EXHIBIT 99(a)
BANK OF BOSTON REPORTS FIRST QUARTER NET INCOME
OF $148 MILLION BEFORE SPECIAL ITEMS OR $1.23 PER SHARE
18% ABOVE PRIOR YEAR
BOSTON, April 18, 1996 -- Bank of Boston Corporation (NYSE: BKB) reported
today first quarter net income of $148 million, or $1.23 per common share on a
fully diluted basis, before special items. This compares with $142 million, or
$1.17 per share, in the fourth quarter of 1995 and $125 million, or $1.04 per
share in the first quarter of 1995.
Actual net income for the first quarter of 1996, including a previously
announced special net loss of $31 million from mortgage banking activities
discussed below, was $117 million, or $.95 per share, on a fully diluted basis.
This $31 million net loss is expected to be offset by a related mortgage banking
gain, which is scheduled to be recorded during the second quarter of 1996.
First quarter highlights were (amounts shown are before special items):
. Total revenues grew to $713 million on a fully taxable equivalent
basis, compared with $707 million in the prior quarter and $646
million in the first quarter of 1995;
. On a fully taxable equivalent basis, operating income (before
credit costs) improved to $310 million in the first quarter,
compared with $308 million in the prior quarter and $265 million
in the first quarter of 1995;
. Return on average common equity was 17.24% in the first quarter
compared with 16.74% in the prior quarter and 17.43% in the first
quarter of 1995. Return on average assets was 1.27% in the first
quarter, 1.22% in the prior quarter and 1.19% in the first
quarter of 1995;
. Net credit losses were $42 million in the first quarter compared
with $44 million in the prior quarter and $42 million in the
first quarter of 1995. Nonaccrual loans and OREO totaled $371
million at March 31, 1996, compared with $359 million at December
31, 1995 and $422 million at March 31, 1995;
. Operating ratio was 56.5% in the first quarter, even with the
prior quarter and down from 59.0% in the first quarter of 1995.
As announced on March 15, the first quarter included the following special
items related to mortgage banking:
. Recognition of an after-tax gain of $39 million in the first
quarter from the sale of its mortgage banking subsidiary to two
equity investment firms with the Corporation acquiring a 45%
interest in a new independent mortgage company, HomeSide, Inc.
The second phase of this transaction is anticipated to be
completed in the second quarter, which will result in an
additional after-tax gain of approximately $30 million. In
addition, the Corporation recognized $70 million of after-tax
losses (net of decreased servicing amortization) in the first
quarter from contracts used to manage prepayment risk in the
mortgage servicing portfolio included in the HomeSide, Inc.
transaction.
NONINTEREST INCOME
Noninterest income, before special items, increased $17 million from the
prior quarter and $59 million from the first quarter of 1995 as follows:
Fourth
Quarter First Quarter
- ------- -------------
1995 (in millions) 1996 1995 Change
---- ---- ---- ------
$119 Financial service fees $118 $106 $12
49 Trust and agency fees 51 53 (2)
8 Trading profits and commissions 12 1 11
2 Net securities gains 13 6 7
45 Net equity and mezzanine profits 37 16 21
14 Net foreign exchange trading profits 12 12 0
23 Other income 34 24 10
---- ---- ---- -----
$260 Subtotal $277 $218 $ 59
53 Special items, net (51) 75 (126)
---- ---- ---- -----
$313 Total $226 $293 $(67)
==== ==== ==== =====
. Changes in financial service fee categories are detailed below.
. Trust and agency fees increased $2 million from the fourth
quarter mainly due to higher fees from the Brazilian mutual fund
business. The decline from the prior year reflected the sale of
the Corporation's corporate trust business and the transfer of
its stock transfer business into a joint venture. Excluding the
effect of these transactions, trust and agency fees increased by
$10 million from the first quarter of 1995 due to growth in
Brazil's mutual funds under management, which have nearly doubled
in the past year to $3.0 billion.
. Trading account profits and commissions grew $4 million from the
prior quarter and $11 million from the first quarter of 1995 due
to increases from the Corporation's Latin American and Emerging
Markets businesses.
. Net securities gains rose $11 million from the prior quarter and
$7 million from the prior year as certain domestic securities
were sold as part of a repositioning of the securities portfolio.
. Net equity and mezzanine profits declined $8 million from the
prior quarter and increased $21 million from the prior year. The
fourth quarter of 1995 included large gains from two individual
sale transactions. Compared with the prior year, the growth
reflected a higher level of sales activity and an increase in
income from investments in partnerships.
. Other income increased $11 million from the prior quarter and $10
million from the prior year. These increases included higher
profits from various joint ventures, principally those related to
the Argentine pension management business and the stock transfer
business.
The components of financial service fees are as follows:
Fourth
------
Quarter First Quarter
- ------- -------------
1995 (in millions) 1996 1995 Change
---- ---- ---- ------
$ 26 Net mortgage servicing fees (before special items) $ 20 $ 21 $ (1)
29 Deposit fees 31 30 1
16 Letters of credit and acceptance fees 16 19 (3)
20 Loan-related fees 20 13 7
28 Other 31 23 8
---- ---- ---- ----
$119 Total $118 $106 $ 12
==== ==== ==== ====
. Net mortgage servicing fees declined $6 million from the prior
quarter reflecting the sale of the Corporation's mortgage banking
subsidiary on March 15. In connection with the sale, the
Corporation has acquired a 45% interest in a new independent
mortgage banking company, HomeSide Inc.
. Loan-related fees grew $7 million from the prior year due mainly
to an increase in syndication fees, reflecting an expansion of
the Corporation's capital markets business.
. Other financial service fees grew $3 million from the prior
quarter and $8 million from the prior year due mainly to an
increase in capital markets-related advisory fees and credit card
fees in Latin America.
Special items included in noninterest income are composed of the following:
Fourth
------
Quarter First Quarter
- ------- -------------
1995 (in millions) 1996 1995 Change
---- ---- ---- ------
Mortgage banking-related gains/losses:
$ 0 Sale of mortgage subsidiary $ 60 $ 0 $ 60
67 Contracts used to manage prepayment risk, net (111) 0 (111)
---- ----- ---- ----
67 Total (51) 0 (51)
0 Gain on sale of banking subsidiaries 0 75 (75)
20 Gain on sale of Corporate Trust business 0 0 0
(34) Other income items 0 0 0
---- ---- ---- -----
$53 Total $ (51) $75 $(126)
==== ===== ==== =====
. During the first quarter of 1996 the Corporation recorded a net
loss of $51 million from mortgage banking-related special items.
As a result of the first quarter's rising rate environment, a
loss of $111 million, or $70 million after-tax, (net of decreased
servicing amortization) was recorded from the change in market
value of contracts used to manage prepayment risk in the mortgage
servicing portfolio. In addition, the Corporation recognized a
gain of $60 million, or $39 million after-tax, from the sale of
its mortgage banking subsidiary to two equity investment firms
with the Corporation retaining a 45% interest in a new
independent mortgage company, HomeSide, Inc. The second phase of
this transaction is anticipated to be completed in the second
quarter, which will result in an additional after-tax gain of
approximately $30 million. As a result of the declining rate
environment in the fourth quarter of 1995 the Corporation
recorded a gain of $67 million (net of increased servicing
amortization) from the change in market value of contracts used
to manage prepayment risk in the mortgage servicing portfolio.
. The Corporation recognized a $20 million gain in the fourth
quarter from the sale of its corporate trust business and a $75
million gain in the first quarter of 1995 from the sale of its
Maine and Vermont banking subsidiaries.
. Other income in the fourth quarter included a loss of $34 million
from the transfer of $1.3 billion of low yielding residential
mortgage loans into a held for sale account, substantially all of
which have been sold, along with valuation-related charges
associated with certain investments and other assets.
NET INTEREST REVENUE
Net interest revenue, on a fully taxable equivalent basis, was $436 million
for the first quarter of 1996, compared with $447 million in the prior quarter
and $427 million for the same period in 1995. Net interest margin was 4.21% for
the first quarter of 1996, compared with 4.35% in the fourth quarter of 1995 and
4.56% in the first quarter of last year.
The $11 million decline in net interest revenue and 14 basis point decline
in margin from the fourth quarter was mainly due to lower dividends from venture
investments, the absence of interest recoveries on loans, a lower level of lease
residual gains and narrower domestic spreads. The factors which caused the
decline in net interest revenue were partially offset by an increase in Latin
American operations, which reflected a higher level of earning assets.
The $9 million increase in net interest revenue from the first quarter of
1995 reflected higher levels of earning assets and wider spreads in Latin
America. These factors were partially offset by a decline in margin
attributable to narrower domestic spreads caused by higher funding costs
associated with the introduction and aggressive marketing of a new savings
deposit product subsequent to the first quarter of 1995, the absence of prior
year interest recoveries on loans and lower dividends from venture investments.
NONINTEREST EXPENSE
The components of noninterest expense are as follows:
Fourth
------
Quarter First Quarter
- ------- -------------
1995 (in millions) 1996 1995 Change
---- ---- ---- ------
$227 Employee costs $229 $217 $12
61 Occupancy & equipment 63 59 4
13 Professional fees 9 13 (4)
2 FDIC insurance premiums 0 12 (12)
96 Other 102 80 22
---- ---- ---- ----
399 Noninterest expense before OREO costs 403 381 22
28 Reorganization and other charges 0 0 0
2 OREO costs 2 2 0
---- ---- ---- ----
$429 Total $405 $383 $22
==== ==== ==== ===
Noninterest expense before OREO costs, was $403 million in the first
quarter of 1996, compared with $399 million in the prior quarter and $381
million for the same quarter in 1995.
Compared with the prior periods, the increases in noninterest expense came
from ongoing expansion in several of the Corporation's growth businesses, mainly
Latin America, Consumer Finance, Global Capital Markets, and Private Banking.
The increases stemmed from additional staffing, new product offerings, office
openings and technology expenditures. The prior year comparison reflects an
increase in the levels of advertising and travel. These increases were
partially offset by a decline in professional fees, the elimination of FDIC
insurance premiums in 1996, and business divestitures. Total staff levels
declined by about 5%, or 1,000, from the end of 1995 principally due to the
mortgage banking transaction.
During the fourth quarter of 1995, the Corporation recorded $28 million of
charges related mainly to the exiting, reorganizing and downsizing of certain
business and corporate staff units.
CREDIT PROFILE
Loan and Lease Portfolio
The segments of the lending portfolio are as follows:
(in millions) 3-31-96 12-31-95 9-30-95 6-30-95 3-31-95
------- --------- ------- ------- -------
United States Operations:
Commercial, industrial and financial $11,361 $11,439 $11,789 $11,907 $11,684
Commercial real estate
Construction 323 336 412 327 355
Other commercial real estate 2,096 2,272 2,303 2,489 2,645
Consumer-related loans
Secured by 1-4 family residential properties 3,976 3,861 4,978 4,752 4,635
Other 3,843 3,397 3,131 2,834 2,603
Lease financing 1,414 1,409 1,373 1,356 1,350
Unearned income (217) (216) (216) (211) (216)
------- ------- ------- ------- -------
22,796 22,498 23,770 23,454 23,056
------- ------- ------- ------- -------
International Operations:
Loans and lease financing, net of unearned
income 8,606 8,569 7,921 7,934 7,383
------- ------- ------- ------- -------
Total loans and lease financing $31,402 $31,067 $31,691 $31,388 $30,439
======= ======= ======= ======= =======
The $300 million increase in domestic loans and leases from December 31,
1995 was principally driven by growth in consumer loans in the national,
primarily Ganis Credit Corp., credit card, and home equity portfolios. The
Corporation reentered the credit card business during the latter part of 1995.
Consistent with the Corporation's emphasis on reducing low return assets, the
domestic commercial and industrial portfolio continued to trend downward as
growth in the New England and asset based finance portfolios was more than
offset by declines in other areas. The steady decline in the commercial real
estate portfolio continued as well.
The modest increase in the international loans reflected ongoing growth in
the Latin American portfolio, partially offset by a decline in the European
portfolio.
Nonaccrual Loans and OREO
Nonaccrual loans and OREO amounted to $371 million at March 31, 1996,
compared with $359 million at December 31, 1995, and $422 million at March 31,
1995. Nonaccrual loans and OREO represented 1.2% of related assets at March 31,
1996 and December 31, 1995, compared with 1.4% at March 31, 1995.
The components of consolidated nonaccrual loans and OREO are as follows:
(in millions) 3-31-96 12-31-95 9-30-95 6-30-95 3-31-95
------- -------- ------- ------- -------
Domestic nonaccrual loans:
Commercial, industrial and financial $79 $66 $105 $106 $111
Commercial real estate
Construction 21 24 23 16 20
Other commercial real estate 74 78 82 85 97
Consumer-related loans
Secured by 1-4 family residential properties 47 43 46 45 45
Other 39 32 30 21 21
---- ---- ---- ---- ----
260 243 286 273 294
---- ---- ---- ---- ----
International nonaccrual loans 63 66 69 66 57
---- ---- ---- ---- ----
Total nonaccrual loans 323 309 355 339 351
OREO 48 50 62 78 71
---- ---- ---- ---- ----
Total $371 $359 $417 $417 $422
==== ==== ==== ==== ====
Provision and Reserve for Credit Losses
The reserve for credit losses at March 31, 1996 was $732 million, or 2.33%
of outstanding loans and leases, compared with $736 million, or 2.37% at
December 31, 1995, and $696 million, or 2.29% at March 31, 1995. The reserve
for credit losses was 227% of nonaccrual loans at March 31, 1996, 238% at
December 31, 1995, and 198% at March 31, 1995.
The provision for credit losses was $50 million for the first quarter of
1996. Provisions in the fourth and first quarters of 1995 were $75 million and
$90 million, respectively, including special provisions of $25 million recorded
in the fourth quarter and $50 million recorded in the first quarter of 1995.
Net credit losses were $42 million for the first quarter of 1996, compared
with $44 million for the prior quarter and $42 million for the comparable period
last year. Net credit losses as a percent of average loans and leases on an
annualized basis were .54% in 1996's first quarter, compared with .55% for the
fourth quarter of 1995 and .56% for the first quarter of 1995.
Net credit losses were as follows:
Fourth
- -------
Quarter First Quarter
- ------- --------------
1995 (in millions) 1996 1995
- ------- ---- ----
Domestic
$ 6 Commercial, industrial and financial $ 0 $ 8
7 Commercial real estate 12 6
Consumer-related loans
5 Secured by 1-4 family residential properties 6 4
16 Other 19 8
0 Lease financing 0 1
----- --- ---
34 Subtotal 37 27
10 International 5 15
----- --- ---
$ 44 Total $42 $42
===== === ===
TAXES
Excluding the mortgage banking-related special items, the Corporation's
effective tax rate, on a fully taxable equivalent basis, was reduced to 42.7% in
the first quarter of 1996. This compares with a rate of 44.3% in the fourth
quarter of 1995. The reduction in the effective tax rate reflects the benefits
to the Corporation from recent Massachusetts bank tax legislation which permits
the use of apportionment factors to determine income derived outside of
Massachusetts and which gradually lowers the statutory income tax rate.
BALANCE SHEET
Total consolidated assets were $46.5 billion at March 31, 1996 compared
with $47.4 billion at December 31, 1995. The decline was mainly due to the sale
of the Corporation's mortgage banking subsidiary during the first quarter, which
removed over $800 million in mortgages held for sale and over $500 million of
mortgage servicing rights from the balance sheet. The latter was also the main
reason for the over 100 basis point increase in the Corporation's tangible
common equity ratio to 6.29% at March 31, 1996 from 5.14% at December 31, 1995.
THE CORPORATION
Bank of Boston Corporation, with assets of $46.5 billion, is a focused
financial institution engaged primarily in commercial and consumer banking in
southern New England, financing to selected corporations and individuals
nationally and internationally, and indigenous banking in Latin America. New
England's only global bank, the Corporation and its subsidiaries operate through
a network of 500 offices across the U.S. and through more than 100 offices in 22
countries in Latin America, Europe and Asia, the third largest overseas network
of any U.S. bank. The Corporation's common and preferred stocks are listed on
the New York and Boston exchanges.
CONSOLIDATED BALANCE SHEET
(dollars in millions)
December 31 March 31
----------- ---------------------
1995 1996 1995
------- --------- --------
Assets
Securities:
$ 613 Held to maturity $647 $1,857
5,014 Available for sale 5,064 2,388
31,067 Loans and lease financing 31,402 30,439
(736) Reserve for credit losses (732) (696)
------- ------- -------
30,331 Net loans and lease financing 30,670 29,743
4,598 Other earning assets 4,250 3,286
6,841 Cash and other nonearning assets 5,826 6,188
------- ------- -------
$47,397 Total Assets $46,457 $43,462
======= ======= =======
Liabilities and Stockholders' Equity
$30,948 Deposits $31,235 $28,275
8,763 Funds borrowed 7,201 7,752
2,139 Notes payable 2,499 2,093
1,796 Other liabilities 1,811 2,014
------- ------- -------
43,646 Total Liabilities 42,746 40,134
------- ------- -------
Stockholders' Equity
508 Preferred equity 508 508
3,243 Common equity 3,203 2,820
------- ------- -------
3,751 Total Stockholders' Equity 3,711 3,328
------- ------- -------
$47,397 Total Liabilities and Stockholders' Equity $46,457 $43,462
======= ======= =======
SELECTED AVERAGE BALANCES
Quarter Ended Quarters Ended
------------- --------------
December 31 March 31
------------- ----------
1995 1996 1995
------- ------- -------
Assets
$31,763 Loans and lease financing $31,357 $30,123
5,247 Securities 5,653 4,288
40,707 Total earning assets 41,605 37,987
46,233 Total assets 47,014 42,845
Liabilities and Stockholders' Equity
25,354 Interest bearing deposits 25,805 24,145
4,949 Noninterest bearing deposits 5,018 4,609
------- ------- -------
30,303 Total deposits 30,823 28,754
2,109 Notes payable 2,374 2,133
35,975 Total interest bearing liabilities 36,606 33,562
3,154 Common stockholders' equity 3,235 2,699
3,662 Total stockholders' equity 3,743 3,207
NUMBER OF EMPLOYEES
Mar 31 Dec 31 Mar 31
1996 1995 1995
-------- ------- -------
Full time equivalent employees 16,904 17,881 17,926
CONSOLIDATED STATEMENT OF INCOME
(dollars in millions, except per share amounts)
Quarters Ended Quarters Ended
December 31 March 31
- -------------- ----------------
1995 1996 1995
------- ------ ------
$1,069.6 Interest income $1,034.9 $1,033.3
627.8 Interest expense 601.3 607.4
----- ------ ------
441.8 Net interest revenue 433.6 425.9
75.0 Provision for credit losses 50.0 90.0
----- ------ ------
Net interest revenue after provision
366.8 for credit losses 383.6 335.9
====== ====== ======
Noninterest income:
186.2 Financial service fees 6.8 105.6
48.9 Trust and agency fees 51.0 52.7
8.3 Trading profits and commissions 12.3 1.1
1.9 Securities portfolio gains, net 13.4 6.1
67.9 Other income 142.7 127.7
----- ------ ------
313.2 Total noninterest income 226.2 293.2
----- ------ ------
Noninterest expense:
188.8 Salaries 186.5 176.4
38.6 Employee benefits 42.6 40.4
35.3 Occupancy expense 37.0 34.9
25.4 Equipment expense 26.2 24.1
110.9 Other expense 110.6 105.3
----- ------ ------
399.0 Subtotal 402.9 381.1
28.2 Reorganization and other charges 0 0
2.0 OREO costs 1.6 2.1
----- ------ ------
429.2 Total noninterest expense 404.5 383.2
----- ------ ------
250.8 Income before income taxes 205.3 245.9
108.4 Provision for income taxes 88.8 120.6
------ ------ ------
$142.4 NET INCOME $116.5 $125.3
====== ====== ======
PER COMMON SHARE:
$ 1.18 Primary $.97 $1.08
$ 1.17 Fully diluted $.95 $1.04
$ .37 Dividends declared $.37 $ .27
Average number of common shares, in thousands:
112,285 Primary 111,034 107,278
114,036 Fully diluted 112,864 111,820
$ 9.4 Preferred dividends $9.3 $9.4
OTHER DATA
(dollars in millions, except per share amounts)
Quarter Ended Quarters Ended
------------- --------------
December 31 March 31
----------- --------
1995 1996 1995
------- -------- ------
CORE EARNINGS DAT
EARNINGS PER SHARE BEFORE SPECIAL ITEMS*:
$ 1.18 Primary $ 1.25 $ 1.08
$ 1.17 Fully diluted $ 1.23 $ 1.04
RETURN ON AVERAGE TOTAL ASSETS (ANNUALIZED):
1.22% Net income 1.00% 1.19%
1.22% Net income before special items* 1.27% 1.19%
RETURN ON AVERAGE COMMON EQUITY (ANNUALIZED):
16.74% Net income 13.33% 17.43%
16.74% Net income before special items* 17.24% 17.43%
* Based on net income of $148.0 million in the first quarter
of 1996, $142.4 million in the fourth quarter of 1995 and
$125.3 million in the first quarter of 1995.
CONSOLIDATED NET INTEREST REVENUE AND MARGIN:
$446.7 Net interest revenue, fully taxable equivalent basis $ 435.8 $ 427.4
4.35% Net interest margin 4.21% 4.56%
4.51% DOMESTIC NET INTEREST MARGIN (ESTIMATED) 4.31% 4.85%
December 31 March 31
----------- ----------------------------
1995 1996 1995
-------- -------- --------
COMMON STOCKHOLDERS' EQUITY:
$ 3,243 Common stockholders' equity $ 3,203 $ 2,820
112,086 Common shares outstanding, in thousands 110,530 111,167
Per common share:
$ 28.93 Book value $ 28.98 $ 25.36
46.25 Market value 49.63 29.88
CAPITAL RATIOS/REGULATORY CAPITAL:
5.14% Tangible common equity ratio 6.29% 4.94%
Risk-based capital ratios: Estimate
8.0% Tier 1 capital ratio (minimum required 4.00%) 8.1% 7.8%
12.8% Total capital ratio (minimum required 8.00%) 12.9% 13.3%
7.4% Leverage ratio 7.2% 7.3%
$ 3,391 Tier 1 capital $ 3,377 $ 3,090
5,449 Total capital 5,387 5,282
42,636 Total risk-adjusted assets 41,726 39,827
RESERVE FOR CREDIT LOSSES
(dollars in millions)
Quarter Ended Quarters Ended
December 31 March 31
--------------- ---------------
1995 1996 1995
-------- -------- -------
$ 704.4 Beginning balance $ 735.5 $680.2
75.0 Provision for credit losses 50.0 90.0
0 Sale of mortgage banking subsidiary (10.9) 0
0 Sale of Maine and Vermont banking subsidiaries 0 (32.7)
(63.2) Credit losses (57.6) (53.5)
19.3 Recoveries 15.4 11.5
------- ------- ------
(43.9) Net credit losses (42.2) (42.0)
------- ------- ------
$ 735.5 Ending balance $ 732.4 $695.5
======= ======= ======
2.37% Reserve as a % of loans and leases 2.33% 2.29%
======= ======= ======
238% Reserve as a % of nonaccrual loans 227% 198%
======= ======= ======
RENEGOTIATED LOANS
1995 1996
First Second Third Fourth First
Qtr Qtr Qtr Qtr Qtr
-------- -------- -------- -------- -------
Renegotiated loans $43 $29 $27 $27 $17
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