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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 JUNE 30, 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 July 31, 1995:
Common Stock, $2.25 par value.......................111,682,448
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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............................................... 40
ITEM 6. Exhibits and Reports on Form 8-K................................ 40
SIGNATURES............................................................... 41
LIST OF TABLES
Consolidated Average Balance Sheet--Nine Quarters..................... 29
Consolidated Statement of Income--Nine Quarters....................... 30
Average Balances and Interest Rates--Quarter.......................... 31
Average Balances and Interest Rates--First Half....................... 35
Change in Net Interest Revenue--Volume and Rate Analysis.............. 39
2
BANK OF BOSTON CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1995 1994
QUARTERS ENDED JUNE 30 ------- -------
INCOME STATEMENT DATA:
Net interest revenue.......................................... $ 434 $ 375
Provision for credit losses................................... 40 25
Noninterest income............................................ 236 192
Noninterest expense........................................... 392 372
Net income.................................................... 133 95
Per common share:
Net income:
Primary..................................................... 1.11 .80
Fully diluted............................................... 1.10 .77
Market value per common share:
High........................................................ 38 1/4 28 1/2
Low......................................................... 29 3/8 23 1/8
SIX MONTHS ENDED JUNE 30
INCOME STATEMENT DATA:
Net interest revenue.......................................... $ 860 $ 715
Provision for credit losses................................... 130 70
Noninterest income............................................ 529 428
Noninterest expense........................................... 775 719
Income before extraordinary item.............................. 259 198
Net income.................................................... 259 191
Per common share:
Income before extraordinary item
Primary..................................................... 2.19 1.68
Fully diluted............................................... 2.14 1.62
Net income:
Primary..................................................... 2.19 1.62
Fully diluted............................................... 2.14 1.56
Market value per common share:
High........................................................ 38 1/4 28 1/2
Low......................................................... 25 5/8 22 5/8
AT JUNE 30
BALANCE SHEET DATA:
Loans and lease financing..................................... $31,388 $29,966
Total assets.................................................. 45,254 43,437
Deposits...................................................... 29,121 29,395
Total stockholders' equity.................................... 3,465 3,005
Book value per common share................................... 26.49 23.36
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1...................................................... 7.7% 7.1%
Total....................................................... 13.0 12.3
Leverage ratio............................................... 7.3 6.6
3
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30 DECEMBER 31
1995 1994
------- -----------
ASSETS
Cash and due from banks.................................... $ 2,252 $ 2,317
Interest bearing deposits in other banks................... 1,517 1,556
Federal funds sold and securities purchased under
agreements to resell...................................... 805 1,232
Trading securities......................................... 831 553
Mortgages held for sale.................................... 379 183
Securities (Note 4):
Available for sale....................................... 3,011 2,997
Held to maturity (fair value of $1,841 in 1995 and $1,626
in 1994)................................................ 1,821 1,703
Loans and lease financing (Note 5):
United States Operations................................. 23,454 23,916
International Operations................................. 7,934 7,089
------- -------
Total loans and lease financing (net of unearned income
of $264 in 1995 and $292 in 1994)..................... 31,388 31,005
Reserve for credit losses (Note 6)......................... (692) (680)
------- -------
Net loans and lease financing............................ 30,696 30,325
Premises and equipment, net................................ 563 569
Due from customers on acceptances.......................... 319 314
Accrued interest receivable................................ 368 355
Other assets............................................... 2,692 2,526
------- -------
TOTAL ASSETS............................................... $45,254 $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)
JUNE 30 DECEMBER 31
1995 1994
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing................................... $ 4,719 $ 4,900
Interest bearing...................................... 16,279 16,841
Overseas offices:
Noninterest bearing................................... 604 569
Interest bearing...................................... 7,519 9,046
------- -------
Total deposits...................................... 29,121 31,356
Funds borrowed:
Federal funds purchased................................. 933 369
Term federal funds purchased............................ 1,317 765
Securities sold under agreements to repurchase.......... 1,404 1,883
Other funds borrowed.................................... 5,391 3,343
Acceptances outstanding................................... 321 316
Accrued expenses and other liabilities.................... 1,192 1,287
Notes payable (Note 7).................................... 2,110 2,169
------- -------
TOTAL LIABILITIES......................................... 41,789 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--111,611,618 in 1995 and 107,584,349 in
1994
Outstanding shares--111,611,618 in 1995 and
106,547,149 in 1994................................... 251 242
Surplus................................................. 900 810
Retained earnings....................................... 1,831 1,655
Net unrealized loss on securities available for sale,
net of tax............................................. (23) (40)
Treasury stock, at cost (1,037,200 shares in 1994)...... (27)
Cumulative translation adjustments, net of tax.......... (2) (6)
------- -------
TOTAL STOCKHOLDERS' EQUITY................................ 3,465 3,142
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $45,254 $44,630
======= =======
The accompanying notes are an integral part of these financial statements.
5
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
INTEREST INCOME:
Loans and lease financing, including fees.... $ 808 $ 587 $ 1,554 $ 1,130
Securities................................... 87 60 162 104
Trading securities........................... 43 9 84 28
Mortgages held for sale...................... 5 13 9 28
Federal funds sold and securities purchased
under agreements to resell.................. 93 153 196 233
Deposits in other banks...................... 67 18 132 41
------- ------- -------- --------
Total interest income...................... 1,103 840 2,137 1,564
------- ------- -------- --------
INTEREST EXPENSE:
Deposits of domestic offices................. 159 121 298 249
Deposits of overseas offices................. 257 120 479 233
Funds borrowed............................... 215 195 422 305
Notes payable................................ 38 29 78 62
------- ------- -------- --------
Total interest expense..................... 669 465 1,277 849
------- ------- -------- --------
NET INTEREST REVENUE: 434 375 860 715
Provision for credit losses (Note 6)......... 40 25 130 70
------- ------- -------- --------
Net interest revenue after provision for
credit losses............................... 394 350 730 645
------- ------- -------- --------
NONINTEREST INCOME:
Financial service fees....................... 113 94 219 186
Trust and agency fees........................ 57 50 110 98
Other income (Note 2)........................ 66 48 200 144
------- ------- -------- --------
Total noninterest income................... 236 192 529 428
------- ------- -------- --------
NONINTEREST EXPENSE:
Salaries..................................... 179 162 356 319
Employee benefits............................ 41 37 81 74
Occupancy expense............................ 34 33 69 65
Equipment expense............................ 26 23 50 47
Other expense................................ 112 117 219 214
------- ------- -------- --------
Total noninterest expense.................. 392 372 775 719
------- ------- -------- --------
Income before income taxes and extraordinary
item........................................ 238 170 484 354
Provision for income taxes................... 105 75 225 156
------- ------- -------- --------
Income before extraordinary item............. 133 95 259 198
Extraordinary loss from early extinguishment
of debt, net of tax......................... 7
------- ------- -------- --------
NET INCOME................................... $ 133 $ 95 $ 259 $ 191
======= ======= ======== ========
NET INCOME APPLICABLE TO COMMON STOCK........ $ 124 $ 85 $ 240 $ 172
======= ======= ======== ========
PER COMMON SHARE:
Income before extraordinary item:
Primary.................................... $ 1.11 $ .80 $ 2.19 $ 1.68
Fully diluted.............................. $ 1.10 $ .77 $ 2.14 $ 1.62
Net income (Note 7):
Primary.................................... $ 1.11 $ .80 $ 2.19 $ 1.62
Fully diluted.............................. $ 1.10 $ .77 $ 2.14 $ 1.56
Dividends declared........................... $ .27 $ .22 $ .54 $ .44
AVERAGE NUMBER OF COMMON SHARES (IN
THOUSANDS):
Primary.................................... 111,369 106,619 109,335 106,410
Fully diluted.............................. 112,933 111,286 112,718 111,055
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 JUNE 30 ------ ------
BALANCE, BEGINNING OF PERIOD................................... $3,328 $2,947
Net income..................................................... 133 95
Common stock issued in connection with:
Dividend reinvestment and common stock purchase plan......... 9 7
Restricted stock grants, net of forfeitures and change in
unearned compensation....................................... 2
Other, principally employee benefit plans.................... 5 2
Cash dividends declared:
Preferred stock.............................................. (9) (9)
Common stock................................................. (30) (23)
Change in net unrealized loss on securities available for sale,
net of tax.................................................... 26 (12)
Translation adjustments, net of tax............................ 1 (2)
------ ------
BALANCE, END OF PERIOD......................................... $3,465 $3,005
====== ======
SIX MONTHS ENDED JUNE 30
BALANCE, BEGINNING OF PERIOD................................... $3,142 $2,912
Net income..................................................... 259 191
Common stock issued in connection with:
Dividend reinvestment and common stock purchase plan......... 18 11
Conversion of subordinated convertible debentures............ 94
Acquisition of Ganis Credit Corporation...................... 22
Restricted stock grants, net of forfeitures and change in
unearned compensation....................................... 3 1
Other, principally employee benefit plans.................... 12 5
Purchase of treasury stock..................................... (28)
Cash dividends declared:
Preferred stock.............................................. (19) (18)
Common stock................................................. (59) (47)
Change in net unrealized loss on securities available for sale,
net of tax.................................................... 17 (51)
Translation adjustments, net of tax............................ 4 1
------ ------
BALANCE, END OF PERIOD......................................... $3,465 $3,005
====== ======
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
SIX MONTHS ENDED JUNE 30 ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 259 $ 191
Reconciliation of net income to net cash provided from (used
for) operating activities:
Extraordinary loss from early extinguishment of debt, net
of tax.................................................... 7
Provision for credit losses................................ 130 70
Depreciation and amortization.............................. 108 72
Provision for deferred taxes............................... 20 (92)
Net gains on sales of securities and other assets.......... (131) (56)
Change in trading securities............................... (278) (160)
Change in mortgages held for sale.......................... (196) 822
Net change in interest receivables and payables............ 21 (78)
Other, net................................................. (317) 179
------- -------
Net cash provided from (used for) operating activities... (384) 955
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided from (used for) interest bearing deposits
in other banks.............................................. 39 (15)
Net cash provided from (used for) federal funds sold and
securities purchased under agreements to resell............. 427 (262)
Purchases of securities held to maturity..................... (416) (857)
Purchases of securities available for sale................... (1,781) (1,658)
Sales of securities available for sale....................... 1,311 1,320
Maturities of securities held to maturity.................... 287 519
Maturities of securities available for sale.................. 468 88
Dispositions of venture capital investments.................. 65 8
Loans and lease financing originated by nonbank entities..... (3,669) (1,305)
Loans and lease financing collected by nonbank entities...... 3,124 1,421
Net cash provided from (used for) lending activities of bank
subsidiaries................................................ 31 (1,521)
Proceeds from sales of other real estate owned............... 23 28
Expenditures for premises and equipment...................... (82) (82)
Proceeds from sales of business units and premises and
equipment................................................... 122 132
Other, net................................................... (65) (215)
------- -------
Net cash used for investing activities................... (116) (2,399)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used for deposits................................... (2,235) (219)
Net cash provided from funds borrowed........................ 2,685 2,200
Net repayments of notes payable.............................. (4) (421)
Net proceeds from issuance of notes payable.................. 40 498
Net proceeds from issuance of common stock................... 28 17
Dividends paid............................................... (78) (65)
------- -------
Net cash provided from financing activities.............. 436 2,010
Effect of foreign currency translation on cash............... (1) (22)
------- -------
NET CHANGE IN CASH AND DUE FROM BANKS........................ (65) 544
CASH AND DUE FROM BANKS AT JANUARY 1......................... 2,317 2,539
======= =======
CASH AND DUE FROM BANKS AT JUNE 30........................... $ 2,252 $ 3,083
======= =======
Interest payments made....................................... $ 1,243 $ 953
Income tax payments made..................................... $ 302 $ 68
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.
Early in 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 half of 1995 and 1994, the Corporation transferred approximately $33
million and $25 million, respectively, to Other Real Estate Owned (OREO) from
loans. Loans made to facilitate sales of OREO properties totaled approximately
$2 million in the first half of 1994. There were no loans made to facilitate
sales of OREO properties in the first half of 1995. Other significant noncash
transactions in 1995 included the issuance of common stock totaling
approximately $94 million in connection with the Corporation's first quarter
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:
JUNE 30, 1995 DECEMBER 31, 1994
--------------------- ---------------------
COST CARRYING VALUE COST CARRYING VALUE
------ -------------- ------ --------------
(IN MILLIONS)
U.S. Treasury................... $ 659 $ 665 $1,500 $1,487
U.S. government agencies and
corporations--mortgage-backed
securities..................... 1,366 1,370 796 766
Foreign debt securities......... 545 480 432 384
Other debt securities........... 256 257 142 142
Marketable equity securities.... 67 85 52 72
Other equity securities......... 154 154 146 146
------ ------ ------ ------
$3,047 $3,011 $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:
JUNE 30, 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....................... 1,568 1,588 1,449 1,375
States and political subdivisions. 23 24 30 30
Foreign debt securities........... 136 135 123 121
Other equity securities........... 83 83 89 89
------ ------ ------ ------
$1,821 $1,841 $1,703 $1,626
====== ====== ====== ======
Other equity securities included in securities held to maturity principally
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:
JUNE 30 DECEMBER 31
1995 1994
------- -----------
(IN MILLIONS)
UNITED STATES OPERATIONS:
Commercial, industrial and financial.................... $11,907 $11,805
Commercial real estate:
Construction.......................................... 327 354
Other commercial...................................... 2,489 3,141
Consumer-related loans:
Secured by 1-4 family residential properties.......... 4,752 5,004
Other................................................. 2,834 2,462
Lease financing......................................... 1,356 1,366
Unearned income......................................... (211) (216)
------- -------
23,454 23,916
------- -------
INTERNATIONAL OPERATIONS:
Loans and lease financing............................... 7,987 7,165
Unearned income......................................... (53) (76)
------- -------
7,934 7,089
------- -------
$31,388 $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:
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
(IN MILLIONS)
BALANCE, BEGINNING OF PERIOD.............. $ 696 $ 664 $ 680 $ 770
Provision................................. 40 25 130 70
Reserve of acquired bank.................. 17 17
Reserves of banking subsidiaries sold..... (32)
Domestic credit losses:
Commercial, industrial and financial.... (12) (9) (22) (12)
Commercial real estate.................. (17) (14) (24) (24)
Consumer-related loans:
Secured by 1-4 family residential
properties........................... (4) (3) (9) (6)
Other................................. (15) (15) (29) (29)
International credit losses............... (10) (5) (28) (21)
------- ------- ------- --------
Total credit losses....................... (58) (46) (112) (92)
------- ------- ------- --------
Domestic recoveries:
Commercial, industrial and financial.... 3 4 4 8
Commercial real estate.................. 3 4 4 7
Consumer-related loans:
Secured by 1-4 family residential
properties........................... 1 2 1
Other................................. 5 5 11 8
International recoveries.................. 2 3 5 6
------- ------- ------- --------
Total recoveries.......................... 14 16 26 30
------- ------- ------- --------
Net credit losses excluding those
related to exposures transferred to the
accelerated disposition portfolio...... (44) (30) (86) (62)
Credit losses related to exposures
transferred to the accelerated
disposition portfolio.................. (119)
------- ------- ------- --------
BALANCE, END OF PERIOD.................... $ 692 $ 676 $ 692 $ 676
======= ======= ======= ========
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 these 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.
11
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESERVE FOR CREDIT LOSSES (CONTINUED):
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.
Adoption of these 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 June
30, 1995, loans for which impairment has been recognized in accordance with
SFAS No. 114 totaled $284 million, of which $72 million related to loans with
no valuation reserve and $212 million related to loans with a valuation
reserve of $42 million. For the quarter and six months ended June 30, 1995,
average impaired loans were approximately $279 million and $274 million,
respectively. Interest recognized on impaired loans during the second quarter
and six months ended June 30, 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
six months ended June 30, 1995 would have been $2.16 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 June 30, 1995 was $133
million, compared with $95 million for the same period in 1994. Net income per
common share was $1.11 on a primary basis and $1.10 on a fully diluted basis
for the second quarter of 1995, compared with $.80 on a primary basis and $.77
on a fully diluted basis for the second quarter of 1994. Net income for the
first half of 1995 was $259 million compared with $191 million for the first
half of 1994. Net income per common share was $2.19 on a primary basis and
$2.14 on a fully diluted basis for the first half of 1995, compared with $1.62
on a primary basis and $1.56 on a fully diluted basis for the first half of
1994. The 1994 results included an extraordinary loss, net of tax, of $7
million in the first quarter 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, all of which were recorded as
purchases. In addition, the comparisons reflect the sales of the Corporation's
banking subsidiaries in Maine and Vermont early in the first quarter of 1995.
Additional information on the acquisition of Ganis and the sales of Maine and
Vermont can be found in Note 2 to the Financial Statements.
During the second quarter of 1995, the Corporation announced that its
consumer finance subsidiary, Fidelity Acceptance Corporation, would acquire
the loan portfolio and 46 branches of Century Acceptance Corporation, a
consumer finance company based in Kansas City, Missouri, for $129 million.
This transaction, which will add approximately $110 million of consumer loans
to the Corporation's portfolio, was completed on July 1, 1995.
Also during the second quarter, the Corporation announced its agreement to
form a joint venture with Boston Financial Data Services (a joint venture of
State Street Bank and Trust Company and DST Systems, Inc.) combining their
respective stock transfer businesses into a single entity to be 50 percent
owned by each party. The joint venture will be known as BancBoston State
Street Investor Services. In a separate transaction, the Corporation announced
it will sell its corporate trust business to State Street Bank and Trust
Company. These transactions are expected to be completed later this year.
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 31 through 39 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. This
adjustment was not material in any of the periods presented.
Consolidated net interest revenue, on a fully taxable equivalent basis, was
$436 million for the second quarter of 1995 compared with $376 million for the
same period in 1994. For the first half of 1995, net interest revenue was $863
million compared with $718 million for the same period in 1994. Net interest
margin in the second quarter of 1995 was 4.49% compared with 3.98% in the
second quarter of 1994. For the first six months of 1995, net interest margin
was 4.52% compared with 3.89% for the first half of 1994.
13
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
1995 1994 AMOUNT
QUARTERS ENDED JUNE 30 ------- ------- ------
(DOLLARS IN MILLIONS)
UNITED STATES OPERATIONS:
Net interest revenue................................ $ 322 $ 299 $ 23
Average loans and lease financing................... 23,099 22,411 688
Average earning assets.............................. 28,471 28,092 379
Net interest margin................................. 4.54% 4.27% .27%
INTERNATIONAL OPERATIONS:
Net interest revenue................................ $ 114 $ 77 $ 37
Average loans and lease financing................... 7,829 6,694 1,135
Average earning assets.............................. 10,499 9,790 709
Net interest margin................................. 4.35% 3.14% 1.21%
CONSOLIDATED:
Net interest revenue................................ $ 436 $ 376 $ 60
Average loans and lease financing................... 30,928 29,105 1,823
Average earning assets.............................. 38,970 37,882 1,088
Net interest margin................................. 4.49% 3.98% .51%
CHANGE
1995 1994 AMOUNT
SIX MONTHS ENDED JUNE 30 ------- ------- ------
(DOLLARS IN MILLIONS)
UNITED STATES OPERATIONS:
Net interest revenue................................ $ 652 $ 573 $ 79
Average loans and lease financing................... 22,923 22,359 564
Average earning assets.............................. 28,063 27,746 317
Net interest margin................................. 4.69% 4.17% .52%
INTERNATIONAL OPERATIONS:
Net interest revenue................................ $ 211 $ 145 $ 66
Average loans and lease financing................... 7,605 6,501 1,104
Average earning assets.............................. 10,420 9,447 973
Net interest margin................................. 4.08% 3.09% .99%
CONSOLIDATED:
Net interest revenue................................ $ 863 $ 718 $ 145
Average loans and lease financing................... 30,528 28,860 1,668
Average earning assets.............................. 38,483 37,193 1,290
Net interest margin................................. 4.52% 3.89% .63%
Both domestic and international operations contributed to the improvements
in net interest revenue and margin from the second quarter and first six
months of 1994.
Domestic net interest revenue for the second quarter and first six months of
1995 increased $23 million and $79 million, respectively, from the second
quarter and first six months of 1994. Domestic margin increased 27 basis
points in the quarterly comparison and 52 basis points in the six month
comparison. Net interest revenue and margin increased, in part, due to
increases in rates on earning assets outpacing rate increases on interest
bearing liabilities, mainly retail deposits which have lagged the general
increase in interest rates that has occurred since the 1994 periods. Also
contributing to the increases in revenue and margin was an increase in average
earning assets from the 1994 periods, which included a reduction in lower-
yielding treasury assets and an increase in higher-yielding loans and leases,
principally through growth in the consumer lending portfolio.
Internationally, the growth in net interest revenue and margin of $37
million and 121 basis points, respectively, in the quarterly comparison, and
$66 million and 99 basis points, respectively, in the six month comparison,
was primarily driven by the Corporation's Argentine and Brazilian operations.
Net interest revenue
14
and margin benefited from wider spreads in both Brazil and Argentina,
reflecting the effects of government economic measures and positions taken by
the Corporation, both of which enabled the Corporation to benefit from rising
interest rates. International net interest revenue also benefited from a $0.7
billion increase in the quarterly and a $1.0 billion increase in the six month
comparison in average earning assets, reflecting increases in average loans
and leases for both period comparisons, including over $700 million in average
loan growth in Argentina.
When compared to the first quarter of 1995, consolidated net interest
revenue increased $9 million and margin declined 7 basis points. The increase
in net interest revenue from the prior quarter was mainly due to wider Latin
American spreads and higher loan volume, principally in the Latin American and
domestic consumer lending portfolios. The increase in net interest revenue was
partially offset by, and the decline in margin principally reflected, narrower
domestic spreads and lower interest recoveries.
The Corporation has benefited from interest rate increases on domestic
deposits not keeping pace with the increases in other market rates compared
with the 1994 periods and from improvements in Argentina and Brazil, including
the effects of the economic measures taken in those countries. The Corporation
expects that there could be continued pressure on margin. However, future
levels of net interest revenue and margin will continue to 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 reflects management's assessment of the
adequacy of the reserve for credit losses, considering the current risk
characteristics of the loan portfolio and economic conditions.
The provision for credit losses was $40 million for the quarter ended June
30, 1995, compared with $25 million for the same period in 1994. For the six
months of 1995, the provision for credit losses was $130 million, including a
special provision of $50 million in the first quarter reflecting management's
intent to strengthen further the Corporation's loan loss reserve, compared
with $70 million for the first six months of 1994. The level of the provision
for credit losses in the first six months of 1994 reflected, in part, the
effect of transferring certain lower quality real estate exposures to an
accelerated disposition portfolio in the first quarter of 1994.
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.
NONINTEREST INCOME
The following tables set forth the components of noninterest income, as well
as a further breakdown of financial service fees.
NONINTEREST INCOME
SECOND QUARTER SIX MONTHS
---------------- ----------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
Financial service fees..................... $113 $ 94 $19 $219 $186 $ 33
Trust and agency fees...................... 57 50 7 110 98 12
Trading profits and commissions............ 6 1 5 7 5 2
Securities portfolio gains, net............ 6 (6) 6 10 (4)
Mezzanine/venture capital profits, net..... 23 5 18 39 19 20
Foreign exchange trading profits........... 16 11 5 28 20 8
Other income............................... 21 25 (4) 45 63 (18)
---- ---- --- ---- ---- ----
Subtotal................................. 236 192 44 454 401 53
Gains from sales of businesses............. 75 27 48
---- ---- --- ---- ---- ----
Total.................................... $236 $192 $44 $529 $428 $101
==== ==== === ==== ==== ====
15
Noninterest income before gains from sales of businesses grew $44 million
and $53 million from the second quarter and first six months of 1994,
respectively. The increases reflected higher financial service fees (detailed
below), higher trust and agency fees, improved trading account profits, larger
mezzanine/venture capital profits and increased foreign exchange trading
profits. Trust and agency fees improved from the second quarter and first six
months of 1994 primarily as a result of higher fees from the Latin American
mutual fund business, principally Brazil, and increases in domestic stock
transfer and personal trust fees. Trading account profits increased mainly due
to higher profits from Latin American securities trading. Mezzanine/venture
capital profits showed continued growth in the second quarter reflecting
higher sales activity. Foreign exchange profits were higher compared with
prior periods reflecting increases both domestically and in Latin America. The
decline in other income from the second quarter of 1994 reflected lower gains
from sales of mortgage servicing rights, while the decline from the first half
of 1994 was mainly due to the absence of net gains recorded during the first
quarter of 1994 from the sale of securities originally acquired in connection
with loan restructurings.
Gains from sales of businesses includes the first quarter of 1995 sale of
the Corporation's Maine and Vermont banking subsidiaries for a pre-tax gain of
$75 million ($30 million after-tax) and the first quarter of 1994 sale of its
United States factoring business for a gain of $27 million ($15 million after-
tax).
FINANCIAL SERVICE FEES
SECOND QUARTER SIX MONTHS
---------------- ----------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
Deposit fees............................... $ 29 $31 $(2) $ 59 $ 61 $(2)
Letter of credit and acceptance fees....... 16 14 2 35 27 8
Net mortgage servicing fees................ 27 13 14 48 23 25
Loan-related fees.......................... 17 15 2 30 29 1
Other...................................... 24 21 3 47 46 1
---- --- --- ---- ---- ---
Total.................................... $113 $94 $19 $219 $186 $33
==== === === ==== ==== ===
Financial service fees increased $19 million from the second quarter of 1994
and $33 million from the first six months of 1994. These improvements were
mainly due to an increase in net mortgage servicing fee income, reflecting the
growth in the average servicing portfolio to approximately $37 billion at June
30, 1995 from approximately $30 billion a year ago. Also contributing to the
changes in net mortgage servicing fee income from the 1994 periods were
profits from contracts used to manage prepayment risk of the servicing
portfolio and the impact of changing interest rates on amortization of the
servicing assets. Letter of credit and acceptance fees increased from the
prior year, mainly reflecting growth from international units, particularly
Brazil.
NONINTEREST EXPENSE
The following tables set forth the components of noninterest expense.
NONINTEREST EXPENSE
SECOND QUARTER SIX MONTHS
---------------- ----------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
Employee costs............................ $220 $199 $ 21 $437 $394 $43
Occupancy & equipment..................... 60 56 4 119 111 8
Other..................................... 109 94 15 214 185 29
---- ---- ---- ---- ---- ---
Noninterest expense, before acquisition-
related charges and OREO costs......... 389 349 40 770 690 80
Acquisition-related charges............... 16 (16) 16 (16)
OREO costs................................ 3 7 (4) 5 13 (8)
---- ---- ---- ---- ---- ---
Total................................... $392 $372 $ 20 $775 $719 $56
==== ==== ==== ==== ==== ===
16
Noninterest expense, before acquisition-related charges and OREO costs, was
$389 million in the second quarter of 1995, compared with $349 million in the
second quarter of 1994, and $770 million in the first six months of 1995,
compared with $690 million in the first six months of 1994.
Compared with all prior periods, the growth in noninterest expense reflects
increases in the Corporation's Latin American and personal banking businesses,
two businesses which the Corporation has been expanding. In addition, the
increase in employee costs includes the effect of higher merit increases and
higher levels of incentive compensation. Nonemployee costs increased, in part,
due to higher levels of advertising and travel expense, including spending on
key business initiatives, such as the Corporation's Global Initiative, and the
promotion of new products, partially offset by lower professional fees. In
addition, the 1995 periods reflect increased amortization of goodwill stemming
from the Corporation's 1994 acquisitions, and the absence of a property tax
rebate in the current year. The decline in OREO costs was primarily due to
lower valuation adjustments.
In connection with the acquisition of BankWorcester Corporation, the
Corporation recorded a $16 million charge comprised principally of severance
costs and estimated costs to consolidate facilities and operations. A majority
of the costs associated with this acquisition have been incurred through June
30, 1995.
The Federal Deposit Insurance Corporation recently announced that it will
significantly reduce the level of domestic deposit insurance assessments it
charges most commercial banks. The Corporation anticipates that its banking
subsidiaries will pay significantly less in insurance assessments as a result
of this action. However, it is unknown how the new level of insurance premiums
will impact the pricing of the Corporation's various products.
PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes was $105 million and $75 million for the
second quarter of 1995 and 1994, respectively, representing an effective tax
rate of 44%. For the first six months of 1995, the provision for income taxes
was $225 million, including $45 million associated with the $75 million gain
on the sales of the Corporation's Maine and Vermont banking subsidiaries. The
high level of tax associated with the gain on the sales of Maine and Vermont
reflected the lower tax bases in these investments as a result of $35 million
of non-tax deductible goodwill relating to these subsidiaries. Excluding this
gain and related tax provision, the Corporation's effective tax rate in the
first six months of 1995 was 44%, the same rate as in the first six months of
1994.
FINANCIAL CONDITION
CONSOLIDATED BALANCE SHEET
At June 30, 1995, the Corporation's total assets were $45.3 billion, an
increase of $700 million from December 31, 1994. Loans and leases grew by
nearly $400 million due to higher levels of domestic consumer-related and
Latin American loans partially offset by the decline in loans resulting from
the sales of the Maine and Vermont banking subsidiaries during the first
quarter of 1995. Increases in trading securities of $278 million, mortgages
held for sale of $196 million and other assets of approximately $166 million
were partially offset by decreases in federal funds sold of $427 million.
Deposits declined approximately $2.2 billion, resulting from a $1.3 billion
decrease in deposits from the sales of the Maine and Vermont banking
subsidiaries and a decrease in deposits from overseas offices during the first
quarter, offset by a $900 million increase in domestic deposits during the
second quarter. The reduction in deposits from overseas was related to a shift
in funding from Eurodollar deposits to term federal funds purchased during the
first quarter. The increase in domestic deposits was largely due to an inflow
of deposits from a new retail deposit product offered in the second quarter.
Funds borrowed increased approximately $2.7 billion from December 31, 1994,
mainly as a result of the aforementioned shift to term federal funds and
increased borrowings of $1.2 billion under The First National Bank of Boston's
medium-term bank note program. On August 1, 1995, the Corporation announced
that it will redeem the $150 million principal amount outstanding of its 10.3%
subordinated notes due September 1, 2000.
17
LIQUIDITY MANAGEMENT
At June 30, 1995, the Corporation's level of liquid assets, which primarily
consist 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 $5.3 billion, compared with $4.6
billion at December 31, 1994. The Corporation continues to have access to
funds at market rates, and it recently received upgrades of its long-term debt
from three major rating agencies. Management considers overall liquidity at
June 30, 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 MANAGEMENT
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 net interest
income and market value sensitivity at risk. These two methodologies provide
different but complementary measures of the level of the Corporation's U.S.
dollar denominated interest rate risk. (Additional information with respect to
these methodologies is included on pages 50 to 51 of the Corporation's Annual
Report to Stockholders, which is incorporated by reference in its 1994 Annual
Report on Form 10-K.)
These methodologies are designed to isolate the effects of market changes in
interest rates on the Corporation's existing positions and they exclude the
effects from other factors, such as competitive pricing considerations, future
changes in asset and liability mix, and other management actions. Therefore,
these methodologies are not by themselves measures of future levels of net
interest revenue. As discussed in the Net Interest Revenue section above, the
Corporation's domestic margin has experienced a decline from the first quarter
of 1995, due in part, to competitive pressures which have increased domestic
deposit costs and correspondingly reduced domestic spreads.
In terms of the effect from market changes in interest rates at June 30,
1995, the Corporation maintained a modest risk position to benefit from future
increases in domestic interest rates over the next twelve months. 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 over a one year period was
approximately $21 million or 1.3% of annualized net interest revenue compared
with $11 million or less than 1%, respectively, at December 31, 1994.
While the Corporation is positioned to benefit from an increase in interest
rates in the short term, it would benefit from a decline in rates over the
long term as measured by its market value sensitivity at risk. The
Corporation's market value sensitivity at risk to an adverse 100 basis point
interest rate shock was $34 million or 0.6% of risk-based capital. At December
31, 1994, these measures were essentially neutral.
The level of both net interest revenue and market value sensitivity at risk
were within ALCO limits, which remain unchanged from the limits in place at
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.
18
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 applied
to balance sheet exposures.
Additional information with respect to the Corporation's interest rate risk
management process is included on pages 50 to 51 of the Corporation's Annual
Report to Stockholders, which is incorporated by reference in its 1994 Annual
Report on Form 10-K.
As detailed in the table below, the fair value of interest rate derivatives
increased from December 31, 1994, which resulted in a decline in the
unrecognized loss from $140 million at December 31, 1994 to an unrecognized
gain of $1 million at June 30, 1995. The change in the fair value of this
portfolio reflects the effect of changes in interest rates during 1995. 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.
In response to the interest rate environment prevailing during the second
quarter, the Corporation terminated $.4 billion of interest rate swaps and
$3.9 billion of interest rate futures that were part of the domestic asset and
liability management portfolio. These contracts were linked to short-term
liabilities. The termination of these contracts resulted in a net loss of $7
million that is being amortized to net interest revenue as an adjustment to
short-term liability yields over the remainder of the period that is being
managed.
19
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(1)(2) UNRECOGNIZED
NOTIONAL ------------------- GAIN/
AMOUNT ASSET LIABILITY (LOSS)(3)
-------- ------- ---------- ------------
(IN MILLIONS)
JUNE 30, 1995
Interest rate contracts(1)(4):
Futures and forwards............... $15,197 $ 2 $ (69)
Interest rate swaps................ 4,613 $ 39 46 26
Interest rate options:
Purchased........................ 2,516 33 44
------- ------- -------- -----
Total interest rate contracts........ $22,326 $ 72 $ 48 $ 1
======= ======= ======== =====
Foreign exchange:
Spot and forward contracts(1)...... $ 1,708 $ 3 $ 1 $ 2
======= ======= ======== =====
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 arm's 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. The credit exposure of interest rate
derivatives and foreign exchange contracts is represented by the fair
value of contracts reported in the "Asset" column.
(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 unrecognized gains or losses
are gains or losses from contracts which have been terminated. At June 30,
1995 there were $57 million of unrecognized gains and $36 million of
unrecognized losses that are being amortized to net interest revenue over
a weighted average period of 27 months and 35 months, respectively. At
December 31, 1994, there were unrecognized gains of $35 million that are
being amortized to net interest revenue over a weighted average period of
14 months.
(4) Includes contracts used to manage prepayment risk related to the
Corporation's mortgage servicing portfolio. The results of such contracts
are included in net mortgage servicing fees and are discussed above in
Financial Service Fees.
20
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability
management purposes as of June 30, 1995:
MATURITY
1995 1996 1997 1998 1999 2000+ TOTAL
-------- ------ ------ ---- ---- ------ -------
(DOLLARS IN MILLIONS)
Interest Rate Swaps
Domestic:
Receive fixed rate
swaps(1):
Notional amount....... $ 240 $ 142 $ 151 $ 50 $1,840 $ 2,423
Weighted average re-
ceive rate........... 9.44% 6.55% 9.38% 5.46% 6.22% 6.74%
Weighted average pay
rate................. 6.05% 6.17% 6.09% 6.75% 6.45% 6.38%
Pay fixed rate swaps(1):
Notional amount....... $ 6 $ 85 $ 57 $ 35 $ 45 $ 85 $ 313
Weighted average re-
ceive rate........... 6.32% 6.02% 6.09% 6.37% 6.36% 6.19% 6.17%
Weighted average pay
rate................. 6.53% 6.92% 7.78% 8.70% 7.36% 7.26% 7.42%
Basis swaps(2):
Notional amount....... $ 883 $ 50 $ 933
Weighted average re-
ceive rate........... 5.43% 6.31% 5.48%
Weighted average pay
rate................. 5.56% 6.06% 5.59%
Total Domestic Interest
Rate Swaps:
------ ------ ------ ---- ---- ------ -------
Notional amount....... $ 246 $1,110 $ 208 $ 85 $ 45 $1,975 $ 3,669
Weighted average re-
ceive rate(3)........ 9.37% 5.62% 8.48% 5.83% 6.36% 6.22% 6.37%
Weighted average pay
rate(3).............. 6.06% 5.74% 6.55% 7.55% 7.36% 6.48% 6.27%
Total International In-
terest Rate Swaps
Notional Amount(4).... $ 944 $ 944
------ ------ ------ ---- ---- ------ -------
Total Consolidated In-
terest Rate Swaps
Notional Amount....... $1,190 $1,110 $ 208 $ 85 $ 45 $1,975 $ 4,613
Other Derivative Prod-
ucts
Futures and forwards(5). 4,642 8,199 2,326 30 15,197
Interest rate options:
Purchased............. 1,971 382 39 81 43 2,516
------ ------ ------ ---- ---- ------ -------
Total Consolidated
Notional Amount........ $7,803 $9,691 $2,573 $196 $ 88 $1,975 $22,326
====== ====== ====== ==== ==== ====== =======
--------
(1) Of the receive fixed 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.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
floating rates. The majority 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 June 30, 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 51 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 the
interest rate risk related to the Corporation's mortgages held for sale.
Average rates are not meaningful for these products.
21
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 quarter and six months ended June 30, 1995 were $3 million
and $4 million, respectively, and for the quarter and six months ended June
30, 1994 were $.3 million and $3.5 million, respectively. Net trading gains
from foreign exchange contracts for the quarter and six months ended June 30,
1995 were $16 million and $28 million, respectively, and for the quarter and
six months ended June 30, 1994 were $11 million and $20 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)
JUNE 30, 1995
Interest rate contracts (1):
Futures and forwards............. $29,653
Interest rate swaps.............. 6,552 $ 69 $ 45 $ 65 $ 43
Interest rate option:
Written or sold................ 4,760 12 16
Purchased...................... 3,835 24 29
------- ---- ---- ---- ----
Total interest rate contracts...... $44,800 $ 93 $ 57 $ 94 $ 59
======= ==== ==== ==== ====
Foreign exchange contracts:
Spot and forward contracts....... $19,984 $315 $314 $444 $448
Options written or sold.......... 632 13 16
Options purchased................ 1,912 14 17
------- ---- ---- ---- ----
Total foreign exchange contracts... $22,528 $329 $327 $461 $464
======= ==== ==== ==== ====
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 arm's 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 second 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 1994 Annual Report to Stockholders, which is incorporated
by reference in its 1994 Annual Report on Form 10-K.
22
CAPITAL
The Corporation's Tier 1 and total capital ratios were 7.7% and 13.0%,
respectively, at June 30, 1995, compared with 7.0% and 12.2%, respectively, at
December 31, 1994. The Corporation's leverage ratio at June 30, 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 June 30, 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 July 1995, the Board of Directors approved a 37% increase in the
Corporation's quarterly common dividend to $.37 from $.27 per share, payable
on August 25, 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:
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1995 1995 1994 1994 1994
------- -------- ------- -------- -------
(IN MILLIONS)
Domestic:
Commercial, industrial and fi-
nancial........................ $11,907 $11,684 $11,805 $11,987 $11,871
Commercial real estate:
Construction.................. 327 355 354 464 499
Other......................... 2,489 2,645 3,141 3,110 3,084
------- ------- ------- ------- -------
Total commercial real es-
tate....................... 2,816 3,000 3,495 3,574 3,583
Consumer-related loans:
Secured by 1-4 family residen-
tial properties.............. 4,752 4,635 5,004 4,878 4,215
Other......................... 2,834 2,603 2,462 2,373 2,283
Lease financing................. 1,356 1,350 1,366 1,312 1,263
Unearned income................. (211) (216) (216) (199) (198)
------- ------- ------- ------- -------
23,454 23,056 23,916 23,925 23,017
------- ------- ------- ------- -------
International:
Loans and lease financing, net
of unearned income............. 7,934 7,383 7,089 6,956 6,949
------- ------- ------- ------- -------
Total loan and lease financ-
ing........................ $31,388 $30,439 $31,005 $30,881 $29,966
======= ======= ======= ======= =======
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 $500 million was related to commercial
real estate loans. Excluding these sales, domestic loans and leases grew over
$700 million primarily due to higher levels of consumer-related loans. The
international portfolio increased by $845 million principally due to ongoing
growth in the Latin American portfolio. A further discussion of the Argentine
and Brazilian operations is included under the caption "Emerging Markets
Countries."
The Corporation's domestic commercial real estate loans amounted to $2.8
billion at June 30, 1995 and $3.5 billion at December 31, 1994. Approximately
70% of these loans were located in New England at June 30, 1995 and December
31, 1994.
23
The Corporation's total loan portfolio at June 30, 1995 and December 31,
1994 included $1.3 billion of highly leveraged transaction (HLT) loans to 93
and 84 customers, respectively. The average HLT loan size was $14 million at
June 30, 1995 and $15 million at December 31, 1994. The amount of unused
commitments for HLTs at June 30, 1995 was $545 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 June 30, 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 six months of 1995. The
Corporation does not currently anticipate a substantial increase in HLT
lending over the June 30, 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 leases and OREO are as
follows:
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1995 1995 1994 1994 1994
------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
Domestic:
Commercial, industrial and finan-
cial.............................. $106 $111 $113 $119 $131
Commercial real estate:
Construction..................... 16 20 13 18 30
Other............................ 85 97 106 119 160
---- ---- ---- ---- ----
Total commercial real estate... 101 117 119 137 190
Consumer-related loans:
Secured by 1-4 family residential
properties...................... 45 45 44 35 30
Other............................ 21 21 24 15 9
---- ---- ---- ---- ----
273 294 300 306 360
---- ---- ---- ---- ----
International........................ 66 57 65 71 87
---- ---- ---- ---- ----
Total nonaccrual loans......... 339 351 365 377 447
OREO................................. 78 71 76 93 71
---- ---- ---- ---- ----
Total.......................... $417 $422 $441 $470 $518
==== ==== ==== ==== ====
Nonaccrual loans and OREO as a
percent of related asset categories. 1.3% 1.4% 1.4% 1.5% 1.7%
The decline in nonaccrual loans and OREO from December 31, 1994, includes a
$27 million reduction from the sales of the Corporation's Maine and Vermont
banking subsidiaries that were completed during the first quarter of 1995. 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.
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 June 30, 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.
24
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at June 30, 1995 was $692 million, or 2.20% of
outstanding loans and leases, compared with $680 million or 2.19%, at December
31, 1994. The reserve for credit losses was 204% of nonaccrual loans and
leases at June 30, 1995, compared with 186% at December 31, 1994. During the
first 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 statements 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 adoption of these new standards,
which is more fully discussed in Note 6 to the Financial Statements, did not
have a significant effect on the Corporation.
Net credit losses were $44 million for the second quarter of 1995 and $86
million for the first half of 1995. This compares with $30 million for the
second quarter of 1994, and $62 million for the first half of 1994, excluding
$119 million of first quarter 1994 writedowns in connection with the ADP. As a
percentage of average loans and leases on an annualized basis, net credit
losses were .57% in the second quarter of 1995, compared with .56% for the
first quarter of 1995, and .41% for the second quarter of 1994. The increase
in net credit losses in the first half of 1995 was mainly due to an increase
in credit losses in the Corporation's domestic commercial, industrial and
financial portfolio and higher international credit losses principally
resulting from a charge-off of an Asian credit. In addition, there was an
overall lower level of recoveries.
Net credit losses are as follows:
SECOND QUARTER SIX MONTHS
---------------- ----------
1995 1994* 1995 1994*
------- ------- ---- -----
(IN MILLIONS)
Domestic:
Commercial, industrial and financial.......... $ 9 $ 6 $18 $ 4
Commercial real estate........................ 14 10 20 17
Consumer-related loans:
Secured by 1-4 family residential
properties................................. 3 2 7 5
Other....................................... 10 9 18 20
------- ------- --- ---
36 27 63 46
------- ------- --- ---
International................................... 8 3 23 16
------- ------- --- ---
Total..................................... $ 44 $ 30 $86 $62
======= ======= === ===
--------
* Excludes credit losses in connection with assets transferred to the
accelerated disposition portfolio.
CROSS-BORDER OUTSTANDINGS
At June 30, 1995 and December 31, 1994, total cross-border outstandings
represented 15% of consolidated total assets. This included cross-border
outstandings to emerging markets countries of approximately 9% for the
respective periods. In accordance with 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:
. 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. Such transactions related only to emerging
markets countries and totaled $1.0 billion at June 30, 1995 compared with
$0.9 billion at December 31, 1994.
25
. Local currency outstanding funded with local currency.
. U.S. dollar or other non-local currency outstandings reallocated as a
result of external guarantees and cash collateral
. U.S. dollar or other non-local currency outstandings reallocated as
result of insurance contracts, primarily issued by United States
government agencies
Cross-border outstandings in countries which individually amounted to 1.0%
or more of consolidated total assets at June 30, 1995 and December 31, 1994
were approximately as follows:
CONSOLIDATED PERCENTAGE OF
PUBLIC BANKS OTHER TOTAL TOTAL ASSETS COMMITMENTS(2)
------ ----- ------ ------------ ------------- --------------
(DOLLARS IN MILLIONS)
JUNE 30, 1995(1)
Argentina............... $295 $ 45 $1,620 $1,960 4.3% $ 35
Brazil.................. 10 80 760 850 1.9 60
Chile................... 125 115 325 565 1.3 15
United Kingdom.......... 70 425 495 1.1 155
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) There were no countries in which cross-border outstandings fell within
.75% and 1% of consolidated total assets at June 30, 1995 or December 31,
1994.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.
In accordance with the regulatory definition of cross-border outstandings,
included in Argentine cross-border outstandings are approximately $1 billion
of Argendollar outstandings at June 30, 1995 and December 31, 1994,
respectively. 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 June 30, 1995, approximately $4.1 billion of the Corporation's cross-
border outstandings were to emerging markets countries, of which approximately
85% 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 $3.8 billion of the cross-border outstandings to emerging
markets countries were to Argentina, Brazil, Chile, Colombia and Uruguay, five
countries in which the Corporation maintains branches and/or subsidiaries. At
June 30, 1995, cross-border outstandings to Chile, Colombia and Uruguay were
$565 million, $140 million and $245 million, respectively. In addition, cross-
border outstandings to Mexico were $160 million. The Corporation has received
approval to open a subsidiary bank in Mexico, and it is expected that the
subsidiary will commence operations during the third quarter.
26
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................................. (41) 55
Net change in trade-related cross-border outstandings,
primarily short-term...................................... 127 31
Net change in investment and trading securities............ (5) (42)
Net change in placements................................... (4)
Other...................................................... 13 6
------ ----
Cross-border outstandings at June 30, 1995................. $1,960* $850*
====== ====
--------
* Approximately 27% for Argentina and 49% for Brazil are trade-related.
As noted above, a significant portion of the Corporation's activities in
emerging market countries are conducted in Argentina and Brazil. During the
second quarter, Argentina re-elected its incumbent president to an additional
term. This provided some stability to both the political environment and the
economic markets, including an increase in deposit levels and overall
liquidity. However, the country continues to be faced by significant
challenges related to unemployment levels and the ability to meet economic
targets mandated by the International Monetary Fund. The government has
announced measures to further improve liquidity of local banks and it is
expected that additional measures will be announced to strengthen further the
overall financial system. The Corporation's operating results in Argentina
have not been adversely affected by the economic and political events which
have occurred in Latin America over the past three quarters. During the second
quarter, there continued to be an increase in spreads caused by prevailing
interest rates. Loan and deposit levels were relatively stable compared to the
first quarter of 1995 while there was a slight increase in the level of
nonperforming assets. However, the Corporation continues to expect some
deterioration in credit quality over time and is closely monitoring the
situation. The Corporation's Argentine bond portfolio, which is classified as
available for sale securities, has remained relatively stable from the prior
quarter. The after-tax unrealized loss is $37 million at June 30, 1995
compared to $49 million at March 31, 1995 and $30 million at December 31,
1994. If the actions announced by the Argentine government are not effective,
particularly with regard to 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 values.
Brazil continued to implement measures related to its July 1994 economic
plan. During the second quarter, the government adjusted the band within which
the local currency can trade against the U.S. dollar to .93 to .99 Brazilian
reals per U.S. dollar. The current exchange rate is running slightly below or
at the low end of the band. The government continues to implement measures to
control inflation, which was approximately 2%-3% per month during the quarter.
These measures contributed to the high real interest rate environment which
existed during the quarter. In the second quarter, the Corporation's Brazilian
results of operations were not adversely affected by the events which have
occurred in Latin America over the past three quarters. 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 economic program will ultimately have on
the Corporation.
During the second quarter of 1995, a number of the Corporation's operations
located in Latin America continued to structure their balance sheets to take
positions in their local currencies. These positions continue to be subject to
limits established by the Corporation's ALCO, with the amount of, and
compliance with, the limits subject to regular review. For additional
information related to the Corporation's Latin American balance sheet currency
positions, see page 43 of the Corporation's 1994 Annual Report to
Stockholders, which is incorporated by reference in its 1994 Annual Report on
Form 10-K.
27
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 operation, cross-border
outstandings and, where applicable, a currency position. It is not possible to
predict what effect the economic situation in Latin America will ultimately
have on the economies of these countries or on the Corporation's results of
operations. For additional information related to the Corporation's Latin
American cross-border outstandings, see pages 12 and 13 of the Corporation's
1994 Annual Report on Form 10-K, as well as pages 41 through 44 of the
Corporation's 1994 Annual Report to Stockholders, which is incorporated by
reference in such Form 10-K.
----------------
The Corporation's results of operations continue to be affected by the
economies of the United States and New England. Management, however, cannot
currently predict to what extent changes in the condition of the domestic
economy or interest rates 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 trends noted
during the first half of 1995 will continue.
28
CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER
LAST NINE QUARTERS
1993 1994 1995
----------------------- ------------------------------- ---------------
2 3 4 1 2 3 4 1 2
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
ASSETS
Interest bearing
deposits in other
banks.................. $ 1,422 $ 1,305 $ 1,185 $ 1,083 $ 902 $ 1,131 $ 1,062 $ 1,262 $ 1,309
Federal funds sold and
securities purchased
under agreements to
resell................. 1,089 1,367 2,005 2,447 3,485 2,595 1,711 1,364 1,166
Trading securities...... 276 300 259 452 402 618 750 694 787
Loans held for sale..... 944 1,334 1,314 960 824 651 315 256 254
Securities.............. 3,838 3,561 3,194 2,945 3,164 3,489 4,435 4,288 4,526
Loans and lease
financing.............. 25,854 26,953 28,172 28,615 29,105 30,362 31,076 30,123 30,928
------- ------- ------- ------- ------- ------- ------- ------- -------
Total earning assets. 33,423 34,820 36,129 36,502 37,882 38,846 39,349 37,987 38,970
Other assets............ 4,078 4,248 4,274 4,712 4,820 5,079 5,051 4,858 5,131
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL ASSETS............ $37,501 $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $42,845 $44,101
======= ======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing... $ 4,397 $ 4,578 $ 4,863 $ 4,633 $ 4,403 $ 4,477 $ 4,701 $ 4,194 $ 4,196
Interest bearing...... 18,580 18,360 18,096 17,110 16,672 17,309 17,388 15,827 16,228
Overseas offices:
Noninterest bearing... 336 387 469 497 393 415 481 415 416
Interest bearing...... 4,881 5,218 5,819 6,375 6,764 7,703 7,875 8,318 7,967
------- ------- ------- ------- ------- ------- ------- ------- -------
Total deposits....... 28,194 28,543 29,247 28,615 28,232 29,904 30,445 28,754 28,807
Federal funds purchased
and repurchase
agreements............. 2,315 3,430 3,787 3,619 4,014 3,728 3,333 3,699 3,896
Other funds borrowed.... 1,606 1,485 1,603 2,411 4,124 3,633 3,861 3,585 4,278
Notes payable........... 1,670 1,752 1,876 2,194 1,957 1,987 2,141 2,133 2,062
Other liabilities....... 1,022 1,085 1,073 1,433 1,404 1,625 1,491 1,467 1,661
Stockholders' equity.... 2,694 2,773 2,817 2,942 2,971 3,048 3,129 3,207 3,397
------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $37,501 $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $42,845 $44,101
======= ======= ======= ======= ======= ======= ======= ======= =======
29
CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS
LAST NINE QUARTERS
1993 1994 1995
-------------------- ---------------------------- -------------
2 3 4 1 2 3 4 1 2
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NET INTEREST REVENUE: $330.5 $340.8 $349.3 $340.7 $374.5 $423.9 $433.4 $425.9 $434.1
Taxable equivalent
adjustment............. 1.7 2.3 2.0 1.5 1.5 1.3 2.7 1.4 1.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Total net interest
revenue................ 332.2 343.1 351.3 342.2 376.0 425.2 436.1 427.3 436.0
Provision for credit
losses................. 27.6 10.0 10.0 45.0 25.0 25.0 35.0 90.0 40.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue
after provision for
credit losses.......... 304.6 333.1 341.3 297.2 351.0 400.2 401.1 337.3 396.0
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST INCOME:
Financial service fees.. 92.6 90.9 95.2 92.4 93.9 104.3 105.5 105.6 113.3
Trust and agency fees... 45.2 43.1 45.5 47.7 50.3 50.6 53.1 52.7 57.2
Trading profits and
commissions............ 5.8 6.9 3.9 3.9 1.2 10.9 (.1) 1.1 6.1
Securities portfolio
gains.................. 6.0 11.0 8.8 3.9 5.9 1.3 2.5 6.1 .2
Other income............ 41.4 39.3 35.6 87.2 41.0 35.1 37.6 127.7 59.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
income................ 191.0 191.2 189.0 235.1 192.3 202.2 198.6 293.2 236.1
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST EXPENSE:
Salaries................ 161.7 160.4 153.3 157.8 161.5 168.1 177.8 176.4 179.6
Employee benefits....... 33.7 32.2 32.7 36.9 37.0 38.6 35.1 40.4 40.9
Occupancy expense....... 32.2 32.2 31.3 31.9 33.1 35.2 34.4 34.9 34.4
Equipment expense....... 24.0 23.3 23.4 23.6 23.4 24.2 24.9 24.1 25.7
Merger and restructuring
charges................ 85.0 16.4 5.0
Other expense........... 116.7 107.1 105.9 96.5 101.0 107.2 109.7 107.4 111.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
expense............... 368.3 440.2 346.6 346.7 372.4 378.3 381.9 383.2 392.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes, extraordinary
items and cumulative
effect of changes in
accounting principles.. 127.3 84.1 183.7 185.6 170.9 224.1 217.8 247.3 240.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes.................. 54.2 40.4 79.2 81.4 74.9 98.8 94.3 120.6 104.8
Taxable equivalent
adjustment............. 1.7 2.3 2.0 1.5 1.5 1.3 2.7 1.4 1.9
------ ------ ------ ------ ------ ------ ------ ------ ------
55.9 42.7 81.2 82.9 76.4 100.1 97.0 122.0 106.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 71.4 41.4 102.5 102.7 94.5 124.0 120.8 125.3 133.3
Extraordinary items..... (6.6)
Cumulative effect of
changes in accounting
principles, net
------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME.............. $ 71.4 $ 41.4 $102.5 $ 96.1 $ 94.5 $124.0 $120.8 $125.3 $133.3
====== ====== ====== ====== ====== ====== ====== ====== ======
PER COMMON SHARE:
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles:
Primary................ $ .60 $ .30 $ .88 $ .88 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11
Fully diluted.......... .59 .30 .85 .85 .77 1.04 1.01 1.04 1.10
Net income:
Primary................ $ .60 $ .30 $ .88 $ .82 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11
Fully diluted.......... .59 .30 .85 .79 .77 1.04 1.01 1.04 1.10
Cash dividends declared. .10 .10 .10 .22 .22 .22 .27 .27 .27
30
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED JUNE 30, 1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing Deposits
with Other Banks U.S..................... $ 362 $ 3 3.62%
International........... 947 64 26.91
------- -----
Total................ 1,309 67 20.49
------- ----- -----
Federal Funds Sold and
Resale Agreements U.S..................... 598 9 5.96
International........... 568 84 59.61
------- -----
Total................ 1,166 93 32.10
------- ----- -----
Trading Securities U.S..................... 227 3 6.35
International........... 560 40 28.50
------- -----
Total................ 787 43 22.10
------- ----- -----
Loans Held for Sale U.S..................... 254 5 7.62
------- ----- -----
Securities U.S.
Available for sale(2). 2,210 38 6.82
Held to maturity...... 1,721 29 6.88
International
Available for sale(2). 387 15 13.40
Held to maturity...... 208 6 12.15
------- -----
Total................ 4,526 88 7.80
------- ----- -----
Loans and Leases
(Net of Unearned Income) U.S..................... 23,099 507 8.81
International........... 7,829 302 15.45
------- -----
Total loans and lease
financing(3)....... 30,928 809 10.49
------- ----- -----
Earning assets.......... 38,970 1,105 11.38
----- -----
Nonearning assets....... 5,131
-------
TOTAL ASSETS............ $44,101
=======
--------
(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
QUARTER ENDED JUNE 30, 1995
----------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
-------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits........ $ 8,640 $ 56 2.61%
Time deposits........... 7,588 106 5.60
International........... 7,967 254 12.79
-------- ----
Total................ 24,195 416 6.90
-------- ---- -----
Federal Funds Purchased
and Repurchase Agreements U.S..................... 3,740 45 4.77
International........... 156 12 31.10
-------- ----
Total................ 3,896 57 5.82
-------- ---- -----
Other Funds Borrowed U.S..................... 3,448 55 6.44
International........... 830 103 49.76
-------- ----
Total................ 4,278 158 14.84
-------- ---- -----
Notes Payable U.S..................... 1,911 35 7.27
International........... 151 3 9.56
-------- ----
Total................ 2,062 38 7.44
-------- ---- -----
Total interest bearing
liabilities............ 34,431 669 7.80
-------- ---- -----
Demand deposits U.S..... 4,196
Demand deposits
International.......... 416
Other noninterest
bearing liabilities.... 1,661
Total Stockholders'
Equity................. 3,397
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $ 44,101
========
NET INTEREST REVENUE AS A
PERCENTAGE OF AVERAGE IN-
TEREST EARNING ASSETS U.S..................... $ 28,471 $322 4.54%
International........... 10,499 114 4.35
-------- ----
Total................ $ 38,970 $436 4.49
======== ====
--------
(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
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED JUNE 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing Deposits
with Other Banks U.S. .............................. $ 187 $ 2 4.62%
International...................... 715 16 9.16
------- ---
Total......................... 902 18 8.22
------- --- -----
Federal Funds Sold and
Resale Agreements U.S. .............................. 1,847 18 3.98
International...................... 1,638 135 32.94
------- ---
Total......................... 3,485 153 17.59
------- --- -----
Trading Securities U.S. .............................. 183 2 4.93
International...................... 219 7 5.12
------- ---
Total......................... 402 9 5.00
------- --- -----
Loans Held for Sale U.S. .............................. 824 13 6.23
------- --- -----
Securities U.S.
Available for sale(2).............. 1,427 25 7.17
Held to maturity................... 1,213 17 5.69
International
Available for sale(2).............. 349 12 13.75
Held to maturity................... 175 6 13.38
------- ---
Total......................... 3,164 60 7.64
------- --- -----
Loans and Leases
(Net of Unearned Income) U.S. .............................. 22,411 424 7.59
International...................... 6,694 164 9.85
------- ---
Total loans and lease
financing(3).................. 29,105 588 8.11
------- --- -----
Earning assets..................... 37,882 841 8.91
--- -----
Nonearning assets.................. 4,820
-------
TOTAL ASSETS....................... $42,702
=======
--------
(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.
33
QUARTER ENDED JUNE 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits......................... $ 9,413 $ 45 1.94%
Time deposits............................ 7,259 80 4.42
International.............................. 6,764 116 6.90
------- ----
Total................................. 23,436 241 4.14
------- ---- -----
Federal Funds Purchased
and Repurchase Agreements U.S. ...................................... 3,689 34 3.74
International.............................. 325 21 25.75
------- ----
Total................................. 4,014 55 5.52
------- ---- -----
Other Funds Borrowed U.S. ...................................... 2,641 32 4.81
International.............................. 1,483 108 29.19
------- ----
Total................................. 4,124 140 13.58
------- ---- -----
Notes Payable U.S. ...................................... 1,824 25 5.47
International.............................. 133 4 11.56
------- ----
Total................................. 1,957 29 5.89
------- ---- -----
Total interest bearing liabilities......... 33,531 465 5.57
------- ---- -----
Demand deposits U.S. ...................... 4,403
Demand deposits International.............. 393
Other noninterest bearing liabilities...... 1,404
Total Stockholders' Equity................. 2,971
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $42,702
=======
NET INTEREST REVENUE AS A
PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS U.S. ...................................... $28,092 $299 4.27%
International.............................. 9,790 77 3.14
------- ----
Total................................. $37,882 $376 3.98
======= ====
--------
(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.
34
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
SIX MONTHS ENDED JUNE 30,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing
Deposits with Other
Banks U.S................................ $ 245 $ 5 4.57%
International...................... 1,041 127 24.49
------- -----
Total............................ 1,286 132 20.70
------- ----- -----
Federal Funds Sold and
Resale Agreements U.S................................ 563 17 5.99
International...................... 702 179 51.40
------- -----
Total............................ 1,265 196 31.18
------- ----- -----
Trading Securities U.S................................ 211 7 6.43
International...................... 530 77 29.48
------- -----
Total............................ 741 84 22.92
------- ----- -----
Loans Held for Sale U.S................................ 255 9 6.79
------- ----- -----
Securities U.S.
Available for sale(2).............. 2,210 74 6.73
Held to maturity................... 1,656 56 6.81
International
Available for sale(2).............. 343 24 12.40
Held to maturity................... 199 10 10.13
------- -----
Total............................ 4,408 164 7.52
------- ----- -----
Loans and Leases
(Net of Unearned
Income) U.S................................ 22,923 1,006 8.85
International...................... 7,605 549 14.55
------- -----
Total loans and lease
financing(3)..................... 30,528 1,555 10.27
------- ----- -----
Earning assets..................... 38,483 2,140 11.21
----- -----
Nonearning assets.................. 4,990
-------
TOTAL ASSETS....................... $43,473
=======
--------
(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.
35
SIX MONTHS ENDED JUNE 30,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits......................... $ 8,669 $ 107 2.52%
Time deposits............................ 7,359 198 5.41
International.............................. 8,142 472 11.69
------- -----
Total.................................... 24,170 777 6.49
------- ----- -----
Federal Funds Purchased
and Repurchase
Agreements U.S........................................ 3,636 88 4.91
International.............................. 163 26 32.02
------- -----
Total.................................... 3,799 114 6.07
------- ----- -----
Other Funds Borrowed U.S........................................ 3,037 96 6.33
International.............................. 897 212 47.61
------- -----
Total.................................... 3,934 308 15.74
------- ----- -----
Notes Payable U.S........................................ 1,954 69 7.11
International.............................. 144 9 11.96
------- -----
Total.................................... 2,098 78 7.44
------- ----- -----
Total interest bearing liabilities......... 34,001 1,277 7.57
----- -----
Demand deposits U.S........................ 4,195
Demand deposits International.............. 416
Other noninterest bearing liabilities...... 1,563
Total Stockholders' Equity................. 3,298
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $43,473
=======
NET INTEREST REVENUE AS
A PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS U.S........................................ $28,063 $ 652 4.69%
International.............................. 10,420 211 4.08
------- -----
Total.................................... $38,483 $ 863 4.52
======= =====
--------
(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.
36
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
SIX MONTHS ENDED JUNE 30,
1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
ASSETS
Interest Bearing
Deposits with Other
Banks U.S................................ $ 216 $ 4 3.63%
International...................... 777 37 9.58
------- -----
Total......................... 993 41 8.29
------- ----- -----
Federal Funds Sold and
Resale Agreements U.S................................ 1,586 29 3.66
International...................... 1,380 204 29.77
------- -----
Total......................... 2,966 233 15.81
------- ----- -----
Trading Securities U.S................................ 148 3 4.66
International...................... 280 24 17.30
------- -----
Total......................... 428 27 12.93
------- ----- -----
Loans Held for Sale U.S................................ 892 28 6.43
------- ----- -----
Securities U.S.
Available for sale(2)............ 1,161 41 7.09
Held to maturity................. 1,384 35 5.06
International
Available for sale(2)............ 292 22 14.90
Held to maturity................. 217 8 7.83
------- -----
Total......................... 3,054 106 6.61
------- ----- -----
Loans and Leases
(Net of Unearned
Income) U.S................................ 22,359 825 7.44
International...................... 6,501 307 9.52
------- -----
Total loans and lease
financing(3).................. 28,860 1,132 7.91
------- ----- -----
Earning assets..................... 37,193 1,567 8.49
------- ----- -----
Nonearning assets.................. 4,765
-------
TOTAL ASSETS....................... $41,958
=======
--------
(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.
37
SIX MONTHS ENDED JUNE 30,
1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits........................... $ 9,336 $ 89 1.93%
Time deposits.............................. 7,554 166 4.44
International.............................. 6,569 227 6.94
------- ----
Total...................................... 23,459 482 4.14
------- ---- -----
Federal Funds Purchased
and Repurchase
Agreements U.S. ...................................... 3,541 61 3.47
International.............................. 276 31 22.68
------- ----
Total...................................... 3,817 92 4.86
------- ---- -----
Other Funds Borrowed U.S. ...................................... 2,062 50 4.84
International.............................. 1,206 163 27.32
------- ----
Total...................................... 3,268 213 13.14
------- ---- -----
Notes Payable U.S. ...................................... 1,963 55 5.63
International.............................. 112 7 12.83
------- ----
Total...................................... 2,075 62 6.02
------- ---- -----
Total interest bearing liabilities......... 32,619 849 5.25
------- ---- -----
Demand deposits U.S. ...................... 4,518
Demand deposits International.............. 445
Other noninterest bearing liabilities...... 1,418
Total Stockholders' Equity................. 2,958
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $41,958
=======
NET INTEREST REVENUE AS
A PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS U.S. ...................................... $27,746 $573 4.17%
International.............................. 9,447 145 3.09
------- ----
Total...................................... $37,193 $718 3.89
======= ====
--------
(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.
38
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
SECOND QUARTER 1995 COMPARED WITH SECOND 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. ..................... $ 15 $ 68 $ 83
International............. 44 94 138
----
Total 221
----
Other earnings assets U.S. ..................... (5) 15 10
International............. (34) 67 33
----
Total 43
----
Total interest income 31 233 264
Total interest expense 19 185 204
----
Net interest revenue $ 60
====
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994
INCREASE (DECREASE)
DUE TO CHANGE IN
---------------------
VOLUME RATE NET CHANGE
---------- --------- ----------
(IN MILLIONS)
Interest income:
Loans and lease financing U.S. ........... $ 25 $ 156 $181
International... 80 162 242
----
Total 423
----
Other earnings assets U.S. ........... (8) 36 28
International... (20) 142 122
----
Total 150
----
Total interest income 72 501 573
Total interest expense 43 385 428
----
Net interest revenue $145
====
39
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
("Bancorp") and certain Bancorp directors. 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 Corporation's proposed acquisition of
Bancorp was announced, and sought an injunction with respect to the
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 remanded the case to the Chancery Court for a
determination of certain issues. On January 23, 1995, the defendants filed a
motion for summary judgment with the Chancery Court and on June 15, 1995, the
Court granted summary judgment in favor of the defendants on all claims except
for an aiding and abetting claim against the Corporation on which no summary
judgment motion has yet been filed. The Chancery Court also denied plaintiff's
motion for rehearing. The plaintiff and certain defendants have filed motions
to make the Chancery Court's most recent summary judgment decision final and
appealable before the resolution of the aiding and abetting claim. The
Corporation has denied the plaintiff's allegations and intends to continue to
defend the action vigorously.
As previously reported, in 1990 a class action complaint was filed in U.S.
District Court for the District of Connecticut against Bancorp, two of its
then senior officers and one former officer. The complaint, as subsequently
amended, alleges that Bancorp's financial reports for fiscal years 1988, 1989
and the first half of 1990 contained material misstatements or omissions
concerning its real estate loan portfolio and other matters, in violation of
Connecticut common law and of Sections 10(b) and 20 of the Securities Exchange
Act of 1934. The action was brought by a Bancorp shareholder, individually and
as a class action on behalf of purchasers of Bancorp's stock from January 19,
1989 through November 30, 1990 and seeks damages in an unspecified amount.
Bancorp and the defendant officers have denied the allegations of the amended
complaint and on July 14, 1995 filed a motion for summary judgment.
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).
27 --Financial Data Schedule
(b) Current Reports on Form 8-K.
During the second quarter of 1995, the Corporation filed one Current Report
on Form 8-K, dated April 20, 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 July 20, 1995, which contained information pursuant to Items
5 and 7 of Form 8-K.
40
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/ Charles K. Gifford
_____________________________________
CHARLES K. GIFFORD
CHAIRMAN OF THE BOARD OF
DIRECTORS, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
/s/ William J. Shea
_____________________________________
WILLIAM J. SHEA
VICE CHAIRMAN, CHIEF FINANCIAL
OFFICER
AND TREASURER
Date: August 11, 1995
41