disability or life insurance plan or vacation credit.
3. Severance Payments and Benefits.
(a) A Participant shall be entitled to the following upon termination of
employment (other than by reason of death or Disability) within two years
following a Change in Control, if such termination is by the Company other than
for Cause or by the Participant for Good Reason:
(i) annual salary otherwise payable through the date of termination of
employment, together with salary, incentive compensation or benefits which
have been earned or become payable as of the date of termination but which
have not yet been paid;
(ii) a lump-sum severance payment equal to the product of the
Participant's Annual Compensation, multiplied by 2.0 with respect to
participants assigned to Grade 26 and above, or the equivalent thereof, at
the date of termination and 1.5 with respect to all other Participants;
(iii) for a period of 24 months after the date of termination of
employment with respect to Participants assigned to Grade 26 and above, or
the equivalent thereof, at date of termination and 18 months with respect
to all other Participants, benefits equivalent to the additional benefits
the Participant would have received under the qualified and nonqualified
pension plans in which the Participant was participating immediately prior
to termination, as if the Participant had received credit under such Plans
for service with the Company during such period following the Participant's
termination, with such benefits payable by the Company at the same times,
under the same terms, and in the same manner as such benefits would have
been received by the Participant under such plans;
(iv) [a lump sum payment equal to the present value of the Participant's
accrued benefit, if any, which shall be fully vested at date of termination
of employment, under the Company's supplemental, nonqualified pension
plans, unless funded in a secular trust;] and
(v) for a period terminating on the earlier of 24 months following the
date of termination of employment with respect to Participants assigned to
Grade 26 and above, or the equivalent thereof, at the date of termination
and 18 months with respect to all other Participants and the commencement
of equivalent benefits from a new employer, maintenance in effect for the
continued benefit of the Participant and his or her dependents of:
(A) all insured and self-insured medical and dental benefit plans of
the Company in which the Participant was participating immediately
prior to termination, provided that the Participant's continued
participation is possible under the general terms and conditions of
such plans (and any applicable funding media) and the Participant
continues to pay an amount equal to the Participant's regular
contribution for such participation; and
(B) the group life insurance and group disability insurance policies
of the Company then in effect for the Participant;
provided, however, that if the Company so elects, or if such continued
participation is not possible under the general terms and conditions of such
plans or under such policies, the Company, in lieu of the foregoing, shall
arrange to have issued for the benefit of the Participant and the Participant's
dependents individual policies of insurance providing benefits substantially
similar (on an after-tax basis) to those described in this paragraph (v), or,
if such insurance is not available at a reasonable cost to the Company, shall
otherwise provide the Participant and the Participant's dependents equivalent
benefits (on an after-tax basis); provided, further that, in no event shall the
Participant be required to pay any premiums or other charges in an amount
greater than that which the Participant would have paid in order to participate
in the Company's plans and policies.
156
<PAGE>
4
(b) All payments required by clauses (i), (ii), and (iv) of paragraph (a) of
this Section 4 shall be paid in cash not later than the thirtieth (30th) day
following the date of termination of employment.
(c) In the event of the death of a Participant, all payments hereunder due to
such Participant shall be paid to his or her Beneficiary.
(d) Notwithstanding anything in this Policy to the contrary, a Participant
shall not be entitled to any payments or benefits under Section 3 of this
Policy, unless the Board of Directors of the Company in its sole discretion
provides otherwise, in the event termination of employment results from the
sale or spin-off of a subsidiary or the sale of a division, other business unit
or facility in which the Participant was employed immediately prior to such
sale or spin-off (whether effected by the disposition of stock or assets, or by
merger or otherwise) and the Participant has been offered employment with the
purchaser or the sold or spun-off entity at the same base salary provided to
the Participant, and with fringe benefits that in the aggregate are comparable
to those provided to the Participant, immediately prior to the sale or spin-
off. Such benefits must include an agreement or plan binding on such purchaser
or entity, providing that, upon any termination of employment with the
purchaser or entity of the kinds described in Section 3 hereof within two years
following such sale, the purchaser shall:
(i) pay to such Participant an amount equal to the severance payments
that such Participant would have received under Section 3(a) (i)-(iv)
hereof if termination of employment had resulted in amounts being owed
thereunder at the time of such sale; and
(ii) pay or provide for the Participant and his or her dependents the
benefits described in Section 3(a)(v) hereof for a period beginning upon
the Participant's termination of employment with the purchaser or spun-off
entity or business and terminating on the earlier of 24 months following
the date of termination of employment with respect to Participants assigned
to Grade 26 and above, or the equivalent thereof, at the date of
termination and 18 months with respect to all other Participants and the
commencement of equivalent benefits from a new employer following
termination of employment with the purchaser or sold or spun-off entity or
business.
(e) Notwithstanding anything in this Policy to the contrary, a transfer of
employment from the Company to a subsidiary or vice versa shall not be
considered a termination of employment for purposes of this Policy.
4. Reduction in Payments. Notwithstanding any other provision of this Policy,
but subject to the last sentence of this Section 4, if any of the payments and
benefits provided for under this Policy, together with any other payments or
benefits received or to be received by a Participant (including, without
limitation, the vesting and/or cashout of an option, stock award or other non-
cash benefit or property) pursuant to the terms of the Stock Option and
Restricted Stock Award Plan, the Secondary Stock Option and Restricted Stock
Award Plan or the Performance Equity Plan of the Company, as such Plans may be
from time to time amended, or any other plan, arrangement or agreement with the
Company or any subsidiary (collectively, the "Total Payments"), would be
subject (in whole or in part) to any excise tax imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax
that may hereafter be imposed) (the "Excise Tax"), then the payments pursuant
to this Policy shall be reduced (reducing first the payments under Section
3(a)(ii) to the largest amount that will result in no portion of the Total
Payments being subject to the Excise Tax. All determinations as to whether any
reduction in payments under this Policy pursuant to this Section 4 is necessary
shall be made by independent compensation consultants or auditors of nationally
recognized standing selected by the Company and reasonably acceptable to the
Participant and with the advice of counsel (the "Independent Auditors") and
such determination shall be conclusive and binding on the Company and the
Participant with respect to the treatment of payments hereunder for tax
reporting purposes. If a determination cannot be completed on or before the
date specified under Section 3 for making the severance payments provided
hereunder, the Company shall pay to the Participant on such payment date the
minimum amount of such payments to which the Participant is clearly entitled,
as determined by the Independent Auditors, and shall pay the remainder of such
payments (together with
157
<PAGE>
5
interest at the rate provided in Section 1274 (b) (2) (B) of the Code) as soon
as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after such specified payment date. For purposes of
determining whether and to what extent the Total Payments will be subject to
the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment
of which the Participant shall have effectively (for tax purposes) waived in
writing (as determined by the Independent Auditors) shall be taken into
account, (ii) no portion of the total Payments shall be taken into account
which in the opinion of the Independent Auditors does not constitute a
"parachute payment" within the meaning of section 280G(b) (2) of the Code
(including by reason of section 280G(b)(4)(A) of the Code) and, in calculating
the Excise Tax, no portion of such Total Payments shall be taken into account
which constitutes reasonable compensation for services actually rendered,
within the meaning of section 280G(b)(4)(B) of the Code, in excess of the base
amount (as defined in section 280G(b)(3) of the Code) allocable to such
reasonable compensation, and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
If, as a result of uncertainty in the application of Section 280G of the Code
at the time of any estimate or initial determination by the Independent
Auditors hereunder, any payments hereunder are made by the Company which
should not have been made (an "Over-payment") or additional payments hereunder
are not made by the Company which should have been made (an "Underpayment"),
in each case as determined by the Independent Auditors consistent with the
calculations required to be made hereunder, then (i) any such Overpayment
shall be treated for all purposes as a loan to the Participant payable on the
thirtieth (30th) business day after demand, which the Participant shall repay
to the Company together with the interest from the date or dates of receipt of
the Overpayment at the rate provided in section 1274(b) (2) (B) of the Code,
and (ii) any such Underpayment shall be promptly paid by the Company to the
Participant together with interest from the specified payment date at the rate
provided in section 1274(b) (2) (B) of the Code.
5. Withholding. The Company shall have the right to deduct from all payments
hereunder a cash amount having a value at least equal to any federal, state,
local or foreign taxes required to be withheld with respect to such payments.
6. No Right to Employment. Nothing contained in this Policy or any documents
relating to the Policy shall (i) confer upon any Participant any right to
continue as a Participant or in the employ of the Company or a subsidiary,
(ii) constitute any contract or agreement of employment, or (iii) interfere in
any way with the right of the Company or a subsidiary to reduce such
Participant's compensation, to change the position held by such Participant,
or terminate the employment of such Participant, with or without Cause.
7. Legal Fees. The Company shall pay all legal fees and related expenses
incurred by a Participant in seeking to obtain or enforce any payment, benefit
or right provided by this Policy; provided, however, that the Participant
shall be required to repay any such amounts to the Company to the extent that
an arbitrator or a court of competent jurisdiction issues a final,
unappealable order setting forth a determination that the position taken by
the Participant was frivolous or advanced in bad faith.
8. Amendment and Termination. The Board of Directors of the Company may
amend or terminate this Policy at any time prior to a Change in Control. This
Policy may not be amended or terminated at any time after a Change in Control
in any manner adverse to a Participant without the prior consent of such
Participant.
9. Governing Law; Severability; Arbitration. The validity, construction, and
effect of this Policy and any rules and regulations relating to this Policy
shall be determined in accordance with Delaware General Corporation Law, to
the extent applicable, other laws (including those governing contracts) of the
State of Connecticut, without giving effect to principles of conflicts of
laws, and applicable federal law. If any provision hereof shall be held by a
court of competent jurisdiction to be invalid and unenforceable, the remaining
provisions shall continue to be fully effective. Any dispute or controversy
arising under or in connection with this Policy that cannot be settled through
negotiation shall be first submitted to mediation administered by the American
Arbitration Association ("AAA"). In the event the dispute or controversy
158
<PAGE>
6
cannot be resolved through mediation, it shall be settled exclusively by
arbitration in Hartford, Connecticut by three arbitrators in accordance with
the rules of the AAA in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
10. Nontransferability. Severance payments and benefits under the Policy may
not be transferred by a Participant except upon a Participant's death by will
or the laws of descent and distribution or to a Beneficiary, or otherwise be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any attempted such action shall be void.
The terms and conditions of this Policy shall be binding on the successors and
assigns of the Company.
11. No Duty to Mitigate. No Participant shall be required to mitigate, by
seeking employment or otherwise, the amount of any payment that the Company
becomes obligated to make under this Policy, and, except as expressly provided
in this Policy, amounts or other benefits to be paid or provided to a
Participant pursuant to this Policy shall not be reduced by reason of the
Participant's obtaining other employment or receiving similar payments or
benefits from another employer.
12. Effective Date. This Policy is effective as of January 1, 1994.
As adopted by the Human Resources Committee on October 28, 1993.
159
<PAGE>
EXHIBIT 10.18
September 16, 1994
Allen W. Sanborn
[ADDRESS]
Dear Allen:
This confirms our understanding and agreement with respect to your departure
from Shawmut National Corporation ("SNC") and its subsidiaries and affiliates
(hereinafter collectively referred to as "Shawmut") as follows:
1. Continuation of Salary: Bonus: Insurance and Benefits.
(a) Salary Continuation. Shawmut shall pay to you salary continuation
beginning on the day after your last day worked and ending on December 31,
1995 (the "Salary Continuation Period"). These payments shall be made in
accordance with the regular payroll practices of Shawmut, and shall be
based upon your current salary.
(b) Annual Bonus. No later than the end of Shawmut's first 1995 fiscal
quarter, Shawmut shall pay to you a full bonus for 1994 in the amount of
$180,000 less applicable withholding taxes.
(c) Insurance and Benefits. Shawmut shall provide you, through the Salary
Continuation Period, with your medical, dental and life insurance and
accidental death and dismemberment coverage on the same terms currently
available to you. Participation in the Shawmut National Corporation's
Employees' Thrift Plan will be continued through the Salary Continuation
Period to the extent provided generally to employees.
2. Performance Equity Plan. No later than the end of Shawmut's first 1995
fiscal quarter, Shawmut shall pay to you the entire amount of the award to
which you would have been entitled under Shawmut's Performance Equity Plan for
the performance cycle ending on December 31, 1994 as if your employment had
continued through such date; provided, however, that such amount shall be based
upon the extent to which the goals for such cycle shall have in fact been met
and the value per share of Shawmut common stock as of such date, and subject to
awards being made under such plan for such cycle to members of Shawmut's Senior
Policy Committee. You shall not be entitled to any portion of awards granted to
you with respect to performance cycles ending after such date.
3. Professional Outplacement Service. Shawmut will provide you with
outplacement services through Right Associates in accordance with Shawmut's
policy with respect to senior executives.
4. Income Tax Preparation. Shawmut will pay for the services of Price
Waterhouse for the preparation of your 1994 federal and state income tax
returns.
5. Restricted Stock: Stock Options. Pursuant to the Shawmut National
Corporation's Stock Option and Restricted Stock Award Plan (the "Stock Plan"),
you shall receive any restricted shares of Shawmut common stock granted to you
under any restricted stock award agreement (as described on the statement
attached as Schedule I, which is hereby made a part of this letter agreement),
free of the restrictions set forth therein which provide that the restrictions
lapse on May 11, 1995. If you do not exercise the options you hold pursuant to
any grants of options under the Stock Plan (the "Canceled Options") prior to
their expiration, Shawmut hereby agrees to pay to you:
(a) the excess, if any, of the fair market value of a share of Shawmut
common stock of the shares described on the date you elect over $14.625
with respect to 30,000 shares;
160
<PAGE>
2
(b) the excess, if any, of the fair market value of a share of Shawmut
common stock on the date you elect over $20.25 with respect to 20,000
shares; and
(c) the excess, if any, of the fair market value of a share of Shawmut
common stock on the date you elect over $23.125 with respect to 30,000
shares.
You may make any such election (1) at any time after the Canceled Options
expire with respect to Paragraph 5(a) above; (2) at any time after January
28, 1995, January 28, 1996 and January 28, 1997, with respect to successive
one-thirds of the shares described in Paragraph 5(b) above; and (3) at any
time after January 27, 1995, January 27, 1996, January 27, 1997 with
respect to successive one-thirds of the shares described in Paragraph 5(c)
above, but in no event shall such elections be made after April 13, 1999,
January 28, 2003, and January 27, 2004, respectively.
6. Car. Shawmut will purchase for you the 1993 Ford Explorer now being leased
by you within 30 days of your execution of this letter agreement. You shall be
responsible for the payment of all State and Federal taxes due as a result of
this purchase. The car shall be your property thereafter and you shall be
solely responsible for its expenses.
7. Confidentiality. It is the desire and in the interest of all parties
affected by this letter agreement that the terms hereof be maintained in
strictest confidence. To that end, Shawmut and you covenant and agree to
maintain each and every term of this letter agreement in the strictest
confidence, and neither to release nor to divulge either orally or in writing
any term, covenant or condition hereto to any person, firm or entity except
your counsel, spouse and tax and/or financial advisor or as may be required by
law or regulation or by order of any court.
8. Non-Competition.
(a) Except as otherwise provided in this Paragraph 8, at all times during
the Salary Continuation Period, you shall not, directly or indirectly:
(i) participate or engage as an individual proprietor, partner,
stockholder, director, officer, employee, joint venturer, agent, lender
or in any other capacity whatsoever (other than as a holder of less
than one (1) percent of any class of publicly traded equity securities)
for Fleet Financial Group, Bank of Boston Corp., UST Corporation,
Baybanks or Citizens Bank or any of their subsidiaries or affiliates;
provided, however, that consulting services may be provided to Bank of
Boston Corp., UST Corporation, Baybanks or Citizens Bank or any of
their subsidiaries or affiliates.
(ii) solicit, aid or encourage any person or entity who was a
customer of Shawmut to reduce such customer's relationship with Shawmut
or any of its subsidiaries or to conduct with any other person or
entity any business or activity which such customer then conducts with
Shawmut or its subsidiaries; or
(iii) except as to a person who has left Shawmut's employ or
announced his departure from Shawmut without any direct or indirect
inducement from you to do so, employ, attempt to employ, recruit or
otherwise solicit, induce, aid or influence any employee of Shawmut to
terminate his or her employment with Shawmut or its subsidiaries.
(b) During the period to which this Paragraph 8 applies, you shall inform
any prospective employer of these covenants and obligations under this
Paragraph 8.
(c) During the period to which this Paragraph 8 applies, you shall notify
Shawmut within 10 business days of accepting any offer of employment.
9. Confidential Information. You agree that all information pertaining to the
prior, current or contemplated business of Shawmut and its affiliates and
subsidiaries (excluding (a) publicly available information in substantially the
form in which it is publicly available unless such information becomes publicly
available through unauthorized disclosure by you and (b) information of a
general nature not pertaining exclusively to Shawmut which would be generally
acquired in similar employment with another
161
<PAGE>
3
company) constitutes a valuable and confidential asset of Shawmut and is the
exclusive property of Shawmut. Such information includes, without limitation,
information related to trade secrets, business strategies, customer lists, loan
portfolios, financing techniques, financing sources and financial statements of
Shawmut or any affiliate or subsidiary. You agree to hold all such information
in trust and confidence for Shawmut and shall not, except as required by
applicable law, use or disclose any such information, without the prior written
consent of Shawmut either during the term of this agreement or thereafter. You
also agree not to engage in any commentary, oral or written, which puts Shawmut
in an unfavorable light, and undermines Shawmut's reputation in the banking
industry. Shawmut agrees to use its reasonable best efforts to ensure its
employees do not engage in any commentary, oral or written, which puts you in
an unfavorable light or undermines your reputation in the banking industry.
Shawmut will draw this provision to the attention of its public relations and
investor relations personnel.
10. References. Shawmut hereby agrees that any inquiry for an employment
reference relative to you received by Shawmut will be directed to Gunnar S.
Overstrom for a response (or, in the event of his unavailability, to such other
person as you and Shawmut may mutually designate), and that a reference
response will be made which is positive in tone and content and consistent with
your performance as described in your performance reviews with Shawmut and your
current resume, a copy of which is attached hereto as Schedule II.
11. Indemnification: Insurance. Shawmut hereby agrees, jointly and severally,
to indemnify you and hold you harmless to the fullest extent permitted by
applicable law, and you shall be entitled to the protection of any insurance
policies Shawmut maintains for the benefit of its respective officers,
employees and agents, against all costs, charges and expenses whatsoever,
including without limitation the fees, charges and disbursements of counsel and
any court costs and related expenses, incurred or sustained by you (other than
following a judicial determination that any of the foregoing resulted solely by
reason of your gross negligence or willful misconduct) in connection with any
action, suit, proceeding or investigation to which you may be made a party, a
witness or in any other respect a participant by reason of your being or having
been an officer, director, employee and/or agent of Shawmut.
12. Mutual Releases.
(a) For and in consideration of, the payments and benefits provided in
Paragraphs 1 through 6 and 12(d), you hereby agree and covenant not to sue
and not to make any claims of any kind against Shawmut, its past and
present parent corporations, its past and present divisions, subsidiaries,
affiliates and related companies, its successors and assigns and all past
and present directors, officers, employees and agents of these entities,
personally, and as directors, officers, employees and agents (hereinafter
referred to in this Paragraph 12 collectively as the "RELEASEES") before
any agency, court or other forum and you further agree to release the
RELEASEES up to the date of this letter agreement for, including without
limitation, common law claims or any claims arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, as amended, the Americans with Disabilities Act, the Older Worker
Benefits Protection Act, or any other federal, state or local statutes or
regulations, presently or hereafter enacted, or any claims, demands or
causes of action for monetary or equitable relief, including back pay,
front pay, reinstatement, compensatory, punitive damages, attorneys' fees,
expenses and costs of litigation.
(b) THIS MEANS THAT, BY SIGNING THIS AGREEMENT, YOU WILL HAVE WAIVED ANY
RIGHT YOU MAY HAVE HAD TO BRING A LAWSUIT OR MAKE ANY CLAIM AGAINST THE
RELEASEES BASED ON ANY ACTS OR OMISSIONS TAKEN BY THE RELEASEES UP TO THE
DATE OF THE SIGNING OF THIS AGREEMENT.
(c) You acknowledge and agree that you have been given a reasonable
period of time within which to consider this letter agreement and that if
you wanted more time, such time is available to you, up to and including
twenty-one (21) days. You also represent that you have read carefully and
fully understand the terms of this letter agreement, and that you have had
the opportunity to consult with an attorney,
162
<PAGE>
4
prior to signing this letter agreement. You further acknowledge that you
are executing this letter agreement voluntarily and knowingly and that
notwithstanding your voluntary and knowing execution, you may revoke your
consent to this agreement at any time within seven (7) days of the date of
its execution.
(d) Shawmut hereby agrees and covenants not to sue and not to make any
claims of any kind against you, your heirs, successors and assigns
(hereinafter referred to in this clause (d) collectively as "you") before
any agency, court or other forum and Shawmut further releases and
discharges you, and each and any or all of you, from all manner of action
and actions, cause or causes of action in law or in equity, administrative
proceedings, suits, claims, debts, liens, sums of money, accounts,
reckoning, bonds, bills, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, executions, claims and
demands whatsoever, including without limitation, any and all claims under
federal, state and local statutes and regulations, presently or hereinafter
enacted, and any other claims, demands or causes of action of monetary or
equitable relief, including compensatory, punitive damages, attorneys'
fees, expenses and costs of litigation, whether arising out of, based upon
or relating to your hire, employment or remuneration or the termination of
your employment or otherwise other than that proximately caused by an
action of yours that has been judicially determined to have been gross
negligence or willful misconduct.
13. Arbitration. Any dispute arising out of or in any way relating to this
agreement shall be resolved by arbitration in Massachusetts through the Boston,
Massachusetts office of the American Arbitration Association in accordance with
the Model Employment Arbitration Procedures of the American Arbitration
Association except to the extent such provisions are modified as hereinafter
provided. The arbitration proceeding shall be conducted by three (3)
arbitrators. You and SNC shall designate one (1) arbitrator, each of whom shall
be an attorney admitted to practice in one or more states who has ten (10) or
more years of experience in employment matters, and the arbitrators so selected
shall thereafter designate a third arbitrator (who shall be an member of the
National Academy of Arbitrators) by mutual agreement. The arbitrators shall
have no authority to modify any provision of the agreement or to award a remedy
for a dispute involving this agreement other than for a breach of the express
terms of this agreement. The decision of the arbitrators shall be final and
binding on Shawmut and you. Shawmut and you shall each pay their own legal fees
associated with arbitration proceedings hereunder, but the fees of the
arbitrators and any other costs associated with such arbitration proceedings
shall be paid by Shawmut.
14. Severability. Any provision of this letter agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
15. Binding Nature of Agreement. The respective obligations and/or benefits
of this letter agreement applicable to Shawmut and its affiliates and to you
shall be binding upon and inure to the benefit of their and your respective
assigns, or successors in title or interest.
16. Governing Law. This letter agreement will be governed, construed and
interpreted under the laws of the Commonwealth of Massachusetts.
17. Notices. All communications, including, without limitation, notices,
consents, requests, or approvals, required or permitted to be given under this
agreement shall be in writing addressed as follows: if to Shawmut, to J.
Michael Shepherd, Shawmut National Corporation, One Federal Street, Boston,
Massachusetts 02211; or, if to you, to Allen Sanborn [ADDRESS OMITTED].
18. Representations and Warranties. Shawmut represents and warrants to you
(which representations and warranties shall survive the execution and delivery
of this letter agreement), as follows: (i) it has the corporate power,
authority and legal right to execute, deliver and perform this letter
agreement; (ii) it has
163
<PAGE>
5
taken all necessary corporate action required to cause this letter agreement to
constitute its legal, valid and binding obligation enforceable against it in
accordance with its terms.
19. Entire Agreement. It is the intent of the parties hereto that, effective
immediately, this is a binding agreement constituting the entire agreement
between the parties and may not be modified or changed except by written
instrument executed by all parties.
If this letter correctly sets forth your understanding of our agreement with
respect to the foregoing matters, please so indicate by signing below on the
line provided for your signature.
Very truly yours,
Shawmut Bank National Corporation
/s/ J. Michael Shepherd
By: _________________________________
Name: J. Michael Shepherd
Title: Executive Vice President
Date: _______________________________
Acknowledged and accepted:
/s/ Allen W. Sanborn
_____________________________________
Allen W. Sanborn
2-13-95
Date: _______________________________
Then personally appeared the above-named Allen W. Sanborn who acknowledged
the foregoing to be his free act and deed before me.
/s/
_____________________________________
Notary Public
2/20/98
My commission expires: ______________
164
<PAGE>
6
SCHEDULE I
SHAWMUT NATIONAL CORPORATION
EMPLOYEE RESTRICTED STOCK AWARD STATUS REPORT
<TABLE>
<CAPTION>
AWARD AMOUNT SHARES SHARES MARKET RELEASE
DATE AWARDED RELEASED OUTST. PRICE SCHEDULE
----- ------- -------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
05/11/92 10,000 6,667 3,333 0 (Current)
3,333 on 05/11/95
------ ----- -----
Shares 10,000 6,667 3,333
</TABLE>
165
<PAGE>
EXHIBIT 12
SHAWMUT NATIONAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) before
income taxes,
extraordinary credit
and cumulative
effect of accounting
changes.............. $ 371,604 $ 289,476 $ 108,625 $ (169,223) $ (155,672)
Portion of rents
representative of
the interest factor.. 16,891 18,037 19,525 19,491 19,903
Interest on other
borrowings........... 368,347 262,413 192,240 217,739 340,650
Interest on notes and
debentures........... 94,807 70,646 59,321 60,436 63,105
Amortization of debt
issuance cost........ 844 1,394 594 618 578
---------- ---------- ---------- ---------- ----------
Earnings including
interest on deposits... 852,493 641,966 380,305 129,061 268,564
Interest on deposits.. 406,346 420,966 622,436 933,665 1,253,609
---------- ---------- ---------- ---------- ----------
Earnings excluding
interest on deposits... $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.. $ 16,891 $ 18,037 $ 19,525 $ 19,491 $ 19,903
Interest on other
borrowings........... 368,347 262,413 192,240 217,739 340,650
Interest on notes and
debentures........... 94,807 70,646 59,321 60,436 63,105
Amortization of debt
issuance cost........ 844 1,394 594 618 578
---------- ---------- ---------- ---------- ----------
Fixed charges
excluding interest on
deposits............. 480,889 352,490 271,680 298,284 424,236
Interest on deposits.. 406,346 420,966 622,436 933,665 1,253,609
---------- ---------- ---------- ---------- ----------
Fixed charges
including interest on
deposits............. $ 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............. $ 480,889 $ 352,490 $ 271,680 $ 298,284 $ 424,236
Preferred stock
dividend
requirements......... 24,117 23,438 15,952 2,262 2,328
---------- ---------- ---------- ---------- ----------
$ 505,006 $ 375,928 $ 287,632 $ 300,546 $ 426,564
========== ========== ========== ========== ==========
Fixed charges
including interest on
deposits............. $ 887,235 $ 773,456 $ 894,116 $1,231,949 $1,677,845
Preferred stock
dividend
requirements......... 24,117 23,438 15,952 2,262 2,328
---------- ---------- ---------- ---------- ----------
$ 911,352 $ 796,894 $ 910,068 $1,234,211 $1,680,173
========== ========== ========== ========== ==========
RATIOS
Earnings to fixed
charges
Excluding interest on
deposits............ 1.77x 1.82x 1.40x 0.43x 0.63x
Including interest on
deposits............ 1.42 1.37 1.12 0.86 0.91
Earnings to combined
fixed charges and
preferred stock
dividend requirements
Excluding interest on
deposits............ 1.69 1.71 1.32 0.43 0.63
Including interest on
deposits............ 1.38 1.33 1.10 0.86 0.91
</TABLE>
166
<PAGE>
EXHIBIT 21
SHAWMUT NATIONAL CORPORATION
PARENT AND PRINCIPAL SUBSIDIARIES
<TABLE>
<CAPTION>
SHAWMUT NATIONAL CORPORATION
REGISTRANT: (DELAWARE CORPORATION)
- ----------- ----------------------------
<S> <C>
Subsidiary, all of whose voting.......... Hartford National Corporation
securities are owned by Shawmut (Delaware Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut Corporation
securities are owned by Shawmut (Massachusetts Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut New Hampshire Corporation
securities are owned by Shawmut (New Hampshire Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut Bank Connecticut, National
securities are owned by Shawmut Association (United States
National Corporation: Corporation doing business in
Rhode Island as Shawmut Bank)
Subsidiary, all of whose voting.......... Shawmut Bank, National Association
securities are owned by Shawmut (United States Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut Bank NH
securities are owned by Shawmut (New Hampshire Corporation)
New Hampshire Corporation:
Subsidiary, all of whose voting.......... Shawmut Bank, FSB
securities are owned by Shawmut (United States Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut Trust Company of Rhode Island
securities are owned by Shawmut (Rhode Island Corporation)
Bank Connecticut, National Association:
NONBANK SUBSIDIARIES
Subsidiary, all of whose voting.......... Shawmut Investment Advisers, Inc.
shares are owned by Shawmut (Massachusetts Corporation)
Corporation:
Subsidiary, all of whose voting.......... Shawmut Capital Corporation
shares are owned by Shawmut (Connecticut Corporation)
Bank Connecticut, National
Association:
ADDITIONAL SUBSIDIARIES (NON-PRINCIPAL)
Subsidiary, all of whose voting.......... Shawmut Brokerage, Inc.
shares are owned by Shawmut (Connecticut Corporation)
Bank Connecticut, National
Association:
Subsidiary, all of whose voting.......... Shawmut Mortgage Company
shares are owned by Shawmut (Connecticut Corporation)
Bank Connecticut, National
Association:
Subsidiary, all of whose voting.......... Shawmut National Trust Company
shares are owned by Hartford (United States Corporation)
National Corporation:
Subsidiary, all of whose voting.......... Shawmut Trust Company
shares are owned by Hartford (New York Trust Company)
National Corporation:
</TABLE>
* * *
167
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-56621,
33-50710 and 33-50708) and to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-54129, 33-20387 and 33-17765-02)
of Shawmut National Corporation of our report dated February 20, 1995 appearing
on page 83 of this Form 10-K.
Price Waterhouse LLP
Hartford, Connecticut
March 17, 1995
168
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,986,182
<INT-BEARING-DEPOSITS> 439,936
<FED-FUNDS-SOLD> 308,700
<TRADING-ASSETS> 27,859
<INVESTMENTS-HELD-FOR-SALE> 1,991,853
<INVESTMENTS-CARRYING> 8,000,382
<INVESTMENTS-MARKET> 7,561,890
<LOANS> 18,487,143
<ALLOWANCE> 542,116
<TOTAL-ASSETS> 32,398,611
<DEPOSITS> 20,746,253
<SHORT-TERM> 7,086,579
<LIABILITIES-OTHER> 346,818
<LONG-TERM> 2,021,788
<COMMON> 1,208
0
178,185
<OTHER-SE> 2,017,780
<TOTAL-LIABILITIES-AND-EQUITY> 32,398,611
<INTEREST-LOAN> 1,311,719
<INTEREST-INVEST> 588,982
<INTEREST-OTHER> 37,228
<INTEREST-TOTAL> 1,937,929
<INTEREST-DEPOSIT> 406,346
<INTEREST-EXPENSE> 870,344
<INTEREST-INCOME-NET> 1,067,585
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,071,463
<INCOME-PRETAX> 371,604
<INCOME-PRE-EXTRAORDINARY> 237,352
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237,352
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> 3.78
<LOANS-NON> 223,951
<LOANS-PAST> 43,264
<LOANS-TROUBLED> 41,752
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 669,156
<CHARGE-OFFS> 190,552
<RECOVERIES> 56,225
<ALLOWANCE-CLOSE> 542,116
<ALLOWANCE-DOMESTIC> 542,116
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.2
- --------------------------------------------------------------------------------
[LOGO OF 777 Main Street
SHAWMUT NATIONAL Hartford, Connecticut 06115
CORPORATION
APPEARS HERE] One Federal Street
Boston, Massachusetts 02211
- --------------------------------------------------------------------------------
CONTACT: News Media Contact: Investor Contact:
Carl G. Mueller Thomas R. Rice
(203) 986-4529 (203) 986-4872
FOR IMMEDIATE RELEASE
SHAWMUT NATIONAL CORPORATION
INCREASES COMMON DIVIDEND
BOSTON, MASS., AND HARTFORD, CONN., DECEMBER 15, 1994--Shawmut National
Corporation (NYSE:SNC) announced today that its board of directors had voted to
increase the quarterly dividend on its common stock to $.22 a share from $.20 a
share.
The increased dividend is payable January 15 to holders of record on
January 5.
Joel B. Alvord, chairman and chief executive officer of Shawmut National,
said, "We are pleased to share with our common stockholders this tangible
result of our continuing efforts to enhance the corporation's profitability.
Shawmut's financial strength continues to build with improved operating
performance resulting from a leaner cost structure, the successful integration
of acquisitions, and important progress in implementing business strategies
designed to build the company's revenue base."
Shawmut National Corporation is a superregional bank holding company with
assets of $31 billion, and 350 branches and 550 ATMs in Connecticut,
Massachusetts, New Hampshire and Rhode Island. A leading provider of financial
services to consumers and small- to medium-sized business, Shawmut also serves
corporate customers, correspondent banks and government units throughout the
region and in select national markets.
170
<PAGE>
EXHIBIT 99.3
- --------------------------------------------------------------------------------
[LOGO OF 777 Main Street
SHAWMUT NATIONAL Hartford, Connecticut 06115
CORPORATION
APPEARS HERE] One Federal Street
Boston, Massachusetts 02211
- --------------------------------------------------------------------------------
CONTACT: Media Contact: Investor Contact:
Vincent Loporchio Thomas R. Rice
(617) 292-3239 (203) 986-4872
FOR IMMEDIATE RELEASE
SHAWMUT NATIONAL CORPORATION COMPLETES PURCHASE
OF OLD STONE TRUST COMPANY
BOSTON, MASS., AND HARTFORD, CONN., JANUARY 4, 1995--Shawmut National
Corporation (NYSE: SNC) today announced that it has completed its acquisition
of the Old Stone Trust Company, based in Providence, Rhode Island, effective
January 1, 1995. The transaction was approved by the Office of the Comptroller
of the Currency and the Rhode Island Division of Banking.
The new company will operate as Shawmut Trust Company of Rhode Island, a
subsidiary of Shawmut Bank Connecticut, N.A., and it will maintain offices in
Providence.
According to Michael J. Rothmeier, executive vice president of Shawmut's
Investment Services Group, "Trust and investment management is first and
foremost a relationship business, and we are committed to enhancing the level
of personal trust service provided to Old Stone Trust customers."
Rothmeier added that the combination of Old Stone's trust business with
Shawmut's existing 14-branch and 15-ATM franchise in Rhode Island will
significantly enhance the bank's presence in the state.
Shawmut was named the winning bidder for the Old Stone Trust Company by the
Resolution Trust Corporation on November 21, 1994. Old Stone Trust had managed
and custody assets totaling $417 million at September 30, 1994. A subsidiary of
the former Old Stone Bank, the Old Stone Trust Company was not part of the sale
to Citizens Bank announced by the RTC early last year.
With assets of $31 billion, Shawmut National Corporation is a superregional
bank holding company with a franchise of more than 350 branches and nearly 550
ATMs in four New England states: Connecticut, Massachusetts, New Hampshire and
Rhode Island. It is a leading provider of financial services to consumers and
small- to medium-sized businesses. It also provides financial services to
corporate customers, correspondent banks and government units throughout New
England and in select national markets.
171
<PAGE>
EXHIBIT 99.4
- --------------------------------------------------------------------------------
[LOGO OF 777 Main Street
SHAWMUT NATIONAL Hartford, Connecticut 06115
CORPORATION
APPEARS HERE] One Federal Street
Boston, Massachusetts 02211
- --------------------------------------------------------------------------------
CONTACT: News Media Contact: Investor Contact:
Vincent Loporchio Thomas R. Rice
(617) 292-3239 (203) 986-4872
FOR IMMEDIATE RELEASE
SHAWMUT NATIONAL CORPORATION COMPLETES
OFFERING OF FIVE MILLION DEPOSITARY SHARES
BOSTON, MASS. AND HARTFORD, CONN., JANUARY 26, 1995--Shawmut National
Corporation (NYSE:SNC) said today that it had completed an offering of five
million depositary shares, each representing a one-tenth interest in a share of
9.35% cumulative preferred stock, without par value, at a stated value of $250
per share.
Net proceeds to the Corporation were approximately $121.1 million. Shawmut
National intends to use the proceeds for general corporate purposes, including
acquisitions.
Goldman, Sachs & Co. is the lead manager of the underwriting group. Co-
managers are Donaldson, Lufkin & Jenrette Securities Corporation; Lehman
Brothers Inc.; Morgan Stanley & Co. Incorporated; PaineWebber Incorporated; and
Smith Barney Inc.
Shawmut National Corporation is a superregional bank holding company with $31
billion in assets and over 350 branches and 550 ATMs. A leading provider of
financial services to small- and medium-sized companies, Shawmut is also a
major supplier of financial services to corporate customers, correspondent
banks, and government units throughout New England and in select national
markets.
172
<PAGE>
EXHIBIT 99.5
- --------------------------------------------------------------------------------
[LOGO OF 777 Main Street
SHAWMUT NATIONAL Hartford, Connecticut 06115
CORPORATION
APPEARS HERE] One Federal Street
Boston, Massachusetts 02211
- --------------------------------------------------------------------------------
CONTACT: News Media Contact: Investor Contact:
Vincent Loporchio Thomas R. Rice
(617) 292-3239 (203) 986-4872
SHAWMUT NATIONAL CORPORATION COMPLETES
ACQUISITION OF BARCLAYS BUSINESS CREDIT
BOSTON, MASS. AND HARTFORD, CONN., FEBRUARY 1, 1995--Shawmut National
Corporation (NYSE:SNC) today announced the completion of the previously
disclosed acquisition of the assets and business of Barclays Business Credit,
the U.S. commercial finance operation of Barclays PLC, for a cash premium of
$290 million.
The business will be conducted under the name of Shawmut Capital Corporation,
a subsidiary of Shawmut Bank Connecticut, N.A.
Based in Glastonbury, Conn., Shawmut Capital Corporation provides secured
corporate financing to middle-market companies through 16 offices--14 located
outside of New England. As of December 31, 1994, receivables were approximately
$2.3 billion, more than 90 percent from borrowers outside of New England.
Barclays Business Credit had 1994 unaudited pre-tax profits of $81 million, a
return on assets of 2.3 percent, and an efficiency ratio (noninterest expenses
as a percent of revenues) of 32 percent. Pre-tax profits have grown nearly 30
percent and outstanding receivables have grown 15 percent on a five-year
compounded basis, while credit quality is well above commercial finance
industry norms.
"Barclays Business Credit is a superb company with exceptional management.
Acquiring such a profitable and geographically diversified loan portfolio has
compelling strategic and financial benefits to Shawmut," said Joel B. Alvord,
Shawmut chairman and chief executive officer. "The transaction is immediately
accretive to earnings per share and enables us to expand our presence in the
high-growth, high-return asset-based lending business. It also reduces
Shawmut's liability sensitivity, increases the geographic diversity of our loan
portfolio and adds an established nationwide origination capability. We are
particularly pleased that Peter Bland and his team will remain with the company
to help it achieve its full growth potential."
Shawmut National Corporation is a superregional bank holding company with
approximately $35 billion in assets, including today's acquisition. In addition
to Barclays Business Credit's finance business, Shawmut's acquisitions during
the past year have included six banks and a trust company.
173
<PAGE>
EXHIBIT 99.6
- --------------------------------------------------------------------------------
[LOGO OF 777 Main Street
SHAWMUT NATIONAL Hartford, Connecticut 06115
CORPORATION
APPEARS HERE] One Federal Street
Boston, Massachusetts 02211
- --------------------------------------------------------------------------------
CONTACT: News Media Contact: Investor Contact:
Vincent Loporchio Thomas R. Rice
(617) 292-3239 (203) 986-4872
FOR IMMEDIATE RELEASE
SHAWMUT BANK CONNECTICUT PRICES $250 MILLION IN
SUBORDINATED DEBT
HARTFORD, CONN. AND BOSTON, MASS., FEBRUARY 7, 1995--Shawmut Bank
Connecticut, National Association said today that it priced one issuance of
$250 million in subordinated debt.
The issue matures on February 15, 2005 with a 8.625 percent coupon and is
priced to yield 8.645 percent, or 115 basis points over comparable U.S.
Treasuries. The issue will count toward the bank's level of total capital. The
bank intends to use the proceeds toward the refinancing of short-term
borrowings incurred to finance the acquisition of the assets and business of
Barclays Business Credit, the U.S. commercial finance operation of Barclays
PLC.
The lead manager for the subordinated debt offering is Morgan Stanley & Co.
Incorporated. The co-managers are CS First Boston Corporation, Goldman Sachs &
Co., and Lehman Brothers Inc. The issue is being offered and sold to
"accredited investors" only.
Shawmut Bank Connecticut is a subsidiary of Shawmut National Corporation
(NYSE:SNC), a superregional bank holding company with $35 billion in assets. A
leading provider of financial services to consumers and small- to medium-sized
businesses, Shawmut National Corporation is also a major supplier of financial
services to corporate customers, correspondent banks and government units
throughout New England and in select national markets.
174
