-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VMGaYHKLGw2YCbIlkXm4HMAXBtjaJtBx8N2iJ66tpToYB5xsBe9nf5dVzK5BfHfP 6BjA/rnNI5I4/GgrOuo2Pw== 0000950135-95-001698.txt : 19950814 0000950135-95-001698.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950135-95-001698 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 95561106 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 June 30, 1995 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 July 31, 1995, 19,570,025 shares of the registrant's common stock, $2.00 par value, were outstanding. The list of exhibits to this report appears on page 28. ================================================================================ 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BAYBANKS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30 DECEMBER 31 JUNE 30 1995 1994 1994 ----------- ----------- ----------- ASSETS Cash and due from banks..................................................... $ 839,063 $ 829,170 $ 659,739 Trading accounts............................................................ 47,835 27,416 15,986 Securities portfolios Interest-bearing deposits and other short-term investments.................. 198,600 166,286 160,850 Securities available for sale -- amortized cost $214,836 at June 30, 1995, $220,132 at December 31, 1994, and $499,005 at June 30, 1994.............. 215,563 220,602 500,395 Investment securities -- market value $2,457,033 at June 30, 1995, $2,481,584 at December 31, 1994, and $2,685,389 at June 30, 1994.......... 2,449,708 2,556,249 2,723,696 ----------- ----------- ----------- 2,863,871 2,943,137 3,384,941 Loans, net of unearned income and fees Commercial................................................................ 1,633,060 1,528,265 1,352,961 Commercial real estate.................................................... 982,819 956,596 916,731 Residential mortgage...................................................... 1,499,309 1,335,466 1,239,026 Instalment................................................................ 2,824,969 2,828,193 2,592,853 ----------- ----------- ----------- 6,940,157 6,648,520 6,101,571 Less allowance for loan losses............................................ 146,345 146,835 154,126 ----------- ----------- ----------- 6,793,812 6,501,685 5,947,445 Premises and equipment, net................................................. 195,244 195,430 192,436 Other real estate owned and in-substance foreclosures, net.................. 23,846 67,399 89,178 Other assets................................................................ 242,029 206,710 200,530 ----------- ----------- ----------- Total assets.......................................................... $11,005,700 $10,770,947 $10,490,255 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand.................................................................... $ 2,181,104 $ 2,214,761 $ 2,062,723 NOW accounts.............................................................. 1,430,111 1,491,694 1,418,609 Savings................................................................... 1,419,254 1,462,459 1,499,173 Money market deposit accounts............................................. 2,467,478 2,560,425 2,664,896 Consumer time............................................................. 1,473,761 1,095,357 947,424 Time -- $100,000 or more.................................................. 209,354 175,663 80,607 ----------- ----------- ----------- 9,181,062 9,000,359 8,673,432 Federal funds purchased and other short-term borrowings..................... 849,490 849,517 954,977 Accrued expenses and other accounts payable................................. 77,753 71,854 54,870 Long-term debt.............................................................. 51,136 51,154 54,024 Guarantee of ESOP indebtedness.............................................. 6,289 9,451 9,451 Stockholders' equity: Common stock, par value $2.00 per share Shares authorized -- 50,000,000 Shares issued -- 19,049,817 at June 30, 1995, 18,999,354 at December 31, 1994, and 18,835,989 at June 30, 1994.................................. 38,100 37,999 37,672 Surplus................................................................... 317,023 314,924 312,333 Retained earnings......................................................... 491,136 445,167 402,998 ----------- ----------- ----------- 846,259 798,090 753,003 Less treasury stock at cost -- 1,431 shares at December 31, 1994, and 850 shares at June 30, 1994................................................. -- 27 51 Less guarantee of ESOP indebtedness....................................... 6,289 9,451 9,451 ----------- ----------- ----------- Total stockholders' equity............................................ 839,970 788,612 743,501 ----------- ----------- ----------- Total liabilities and stockholders' equity............................ $11,005,700 $10,770,947 $10,490,255 =========== =========== ===========
2 3 BAYBANKS, INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SECOND QUARTER SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ----------------------- ----------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Income on interest-bearing deposits and other short-term investments........................ $ 3,141 $ 1,925 $ 6,004 $ 4,410 Interest on securities available for sale and investment securities......................... 37,775 33,555 75,707 60,545 Interest and fees on loans...................... 153,186 120,758 301,775 237,768 ----------- ----------- ----------- ----------- Total income on earning assets.................. 194,102 156,238 383,486 302,723 Interest expense on deposits and borrowings Deposits...................................... 55,712 35,509 105,039 69,387 Short-term borrowings......................... 14,352 7,308 30,624 10,724 Long-term debt................................ 821 606 1,652 1,130 ----------- ----------- ----------- ----------- Total interest expense.......................... 70,885 43,423 137,315 81,241 ----------- ----------- ----------- ----------- Net interest income............................. 123,217 112,815 246,171 221,482 Provision for loan losses....................... 6,500 6,000 13,000 12,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses........................................ 116,717 106,815 233,171 209,482 Noninterest income Service charges and fees on deposit accounts................................... 27,640 27,784 54,283 54,042 Other noninterest income...................... 28,112 26,247 52,910 49,704 ----------- ----------- ----------- ----------- Total noninterest income........................ 55,752 54,031 107,193 103,746 Net securities gains............................ -- 436 1 475 Operating expenses Salaries and benefits......................... 61,417 57,434 121,735 113,817 Occupancy and equipment....................... 22,416 21,616 45,014 44,194 Other operating expenses...................... 36,093 35,662 69,729 68,896 ----------- ----------- ----------- ----------- Total operating expenses........................ 119,926 114,712 236,478 226,907 Provision for OREO reserve, net................. -- 2,500 1,000 5,437 ----------- ----------- ----------- ----------- Total operating expenses after OREO provision... 119,926 117,212 237,478 232,344 ----------- ----------- ----------- ----------- Income before taxes and cumulative effect of accounting change............................. 52,543 44,070 102,887 81,359 Provision for income taxes...................... 18,185 17,648 38,054 32,726 ----------- ----------- ----------- ----------- Income before cumulative effect of accounting change........................................ 34,358 26,422 64,833 48,633 Less cumulative effect of accounting change (net of tax benefit of $683 in 1994)............... -- -- -- 932 ----------- ----------- ----------- ----------- NET INCOME...................................... $ 34,358 $ 26,422 $ 64,833 $ 47,701 Earnings Per Share Income before accounting change............... $ 1.78 $ 1.38 $ 3.36 $ 2.54 Less cumulative effect of accounting change... -- -- -- 0.05 ----------- ----------- ----------- ----------- Net Income.................................... $ 1.78 $ 1.38 $ 3.36 $ 2.49 =========== =========== =========== =========== Average shares outstanding...................... 19,322,107 19,154,620 19,292,097 19,124,143
3 4 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON RETAINED TREASURY ESOP LOAN STOCK SURPLUS EARNINGS STOCK GUARANTEE TOTAL ------- -------- -------- -------- --------- -------- BALANCE AS OF DECEMBER 31, 1993............. $37,486 $310,355 $367,662 $ -- $(12,241) $703,262 Net income -- Six months ended June 30, 1994.................................... 47,701 47,701 Cash dividends declared ($0.70 per share).................................. (13,164) (13,164) Net change in valuation reserve related to securities available for sale portfolio, net of deferred income taxes............ 799 799 Other, principally employee benefit plans................................... 186 1,978 (51) 2,790 4,903 ------- -------- -------- ---- -------- -------- BALANCE AS OF JUNE 30, 1994................. $37,672 $312,333* $402,998 $(51) $ (9,451) $743,501 ======= ======== ======== ==== ======== ======== BALANCE AS OF DECEMBER 31, 1994............. $37,999 $314,924* $445,167 $(27) $ (9,451) $788,612 Net income -- Six months ended June 30, 1995.................................... 64,833 64,833 Cash dividends declared ($1.00 per share).................................. (19,015) (19,015) Net change in valuation reserve related to securities available for sale portfolio, net of deferred income taxes............ 151 151 Other, principally employee benefit plans................................... 101 2,099 27 3,162 5,389 ------- ------- -------- ---- -------- -------- BALANCE AS OF JUNE 30, 1995................. $38,100 $317,023* $491,136 $ -- $ (6,289) $839,970 ======= ======== ======== ==== ======== ======== - --------------- * Net of unamortized restricted stock compensation expense of $5,892, $6,150, and $1,104 at June 30, 1995, December 31, 1994, and June 30, 1994, respectively.
4 5 BAYBANKS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 --------------------------- 1995 1994 ---------- ---------- OPERATING ACTIVITIES Net income................................................................ $ 64,833 $ 47,701 Adjustments to reconcile net income to net cash provided by operating activities: Proceeds from sales and maturities of trading account assets(1)......... 1,130,794 1,195,989 Purchases of trading account assets..................................... (1,159,925) (1,212,177) Amortization of security premium........................................ 7,291 14,453 Net securities gains.................................................... (1) (475) Fixed-rate mortgages sold............................................... 24,942 228,741 Fixed-rate mortgages originated for sale, net of principal payments..... (27,374) (130,346) Student loans transferred from portfolio and sold....................... 50,633 127,004 Provision for loan losses............................................... 13,000 12,000 Depreciation and amortization of premises and equipment................. 13,209 12,754 Gain on sales of premises and equipment................................. (1,737) (225) Provision for OREO reserve, net......................................... 1,000 5,437 Deferred income taxes................................................... 2,639 12,502 Change in other assets.................................................. (31,380) 345 Change in interest receivable........................................... (5,746) (19,809) Change in accrued expenses and other accounts payable................... 2,126 897 Change in interest payable.............................................. 5,106 470 ---------- ---------- Net cash provided by operating activities............................. 89,410 295,261 ---------- ---------- INVESTING ACTIVITIES Proceeds from sales of securities available for sale...................... 75,360 104,200 Proceeds from maturities of securities available for sale................. 3,833 131,837 Purchases of securities available for sale(1)............................. (65,065) (95,655) Proceeds from maturities of investment securities......................... 1,435,827 316,345 Purchases of investment securities........................................ (1,336,696) (1,450,739) Net cash provided (used) by: Short-term investments.................................................. (32,314) 642,218 Loans(2)(3)(4).......................................................... (325,702) (269,627) Proceeds from sales of premises and equipment............................. 2,305 473 Purchases of premises and equipment....................................... (13,591) (12,884) Proceeds from sales and payments related to OREO(3)(4).................... 14,927 35,521 ---------- ---------- Net cash used by investing activities................................. (241,116) (598,311) ---------- ---------- FINANCING ACTIVITIES Net cash provided (used) by: Demand deposits, NOW, and savings accounts.............................. (138,445) (37,694) Money market deposits................................................... (92,947) (66,824) Consumer time deposits.................................................. 378,404 (46,521) Time -- $100,000 or more................................................ 33,691 45,650 Short-term borrowings................................................... (27) 447,157 Long-term debt.......................................................... (18) (423) Dividends paid............................................................ (19,015) (13,164) Other equity transactions................................................. (44) 1,623 ---------- ---------- Net cash provided by financing activities............................. 161,599 329,804 ---------- ---------- Net change in cash and cash equivalents................................... 9,893 26,754 Cash and cash equivalents at beginning of year(5)......................... 829,170 632,985 ---------- ---------- Cash and cash equivalents at June 30(5)................................... $ 839,063 $ 659,739 ========== ========== Supplemental disclosure of cash flow information Interest paid........................................................... $ 132,209 $ 80,771 Taxes paid.............................................................. 48,318 25,145 - --------------- (1) Excludes transfers of trading account assets to the securities available for sale portfolio of $8.8 million and $14.8 million in 1995 and 1994, respectively. (2) Excludes transfers of loans to the other real estate owned category of $1.2 million and $20.8 million in 1995 and 1994, respectively. (3) Excludes loan originations in conjunction with OREO sales of $4.3 million and $5.5 million in 1995 and 1994, respectively. (4) 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 1994 amounts have been reclassified to conform with the 1995 presentation. These financial statements are unaudited. NOTE 2. SECURITIES PORTFOLIOS
GROSS GROSS WEIGHTED AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE COST GAINS LOSSES VALUE YIELD(1) ---------- ---------- ---------- ---------- -------- (DOLLARS IN THOUSANDS) JUNE 30, 1995 (2) SECURITIES AVAILABLE FOR SALE State and local government securities, maturing Within 1 year........................... $ 11,018 $ 12 $ -- $ 11,030 6.74% Corporate, maturing Within 1 year........................... 174,600 -- -- 174,600 6.43 Other(3).................................. 29,218 715 -- 29,933 7.08 ---------- -------- --------- ---------- Total securities available for sale............................... $ 214,836 $ 727 $ -- $ 215,563 6.53% ========== ======== ========= ========== ===== INVESTMENT SECURITIES U.S. Government securities, maturing Within 1 year........................... $ 705,611 $ 24 $ (5,132) $ 700,503 4.62% After 1 year but within 5 years......... 1,277,865 19,903 (5,565) 1,292,203 6.19 ---------- -------- --------- ---------- 1,983,476 19,927 (10,697) 1,992,706 5.63 ---------- -------- --------- ---------- State and local government securities, maturing Within 1 year........................... 113,393 46 (31) 113,408 6.73 After 1 year but within 5 years......... 40,502 288 (234) 40,556 6.86 After 5 years but within 10 years....... 31,938 393 (198) 32,133 7.51 ---------- -------- --------- ---------- 185,833 727 (463) 186,097 6.89 ---------- -------- --------- ---------- Asset-backed securities................... 182,366 -- (1,468) 180,898 4.33 Mortgage-backed securities................ 49,534 -- (701) 48,833 4.90 Industrial revenue bonds.................. 46,657 -- -- 46,657 11.32 Corporate and other....................... 1,842 -- -- 1,842 -- ---------- -------- --------- ---------- Total investment securities..... $2,449,708 $ 20,654 $ (13,329) $2,457,033 5.72% ========== ======== ========= ========== ===== - --------------- (1) Tax equivalent basis. (2) The period-end maturity distribution excludes industrial revenue bonds, which are not regarded as principal debt securities, mortgage-backed securities, asset-backed securities, and other securities that do not have a stated maturity. (3) BayBank, the Company's principal bank subsidiary, is a member of the Federal Home Loan Bank (FHLB). As of June 30, 1995, $29,120,400 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 June 30, 1995, BayBank had a $25,000,000 outstanding advance from the FHLB, at an interest rate of 6.17% and with a maturity date of July 3, 1995. This outstanding advance is included on the consolidated balance sheet in the other short-term borrowings category.
6 7 NOTE 2. SECURITIES PORTFOLIOS (CONTINUED)
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) DECEMBER 31, 1994 SECURITIES AVAILABLE FOR SALE State and local government securities........ $ 8,578 $ -- $ (14) $ 8,564 Corporate.................................... 183,900 -- -- 183,900 Other(1)..................................... 27,654 484 -- 28,138 ---------- ------ --------- ---------- Total securities available for sale............................. $ 220,132 $ 484 $ (14) $ 220,602 ========== ====== ========= ========== INVESTMENT SECURITIES U.S. Government securities................... $2,083,519 $ 10 $ (65,101) $2,018,428 Asset-backed securities...................... 200,386 -- (5,652) 194,734 State and local government securities........ 171,436 89 (1,250) 170,275 Mortgage-backed securities................... 49,503 -- (2,761) 46,742 Industrial revenue bonds..................... 49,548 -- -- 49,548 Other........................................ 1,857 -- -- 1,857 ---------- ------ --------- ---------- Total investment securities........ $2,556,249 $ 99 $ (74,764) $2,481,584 ========== ====== ========= ========== JUNE 30, 1994 SECURITIES AVAILABLE FOR SALE U.S. Government securities................... $ 217,916 $ 369 $ (11) $ 218,274 Mortgage-backed securities................... 26,302 612 -- 26,914 State and local government securities........ 9,833 -- (5) 9,828 Corporate.................................... 217,300 -- -- 217,300 Other(1)..................................... 27,654 425 -- 28,079 ---------- ------ --------- ---------- Total securities available for sale............................. $ 499,005 $1,406 $ (16) $ 500,395 ========== ====== ========= ========== INVESTMENT SECURITIES U.S. Government securities................... $2,308,849 $ 130 $ (32,070) $2,276,909 Asset-backed securities...................... 203,665 -- (4,368) 199,297 State and local government securities........ 106,257 127 (686) 105,698 Mortgage-backed securities................... 49,473 -- (1,440) 48,033 Industrial revenue bonds..................... 53,595 -- -- 53,595 Other........................................ 1,857 -- -- 1,857 ---------- ------ --------- ---------- Total investment securities........ $2,723,696 $ 257 $ (38,564) $2,685,389 ========== ====== ========= ========== - --------------- (1) As of December 31, 1994, and June 30, 1994, $27,555,500 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. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS During the second quarter of 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights," effective January 1, 1995. SFAS No. 122 is applied prospectively. Under the provisions of SFAS No. 122, the total cost of originating a mortgage is allocated between the rights to service the loan and the loan based on their relative fair values at the date of origination when the Company has a definitive plan to sell or securitize the loan and retain the mortgage servicing rights. This allocation is based on the assumption that a normal servicing fee will be received and that the rights to the remaining cash flow from the underlying mortgage loans will be sold or securitized. The adoption of SFAS No. 122 did not have a material effect on the Company's results of operations or financial condition. NOTE 4. ACQUISITIONS OF FINANCIAL INSTITUTIONS The Company's acquisition of the southern New Hampshire-based holding company, NFS Financial Corp. (NFS), parent company of NFS Savings Bank, FSB, and Plaistow Cooperative Bank, FSB, became 7 8 effective after the close of business on June 30, 1995. The stockholders of NFS received $20.15 in cash and .1696 shares of BayBanks, Inc. common stock for each share of NFS common stock held, an aggregate of $58.1 million in cash and 487,267 shares of BayBanks, Inc. common stock. In addition, outstanding options to purchase NFS common stock were converted into options to purchase an aggregate of 29,778 shares of BayBanks, Inc. common stock. At June 30, 1995, NFS had total assets of $625 million. The acquisition will be accounted for as a purchase. The acquisition will first be reflected in the Company's September 30, 1995 financial statements. On March 24, 1995, the Company announced that it had agreed to acquire Cornerstone Financial Corporation (Cornerstone), parent company of Cornerstone Bank of Derry, NH. The stockholders of Cornerstone will receive $8.80 in cash for each outstanding share of common stock held, an aggregate of approximately $18.5 million. The acquisition, approved by the boards of directors of both companies, is subject to approval by the stockholders of Cornerstone and various federal and state regulatory agencies. Cornerstone had total assets of $145 million at June 30, 1995. The acquisition will be accounted for as a purchase. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS PERFORMANCE OVERVIEW BayBanks' net income was $34.4 million for the second quarter of 1995, or $1.78 per share, compared with net income of $26.4 million, or $1.38 per share, for the second quarter of 1994, an increase of 29% on a per share basis. Net income for the first six months of 1995 was $64.8 million, or $3.36 per share, compared with $47.7 million, or $2.49 per share, for the first six months of 1994, an increase of 35% on a per share basis. The increase in net income was affected by the following items: - Operating income (defined below) increased by 14% in the second quarter of 1995 compared with the second quarter of 1994, primarily as the result of a 10% increase in net interest income. - Included in the second quarter results was the settlement of a tax claim against the Commonwealth of Massachusetts in the amount of $2.6 million, net of federal income tax. - Asset quality continued to improve; nonperforming assets were reduced to $96.8 million, a 14% decrease from March 31, 1995, and a 44% decrease from June 30, 1994. As a consequence, the combined provisions for loan losses and the other real estate owned (OREO) reserve (credit provisions) decreased to $6.5 million for the second quarter of 1995, compared with $8.5 million in 1994 and $7.5 million in the first quarter of 1995. For the six-month periods, credit provisions declined 20% to $14.0 million compared with 1994. - In 1994, net income for the first six months included an after-tax charge of $932 thousand, or $.05 per share, reflecting the cumulative effect of the Company's adoption of Statement of Financial Accounting Standards (SFAS)No. 112, "Employers' Accounting for Postemployment Benefits." EARNINGS ANALYSIS Operating Income (tax equivalent basis) Operating income, presented in TABLE A, excludes net securities gains and the provisions for loan losses and the OREO reserve and is before income taxes. For the second quarter of 1995, operating income was $62.0 million, compared with $60.6 million in the first quarter of 1995 and $54.2 million in the second quarter of 1994. The increase over the previous year was a result of a 10% increase in net interest income and a 3% growth in noninterest income, offset by a 5% increase in operating expenses. For the six-month periods, operating income was $122.6 million in 1995, compared with $102.4 million in 1994. In 1995, a 12% increase in net interest income and a 3% increase in noninterest income were partially offset by a 4% increase in operating expenses. 8 9 TABLE A SUMMARY OF OPERATIONS FOR THE FOLLOWING PERIODS TAX EQUIVALENT BASIS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SECOND FIRST SECOND SIX MONTHS QUARTER QUARTER QUARTER ------------------- 1995 1995 1994 1995 1994 -------- -------- -------- -------- -------- Income on earning assets.................... $197,045 $192,179 $158,305 $389,224 $306,763 Interest on deposits and borrowings......... 70,885 66,430 43,423 137,315 81,241 -------- -------- -------- -------- -------- Net interest income......................... 126,160 125,749 114,882 251,909 225,522 Noninterest income.......................... 55,752 51,441 54,031 107,193 103,746 -------- -------- -------- -------- -------- Total income from operations................ 181,912 177,190 168,913 359,102 329,268 Operating expenses.......................... 119,926 116,552 114,712 236,478 226,907 -------- -------- -------- -------- -------- Operating Income Before Net Securities Gains and Provisions for Loan Losses and OREO Reserve................................ 61,986 60,638 54,201 122,624 102,361 -------- -------- -------- -------- -------- Net securities gains........................ -- 1 436 1 475 -------- -------- -------- -------- -------- Provision for loan losses................... 6,500 6,500 6,000 13,000 12,000 Provision for OREO reserve, net............. -- 1,000 2,500 1,000 5,437 -------- -------- -------- -------- -------- Credit provisions........................... 6,500 7,500 8,500 14,000 17,437 -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change......................... 55,486 53,139 46,137 108,625 85,399 Income taxes and tax equivalent adjustment................................ 21,128 22,664 19,715 43,792 36,766 -------- -------- -------- -------- -------- Income before cumulative effect of accounting change......................... 34,358 30,475 26,422 64,833 48,633 Less cumulative effect of accounting change (net of tax benefit of $683).............. -- -- -- -- 932 -------- -------- -------- -------- -------- Net Income.................................. $ 34,358 $ 30,475 $ 26,422 $ 64,833 $ 47,701 ======== ======== ======== ======== ======== Earnings Per Share Income before accounting change........... $ 1.78 $ 1.58 $ 1.38 $ 3.36 $ 2.54 Less cumulative effect of accounting change................................. -- -- -- -- 0.05 -------- -------- -------- -------- -------- Net Income................................ $ 1.78 $ 1.58 $ 1.38 $ 3.36 $ 2.49 ======== ======== ======== ======== ========
Net Interest Income Net interest income was $126.2 million in the second quarter of 1995, $125.7 million in the preceding quarter, and $114.9 million in the second quarter of 1994. The net interest margin in the second quarter of 1995 was 5.13%, compared with 5.16% in the first quarter of 1995, and 5.00% in the second quarter of 1994. Net interest income and the net interest margin are affected by both the quantity and the mix of interest-bearing assets and liabilities and movements in interest rates. The growth in net interest income in the second quarter of 1995 compared with that of the second quarter of 1994 resulted from a 7% growth in average earning assets and higher interest rates. Average loans increased by 13%; the growth was balanced between corporate and consumer lending. The yield on earning assets was 8.01% in the second quarter of 1995, compared with 6.89% in the second quarter of 1994, as a result of overall higher interest rates on the loan and securities portfolios. BayBanks' funding costs increased during the second quarter of 1995, compared with those of the second quarter of 1994, due to increased market interest rates, higher levels of consumer certificates of deposit, and an increased level of purchased funds. Rates on core deposits (which include money market deposit accounts [MMDAs] and consumer certificates of deposit) increased in the second quarter of 1995, compared with those of the second quarter of 1994, due to overall higher interest rates and market conditions. In addition, certain customers moved balances from transaction accounts and money market deposit accounts to higher-yielding certificates of deposit. The cost of total interest-bearing liabilities (as a percentage of average earning assets) increased 99 basis points to 2.88% in the second quarter of 1995, compared with 1.89% in the second quarter of 1994. 9 10 For the six-month periods, net interest income increased from $225.5 million in 1994 to $251.9 million in 1995. This increase was related to a 9% increase in average earning assets during the first six months of 1995, compared with 1994, and an increase in the net interest margin from 5.01% in 1994 to 5.14% in 1995. The yield on average earning assets rose by 114 basis points to 7.95% for the first six months of 1995, compared with 6.81% in 1994, due to overall higher interest rates. For the same period, the cost of total interest-bearing liabilities (as a percentage of average earnings assets) rose 101 basis points to 2.81% in 1995 from 1.80% in 1994. Noninterest Income Noninterest income consists primarily of service charges on deposit accounts and fees from credit and non-credit services. This income is well diversified among consumer, corporate, and small business banking activities. Noninterest income (TABLE B) increased 3% to $55.8 million in the second quarter of 1995, from $54.0 million in the second quarter of 1994. For the first six months, noninterest income increased 3% to $107.2 million in 1995 from $103.7 million in 1994. 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 $27.6 million in the second quarter of 1995, compared with $27.8 million in the second quarter of 1994. For the first six months, service charges and fees on deposit accounts were $54.3 million and $54.0 million in 1995 and 1994, respectively. Increased income due to higher service charges and fees on consumer accounts resulting from selected repricings was offset by a decline in corporate service charges due to higher earnings credit rates on compensating deposit balances. Processing fees increased 21% to $4.8 million in the second quarter of 1995 from $4.0 million in the second quarter of 1994. For the six-month periods, processing fees were $8.8 million in 1995 and $7.3 million in 1994, a 20% increase. The increase in processing fees in 1995 resulted primarily from an increased volume of point-of-sale transactions and termination fees from correspondent banks, the result of industry consolidation. Investment management and brokerage fees increased 35% to $2.6 million in the second quarter of 1995 from $1.9 million in the second quarter of 1994. For the six-month periods, investment management and brokerage fees increased 23% to $4.9 million in 1995 from $4.0 million in 1994. The increase in investment management and brokerage fees was due to commissions on increased third party mutual fund sales and investment advisory fees from BayFunds,(R) the Company's proprietary mutual fund family. Total assets under management in BayFunds were $1.5 billion at June 30, 1995, compared with $1.2 billion at June 30, 1994. Mortgage banking fees increased 53% to $2.3 million in the second quarter of 1995 from $1.5 million in the second quarter of 1994 due to an increase in volume. In addition, the second quarter of 1995 includes $220 thousand of additional income recognized upon the adoption of SFAS No. 122, "Accounting for Mortgage Servicing Rights," which requires the capitalization of originated mortgage servicing rights (see Footnote 3 on page 7). For the six-month periods, mortgage banking fees were $4.0 million in 1995 and $3.8 million in 1994. International fees increased 17% to $1.9 million in the second quarter of 1995, from $1.6 million in the second quarter of 1994. For the six-month periods, international fees increased 25%, from $2.8 million in 1994 to $3.6 million in 1995. This increase resulted primarily from an increase in international activity including net gains from foreign exchange transactions. The Company periodically sells student loans when these loans are no longer in a deferred payment status. During the second quarter of 1995, the Company sold $51 million in student loans, resulting in a gain of $1.1 million; in the second quarter of 1994, the sale of $127 million in student loans produced a gain of $4.4 million. Other noninterest income was $3.0 million in the second quarter of 1995 and $838 thousand in the second quarter of 1994. For the six-month periods, other noninterest income was $4.9 million in 1995 and $1.9 million in 1994. The increase in 1995 was primarily due to a $1.2 million second quarter gain on the sale of the Company's corporate bond trusteeship business as well as gains on sales of branch buildings no longer utilized by the Company. 10 11 TABLE B NONINTEREST INCOME FOR THE PERIODS ENDED JUNE 30 (IN THOUSANDS)
SECOND QUARTER SIX MONTHS --------------------------- ------------------------------ 1995 1994 CHANGE 1995 1994 CHANGE ------- ------- ------- -------- -------- -------- Service charges and fees on deposit accounts.................... $27,640 $27,784 $ (144) $ 54,283 $ 54,042 $ 241 Processing fees....................... 4,785 3,951 834 8,770 7,332 1,438 Credit card fees...................... 4,701 4,630 71 9,804 9,705 99 Trust fees............................ 3,584 3,377 207 7,201 7,150 51 Investment management and brokerage fees...................... 2,590 1,912 678 4,896 3,979 917 Mortgage banking fees................. 2,261 1,473 788 3,966 3,769 197 International fees.................... 1,888 1,618 270 3,559 2,844 715 All other fees........................ 4,157 4,053 104 8,714 8,593 121 Student loan sales gains.............. 1,149 4,395 (3,246) 1,149 4,395 (3,246) Other noninterest income.............. 2,997 838 2,159 4,851 1,937 2,914 ------- ------- ------- -------- -------- ------- Total noninterest income.... $55,752 $54,031 $ 1,721 $107,193 $103,746 $ 3,447 ======= ======= ======= ======== ======== =======
Operating Expenses The operating expense analysis presented in TABLE C (page 12) separates OREO and loan workout expenses from other operating expenses. Operating expenses, excluding OREO and loan workout, were $118.3 million in the second quarter of 1995, compared with $111.6 million in the second quarter of 1994; for the first six months, these operating expenses were $233.1 million in 1995 and $220.2 million in 1994. Salaries and benefits were $61.4 million in the second quarter of 1995, compared with $57.4 million in the second quarter of 1994. For the first six-month periods, salaries and benefits were $121.7 million in 1995, compared with $113.8 million in 1994. The increase was primarily the result of normal salary and benefit increases, selected additions to staff, and accruals for profit sharing and performance awards. Occupancy and equipment expenses were $22.4 million in the second quarter of 1995, compared with $21.6 million in the second quarter of 1994. For the first six months of 1995, occupancy and equipment expenses were $45.0 million, compared with $44.2 million for the first six months of 1994. The increase was primarily the result of an increase in rent expense due to the opening of new branch locations, including supermarket branches, and costs associated with branch closings. Postage and supplies expenses were $5.5 million in the second quarter of 1995, compared with $5.1 million in the second quarter of 1994. For the first six months, postage and supplies expenses were $11.3 million in 1995, compared with $9.9 million in 1994. This increase was the result of increased postal rates in 1995, combined with an increased volume and higher costs of printed forms and supplies. FDIC insurance expense declined 11% to $4.9 million in the second quarter of 1995, from $5.5 million in the second quarter of 1994. For the first six months, FDIC insurance expense was $9.8 million in 1995, compared with $10.9 million in 1994. The decrease was attributable to improved FDIC risk classifications at the Company's bank subsidiaries which resulted in lower insurance rates in 1995. The benefit of lower insurance rates was partially offset by an increase in the insured deposit base. Other operating expenses were $17.9 million in the second quarter of 1995, compared with $15.7 million in the second quarter of 1994. For the first six months, other operating expenses were $33.9 million in 1995, compared with $30.0 million in 1994. The increase in other expenses was primarily the result of increases in purchased software and consulting expenses associated with systems enhancements, and personnel hiring costs related to selected additions to staff. 11 12 OREO and loan workout expenses decreased 47% to $1.7 million in the second quarter of 1995, from $3.1 million in the second quarter of 1994, reflecting the continued disposition of OREO properties and impaired loans (see Nonperforming Loans on page 20). For the first six months, OREO and loan workout expenses were $3.4 million in 1995, compared with $6.7 million in 1994. TABLE C OPERATING EXPENSES FOR THE PERIODS ENDED JUNE 30 (IN THOUSANDS)
SECOND QUARTER SIX MONTHS -------------------------------- -------------------------------- 1995 1994 CHANGE 1995 1994 CHANGE -------- -------- ------ -------- -------- ------ Salaries and benefits........ $ 61,417 $ 57,434 $3,983 $121,735 $113,817 $ 7,918 Occupancy and equipment...... 22,416 21,616 800 45,014 44,194 820 Marketing and public relations.................. 6,132 6,244 (112) 11,471 11,361 110 Postage and supplies......... 5,540 5,090 450 11,262 9,928 1,334 FDIC insurance............... 4,875 5,451 (576) 9,750 10,902 (1,152) Other........................ 17,894 15,736 2,158 33,851 29,989 3,862 -------- -------- ------ -------- -------- ------- Operating expenses excluding OREO expenses.............. 118,274 111,571 6,703 233,083 220,191 12,892 OREO and loan workout expenses................... 1,652 3,141 (1,489) 3,395 6,716 (3,321) -------- -------- ------ -------- -------- ------- Total operating expenses......... $119,926 $114,712 $5,214 $236,478 $226,907 $ 9,571 ======== ======== ====== ======== ======== =======
Provisions for Loan Losses and the OREO Reserve The provisions for loan losses and the OREO reserve declined in the second quarter of 1995 to $6.5 million from $8.5 million in the second quarter of 1994. The provision for loan losses was $6.5 million in the second quarter of 1995, compared with $6.0 million in the second quarter of 1994. For the first six months of 1995, the provision for loan losses was $13.0 million, compared with $12.0 million in 1994. There was no net provision for the OREO reserve in the second quarter of 1995, compared with $2.5 million in the second quarter of 1994. For the first six months of 1995, the net provision for the OREO reserve was $1.0 million, compared with $5.4 million in 1994. The OREO provision was offset by net gains on sales of properties of $2.8 million in the second quarter of 1995 and $2.6 million in the second quarter of 1994. For the first six months of 1995, net gains on the sales of OREO properties were $4.3 million, compared with $3.1 million in 1994. Income Taxes The Company's provision for income taxes was $18.2 million in the second quarter of 1995, compared with $17.6 million in the second quarter of 1994. The 1995 second quarter tax provision includes an adjustment for a settlement of a tax claim against the Commonwealth of Massachusetts. The settlement resolves a claim related to the taxability of interest income on certain Massachusetts bonds on which the Company paid income taxes prior to 1985. The effective tax rate for the second quarter of 1995, excluding the settlement adjustment, was 39.6%, compared with 40.0% in the second quarter of 1994. The effective tax rate for the first six-month periods, excluding the settlement adjustment, was 39.5% in 1995, compared with 40.2% in 1994, due to a higher level of tax-exempt interest in 1995. In July 1995, the Commonwealth of Massachusetts passed a tax reform bill that will reduce the state tax rate for banks. Under the new tax law, the rate banks pay will be reduced over the next four years from the current rate of 12.54% to 10.50% in 1999. The law also provides for the taxation of out-of-state banks that do business in the Commonwealth. 12 13 BALANCE SHEET REVIEW Trends in Earning Assets Average earning assets increased 7% to $9.8 billion during the second quarter of 1995, compared with $9.2 billion in the second quarter of 1994, primarily due to growth in the average loan balances. The growth was balanced between the commercial and consumer loan portfolios. Average earning assets were $9.8 billion for the first six months of 1995, compared with $9.1 billion for the first six months of 1994. Loan Portfolio Consumer loans represented 62% of the Company's quarter-end loan portfolio, with $1.5 billion in residential loan balances and $2.8 billion in various types of instalment loan balances. Consumer lending activities are focused primarily on the Massachusetts market. Commercial and commercial real estate loans were 38% of the loan portfolio. The majority of these loans are to New England-based companies, primarily local middle-market companies and small businesses in Massachusetts. 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 they are in a deferred payment status. Student loans held for sale at June 30, 1995, were $124 million. The Company sold $51 million of student loans in the second quarter of 1995, compared with sales of $127 million in the second quarter of 1994. In July 1995, the Company sold $60 million of student loans. An analysis of changes in major loan categories for the second quarters and first six months of 1995 and 1994 is presented in TABLE D (page 14). Loan business volume was $250 million in the second quarter of 1995, compared with $267 million in the second quarter of 1994. Commercial loan volume was $55 million in the second quarter of 1995, compared with $34 million in the second quarter of 1994. Commercial loan growth was widely distributed and included increases in short-term money market-priced loans and asset-based lending, partially offset by a decline in auto dealer outstandings. The Company's international loan portfolio, which is focused primarily on Mexico and South America, stood at $175 million at June 30, 1995, compared with $172 million at March 31, 1995, and $146 million at June 30, 1994. These international facilities are predominantly trade related and primarily with well-known and established foreign banks. Business volume in the commercial real estate portfolio was $10 million during the second quarter of 1995, compared with $12 million during the second quarter of 1994. Residential mortgage volume was principally the result of purchase money mortgages, mostly adjustable-rate. The Company underwrote and sold $17 million of fixed-rate residential mortgage loans during the second quarter of 1995, compared with $57 million in the second quarter of 1994. The decline in secondary market activity is due to a decline in fixed-rate mortgage refinancing. At June 30, 1995, loans held for sale were $16 million, compared with $18 million at June 30, 1994. Instalment net loan business volume was $42 million, compared with $100 million in the second quarter of 1994. Automobile lending, in particular, was affected by higher rates and active competition from nonbank lenders. 13 14 TABLE D CHANGES IN THE LOAN PORTFOLIO (IN THOUSANDS)
SECOND QUARTER 1995 INCREASE ANALYSIS OF CHANGE IN LOAN CATEGORIES NET BUSINESS (DECREASE) ---------------------------------------------- VOLUME FOR THE NET SECOND JUNE 30 SECOND GROSS TRANSFERS BUSINESS QUARTER 1995 QUARTER CHARGE-OFFS TO OREO SALES VOLUME 1994 ---------- ---------- ------------ --------- -------- -------- ------------ Commercial........................... $1,633,060 $ 52,657 $ (2,193) $ (51) $ -- $ 54,901 $ 34,210 Commercial real estate............... 982,819 4,833 (5,294) -- -- 10,127 11,580 Residential mortgage................. 1,499,309(1) 122,937 (2,442) (411) (17,182) 142,972 121,481 Instalment loans Automobile and other............... 1,295,405 5,946 (1,621) -- -- 7,567 52,473 Home equity........................ 768,973 13,024 (209) (146) -- 13,379 19,345 Credit card........................ 292,192 (1,303) (2,806) -- -- 1,503 5,805 Student loans...................... 328,440(2) (38,662) (184) -- (50,633) 12,155 15,119 Reserve credit..................... 139,959 6,231 (1,492) -- -- 7,723 7,425 ---------- -------- -------- ----- -------- -------- -------- Total instalment loans............. 2,824,969 (14,764) (6,312) (146) (50,633) 42,327 100,167 ---------- -------- -------- ----- -------- -------- -------- Total loans.......................... $6,940,157 $165,663 $(16,241) $(608) $(67,815) $250,327 $267,438 ========== ======== ======== ===== ======== ======== ======== - --------------- (1) Includes residential mortgage loans held for sale of $16 million at June 30, 1995. (2) Includes student loans held for sale of $124 million at June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1995 NET BUSINESS INCREASE ANALYSIS OF CHANGE IN LOAN CATEGORIES VOLUME (DECREASE) ----------------------------------------------------- SIX MONTHS FOR THE GROSS OTHER NET ENDED JUNE 30 FIRST CHARGE- TRANSFERS TRANSFERS, BUSINESS JUNE 30 1995 SIX MONTHS OFFS TO OREO SALES NET(1) VOLUME 1994 ---------- ---------- -------- ------- -------- ---------- -------- ------------ Commercial................. $1,633,060 $104,795 $ (3,154) $ (73) $ -- $ 1,525 $106,497 $ 36,213 Commercial real estate..... 982,819 26,223 (7,007) -- -- 16,802 16,428 5,839 Residential mortgage....... 1,499,309(2) 163,843 (3,829) (911) (24,942) 6,177 187,348 237,854 Instalment loans Automobile and other..... 1,295,405 (23,340) (3,352) -- -- -- (19,988) 65,860 Home equity.............. 768,973 26,769 (720) (223) -- -- 27,712 13,335 Credit card.............. 292,192 (27,334) (5,947) -- -- -- (21,387) (19,653) Student loans............ 328,440(3) 16,969 (337) -- (50,633) -- 67,939 66,320 Reserve credit........... 139,959 3,712 (3,143) -- -- -- 6,855 7,523 ---------- -------- -------- ------- -------- ------- -------- -------- Total instalment loans... 2,824,969 (3,224) (13,499) (223) (50,633) -- 61,131 133,385 ---------- -------- -------- ------- -------- ------- -------- -------- Total loans................ $6,940,157 $291,637 $(27,489) $(1,207) $(75,575) $24,504 $371,404 $413,291 ========== ======== ======== ======= ======== ======= ======== ======== - --------------- (1) As a result of the adoption of SFAS No. 114 on January 1, 1995, the Company reclassified $33.2 million of in-substance foreclosures and $8.7 million of related reserves to loans and the allowance for loan losses, respectively. Charge-offs of $8.7 million were subsequently recorded during the first quarter of 1995. (2) Includes residential mortgage loans held for sale of $16 million at June 30, 1995. (3) Includes student loans held for sale of $124 million at June 30, 1995.
14 15 Securities Portfolios The securities portfolios (TABLE E, page 16) totaled $2.9 billion at June 30, 1995, and December 31, 1994, and $3.4 billion at June 30, 1994. The weighted average maturity of the securities portfolios was 1.5 years at June 30, 1995, compared with 1.6 years at December 31, 1994, and June 30, 1994. Short-term investments were $199 million at June 30, 1995, compared with $166 million at December 31, 1994, and $161 million at June 30, 1994. 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. The investment securities portfolio, consisting principally of debt securities, is stated at amortized cost, reflecting management's intention and ability to hold these securities until maturity. The Company's investment securities portfolio was $2.4 billion at June 30, 1995, and $2.7 billion at June 30, 1994. At June 30, 1995, gross unrealized gains were $21 million, and gross unrealized losses were $13 million. The Company's investment securities portfolio contains primarily U.S. Government securities, state and local government securities, asset-backed securities, mortgage-backed securities, and industrial revenue bonds. The total state and local government portfolio, which is concentrated primarily in Massachusetts, was $186 million at June 30, 1995, with the single largest issue being approximately $7 million. All securities were either rated investment grade or, in the case of unrated securities, were determined by management to be equivalent to investment grade. The Company also has a trading account securities portfolio consisting of debt securities recorded at market value, which was $48 million at June 30, 1995, and $16 million at June 30, 1994. Trading account gains were $675 thousand in the second quarter of 1995, compared with $504 thousand in the second quarter of 1994. 15 16 TABLE E SECURITIES PORTFOLIOS AT PERIOD-END (DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31 JUNE 30 1995 1994 1994 ---------- ----------- ---------- Short-term investments................................. $ 198,600 $ 166,286 $ 160,850 ---------- ---------- ---------- Securities available for sale U.S. Government securities........................... -- -- 218,274 U.S. Agency mortgage-backed securities............... -- -- 26,914 State and local government securities................ 11,030 8,564 9,828 Corporate and other.................................. 204,533 212,038 245,379 ---------- ---------- ---------- 215,563 220,602 500,395 ---------- ---------- ---------- Investment securities U.S. Government securities........................... 1,983,476 2,083,519 2,308,849 Asset-backed securities.............................. 182,366 200,386 203,665 State and local government securities................ 185,833 171,436 106,257 Industrial revenue bonds............................. 46,657 49,548 53,595 U.S. Agency mortgage-backed securities............... 49,534 49,503 49,473 Corporate and other.................................. 1,842 1,857 1,857 ---------- ---------- ---------- 2,449,708 2,556,249 2,723,696 ---------- ---------- ---------- Total.................................................. $2,863,871 $2,943,137 $3,384,941 ========== ========== ========== Weighted average maturity of securities available for sale and investment securities in years*............. 1.6 1.7 1.7 Weighted average maturity of total securities in years*............................................... 1.5 1.6 1.6 - --------------- * The weighted average maturity calculation excludes amortizing IRBs and reflects estimated prepayments for mortgage-backed securities.
16 17 Deposits and Other Sources of Funds The Company's extensive product lines, Customer Sales and Service Center, and banking network of 217 full-service offices and 392 remote banking facilities generate significant core deposits. Core deposits accounted for 98% of total average deposits during the second quarter of 1995. Core deposits include transaction accounts (demand, NOW, and savings accounts), money market deposit accounts, and consumer time certificates. Average core deposits were $8.7 billion in the second quarter of 1995 and $8.5 billion in the second quarter of 1994. Average core deposits were $8.6 billion and $8.5 billion for the first six months of 1995 and 1994, respectively. Average transaction accounts were $4.8 billion in the second quarter of 1995, down slightly from $4.9 billion in the second quarter of 1994, as certain customers moved balances to higher-yielding certificates of deposit. Average consumer certificates of deposit were $1.4 billion during the second quarter of 1995, compared with $945 million in the second quarter of 1994, and were $1.3 billion and $959 million in the first six months of 1995 and 1994, respectively. Average corporate certificates of deposit in excess of $100 thousand (CDs) were $210 million in the second quarter of 1995, compared with $63 million in the second quarter of 1994, and were $193 million and $50 million in the first six months of 1995 and 1994, respectively. Average purchased funds were $947 million and $728 million for the quarters ended June 30, 1995, and June 30, 1994, respectively, as the average loan portfolio was increased. 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 indicates that liabilities will reprice more quickly than assets, and a positive gap 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 18), is based on contractual maturities and repricing opportunities; 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 may lag 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. At June 30, 1995, the Company's adjusted gap for the total within-180-day period had moved from a positive gap position of $76 million at December 31, 1994, to a positive gap position of $686 million. The total within-one-year gap moved from a positive $648 million at December 31, 1994, to a positive $1.2 billion at June 30, 1995. 17 18 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 ------ ------- ------ ------------ ------- ------------ June 30, 1995 Total assets......................... $3,828 $ 683 $630 $ 5,141 $1,201 $6,342 Total liabilities.................... 6,619 198 328 7,145 429 7,574 ------ ------- ---- ------- ------ ------ Net contractual gap position......... (2,791) 485 302 (2,004) 772 (1,232) Net interest rate swaps.............. -- 5 -- 5 (2) 3 ------ ------- ---- ------- ------ ------ Net gap position including interest rate swaps at June 30, 1995....... (2,791) 490 302 (1,999) 770 (1,229) Management adjustment................ 4,439 (1,644) (110) 2,685 (221) 2,464 ------ ------- ---- ------- ------ ------ Management adjusted gap at June 30, 1995................................. $1,648 $(1,154) $192 $ 686 $ 549 $1,235 ====== ======= ==== ======= ====== ====== Management adjusted gap at December 31, 1994................................. $1,084 $(1,275) $267 $ 76 $ 572 $ 648 ====== ======= ==== ======= ====== ====== Management adjusted gap at June 30, 1994................................. $1,597 $(2,266) $211 $ (458) $ (2) $ (460) ====== ======= ==== ======= ====== ======
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 bank 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 $1.6 billion, or 16% of total deposits and borrowings at June 30, 1995. The Company's strong liquidity position allowed for the expansion of the loan portfolio during the second quarter of 1995. The Company derives additional liquidity flexibility from the relatively short average maturity (1.5 years) of its securities portfolios. 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 $64.8 million in net income for the first six months of 1995, 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 $829 million at December 31, 1994. During the first six months of 1995, net cash provided by operating activities was $89 million, net cash used in investing activities totaled $241 million, and net cash provided by financing activities was $162 million. Cash and cash equivalents were $839 million at June 30, 1995. The parent company's sources of liquidity are dividend and interest income received from its subsidiaries and income earned on its securities portfolios. The most significant uses of the parent company's resources are capital contributions to banking and other subsidiaries when appropriate, the acquisition of subsidiaries, and dividends paid to stockholders. During the first six months of 1995 BayBank, the Company's largest bank subsidiary, repaid a $46.5 million floating-rate note to the parent company. The parent company contributed $1 million of capital to a nonbank subsidiary during the first six months of 1995. Dividends received from bank subsidiaries were $16 million, and dividends received from nonbank subsidiaries were $5 million during the first six months of 1995. The parent company paid $19 million in dividends to its stockholders. At June 30, 18 19 1995, the parent company had $132 million in cash, short-term investments, and other securities. The parent company subsequently paid $58 million in cash to complete the acquisition of NFS. 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 then 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 (which exclude restructured, accruing loans and accruing loans 90 days or more past due) include nonperforming loans (including impaired loans, as defined below) and OREO and were $97 million at June 30, 1995, a 21% decrease from $122 million at December 31, 1994, and a 44% decrease from $173 million at June 30, 1994. TABLE G NONPERFORMING ASSETS, RESTRUCTURED, ACCRUING LOANS, AND ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31 JUNE 30 1995 1994 1994 ------- ----------- -------- Nonperforming loans.................................... $72,968 $ 54,627 $ 83,743 Other real estate owned In-substance foreclosures (ISF)...................... 6,561 44,610 58,345 Foreclosed property.................................. 33,142 47,760 57,026 ------- -------- -------- 39,703 92,370 115,371 Less OREO reserve.................................... 15,857 24,971 26,193 ------- -------- -------- OREO, net of reserve................................. 23,846 67,399 89,178 ------- -------- -------- Total nonperforming assets............................. $96,814 $122,026 $172,921 ======= ======== ======== Restructured, accruing loans........................... $ 3,619 $ 13,537 $ 12,112 ======= ======== ======== Accruing loans 90 days or more past due................ $33,651 $ 36,193 $ 41,644 ======= ======== ======== Nonperforming assets as a percentage of loans and OREO................................................. 1.4% 1.8% 2.8% Nonperforming assets as a percentage of total assets... 0.9 1.1 1.6
The decline in nonperforming assets is shown in TABLE H (page 20). This result was achieved by successful workout activities that included property sales, payments on nonperforming loans, and loans that qualified for, and were returned to, accrual status. Favorable resolutions were $29 million in the second quarter of 1995, or 26% of nonperforming assets at the beginning of the period. Additions to nonperforming assets were $22 million in the second quarter of 1995. As of June 30, 1995, the Company had OREO property sales pending of $3.0 million. 19 20 TABLE H CHANGE IN ASSET QUALITY (IN THOUSANDS)
SIX MONTHS 1995 1994 ENDED --------------------- ---------------------------------- JUNE 30 SECOND FIRST FOURTH THIRD SECOND --------------------- QUARTER QUARTER QUARTER QUARTER QUARTER 1995 1994 -------- -------- -------- -------- -------- -------- -------- Nonperforming assets (1)............ $ 96,814 $112,005 $122,026 $137,104 $172,921 $ 96,814 $172,921 ======== ======== ======== ======== ======== ======== ======== Nonperforming asset activity: Additions......................... $ 21,870 $ 7,573 $ 19,554 $ 10,233 $ 23,446 $ 29,443 $ 44,102 -------- -------- -------- -------- -------- -------- -------- Payments.......................... (13,567) (5,721) (6,797) (10,428) (10,879) (19,288) (18,949) Returns to accrual................ (1,227) (104) (7,098) (11,990) (9,992) (1,331) (14,341) OREO sales........................ (13,863) (6,645) (14,244) (15,058) (19,525) (20,508) (41,002) -------- -------- -------- -------- -------- -------- -------- Total improvements............... (28,657) (12,470) (28,139) (37,476) (40,396) (41,127) (74,292) -------- -------- -------- -------- -------- -------- -------- Net outflow...................... (6,787) (4,897) (8,585) (27,243) (16,950) (11,684) (30,190) -------- -------- -------- -------- -------- -------- -------- Charge-offs......................... (9,089) (4,884)(2) (8,378) (7,911) (14,648) (13,973)(2) (24,152) Net change in OREO reserve.......... 685 (240)(2) 1,885 (663) 775 445(2) 3,583 -------- -------- -------- -------- -------- -------- -------- Total decrease in nonperforming assets............................ $(15,191) $(10,021) $(15,078) $(35,817) $(30,823) $(25,212) $(50,759) ======== ======== ======== ======== ======== ======== ======== - --------------- (1) At period-end, excluding restructured, accruing loans and accruing loans 90 days or more past due. (2) The transfer of $8.7 million of reserves related to in-substance foreclosures reclassified to loans upon adoption of SFAS No. 114 and subsequent charge-offs of $8.7 million recorded during the first quarter of 1995 had no effect on total nonperforming assets and are not reflected in the table above.
Nonperforming Loans Effective January 1, 1995, the Company adopted SFAS No. 114 and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." Under SFAS No. 114, a 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 exempt from the provisions of SFAS No. 114. Upon adoption of this statement on January 1, 1995, the Company reclassified $33 million of in-substance foreclosures and $9 million of related reserves to loans and the allowance for loan losses, respectively. Total nonperforming loans (TABLE I) were $73 million at June 30, 1995, compared with $55 million at December 31, 1994, and $84 million at June 30, 1994. During the second quarter of 1995, nonperforming loans decreased 3% from $76 million at March 31, 1995. On a pro forma basis, assuming the adoption of SFAS No. 114 on December 31, 1994, nonperforming loans declined 8% since year-end as the resolution of problem assets continued to exceed new additions. TABLE I NONPERFORMING LOANS AT PERIOD-END (DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30, 1995 1994 JUNE 30, 1994 ---------------- ---------------- ---------------- Commercial............................ $25,944 35% $17,480 32% $35,408 42% Commercial real estate................ 30,504 42 26,638 49 35,114 42 Residential mortgage.................. 14,406 20 8,971 16 11,781 14 Instalment............................ 2,114 3 1,538 3 1,440 2 ------- --- ------ --- ------- --- Total nonperforming loans... $72,968 100% $54,627 100% $83,743 100% ======= === ====== === ======= ===
20 21 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. Under SFAS No. 114, the definition of in-substance foreclosure has been narrowed to assets for which the Company has received physical possession of the collateral. OREO (net of a valuation reserve), which reflects the reclassification of certain in-substance foreclosures to loans upon adoption of SFAS No. 114, as discussed above, declined to $24 million during the first six months of 1995 from $67 million at December 31, 1994, and $89 million at June 30, 1994. Excluding the impact of the SFAS No. 114 reclassification, OREO continued to decline due primarily 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. Loans that have been restructured generally remain on nonaccrual status until the customer has demonstrated a period of performance under the new contractual terms. The adoption of SFAS No. 114 also impacts the accounting for troubled debt restructurings. Restructured, accruing loans entered into after January 1, 1995, 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 Company entered into $754 thousand of restructured, accruing loan agreements during the second quarter of 1995. In accordance with the provisions of SFAS No. 114 and SFAS No. 118, these loans have been accounted for as impaired loans and have been disclosed as nonperforming loans. Loans restructured prior to the adoption of SFAS No. 114 are exempt from the provisions of that statement provided that they are performing under the restructured terms. At June 30, 1995, restructured, accruing loans that were entered into prior to the adoption of SFAS No. 114 and were performing under the restructured terms were $4 million; restructured, accruing loans were $14 million at December 31, 1994. Accruing Loans 90 Days or More Past Due Accruing loans 90 days or more past due declined 7% to $34 million at June 30, 1995, from $36 million at December 31, 1994, and 19% from $42 million at June 30, 1994 (TABLE J). Of the $34 million in accruing loans past due 90 days or more at June 30, 1995, residential real estate loans and instalment loans together represented 86% of the total. Residential real estate and instalment loans by their nature include a large number of smaller loans. Of the $10 million in residential real estate loans, $8 million were in owner-occupied properties. TABLE J ACCRUING LOANS 90 DAYS OR MORE PAST DUE AT PERIOD-END (DOLLARS IN THOUSANDS)
DECEMBER 31 JUNE 30, 1995 1994 JUNE 30, 1994 ------------- ------------- ------------- Commercial................................... $ 1,826 5% $ 348 1% $ 2,381 6% Commercial real estate....................... 2,987 9 4,626 13 6,799 16 Residential mortgage......................... 9,907 30 10,104 28 12,823 31 Instalment................................... 18,931 56 21,115 58 19,641 47 ------- --- ------- --- ------- --- Total.............................. $33,651 100% $36,193 100% $41,644 100% ======= === ======= === ======= ===
Allowance for Loan Losses The allowance for loan losses (TABLE K, page 22) was $146 million at June 30, 1995, remaining at the March 31, 1995 level as the provision for loan losses and net charge-offs were $6.5 million during the second quarter of 1995. The coverage of nonperforming loans (allowance for loan losses as a percentage of 21 22 nonperforming loans) increased to 201% at June 30, 1995, from 184% at June 30, 1994. The coverage of nonperforming loans was 269% at December 31, 1994. However, on a pro forma basis, assuming the adoption of SFAS No. 114 on December 31, 1994, and the subsequent charge-off of ISF reserves reclassified to the allowance for loan losses, the year-end coverage ratio would have been 186%. TABLE K SUMMARY OF LOAN LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
SECOND QUARTER SIX MONTHS ------------------------- ------------------------- 1995 1994 1995(1) 1994 ---------- ---------- ---------- ---------- Loans outstanding at June 30.............. $6,940,157 $6,101,571 $6,940,157 $6,101,571 ========== ========== ========== ========== Average loans............................. $6,830,659 $6,054,613 $6,770,758 $6,048,500 ========== ========== ========== ========== Allowance for loan losses: Balance at beginning of period............ $ 146,348 $ 165,221 $ 146,835 $ 171,496 Loans charged off Commercial........................... 2,193 5,609 3,154 7,057 Commercial real estate............... 5,294 7,664 7,007 13,715 Residential mortgage................. 2,442 2,145 3,829 3,932 Instalment........................... 6,312 6,654 13,499 13,659 ---------- ---------- ---------- ---------- Total loans charged off.............. 16,241 22,072 27,489 38,363 ---------- ---------- ---------- ---------- Recoveries Commercial........................... 3,566 2,205 4,579 3,885 Commercial real estate............... 3,081 353 4,377 595 Residential mortgage................. 951 537 1,391 1,209 Instalment........................... 2,140 1,882 3,652 3,304 ---------- ---------- ---------- ---------- Total recoveries..................... 9,738 4,977 13,999 8,993 ---------- ---------- ---------- ---------- Net loans charged off................ 6,503 17,095 13,490 29,370 Provision for loan losses............... 6,500 6,000 13,000 12,000 ---------- ---------- ---------- ---------- Balance at June 30........................ $ 146,345 $ 154,126 $ 146,345 $ 154,126 ========== ========== ========== ========== Annualized net charge-offs as a percentage of average period-to-date loans......... 0.4% 1.1% 0.4% 1.0% Allowance for loan losses as a percentage of period-end loans..................... 2.1 2.5 2.1 2.5 Allowance for loan losses as a percentage of nonperforming loans..................... 200.6 184.0 200.6 184.0 Allowance for loan losses as a percentage of nonperforming loans, restructured, accruing loans, and accruing loans past due 90 days or more................................. 132.8 112.1 132.8 112.1
- --------------- (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. 22 23 CAPITAL AND DIVIDENDS BayBanks' consolidated risk-based capital ratios were 13.53% for total capital and 11.99% for core capital at June 30, 1995, compared with 13.45% and 11.71%, respectively, at June 30, 1994. At December 31, 1994, the consolidated risk-based capital ratios were 13.06% for total capital and 11.51% for core capital. The consolidated leverage ratio was 7.75%, 7.35%, and 7.32% at June 30, 1995, December 31, 1994, and June 30, 1994, respectively (TABLE L). TABLE L CAPITAL RATIOS JUNE 30, 1995
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% 11.99% n/a% 13.53% n/a% 7.75% BayBank....................... 6.00 10.05 10.00 11.31 5.00 6.56 BayBank Boston, N.A........... 6.00 11.25 10.00 12.89 5.00 6.92 BayBank Connecticut, N.A...... 6.00 14.26 10.00 15.52 5.00 12.98
- --------------- * Under Federal Prompt Corrective Action and Risk-based Deposit Insurance Assessment Regulations. n/a - not applicable BayBanks paid a dividend in the second quarter of 1995 of $.50 per share, bringing the dividend paid through the first six months of 1995 to $1.00 per share. On July 27, 1995, BayBanks declared a quarterly dividend of $.60 per share payable September 1, 1995, representing a 20% increase over the previous quarterly dividend. 23 24 BAYBANKS, INC. AVERAGE BALANCES AND CAPITAL RATIOS (DOLLARS IN MILLIONS)
1995 1994 SIX MONTHS ----------------- --------------------------- ---------------- SECOND FIRST FOURTH THIRD SECOND 1995 1994 QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------ ------- ------- ------- ------- ------- ASSETS Interest-bearing deposits and other short-term investments........................................... $ 210 $ 259 $ 215 $ 205 $ 176 $ 175 $ 204 Securities available for sale, at cost.................. 228 608 225 231 190 420 597 Investment securities, at cost.......................... 2,630 2,143 2,574 2,687 2,849 2,840 2,347 Loans(1) Commercial............................................ 1,574 1,327 1,615 1,533 1,499 1,372 1,360 Commercial real estate................................ 981 917 981 980 928 915 908 Residential mortgage.................................. 1,386 1,201 1,415 1,357 1,302 1,256 1,193 Instalment............................................ 2,830 2,604 2,820 2,840 2,776 2,659 2,594 ------- ------ ------- ------- ------- ------- ------- 6,771 6,049 6,831 6,710 6,505 6,202 6,055 Less allowance for loan losses........................ 149 168 146 151 150 155 164 ------- ------ ------- ------- ------- ------- ------- 6,622 5,881 6,685 6,559 6,355 6,047 5,891 ------- ------ ------- ------- ------- ------- ------- Total earning assets............................ 9,839 9,059 9,845 9,833 9,720 9,637 9,203 Cash and due from banks................................. 649 612 667 632 672 651 622 Other assets............................................ 442 487 442 440 463 480 480 ------- ------ ------- ------- ------- ------- ------- Total assets.................................... $10,781 $9,990 $10,808 $10,754 $10,705 $10,613 $10,141 ======= ====== ======= ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand................................................ $ 2,006 $1,951 $2,013 $1,998 $2,037 $1,992 $1,946 NOW accounts.......................................... 1,380 1,395 1,377 1,383 1,397 1,388 1,399 Savings............................................... 1,441 1,495 1,431 1,451 1,477 1,502 1,509 Money market deposit accounts......................... 2,489 2,721 2,468 2,512 2,577 2,655 2,700 Consumer time......................................... 1,295 959 1,401 1,189 1,059 981 945 Time -- $100,000 or more.............................. 193 50 210 175 136 125 63 ------- ------ ------- ------- ------- ------- ------- 8,804 8,571 8,900 8,708 8,683 8,643 8,562 Federal funds purchased and other short-term borrowings............................................ 1,030 578 947 1,114 1,107 1,086 728 Long-term debt.......................................... 51 54 51 51 51 54 54 ------- ------ ------- ------- ------- ------- ------- Total deposits and borrowings................... 9,885 9,203 9,898 9,873 9,841 9,783 9,344 Other liabilities(2).................................... 84 66 86 81 89 77 66 Stockholders' equity.................................... 812 721 824 800 775 753 731 ------- ------ ------- ------- ------- ------- ------- Total liabilities and stockholders' equity...... $10,781 $9,990 $10,808 $10,754 $10,705 $10,613 $10,141 ======= ====== ======= ======= ======= ======= ======= CAPITAL RATIOS Risk-Based Core (Min. regulatory standard -- 4.00%).............. 11.99% 11.71% 11.99 % 11.81 % 11.51 % 11.74 % 11.71 % Total (Min. regulatory standard -- 8.00%)............. 13.53 13.45 13.53 13.36 13.06 13.46 13.45 Leverage................................................ 7.75 7.32 7.75 7.55 7.35 7.21 7.32
- --------------- (1) Nonperforming loans are included in the average balances. (2) Includes guarantee of ESOP indebtedness. 24 25 BAYBANKS, INC. SUMMARY OF OPERATIONS (DOLLARS IN THOUSANDS ON A TAX EQUIVALENT BASIS, EXCEPT PER SHARE AMOUNTS)
1995 1994 SIX MONTHS ------------------- ------------------------------ ------------------- SECOND FIRST FOURTH THIRD SECOND 1995 1994 QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- -------- Income on earning assets........... $389,224 $306,763 $197,045 $192,179 $184,387 $174,632 $158,305 Interest expense on deposits and borrowings....................... 137,315 81,241 70,885 66,430 58,805 52,812 43,423 -------- -------- -------- -------- -------- -------- -------- Net interest income................ 251,909 225,522 126,160 125,749 125,582 121,820 114,882 Noninterest income................. 107,193 103,746 55,752 51,441 50,985 52,557 54,031 -------- -------- -------- -------- -------- -------- -------- Total income from operations....... 359,102 329,268 181,912 177,190 176,567 174,377 168,913 Operating expenses................. 236,478 226,907 119,926 116,552 115,557 114,706 114,712 -------- -------- -------- -------- -------- -------- -------- OPERATING INCOME BEFORE NET SECURITIES GAINS (LOSSES) AND PROVISIONS FOR LOAN LOSSES AND OREO RESERVE..................... 122,624 102,361 61,986 60,638 61,010 59,671 54,201 -------- -------- -------- -------- -------- -------- -------- Net securities gains (losses)...... 1 475 -- 1 (272) -- 436 -------- -------- -------- -------- -------- -------- -------- Provision for loan losses.......... 13,000 12,000 6,500 6,500 6,000 6,000 6,000 Provision for OREO reserve, net.... 1,000 5,437 -- 1,000 1,520 2,415 2,500 -------- -------- -------- -------- -------- -------- -------- Credit provisions.................. 14,000 17,437 6,500 7,500 7,520 8,415 8,500 -------- -------- -------- -------- -------- -------- -------- Pre-tax income..................... 108,625 85,399 55,486 53,139 53,218 51,256 46,137 Less tax equivalent adjustment included above................... 5,738 4,040 2,943 2,795 2,126 1,816 2,067 -------- -------- -------- -------- -------- -------- -------- Income before taxes and cumulative effect of accounting change...... 102,887 81,359 52,543 50,344 51,092 49,440 44,070 Provision for income taxes......... 38,054 32,726 18,185 19,869 20,389 20,407 17,648 -------- -------- -------- -------- -------- -------- -------- Income before cumulative effect of accounting change................ 64,833 48,633 34,358 30,475 30,703 29,033 26,422 Less cumulative effect of accounting change (net of tax benefit of $683)................. -- 932 -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- NET INCOME......................... $ 64,833 $ 47,701 $ 34,358 $ 30,475 $ 30,703 $ 29,033 $ 26,422 ======== ======== ======== ======== ======== ======== ======== EARNINGS PER SHARE Income before accounting change......................... $ 3.36 $ 2.54 $ 1.78 $ 1.58 $ 1.59 $ 1.51 $ 1.38 Less cumulative effect of accounting change.............. -- 0.05 -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Net Income....................... $ 3.36 $ 2.49 $ 1.78 $ 1.58 $ 1.59 $ 1.51 $ 1.38 ======== ======== ======== ======== ======== ======== ======== DIVIDENDS PAID PER SHARE........... $ 1.00 $ 0.70 $ 0.50 $ 0.50 $ 0.45 $ 0.45 $ 0.35 FINANCIAL RATIOS Return on average equity........... 16.1% 13.3% 16.7% 15.5% 15.7% 15.3% 14.5% Return on average assets........... 1.21 0.96 1.28 1.15 1.14 1.09 1.05 COMMON STOCK DATA Period-end book value per share.... $ 44.09 $ 39.47 $ 44.09 $ 42.81 $ 41.51 $ 40.30 $ 39.47 Dividend payout ratio.............. 29.8% 28.1% 28.1% 31.6% 28.3% 29.7% 25.4% Range of BayBanks, Inc., last sale price High............................. $ 79.50 $ 64.13 $ 79.50 $ 64.50 $ 59.50 $ 63.00 $ 64.13 Low.............................. 52.00 50.00 60.50 52.00 51.00 54.25 54.50 Close............................ 79.25 60.25 79.25 64.50 52.75 55.00 60.25
25 26 BAYBANKS, INC. AVERAGE YIELDS, RATES PAID, AND NET INTEREST MARGIN(1)
1995 1994 SIX MONTHS ------------------- ------------------------------- ------------- SECOND FIRST FOURTH THIRD SECOND 1995 1994 QUARTER QUARTER QUARTER QUARTER QUARTER ---- ---- ------- ------- ------- ------- ------- Interest-bearing deposits and other short-term investments............... 5.94% 3.56% 6.04% 5.84% 5.24% 4.38% 3.94% Securities available for sale(2)....... 6.72 4.80 6.64 6.80 6.27 5.42 4.98 Investment securities.................. 5.61 4.68 5.72 5.51 5.23 5.13 4.80 Loans.................................. 8.96 7.90 8.99 8.94 8.55 8.35 7.98 Commercial........................... 8.88 6.89 8.85 8.92 8.29 7.68 7.19 Commercial real estate............... 9.14 7.82 9.31 8.98 8.89 8.54 8.05 Residential mortgage................. 7.66 7.29 7.69 7.62 7.49 7.48 7.24 Instalment........................... 9.59 8.72 9.61 9.57 9.07 9.03 8.72 Total earning assets................... 7.95% 6.81% 8.01% 7.89% 7.47% 7.20% 6.89% Interest-bearing funds................. 3.50% 2.25% 3.60% 3.41% 2.98% 2.68% 2.35% NOW accounts......................... 1.36 1.34 1.36 1.37 1.37 1.37 1.34 Savings.............................. 2.27 1.92 2.29 2.25 2.17 1.96 1.93 Money market deposit accounts........ 3.30 2.12 3.37 3.22 2.72 2.50 2.20 Consumer time........................ 5.17 3.46 5.46 4.83 4.21 3.80 3.46 Time -- $100,000 or more............. 5.81 3.40 5.84 5.78 5.08 4.29 3.69 Short-term borrowings................ 5.91 3.69 5.99 5.84 5.14 4.50 3.97 Long-term debt....................... 6.42 4.16 6.35 6.50 5.54 5.05 4.44 Interest expense as a percentage of average earning assets............... 2.81% 1.80% 2.88% 2.73% 2.39% 2.17% 1.89% Net interest margin.................... 5.14% 5.01% 5.13% 5.16% 5.08% 5.03% 5.00%
- --------------- (1) Tax equivalent basis. (2) Yields based on average cost. PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders on April 27, 1995, the Company's stockholders voted as follows to reelect Messrs. William M. Crozier, Jr., Robert L. Gable, Norman E. MacNeil, and Glenn P. Strehle to the Board of Directors for a three-year term.
TOTAL VOTE TOTAL VOTE FOR WITHHELD FROM EACH NOMINEE EACH NOMINEE ------------ ------------- William M. Crozier, Jr................................ 16,299,432 344,800 Robert L. Gable....................................... 16,301,676 342,556 Norman E. MacNeil..................................... 16,317,390 326,842 Glenn P. Strehle...................................... 16,326,045 318,187
There were no abstentions and no broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit List and Index on page 28. (b) A report on Form 8-K was filed on April 3, 1995, reporting the execution of an Acquisition Agreement on March 23, 1995, under which the Company would acquire Cornerstone Financial Corporation ("Cornerstone"), and a related Option Agreement under which Cornerstone granted to the Company an option to purchase up to 14% of the outstanding shares of Cornerstone common stock. A report on Form 8-K was filed on July 7, 1995, reporting the consummation after the close of business on June 30, 1995 of the Company's acquisition of NFS Financial Corp. and its subsidiary banks and the merger of those two banks into a single federal savings bank under the name BayBank FSB. 26 27 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: August 8, 1995 27 28 BAYBANKS, INC. EXHIBIT LIST AND INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- MISCELLANEOUS 11.1 -- Computation of Primary and Fully Diluted Earnings Per Share. See Page 29. 27 -- Financial Data Schedule.
28 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 BAYBANKS, INC. COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THE PERIODS ENDED JUNE 30 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30 QUARTER ENDED JUNE 30 --------------------------- --------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- PRIMARY: Weighted average shares............. 19,011,952 18,798,391 19,025,148 18,818,163 Common stock equivalents (CSE): Stock options..................... 280,145 325,752 296,959 336,457 ----------- ----------- ----------- ----------- Primary weighted average shares..... 19,292,097 19,124,143 19,322,107 19,154,620 =========== =========== =========== =========== Income before cumulative effect of accounting change................. $ 64,833 $ 48,633 $ 34,358 $ 26,422 Less cumulative effect of accounting change............................ -- 932 -- -- ----------- ----------- ----------- ----------- Net income.......................... $ 64,833 $ 47,701 $ 34,358 $ 26,422 =========== =========== =========== =========== Primary earnings per share: Income before cumulative effect of accounting change......... $ 3.36 $ 2.54 $ 1.78 $ 1.38 Less cumulative effect of accounting change............ -- 0.05 -- -- ----------- ----------- ----------- ----------- Net income..................... $ 3.36 $ 2.49 $ 1.78 $ 1.38 =========== =========== =========== =========== FULLY DILUTED: Weighted average shares............. 19,011,952 18,798,391 19,025,148 18,818,163 Common stock equivalents (CSE): Stock options..................... 320,439 333,275 337,253 341,544 ----------- ----------- ----------- ----------- Fully diluted weighted average shares............................ 19,332,391 19,131,666 19,362,401 19,159,707 =========== =========== =========== =========== Income before cumulative effect of accounting change................. $ 64,833 $ 48,633 $ 34,358 $ 26,422 Less cumulative effect of accounting change............................ -- 932 -- -- ----------- ----------- ----------- ----------- Net income.......................... $ 64,833 $ 47,701 $ 34,358 $ 26,422 =========== =========== =========== =========== Fully diluted earnings per share: Income before cumulative effect of accounting change......... $ 3.35 $ 2.54 $ 1.77 $ 1.38 Less cumulative effect of accounting change............ -- 0.05 -- -- ----------- ----------- ----------- ----------- Net income..................... $ 3.35 $ 2.49 $ 1.77 $ 1.38 =========== =========== =========== ===========
29 EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF BAYBANKS, INC. FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 839,063 0 198,600 47,835 215,563 2,449,708 2,457,033 6,940,157 146,345 11,005,700 9,181,062 849,490 84,042 51,136 38,100 0 0 801,870 11,005,700 301,775 75,707 6,004 383,486 105,039 137,315 246,171 13,000 1 237,478 102,887 64,833 0 0 64,833 3.36 0 5.14 72,968 33,651 3,619 0 146,835 27,489 13,999 146,345 8,136 0 138,209
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