1
EXHIBIT 99(b)
BAYBANKS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31 DECEMBER 31 MARCH 31
1996 1995 1995
----------- ----------- -----------
ASSETS
Cash and due from banks................................................. $ 872,677 $ 922,031 $ 658,022
Trading account securities.............................................. 36,340 50,755 18,368
Securities portfolios
Interest-bearing deposits and other short-term investments............ 210,875 361,164 196,831
Securities available for sale -- amortized cost $2,187,804 at
March 31, 1996, $2,518,199 at December 31, 1995, and $221,299 at
March 31, 1995........................................................ 2,202,876 2,549,127 222,015
Investment securities -- market value $52,612 at March 31, 1996,
$54,398 at December 31, 1995, and $2,644,529 at March 31, 1995...... 52,612 54,398 2,675,403
----------- ----------- -----------
2,466,363 2,964,689 3,094,249
Loans, net of unearned income and fees
Commercial............................................................ 1,570,836 1,604,031 1,580,403
Commercial real estate................................................ 1,202,729 1,167,043 977,986
Residential mortgage.................................................. 2,163,366 2,053,635 1,376,372
Instalment............................................................ 2,932,918 2,946,384 2,839,733
----------- ----------- -----------
7,869,849 7,771,093 6,774,494
Less allowance for loan losses........................................ 151,680 153,688 146,348
----------- ----------- -----------
7,718,169 7,617,405 6,628,146
Premises and equipment, net............................................. 213,151 215,714 193,785
Goodwill and other intangibles.......................................... 54,624 54,869 4,282
Other assets............................................................ 231,855 238,038 246,906
----------- ----------- -----------
Total assets................................................... $11,593,179 $12,063,501 $10,843,758
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand................................................................ $ 2,209,027 $ 2,383,823 $ 2,100,424
NOW accounts.......................................................... 1,599,149 1,657,825 1,407,048
Savings............................................................... 1,539,254 1,498,596 1,460,247
Money market deposit accounts......................................... 2,663,653 2,599,295 2,493,856
Consumer time......................................................... 1,899,501 1,862,611 1,299,848
Time -- $100,000 or more.............................................. 190,812 215,257 182,532
----------- ----------- -----------
10,101,396 10,217,407 8,943,955
Federal funds purchased and other short-term borrowings................. 415,628 718,941 961,883
Accrued expenses and other accounts payable............................. 82,591 104,831 66,815
Long-term debt.......................................................... 14,871 64,849 51,146
Guarantee of ESOP indebtedness.......................................... 2,941 6,289 6,289
Stockholders' equity:
Common stock, par value $2.00 per share
Shares authorized -- 50,000,000
Shares issued -- 19,729,361 at March 31, 1996, 19,642,774
at December 31, 1995, and 19,006,032 at March 31, 1995............ 39,459 39,286 38,012
Surplus............................................................... 364,464 360,969 315,660
Retained earnings..................................................... 566,268 539,711 465,867
Net unrealized gain on securities available for sale, net of tax...... 8,663 17,678 420
Treasury stock at cost -- 1,525 shares at March 31, 1996, and 1,841
shares at December 31, 1995......................................... (161) (171) --
Guarantee of ESOP indebtedness........................................ (2,941) (6,289) (6,289)
----------- ----------- -----------
Total stockholders' equity..................................... 975,752 951,184 813,670
----------- ----------- -----------
Total liabilities and stockholders' equity..................... $11,593,179 $12,063,501 $10,843,758
=========== =========== ===========
2
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FIRST QUARTER
ENDED MARCH 31
-------------------------
1996 1995
---------- ----------
Income on interest-bearing deposits and other short-term investments......... $ 3,560 $ 2,863
Interest on securities available for sale and investment securities.......... 34,094 37,932
Interest and fees on loans................................................... 167,778 148,589
---------- ----------
Total income on earning assets............................................... 205,432 189,384
Interest expense on deposits and borrowings
Deposits................................................................... 64,532 49,327
Short-term borrowings...................................................... 8,081 16,272
Long-term debt............................................................. 922 831
---------- ----------
Total interest expense....................................................... 73,535 66,430
---------- ----------
Net interest income.......................................................... 131,897 122,954
Provision for loan losses.................................................... 6,900 6,500
---------- ----------
Net interest income after provision for loan losses.......................... 124,997 116,454
Noninterest income
Service charges and fees on deposit accounts............................... 27,692 26,643
Other noninterest income................................................... 31,478 24,798
---------- ----------
Total noninterest income..................................................... 59,170 51,441
Net securities gains......................................................... 5 1
Operating expenses
Salaries and benefits...................................................... 63,587 60,318
Occupancy and equipment.................................................... 24,729 22,598
Other operating expenses................................................... 34,701 33,636
---------- ----------
Total operating expenses..................................................... 123,017 116,552
Provision for OREO reserve, net.............................................. (398) 1,000
---------- ----------
Total operating expenses after OREO provision................................ 122,619 117,552
---------- ----------
Income before taxes.......................................................... 61,553 50,344
Provision for income taxes................................................... 23,174 19,869
---------- ----------
NET INCOME................................................................... $ 38,379 $ 30,475
========== ==========
Earnings Per Share........................................................... $ 1.92 $ 1.58
========== ==========
Average shares outstanding................................................... 19,978,541 19,261,941
3
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NET
UNREALIZED
GAIN ON
SECURITIES
COMMON RETAINED AVAILABLE TREASURY ESOP LOAN
STOCK SURPLUS EARNINGS FOR SALE STOCK GUARANTEE TOTAL
------- -------- -------- ---------- -------- --------- --------
BALANCE AS OF DECEMBER 31,
1994........................... $37,999 $314,924 $444,891 $ 276 $ (27) $(9,451) $788,612
Net income -- first quarter
1995......................... 30,475 30,475
Cash dividends declared ($.50
per share)................... (9,499) (9,499)
Net change in valuation reserve
related to securities
available
for sale portfolio, net of
deferred income taxes........ 144 144
Other, principally employee
benefit plans................ 13 736 27 3,162 3,938
-------- -------- -------- ------- ------- ------- --------
BALANCE AS OF MARCH 31, 1995..... $38,012 $315,660* $465,867 $ 420 $ -- $(6,289) $813,670
======== ======== ======== ======= ======= ======= ========
BALANCE AS OF DECEMBER 31,
1995........................... $39,286 $360,969* $539,711 $ 17,678 $ (171) $(6,289) $951,184
Net income -- first quarter
1996......................... 38,379 38,379
Cash dividends declared ($.60
per share)................... (11,822) (11,822)
Net change in valuation reserve
related to securities
available
for sale portfolio, net of
deferred income taxes........ (9,015) (9,015)
Other, principally employee
benefit plans................ 173 3,495 10 3,348 7,026
-------- -------- -------- ------- ------- ------- --------
BALANCE AS OF MARCH 31, 1996..... $39,459 $364,464* $566,268 $ 8,663 $ (161) $(2,941) $975,752
======== ======== ======== ======= ======= ======= ========
<FN>
- ---------------
* Net of unamortized restricted stock compensation expense of $4,456, $5,290,
and $5,550 at March 31, 1996, December 31, 1995, and March 31, 1995,
respectively. Upon approval of the merger with Bank of Boston Corporation (see
Note 4) by the Company's shareholders on April 25, 1996, restriction periods
on outstanding awards of restricted stock lapsed. Accordingly, the unamortized
restricted stock compensation, net of applicable tax benefits, at April 25,
1996 will be recognized during the second quarter of 1996.
4
BAYBANKS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FIRST QUARTER ENDED
MARCH 31
---------------------------
1996 1995
----------- ---------
OPERATING ACTIVITIES
Net income............................................................................ $ 38,379 $ 30,475
Adjustments to reconcile net income to net cash provided by operating activities:
Proceeds from sales and maturities of trading account securities(1)................. 2,090,563 556,338
Purchases of trading account securities............................................. (2,076,148) (556,052)
Net amortization of security premium and borrowings discount........................ 999 3,677
Net securities gains................................................................ (5) (1)
Fixed-rate mortgages sold........................................................... 72,474 7,760
Fixed-rate mortgages originated for sale, net of principal payments................. (104,681) (5,038)
Student loans transferred from portfolio and sold................................... 15,400 --
Provision for loan losses........................................................... 6,900 6,500
Amortization of goodwill and other intangibles...................................... 1,302 138
Depreciation and amortization of premises and equipment............................. 6,541 6,558
Gain on sales of premises and equipment............................................. (339) (1,057)
Provision for OREO reserve, net..................................................... (398) 1,000
Deferred income taxes............................................................... 1,157 (413)
Change in other assets.............................................................. (4,141) (2,356)
Change in interest receivable....................................................... 14,374 (5,623)
Change in accrued expenses and other accounts payable............................... (19,830) (5,292)
Change in interest payable.......................................................... (1,503) 1,645
----------- ---------
Net cash provided by operating activities....................................... 41,044 38,259
----------- ---------
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale.................................. 6,075 45,110
Proceeds from maturities of securities available for sale............................. 1,005,504 48
Purchases of securities available for sale(1)......................................... (682,150) (37,500)
Proceeds from maturities of investment securities..................................... 2,399 335,540
Purchases of investment securities.................................................... (613) (458,432)
Net cash provided (used) by:
Short-term investments.............................................................. 150,289 (30,545)
Loans(2)(3)(4)...................................................................... (91,428) (110,871)
Proceeds from sales of premises and equipment......................................... 534 1,605
Purchases of premises and equipment................................................... (4,173) (5,461)
Proceeds from sales and payments related to OREO(3)(4)................................ 2,962 5,094
----------- ---------
Net cash provided (used) by investing activities................................ 389,399 (255,412)
----------- ---------
FINANCING ACTIVITIES
Net cash provided (used) by:
Demand deposits, NOW, and savings accounts.......................................... (192,814) (201,195)
Money market deposits............................................................... 64,358 (66,569)
Consumer time deposits.............................................................. 36,890 204,491
Time -- $100,000 or more............................................................ (24,445) 6,869
Short-term borrowings............................................................... (303,313) 112,366
Long-term debt...................................................................... (50,009) (8)
Dividends paid........................................................................ (11,822) (9,499)
Other equity transactions............................................................. 1,358 (450)
----------- ---------
Net cash provided (used) by financing activities................................ (479,797) 46,005
----------- ---------
Net change in cash and cash equivalents................................................. (49,354) (171,148)
Cash and cash equivalents at beginning of year(5)....................................... 922,031 829,170
----------- ---------
Cash and cash equivalents at March 31(5)................................................ $ 872,677 $ 658,022
========== =========
Supplemental disclosure of cash flow information
Interest paid......................................................................... $ 75,038 $ 64,785
Taxes paid............................................................................ 14,043 9,020
<FN>
- ---------------
(1) Excludes transfers of trading account securities to the securities available
for sale portfolio of $8.8 million in 1995.
(2) Excludes transfers of loans to the other real estate owned category of $.6
million in 1996 and 1995.
(3) Excludes loan originations in conjunction with OREO sales of $1.0 million in
1995.
(4) 1995 amount excludes $33.2 million of in-substance foreclosures and related
reserves of $8.7 million reclassified to loans and the allowance for loan
losses, respectively, as a result of the adoption of SFAS No. 114 on January
1, 1995.
(5) Cash and cash equivalents consist of cash on hand and due from banks.
5
BAYBANKS, INC.
NOTE 1. ACCOUNTING ADJUSTMENTS
In the opinion of management, all of the adjustments (consisting of normal
recurring accruals unless otherwise indicated) necessary for a fair statement of
the results of operations have been included in the accompanying financial
statements, prepared in accordance with generally accepted accounting
principles. Certain 1995 amounts have been reclassified to conform with the 1996
presentation. These financial statements are unaudited.
NOTE 2. SECURITIES PORTFOLIOS
The amortized cost, gross unrealized gains and losses, market values, and
weighted average yields of the following securities portfolios by maturity
(excluding interest-bearing deposits and other short-term investments) were:
GROSS GROSS WEIGHTED
AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
COST GAINS LOSSES VALUE YIELD
---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, ON A TAX EQUIVALENT BASIS)
MARCH 31, 1996(1)
SECURITIES AVAILABLE FOR SALE
U.S. Government securities, maturing
Within 1 year........................... $ 622,541 $ 36 $ (1,918) $ 620,659 4.79%
After 1 year but within 5 years......... 919,288 16,815 (194) 935,909 6.76
After 5 years but within 10 years....... 1,998 -- (71) 1,927 5.77
---------- ------- -------- ----------
1,543,827 16,851 (2,183) 1,558,495 5.96
---------- ------- -------- ----------
State and local government securities,
maturing
Within 1 year........................... 65,248 41 (4) 65,285 6.21
After 1 year but within 5 years......... 60,402 537 (189) 60,750 6.79
After 5 years but within 10 years....... 49,620 755 (385) 49,990 7.28
After 10 years.......................... 20 -- -- 20 7.03
---------- ------- -------- ----------
175,290 1,333 (578) 176,045 6.71
---------- ------- -------- ----------
Corporate, maturing
Within 1 year........................... 308,646 11 (2) 308,655 5.63
After 1 year but within 5 years......... 6,557 8 (17) 6,548 6.21
---------- ------- -------- ----------
315,203 19 (19) 315,203 5.64
---------- ------- -------- ----------
U.S. Agency mortgage-backed securities.... 89,977 199 (430) 89,746 6.08
Asset-backed securities................... 25,125 -- (128) 24,997 4.22
Other(2).................................. 38,382 8 -- 38,390 6.30
---------- ------- -------- ----------
Total securities available for
sale.......................... $2,187,804 $ 18,410 $ (3,338) $2,202,876 5.96%
========== ======= ======== ========== =====
INVESTMENT SECURITIES
Industrial revenue bonds.................. $ 39,150 $ -- $ -- $ 39,150 10.51%
Other..................................... 13,462 -- -- 13,462 6.00
---------- ------- -------- ----------
Total investment securities..... $ 52,612 $ -- $ -- $ 52,612 9.36%
========== ======= ======== ========== =====
<FN>
- ---------------
(1) The period-end maturity distribution excludes industrial revenue bonds,
which are not regarded as principal debt securities, asset-backed
securities, mortgage-backed securities, and other securities that do not
have a stated maturity.
(2) BayBank, N.A., the Company's principal bank subsidiary, and BayBank FSB, a
New Hampshire bank subsidiary, are members of the Federal Home Loan Bank
(FHLB). As of March 31, 1996, $38.3 million in stock of the FHLB is included
in the Securities Available for Sale portfolio in the Other category at
cost, which approximates market value. As of March 31, 1996, total advances
of $18.8 million were outstanding from the FHLB at an average interest rate
of 5.14% and with an average maturity of 1.38 years. These outstanding
advances are included on the consolidated balance sheet in the other short-
term borrowings and long-term debt categories.
6
NOTE 2. SECURITIES PORTFOLIOS (CONTINUED)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
DECEMBER 31, 1995(1)
SECURITIES AVAILABLE FOR SALE
U.S. Government securities................... $1,798,465 $ 32,247 $ (2,304) $1,828,408
Corporate.................................... 317,737 50 -- 317,787
State and local government securities........ 225,954 1,710 (165) 227,499
U.S. Agency mortgage-backed securities....... 98,120 194 (515) 97,799
Asset-backed securities...................... 44,051 -- (297) 43,754
Other(2)..................................... 33,872 8 -- 33,880
---------- ------ -------- ----------
Total securities available for
sale............................. $2,518,199 $ 34,209 $ (3,281) $2,549,127
========== ====== ======== ==========
INVESTMENT SECURITIES
Industrial revenue bonds..................... $ 41,544 $ -- $ -- $ 41,544
Other........................................ 12,854 -- -- 12,854
---------- ------ -------- ----------
Total investment securities........ $ 54,398 $ -- $ -- $ 54,398
========== ====== ======== ==========
MARCH 31, 1995
SECURITIES AVAILABLE FOR SALE
State and local government securities........ $ 16,045 $ 16 $ (1) $ 16,060
Corporate.................................... 177,600 -- -- 177,600
Other(2)..................................... 27,654 701 -- 28,355
---------- ------ -------- ----------
Total securities available for
sale............................. $ 221,299 $ 717 $ (1) $ 222,015
========== ====== ======== ==========
INVESTMENT SECURITIES
U.S. Government securities................... $2,168,149 $ 3,278 $ (29,892) $2,141,535
State and local government securities........ 214,366 348 (596) 214,118
Asset-backed securities...................... 193,466 -- (2,755) 190,711
U.S. Agency mortgage-backed securities....... 49,518 -- (1,257) 48,261
Industrial revenue bonds..................... 48,062 -- -- 48,062
Corporate and other.......................... 1,842 -- -- 1,842
---------- ------ -------- ----------
Total investment securities........ $2,675,403 $ 3,626 $ (34,500) $2,644,529
========== ====== ======== ==========
<FN>
- ---------------
(1) During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed a one-time reassessment of the classification of securities, and the
Company reclassified $2.0 billion from investment securities to securities
available for sale.
(2) As of December 31, 1995, and March 31, 1995, $33.6 million and $27.6
million, respectively, in stock of the FHLB is included in the Securities
Available for Sale portfolio in the Other category at cost, which
approximates market value.
NOTE 3. ADOPTION OF ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to such assets being held
and used and for such assets and certain identifiable intangibles to be disposed
of. The implementation of this statement did not have a material effect on the
Company's results of operations or financial condition.
7
NOTE 4. PENDING MERGER
On December 12, 1995, the Company and Bank of Boston Corporation (Bank of
Boston) entered into an agreement and plan of merger, pursuant to which a
subsidiary of Bank of Boston will merge with and into the Company and the
Company will become a wholly-owned subsidiary of Bank of Boston (the Merger). In
addition, related Stock Option Agreements were executed pursuant to which Bank
of Boston granted the Company a conditional option to purchase up to 22,400,761
shares of Bank of Boston common stock and the Company granted to Bank of Boston
a conditional option to purchase up to 3,907,120 shares of the Company's common
stock, in each case equaling 19.9% of the outstanding shares of the respective
granting company's stock. As a result of the Merger, each share of the common
stock of the Company outstanding immediately prior to the effective time of the
Merger will be converted into the right to receive 2.2 newly issued shares of
Bank of Boston common stock. Outstanding options to purchase common stock of the
Company will be converted to options to purchase common stock of Bank of Boston
on the same basis.
The Merger is intended to constitute a tax-free transaction and to be
accounted for as a pooling of interests. The Merger was approved by the
shareholders of both companies on April 25, 1996. This transaction is subject to
approval by federal and state bank regulators and is expected to close in the
third quarter of 1996. Subsequent to completion of the Merger, Bank of Boston's
principal banking subsidiary will operate as BayBank of Boston, N.A.