<PAGE>
Filed pursuant to Rule 424(b)(5)
promulgated under the Securities
Act of 1933, as amended, relating to
Registration Statement file No. 33-50708
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+ COMPLETION OR AMENDMENT. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 12, 1995
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 8, 1994
4,000,000 DEPOSITARY SHARES
SHAWMUT NATIONAL CORPORATION
EACH REPRESENTING A ONE-TENTH
INTEREST IN A SHARE OF
% CUMULATIVE PREFERRED STOCK
($250 STATED VALUE PER SHARE)
----------
Each Depositary Share (the "Offered Depositary Shares") represents a one-
tenth interest in a share of % Cumulative Preferred Stock, $250 stated value
per share (the "Offered Preferred Stock"), deposited with the Depositary and,
through the Depositary, entitles the holder to all proportional rights and
preferences of the Offered Preferred Stock (including dividend, voting,
redemption and liquidation rights). The proportionate stated value of each
Offered Depositary Share is $25. The Offered Depositary Shares are evidenced by
the Depositary Receipts. See "Description of Offered Depositary Shares."
The Offered Preferred Stock will not be redeemable prior to January , 2000.
On and after such date, the Offered Preferred Stock will be redeemable at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at a redemption price equal to $250 per share of the Offered
Preferred Stock plus dividends accrued and accumulated but unpaid to the
redemption date. Dividends on the Offered Preferred Stock will be cumulative
from January , 1995 and will be payable quarterly, commencing April 15, 1995.
See "Description of Offered Preferred Stock--Dividend Rights."
Application will be made to list the Offered Depositary Shares on the New
York Stock Exchange.
----------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS, ARE NOT
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY, ANY BANK AND ARE NOT INSURED BY
THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ -------------
<S> <C> <C> <C>
Per Offered Depositary
Share..................... $25.00 $ $
Total(4)................... $ $ $
</TABLE>
- -----
(1) Plus accrued dividends, if any, from January , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $ payable by the Company.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 600,000 Offered Depositary Shares at the initial public
offering price, less the underwriting discount, solely to cover over-
allotments. If such option is exercised in full, the total initial public
offering price, underwriting discount and proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
----------
The Offered Depositary Shares are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject orders in whole or in part. It is expected that
certificates for the Offered Depositary Shares will be ready for delivery in
New York, New York on or about January , 1995.
----------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
----------
The date of this Prospectus Supplement is January , 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE COMPANY
GENERAL
Shawmut National Corporation (the "Company") is a multibank holding company
and a unitary savings and loan holding company, registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), 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 in connection with 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 Company. The Company maintains dual headquarters in
the States of Connecticut and Massachusetts. The principal executive offices
of the Company are located at 777 Main Street, Hartford, Connecticut 06115 and
One Federal Street, Boston, Massachusetts 02211. Its telephone numbers in
Connecticut and Massachusetts are (203) 986-2000 and (617) 292-2000,
respectively.
The principal business of the Company 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 more than 350 branches located throughout Connecticut,
Massachusetts, New Hampshire and Rhode Island. The Company's principal banking
subsidiaries are Shawmut Bank Connecticut, National Association ("SBC"),
Hartford, Connecticut and Shawmut Bank, National Association ("SBM"), Boston,
Massachusetts. The Company also has a bank subsidiary in New Hampshire,
Shawmut Bank NH ("SBNH"). The Company's thrift subsidiary is Shawmut Bank, FSB
("SBFSB").
At September 30, 1994, the Company had assets of $31.4 billion, deposits of
$19.5 billion, loans of $17.7 billion and shareholders' equity of $2.1
billion.
PENDING ACQUISITIONS
In November 1994, the Company and SBC entered into a purchase agreement with
Barclays Bank PLC and Barclays Business Credit, Inc. pursuant to which SBC
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 $2.1 billion at September 30, 1994, and the book value of the
liabilities to be assumed was approximately $10.5 million at such date. The
Company anticipates that the total funding required for the transaction will
be approximately $2.4 billion. Barclays Finance, based in Glastonbury,
Connecticut, provides asset-based financing to middle market companies through
a network of offices nationwide. The Company believes this acquisition will
provide the Company with broader geographic diversity in its loan portfolio
and a carefully managed business unit with attractive operating margins. The
Company currently anticipates that the acquisition of Barclays Finance will
close on or about January 31, 1995, subject to the satisfaction of certain
conditions, including the receipt of certain regulatory approvals.
In June 1994, the Company 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 September 30, 1994, Northeast had assets of $3.3 billion,
deposits of $2.4 billion and stockholders' equity of $135.1 million. Northeast
has 33 offices located in Connecticut, Massachusetts and upstate New York.
Pursuant to the agreement, Northeast stockholders will receive shares of the
Company's common stock (the "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. In
S-3
<PAGE>
addition, if the Company's Common Stock Average Price (defined as the average
daily closing price of the Common Stock as reported on the NYSE Composite
Transactions Reporting System for the 15 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)
is less than $21.465 per share (and, therefore, based upon the maximum
exchange ratio of .507, Northeast stockholders would receive less than $10.875
of Common Stock for each share of Northeast common stock), the Northeast Board
of Directors may terminate the agreement, unless the Company elects to
increase the exchange ratio so that the shares of the Common Stock issued in
exchange for each share of Northeast's common stock have a value (based on the
Company's Common Stock Average Price) of $10.875. At January 12, 1995, the
closing price of the Common Stock was $17.50 per share. In addition, the
transaction is subject to the satisfaction of certain conditions, including
the receipt of all required regulatory approvals and approval by Northeast's
stockholders.
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 Company's present intention is not to increase the exchange
ratio above .507.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
The following unaudited pro forma condensed combining statement of income
for the nine months ended September 30, 1994, which was derived from the
unaudited pro forma condensed financial information appearing in the Company's
Current Report on Form 8-K dated January 11, 1995, gives effect to the
proposed acquisitions by the Company of Northeast and Barclays Finance and the
proposed financings in connection therewith, including the issuance of the
Offered Depositary Shares by the Company and senior and subordinated bank
notes by SBC as if such transactions had been consummated at the beginning of
the period presented. Such statement of income is presented for informational
purposes only and is not necessarily indicative of the combined results of
operations that would have occurred if such acquisitions had been consummated
at the beginning of the period indicated or which may be obtained in the
future.
S-4
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
HISTORICAL NORTHEAST PRO FORMA AGGREGATE
--------------------- PRO FORMA BARCLAYS PRO FORMA
THE COMPANY NORTHEAST ADJUSTMENTS(1) FINANCE(2) COMBINED
----------- --------- -------------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND
INCOME
Loans................... $ 952,517 $ 65,380 $ 1,186 $122,125 $1,141,208
Securities:
Available for sale, at
fair value............ 110,606 4,924 1,030 116,560
Held to maturity....... 325,963 69,324 5,628 400,915
Residential mortgages
held for sale.......... 13,598 13,598
Federal funds sold and
securities purchased
under agreements to
resell................. 4,625 1,626 6,251
Interest-bearing depos-
its in other banks..... 7,857 7,857
Trading account securi-
ties................... 659 659
---------- -------- ------- -------- ----------
Total.................. 1,415,825 141,254 7,844 122,125 1,687,048
---------- -------- ------- -------- ----------
INTEREST EXPENSE
Deposits................ 283,959 76,742 (1,935) 358,766
Other borrowings........ 264,454 18,016 297 65,850 348,617
Notes and debentures.... 63,261 2,721 (2,721) 63,261
---------- -------- ------- -------- ----------
Total.................. 611,674 97,479 (4,359) 65,850 770,644
---------- -------- ------- -------- ----------
NET INTEREST INCOME..... 804,151 43,775 12,203 56,275 916,404
---------- -------- ------- -------- ----------
Provision for credit
losses................. 3,000 3,800 3,300 10,100
---------- -------- -------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
CREDIT LOSSES.......... 801,151 39,975 12,203 52,975 906,304
---------- -------- ------- -------- ----------
NONINTEREST INCOME
Customer service fees... 146,008 5,572 10,250 161,830
Trust and agency fees... 87,002 87,002
Gain on sale of loans,
net.................... 13,849 13,849
Securities gains, net... 6,649 6,649
Other................... 41,292 9,566 (2,232) 48,626
---------- -------- ------- -------- ----------
Total.................. 274,302 35,636 (2,232) 10,250 317,956
---------- -------- ------- -------- ----------
NONINTEREST EXPENSES
Compensation and bene-
fits................... 367,263 20,853 22,000 410,116
Occupancy and equipment. 115,922 13,108 (450) 4,900 133,480
Foreclosed properties
provision and expenses. 10,218 12,917 23,135
Merger related charges.. 100,900 100,900
Restructuring related
charges................ 39,800 39,800
Other................... 212,799 19,911 7,291 9,950 249,951
---------- -------- ------- -------- ----------
Total.................. 846,902 66,789 6,841 36,850 957,382
---------- -------- ------- -------- ----------
INCOME BEFORE INCOME
TAXES.................. 228,551 8,822 3,130 26,375 266,878
Income taxes (benefit).. 84,671 (295) 4,168 10,550 99,094
---------- -------- ------- -------- ----------
NET INCOME.............. $ 143,880 $ 9,117 $(1,038) $ 15,825 $ 167,784
========== ======== ======= ======== ==========
NET INCOME APPLICABLE TO
COMMON SHARES.......... $ 132,304 $ 6,496 $ 1,583 $ 8,887 $ 149,270
========== ======== ======= ======== ==========
COMMON SHARE DATA
Income before merger and
restructuring charges.. $ 1.96 $ 0.46 $ 1.97
Net income.............. $ 1.12 $ 0.46 $ 1.18
Weighted average shares
outstanding............ 118,518 14,039 126,542
</TABLE>
- --------
(1) The Northeast pro forma adjustments are based on the best available
preliminary information as of September 30, 1994 and may differ from the
actual adjustments to be made upon consummation of the Northeast
acquisition, which adjustments will reflect the fair value of the net
assets purchased as of the date of such consummation. These amounts
represent the amortization of adjustments to the fair value of securities,
loans, deposits, mortgage servicing rights and premises and equipment,
assuming the estimate of the fair value of Northeast's net assets as of
September 30, 1994. These amounts are assumed to be amortized in relation
to the expected life or maturity of the related asset or liability. The
excess of purchase price over the fair value of identifiable net assets
will be amortized generally over 15 years. The pro forma financial
information assumes that approximately 8 million shares of the Company's
Common Stock will be issued, based on the actual number of Northeast
shares of common stock, warrants and options outstanding as of September
30, 1994 multiplied by an exchange ratio of .507 (as set forth in the
Northeast agreement) and assumes redemption of certain preferred stock and
debentures of Northeast.
(2) Pro forma Barclays Finance represents the net book value of the assets to
be acquired and the liabilities to be assumed based on September 30, 1994
information, plus a premium of $290 million. The excess of purchase price
over the fair value of net assets acquired has been recorded as goodwill.
The assets and liabilities of Barclays Finance will be recorded at
estimated fair value upon closing and, as a result, the pro forma amounts
may be different. The adjustments that reflect the fair value of loans
purchased is assumed to be amortized over four years and goodwill over 25
years. An adjustment to interest expense giving effect to the proposed
issuance of $200 million of subordinated notes by SBC (assuming an
estimated 7.90 percent annual interest rate) has been included. Also, net
income applicable to common shares has been reduced by the assumed
dividend to be declared on the Offered Preferred Stock represented by the
Offered Depositary Shares (assuming an estimated 9.25 percent annual
dividend rate).
A MORE COMPLETE DESCRIPTION OF THE PRO FORMA ADJUSTMENTS RELATED TO
NORTHEAST AND BARCLAYS FINANCE IS INCLUDED IN THE CURRENT REPORT ON FORM 8-
K DATED JANUARY 11, 1995.
S-5
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Offered
Depositary Shares for general corporate purposes, including acquisitions. The
Company currently intends to contribute the net proceeds from the sale of the
Offered Depositary Shares to its wholly owned subsidiary, SBC, which will
apply such proceeds toward the funding required for the acquisition of
Barclays Finance. Pending such acquisition, such proceeds will be invested in
short-term investments.
CAPITALIZATION
The following tables set forth the unaudited capitalization and summary
Risk-based capital and Leverage ratios of the Company as of September 30, 1994
and as adjusted to give effect to (1) the issuance by the Company of $100
million aggregate amount of the Offered Depositary Shares (assuming the over-
allotment option granted to the Underwriters is not exercised) and the
application of the proceeds therefrom, (2) the acquisition of Northeast
through the issuance of approximately 8.0 million shares of Common Stock
(based on an exchange ratio of .507 as set forth in the Northeast agreement)
as adjusted for the exercise price of certain stock options and warrants, (3)
the acquisition of Barclays Finance and (4) the issuance by SBC of $200
million aggregate principal amount of senior bank notes and $200 million
aggregate principal amount of subordinated bank notes currently planned for
the first quarter of 1995 and the application of the net proceeds therefrom
toward the funding required for the acquisition of Barclays Finance. In
addition, the Company currently anticipates incurring short-term borrowings of
approximately $1.9 billion in connection with the funding of the acquisition
of Barclays Finance. See the unaudited pro forma condensed financial
information included in the Company's Current Report on Form 8-K dated January
11, 1995 for a further discussion of the assumptions used in the Pro Forma As
Adjusted amounts.
The issuance of Offered Depositary Shares is not a condition to, or
conditioned upon, the consummation of the transactions described in items (2)
through (4) above or in the penultimate sentence in the previous paragraph.
The Pro Forma As Adjusted amounts are presented for informational purposes
only and are not necessarily indicative of the combined capitalization that
would have occurred if either or both of the proposed acquisitions by the
Company of Barclays Finance and Northeast had been consummated at September
30, 1994 or which may be obtained in the future.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
NOTES AND DEBENTURES
Total notes and debentures......................... $1,633,829 $2,033,829
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, without par value
Authorized--10,000,000 shares
Outstanding--1,263,700 shares, 1,663,700 shares, as
adjusted for the
Offered Preferred Stock represented by depositary
shares.............................................. 178,185 278,185
Common stock, $.01 par value
Authorized--300,000,000 shares
Issued--119,589,597 and 127,613,512 shares........... 1,196 1,276
Surplus.............................................. 1,270,347 1,433,837
Retained earnings...................................... 719,229 719,229
Net unrealized loss on securities available for sale... (39,502) (39,502)
Treasury stock, common stock at cost (8,398 shares).... (190) (190)
---------- ----------
Total shareholders' equity......................... 2,129,265 2,392,835
---------- ----------
Total notes and debentures and shareholders'
equity............................................ $3,763,094 $4,426,664
========== ==========
<CAPTION>
SEPTEMBER 30, 1994
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
---------- ----------
(IN MILLIONS, EXCEPT
RATIOS)
<S> <C> <C>
Tier 1 capital......................................... $ 2,017.3 $ 1,910.9
Total risk-based capital............................... 2,857.7 3,000.0
Total assets........................................... 31,351.7 37,146.9
Risk-weighted assets................................... 23,824.6 27,718.0
Tier 1 risk-based capital ratio........................ 8.47% 6.89%
Total risk-based capital ratio......................... 11.99 10.82
Tier 1 capital leverage ratio.......................... 6.54 5.25
</TABLE>
S-6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS(1)
The Company's ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred stock dividend requirements are set forth
below for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1994 1993 1992 1991 1990 1989
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Excluding Interest on Deposits.. 1.67x 1.82x 1.40x 0.43x 0.63x 0.72x
Including Interest on Deposits.. 1.37 1.37 1.12 0.86 0.91 0.89
Earnings to Combined Fixed Charges
and Preferred Stock Dividend
Requirements:
Excluding Interest on Deposits.. 1.59 1.71 1.32 0.41 0.63 0.70
Including Interest on Deposits.. 1.33 1.33 1.10 0.86 0.91 0.89
</TABLE>
- --------
(1) Such ratios do not give effect to the pending acquisitions of Northeast
and Barclays Finance or the proposed financings in connection therewith,
including the issuance of the Offered Depositary Shares.
For the years ended December 31, 1991, 1990 and 1989, earnings were
insufficient to cover both fixed charges and combined fixed charges and
preferred stock dividend requirements, both excluding and including interest
on deposits. Additional earnings of $169.2 million, $155.7 million and $203.2
million would have been necessary for the years ended December 31, 1991, 1990
and 1989, respectively, to bring the ratio of earnings to fixed charges to at
least one-to-one on both an excluding and including interest on deposits
basis. Additional earnings of $171.5 million, $158.0 million and $205.5
million would have been necessary for the years ended December 31, 1991, 1990
and 1989, respectively, to bring the ratio of earnings to combined fixed
charges and preferred stock dividend requirements to at least one-to-one on
both an excluding and including interest-on-deposits basis.
For purposes of computing both the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividend
requirements, earnings represent income (loss) before income taxes,
extraordinary credit, the cumulative effect of accounting changes and fixed
charges. Fixed charges, excluding interest on deposits, include interest
expense other than on deposits, that portion of rents representative of the
interest factor (net of income from subleases) and amortization of debt
issuance cost. Fixed charges, including interest on deposits, include all
interest expense, that portion of rents representative of the interest factor
(net of income from subleases) and amortization of debt issuance cost.
Combined fixed charges and preferred stock dividend requirements, both
excluding and including interest on deposits, include fixed charges and
preferred stock dividend requirements. Preferred stock dividend requirements,
which are not deductible for income tax purposes, represent preferred stock
dividends adjusted to a taxable equivalent basis. This adjustment has been
calculated by using the effective tax rate for the applicable year. No taxable
equivalent adjustments were made in loss years. Dividends on preferred stock
are cumulative and, in certain instances, adjustable.
S-7
<PAGE>
CONDENSED CONSOLIDATED FINANCIAL DATA(1)
The following condensed consolidated financial data for the Company for the
years ended December 31, 1993, 1992, 1991, 1990 and 1989 is qualified in its
entirety by reference to the more detailed information contained in the
consolidated financial statements of the Company and notes thereto and other
information included in or derived from the Company's Annual Report on Form
10-K for the year ended December 31, 1993 and the Company's Current Report on
Form 8-K dated August 2, 1994. The condensed consolidated financial data for
the nine-month periods ended September 30, 1994 and 1993 are derived from the
unaudited consolidated financial statements contained in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, and
reflect, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position and the results of its operations for the periods
presented. The results of operations for an interim period are not necessarily
indicative of results that may be expected for a full year or any other
interim period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest and dividend
income................. $1,415.9 $1,364.0 $1,826.9 $1,856.5 $2,028.1 $2,475.1 $2,824.4
Interest expense........ 611.7 572.1 755.4 874.0 1,211.9 1,657.3 1,874.4
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 804.2 791.9 1,071.5 982.5 816.2 817.8 950.0
Provision for credit
losses................. 3.0 45.8 55.9 242.1 486.4 474.0 638.4
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
credit losses.......... 801.2 746.1 1,015.6 740.4 329.8 343.8 311.6
Noninterest income...... 274.3 302.6 401.3 428.7 465.0 449.8 364.5
Securities gains, net... -- 11.0 12.5 94.1 80.1 23.4 42.0
Noninterest expenses(2). 846.9 882.8 1,139.9 1,154.6 1,044.1 972.7 921.3
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes,
extraordinary credit
and cumulative effect
of accounting changes.. 228.6 176.9 289.5 108.6 (169.2) (155.7) (203.2)
Income taxes (benefit).. 84.7 40.3 6.6 40.9 4.1 .5 (80.8)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary credit
and cumulative effect
of accounting changes.. 143.9 136.6 282.9 67.7 (173.3) (156.2) (122.4)
Extraordinary credit.... -- -- -- 18.4 -- -- --
Cumulative effect of
changes in methods of
accounting............. -- 46.2 46.2 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 143.9 $ 182.8 $ 329.1 $ 86.1 $ (173.3) $ (156.2) $ (122.4)
======== ======== ======== ======== ======== ======== ========
Net income (loss) appli-
cable to common shares. $ 132.3 $ 171.2 $ 313.6 $ 81.3 $ (175.6) $ (158.6) $ (124.7)
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA
Income (loss) before
extraordinary credit
and cumulative effect
of accounting changes.. $ 1.12 $ 1.11 $ 2.35 $ .60 $ (2.04) $ (1.89) $ (1.45)
Net income (loss)....... 1.12 1.52 2.75 .78 (2.04) (1.89) (1.45)
Dividends declared...... .60 .30 .50 -- -- .75 1.40
Book value.............. 16.32 15.04 16.25 13.69 13.22 15.65 18.53
Average shares outstand-
ing.................... 118.5 112.8 113.9 104.4 85.9 84.1 85.8
END OF PERIOD BALANCES
Loans................... $ 17,736 $ 17,561 $ 17,598 $ 17,351 $ 17,292 $ 16,832 $ 20,710
Reserve for credit loss-
es..................... 568 694 669 908 1,044 971 756
Interest-earning assets. 28,658 28,872 28,516 25,949 23,784 22,518 25,749
Total assets............ 31,352 30,860 31,103 29,256 26,878 25,832 29,954
Core deposits........... 17,788 17,957 18,112 19,219 19,403 19,344 18,947
Notes and debentures.... 1,634 874 759 810 665 679 699
Total shareholders' eq-
uity................... 2,129 1,943 2,102 1,732 1,269 1,355 1,588
Tier 1 capital(3)....... 2,017 1,830 1,977 -- -- -- --
Total risk-based capi-
tal(3)................. 2,858 2,706 2,862 -- -- -- --
RATIOS
Return on average
assets:
Before merger,
restructuring and
other one-time items.. 1.05% .70% .78% .33% (.66)% (.57)% (.42)%
Based on net income
(loss)................ .62 .85 1.12 .33 (.66) (.57) (.42)
Return on average common
equity:
Before merger,
restructuring and
other one-time items.. 15.96 11.59 12.93 5.73 (13.94) (10.32) (6.54)
Based on net income
applicable to common
shares................ 9.10 14.16 18.90 5.73 (13.94) (10.32) (6.54)
Net interest margin..... 3.82 4.04 4.03 4.15 3.72 3.42 3.93
Reserve for credit
losses to nonaccruing
loans.................. 214.00 159.00 179.00 120.00 89.00 63.00 88.00
Net charge-offs to aver-
age loans outstanding.. .83 2.02 1.72 2.30 2.54 1.42 .85
Nonaccruing loans plus
foreclosed properties
to total loans and
foreclosed properties.. 1.68 3.01 2.48 5.81 8.82 10.59 5.03
Average shareholders'
equity to average total
assets................. 6.89 6.29 6.34 5.69 5.05 5.69 6.63
Risk-based capital ra-
tios:
Tier 1 capital(3)...... 8.47 8.39 8.79 -- -- -- --
Total capital(3)....... 11.99 12.41 12.73 -- -- -- --
Leverage ratio(3)....... 6.54 6.17 6.47 -- -- -- --
</TABLE>
- -------
(1) Restated to reflect the pooling of interest acquisitions which occurred
during the second quarter of 1994.
(2) Includes merger and restructuring related charges of $140.7 million ($99.8
million after-tax) for the nine months ended September 30, 1994 and
restructuring related charges of $36.3 million ($23.6 million after-tax)
for the 1993 periods presented.
(3) Guidelines for calculating Risk-based capital were not fully phased in for
the years 1989 through 1992.
S-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the financial
statements and the detailed financial information, including the related
management's discussion and analysis, contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, Current Report on Form 8-K
dated August 2, 1994 and Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994, June 30, 1994 and September 30, 1994, which are incorporated
in this Prospectus Supplement by reference. See "Incorporation of Certain
Documents by Reference" in the Prospectus.
SUMMARY
The Company reported net income for the third quarter of 1994 of $85.3
million, or $.68 per common share, an increase of $2.7 million from the $82.6
million, or $.69 per common share, of net income reported in the third quarter
of the previous year. Third quarter results in 1993 included $13.5 million, or
$.12 per common share, of income tax benefits.
For the first nine months of 1994, net income was $143.9 million, or $1.12
per common share, compared with income before cumulative effect of accounting
changes of $136.6 million, or $1.11 per common share for the comparable period
of 1993. The results for the first nine months of 1994 include $140.7 million
($99.8 million after tax, or $.84 per common share) of merger and
restructuring charges related to the costs to integrate three acquisitions
completed during the second quarter of 1994 and the expansion of a cost
management program as reported in the second quarter of 1994. Net income for
the first nine months of 1993 included restructuring charges totaling $36.3
million primarily related to branch closings and personnel reductions, a $20.0
million provision for foreclosed properties related to the bulk sale of real
estate loans and foreclosed properties and a $14.1 million write down in the
value of excess servicing rights in various securitized loan portfolios.
Also included in the results for the first nine months of 1993 is a credit
of $52.8 million representing the cumulative effect of a change in accounting
for income taxes and an after-tax charge of $6.6 million relating to the
adoption of a new accounting standard for postemployment benefits. Net income
for the first nine months of 1993 was $182.8 million, or $1.52 per common
share.
Asset quality continued to improve as nonaccruing loans plus foreclosed
properties decreased $139.4 million, or 32 percent, to $298.0 million at
September 30, 1994 from $437.4 million at December 31, 1993. The ratio of
nonaccruing loans plus foreclosed properties to loans plus foreclosed
properties declined to 1.68 percent at September 30, 1994 from 2.48 percent at
December 31, 1993.
The reserve for credit losses was $567.8 million at September 30, 1994,
compared with $669.2 million at December 31, 1993. The ratio of the reserve
for credit losses to nonaccruing loans was 214 percent at September 30, 1994,
compared with 179 percent at December 31, 1993. Net charge-offs were $26.3
million for the third quarter of 1994, equal to an annualized rate of .60
percent of average loans outstanding, compared with $42.8 million of net
charge-offs for the third quarter of 1993 and an annualized rate of 1.00
percent of average loans outstanding. There was no provision for credit losses
in the third quarter of 1994, compared with an $11.3 million provision in the
third quarter of 1993.
Shareholders' equity increased $26.9 million to $2.1 billion, or 6.79
percent of total assets at September 30, 1994 from $2.1 billion, or 6.76
percent of total assets, at December 31, 1993. The Company's and its
subsidiary banks' Risk-based capital and Leverage ratios exceeded the
requirements for a well-capitalized financial institution at September 30,
1994.
NET INTEREST INCOME
The Company's tax-equivalent net interest income was $268.9 million for the
third quarter of 1994, a decrease of $7.9 million, or 3 percent, from $276.8
million in the third quarter of 1993. The decrease
S-9
<PAGE>
in tax-equivalent net interest income reflects a higher level of interest-
earning assets, primarily securities, offset by an increase in the Company's
cost of funds, which outpaced the repricing of interest-earning assets.
Average loans increased $439 million to $17.5 billion in the third quarter
of 1994 from $17.1 billion in the comparable prior year period. Average
securities increased $665 million to $10.1 billion in the third quarter of
1994 from $9.4 billion in the third quarter of 1993. The growth in the
securities portfolio resulted from a strategy of maintaining balance sheet
leverage as management continues to selectively adjust the composition of the
loan portfolio toward higher-yielding lending products. This adjustment of the
loan portfolio included the deliberate reduction of approximately $1.1 billion
in money market priced commercial loans with narrow profit margins since
December 31, 1993.
The net interest margin for the third quarter of 1994 was 3.78 percent, a
decrease of 27 basis points from 4.05 percent in the comparable prior year
quarter. The decline reflects the Company's interest-bearing liabilities
repricing faster than its interest-earning assets during the rising interest
rate environment over this period. During the third quarter of 1994, the
Company's short-term borrowing costs continued to increase as a result of a
rise in overall interest rates; however, the net interest margin rose two
basis points relative to the second quarter of 1994 given the reduction in
lower margin assets which offset the increase in rates paid on retail deposits
that occurred in the third quarter of 1994. If further increases in interest
rates occur, then the resultant contraction of the spread between the
Company's interest-earning assets and funding sources could reduce the net
interest margin. An analysis of net interest margin is presented below.
Tax-equivalent net interest income was $813.0 million for the first nine
months of 1994, an increase of 1 percent from $802.1 million for the first
nine months of 1993. The net interest margin was 3.82 percent for the nine
months ended September 30, 1994, compared with 4.04 percent for the comparable
period in 1993.
ANALYSIS OF NET INTEREST MARGIN
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1994 1994 1994 1993 1993
-------- ------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net interest income (tax-equiva-
lent basis)..................... $ 268.9 $ 268.7 $ 275.4 $ 282.8 $ 276.8
======= ======= ======= ======= =======
Average interest-earning assets
supported by:
Interest-bearing liabilities.... $24,034 $24,174 $23,831 $23,757 $23,175
Noninterest-bearing liabilities. 4,361 4,408 4,455 4,494 4,208
------- ------- ------- ------- -------
Total interest-earning assets.... $28,395 $28,582 $28,286 $28,251 $27,383
======= ======= ======= ======= =======
Average yields and average rates
(tax-equivalent basis):
Interest-earning assets yield... 6.91% 6.65% 6.51% 6.57% 6.77%
Rate paid on interest-bearing
liabilities.................... 3.70 3.42 3.09 3.07 3.22
------- ------- ------- ------- -------
Interest rate spread............. 3.21% 3.23% 3.42% 3.50% 3.55%
======= ======= ======= ======= =======
Net interest margin.............. 3.78% 3.76% 3.91% 3.99% 4.05%
======= ======= ======= ======= =======
</TABLE>
PROVISION FOR CREDIT LOSSES
There was no provision for credit losses in the third quarter of 1994. The
provision for credit losses was $11.3 million in the third quarter of 1993.
With current strong reserve coverage of nonaccruing loans and the sustained
improvement in the credit quality of the loan portfolio, the Company does not
currently anticipate that provisions for credit losses will be necessary for
the remainder of 1994 and
S-10
<PAGE>
possibly into 1995. Future levels of the reserve for credit losses and
provisions for credit losses may be affected by changes in economic conditions
and loan quality.
NONINTEREST INCOME
Noninterest income, excluding securities gains and losses, was $90.9 million
for the third quarter of 1994, a decrease of $6.9 million, or 7 percent, from
$97.8 million for the third quarter of 1993, reflecting modest growth in
customer service fees offset by reductions in gains on sales of residential
mortgage loans and Federal Deposit Insurance Corporation ("FDIC") assistance.
Customer service fees increased $1.6 million to $48.7 million for the third
quarter of 1994 from $47.1 million for the comparable prior year period.
Higher levels of customer credit facilities increased credit and trade related
service fees $3.1 million for the third quarter of 1994. Deposit transaction
and other services increased $2.2 million due to an increase in the volume of
consumer related deposit transaction fees. Offsetting these increases was a
decrease in cash management fees of $3.2 million which reflects competitive
price concessions. Trust and agency fees declined $1.4 million to $28.5
million in the third quarter of 1994 from $29.9 million in the prior year
period.
Other income declined $7.1 million to $13.7 million in the third quarter of
1994 from $20.8 million in the third quarter of 1993. Gains on residential
mortgage loan sales declined $3.6 million, reflecting a lower level of
secondary market activity as rising interest rates through the first nine
months of 1994 continued to slow mortgage sales.
Noninterest income, excluding securities gains and losses, for the first
nine months of 1994 decreased $28.3 million, or 9 percent, to $274.3 million
from $302.6 million for the first nine months of 1993.
NONINTEREST EXPENSES
Noninterest expenses, excluding foreclosed properties provision, were $225.8
million for the third quarter of 1994, a decrease of $24.8 million, or 10
percent, from $250.6 million for the third quarter of 1993. This reduction
reflects the results of cost management initiatives implemented throughout the
period 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 acquired entities that occurred
in the second quarter of 1994. The Company expects that the continued
consolidation of the acquired entities will result in further reductions of
noninterest expenses.
Compensation expense decreased $7.3 million, or 7 percent, to $97.9 million
for the third quarter of 1994 from $105.2 million for the comparable prior
year period. The decline in compensation expense reflects reductions in
personnel from the cost management actions referred to above as well as
savings associated with initial acquisition consolidations. Full-time
equivalent employees totaled 9,970 at September 30, 1994, compared with 11,473
at September 30, 1993.
Foreclosed properties expense declined $4.6 million from $5.1 million in the
third quarter of 1993 to $.5 million in the 1994 period and reflects the
decline in the level of foreclosed properties at September 30, 1994 from the
comparable prior year period.
Noninterest expenses, excluding foreclosed properties provision and merger
and restructuring related charges, totaled $702.7 million for the first nine
months of 1994, compared with $762.3 million for the first nine months of
1993.
Merger related charges of $100.9 million recorded in the second quarter of
1994 reflect the costs to integrate three acquisitions which closed during
that quarter. The merger related charges include $18.9 million for severance
and benefits costs for workforce reductions; $39.4 million for the closure of
S-11
<PAGE>
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 Company resulted in losses of $12.5 million and $12.0 million,
respectively, which are included in merger related charges. The sales of
securities occurred in the second quarter of 1994 and the disposition of
residential loans occurred in the third quarter of 1994. Accrued merger
expenses totaled $42.7 million at September 30, 1994.
Restructuring related charges of $39.8 million recorded in the second
quarter of 1994 reflect the expansion of the Company's cost management
program. The program includes an organizational streamlining and the
elimination of more than 600 full-time equivalent positions. The expanded
program has also identified cost reductions to be achieved through improved
management of occupancy costs and consolidation of purchasing activities. The
restructuring related charges include $26.6 million for severance and benefit
related costs and $13.2 million for the consolidation of branch and operations
facilities and other costs. It is anticipated that the restructuring program
will be substantially completed by the end of the first quarter of 1995.
Accrued restructuring expenses totaled $29.5 million at September 30, 1994.
Included in total noninterest expenses for the first nine months of 1993 are
restructuring and other charges consisting of $36.3 million for restructuring
costs and a $14.1 million writedown in the value of excess servicing rights.
The carrying values of excess servicing rights of various securitized consumer
loan portfolios were reduced during the first quarter of 1993 in view of
prepayment experience and the decline in interest rates.
INCOME TAXES
The provision for income taxes for the third quarter of 1994 was $45.9
million, representing an effective income tax rate of 35.0 percent. The
provision for income taxes was $17.7 million for the third quarter of 1993,
representing an effective income tax rate of 31.1 percent, excluding the
recognition of income tax benefits associated with the reduction of the
deferred tax asset valuation allowance of $5.6 million and changes in
corporate income tax rates of $7.9 million.
The provision for income taxes for the nine months ended September 30, 1994
and 1993 was $84.7 million and $40.3 million, respectively, representing an
effective income tax rate of 34.9 percent (which excludes a $5.0 million tax
expense related to acquisitions) and 22.8 percent, respectively. The 1994 and
1993 periods reflect a reduction in the deferred tax asset valuation allowance
of $1.5 million and $9.8 million, respectively, as well as a tax benefit of
$7.9 million during the third quarter of 1993 that reflects changes in
corporate income tax rates. The Company adopted the new accounting standard
for income taxes during the first quarter of 1993 and the cumulative effect of
this accounting change was the recognition of a $52.8 million income tax
benefit in the first quarter of 1993.
SECURITIES
Securities classified as held to maturity and reported at amortized cost
increased $1.0 billion to $8.2 billion at September 30, 1994, from $7.2
billion at December 31, 1993. Securities classified as available for sale
totaled $2.1 billion at September 30, 1994, compared with $3.2 billion at
December 31, 1993. Securities available for sale declined as sales and
maturities were reinvested in the held to maturity securities portfolio.
During the second quarter of 1994, the Company realigned the securities
portfolio of the acquired institutions to maintain its interest rate risk
profile through certain sales and reclassifications.
The amortized cost of securities classified as available for sale exceeded
fair value by approximately $60.8 million at September 30, 1994, consisting of
unrealized losses of approximately $74.1 million and unrealized gains of
approximately $13.3 million. The amortized cost of securities
S-12
<PAGE>
classified as held to maturity exceeded fair value by approximately $289.3
million at September 30, 1994, consisting of unrealized losses of
approximately $293.9 million and unrealized gains of approximately $4.6
million.
The Company 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 Company's available for
sale and held to maturity securities portfolios was 1.90 years and 2.46 years,
respectively, at September 30, 1994.
LOANS
LOAN PORTFOLIO
<TABLE>
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1994 1994 1994 1993 1993
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 6,201.3 $ 5,992.7 $ 6,188.7 $ 6,393.5 $ 6,163.2
--------- --------- --------- --------- ---------
Owner-occupied
commercial real estate. 1,423.4 1,407.1 1,421.8 1,492.8 1,536.7
--------- --------- --------- --------- ---------
Real estate
investor/developer
Commercial mortgage.... 1,401.3 1,461.0 1,518.7 1,526.5 1,558.9
Construction and
other................. 150.5 150.9 152.1 160.7 178.6
--------- --------- --------- --------- ---------
Total
investor/developer.. 1,551.8 1,611.9 1,670.8 1,687.2 1,737.5
--------- --------- --------- --------- ---------
Consumer
Residential mortgage... 5,608.1 5,474.0 5,570.3 5,325.9 5,431.0
Home equity............ 1,628.8 1,609.9 1,580.1 1,637.8 1,692.5
Installment and other.. 1,322.5 1,233.5 1,127.5 1,060.5 1,000.6
--------- --------- --------- --------- ---------
Total consumer....... 8,559.4 8,317.4 8,277.9 8,024.2 8,124.1
--------- --------- --------- --------- ---------
Total................ 17,735.9 17,329.1 17,559.2 17,597.7 17,561.5
Reserve for credit
losses................. (567.8) (589.8) (638.5) (669.2) (694.1)
--------- --------- --------- --------- ---------
Total................ $17,168.1 $16,739.3 $16,920.7 $16,928.5 $16,867.4
========= ========= ========= ========= =========
</TABLE>
The Company's loan portfolio was $17.7 billion at September 30, 1994,
relatively unchanged from $17.6 billion at December 31, 1993. The Company has
a diversified loan portfolio with the consumer portfolio representing 48
percent of total loans at September 30, 1994. Commercial and industrial loans
represented 35 percent of total loans at that date. Owner-occupied commercial
real estate and investor/developer real estate loans were 8 percent and 9
percent, respectively.
While the total amount of the loan portfolio remained relatively unchanged
at September 30, 1994 compared with December 31, 1993, the mix of loans has
changed. Consumer lending, which includes residential mortgage, home equity
and installment loans, increased $535.2 million from $8.0 billion at year end
1993 to $8.6 billion at September 30, 1994, primarily as a result of growth in
residential mortgages and automobile loans. The Company sold approximately
$244.0 million of fixed-rate residential mortgages in the third quarter of
1994 that were previously transferred from consumer loans to residential
mortgages held for sale in the second quarter of 1994.
Commercial and industrial loans declined from $6.4 billion at year end 1993
to $6.2 billion at September 30, 1994, or $192.2 million. Certain sectors of
the Company's commercial loan portfolio reflected growth as specialized
lending (radio, television and cable) and asset based lending increased $249.9
million and $175.2 million, respectively, in addition to growth in other
targeted commercial sectors. These increases were offset by reductions of
approximately $1.1 billion in certain money market priced commercial loans
with narrow profit margins since year end 1993.
S-13
<PAGE>
RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1994 1994 1994 1993 1993
-------- ------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at
beginning of period............. $589.8 $638.5 $669.2 $694.1 $725.6
Provision charged to operations.. 3.0 10.2 11.3
Addition for loans purchased..... 4.3
Loans charged off
Gross........................... (40.7) (60.5) (45.7) (53.0) (53.9)
Recoveries...................... 14.4 11.8 12.0 17.9 11.1
------ ------ ------ ------ ------
Net............................. (26.3) (48.7) (33.7) (35.1) (42.8)
------ ------ ------ ------ ------
Reserve for credit losses at end
of period....................... $567.8 $589.8 $638.5 $669.2 $694.1
====== ====== ====== ====== ======
Net charge-offs (annualized) to
average loans................... .60% 1.10% .78% .82% 1.00%
Reserve for credit losses to net
charge-offs (annualized)........ 5.40x 3.03x 4.75x 4.76x 4.06x
Reserve for credit losses to
loans........................... 3.20% 3.40% 3.64% 3.80% 3.95%
</TABLE>
The reserve for credit losses was $567.8 million at September 30, 1994,
compared with $669.2 million at December 31, 1993. The ratio of the reserve
for credit losses to loans was 3.20 percent at September 30, 1994, compared
with 3.80 percent at December 31, 1993. Net charge-offs were $26.3 million for
the third quarter of 1994, equal to an annualized rate of .60 percent of
average loans, compared with $42.8 million and 1.00 percent for the same
period in 1993.
CREDIT QUALITY
NONACCRUING LOANS, FORECLOSED PROPERTIES, RESTRUCTURED LOANS
AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE
<TABLE>
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1994 1994 1994 1993 1993
-------- ------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans
Commercial/real estate loans:
Current.......................... $ 46.0 $ 50.8 $ 53.1 $ 63.6 $ 76.1
From 30 to 89 days past due...... 16.7 14.2 21.9 25.7 33.3
90 or more days past due......... 146.4 154.6 178.3 197.7 240.3
------ ------ ------ ------ ------
Total.......................... 209.1 219.6 253.3 287.0 349.7
------ ------ ------ ------ ------
Consumer loans:
Current.......................... 5.6 9.2 9.8 12.5 12.8
From 30 to 89 days past due...... 4.2 3.9 5.4 5.1 7.1
90 or more days past due......... 47.0 52.5 60.1 68.3 67.7
------ ------ ------ ------ ------
Total.......................... 56.8 65.6 75.3 85.9 87.6
------ ------ ------ ------ ------
Total nonaccruing loans........ 265.9 285.2 328.6 372.9 437.3
------ ------ ------ ------ ------
Foreclosed properties............... 32.1 42.5 51.5 64.5 94.7
------ ------ ------ ------ ------
Total nonaccruing loans plus
foreclosed properties......... $298.0 $327.7 $380.1 $437.4 $532.0
====== ====== ====== ====== ======
Restructured loans.................. $ 31.1 $ 63.8 $ 63.6 $ 73.3 $ 87.7
====== ====== ====== ====== ======
Accruing loans past due 90 days or
more............................... $ 53.1 $ 47.8 $ 46.4 $ 42.6 $ 61.5
====== ====== ====== ====== ======
Nonaccruing loans to loans.......... 1.50% 1.65% 1.87% 2.12% 2.49%
Reserve for credit losses to
nonaccruing loans.................. 214.00 207.00 194.00 179.00 159.00
Nonaccruing loans plus foreclosed
properties to loans plus foreclosed
properties......................... 1.68 1.89 2.16 2.48 3.01
</TABLE>
S-14
<PAGE>
Nonaccruing loans were $265.9 million at September 30, 1994, compared with
$372.9 million at December 31, 1993. Approximately 19 percent of nonaccruing
loans were less than 30 days past due at September 30, 1994, compared with
approximately 20 percent at December 31, 1993. The ratio of nonaccruing loans
to loans improved to 1.50 percent at September 30, 1994 from 2.12 percent at
December 31, 1993. The ratio of the reserve for credit losses to nonaccruing
loans was 214 percent at September 30, 1994, compared with 179 percent at
December 31, 1993.
Nonaccruing loans plus foreclosed properties totaled $298.0 million at
September 30, 1994, a decline of $139.4 million, or 32 percent, from $437.4
million at December 31, 1993. The ratio of nonaccruing loans plus foreclosed
properties to loans plus foreclosed properties was 1.68 percent at September
30, 1994, down from 2.48 percent at December 31, 1993.
INTEREST RATE SENSITIVITY
The table below depicts the Company's interest rate sensitivity as of
September 30, 1994. Allocations of assets and liabilities, including
noninterest-bearing sources of funds, to specific periods are based upon
management's assessment of contractual or anticipated repricing
characteristics, adjusted periodically to reflect actual experience. Those
gaps are then adjusted for the net effect of off-balance sheet financial
instruments such as interest rate swaps, caps and floors, U.S. Treasury
combination option agreements and futures contracts.
<TABLE>
<CAPTION>
REPRICING PERIODS
-------------------------------------------------------
TWO- FOUR- SEVEN- TEN- OVER
ONE THREE 5 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......... $ 395 $ 111 $ 129 $ 635
Securities.............. 429 470 450 $ 438 $ 384 $ 8,116 10,287
Loans................... 6,022 3,205 1,480 858 815 5,356 17,736
------- ------ ------- ------- ------- ------- -------
Total interest-earning
assets................ 6,846 3,786 2,059 1,296 1,199 13,472 28,658
------- ------ ------- ------- ------- ------- -------
Interest-bearing depos-
its.................... 1,974 2,072 1,758 1,803 1,368 6,161 15,136
Other borrowings........ 7,064 360 160 1 84 7,669
Notes and debentures.... 725 200 709 1,634
Noninterest-bearing
sources of funds....... 52 104 417 417 417 2,812 4,219
------- ------ ------- ------- ------- ------- -------
Total.................. 9,815 2,536 2,335 2,421 1,785 9,766 28,658
------- ------ ------- ------- ------- ------- -------
Off-balance sheet finan-
cial instruments....... 537 1,706 (818) (49) (470) (906)
------- ------ ------- ------- ------- -------
Interest rate sensitiv-
ity gap................ $(2,432) $2,956 $(1,094) $(1,174) $(1,056) $ 2,800
======= ====== ======= ======= ======= =======
Cumulative gap.......... $(2,432) $ 524 $ (570) $(1,744) $(2,800) $ 0
======= ====== ======= ======= ======= =======
Interest rate sensitiv-
ity gap as a percent of
interest-earning as-
sets................... (8.5)% 10.3% (3.8)% (4.1)% (3.7)%
Cumulative gap as a
percent of interest-
earning assets......... (8.5)% 1.8% (2.0)% (6.1)% (9.8)%
</TABLE>
INTEREST RATE RISK
As indicated in the interest rate sensitivity table, the twelve-month
cumulative gap, representing the total net assets and liabilities that are
projected to reprice over the next twelve months, was liability sensitive in
the amount of $2.8 billion at September 30, 1994. A liability sensitive
interest rate gap would tend to reduce earnings over a period of rising
interest rates, while declining rates would enhance earnings. The effects of
certain interest rate caps, corridors and swaptions are not included in the
interest rate sensitivity table, as the levels of interest rate indices at
which these instruments become
S-15
<PAGE>
operative have not occurred. However, if these instruments were to become
operative, they would reduce the Company's interest rate sensitivity. Based on
an analysis of a 100 basis point increase in interest rates, the twelve-month
cumulative liability sensitive gap at September 30, 1994 would decrease from
$2.8 billion to $2.3 billion through giving effect to these interest rate
caps, corridors and swaptions.
The Company 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 $21.2
million for the twelve-month period following September 30, 1994.
The use of interest rate instruments such as interest rate swaps, caps and
floors and futures contracts are integrated into the Company's interest rate
risk management. The notional amounts of these instruments are not reflected
in the Company's balance sheet. However, these instruments are included in the
interest rate sensitivity table above for purposes of analyzing interest rate
risk.
At September 30, 1994, the Company had approximately $3.0 billion in
notional balances of interest rate swap contracts outstanding utilized for the
management of interest rate risk, representing an increase of $1.0 billion
from $2.0 billion at December 31, 1993. The average final maturity of the
fixed-pay and fixed-receive interest rate swap agreements at September 30,
1994 was approximately 3.3 years and 2.4 years, respectively. Basis interest
rate swap agreements have a final maturity of approximately nine months. The
Company also purchased options to enter into fixed-pay interest rate swap
contracts in future periods (swaptions). The notional balances of interest
rate swap contracts subject to option were $475 million at September 30, 1994.
In addition to the interest rate swap contracts, the Company utilizes
interest rate cap and floor agreements to manage interest rate risk. At
September 30, 1994, the Company had approximately $1.8 billion in notional
balances of purchased interest rate cap agreements outstanding. Also
outstanding were approximately $500 million in notional balances of interest
rate collar arrangements (consisting of a cap and a floor). In addition,
approximately $1.0 billion in notional balances of interest rate agreements
which consist of a simultaneous purchase and sale of a cap, the combination of
which are known as interest rate corridors, were outstanding at September 30,
1994. Interest rate corridors are utilized to protect the Company from a
contraction in the interest rate spread due to a moderate rise in interest
rates. The average final maturity of the interest rate cap portfolio at
September 30, 1994 was approximately 1.2 years. The average final maturities
of the interest rate collar agreements at September 30, 1994 were less than
one year. The fair value of these interest rate instruments at September 30,
1994, which exclude exchange-traded futures contracts, was approximately $38.0
million, and represents the estimated amount that the Company would recognize
as a loss if the agreements were terminated at that date. The unamortized
premium recorded in the Company's balance sheet related to interest rate risk
management agreements was $37.2 million at September 30, 1994.
Exchange-traded futures contracts are also used by the Company to manage
interest rate exposure. The notional balances of futures contracts sold at
September 30, 1994 were approximately $3.2 billion, an increase of $690
million from $2.5 billion at December 31, 1993. At September 30, 1994, the
Company had entered into U.S. Treasury rate futures contracts with
approximately $631 million in notional balances to manage the risk associated
with the available for sale securities portfolio. The unrealized gain of
approximately $10.2 million at September 30, 1994 relating to these contracts
has been recorded as part of the fair value of these securities. The remaining
increase is attributed to Eurodollar futures contracts used to manage interest
rate risk on the Company's funding sources. The unrealized gain related to
Eurodollar futures contracts at September 30, 1994 was approximately $10.9
S-16
<PAGE>
million. Maturities of the notional balances of futures contracts sold are as
follows: $1.1 billion in 1994; $1.4 billion in 1995; $.6 billion in 1996; and
$.1 billion in 1997.
Activity for interest rate agreements utilized for the management of
interest rate risk for the first nine months of 1994 follows:
<TABLE>
<CAPTION>
SWAPS
-----------------------------
AMORTIZ-
PLAIN PLAIN ING CAPS FUTURES
NOTIONAL AMOUNTS FIXED FIXED FIXED AND CONTRACTS
(MILLIONS) PAY RECEIVE RECEIVE BASIS CORRIDORS FLOORS COLLARS SOLD
---------------- ------ ------- -------- ----- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 12/31/93....... $ 943 $141 $ 900 $3,356 $ 2,528
Additions............... 675 500 $300 1,100 $500 $500 24,740
Maturities.............. 349 67 1,650 500
Settlements............. 24,050
------ ---- ------ ---- ------ ---- ---- -------
Balance, 9/30/94........ $1,269 $ 74 $1,400 $300 $2,806 $ -- $500 $ 3,218
====== ==== ====== ==== ====== ==== ==== =======
</TABLE>
CAPITALIZATION
The Company's total shareholders' equity at September 30, 1994 was $2.1
billion, or 6.79 percent of total assets, compared with $2.1 billion, or 6.76
percent of total assets, at December 31, 1993, an increase of $26.9 million.
The increase for the first nine months of 1994 reflects a $53.3 million charge
reflecting the net after-tax unrealized loss on the Company's $2.1 billion
available for sale securities portfolio. Further volatility in shareholders'
equity may occur as the fair value of the Company's available for sale
securities portfolio changes with market conditions.
The Company's Risk-based Tier 1 and Total capital ratios were 8.47 percent
and 11.99 percent at September 30, 1994, respectively, compared with 8.79
percent and 12.73 percent at December 31, 1993, respectively. The Leverage
ratio, a measure of Tier 1 capital to quarterly average assets, increased to
6.54 percent at September 30, 1994 from 6.48 percent at December 31, 1993,
which reflects an increase in Tier 1 capital. Under Federal banking
regulations, an institution is deemed to be well-capitalized if it has a Risk-
based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based Total
capital ratio of 10.00 percent or greater and a Leverage ratio of 5.00 percent
or greater. The Company and its bank subsidiaries exceeded the requirements
for a well-capitalized financial institution at September 30, 1994.
LIQUIDITY
The Company manages the parent company liquidity by measuring the difference
between the volume of short-term investments and short-term funding sources
and the parent company's ongoing obligations, including debt maturities,
interest payments and dividends. The parent company had combined short-term
borrowings of $168.6 million at September 30, 1994. The parent company had
combined cash and cash equivalents at September 30, 1994 of $225.8 million and
securities, consisting of preferred stock holdings, with a fair value of
$295.8 million. Notes and debentures totaled $749.1 million at September 30,
1994. There are no scheduled maturities on notes and debentures in 1994 and
1995. Scheduled maturities are $150 million in 1996.
S-17
<PAGE>
REGULATORY MATTERS
The following discussion of regulatory matters supplements the discussion
under the caption "Regulatory Matters" contained in the accompanying
Prospectus and should be read in conjunction therewith.
GENERAL
The Company is a bank holding company subject to supervision and examination
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") pursuant to the BHC Act. The Company also is a savings and loan
holding company within the meaning of the 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 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 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. Since the
deposits of SBC, SBM, SBNH and SBFSB are insured by the FDIC, they are also
subject to supervision and regulation by the FDIC.
CAPITAL REQUIREMENTS
The Company and its subsidiary depository institutions are subject to
minimum capital requirements adopted by the federal banking agencies.
Regulations require the maintenance of minimum Risk-based capital ratios,
which are calculated with reference to risk-weighted assets, which include on-
and off-balance sheet exposures. The aggregate amount of cumulative perpetual
preferred stock that bank holding companies may include in Tier 1 capital is
limited to 25 percent of the sum of all Tier 1 capital elements including
cumulative perpetual preferred stock.
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
determined not to adopt a proposed rule to amend regulatory capital
regulations to incorporate the recent change in generally accepted accounting
principles made by SFAS No. 115, which requires that unrealized gains and
losses, net of the related tax effect, on securities classified as available
for sale be reported as a separate component of stockholders' equity.
On December 19, 1994, the Federal Reserve Board issued amendments to its
capital adequacy guidelines to establish a limit on the amount of certain
deferred tax assets that may be included in Tier 1 capital for Risk-based and
Leverage 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.
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.
S-18
<PAGE>
One of the principal sources of revenue for the Company 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 Company's principal subsidiary
banks, may lawfully pay. A national bank, such as SBC and SBM, may not pay a
dividend that would impair 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, 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 September
30, 1994, SBC could have declared dividends of approximately $104.7 million,
and SBM could have declared dividends of approximately $262.9 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.
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 statutorily 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 is considering the possibility of 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
possible shortfalls in insurance premiums.
RECENT KEY BANKING LEGISLATION
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.
Various other 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, are
from time to time introduced in Congress. The Company cannot determine the
ultimate effect that potential legislation, if enacted, or implementing
regulations, would have upon its financial condition or results of operations.
OTS REGULATION
SBFSB is subject to many of the same rules, regulations and restrictions
imposed on the subsidiary banks, including capital requirements, restrictions
on transactions with the Company and its nonbank subsidiaries, cross guarantee
liability, prompt corrective action and restrictions on brokered deposits.
S-19
<PAGE>
HOLA requires every savings association subsidiary of a savings and loan
holding company to 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 depend upon the ability of the association to
meet specified regulatory capital requirements.
DESCRIPTION OF OFFERED DEPOSITARY SHARES
The following summary description of the Offered Depositary Shares
supplements the description of the terms of the Offered Depositary Shares set
forth under the heading "Description of Preferred Stock--Depositary Shares" in
the accompanying Prospectus, to which description reference is hereby made.
The summary description of the Offered Depositary Shares set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Deposit Agreement referred to below, the form of which was
filed as an exhibit to the Company's Registration Statement on Form S-3
relating to this Prospectus Supplement.
Each Offered Depositary Share represents a one-tenth interest in a share of
Offered Preferred Stock. The shares of Offered Preferred Stock underlying the
Offered Depositary Shares will be deposited with Chemical Bank, as Depositary
(the "Depositary"), under a Deposit Agreement (the "Deposit Agreement"), among
the Company, the Depositary and the holders from time to time of the
depositary receipts issued by the Depositary thereunder (the "Depositary
Receipts"). The Depositary Receipts so issued will evidence the Offered
Depositary Shares. Subject to the terms of the Deposit Agreement, each owner
of an Offered Depositary Share will be entitled through the Depositary, in
proportion to the one-tenth interest in a share of Offered Preferred Stock
underlying such Offered Depositary Share, to all rights and preferences of a
share of Offered Preferred Stock (including dividend, voting, redemption and
liquidation rights). Because each share of Offered Preferred Stock entitles
the holder thereof to one vote on matters on which the Offered Preferred Stock
is entitled to vote, each Offered Depositary Share will, in effect, entitle
the holder thereof to one-tenth of a vote thereon, rather than one full vote.
See "Description of Preferred Stock--Depositary Shares" in the accompanying
Prospectus.
The Company and certain of its subsidiaries conduct business with the
Depositary in the ordinary course of business.
DESCRIPTION OF OFFERED PREFERRED STOCK
The following summary of the terms and provisions of the Company's Offered
Preferred Stock supplements the description of the general terms and
provisions of the Preferred Stock of the Company set forth under the heading
"Description of Preferred Stock" in the accompanying Prospectus, to which
reference is hereby made. The shares of the Offered Preferred Stock offered
hereby constitute a single series of Preferred Stock. The Company may, in the
future, issue additional series of Preferred Stock. The Offered Preferred
Stock will rank equally with the Company's outstanding Adjustable Preferred
Stock and 9.30% Cumulative Preferred Stock. There are currently 700,000 shares
of such Adjustable Preferred Stock outstanding (including 11,300 shares held
in treasury) and 575,000 shares of such 9.30% Cumulative Preferred Stock
outstanding. There are no other shares of Preferred Stock outstanding. See
"Description of Preferred Stock--Outstanding Preferred Stock" in the
accompanying Prospectus.
DIVIDEND RIGHTS
Holders of the shares of the Offered Preferred Stock are entitled to
receive, when and if declared by the Board of Directors, an annual cash
dividend of % per annum per share of Offered Preferred Stock, payable in
quarterly installments on January 15, April 15, July 15 and October 15,
commencing April 15, 1995. Dividends on the Offered Preferred Stock will be
cumulative from January , 1995.
S-20
<PAGE>
Dividends will be payable to holders of record as they appear on the stock
books of the Company on such record dates as will be fixed by the Board of
Directors of the Company or a duly authorized committee thereof.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of the Offered Preferred
Stock are entitled to receive out of assets of the Company available for
distribution to shareholders, before any distribution of assets is made to
holders of Common Stock or any other class of stock ranking junior to the
Offered Preferred Stock upon liquidation, liquidating distributions in the
amount of $250 per share ($25 per Offered Depositary Share) plus dividends
accrued and accumulated but unpaid to the redemption date. If upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Offered Preferred Stock and
any other preferred stock ranking as to any such distribution on a parity with
the Offered Preferred Stock are not paid in full, the holders of the Offered
Preferred Stock and of such other preferred stock will share ratably in any
such distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of shares of
the Offered Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company. Neither the sale of all or
substantially all of the property or business of the Company nor the merger or
consolidation of the Company into or with any other corporation shall be
deemed to be a dissolution, liquidation or winding up, voluntarily or
involuntarily, of the Company.
REDEMPTION
The Offered Preferred Stock is not subject to any mandatory redemption or
sinking fund provision. The Offered Preferred Stock will be redeemable on at
least 30 but not more than 60 days' notice, at the option of the Company, as a
whole or in part, at any time on and after January , 2000 at a redemption
price equal to $250 per share ($25 per Offered Depositary Share) plus
dividends accrued and accumulated but unpaid to the redemption date.
Notwithstanding the foregoing, the Offered Preferred Stock may not be redeemed
by the Company without the prior approval of the Federal Reserve Board.
If full cumulative dividends on the Offered Preferred Stock have not been
paid, the Offered Preferred Stock may not be redeemed in part and the Company
may not purchase or acquire any shares of the Offered Preferred Stock other
than pursuant to a purchase or exchange offer made on the same terms to all
holders of the Offered Preferred Stock. If less than all the outstanding
shares of the Offered Preferred Stock are to be redeemed, the Company will
select those to be redeemed by lot or a substantially equivalent method.
MISCELLANEOUS
The Offered Preferred Stock will not be convertible into, or exchangeable
for, shares of Common Stock of the Company. The Offered Preferred Stock will
have no preemptive rights. All of the Offered Preferred Stock will be fully
paid and nonassessable. The Offered Preferred Stock may not be called, retired
or in any way redeemed, except pursuant to the redemption provisions set out
above.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following brief description of certain Federal income tax considerations
of the ownership of Offered Depositary Shares representing the Offered
Preferred Stock reflects the opinion of Skadden, Arps, Slate, Meagher & Flom,
special counsel to the Company. The description set forth in this section is a
summary only, and each purchaser of the Offered Depositary Shares offered by
this Prospectus Supplement and the accompanying Prospectus should consult its
own tax adviser as to the tax consequences to such purchaser of acquiring,
holding and disposing of such shares in such purchaser's particular
circumstances, including the effect of the alternative minimum tax and the
application of state, local and other tax laws.
S-21
<PAGE>
Owners of the Offered Depositary Shares will be treated for Federal income
tax purposes as if they were owners of the Offered Preferred Stock represented
by such Offered Depositary Shares and, accordingly, will be entitled to take
into account for Federal income tax purposes income and deductions to which
they would be entitled if they were holders of such Offered Preferred Stock.
Dividends declared and paid by the Company with respect to the Offered
Preferred Stock will be dividends for Federal income tax purposes to the
extent of the current or accumulated earnings and profits of the Company as
determined for Federal income tax purposes. Accordingly, such dividends will
be eligible for the dividends-received deduction allowed to corporate
shareholders. In determining entitlement to the dividends-received deduction,
corporate holders of shares of Offered Preferred Stock should consider the
effects of (i) Section 246(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), which, among other things, disallows the dividends-received
deduction in respect of any dividend on a share of stock held or deemed held
for 45 days or less, and (ii) Section 246A of the Code, which reduces the
dividends-received deduction allowed to a corporate shareholder that has
indebtedness "directly attributable" to an investment in portfolio stock.
Dividends on the Offered Preferred Stock will not be increased following any
reduction in or elimination of the dividends-received deduction.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, Lehman Brothers Inc., Morgan Stanley & Co.
Incorporated, PaineWebber Incorporated and Smith Barney Inc. are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of Offered Depositary Shares set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
OFFERED DEPOSITARY
UNDERWRITER SHARES
----------- ------------------
<S> <C>
Goldman, Sachs & Co. .....................................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Lehman Brothers Inc. .....................................
Morgan Stanley & Co. Incorporated.........................
PaineWebber Incorporated..................................
Smith Barney Inc. ........................................
---------
Total..................................................... 4,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Offered Depositary
Shares offered hereby, if any are taken.
The Underwriters propose to offer the Offered Depositary Shares in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $ per Offered Depositary Share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Offered Depositary Share, to certain brokers and dealers.
After the Offered Depositary Shares are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
representatives.
S-22
<PAGE>
The Company has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus Supplement, to purchase up to an aggregate
of 600,000 additional Offered Depositary Shares to cover over-allotments, if
any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of Offered
Depositary Shares to be purchased by each of them, as shown in the foregoing
table, bears to the 4,000,000 Offered Depositary Shares offered. The
Underwriters may exercise such option only to cover over-allotments in
connection with the sale of 4,000,000 Offered Depositary Shares offered
hereby.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Application will be made to have the Offered Depositary Shares listed on the
New York Stock Exchange. The Offered Preferred Stock will not be so listed and
the Company does not expect that there will be any trading market for the
Offered Preferred Stock except as represented by the Offered Depositary
Shares. No assurance can be given as to the liquidity of the trading market
for the Offered Depositary Shares.
Certain of the Underwriters are customers of, engage in transactions with,
or perform services for, the Company in the ordinary course of business.
VALIDITY OF OFFERED DEPOSITARY SHARES AND OFFERED PREFERRED STOCK
The validity of the Offered Depositary Shares and the Offered Preferred
Stock will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022, and for the Underwriters by
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. Sullivan &
Cromwell also provides legal services to the Company and its subsidiaries from
time to time.
S-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SE-
CURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................................................... S-3
Use of Proceeds........................................................... S-6
Capitalization............................................................ S-6
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements........................ S-7
Condensed Consolidated Financial Data..................................... S-8
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-9
Regulatory Matters........................................................ S-18
Description of Offered Depositary Shares.................................. S-20
Description of Offered Preferred Stock.................................... S-20
Certain Federal Income Tax Considerations................................. S-21
Underwriting.............................................................. S-22
Validity of Offered Depositary Shares and Offered Preferred Stock......... S-23
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 4
Regulatory Matters........................................................ 4
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements........................ 8
Description of Debt Securities............................................ 9
Description of Preferred Stock............................................ 16
Description of Common Stock............................................... 22
Plan of Distribution...................................................... 25
Validity of Offered Securities............................................ 26
Experts................................................................... 26
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 DEPOSITARY SHARES
SHAWMUT NATIONAL
CORPORATION
EACH REPRESENTING A ONE-TENTH
INTEREST IN A SHARE OF
% CUMULATIVE PREFERRED STOCK
($250 STATED VALUE PER SHARE)
-----------
PROSPECTUS SUPPLEMENT
-----------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
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