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 June 30, 1994
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 July 31, 1994: Common Stock--$4 par value--
51,689,420 shares.
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.
August 11, 1994
10-Q Cross-Reference Index Page No.
Part I. Financial Report
Financial Highlights...................................... 1
Management's Discussion and Analysis (Form 10-Q Item 2)... 2
Financial Statements (Form 10-Q Item 1):
Consolidated Balance Sheet.............................. 17
Consolidated Income Statement........................... 18
Consolidated Statement of Cash Flows.................... 19
Consolidated Statement of Changes in Stockholders'
Equity................................................ 20
Notes to Consolidated Financial Statements.............. 21
Comparative Financial Data:
Quarterly Consolidated Income Statement................. 29
Consolidated Average Balance Sheet and Net Interest
Revenue............................................... 30
Average Loans........................................... 32
Analysis of Net Credit Loss Experience.................. 32
Part II. Other Information
Submission of Matters to a Vote of Security Holders
(Form 10-Q Item 4)...................................... 33
Exhibits and Reports on Form 8-K (Form 10-Q Item 6)....... 34
Signatures................................................ 35
The following abbreviations are used in the Management's Discussion
and Analysis section of this report:
Continental Bank Corporation--Continental
Continental Bank--Bank
Highly leveraged transaction--HLT
In-substance foreclosure--ISF
Other nonperforming asset--ONPA
Other real estate owned--OREO
<PAGE> 1
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions, except per share amounts) 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Total revenues.................................. $ 267 $ 251 $ 16 $ 519 $ 518 $ 1
Operating expenses.............................. 164 162 2 320 313 7
Income before cumulative effect of accounting
change for income taxes....................... 77 61 16 140 122 18
Net income...................................... 77 61 16 140 202 (62)
Per Share Amounts
Earnings before cumulative effect of accounting
change for income taxes (a)................... $ 1.25 $ 0.95 $ 0.30 $ 2.27 $ 1.90 $ 0.37
Earnings (a).................................... 1.25 0.95 0.30 2.27 3.35 (1.08)
Common dividends................................ 0.15 0.15 -- 0.30 0.30 --
Book value--period-end.......................... 30.83 27.17 3.66
Market price--high.............................. 37.88 28.38 9.50 37.88 28.38 9.50
--low............................... 31.88 21.38 10.50 25.75 19.50 6.25
--period-end........................ 36.25 23.88 12.37
Profitability Ratios (b)
Return on average total assets (c).............. 1.43% 1.14% 1.30% 1.13%
Return on average total equity (c).............. 15.89 13.52 14.52 14.29
Return on average common equity (c)............. 17.54 14.68 15.95 15.88
Operating expenses to total revenues (d)........ 59.18 58.96 59.54 56.18
Net interest margin (e)......................... 2.84 2.48 2.72 2.62
Selected Balances
Total assets--period-end........................ $21,643 $22,352 $ (709)
Total risk-adjusted assets...................... 23,285 23,537 (252)
Tier 1 capital.................................. 2,003 1,827 176
Total capital................................... 2,717 2,550 167
Average total assets............................ $21,614 $21,555 $ 59 21,779 21,775 4
Average total equity............................ 1,944 1,810 134 1,944 1,802 142
Average common equity........................... 1,555 1,421 134 1,555 1,413 142
Period-End Ratios
Tier 1 capital to risk-adjusted assets.......... 8.60% 7.76%
Total capital to risk-adjusted assets........... 11.67 10.84
Tier 1 capital to quarterly average assets
(leverage).................................... 9.27 8.48
Total equity to total assets.................... 9.15 8.17
Common equity to total assets................... 7.35 6.43
Reserve for credit losses to total loans........ 2.65 3.14
Nonperforming loans to total loans.............. 1.98 5.66
Average total equity to average total assets.... 8.99% 8.40% 8.93% 8.28%
Ratio of Earnings to Fixed Charges
Excluding interest on deposits.................. 2.08x 1.86x 1.96x 1.85x
Including interest on deposits.................. 1.46x 1.34x 1.43x 1.34x
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
Excluding interest on deposits.................. 1.97x 1.75x 1.87x 1.75x
Including interest on deposits.................. 1.44x 1.32x 1.41x 1.32x
Period-End Staff Level
Operating....................................... 4,212 4,158 54
Total........................................... 4,219 4,189 30
<FN>
(a) Based on average common shares and equivalents of 54.4 million for the second quarter of 1994, 54.1 million for the
first six months of 1994, 55.0 million for the second quarter of 1993, and 55.3 million for the first six months 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'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis should be read
in conjunction with the financial statements and notes beginning
on page 17 of this report and with Continental's 1993 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
<TABLE>
Earnings
<CAPTION>
Six Months Ended
($ in millions, except per Second Quarter June 30
share amounts) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before cumulative
effect of accounting
change for income taxes.. $ 77 $ 61 $ 140 $ 122
Per common share........... 1.25 0.95 2.27 1.90
Net income................. $ 77 $ 61 $ 140 $ 202
Per common share........... 1.25 0.95 2.27 3.35
</TABLE>
Continental reported second-quarter earnings of $77 million, an
increase of $16 million, or 26 percent, from a year ago. On a
per-share basis, earnings improved 32 percent to $1.25 for the
quarter, compared with $0.95 a year ago. Return on common equity
was 17.5 percent for the second quarter of 1994, compared with
14.7 percent for the same period last year.
Net income for the first six months of 1994 totaled $140 million,
or $2.27 per share, compared with $122 million, or $1.90 per
share ($202 million, or $3.35 per share, including the effect of
an accounting change for income taxes), for the same period last
year.
In the second-quarter and six-month periods, pretax earnings
improved due to significantly lower credit costs, partially
offset by increases in operating expenses. Total revenues were
up modestly for the quarter and virtually flat for the six-month
period.
TOTAL REVENUES
Total revenues, the sum of net interest revenue plus fees,
trading, and other revenues, were up 6 percent in the second
quarter to $267 million and up slightly in the first six months
to $519 million, compared with the 1993 periods.
<PAGE> 3
Net interest revenue was $118 million in the second quarter of
1994, up 7 percent from the 1993 quarter. The increase was
primarily due to a wider net interest-rate spread and increased
loan fees, partially offset by a lower level of interest-earning
assets.
Net interest revenue for the first half of 1994 was $226 million,
down 3 percent from the year-ago period. The decrease from the
first six months of 1993 was primarily due to a lower level of
interest-earning assets and lower cash collections on
nonperforming loans, partially offset by a wider net interest-
rate spread and higher loan fees.
See Consolidated Average Balance Sheet and Net Interest Revenue
on pages 30 and 31 for detail of quarterly and year-to-date
average balances with associated revenues, expenses, and rates.
<TABLE>
Components of Net Interest Margin
<CAPTION>
Six Months Ended
Second Quarter June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Yield on earning assets.... 6.64% 5.71% 6.46% 5.96%
Rate on interest-bearing
liabilities ............. 4.76 4.06 4.63 4.25
Net interest-rate spread... 1.88 1.65 1.83 1.71
Net cash collections on
nonperforming loans...... 0.03 0.06 0.02 0.13
Benefit from interest-
free funds............... 0.52 0.51 0.51 0.52
Loan fee revenue........... 0.40 0.25 0.35 0.25
Tax-equivalent adjustment.. 0.01 0.01 0.01 0.01
Net interest margin (a).. 2.84% 2.48% 2.72% 2.62%
Average Earning Assets
($ in billions)
Short-term, liquid
assets (b)............... $ 3.8 $ 4.7 $ 3.9 $ 4.7
Loans...................... 11.6 12.1 11.6 12.3
Securities................. 1.3 1.1 1.4 1.0
Total average earning
assets................. $16.7 $17.9 $16.9 $18.0
<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>
For the second quarter, fees, trading, and other revenues totaled
$149 million, up 6 percent from $141 million in the 1993 second
quarter. The $8 million increase was primarily attributable to a
$17 million increase in revenues from equity investments,
partially offset by an $8 million decrease in trading revenues.
<PAGE> 4
For the first six months of 1994, fees, trading, and other
revenues increased $8 million, or 3 percent, to $293 million.
Revenues from equity investments rose to $84 million, compared
with $76 million for the same period last year, while trading
revenues fell to $33 million, compared with $50 million in the
1993 period. The 1994 revenues also included a $6 million
increase in investment securities gains, primarily related to the
sale of Argentine securities, and a $6 million increase in fees
and commissions.
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 allocations 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 increased
$21 million in the second quarter but decreased $2 million on a
year-to-date basis over the comparable 1993 periods.
<TABLE>
Banking Product Revenues
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions) 1994 1993* 1994 1993*
<S> <C> <C> <C> <C>
Corporate finance
Lending................................ $ 99 $ 87 $186 $180
Syndication, distribution, and other
credit products...................... 32 38 73 90
Total corporate finance.............. 131 125 259 270
Specialized financial
services
Cash management services............... 31 31 62 61
Securities and clearing services....... 16 16 32 32
Private banking, personal trust, and
other services....................... 22 18 46 37
Total specialized financial services. 69 65 140 130
Trading................................ 23 31 42 54
Equity financing
Domestic............................... 32 22 56 51
Foreign................................ 16 7 23 17
Total equity financing............... 48 29 79 68
Total banking product revenues....... 271 250 520 522
All other revenues..................... (4) 1 (1) (4)
Total revenues....................... $267 $251 $519 $518
<FN>
*Restated to conform to the current period's presentation.
</TABLE>
<PAGE> 5
Corporate finance revenues, which include revenues from lending,
syndication and distribution activities, rose 5 percent in the
second quarter, compared with the 1993 quarter. The increase was
primarily due to higher fees on loans and a wider net interest-
rate spread. Year-to-date corporate finance revenues declined
4 percent, compared with the 1993 period, as the favorable
factors in the second quarter were more than offset by lower
gains on the sale of Latin American debt in the first quarter of
1994 and lower net cash collections on nonperforming loans. Both
second-quarter and year-to-date 1994 corporate finance revenues
were negatively impacted by lower levels of average loans and
other earning assets.
Revenues from specialized financial services increased 6 percent
in the second quarter and 8 percent in the first half of 1994,
compared with the same periods last year, primarily due to
increases in revenues from deposit-related services. Specialized
financial services revenues include fees for cash and securities
management, fiduciary services and private banking.
Revenues from trading activities fell $8 million, or 26 percent,
in the second quarter, and $12 million, or 22 percent, in the
first six months of 1994, compared with the respective 1993
periods. Significant market volatility resulted in lower
revenues from foreign-exchange and customer-driven interest-rate
products in the second quarter of 1994. The year-to-date decline
also was impacted by a severe drop in the prices of emerging
market debt in the 1994 first quarter.
Equity financing revenues increased $19 million in the second
quarter and $11 million in the first six months of 1994, compared
with the same periods in 1993, as the domestic equity portfolio
appreciated in value during the periods. Domestic equity
revenues amounted to $32 million in the 1994 second quarter, up
$10 million from last year's quarter. On a year-to-date basis,
both the domestic and foreign equity portfolios contributed to
the higher revenues. The equity-investment portfolio on
June 30, 1994, amounted to $648 million, up $95 million from a
year ago.
All other revenues for the second quarter of 1994 included a
$5 million write-down of real estate originally acquired for
future expansion. All other revenues for the first half of 1994
also included collections on claims retained from a business sold
and recognized into income.
PROVISION AND RESERVE FOR CREDIT LOSSES
The second-quarter provision for credit losses was $20 million,
compared with $35 million for the same period last year. The
year-to-date provision for credit losses of $50 million was
$41 million lower than in the 1993 period. The lower 1994
provisions reflect improved credit quality.
<PAGE> 6
The reserve for credit losses decreased $16 million from year-end
1993 to $312 million on June 30, 1994. Continental's reserve for
credit losses, in management's judgment, is adequate to absorb
probable losses inherent in the portfolio on June 30, 1994.
Charge-offs were $29 million for the second quarter and
$69 million for the first six months of 1994, compared with
$70 million and $126 million for the respective 1993 periods.
Approximately $27 million of year-to-date 1994 charge-offs were
on loans to residential real estate developers in California and
approximately $11 million were on two HLT loans.
Recoveries were $1 million for the second quarter of 1994, down
$2 million from last year's quarter. Recoveries were $3 million
in the first half of 1994, down from $34 million in the 1993
period, primarily due to $26 million of recoveries on Latin
American debt in the 1993 first quarter.
<TABLE>
Net Charge-Offs (Recoveries)
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
General corporate.......... $13 $22 $30 $32
Commercial real estate..... 4 9 9 11
Residential real estate.... 11 17 27 56
Latin American............. -- 19 -- (7)
Net charge-offs.......... $28 $67 $66 $92
</TABLE>
See Analysis of Net Credit Loss Experience on page 32 for a
reconciliation of the reserve for credit losses.
OPERATING EXPENSES
<TABLE>
Operating Expenses
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Employee.................... $ 81 $ 75 $160 $147
Occupancy and Equipment..... 17 17 34 32
Other Operating............. 60 56 115 112
Total Operating Expenses.. $158 $148 $309 $291
Period-End Operating
Staff Level.............. 4,212 4,158
</TABLE>
<PAGE> 7
Second-quarter 1994 operating expenses increased 7 percent over
the 1993 period. However, excluding merger-related expenses,
operating expenses increased $5 million, or 3 percent, in the
second quarter of 1994. Higher employee expense in the second
quarter and first six months of 1994 resulted from increases in
base salaries and incentive compensation. Staff levels increased
by 54 from June 30, 1993.
Other operating expenses in the 1994 second quarter increased due
to higher fees paid for professional and outside business
services, partially offset by lower legal fees and insurance
expense. In the 1994 quarter, other operating expenses included
$5 million related to the announced merger with BankAmerica
Corporation, primarily legal and professional service fees.
Excluding merger-related expenses, the efficiency ratio was
57 percent in the second quarter of 1994, compared with
59 percent in last year's second quarter.
Other operating expenses for the first six months of 1994
increased 3 percent over the 1993 period. The year-to-date
increase was largely due to the same factors as the second-
quarter increase, coupled with a refund of previously disputed
Brazilian transaction taxes in the first quarter.
Net costs of ONPA were $6 million in the second quarter and
$11 million in the first six months of 1994, compared with
$14 million and $22 million in the respective 1993 periods. The
decreases were primarily due to declines in writedowns related to
OREO.
INCOME TAXES
Continental recorded income tax expense of $6 million for the
second quarter and $9 million for the first half of 1994,
compared with income tax credits of $7 million and $8 million, in
the year-ago periods. The 1993 credits included the recognition
of $13 million and $21 million of deferred federal tax benefits
in the second quarter and year-to-date periods, respectively.
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 2 for further
details. Financial statements for prior periods were not
restated. In the 1994 second quarter, Continental began
offsetting certain contracts under master netting agreements,
allowed by FIN No. 39. On June 30, 1994, offsetting under master
netting agreements totaled approximately $400 million.
Despite an increase of approximately $500 million due to the
adoption of FIN No. 39, total assets of $21.6 billion on June 30
were down $1.0 billion from year-end, as trading account assets
declined.
<PAGE> 8
<TABLE>
Total Assets
<CAPTION>
June 30, 1994 December 31, 1993
Percent Percent
($ in billions) Balance of total Balance of total
<S> <C> <C> <C> <C>
Short-term, liquid assets*... $ 3.6 17% $ 5.0 22%
Loans........................ 11.8 54 11.7 52
Other........................ 6.2 29 5.9 26
Total assets............... $21.6 100% $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 $19.7 billion on June 30, 1994,
down $1.0 billion from the year-end level. The increase due to
the adoption of FIN No. 39 was more than offset by decreases in
federal funds purchased and domestic deposits.
The following table shows the maturity distribution of
Continental's interest-bearing liabilities.
<TABLE>
Total Interest-Bearing Liabilities
<CAPTION>
June 30, 1994 December 31, 1993
Percent Percent
($ in billions) Balance of total Balance of total
<S> <C> <C> <C> <C>
Less than one year.. $11.0 73% $11.7 71%
One to five years... 3.1 20 3.6 22
Greater than five
years............. 1.0 7 1.2 7
Total interest-
bearing
liabilities..... $15.1 100% $16.5 100%
</TABLE>
On June 30, 1994, Continental's book value was $30.83 per common
share, compared with $30.01 per share at year-end 1993. The
increase in stockholders' equity from higher earnings for the six
month period was partially offset by a $58 million decrease in
net unrealized security gains, net of tax. A decline in the
market value of Latin American securities available for sale,
primarily Venezuelan, was responsible for the decrease.
On June 30, 1994, the capital ratios of Continental and the Bank
exceeded the quantitative levels required to be categorized as
"well capitalized."
<PAGE> 9
<TABLE>
Risk-Based Capital Balances and Ratios
<CAPTION>
Continental Bank
June 30 December 31 June 30 December 31
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Tier 1 capital......... $ 2,003 $ 1,888 $ 2,136 $ 2,110
Tier 2 capital......... 714 733 686 700
Total risk-adjusted
assets............... 23,285 24,313 23,011 24,140
Tier 1 capital to
risk-adjusted
assets (regulatory
minimum--4%)......... 8.6% 7.8% 9.3% 8.7%
Total capital to risk
-adjusted assets
(regulatory minimum
--8%)................ 11.7 10.8 12.3 11.6
Leverage ratio
(regulatory minimum
range--3% to 5%)..... 9.3% 9.0% 10.0% 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 June 30, 1994. The following table
shows the total outstandings of each portfolio on June 30, 1994,
and December 31, 1993.
<TABLE>
Portfolio Outstandings
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
General corporate................... $ 9,625 $ 9,491
Commercial real estate.............. 904 1,040
Residential real estate............. 652 676
Latin American...................... 781 721
Total............................. $11,962 $11,928
</TABLE>
<PAGE> 10
General Corporate Portfolio
The following table shows the largest industry groups in the
general corporate portfolio, which includes HLTs. On
June 30, 1994, $163 million, or 2 percent, of general corporate
outstandings was nonperforming, compared with $199 million, or
2 percent, at year-end.
<TABLE>
Industry Group Concentrations
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
Services........................... $763 $703
Leasing--transportation............ 513 523
Wholesale trade--Midwest........... 505 400
Insurance companies................ 482 377
Brokerage firms.................... 470 671
Fabricated metals.................. 459 550
Food products...................... 443 474
Individuals........................ 436 446
Machinery.......................... 374 339
Automotive and parts manufacturers,
including finance subsidiaries... 334 245
</TABLE>
Continental classifies a transaction as an HLT in accordance with
the definition established jointly by federal bank regulatory
agencies in February 1990.
<TABLE>
Selected HLT Portfolio Information
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
HLT outstandings..................... $829 $873
HLT nonperforming assets............. 54 62
Additional exposure* to HLT
borrowers.......................... 694 639
Equity investments in highly
leveraged companies................ 300 362
Additional commitments to invest in
highly leveraged companies......... 162 136
HLT outstandings collateralized by
stock of principal operating
subsidiaries or direct pledge of
operating assets................... 93% 90%
Percent to borrowers outside United
States............................. -- 1
<FN>
*Includes unfunded commitments, unused advised lines of credit,
and standby letters of credit.
</TABLE>
<PAGE> 11
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
June 30, 1994, and December 31, 1993. On June 30, 1994,
$123 million, or 14 percent, of commercial real estate
outstandings was nonperforming, compared with $70 million, or
7 percent, at year-end. The increase is primarily attributable
to one commercial OREO.
<TABLE>
Commercial Real Estate Portfolio
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
Construction and development
Retail............................... $193 $ 214
Office............................... 63 71
Industrial........................... 21 29
Other................................ 5 16
Mortgages
Office............................... 185 230
Hotel/motel.......................... 122 98
Retail............................... 116 126
Industrial........................... 59 56
Other................................ 51 83
Real-estate-related working capital.. 89 117
Total commercial real estate....... $904 $1,040
</TABLE>
On June 30, 1994, the commercial real estate portfolio had no
borrowers with outstandings in excess of $100 million; 1 borrower
with outstandings totaling $71 million; and 6 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 June 30, 1994, and
December 31, 1993. On June 30, 1994, $144 million, or
22 percent, of residential real estate outstandings was
nonperforming, compared with $203 million, or 30 percent, at
year-end.
<PAGE> 12
<TABLE>
Residential Real Estate Portfolio
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
Construction and development......... $316 $372
Mortgages............................ 292 258
Real-estate-related working capital.. 44 46
Total residential real estate...... $652 $676
</TABLE>
On June 30, 1994, the residential real estate portfolio had no
borrowers with outstandings in excess of $50 million and 3
borrowers with outstandings between $25 million and $50 million.
California residential real estate assets were reduced from
$282 million at year-end 1993 to $231 million on June 30, 1994,
with 52 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 24 percent of contractual
principal, down from 35 percent at year-end.
Nonperforming Assets
Nonperforming assets declined $59 million from $495 million at
year-end 1993 to $436 million on June 30, 1994. A $95 million
decrease in nonperforming loans was partially offset by a
$36 million increase in other nonperforming assets. Since year-
end, nonperforming assets in the general corporate portfolio and
residential real estate portfolios declined $37 million and
$59 million, respectively. Commercial real estate nonperforming
assets rose $52 million since year-end, but declined $12 million
since March 31, 1994.
The following table displays nonperforming assets by portfolio as
of June 30, 1993, December 31, 1993, and June 30, 1994, and
reconciles the changes from December 31, 1993, to June 30, 1994.
See Note 5 to the financial statements for further information on
nonperforming loans.
<PAGE> 13
<TABLE>
Reconciliation of Change in Nonperforming Assets
<CAPTION>
General Commercial Residential Latin
($ 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....................... 52 81 15 -- 148
Charge-offs.................... (31) (11) (22) -- (64)
Transfers to:
Other nonperforming assets... -- (81) 5 -- (76)
Accrual status............... (1) (4) (14) -- (19)
Sales.......................... (30) -- (4) -- (34)
Payments....................... (18) (4) (22) -- (44)
Other.......................... (6) (2) 2 -- (6)
Balance on June 30, 1994..... $156 $ 14 $ 62 $ 1 $233
Balance on June 30, 1993....... $227 $ 54 $374 $ 9 $664
Carrying value on
June 30, 1994*............... 75% 67% 46% 100% 64%
Percentage contractually
current on June 30, 1994..... 39 10 8 -- 29
Other nonperforming assets
Balance on December 31, 1993 $ 9 $ 35 $101 $ 22 $167
Transfers from nonperforming
loans........................ -- 81 (5) -- 76
Other additions................ 5 -- -- -- 5
Write-downs.................... (4) (2) (1) -- (7)
Sales.......................... (2) -- (5) -- (7)
Payments and settlements....... (1) (4) (19) (17) (41)
Other.......................... -- (1) 11 -- 10
Balance on June 30, 1994..... $ 7 $109 $ 82 $ 5 $203
Balance on June 30, 1993....... $ 21 $ 42 $ 38 $ 3 $104
Total nonperforming assets
on June 30, 1994............. $163 $123 $144 $ 6 $436
<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 represented 1.98 percent of total loans on
June 30, 1994, a decrease from 2.80 percent on December 31, 1993,
and 5.66 percent on June 30, 1993.
The combined costs of credit provisions, forgone revenue on
nonperforming loans, and ONPA costs were $31 million in the
second quarter and $71 million in the first half of 1994,
compared with $65 million and $137 million in the respective 1993
periods.
The following table provides supplemental information on the
degree of performance of Continental's nonperforming loans on
June 30, 1994. There can be no assurance, however, that
individual borrowers will continue to perform. Also, performance
characteristics can change significantly over time. Both book
and contractual balances are presented; the difference represents
charge-offs and the application of interest payments to
principal. Amounts for fully charged-off loans are excluded.
<PAGE> 14
On June 30, 1994, principal and interest were contractually
current for 29 percent of nonperforming loans. As shown in the
table, nonperforming loans were carried at 64 percent of the
contractual balance.
<TABLE>
Supplemental Information on Nonperforming Loans
<CAPTION>
Cumulative Cash Interest
June 30, 1994 Payments Applied as (a)
Book Contractual Interest Reduction of
($ in millions) balance balance revenue principal
<S> <C> <C> <C> <C>
Contractually Current
Payment in full of
principal or interest
expected.................. $ 7 $ 10 $-- $ 2
Payment in full of
principal or interest
uncertain................. 60 71 -- 3
Contractually past due
Substantial performance (b). 22 29 -- 2
Limited performance......... 58 87 1 10
No performance.............. 86 167 1 9
Total..................... $233 $364 $ 2 $26
<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 June 30, 1994, foreign currency outstandings, which include
loans, leases, accrued interest, deposits with banks,
acceptances, and securities, totaled $2.6 billion. Outstandings
are reported net of legally binding third-party guarantees.
These guarantees are included in the outstandings of the country
of the guarantor. Foreign currency outstandings do not include
local currency assets in excess of local currency liabilities.
<PAGE> 15
<TABLE>
Foreign Currency Outstandings of 1 Percent or More of Total
Assets
<CAPTION>
($ in millions) Public Sector Private Sector Total
<S> <C> <C> <C>
Japan............ $ -- $792 $792
United Kingdom... -- 394 394
Mexico........... 278 66 344
Argentina........ 91 138 229
</TABLE>
No country's foreign currency outstandings were greater than
0.75 percent but less than 1 percent of total assets on
June 30, 1994.
Brazil
In April, under the Brazilian refinancing 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.
Also in April, prior to the exchange of debt, Continental sold
$8 million of unaccrued Brazilian past-due interest for a gain of
$5 million, the amount of the cash received.
In the second quarter of 1994, following the exchange,
Continental sold principal bonds received in the restructuring
with a face value of $73 million and a book value of
approximately $29 million, resulting in a gain of $5 million.
Continental also sold all of its eligible interest (EI) bonds
received in the restructuring during the second quarter. These
EI bonds had a total face value of $4 million and an approximate
book value of $2 million. The gain on sale of EI bonds totalled
less than $1 million.
RECENT DEVELOPMENTS
On July 18, 1994, the Board of Governors of the Federal Reserve
System approved the proposed merger of Continental with and into
BankAmerica Corporation, subject to compliance with certain
conditions. Subsequent to quarter-end, the Illinois Commissioner
<PAGE> 16
of Banks and Trust Companies also approved the merger. For
additional information on the proposed merger, see Note 1 to the
financial statements.
<PAGE>
<PAGE> 17
FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEET
Continental Bank Corporation and Subsidiaries
<CAPTION>
June 30 December 31
($ in millions) 1994 1993
<S> <C> <C>
Assets
Cash and non-interest-bearing deposits...................... $ 1,833 $ 2,042
Interest-bearing deposits................................... 1,520 1,803
Federal funds sold.......................................... 594 658
Securities purchased under agreements to resell............. 706 922
Trading account assets...................................... 850 1,637
Securities held to maturity (fair value: $501 on
June 30, 1994; $611 on December 31, 1993)................. 504 607
Securities available for sale............................... 774 920
Total securities.......................................... 1,278 1,527
Equity investments.......................................... 648 679
Loans, net of unearned income............................... 11,771 11,729
Less: Reserve for credit losses.......................... 312 328
Net loans................................................. 11,459 11,401
Interest and fees receivable................................ 108 124
Properties and equipment.................................... 245 256
Other assets................................................ 2,402 1,552
Total assets.............................................. $21,643 $22,601
Liabilities
Non-interest-bearing deposits in domestic offices........... $ 2,681 $ 2,899
Interest-bearing deposits in domestic offices............... 6,125 7,376
Deposits in foreign offices, primarily interest-bearing..... 3,897 3,267
Total deposits............................................ 12,703 13,542
Federal funds purchased..................................... 475 1,312
Securities sold under agreements to repurchase.............. 228 419
Other short-term borrowings................................. 3,260 3,018
Other liabilities........................................... 1,808 1,219
Long-term debt.............................................. 1,189 1,168
Total liabilities......................................... 19,663 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........................................... 466 363
Accumulated translation adjustment.......................... (5) (5)
Net unrealized security gains (losses), net of income tax
effect.................................................... (23) 35
Less: Treasury stock, at cost (June 30, 1994--2,379,953
shares; December 31, 1993--2,868,892 shares).......... 58 70
Loans to ESOP Trust................................... 5 5
Total stockholders' equity................................ 1,980 1,923
Total liabilities and stockholders' equity................ $21,643 $22,601
<FN>
See notes to financial statements.
</TABLE>
<PAGE> 18
<TABLE>
CONSOLIDATED INCOME STATEMENT
Continental Bank Corporation and Subsidiaries
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
($ in millions, except common share data) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest revenue
Loans............................................. $ 199 $ 189 $ 375 $ 394
Securities held to maturity....................... 5 5 12 17
Securities available for sale..................... 13 -- 26 --
Securities held for sale.......................... -- 11 -- 17
Trading account assets............................ 17 12 37 25
Interest-bearing deposits......................... 37 37 76 78
Federal funds sold................................ 5 3 7 6
Securities purchased under agreements to resell... 19 11 38 28
Total interest revenue.......................... 295 268 571 565
Interest expense
Deposits.......................................... 102 96 194 201
Federal funds purchased........................... 6 7 14 14
Securities sold under agreements to repurchase.... 4 6 8 13
Other short-term borrowings....................... 45 29 92 65
Long-term debt.................................... 20 20 37 39
Total interest expense.......................... 177 158 345 332
Net interest revenue.............................. 118 110 226 233
Provision for credit losses....................... 20 35 50 91
Net interest revenue after provision for
credit losses................................... 98 75 176 142
Fees, trading, and other revenues
Fees and commissions.............................. 47 47 98 92
Trust income...................................... 26 25 52 51
Trading revenues.................................. 19 27 33 45
Security gains.................................... 9 4 11 5
Revenues from equity investments.................. 50 33 84 76
Other revenues.................................... (2) 5 15 16
Total fees, trading, and other revenues......... 149 141 293 285
Operating expenses
Salaries.......................................... 67 62 132 120
Employee benefits................................. 14 13 28 27
Net occupancy expense............................. 12 12 24 23
Equipment expense................................. 5 5 10 9
Other expenses.................................... 60 56 115 112
Subtotal........................................ 158 148 309 291
Net costs of other nonperforming assets........... 6 14 11 22
Total operating expenses........................ 164 162 320 313
Income before income taxes and cumulative effect
of accounting change for income taxes........... 83 54 149 114
Income tax expense (credit)....................... 6 (7) 9 (8)
Income before cumulative effect of accounting
change.......................................... 77 61 140 122
Cumulative effect of accounting change for income
taxes........................................... -- -- -- 80
Net income...................................... $ 77 $ 61 $ 140 $ 202
Net income applicable to common stock............. $ 68 $ 52 $ 123 $ 185
Common share data
Earnings per share before cumulative effect of
accounting change for income taxes.............. $1.25 $0.95 $2.27 $1.90
Earnings per share................................ 1.25 0.95 2.27 3.35
Cash dividends declared........................... 0.15 0.15 0.30 0.30
<FN>
See notes to financial statements.
</TABLE>
<PAGE> 19
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Continental Bank Corporation and Subsidiaries
<CAPTION>
Six Months Ended
June 30 June 30
($ in millions) 1994 1993
<S> <C> <C>
Operating activities
Income before cumulative effect of accounting change.......... $ 140 $ 122
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities
Provision for credit losses................................. 50 91
Net change in interest-rate swap payables/receivables....... 9 32
Net gains on sales of equity investments.................... (72) (52)
Net unrealized losses (gains) from equity investments....... 3 (14)
Decrease (increase) in trading inventory, net of
securities sold but not yet purchased..................... 868 (356)
Net change in securities held for sale...................... -- 64
Writedowns of other nonperforming assets.................... 7 20
Other....................................................... (172) 68
Net cash provided (used) by operating activities............ 833 (25)
Investing activities
Net decrease (increase) in interest-bearing deposits.......... 283 (755)
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell............. 280 405
Purchase of securities held to maturity....................... (84) (225)
Proceeds from sales of securities held to maturity............ 1 23
Proceeds from maturities of securities held to maturity....... 183 114
Purchase of securities available for sale..................... (105) --
Proceeds from sales of securities available for sale.......... 84 --
Proceeds from maturities of securities available for sale..... 94 --
Purchase of equity investments................................ (72) (92)
Proceeds from sales of equity investments..................... 146 108
Net decrease (increase) in loans.............................. (163) 556
Proceeds from sales of other nonperforming assets............. 7 34
Other......................................................... (53) (32)
Net cash provided by investing activities................... 601 136
Financing activities
Net decrease in deposits...................................... (865) (778)
Net decrease in federal funds purchased and securities sold
under agreements to repurchase.............................. (1,028) (320)
Net increase in other short-term borrowings................... 160 588
Proceeds from issuance of long-term debt...................... -- 250
Repayment or retirement of long-term debt..................... (6) (100)
Cash dividends paid........................................... (33) (33)
Other......................................................... 129 (12)
Net cash used by financing activities....................... (1,643) (405)
Net decrease in cash and non-interest-bearing deposits........ (209) (294)
Cash and non-interest-bearing deposits on January 1........... 2,042 1,854
Cash and non-interest-bearing deposits on June 30............. $ 1,833 $ 1,560
<FN>
Cash interest payments approximated interest expense for the first six months of 1994 and
1993. Income tax payments of $6 million were made in the first six months of 1994 and
$10 million in the first six months of 1993. Significant noncash transactions in the
first half of 1994 included transfers of loans to various asset categories of $76 million;
the first six months of 1993 included transfers of $97 million of securities held for
investment to securities held for sale, and $68 million of loans to various asset
categories.
Prior-year amounts were restated to conform to the 1994 presentation:
See notes to financial statements.
</TABLE>
<PAGE> 20
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Continental Bank Corporation and Subsidiaries
<CAPTION>
Six Months Ended
June 30 June 30
($ in millions) 1994 1993
<S> <C> <C>
Stockholders' equity at beginning of period.......... $1,923 $1,688
Net income........................................... 140 202
Cash dividends declared
Adjustable Rate Preferred Stock, Series 1.......... (3) (3)
Adjustable Rate Cumulative Preferred Stock,
Series 2......................................... (14) (14)
Common stock....................................... (16) (16)
Common stock purchased for treasury.................. -- (26)
Net change in unrealized security gains (losses),
net of tax......................................... (58) --
Net effect of stock options exercised................ 8 (3)
Other................................................ -- (1)
Stockholders' equity at end of period.............. $1,980 $1,827
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE> 21
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--Proposed Merger with BankAmerica:
On June 27, 1994, at the Annual Meeting of Stockholders of
Continental, stockholders voted to approve the merger of
Continental with and into BankAmerica Corporation. See Form
10-Q, Part II, Item 4 on page 33 for more information on
Submission of Matters to a Vote of Security Holders. Subsequent
to quarter-end, the Board of Governors of the Federal Reserve
System (FRB) and the Illinois Commissioner of Banks and Trust
Companies (Commissioner) also approved the merger, subject to
compliance with certain conditions. The anticipated effective
date of the merger is August 31, 1994.
Note 2--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 (FIN) 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.
Beginning in the second quarter of 1994, Continental nets amounts
whenever permittable under the provisions of FIN No. 39.
Note 3--Securities:
Securities Held to Maturity: Book values, gross unrealized
gains, gross unrealized losses, and fair values of securities
held to maturity are shown below:
<PAGE> 22
<TABLE>
<CAPTION>
Gross Gross
June 30, 1994 Book unrealized unrealized Fair
($ in millions) value gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and
federal agency
securities........ $456 $ 1 $ 4 $453
Other securities.... 48 -- -- 48
Total............. $504 $ 1 $ 4 $501
</TABLE>
Book values and fair values of securities held to maturity by
maturity distribution are shown in the table below:
<TABLE>
<CAPTION>
Book Fair
June 30, 1994 ($ in millions) Value Value
<S> <C> <C>
Within 1 year............................... $281 $281
After 1 but within 5 years.................. 54 54
After 5 but within 10 years................. 14 14
After 10 years.............................. 155 152
Total..................................... $504 $501
</TABLE>
In the second quarter of 1994, no securities held to maturity
were sold. In the first six months of 1994, sales of securities
held to maturity amounted to $1 million.
Securities Available for Sale: Cost basis, gross unrealized
gains, gross unrealized losses, and fair values of securities
available for sale are shown below:
<TABLE>
<CAPTION>
Gross Gross
June 30, 1994 Cost unrealized unrealized Fair
($ in millions) basis gains losses value
<S> <C> <C> <C> <C>
U.S. Treasury and
federal agency
securities........ $507 $1 $ 6 $502
Other securities.... 338 1 67 272
Total............. $845 $2 $73 $774
</TABLE>
In the second quarter of 1994, gross realized gains were
$10 million and gross realized losses were $1 million on
securities available for sale. For the first half of 1994, gross
realized gains were $12 million, and gross realized losses were
$1 million.
<PAGE> 23
Fair values of securities available for sale by maturity
distribution are shown in the table below:
<TABLE>
<CAPTION>
Fair
June 30, 1994 ($ in millions) Value
<S> <C>
Within 1 year.......................................... $ 29
After 1 but within 5 years............................. 117
After 5 but within 10 years............................ 37
After 10 years......................................... 591
Total................................................ $774
</TABLE>
The balance sheet line "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 net depreciation attributable to
securities available for sale was $46 million, net of related tax
credits of $25 million. Most of the depreciation to-date has
been on Venezuelan securities.
Note 4--Equity Investments:
Equity securities are held by equity-investment subsidiaries and
other subsidiaries and are considered to be available for sale.
The following table shows the composition of the equity-
investment portfolio.
<TABLE>
<CAPTION>
June 30, 1994 ($ in millions)
<S> <C>
Held by equity-investment subsidiaries
Publicly traded....................................... $167
Non-publicly traded................................... 283
Held by other subsidiaries
Carried at fair value.................................. 49
Carried at cost........................................ 149
Total equity investments............................... $648
</TABLE>
The composition of equity investment revenues is as follows:
<PAGE> 24
<TABLE>
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net gains on sale of
equity investments...... $29* $16 $72* $52
Net unrealized gains
(losses)................ 14* 11 (3)* 14
Dividends................. 6 4 10 6
Other..................... 1 2 5 4
Total revenues from
equity investments.... $50 $33 $84 $76
<FN>
*Previous net unrealized gains of $10 million and $35 million,
respectively, were realized through sales in the second-quarter
and year-to-date periods and were reclassified to net gains on
sale.
</TABLE>
Gross unrealized gains amounted to $29 million during the second
quarter and $41 million during the first six months of 1994.
The balance sheet line "net unrealized security gains (losses),
net of income tax effect" includes net appreciation on equity
investments held by other subsidiaries and carried at fair value
and securities available for sale. The net appreciation
attributable to equity investments held by other subsidiaries was
$23 million, net of related taxes of $13 million. "Net
unrealized security gains (losses), net of income tax effect"
does not include appreciation on investments held by
Continental's equity-investment subsidiaries.
Note 5--Nonperforming Loans:
The following table shows the composition of nonperforming loans:
<TABLE>
<CAPTION>
June 30 December 31 June 30
($ in millions) 1994 1993 1993
<S> <C> <C> <C>
Domestic
Commercial and industrial.... $141 $148 $143
Mortgage and real estate..... 76 137 427
All other.................... 13 22 28
Total domestic loans....... 230 307 598
Foreign...................... 3 21 66
Total nonperforming loans.. $233 $328 $664
</TABLE>
On June 30, 1994, less than $1 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
<PAGE> 25
process of collection. At the end of the 1994 second quarter,
OREO and ONPA acquired in debt restructurings totaled
$203 million.
The negative pretax impact of nonperforming loans on interest
revenue is computed as follows:
<TABLE>
<CAPTION>
Six Months Ended
Second Quarter June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest revenue that would
have been recorded at
the original rate......... $6 $20 $13 $40
Interest revenue that was
recorded.................. 1 4 3 15
Negative impact........... $5 $16 $10 $25
</TABLE>
Note 6--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 June 30, 1994, 2,379,953 shares were carried at
cost as treasury stock. No common shares were purchased by
Continental in 1994.
Note 7--Regulatory Matters:
Change from National to State Charter: On June 29, 1994,
Continental Bank, National Association, a wholly-owned subsidiary
of Continental Bank Corporation, converted from a national
banking association to an Illinois state member bank. As a
result of the conversion, the name of the Bank has been changed
from "Continental Bank, National Association" to "Continental
Bank" (Bank). The primary banking regulators of the Bank are now
the Commissioner and the FRB. Prior to the conversion, as a
national banking association, the Bank was principally regulated
by the Office of the Comptroller of the Currency.
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 June 30, 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 FRB is obtained. Under
<PAGE> 26
the more restrictive of the two provisions, the Bank had the
ability to pay $431 million in dividends as of July 1, 1994,
without obtaining the FRB's approval. The Bank paid $25 million
of dividends in the second quarter of 1994.
In addition to the statutory restrictions set forth above,
Continental may not declare or pay any dividends on its common
stock while there is any dividend arrearage on any class or
series of its capital stock ranking, as to dividends, ahead of
its common stock. There are currently no dividend arrearages on
any class of Continental's capital stock.
The FRB generally considers it to be an unsafe and unsound
banking practice for a bank holding company to pay dividends
except out of current operating earnings, although other factors
such as overall capital adequacy, projected earnings, and the
composition of such earnings may also be relevant in determining
whether dividends should be paid. The Commissioner has a similar
view with respect to the payment of dividends by a state bank.
The payment and amount of future dividends will depend upon the
earnings and financial condition of Continental, restrictive
covenants in its debt securities, and other factors, such as the
views of the bank regulatory agencies.
Note 8--Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires all entities to estimate the fair value of
all assets, liabilities, and off-balance-sheet transactions that
are financial instruments. Most of Continental's activities fall
under the definition of financial instruments. The fair value
estimates, as of June 30, 1994 and December 31, 1993, for these
financial instruments are presented in the following tables.<PAGE>
<PAGE> 27
<TABLE>
<CAPTION>
Adjusted
carrying Fair Unrecognized
June 30, 1994 ($ in millions) value* value gain/(loss)
<S> <C> <C> <C>
Financial Assets
Cash and non-interest bearing deposits..... $ 1,833 $ 1,833 $ --
Interest-bearing deposits.................. 1,520 1,520 --
Federal funds sold......................... 594 594 --
Securities purchased under agreements to
resell................................... 706 706 --
Trading account assets..................... 850 856 6
Securities................................. 1,278 1,274 (4)
Equity investments......................... 648 696 48
Net loans.................................. 11,438 11,406 (32)
Interest and fees receivable............... 108 108 --
Other financial assets..................... 112 112 --
Total financial assets................... 19,087 19,105 18
Financial Liabilities
Non-interest-bearing deposits.............. 2,742 2,742 --
Interest-bearing deposits.................. 9,917 10,122 (205)
Federal funds purchased.................... 475 475 --
Securities sold under agreements to
repurchase............................... 228 228 --
Other short-term borrowings................ 3,260 3,259 1
Long-term debt............................. 1,165 1,244 (79)
Interest payable........................... 139 139 --
Other financial liabilities................ 92 92 --
Total financial liabilities.............. 18,018 18,301 (283)
Off-Balance-Sheet Financial Instruments
Unused loan commitments.................... 19 19 --
Standby letters of credit.................. -- -- --
Interest-rate swaps........................ 191 205 14
Futures and forward contracts.............. (54) -- 54
Forward-rate agreements.................... 2 2 --
Interest-rate options written.............. (154) (154) --
Foreign-exchange spot, forward, and
futures contracts........................ (8) (8) --
Commodity swaps............................ 10 10 --
Total other financial instruments........ 6 74 68
Net unrecognized loss on financial
instruments.......................... $ 1,075 $ 878 $(197)
<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, $14 million loss; interest-bearing-deposit
liabilities, $44 million gain; and long-term debt, $24 million gain.
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Adjusted
carrying Fair Unrecognized
December 31, 1993 ($ 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 gain; interest-bearing-
deposit liabilities, $78 million gain; and long-term debt, $27 million gain.
</TABLE>
<PAGE>
<PAGE> 29
<TABLE>
COMPARATIVE FINANCIAL DATA
QUARTERLY CONSOLIDATED INCOME STATEMENT
<CAPTION>
2nd Qtr. 1st Qtr. 4th Qtr. 3th Qtr. 2nd Qtr.
($ in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Interest revenue
Loans....................................... $199 $176 $180 $ 192 $189
Securities held to maturity................. 5 7 6 6 5
Securities available for sale............... 13 13 -- -- --
Securities held for sale.................... -- -- 10 10 11
Trading account assets...................... 17 20 23 25 12
Interest-bearing deposits................... 37 39 40 33 37
Federal funds sold.......................... 5 2 2 3 3
Securities purchased under agreements to
resell.................................... 19 19 11 15 11
Total interest revenue.................... 295 276 272 284 268
Interest expense
Deposits.................................... 102 92 93 97 96
Federal funds purchased..................... 6 8 8 7 7
Securities sold under agreements
to repurchase............................. 4 4 10 7 6
Other short-term borrowings................. 45 47 31 33 29
Long-term debt.............................. 20 17 18 21 20
Total interest expense.................... 177 168 160 165 158
Net interest revenue........................ 118 108 112 119 110
Provision for credit losses................. 20 30 45 45 35
Net interest revenue after provision
for credit losses......................... 98 78 67 74 75
Fees, trading, and other revenues
Fees and commissions........................ 47 51 60 42 47
Trust income................................ 26 26 23 24 25
Trading revenues............................ 19 14 24 33 27
Security gains.............................. 9 2 -- -- 4
Revenues from equity investments............ 50 34 58 64 33
Other revenues.............................. (2) 17 18 9 5
Total fees, trading, and other revenues... 149 144 183 172 141
Operating expenses
Salaries.................................... 67 65 72 67 62
Employee benefits........................... 14 14 14 13 13
Net occupancy expense....................... 12 12 14 13 12
Equipment expense........................... 5 5 5 5 5
Other expenses.............................. 60 55 64 57 56
Subtotal.................................. 158 151 169 155 148
Net costs of other nonperforming assets..... 6 5 20 26 14
Total operating expenses.................. 164 156 189 181 162
Income before income taxes and cumulative
effect of accounting change for income
taxes..................................... 83 66 61 65 54
Income tax expense (credit)................. 6 3 (7) (3) (7)
Net income...... ......................... $ 77 $ 63 $ 68 $ 68 $ 61
Net income applicable to common stock....... $ 68 $ 55 $ 59 $ 60 $ 52
</TABLE>
<PAGE> 30
<TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST REVENUE
<CAPTION>
2nd Qtr. 1994 2nd Qtr. 1993
Average Average Average Average
($ in millions) Balance Interest(a) Rate(b) Balance(c)Interest(a) Rate(b)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing deposits, primarily foreign... $ 1,487 $ 37 9.74% $ 2,046 $ 37 7.19%
Federal funds sold............................. 435 5 4.13 474 3 3.12
Securities purchased under agreements
to resell.................................... 572 19 13.59 897 11 4.91
Trading account assets......................... 1,255 17 5.67 1,300 12 3.89
U.S. Treasury and federal agency securities.... 488 5 4.17 445 5 4.54
State, county, and municipal securities........ -- -- -- -- -- --
Other securities............................... 48 -- 6.18 49 -- 6.07
Total securities held to maturity............ 536 5 4.35 494 5 4.70
U.S. Treasury and federal agency securities.... 519 6 5.19 -- -- --
Other securities............................... 293 7 9.31 -- -- --
Total securities available for sale.......... 812 13 6.68 -- -- --
U.S. Treasury and federal agency securities.... -- -- -- 422 6 5.80
Other securities............................... -- -- -- 133 5 13.48
Total securities held for sale............... -- -- -- 555 11 7.65
Loans, net of unearned income
Domestic..................................... 10,647 185 6.94 10,840 173 6.38
Foreign...................................... 1,001 14 5.79 1,259 16 5.05
Total loans(c)............................... 11,648 199 6.84 12,099 189 6.24
Total interest-earning assets................ 16,745 295 7.08 17,865 268 6.03
Other assets
Cash and non-interest-bearing deposits......... 1,863 1,778
Interest and fees receivable................... 139 140
Properties and equipment....................... 253 241
Equity investments............................. 646 534
Other assets................................... 2,296 1,405
Reserve for credit losses...................... (328) (408)
Total assets................................. $21,614 $21,555
Interest-bearing liabilities
Savings deposits............................... $ 2,043 $ 12 2.24% $ 2,223 $ 13 2.40%
Other time deposits............................ 3,988 38 3.79 5,104 42 3.34
Foreign-office deposits........................ 4,139 52 5.08 3,130 41 5.21
Total interest-bearing deposits.............. 10,170 102 4.00 10,457 96 3.70
Federal funds purchased........................ 694 6 3.83 912 7 2.94
Securities sold under agreements to
repurchase................................... 293 4 5.30 701 6 3.27
Other short-term borrowings.................... 2,597 45 6.99 2,397 29 4.90
Long-term debt................................. 1,189 20 6.77 1,145 20 6.98
Total interest-bearing liabilities........... 14,943 177 4.76 15,612 158 4.06
Other liabilities and stockholders' equity
Non-interest-bearing deposits
Domestic offices............................. 2,643 2,573
Foreign offices.............................. 69 63
Other liabilities.............................. 2,015 1,497
Stockholders' equity........................... 1,944 1,810
Total liabilities and stockholders' equity... $21,614 $21,555
Net interest income............................ $118 $110
Net interest margin(d)......................... 2.84% 2.48%
<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 less than $1 million for both periods.
(b) Average rate is annualized and computed using unrounded numbers.
(c) The principal amounts of cash-basis and renegotiated loans have been included in the average loan
balances. Interest revenue on cash-basis loans is included in income only to the extent that cash
payments have been received, and is included for renegotiated loans at renegotiated rates.
(d) Net interest margin is net interest revenue on a taxable-equivalent basis divided by average earning
assets.
</TABLE>
<PAGE> 31
<TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST REVENUE
<CAPTION>
Six Months Ended June 30
1994 1993
Average Average Average Average
($ in millions) Balance Interest(a) Rate(b) Balance(c)Interest(a) Rate(b)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing deposits, primarily foreign... $ 1,551 $ 76 9.83% $ 2,009 $ 78 7.82%
Federal funds sold............................. 341 7 3.90 403 6 3.18
Securities purchased under agreements
to resell.................................... 524 38 14.78 1,024 28 5.50
Trading account assets......................... 1,408 37 5.35 1,230 25 4.14
U.S. Treasury and federal agency securities.... 519 11 4.31 438 10 4.55
State, county, and municipal securities........ -- -- -- 2 -- 7.89
Other securities............................... 49 1 6.14 103 7 15.03
Total securities held to maturity............ 568 12 4.46 543 17 6.54
U.S. Treasury and federal agency securities.... 532 13 5.19 -- -- --
Other securities............................... 325 13 8.13 -- -- --
Total securities available for sale.......... 857 26 6.30 -- -- --
U.S. Treasury and federal agency securities.... -- -- -- 416 12 5.93
Other securities............................... -- -- -- 84 5 12.00
Total securities held for sale............... -- -- -- 500 17 6.95
Loans, net of unearned income
Domestic..................................... 10,658 350 6.60 10,987 353 6.47
Foreign...................................... 959 26 5.52 1,289 42 6.50
Total loans(c)............................... 11,617 376 6.51 12,276 395 6.47
Total interest-earning assets................ 16,866 572 6.84 17,985 566 6.35
Other assets
Cash and non-interest-bearing deposits......... 1,871 1,801
Interest and fees receivable................... 136 146
Properties and equipment....................... 258 239
Equity investments............................. 650 522
Other assets................................... 2,331 1,482
Reserve for credit losses...................... (333) (400)
Total assets................................. $21,779 $21,775
Interest-bearing liabilities
Savings deposits............................... $ 2,101 $ 23 2.20% $ 2,338 $ 27 2.35%
Other time deposits............................ 4,210 75 3.58 5,211 91 3.54
Foreign-office deposits........................ 3,848 96 5.04 3,081 83 5.41
Total interest-bearing deposits.............. 10,159 194 3.85 10,630 201 3.82
Federal funds purchased........................ 836 14 3.42 925 14 2.99
Securities sold under agreements to
repurchase................................... 311 8 5.34 740 13 3.57
Other short-term borrowings.................... 2,532 92 7.31 2,391 65 5.51
Long-term debt................................. 1,183 37 6.29 1,096 39 7.20
Total interest-bearing liabilities........... 15,021 345 4.63 15,782 332 4.25
Other liabilities and stockholders' equity
Non-interest-bearing deposits
Domestic offices............................. 2,635 2,582
Foreign offices.............................. 43 61
Other liabilities.............................. 2,136 1,548
Stockholders' equity........................... 1,944 1,802
Total liabilities and stockholders' equity... $21,779 $21,775
Net interest income............................ $227 $234
Net interest margin(d)......................... 2.72% 2.62%
<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
periods shown above, the adjustments amounted to $1 million for both periods.
(b) Average rate is annualized and computed using unrounded numbers.
(c) The principal amounts of cash-basis and renegotiated loans have been included in the average loan
balances. Interest revenue on cash-basis loans is included in income only to the extent that cash
payments have been received, and is included for renegotiated loans at renegotiated rates.
(d) Net interest margin is net interest revenue on a taxable-equivalent basis divided by average earning
assets.
</TABLE>
<PAGE> 32
<TABLE>
AVERAGE LOANS
<CAPTION>
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
($ in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Domestic loans
Commercial and industrial....... $ 7,273 $ 7,073 $ 6,747 $ 6,648 $ 6,688
Mortgage and real estate........ 1,183 1,277 1,511 1,814 1,881
Financial institutions.......... 1,119 1,216 1,077 1,094 1,303
Consumer........................ 436 435 403 395 382
All other....................... 638 669 658 617 586
Total domestic loans.......... 10,649 10,670 10,396 10,568 10,840
Foreign loans................... 1,003 916 1,131 1,044 1,265
Less: Unearned income........... 4 2 4 5 6
Total loans, net.............. $11,648 $11,584 $11,523 $11,607 $12,099
</TABLE>
<TABLE>
ANALYSIS OF NET CREDIT LOSS EXPERIENCE
<CAPTION>
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
($ in millions) 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Reserve for credit losses--beginning of
period
General................................... $320 $328 $350 $366 $379
Allocated transfer risk................... -- -- -- 2 21
Total reserve for credit losses--
beginning of period................... 320 328 350 368 400
Provision for credit losses
General................................... 20 30 45 47 35
Allocated transfer risk................... -- -- -- (2) --
Total provision for credit losses....... 20 30 45 45 35
Charge-offs
Domestic.................................. 27 32 57 80 31
Foreign................................... 2 8 14 -- 39
Total charge-offs....................... 29 40 71 80 70
Recoveries
Domestic.................................. 1 2 4 15 1
Foreign................................... -- -- -- 2 2
Total loan recoveries................... 1 2 4 17 3
Other adjustments......................... -- -- -- -- --
Reserve for credit losses--end of period
General................................... 312 320 328 350 366
Allocated transfer risk................... -- -- -- -- 2
Total reserve for credit losses--end
of period............................. $312 $320 $328 $350 $368
</TABLE>
<PAGE> 33
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Continental was held on
June 27, 1994. At that meeting, stockholders voted upon the
approval and adoption of the Restated Agreement and Plan of
Merger between Continental and BankAmerica Corporation; the election
of a Board of Directors to serve until the
next annual meeting of stockholders of Continental or, if
earlier, the consummation of the Merger and until their
successors are elected and have qualified; and the appointment of
Price Waterhouse as independent accountants for the year 1994 or,
if earlier, until the consummation of the Merger. The vote
tabulation with respect to the 46,158,414 shares of common stock
present at the meeting in person or by proxy, each such share
being entitled to one vote on each matter being voted upon, was
as follows:
Proposal
1. The Merger Votes
For 38,527,313
Against 266,047
Abstentions 252,011
Broker non-votes 7,113,043
2. Election of Directors
Votes Votes
Nominee For Withheld
Bert A. Getz 45,942,102 216,312
Thomas A. Gildehaus 45,943,142 215,272
Robert B. Goergen 45,943,146 215,268
William M. Goodyear 45,828,669 329,745
Richard L. Huber 45,904,942 253,472
Miles L. Marsh 45,934,463 223,951
Roger H. Morley 45,941,208 217,206
Michael J. Murray 45,923,328 235,086
Linda Johnson Rice 45,923,422 234,992
John M. Richman 45,928,306 230,108
Gordon I. Segal 45,941,433 216,981
Thomas C. Theobald 45,906,881 251,533
James L. Vincent 45,554,338 604,076
<PAGE> 34
3. Appointment of Independent Accountants Votes
For 45,800,357
Against 133,737
Abstentions 224,320
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 ratio of earnings to
fixed charges.
(b) Reports on Form 8-K
Continental filed Current Reports on Form 8-K on
April 6, 1994 and June 30, 1994.
<PAGE> 35
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: August 11, 1994
<TABLE>
EXHIBIT 11
Earnings per common share
<CAPTION>
Six Months Ended
Average common stock and common share Second Quarter June 30 June 30
equivalents (in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Average common shares outstanding............ 54.0 54.0 54.0 54.0
Plus: Shares resulting from stock rights
and options......................... 5.9 6.5 5.9 6.5
Less: Assumed repurchase of outstanding
shares.............................. 3.0 4.9 3.2 4.9
Average treasury stock outstanding.... 2.5 0.6 2.6 0.3
Adjusted common shares....................... 54.4 55.0 54.1 55.3
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..................................... $ 77 $ 61 $ 140 $ 122
Less: Preferred dividends................... (9) (9) (17) (17)
Adjusted income before cumulative effect
of accounting change for income taxes...... $ 68 $ 52 $ 123 $ 105
Adjusted income before cumulative effect
of accounting change for income taxes
divided by adjusted common shares.......... $1.25 $0.95 $2.27 $1.90
Net income ($ in millions, except per share
amounts)
Net income as reported....................... $ 77 $ 61 $ 140 $ 202
Less: Preferred dividends................... (9) (9) (17) (17)
Adjusted net income.......................... $ 68 $ 52 $ 123 $ 185
Adjusted net income divided by adjusted
common shares.............................. $1.25 $0.95 $2.27 $3.35
<FN>
The earnings per common share was computed by dividing the net income applicable to common
stock, which excludes the preferred dividend requirements, by the weighted average number
of shares of Continental common stock outstanding. Earnings per common share were
computed using the treasury stock method. Under this method, common stock equivalents
included shares that would result from the exercise of stock options reduced by the number
of shares assumed to be repurchased from the proceeds received.
</TABLE>
<TABLE>
Exhibit 12
Page 1 of 2
RATIO OF EARNINGS TO FIXED CHARGES BASED
ON INCOME FROM CONTINUING OPERATIONS
<CAPTION>
Six Months Ended
Second Quarter June 30 June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Excluding interest on deposits
Fixed charges:
Interest expense $ 75 $ 62 $ 151 $ 131
One-third of all rents 2 1 4 3
Total fixed charges $ 77 $ 63 $ 155 $ 134
Earnings:
Income (loss) from continuing operations before tax $ 83 $ 54 $ 149 $ 114
Total fixed charges 77 63 155 134
Earnings, as defined $ 160 $ 117 $ 304 $ 248
Ratio of earnings to total fixed charges 2.08x 1.86x 1.96x 1.85x
Including interest on deposits
Fixed charges:
Interest expense $ 177 $ 158 $ 345 $ 332
One-third of all rents 2 1 4 3
Total fixed charges $ 179 $ 159 $ 349 $ 335
Earnings:
Income (loss) from continuing operations before tax $ 83 $ 54 $ 149 $ 114
Total fixed charges 179 159 349 335
Earnings, as defined $ 262 $ 213 $ 498 $ 449
Ratio of earnings to total fixed charges 1.46x 1.34x 1.43x 1.34x
</TABLE>
<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>
Six Months Ended
Second Quarter June 30 June 30
($ in millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Excluding interest on deposits
Fixed charges:
Interest expense $ 75 $ 62 $ 151 $ 131
One-third of all rents 2 1 4 3
Total fixed charges $ 77 $ 63 $ 155 $ 134
Preferred stock dividend requirements 9 9 17 17
Combined fixed charges and preferred stock
dividend $ 86 $ 72 $ 172 $ 151
Earnings:
Income before income taxes and cumulative effect
of accounting change for income taxes $ 83 $ 54 $ 149 $ 114
Combined fixed charges and preferred stock dividend 86 72 172 151
Earnings, as defined $ 169 $ 126 $ 321 $ 265
Ratio of earnings to combined fixed charges and
preferred stock dividend 1.97x 1.75x 1.87x 1.75x
Including interest on deposits
Fixed charges:
Interest expense $ 177 $ 158 $ 345 $ 332
One-third of all rents 2 1 4 3
Total fixed charges $ 179 $ 159 $ 349 $ 335
Preferred stock dividend requirements 9 9 17 17
Combined fixed charges and preferred stock
dividend $ 188 $ 168 $ 366 $ 352
Earnings:
Income before income taxes and cumulative effect
of accounting change for income taxes $ 83 $ 54 $ 149 $ 114
Combined fixed charges and preferred stock dividend 188 168 366 352
Earnings, as defined $ 271 $ 222 $ 515 $ 466
Ratio of earnings to combined fixed charges and
preferred stock dividend 1.44x 1.32x 1.41x 1.32x
</TABLE>
