-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EhtY4vi/w25S1bY/b6g8BBsHn76XCP/VR7eKgRWA+oKCfj+YDI6nt1tS0sXuJke1 psn7hSk68aZL7dbDuNGrrQ== 0000950135-96-002125.txt : 19960517 0000950135-96-002125.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950135-96-002125 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAYBANKS INC CENTRAL INDEX KEY: 0000010497 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042008039 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00959 FILM NUMBER: 96565606 BUSINESS ADDRESS: STREET 1: 175 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174821040 MAIL ADDRESS: STREET 1: 175 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: BAYSTATE CORP DATE OF NAME CHANGE: 19760602 10-Q 1 BAYBANKS, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1996 Commission File No. 0-959
------------------------ BAYBANKS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2008039 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 175 FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (617) 482-1040 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 twelve months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of April 30, 1996, 19,705,487 shares of the registrant's common stock, $2.00 par value, were outstanding. The list of exhibits to this report appears on page 27. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BAYBANKS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31 DECEMBER 31 MARCH 31 1996 1995 1995 ----------- ----------- ----------- ASSETS Cash and due from banks................................................. $ 872,677 $ 922,031 $ 658,022 Trading account securities.............................................. 36,340 50,755 18,368 Securities portfolios Interest-bearing deposits and other short-term investments............ 210,875 361,164 196,831 Securities available for sale -- amortized cost $2,187,804 at March 31, 1996, $2,518,199 at December 31, 1995, and $221,299 at March 31, 1995........................................................ 2,202,876 2,549,127 222,015 Investment securities -- market value $52,612 at March 31, 1996, $54,398 at December 31, 1995, and $2,644,529 at March 31, 1995...... 52,612 54,398 2,675,403 ----------- ----------- ----------- 2,466,363 2,964,689 3,094,249 Loans, net of unearned income and fees Commercial............................................................ 1,570,836 1,604,031 1,580,403 Commercial real estate................................................ 1,202,729 1,167,043 977,986 Residential mortgage.................................................. 2,163,366 2,053,635 1,376,372 Instalment............................................................ 2,932,918 2,946,384 2,839,733 ----------- ----------- ----------- 7,869,849 7,771,093 6,774,494 Less allowance for loan losses........................................ 151,680 153,688 146,348 ----------- ----------- ----------- 7,718,169 7,617,405 6,628,146 Premises and equipment, net............................................. 213,151 215,714 193,785 Goodwill and other intangibles.......................................... 54,624 54,869 4,282 Other assets............................................................ 231,855 238,038 246,906 ----------- ----------- ----------- Total assets................................................... $11,593,179 $12,063,501 $10,843,758 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand................................................................ $ 2,209,027 $ 2,383,823 $ 2,100,424 NOW accounts.......................................................... 1,599,149 1,657,825 1,407,048 Savings............................................................... 1,539,254 1,498,596 1,460,247 Money market deposit accounts......................................... 2,663,653 2,599,295 2,493,856 Consumer time......................................................... 1,899,501 1,862,611 1,299,848 Time -- $100,000 or more.............................................. 190,812 215,257 182,532 ----------- ----------- ----------- 10,101,396 10,217,407 8,943,955 Federal funds purchased and other short-term borrowings................. 415,628 718,941 961,883 Accrued expenses and other accounts payable............................. 82,591 104,831 66,815 Long-term debt.......................................................... 14,871 64,849 51,146 Guarantee of ESOP indebtedness.......................................... 2,941 6,289 6,289 Stockholders' equity: Common stock, par value $2.00 per share Shares authorized -- 50,000,000 Shares issued -- 19,729,361 at March 31, 1996, 19,642,774 at December 31, 1995, and 19,006,032 at March 31, 1995............ 39,459 39,286 38,012 Surplus............................................................... 364,464 360,969 315,660 Retained earnings..................................................... 566,268 539,711 465,867 Net unrealized gain on securities available for sale, net of tax...... 8,663 17,678 420 Treasury stock at cost -- 1,525 shares at March 31, 1996, and 1,841 shares at December 31, 1995......................................... (161) (171) -- Guarantee of ESOP indebtedness........................................ (2,941) (6,289) (6,289) ----------- ----------- ----------- Total stockholders' equity..................................... 975,752 951,184 813,670 ----------- ----------- ----------- Total liabilities and stockholders' equity..................... $11,593,179 $12,063,501 $10,843,758 =========== =========== ===========
2 3 BAYBANKS, INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FIRST QUARTER ENDED MARCH 31 ------------------------- 1996 1995 ---------- ---------- Income on interest-bearing deposits and other short-term investments......... $ 3,560 $ 2,863 Interest on securities available for sale and investment securities.......... 34,094 37,932 Interest and fees on loans................................................... 167,778 148,589 ---------- ---------- Total income on earning assets............................................... 205,432 189,384 Interest expense on deposits and borrowings Deposits................................................................... 64,532 49,327 Short-term borrowings...................................................... 8,081 16,272 Long-term debt............................................................. 922 831 ---------- ---------- Total interest expense....................................................... 73,535 66,430 ---------- ---------- Net interest income.......................................................... 131,897 122,954 Provision for loan losses.................................................... 6,900 6,500 ---------- ---------- Net interest income after provision for loan losses.......................... 124,997 116,454 Noninterest income Service charges and fees on deposit accounts............................... 27,692 26,643 Other noninterest income................................................... 31,478 24,798 ---------- ---------- Total noninterest income..................................................... 59,170 51,441 Net securities gains......................................................... 5 1 Operating expenses Salaries and benefits...................................................... 63,587 60,318 Occupancy and equipment.................................................... 24,729 22,598 Other operating expenses................................................... 34,701 33,636 ---------- ---------- Total operating expenses..................................................... 123,017 116,552 Provision for OREO reserve, net.............................................. (398) 1,000 ---------- ---------- Total operating expenses after OREO provision................................ 122,619 117,552 ---------- ---------- Income before taxes.......................................................... 61,553 50,344 Provision for income taxes................................................... 23,174 19,869 ---------- ---------- NET INCOME................................................................... $ 38,379 $ 30,475 ========== ========== Earnings Per Share........................................................... $ 1.92 $ 1.58 ========== ========== Average shares outstanding................................................... 19,978,541 19,261,941
3 4 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NET UNREALIZED GAIN ON SECURITIES COMMON RETAINED AVAILABLE TREASURY ESOP LOAN STOCK SURPLUS EARNINGS FOR SALE STOCK GUARANTEE TOTAL ------- -------- -------- ---------- -------- --------- -------- BALANCE AS OF DECEMBER 31, 1994........................... $37,999 $314,924 $444,891 $ 276 $ (27) $(9,451) $788,612 Net income -- first quarter 1995......................... 30,475 30,475 Cash dividends declared ($.50 per share)................... (9,499) (9,499) Net change in valuation reserve related to securities available for sale portfolio, net of deferred income taxes........ 144 144 Other, principally employee benefit plans................ 13 736 27 3,162 3,938 -------- -------- -------- ------- ------- ------- -------- BALANCE AS OF MARCH 31, 1995..... $38,012 $315,660* $465,867 $ 420 $ -- $(6,289) $813,670 ======== ======== ======== ======= ======= ======= ======== BALANCE AS OF DECEMBER 31, 1995........................... $39,286 $360,969* $539,711 $ 17,678 $ (171) $(6,289) $951,184 Net income -- first quarter 1996......................... 38,379 38,379 Cash dividends declared ($.60 per share)................... (11,822) (11,822) Net change in valuation reserve related to securities available for sale portfolio, net of deferred income taxes........ (9,015) (9,015) Other, principally employee benefit plans................ 173 3,495 10 3,348 7,026 -------- -------- -------- ------- ------- ------- -------- BALANCE AS OF MARCH 31, 1996..... $39,459 $364,464* $566,268 $ 8,663 $ (161) $(2,941) $975,752 ======== ======== ======== ======= ======= ======= ======== - --------------- * Net of unamortized restricted stock compensation expense of $4,456, $5,290, and $5,550 at March 31, 1996, December 31, 1995, and March 31, 1995, respectively. Upon approval of the merger with Bank of Boston Corporation (see Note 4) by the Company's shareholders on April 25, 1996, restriction periods on outstanding awards of restricted stock lapsed. Accordingly, the unamortized restricted stock compensation, net of applicable tax benefits, at April 25, 1996 will be recognized during the second quarter of 1996.
4 5 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FIRST QUARTER ENDED MARCH 31 --------------------------- 1996 1995 ----------- --------- OPERATING ACTIVITIES Net income............................................................................ $ 38,379 $ 30,475 Adjustments to reconcile net income to net cash provided by operating activities: Proceeds from sales and maturities of trading account securities(1)................. 2,090,563 556,338 Purchases of trading account securities............................................. (2,076,148) (556,052) Net amortization of security premium and borrowings discount........................ 999 3,677 Net securities gains................................................................ (5) (1) Fixed-rate mortgages sold........................................................... 72,474 7,760 Fixed-rate mortgages originated for sale, net of principal payments................. (104,681) (5,038) Student loans transferred from portfolio and sold................................... 15,400 -- Provision for loan losses........................................................... 6,900 6,500 Amortization of goodwill and other intangibles...................................... 1,302 138 Depreciation and amortization of premises and equipment............................. 6,541 6,558 Gain on sales of premises and equipment............................................. (339) (1,057) Provision for OREO reserve, net..................................................... (398) 1,000 Deferred income taxes............................................................... 1,157 (413) Change in other assets.............................................................. (4,141) (2,356) Change in interest receivable....................................................... 14,374 (5,623) Change in accrued expenses and other accounts payable............................... (19,830) (5,292) Change in interest payable.......................................................... (1,503) 1,645 ----------- --------- Net cash provided by operating activities....................................... 41,044 38,259 ----------- --------- INVESTING ACTIVITIES Proceeds from sales of securities available for sale.................................. 6,075 45,110 Proceeds from maturities of securities available for sale............................. 1,005,504 48 Purchases of securities available for sale(1)......................................... (682,150) (37,500) Proceeds from maturities of investment securities..................................... 2,399 335,540 Purchases of investment securities.................................................... (613) (458,432) Net cash provided (used) by: Short-term investments.............................................................. 150,289 (30,545) Loans(2)(3)(4)...................................................................... (91,428) (110,871) Proceeds from sales of premises and equipment......................................... 534 1,605 Purchases of premises and equipment................................................... (4,173) (5,461) Proceeds from sales and payments related to OREO(3)(4)................................ 2,962 5,094 ----------- --------- Net cash provided (used) by investing activities................................ 389,399 (255,412) ----------- --------- FINANCING ACTIVITIES Net cash provided (used) by: Demand deposits, NOW, and savings accounts.......................................... (192,814) (201,195) Money market deposits............................................................... 64,358 (66,569) Consumer time deposits.............................................................. 36,890 204,491 Time -- $100,000 or more............................................................ (24,445) 6,869 Short-term borrowings............................................................... (303,313) 112,366 Long-term debt...................................................................... (50,009) (8) Dividends paid........................................................................ (11,822) (9,499) Other equity transactions............................................................. 1,358 (450) ----------- --------- Net cash provided (used) by financing activities................................ (479,797) 46,005 ----------- --------- Net change in cash and cash equivalents................................................. (49,354) (171,148) Cash and cash equivalents at beginning of year(5)....................................... 922,031 829,170 ----------- --------- Cash and cash equivalents at March 31(5)................................................ $ 872,677 $ 658,022 ========== ========= Supplemental disclosure of cash flow information Interest paid......................................................................... $ 75,038 $ 64,785 Taxes paid............................................................................ 14,043 9,020 - --------------- (1) Excludes transfers of trading account securities to the securities available for sale portfolio of $8.8 million in 1995. (2) Excludes transfers of loans to the other real estate owned category of $.6 million in 1996 and 1995. (3) Excludes loan originations in conjunction with OREO sales of $1.0 million in 1995. (4) 1995 amount excludes $33.2 million of in-substance foreclosures and related reserves of $8.7 million reclassified to loans and the allowance for loan losses, respectively, as a result of the adoption of SFAS No. 114 on January 1, 1995. (5) Cash and cash equivalents consist of cash on hand and due from banks.
5 6 BAYBANKS, INC. NOTE 1. ACCOUNTING ADJUSTMENTS In the opinion of management, all of the adjustments (consisting of normal recurring accruals unless otherwise indicated) necessary for a fair statement of the results of operations have been included in the accompanying financial statements, prepared in accordance with generally accepted accounting principles. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. These financial statements are unaudited. NOTE 2. SECURITIES PORTFOLIOS The amortized cost, gross unrealized gains and losses, market values, and weighted average yields of the following securities portfolios by maturity (excluding interest-bearing deposits and other short-term investments) were:
GROSS GROSS WEIGHTED AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE COST GAINS LOSSES VALUE YIELD ---------- ---------- ---------- ---------- -------- (DOLLARS IN THOUSANDS, ON A TAX EQUIVALENT BASIS) MARCH 31, 1996(1) SECURITIES AVAILABLE FOR SALE U.S. Government securities, maturing Within 1 year........................... $ 622,541 $ 36 $ (1,918) $ 620,659 4.79% After 1 year but within 5 years......... 919,288 16,815 (194) 935,909 6.76 After 5 years but within 10 years....... 1,998 -- (71) 1,927 5.77 ---------- ------- -------- ---------- 1,543,827 16,851 (2,183) 1,558,495 5.96 ---------- ------- -------- ---------- State and local government securities, maturing Within 1 year........................... 65,248 41 (4) 65,285 6.21 After 1 year but within 5 years......... 60,402 537 (189) 60,750 6.79 After 5 years but within 10 years....... 49,620 755 (385) 49,990 7.28 After 10 years.......................... 20 -- -- 20 7.03 ---------- ------- -------- ---------- 175,290 1,333 (578) 176,045 6.71 ---------- ------- -------- ---------- Corporate, maturing Within 1 year........................... 308,646 11 (2) 308,655 5.63 After 1 year but within 5 years......... 6,557 8 (17) 6,548 6.21 ---------- ------- -------- ---------- 315,203 19 (19) 315,203 5.64 ---------- ------- -------- ---------- U.S. Agency mortgage-backed securities.... 89,977 199 (430) 89,746 6.08 Asset-backed securities................... 25,125 -- (128) 24,997 4.22 Other(2).................................. 38,382 8 -- 38,390 6.30 ---------- ------- -------- ---------- Total securities available for sale.......................... $2,187,804 $ 18,410 $ (3,338) $2,202,876 5.96% ========== ======= ======== ========== ===== INVESTMENT SECURITIES Industrial revenue bonds.................. $ 39,150 $ -- $ -- $ 39,150 10.51% Other..................................... 13,462 -- -- 13,462 6.00 ---------- ------- -------- ---------- Total investment securities..... $ 52,612 $ -- $ -- $ 52,612 9.36% ========== ======= ======== ========== ===== - --------------- (1) The period-end maturity distribution excludes industrial revenue bonds, which are not regarded as principal debt securities, asset-backed securities, mortgage-backed securities, and other securities that do not have a stated maturity. (2) BayBank, N.A., the Company's principal bank subsidiary, and BayBank FSB, a New Hampshire bank subsidiary, are members of the Federal Home Loan Bank (FHLB). As of March 31, 1996, $38.3 million in stock of the FHLB is included in the Securities Available for Sale portfolio in the Other category at cost, which approximates market value. As of March 31, 1996, total advances of $18.8 million were outstanding from the FHLB at an average interest rate of 5.14% and with an average maturity of 1.38 years. These outstanding advances are included on the consolidated balance sheet in the other short- term borrowings and long-term debt categories.
6 7 NOTE 2. SECURITIES PORTFOLIOS (CONTINUED)
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) DECEMBER 31, 1995(1) SECURITIES AVAILABLE FOR SALE U.S. Government securities................... $1,798,465 $ 32,247 $ (2,304) $1,828,408 Corporate.................................... 317,737 50 -- 317,787 State and local government securities........ 225,954 1,710 (165) 227,499 U.S. Agency mortgage-backed securities....... 98,120 194 (515) 97,799 Asset-backed securities...................... 44,051 -- (297) 43,754 Other(2)..................................... 33,872 8 -- 33,880 ---------- ------ -------- ---------- Total securities available for sale............................. $2,518,199 $ 34,209 $ (3,281) $2,549,127 ========== ====== ======== ========== INVESTMENT SECURITIES Industrial revenue bonds..................... $ 41,544 $ -- $ -- $ 41,544 Other........................................ 12,854 -- -- 12,854 ---------- ------ -------- ---------- Total investment securities........ $ 54,398 $ -- $ -- $ 54,398 ========== ====== ======== ========== MARCH 31, 1995 SECURITIES AVAILABLE FOR SALE State and local government securities........ $ 16,045 $ 16 $ (1) $ 16,060 Corporate.................................... 177,600 -- -- 177,600 Other(2)..................................... 27,654 701 -- 28,355 ---------- ------ -------- ---------- Total securities available for sale............................. $ 221,299 $ 717 $ (1) $ 222,015 ========== ====== ======== ========== INVESTMENT SECURITIES U.S. Government securities................... $2,168,149 $ 3,278 $ (29,892) $2,141,535 State and local government securities........ 214,366 348 (596) 214,118 Asset-backed securities...................... 193,466 -- (2,755) 190,711 U.S. Agency mortgage-backed securities....... 49,518 -- (1,257) 48,261 Industrial revenue bonds..................... 48,062 -- -- 48,062 Corporate and other.......................... 1,842 -- -- 1,842 ---------- ------ -------- ---------- Total investment securities........ $2,675,403 $ 3,626 $ (34,500) $2,644,529 ========== ====== ======== ========== - --------------- (1) During the fourth quarter of 1995, the Financial Accounting Standards Board allowed a one-time reassessment of the classification of securities, and the Company reclassified $2.0 billion from investment securities to securities available for sale. (2) As of December 31, 1995, and March 31, 1995, $33.6 million and $27.6 million, respectively, in stock of the FHLB is included in the Securities Available for Sale portfolio in the Other category at cost, which approximates market value.
NOTE 3. ADOPTION OF ACCOUNTING STANDARD Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement established accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to such assets being held and used and for such assets and certain identifiable intangibles to be disposed of. The implementation of this statement did not have a material effect on the Company's results of operations or financial condition. 7 8 NOTE 4. PENDING MERGER On December 12, 1995, the Company and Bank of Boston Corporation (Bank of Boston) entered into an agreement and plan of merger, pursuant to which a subsidiary of Bank of Boston will merge with and into the Company and the Company will become a wholly-owned subsidiary of Bank of Boston (the Merger). In addition, related Stock Option Agreements were executed pursuant to which Bank of Boston granted the Company a conditional option to purchase up to 22,400,761 shares of Bank of Boston common stock and the Company granted to Bank of Boston a conditional option to purchase up to 3,907,120 shares of the Company's common stock, in each case equaling 19.9% of the outstanding shares of the respective granting company's stock. As a result of the Merger, each share of the common stock of the Company outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 2.2 newly issued shares of Bank of Boston common stock. Outstanding options to purchase common stock of the Company will be converted to options to purchase common stock of Bank of Boston on the same basis. The Merger is intended to constitute a tax-free transaction and to be accounted for as a pooling of interests. The Merger was approved by the shareholders of both companies on April 25, 1996. This transaction is subject to approval by federal and state bank regulators and is expected to close in the third quarter of 1996. Subsequent to completion of the Merger, Bank of Boston's principal banking subsidiary will operate as BayBank of Boston, N.A. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Except as noted, the discussion in this report does not give effect to the planned consummation of the Company's Merger Agreement with Bank of Boston (see Note 4 to Item 1 above). PERFORMANCE OVERVIEW - BayBanks' net income was $38.4 million for the first quarter of 1996, or $1.92 per share, compared with net income of $30.5 million for the first quarter of 1995, or $1.58 per share, an increase of 22% on a per share basis. - Reflected in the Company's first quarter 1996 earnings were the results of operations of BayBank FSB and BayBank NH, the two New Hampshire banks that became subsidiaries of the Company during the second half of 1995. These acquisitions were accounted for as purchases. - Reflected in net income for the first quarter of 1996 was a favorable court decision on a Company tax refund claim which resulted in a net after-tax benefit of $2.5 million, or $.13 per share. EARNINGS ANALYSIS Operating Income Operating income (TABLE A, page 9) was $71.3 million in the first quarter of 1996 compared with $60.6 million in the first quarter of 1995. The 18% increase in the first quarter of 1996 from the first quarter of 1995 resulted primarily from a 7% increase in net interest income and a 15% increase in noninterest income, offset by operating expenses that were 6% above first quarter 1995 levels. Reflected in 1996's first quarter were the results of operations of BayBank FSB and BayBank NH, the two New Hampshire banks that became subsidiaries of the Company during the second half of 1995. 8 9 TABLE A SUMMARY OF OPERATIONS FOR THE FIRST QUARTERS ENDED MARCH 31 TAX EQUIVALENT BASIS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 -------- -------- Income on earning assets............................................... $208,686 $192,179 Interest expense on deposits and borrowings............................ 73,535 66,430 -------- -------- Net interest income.................................................... 135,151 125,749 Noninterest income..................................................... 59,170 51,441 -------- -------- Total income from operations........................................... 194,321 177,190 Operating expenses..................................................... 123,017 116,552 -------- -------- Operating Income Before Net Securities Gains and Provisions for Loan Losses and OREO Reserve.............................................. 71,304 60,638 -------- -------- Net securities gains................................................... 5 1 -------- -------- Provision for loan losses.............................................. 6,900 6,500 Provision for OREO reserve, net........................................ (398) 1,000 -------- -------- Total credit provisions................................................ 6,502 7,500 -------- -------- Pre-tax income......................................................... 64,807 53,139 Income taxes and tax equivalent adjustment............................. 26,428 22,664 -------- -------- Net Income............................................................. $ 38,379 $ 30,475 ======== ======== Earnings Per Share..................................................... $ 1.92 $ 1.58
Net Interest Income Net interest income was $135.2 million in the first quarter of 1996 compared with $125.7 million in the first quarter of 1995. The net interest margin in the first quarter of 1996 was 5.14%, compared with 5.16% in the first quarter of 1995 and 5.07% in the fourth quarter of 1995. The growth in net interest income in the first quarter of 1996 compared with that of the first quarter of 1995 was primarily the result of a 7% increase in average earning assets. Average loans increased 9%, excluding the loans at BayBank FSB and BayBank NH. While there was growth in both corporate and consumer lending, residential real estate lending was the most significant contributor (TABLE D, page 13). In addition, the acquisitions of BayBank FSB and BayBank NH added $505 million in loans and $226 million in securities. The yield on earning assets was 7.94% in the first quarter of 1996, compared with 7.89% in the first quarter of 1995, as a result of a more favorable mix of earning assets. BayBanks' funding costs increased during the first quarter of 1996, compared with the first quarter of 1995, due to higher rates on certain core deposits (which include money market deposit accounts [MMDAs] and consumer certificates of deposit) as a result of market conditions. The increase in funding costs was partially offset by a reduction in the level of borrowings. In addition during 1995, some customers moved balances from transaction accounts and MMDAs to higher-yielding certificates of deposit, resulting in a larger portion of funding provided by consumer certificates of deposit in the first quarter of 1996. The costs of total interest-bearing liabilities (as a percentage of average earning assets) increased 7 basis points to 2.80% in the first quarter of 1996, compared with 2.73% in the first quarter of 1995. The 5 basis point increase in the yield on earning assets from the first quarter of 1995 to the first quarter of 1996 was offset by the 7 basis point increase in the cost of total interest-bearing liabilities. This resulted in a slight decline in the net interest margin from 5.16% in the first quarter of 1995 to 5.14% in the first quarter of 1996. The net interest margin increased from 5.07% in the fourth quarter of 1995 to 5.14% in the first quarter of 1996. This increase was primarily due to the maturity of lower-yielding securities which were not reinvested, but used instead to reduce the level of borrowed funds. 9 10 Fees, Service Charges, and Other Noninterest Income Noninterest income consists primarily of service charges on deposit accounts and fees from credit and non-credit services. The income is well diversified among consumer, corporate, and small business banking activities. Noninterest income, detailed in TABLE B, increased to $59.2 million in the first quarter of 1996 from $51.4 million in the first quarter of 1995. Service charges and fees on deposit accounts continued to provide approximately one-half of noninterest income. Total service charges and fees on deposit accounts were $27.7 million in the first quarter of 1996, compared with $26.6 million in the first quarter of 1995. The increase in service charges and fees on deposit accounts in the first quarter of 1996 was largely the result of an increase in overdraft fees due to higher volume and a price increase. Other components of noninterest income experienced growth during the first quarter of 1996. Credit card fees increased 15% to $5.9 million in the first quarter of 1996 from $5.1 million in the first quarter of 1995. The increase resulted primarily from an increase in transaction volume. Processing fees increased 13% to $4.5 million in the first quarter of 1996 from $4.0 million in the first quarter of 1995, primarily the result of an increased volume of point-of-sale transactions. Investment management and brokerage fees increased 29% to $3.0 million in the first quarter of 1996 from $2.3 million in the first quarter of 1995, due primarily to increased third party mutual fund sales, and investment advisory and shareholder servicing fees from BayFunds(R), the Company's proprietary mutual fund family. Total assets under management in BayFunds were $1.7 billion at March 31, 1996, compared with $1.4 billion at March 31, 1995. Mortgage banking fees were $2.9 million in the first quarter of 1996, compared with $1.7 million in the first quarter of 1995. The increase from the first quarter of 1995 was due to increased application volume and a higher level of secondary market sales. The Company periodically sells student loans when these primarily government-guaranteed loans are no longer in a deferred payment status. During the first quarter of 1996, the Company sold $15 million in student loans, resulting in a gain of $427 thousand. There were no student loan sales in the first quarter of 1995. Other noninterest income was $4.3 million in the first quarter of 1996 and $1.9 million in the first quarter of 1995. Noninterest income in the first quarter of 1996 included $2.6 million of interest related to a favorable court decision on a state tax refund claim. TABLE B NONINTEREST INCOME FOR THE FIRST QUARTER ENDED MARCH 31 (IN THOUSANDS)
1996 1995 CHANGE ------- ------- ------ Service charges and fees on deposit accounts................... $27,692 $26,643 $1,049 Credit card fees............................................... 5,887 5,103 784 Processing fees................................................ 4,499 3,985 514 Trust fees..................................................... 3,857 3,617 240 Investment management and brokerage fees....................... 2,986 2,306 680 Mortgage banking fees.......................................... 2,918 1,705 1,213 International fees............................................. 1,671 1,671 -- All other fees................................................. 4,944 4,557 387 Student loan sales gains....................................... 427 -- 427 Other noninterest income....................................... 4,289 1,854 2,435 ------- ------- ------ Total noninterest income............................. $59,170 $51,441 $7,729 ======= ======= ======
Operating Expenses The operating expense analysis presented in TABLE C (page 11) separates OREO and loan workout expenses from other expenses. Operating expenses, excluding OREO and loan workout, were $122.1 million in the first quarter of 1996, compared with $114.8 million in the first quarter of 1995. 10 11 Salaries and benefits expenses increased 5% to $63.6 million in the first quarter of 1996, compared with $60.3 million in the first quarter of 1995, primarily as the result of normal salary and benefit increases and the acquisitions of BayBank FSB and BayBank NH in the second half of 1995. These increases were partially offset by the lower cost of certain compensation programs, one of which is tied to the price of the Company's common stock and which benefited from the increase in the market price of the Company's common stock since the first quarter of 1995. Unamortized restricted stock compensation of $2.4 million (after tax benefit) will be recognized during the second quarter of 1996 upon the lapsing of restriction periods as a result of the approval by the Company's stockholders on April 25, 1996 of the pending merger with Bank of Boston. Occupancy and equipment expenses were $24.7 million in the first quarter of 1996, compared with $22.6 million in the first quarter of 1995. The increase was primarily the result of the New Hampshire acquisitions, increased snow removal costs in the first quarter of 1996, an increase in rent expense due to the opening of new branch locations, including supermarket branches, and costs associated with branch closings. Marketing and public relations expenses increased to $8.9 million in the first quarter of 1996 from $5.3 million in the first quarter of 1995 due to the promotion of new and existing products and services, including BayBank HomeLinkTM, a home banking product, BayPlus(R) Banking, a service initiative designed to give selected customers a higher level of service, and BayBank X-Press Check(R), a debit card that is used like a check to make purchases. Postage and supplies increased 16% to $6.6 million in the first quarter of 1996, compared with $5.7 million in the first quarter of 1995, due primarily to increased volume as a result of recent acquisitions and the higher costs of paper, printed forms, and other supplies. Other operating expenses were $18.2 million in the first quarter of 1996, compared with $20.8 million in the first quarter of 1995. The decrease in other operating expenses is primarily due to a decrease in deposit insurance expense, due to the Federal Deposit Insurance Corporation's (FDIC) reduction in the premiums charged to Bank Insurance Fund (BIF) members, and decreases in data processing expenses. These decreases were partially offset by an increase in contract staff due to a hiring freeze associated with the pending merger with Bank of Boston and the amortization of intangible assets resulting from the acquisitions of BayBank FSB and BayBank NH. OREO and loan workout expenses were $1.0 million in the first quarter of 1996, compared with $1.7 million in the first quarter of 1995, reflecting the disposition of OREO properties and impaired loans (see Nonperforming Loans on page 19). TABLE C OPERATING EXPENSES FOR THE FIRST QUARTERS ENDED MARCH 31 (IN THOUSANDS)
1996 1995 CHANGE -------- -------- ------- Salaries and benefits....................................... $ 63,587 $ 60,318 $ 3,269 Occupancy and equipment..................................... 24,729 22,598 2,131 Marketing and public relations.............................. 8,926 5,339 3,587 Postage and supplies........................................ 6,646 5,722 924 Other....................................................... 18,176 20,832 (2,656) -------- -------- ------- Operating expenses excluding OREO expenses.................. 122,064 114,809 7,255 OREO and loan workout expenses.............................. 953 1,743 (790) -------- -------- ------- Total operating expenses.......................... $123,017 $116,552 $ 6,465 ======== ======== =======
Provisions for Loan Losses and the OREO Reserve The provisions for loan losses and the OREO reserve (see TABLE A, page 9) declined in the first quarter of 1996 to $6.5 million, compared with $7.5 million in the first quarter of 1995, reflecting the improvement in credit quality from March 31, 1995. The provision for loan losses was $6.9 million in the first quarter of 1996 11 12 compared with $6.5 million in the first quarter of 1995. The net provision for the OREO reserve was a credit of $398 thousand in the first quarter of 1996, compared with an expense of $1.0 million in the first quarter of 1995. Provisions made were offset by net gains on sales of properties of $472 thousand in the first quarter of 1996 and $1.5 million in the first quarter of 1995. The provisions for loan losses and the OREO reserve were $5.4 million in the fourth quarter of 1995. Income Taxes The Company's provision for income taxes was $23.2 million in the first quarter of 1996, compared with $19.9 million in the first quarter of 1995. The 1996 tax provision included a $1.6 million adjustment for the favorable settlement of a tax refund claim. In July 1995, the Commonwealth of Massachusetts passed a tax reform bill that reduced the state tax rate for banks. Under the new tax law, the rate that banks pay will be reduced over a four-year period from 12.54% to 10.50% in 1999. In accordance with the new tax law, the rate was reduced from 12.54% to 12.13% in the third quarter of 1995 retroactive to January 1, 1995 and to 11.72% effective January 1, 1996. The effective tax rate for the first quarter of 1996 was 37.6%, compared with 39.5% in the first quarter of 1995. The decrease in the effective tax rate in the first quarter of 1996 compared with that of the same period of 1995 was primarily due to the tax refund settlement adjustment and the reduction in the state tax rate. BALANCE SHEET REVIEW Trends in Earning Assets Average earning assets increased to $10.5 billion in the first quarter of 1996, compared with $9.8 billion in the first quarter of 1995, due to growth in the average loan balances. The acquisitions of BayBank FSB and BayBank NH in the second half of 1995 added $505 million of loans. Average loans, excluding the impact of BayBank FSB and BayBank NH, increased in both the commercial and consumer areas. Loan Portfolio Consumer loans represented 65% of the quarter-end loan portfolio, with $2.2 billion in residential loan balances and $2.9 billion in various types of instalment loan balances. Consumer lending activities are primarily focused on the Massachusetts and New Hampshire markets. Commercial and commercial real estate loans were 35% of the portfolio. The majority of these loans are to New England-based companies, primarily local middle market companies and small businesses in Massachusetts and New Hampshire. The Company originates fixed-rate and adjustable-rate residential mortgage loans. The majority of fixed-rate residential mortgage loan originations are securitized and sold to the secondary market with servicing retained. The remainder of the fixed-rate and adjustable-rate residential real estate loan originations are held in the loan portfolio or may be securitized and transferred to the securities available for sale portfolio. Student loans are originated and held in the loan portfolio while these primarily government-guaranteed loans are in a deferred payment status. Student loans held for sale at March 31, 1996 were $129 million. The Company sold $15 million of student loans in the first quarter of 1996. There were no student loan sales in the first quarter of 1995. An analysis of the changes in major loan categories for the first quarter of 1996 and 1995 is presented in TABLE D (page 13). Loan business volume was $202 million in the first quarter of 1996, compared with $121 million in the first quarter of 1995. Residential mortgage activity was the largest contributor to this volume, principally as the result of fixed-rate refinancings. The Company underwrote and sold $72 million of fixed-rate residential mortgage loans during the first quarter of 1996, compared with $8 million in the first quarter of 1995. At March 31, 1996, loans held for sale were $56 million, compared with $2 million at March 31, 1995. Instalment net loan business volume was $11 million, compared with $19 million in the first quarter of 1995, as indirect automobile lending increased while home equity and student lending declined. Home equity lending declined due to increased competition. In addition, the net seasonal decline in credit card balances was not as significant as that in the first quarter of 1995. Commercial loan volume declined by $29 million in the first quarter of 1996, compared with an increase of $52 million in the first quarter of 1995. Commercial loans 12 13 declined as certain maturing loans were not renewed as a result of pricing decisions and loans were repaid by local customers who were consolidated with out-of-region companies. An increase in international outstandings during the first quarter of 1996 partially offset reductions in domestic commercial loans. The Company's international loan portfolio, which is primarily focused on Mexico, Brazil and other South American countries, was $163 million at March 31, 1996, compared with $138 million at December 31, 1995 and $172 million at March 31, 1995. These international credits are predominantly trade related and primarily with well-known and established foreign banks. Business volume in the commercial real estate portfolio was $36 million in the first quarter of 1996, compared with $6 million in the first quarter of 1995. The change in volume was primarily the result of two major transactions in the first quarter of 1996. TABLE D CHANGES IN THE LOAN PORTFOLIO (IN THOUSANDS)
FIRST QUARTER 1996 INCREASE ANALYSIS OF CHANGE IN LOAN CATEGORIES NET BUSINESS (DECREASE) ---------------------------------------- VOLUME FOR THE GROSS NET FIRST MARCH 31 FIRST CHARGE- TRANSFERS BUSINESS QUARTER 1996 QUARTER OFFS TO OREO SALES VOLUME 1995 ---------- ---------- -------- ------- -------- -------- ------------ Commercial..................... $1,570,836 $(33,195) $ (4,029) $ -- $ -- $(29,166) $ 51,596 Commercial real estate......... 1,202,729 35,686 (209) -- -- 35,895 6,301 Residential mortgage........... 2,163,366(1) 109,731 (1,472) (571) (72,474) 184,248 44,376 Instalment loans Automobile and other......... 1,392,310 7,954 (2,775) -- -- 10,729 (27,555) Home equity.................. 777,470 (22,138) (474) -- -- (21,664) 14,333 Credit card.................. 300,208 (14,108) (3,492) -- -- (10,616) (22,890) Student loans................ 319,390(2) 18,230 -- -- (15,400) 33,630 55,784 Reserve credit............... 143,540 (3,404) (1,875) -- -- (1,529) (868) ---------- -------- -------- ----- -------- -------- -------- Total instalment loans....... 2,932,918 (13,466) (8,616) -- (15,400) 10,550 18,804 ---------- -------- -------- ----- -------- -------- -------- Total loans.................... $7,869,849 $ 98,756 $(14,326) $(571) $(87,874) $201,527 $121,077 ========== ======== ======== ===== ======== ======== ======== - --------------- (1) Includes residential mortgage loans held for sale of $56 million at March 31, 1996. (2) Includes student loans held for sale of $129 million at March 31, 1996.
Securities Portfolios The securities portfolios (TABLE E, page 14) totaled $2.5 billion at March 31, 1996, $3.0 billion at December 31, 1995, and $3.1 billion at March 31, 1995. The weighted average maturity of the securities portfolios was 1.3 years at March 31, 1996 and December 31, 1995, compared to 1.5 years at March 31, 1995. Short-term investments were $211 million at March 31, 1996, compared with $361 million at December 31, 1995, and $197 million at March 31, 1995. In November of 1995, the Financial Accounting Standards Board (FASB) issued a special report that allowed for a one-time reassessment of the appropriateness of the classifications of all securities held at the time. As a result of its reassessment, the Company reclassified $2.0 billion from investment securities to securities available for sale. Securities available for sale, consisting principally of debt securities, are stated at market value. Decisions to purchase or sell these securities as part of the Company's ongoing asset and liability management process are based on management's assessment of changes in economic and financial market conditions, interest rate environments, the Company's balance sheet and its interest sensitivity position, liquidity, and capital. Securities available for sale were $2.2 billion at March 31, 1996, $2.5 billion at December 31, 1995, and $222 million at March 31, 1995. At March 31, 1996, securities available for sale had gross unrealized gains of $18 million and gross unrealized losses of $3 million. 13 14 The Company's securities available for sale portfolio contains primarily U.S. Government securities, state and local government securities, asset-backed securities, and U.S. Agency mortgage-backed securities. The total state and local government portfolio, which is concentrated primarily in Massachusetts, was $176 million at March 31, 1996, with the single largest issue being approximately $5 million. All securities were either rated investment grade or, in the case of unrated securities, determined by management to be equivalent to investment grade. The investment securities portfolio, consisting principally of industrial revenue bonds and Federal Reserve Bank stock at March 31, 1996, is stated at amortized cost. The Company's investment securities portfolio was $53 million at March 31, 1996, $54 million at December 31, 1995, and $2.7 billion at March 31, 1995. At March 31, 1996, the market value of the investment securities portfolio approximated the amortized cost of the portfolio. The Company also has a trading account securities portfolio consisting principally of short-term state and local government securities recorded at market value, which was $36 million, $51 million, and $18 million at March 31, 1996, December 31, 1995, and March 31, 1995, respectively. Trading account gains were $629 thousand in the first quarter of 1996, compared with $723 thousand in the first quarter of 1995. TABLE E SECURITIES PORTFOLIOS AT PERIOD-END (DOLLARS IN THOUSANDS)
MARCH 31 DECEMBER 31 MARCH 31 1996 1995 1995 ---------- ----------- ---------- Short-term investments..................................... $ 210,875 $ 361,164 $ 196,831 ---------- ----------- ---------- Securities available for sale(1) U.S. Government securities............................... 1,558,495 1,828,408 -- State and local government securities.................... 176,045 227,499 16,060 U.S. Agency mortgage-backed securities................... 89,851 97,799 -- Asset-backed securities.................................. 24,997 43,754 -- Corporate and other...................................... 353,488 351,667 205,955 ---------- ----------- ---------- 2,202,876 2,549,127 222,015 ---------- ----------- ---------- Investment securities(1) U.S. Government securities............................... -- -- 2,168,149 Asset-backed securities.................................. -- -- 193,466 State and local government securities.................... -- -- 214,366 Industrial revenue bonds................................. 39,150 41,544 48,062 U.S. Agency mortgage-backed securities................... -- -- 49,518 Other.................................................... 13,462 12,854 1,842 ---------- ----------- ---------- 52,612 54,398 2,675,403 ---------- ----------- ---------- Total...................................................... $2,466,363 $ 2,964,689 $3,094,249 ========== =========== ========== Weighted average maturity of securities available for sale and investment securities in years(2).................... 1.5 1.5 1.6 Weighted average maturity of total securities in years(2)................................................. 1.3 1.3 1.5 - --------------- (1) During the fourth quarter of 1995, the Financial Accounting Standards Board allowed a one-time reassessment of the classification of securities, and the Company reclassified $2.0 billion from investment securities to securities available for sale. (2) The weighted average maturity calculation excludes amortizing industrial revenue bonds and reflects estimated prepayments for U.S. Agency mortgage-backed securities and asset-backed securities.
14 15 Deposits and Other Sources of Funds The Company's extensive product lines, Customer Sales and Service Center, and banking network of 238 full-service offices and 456 remote banking facilities generate significant core deposits. Core deposits accounted for 98% of total average deposits during the first quarter of 1996 and 1995. Core deposits include transaction accounts (demand, NOW, and savings accounts), money market deposit accounts, and consumer time certificates. Average core deposits were $9.7 billion in the first quarter of 1996, compared with $8.5 billion in the first quarter of 1995. Average transaction accounts were $5.2 billion in the first quarter of 1996 compared with $4.8 billion in the first quarter of 1995 and $5.1 billion in the fourth quarter of 1995. Average money market deposit accounts increased from $2.5 billion in the first quarter of 1995 and the fourth quarter of 1995 to $2.6 billion in the first quarter of 1996. Average consumer certificates of deposit increased to $1.9 billion in the first quarter of 1996, compared with $1.2 billion in the first quarter of 1995 and $1.8 billion in the fourth quarter of 1995. The acquisitions of BayBank FSB and BayBank NH in the second half of 1995 added $315 million of certificates of deposit. Average corporate certificates of deposit in excess of $100 thousand (CDs), which represent a small portion of the Company's total funding, were $209 million in the first quarter of 1996, compared with $175 million in the first quarter of 1995 and $217 million in the fourth quarter of 1995. Average purchased funds decreased to $598 million in the first quarter of 1996, compared with $1.1 billion in the first quarter of 1995 and $807 million in the fourth quarter of 1995 as the funds from the maturity of lower-yielding securities were used to reduce the level of borrowings. Interest Rate Risk Management and Liquidity BayBanks' Capital Markets Committee monitors and manages the Company's overall balance sheet interest sensitivity position, the securities portfolios, funding, and liquidity. Interest sensitivity, as measured by the Company's gap position, is affected by the level and direction of interest rates and current liquidity preferences of its customers. A negative gap generally indicates that liabilities will reprice more quickly than assets, and a positive gap generally indicates that assets will reprice in aggregate before liabilities. These factors, as well as projected balance sheet growth, current and potential pricing actions, competitive influences, national monetary and fiscal policy, and the national and regional economic environments, are considered in the asset and liability management decision process. The Company's interest sensitivity gap position, as shown in TABLE F (page 16), is based on contractual maturities and repricing opportunities for loans, securities, deposits, and borrowings. However, in a period of rising or falling interest rates, this basis of presentation does not reflect lags that may occur in the repricing of certain loans and deposits. For example, the cost of certain interest-bearing core deposit categories (primarily savings, NOW, and money market deposit accounts) has lagged changes in market interest rates, although the Company contractually can change the interest rates on these deposits at any time. A management adjustment provides for these expected repricing lags and for the notion that interest rate changes in many of these core deposit categories, particularly certain transaction accounts, have not been as sensitive to changes in market interest rates. The management adjustment is based upon the relationship of the expected movement in core deposit rates relative to market rates and is reviewed periodically and adjusted to reflect changes in trends. During the third quarter of 1995, the management adjustment was modified to further reflect the lower sensitivity of rates on core deposits to changes in market interest rates. At March 31, 1996, the Company's adjusted gap for the total within-180-day period had moved from a positive $958 million at December 31, 1995, to a positive gap position of $1.1 billion. The total within-one-year gap moved from a positive $1.6 billion at December 31, 1995, to a positive $1.7 billion at March 31, 1996. 15 16 TABLE F INTEREST RATE SENSITIVITY POSITION AT PERIOD-END (IN MILLIONS)
0-30 31-90 91-180 TOTAL WITHIN 181-365 TOTAL WITHIN DAYS DAYS DAYS 180 DAYS DAYS ONE YEAR ------- ------- ------ ------------ ------- ------------ March 31, 1996 Total assets........................ $ 3,960 $ 778 $697 $ 5,435 $1,081 $ 6,516 Total liabilities................... 6,890 418 506 7,814 407 8,221 ------- ------- ---- ------- ------ ------- Net contractual gap position........ (2,930) 360 191 (2,379) 674 (1,705) Net interest rate swaps............. -- 2 -- 2 -- 2 ------- ------- ---- ------- ------ ------- Net gap position including interest rate swaps at March 31, 1996..... (2,930) 362 191 (2,377) 674 (1,703) Management adjustment............... 4,601 (1,061) (60) 3,480 (48) 3,432 ------- ------- ---- ------- ------ ------- Management adjusted gap at March 31, 1996................... $ 1,671 $ (699) $131 $ 1,103 $ 626 $ 1,729 ======= ======= ==== ======= ====== ======= Management adjusted gap at December 31, 1995................... $ 1,260 $ (579) $277 $ 958 $ 681 $ 1,639 ======= ======= ==== ======= ====== ======= Management adjusted gap at March 31, 1995................... $ 1,255 $(1,154) $513 $ 614 $ 551 $ 1,165 ======= ======= ==== ======= ====== =======
In addition to the gap analysis presented in the table, the Company also uses a simulation model that incorporates varying interest rate scenarios, including the effect of rapid changes (both increases and decreases up to 200 basis points) in interest rates on its net interest income and net interest margin. The Company's policy is to minimize volatility in its net interest income and net interest margin. Liquidity, for commercial banking activities, is the ability to respond to maturing obligations, deposit withdrawals, and loan demand. The liquidity positions of the Company's banking subsidiaries are closely monitored by the Company's Capital Markets Committee. BayBanks' distribution network provides a stable base of in-market core deposits and limits the need to raise funds from the national market. The Company's net liquidity position (short-term investments, securities available for sale, and investment securities, less pledged securities, large CDs, and purchased funds) was $1.3 billion, or 13% of total deposits and borrowings, at March 31, 1996, compared with $1.7 billion, or 16% of total deposits and borrowings, at December 31, 1995, and $1.8 billion, or 18% of total deposits and borrowings, at March 31, 1995. The Company's strong liquidity position allowed for a reduction in the level of borrowings and the expansion of the loan portfolio in the first quarter of 1996. The Company derives additional liquidity flexibility from the relatively short average maturity (1.3 years) of its securities portfolios (page 14). The statement of cash flows provides additional information on liquidity. The statement presents the results of the Company's operating, investing, and financing activities. Operating activities included $38.4 million in net income for the first quarter of 1996, before adjustment of noncash items. Investing activities consist primarily of both proceeds from sales and purchases of short-term investments and securities and net loan originations. Financing activities consist primarily of the net deposit activity in the Company's various accounts and short-term borrowings, as well as dividends paid. Cash and cash equivalents were $922 million at December 31, 1995. During the first quarter of 1996, net cash provided by operating activities was $41 million, net cash provided by investing activities totaled $389 million, and net cash used in financing activities was $480 million. Cash and cash equivalents were $873 million at March 31, 1996. The parent company's primary source of liquidity is dividends received from its subsidiaries and income earned on its securities portfolios. The most significant uses of the parent company's resources are capital 16 17 contributions to banking and other subsidiaries when appropriate, dividends paid to stockholders, and the acquisition of subsidiaries. In the first quarter of 1996, the parent company was repaid $15 million in advances to a nonbank subsidiary. Dividends received from banking subsidiaries were $14 million during the first quarter of 1996. The parent company paid $12 million in dividends to its stockholders in the first quarter of 1996. In addition, during the first quarter of 1996, the parent company repaid $50 million in floating-rate notes, which were scheduled to mature in September 1997. At March 31, 1996, the parent company had $117 million in cash, short-term investments, and other securities. The Merger Agreement with Bank of Boston requires the Company to obtain the consent of Bank of Boston before incurring indebtedness, disposing of assets, or making material investments, in each case other than in the ordinary course consistent with past practice. The Company does not believe that these restrictions will have a material effect on its liquidity or operations during the period before the merger is consummated. CREDIT QUALITY REVIEW Overview The Company continually monitors the credit quality of its loan portfolio. Employing a standard system for grading loans, individual account officers assign loan grades, or risk ratings, and, if necessary, a specific loan loss reserve calculated under the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." An independent Loan Review Department reviews loan grades and specific loan loss reserves. Any loan or portion of a loan determined to be uncollectible is charged off. On a quarterly basis, senior management reviews the loan portfolio, with particular emphasis on higher-risk loans, to assess the credit quality and loss potential inherent in the portfolio. Also considered in this review are delinquency trends and the adequacy of reserves. The size of the allowance for loan losses, the OREO reserve, and the related provisions reflect this analysis. Nonperforming assets, presented in TABLE G (page 18), (which exclude restructured, accruing loans entered into prior to the adoption of SFAS No. 114 and accruing loans 90 days or more past due) include nonperforming loans (including impaired loans, as defined below) and OREO and were $87 million at March 31, 1996, $83 million at December 31, 1995, and $112 million at March 31, 1995. In accordance with SFAS No. 114, included in nonperforming loans at March 31, 1996 are loans totaling $9.0 million which were restructured during the first quarter of 1996. These loans, which are on accrual status, bear market rates of interest and are performing under the restructured terms. Of the $9.0 million, $4.5 million previously had been reported as nonaccrual and $2.9 million previously had been reported as restructured, accruing loans. 17 18 TABLE G NONPERFORMING ASSETS; RESTRUCTURED, ACCRUING LOANS; AND ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
March 31 DECEMBER 31 MARCH 31 1996 1995 1995 -------- ------------ -------- Nonperforming loans Nonaccrual loans........................................ $61,529 $63,830 $ 75,512 Restructured, accruing loans(1)......................... 9,009 -- -- ------- ------- -------- 70,538 63,830 75,512 Other real estate owned In-substance foreclosures............................... 4,864 5,272 11,617 Foreclosed property..................................... 21,219 23,688 41,418 ------- ------- -------- 26,083 28,960 53,035 Less OREO reserve....................................... 9,280 10,164 16,542 ------- ------- -------- OREO, net of reserve.................................... 16,803 18,796 36,493 ------- ------- -------- Total nonperforming assets................................ $87,341 $82,626 $112,005 ======= ======= ======== Restructured, accruing loans(2)........................... $ 2,332 $ 5,949 $ 6,765 ======= ======= ======== Accruing loans 90 days or more past due................... $38,009 $40,472 $ 30,427 ======= ======= ======== Nonperforming assets as a percentage of loans and OREO.... 1.1% 1.1% 1.6% Nonperforming assets as a percentage of total assets...... 0.8 0.7 1.0 - --------------- (1) In accordance with SFAS No. 114, included in nonperforming loans at March 31, 1996 are loans totaling $9.0 million which were restructured during the first quarter of 1996. These loans, which are on accrual status, bear market rates of interest and are performing under the restructured terms. Of the $9.0 million, $4.5 million had been previously reported as nonaccrual. (2) Restructured, accruing loans entered into prior to the adoption of SFAS No. 114 are not reported as nonperforming loans.
The change in nonperforming assets is shown in TABLE H (page 19). Favorable resolutions, including property sales and payments on nonperforming loans, were $10 million in the first quarter of 1996, or 12% of nonperforming assets at the beginning of the year. Additions to nonperforming assets were $21 million in the first quarter of 1996. 18 19 TABLE H CHANGE IN ASSET QUALITY (IN THOUSANDS)
1996 1995 ------- ----------------------------------------- FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER ------- -------- -------- -------- -------- Nonperforming assets(1)(2)................ $87,341 $ 82,626 $ 76,877 $ 96,814 $112,005 ======= ======== ======== ======== ======== Nonperforming asset activity: Additions............................... $21,283(2) $ 23,883 $ 12,715 $ 21,870 $ 7,573 ------- -------- -------- -------- -------- Payments................................ (6,436) (9,492) (16,087) (13,567) (5,721) Returns to accrual...................... -- (307) (2,251) (1,227) (104) OREO sales.............................. (3,448) (3,928) (12,022) (13,863) (6,645) ------- -------- -------- -------- -------- Total improvements..................... (9,884) (13,727) (30,360) (28,657) (12,470) ------- -------- -------- -------- -------- Net inflow (outflow)................... 11,399 10,156 (17,645) (6,787) (4,897) ------- -------- -------- -------- -------- Charge-offs............................... (7,568) (5,695) (6,697) (9,089) (4,884) Net change in OREO reserve................ 884 1,288 4,405 685 (240) ------- -------- -------- -------- -------- Total increase (decrease) in nonperforming assets.................................. $ 4,715 $ 5,749 $(19,937) $(15,191) $(10,021) ======= ======== ======== ======== ======== - --------------- (1) At period-end, excluding restructured, accruing loans entered into prior to the adoption of SFAS No. 114 and accruing loans 90 days or more past due. (2) In accordance with SFAS No. 114, included in nonperforming loans at March 31, 1996 are loans totaling $9.0 million which were restructured during the first quarter of 1996. These loans, which are on accrual status, bear market rates of interest and are performing under the restructured terms. Of the $9.0 million, $4.5 million had been previously reported as nonaccrual.
Nonperforming Loans A commercial or commercial real estate loan is impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage and instalment loans, are not individually reported as impaired. Total impaired loans were $53 million at March 31, 1996, compared with $48 million at December 31, 1995 and $59 million at March 31, 1995. Impaired loans at March 31, 1996 include $9.0 million of loans restructured in the first quarter of 1996 which are on accrual status. Total nonperforming loans (TABLE I), including impaired loans, were $71 million at March 31, 1996, compared with $64 million at December 31, 1995 and $76 million at March 31, 1995. TABLE I NONPERFORMING LOANS(1) AT PERIOD-END (DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31, 1996 1995 MARCH 31, 1995 ---------------- --------------- ---------------- Commercial.............................. $20,008 29% $22,227 35% $16,363 22% Commercial real estate.................. 32,674 46 25,832 41 42,255 56 Residential mortgage.................... 14,049 20 13,068 20 15,278 20 Instalment.............................. 3,807 5 2,703 4 1,616 2 ------- --- ------- --- ------- --- Total nonperforming loans..... $70,538 100% $63,830 100% $75,512 100% ======= === ======= === ======= === - --------------- (1) Excludes restructured, accruing loans entered into prior to the adoption of SFAS No. 114 and accruing loans 90 days or more past due.
19 20 Other Real Estate Owned OREO consists of foreclosed properties and in-substance foreclosures. Foreclosed properties are being prepared for sale or are currently listed for sale. In-substance foreclosures are assets for which the Company has received physical possession of the collateral. OREO (net of a valuation reserve) declined to $17 million at March 31, 1996, from $19 million at December 31, 1995 and $36 million at March 31, 1995. The decline is primarily due to property sales. Restructured, Accruing Loans The Company restructures credits with troubled borrowers if such arrangements are likely to minimize losses the Company may otherwise incur on a particular credit. Nonaccrual loans that have been restructured remain on nonaccrual status unless the customer has demonstrated a period of performance and there is reasonable assurance of collection of principal and interest. Troubled debt restructurings entered into after December 31, 1994, are accounted for as impaired loans until the year subsequent to restructure, provided that the loan bears a market rate of interest at the time of restructure and is performing under the restructured terms. The amount of troubled debt restructurings entered into during the first quarter of 1996 was $9.0 million. These loans have been accounted for as impaired loans and have been disclosed as nonperforming loans. The Company did not enter into any restructured, accruing loan agreements during the first quarter of 1995. Loans restructured prior to the adoption of SFAS No. 114 on January 1, 1995, are exempt from the provisions of that statement provided they are performing under the restructured terms. Pre-SFAS No. 114 restructured, accruing loans are not reported as nonperforming loans and were $2 million at March 31, 1996, compared with $6 million at December 31, 1995 and $7 million at March 31, 1995. Accruing Loans 90 Days or More Past Due Accruing loans 90 days or more past due, presented in TABLE J, were $38 million at March 31, 1996, $40 million at December 31, 1995, and $30 million at March 31, 1995. The increase from the first quarter of 1995 was the result of the New Hampshire acquisitions and an increase in consumer credit delinquencies. Of the $38 million in accruing loans 90 days or more past due at March 31, 1996, residential real estate loans and instalment loans together represented 91% of the total. Residential real estate and instalment loans by their nature include a large number of smaller loans. Of the $11 million in such residential real estate loans, $10 million were in owner-occupied properties. TABLE J ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31, 1996 1995 MARCH 31, 1995 ---------------- --------------- ---------------- Commercial.............................. $ 1,069 3% $ 1,710 4% $ 624 2% Commercial real estate.................. 2,385 6 831 2 1,974 6 Residential mortgage.................... 11,206 29 13,238 33 8,492 28 Instalment.............................. 23,349 62 24,693 61 19,337 64 ------- --- ------- --- ------- --- Total......................... $38,009 100% $40,472 100% $30,427 100% ======= === ======= === ======= ===
Allowance for Loan Losses The allowance for loan losses (TABLE K, page 21) was $152 million at March 31, 1996. The coverage of nonperforming loans (allowance for loan losses as a percentage of nonperforming loans) increased to 215% at March 31, 1996 from 194% at March 31, 1995. The coverage of nonperforming loans was 241% at December 31, 1995. The coverage of nonperforming loans; restructured, accruing loans; and accruing loans 90 20 21 days or more past due was 137% at March 31, 1996, 139% at December 31, 1995, and 130% at March 31, 1995. TABLE K SUMMARY OF LOAN LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
1996 1995(1) ---------- ---------- Loans outstanding at March 31......................................... $7,869,849 $6,774,494 ========== ========== Average loans......................................................... $7,775,154 $6,710,187 ========== ========== Allowance for loan losses: Balance at beginning of period........................................ $ 153,688 $ 146,835 Loans charged off Commercial......................................................... 4,029 961 Commercial real estate............................................. 209 1,713 Residential mortgage............................................... 1,472 1,387 Instalment......................................................... 8,616 7,187 ---------- ---------- Total loans charged off............................................ 14,326 11,248 ---------- ---------- Recoveries Commercial....................................................... 1,422 1,013 Commercial real estate........................................... 1,309 1,296 Residential mortgage............................................. 807 440 Instalment....................................................... 1,880 1,512 ---------- ---------- Total recoveries................................................. 5,418 4,261 ---------- ---------- Net loans charged off............................................ 8,908 6,987 Provision for loan losses........................................... 6,900 6,500 ---------- ---------- Balance at March 31................................................... $ 151,680 $ 146,348 ========== ========== Annualized net charge-offs as a percentage of average period-to-date loans............................................................... 0.5% 0.4% Allowance for loan losses as a percentage of period-end loans......... 1.9 2.2 Allowance for loan losses as a percentage of nonperforming loans...... 215.0 193.8 Allowance for loan losses as a percentage of nonperforming loans; restructured, accruing loans; and accruing loans past due 90 days or more................................................................ 136.8 129.9 - --------------- (1) As a result of the adoption of SFAS No. 114 on January 1, 1995, $33.2 million of in-substance foreclosures and related reserves of $8.7 million were reclassified to loans and the allowance for loan losses, respectively. Charge-offs of $8.7 million were subsequently recorded during the first quarter of 1995. The reclassification of in-substance foreclosures reserves and subsequent charge-offs had no effect on the allowance for loan losses and are not reflected in the table above.
CAPITAL AND DIVIDENDS BayBanks' consolidated risk-based capital ratios were 13.23% for total capital and 11.97% for core capital at March 31, 1996, compared with 13.36% and 11.81%, respectively, at March 31, 1995. At December 31, 1995, the consolidated risk-based capital ratios were 12.80% for total capital and 11.41% for core capital. The consolidated leverage ratio was 7.95%, 7.66%, and 7.55% at March 31, 1996, December 31, 1995, and March 31, 1995, respectively (TABLE L, page 22). 21 22 TABLE L CAPITAL RATIOS MARCH 31, 1996
RISK-BASED RATIOS -------------------------------------------------------- TIER 1 CAPITAL TOTAL CAPITAL LEVERAGE RATIO --------------------------- --------------------------- --------------------------- REQUIRED TO BE REQUIRED TO BE REQUIRED TO BE WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED WELL CAPITALIZED* REPORTED ----------------- -------- ----------------- -------- ----------------- -------- BayBanks, Inc................. n/a% 11.97% n/a% 13.23% n/a% 7.95% BayBank, N.A. (Note).......... 6.00 10.17 10.00 11.43 5.00 6.92 BayBank FSB (Note)............ 6.00 13.19 10.00 14.45 5.00 8.11 BayBank NH (Note)............. 6.00 22.33 10.00 23.61 5.00 9.89 - ------------------------ BayBank, N.A. Pro Forma (Note)...................... 6.00 10.43 10.00 11.69 5.00 7.03 * Under Federal Prompt Corrective Action and Risk-based Deposit Insurance Assessment Regulations. n/a - not applicable Note: During the second quarter of 1996, BayBank NH was converted to a nationally chartered bank (BayBank NH, N.A.). In addition, applications have been filed to convert BayBank FSB to a nationally chartered bank, to merge BayBank NH, N.A. into BayBank FSB (after conversion of charter) and to merge the surviving New Hampshire national bank into BayBank, N.A. The Pro Forma BayBank, N.A. capital ratios assume these mergers were effective March 31, 1996.
The Company paid a dividend in the first quarter of 1996 of $.60 per share and on April 25, 1996, declared a quarterly dividend of $.60 per share payable June 1, 1996. Under the Company's Merger Agreement with Bank of Boston, the Company's quarterly dividend may not be increased without the consent of Bank of Boston. 22 23 BAYBANKS, INC. AVERAGE BALANCES AND CAPITAL RATIOS(1) (DOLLARS IN MILLIONS)
1996 1995 ------- ------------------------------------- FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- ------- ASSETS Interest-bearing deposits and other short-term investments.............................................. $ 271 $ 432 $ 366 $ 215 $ 205 Securities available for sale(2)........................... 2,432 1,147 337 225 231 Investment securities(2)................................... 53 1,418 2,303 2,574 2,687 Loans(3) Commercial............................................... 1,546 1,587 1,609 1,615 1,533 Commercial real estate................................... 1,191 1,085 1,090 981 980 Residential mortgage..................................... 2,097 1,991 1,831 1,415 1,357 Instalment............................................... 2,941 2,895 2,846 2,820 2,840 ------- ------- ------- ------- ------- 7,775 7,558 7,376 6,831 6,710 Less allowance for loan losses........................... 155 155 157 146 151 ------- ------- ------- ------- ------- 7,620 7,403 7,219 6,685 6,559 ------- ------- ------- ------- ------- Total earning assets.............................. 10,531 10,555 10,382 9,845 9,833 Cash and due from banks.................................... 705 711 690 667 632 Other assets............................................... 501 482 495 442 440 ------- ------- ------- ------- ------- Total assets...................................... $11,582 $11,593 $11,410 $10,808 $10,754 ======= ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand................................................... $ 2,122 $ 2,134 $2,090 $2,013 $1,998 NOW accounts............................................. 1,538 1,472 1,439 1,377 1,383 Savings.................................................. 1,504 1,484 1,479 1,431 1,451 Money market deposit accounts............................ 2,611 2,545 2,539 2,468 2,512 Consumer time............................................ 1,887 1,838 1,789 1,401 1,189 Time -- $100,000 or more................................. 209 217 216 210 175 ------- ------- ------- ------- ------- 9,871 9,690 9,552 8,900 8,708 Federal funds purchased and other short-term borrowings.... 598 807 799 947 1,114 Long-term debt............................................. 62 65 65 51 51 ------- ------- ------- ------- ------- Total deposits and borrowings..................... 10,531 10,562 10,416 9,898 9,873 Other liabilities(4)....................................... 104 115 103 86 81 Stockholders' equity....................................... 947 916 891 824 800 ------- ------- ------- ------- ------- Total liabilities and stockholders' equity........ $11,582 $11,593 $11,410 $10,808 $10,754 ======= ======= ======= ======= ======= CAPITAL RATIOS Risk-Based Core (Min. regulatory standard -- 4.00%)................. 11.97% 11.41% 11.57% 11.99% 11.81% Total (Min. regulatory standard -- 8.00%)................ 13.23 12.80 13.10 13.53 13.36 Leverage................................................... 7.95 7.66 7.59 7.75 7.55 - --------------- (1) Average balances exclude the impact of average unrealized gains on securities available for sale, net of tax. (2) During the fourth quarter of 1995, the Financial Accounting Standards Board allowed a one-time reassessment of the classification of securities, and the Company reclassified $2.0 billion from investment securities to securities available for sale. (3) Nonperforming loans are included in the average balances. (4) Includes guarantee of ESOP indebtedness.
23 24 BAYBANKS, INC. SUMMARY OF OPERATIONS (DOLLARS IN THOUSANDS ON A TAX EQUIVALENT BASIS, EXCEPT PER SHARE AMOUNTS)
1996 1995 -------- -------------------------------------------- FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- Income on earning assets.......................... $208,686 $212,404 $209,826 $197,045 $192,179 Interest expense on deposits and borrowings....... 73,535 77,945 76,738 70,885 66,430 -------- -------- -------- -------- -------- Net interest income............................... 135,151 134,459 133,088 126,160 125,749 Noninterest income................................ 59,170 54,714 57,344 55,752 51,441 -------- -------- -------- -------- -------- Total income from operations...................... 194,321 189,173 190,432 181,912 177,190 Operating expenses................................ 123,017 117,288 125,109 119,926 116,552 -------- -------- -------- -------- -------- OPERATING INCOME BEFORE NET SECURITIES GAINS (LOSSES) AND PROVISIONS FOR LOAN LOSSES AND OREO RESERVE......................................... 71,304 71,885 65,323 61,986 60,638 -------- -------- -------- -------- -------- Net securities gains (losses)..................... 5 (3) 42 -- 1 -------- -------- -------- -------- -------- Provision for loan losses......................... 6,900 6,000 6,000 6,500 6,500 Provision for OREO reserve, net................... (398) (592) (229) -- 1,000 -------- -------- -------- -------- -------- Credit provisions................................. 6,502 5,408 5,771 6,500 7,500 -------- -------- -------- -------- -------- Pre-tax income.................................... 64,807 66,474 59,594 55,486 53,139 Less tax equivalent adjustment included above..... 3,254 3,395 2,891 2,943 2,795 -------- -------- -------- -------- -------- Income before taxes............................... 61,553 63,079 56,703 52,543 50,344 Provision for income taxes........................ 23,174 25,257 21,984 18,185 19,869 -------- -------- -------- -------- -------- NET INCOME........................................ $ 38,379 $ 37,822 $ 34,719 $ 34,358 $ 30,475 ======== ======== ======== ======== ======== EARNINGS PER SHARE................................ $ 1.92 $ 1.90 $ 1.74 $ 1.78 $ 1.58 DIVIDENDS PAID PER SHARE.......................... $ 0.60 $ 0.60 $ 0.60 $ 0.50 $ 0.50 FINANCIAL RATIOS Return on average equity.......................... 16.0% 16.3% 15.5% 16.7% 15.5% Return on average assets.......................... 1.33 1.29 1.21 1.28 1.15 COMMON STOCK DATA Period-end book value per share................... $ 49.46 $ 48.43 $ 46.18 $ 44.09 $ 42.81 Period-end tangible book value per share.......... 46.69 45.64 43.74 43.84 42.59 Dividend payout ratio............................. 31.3% 31.6% 34.5% 28.1% 31.6% Range of BayBanks, Inc., last sale price High............................................ $ 108.00 $ 98.25 $ 83.75 $ 79.50 $ 64.50 Low............................................. 88.75 75.88 74.75 60.50 52.00 Close........................................... 107.50 98.25 75.88 79.25 64.50
24 25 BAYBANKS, INC. AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN(1)
1996 1995 ------- ------------------------------------------- FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- ------- Interest-bearing deposits and other short-term investments.................................. 5.40% 5.74% 5.78% 6.04% 5.84% Securities available for sale(2)............... 5.90 5.89 6.24 6.64 6.80 Investment securities.......................... 9.38 5.94 5.81 5.72 5.51 Loans.......................................... 8.67 8.83 8.92 8.99 8.94 Commercial................................... 8.36 8.59 8.68 8.85 8.92 Commercial real estate....................... 8.92 9.26 9.26 9.31 8.98 Residential mortgage......................... 7.64 7.62 7.70 7.69 7.62 Instalment................................... 9.44 9.62 9.70 9.61 9.57 Total earning assets........................... 7.94% 7.99% 8.03% 8.01% 7.89% Interest-bearing funds......................... 3.51% 3.66% 3.65% 3.60% 3.41% NOW accounts................................. 1.21 1.32 1.37 1.36 1.37 Savings...................................... 2.26 2.33 2.30 2.29 2.25 Money market deposit accounts................ 3.44 3.47 3.44 3.37 3.22 Consumer time................................ 5.63 5.67 5.61 5.46 4.83 Time -- $100,000 or more..................... 5.29 5.58 5.65 5.84 5.78 Short-term borrowings........................ 5.35 5.68 5.77 5.99 5.84 Long-term debt............................... 5.93 6.01 6.22 6.35 6.50 Interest expense as a percentage of average earning assets............................... 2.80% 2.92% 2.93% 2.88% 2.73% Net interest margin............................ 5.14% 5.07% 5.10% 5.13% 5.16% - --------------- (1) Tax equivalent basis. (2) Yields based on average amortized cost.
PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit List and Index on page 27. (b) A report on Form 8-K was filed on April 19, 1996, reporting that the Company issued a press release on April 18, 1996 containing its operating results for the first quarter of 1996. 25 26 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BayBanks, Inc. -------------------------------------- (Registrant) By: /s/ Michael W. Vasily ------------------------------------ Michael W. Vasily Executive Vice President and Chief Financial Officer (Duly Authorized and Principal Financial Officer) Date: May 13, 1996 26 27 BAYBANKS, INC. EXHIBIT LIST AND INDEX
EXHIBIT NO. DESCRIPTION - ----------- ---------------------------------------------------------------------------------- MISCELLANEOUS 10.1 -- Certificate of Vote Modifying 1990 Stock Plan for Directors. 11.1 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 28. 27 -- Financial Data Schedule.
27 EX-10.1 2 CERTIFICATE OF VOTE MODIFYING 1990 STOCK PLAN 1 Exhibit 10.1 ------------ C E R T I F I C A T E --------------------- I, Ilene Beal, Clerk and Secretary of BayBanks, Inc., hereby certify that at a meeting of the Board of Directors of said Corporation held at the offices of BayBanks, Inc., 175 Federal Street, Boston, Massachusetts, on Thursday, January 25, 1996, at which meeting a quorum was present and acting throughout, the following vote was duly adopted by said Board of Directors: VOTED: That no grant of stock under the 1990 Stock Plan for Directors ----- be made for the year 1996 and that the annual retainer payable to non-employee directors of the Corporation for 1996 be paid in cash. I further certify that said vote has not been altered, amended, or rescinded since the date thereof. Witness my hand and the seal of said Corporation this third day of May, 1996. /s/ Ilene Beal -------------------------- Ilene Beal Clerk and Secretary EX-11.1 3 COMPUTATION RE: EARNINGS PER SHARE 1 EXHIBIT 11.1 BAYBANKS, INC. COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THE QUARTERS ENDED MARCH 31 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1996 1995 ----------- ----------- PRIMARY: Weighted average shares......................................... 19,685,821 18,998,610 Common stock equivalents Stock options.............................................. 292,720 263,331 ----------- ----------- Primary weighted average shares................................. 19,978,541 19,261,941 =========== =========== Net income...................................................... $ 38,379 $ 30,475 =========== =========== Primary earnings per share...................................... $ 1.92 $ 1.58 =========== =========== FULLY DILUTED: Weighted average shares......................................... 19,685,821 18,998,610 Common stock equivalents: Stock options................................................. 305,195 293,110 ----------- ----------- Fully diluted weighted average shares........................... 19,991,016 19,291,720 =========== =========== Net income...................................................... $ 38,379 $ 30,475 =========== =========== Fully diluted earnings per share................................ $ 1.92 $ 1.58 =========== ===========
28 EX-27 4 FINANCIAL DATA SCHEDULE
9 This statement contains summary financial information extracted from the consolidated financial statements of BayBanks, Inc. for the three-month period ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 872,677 0 210,875 36,340 2,202,876 52,612 52,612 7,869,849 151,680 11,593,179 10,101,396 415,628 85,532 14,871 39,459 0 0 936,293 11,593,179 167,778 34,094 3,560 205,432 64,532 73,535 131,897 6,900 5 122,619 61,553 38,379 0 0 38,379 1.92 0 5.14 61,529 38,009 11,341 0 153,688 14,326 5,418 151,680 8,466 0 143,214
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