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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-6522
BANK OF BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2471221
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
100 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(617) 434-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 28, 1995:
Common Stock, $2.25 par value........................ 111,240,019
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BANK OF BOSTON CORPORATION
TABLE OF CONTENTS
PAGE
----
CONSOLIDATED SELECTED FINANCIAL DATA 3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet...................................... 4
Consolidated Statement of Income................................ 6
Consolidated Statement of Changes in Stockholders' Equity....... 7
Consolidated Statement of Cash Flows............................ 8
Notes to Financial Statements................................... 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 13
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 34
ITEM 4. Submission of Matters to a Vote of Security Holders............. 34
ITEM 6. Exhibits and Reports on Form 8-K................................ 35
SIGNATURES............................................................... 36
LIST OF TABLES
Consolidated Average Balance Sheet--Nine Quarters..................... 27
Consolidated Statement of Income--Nine Quarters....................... 28
Average Balances and Interest Rates--Quarter.......................... 29
Change in Net Interest Revenue--Volume and Rate Analysis.............. 33
2
BANK OF BOSTON CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1995 1994
QUARTERS ENDED MARCH 31 ------- -------
INCOME STATEMENT DATA:
Net interest revenue.......................................... $ 426 $ 341
Provision for credit losses................................... 90 45
Noninterest income............................................ 293 235
Noninterest expense........................................... 383 347
Income before extraordinary item.............................. 125 103
Net income.................................................... 125 96
Per common share:
Income before extraordinary item:
Primary..................................................... 1.08 .88
Fully diluted............................................... 1.04 .85
Net income:
Primary..................................................... 1.08 .82
Fully diluted............................................... 1.04 .79
Market value per common share:
High........................................................ 30 3/8 25 5/8
Low......................................................... 25 5/8 22 5/8
AT MARCH 31
BALANCE SHEET DATA:
Loans and lease financing..................................... $30,439 $28,554
Total assets.................................................. 43,462 42,424
Deposits...................................................... 28,275 28,153
Total stockholders' equity.................................... 3,328 2,947
Book value per common share................................... 25.36 22.91
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1...................................................... 7.8% 7.4%
Total....................................................... 13.3 12.7
Leverage ratio............................................... 7.3 6.9
3
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
ASSETS
Cash and due from banks.................................. $ 2,346 $ 2,317
Interest bearing deposits in other banks................. 1,263 1,556
Federal funds sold and securities purchased under
agreements to resell.................................... 923 1,232
Trading securities....................................... 929 553
Mortgages held for sale.................................. 170 183
Securities (Note 4):
Available for sale..................................... 2,388 2,997
Held to maturity (fair value of $1,823 in 1995 and
$1,626 in 1994)....................................... 1,857 1,703
Loans and lease financing (Note 5):
United States Operations............................... 23,056 23,916
International Operations............................... 7,383 7,089
------- -------
Total loans and lease financing (net of unearned
income of $285 in 1995 and $292 in 1994)............ 30,439 31,005
Reserve for credit losses (Note 6)....................... (696) (680)
------- -------
Net loans and lease financing.......................... 29,743 30,325
Premises and equipment, net.............................. 556 569
Due from customers on acceptances........................ 313 314
Accrued interest receivable.............................. 353 355
Other assets............................................. 2,621 2,526
------- -------
TOTAL ASSETS............................................. $43,462 $44,630
======= =======
The accompanying notes are an integral part of these financial statements.
4
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET--(CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing................................. $ 4,194 $ 4,900
Interest bearing.................................... 15,858 16,841
Overseas offices:
Noninterest bearing................................. 623 569
Interest bearing.................................... 7,600 9,046
------- -------
Total deposits.................................... 28,275 31,356
Funds borrowed:
Federal funds purchased............................... 368 369
Term federal funds purchased.......................... 2,058 765
Securities sold under agreements to repurchase........ 1,227 1,883
Other funds borrowed.................................. 4,099 3,343
Acceptances outstanding................................. 314 316
Accrued expenses and other liabilities.................. 1,700 1,287
Notes payable (Note 7).................................. 2,093 2,169
------- -------
TOTAL LIABILITIES....................................... 40,134 41,488
------- -------
Commitments and contingencies (Notes 2 and 8)
Stockholders' equity:
Preferred stock without par value:
Authorized shares--10,000,000
Issued and outstanding shares--4,593,941........... 508 508
Common stock, par value $2.25:
Authorized shares--200,000,000
Issued shares--111,167,102 in 1995 and 107,584,349
in 1994
Outstanding shares--111,167,102 in 1995 and
106,547,149 in 1994................................ 250 242
Surplus............................................... 886 810
Retained earnings..................................... 1,736 1,655
Net unrealized loss on securities available for sale,
net of tax........................................... (49) (40)
Treasury stock, at cost (1,037,200 shares in 1994).... (27)
Cumulative translation adjustments, net of tax........ (3) (6)
------- -------
TOTAL STOCKHOLDERS' EQUITY.............................. 3,328 3,142
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $43,462 $44,630
======= =======
The accompanying notes are an integral part of the financial statements.
5
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1995 1994
QUARTERS ENDED MARCH 31 ------- -------
INTEREST INCOME:
Loans and lease financing, including fees...................... $ 746 $ 543
Securities..................................................... 76 61
Trading securities............................................. 41 2
Mortgages held for sale........................................ 3 16
Federal funds sold and securities purchased under agreements to
resell........................................................ 102 80
Deposits in other banks........................................ 65 22
------- -------
Total interest income........................................ 1,033 724
------- -------
INTEREST EXPENSE:
Deposits of domestic offices................................... 140 127
Deposits of overseas offices................................... 222 113
Funds borrowed................................................. 206 110
Notes payable.................................................. 39 33
------- -------
Total interest expense....................................... 607 383
------- -------
Net interest revenue........................................... 426 341
Provision for credit losses (Note 6)........................... 90 45
------- -------
Net interest revenue after provision for credit losses......... 336 296
------- -------
NONINTEREST INCOME:
Financial service fees......................................... 106 92
Trust and agency fees.......................................... 53 48
Other income (Note 2).......................................... 134 95
------- -------
Total noninterest income..................................... 293 235
------- -------
NONINTEREST EXPENSE:
Salaries....................................................... 176 158
Employee benefits.............................................. 41 37
Occupancy expense.............................................. 35 32
Equipment expense.............................................. 24 24
Other expense.................................................. 107 96
------- -------
Total noninterest expense.................................... 383 347
------- -------
Income before income taxes and extraordinary item.............. 246 184
Provision for income taxes..................................... 121 81
------- -------
Income before extraordinary item............................... 125 103
Extraordinary loss from early extinguishment of debt, net of
tax........................................................... 7
------- -------
NET INCOME..................................................... $ 125 $ 96
======= =======
NET INCOME APPLICABLE TO COMMON STOCK.......................... $ 116 $ 87
======= =======
PER COMMON SHARE:
Income before extraordinary item:
Primary...................................................... $ 1.08 $ .88
Fully diluted................................................ $ 1.04 $ .85
Net Income (Note 7):
Primary...................................................... $ 1.08 $ .82
Fully diluted................................................ $ 1.04 $ .79
Dividends declared............................................. $ .27 $ .22
AVERAGE NUMBER OF COMMON SHARES (IN THOUSANDS):
Primary...................................................... 107,278 106,198
Fully diluted................................................ 111,820 110,817
The accompanying notes are an integral part of these financial statements.
6
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
1995 1994
QUARTERS ENDED MARCH 31 ------ ------
BALANCE, BEGINNING OF PERIOD................................... $3,142 $2,912
Net income..................................................... 125 96
Common stock issued in connection with:
Dividend reinvestment and common stock purchase plan......... 10 4
Conversion of subordinated convertible debentures............ 94
Acquisition of Ganis Credit Corporation...................... 22
Restricted stock grants, net of forfeitures.................. 7 10
Change in unearned compensation related to restricted stock
grants...................................................... (6) (9)
Other, principally employee benefit plans.................... 6 3
Purchase of treasury stock..................................... (28)
Cash dividends declared:
Preferred stock.............................................. (9) (9)
Common stock................................................. (29) (23)
Change in net unrealized loss on securities available for sale,
net of tax.................................................... (9) (40)
Translation adjustments, net of tax............................ 3 3
------ ------
BALANCE, END OF PERIOD......................................... $3,328 $2,947
====== ======
The accompanying notes are an integral part of these financial statements.
7
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
1995 1994
QUARTERS ENDED MARCH 31 ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 125 $ 96
Reconciliation of net income to net cash provided from
operating activities:
Extraordinary loss from early extinguishment of debt, net
of tax.................................................... 7
Provision for credit losses................................ 90 45
Depreciation and amortization.............................. 47 37
Provision for deferred taxes............................... (56)
Net gains on sales of securities and other assets.......... (105) (42)
Change in trading securities............................... (376) (84)
Change in mortgages held for sale.......................... 13 513
Net change in interest receivables and payables............ 14 (124)
Other, net................................................. 296 (36)
------- -------
Net cash provided from operating activities.............. 104 356
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided from interest bearing deposits in other
banks....................................................... 293 72
Net cash provided from (used for) federal funds sold and
securities purchased under agreements to resell............. 309 (1,187)
Purchases of securities held to maturity..................... (254) (328)
Purchases of securities available for sale................... (507) (6,479)
Sales of securities available for sale....................... 843 6,255
Maturities of securities held to maturity.................... 97 366
Maturities of securities available for sale.................. 256 166
Dispositions of venture capital investments.................. 37 4
Loans and lease financing originated by nonbank entities..... (2,421) (389)
Loans and lease financing collected by nonbank entities...... 2,292 455
Net cash provided from (used for) lending activities of bank
subsidiaries................................................ 590 (237)
Proceeds from sales of other real estate owned............... 12 16
Expenditures for premises and equipment...................... (44) (22)
Proceeds from sales of business units and premises and
equipment................................................... 117 124
Other, net................................................... 4 (38)
------- -------
Net cash provided from (used for) investing activities... 1,624 (1,222)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used for deposits................................... (3,081) (1,461)
Net cash provided from funds borrowed........................ 1,392 2,919
Net repayments of notes payable.............................. (2) (364)
Net proceeds from issuance of notes payable.................. 20 340
Net proceeds from issuance of common stock................... 15 7
Dividends paid............................................... (38) (32)
------- -------
Net cash provided from (used for) financing activities... (1,694) 1,409
Effect of foreign currency translation on cash............... (5) (14)
------- -------
NET CHANGE IN CASH AND DUE FROM BANKS........................ 29 529
CASH AND DUE FROM BANKS AT JANUARY 1......................... 2,317 2,539
======= =======
CASH AND DUE FROM BANKS AT MARCH 31.......................... $ 2,346 $ 3,068
======= =======
Interest payments made....................................... $ 595 $ 491
Income tax payments made..................................... $ 116 $ 34
The accompanying notes are an integral part of these financial statements.
8
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements of Bank of
Boston Corporation (the Corporation) are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information contained herein have been
made. Certain amounts reported in prior periods have been reclassified for
comparative purposes. This information should be read in conjunction with the
Corporation's 1994 Annual Report on Form 10-K.
2. ACQUISITIONS AND DIVESTITURES: During the first quarter of 1995, the
Corporation completed its acquisition of Ganis Credit Corporation (Ganis), a
privately-held consumer finance company headquartered in Newport Beach,
California. The Corporation paid Ganis stockholders approximately $22 million
in Corporation common stock and used 773,621 shares of its treasury stock,
previously purchased in the open market, for the transaction. The Corporation
will pay Ganis stockholders up to an additional $14 million in common stock if
Ganis achieves certain performance goals over the next several years. The
acquisition was accounted for as a purchase and, accordingly, the assets and
liabilities of Ganis were recorded at their estimated fair values as of the
acquisition date. Goodwill resulting from the acquisition is being amortized
over a fifteen-year period. The acquisition has been included in the
accompanying consolidated financial statements since the acquisition date.
During the first quarter of 1995, the Corporation completed the sales of two
of its affiliate banks, Bank of Vermont and Casco Northern Bank, N.A. The sales
resulted in a combined pre-tax gain of approximately $75 million, or $30
million net of tax.
3. SIGNIFICANT NONCASH TRANSACTIONS--STATEMENT OF CASH FLOWS: During the
first quarters of 1995 and 1994, the Corporation transferred approximately $12
million and $15 million, respectively, to Other Real Estate Owned (OREO) from
loans. Loans made to facilitate sales of OREO properties totaled approximately
$1 million in the first quarter of 1994. There were no loans made to facilitate
sales of OREO properties in the first quarter of 1995. Other significant
noncash transactions in 1995 included the issuance of common stock totaling
approximately $94 million in connection with the Corporation's redemption of
its convertible subordinated debentures due 2011. During the first quarter of
1994, the Corporation transferred $339 million of lower quality real estate
exposure to an accelerated disposition portfolio.
4. SECURITIES: A summary comparison of securities available for sale by type
is as follows:
MARCH 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
COST CARRYING VALUE COST CARRYING VALUE
------ -------------- ------ --------------
(IN MILLIONS)
U.S. Treasury................... $ 856 $ 856 $1,500 $1,487
U.S. government agencies and
corporations--mortgage-backed
securities..................... 827 813 796 766
Foreign debt securities......... 428 341 432 384
Other debt securities........... 168 168 142 142
Marketable equity securities.... 65 82 52 72
Other equity securities......... 128 128 146 146
------ ------ ------ ------
$2,472 $2,388 $3,068 $2,997
====== ====== ====== ======
Other equity securities included in securities available for sale are not
traded on established exchanges, and are carried at cost.
9
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIES (CONTINUED):
A summary comparison of securities held to maturity by type is as follows:
MARCH 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN MILLIONS)
U.S. Treasury..................... $ 11 $ 11 $ 12 $ 11
U.S. government agencies and
corporations--mortgage-backed
securities....................... 1,607 1,576 1,449 1,375
States and political subdivisions. 26 26 30 30
Foreign debt securities........... 130 127 123 121
Other equity securities........... 83 83 89 89
------ ------ ------ ------
$1,857 $1,823 $1,703 $1,626
====== ====== ====== ======
Other equity securities included in securities held to maturity represent
securities, such as Federal Reserve Bank and Federal Home Loan Bank stock,
which are not traded on established exchanges and have only redemption
capabilities. Fair values for such securities are considered to approximate
cost.
5. LOANS AND LEASE FINANCING: The following are the details of loan and lease
financing balances:
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(IN MILLIONS)
UNITED STATES OPERATIONS:
Commercial, industrial and financial.................. $11,684 $11,805
Commercial real estate:
Construction........................................ 355 354
Other commercial.................................... 2,645 3,141
Consumer-related loans:
Secured by 1-4 family residential properties........ 4,635 5,004
Other............................................... 2,603 2,462
Lease financing....................................... 1,350 1,366
Unearned income....................................... (216) (216)
------- -------
23,056 23,916
------- -------
INTERNATIONAL OPERATIONS:
Loans and lease financing............................. 7,452 7,165
Unearned income....................................... (69) (76)
------- -------
7,383 7,089
------- -------
$30,439 $31,005
======= =======
10
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESERVE FOR CREDIT LOSSES: An analysis of the reserve for credit losses is
as follows:
1995 1994
---- ----
(IN
QUARTERS ENDED MARCH 31 MILLIONS)
BALANCE, BEGINNING OF PERIOD.................................... $680 $770
Provision....................................................... 90 45
Reserves of banking subsidiaries sold........................... (32)
Domestic credit losses:
Commercial, industrial and financial.......................... (10) (3)
Commercial real estate........................................ (7) (9)
Consumer-related loans:
Secured by 1-4 family residential properties................ (5) (3)
Other....................................................... (14) (14)
International credit losses..................................... (18) (16)
---- ----
Total credit losses............................................. (54) (45)
---- ----
Domestic recoveries:
Commercial, industrial and financial.......................... 1 4
Commercial real estate........................................ 1 2
Consumer-related loans:
Secured by 1-4 family residential properties................ 1 1
Other....................................................... 6 3
International recoveries........................................ 3 3
---- ----
Total recoveries................................................ 12 13
---- ----
Net credit losses excluding those related to exposures
transferred to the accelerated disposition portfolio......... (42) (32)
Credit losses related to exposures transferred to the
accelerated disposition portfolio............................ (119)
---- ----
BALANCE, END OF PERIOD.......................................... $696 $664
==== ====
Effective January 1, 1995, the Corporation adopted, prospectively, Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure". These standards
require that loans be classified and accounted for as impaired loans when it is
probable that the Corporation will be unable to collect all principal and
interest due on a loan in accordance with the loan's original contractual
terms. For purposes of applying the standards, impaired loans have been defined
as all nonaccrual loans, exclusive of residential mortgage loans, consumer
loans and leases.
Impaired loans are valued based on the fair value of the related collateral
in the case of commercial real estate loans and, for all other impaired loans,
based on the present value of expected future cash flows, using the interest
rate in effect at the time the loan was placed on nonaccrual status. Impairment
exists when the recorded investment in a loan exceeds the value of the loan
measured using the above-mentioned techniques. Such impairment is recognized as
a valuation reserve, which is included as a part of the Corporation's overall
reserve for credit losses.
The Corporation recognizes interest income on impaired loans consistent with
its nonaccrual policy. When loans are placed on nonaccrual status, the related
interest receivable is reversed against current period interest income.
Interest payments received on nonaccrual loans are applied as a reduction of
the principal balance when concern exists as to the ultimate collectibility of
principal; otherwise, such payments are recorded as interest income.
11
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESERVE FOR CREDIT LOSSES (CONTINUED):
Adoption of the standards did not have a material effect on the Corporation's
financial position or results of operations and did not result in any
additional provision for credit losses as of January 1, 1995. At March 31,
1995, loans for which impairment has been recognized in accordance with SFAS
No. 114 totaled $263 million, of which $99 million related to loans with no
valuation reserve and $164 million related to loans with a valuation reserve of
$33 million. For the quarter ended March 31, 1995, average impaired loans were
approximately $268 million. Interest recognized on impaired loans during the
first quarter of 1995 was not material.
7. NOTES PAYABLE: In February 1995, the Corporation announced that it would
redeem its 7.75% convertible subordinated debentures at 100.78% of their
principal amount plus accrued interest to the date of redemption. Substantially
all holders of the debt opted to convert their bonds to common stock prior to
redemption, resulting in the issuance by the Corporation of approximately
4,008,000 shares of its common stock during March 1995. Of the total shares
issued, approximately 530,000 shares were treasury shares which had been
purchased by the Corporation in the open market. The remaining principal was
redeemed by the Corporation. Primary earnings per share for the first quarter
of 1995 would have been $1.05 had the debentures been converted on January 1,
1995.
8. CONTINGENCIES: The Corporation and its subsidiaries are defendants in a
number of legal proceedings arising in the normal course of business, including
claims that borrowers or others have been damaged as a result of the
Corporation's lending practices. Management, after reviewing all actions and
proceedings pending against or involving the Corporation and its subsidiaries,
considers that the aggregate loss, if any, resulting from the final outcome of
these proceedings will not be material to its results of operations or
financial condition.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Corporation's net income for the quarter ended March 31, 1995 was $125
million, compared with net income of $96 million for the same period in 1994.
Net income per common share was $1.08 on a primary basis and $1.04 on a fully
diluted basis in the first quarter of 1995, compared with net income per common
share of $.82 on a primary basis and $.79 on a fully diluted basis for the
first quarter of 1994. The 1994 results included an extraordinary loss, net of
tax, of $7 million related to the prepayment of $186 million of senior debt by
a non-banking subsidiary and the redemption of $179 million of the
Corporation's floating rate notes. The comparisons reflect the acquisitions of
BankWorcester Corporation, Pioneer Financial, A Co-operative Bank and Ganis
Credit Corporation (Ganis) during the second and third quarters of 1994 and
first quarter of 1995, respectively, as well as the sales of the Corporation's
banking subsidiaries in Maine and Vermont early in the first quarter of 1995.
All of the above acquisitions were recorded as purchases. Additional
information on the acquisition of Ganis and the sales of Maine and Vermont can
be found in Note 2 to the Financial Statements.
NET INTEREST REVENUE--(FULLY TAXABLE EQUIVALENT BASIS)
The discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue--Volume
and Rate Analysis on pages 29 through 33 of this report. For this review,
interest income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to a fully taxable equivalent basis. This
adjustment has been calculated using a federal income tax rate of 35%, plus
applicable state and local taxes, net of related federal tax benefits. The
adjustments amounted to $1 million and $2 million for the quarters ended March
31, 1995 and 1994, respectively.
Consolidated net interest revenue, on a fully taxable equivalent basis, was
$427 million for the first quarter of 1995, compared with $342 million for the
same period in 1994. Net interest margin in the first quarter of 1995 was 4.56%
compared with 3.80% in the first quarter of 1994.
The following table presents a summary of net interest revenue, on a fully
taxable equivalent basis, and related average earning asset balances and net
interest margins for United States and International Operations:
CHANGE CHANGE
1995 1994 AMOUNT PERCENT
QUARTERS ENDED MARCH 31 ------- ------- ------ -------
(DOLLARS IN MILLIONS)
UNITED STATES:
Net interest revenue........................ $ 330 $ 274 $ 56 21%
Average loans and lease financing........... 22,742 22,305 437 2
Average earning assets...................... 27,647 27,403 244 1
Net interest margin......................... 4.85% 4.06% .79% 19
INTERNATIONAL:
Net interest revenue........................ $ 97 $ 68 $ 29 43%
Average loans and lease financing........... 7,381 6,310 1,071 17
Average earning assets...................... 10,340 9,099 1,241 14
Net interest margin......................... 3.81% 3.03% .78% 26
CONSOLIDATED:
Net interest revenue........................ $ 427 $ 342 $ 85 25%
Average loans and lease financing........... 30,123 28,615 1,508 5
Average earning assets...................... 37,987 36,502 1,485 4
Net interest margin......................... 4.56% 3.80% .76% 20
13
Both domestic and international operations contributed to the improvements in
net interest revenue and margin from the first quarter of 1994.
The domestic increases of $56 million in net interest revenue and 79 basis
points in net interest margin from the first quarter of 1994 were mainly driven
by wider spreads resulting from higher yields on earning assets, particularly
loans. This growth has outpaced increases in rates paid on interest bearing
liabilities, mainly certain retail deposit products, which have lagged the
general increase in interest rates since the first quarter of 1994.
Contributing to the improvement in both net interest revenue and margin from
domestic operations was a $437 million increase in average earning loans and
leases, which included a slight change in the mix of the loan portfolio to
higher-yielding consumer loans, partially offset by a decline in commercial
loans, mainly real estate.
Internationally, the $29 million growth in net interest revenue and 78 basis
point improvement in net interest margin from the first quarter of 1994 were
primarily driven by the Corporation's Argentine and Brazilian operations.
Spreads widened in both countries, reflecting the effects of government
economic measures and successful positions taken by the Corporation, which have
enabled it to benefit from rising interest rates. In addition, net interest
revenue also benefited from a $1.2 billion increase in average earning assets,
including an increase of over $700 million in average loans in Argentina.
The level of net interest revenue and margin reported for the quarter ended
March 31, 1995 is not necessarily indicative of future results. The Corporation
has benefited from interest rate increases on domestic deposits not keeping
pace with the growth in other market rates and from the effects of the economic
situations in Argentina and Brazil. Future levels of net interest revenue and
margin will be affected by competitive pricing pressure on retail deposits,
loans and other products; developments in the economic and political situations
in Argentina and Brazil and in other countries where the Corporation does
business; the current interest rate environment; and other factors.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $90 million for the quarter ended March
31, 1995, including a special provision of $50 million, reflecting management's
intent to further strengthen the Corporation's loan loss reserve, compared with
$45 million for the same period in 1994. The provision for credit losses in
each quarter reflected management's assessment of the adequacy of the reserve
for credit losses, considering the current risk characteristics of the loan
portfolio and economic conditions.
Since March 31, 1994, domestic consumer-related and international loans,
primarily from Argentina and Brazil, have grown by $1.5 billion and $1.1
billion, respectively, while domestic commercial loans have declined by $800
million. As noted below under "Emerging Markets Countries", due to the events
of the first quarter, some deterioration could occur in the unsecured consumer
and middle market loan portfolios in Argentina, which represent a small
percentage of total Argentine assets. These factors, along with other
assessments of the credit portfolio, were considered in determining the
adequacy of the reserve for credit losses and the increase in the provision for
credit losses in the first quarter.
The level of the provision for credit losses in 1994 reflected, in part, the
effect of transferring certain lower quality real estate exposure to an
accelerated disposition portfolio.
The amount of future provisions will continue to be a function of the regular
quarterly review of the reserve for credit losses, based upon management's
assessment of risk at that time, and, as such, there can be no assurance as to
the level of future provisions.
14
NONINTEREST INCOME
The following tables set forth the components of noninterest income, as well
as a further breakdown of financial service fees. Information on the change in
noninterest income follows each table.
NONINTEREST INCOME
FIRST QUARTER
----------------
1995 1994 CHANGE
---- ---- ------
(IN MILLIONS)
Financial service fees.................................... $106 $ 92 $ 14
Trust and agency fees..................................... 53 48 5
Trading profits and commissions........................... 1 4 (3)
Securities portfolio gains, net........................... 6 4 2
Mezzanine/venture capital profits, net.................... 16 14 2
Foreign exchange trading profits.......................... 12 9 3
Other income.............................................. 24 37 (13)
---- ---- ----
Subtotal................................................ 218 208 10
Gains from sales of businesses............................ 75 27 48
---- ---- ----
Total................................................... $293 $235 $ 58
==== ==== ====
Early in the first quarter of 1995, the Corporation completed the sale of its
Maine and Vermont banking subsidiaries and recorded a pre-tax gain of $75
million ($30 million after-tax). Early in the first quarter of 1994, the
Corporation completed the sale of its United States factoring business and
recorded a gain of $27 million ($15 million after-tax).
Noninterest income before gains from sales of businesses grew $10 million
from the first quarter of 1994. The increase reflected higher financial service
fees, as well as higher trust and agency fees. The increase in trust and agency
fees was due to increased volumes in the Latin American mutual fund and
domestic stock transfer businesses. Other income in the first quarter of 1994
included gains from the sale of securities originally acquired in connection
with loan restructurings.
FINANCIAL SERVICE FEES
FIRST QUARTER
----------------
1995 1994 CHANGE
---- ---- ------
(IN MILLIONS)
Deposit fees.............................................. $ 30 $30
Letter of credit and acceptance fees...................... 19 13 $ 6
Net mortgage servicing fees............................... 21 10 11
Loan-related fees......................................... 13 14 (1)
Factoring fees............................................ 2 (2)
Other..................................................... 23 23
---- --- ---
Total................................................... $106 $92 $14
==== === ===
The increase in net mortgage servicing fee income from the prior year
reflected higher levels of average mortgage servicing volume coupled with
slower amortization of the mortgage servicing asset as a result of a decline in
the rate of mortgage prepayments. The mortgage servicing portfolio rose to $38
billion at March 31, 1995 from $29 billion a year ago. Letter of credit fees
increased from the prior year, mainly reflecting growth from international
units, particularly Brazil. The absence of factoring fees in 1995 is
attributable to the 1994 sale of the Corporation's factoring business.
15
NONINTEREST EXPENSE
The following tables set forth the components of noninterest expense.
Information on the change in noninterest expense follows the table.
NONINTEREST EXPENSE
FIRST QUARTER
----------------
1995 1994 CHANGE
---- ---- ------
(IN MILLIONS)
Employee costs............................................ $217 $195 $22
Occupancy & equipment..................................... 59 56 3
Professional fees......................................... 13 12 1
Other..................................................... 92 79 13
---- ---- ---
Noninterest expense before OREO costs................... 381 342 39
OREO costs................................................ 2 5 (3)
---- ---- ---
Total................................................... $383 $347 $36
==== ==== ===
Noninterest expense, before OREO costs, increased $39 million from the first
quarter of 1994. This was mainly due to a $22 million increase in employee
costs, reflecting growth in the Corporation's Latin American and domestic
personal banking businesses coupled with higher levels of incentive
compensation. Nonemployee costs grew $17 million due, in part, to higher levels
of advertising and travel expense, increased amortization of goodwill stemming
from the Corporation's 1994 acquisitions and the absence of the prior year's
property tax rebate. The $3 million decline in OREO costs was primarily due to
lower valuation adjustments.
PROVISION FOR INCOME TAXES
The Corporation's tax provision of $121 million in the first quarter of 1995
included $45 million associated with the $75 million pre-tax gain on the sales
of its Maine and Vermont banking subsidiaries. The high level of tax associated
with this gain reflected the lower tax basis in these investments as a result
of $35 million of non-tax deductible goodwill associated with these
subsidiaries. Excluding this gain and related tax provision, the Corporation's
effective tax rate in the first quarter of 1995 was 44%, the same rate as in
the first quarter of 1994.
FINANCIAL CONDITION
-------------------
CONSOLIDATED BALANCE SHEET
At March 31, 1995, the Corporation's total assets were $43.5 billion, a
decrease of $1.2 billion from December 31, 1994. This decrease mainly reflected
reductions in securities available for sale of $.6 billion and loans of $.6
billion. The decline in loans resulted from the sales of the Maine and Vermont
banking subsidiaries, partly offset by higher levels of consumer-related and
international loans. Deposits declined $3.1 billion, resulting from a $1.3
billion decrease in deposits from the sales of the Maine and Vermont banking
subsidiaries and from a decrease in deposits in overseas offices. The reduction
in overseas deposits was related to a shift in funding from Eurodollar deposits
to term federal funds purchased, which increased $1.3 billion. In addition,
other funds borrowed rose $.8 billion.
16
LIQUIDITY MANAGEMENT
The Corporation's liquid assets, which consist primarily of interest bearing
deposits in other banks, federal funds sold and resale agreements, money market
loans and unencumbered U.S. Treasury and government agency securities, stood at
$4.9 billion at March 31, 1995, compared with $4.6 billion at December 31,
1994. This growth in liquid assets is primarily attributable to an increase in
unencumbered securities partially offset by a decline in interest bearing
deposits in other banks and federal funds sold. Management considers overall
liquidity at March 31, 1995 to be adequate to meet current obligations, support
its expectations for future changes in asset and liability levels and carry on
normal operations.
INTEREST RATE RISK
Interest rate risk is defined as the exposure of the Corporation's net income
or financial position to adverse movements in interest rates. The Corporation
manages its interest rate risk within policies and limits established by the
Asset and Liability Management Committee (ALCO) and approved by the Board of
Directors. ALCO issues strategic directives to specify the extent to which
Board-approved interest rate risk limits may be utilized taking into account
the results of rate risk modeling processes as well as other internal and
external factors.
Interest rate risk related to non-trading, U.S. dollar denominated positions,
which represents the significant portion of the consolidated balance sheet, is
managed centrally through the Boston Treasury Group, using several modeling
methodologies. These models are applied to the Corporation's existing or
"static" balance sheet and off-balance-sheet positions and employ a number of
assumptions. The two principal methodologies used are market value sensitivity
and net interest income at risk.
Market value sensitivity is determined by calculating the effect on the
Corporation's existing assets, liabilities and off-balance-sheet positions,
given an immediate rise or fall in interest rates ("rate shock"). Net interest
revenue at risk is modeled based on interest rate shock scenarios and a gradual
change in interest rates over a period of time. The simulated net interest
revenue under these scenarios is used to evaluate how differences in asset,
liability and off-balance-sheet repricing structures will be reflected in the
next twelve months' results of operations. These two methodologies provide
different but complementary measures of the level of interest rate risk: the
longer term view is modeled through market value sensitivity, while the shorter
term view is evaluated through net interest income at risk over the next twelve
months. These methodologies are designed to isolate the effects of market
changes in interest rates on the Corporation's existing positions from other
factors, such as competitive pricing considerations, future changes in asset
and liability mix, and other management actions, and therefore are not by
themselves measures of future levels of net interest revenue.
At March 31, 1995, the Corporation maintained an effectively neutral interest
rate risk position. As a result, the U.S. dollar denominated net interest
revenue at risk based on a gradual 200 basis point adverse movement in market
rates was negligible, while the Corporation's market value sensitivity to an
adverse 100 basis point interest rate shock was $8 million or .2% of risk-based
capital. These levels were well within ALCO limits. Under current ALCO
directives, net interest revenue at risk cannot exceed 2% of the Corporation's
net interest revenue over the next twelve month period given a 100 basis points
adverse interest rate shock or 200 basis point adverse change in interest rates
over the period, and market value sensitivity at risk cannot exceed 2% of the
Corporation's total risk-based capital given a 100 basis point adverse interest
rate shock. The limits and utilization of such limits has not changed
significantly from December 31, 1994. The Corporation has generally operated
well below these limits; however, the level of future interest rate risk
positions can be changed quickly through the use of derivatives and/or balance
sheet instruments.
Additional information with respect to the Corporation's interest rate risk
process is included on pages 50 and 51 of the Corporation's Annual Report to
Stockholders, which is incorporated by reference in its 1994 Annual Report on
Form 10-K.
17
The Corporation utilizes a variety of financial instruments to manage
interest rate risk including derivatives. The Corporation routinely uses non-
leveraged rate related derivative instruments, primarily interest rate swaps,
options and futures, as part of its asset and liability management practices.
These derivatives provide the Corporation with significant flexibility in
managing its interest rate risk exposure by allowing it to respond quickly to
changes in market conditions while minimizing the impact on balance sheet
leverage. All derivative activities are managed on a comprehensive basis, are
subject to the overall income and market value at risk measures and limits
described above, and are subject to credit standards similar to those for
balance sheet exposures.
During the quarter ended March 31, 1995, there was an increase in the fair
value of interest rate derivatives used for asset and liability management
purposes. This resulted in a decline in the unrecognized loss from $140 million
at December 31, 1994 to $105 million at March 31, 1995. The change in the fair
value of this portfolio reflects the effect of changes in interest rates during
the quarter. Since these derivatives are used as part of the overall management
of the Corporation's domestic interest rate risk, changes in the fair value of
this portfolio are considered within the Corporation's overall domestic
interest rate risk exposure, and are therefore subject to the ALCO directives
discussed above.
The following is a summary of interest rate derivatives and foreign exchange
contracts included in the Corporation's asset and liability management
portfolio.
FAIR VALUE(2) UNRECOGNIZED
NOTIONAL --------------- GAIN/
AMOUNT ASSET LIABILITY (LOSS)(3)
-------- ----- --------- ------------
(IN MILLIONS)
MARCH 31, 1995
Interest rate contracts(1):
Futures and forwards................... $17,382 $ 1 $ (9)
Interest rate swaps.................... 3,489 $11 143 (121)
Interest rate options:
Purchased............................ 1,158 3 25
------- --- ---- -----
Total interest rate contracts............ $22,029 $14 $144 $(105)
======= === ==== =====
Foreign exchange spot and forward
contracts(1)............................ $ 560 $10 $ 8 $ 1
======= === ==== =====
DECEMBER 31, 1994
Interest rate contracts(1):
Futures and forwards................... $16,566 $ 1 $ 36
Interest rate swaps.................... 3,721 19 $225 (208)
Interest rate options:
Written or sold...................... 6,125 19 (17)
Purchased............................ 7,709 39 49
------- --- ---- -----
Total interest rate contracts............ $34,121 $59 $244 $(140)
======= === ==== =====
Foreign exchange spot and forward
contracts(1)............................ $ 604 $ 2 $ 5 $ (4)
======= === ==== =====
- --------
(1) Contracts under master netting agreements are shown on a net basis.
(2) Fair value represents the amount at which a given instrument could be
exchanged in an arms length transaction with a third party as of the
balance sheet date. In certain cases, instruments such as futures and
forwards are subject to daily cash settlements; as such, the fair value of
these instruments is zero.
(3) Unrecognized gain or loss represents the amount of gain or loss, based on
fair value, that has not been recognized in the income statement at the
balance sheet date. Such amounts are recognized as an adjustment of yield
over the period being managed. Included in the unrecognized gains or losses
at March 31, 1995 and December 31, 1994 were $45 million and $35 million,
respectively, of net unrecognized gains from contracts which have been
terminated. These gains are being amortized to net interest revenue over
weighted average periods of 13 months and 14 months, respectively.
18
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability
management purposes as of March 31, 1995:
MATURITY
1995 1996 1997 1998 1999 2000+ TOTAL
-------- ------- ------ ---- ---- ------ -------
(DOLLARS IN MILLIONS)
Interest Rate Swaps
Domestic:
Receive fixed rate
swaps(1):
Notional amount....... $ 240 $ 12 $ 299 $225 $105 $1,870 $ 2,751
Weighted average
receive rate......... 9.44% 7.11% 8.54% 7.31% 7.85% 6.24% 6.92%
Weighted average pay
rate................. 6.21% 6.35% 6.34% 6.35% 6.25% 6.61% 6.51%
Pay fixed rate swaps(1):
Notional amount....... $ 186 $ 81 $ 56 $ 31 $ 44 $ 30 $ 428
Weighted average
receive rate......... 6.47% 6.22% 6.52% 6.51% 6.29% 6.42% 6.41%
Weighted average pay
rate................. 5.10% 6.97% 7.96% 8.91% 7.37% 7.72% 6.52%
Basis swaps(2):
Notional amount....... $ 140 $ 140
Weighted average
receive rate......... 6.25% 6.25%
Weighted average pay
rate................. 6.35% 6.35%
Total Domestic Interest
Rate Swaps:
Notional amount....... $ 566 $ 93 $ 355 $256 $149 $1,900 $ 3,319
Weighted average
receive rate(3)...... 7.67% 6.33% 8.22% 7.21% 7.39% 6.24% 6.83%
Weighted average pay
rate(3).............. 5.88% 6.89% 6.59% 6.66% 6.58% 6.63% 6.50%
Total International
Interest Rate Swaps
Notional Amount(4).... $ 170 $ 170
------ ------- ------ ---- ---- ------ -------
Total Consolidated
Interest Rate Swaps
Notional Amount....... $ 736 $ 93 $ 355 $256 $149 $1,900 $ 3,489
------ ------- ------ ---- ---- ------ -------
Other Derivative
Products
Futures and forwards(5). $4,297 $10,729 $2,326 $ 30 $17,382
Interest rate options
purchased.............. 608 386 40 81 43 1,158
------ ------- ------ ---- ---- ------ -------
Total Consolidated
Notional Amount........ $5,641 $11,208 $2,721 $367 $192 $1,900 $22,029
====== ======= ====== ==== ==== ====== =======
- --------
(1) Of the receive fixed rate swaps, $1 billion were linked to floating rate
loans, and the remainder principally to fixed rate notes payable. Of the
swaps linked to notes payable, approximately $1 billion are scheduled to
mature in 2000 and thereafter. Of the pay fixed rate swaps, $.2 billion
were linked to floating rate funds borrowed and the remainder principally
to fixed rate loans.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
floating rates. All of the basis swaps are linked to loans.
(3) The majority of the Corporation's interest rate swaps accrue at LIBOR
(London Interbank Offered Rate). In arriving at the variable weighted
average receive and pay rates, LIBOR rates in effect as of March 31, 1995
have been implicitly assumed to remain constant throughout the term of the
swap. Future changes in LIBOR rates would affect the variable rate
information disclosed.
(4) The majority of the International portfolio is comprised of swaps from the
Corporation's Brazilian operation with a weighted average maturity of less
than 29 days. These swaps typically include the exchange of floating rate
indices which are limited to the Brazilian market.
(5) The majority of the futures used by the Corporation are linked to funds
borrowed and are exchange-traded instruments. The reference instruments for
these contracts comprise the major types available, such as Eurodollar
deposits and U.S. Treasury notes. The forwards are used to manage interest
rate risk related to the Corporation's mortgages held for sale.
19
Derivatives not used in the asset and liability management portfolio are
included in the derivatives trading portfolio. The primary focus of the
Corporation's derivatives trading activities is related to providing risk
management products to its customers. Net trading gains from interest rate
derivatives for the quarters ended March 31, 1995 and 1994 were $3 million,
respectively, and from foreign exchange contracts, $12 million and $9 million,
respectively.
The following is a summary of the Corporation's notional amounts and fair
values of interest rate derivatives and foreign exchange contracts included in
its trading portfolio. Detailed information about the maturity profiles of
trading instruments is not provided since these instruments may be traded at
any time.
TRADING PORTFOLIO
-------------------------------
AVERAGE FAIR
FAIR VALUE(2) VALUE(3)
NOTIONAL --------------- ---------------
AMOUNT ASSET LIABILITY ASSET LIABILITY
-------- ----- --------- ----- ---------
(IN MILLIONS)
MARCH 31, 1995
Interest rate contracts(1):
Futures and forwards................. $25,902 $ 22 $ 20 $ 11 $ 10
Interest rate swaps.................. 9,984 61 41 68 41
Interest rate option:
Written or sold.................... 6,035 20 28
Purchased.......................... 5,159 33 45
------- ---- ---- ---- ----
Total interest rate contracts.......... $47,080 $116 $ 81 $124 $ 79
======= ==== ==== ==== ====
Foreign exchange contracts:
Spot and forward contracts........... $19,722 $573 $581 $373 $384
Options written or sold.............. 911 19 14
Options purchased.................... 713 20 14
------- ---- ---- ---- ----
Total foreign exchange contracts....... $21,346 $593 $600 $387 $398
======= ==== ==== ==== ====
DECEMBER 31, 1994
Interest rate contract(1):
Futures and forwards................. $17,257
Interest rate swaps.................. 12,604 $ 75 $ 40 $ 92 $ 45
Interest rate options:
Written or sold.................... 5,639 36 31
Purchased.......................... 4,251 55 45
------- ---- ---- ---- ----
Total interest rate contracts.......... $39,751 $130 $ 76 $137 $ 76
======= ==== ==== ==== ====
Foreign exchange contracts(1):
Spot and forward contracts........... $17,142 $172 $186 $233 $244
Options written or sold.............. 753 9 13
Options purchased.................... 811 8 11
------- ---- ---- ---- ----
Total foreign exchange contracts....... $18,706 $180 $195 $244 $257
======= ==== ==== ==== ====
- --------
(1) Contracts under master netting agreements are shown on a net basis.
(2) Fair value represents the amount at which a given instrument could be
exchanged in an arms length transaction with a third party as of the
balance sheet date. In certain cases, contracts such as futures and
forwards, are subject to daily cash settlements; as such, the fair value of
these instruments is zero.
(3) Average fair value represents averages for first quarter 1995 and fourth
quarter 1994.
Additional information on the Corporation's derivative products, including
accounting policies, is provided in Notes 1 and 21 to the Financial Statements
in the Corporation's Annual Report to Stockholders, which is incorporated by
reference in its 1994 Annual Report on Form 10-K.
20
CAPITAL
The Corporation's Tier 1 and total capital ratios were 7.8% and 13.3%,
respectively, at March 31, 1995, compared with 7.0% and 12.2%, respectively, at
December 31, 1994. The Corporation's leverage ratio at March 31, 1995 was 7.3%
compared with 6.5% at December 31, 1994. The improvement in these ratios
reflected the sale of the Maine and Vermont banking subsidiaries, which
resulted in a lower level of risk adjusted assets and the removal of $35
million of goodwill from the Corporation's balance sheet. In addition, the
Corporation's Tier 1 capital ratio benefited from the redemption of $94 million
of the Corporation's convertible subordinated debt. The conversion of
subordinated debt is more fully discussed in Note 7 to the Financial
Statements.
As of March 31, 1995, the capital ratios of the Corporation and all of its
banking subsidiaries exceeded the minimum capital ratio requirements of the
"well capitalized" category under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). The capital categories of the Corporation's
banking subsidiaries are determined solely for purposes of applying FDICIA's
provisions and, accordingly, such capital categories may not constitute an
accurate representation of the overall financial condition or prospects of any
of the Corporation's banking subsidiaries.
In April 1995, the Board of Directors declared a quarterly common dividend of
$.27 per share, payable on May 26, 1995. The payment and level of future common
dividends will continue to be determined by the Board of Directors based on the
Corporation's financial condition, recent earnings history and other factors.
CREDIT PROFILE
The segments of the lending portfolio are as follows:
DEC. SEPT. JUNE
MARCH 31, 31, 30, 30, MARCH 31,
1995 1994 1994 1994 1994
--------- ------- ------- ------- ---------
(IN MILLIONS)
United States Operations:
Commercial, industrial and
financial.................... $11,684 $11,805 $11,987 $11,871 $12,064
Commercial real estate:
Construction................ 355 354 464 499 542
Other commercial............ 2,645 3,141 3,110 3,084 2,851
Consumer-related loans:
Secured by 1-4 family
properties................. 4,635 5,004 4,878 4,215 3,923
Other....................... 2,603 2,462 2,373 2,283 1,795
Lease financing............... 1,350 1,366 1,312 1,263 1,257
Unearned income............... (216) (216) (199) (198) (202)
------- ------- ------- ------- -------
23,056 23,916 23,925 23,017 22,230
======= ======= ======= ======= =======
International Operations:
Loans and lease financing..... 7,452 7,165 7,019 7,029 6,405
Unearned income............... (69) (76) (63) (80) (81)
------- ------- ------- ------- -------
7,383 7,089 6,956 6,949 6,324
------- ------- ------- ------- -------
Total loan and lease
financing................ $30,439 $31,005 $30,881 $29,966 $28,554
======= ======= ======= ======= =======
The decline in domestic loans and leases from December 31, 1994 reflected a
$1.2 billion reduction from the sales of the Maine and Vermont banking
subsidiaries, of which approximately $.5 billion were commercial real estate
loans. Excluding these sales, domestic loans and leases grew approximately $300
million due to higher levels of consumer-related loans. The international
portfolio increased by $294 million due, in part, to growth in the Latin
American portfolio. A further discussion of the Argentine and Brazilian
operations is included under the caption "Emerging Markets Countries".
21
The Corporation's domestic commercial real estate loans amounted to $3
billion at March 31, 1995 and $3.5 billion at December 31, 1994. Approximately
65% of these loans were located in New England at March 31, 1995 compared with
approximately 70% at December 31, 1994.
The Corporation's total loan portfolio at March 31, 1995 included $1.2
billion of highly leveraged transaction (HLT) loans to 88 customers, compared
with $1.3 billion to 84 customers at December 31, 1994. The average HLT loan
size was $14 million at March 31, 1995 and $15 million at December 31, 1994.
The amount of unused commitments for HLTs at March 31, 1995 was $720 million,
compared with $653 million at December 31, 1994. The amount of unused
commitments does not necessarily represent the actual future funding
requirements of the Corporation, since a portion can be syndicated or assigned
to others or may expire without being drawn upon. At March 31, 1995 and
December 31, 1994, less than $1 million of the HLT portfolio was on nonaccrual
status. There were no credit losses from the HLT portfolio in the first quarter
of 1995, compared with $6 million of net credit losses in the preceding
quarter. The Corporation does not currently anticipate a substantial increase
in HLT lending over the March 31, 1995 level.
A discussion of the Corporation's real estate and HLT lending activities and
policies is included in its 1994 Annual Report to Stockholders on pages 38
through 41, which is incorporated by reference in its 1994 Annual Report on
Form 10-K.
NONACCRUAL LOANS AND OREO
The details of consolidated nonaccrual loans and OREO are as follows:
MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1995 1994 1994 1994 1994
--------- -------- --------- -------- ---------
(DOLLARS IN MILLIONS)
United States:
Commercial, industrial and
financial................... $111 $113 $119 $131 $112
Commercial real estate:
Construction............... 20 13 18 30 27
Other...................... 97 106 119 160 134
Consumer-related loans:
Secured by 1-4 family
residential properties.... 45 44 35 30 17
Other...................... 21 24 15 9 13
---- ---- ---- ---- ----
294 300 306 360 303
---- ---- ---- ---- ----
International.................. 57 65 71 87 96
---- ---- ---- ---- ----
Total nonaccrual loans... 351 365 377 447 399
---- ---- ---- ---- ----
OREO........................... 71 76 93 71 66
---- ---- ---- ---- ----
Total.................... $422 $441 $470 $518 $465
==== ==== ==== ==== ====
Nonaccrual loans and OREO as a
percent of related asset
categories.................... 1.4% 1.4% 1.5% 1.7% 1.6%
The decline in nonaccrual loans and OREO included $27 million resulting from
the sales of the Corporation's Maine and Vermont banking subsidiaries which
were completed during the first quarter of 1995, partially offset by increases
in commercial and industrial and real estate nonaccrual loans. The level of
nonaccrual loans and OREO is influenced by the economic environment, interest
rates, the regulatory environment and other internal and external factors. As
such, no assurance can be given as to future levels of nonaccrual loans and
leases and OREO.
22
As part of its approach to managing credit, the Corporation renegotiates
certain of its loans when a determination is made that greater economic value
will ultimately be realized under the new terms than through foreclosure.
Renegotiated loans were not material at March 31, 1995 and December 31, 1994.
In addition, during 1994, the Corporation transferred certain of its lower
quality real estate exposures, including a portion which was on nonaccrual
status, to an accelerated disposition portfolio (ADP). During the first quarter
of 1995, the Corporation disposed of substantially all its ADP assets, which
totaled $118 million at December 31, 1994.
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at March 31, 1995 was $696 million, or 2.29% of
outstanding loans and leases, compared with $680 million, or 2.19% at December
31, 1994. The reserve for credit losses was 198% of nonaccrual loans and leases
at March 31, 1995, compared with 186% at December 31, 1994. During the quarter
the Corporation implemented Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosure". These standards affect the evaluation of the reserve for
credit losses and require that impaired loans be evaluated based on the present
value of expected future cash flows or the fair value of the collateral, as
applicable. The level of the Corporation's reserve for credit losses was not
affected by this statement. The Corporation's adoption of these standards is
more fully discussed in Note 6 to the Financial Statements.
Net credit losses, were $42 million for the first quarter of 1995 compared
with $31 million for the fourth quarter of 1994. As a percentage of average
loans and leases on an annualized basis, net credit losses were .56% in the
first quarter of 1995, compared with .40% for the fourth quarter of 1994. The
increase in net credit losses in the first quarter was due mainly to the
Corporation's international operations, related to a charge-off of an Asian
credit, and to a lower level of recoveries.
Net credit losses are as follows:
QUARTERS ENDED
----------------------
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(IN MILLIONS)
United States Operations:
Commercial, industrial and financial.............. $ 9 $ 4
Commercial real estate............................ 6 8
Consumer-related loans:
Secured by 1-4 family residential properties.... 4 5
Other........................................... 8 7
--- ---
27 24
--- ---
International Operations............................ 15 7
--- ---
Total......................................... $42 $31
=== ===
CROSS-BORDER OUTSTANDINGS
At March 31, 1995 and December 31, 1994, total cross-border outstandings
represented 15% of consolidated total assets. In accordance with the bank
regulatory rules, cross-border outstandings are amounts payable to the
Corporation in U.S. dollars or other non-local currencies plus amounts payable
in local currency but funded with U.S. dollars or other non-local currencies.
Excluded from cross-border outstandings for a given country are:
23
. Local currency assets funded with U.S. dollars or other non-local
currency where the provider of funds agrees that, in the event their
claim cannot be repaid in the designated currency due to currency
exchange restrictions in a given country, they will either accept payment
in local currency or wait to receive the non-local currency until such
time as it becomes available. At March 31, 1995, such transactions
related to emerging markets countries totaled $1 billion compared with
$.9 billion at December 31, 1994.
. Local currency outstandings funded with local currency.
. U.S. dollar or other non-local currency outstandings reallocated as a
result of external guarantees and cash collateral.
Cross-border outstandings in countries which individually amounted to 1.0% or
more of consolidated total assets at March 31, 1995 and December 31, 1994 were
approximately as follows:
PERCENTAGE OF
PUBLIC BANKS OTHER TOTAL TOTAL ASSETS COMMITMENTS(2)
------ ----- ------ ------ ------------- --------------
(DOLLARS IN MILLIONS)
MARCH 31, 1995(1)
Argentina............... $255 $40 $1,610 $1,905 4.4% $ 70
Brazil.................. 20 5 710 735 1.7 40
United Kingdom.......... 70 525 595 1.4 85
DECEMBER 31, 1994(1)
Argentina............... $305 $40 $1,525 $1,870 4.2% $ 95
Brazil.................. 5 795 800 1.8 30
Chile................... 115 90 290 495 1.1 35
United Kingdom.......... 5 595 600 1.3 115
- --------
(1) Cross-border outstandings in countries which fell within .75% and 1% of
consolidated total assets at March 31, 1995 and December 31, 1994 were
approximately as follows: Chile $420 million and Switzerland $410 million
at March 31, 1995; none at December 31, 1994.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.
To comply with the regulatory definition of cross-border outstandings, the
Corporation included in its Argentine cross-border outstandings approximately
$1 billion of Argendollar outstandings at March 31, 1995 and December 31, 1994.
Argendollar outstandings are U.S. dollar claims from Argentine customers
payable to the Corporation in Argentina which are funded entirely by U.S.
dollars borrowed in Argentina.
EMERGING MARKETS COUNTRIES
At March 31, 1995, approximately $3.8 billion of the Corporation's cross-
border outstandings were to emerging markets countries, of which approximately
84% were loans. These cross-border outstandings were mainly comprised of short-
term trade credits, non-trade-related loans and leases not subject to country
debt rescheduling agreements and capital investments in branches and
subsidiaries.
Approximately $3.3 billion of the cross-border outstandings to emerging
markets countries were to Argentina, Brazil (see below for details), Chile and
Uruguay, four countries in which the Corporation maintains a branch network and
subsidiaries. At March 31, 1995, cross-border outstandings to Chile and Uruguay
were $420 million and $215 million, respectively. In addition, cross-border
outstandings to Mexico and Colombia were $170 million and $140 million,
respectively. The Corporation opened a subsidiary bank in Colombia during the
first quarter of 1995 and plans to open one in Mexico later in the year.
24
Changes in aggregate cross-border outstandings to Argentina and Brazil since
December 31, 1994 were approximately as follows:
ARGENTINA BRAZIL
--------- ------
(IN MILLIONS)
Cross-border outstandings at December 31, 1994............. $1,870 $800
Change in non-trade-related loans and leases not subject to
country debt rescheduling................................. 18 (50)
Net change in trade-related cross-border outstandings,
primarily short-term...................................... 48 11
Net change in investment and trading securities............ (31) (24)
Net change in placements................................... 1
Other...................................................... (1) (2)
------ ----
Cross-border outstandings at March 31, 1995................ $1,905* $735*
====== ====
- --------
* Of the total cross-border outstandings at March 31, 1995, approximately 24%
for Argentina and 55% for Brazil are trade-related.
During the first quarter of 1995, certain emerging markets countries,
including those in Latin America, have experienced, to varying degrees, stress
in world financial markets and local financial systems, including pressure on
the banking systems. Concerns have focused on areas such as currency exchange
rates, system liquidity, public budgets, external debt servicing requirements,
balance of payments and prospects for economic growth in various countries. The
difficulties in Latin America have been significantly influenced by the
economic problems in Mexico and the devaluation of the Mexican peso in December
1994. This is particularly true in Argentina, where the Corporation maintains
significant local banking operations, and where the economy and financial
system have come under stress. The government has taken steps to address these
issues. These actions have included establishing international and domestic
financing arrangements; announcing a deposit guarantee fund; and implementing
domestic budgetary and tax measures. These actions reduced the flow of deposits
out of the financial system and also aided in reducing interest rates, which
had been high in January and February, to approximately those experienced prior
to the occurrence of events described above. In addition, the Argentine
government continued to maintain an exchange rate of one Argentine peso to one
U.S. dollar. The Argentine presidential election is scheduled for May 14, and
the outcome of this election could impact the measures discussed above.
Operating results from the Corporation's Argentine operation were not
significantly affected in the first quarter by the events described above;
however, there was an increase in spreads caused by the interest rate
conditions prevailing during the quarter. In addition, loan and deposit levels
and nonperforming assets were relatively unchanged from December 31, 1994. Net
credit losses in the first quarter of 1995 were relatively flat with the fourth
quarter of 1994. However, the Corporation expects some deterioration in credit
quality over time in Argentina. The high interest rates during the quarter and
the economic situation discussed above negatively affected the Argentine stock
and bond markets during the quarter. This has resulted in a further decline in
the value of various types of Argentine government bonds held by the
Corporation. These securities are recorded in the available for sale portfolio
and changes in market value are reflected, net of tax, as an adjustment to
stockholders' equity. The decline in value of this portfolio reached a peak in
early March, and then improved. The after-tax unrealized loss was $49 million
at March 31, 1995, compared to an after-tax unrealized loss of $30 million at
December 31, 1994. In early May, the Corporation purchased $50 million of
three-year government bonds that are part of the Argentine government's
international funding arrangements discussed above. If the Argentine
government's actions are not effective or if the banking system in Argentina is
strained further, particularly with regard to banking system liquidity, the
Corporation's Argentine operation could experience adverse effects, including
stress on local liquidity, deterioration of credit quality, a further decline
in the value of its securities portfolio and declines in loan and deposit
volumes.
25
Brazil continued to implement the measures of its July 1994 economic plan.
During the first quarter, the government adjusted the band within which the
local currency can trade against the U.S. dollar, now .88 to .93 Brazilian
reals per one U.S. dollar, from .84 to .86 at December 31, 1994. The government
also increased import tariffs on a number of products. The objective of these
actions was to reduce U.S. dollar outflows from the Brazilian financial system.
The government continues to implement measures to reduce local consumer
spending to control inflation, which was approximately 1% to 2% per month
during the quarter. The Corporation's Brazilian results of operations were not
significantly affected in the first quarter by the events described above. Like
Argentina, the Brazilian stock and bond markets have come under pressure as a
result of recent economic problems in emerging countries; however, these
difficulties have not materially affected the value of the Corporation's
Brazilian securities at March 31, 1995. The Corporation continues to monitor
and evaluate the Brazilian economic program as it evolves and will adjust its
strategy as deemed appropriate. It is not possible, however, to predict what
effect the program will ultimately have on the Corporation.
During the first quarter of 1995, the Corporation's Argentine and Brazilian
operations continued to structure their balance sheets to take positions in
their local currencies. These positions, which declined from December 31, 1994
levels, did not have a significant effect on the Corporation's Argentine and
Brazilian results of operations for the first quarter of 1995. For additional
information related to the Corporation's Latin American balance sheet currency
positions see page 43 of the Corporation's Annual Report to Stockholders, which
is incorporated by reference in its 1994 Annual Report on Form 10-K.
Each emerging markets country is at a different stage of development, with a
unique set of economic fundamentals. Therefore, it is expected that the
economic situation in Latin America, including the effects of world financial
markets on these economies, will continue to be unsettled. The Corporation has
not experienced any collection problems as a result of currency restrictions or
foreign exchange liquidity problems on its current portfolio of cross-border
outstandings to emerging markets countries. The Corporation will continue to
monitor the economic situation in Latin America and also its effect on those
countries in which it has a local operations or cross-border outstandings. It
is not possible to predict what effect the economic situation in Latin America
will ultimately have on the economies of these countries.
For additional information related to the Corporation's Latin American cross-
border outstandings and emerging markets countries see pages 12 and 13 of the
Corporation's Annual Report on Form 10-K, as well as pages 41 through 44 of the
Corporation's Annual Report to Stockholders, which is incorporated by reference
into such Form 10-K.
----------------
The economies of the United States and New England continued to improve
during the first quarter of 1995. Management, however, cannot currently predict
to what extent the domestic economy or future interest rate changes will affect
future periods. In addition, it is uncertain what impact future changes in the
economies in Latin America and other foreign countries where the Corporation
does business will have on future periods. No assurance, therefore can be given
that the positive trends achieved during the first quarter of 1995 will
continue.
26
CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER
LAST NINE QUARTERS
1993 1994 1995
------------------------------- ------------------------------- -------
1 2 3 4 1 2 3 4 1
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
ASSETS
Interest bearing
deposits in other
banks.................. $ 1,262 $ 1,422 $ 1,305 $ 1,185 $ 1,083 $ 902 $ 1,131 $ 1,062 $ 1,262
Federal funds sold and
securities purchased
under agreements to
resell................. 1,309 1,089 1,367 2,005 2,447 3,485 2,595 1,711 1,364
Trading securities...... 290 276 300 259 452 402 618 750 694
Loans held for sale..... 682 944 1,334 1,314 960 824 651 315 256
Securities.............. 3,909 3,838 3,561 3,194 2,945 3,164 3,489 4,435 4,288
Loans and lease
financing.............. 25,224 25,854 26,953 28,172 28,615 29,105 30,362 31,076 30,123
------- ------- ------- ------- ------- ------- ------- ------- -------
Total earning assets... 32,676 33,423 34,820 36,129 36,502 37,882 38,846 39,349 37,987
Other assets............ 3,775 4,078 4,248 4,274 4,712 4,820 5,079 5,051 4,858
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL ASSETS............ $36,451 $37,501 $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $42,845
======= ======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing.... $ 4,031 $ 4,397 $ 4,578 $ 4,863 $ 4,633 $ 4,403 $ 4,477 $ 4,701 $ 4,194
Interest bearing....... 19,245 18,580 18,360 18,096 17,110 16,672 17,309 17,388 15,827
Overseas offices:
Noninterest bearing.... 349 336 387 469 497 393 415 481 415
Interest bearing....... 4,537 4,881 5,218 5,819 6,375 6,764 7,703 7,875 8,318
------- ------- ------- ------- ------- ------- ------- ------- -------
Total deposits....... 28,162 28,194 28,543 29,247 28,615 28,232 29,904 30,445 28,754
Federal funds purchased
and repurchase
agreements............. 1,705 2,315 3,430 3,787 3,619 4,014 3,728 3,333 3,699
Other funds borrowed.... 1,436 1,606 1,485 1,603 2,411 4,124 3,633 3,861 3,585
Notes payable........... 1,669 1,670 1,752 1,876 2,194 1,957 1,987 2,141 2,133
Other liabilities....... 886 1,022 1,085 1,073 1,433 1,404 1,625 1,491 1,467
Stockholders' equity.... 2,593 2,694 2,773 2,817 2,942 2,971 3,048 3,129 3,207
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $36,451 $37,501 $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $42,845
======= ======= ======= ======= ======= ======= ======= ======= =======
27
CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS
LAST NINE QUARTERS
1993 1994 1995
--------------------------- ---------------------------- ------
1 2 3 4 1 2 3 4 1
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NET INTEREST REVENUE: $324.2 $330.5 $340.8 $349.3 $340.7 $374.5 $423.9 $433.4 $425.9
Taxable equivalent
adjustment............. 1.8 1.7 2.3 2.0 1.5 1.5 1.3 2.7 1.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total net interest
revenue................ 326.0 332.2 343.1 351.3 342.2 376.0 425.2 436.1 427.3
Provision for credit
losses................. 22.5 27.6 10.0 10.0 45.0 25.0 25.0 35.0 90.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue
after provision for
credit losses.......... 303.5 304.6 333.1 341.3 297.2 351.0 400.2 401.1 337.3
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST INCOME:
Financial service fees.. 71.3 92.6 90.9 95.2 92.4 93.9 104.3 105.5 105.6
Trust and agency fees... 43.9 45.2 43.1 45.5 47.7 50.3 50.6 53.1 52.7
Trading profits and
commissions............ 6.9 5.8 6.9 3.9 3.9 1.2 10.9 (.1) 1.1
Securities portfolio
gains.................. 6.4 6.0 11.0 8.8 3.9 5.9 1.3 2.5 6.1
Other income............ 45.9 41.4 39.3 35.6 87.2 41.0 35.1 37.6 127.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
income................ 174.4 191.0 191.2 189.0 235.1 192.3 202.2 198.6 293.2
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST EXPENSE:
Salaries................ 159.1 161.7 160.4 153.3 157.8 161.5 168.1 177.8 176.4
Employee benefits....... 37.5 33.7 32.2 32.7 36.9 37.0 38.6 35.1 40.4
Occupancy expense....... 32.2 32.2 32.2 31.3 31.9 33.1 35.2 34.4 34.9
Equipment expense....... 25.6 24.0 23.3 23.4 23.6 23.4 24.2 24.9 24.1
Merger and restructuring
charges................ 85.0 16.4 5.0
Other expense........... 121.3 116.7 107.1 105.9 96.5 101.0 107.2 109.7 107.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
expense............... 375.7 368.3 440.2 346.6 346.7 372.4 378.3 381.9 383.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes, extraordinary
items and cumulative
effect of changes in
accounting principles.. 102.2 127.3 84.1 183.7 185.6 170.9 224.1 217.8 247.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes.................. 40.9 54.2 40.4 79.2 81.4 74.9 98.8 94.3 120.6
Taxable equivalent
adjustment............. 1.8 1.7 2.3 2.0 1.5 1.5 1.3 2.7 1.4
------ ------ ------ ------ ------ ------ ------ ------ ------
42.7 55.9 42.7 81.2 82.9 76.4 100.1 97.0 122.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 59.5 71.4 41.4 102.5 102.7 94.5 124.0 120.8 125.3
Extraordinary items..... (6.6)
Cumulative effect of
changes in accounting
principles, net........ 24.2
------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME.............. $ 83.7 $ 71.4 $ 41.4 $102.5 $ 96.1 $ 94.5 $124.0 $120.8 $125.3
====== ====== ====== ====== ====== ====== ====== ====== ======
PER COMMON SHARE:
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles:
Primary................ $ .49 $ .60 $ .30 $ .88 $ .88 $ .80 $ 1.07 $ 1.04 $ 1.08
Fully diluted.......... .48 .59 .30 .85 .85 .77 1.04 1.01 1.04
Net Income:
Primary................ $ .72 $ .60 $ .30 $ .88 $ .82 $ .80 $ 1.07 $ 1.04 $ 1.08
Fully diluted.......... .70 .59 .30 .85 .79 .77 1.04 1.01 1.04
Cash dividends declared. .10 .10 .10 .10 .22 .22 .22 .27 .27
28
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED MARCH 31,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing Deposits
with Other Banks U.S..................... $ 129 $ 2 7.21%
International........... 1,133 63 22.47
------- -----
Total............... 1,262 65 20.92
------- ----- -----
Federal Funds Sold and
Resale Agreements U.S..................... 527 8 6.03
International........... 837 94 45.76
------- -----
Total............... 1,364 102 30.41
------- ----- -----
Trading Securities U.S..................... 194 3 6.52
International........... 500 38 30.59
------- -----
Total............... 694 41 23.85
------- ----- -----
Loans Held for Sale U.S..................... 256 4 5.95
------- ----- -----
Securities U.S.
Available for sale(2). 2,210 36 6.64
Held to maturity...... 1,588 26 6.77
International...........
Available for sale(2). 298 10 11.33
Held to maturity...... 192 4 7.81
------- -----
Total............... 4,288 76 7.22
------- ----- -----
Loans and Lease Financing
(Net of Unearned Income) U.S..................... 22,742 499 8.90
International........... 7,381 247 13.59
------- -----
Total loans and
lease financing(3). 30,123 746 10.05
------- ----- -----
Earning assets.......... 37,987 1,034 11.05
------- ----- -----
Nonearning assets....... 4,858
-------
TOTAL ASSETS............ $42,845
=======
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
29
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS (CONTINUED)
QUARTER ENDED MARCH 31,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits...... $ 8,699 $ 52 $2.44%
Time deposits......... 7,128 91 5.21
International........... 8,318 218 10.61
------- ----
Total............... 24,145 361 6.07
------- ---- -----
Federal Funds Purchased
and Repurchase Agreements U.S..................... 3,529 44 5.07
International........... 170 14 32.86
------- ----
Total............... 3,699 58 6.34
------- ---- -----
Other Funds Borrowed U.S..................... 2,621 40 6.20
International........... 964 109 45.75
------- ----
Total............... 3,585 149 16.83
------- ---- -----
Notes Payable U.S..................... 1,996 34 6.95
International........... 137 5 14.63
------- ----
Total............... 2,133 39 7.45
------- ---- -----
Total interest bearing
liabilities............ 33,562 607 7.34
---- -----
Demand deposits U.S..... 4,194
Demand deposits
International.......... 415
Other noninterest
bearing liabilities.... 1,467
Total Stockholders'
Equity................. 3,207
-------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $42,845
=======
NET INTEREST REVENUE AS A
PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS U.S..................... $27,647 $330 4.85%
International........... 10,340 97 3.81
------- ----
Total................... $37,987 $427 4.56
======= ====
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
30
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED MARCH 31,
1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing Deposits
with Other Banks U.S..................... $ 254 $ 2 2.78%
International........... 829 20 10.09
------- ----
Total................... 1,083 22 8.37
------- ---- -----
Federal Funds Sold and
Resale Agreements U.S..................... 1,323 11 3.21
International........... 1,124 69 24.97
------- ----
Total................... 2,447 80 13.21
------- ---- -----
Trading Securities U.S..................... 112 1 4.23
International........... 340 17 20.61
------- ----
Total................... 452 18 16.54
------- ---- -----
Loans Held for Sale U.S..................... 960 16 6.61
------- ---- -----
Securities U.S.
Available for sale(2)... 893 15 6.99
Held to maturity........ 1,555 18 4.56
International
Available for sale(2)... 233 10 16.96
Held to maturity........ 264 2 4.18
------- ----
Total................... 2,945 45 6.24
------- ---- -----
Loans and Lease Financing
(Net of Unearned Income) U.S..................... 22,305 401 7.29
International........... 6,310 143 9.17
------- ----
Total loans and lease
financing(3)........... 28,615 544 7.71
------- ---- -----
Earning assets.......... 36,502 725 8.06
------- ---- -----
Nonearning assets....... 4,712
-------
TOTAL ASSETS............ $41,214
=======
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
31
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS (CONTINUED)
QUARTER ENDED MARCH 31,
1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits...... $ 9,257 $ 44 1.91%
Time deposits......... 7,853 86 4.46
International........... 6,375 110 6.99
------- ----
Total............... 23,485 240 4.14
------- ---- -----
Federal Funds Purchased
and Repurchase Agreements U.S..................... 3,390 27 3.18
International........... 229 10 18.22
------- ----
Total............... 3,619 37 4.12
------- ---- -----
Other Funds Borrowed U.S..................... 1,482 18 4.87
International........... 929 55 24.22
------- ----
Total............... 2,411 73 12.33
------- ---- -----
Notes Payable U.S..................... 2,104 30 5.77
International........... 90 3 14.74
------- ----
Total............... 2,194 33 6.14
------- ---- -----
Total interest bearing
liabilities............ 31,709 383 4.90
---- -----
Demand deposits U.S..... 4,633
Demand deposits
International.......... 497
Other noninterest
bearing liabilities.... 1,433
Total Stockholders'
Equity................. 2,942
-------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $41,214
=======
NET INTEREST REVENUE AS A
PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS U.S..................... $27,403 $274 4.06%
International........... 9,099 68 3.03
------- ----
Total............... $36,502 $342 3.80
======= ====
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
32
CHANGE IN NET INTEREST REVENUE--VOLUME AND RATE ANALYSIS
FIRST QUARTER 1995 COMPARED WITH FIRST QUARTER 1994
The following table presents, on a fully taxable equivalent basis, an
analysis of the effect on net interest revenue of volume and rate changes. The
change due to the volume/rate variance has been allocated to volume.
INCREASE
(DECREASE)
DUE TO
CHANGE IN
-----------
VOLUME RATE NET CHANGE
------ ---- ----------
(IN MILLIONS)
Interest income:
Loans and lease financing U.S....................... $10 $ 88 $ 98
International............. 36 68 104
----
202
----
Other earning assets U.S....................... (3) 21 18
International............. 12 77 89
----
107
----
Total interest income 40 269 309
Total interest expense 24 200 224
----
Net interest revenue $ 85
====
33
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Corporation's subsidiaries, in the normal course of their business in
collecting outstanding obligations, are named as defendants in complaints or
counterclaims, commonly referred to as lender liability claims, filed in
various jurisdictions by borrowers or others. As previously reported, during
1991 one such claim resulted in a judgment being entered against Rhode Island
Hospital Trust National Bank (Hospital Trust) for approximately $4 million,
plus interest. Hospital Trust appealed that judgment and on April 5, 1995, the
Massachusetts Supreme Judicial Court reversed the lower court decision and
entered judgment in favor of Hospital Trust.
As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
(Bancorp) and Bancorp's directors who voted in favor of the Corporation's
acquisition of Bancorp. The action was brought by a Bancorp stockholder,
individually and as a class action on behalf of all Bancorp stockholders of
record on the date the acquisition was announced, and sought an injunction with
respect to the proposed acquisition and damages in an unspecified amount. In
May 1993, the Chancery Court denied the plaintiff's motion for a preliminary
injunction and in July 1993, the Corporation acquired Bancorp. In December
1993, the Chancery Court granted summary judgment in favor of the Corporation,
Bancorp and Bancorp's former directors. The plaintiff appealed that decision to
the Delaware Supreme Court and in December 1994, the Delaware Supreme Court
issued a decision, which affirmed, in part, and reversed, in part, the Chancery
Court's decision. The Delaware Supreme Court has remanded the case to the
Chancery Court for a determination of two issues: (i) the appropriate remedy,
if any, for the Bancorp directors' good faith omission of information in the
proxy statement relating to the value of prior bids for Bancorp's subsidiary,
Fidelity Acceptance Corporation, and (ii) whether there was any basis for the
plaintiff's claim that the Corporation aided and abetted Bancorp in this
omission. The Corporation has denied the plaintiff's allegations and, on
January 23, 1995, filed a motion for summary judgment with the Chancery Court,
which is scheduled for hearing on May 15, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(A) The Annual Meeting of Stockholders of the Corporation was held on April
27, 1995.
(B) The following matters were submitted to a vote of the Stockholders of the
Corporation:
(1) Election of Directors
NOMINEE TOTAL VOTES FOR TOTAL VOTES WITHHELD
------- --------------- --------------------
William F. Connell................... 92,290,472 484,397
Thomas J. May........................ 89,299,383 3,475,486
Donald F. McHenry.................... 89,382,833 3,392,036
Thomas B. Wheeler.................... 89,366,396 3,408,473
Alfred M. Zeien...................... 89,354,497 3,420,372
(2) Selection of Independent Auditors
Total Votes For................................................. 92,058,770
Total Votes Against............................................. 306,556
Total Abstentions............................................... 409,543
(3) Amendment of Director Stock Award Plan
Total Votes For................................................. 76,949,728
Total Votes Against............................................. 14,411,018
Total Abstentions............................................... 1,414,123
34
(4) Stockholder Proposal to Change Meeting Date
Total Votes For................................................. 2,845,264
Total Votes Against............................................. 76,047,277
Total Abstentions............................................... 1,962,159
Total Broker Nonvotes........................................... 11,920,169
(5) Stockholder Proposal on Approval Process for Certain Transactions
Total Votes For................................................. 3,664,420
Total Votes Against............................................. 75,014,843
Total Abstentions............................................... 2,175,436
Total Broker Nonvotes........................................... 11,920,170
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11 --Computation of Earnings Per Share.
12(a) --Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (excluding interest on deposits).
12(b) --Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (including interest on deposits).
12(c) --Computation of the Corporation's Consolidated Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividend Requirements
(excluding interest on deposits).
12(d) --Computation of the Corporation's Consolidated Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividend Requirements
(including interest on deposits).
27 --Financial Data Schedule.
(b) Current Reports on Form 8-K.
During the first quarter of 1995, the Corporation filed a Current Report
on Form 8-K, dated January 19, 1995, which contained information pursuant
to Items 5 and 7 of Form 8-K. The Corporation also filed a Current Report
on Form 8-K, dated April 20, 1995, which contained information pursuant to
Items 5 and 7 of Form 8-K.
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SIGNATURES
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.
Bank of Boston Corporation
/s/ Ira Stepanian
_____________________________________
IRA STEPANIAN CHAIRMAN OF THE
BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER
/s/ William J. Shea
_____________________________________
WILLIAM J. SHEA VICE CHAIRMAN,
CHIEF FINANCIAL OFFICER AND
TREASURER
Date: May 12, 1995
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