<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 June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-6522
BANK OF BOSTON CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2471221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Federal Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 434-2200
Former name, former address and former fiscal year, if
changed since last report: Not applicable
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 issuer's classes
of common stock as of July 31, 1994:
Common Stock, $2.25 par value 106,864,163
1
<PAGE>
BANK OF BOSTON CORPORATION
--------------------------
TABLE OF CONTENTS
-----------------
Page
CONSOLIDATED SELECTED FINANCIAL DATA 3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements:
-------
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet 4
Consolidated Statement of Income 6
Consolidated Statement of Changes in Stockholders' Equity 7
Consolidated Statement of Cash Flows 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
-------
and Results of Operations 17
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 43
-------
Item 5. Other Information 43
-------
Item 6. Exhibits and Reports on Form 8-K 44
-------
Signatures 45
LIST OF TABLES
Consolidated Average Balance Sheet - Nine Quarters 36
Consolidated Statement of Income - Nine Quarters 37
Average Balances and Interest Rates - Quarter 38
Average Balances and Interest Rates - First Half 40
Change in Net Interest Revenue - Volume and Rate Analysis 42
2
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Selected Financial Data
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended June 30 1994 1993
------ ------
<S> <C> <C>
Income Statement Data:
Net interest revenue $ 374.5 $ 330.5
Provision for credit losses 25.0 27.6
Noninterest income 192.3 191.0
Noninterest expense 372.4 368.3
Net income 94.5 71.4
Per common share:
Net income:
Primary .80 .60
Fully diluted .77 .59
Market value per common share:
High 28 1/2 28 3/8
Low 23 1/8 20 1/2
Six Months Ended June 30
Income Statement Data:
Net interest revenue $ 715.2 $ 654.7
Provision for credit losses 70.0 50.1
Noninterest income 427.4 365.4
Noninterest expense 719.1 744.0
Income before extraordinary item and
cumulative effect of changes in
accounting principles 197.2 130.9
Net income 190.6 155.1
Per common share:
Income before extraordinary item and
cumulative effect of changes in
accounting principles:
Primary 1.68 1.09
Fully diluted 1.62 1.07
Net income:
Primary 1.62 1.32
Fully diluted 1.56 1.29
Market value per common share:
High 28 1/2 28 7/8
Low 22 5/8 20 1/2
At June 30
Balance Sheet Data:
Loans and lease financing $ 29,966 $ 26,378
Total assets 43,437 37,509
Deposits 29,395 28,275
Total stockholders' equity 3,005 2,756
Book value per common share 23.36 21.34
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1 7.1% 7.5%
Total 12.3 12.1
Leverage ratio 6.6 7.1
</TABLE>
3
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Balance Sheet
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS June 30 December 31
1994 1993
------------ ------------
<S> <C> <C>
Cash and due from banks $ 3,082,930 $ 2,539,286
Interest bearing deposits in other banks 1,006,124 991,389
Federal funds sold and securities
purchased under agreements to resell 1,716,457 1,454,478
Trading securities 466,114 305,775
Mortgages held for sale 499,784 1,321,607
Securities (Note 4):
Available for sale 1,935,554 1,437,887
Held to maturity (fair value of
$1,626,483 in 1994 and
$1,568,617 in 1993) 1,666,555 1,568,823
Loans and lease financing (Note 5):
United States Operations 23,017,240 22,560,194
International Operations 6,948,837 6,221,780
---------- ----------
Total loans and lease financing
(net of unearned income of
$264,746 in 1994 and $311,955
in 1993) 29,966,077 28,781,974
Reserve for credit losses (Note 7) (675,775) (770,279)
---------- ----------
Net loans and lease financing 29,290,302 28,011,695
Accelerated disposition portfolio (Note 6) 218,065
Premises and equipment, net 536,099 522,271
Due from customers on acceptances 389,013 391,204
Accrued interest receivable 261,265 287,368
Other real estate owned 70,952 107,845
Other assets (Note 8) 2,297,414 1,648,274
---------- ----------
TOTAL ASSETS $ 43,436,628 $ 40,587,902
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Balance Sheet
(in thousands, except share and per share amounts)
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30 December 31
1994 1993
----------- -----------
<S> <C> <C>
Deposits:
Domestic offices:
Noninterest bearing $ 4,659,308 $ 5,040,028
Interest bearing 16,899,645 17,495,648
Overseas offices:
Noninterest bearing 471,282 525,620
Interest bearing 7,364,993 6,552,849
---------- ----------
Total deposits 29,395,228 29,614,145
Funds borrowed:
Federal funds purchased 377,134 417,107
Term federal funds purchased 2,260,725 2,150,000
Securities sold under agreements to
repurchase 884,253 798,842
Other funds borrowed 3,652,937 1,608,631
Acceptances outstanding 389,177 391,484
Accrued expenses and other liabilities
(Note 8) 1,422,364 723,266
Notes payable (Note 9) 2,049,858 1,972,758
---------- ----------
TOTAL LIABILITIES 40,431,676 37,676,233
---------- ----------
Commitments and contingencies (Notes 2
and 10)
Stockholders' equity:
Preferred stock without par value:
Authorized shares - 10,000,000
Issued and outstanding shares -
4,593,941 508,436 508,436
Common stock, par value $2.25:
Authorized shares - 200,000,000
Issued and outstanding shares -
106,850,666 in 1994 and
105,801,268 in 1993 240,414 238,053
Surplus 793,309 768,372
Retained earnings 1,478,248 1,361,960
Net unrealized gain (loss) on
securities available for sale (8,369) 42,980
Cumulative translation adjustments (7,086) (8,132)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,004,952 2,911,669
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 43,436,628 $ 40,587,902
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Statement of Income
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income (Note 11):
Loans and lease financing, including $ 587,306 $ 516,512 $ 1,130,162 $ 1,033,782
fees
Securities 59,595 64,438 104,243 133,918
Trading securities 9,061 1,924 27,559 3,880
Mortgages held for sale 12,801 16,943 28,454 30,306
Federal funds sold and securities
purchased under agreements to resell 152,833 21,222 232,515 43,475
Deposits in other banks 18,474 36,119 40,812 72,117
------- ------- --------- ---------
Total interest income 840,070 657,158 1,563,745 1,317,478
------- ------- --------- ---------
Interest Expense (Note 11):
Deposits of domestic offices 121,677 161,886 248,467 340,779
Deposits of overseas offices 120,414 83,863 233,230 169,651
Funds borrowed 194,802 53,688 304,906 96,401
Notes payable 28,721 27,222 61,916 55,958
------- ------- --------- ---------
Total interest expense 465,614 326,659 848,519 662,789
------- ------- --------- ---------
Net interest revenue (Note 11) 374,456 330,499 715,226 654,689
Provision for credit losses (Notes 6
and 7) 25,000 27,630 70,000 50,126
------- ------- --------- ---------
Net interest revenue after provision for
credit losses 349,456 302,869 645,226 604,563
------- ------- --------- ---------
Noninterest Income:
Financial service fees 93,911 92,575 186,323 163,828
Trust and agency fees 50,251 45,200 97,948 89,079
Trading profits and commissions 1,215 5,846 5,070 12,789
Securities gains 5,884 5,988 9,817 12,412
Other income (Notes 2 and 11) 41,005 41,377 128,194 87,299
------- ------- --------- ---------
Total noninterest income 192,266 190,986 427,352 365,407
------- ------- --------- ---------
Noninterest Expense:
Salaries 161,569 161,716 319,412 320,858
Employee benefits 36,973 33,735 73,880 71,219
Occupancy expense 33,063 32,158 64,956 64,349
Equipment expense 23,369 23,975 46,954 49,540
Restructuring charge 16,390 16,390
Other real estate owned expense 6,822 11,924 12,090 31,311
Other expense 94,179 104,809 185,407 206,789
------- ------- --------- ---------
Total noninterest expense 372,365 368,317 719,089 744,066
------- ------- --------- ---------
Income before income taxes,
extraordinary item and cumulative effect
of changes in accounting principles 169,357 125,538 353,489 225,904
Provision for income taxes 74,857 54,151 156,314 95,045
------- ------- --------- ---------
Income before extraordinary item and
cumulative effect of changes in
accounting principles 94,500 71,387 197,175 130,859
Extraordinary loss from early
extinguishment of
debt, net of tax (Note 9) (6,535)
Cumulative effect of changes in
accounting
principles, net (Notes 12 and 13) 24,203
------- ------- --------- ---------
NET INCOME $ 94,500 $ 71,387 $ 190,640 $ 155,062
======= ======= ========= =========
NET INCOME APPLICABLE TO
COMMON STOCK $ 85,143 $ 63,408 $ 171,966 $ 139,144
======= ======= ========= =========
Per Common Share:
Income before extraordinary
item and cumulative effect of
changes in accounting principles:
Primary $ .80 $ .60 $ 1.68 $ 1.09
Fully diluted $ .77 $ .59 $ 1.62 $ 1.07
Net Income:
Primary $ .80 $ .60 $ 1.62 $ 1.32
Fully diluted $ .77 $ .59 $ 1.56 $ 1.29
Dividends declared $ .22 $ .10 $ .44 $ .20
Average Number of Common Shares:
Primary 106,619 105,285 106,410 105,124
Fully diluted 111,286 110,077 111,055 109,953
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Quarters Ended June 30 1994 1993
---------- ----------
<S> <C> <C>
Balance, beginning of period $ 2,947,269 $ 2,632,193
Net income 94,500 71,387
Common stock issued in connection with:
Dividend reinvestment and common
stock purchase plan 7,392 1,417
Exercise of stock options 1,739 651
Restricted stock grants, net of
forfeitures (210) (1,176)
Change in unearned compensation
related to restricted stock grants 213 636
Other, principally employee benefit
plans 617 241
Preferred stock issued in public offering 67,595
Cash dividends declared:
Preferred stock (9,391) (8,013)
Common stock (23,432) (8,529)
Change in net unrealized appreciation
on marketable equity securities of
nonbanking subsidiary 610
Change in net unrealized gain on securities
available for sale, net of tax (11,527)
Translation adjustments, net of tax (2,218) (697)
--------- ---------
Balance, end of period $ 3,004,952 $ 2,756,315
========= =========
Six Months Ended June 30
Balance, beginning of period $ 2,911,669 $ 2,553,530
Net income 190,640 155,062
Common stock issued in connection with:
Dividend reinvestment and common
stock purchase plan 11,492 2,941
Exercise of stock options 4,049 6,564
Restricted stock grants, net of
forfeitures 9,499 2,758
Change in unearned compensation
related to restricted stock grants (8,916) (1,806)
Other, principally employee
benefit plans 2,260 3,571
Preferred stock issued in public offering 67,595
Cash dividends declared:
Preferred stock (18,706) (15,950)
Common stock (46,732) (17,019)
Change in net unrealized appreciation
on marketable equity securities of
nonbanking subsidiary 983
Change in net unrealized gain on
securities available for sale, net of tax (51,349)
Translation adjustments, net of tax 1,046 (1,914)
--------- ---------
Balance, end of period $ 3,004,952 $ 2,756,315
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BANK OF BOSTON CORPORATION
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30 1994 1993
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 190,640 $ 155,062
Reconciliation of net income to net cash
provided from operating activities:
Extraordinary loss from early
extinguishment of debt, net of tax 6,535
Cumulative effect of change in
accounting for purchased mortgage
servicing rights, net of tax 52,960
Cumulative effect of change in
method of accounting for income
taxes (77,163)
Provision for credit losses 70,000 50,126
Depreciation and amortization 72,645 89,374
Provision for deferred taxes (92,090) 48,252
Net gains on sales of securities
and other assets (55,923) (30,970)
Change in trading securities (160,339) 20,552
Change in mortgages held for sale 821,823 (358,289)
Change in securities available for sale 709,214
Net change in interest receivables
and payables (78,357) (35,671)
Other, net 179,898 28,993
---------- ----------
Net cash provided from operating
activities 954,832 652,440
---------- ----------
Cash Flows From Investing Activities:
Net cash provided from (used for)
interest bearing deposits in other banks (14,735) 173,019
Net cash provided from (used for)
federal funds sold and securities
purchased under agreements to resell (261,979) 805,664
Purchases of securities held to maturity (856,740) (1,117,224)
Purchases of securities available for
sale (Note 3) (1,658,347)
Sales of securities held to maturity 11,651
Sales of securities available for sale
(Note 3) 1,319,892
Maturities of securities held to maturity 519,273 779,242
Maturities of securities available for
sale (Note 3) 88,184
Dispositions of venture capital investments 7,746 38,445
Loans and lease financing originated by
nonbank entities (1,305,088) (1,581,977)
Loans and lease financing collected by
nonbank entities 1,420,734 1,603,495
Net cash used for lending activities of
bank subsidiaries (1,521,341) (1,157,100)
Lease financing originated by bank entities (16,160) (3,442)
Lease financing collected by bank entities 9,706 6,891
Proceeds from sales of other real estate
owned 28,575 99,947
Expenditures for premises and equipment (82,465) (47,184)
Proceeds from sales of business units,
premises and equipment 132,352 5,260
Other, net (208,997) (50,481)
---------- ----------
Net cash used for investing activities (2,399,390) (433,794)
---------- ----------
Cash Flows From Financing Activities:
Net cash used for deposits (218,917) (827,126)
Net cash provided from funds borrowed 2,200,469 735,349
Net repayments of notes payable (420,700) (32,815)
Net proceeds from issuance of notes payable 497,800 104,381
Net proceeds from issuance of preferred
stock 67,595
Net proceeds from issuance of common stock 16,794 9,928
Dividends paid (65,438) (32,968)
---------- ----------
Net cash provided from
financing activities 2,010,008 24,344
Effect of foreign currency translation
on cash (21,806) (29,566)
---------- ----------
NET CHANGE IN CASH AND DUE FROM BANKS 543,644 213,424
Cash and Due from Banks at January 1 2,539,286 1,936,396
---------- ----------
Cash and Due from Banks at June 30 $ 3,082,930 $ 2,149,820
========== ==========
Interest payments made $ 952,979 $ 728,503
Income tax payments made $ 67,841 $ 24,383
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BANK OF BOSTON CORPORATION
Notes to Financial Statements
1. The accompanying interim consolidated financial statements of Bank of
Boston Corporation (the Corporation) are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information contained
herein have been made. Prior period financial statements have been
restated to give retroactive effect to the mergers with Society for Savings
Bancorp, Inc. and Multibank Financial Corp., completed in July 1993, which
were accounted for as poolings of interests. In addition, certain amounts
reported in prior periods have been reclassified for comparative purposes.
This information should be read in conjunction with the Corporation's 1993
Annual Report on Form 10-K.
2. Acquisitions and Divestitures:
On May 27, 1994, the Corporation completed its acquisition of BankWorcester
Corporation (BankWorcester), a $1.5 billion bank holding company
headquartered in Worcester, Massachusetts, by exchanging $34 for each share
of BankWorcester common stock outstanding. The total purchase price
amounted to $243 million. BankWorcester, through its wholly owned
subsidiary, Worcester County Institution for Savings (WCIS), was engaged in
retail and commercial banking. On the date of acquisition, WCIS was merged
into The First National Bank of Boston. The acquisition was accounted for
as a purchase and, accordingly, the assets and liabilities of BankWorcester
were recorded at their estimated fair values as of the acquisition date.
The excess of the cost of the acquisition over the estimated fair values of
the net assets acquired, excluding the excess allocated to core deposit
intangibles, is being amortized over a twenty-five year period. The core
deposit intangible is being amortized over a seven year period. In
connection with the acquisition, the Corporation recorded a restructuring
charge of $16 million, comprised principally of severance costs and
estimated costs to consolidate facilities and operations. The acquisition
has been included in the Corporation's financial statements since the
acquisition date. Pro forma results of operations including BankWorcester
for the six months ended June 30, 1994 and 1993 are not presented since the
results would not have been significantly different in relation to the
Corporation's results of operations.
In January 1994, the Corporation completed the sale of its United States
factoring business, and recorded a pre-tax gain of $27 million on the
transaction. The previously announced sale of the Corporation's Canadian
factoring business, which remains subject to the purchaser's receipt of
required regulatory approval, is expected to close in the second half of
1994 with an additional pre-tax gain of approximately $5 million. The
factoring businesses' contribution to the Corporation's net income in prior
periods was not material.
In March 1994, the Corporation reached a definitive agreement to acquire
Pioneer Financial, A Co-operative Bank (Pioneer) for $118 million in cash.
Pioneer is a privately held financial institution based in Middlesex
County, Massachusetts. The acquisition has been approved by the boards of
directors of both companies, federal banking regulators and Pioneer
stockholders, and remains subject to required state regulatory approvals
and a review by the United States Department of Justice (the Justice
Department), which is authorized to review the transaction on antitrust
grounds. Consummation of the transaction is expected in the third quarter
of 1994. The acquisition will be accounted for as a purchase.
In June 1994, the Corporation announced a definitive agreement to sell two
of its affiliate banks, Bank of Vermont and Maine-based Casco Northern
Bank, N.A. (Casco). Bank of Vermont, based in Burlington, Vermont, had
$700 million in assets and $500 million in deposits as of June 30, 1994.
It has 233 employees and operates 12 branches. Casco, headquartered in
Portland, Maine, had $1.1 billion in assets and $900 million in deposits as
of June 30, 1994. It has 615 employees and 34 branches. The sale is
subject to the purchaser's receipt of required regulatory approvals.
3. Significant Noncash Transactions - Statement of Cash Flows:
During the first half of 1994 and 1993, the Corporation transferred
approximately $25 million and $44 million, respectively, to Other Real
Estate Owned (OREO) from loans. Loans made to facilitate sales of OREO
properties totaled approximately $2 million in the first half of 1994 and
1993, respectively. Other significant noncash transactions included the
transfer of certain assets to an accelerated disposition portfolio, which
is more fully discussed in Note 6.
On December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with the new standard, cash
flows from purchases, sales and maturities of securities available for sale
are classified as cash flows from investing activities. In previous
periods, this activity with regard to securities available for sale was
classified as cash flows from operating activities and presented on a net
basis.
9
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
4. Securities:
A summary comparison of securities available for sale by type is as follows:
June 30, 1994 December 31, 1993
---------------------------- ----------------------------
(in thousands) Cost Carrying value Cost Carrying value
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 416,861 $ 416,486 $ 108,017 $ 109,601
U.S. government
agencies and corporations:
Mortgage-backed securities 836,166 820,034 493,142 498,172
States and political subdivisions 144 136 478 474
Foreign debt securities 392,468 376,104 441,038 490,066
Other debt securities 140,618 140,618 149,585 149,585
Marketable equity
securities 48,450 64,671 57,959 74,330
Other equity securities 117,505 117,505 115,659 115,659
--------- --------- --------- ---------
$ 1,952,212 $ 1,935,554 $ 1,365,878 $ 1,437,887
========= ========= ========= =========
</TABLE>
In accordance with SFAS No. 115, securities available for sale are carried
at fair value, except for equity securities not traded on established
exchanges, which are carried at cost. The cost of such equity securities was
$118 million and $116 million at June 30, 1994 and December 31, 1993,
respectively.
A summary comparison of securities held to maturity, which are carried at
amortized cost, by type is as follows:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
----------------------------- -----------------------------
(in thousands) Cost Fair value Cost Fair value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 314,217 $ 313,754 $ 317,396 $ 317,599
U.S. government
agencies and corporations:
Mortgage-backed securities 1,132,748 1,093,193 1,045,574 1,044,026
States and political
subdivisions 32,420 32,979 29,480 30,512
Foreign debt securities 102,996 102,383 108,503 108,610
Other debt securities 65 65
Other equity securities 84,174 84,174 67,805 67,805
--------- --------- --------- ---------
$ 1,666,555 $ 1,626,483 $ 1,568,823 $ 1,568,617
========= ========= ========= =========
</TABLE>
10
<PAGE>
Notes to Financial Statements, continued
5. Loans and Lease Financing:
The following are the details of loan and lease financing balances:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
----------- -----------
<S> <C> <C>
United States Operations:
Commercial, industrial and financial $ 11,871,233 $ 11,991,440
Real Estate:
Secured by 1-4 family residential properties 4,215,113 4,159,069
Construction 499,139 617,426
Other commercial 3,083,976 3,123,024
Loans to individuals 2,283,257 1,609,566
Lease financing 1,262,767 1,263,267
Unearned income (198,245) (203,598)
---------- ----------
23,017,240 22,560,194
---------- ----------
International Operations:
Loans and lease financing 7,015,338 6,330,137
Unearned income (66,501) (108,357)
---------- ----------
6,948,837 6,221,780
---------- ----------
$ 29,966,077 $ 28,781,974
========== ==========
</TABLE>
6. Accelerated Disposition Portfolio:
During the first quarter of 1994, the Corporation created an accelerated
disposition portfolio by transferring $378 million of lower quality real
estate exposure to this category. In connection with this transfer, a
first quarter chargeoff of $119 million was recorded to reduce this
exposure to its estimated disposition value of $259 million. During the
second quarter, this portfolio was reduced by $54 million as a result of
dispositions which had no effect on earnings. In addition, in connection
with the BankWorcester acquisition, the Corporation acquired certain loans
which it classified as available for sale. These loans were added to the
accelerated disposition portfolio at their estimated disposition value of
$31 million, leaving the portfolio with a balance of $236 million at June
30, 1994, including $18 million of off-balance-sheet exposure. Until
liquidated, this portfolio will be carried at the lower of the established
carrying value or estimated disposition value.
The accelerated disposition portfolio consisted of the following:
<TABLE>
<CAPTION>
June 30 March 31
1994 1994
------- --------
(in millions)
<S> <C> <C>
Loans:
Nonaccrual real estate, including
1-4 family residential $ 132 $ 129
Performing renegotiated loans 46 51
Other performing real estate 26 30
OREO 14 31
----- -----
Total balance sheet assets 218 241
Off-balance-sheet exposure (letters
of credit) 18 18
----- -----
Total exposure $ 236 $ 259
===== =====
</TABLE>
11
<PAGE>
Notes to Financial Statements, continued
7. Reserve for Credit Losses:
An analysis of the reserve for credit losses is as follows:
(in thousands)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
--------------------- -----------------------
1994 1993 1994 1993
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 664,167 $ 869,773 $ 770,279 $ 923,120
Provision 25,000 27,630 70,000 50,126
Reserve of BankWorcester 16,630 16,630
Domestic credit losses:
Commercial, industrial
and financial (9,194) (15,514) (11,764) (32,514)
Real estate:
Construction (1,773) (3,480) (2,033) (10,993)
1-4 family residential properties (2,900) (5,090) (6,267) (8,764)
Other (12,765) (15,580) (21,794) (41,662)
Loans to individuals (14,577) (9,445) (28,612) (18,003)
Lease financing (41) (43)
International credit losses (5,126) (25,982) (21,562) (50,304)
------- ------- -------- --------
Total credit losses (46,335) (75,132) (92,032) (162,283)
------- ------- -------- --------
Domestic recoveries:
Commercial, industrial
and financial 3,783 3,557 7,761 6,669
Real estate:
Construction 31 72 368 1,108
1-4 family residential properties 387 1,254 914 2,144
Other 4,437 2,941 6,435 3,443
Loans to individuals 4,829 3,827 8,250 8,060
Lease financing 53 3 96 25
International recoveries 2,793 1,305 6,074 2,818
------- ------- -------- --------
Total recoveries 16,313 12,959 29,898 24,267
------- ------- -------- --------
Net credit losses before losses related to
accelerated disposition portfolio (30,022) (62,173) (62,134) (138,016)
Credit losses related to exposures
transferred to accelerated disposition
portfolio (119,000)
------- ------- -------- --------
Net credit losses (30,022) (62,173) (181,134) (138,016)
------- ------- -------- --------
Balance, end of period $ 675,775 $ 835,230 $ 675,775 $ 835,230
======= ======= ======== ========
</TABLE>
8. Offsetting of Carrying Amounts Related to Certain Contracts:
Effective January 1, 1994, the Corporation adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts." The interpretation requires the reporting of gross
unrealized gains and gross unrealized losses on foreign exchange and
interest rate contracts separately as assets and liabilities, respectively,
unless a right of setoff exists, including a right of setoff resulting from
contracts executed with the same counterparty under a master netting
arrangement. Previously, the Corporation reported unrealized gains and
losses related to forward foreign exchange rate contracts, interest rate
swap agreements and similar contracts on a net basis. At June 30, 1994,
both assets and liabilities were increased by $589 million as a result of
adoption of the interpretation.
12
<PAGE>
Notes to Financial Statements, continued
9. Notes Payable:
In January 1994, the Corporation issued $300 million of 6 5/8% Subordinated
Notes, due 2004. When the notes were issued, the Corporation entered into
an interest rate swap agreement that effectively converted the fixed rate
obligation to a floating rate obligation. Such interest rate was 4.01% at
June 30, 1994. The subordinated notes are not subject to redemption prior
to maturity. In March 1994, the Corporation redeemed its floating rate
notes due September 2000 at their principal amount plus accrued interest.
The carrying value of the notes at the time of redemption was $179 million.
In addition, during the first quarter of 1994, a nonbanking subsidiary of
the Corporation called for prepayment $186 million of its senior notes,
with fixed interest rates ranging from 6.67% to 9.50%, at their principal
amount plus accrued interest and a prepayment penalty. The loss on the
early extinguishment of the debt amounted to $6.5 million, net of taxes, or
$.06 per common share on both a primary and fully diluted basis, and is
presented as an extraordinary item in the consolidated statement of income.
In June 1994, the Corporation issued $100 million of floating rate senior
notes, due 1996. The interest rate on such notes was 4.83% at June 30,
1994.
10. Contingencies:
The Corporation and its subsidiaries are defendants in a number of legal
proceedings arising in the normal course of business, including claims that
borrowers or others have been damaged as a result of the Corporation's
lending practices. One of these actions, commonly referred to as lender
liability claims, has resulted in a judgment against a Corporation
subsidiary, which is being appealed. Management, after reviewing all
actions and proceedings pending against or involving the Corporation and
its subsidiaries, considers that the aggregate loss, if any, resulting from
the final outcome of these proceedings will not be material.
11. Brazilian Translation Gains and Losses:
During the first quarter of 1994, the Corporation reclassified translation
gains and losses associated with Brazilian local currency earning assets
and interest bearing liabilities from noninterest income to interest income
and interest expense, respectively. As a result of hyperinflation in
Brazil, interest income and interest expense from these local currency
assets and liabilities have had a significant impact on consolidated
interest income and interest expense, while contributing only modestly to
consolidated net interest revenue. The reclassification of these
translation gains and losses, while having no effect on the Corporation's
total revenue (net interest revenue plus noninterest income), provides a
better presentation of consolidated interest income, interest expense and
related yields; net interest revenue and related margin; and noninterest
income. Translation gains and losses related to Brazilian local currency
nonearning assets and noninterest bearing liabilities continue to be
classified as noninterest income. The net translation gain/loss from these
local currency noninterest earning assets and noninterest bearing
liabilities was immaterial in both the first half of 1994 and the first
half of 1993.
The Corporation has followed a strategy of maintaining a currency position
in Brazil that is designed to capitalize on the spread between Brazilian
interest rates and devaluation. This strategy has generally involved
investing dollar denominated/indexed interest bearing liabilities in local
currency earning assets. The previous presentation resulted in high levels
of net interest revenue that were mostly offset by translation losses
recorded in noninterest income. This currency position at June 30, 1994
was $199 million, compared with $103 million at December 31, 1993, and
averaged $168 million in the first half of 1994, compared with an average
of $78 million in the first half of 1993.
For the second quarter of 1994, the reclassification resulted in the
inclusion of $2,070 million of translation losses related to local currency
earning assets in interest income and $1,897 million of translation gains
related to local currency interest bearing liabilities in interest expense,
resulting in a reclassification from noninterest income of $173 million of
net translation losses. For the second quarter of 1993, $777 million of
translation losses were reclassified to interest income and $740 million of
translation gains were reclassified to interest expense, resulting in a
reclassification from noninterest income of $37 million of net translation
losses. For the first half of 1994, $4,295 million of translation losses
were included in interest income and $3,993 million of translation gains
were included in interest expense, resulting in a reclassification from
noninterest income of $302 million of net translation losses. For the
first half of 1993, $1,423 million of translation losses were reclassified
to interest income and $1,363 million of translation gains were
reclassified to interest expense, resulting in a reclassification from
noninterest income of $60 million of net translation losses.
13
<PAGE>
Notes to Financial Statements, continued
12. Change in Accounting for Purchased Mortgage Servicing Rights:
Effective January 1, 1993, the Corporation elected to change its method of
accounting for purchased mortgage servicing rights (PMSR) to conform its
financial reporting to the regulatory accounting rules adopted in the first
quarter of 1993 by the banking regulators. Under these new rules, the
carrying value of PMSR is recorded at the lesser of amortized cost or the
estimated aggregate recoverable amount determined by applying the discount
rate in effect at the time the servicing portfolios were purchased to the
estimated future net cash flows from servicing the underlying mortgages.
Prior to 1993, this valuation was performed on an undiscounted basis. The
cumulative effect to January 1, 1993 of adopting this change in accounting
principle was a decrease in income of $53 million, net of income taxes of
$32 million, or $.50 per common share on a primary basis and $.48 per
common share on a fully diluted basis.
13. Accounting for Income Taxes:
Effective January 1, 1993, the Corporation adopted prospectively SFAS No.
109, "Accounting for Income Taxes," which principally affects accounting
for deferred income taxes. The cumulative effect to January 1, 1993 of
adopting this new standard, which is shown as a cumulative effect of a
change in accounting principle, was an increase to first quarter income of
$77 million or $.74 per common share on a primary basis and $.70 per common
share on a fully diluted basis. The cumulative effect principally
reflected the recognition of previously unrecorded tax benefit
carryforwards.
During the second quarter of 1994, the Corporation recognized $10 million
of additional tax liability in connection with the merger of certain
banking subsidiaries and the loss of preferential tax treatment. The
additional liability was offset by the utilization of available foreign tax
credit carryforwards. As a result of the increased utilization of tax
credit carryforwards, the Corporation was able to reduce its valuation
reserve for potential expiration of tax credit carryforwards by $10
million.
14. Parent Company Condensed Financial Statements:
The following is a condensed balance sheet of the Corporation (Parent
Company only) at June 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
(in thousands) --------- ---------
<S> <C> <C>
ASSETS
Cash and short term investments in bank subsidiary $ 236,930 $ 206,920
Advances to subsidiaries:
Bank subsidiaries 35,864 63,709
Nonbank subsidiaries 228,226 226,203
Subordinated notes receivable from bank subsidiary 580,000 400,000
Investments in subsidiaries:
Bank subsidiaries 3,303,968 3,175,274
Nonbank subsidiaries 144,610 134,751
Other assets 28,555 22,846
--------- ---------
TOTAL ASSETS $ 4,558,153 $ 4,229,703
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper $ 100
Commercial paper due to nonbank subsidiary 9,200 $ 10,200
Notes payable 1,513,348 1,293,247
Other liabilities 30,553 14,587
--------- ---------
TOTAL LIABILITIES 1,553,201 1,318,034
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 3,004,952 2,911,669
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,558,153 $ 4,229,703
========= =========
</TABLE>
14
<PAGE>
Notes to Financial Statements, continued
14. Parent Company Condensed Financial Statements, Continued:
The following is a condensed income statement of the Corporation (Parent
Company only) for the quarters and six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1994 1993 1994 1993
(in thousands) ------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING INCOME
Dividend from bank subsidiary $ 18,018 $ 21,218
Dividend from nonbank subsidiary 9,960 9,960
Interest from subsidiaries:
Bank subsidiaries 10,976 $ 8,177 21,178 $ 16,977
Nonbank subsidiaries 2,327 1,296 3,932 2,542
------ ------ ------- -------
Total operating income 41,281 9,473 56,288 19,519
------ ------ ------- -------
EXPENSE
Interest expense 16,601 11,606 34,143 23,465
Other expense, net 1,233 875 3,162 2,140
------ ------ ------- -------
Total operating expense 17,834 12,481 37,305 25,605
------ ------ ------- -------
Income (Loss) before income taxes, equity
in undistributed net income of
subsidiaries, extraordinary item and
cumulative effect of change in
accounting principle 23,447 (3,008) 18,983 (6,086)
Benefit from income taxes (1,745) (1,006) (4,535) (2,037)
------ ------ ------- -------
Income (Loss) before equity in
undistributed net income of subsidiaries,
extraordinary item, and cumulative effect
of change in accounting principle 25,192 (2,002) 23,518 (4,049)
Equity in undistributed net income of
subsidiaries 69,308 73,389 167,482 160,824
------ ------ ------- -------
Income before extraordinary item and
cumulative effect of change in
accounting principle 94,500 71,387 191,000 156,775
Extraordinary loss from early
extinguishment of debt, net of tax (360)
Cumulative effect of change in accounting
for income taxes (1,713)
------ ------ ------- -------
NET INCOME $ 94,500 $ 71,387 $ 190,640 $ 155,062
====== ====== ======= =======
</TABLE>
15
<PAGE>
Notes to Financial Statements, continued
14. Parent Company Condensed Financial Statements, Continued:
The following is a condensed statement of cash flows of the Corporation
(Parent Company only) for the six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 190,640 $ 155,062
Reconciliation of net income to net cash
provided from (used for) operating activities:
Extraordinary item, net of tax 360
Cumulative effect of change in method
of accounting for income taxes 1,713
Equity in undistributed net income of
subsidiaries (167,482) (160,824)
Net change in interest receivables and
payables 9,632 (225)
Other, net 946 (4,131)
-------- --------
Net cash provided from (used for)
operating activities 34,096 (8,405)
-------- --------
Cash Flows From Investing Activities:
Net cash provided from (used for) short-term
investments (30,330) 17,710
Net cash provided from advances to subsidiaries 25,822 18,031
Investments in subsidiaries (20,465) (104,000)
Purchase of subordinated note receivable
from bank subsidiary (180,000)
-------- --------
Net cash used for investing activities (204,973) (68,259)
-------- --------
Cash Flows From Financing Activities:
Net cash provided from (used for)
commercial paper (900) 200
Net proceeds from issuance of notes
payable 398,601 99,866
Net proceeds from issuance of
common stock 16,794 9,928
Repayments of notes payable (178,500)
Net proceeds from issuance of preferred stock 67,595
Dividends paid (65,438) (32,968)
-------- --------
Net cash provided from financing activities 170,557 144,621
-------- --------
NET CHANGE IN CASH AND DUE FROM BANKS (320) 67,957
Cash and Due from Banks at January 1 550 236
-------- --------
Cash and Due from Banks at June 30 $ 230 $ 68,193
======== ========
Interest payments made $ 19,805 $ 23,923
Income tax refunds received $ (7,870) $ (1,500)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
GENERAL
The Corporation's net income for the quarter ended June 30, 1994 was $95
million, compared with net income of $71 million for the same period in 1993.
Net income per common share was $.80 on a primary basis and $.77 on a fully
diluted basis, compared with net income per common share of $.60 on a primary
basis and $.59 on a fully diluted basis for the second quarter of 1993. Net
income for the first half of 1994 was $191 million compared with net income of
$155 million for the first half of 1993. Net income per common share was $1.62
on a primary basis and $1.56 on a fully diluted basis for the first half of
1994, compared with net income per common share of $1.32 on a primary basis and
$1.29 on a fully diluted basis for the first half of 1993. The 1994 results
included a $16 million restructuring charge ($9 million after tax) in the second
quarter, comprised principally of severance costs and estimated costs to
consolidate facilities and operations in connection with the Corporation's
acquisition of BankWorcester Corporation (BankWorcester). The 1994 results also
included an extraordinary loss, net of tax, of $7 million in the first quarter
related to the prepayment of $186 million of senior debt by a non-banking
subsidiary and the redemption of $179 million of the Corporation's floating rate
notes. The 1993 results included $24 million of income, net of tax, from the
cumulative effect of changes in accounting principles, reflecting a $77 million
benefit as a result of adopting Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," and a $53 million after-tax
charge as a result of a change in accounting with respect to the valuation of
purchased mortgage servicing rights (PMSR).
Excluding the effects of the BankWorcester restructuring charge, net income for
the second quarter of 1994 was $104 million, compared with $71 million for the
second quarter of 1993. On this basis, primary and fully diluted earnings per
share were $.89 and $.86, respectively, in the second quarter of 1994 compared
with $.60 and $.59, respectively, for the same period last year. Excluding the
effects of the BankWorcester restructuring charge, the extraordinary loss and
the cumulative effect of changes in accounting principles, net income for the
first half of 1994 was $207 million compared with $131 million for the first
half of 1993. On this basis, primary and fully diluted earnings per share were
$1.77 and $1.71, respectively, in the first half of 1994 compared with $1.09 and
$1.07, respectively, for the same period last year.
NET INTEREST REVENUE - (Fully Taxable Equivalent Basis)
The discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue - Volume
and Rate Analysis on pages 38 through 42 of this report. For this review,
interest income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to a fully taxable equivalent basis. This
adjustment has been calculated using a federal income tax rate of 35% in 1994
and 34% in 1993, plus applicable state and local taxes, net of related federal
tax benefits. The adjustments amounted to $1.5 million and $3.0 million for the
quarter and six months ended June 30, 1994, respectively, compared with $1.7
million and $3.5 million for the same periods in 1993.
Consolidated net interest revenue, on a fully taxable equivalent basis, was $376
million for the second quarter of 1994 compared with $332 million for the same
period in 1993. For the first half of 1994, net interest revenue was $718
million compared with $658 million for the same period in 1993. Net interest
margin in the second quarter of 1994 was 3.98% compared with 3.99% in the second
quarter of 1993. For the first six months of 1994, net interest margin was
3.89% compared with 4.02% for the first half of 1993.
17
<PAGE>
The following table presents a summary of net interest revenue, on a fully
taxable equivalent basis, and related average earning asset balances and net
interest margins for United States and International Operations:
<TABLE>
<CAPTION>
Quarters Ended June 30 Change Change
(dollars in millions) 1994 1993 Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
United States Operations:
Net interest revenue $ 299.4 $ 267.4 $ 32.0 12%
Average loans and lease
financing 22,411 20,448 1,963 10
Average earning assets 28,092 26,179 1,913 7
Net interest margin 4.27% 4.10% .17% 4
International Operations:
Net interest revenue $ 76.6 $ 64.8 $ 11.8 18%
Average loans and lease
financing 6,694 5,406 1,288 24
Average earning assets 9,790 7,244 2,546 35
Net interest margin 3.14% 3.59% (.45)% (13)
Consolidated:
Net interest revenue $ 376.0 $ 332.2 $ 43.8 13%
Average loans and lease
financing 29,105 25,854 3,251 13
Average earning assets 37,882 33,423 4,459 13
Net interest margin 3.98% 3.99% (.01)%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30 Change Change
(dollars in millions) 1994 1993 Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
United States Operations:
Net interest revenue $ 573.6 $ 522.8 $ 50.8 10%
Average loans and lease
financing 22,359 20,320 2,039 10
Average earning assets 27,746 26,021 1,725 7
Net interest margin 4.17% 4.05% .12% 3
International Operations:
Net interest revenue $ 144.6 $ 135.4 $ 9.2 7%
Average loans and lease
financing 6,501 5,222 1,279 24
Average earning assets 9,447 7,032 2,415 34
Net interest margin 3.09% 3.88% (.79)% (20)
Consolidated:
Net interest revenue $ 718.2 $ 658.2 $ 60.0 9%
Average loans and lease
financing 28,860 25,542 3,318 13
Average earning assets 37,193 33,053 4,140 13
Net interest margin 3.89% 4.02% (.13)% (3)
</TABLE>
18
<PAGE>
The improvement in net interest revenue from the second quarter and first six
months of 1993 reflects increases of $32 million and $51 million, respectively,
from domestic operations. These increases were primarily due to a $2 billion
increase in average loan and lease volume; wider spreads as the increase in
rates on earning assets outpaced rate increases on interest bearing liabilities;
and interest recoveries on loans. The wider spreads and higher level of interest
recoveries served to increase domestic margin from 4.10% in the second quarter
of 1993 to 4.27% in the second quarter of 1994 and from 4.05% in the first six
months of 1993 to 4.17% in the first six months of 1994. BankWorcester
contributed approximately $5 million to net interest revenue in the second
quarter and first six months of 1994. Internationally, the $12 million growth in
net interest revenue from the second quarter of 1993 and the $9 million increase
from the first six months of 1993 was mainly attributable to an increase in
Latin American average earning assets of approximately $2.5 billion. The growth
in earning assets from each period included a $1.3 billion increase in average
loans. International net interest margin declined from 3.59% in the second
quarter of 1993 to 3.14% in the second quarter of 1994 and from 3.88% in the
first six months of 1993 to 3.09% in the first six months of 1994 due to
narrower spreads. Spreads have narrowed over the past year in Argentina, mainly
because of declining inflation, which has resulted from the continued stability
of the economy. Spreads in Brazil have also declined during the past year. The
Corporation's Brazilian currency position has enabled it to mitigate the
negative effects of narrower spreads from operations in that country. While the
international margin declined 45 basis points from the second quarter of 1993,
margin for the second quarter of 1994 represented a slight improvement over the
immediately preceding three quarters.
BRAZIL
During the first quarter of 1994, the Corporation reclassified translation gains
and losses associated with Brazilian local currency earning assets and interest
bearing liabilities from noninterest income to interest income and interest
expense, respectively. This reclassification had no effect on the Corporation's
total revenue (the sum of net interest revenue and noninterest income). As a
result of hyperinflation in Brazil, interest income and interest expense from
local currency assets and liabilities had a significant impact on consolidated
interest income and interest expense, while contributing only modestly to
consolidated net interest revenue. In addition, the Corporation has followed a
strategy of maintaining a currency position in Brazil that is designed to
capitalize on the spread between Brazilian interest rates and devaluation. This
strategy has generally involved investing dollar denominated/indexed interest
bearing liabilities in local currency earning assets. Such a strategy has
enabled the Corporation to improve its total revenue compared with what would
have been earned from exclusively funding local currency assets with local
currency liabilities. The previous presentation resulted in high levels of net
interest revenue that were mostly offset by translation losses recorded in
noninterest income. In order to better present the results of the Corporation's
interest operations, including the net revenue earned from this currency
position, translation gains and losses related to local currency earning assets
and interest bearing liabilities have been reclassified to the related
components of interest income and interest expense. Prior periods were
reclassified for comparative purposes.
19
<PAGE>
The following table presents a summary of net interest revenue earned from the
Corporation's Brazilian currency position during the past nine quarters and the
effect on net interest margin of reclassifying net translation losses associated
with this position from noninterest income to net interest revenue:
<TABLE>
<CAPTION>
June March Dec. Sept. June March Dec. Sept. June
(dollars in millions) 1994 1994 1993 1993 1993 1993 1992 1992 1992
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated net interest revenue,
on a fully taxable equivalent basis,
excluding Brazilian currency position $ 363 $ 331 $ 345 $ 339 $ 328 $ 322 $ 337 $ 326 $ 304
Effect of Brazilian currency position:
Interest income from currency
position 186 140 90 34 41 27 16 13 20
Translation losses previously
classified as noninterest income (173) (129) (84) (30) (37) (23) (13) (9) (15)
------ ----- ----- ----- ----- ----- ----- ----- -----
Net revenue from currency position 13 11 6 4 4 4 3 4 5
Consolidated net interest revenue, on a
fully taxable equivalent basis, after
reclassification of ------ ----- ----- ----- ----- ----- ----- ----- -----
net translation losses $ 376 $ 342 $ 351 $ 343 $ 332 $ 326 $ 340 $ 330 $ 309
====== ===== ===== ===== ===== ===== ===== ===== =====
Consolidated net interest margin:
Before reclassification of net
translation losses 5.81% 5.24% 4.77% 4.26% 4.43% 4.33% 4.21% 4.05% 3.99%
After reclassification of net
translation losses 3.98% 3.80% 3.86% 3.91% 3.99% 4.05% 4.06% 3.94% 3.81%
International net interest margin:
Before reclassification of net
translation losses 10.23% 8.80% 6.98% 4.52% 5.63% 5.58% 4.57% 4.73% 4.79%
After reclassification of net
translation losses 3.14% 3.03% 2.99% 2.99% 3.59% 4.20% 3.74% 4.17% 3.73%
Average principal amount of currency
position $ 189 $ 147 $ 104 $ 53 $ 89 $ 66 $ 45 $ 40 $ 45
</TABLE>
The Corporation's currency position exposes it to losses should devaluation
exceed local currency interest rates; such losses could be significant if
government intervention results in a major unanticipated devaluation.
Management, however, has been able to quickly close its position in the past
when market conditions warranted. Further, management will continue to closely
monitor the position and will alter the present strategy if necessary. While
the position could increase or decrease from the June 30, 1994 level of $199
million, the size of the position will continue to be a function of management's
assessment of the frequently changing economic and political situation in
Brazil, particularly in light of the government's new economic program and the
upcoming presidential elections, both of which are discussed below.
On July 1, 1994, the government of Brazil instituted a new economic program
aimed at stabilizing the economy and reducing inflation, which had risen to 45%
per month by June, 1994. Since July 1, inflation, while still at comparatively
high levels, has been reduced and the new local currency, known as the "real",
has been fairly stable with the dollar. The ability of the Brazilian government
to continue this program and achieve economic stability, however, remains
uncertain. In addition, a presidential election is scheduled for October and
the outcome of this election could have a major impact on the new economic
program. While the new economic program has not had a significant positive or
negative effect on the Corporation's financial position or results of
operations, the volatility of the situation is such that no assurance can be
given as to what effect the program will ultimately have on the Corporation.
20
<PAGE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $25 million for the quarter ended June 30,
1994, compared with $28 million for the same period in 1993. For the first six
months of 1994, the provision for credit losses was $70 million compared with
$50 million for the first six months of 1993. The provision for credit losses
reflected management's assessment of the adequacy of the reserve for credit
losses, including the current risk characteristics of the loan portfolio and
economic conditions. The level of the provision for credit losses in the first
quarter of 1994 also reflected, in part, the effect of transferring certain
lower quality real estate assets to an accelerated disposition portfolio. The
accelerated disposition portfolio is discussed below in Financial Condition.
The amount of future provisions will be a function of the regular quarterly
review of the reserve for credit losses which considers the risk characteristics
of the loan portfolio and the economic conditions existing at that time.
NONINTEREST INCOME
The following tables set forth the components of noninterest income, as well as
a further breakdown of financial service fees. Additional information on the
change in noninterest income follows each table. Noninterest income for all
periods has been restated to reflect the reclassification of certain Brazilian
translation gains and losses. This reclassification is discussed in Net
Interest Revenue and in Note 11 to the Financial Statements.
<TABLE>
<CAPTION>
Noninterest Income
- ------------------
(in millions)
Second Quarter Six Months
----------------------- -----------------------
1994 1993 Change 1994 1993 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Financial service fees $ 94 $ 92 $ 2 $ 186 $ 164 $ 22
Trust and agency fees 50 45 5 98 89 9
Trading profits and commissions 1 6 (5) 5 13 (8)
Securities portfolio gains, net 6 6 0 10 12 (2)
Mezzanine/venture capital
profits, net 5 4 1 19 24 (5)
Foreign exchange trading profits 11 13 (2) 20 21 (1)
Gain from sale of domestic
factoring business 0 0 0 27 0 27
Other income 25 25 0 62 42 20
----- ----- ----- ----- ----- -----
Total $ 192 $ 191 $ 1 $ 427 $ 365 $ 62
===== ===== ===== ===== ===== =====
</TABLE>
Trust and agency fees improved from the second quarter and first six months of
1993 primarily as a result of increased volumes and new business in the stock
transfer and Latin American mutual fund businesses. The decline in trading
account profits and commissions from the 1993 periods reflects the absence of
1993 profits from Argentine securities. The increase in other income from the
first six months of 1993 is due, in part, to net gains from the sale of
securities originally acquired in connection with loan restructurings.
21
<PAGE>
On January 31, 1994, the Corporation completed the sale of its United States
factoring business and recorded a gain of $27 million. The Corporation also has
an agreement to sell its Canadian factoring business. This sale, which is
subject to the purchaser receiving regulatory approval, is expected to close in
the second half of 1994 with an additional pre-tax gain of approximately $5
million.
<TABLE>
<CAPTION>
Financial Service Fees
- ----------------------
(in millions)
<CAPTION>
Second Quarter Six Months
------------------------ -------------------------
1994 1993 Change 1994 1993 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Deposit fees $ 31 $ 31 $ 0 $ 61 $ 61 $ 0
Letter of credit and acceptance
fees 14 14 0 27 29 (2)
Mortgage servicing fees:
Fee income 30 26 4 57 52 5
Amortization of mortgage
servicing assets (17) (20) 3 (34) (55) 21
----- ----- ----- ----- ------ -----
Net mortgage servicing fees 13 6 7 23 ( 3) 26
Loan-related fees 15 11 4 29 20 9
Factoring fees 1 6 (5) 3 11 (8)
Other 20 24 (4) 43 46 (3)
----- ----- ----- ----- ------ -----
Total $ 94 $ 92 $ 2 $ 186 $ 164 $ 22
===== ===== ===== ===== ====== =====
</TABLE>
Financial service fees increased $2 million from the second quarter of 1993 and
$22 million from the first six months of 1993. These improvements were mainly
due to an increase in net mortgage servicing fees, reflecting a higher volume of
business and lower amortization of mortgage servicing assets, and an increase in
loan-related fees principally due to a higher volume of syndication activity.
These increases were partially offset by lower levels of fees from domestic
factoring and freight management due to the sales of these businesses in 1994.
The decline in amortization of mortgage servicing assets mainly resulted from a
declining rate of current and estimated future mortgage prepayments, as mortgage
interest rates have risen. Future levels of amortization of mortgage servicing
assets will be dependent on a number of factors, including changes in the level
of mortgage interest rates and their effect on mortgage prepayments.
NONINTEREST EXPENSE
The following table sets forth the components of noninterest expense:
<TABLE>
<CAPTION>
Noninterest Expense
- -------------------
(in millions)
Second Quarter Six Months
----------------------- -----------------------
1994 1993 Change 1994 1993 Change
----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Employee costs $ 199 $ 195 $ 4 $ 394 $ 392 $ 2
Occupancy & equipment 56 56 0 111 114 (3)
Professional fees 14 14 0 26 27 (1)
Other 80 91 (11) 159 180 (21)
----- ----- ----- ----- ----- ------
Noninterest expense, before
restructuring and OREO costs 349 356 (7) 690 713 (23)
Restructuring charge 16 0 16 16 0 16
OREO costs 7 12 (5) 13 31 (18)
----- ----- ----- ----- ----- ------
Total $ 372 $ 368 $ 4 $ 719 $ 744 $ (25)
===== ===== ===== ===== ===== ======
</TABLE>
22
<PAGE>
Noninterest expense, before restructuring and OREO costs, declined $7 million
from the second quarter of 1993 and $23 million from the first six months of
1993 mainly due to lower non-employee costs. The declines in non-employee costs
in both comparisons included lower FDIC deposit insurance premiums due to lower
rates, and declines in various other expense categories such as insurance,
equipment rental, and travel. In addition, a property tax rebate and a first
quarter of 1994 partial refund of 1993's FDIC deposit insurance assessment also
contributed to the decline in the six month comparison.
Employee costs rose $4 million in the quarterly comparison and $2 million in the
six month comparison. This was mainly due to an increase in the international
payroll, reflecting strategic investments in Latin America; higher incentive
compensation; and an increase in payroll taxes. Partially offsetting these
increases was a decline in the domestic payroll resulting from a lower level of
employees. Excluding Latin America, the acquisition of BankWorcester and the
sales of the domestic factoring and freight management businesses, employee
levels have declined approximately 1,300, or 9%, since June 30, 1993.
In connection with the acquisition of BankWorcester, the Corporation recorded a
$16 million restructuring charge comprised principally of severance costs and
estimated costs to consolidate facilities and operations. Since this is an in-
market acquisition, the Corporation anticipates that it will achieve cost
savings through reductions in staff, as well as systems and space
consolidations.
The decline in OREO costs is due, in part, to lower valuation adjustments. The
level of OREO assets has declined from $129 million at June 30, 1993 to $71
million at June 30, 1994.
PROVISION FOR INCOME TAXES
The provision for income taxes was $75 million for the second quarter of 1994,
representing an effective tax rate of 44%. This compares with a provision and
effective tax rate of $54 million and 43%, respectively, for the second quarter
of 1993. For the first six months of 1994 the provision for income taxes before
extraordinary items was $156 million, representing an effective tax rate of 44%.
This compares with a provision and effective tax rate before the cumulative
effect of accounting changes of $95 million and 42%, respectively, for the first
six months of 1993. The increase in the income tax provision resulted from
higher pre-tax income and, to a lesser extent, the higher effective tax rate.
The increase in the effective tax rate was attributable to the increase in
federal income tax rates enacted in the middle of 1993 and an increase in the
estimate of foreign income taxes which may not be creditable for United States
federal income tax purposes.
FINANCIAL CONDITION
-------------------
CONSOLIDATED BALANCE SHEET
At June 30, 1994, the Corporation's total assets were $43.4 billion, an increase
of $1.0 billion from March 31, 1994. This increase mainly reflects the addition
of BankWorcester, which added approximately $1.5 billion of assets. Loans grew
$1.4 billion due to a $1.0 billion increase from BankWorcester and a $.6 billion
increase in loans from international operations, reflecting a higher volume of
Latin American loans. The increase in loans was partially offset by a $.9
billion decline in federal funds sold and resale agreements as the level of
federal funds sold was reduced at the end of the second quarter in connection
with the Corporation's capital plan. Deposits grew $1.2 billion reflecting the
acquisition of BankWorcester and an increase in interest bearing deposits from
overseas offices which more than offset declines in domestic money market,
certificate of deposit and noninterest bearing deposit accounts. Funds borrowed
declined $.4 billion as a decline in funding associated with the lower level of
federal funds sold and resale agreements discussed above was partially offset by
increases in Brazil and from The First National Bank of Boston's short-term bank
note program. Total outstandings from this note program grew from $1.6 billion
at March 31 to $2.0 billion at June 30, 1994.
23
<PAGE>
LIQUIDITY MANAGEMENT
At June 30, 1994, the Corporation's level of liquid assets stood at $4.9
billion, compared with $5.0 billion at March 31, 1994. In addition, Bank of
Boston Corporation (on a Parent Company only basis) had net liquid assets
(liquid assets in excess of short-term funding commitments) of $216 million at
June 30, 1994, compared with $96 million at March 31, 1994. The increase in the
Parent Company's liquidity from March 31, 1994 resulted mainly from the issuance
of $100 million of floating rate notes due June, 1996. Management considers
overall liquidity, on both a consolidated and Parent Company only basis, to be
adequate at June 30, 1994 to meet current obligations, support its expectations
for future changes in asset and liability levels and carry on normal operations.
Further, the Corporation has access to additional liquidity through the public
markets.
DERIVATIVE FINANCIAL INSTRUMENTS AND INTEREST RATE RISK MANAGEMENT
The Corporation participates as a counterparty in various derivative financial
instruments. In the negotiated over-the-counter (OTC) markets these instruments
include swaps, forwards and options, which are based upon interest rates and
foreign currencies. Standardized exchange-traded futures contracts are also
utilized. The Corporation enters into derivative transactions in connection
with its trading activities and for asset and liability management purposes.
Derivatives have risks similar to balance sheet instruments. The principal or
notional values of derivatives represent the volume of outstanding transactions
and do not represent the potential for gain or loss associated with the market
risks or credit risk of such transactions. As such, the actual market or credit
exposure for all these instruments is significantly less than the notional
amount and, historically, the Corporation's actual credit loss experience with
respect to its derivatives has been immaterial. Gains and losses stemming from
changes in the market values of the derivatives entered into in connection with
the Corporation's trading activities are recognized currently as part of trading
profits and commissions or foreign exchange profits. Income or expense related
to instruments used to manage the Corporation's own balance sheet interest rate
or foreign exchange risk are recorded over the period being managed as an
adjustment to the yield of the related asset or liability.
The primary focus of the Corporation's derivatives trading activities is to
provide these products to the Corporation's customers. As such, the Corporation
has generally taken only modest risk positions, within Board of Directors'
approved limits, with respect to its derivatives trading portfolio. Foreign
exchange trading profits were $11 million in the second quarter of 1994 compared
with $13 million in the second quarter of 1993. For the first six months of
1994, foreign exchange trading profits were $20 million compared with $21
million for the first six months of 1993. Trading profits from the
Corporation's interest rate-related derivatives businesses were $.3 million in
the second quarter of 1994 compared with $.9 million in the second quarter of
1993. For the first six months of 1994, such profits were $3.5 million compared
with $3.0 million for the first six months of 1993.
24
<PAGE>
The following table presents information on the significant categories of the
Corporation's derivative financial instruments held in the trading portfolio:
<TABLE>
<CAPTION>
Trading Portfolio
- -----------------
June 30, 1994 December 31, 1993
-------------------- --------------------
Notional Fair Notional Fair
(in millions) Amount Value(1) Amount Value(1)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Futures and Forwards $19,582 $ 1 $15,026 $ 0
Interest Rate Swaps 10,867 44 6,732 84
Interest Rate Options:
Written or Sold 4,664 (25) 5,744 (14)
Purchased 2,816 32 4,922 25
Foreign Exchange
Spot and forward contracts 21,206 5 21,592 (10)
Options written or sold 1,084 (23) 613 (22)
Options purchased 1,079 26 691 21
</TABLE>
(1) The trading portfolio is carried at fair value which represents the amount
at which a given instrument could be exchanged in an arm's length
transaction with a third party as of the balance sheet date. In certain
cases, instruments are subject to daily cash settlements; as such, the fair
value of these instruments is considered zero for purposes of the table.
In connection with its asset and liability management, the Corporation uses both
balance sheet instruments and derivatives to manage interest rate risk.
Interest rate risk can be defined as an exposure to a movement in interest rates
which could have a positive or negative effect on the Corporation's net income
or financial position. Interest rate risk arises from the Corporation's normal
banking activities due to an imbalance in the repricing or maturity schedules of
assets and liabilities. The Corporation seeks to minimize its risk of exposure
to changes in interest rates while also allowing for some imbalance which could
enable it to profit from favorable market opportunities. Derivatives provide
the Corporation with important flexibility in managing its interest rate
exposure, enabling it to efficiently manage risk while minimizing the impact on
balance sheet leverage and liquidity. For example, the Corporation may have
floating rate liabilities funding fixed rate assets during a period of rising
interest rates. Through the use of an interest rate swap, the Corporation can
effectively convert its floating rate liabilities to a fixed rate funding source
and safeguard its interest rate spread against rising rates.
Policies are established by management and approved by the Corporation's Board
of Directors, which establish limits for the amount of the Corporation's income
at risk and market value exposure that could result under various interest rate
scenarios. To evaluate the Corporation's exposure to various potential changes
in interest rates and to facilitate the management of interest rate risk, the
Corporation uses computer simulation models which allow it to assess the impact
on market value and net interest revenue from various interest rate scenarios
given the Corporation's existing interest rate risk position.
25
<PAGE>
The following table presents information on the significant categories of the
Corporation's derivative financial instruments held in the risk management
portfolio:
<TABLE>
<CAPTION>
Risk Management Portfolio
- -------------------------
June 30, 1994 December 31, 1993
--------------------------------------------------- --------------------------------------------
Average Average
Notional Remaining Fair Unrecognized Notional Remaining Fair Unrecognized
(in millions) Amount Maturity Value(1) Gain/(Loss)(2) Amount Maturity Value(1) Gain(2)
------- --------- -------- -------------- ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Futures and Forwards $ 2,390 4 months $ 5 $ 11 $3,581 3 months $ 2 $ 2
Interest Rate Swaps 4,846 4 years (138) (149) 3,463 4 years 47 46
Interest Rate Options (3):
Written or Sold 9,150 9 months (12) (9) 39 6 months 0 0
Purchased 11,669 10 months 33 39 414 3 years 5 5
Foreign Exchange
Spot and forward
contracts 363 5 months 4 0 556 3 months 13 0
</TABLE>
(1) Fair value represents the amount at which a given instrument could be
exchanged in an arm's length transaction with a third party as of the
balance sheet date. In certain cases, instruments are subject to daily cash
settlements; as such, the fair value of these instruments is considered zero
for purposes of the table.
(2) Unrecognized gain or loss represents the amount of gain or loss, based on
fair value, that has not been recognized in the income statement at the
balance sheet date. Such amounts are recognized as an adjustment of yield
over the period being managed. At June 30, 1994, unrecognized gain/(loss)
includes $31 million of unrecognized gain, with a weighted average
amortization period of 22 months, from contracts which have been terminated
or transferred to the trading portfolio, compared with $15 million, with a
weighted average amortization period of 12 months, at December 31, 1993.
Additional information on the Corporation's accounting policies for
derivatives can be found in the Corporation's 1993 Annual Report to
Stockholders on pages 59 and 60, which is incorporated by reference in its
1993 Annual Report on Form 10-K.
(3) The increase in the notional amounts related to interest rate options from
December 31, 1993 is due to transactions entered into during the first
quarter as the Corporation adjusted its strategy in response to rising
domestic interest rates.
As noted in the table above, there has been a substantial decline in the fair
value and unrecognized gain/loss of interest rate-related derivatives between
December 31, 1993 and June 30, 1994. This decline was mainly caused by the
increase in domestic interest rates that occurred during the first half of 1994.
Since these derivatives are used to manage the Corporation's overall domestic
interest rate risk, however, these declines must be examined in connection with
changes in the value and yields of the Corporation's domestic assets and
liabilities over the same period. In this context, the overall effect on the
Corporation from rising domestic interest rates during the first half of 1994
was positive. The decline in the fair value of the derivatives during the second
quarter of 1994 was offset by changes in the value of assets and liabilities.
In addition, domestic net interest revenue in the second quarter of 1994
improved $25 million over the first quarter with the principal factor being
wider spreads that were attributable to the increase in rates on earning assets
outpacing the rise in rates on interest bearing liabilities. At June 30, 1994,
the Corporation maintained a relatively neutral risk position with respect to
potential future changes in domestic interest rates, however, this position can
be changed quickly through the use of derivatives and/or balance sheet
instruments as market conditions warrant.
26
<PAGE>
CAPITAL
Stockholders' equity increased $58 million from March 31, 1994. This was mainly
due to second quarter net income of $95 million, partially offset by the payment
of dividends and a decline, net of tax, in the securities available for sale
portfolio from an unrealized gain of $3 million at March 31, 1994 to an
unrealized loss of $8 million at June 30, 1994.
In July 1994, the Board of Directors declared a quarterly dividend of $.22 per
share payable on August 26. The payment of future common dividends will
continue to be determined by the Board of Directors based on the Corporation's
financial condition, recent earnings history and other factors.
The Corporation's Tier 1 and total capital ratios were 7.1% and 12.3%,
respectively, at June 30, 1994, compared with 7.4% and 12.7%, respectively, at
March 31, 1994. The Corporation's leverage ratio at June 30, 1994 was 6.6%
compared with 6.9% at March 31, 1994. The decline in the ratios from March 31
is mainly a result of the purchase of BankWorcester. As of June 30, 1994, the
capital ratios of the Corporation and all of its banking subsidiaries exceeded
the minimum capital ratio requirements of the "well capitalized" category under
the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
During the past few years, certain of the Corporation's subsidiaries had been
subject to regulatory agreements which precluded them from being considered
"well capitalized" under FDICIA. With the merger of South Shore Bank, Mechanics
Bank and Multibank West into The First National Bank of Boston during the second
quarter and the lifting of Bank of Boston Connecticut's regulatory agreement on
July 15, however, all remaining regulatory agreements pertaining to the
Corporation's banking subsidiaries were eliminated. The capital categories of
the Corporation's banking subsidiaries are determined solely for purposes of
applying FDICIA's provisions and, accordingly, such capital categories may not
constitute an accurate representation of the overall financial condition or
prospects of any of the Corporation's banking subsidiaries. In order to assist
the Corporation's banking subsidiaries to maintain regulatory capital at desired
levels and in connection with its capital planning process, the Corporation has
provided capital contributions to certain of its banking subsidiaries in the
past, and may contribute additional capital to its banking subsidiaries in
future periods, if needed, to assist the subsidiaries in maintaining capital
ratios at desired levels. There were no capital contributions made to banking
subsidiaries during the first half of 1994, however, the Corporation purchased a
$180 million subordinated note, which qualifies as tier 2 capital, from The
First National Bank of Boston during the first quarter of 1994.
27
<PAGE>
ACQUISITIONS AND DIVESTITURES
The Corporation continues to engage in reviewing and discussing possible
acquisitions and divestitures of financial institutions, as well as banking and
other assets, in connection with the implementation of its business strategy.
During 1994, the following events have occurred:
. On January 31, 1994, the Corporation completed the sale of its domestic
factoring business and recorded a pre-tax gain of $27 million. The sale
of the Canadian factoring business remains subject to regulatory approval
and is expected to close in the second half of 1994 with a pre-tax gain
of approximately $5 million.
. On May 27, 1994, the Corporation completed its acquisition of
BankWorcester, a $1.5 billion bank holding company headquartered in
Worcester, Massachusetts. Concurrent with the acquisition,
BankWorcester's banking subsidiary, Worcester County Institution for
Savings, was merged into The First National Bank of Boston.
. On May 31, 1994, the Corporation completed the sale of its freight
management business.
. On June 24, 1994, the Corporation announced an agreement to sell two of
its banking subsidiaries, Bank of Vermont and Casco Northern Bank, N.A.
(Casco). At June 30, 1994, Casco had $1.1 billion and Bank of Vermont
had $.7 billion of total assets. These sale transactions are subject to
the purchaser obtaining required regulatory approvals.
. In mid-July 1994, the Corporation received federal bank regulatory
approval for its acquisition of Pioneer Financial, A Co-operative Bank
(Pioneer). Pioneer, with assets of $.8 billion at June 30, 1994, is
based in Middlesex County, Massachusetts. Consummation of this
transaction is expected during the third quarter, subject to receiving
remaining regulatory approvals.
Additional information on certain of these purchase and sale transactions can be
found in Note 2 to the Financial Statements.
In addition to the above, the Corporation has continued to grow its mortgage
servicing business. Two major bulk acquisitions that occurred during 1994
contributed $3.4 billion to total servicing volume. At June 30, 1994, the
Corporation's mortgage banking subsidiary had a total servicing volume of $33
billion compared with $24 billion at June 30, 1993.
28
<PAGE>
CREDIT PROFILE
The segments of the lending portfolio are as follows:
<TABLE>
<CAPTION>
June 30 March 31 Dec. 31 Sept. 30 June 30
(in millions) 1994 1994 1993 1993 1993
--------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and financial $ 11,871 $ 12,064 $ 11,991 $ 11,380 $ 10,778
Commercial real estate:
Construction 499 542 617 705 714
Other 3,084 2,851 3,123 3,054 3,167
-------- -------- -------- -------- --------
Total commercial real estate 3,583 3,393 3,740 3,759 3,881
Real estate loans secured by
1-4 family residential properties 4,215 3,923 4,159 4,291 3,836
Loans to individuals 2,283 1,795 1,610 1,556 1,530
Lease financing 1,263 1,257 1,264 1,226 1,187
Unearned income (198) (202) (204) (210) (298)
--------- -------- -------- -------- --------
23,017 22,230 22,560 22,002 20,914
-------- -------- -------- -------- --------
International:
Loans and lease financing, net of
unearned income 6,949 6,324 6,222 5,935 5,464
-------- --------- -------- -------- --------
Total loan and lease financing $ 29,966 $ 28,554 $ 28,782 $ 27,937 $ 26,378
======== ========= ======== ======== ========
</TABLE>
The $.8 billion increase in domestic loans and leases from March 31, 1994 was
mainly due to the acquisition of BankWorcester. BankWorcester contributed
nearly $1 billion in loans to the June 30, 1994 balance sheet of which
approximately $.7 billion were in consumer-related categories. Before the
effect of BankWorcester, domestic loans and leases declined $.2 billion stemming
from runoff in the mortgage warehousing and mutual fund industry portfolios
which exceeded growth in other portfolios, such as in the specialized industry
and New England corporate businesses. International loans increased $.6 billion
from March 31, 1994, reflecting ongoing growth in Latin America. Additional
information on the Corporation's international outstandings can be found under
Cross-Border Outstandings. Compared with June 30, 1993, loans and leases have
grown approximately 10% before the effect of the BankWorcester acquisition.
A discussion of the Corporation's real estate lending activities is included in
the Corporation's 1993 Annual Report to Stockholders on pages 39 through 41,
which is incorporated by reference in its 1993 Annual Report on Form 10-K. The
following tables set forth the Corporation's domestic commercial real estate
loans and OREO, and domestic commercial real estate nonaccrual loans and OREO,
by geographic location.
29
<PAGE>
DOMESTIC COMMERCIAL REAL ESTATE OUTSTANDINGS BY GEOGRAPHIC LOCATION
<TABLE>
<CAPTION>
Other Other
(in millions) Massachusetts Connecticut New England Florida Texas States Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 (1) $1,505 $435 $741 $207 $82 $ 682 $3,652
====== ==== ==== ==== ==== ====== ======
Balance at December 31, 1993 $1,373 $607 $802 $187 $54 $ 823 $3,846
====== ==== ==== ==== === ====== ======
</TABLE>
(1) Excludes assets transferred to accelerated disposition portfolio during
1994.
DOMESTIC COMMERCIAL REAL ESTATE NONACCRUAL LOANS AND OREO BY GEOGRAPHIC LOCATION
<TABLE>
<CAPTION>
Other Other
(in millions) Massachusetts Connecticut New England Florida Texas States Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 (1) $ 54 $62 $36 $18 $6 $83 $259
==== === === === == ==== ====
Balance at December 31, 1993 $103 $68 $52 $15 $8 $121 $367
==== === === === == ==== ====
Percent of related outstandings
at June 30, 1994
</TABLE>
(1) Excludes assets transferred to accelerated disposition portfolio during
1994.
HIGHLY LEVERAGED TRANSACTIONS
The Corporation's total loan portfolio at June 30, 1994 included $1.2 billion of
highly leveraged transaction (HLT) loans to 74 customers, compared with $1.2
billion to 72 customers at March 31, 1994. The average HLT loan size was $17
million at both June 30, 1994 and March 31, 1994. The HLT loans are to
customers operating in a variety of industries. The amount of unused
commitments for HLTs at June 30, 1994 was $544 million, compared with $409
million at March 31, 1994. The amount of unused commitments does not necessarily
represent the actual future funding requirements of the Corporation, since a
portion can be syndicated or assigned to others or may expire without being
drawn upon. At June 30, 1994, $24 million of the HLT portfolio was on
nonaccrual status, compared with $4 million at March 31, 1994. Net credit
losses from the HLT portfolio were $3 million in the second quarter of 1994
while none were recognized in the preceding quarter. The Corporation actively
manages the risks in its HLT portfolio, including adherence to special HLT
lending limits and periodic reviews of the portfolio by senior managers. The
Corporation has historically been involved in transactions that qualify as HLTs
and it expects to continue to agent and participate in such transactions in the
future. The Corporation, however, does not currently anticipate a substantial
increase in HLT lending over the June 30, 1994 level. A discussion of the
Corporation's HLT lending activities, policies and the effect of these
activities on results of operations is included in the Corporation's 1993 Annual
Report to Stockholders on pages 41 through 43, which is incorporated by
reference in its 1993 Annual Report on Form 10-K.
30
<PAGE>
NONACCRUAL LOANS AND OREO
The details of consolidated nonaccrual loans and OREO are as follows:
<TABLE>
<CAPTION>
June 30 March 31 Dec. 31 Sept. 30 June 30
(in millions) 1994 (1) 1994 (1) 1993 1993 1993
--------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and financial $ 131 $ 112 $ 121 $ 131 $ 150
Commercial real estate:
Construction 30 27 30 37 51
Other 160 134 231 225 275
----- ------ ----- ------ -----
Total commercial real estate 190 161 261 262 326
Real estate loans secured by 1-4
family residential properties 30 17 64 65 59
Loans to individuals 9 13 10 13 20
Lease financing 0 0 1 1 1
----- ------ ----- ------ -----
360 303 457 472 556
----- ------ ----- ------ -----
International 87 96 94 86 43
----- ----- ----- ------ -----
Total nonaccrual loans 447 399 551 558 599
OREO 71 66 108 136 129
----- ----- ----- ------ -----
Total $ 518 $ 465 $ 659 $ 694 $ 728
===== ====== ===== ====== =====
Nonaccrual loans and OREO as a
percent of related asset categories 1.7% 1.6% 2.3% 2.5% 2.7%
</TABLE>
(1) Excludes assets transferred to accelerated disposition portfolio during
1994.
The following table summarizes the changes in nonaccrual loans and OREO which
have occurred during the last nine quarters:
<TABLE>
<CAPTION>
1992 1993 1994
---------------------------------- -------------------------------------------- -----------------
Second Third Fourth First Second Third Fourth First Second
(in millions) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance $ 1,597 $ 1,323 $ 1,113 $ 949 $ 820 $ 728 $ 694 $ 659 $ 465
Additions from
BankWorcester 12
Additions 156 184 180 107 117 135 127 169 173
Restructurings (61) (104) (29) (13) (14)
Transfers to
accelerated
disposition portfolio
(before writedown) (224)
Sales, payments
and other decreases (252) (180) (187) (132) (115) (105) (103) (88) (80)
Credit losses and
valuation write-
downs (1) (117) (110) (128) (91) (80) (64) (59) (51) (52)
------- ------- ------- ------ ------ ------ ------ ------ ------
Ending balance $ 1,323 $ 1,113 $ 949 $ 820 $ 728 $ 694 $ 659 $ 465 $ 518
======= ======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
(1) The credit losses shown for the first quarter of 1994 exclude the chargeoff
taken on loans transferred to the accelerated disposition portfolio.
Nonaccrual loans and OREO increased $53 million from March 31, 1994. This
increase includes $12 million related to the acquisition of BankWorcester.
Nonaccrual loans and OREO represent 1.7% of related assets at June 30, 1994
compared with 1.6% at March 31, 1994. Excluding the transfer of nonperforming
assets to the accelerated disposition portfolio in the first quarter, the
Corporation has
31
<PAGE>
experienced an increase in its nonaccrual loan and OREO portfolio in each of the
first two quarters of 1994. The level of nonaccrual loans and OREO is influenced
by the economic environment, interest rates, the regulatory environment and
other internal and external factors. Despite the increases that have occurred
during the first half of 1994, the Corporation believes that the level of its
nonaccrual loans and leases and OREO will remain within an acceptable range.
ACCELERATED DISPOSITION PORTFOLIO
During the first quarter of 1994, in order to expedite the disposition of a
component of its remaining problem real estate assets and to strengthen its
balance sheet, the Corporation transferred $378 million of lower quality real
estate exposure to an accelerated disposition portfolio. At the point of
transfer, and after an individual review of each exposure, the Corporation took
a chargeoff of $119 million, leaving the March 31, 1994 carrying value of the
pool at $259 million, of which $241 million related to balance sheet exposure.
During the second quarter, this portfolio was reduced by $54 million principally
as a result of dispositions that had no effect on earnings. Also, in connection
with the BankWorcester acquisition, the Corporation acquired certain loans which
it classified as available for sale. These loans were added to the accelerated
disposition portfolio at their estimated disposition value of $31 million. As a
result of the second quarter activity, the level of the accelerated disposition
portfolio was reduced to $236 million at June 30, 1994, of which $218 million
relates to balance sheet exposure. The carrying value of the June 30 portfolio
approximates the estimated disposition value of the assets on a liquidation
basis, and is not indicative of the value that would be realized if these assets
were managed in the normal course of business or disposed of on a basis other
than liquidation. Until liquidated, this portfolio will be carried at the lower
of the established carrying value or estimated disposition value. The
Corporation is actively engaged in a formal selling effort and expects to
dispose of a majority of the portfolio during the second half of the year.
RENEGOTIATED LOANS
As part of its approach to managing credit, the Corporation renegotiates certain
of its loans when a determination is made that greater economic value will
ultimately be realized under the new terms than through foreclosure, liquidation
or bankruptcy. Renegotiated loans totaled $81 million at June 30, 1994,
compared with $116 million at March 31, 1994. The decline was due to a
combination of factors including the sale of certain loans, the receipt of
principal payments and the return of $10 million of renegotiated loans to
nonaccrual status. The renegotiated loans outstanding at June 30, 1994, which
had a yield of approximately 9 percent, are performing in accordance with their
new terms and are not included in nonaccrual loans.
Renegotiated loans as of each of the last five quarter-ends were as follows:
<TABLE>
<CAPTION>
June 30 March 31 Dec. 31 Sept. 30 June 30
(dollars in millions) 1994 1994 1993 1993 1993
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Renegotiated loans $ 81 $ 116 $ 225 $ 244 $ 248
==== ==== ==== ==== ====
Approximate yield
on renegotiated loans 9% 8% 8% 8% 8%
==== ==== ==== ==== ====
</TABLE>
In connection with the renegotiation of loans, the Corporation may obtain equity
interests in the borrower. Under certain circumstances, the Corporation's
investment in and loans to such borrowers are accounted for as investments and
included in other assets. Such investments amounted to $41 million at June 30,
1994 compared with $42 million at March 31, 1994.
32
<PAGE>
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at June 30, 1994 was $676 million, or 2.26%, of
outstanding loans and leases, compared with $664 million or 2.33% at March 31,
1994 and $835 million, or 3.17%, at June 30, 1993. The reserve for credit
losses was 151% of nonaccrual loans and leases at June 30, 1994, compared with
166% at March 31, 1994 and 140% at June 30, 1993.
Net credit losses were $30 million for the second quarter of 1994 and, excluding
the writedowns in connection with the accelerated disposition portfolio in the
first quarter, were $62 million for the first half of 1994. This compares with
$62 million for the second quarter and $138 million for the first half of 1993.
As a percentage of average loans and leases on an annualized basis, net credit
losses were .41% in the second quarter of 1994, compared with .46% for the first
quarter of 1994, excluding the writedowns in connection with the accelerated
disposition portfolio, and .96% for the second quarter of 1993.
<TABLE>
<CAPTION>
Net credit losses are as follows:
(in millions)
Second Quarter Six Months
---------------- -------------
1994 1993 1994* 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Domestic:
Commercial, industrial and finance $ 6 $ 12 $ 4 $ 26
Commercial real estate 10 16 17 48
Loans secured by 1-4 family residential
properties 2 4 5 7
Loans to individuals 9 6 20 10
------- ------ ------- ------
27 38 46 91
International 3 24 16 47
------- ------ ------- ------
Total $ 30 $ 62 $ 62 $ 138
======= ====== ====== ======
</TABLE>
*Excludes $119 million of credit losses related to the transfer of assets to the
accelerated disposition portfolio.
* * * * * * *
The economies of the United States and New England continued to improve during
the first half of 1994. Management, however, cannot currently predict to what
extent the domestic economic recovery or interest rate changes will affect
future periods. In addition, it is uncertain what impact future changes in the
economies in Latin America and other foreign countries where the Corporation
does business will have on future periods, particularly in Brazil, which has
implemented a new economic program in July and will hold a presidential election
in October. No assurance, therefore, can be given that the positive trends
achieved during the first half of 1994 will continue.
33
<PAGE>
CROSS-BORDER OUTSTANDINGS
Total cross-border outstandings, which are reported on a regulatory basis,
represented 14% of consolidated total assets at June 30, 1994 and December 31,
1993. Cross-border outstandings in countries which individually amounted to 1%
or more of consolidated total assets at June 30, 1994 and December 31, 1993 were
approximately as follows:
<TABLE>
<CAPTION>
Percentage of
Consolidated
(dollars in millions) Public Banks Other Total Total Assets Commitments(2)
------ ----- ------ ------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 (1)
-------------
Argentina $270 $230 $1,175 $1,675 3.9% $110
Brazil 50 900 950 2.2 20
Chile 135 150 175 460 1.1 40
United Kingdom 55 550 605 1.4 145
December 31,1993 (1)
--------------------
Argentina $255 $225 $1,025 $1,505 3.7% $ 40
Brazil 110 695 805 2.0 20
United Kingdom 15 565 580 1.4 145
</TABLE>
(1) Cross-border outstandings in countries which fell between .75% and 1.0% of
consolidated total assets at June 30, 1994 and December 31, 1993 were
approximately as follows: Korea $330 million at June 30, 1994; Canada
$315 million, Chile $395 million and Korea $310 million at December 31,
1993.
(2) Included within commitments are letters of credit and guarantees and the
undisbursed portion of loan commitments. Amounts presented are net of
reallocations.
At June 30, 1994, approximately $3.7 billion of the Corporation's cross-border
outstandings were to Less Developed Countries (LDCs), of which $3.1 billion were
to Argentina, Brazil and Chile, three countries in which the Corporation
maintains a branch network and subsidiaries. The $3.7 billion of LDC cross-
border outstandings were mainly comprised of short-term performing trade
credits, capital investments in branches and subsidiaries, and non-trade-related
loans and leases not subject to country debt rescheduling agreements. The
Corporation does not separately allocate a portion of its reserve for credit
losses for LDC loans and leases; however, they are considered in the
determination of the adequacy of the overall reserve for credit losses.
Changes in aggregate cross-border outstandings to Argentina and Brazil since
December 31, 1993 were approximately as follows:
<TABLE>
<CAPTION>
(in millions) Argentina Brazil
---------- ------
<S> <C> <C>
Cross-border outstandings at December
31, 1993 $ 1,505 $ 805
Increase in non-trade-related loans and
leases not subject to
country debt rescheduling 92
Net change in trade-related
cross-border outstandings, primarily
short-term (81) 102
Net change in investment and trading
securities 79 21
Net change in local currency assets
funded by non-local currency
liabilities 4
Net change in placements 68
Other 12 18
----------- --------
Cross-border outstandings at June 30, $ 1,675(1) $ 950(2)
1994 =========== ========
</TABLE>
(1) Approximately 46% are non-trade-related local dollar loans funded by
locally generated dollar liabilities and approximately 23% are trade-
related outstandings.
(2) Approximately 65% are trade-related outstandings.
34
<PAGE>
The Corporation has not experienced and does not expect to experience any
collection problems stemming from currency restrictions or foreign exchange
liquidity problems on its current portfolio of LDC cross-border outstandings.
The Corporation, however, will be closely reviewing the level of its Brazilian
cross-border outstandings, particularly in light of the country's new economic
plan and the presidential elections scheduled for October (as previously
described under "Results of Operations-Brazil"). Management may reduce the
level of its Brazilian cross-border outstandings during the third quarter
should the political and economic situation dictate that this is the most
prudent course of action. While minimal problems have been experienced to
date with respect to the Corporation's current portfolio of Brazilian cross-
border outstandings, there can be no assurance, given the current situation,
that such problems will not occur in the future.
35
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Averages by Quarter
Last Nine Quarters
(in millions)
1992 1993 1994
---------------------------- --------------------------------------- -----------------
2 3 4 1 2 3 4 1 2
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in
other banks $ 1,315 $ 1,222 $ 1,252 $ 1,262 $ 1,422 $ 1,305 $ 1,185 $ 1,083 $ 902
Federal funds sold and
securities purchased under
agreements to resell 1,063 1,092 801 1,309 1,089 1,367 2,005 2,447 3,485
Trading securities 183 233 242 290 276 300 259 452 402
Loans held for sale 607 640 869 682 944 1,334 1,314 960 824
Securities 4,232 4,521 4,907 3,909 3,838 3,561 3,194 2,945 3,164
Loans and lease financing 25,248 25,577 25,269 25,224 25,854 26,953 28,172 28,615 29,105
------ ------ ------ ------ ------ ------ ------ ------ ------
Total earning assets 32,648 33,285 33,340 32,676 33,423 34,820 36,129 36,502 37,882
Other assets 3,592 3,589 3,956 3,775 4,078 4,248 4,274 4,712 4,820
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL ASSETS $ 36,240 $ 36,874 $ 37,296 $ 36,451 $ 37,501 $ 39,068 $ 40,403 $ 41,214 $ 42,702
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing $ 3,731 $ 3,762 $ 4,220 $ 4,031 $ 4,397 $ 4,578 $ 4,863 $ 4,633 $ 4,403
Interest bearing 20,771 20,567 20,084 19,245 18,580 18,360 18,096 17,110 16,672
Overseas offices:
Noninterest bearing 290 360 362 349 336 387 469 497 393
Interest bearing 4,314 4,322 4,214 4,537 4,881 5,218 5,819 6,375 6,764
------ ------ ------ ------ ------ ------ ------ ------ ------
Total deposits 29,106 29,011 28,880 28,162 28,194 28,543 29,247 28,615 28,232
Federal funds purchased and
repurchase agreements 1,420 1,708 2,207 1,705 2,315 3,430 3,787 3,619 4,014
Other funds borrowed 1,578 1,713 1,507 1,436 1,606 1,485 1,603 2,411 4,124
Notes payable 1,187 1,186 1,223 1,669 1,670 1,752 1,876 2,194 1,957
Other liabilities 865 919 957 886 1,022 1,085 1,073 1,433 1,404
Stockholders' equity 2,084 2,337 2,522 2,593 2,694 2,773 2,817 2,942 2,971
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 36,240 $ 36,874 $ 37,296 $ 36,451 $ 37,501 $ 39,068 $ 40,403 $ 41,214 $ 42,702
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
36
<PAGE>
Consolidated Statement of Income by Quarter - Taxable Equivalent Basis
Last Nine Quarters
(in millions, except per share amounts)
<TABLE>
<CAPTION>
1992 1993 1994
--------------------------- ------------------------------------- ---------------
2 3 4 1 2 3 4 1 2
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Revenue $ 306.7 $ 327.9 $ 336.3 $ 324.2 $ 330.5 $ 340.8 $ 349.3 $ 340.7 $ 374.5
Taxable equivalent adjustment 2.2 2.1 3.7 1.8 1.7 2.3 2.0 1.5 1.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total net interest revenue 308.9 330.0 340.0 326.0 332.2 343.1 351.3 342.2 376.0
Provision for credit losses 45.2 44.5 23.0 22.5 27.6 10.0 10.0 45.0 25.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net interest revenue after
provision for credit losses 263.7 285.5 317.0 303.5 304.6 333.1 341.3 297.2 351.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Noninterest Income:
Financial service fees 93.0 81.1 88.9 71.3 92.6 90.9 95.2 92.4 93.9
Trust and agency fees 40.5 41.1 42.0 43.9 45.2 43.1 45.5 47.7 50.3
Trading profits and commissions 5.4 5.5 .5 6.9 5.8 6.9 3.9 3.9 1.2
Securities portfolio gains 11.6 8.7 1.5 6.4 6.0 11.0 8.8 3.9 5.9
Other income 38.5 40.9 45.7 45.9 41.4 39.3 35.6 87.2 41.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total noninterest income 189.0 177.3 178.6 174.4 191.0 191.2 189.0 235.1 192.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Noninterest Expense:
Salaries 146.1 154.9 163.7 159.1 161.7 160.4 153.3 157.8 161.5
Employee benefits 32.9 30.4 25.6 37.5 33.7 32.2 32.7 36.9 37.0
Occupancy expense 31.6 31.7 31.0 32.2 32.2 32.2 31.3 31.9 33.1
Equipment expense 24.7 24.6 25.5 25.6 24.0 23.3 23.4 23.6 23.4
Restructuring charge 85.0 16.4
Other expense 125.7 123.9 141.2 121.3 116.7 107.1 105.9 96.5 101.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total noninterest expense 361.0 365.5 387.0 375.7 368.3 440.2 346.6 346.7 372.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes, extraordinary items and
cumulative effect of changes in
accounting principles 91.7 97.3 108.6 102.2 127.3 84.1 183.7 185.6 170.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Provision for income taxes 41.6 40.3 42.7 40.9 54.2 40.4 79.2 81.4 74.9
Taxable equivalent adjustment 2.2 2.1 3.7 1.8 1.7 2.3 2.0 1.5 1.5
----- ----- ----- ----- ----- ----- ----- ----- -----
43.8 42.4 46.4 42.7 55.9 42.7 81.2 82.9 76.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before extraordinary
items and cumulative effect of
changes in accounting principles 47.9 54.9 62.2 59.5 71.4 41.4 102.5 102.7 94.5
Extraordinary items 18.4 19.0 17.3 (6.6)
Cumulative effect of changes in
accounting principles, net 24.2
----- ----- ----- ----- ----- ----- ----- ----- -----
NET INCOME $ 66.3 $ 73.9 $ 79.5 $ 83.7 $ 71.4 $ 41.4 $ 102.5 $ 96.1 $ 94.5
===== ===== ===== ===== ===== ===== ===== ===== =====
Per Common Share:
Income before
extraordinary items and
cumulative effect of changes in
accounting principles:
Primary $ .43 $ .47 $ .52 $ .49 $ .60 $ .30 $ .88 $ .88 $ .80
Fully diluted .42 .46 .50 .48 .59 .30 .85 .85 .77
Net Income:
Primary $ .61 $ .65 $ .68 $ .72 $ .60 $ .30 $ .88 $ .82 $ .80
Fully diluted .59 .63 .66 .70 .59 .30 .85 .79 .77
Cash dividends declared .10 .10 .10 .10 .10 .22 .22
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis
Quarters Ended June 30, 1994
In Millions of Dollars
- -------------------------------------------------------------------------------------------------------------------------
Average Average
Volume Interest(1) Rate
----------------------------------
<S> <C> <C> <C> <C>
Interest Revenue
Interest Bearing Deposits in U.S. $ 187 $ 2.2 4.62%
other Banks International(4) 715 16.3 9.16
------ -----
Total 902 18.5 8.22
------ ----- ------
Federal Funds Sold and Resale U.S. 1,847 18.3 3.98
Agreements International(4) 1,638 134.5 32.94
------ -----
Total 3,485 152.8 17.59
------ ----- ------
Trading Securities U.S. 183 2.2 4.93
International(4) 219 6.8 12.30
------ -----
Total 402 9.0 8.98
------ ----- ------
Loans Held for Sale U.S.(2) 824 12.8 6.23
------ ----- ------
Securities U.S.
Available For Sale 1,423 19.5 5.48
Held to Maturity 1,217 23.2 7.64
International(4)
Available For Sale 349 11.9 13.75
Held to Maturity 175 5.7 13.38
------ -----
Total Securities 3,164 60.3 7.64
------ ----- ------
Loans and Leases
(Net of Unearned Income) U.S. 22,411 423.8 7.59
International(4) 6,694 164.4 9.85
------ -----
Total Loans and Leases(3) 29,105 588.2 8.11
------ ----- ------
Interest-Earning Assets 37,882 841.6 8.91
Non-Interest-Earning Assets 4,820 ----- ------
------
Total Assets $ 42,702
======
-------------------------------------------------------------------------------
Interest Expense Deposits U.S.
Savings Deposits $ 9,413 $ 45.6 1.94%
Time Deposits 7,259 80.1 4.42
International(4) 6,764 116.4 6.90
------ -----
Total 23,436 242.1 4.14
------ ----- ------
Federal Funds Purchased
and Repurchase Agreements U.S. 3,689 34.4 3.74
International(4) 325 20.8 25.75
------ -----
Total 4,014 55.2 5.52
------ ----- ------
Other Funds Borrowed U.S. 2,641 31.7 4.81
International(4) 1,483 107.9 29.19
------ -----
Total 4,124 139.6 13.58
------ ----- ------
Notes Payable U.S. 1,824 24.9 5.47
International(4) 133 3.8 11.56
------ -----
Total 1,957 28.7 5.89
------ ----- ------
Total Interest-Bearing Liabilities 33,531 465.6 5.57
Demand Deposits U.S. 4,403 ----- ------
Demand Deposits International 393
Other Non-Interest-Bearing Liabilities 1,404
Total Stockholders' Equity 2,971
------
Total Liabilities and Stockholders' Equity $ 42,702
======
-------------------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 28,092 $ 299.4 4.27%
International 9,790 76.6 3.14
------ -----
Total $ 37,882 $ 376.0 3.98%
====== =====
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This data is shown with income on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Data for loans includes nonaccrual and renegotiated balances as well as
fees earned on loans.
(4) During the first quarter of 1994, the Corporation reclassified the
translation gains and losses associated with Brazilian local currency
earning assets and interest bearing liabilities from noninterest income to
interest income and interest expense, respectively. This reclassification
is more fully discussed in Note 11 to the Financial Statements.
38
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis
Quarters Ended June 30, 1993
In Millions of Dollars
- ------------------------------------------------------------------------------------------------------------------------
Average Average
Volume Interest(1) Rate
---------------------------------
<S> <C> <C> <C> <C>
Interest Revenue
Interest Bearing Deposits in U.S. $ 402 $ 3.1 3.06%
other Banks International(4) 1,020 33.0 12.99
------ -----
Total 1,422 36.1 10.18
------ ----- -----
Federal Funds Sold and Resale U.S. 819 6.2 3.08
Agreements International(4) 270 15.0 22.20
------ -----
Total 1,089 21.2 7.82
------ ----- -----
Trading Securities U.S. 133 1.3 3.79
International(4) 143 0.5 1.57
------ -----
Total 276 1.8 2.64
------ ----- -----
Loans Held for Sale U.S.(2) 944 17.0 7.20
------ ----- -----
Securities U.S.(5) 3,433 49.8 5.81
International(4)(5) 405 15.4 15.26
------ -----
Total Securities 3,838 65.2 6.81
------ ----- -----
Loans and Leases
(Net of Unearned Income) U.S. 20,448 394.4 7.74
International(4) 5,406 123.2 9.14
------ -----
Total Loans and Leases(3) 25,854 517.6 8.03
------ ----- -----
Interest-Earning Assets 33,423 658.9 7.91
Non-Interest-Earning Assets 4,078 ----- -----
------
Total Assets $ 37,501
======
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense Deposits U.S.
Savings Deposits $ 9,371 $ 56.2 2.45%
Time Deposits 9,209 107.3 4.67
International(4) 4,881 82.3 6.76
------ -----
Total 23,461 245.8 4.20
------ ----- -----
Federal Funds Purchased
and Repurchase Agreements U.S. 2,236 16.4 2.94
International(4) 79 2.7 13.85
------ -----
Total 2,315 19.1 3.31
------ ----- -----
Other Funds Borrowed U.S. 992 12.6 5.09
International(4) 614 22.0 14.35
------ -----
Total 1,606 34.6 8.64
------ ----- -----
Notes Payable U.S. 1,564 25.0 6.42
International(4) 106 2.2 8.26
------ -----
Total 1,670 27.2 6.54
------ ----- -----
Total Interest-Bearing Liabilities 29,052 326.7 4.54
Demand Deposits U.S. 4,397 ----- -----
Demand Deposits International 336
Other Non-Interest-Bearing Liabilities 1,022
Total Stockholders' Equity 2,694
------
Total Liabilities and Stockholders' Equity $ 37,501
======
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 26,179 $ 267.4 4.10%
International 7,244 64.8 3.59
------ -----
Total $ 33,423 $ 332.2 3.99%
====== =====
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This data is shown with income on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Data for loans includes nonaccrual and renegotiated balances as well as
fees earned on loans.
(4) During the first quarter of 1994, the Corporation reclassified the
translation gains and losses associated with Brazilian local currency
earning assets and interest bearing liabilities from noninterest income to
interest income and interest expense, respectively. This reclassification
is more fully discussed in Note 11 to the Financial Statements.
(5) Prior to January 1, 1994, average balances for Securities Available for
Sale and Securities Held to Maturity were not separately accumulated.
39
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis
Six Months Ended June 30, 1994
In Millions of Dollars
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Volume Interest(1) Rate
----------------------------------
<S> <C> <C> <C> <C>
Interest Revenue
Interest Bearing Deposits in U.S. $ 217 $ 3.9 3.63 %
Other Banks International(4) 776 36.9 9.58
------ -------
Total 993 40.8 8.29
------ ------- -------
Federal Funds Sold and Resale U.S. 1,586 28.8 3.66
Agreements International(4) 1,380 203.7 29.77
------ -------
Total 2,966 232.5 15.81
------ ------- -------
Trading Securities
U.S. 148 3.4 4.66
International(4) 280 24.0 17.30
------ -------
Total 428 27.4 12.93
------ ------- -------
Loans Held for Sale U.S.(2) 892 28.5 6.43
------ ------- -------
Securities U.S.
Available For Sale 1,150 35.4 6.19
Held to Maturity 1,394 40.1 5.80
International(4)
Available For Sale 293 21.7 14.90
Held to Maturity 217 8.4 7.83
------ -------
Total Securities 3,054 105.6 6.61
------ ------- -------
Loans and Leases
(Net of Unearned Income) U.S. 22,359 824.9 7.44
International(4) 6,501 307.0 9.52
------ -------
Total Loans and Leases(3) 28,860 1,131.9 7.91
------ ------- -------
Interest-Earning Assets 37,193 1,566.7 8.49
------- -------
Non-Interest-Earning Assets 4,765
------
Total Assets $ 41,958
======
-------------------------------------------------------------------------------------
Interest Expense Deposits U.S.
Savings Deposits $ 9,336 $ 89.1 1.93 %
Time Deposits 7,554 166.4 4.44
International(4) 6,569 226.2 6.94
------ -------
Total 23,459 481.7 4.14
------ ------- -------
Federal Funds Purchased
and Repurchase Agreements U.S. 3,541 60.9 3.47
International(4) 276 31.1 22.68
------ -------
Total 3,817 92.0 4.86
------ ------- -------
Other Funds Borrowed U.S. 2,062 49.5 4.84
International(4) 1,206 163.4 27.32
------ -------
Total 3,268 212.9 13.14
------ ------- -------
Notes Payable U.S. 1,963 54.8 5.63
International(4) 112 7.1 12.83
------ -------
Total 2,075 61.9 6.02
------ ------- -------
Total Interest-Bearing Liabilities 32,619 848.5 5.25
------- -------
Demand Deposits U.S. 4,518
Demand Deposits International 445
Other Non-Interest-Bearing Liabilities 1,418
Total Stockholders' Equity 2,958
------
Total Liabilities and Stockholders' Equity $ 41,958
======
-------------------------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $27,746 $573.6 4.17%
International 9,447 144.6 3.09
------ ------
Total $37,193 $718.2 3.89%
====== ======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This data is shown with income on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Data for loans includes nonaccrual and renegotiated balances as well as
fees earned on loans.
(4) During the first quarter of 1994, the Corporation reclassified the
translation gains and losses associated with Brazilian local currency
earning assets and interest bearing liabilities from noninterest income to
interest income and interest expense, respectively. This reclassification
is more fully discussed in Note 11 to the Financial Statements.
40
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis
Six Months Ended June 30, 1993
In Millions of Dollars
- ------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Revenue Volume Interest(1) Rate
---------------------------------
<S> <C> <C> <C> <C>
Interest Bearing Deposits in U.S. $ 367 $ 6.0 3.28%
other Banks International(4) 975 66.1 13.69
------ -------
Total 1,342 72.1 10.84
------ ------- -----
Federal Funds Sold and Resale U.S. 924 14.1 3.08
Agreements International(4) 274 29.4 21.56
------ -------
Total 1,198 43.5 7.32
------ ------- -----
Trading Securities U.S. 134 2.7 4.00
International(4) 149 1.0 1.42
------ -------
Total 283 3.7 2.64
------ ------- -----
Loans Held for Sale U.S.(2) 814 30.3 7.51
------ ------- -----
Securities U.S.(5) 3,462 103.2 6.01
International(4)(5) 412 32.2 15.76
------ -------
Total Securities 3,874 135.4 7.05
------ ------- -----
Loans and Leases
(Net of Unearned Income) U.S. 20,320 786.8 7.81
International(4) 5,222 249.2 9.62
------ -------
Total Loans and Leases(3) 25,542 1,036.0 8.18
------ ------- -----
Interest-Earning Assets 33,053 1,321.0 8.06
Non-Interest-Earning Assets 3,929 ------- -----
------
Total Assets $ 36,982
======
------------------------------------------------------------------------------
Interest Expense Deposits U.S.
Savings Deposits $ 9,296 $ 115.3 2.53%
Time Deposits 9,615 229.2 4.81
International(4) 4,710 165.9 7.10
------ -------
Total 23,621 510.4 4.36
------ ------- -----
Federal Funds Purchased
and Repurchase Agreements U.S. 1,878 27.1 2.91
International(4) 134 8.4 12.68
------ -------
Total 2,012 35.5 3.56
------ ------- -----
Other Funds Borrowed U.S. 969 22.0 4.58
International(4) 553 38.9 14.16
------ -------
Total 1,522 60.9 8.06
------ ------- -----
Notes Payable U.S. 1,562 50.4 6.50
International(4) 107 5.6 10.46
------ -------
Total 1,669 56.0 6.76
------ ------- -----
Total Interest-Bearing Liabilities 28,824 662.8 4.66
Demand Deposits U.S. 4,215 ------- -----
Demand Deposits International 342
Other Non-Interest-Bearing Liabilities 954
Total Stockholders' Equity 2,647
------
Total Liabilities and Stockholders' Equity $ 36,982
======
------------------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 26,021 $ 522.8 4.05%
International 7,032 135.4 3.88
------ -----
Total $ 33,053 $ 658.2 4.02%
====== =====
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This data is shown with income on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Data for loans includes nonaccrual and renegotiated balances as well as
fees earned on loans.
(4) During the first quarter of 1994, the Corporation reclassified the
translation gains and losses associated with Brazilian local currency
earning assets and interest bearing liabilities from noninterest income to
interest income and interest expense, respectively. This reclassification
is more fully discussed in Note 11 to the Financial Statements.
(5) Prior to January 1, 1994, average balances for Securities Available for
Sale and Securities Held to Maturity were not separately accumulated.
41
<PAGE>
Change in Net Interest Revenue - Volume and Rate Analysis
The following table summarizes the changes in net interest revenue, on a fully
taxable equivalent basis, by the amount resulting from changes in rate and the
amount resulting from changes in volume.
Second Quarter 1994 Compared With Second Quarter 1993 - (in millions)
<TABLE>
<CAPTION>
United States International Consolidated
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Due to Due to
Change in Change in Change in
Net Net Net
Volume(2) Rate Change Volume(2) Rate Change Volume(2) Rate Change
--------- ---- ------ --------- ---- ------ --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and lease financing $ 37.1 $ (7.7) $ 29.4 $ 31.7 $ 9.5 $ 41.2 $ 65.8 $ 4.8 $ 70.6
Other earning assets (.7) 1.5 .8 71.1 40.2 111.3 34.8 77.3 112.1
Adjustment(1) (2.2) 2.2 0 (14.5) 14.5 0 (1.5) 1.5 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest income 34.2 (4.0) 30.2 88.3 64.2 152.5 99.1 83.6 182.7
Total interest expense 13.8 (15.6) (1.8) 68.4 72.3 140.7 54.8 84.1 138.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Interest Revenue $ 20.4 $ 11.6 $ 32.0 $ 19.9 $ (8.1) $ 11.8 $ 44.3 $ (.5) $ 43.8
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
Six Months 1994 Compared with Six Months 1993 - (in millions)
United States International Consolidated
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Due to Due to
Change in Change in Change in
Net Net Net
Volume(2) Rate Change Volume(2) Rate Change Volume(2) Rate Change
--------- ---- ------ --------- ---- ------ --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and lease financing $ 75.2 $ (37.1) $ 38.1 $ 60.4 $ (2.6) $ 57.8 $ 130.1 $ (34.2) $ 95.9
Other earning assets (8.2) (8.0) (16.2) 113.6 52.4 166.0 42.9 106.9 149.8
Adjustment(1) (7.1) 7.1 0 (20.2) 20.2 0 1.4 (1.4) 0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest income 59.9 (38.0) 21.9 153.8 70.0 223.8 174.4 71.3 245.7
Total interest expense 24.3 (53.2) (28.9) 116.8 97.8 214.6 94.5 91.2 185.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Interest Revenue $ 35.6 $ 15.2 $ 50.8 $ 37.0 $ (27.8) $ 9.2 $ 79.9 $ (19.9) $ 60.0
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Adjustment to reflect the effect on total volume and rate changes of the
differences in the component mix of earning assets and interest bearing
liabilities between periods.
(2) The change due to the volume/rate variance has been allocated to volume and
the change resulting from the difference in the number of days in the
period has been allocated to rate.
42
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported, in January 1994, the Securities and Exchange Commission
(the Commission) commenced an administrative proceeding against the Corporation.
The administrative proceeding relates to the Commission's claim that the
Corporation's second quarter 1989 Form 10-Q did not disclose known trends or
uncertainties with respect to the Corporation's credit portfolio and
specifically its domestic commercial real estate portfolio. The Corporation
reported a significant loss in the third quarter of 1989 as a result of adding
to its reserve for credit losses, primarily due to deterioration in the credit
quality of its domestic commercial real estate portfolio. Management believes
that the disclosures made in its second quarter 1989 Form 10-Q were appropriate
and intends to defend the action vigorously. A hearing before an administrative
law judge was conducted in May 1994, and the parties are in the process of
preparing and filing post-trial briefs. Although management cannot predict the
outcome of this proceeding, an unfavorable outcome will not result in any
monetary penalties to the Corporation.
As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
(Bancorp) and Bancorp's directors who voted in favor of the Corporation's
acquisition of Bancorp. The action was brought by a Bancorp stockholder,
individually and as a class action on behalf of all Bancorp stockholders of
record on the date the acquisition was announced, and sought an injunction with
respect to the proposed acquisition and damages in an unspecified amount. In
July 1993, the Corporation acquired Bancorp. In December 1993, the Chancery
Court granted summary judgment in favor of the Corporation, Bancorp and
Bancorp's former directors. The plaintiff has appealed that decision to the
Delaware Supreme Court. Hearing before a three-judge panel of the Court was held
on April 5, 1994, and a second hearing before the full panel has been scheduled
for October 21, 1994.
Item 5. Other Information
As previously reported, in March 1994, the Corporation announced that it had
reached a definitive agreement to acquire Pioneer Financial, A Co-operative Bank
(Pioneer) for $118 million in cash. Pioneer is based in Middlesex County,
Massachusetts. The Pioneer transaction has been approved by the boards of
directors of both companies and Pioneer's stockholders, and has also been
approved by the Office of the Comptroller of the Currency (the OCC) and the
Federal Deposit Insurance Corporation (the FDIC). The Pioneer transaction
remains subject to the approval of the Massachusetts Board of Bank Incorporation
and the Commissioner of Banks for the Commonwealth of Massachusetts and
applications for these approvals have been submitted. The transaction may not be
consummated until the 30th day after the date of the OCC approval, during which
time the Justice Department is authorized to review the transaction on antitrust
grounds. The Corporation's objective is to consummate the Pioneer Bank
transaction in the third quarter of 1994, although no assurances can be given
that the requisite regulatory approvals will be granted or, if granted, that
such approvals will be received within these time frames.
As previously reported, the Corporation obtained regulatory approval in April
1994 to merge Mechanics Bank, South Shore Bank and Multibank West into The First
National Bank of Boston (FNBB) and on May 6, 1994 merged South Shore Bank into
FNBB. The mergers of Multibank West and Mechanics Bank into FNBB were completed
on June 10, 1994.
43
<PAGE>
On June 23, 1994, the Corporation entered into stock purchase agreements (the
Agreements) pursuant to which the purchaser will acquire all of the capital
stock of two of the Corporation's subsidiaries, Bank of Vermont and Casco. The
acquisitions are subject to the purchaser's receipt of applicable state and
federal regulatory approvals.
As previously reported, in 1991, Bank of Boston Connecticut entered into a
stipulation and agreement with the Connecticut Banking Commissioner. In July
1994, the Connecticut Banking Commissioner terminated the agreement with Bank of
Boston Connecticut as a result of progress made by Bank of Boston Connecticut in
the areas addressed in the agreement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10(a) Form of Severance Agreement for certain executive officers.
10(b) Form of Severance Agreement for certain executive officers.
11 Computation of Earnings Per Share.
12(a) Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (excluding interest on deposits).
12(b) Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (including interest on deposits).
12(c) Computation of the Corporation's Consolidated Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividend
Requirements (excluding interest on deposits).
12(d) Computation of the Corporation's Consolidated Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividend
Requirements (including interest on deposits).
(b) Current Reports on Form 8-K.
During the second quarter of 1994, the Corporation filed two Current Reports on
Form 8-K. The Current Reports, dated May 27, 1994 and June 15, 1994,
respectively, contained information pursuant to Items 5 and 7 of Form 8-K.
44
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized.
BANK OF BOSTON CORPORATION
/S/Ira Stepanian
----------------
Ira Stepanian
Chairman of the Board of Directors and
Chief Executive Officer
/S/William J. Shea
------------------
William J. Shea
Vice Chairman,
Chief Financial Officer and
Treasurer
August 12, 1994
- ---------------
Date
45
<PAGE>
EXHIBIT 10A:
Form of Severance Agreement for
members of the Chairman's Office
AGREEMENT
THIS AGREEMENT dated as of August 5, 1994, is
made by and between Bank of Boston Corporation, a
Massachusetts corporation (the "Company"), and
___________________ (the "Executive").
WHEREAS the Company considers it essential to
the best interests of its stockholders to foster the
continuous employment of key management personnel; and
WHEREAS the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many
publicly held corporations, the possibility of a Change
in Control (as defined in the last Section hereof) exists
and that such possibility, and the uncertainty and
questions which it may raise among management, may result
in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS the Board has determined that
appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of
members of the Company's management, including the
Executive, to their assigned duties with the Company
and/or the Bank, as the case may be, without distraction
in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the premises
and the mutual covenants herein contained, and for other
valuable consideration, the Company and the Executive
hereby agree as follows:
1. Defined Terms. The definitions of
capitalized terms used in this Agreement are provided in
<PAGE>
the last Section hereof.
2. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
through August 31, 1997, provided that commencing on
September 1, 1996 and each September 1 thereafter, the
term of this Agreement shall automatically be extended
for one additional year unless, not later than May 31 of
the preceding year, the Company or the Executive shall
have given notice not to extend this Agreement or a
Change in Control shall have occurred prior to such
September 1. If a Change in Control shall have occurred
during the term of this Agreement, however, this
Agreement shall continue in effect for a period of not
less than three (3) years beyond the last day of the
month in which such Change in Control occurred.
Notwithstanding the foregoing provisions of this Section
2, this Agreement shall terminate, unless earlier
terminated in accordance with this Agreement, (i) one (1)
year after the Executive is notified in accordance with
Section 10 hereof that the Compensation Committee, upon
recommendation of the Company's chief executive officer,
has voted to terminate this Agreement or (ii) if earlier,
immediately after the Executive is notified in accordance
with Section 10 hereof that the Compensation Committee
has determined that the Executive's level of
responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level
of responsibility, in either case only if the
notification occurs prior to a Potential Change in
Control that results in a Change in Control. By way of
illustration, if there were a change in the nature of the
Executive's responsibilities (e.g., from technology to
human resources) but the only change in the level of the
Executive's responsibilities were a change in reporting
responsibilities, these changes alone would not provide
grounds for the Compensation Committee determination
referred to in clause (ii) above.
3. Company's Covenants Summarized. In order
<PAGE>
to induce the Executive to remain in the employ of the
Company or the Bank and in consideration of the
Executive's covenants set forth in Section 4 hereof, the
Company agrees, under the conditions described herein, to
pay the Executive the Severance Payments described in
Section 6.1 hereof and the other payments and benefits
described herein in the event the Executive's employment
with the Company or the Bank is terminated following a
Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this
Agreement unless there shall have been (or, under the
terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the
Company or the Bank following a Change in Control. This
Agreement shall not be construed as creating an express
or implied contract of employment, and except as
otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be
retained in the employ of the Company or the Bank.
4. Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company or the Bank until the
earliest of (i) a date which is six (6) months from the
date of such Potential Change of Control, (ii) the date
of a Change in Control, (iii) the date of termination by
the Executive of the Executive's employment for Good
Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition
of Good Reason), by reason of death or Retirement, or
(iv) the termination by the Company or the Bank of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
Executive fails to perform the Executive's full-time
<PAGE>
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company
during such period, until the Executive becomes eligible
for benefits at least equal to those to which the
Executive would have been entitled under the long-term
disability insurance plan of the Company in effect
immediately prior to the Change in Control.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits payable to the Executive
through the Date of Termination under the terms of any
compensation or benefit plan, program or arrangement
maintained by the Company during such period.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay or make available to the Executive any rights,
compensation and benefits which are vested in the
Executive or which the Executive has or is otherwise
entitled to receive under any plan or program of the
Company (including without limitation any retirement plan
or any welfare plan providing post-retirement benefits)
to the Executive as such rights, compensation or benefits
become due. Such rights, compensation and benefits shall
be determined under, and paid or made available in
accordance with, the Company's applicable retirement,
insurance and other compensation or benefit plans,
programs and arrangements.
<PAGE>
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the
termination of the Executive's employment following a
Change in Control and during the term of this Agreement,
in addition to the payments and benefits described in
Section 5 hereof, unless such termination is (i) by the
Company or the Bank for Cause, (ii) by reason of death or
Retirement, or (iii) by the Executive without Good
Reason. The Executive's employment shall be deemed to
have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good
Reason if the Executive's employment is terminated prior
to a Change in Control without Cause at the direction of
a Person who has entered into an agreement with the
Company the consummation of which will constitute a
Change in Control or if the Executive terminates his
employment with Good Reason prior to a Change in Control
(determined by treating a Potential Change in Control as
a Change in Control in applying the definition of Good
Reason) if the circumstance or event which constitutes
Good Reason occurs at the direction of such Person.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefits otherwise payable to the Executive under
any then existing broad-based employee severance
plan, the Company shall pay to the Executive a lump
sum severance payment, in cash, equal to three (3)
times the sum of (i) the higher of the Executive's
annual base salary in effect immediately prior to
the occurrence of the event or circumstance upon
which the Notice of Termination is based or in
effect immediately prior to the Change in Control
and (ii) the higher of the average of the annual
amounts paid to, or approved for, the Executive
pursuant to the Performance Recognition Opportunity
<PAGE>
Plan, or any successor plan, with respect to the
three (3) years (or the number of years employed, if
less) immediately preceding (a) the occurrence of
the event or circumstance upon which the Notice of
Termination is based or (b) the Change in Control.
(B) In lieu of any further life,
disability, accident and health insurance benefits
otherwise due to the Executive, the Company shall
pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by
the Company in good faith with reference to its most
recent actual experience) of providing such
benefits, to the extent that the Executive is
eligible to receive such benefits immediately prior
to the Notice of Termination (without giving effect
to any reduction in such benefits subsequent to a
Change in Control which reduction constitutes Good
Reason), for a period of three (3) years commencing
on the Date of Termination.
(C) The Executive shall continue to
accrue service credit (for all purposes, including
without limitation benefit accrual) under the
Pension Plan, Thrift Plan, the Bonus SERP, the
Excess SERP or any successor plans thereto, at the
compensation level equal to the amount determined in
accordance with Section 6.1(A) hereof for a period
of three (3) years.
6.2 Notwithstanding any other provisions of
this Agreement, in the event that any payment or benefit
received or to be received by the Executive in connection
with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being
<PAGE>
hereinafter called "Total Payments") would be subject (in
whole or part) to the Excise Tax, then the Severance
Payments shall be reduced to the extent necessary so that
no portion of the Total Payments is subject to the Excise
Tax (after taking into account any reduction in the Total
Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement) if (A) the
net amount of such Total Payments, as so reduced (and
after deduction of the net amount of federal, state and
local income tax on such reduced Total Payments), is
greater than (B) the excess of (i) the net amount of such
Total Payments, without reduction (but after deduction of
the net amount of federal, state and local income tax on
such Total Payments) over (ii) the amount of Excise Tax
to which the Executive would be subject in respect of
such Total Payments. For purposes of determining whether
and the extent to which the Total Payments will be
subject to the Excise Tax, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the
Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable
to the Executive, does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the
Code, (including by reason of section 280G(b)(4)(A) of
the Code) and, in calculating the Excise Tax, no portion
of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually
rendered, within the meaning of section 280G(b)(4)(B) of
the Code, in excess of the Base Amount allocable to such
reasonable compensation, and (iii) the value of any
non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Company in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section and such supporting materials
<PAGE>
as are reasonably necessary for the Executive to evaluate
the Company's calculations. If the Executive objects to
the Company's calculations, the Company shall pay to the
Executive such portion of the Severance Payments (up to
100% thereof) as the Executive determines is necessary to
result in the Executive receiving the greater of clauses
(A) and (B) of this Section.
6.3 The payments provided for in Section 6.1
hereof shall be made not later than the fifth day
following the Date of Termination; however, if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined by the Executive, of the minimum amount of
such payments to which the Executive is clearly entitled
and shall pay the remainder of such payments (together
with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In
the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code).
6.4 The Company also shall pay to the
Executive all legal fees and expenses incurred by the
Executive in seeking to obtain or enforce any benefit or
right provided by this Agreement, in accordance with
Section 14 hereof (including without limitation fees and
expenses incurred in seeking to secure the Executive's
rights provided by Section 14 hereof). Such payments
shall be made within five (5) business days after
delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
<PAGE>
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any
purported termination of the Executive's employment
(other than by reason of death) shall be communicated by
written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for
termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than
three quarters (3/4) of the entire membership of the
Board at a meeting of the Board which was called and held
for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive's counsel, to
be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition
of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of
Termination", with respect to any purported termination
of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the
date specified in the Notice of Termination (which, in
the case of a termination by the Company or the Bank,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is
<PAGE>
given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the
dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or
decree of a court of competent jurisdiction provided that
the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a
purported termination occurs following a Change in
Control and during the term of this Agreement, and such
termination is disputed in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including without
limitation salary) and continue the Executive as a
participant in all compensation, benefit and insurance
plans in which the Executive was participating when the
notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section
7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement
(other than those due under Section 5.2 hereof) and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. If the Executive's
employment by the Company or the Bank is terminated
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
<PAGE>
Company pursuant to Section 6 or Section 7.4 hereof.
Further, the amount of any payment or benefit provided
for in Section 6 or Section 7.4 hereof shall not be
reduced by any compensation earned by the Executive as
the result of employment by another employer, by
retirement benefits, by offset against any amount claimed
to be owed by the Executive to the Company or the Bank,
or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on
the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change in
Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
<PAGE>
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this
Agreement, notices and all other communications provided
for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other
address as either party may have furnished to the other
in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual
receipt:
To the Company:
Bank of Boston Corporation
100 Federal Street
Boston, MA 02110
Attention: Director, Human Resources
Copy to: General Counsel
To the Executive:
_________________
_________________
_________________
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. Except as
expressly provided herein, no waiver by either party
hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party
<PAGE>
shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party
which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, and this Agreement shall
be an instrument under seal. All references to sections
of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or
local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and
the Executive under Sections 6, 7, 8 and 14 hereof shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. Any further dispute or
controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in
<PAGE>
Boston, Massachusetts, in accordance with the rules of
the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any
court having jurisdiction. The Executive shall, however,
be entitled to seek specific performance of the
Executive's right to be paid until the Date of
Termination during the pendency of any dispute or
controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this
Agreement, the following terms shall have the meanings
indicated below:
(A) "Bank" shall mean the Company's
subsidiary, The First National Bank of Boston, or if
applicable, any other direct or indirect subsidiary of
the Company by which the Executive is then employed
during the term of this Agreement.
(B) "Beneficial Owner" shall have the meaning
defined in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Bonus SERP" shall mean The First National
Bank of Boston Bonus Supplemental Employee Retirement
Plan.
(E) "Cause" for termination by the Company or
the Bank of the Executive's employment, after any Change
in Control, shall mean (i) the willful and continued
failure by the Executive to substantially perform the
Executive's duties with the Company or the Bank (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
pursuant to Section 7.1 hereof) after a written demand
<PAGE>
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in gross
misconduct which is demonstrably and materially injurious
to the Company or any of its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company.
(F) A "Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of
the following paragraphs shall have been satisfied:
(I) There is an acquisition of
control of the Company as defined in Section
2(a)(2) of the Bank Holding Company Act of
1956, or any similar successor provision, as in
effect at the time of the acquisition; or
(II) Continuing Directors constitute
two-thirds (2/3) or less of the membership of
the Board, whether as the result of a proxy
contest or for any other reason or reasons; or
(III) Any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing twenty-
five percent (25%) or more of the combined
voting power of the Company's then outstanding
voting securities; or
(IV) There is a change in control of
the Company of a nature that would be required
to be reported in response to item 1(a) of
Current Report on Form 8-K or item 6(e) of
<PAGE>
Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act,
as in effect at the time of the change, whether
or not the Company is then subject to such
reporting requirement, including without
limitation any merger or consolidation of the
Company with any other corporation, other than
(i) a merger or consolidation which would
result in the voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity)
forty-five percent (45%) or more of the
combined voting power of the voting securities
(entitled to vote generally for the election of
directors) of the Company or such surviving or
parent entity outstanding immediately after
such merger or consolidation and which would
result in those persons who are Continuing
Directors immediately prior to such merger or
consolidation constituting more than two-thirds
(2/3) of the membership of the Board or the
board of such surviving or parent entity
immediately after, or subsequently at any time
as contemplated by or as a result of, such
merger or consolidation or (ii) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person acquired
twenty-five percent (25%) or more of the
combined voting power of the Company's then
outstanding securities; or
(V) the stockholders of the Company
approve a plan of complete liquidation of the
Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets (or
any transaction having a similar effect).
<PAGE>
(G) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(H) "Company" shall mean Bank of Boston
Corporation and (except in determining, under Section
15(F) hereof, whether or not any Change in Control of the
Company has occurred in connection with such succession)
any successor to its business and/or assets which assumes
or agrees to perform this Agreement, by operation of law
or otherwise. Payments or benefits from the Company
shall include those from the Bank.
(I) "Compensation Committee" shall mean the
Compensation and Nominating Committee of the Board.
(J) "Continuing Director" shall mean any
director (i) who has continuously been a member of the
Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director
described in clause (i), if such successor (and any
intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of
the then Continuing Directors.
(K) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(L) "Excess SERP" shall mean The First
National Bank of Boston Excess Benefit Supplemental
Employee Retirement Plan.
(M) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(N) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(O) "Good Reason" for termination by the
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
<PAGE>
consent) of any one of the following acts by the Company
or the Bank, or failures by the Company or the Bank to
act, unless, in the case of any act or failure to act
described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination
given in respect thereof or, in the case of paragraph
(III) below, such act is not objected to in writing by
the Executive within four (4) months after notification
by the Company to the Executive of the Company's or the
Bank's intention to take the action contemplated by such
paragraph (III):
(I) the assignment to the Executive
of any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or the Bank or a meaningful alteration,
adverse to the Executive, in the nature or
status of the Executive's responsibilities
(other than reporting responsibilities) from
those in effect immediately prior to the Change
in Control;
(II) a reduction by the Company or
the Bank in the Executive's annual base salary
as in effect on the date hereof or as the same
may be increased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
or the Bank, as the case may be, and all senior
executives of any Person in control of the
Company;
(III) the Company's or the Bank's
requiring the Executive to be based anywhere
other than the Boston Metropolitan Area (or, if
different, the metropolitan area in which the
Company's or the Bank's principal executive
offices are located immediately prior to the
Change in Control) except for required travel
<PAGE>
on the Company or Bank business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's
current compensation, or to pay to the
Executive any portion of an installment of
deferred compensation under any deferred
compensation program of the Company, within
fourteen (14) days of the date such
compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is
material to the Executive's total compensation,
including without limitation the Company's
stock award, incentive compensation and bonus
plans, unless an equitable arrangement
(embodied in an ongoing substitute or
alternative plan) has been made with respect to
such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed at
the time of the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
or disability plans in which the Executive was
participating at the time of the Change in
<PAGE>
Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or
deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to provide the Executive with the
number of paid vacation days to which the
Executive is entitled on the basis of years of
service with the Company in accordance with the
Company's normal vacation policy in effect at
the time of the Change in Control; or
(VII) any purported termination of
the Executive's employment which is not
effected pursuant to a Notice of Termination
satisfying the requirements of Section 9.1
hereof; for purposes of this Agreement, no such
purported termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
(P) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(Q) "Pension Plan" shall mean the Retirement
Plan of The First National Bank of Boston and Certain
Affiliated Companies.
(R) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof; however, a Person
shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding
<PAGE>
securities under an employee benefit plan of the Company
or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to a registered
offering of such securities in accordance with an
agreement with the Company, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company.
(S) "Potential Change in Control" shall be
deemed to have occurred if the conditions set forth in
any one of the following paragraphs shall have been
satisfied:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in
Control;
(II) the Company or any Person
publicly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing fifteen
percent (15%) or more of the combined voting
power of the Company's then outstanding
securities (entitled to vote generally for the
election of directors); or
(IV) the Board adopts a resolution
to the effect that, for purposes of this
Agreement, a Potential Change in Control has
occurred.
(T) "Retirement" shall be deemed the reason
for the termination of the Executive's employment if the
Executive voluntarily retires and receives benefits under
<PAGE>
the Pension Plan or other applicable retirement plan then
maintained by the Company and in effect immediately prior
to the Change in Control, or in accordance with any
retirement arrangement established with the Executive's
consent with respect to the Executive.
(U) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(V) "Thrift Plan" shall mean the Thrift-
Incentive Plan of The First National Bank of Boston and
Certain Affiliated Companies.
(W) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
BANK OF BOSTON CORPORATION
By _______________________
Name:
Title:
__________________________
[Name of Executive]
<PAGE>
EXHIBIT 10B:
Form of Severance Agreement for members
of the Corporate Working Committee
AGREEMENT
THIS AGREEMENT dated as of August 5, 1994, is
made by and between Bank of Boston Corporation, a
Massachusetts corporation (the "Company"), and
_____________ (the "Executive").
WHEREAS the Company considers it essential to
the best interests of its stockholders to foster the
continuous employment of key management personnel; and
WHEREAS the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many
publicly held corporations, the possibility of a Change
in Control (as defined in the last Section hereof) exists
and that such possibility, and the uncertainty and
questions which it may raise among management, may result
in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS the Board has determined that
appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of
members of the Company's management, including the
Executive, to their assigned duties with the Company
and/or the Bank, as the case may be, without distraction
in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW THEREFORE, in consideration of the premises
and the mutual covenants herein contained, and for other
valuable consideration, the Company and the Executive
hereby agree as follows:
1. Defined Terms. The definitions of
<PAGE>
capitalized terms used in this Agreement are provided in
the last Section hereof.
2. Term of Agreement. This Agreement shall
commence on the date hereof and shall continue in effect
through August 31, 1997, provided that commencing on
September 1, 1996 and each September 1 thereafter, the
term of this Agreement shall automatically be extended
for one additional year unless, not later than May 31 of
the preceding year, the Company or the Executive shall
have given notice not to extend this Agreement or a
Change in Control shall have occurred prior to such
September 1. If a Change in Control shall have occurred
during the term of this Agreement, however, this
Agreement shall continue in effect for a period of not
less than two (2) years beyond the last day of the month
in which such Change in Control occurred.
Notwithstanding the foregoing provisions of this Section
2, this Agreement shall terminate, unless earlier
terminated in accordance with this Agreement, (i) one (1)
year after the Executive is notified in accordance with
Section 10 hereof that the Compensation Committee, upon
recommendation of the Company's chief executive officer,
has voted to terminate this Agreement or (ii) if earlier,
immediately after the Executive is notified in accordance
with Section 10 hereof that the Compensation Committee
has determined that the Executive's level of
responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level
of responsibility, in either case only if the
notification occurs prior to a Potential Change in
Control that results in a Change in Control. By way of
illustration, if there were a change in the nature of the
Executive's responsibilities (e.g., from technology to
human resources) but the only change in the level of the
Executive's responsibilities were a change in reporting
responsibilities, these changes alone would not provide
grounds for the Compensation Committee determination
referred to in clause (ii) above.
<PAGE>
3. Company's Covenants Summarized. In order
to induce the Executive to remain in the employ of the
Company or the Bank and in consideration of the
Executive's covenants set forth in Section 4 hereof, the
Company agrees, under the conditions described herein, to
pay the Executive the Severance Payments described in
Section 6.1 hereof and the other payments and benefits
described herein in the event the Executive's employment
with the Company or the Bank is terminated following a
Change in Control and during the term of this Agreement.
No amount or benefit shall be payable under this
Agreement unless there shall have been (or, under the
terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the
Company or the Bank following a Change in Control. This
Agreement shall not be construed as creating an express
or implied contract of employment, and except as
otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be
retained in the employ of the Company or the Bank.
4. Executive's Covenants. The Executive
agrees that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will
remain in the employ of the Company or the Bank until the
earliest of (i) a date which is six (6) months from the
date of such Potential Change of Control, (ii) the date
of a Change in Control, (iii) the date of termination by
the Executive of the Executive's employment for Good
Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition
of Good Reason), by reason of death or Retirement, or
(iv) the termination by the Company or the Bank of the
Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during
the term of this Agreement, during any period that the
<PAGE>
Executive fails to perform the Executive's full-time
duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together
with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company
during such period, until the Executive becomes eligible
for benefits at least equal to those to which the
Executive would have been entitled under the long-term
disability insurance plan of the Company in effect
immediately prior to the Change in Control.
5.2 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay the Executive's full salary to the Executive through
the Date of Termination at the rate in effect at the time
the Notice of Termination is given, together with all
compensation and benefits payable to the Executive
through the Date of Termination under the terms of any
compensation or benefit plan, program or arrangement
maintained by the Company during such period.
5.3 If the Executive's employment shall be
terminated for any reason following a Change in Control
and during the term of this Agreement, the Company shall
pay or make available to the Executive any rights,
compensation and benefits which are vested in the
Executive or which the Executive has or is otherwise
entitled to receive under any plan or program of the
Company (including without limitation any retirement plan
or any welfare plan providing post-retirement benefits)
to the Executive as such rights, compensation or benefits
become due. Such rights, compensation and benefits shall
be determined under, and paid or made available in
accordance with, the Company's applicable retirement,
insurance and other compensation or benefit plans,
programs and arrangements.
<PAGE>
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company
shall pay the Executive the payments described in this
Section 6.1 (the "Severance Payments") upon the
termination of the Executive's employment following a
Change in Control and during the term of this Agreement,
in addition to the payments and benefits described in
Section 5 hereof, unless such termination is (i) by the
Company or the Bank for Cause, (ii) by reason of death or
Retirement, or (iii) by the Executive without Good
Reason. The Executive's employment shall be deemed to
have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good
Reason if the Executive's employment is terminated prior
to a Change in Control without Cause at the direction of
a Person who has entered into an agreement with the
Company the consummation of which will constitute a
Change in Control or if the Executive terminates his
employment with Good Reason prior to a Change in Control
(determined by treating a Potential Change in Control as
a Change in Control in applying the definition of Good
Reason) if the circumstance or event which constitutes
Good Reason occurs at the direction of such Person.
(A) In lieu of any further salary
payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance
benefits otherwise payable to the Executive under
any then existing broad-based employee severance
plan, the Company shall pay to the Executive a lump
sum severance payment, in cash, equal to two (2)
times the sum of (i) the higher of the Executive's
annual base salary in effect immediately prior to
the occurrence of the event or circumstance upon
which the Notice of Termination is based or in
effect immediately prior to the Change in Control
and (ii) the higher of the average of the annual
amounts paid to, or approved for, the Executive
pursuant to the Performance Recognition Opportunity
<PAGE>
Plan, or any successor plan, with respect to the
three (3) years (or the number of years employed, if
less) immediately preceding (a) the occurrence of
the event or circumstance upon which the Notice of
Termination is based or (b) the Change in Control.
(B) In lieu of any further life,
disability, accident and health insurance benefits
otherwise due to the Executive, the Company shall
pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by
the Company in good faith with reference to its most
recent actual experience) of providing such
benefits, to the extent that the Executive is
eligible to receive such benefits immediately prior
to the Notice of Termination (without giving effect
to any reduction in such benefits subsequent to a
Change in Control which reduction constitutes Good
Reason), for a period of two (2) years commencing on
the Date of Termination.
(C) The Executive shall continue to
accrue service credit (for all purposes, including
without limitation benefit accrual) under the
Pension Plan, Thrift Plan, the Bonus SERP, the
Excess SERP or any successor plans thereto, at the
compensation level equal to the amount determined in
accordance with Section 6.1(A) hereof for a period
of two (2) years.
6.2 Notwithstanding any other provisions of
this Agreement, in the event that any payment or benefit
received or to be received by the Executive in connection
with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or
agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated
with the Company or such Person) (all such payments and
benefits, including the Severance Payments, being
<PAGE>
hereinafter called "Total Payments") would be subject (in
whole or part) to the Excise Tax, then the Severance
Payments shall be reduced to the extent necessary so that
no portion of the Total Payments is subject to the Excise
Tax (after taking into account any reduction in the Total
Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement) if (A) the
net amount of such Total Payments, as so reduced (and
after deduction of the net amount of federal, state and
local income tax on such reduced Total Payments), is
greater than (B) the excess of (i) the net amount of such
Total Payments, without reduction (but after deduction of
the net amount of federal, state and local income tax on
such Total Payments) over (ii) the amount of Excise Tax
to which the Executive would be subject in respect of
such Total Payments. For purposes of determining whether
and the extent to which the Total Payments will be
subject to the Excise Tax, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive
shall have effectively waived in writing prior to the
Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel selected by the
Company's independent auditors and reasonably acceptable
to the Executive, does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the
Code, (including by reason of section 280G(b)(4)(A) of
the Code) and, in calculating the Excise Tax, no portion
of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually
rendered, within the meaning of section 280G(b)(4)(B) of
the Code, in excess of the Base Amount allocable to such
reasonable compensation, and (iii) the value of any
non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Company in accordance with the principles of sections
280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts
referred to in this Section and such supporting materials
<PAGE>
as are reasonably necessary for the Executive to evaluate
the Company's calculations. If the Executive objects to
the Company's calculations, the Company shall pay to the
Executive such portion of the Severance Payments (up to
100% thereof) as the Executive determines is necessary to
result in the Executive receiving the greater of clauses
(A) and (B) of this Section.
6.3 The payments provided for in Section 6.1
hereof shall be made not later than the fifth day
following the Date of Termination; however, if the
amounts of such payments, and the limitation on such
payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as
determined by the Executive, of the minimum amount of
such payments to which the Executive is clearly entitled
and shall pay the remainder of such payments (together
with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In
the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company
to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code).
6.4 The Company also shall pay to the
Executive all legal fees and expenses incurred by the
Executive in seeking to obtain or enforce any benefit or
right provided by this Agreement, in accordance with
Section 14 hereof (including without limitation fees and
expenses incurred in seeking to secure the Executive's
rights provided by Section 14 hereof). Such payments
shall be made within five (5) business days after
delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
<PAGE>
7. Termination Procedures and Compensation
During Dispute.
7.1 Notice of Termination. After a Change in
Control and during the term of this Agreement, any
purported termination of the Executive's employment
(other than by reason of death) shall be communicated by
written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for
termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination
for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than
three quarters (3/4) of the entire membership of the
Board at a meeting of the Board which was called and held
for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive's counsel, to
be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition
of Cause herein, and specifying the particulars thereof
in detail.
7.2 Date of Termination. "Date of
Termination", with respect to any purported termination
of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the
date specified in the Notice of Termination (which, in
the case of a termination by the Company or the Bank,
shall not be less than thirty (30) days (except in the
case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days,
respectively, from the date such Notice of Termination is
<PAGE>
given).
7.3 Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is
given or, if later, prior to the Date of Termination (as
determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the
dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or
decree of a court of competent jurisdiction provided that
the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a
purported termination occurs following a Change in
Control and during the term of this Agreement, and such
termination is disputed in accordance with Section 7.3
hereof, the Company shall continue to pay the Executive
the full compensation in effect when the notice giving
rise to the dispute was given (including without
limitation salary) and continue the Executive as a
participant in all compensation, benefit and insurance
plans in which the Executive was participating when the
notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section
7.3 hereof. Amounts paid under this Section 7.4 are in
addition to all other amounts due under this Agreement
(other than those due under Section 5.2 hereof) and shall
not be offset against or reduce any other amounts due
under this Agreement.
8. No Mitigation. If the Executive's
employment by the Company or the Bank is terminated
during the term of this Agreement, the Executive is not
required to seek other employment or to attempt in any
way to reduce any amounts payable to the Executive by the
<PAGE>
Company pursuant to Section 6 or Section 7.4 hereof.
Further, the amount of any payment or benefit provided
for in Section 6 or Section 7.4 hereof shall not be
reduced by any compensation earned by the Executive as
the result of employment by another employer, by
retirement benefits, by offset against any amount claimed
to be owed by the Executive to the Company or the Bank,
or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by
law upon any successor to the Company, the Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on
the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change in
Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or
legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be
<PAGE>
paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators
of the Executive's estate.
10. Notices. For the purpose of this
Agreement, notices and all other communications provided
for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return
receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other
address as either party may have furnished to the other
in writing in accordance herewith, except that notice of
change of address shall be effective only upon actual
receipt:
To the Company:
Bank of Boston Corporation
100 Federal Street
Boston, MA 02110
Attention: Director, Human Resources
Copy to: General Counsel
To the Executive:
_________________
_________________
_________________
11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as
may be specifically designated by the Board. Except as
expressly provided herein, no waiver by either party
hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision
<PAGE>
of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party
which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, and this Agreement shall
be an instrument under seal. All references to sections
of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or
local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and
the Executive under Sections 6, 7, 8 and 14 hereof shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full
force and effect.
13. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All
claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and
shall be in writing. Any denial by the Board of a claim
for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of
this Agreement relied upon. Any further dispute or
controversy arising under or in connection with this
<PAGE>
Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of
the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any
court having jurisdiction. The Executive shall, however,
be entitled to seek specific performance of the
Executive's right to be paid until the Date of
Termination during the pendency of any dispute or
controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this
Agreement, the following terms shall have the meanings
indicated below:
(A) "Bank" shall mean the Company's
subsidiary, The First National Bank of Boston, or if
applicable, any other direct or indirect subsidiary of
the Company by which the Executive is then employed
during the term of this Agreement.
(B) "Beneficial Owner" shall have the meaning
defined in Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors
of the Company.
(D) "Bonus SERP" shall mean The First National
Bank of Boston Bonus Supplemental Employee Retirement
Plan.
(E) "Cause" for termination by the Company or
the Bank of the Executive's employment, after any Change
in Control, shall mean (i) the willful and continued
failure by the Executive to substantially perform the
Executive's duties with the Company or the Bank (other
than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
Notice of Termination for Good Reason by the Executive
<PAGE>
pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the
manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in gross
misconduct which is demonstrably and materially injurious
to the Company or any of its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company.
(F) A "Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of
the following paragraphs shall have been satisfied:
(I) There is an acquisition of
control of the Company as defined in Section
2(a)(2) of the Bank Holding Company Act of
1956, or any similar successor provision, as in
effect at the time of the acquisition; or
(II) Continuing Directors constitute
two-thirds (2/3) or less of the membership of
the Board, whether as the result of a proxy
contest or for any other reason or reasons; or
(III) Any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing twenty-
five percent (25%) or more of the combined
voting power of the Company's then outstanding
voting securities; or
(IV) There is a change in control of
the Company of a nature that would be required
to be reported in response to item 1(a) of
<PAGE>
Current Report on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act,
as in effect at the time of the change, whether
or not the Company is then subject to such
reporting requirement, including without
limitation any merger or consolidation of the
Company with any other corporation, other than
(i) a merger or consolidation which would
result in the voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or parent entity)
forty-five percent (45%) or more of the
combined voting power of the voting securities
(entitled to vote generally for the election of
directors) of the Company or such surviving or
parent entity outstanding immediately after
such merger or consolidation and which would
result in those persons who are Continuing
Directors immediately prior to such merger or
consolidation constituting more than two-thirds
(2/3) of the membership of the Board or the
board of such surviving or parent entity
immediately after, or subsequently at any time
as contemplated by or as a result of, such
merger or consolidation or (ii) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person acquired
twenty-five percent (25%) or more of the
combined voting power of the Company's then
outstanding securities; or
(V) the stockholders of the Company
approve a plan of complete liquidation of the
Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets (or
<PAGE>
any transaction having a similar effect).
(G) "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(H) "Company" shall mean Bank of Boston
Corporation and (except in determining, under Section
15(F) hereof, whether or not any Change in Control of the
Company has occurred in connection with such succession)
any successor to its business and/or assets which assumes
or agrees to perform this Agreement, by operation of law
or otherwise. Payments or benefits from the Company
shall include those from the Bank.
(I) "Compensation Committee" shall mean the
Compensation and Nominating Committee of the Board.
(J) "Continuing Director" shall mean any
director (i) who has continuously been a member of the
Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director
described in clause (i), if such successor (and any
intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of
the then Continuing Directors.
(K) "Date of Termination" shall have the
meaning stated in Section 7.2 hereof.
(L) "Excess SERP" shall mean The First
National Bank of Boston Excess Benefit Supplemental
Employee Retirement Plan.
(M) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(N) "Executive" shall mean the individual
named in the first paragraph of this Agreement.
(O) "Good Reason" for termination by the
<PAGE>
Executive of the Executive's employment shall mean the
occurrence (without the Executive's express written
consent) of any one of the following acts by the Company
or the Bank, or failures by the Company or the Bank to
act, unless, in the case of any act or failure to act
described in paragraph (I), (V), (VI) or (VII) below,
such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination
given in respect thereof or, in the case of paragraph
(III) below, such act is not objected to in writing by
the Executive within four (4) months after notification
by the Company to the Executive of the Company's or the
Bank's intention to take the action contemplated by such
paragraph (III):
(I) the assignment to the Executive
of any duties inconsistent with the Executive's
status as a senior executive officer of the
Company or the Bank or a meaningful alteration,
adverse to the Executive, in the nature or
status of the Executive's responsibilities
(other than reporting responsibilities) from
those in effect immediately prior to the Change
in Control;
(II) a reduction by the Company or
the Bank in the Executive's annual base salary
as in effect on the date hereof or as the same
may be increased from time to time except for
across-the-board salary reductions similarly
affecting all senior executives of the Company
or the Bank, as the case may be, and all senior
executives of any Person in control of the
Company;
(III) the Company's or the Bank's
requiring the Executive to be based anywhere
other than the Boston Metropolitan Area (or, if
different, the metropolitan area in which the
Company's or the Bank's principal executive
<PAGE>
offices are located immediately prior to the
Change in Control) except for required travel
on the Company or Bank business to an extent
substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company,
without the Executive's consent, to pay to the
Executive any portion of the Executive's
current compensation, or to pay to the
Executive any portion of an installment of
deferred compensation under any deferred
compensation program of the Company, within
fourteen (14) days of the date such
compensation is due;
(V) the failure by the Company to
continue in effect any compensation plan in
which the Executive participates immediately
prior to the Change in Control which is
material to the Executive's total compensation,
including without limitation the Company's
stock award, incentive compensation and bonus
plans, unless an equitable arrangement
(embodied in an ongoing substitute or
alternative plan) has been made with respect to
such plan, or the failure by the Company to
continue the Executive's participation therein
(or in such substitute or alternative plan) on
a basis not materially less favorable, both in
terms of the amount of benefits provided and
the level of the Executive's participation
relative to other participants, as existed at
the time of the Change in Control;
(VI) the failure by the Company to
continue to provide the Executive with benefits
substantially similar to those enjoyed by the
Executive under any of the Company's pension,
life insurance, medical, health and accident,
<PAGE>
or disability plans in which the Executive was
participating at the time of the Change in
Control, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or
deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of
the Change in Control, or the failure by the
Company to provide the Executive with the
number of paid vacation days to which the
Executive is entitled on the basis of years of
service with the Company in accordance with the
Company's normal vacation policy in effect at
the time of the Change in Control; or
(VII) any purported termination of
the Executive's employment which is not
effected pursuant to a Notice of Termination
satisfying the requirements of Section 9.1
hereof; for purposes of this Agreement, no such
purported termination shall be effective.
The Executive's right to terminate the
Executive's employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting
Good Reason hereunder.
(P) "Notice of Termination" shall have the
meaning stated in Section 7.1 hereof.
(Q) "Pension Plan" shall mean the Retirement
Plan of The First National Bank of Boston and Certain
Affiliated Companies.
(R) "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof; however, a Person
<PAGE>
shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or any of its subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to a registered
offering of such securities in accordance with an
agreement with the Company, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of stock of the Company.
(S) "Potential Change in Control" shall be
deemed to have occurred if the conditions set forth in
any one of the following paragraphs shall have been
satisfied:
(I) the Company enters into an
agreement, the consummation of which would
result in the occurrence of a Change in
Control;
(II) the Company or any Person
publicly announces an intention to take or to
consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing fifteen
percent (15%) or more of the combined voting
power of the Company's then outstanding
securities (entitled to vote generally for the
election of directors); or
(IV) the Board adopts a resolution
to the effect that, for purposes of this
Agreement, a Potential Change in Control has
occurred.
(T) "Retirement" shall be deemed the reason
<PAGE>
for the termination of the Executive's employment if the
Executive voluntarily retires and receives benefits under
the Pension Plan or other applicable retirement plan then
maintained by the Company and in effect immediately prior
to the Change in Control, or in accordance with any
retirement arrangement established with the Executive's
consent with respect to the Executive.
(U) "Severance Payments" shall mean those
payments described in Section 6.1 hereof.
(V) "Thrift Plan" shall mean the Thrift-
Incentive Plan of The First National Bank of Boston and
Certain Affiliated Companies.
(W) "Total Payments" shall mean those payments
described in Section 6.2 hereof.
BANK OF BOSTON CORPORATION
By ________________________
Name:
Title:
_________________________
[Name of Executive]
<PAGE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
EARNINGS 1994 1993 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1. Net income $ 94,500 $ 71,387 $ 190,640 $ 155,062
2. Less: Preferred dividends 9,357 7,979 18,674 15,918
------- ------- ------- -------
3. Net income applicable to primary
earnings per common share 85,143 63,408 171,966 139,144
4. Add: Interest expense on convertible
debentures, net of tax 1,073 1,087 2,134 2,167
------- ------- ------- -------
5. Net income applicable to fully diluted
earnings per common share $ 86,216 $ 64,495 $ 174,100 $ 141,311
======= ======= ======= =======
SHARES
------
6. Weighted average number of common shares outstanding 106,619 105,285 106,410 105,124
7. Incremental shares from assumed exercise
of dilutive stock options as of the beginning
of the period using the treasury stock method 637 757 615 791
8. Incremental shares from assumed conversion
of debentures at date of issuance 4,030 4,035 4,030 4,038
------- ------- ------- -------
9. Adjusted number of common shares 111,286 110,077 111,055 109,953
======= ======= ======= =======
PER SHARE CALCULATION
---------------------
10. Primary net income per common share $ .80 $ .60 $ 1.62 $ 1.32
(Item 3 / Item 6); see note below
11. Fully diluted net income per common share $ .77 $ .59 $ 1.56 $ 1.29
(Item 5 / Item 9); see note below
</TABLE>
Note - Income per common share before extraordinary items and cumulative effect
of accounting changes, net, on both a primary and fully diluted basis for the
six months ended June 30, 1994 and June 30, 1993 are computed by adding to the
numerator $6,535 and subtracting from the numerator $24,203, respectively.
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(a)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (excluding interest on
deposits) for the six months ended June 30, 1994 and 1993 and for the five years
ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(Dollars in thousands)
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles,
net of tax (24,203) (24,203)
Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951
------- ------- ------- ------- -------- -------- ---------
Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065
======= ======= ======= ======= ======== ======== =========
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007
------- ------- ------- ------- -------- -------- ---------
Total fixed charges 380,572 165,885 404,937 373,067 391,880 630,775 1,116,489
------- ------- ------- ------- -------- -------- ---------
Earnings (for ratio calculation) $ 734,061 $ 391,789 $ 894,443 $ 731,761 $ 212,977 $ 121,457 $ 1,339,554
======= ======= ======= ======= ======== ======== =========
Total fixed charges $ 380,572 $ 165,885 $ 404,937 $ 373,067 $ 391,880 $ 630,775 $ 1,116,489
======= ======= ======= ======= ======== ======== =========
Ratio of earnings to fixed
charges 1.93 2.36 2.21 1.96 .54 .19 1.20
======= ======= ======= ======= ======== ======== =========
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges
"earnings" represent income (loss) before extraordinary items and cumulative
effect of changes in accounting principles plus applicable income taxes and
fixed charges. "Fixed charges" include gross interest expense (excluding
interest on deposits) and the proportion deemed representative of the interest
factor of rent expense, net of income from subleases. Ratios for the periods
presented reflect the reclassification of Brazilian translation gains and
losses more fully discussed in Note 11.
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(b)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Including Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (including interest on
deposits) for the six months ended June 30, 1994 and 1993 and for the five
years ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(Dollars in thousands)
1994 1993 1993 1992 1991 1990 1989
--------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles,
net of tax (24,203) (24,203)
Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951
--------- ------- --------- --------- --------- --------- ---------
Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065
========= ======= ========= ========= ========= ========= =========
Fixed charges:
Portion of rental expense
(net of sublease rental
income) which approximates the
interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007
Interest on deposits 481,697 510,430 1,015,956 1,406,742 1,808,436 2,420,296 2,243,854
--------- ------- --------- --------- --------- --------- ---------
Total fixed charges 862,269 676,315 1,420,893 1,779,809 2,200,316 3,051,071 3,360,343
--------- ------- --------- --------- --------- --------- ---------
Earnings (for ratio calculation)$ 1,215,758 $ 902,219 $ 1,910,399 $ 2,138,503 $ 2,021,413 $ 2,541,753 $ 3,583,408
========= ======= ========= ========= ========= ========= =========
Total fixed charges $ 862,269 $ 676,315 $ 1,420,893 $ 1,779,809 $ 2,200,316 $ 3,051,071 $ 3,360,343
========= ======= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges 1.41 1.33 1.34 1.20 .92 .83 1.07
========= ======= ========= ========= ========= ========= =========
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges
"earnings" represent income (loss) before extraordinary items
and cumulative effect of changes in accounting principles plus applicable
income taxes and fixed charges. "Fixed charges" include gross
interest expense (including interest on deposits) and the proportion deemed
representative of the interest factor of rent expense, net of income
from subleases. Ratios for the periods presented reflect the reclassification
of Brazilian translation gains and losses more fully discussed in Note 11.
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(c)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to combined fixed charges and preferred
stock dividend requirements (excluding interest on deposits) for the
six months ended June 30, 1994 and 1993 and for the five years ended December
31, 1993 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(Dollars in thousands) 1994 1993 1993 1992 1991 1990 1989
------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes in
accounting principles, net of tax (24,203) (24,203)
Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951
------- ------- ------- ------- -------- -------- ---------
Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065
======= ======= ======= ======= ======== ======== =========
Fixed charges:
Portion of rental expense (net
of sublease rental income) which
approximates the interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007
------- ------- ------- ------- -------- -------- ---------
Total fixed charges $ 380,572 $ 165,885 $ 404,937 $ 373,067 $ 391,880 $ 630,775 $ 1,116,489
Preferred stock dividend requirements 33,536 27,535 61,377 33,186 13,255 13,748 22,568
Total combined fixed charges ------- ------- ------- ------- -------- -------- ---------
and preferred stock dividend $ 414,108 $ 193,420 $ 466,314 $ 406,253 $ 405,135 $ 644,523 $ 1,139,057
requirements ======= ======= ======= ======= ======== ======== =========
Earnings (for ratio calculation)
(Pretax earnings (loss) plus
total fixed charges) $ 734,061 $ 391,789 $ 894,443 $ 731,761 $ 212,977 $ 121,457 $ 1,339,554
======= ======= ======= ======= ======== ======== =========
Ratio of earnings to combined
fixed charges and preferred stock
dividend requirements 1.77 2.03 1.92 1.80 .53 .19 1.18
======= ======= ======= ======= ======== ======== =========
</TABLE>
For purposes of computing the consolidated ratio of earnings to combined fixed
charges and preferred stock dividend requirements "earnings" represent income
(loss) before extraordinary items and cumulative effect of changes in accounting
principles plus applicable income taxes and fixed charges. "Fixed charges"
include gross interest expense (excluding interest on deposits) and the
proportion deemed representative of the interest factor of rent expense, net of
income from subleases. Pretax earnings required for preferred stock dividends
were computed using tax rates for the applicable year. No tax adjustments were
made in loss years. Ratios for the periods presented reflect the
reclassification of Brazilian translation gains and losses more fully discussed
in Note 11.
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(d)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
(Including Interest on Deposits)
The Corporation's ratios of earnings to combined fixed charges and preferred
stock dividend requirements (including interest on deposits) for the six months
ended June 30,1994 and 1993 and for the five years ended December 31, 1993 were
as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(Dollars in thousands)
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles,
net of tax (24,203) (24,203)
Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951
--------- --------- --------- --------- --------- --------- ---------
Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007
Interest on deposits 481,697 510,430 1,015,956 1,406,742 1,808,436 2,420,296 2,243,854
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges 862,269 676,315 1,420,893 1,779,809 2,200,316 3,051,071 3,360,343
Preferred stock dividend
requirements 33,536 27,535 61,377 33,186 13,255 13,748 22,568
--------- --------- --------- --------- --------- --------- ---------
Total combined fixed
charges and preferred
stock dividend requirements $ 895,805 $ 703,850 $1,482,270 $1,812,995 $2,213,571 $3,064,819 $3,382,911
========= ========= ========= ========= ========= ========= =========
Earnings (for ratio calculation)
(Pretax earnings (loss)
plus total fixed charges) $1,215,758 $ 902,219 $1,910,399 $2,138,503 $2,021,413 $2,541,753 $3,583,408
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 1.36 1.28 1.29 1.18 .91 .83 1.06
========= ========= ========= ========= ========= ========= =========
</TABLE>
For purposes of computing the consolidated ratio of earnings to combined fixed
charges and preferred stock dividend requirements "earnings" represent income
(loss) before extraordinary items and cumulative of changes in accounting
principles plus applicable income taxes and fixed charges. "Fixed charges"
include gross interest expense (including interest on deposits) and the
proportion deemed representative of the interest factor of rent expense, net of
income from subleases. Pretax earnings required for preferred stock dividends
were computed using tax rates for the applicable year. No tax adjustments were
made in loss years. Ratios for the periods presented reflect the
reclassification of Brazilian translation gains and losses more fully discussed
in Note 11.
