<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5872
CONTINENTAL BANK CORPORATION
Delaware 36-2664023
(state or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
231 South LaSalle Street
Chicago, Illinois 60697
(address of principal executive offices) (zip code)
(312) 828-2345
(telephone number)
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.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of April 30, 1994: Common Stock--$4 par
value--51,495,869 shares.
<PAGE>
About this Review
This quarterly review is designed to provide detailed data and
analysis for interested stockholders, security analysts, and
others, and to serve as the quarterly report on Form 10-Q of
Continental Bank Corporation to the Securities and Exchange
Commission. Additional copies can be obtained from the Corporate
Relations Department, Continental Bank Corporation, 231 South
LaSalle Street, Chicago, Illinois 60697.
For further information, please contact Investor Relations at
312/828-4764.
May 11, 1994
10-Q Cross-Reference Index Page No.
Part I. Financial Report
Financial Highlights................................... 1
Management Discussion and Analysis (Form 10-Q
Item 2).............................................. 2
Financial Statements (Form 10-Q Item 1):
Consolidated Balance Sheet........................... 14
Consolidated Income Statement........................ 15
Consolidated Statement of Cash Flows................. 16
Consolidated Statement of Changes in Stockholders'
Equity............................................. 17
Notes to Consolidated Financial Statements........... 18
Comparative Financial Data:
Quarterly Consolidated Income Statement.............. 25
Consolidated Average Balance Sheet and Net Interest
Revenue............................................ 26
Average Loans........................................ 27
Analysis of Net Credit Loss Experience............... 27
Part II. Other Information
Legal Proceedings...................................... 28
Exhibits and Reports on Form 8-K (Form 10-Q Item 6).... 29
Signatures............................................. 30
The following abbreviations are used in the Management Discussion
and Analysis section of this report:
Continental Bank Corporation--Continental
Continental Bank N.A.--Bank
Highly leveraged transaction--HLT
In-substance foreclosure--ISF
Other nonperforming asset--ONPA
Other real estate owned--OREO
<PAGE> 1
FINANCIAL HIGHLIGHTS
<TABLE>
First Quarter
($ in millions, except per share amounts) 1994 1993 Change
<S> <C> <C> <C>
Operating Results
Total revenues.................................. $ 252 $ 267 $ (15)
Operating expenses.............................. 156 151 5
Income before cumulative effect of accounting
change for income taxes....................... 63 61 2
Net income...................................... 63 141 (78)
Per Share Amounts
Earnings before cumulative effect of accounting
change for income taxes(a).................... $ 1.02 $ 0.96 $ 0.06
Earnings(a)..................................... 1.02 2.40 (1.38)
Common dividends................................ 0.15 0.15 --
Book value--period-end.......................... 30.02 26.33 3.69
Market price--high.............................. 35.50 28.25 7.25
--low............................... 25.75 19.50 6.25
--period-end........................ 32.63 27.88 4.75
Profitability Ratios(b)
Return on average total assets(c)............... 1.16% 1.13%
Return on average total equity(c)............... 13.14 14.43
Return on average common equity(c).............. 14.34 16.21
Operating expenses to total revenues(d)......... 59.92 53.56
Net interest margin(e).......................... 2.60 2.76
Selected Balances
Total assets--period-end........................ $22,760 $22,008 $ 752
Total risk-adjusted assets...................... 24,033 23,351 682
Tier 1 capital.................................. 1,940 1,810 130
Total capital................................... 2,664 2,549 115
Average total assets............................ 21,946 21,999 (53)
Average total equity............................ 1,945 1,795 150
Average common equity........................... 1,556 1,406 150
Period-End Ratios
Tier 1 capital to risk-adjusted assets.......... 8.07% 7.75%
Total capital to risk-adjusted assets........... 11.08 10.92
Tier 1 capital to quarterly average assets
(leverage).................................... 8.84 8.23
Total equity to total assets.................... 8.50 8.22
Common equity to total assets................... 6.79 6.46
Reserve for credit losses to total loans........ 2.73 3.24
Nonperforming loans to total loans.............. 2.26 6.12
Average total equity to average total assets.... 8.86% 8.16%
Ratio of Earnings to Fixed Charges
Excluding interest on deposits.................. 1.85x 1.85x
Including interest on deposits.................. 1.39x 1.34x
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
Excluding interest on deposits.................. 1.77x 1.76x
Including interest on deposits.................. 1.37x 1.33x
Period-End Staff Level
Operating....................................... 4,233 4,187 46
Total........................................... 4,259 4,224 35
<FN>
(a) Based on average common shares and equivalents of 53.8 million for the first quarter
of 1994 and 55.4 million for the first quarter of 1993.
(b) Ratios are annualized except operating expenses to total revenues.
(c) Ratios for 1993 exclude the effect of the accounting change for income taxes.
(d) Excludes net costs of ONPA.
(e) Computed using amounts rounded in thousands.
</TABLE>
<PAGE> 2
MANAGEMENT DISCUSSION AND ANALYSIS
The following Management Discussion and Analysis should be read
in conjunction with the financial statements and notes beginning
on page 14 of this report and with Continental's 1993 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
Continental reported net income of $63 million, or $1.02 per
common share, for the first quarter of 1994, compared with
$141 million, or $2.40 per common share, for the 1993 period.
Excluding the $80 million effect of an accounting change for
income taxes in the 1993 first quarter, net income was
$61 million, or $0.96 per common share. On this basis, the
improved results were due to significantly lower credit costs,
partially offset by lower revenues and an increase in operating
expenses. First-quarter 1994 revenues decreased from the
comparable 1993 period, due to declines in net interest revenue,
trading profits, and revenues from equity investments, despite
increases in fees and commissions, lease financing revenues, and
lower foreign-exchange translation losses.
TOTAL REVENUES
Total revenues, the sum of net interest revenue plus fees,
trading, and other revenues, of $252 million declined
$15 million, or 6 percent, from the first quarter of last year.
Net interest revenue decreased to $108 million, a $15 million
decline from the first quarter of 1993. A lower volume of
average earning assets, lower cash collections from Latin
American debt, and a reduced benefit from interest-free funds
contributed to the decline. These declines were partially offset
by higher loan fees.
<PAGE> 3
<TABLE>
<CAPTION>
Components of Net Interest Margin First Quarter
1994 1993
<S> <C> <C>
Yield on earning assets.................................... 6.27% 6.21%
Rate on interest-bearing liabilities ...................... 4.50 4.43
Net interest-rate spread................................... 1.77 1.78
Net cash collections on nonperforming loans................ 0.02 0.19
Benefit from interest-free funds........................... 0.50 0.53
Loan fee revenue........................................... 0.30 0.25
Tax-equivalent adjustment.................................. 0.01 0.01
Net interest margin(a)................................... 2.60% 2.76%
Average Earning Assets
($ in billions)
Short-term, liquid assets(b)............................... $ 3.9 $ 4.6
Loans...................................................... 11.6 12.4
Securities................................................. 1.5 1.1
Total average earning assets............................. $17.0 $18.1
<FN>
(a) Net interest revenue on a taxable-equivalent basis as a percentage of
average earning assets.
(b) Includes interest-bearing deposits, federal funds sold, securities
purchased under agreements to resell, and trading account assets.
</TABLE>
Fees, trading, and other revenues were $144 million for the first
quarter of 1994, about level with the year-ago period. First-
quarter 1994 revenues were positively impacted by increased fees
and commissions, lower foreign-exchange translation losses,
higher security gains, and higher lease financing revenues.
These improvements were offset by lower revenues from equity
investments, reduced gains from loan sales, and a decrease in
trading profits.
BANKING PRODUCT REVENUES
Four primary product categories form the core of Continental's
business strategy--corporate finance, specialized financial
services, trading, and equity financing. Since banking product
revenues are presented after internal allocation of funding costs
among product lines, the amounts in the following table differ
from those in similar revenue lines in the Consolidated Income
Statement. Total banking product revenues decreased 8 percent
from the first quarter of last year.
<PAGE> 4
<TABLE>
<CAPTION>
Banking Product Revenues First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Corporate finance
Lending.................................................... $ 87 $ 93
Syndication, distribution, and other credit products....... 41 52
Total corporate finance.................................. 128 145
Specialized financial services
Cash management services................................... 30 30
Securities and clearing services........................... 16 16
Private banking, personal trust, and other services........ 25 19
Total specialized financial services..................... 71 65
Trading.................................................... 19 23
Equity financing
Domestic................................................... 24 29
Foreign.................................................... 7 10
Total equity financing................................... 31 39
Total banking product revenues........................... 249 272
All other revenues......................................... 3 (5)
Total revenues........................................... $252 $267
<FN>
*Restated to conform to the current period's presentation.
</TABLE>
Corporate finance revenues, which include revenues from lending,
syndication and distribution activities, decreased 12 percent
from the first quarter of 1993. The decline was primarily due to
a narrower net interest margin (partially due to lower cash
collections from Latin American nonperforming loans), a decrease
in average loans, and lower gains on the sale of Latin American
debt.
Revenues from specialized financial services increased 9 percent
from the year-ago quarter, primarily due to higher fees for
corporate deposit and related services. Specialized financial
services revenues include fees for cash and securities
management, fiduciary services and private banking.
The market volatility in the first quarter of 1994 resulted in
lower trading and equity-investment revenues. Revenues from
trading activities fell $4 million, or 17 percent, from the same
quarter last year, due to market conditions, particularly the
severe drop in the prices of Latin American and other emerging-
markets securities. This decrease was partially offset by higher
revenues from customer-driven foreign-exchange revenues.
Equity financing revenues for the first quarter of 1994 declined
$8 million from the 1993 first quarter. Domestic equity revenues
declined $5 million due to unrealized losses in the 1994 quarter,
compared with unrealized gains in the first quarter of 1993,
partially offset by increased gains on sales. Foreign equity
revenues declined $3 million due to lower gains from sales of
Latin American equity investments. The equity-investment
portfolio on March 31, 1994, amounted to $639 million, up
$117 million from a year ago.
<PAGE> 5
All other revenues increased over the 1993 quarter, partly due to
lower foreign-exchange translation losses and the recognition of
collections on receivables retained from a business sold.
PROVISION AND RESERVE FOR CREDIT LOSSES
The first-quarter provision for credit losses decreased to
$30 million, compared with $56 million for the same period last
year, reflecting improved credit quality.
The reserve for credit losses decreased $8 million from
$328 million at year-end 1993 to $320 million on March 31, 1994.
Continental has established a reserve for credit losses that in
management's judgment is adequate to absorb probable losses
inherent in the portfolio on March 31, 1994.
First-quarter 1994 charge-offs of $40 million fell $16 million
from the same period last year. Approximately $16 million of
this quarter's charge-offs were on loans to residential real
estate developers in California. Recoveries of $2 million were
down $29 million from last year's first quarter, when recoveries
on Latin American debt totaled $26 million.
<TABLE>
<CAPTION>
Net Charge-Offs (Recoveries) First Quarter
($ in millions) 1994 1993
<S> <C> <C>
General Corporate.......................................... $17 $ 10
Commercial Real Estate..................................... 5 2
Residential Real Estate.................................... 16 39
Latin American............................................. -- (26)
Net charge-offs.......................................... $38 $ 25
</TABLE>
See Analysis of Net Credit Loss Experience on page 27 for a
reconciliation of the reserve for credit losses.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Operating Expenses First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Employee................................................... $ 79 $ 72
Occupancy & Equipment...................................... 17 15
Other Operating............................................ 55 56
Total Operating Expenses................................. $151 $143
Operating Staff Level...................................... 4,233 4,187
</TABLE>
<PAGE> 6
First-quarter 1994 operating expenses increased 3 percent from
last year's first quarter to $156 million. Excluding the net
costs of ONPA, operating expenses increased 6 percent, or
$8 million, from the year-ago quarter. Employee expense
increased from $72 million in the 1993 first quarter to
$79 million in the 1994 quarter. The increase resulted from an
increase in base salaries and incentive compensation. Operating
staff levels rose 1 percent, or 46 people, from March 31, 1993.
Other operating expenses were $55 million in the 1994 first
quarter, about level with the prior year's period, and benefited
from a refund of previously disputed Brazilian transaction taxes
and a lower assessment for deposit insurance. These benefits
were partially offset by nearly $3 million of depreciation
expense on lease financing equipment. Prior to the first quarter
of 1994, this expense, which was immaterial, was netted against
the related revenues. As lease financing activities have
increased, this expense was included in other operating expense
beginning with the 1994 first quarter.
Net costs of ONPA were $5 million in the first quarter, compared
with $8 million in the 1993 quarter. The decrease was primarily
due to declines in net operating expense and writedowns related
to OREO.
INCOME TAXES
Continental recorded income tax expense of $3 million for the
1994 first quarter, compared with an income tax credit of
$1 million for last year's first quarter. The 1994 quarter
benefited from the $3 million release of a foreign tax reserve
related to the repatriation of capital. In the first quarter of
1993, Continental recorded the cumulative effect of an accounting
change of $80 million resulting from the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
BALANCE SHEET
On January 1, 1994, Continental adopted Financial Accounting
Standards Board Interpretation (FIN) No. 39, "Offsetting of
Amounts Related to Certain Contracts." See Note 1 for further
details. The effect was an increase in total assets and total
liabilities of approximately $1 billion. Prior periods'
financial statements were not restated.
Despite the increase due to the adoption of FIN No. 39, total
assets of $22.8 billion on March 31 were up slightly from
year-end, as interest-bearing deposits, cash and non-interest-
bearing deposits, and securities declined.
<PAGE> 7
<TABLE>
<CAPTION>
Total Assets
March 31, 1994 December 31, 1993
Percent Percent
($ in billions) Balance of total Balance of total
<S> <C> <C> <C> <C>
Short-term, liquid assets*... $ 4.7 21% $ 5.0 22%
Loans........................ 11.7 51 11.7 52
Other........................ 6.4 28 5.9 26
Total assets............... $22.8 100% $22.6 100%
<FN>
*Includes interest-bearing deposits, federal funds sold, securities purchased
under agreements to resell, and trading account assets. Certain securities
available for sale, not included in these amounts, provide additional
liquidity.
</TABLE>
Total liabilities amounted to $20.8 billion on March 31, 1994, up
slightly from the year-end level. The increase due to the
adoption of FIN No. 39 was partially offset by decreases in
deposits, federal funds purchased, and securities sold under
agreements to repurchase.
The following table shows the maturity distribution of
Continental's interest-bearing liabilities.
<TABLE>
<CAPTION>
Total Interest-Bearing Liabilities
March 31, 1994 December 31, 1993
Percent Percent
($ in billions) Balance of total Balance of total
<S> <C> <C> <C> <C>
Less than one year...................... $11.8 73% $11.7 71%
One to five years....................... 3.2 20 3.6 22
Greater than five years................. 1.1 7 1.2 7
Total interest-bearing liabilities.... $16.1 100% $16.5 100%
</TABLE>
On March 31, 1994, Continental's book value was $30.02 per common
share, compared with $30.01 per share at year-end 1993. The
increase was mainly due to earnings for the quarter, partially
offset by dividends and a $41 million decrease in net unrealized
security gains, net of tax, recorded in stockholders' equity.
The decrease resulted from a decline in the market value of Latin
American securities available for sale.
On March 31, 1994, the capital ratios of Continental and the Bank
exceeded the quantitative levels required to be categorized as
"well capitalized."
<PAGE> 8
<TABLE>
<CAPTION>
Continental Bank
Risk-Based Capital Balances and Ratios March 31 December 31 March 31 December 31
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Tier 1 capital.......................... $ 1,940 $ 1,888 $ 2,105 $ 2,110
Tier 2 capital.......................... 724 733 696 700
Total risk-adjusted assets.............. 24,033 24,313 23,844 24,140
Tier 1 capital to risk-adjusted assets
(regulatory minimum--4%).............. 8.1% 7.8% 8.8% 8.7%
Total capital to risk-adjusted assets
(regulatory minimum--8%).............. 11.1 10.8 11.7 11.6
Leverage ratio (regulatory minimum
range--3% to 5%)...................... 8.8% 9.0% 9.7% 10.2%
</TABLE>
CREDIT PORTFOLIO
Continental's credit portfolio, as discussed in this section,
includes loans, OREO, and other nonperforming assets. Management
closely monitors the industry diversification of loans
outstanding. No single industry accounted for 10 percent or more
of total loans outstanding on March 31, 1994. The following
table shows the total outstandings of each portfolio on
March 31, 1994, and December 31, 1993.
<TABLE>
<CAPTION>
Portfolio Outstandings March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
General Corporate............................. $ 9,769 $ 9,491
Commercial Real Estate........................ 967 1,040
Residential Real Estate....................... 614 676
Latin American................................ 633 721
Total....................................... $11,983 $11,928
</TABLE>
General Corporate Portfolio
The following table shows the largest industry groups in the
general corporate portfolio, which includes HLTs.
<TABLE>
<CAPTION>
Industry Group Concentrations March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
Services........................................ $850 $703
Brokerage firms................................. 617 671
Fabricated metals............................... 603 550
Leasing--transportation......................... 571 523
Food products................................... 515 474
Insurance companies............................. 447 377
Individuals..................................... 435 446
Wholesale trade--Midwest........................ 397 400
Machinery....................................... 367 339
Financial services--other....................... 305 364
Wholesale trade--other.......................... 295 249
</TABLE>
<PAGE> 9
Continental classifies a transaction as an HLT in accordance with
the definition established jointly by federal bank regulatory
agencies in February 1990.
<TABLE>
<CAPTION>
Selected HLT Portfolio Information March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
HLT outstandings................................ $866 $873
HLT nonperforming assets........................ 49 62
Additional exposure* to HLT borrowers........... 699 639
Equity investments in highly leveraged
companies..................................... 336 362
Additional commitments to invest in
highly leveraged companies.................... 161 136
HLT outstandings collateralized by stock of
principal operating subsidiaries or direct
pledge of operating assets.................... 94% 90%
Percent to borrowers outside United States...... -- 1
<FN>
*Includes unused commitments, unused advised lines of credit, and standby
letters of credit.
</TABLE>
Commercial Real Estate Portfolio
The commercial real estate portfolio consists primarily of loans
secured by retail facilities, offices, hotels, and industrial
facilities.
The following table shows the various components and industry
diversification of the commercial real estate portfolio on
March 31, 1994, and December 31, 1993. On March 31, 1994,
$134 million, or 14 percent, of commercial real estate
outstandings was nonperforming, compared with $70 million, or
7 percent, at year-end. The increase is primarily attributable
to one commercial property.
<TABLE>
<CAPTION>
Commercial Real Estate Portfolio March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
Construction and development
Retail.......................................... $205 $ 214
Office.......................................... 60 71
Industrial...................................... 23 29
Other........................................... 17 16
Mortgages
Office.......................................... 224 230
Retail.......................................... 131 126
Hotel/motel..................................... 98 98
Industrial...................................... 52 56
Other........................................... 66 83
Real-estate-related working capital............. 91 117
Total commercial real estate.................. $967 $1,040
</TABLE>
<PAGE> 10
On March 31, 1994, the commercial real estate portfolio had no
borrowers with outstandings in excess of $100 million; 1 borrower
with outstandings totaling approximately $72 million; and 5
between $25 million and $50 million.
Residential Real Estate Portfolio
The residential real estate portfolio principally consists of
credits to real estate developers for single-family land
development and homebuilding.
The following table shows the various components of the
residential real estate portfolio on March 31, 1994, and
December 31, 1993. On March 31, 1994, $174 million, or
28 percent, of residential real estate outstandings was
nonperforming, compared with $203 million, or 30 percent, at
year-end.
<TABLE>
<CAPTION>
Residential Real Estate Portfolio March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
Construction and development.................... $327 $372
Mortgages....................................... 244 258
Real-estate-related working capital............. 43 46
Total residential real estate................. $614 $676
</TABLE>
California residential real estate assets were reduced from
$282 million at year-end 1993 to $247 million on March 31, 1994,
with 61 percent nonperforming. The reduction primarily resulted
from sales, charge-offs, and write-downs. At quarter-end, the
carrying value of these nonperforming assets, including fully
charged-off loans, was approximately 30 percent of contractual
principal, down from 35 percent at year-end.
On March 31, 1994, the residential real estate portfolio had no
borrowers with outstandings in excess of $100 million; 1 borrower
with outstandings totaling approximately $59 million; and 2
between $25 million and $50 million.
Nonperforming Assets
Nonperforming assets rose slightly from year-end to $498 million
on March 31, 1994. Nonperforming assets included loans of
$265 million and other nonperforming assets of $233 million. The
following table displays nonperforming assets by portfolio as of
March 31, 1993, December 31, 1993, and March 31, 1994, and
reconciles the changes from December 31, 1993, to March 31, 1994.
See Note 4 to the financial statements for further information on
nonperforming loans.
<PAGE> 11
<TABLE>
<CAPTION>
Reconciliation of Change in Nonperforming Assets
General Commercial Residential Latin
($ in millions) Corporate Real Estate Real Estate American Total
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Balance on December 31, 1993.. $190 $ 35 $102 $ 1 $328
Loans placed on nonperforming
status...................... 21 80 9 -- 110
Charge-offs................... (19) (5) (16) -- (40)
Transfers to:
Other nonperforming assets.. -- (83) 5 -- (78)
Accrual status.............. (2) (4) (4) -- (10)
Sales......................... (9) -- (4) -- (13)
Payments...................... (11) (2) (13) -- (26)
Other......................... (6) (2) 2 -- (6)
Balance on March 31, 1994... $164 $ 19 $ 81 $ 1 $265
Balance on March 31, 1993..... $300 $ 61 $308 $ 86 $755
Carrying value on
March 31, 1994*............. 78% 81% 51% 100% 68%
Percentage contractually
current on March 31, 1994... 36 52 8 100 29
Other nonperforming assets
Balance on December 31, 1993.. $ 9 $ 35 $101 $ 22 $167
Transfers from nonperforming
loans....................... -- 83 (5) -- 78
Write-downs................... (4) -- -- -- (4)
Sales......................... (2) -- (2) -- (4)
Payments and settlements...... -- (2) (7) -- (9)
Other......................... -- (1) 6 -- 5
Balance on March 31, 1994... $ 3 $115 $ 93 $ 22 $233
Balance on March 31, 1993..... $ 20 $ 51 $ 46 $ 3 $120
Total nonperforming assets
on March 31, 1994........... $167 $134 $174 $ 23 $498
<FN>
*Carrying value in relation to the original contractual amount. Carrying value for total
nonperforming loans excludes fully charged-off loans and Latin American loans.
</TABLE>
Nonperforming loans as a percent of total loans decreased to
2.26 percent on March 31, 1994, from 2.80 percent on
December 31, 1993, and 6.12 percent on March 31, 1993.
The combined costs of credit provisions, forgone revenue on
nonperforming loans, and ONPA costs were $40 million in the first
quarter of 1994, compared with $72 million in last year's first
quarter.
The following table provides supplemental information on the
degree of performance of Continental's nonperforming loans on
March 31, 1994. There can be no assurance, however, that
individual borrowers will continue to perform. Also, performance
characteristics can change significantly over time. Both book
and contractual balances are presented; the difference represents
charge-offs and the application of interest payments to
principal. Amounts for fully charged-off loans are excluded.
<PAGE> 12
On March 31, 1994, principal and interest were contractually
current for 29 percent of nonperforming loans. As shown in the
table, nonperforming loans were carried at 68 percent of the
contractual balance.
<TABLE>
<CAPTION>
Supplemental Information on Nonperforming Loans
Cumulative Cash Interest
March 31, 1994 Payments Applied as(a)
Book Contractual Interest Reduction of
($ in millions) balance balance revenue principal
<S> <C> <C> <C> <C>
Contractually current
Payment in full of
principal or interest
expected.................. $ 6 $ 10 $-- $ 2
Payment in full of
principal or interest
uncertain................. 70 97 -- 5
Contractually past due
Substantial performance(b).. 5 6 -- --
Limited performance......... 71 83 1 8
No performance.............. 113 196 1 10
Total..................... $265 $392 $ 2 $25
<FN>
(a) Includes payments received since loans were placed on nonperforming
status.
(b) Interest payments received represented at least 85% of the contracted
amount.
</TABLE>
COUNTRY RISK
Continental's foreign transactions present elements of risk
beyond those associated with domestic business. There is the
risk that borrowers within a country will default on their debt
due to economic problems within the country. Another risk
factor, transfer risk, occurs when there is a shortage of
available non-local currency in the borrower's country with which
to repay the credit.
In evaluating country risk, Continental's Country Risk Committee
monitors such factors as the political, social, and economic
conditions of the country. Management maintains country lending
limits to control the total amount of credit extended to
borrowers in individual countries.
On March 31, 1994, foreign-currency outstandings, which include
loans, leases, accrued interest, deposits with banks,
acceptances, and securities, totaled $3.0 billion. Outstandings
are reported net of legally binding third-party guarantees.
These guarantees are included in the outstandings of the country
of the guarantor. Foreign-currency outstandings do not include
local currency assets in excess of local currency liabilities.
<PAGE> 13
<TABLE>
<CAPTION>
Foreign Currency Outstandings of 1 Percent or More of Total Assets
($ in millions) Public Sector Private Sector Total
<S> <C> <C> <C>
Japan....................... $ -- $788 $788
Italy....................... 366 44 410
Argentina................... 150 114 264
Mexico...................... 186 76 262
</TABLE>
Countries with foreign currency outstandings that were greater
than 0.75 percent but less than 1 percent of total assets on
March 31, 1994, were the United Kingdom and Brazil, with an
aggregate of $352 million.
Brazil
Subsequent to quarter-end but prior to the April 1994 exchange of
debt under the Brazilian refinancing plan, Continental sold
$8 million of unaccrued Brazilian past-due interest for a gain of
$5 million, the amount of the cash received.
Under the plan, Continental exchanged public-sector debt with a
face value of $130 million for discount, debt conversion, new
money, and capitalization bonds with a combined face value of
$115 million. These bonds were recorded at a book value of
$46 million. Continental also exchanged approximately
$11 million of unaccrued Brazilian past-due interest for eligible
interest bonds with a face value of $4 million and a book and
market value of $2 million. The exchange was made substantially
in accordance with the terms agreed to in principle in July 1992.
Continental has remaining principal with a face value of $2
million and $4 million of unaccrued past-due interest, still
subject to exchange under the refinancing plan. The exchanged
public-sector debt, previously carried as term loans, was
transferred to trading account assets in 1993.
Following the exchange, Continental sold discount principal bonds
received in the restructuring with a face value of $10 million
and a book value of approximately $4 million, resulting in a gain
of $1 million.
<PAGE> 14
<TABLE>
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<CAPTION>
Continental Bank Corporation and Subsidiaries
March 31 December 31
($ in millions) 1994 1993
<S> <C> <C>
Assets
Cash and non-interest-bearing deposits....................... $ 1,786 $ 2,042
Interest-bearing deposits.................................... 1,226 1,803
Federal funds sold........................................... 837 658
Securities purchased under agreements to resell.............. 1,051 922
Trading account assets....................................... 1,554 1,637
Securities held to maturity (fair value: $586 on
March 31, 1994; $611 on December 31, 1993)................. 586 607
Securities available for sale................................ 809 920
Total securities........................................... 1,395 1,527
Equity investments........................................... 639 679
Loans, net of unearned income................................ 11,714 11,729
Less: Reserve for credit losses........................... 320 328
Net loans.................................................. 11,394 11,401
Interest and fees receivable................................. 133 124
Properties and equipment..................................... 250 256
Other assets................................................. 2,495 1,552
Total assets............................................... $22,760 $22,601
Liabilities
Non-interest-bearing deposits in domestic offices............ $ 2,536 $ 2,899
Interest-bearing deposits in domestic offices................ 6,371 7,376
Deposits in foreign offices, primarily interest-bearing...... 3,962 3,267
Total deposits............................................. 12,869 13,542
Federal funds purchased...................................... 1,050 1,312
Securities sold under agreements to repurchase............... 300 419
Other short-term borrowings.................................. 3,192 3,018
Other liabilities............................................ 2,225 1,219
Long-term debt............................................... 1,190 1,168
Total liabilities.......................................... 20,826 20,678
Stockholders' equity
Adjustable Rate Preferred Stock, Series 1
$50 stated value
Outstanding: 1,788,000 shares............................. 89 89
Adjustable Rate Cumulative Preferred Stock, Series 2
$100 stated value
Outstanding: 3,000,000 shares............................. 300 300
Common stock--$4 par value--Authorized: 100,000,000 shares
Outstanding: 53,978,633 shares............................ 216 216
Capital surplus.............................................. 1,000 1,000
Retained earnings............................................ 406 363
Accumulated translation adjustment........................... (5) (5)
Net unrealized security gains (losses), net of income tax
effect..................................................... (6) 35
Less: Treasury stock, at cost (March 31, 1994--2,506,123
shares; December 31, 1993--2,868,892 shares)........ 61 70
Loans to ESOP Trust................................... 5 5
Total stockholders' equity................................. 1,934 1,923
Total liabilities and stockholders' equity................. $22,760 $22,601
<FN>
See notes to financial statements.
</TABLE>
<PAGE> 15
<TABLE>
CONSOLIDATED INCOME STATEMENT
<CAPTION>
Continental Bank Corporation and Subsidiaries
Three Months Ended
March 31 March 31
($ in millions, except common share data) 1994 1993
<S> <C> <C>
Interest revenue
Loans............................................... $ 176 $205
Securities held to maturity......................... 7 12
Securities available for sale....................... 13 --
Securities held for sale............................ -- 6
Trading account assets.............................. 20 13
Interest-bearing deposits........................... 39 41
Federal funds sold.................................. 2 3
Securities purchased under agreements to resell..... 19 17
Total interest revenue............................ 276 297
Interest expense
Deposits............................................ 92 105
Federal funds purchased............................. 8 7
Securities sold under agreements to repurchase...... 4 7
Other short-term borrowings......................... 47 36
Long-term debt...................................... 17 19
Total interest expense............................ 168 174
Net interest revenue................................ 108 123
Provision for credit losses......................... 30 56
Net interest revenue after provision for
credit losses..................................... 78 67
Fees, trading, and other revenues
Fees and commissions................................ 51 45
Trust income........................................ 26 26
Trading revenues.................................... 14 18
Security gains...................................... 2 1
Revenues from equity investments.................... 34 43
Other revenues...................................... 17 11
Total fees, trading, and other revenues........... 144 144
Operating expenses
Salaries............................................ 65 58
Employee benefits................................... 14 14
Net occupancy expense............................... 12 11
Equipment expense................................... 5 4
Other expenses...................................... 55 56
Subtotal.......................................... 151 143
Net costs of other nonperforming assets............. 5 8
Total operating expenses.......................... 156 151
Income before income taxes and cumulative effect
of accounting change for income taxes............. 66 60
Income tax expense (credit)......................... 3 (1)
Income before cumulative effect of accounting
change............................................ 63 61
Cumulative effect of accounting change for income
taxes............................................. -- 80
Net income........................................ $ 63 $ 141
Net income applicable to common stock............... $ 55 $ 133
Common share data
Earnings per share before cumulative effect of
accounting change for income taxes................ $1.02 $0.96
Earnings per share.................................. 1.02 2.40
Cash dividends declared............................. 0.15 0.15
<FN>
See notes to financial statements.
</TABLE>
<PAGE> 16
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Continental Bank Corporation and Subsidiaries
Three Months Ended
March 31 March 31
($ in millions) 1994 1993
<S> <C> <C>
Operating activities
Income before cumulative effect of accounting change.......... $ 63 $ 61
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities
Provision for credit losses................................. 30 56
Net change in interest-rate swap payables/receivables....... 20 34
Net gains on sales of equity investments.................... (43) (36)
Net unrealized losses (gains) from equity investments....... 17 (3)
Decrease (increase) in trading inventory, net of securities
sold but not yet purchased................................ 207 (46)
Net change in securities held for sale...................... -- 62
Writedowns of other nonperforming assets.................... 4 5
Other....................................................... 107 122
Net cash provided by operating activities................. 405 255
Investing activities
Net decrease (increase) in interest-bearing deposits.......... 577 (204)
Net decrease (increase) in federal funds sold and securities
purchased under agreements to resell........................ (308) 613
Purchase of securities held to maturity....................... (37) (192)
Proceeds from sales of securities held to maturity............ 1 23
Proceeds from maturities of securities held to maturity....... 55 82
Purchase of securities available for sale..................... (48) --
Proceeds from sales of securities available for sale.......... 41 --
Proceeds from maturities of securities available for sale..... 50 --
Purchase of equity investments................................ (24) (30)
Proceeds from sales of equity investments..................... 86 50
Net decrease (increase) in loans.............................. (92) 80
Proceeds from sales of other nonperforming assets............. 4 26
Other......................................................... (2) (5)
Net cash provided by investing activities................... 303 443
Financing activities
Net decrease in deposits...................................... (687) (934)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase.............. (380) 118
Net increase (decrease) in other short-term borrowings........ 49 (188)
Proceeds from issuance of long-term debt...................... -- 99
Repayment or retirement of long-term debt..................... (6) (6)
Cash dividends paid........................................... (16) (16)
Other......................................................... 76 9
Net cash used by financing activities....................... (964) (918)
Effect of exchange rate changes on cash....................... -- --
Net decrease in cash and non-interest-bearing deposits........ (256) (220)
Cash and non-interest-bearing deposits on January 1........... 2,042 1,854
Cash and non-interest-bearing deposits on March 31............ $1,786 $1,634
<FN>
Cash interest payments approximated interest expense for the first three months of 1994
and 1993. Income tax payments of $1 million were made in the first quarter of 1994 and
less than $1 million in the first quarter of 1993. Noncash transactions: In the first
quarter of 1994 and 1993, transfers of loans to various asset categories amounted to
$78 million and $20 million, respectively. In the first quarter of 1994, other assets and
other liabilities each increased by approximately $1 billion as a result of the adoption
of Financial Accounting Standards Board Interpretation No. 39.
Prior-year amounts were restated to conform to the 1994 presentation.
See notes to financial statements.
</TABLE>
<PAGE> 17
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Continental Bank Corporation and Subsidiaries
Three Months Ended
March 31 March 31
($ in millions) 1994 1993
<S> <C> <C>
Stockholders' equity at beginning of period.......... $1,923 $1,688
Net income........................................... 63 141
Cash dividends declared
Adjustable Rate Preferred Stock, Series 1.......... (1) (1)
Adjustable Rate Cumulative Preferred Stock,
Series 2......................................... (7) (7)
Common stock....................................... (8) (8)
Net change in unrealized security gains (losses),
net of tax......................................... (41) --
Net effect of stock options exercised................ 5 (3)
Stockholders' equity at end of period.............. $1,934 $1,810
<FN>
See notes to financial statements.
</TABLE>
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements and following notes should
be read in conjunction with the financial statements included in
the Continental Bank Corporation (Continental) 1993 Annual Report
on Form 10-K. Those financial statements, including the notes,
are an integral part of these statements.
Note 1--Basis of Presentation:
The consolidated financial statements for interim periods are
unaudited. In the opinion of management, all adjustments
necessary for a fair presentation have been included and were of
a normal recurring nature.
On January 1, 1994, Continental adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts." This interpretation requires
assets or liabilities related to certain contracts, such as
interest-rate swaps and foreign-exchange contracts, to be
reported gross, rather than offset, in the balance sheet, unless
right of set-off criteria are met or contracts are executed under
legally enforceable master netting agreements with
counterparties. Offsetting of unrealized gains and losses across
product lines also is acceptable under certain conditions.
Note 2--Securities:
Securities Held to Maturity: Book values, gross unrealized
gains, gross unrealized losses, and fair values of securities
held to maturity are shown below:
<TABLE>
Gross Gross
March 31, 1994 Book unrealized unrealized Fair
($ in millions) value gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and federal
agency securities.......... $538 $ 2 $ 2 $538
Other securities............. 48 -- -- 48
Total...................... $586 $ 2 $ 2 $586
</TABLE>
Book values and fair values of securities held to maturity by
maturity distribution are shown in the table below:
<TABLE>
Book Fair
March 31, 1994 ($ in millions) value value
<S> <C> <C>
Within 1 year.......................................... $361 $362
After 1 but within 5 years............................. 54 54
After 5 but within 10 years............................ 14 14
After 10 years......................................... 157 156
Total................................................ $586 $586
</TABLE>
<PAGE> 19
In the first quarter of 1994, sales of securities held to
maturity amounted to $1 million.
Securities Available for Sale: Cost basis, gross unrealized
gains, gross unrealized losses, and fair values of securities
available for sale are shown below:
<TABLE>
Gross Gross
March 31, 1994 Cost unrealized unrealized Fair
($ in millions) basis gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and federal
agency securities.......... $533 $ 2 $ 2 $533
Other securities............. 330 10 64 276
Total...................... $863 $12 $66 $809
</TABLE>
In the first quarter of 1994, gross realized gains on securities
available for sale amounted to $2 million and gross realized
losses were immaterial.
Fair values of securities available for sale by maturity
distribution are shown in the table below:
<TABLE>
Fair
March 31, 1994 ($ in millions) value
<S> <C>
Within 1 year....................................................... $ 19
After 1 but within 5 years.......................................... 123
After 5 but within 10 years......................................... 39
After 10 years...................................................... 628
Total............................................................. $809
</TABLE>
"Net unrealized security gains (losses), net of income tax
effect" includes net unrealized appreciation (depreciation) on
securities available for sale and certain equity investments.
The amount attributable to securities available for sale was a
loss of $35 million, net of related tax credits of $19 million.
Note 3--Equity Investments:
Equity securities are held by equity-investment subsidiaries and
other subsidiaries and are considered to be available for sale.
The following table shows the composition of the equity-
investment portfolio.
<PAGE> 20
<TABLE>
March 31, 1994 ($ in millions)
<S> <C>
Held by equity-investment subsidiaries
Publicly traded................................................... $179
Non-publicly traded............................................... 240
Held by other subsidiaries
Carried at fair value............................................. 64
Carried at cost................................................... 156
Total equity investments.......................................... $639
</TABLE>
The composition of equity investment revenues is as follows:
<TABLE>
First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Net gains on sale of equity investments.................... $ 43* $36
Net unrealized gains (losses).............................. (17)* 3
Dividends.................................................. 4 2
Other...................................................... 4 2
Total revenues from equity investments................... $ 34 $43
<FN>
*Previous net unrealized gains of $25 million were realized through sales in
the quarter and were reclassified to net gains on sale.
</TABLE>
Gross unrealized gains amounted to $12 million during the first
quarter of 1994.
"Net unrealized security gains (losses), net of income tax
effect" includes net appreciation (depreciation) on equity
investments held by other subsidiaries and carried at fair value
and securities available for sale. The amount attributable to
equity investments held by other subsidiaries was a gain of
$29 million, net of related taxes of $15 million. "Net
unrealized security gains (losses), net of income tax effect"
does not include appreciation on investments held by
Continental's equity-investment subsidiaries.
Note 4--Nonperforming Loans:
The following table shows the composition of nonperforming loans:
<TABLE>
March 31 December 31 March 31
($ in millions) 1994 1993 1993
<S> <C> <C> <C>
Domestic
Commercial and industrial.............. $135 $148 $212
Mortgage and real estate............... 100 137 366
All other.............................. 16 22 30
Total domestic loans................. 251 307 608
Foreign................................ 14 21 147
Total nonperforming loans............ $265 $328 $755
</TABLE>
<PAGE> 21
On March 31, 1994, approximately $7 million of loans not
classified as nonperforming had principal or interest payments
past due 60 days or more. These loans are considered well
secured and in the process of collection. At the end of the 1994
first quarter, other real estate owned and other nonperforming
assets acquired in debt restructurings totaled $233 million.
The negative pretax impact of nonperforming loans on interest
revenue is computed as follows:
<TABLE>
First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Interest revenue that would have been recorded at the
original rate............................................ $ 7 $19
Interest revenue that was recorded......................... 2 11
Negative impact.......................................... $ 5 $ 8
</TABLE>
Note 5--Common Stock:
From time to time, Continental has acquired shares of its common
stock in the open market to be used in connection with employee
benefit and compensation programs and for other corporate
purposes. On March 31, 1994, 2,506,123 shares were carried at
cost as treasury stock. No common shares were purchased by
Continental in the first quarter of 1994.
Note 6--Regulatory Matters:
Dividend Restrictions: There are two provisions of the federal
banking laws that may restrict the Bank's ability to pay
dividends to its parent--Continental. One statutory provision
requires that net profits then on hand (as determined under the
statute) exceed bad debts (as therein defined) after the payment
of any dividends. On March 31, 1994, the Bank's net profits then
on hand exceeded its bad debts. The second statutory provision
requires that dividends declared in any calendar year not exceed
the Bank's net profits (as therein defined) for the current
calendar year plus retained net profits for the two preceding
calendar years, unless approval of the Office of the Comptroller
of the Currency (Comptroller) is obtained. Under the more
restrictive of the two provisions, the Bank had the ability to
pay $399 million in dividends as of April 1, 1994, without
obtaining the Comptroller's approval. The Bank paid $25 million
of dividends in the first quarter of 1994.
In addition to the statutory restrictions set forth above,
Continental may not declare or pay any dividends on its common
stock while there is any dividend arrearage on any class or
series of its capital stock ranking, as to dividends, ahead of
its common stock. There are currently no dividend arrearages on
any class of Continental's capital stock.
<PAGE> 22
The Board of Governors of the Federal Reserve System (FRB)
generally considers it to be an unsafe and unsound banking
practice for a bank holding company to pay dividends except out
of current operating earnings, although other factors such as
overall capital adequacy, projected earnings, and the composition
of such earnings may also be relevant in determining whether
dividends should be paid. The Comptroller has a similar view
with respect to the payment of dividends by a national bank.
The payment and amount of future dividends will depend upon the
earnings and financial condition of Continental, restrictive
covenants in its debt securities, and other factors, such as the
views of the bank regulatory agencies.
On December 23, 1993, Continental filed with the Illinois
Commissioner of Banks and Trust Companies (Illinois Commissioner)
an Application For Approval to Convert From a National Bank to a
State Bank. In connection therewith, Continental has pending
applications with the FRB for approval of membership therein as
an Illinois bank and with the Illinois Commissioner for
authorization as a state bank to exercise trust powers.
Continental expects that the conversion will take place on or
before June 29, 1994.
Note 7--Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires all entities to estimate the fair value of
all assets, liabilities, and off-balance-sheet transactions that
are financial instruments. Most of Continental's activities fall
under the definition of financial instruments. The fair value
estimates, as of March 31, 1994 and December 31, 1993, for these
financial instruments are presented in the following tables:
<PAGE> 23
<TABLE>
<CAPTION>
Adjusted
carrying Fair Unrecognized
March 31, 1994 ($ in millions) value* value gain/(loss)
<S> <C> <C> <C>
Financial Assets
Cash and non-interest bearing deposits..... $ 1,786 $ 1,786 $ --
Interest-bearing deposits.................. 1,226 1,228 2
Federal funds sold......................... 837 837 --
Securities purchased under agreements to
resell................................... 1,051 1,051 --
Trading account assets..................... 1,554 1,583 29
Securities................................. 1,395 1,395 --
Equity investments......................... 639 697 58
Net loans.................................. 11,389 11,398 9
Interest and fees receivable............... 133 133 --
Other financial assets..................... 134 134 --
Total financial assets................... 20,144 20,242 98
Financial Liabilities
Non-interest-bearing deposits.............. 2,549 2,549 --
Interest-bearing deposits.................. 10,263 10,585 (322)
Federal funds purchased.................... 1,050 1,050 --
Securities sold under agreements to
repurchase............................... 300 300 --
Other short-term borrowings................ 3,192 3,198 (6)
Long-term debt............................. 1,165 1,251 (86)
Interest payable........................... 138 138 --
Other financial liabilities................ 112 112 --
Total financial liabilities.............. 18,769 19,183 (414)
Off-Balance-Sheet Financial Instruments
Unused loan commitments.................... 18 18 --
Standby letters of credit.................. 1 1 --
Interest-rate swaps........................ 170 283 113
Futures and forward contracts.............. (84) -- 84
Forward-rate agreements.................... 1 1 --
Interest-rate options written.............. (141) (141) --
Foreign-exchange spot, forward, and
futures contracts........................ (18) (18) --
Commodity swaps............................ 15 15 --
Total other financial instruments........ (38) 159 197
Net unrecognized loss on financial
instruments.......................... $ 1,337 $ 1,218 $(119)
<FN>
*Adjusted carrying values exclude amounts not required to be disclosed as
financial instruments under SFAS No. 107. Deferred gains or losses on
futures contracts that have been designated as hedges are included in off-
balance-sheet financial instruments. For balance-sheet purposes, these
amounts are reported on the same line as the underlying asset or liability.
These were as follows: net loans, $2 million loss; interest-bearing-
deposit liabilities, $57 million loss; and long-term debt, $24 million loss.
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Adjusted
carrying Fair Unrecognized
December 31, 1993 ($ in millions) value* value gain/(loss)
<S> <C> <C> <C>
Financial Assets
Cash and non-interest bearing deposits..... $ 2,042 $ 2,042 $ --
Interest-bearing deposits.................. 1,803 1,808 5
Federal funds sold......................... 658 658 --
Securities purchased under agreements to
resell................................... 922 922 --
Trading account assets..................... 1,637 1,707 70
Securities................................. 1,527 1,531 4
Equity investments......................... 679 753 74
Net loans.................................. 11,420 11,457 37
Interest and fees receivable............... 124 124 --
Other financial assets..................... 87 87 --
Total financial assets................... 20,899 21,089 190
Financial Liabilities
Non-interest-bearing deposits.............. 2,968 2,968 --
Interest-bearing deposits.................. 10,496 10,991 (495)
Federal funds purchased.................... 1,312 1,312 --
Securities sold under agreements to
repurchase............................... 419 419 --
Other short-term borrowings................ 3,018 3,028 (10)
Long-term debt............................. 1,141 1,274 (133)
Interest payable........................... 148 148 --
Other financial liabilities................ 69 69 --
Total financial liabilities.............. 19,571 20,209 (638)
Off-Balance-Sheet Financial Instruments
Unused loan commitments.................... 20 20 --
Standby letters of credit.................. 3 3 --
Interest-rate swaps........................ 190 471 281
Futures and forward contracts.............. (134) -- 134
Forward-rate agreements.................... 4 4 --
Interest-rate options written.............. (187) (187) --
Foreign-exchange spot, forward, and
futures contracts........................ (10) (10) --
Commodity swaps............................ 8 8 --
Total other financial instruments........ (106) 309 415
Net unrecognized loss on financial
instruments.......................... $ 1,222 $ 1,189 $(33)
<FN>
*Adjusted carrying values exclude amounts not required to be disclosed as
financial instruments under SFAS No. 107. Deferred gains or losses on
futures contracts that have been designated as hedges are included in off-
balance-sheet financial instruments. For balance-sheet purposes, these
amounts are reported on the same line as the underlying asset or liability.
These were as follows: net loans, $29 million loss; interest-bearing-
deposit liabilities, $78 million loss; and long-term debt, $27 million loss.
</TABLE>
<PAGE> 25
<TABLE>
COMPARATIVE FINANCIAL DATA
QUARTERLY CONSOLIDATED INCOME STATEMENT
<CAPTION>
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
($ in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Interest revenue
Loans....................................... $176 $180 $ 192 $189 $205
Securities held to maturity................. 7 6 6 5 12
Securities available for sale............... 13 -- -- -- --
Securities held for sale.................... -- 10 10 11 6
Trading account assets...................... 20 23 25 12 13
Interest-bearing deposits................... 39 40 33 37 41
Federal funds sold.......................... 2 2 3 3 3
Securities purchased under agreements to
resell.................................... 19 11 15 11 17
Total interest revenue.................... 276 272 284 268 297
Interest expense
Deposits.................................... 92 93 97 96 105
Federal funds purchased..................... 8 8 7 7 7
Securities sold under agreements
to repurchase............................. 4 10 7 6 7
Other short-term borrowings................. 47 31 33 29 36
Long-term debt.............................. 17 18 21 20 19
Total interest expense.................... 168 160 165 158 174
Net interest revenue........................ 108 112 119 110 123
Provision for credit losses................. 30 45 45 35 56
Net interest revenue after provision
for credit losses......................... 78 67 74 75 67
Fees, trading, and other revenues
Fees and commissions........................ 51 60 42 47 45
Trust income................................ 26 23 24 25 26
Trading revenues............................ 14 24 33 27 18
Security gains.............................. 2 -- -- 4 1
Revenues from equity investments............ 34 58 64 33 43
Other revenues.............................. 17 18 9 5 11
Total fees, trading, and other revenues... 144 183 172 141 144
Operating expenses
Salaries.................................... 65 72 67 62 58
Employee benefits........................... 14 14 13 13 14
Net occupancy expense....................... 12 14 13 12 11
Equipment expense........................... 5 5 5 5 4
Other expenses.............................. 55 64 57 56 56
Subtotal.................................. 151 169 155 148 143
Net costs of other nonperforming assets..... 5 20 26 14 8
Total operating expenses.................. 156 189 181 162 151
Income before income taxes and cumulative
effect of accounting change for income
taxes..................................... 66 61 65 54 60
Income tax expense (credit)................. 3 (7) (3) (7) (1)
Income before cumulative effect of
accounting change......................... 63 68 68 61 61
Cumulative effect of accounting change for
income taxes.............................. -- -- -- -- 80
Net income...... ......................... $ 63 $ 68 $ 68 $ 61 $141
Net income applicable to common stock....... $ 55 $ 59 $ 60 $ 52 $133
</TABLE>
<PAGE> 26
<TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST REVENUE
<CAPTION>
1st Qtr. 1994 1st Qtr. 1993
Average Average Average Average
($ in millions) Balance Interest(a) Rate(b) Balance Interest(a) Rate(b)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing deposits, primarily foreign... $ 1,615 $ 39 9.91% $ 1,972 $ 41 8.48%
Federal funds sold............................. 247 2 3.48 331 3 3.26
Securities purchased under agreements
to resell.................................... 476 19 16.24 1,153 17 5.96
Trading account assets......................... 1,564 20 5.09 1,159 13 4.43
U.S. Treasury and federal agency securities.... 550 6 4.43 431 5 4.55
State, county, and municipal securities........ -- -- -- 4 -- 7.89
Other securities............................... 49 1 6.09 157 7 17.90
Total securities held to maturity............ 599 7 4.57 592 12 8.10
U.S. Treasury and federal agency securities.... 545 7 5.19 -- -- --
Other securities............................... 358 6 7.15 -- -- --
Total securities available for sale.......... 903 13 5.97 -- -- --
U.S. Treasury and federal agency securities.... -- -- -- 411 6 6.07
Other securities............................... -- -- -- 34 -- 6.10
Total securities held for sale............... -- -- -- 445 6 6.07
Loans, net of unearned income
Domestic....................................... 10,669 165 6.26 11,136 180 6.56
Foreign........................................ 915 12 5.23 1,320 26 7.89
Total loans(c)............................... 11,584 177 6.17 12,456 206 6.70
Total interest-earning assets................ 16,988 277 6.60 18,108 298 6.67
Other assets
Cash and non-interest-bearing deposits......... 1,879 1,823
Interest and fees receivable................... 132 152
Properties and equipment....................... 262 236
Equity investments............................. 655 511
Other assets................................... 2,367 1,561
Reserve for credit losses...................... (337) (392)
Total assets................................. $21,946 $21,999
Interest-bearing liabilities
Savings deposits............................... $ 2,160 $ 11 2.16% $ 2,454 $ 14 2.31%
Other time deposits............................ 4,434 37 3.39 5,320 49 3.73
Foreign-office deposits........................ 3,555 44 5.00 3,030 42 5.61
Total interest-bearing deposits.............. 10,149 92 3.69 10,804 105 3.93
Federal funds purchased........................ 979 8 3.13 939 7 3.04
Securities sold under agreements to
repurchase................................... 329 4 5.37 780 7 3.85
Other short-term borrowings.................... 2,466 47 7.65 2,384 36 6.12
Long-term debt................................. 1,176 17 5.80 1,047 19 7.45
Total interest-bearing liabilities........... 15,099 168 4.50 15,954 174 4.43
Other liabilities and stockholders' equity
Non-interest-bearing deposits
Domestic offices............................. 2,626 2,591
Foreign offices.............................. 17 60
Other liabilities.............................. 2,259 1,599
Stockholders' equity........................... 1,945 1,795
Total liabilities and stockholders' equity... $21,946 $21,999
Net interest income............................ $109 $124
Net interest margin(d)......................... 2.60% 2.76%
<FN>
(a) Taxable-equivalent adjustments are used in adjusting interest on tax-exempt assets to a fully taxable basis. Such
adjustments are based on the prevailing federal and state income tax rates. For the quarters shown above, the
adjustments amounted to $1 million for both periods.
(b) Average rate is annualized and computed using unrounded numbers.
(c) The principal amounts of cash-basis and renegotiated loans have been included in the average loan balances. Interest
revenue on cash-basis loans is included in income only to the extent that cash payments have been received, and is
included for renegotiated loans at renegotiated rates.
(d) Net interest margin is net interest revenue on a taxable-equivalent basis divided by average earning assets.
</TABLE>
<PAGE> 27
<TABLE>
AVERAGE LOANS
<CAPTION>
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
($ in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Domestic loans
Commercial and industrial....... $ 7,073 $ 6,747 $ 6,648 $ 6,688 $ 6,860
Mortgage and real estate........ 1,277 1,511 1,814 1,881 2,024
Financial institutions.......... 1,216 1,077 1,094 1,303 1,252
Consumer........................ 435 403 395 382 381
All other....................... 669 658 617 586 621
Total domestic loans.......... 10,670 10,396 10,568 10,840 11,138
Foreign loans................... 916 1,131 1,044 1,265 1,326
Less: Unearned income........... 2 4 5 6 8
Total loans, net.............. $11,584 $11,523 $11,607 $12,099 $12,456
</TABLE>
<TABLE>
ANALYSIS OF NET CREDIT LOSS EXPERIENCE
<CAPTION>
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
($ in millions) 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Reserve for credit losses--beginning of
period
General................................... $328 $350 $366 $379 $355
Allocated transfer risk................... -- -- 2 21 21
Total reserve for credit losses--
beginning of period................... 328 350 368 400 376
Provision for credit losses
General................................... 30 45 47 35 56
Allocated transfer risk................... -- -- (2) -- --
Total provision for credit losses....... 30 45 45 35 56
Charge-offs
Domestic.................................. 32 57 80 31 56
Foreign................................... 8 14 -- 39 --
Total charge-offs....................... 40 71 80 70 56
Recoveries
Domestic.................................. 2 4 15 1 2
Foreign................................... -- -- 2 2 29
Total loan recoveries................... 2 4 17 3 31
Other adjustments......................... -- -- -- -- (7)
Reserve for credit losses--end of period
General................................... 320 328 350 366 379
Allocated transfer risk................... -- -- -- 2 21
Total reserve for credit losses--end
of period............................. $320 $328 $350 $368 $400
</TABLE>
<PAGE> 28
Part II. Other Information
Item 1. Legal Proceedings
On January 28, 1994, four lawsuits were filed in
Delaware Chancery Court against Continental,
Continental's directors, and BankAmerica Corporation
(BankAmerica) in connection with the proposed merger of
Continental into BankAmerica. The lawsuits are
entitled Alvin J. Slater v. Continental Bank
Corporation, et al., C.A. No. 13362; Max Fecht, et al.
v. Thomas C. Theobald, et al., C.A. No. 13363; John J.
Nitti v. Thomas C. Theobald, et al., C.A. No. 13364;
and James M. Dupree v. Thomas A. Gildehaus, et al.,
C.A. No. 13365. An additional lawsuit against
Continental, Continental's directors, and BankAmerica
Corporation, entitled Wholesale Realtors Supply v.
Continental Bank Corporation, et. al., C.A. No. 13372,
was filed in Delaware Chancery Court on or about
February 9, 1994, but was not served on Continental or
its directors. On March 7, 1994, the Court entered an
order consolidating these five actions under the
heading In re Continental Bank Corporation Shareholder
Litigation, Consolidated C.A. No. 13362. In general,
each lawsuit alleges that Continental's directors
breached their fiduciary duties to the stockholders by
agreeing to the merger of Continental with BankAmerica
Corporation (Merger) at an allegedly inadequate price
and allegedly without conducting certain auction, open
bidding or "market check" procedures, and by agreeing
to certain terms of the Merger, principally the stock
option and the termination payment mechanism, which
allegedly prevent or discourage additional potential
acquirors from offering a higher price to Continental's
stockholders than the price to be paid by BankAmerica.
The Slater and Wholesale Realtors Supply lawsuits
further allege that the directors breached their
fiduciary duties by failing to appoint a committee of
unaffiliated directors to consider the Merger. The
lawsuits seek certification of a class action on behalf
of Continental's stockholders. The actions seek
damages for any alleged higher price which could have
been obtained and for any benefits obtained by
management, and other damages including attorney's
fees, injunctive relief against consummation of the
merger and against the related stock option agreement,
and termination fee, and seek to require a formal
auction of Continental and various other forms of
relief. All five lawsuits also seek monetary damages
in an unspecified amount.
<PAGE> 29
Reference is made to Note 1 to the Consolidated
Financial Statements of Continental's 1993 Annual
Report on Form 10-K for a more detailed discussion of
the Merger.
On January 13, 1994, the plaintiffs filed a petition
for a writ of certiorari in the Bell case in the
Supreme Court of the United States, which the Supreme
Court denied on March 7, 1994.
Reference is made to Note 24 to the Consolidated
Financial Statements of Continental's Annual Report on
Form 10-K for a more detailed discussion of the Bell
case.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11
Statement regarding computation of earnings per
share.
Exhibit 12
Statements regarding computation of ratios.
(b) Reports on Form 8-K
Continental filed Current Reports on Form 8-K on
February 7, 1994 and March 17, 1994.
<PAGE> 30
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.
Continental Bank Corporation
Registrant
Thomas C. Theobald
Thomas C. Theobald
Chairman
John J. Higgins
John J. Higgins
Controller and
Principal Accounting Officer
Date: May 11, 1994
<TABLE>
EXHIBIT 11
Earnings per common share
<CAPTION>
Three Months Ended
Average common stock and common share March 31 March 31
equivalents (in millions) 1994 1993
<S> <C> <C>
Average common shares outstanding............ 54.0 54.0
Plus: Shares resulting from stock rights
and options................................ 6.0 3.9
Less: Assumed repurchase of outstanding
shares..................................... 3.5 2.5
Average treasury stock outstanding.... 2.7 --
Adjusted common shares....................... 53.8 55.4
Income before cumulative effect of accounting
change for income taxes ($ in millions,
except per share amounts)
Income before cumulative effect of
accounting change for income taxes as
reported................................... $ 63 $ 61
Less: Preferred dividends................... (8) (8)
Adjusted income before cumulative effect of
accounting change for income taxes......... 55 53
Adjusted income before cumulative effect of
accounting change for income taxes divided
by adjusted common shares.................. $1.02 $0.96
Net income ($ in millions, except per share
amounts)
Net income as reported....................... $ 63 $ 141
Less: Preferred dividends................... (8) (8)
Adjusted net income.......................... 55 133
Adjusted net income divided by adjusted
common shares.............................. $1.02 $2.40
<FN>
The earnings per common share was computed by dividing the net income
applicable to common stock, which excludes the preferred dividend
requirements, by the weighted average number of shares of Continental common
stock outstanding. Earnings per common share were computed using the treasury
stock method. Under this method, common stock equivalents include shares that
would result from the exercise of options reduced by the number of shares
assumed to be repurchased from the proceeds received.
</TABLE>
<PAGE> 1
<TABLE>
Exhibit 12
Page 1 of 2
RATIO OF EARNINGS TO FIXED CHARGES BASED
ON INCOME FROM CONTINUING OPERATIONS
<CAPTION>
First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Excluding interest on deposits
Fixed charges:
Interest expense $ 76 $ 69
One-third of all rents 2 2
Total fixed charges $ 78 $ 71
Earnings:
Income (loss) from continuing operations
before tax $ 66 $ 60
Total fixed charges 78 71
Earnings, as defined $ 144 $ 131
Ratio of earnings to total fixed charges 1.85x 1.85x
Including interest on deposits
Fixed charges:
Interest expense $ 168 $ 174
One-third of all rents 2 2
Total fixed charges $ 170 $ 176
Earnings:
Income (loss) from continuing operations
before tax $ 66 $ 60
Total fixed charges 170 176
Earnings, as defined $ 236 $ 236
Ratio of earnings to total fixed charges 1.39x 1.34x
</TABLE>
<PAGE> 2
<TABLE>
Exhibit 12
Page 2 of 2
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
BASED ON INCOME FROM CONTINUING OPERATIONS
<CAPTION>
First Quarter
($ in millions) 1994 1993
<S> <C> <C>
Excluding interest on deposits
Fixed charges:
Interest expense $ 76 $ 69
One-third of all rents 2 2
Total fixed charges $ 78 $ 71
Preferred stock dividend requirements 8 8
Combined fixed charges and preferred stock
dividend $ 86 $ 79
Earnings:
Income before income taxes and cumulative
effect of accounting change for income taxes $ 66 $ 60
Combined fixed charges and preferred stock dividend 86 79
Earnings, as defined $ 152 $ 139
Ratio of earnings to combined fixed charges and
preferred stock dividend 1.77x 1.76x
Including interest on deposits
Fixed charges:
Interest expense $ 168 $ 174
One-third of all rents 2 2
Total fixed charges $ 170 $ 176
Preferred stock dividend requirements 8 8
Combined fixed charges and preferred stock
dividend $ 178 $ 184
Earnings:
Income before income taxes and cumulative effect
of accounting change for income taxes $ 66 $ 60
Combined fixed charges and preferred stock dividend 178 184
Earnings, as defined $ 244 $ 244
Ratio of earnings to combined fixed charges and
preferred stock dividend 1.37x 1.33x
</TABLE>
