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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________________to
______________________
Commission file number: 1-6522
BANK OF BOSTON CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
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 offices) (Zip Code)
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Registrant's telephone number, including area code:
(6l7) 434-2200
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Common Stock, par value $2.25 per share
Preferred Stock Purchase Rights
Adjustable Rate Cumulative Preferred Stock, Series A
(liquidation preference $50 per share)
Adjustable Rate Cumulative Preferred Stock, Series B
(liquidation preference $50 per share)
Adjustable Rate Cumulative Preferred Stock, Series C
(liquidation preference $100 per share)
Depositary Shares, each representing one-tenth of a share of
8.60% Cumulative Preferred Stock, Series E
(liquidation preference $25 per Depositary Share)
Depositary Shares, each representing one-tenth of a share of 7
7/8% Cumulative Preferred Stock, Series F
(liquidation preference $25 per Depositary Share)
Name of each exchange on which registered:
------------------------------------------
Each class is registered on the Boston Stock Exchange and on
the New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
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None
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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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (#229.405 of this
chapter) is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of Number of shares of
shares of common stock common stock
held by non-affiliates of outstanding as of
Registrant as of February 25, 1994 February 25, 1994
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$2,482,823,070 106,357,915
Documents Incorporated by Reference:
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1. Pertinent extracts from Registrant's 1993 Annual Report
to Stockholders (Parts I, II and IV).
2. Pertinent extracts from Registrant's Proxy Statement in
connection with the Registrant's 1994 Annual Meeting
of Stockholders (Part III).
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INDEX
Name of Item Page
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PART I
Item 1. Business 1
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 3A. Executive Officers of the Corporation 23
Item 4. Submission of Matters to a Vote of
Security Holders 26
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 27
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 27
Item 8. Financial Statements and Supplementary
Data 27
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers
of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain
Beneficial Owners and Management 29
Item 13. Certain Relationships and Related
Transactions 29
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 30
SIGNATURES
Signatures II-1
-i-
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PART I
Item 1. Business.
THE CORPORATION
Bank of Boston Corporation (the "Corporation") is a
registered bank holding company, organized in 1970 under
Massachusetts law with both national and international
operations. Through its subsidiaries, the Corporation is
engaged in providing a wide variety of financial services to
individuals, corporate and institutional customers,
governments and other financial institutions. These
services include individual and community banking, consumer
finance, mortgage origination and servicing, domestic
corporate and investment banking, leasing, international
banking, commercial real estate lending, private banking,
trust, correspondent banking, and securities and payments
processing. The Corporation's principal subsidiary is The
First National Bank of Boston ("FNBB"), a national banking
association with its headquarters in Massachusetts. Other
major banking subsidiaries of the Corporation are Casco
Northern Bank, N.A. ("Casco") in Maine, Bank of Boston
Connecticut ("BKB Connecticut"), Rhode Island Hospital Trust
National Bank ("Hospital Trust"), Bank of Vermont, and in
Massachusetts, South Shore Bank, Mechanics Bank and
Multibank West. As of December 31, 1993, approximately 78%
of the Corporation's total loan volume consisted of domestic
loans and leases, with the balance overseas. The
Corporation's banking subsidiaries maintain approximately
320 branches in Massachusetts, Rhode Island, Connecticut,
Maine and Vermont. The Corporation, through its
subsidiaries, has a presence in approximately 33 states of
the United States and in approximately 23 foreign countries.
As of December 31, 1993, the Corporation's subsidiaries
employed in the aggregate approximately 18,600 full-time
equivalent employees in their domestic and foreign
operations.
The executive office of the Corporation and the head
office of FNBB are located at 100 Federal Street, Boston,
Massachusetts 02110 (Telephone (617) 434-2200).
BUSINESS OF THE CORPORATION
The Corporation's business is generally focused
in the areas of retail banking, corporate banking and
international banking. In October of 1993, the Corporation
announced certain organizational and management changes,
including the creation of a new Chairman's Office and the
establishment of a twenty-nine member Corporate Working
Committee. The Chairman's Office consists of Chairman
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and Chief Executive Officer Ira Stepanian, President and
Chief Operating Officer Charles K. Gifford, Vice Chairman,
Chief Financial Officer and Treasurer William J. Shea, and
Vice Chairman Edward A. O'Neal. The Corporation's
businesses were previously organized into five major groups
and a number of other major centralized functions. This
group structure was replaced by fifteen core business and
ten corporate-wide support areas, each led by an executive
with authority to operate and manage his or her respective
area. These twenty-five executives and the members of the
Chairman's Office comprise the Corporate Working
Committee. These core business and corporate wide support
areas work closely with one another and each is linked to
one of the members of the Chairman's Office. For
discussions of the Corporation's business activities,
including its lending activities, its cross-border
outstandings, and the management of its foreign currency
exposure, see "Management's Financial Review," "Cross-Border
Outstandings," and "Off-Balance-Sheet Financial Markets
Instruments" on pages 32 through 51, 86 and 87, and 47 and
48, respectively, of the Corporation's 1993 Annual Report to
Stockholders, which pages are included in Exhibit 13 hereto
and which discussions are incorporated herein by reference.
Activities in which the Corporation and its subsidiaries
are presently engaged or which they may undertake in the
future are subject to certain statutory and regulatory
restrictions. Banks and bank holding companies are
extensively regulated under both federal and state law.
There are various legal limitations upon the extent to which
banking subsidiaries of the Corporation can finance or
otherwise supply funds to the Corporation or certain of its
affiliates. See "Supervision and Regulation."
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The following table presents selected financial
information concerning the business of the Corporation on a
geographic basis.
<CAPTION>
(in millions)
United States International
Operations Operations Consolidated
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For the Year Ended
December 31, 1993(1)
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Net Interest Revenue $ 1,087.8 $ 431.0 $ 1,518.8
Net Income $ 220.3 $ 78.7 $ 299.0
Total Average Assets $ 29,718 $ 8,649 $ 38,367
For the Year Ended
December 31, 1992(1)
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Net Interest Revenue $ 1,033.8 $ 272.0 $ 1,305.8
Net Income $ 226.3 $ 52.6 $ 278.9
Total Average Assets $ 29,995 $ 6,860 $ 36,855
For the Year Ended
December 31, 1991(1)
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Net Interest Revenue $ 951.2 $ 163.6 $ 1,114.8
Net Income (Loss) $ (162.1) $ 49.0 $ (113.1)
Total Average Assets $ 32,803 $ 5,112 $ 37,915
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<FN>
(1) This data is presented generally in a manner whereby
assets and income are segregated by geographic location
based upon the domicile of the customer or borrower. This
information should be read in conjunction with "Geographic
Segment Information" which appears on pages 84 and 85 and
with information included under the caption "Cross-border
Outstandings" which appears on pages 86 and 87 of the
Corporation's 1993 Annual Report to Stockholders, which
pages are included in Exhibit 13 hereto and which
information is hereby incorporated by reference.
</TABLE>
COMPETITION AND INDUSTRY CONSOLIDATION
The Corporation's subsidiaries compete with other major
financial institutions, including commercial banks,
investment banks, mutual savings banks, savings and loan
associations, credit unions, consumer finance companies,
money market funds and other non-banking institutions, such
as insurance companies, major retailers, brokerage firms,
and investment companies in New England, throughout the
United States, and internationally. One of the principal
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methods of competing effectively in the financial services
industry is to improve customer service through the quality
and range of services available, easing access to facilities
and pricing. See "Supervision and Regulation" with respect
to the impact of legislation upon the Corporation and its
subsidiaries.
One outgrowth of the competitive environment discussed
above has been a significant number of consolidations in the
banking industry both on a national and regional level. The
Corporation engages on an ongoing basis in reviewing and
discussing possible acquisitions of financial institutions,
as well as banking and other assets in order to expand its
business incident to the implementation of its business
strategy. The Corporation intends to continue to explore
acquisition opportunities as they arise in order to take
advantage of the continuing consolidation in the banking
industry.
In July 1993, the Corporation completed its acquisitions
of Society for Savings Bancorp, Inc., a $2.4 billion
registered bank holding company based in Hartford,
Connecticut ("Bancorp") and Multibank Financial Corp., a
$2.4 billion registered bank holding company based in
Dedham, Massachusetts ("Multibank"). In addition, in
September 1993, the Corporation announced that it had
reached a definitive agreement to acquire BankWorcester
Corporation ("BankWorcester") for $34.00 for each share of
BankWorcester common stock outstanding, subject to an upward
adjustment if the transaction is not consummated on or
before June 30, 1994. It is expected that the total
purchase price will be approximately $247 million.
BankWorcester, the holding company for Worcester County
Institution for Savings, had approximately $1.5 billion of
assets, approximately $1.3 billion of deposits and 28
branches at December 31, 1993. The transaction has been
approved by the boards of directors of both companies and by
BankWorcester's stockholders. In March 1994, the
Corporation announced that it had reached a definitive
agreement to acquire Pioneer Financial, A Co-operative Bank
("Pioneer Bank") for $118 million in cash. Pioneer Bank,
which is based in Middlesex County, Massachusetts had
approximately $773 million in assets, $720 million in
deposits and 20 branches at December 31, 1993. The Pioneer
Bank transaction has been approved by the boards of
directors of both companies. Both pending transactions are
subject to the approval of the Office of the Comptroller of
the Currency (the "OCC") and the Board of Bank Incorporation
of the Commonwealth of Massachusetts (the "Massachusetts
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BBI"), and applications for approval for the BankWorcester
acquisition have been submitted to the OCC and the
Massachusetts BBI. Neither transaction may be consummated
until the 30th day after OCC approval is received, during
which time the United States Department of Justice may
challenge the transactions on antitrust grounds. The
Corporation's objective is to consummate the BankWorcester
transaction by mid-year 1994 and the Pioneer Bank
transaction in the fall 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.
SUPERVISION AND REGULATION
The business in which the Corporation and its subsidiaries
are engaged is subject to extensive supervision, regulation
and examination by various bank regulatory authorities and
other agencies of federal and state governments. The
Corporation and its subsidiaries are engaged on a regular
basis in discussions with such regulators and agencies on a
variety of matters which arise in connection with this
regulatory and supervisory process. The supervisory or
regulatory activities may, but need not, be directly related
to the financial services provided by the Corporation and
its subsidiaries. The supervision, regulation and
examination to which the Corporation and its subsidiaries
are subject are often intended by the regulators primarily
for the protection of depositors or are aimed at carrying
out broad public policy goals rather than for the protection
of security holders.
Several of the more significant regulatory provisions
applicable to banks and bank holding companies to which the
Corporation and its subsidiaries are subject are noted below
along with certain current regulatory matters concerning the
Corporation and its banking subsidiaries. To the extent
that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by
reference to the particular statutory provisions. Any
change in applicable law or regulation may have a material
effect on the business and prospects of the Corporation.
The Corporation
The Corporation, as a bank holding company under the Bank
Holding Company Act of 1956, as amended, (the "BHCA"), is
registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and is
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regulated under the provisions of the BHCA. Under the BHCA,
the Corporation is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company which is not a
bank and from engaging in any business other than that of
banking, managing or controlling banks or furnishing
services to, or acquiring premises for, its affiliated
banks. The Corporation may, however, engage in, and own
voting shares of companies engaging in, certain activities
determined by the Federal Reserve Board, by order or by
regulation, to be so closely related to banking or to
managing or controlling banks "as to be a proper incident
thereto." The location of such "non-bank" subsidiaries of
the Corporation is not restricted geographically under the
BHCA. The Corporation is required by the BHCA to file with
the Federal Reserve Board periodic reports and such
additional reports as the Federal Reserve Board may require.
The Federal Reserve Bank of Boston (the "Federal Reserve")
performs examinations of the Corporation and certain of its
subsidiaries.
The BHCA requires every bank holding company to obtain the
prior approval of the Federal Reserve Board before it may
acquire substantially all of the assets of any bank, or
ownership or control of any voting shares of any bank, if,
after such acquisition, it would own or control, directly or
indirectly, more than 5% of the voting shares of such bank.
Since the Corporation is also a bank holding company under
the laws of Massachusetts, the Commissioner of Banks for the
Commonwealth of Massachusetts (the "Massachusetts
Commissioner") has authority to require certain reports from
the Corporation from time to time and to examine the
Corporation and each of its subsidiaries other than national
banking associations. Prior approval of the Massachusetts
BBI also may be required before the Corporation may acquire
any additional commercial banks located in Massachusetts.
Acquisitions by the Corporation of non-Massachusetts banks
or bank holding companies may be subject to the prior
approval by both the Massachusetts and the applicable state
or federal banking regulators. Massachusetts has an
interstate bank acquisition law which permits banking
organizations outside Massachusetts to acquire Massachusetts
banking organizations if the state law of the acquirer
permits acquisitions of banking organizations in that state
by Massachusetts-based banking organizations.
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In addition, Massachusetts has a business combinations law
which provides that if any acquirer buys 5% or more of a
target company's stock without the prior approval of the
target company's board of directors, it generally may not
(i) complete the acquisition through a merger, (ii) pledge
or sell any assets of the target company, or (iii) engage in
other self-dealing transactions with the target company for
a period of three years. The prior board approval
requirement does not apply if the acquirer buys at least 90%
of the target company's outstanding stock in the transaction
in which it crosses the 5% threshold or if the acquirer,
after crossing the threshold, obtains the approval of the
target company's board and two-thirds of the target
company's stock held by persons other than the acquirer.
This legislation automatically applies to Massachusetts
corporations, including the Corporation, which did not elect
to "opt out" of the statute.
Massachusetts law also provides for classified boards of
directors for most public companies incorporated in
Massachusetts, unless the company elected to "opt out" of
the law. As a result of this law, the Corporation's Board
of Directors is divided into three classes of Directors and
the three-year terms of the classes are staggered.
Other Massachusetts legislation exists which is intended
to provide limited anti-takeover protection to certain
Massachusetts corporations by preventing an acquirer of
certain percentages of such corporation's stock from
obtaining voting rights in such stock unless the
corporation's other stockholders authorize such voting
rights. The legislation automatically applies to certain
Massachusetts corporations which have not elected to "opt
out" of the statute. The Corporation, by vote of its Board
of Directors, has "opted out" of the statute's coverage.
In June 1990, the Board of Directors of the Corporation
adopted a stockholder rights plan providing for a dividend
of one preferred stock purchase right for each outstanding
share of common stock of the Corporation (the "Rights").
Under certain circumstances, the Rights would enable
stockholders to purchase common stock of the Corporation or
of an acquiring Corporation at a substantial discount. The
dividend was distributed on July 12, 1990 to stockholders of
record on that date. Holders of shares of the Corporation's
common stock issued subsequent to that date receive the
Rights with their shares. The Rights trade automatically
with shares of the Corporation's common stock and become
exercisable only under certain circumstances.
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The purpose of the Rights is to encourage potential
acquirers to negotiate with the Corporation's Board of
Directors prior to attempting a takeover and to provide the
Board with leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights
may have certain anti-takeover effects. The Rights should
not interfere, however, with any merger or other business
combination approved by the Board of Directors. For a
further discussion of the Corporation's stockholder rights
plan see the description of the Rights set forth in the
Corporation's registration statement on Form 8-A relating to
the Rights (including the Rights Agreement, dated as of June
28, 1990, between the Corporation and FNBB, as Rights Agent,
which is attached as an exhibit to the Form 8-A), which is
incorporated herein by reference.
The Banking Subsidiaries
General
The Corporation's banking subsidiaries that are national
banks are subject to the supervision of, and are regularly
examined by, the OCC. The Corporation's state-chartered
banking subsidiaries are subject to the supervision of, and
are regularly examined by, the Federal Deposit Insurance
Corporation (the "FDIC") as well as by their respective
state regulators. The Corporation's domestic subsidiary
banks' deposits are insured by the FDIC to the extent
allowed by law and, accordingly, the banks are subject to
the regulations of the FDIC. As members of the Federal
Reserve System, the nationally chartered banks are also
subject to regulation by the Federal Reserve Board. Bank of
Vermont and Hospital Trust, as members of the Federal Home
Loan Bank of Boston, are also subject to the regulations of
the Federal Housing Finance Board.
FIRREA
Under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), an FDIC insured
institution can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. The term
"default" is defined to mean the appointment of a
conservator or receiver for such institution and "in danger
of default" is defined generally as the existence of certain
conditions indicating that a "default" is likely to occur in
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the absence of regulatory assistance. In addition, FIRREA
broadened the enforcement powers of the federal banking
agencies, including the power to impose fines and penalties
over all financial institutions. Further, under FIRREA the
failure to meet capital guidelines could subject a financial
institution to a variety of regulatory actions, including
the termination of deposit insurance by the FDIC.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), also provides for expanded regulation of
financial institutions. Under FDICIA, banks are placed in
one of five capital categories, for which the federal
banking agencies have established specific capital ratio
levels. Pursuant to the agencies' regulations, an
institution is considered "well capitalized" if it has a
total risk-based capital ratio of at least 10%, a tier 1
risk-based capital ratio of at least 6% and a leverage
capital ratio of at least 5%. In addition, regardless of a
bank's capital level, a bank is not considered "well
capitalized" if it is subject to a cease and desist order,
formal agreement, capital directive, or prompt corrective
action directive that requires it to achieve or maintain a
higher level of capital. An institution is considered
"adequately capitalized" if it has a total risk-based
capital ratio of at least 8%, a tier 1 risk-based capital
ratio of at least 4% and a leverage capital ratio of at
least 4%. Institutions with capital levels below those
necessary to qualify as "adequately capitalized" are deemed
to be either "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized,"
depending on their specific capital levels.
FDICIA, through its prompt corrective action ("PCA")
system, imposes significant operational and management
restrictions on banks that are not considered at least
"adequately capitalized". At December 31, 1993, FNBB
satisfied the requirements of the "well capitalized"
category and the Corporation's other banking subsidiaries
satisfied the requirements of the "adequately capitalized"
or "well capitalized" categories. The capital categories of
the Corporation's banking subsidiaries are determined solely
for purposes of applying FDICIA's PCA provisions, and such
capital categories may not constitute an accurate
representation of the overall financial condition or
prospects of any of the Corporation's banking subsidiaries.
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Under FDICIA's PCA system, a bank in the
"undercapitalized" category must submit a capital
restoration plan guaranteed by its parent company. The
liability of the parent company under any such guarantee is
limited to the lesser of 5% of the bank's assets at the time
it became undercapitalized, or the amount needed to comply
with the plan. A bank in the "undercapitalized" category
also is subject to limitations in numerous areas including,
but not limited to: asset growth; acquisitions; branching;
new business lines; acceptance of brokered deposits; and
borrowings from the Federal Reserve. Progressively more
burdensome restrictions are applied to banks in the
"undercapitalized" category that fail to submit or implement
a capital plan and to banks that are in the "significantly
undercapitalized" or "critically undercapitalized"
categories. In addition, a bank's primary federal banking
agency is authorized to downgrade the bank's capital
category to the next lower category upon a determination
that the bank is in an unsafe or unsound condition or is
engaged in an unsafe or unsound practice. An unsafe or
unsound practice can include receipt by the institution of a
rating on its most recent examination of three or worse (on
a scale of 1 (best) to 5 (worst)), with respect to its asset
quality, management, earnings or liquidity.
The FDIC's deposit insurance assessments have moved under
FDICIA from a flat-rate system to a risk-based system. The
risk-based system places a bank in one of nine risk
categories, principally on the basis of its capital level
and an evaluation of the bank's risk to the Bank Insurance
Fund, and bases premiums on the probability of loss to the
FDIC with respect to each individual bank. During 1993, the
FDIC's risk-based system provided that the highest and
lowest premiums assessable per $100 of insured deposits were
$.31 and $.23, respectively, with a greater difference
between the rates possible in 1994 or 1995.
FDICIA and the regulations issued thereunder also have (i)
limited the use of brokered deposits to well capitalized
banks, and adequately capitalized banks that have received
waivers from the FDIC; (ii) established restrictions on the
permissible investments and activities of FDIC-insured state
chartered banks and their subsidiaries; (iii) implemented
uniform real estate lending rules; (iv) prescribed standards
to limit the risks posed by credit exposure between banks;
(v) revised risk-based capital rules to include components
for measuring the risk posed by interest rate changes; (vi)
amended various consumer banking laws; (vii) increased
restrictions on loans to a bank's insiders; (viii)
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established standards in a number of areas to assure bank
safety and soundness; and (ix) implemented additional
requirements for institutions that have $500 million or more in
total assets with respect to annual independent audits,
audit committees, and management reports related to
financial statements, internal controls and compliance with
designated laws and regulations.
The Corporation continues to analyze the effect of, and
address its ongoing compliance with, the various regulations
issued under FDICIA. It is anticipated that FDICIA, and the
regulations enacted thereunder, will continue to result in
more limitations on banking activities generally, and
increased costs for the Corporation and the banking industry
because of higher FDIC assessments and higher costs of
compliance, documentation and record keeping.
Other Regulatory Restrictions
The Corporation's domestic subsidiary banks and the
subsidiaries of such banks are subject to a large number of
other regulatory restrictions, including certain
restrictions upon: (i) any extensions of credit by such
banks to, from or for the benefit of the Corporation and the
Corporation's non-banking affiliates (collectively with the
Corporation, the "Affiliates"), (ii) the purchase of assets
or services from or the sale of assets or the provision of
services to Affiliates, (iii) the issuance of a guarantee,
acceptance or letter of credit on behalf of or for the
benefit of Affiliates, (iv) the purchase of securities of
which an Affiliate is a principal underwriter during the
existence of the underwriting and (v) investments in stock
or other securities issued by Affiliates or acceptance
thereof as collateral for an extension of credit. The
Corporation and all its subsidiaries, including FNBB, are
also subject to certain restrictions with respect to
engaging in the issue, flotation, underwriting, public sale
or distribution of certain types of securities. In
addition, under both the BHCA and regulations which have
been issued by the Federal Reserve Board, the Corporation
and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of
credit, lease or sale of any property or the furnishing of
any service. In operations in other countries, the
Corporation and FNBB are also subject to restrictions
imposed by the laws and banking authorities of such
countries.
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The Corporation's banking subsidiaries are also required
to maintain cash reserves against deposits and are subject
to restrictions, among others, upon (i) the nature and
amount of loans which they may make to a borrower; (ii) the
nature and amount of securities in which they may invest;
(iii) the portion of their respective assets which may be
invested in bank premises; (iv) the geographic location of
their branches; and (v) the nature and extent to which they
can borrow money.
Dividends
The payment of dividends by the Corporation is determined
by the Board of Directors based on the Corporation's
liquidity, asset quality profile, capital adequacy, and
recent earnings history (excluding significant non-recurring
transactions) as well as economic conditions and other
factors, including applicable government regulations and
policies and the amount of dividends payable to the
Corporation by its subsidiary banks.
In 1993, the aggregate dividends declared by the
Corporation on its common stock and preferred stock were
approximately $73 million. For each quarter of 1993, a
dividend of $.10 per share was declared and paid on the
Corporation's common stock. In the first quarter of 1994,
the Corporation declared a dividend on its common stock of
$.22 per share. The declaration and payment of dividends on
the Corporation's common stock was previously subject to the
prior approval of the Federal Reserve and the Division of
Banking Supervision and Regulation of the Federal Reserve
Board pursuant to an agreement between the Corporation and
the Federal Reserve entered into in 1991. In October 1993,
the Federal Reserve terminated the agreement.
The Corporation is a legal entity separate and distinct
from its subsidiary banks and its other non-bank
subsidiaries. The Corporation's revenues (on a parent
company only basis) result primarily from interest and
dividends paid to the Corporation by its subsidiaries. The
right of the Corporation, and consequently the right of
creditors and stockholders of the Corporation, to
participate in any distribution of the assets or earnings of
any subsidiary through the payment of such dividends or
otherwise is necessarily subject to the prior claims of
creditors of the subsidiary (including depositors, in the
case of banking subsidiaries), except to the extent that
claims of the Corporation in its capacity as a creditor may
be recognized.
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It is the policy of the OCC and the Federal Reserve Board
that banks and bank holding companies, respectively, should
pay dividends only out of current earnings and only if after
paying such dividends the bank or bank holding company would
remain adequately capitalized. Federal banking regulators
also have authority to prohibit banks and bank holding
companies from paying dividends if they deem such payment to
be an unsafe or unsound practice. In addition, it is the
position of the Federal Reserve Board that a bank holding
company is expected to act as a source of financial strength
to its subsidiary banks.
Various federal and state laws, regulations and policies
limit the ability of the Corporation's banking subsidiaries
to pay dividends to the Corporation. Federal banking law
requires the approval of the OCC if the aggregate total of
the dividends declared by any of the Corporation's national
banking subsidiaries in any calendar year will exceed the
bank's net profits, as defined by applicable regulation, for
that year combined with retained net profits for the
preceding two years. Also, state law requires the approval
of state bank regulatory authorities if the dividends
declared by state banks exceed certain prescribed limits.
In 1993, approximately $7 million of dividends were declared
by one of the Corporation's banking subsidiaries. The
payment of any future dividends by the Corporation's banking
subsidiaries will be determined based on a number of
factors, including the subsidiary's liquidity, asset quality
profile, capital adequacy and recent earnings history. In
addition, as discussed below, two of the Corporation's
banking subsidiaries, BKB Connecticut and South Shore Bank,
are subject to regulatory agreements which require prior
regulatory approval and prior notice, respectively, for the
payment of dividends. See the related discussions set
forth below in "Capital," "Legislation" and "Regulatory
Agreements."
Capital
Information concerning the Corporation and its banking
subsidiaries with respect to capital is set forth in the
discussion of "Capital Management" contained in the
Corporation's 1993 Annual Report to Stockholders on pages 49
and 50, which pages are included in Exhibit 13 hereto and
which discussion is incorporated herein by reference. See
also "Legislation" and "Regulatory Agreements" discussed
below and "Dividends" discussed above.
13
<PAGE> 17
Legislation
In addition to extensive existing government
regulation, federal and state statutes and regulations can
change in unpredictable ways, often with significant effects
on the way in which financial institutions may conduct
business. Legislation which has been enacted in recent
years has substantially increased the level of competition
among commercial banks, thrift institutions and non-banking
institutions, including insurance companies, brokerage
firms, mutual funds, investment banks and major retailers.
Similarly, the enactment of banking legislation such as
FIRREA and FDICIA has affected the banking industry by,
among other things, broadening the powers of the federal
banking agencies in a number of areas. Other legislation,
which is considered from time to time, such as interstate
branching, could, if enacted, significantly affect the
business of the Corporation. See also "Supervision and
Regulation -- the Corporation" discussed above.
Regulatory Matters
During 1993, certain regulatory agreements between the
Corporation or its banking subsidiaries and their respective
banking agencies were terminated by the agencies as a result
of improvements in the areas addressed in those agreements.
Information on the terminated and remaining agreements is
set forth below.
As previously reported, in 1989, FNBB entered into an
agreement with the OCC to address certain areas, and the
Corporation entered into a similar memorandum of
understanding with the Federal Reserve. In 1991 the
Corporation entered into a written agreement with the
Federal Reserve that was essentially a formalization of the
then existing memorandum of understanding. In February 1993
and October 1993, respectively, the OCC and the Federal
Reserve terminated the agreements as a result of the
progress made by FNBB and the Corporation in the areas
addressed by the agreements.
As previously reported, in 1991 Casco and Hospital Trust
entered into agreements with the OCC that were substantially
similar to the OCC's agreement with FNBB. In February 1993,
the OCC terminated the agreements with Casco and Hospital
Trust as a result of the progress made by Casco and Hospital
Trust in the areas addressed in their respective
agreements.
As previously reported, Bank of Vermont and its
regulators, the FDIC and the Commissioner of Banking,
Insurance and Securities of the State of Vermont (the
14
<PAGE> 18
"Vermont Commissioner"), entered into a memorandum of
understanding in 1992. In October 1993, the FDIC and the
Vermont Commissioner terminated the memorandum as a result
of Bank of Vermont's compliance with its provisions.
As previously reported, in 1992 Bancorp and Multibank
entered into written agreements with the Federal Reserve.
In September 1993, the Federal Reserve terminated the
agreements with Bancorp and Multibank as a result of the
progress made by Bancorp and Multibank in the areas
addressed in their respective agreements.
As previously reported, in connection with the acquisition
of Bancorp, BKB Connecticut was merged with and into
Bancorp's subsidiary bank, Society for Savings ("Society"),
and Society changed its name to "BKB Connecticut" following
the merger. The resulting bank remains subject to a
stipulation and agreement entered into by BKB Connecticut
with the Connecticut Banking Commissioner in 1991 pursuant
to which BKB Connecticut is required, among other things, to
reduce the level of its classified assets, to maintain
appropriate reserves, and to maintain its tier 1 leverage
capital ratio in excess of minimum regulatory requirements.
As of December 31, 1993, BKB Connecticut's tier 1 leverage
capital ratio was above the minimum required under its
agreement. The agreement requires the prior written consent
of the Connecticut Banking Commissioner and the Regional
Director of the FDIC for the payment of dividends by BKB
Connecticut. The agreement, as amended, also requires BKB
Connecticut to submit semiannual progress reports to the
regulators of actions taken under the agreement. BKB
Connecticut has implemented or is implementing improvements
in the various areas addressed in its agreement.
As previously reported, Mechanics Bank entered into a
memorandum of understanding with the FDIC and the
Massachusetts Commissioner in 1991. In January 1994, the
FDIC and the Massachusetts Commissioner terminated the
agreement with Mechanics Bank as a result of the progress
made by Mechanics Bank in the areas addressed in the
agreement.
As previously reported, South Shore Bank entered into a
memorandum of understanding with the FDIC and the
Massachusetts Commissioner in 1992, which incorporated the
terms of an earlier memorandum of understanding entered into
in 1991. The memorandum of understanding addresses certain
areas, including management, asset quality, reserves,
15
<PAGE> 19
profitability, capital ratios, and dividends. South Shore
Bank is also subject to the ongoing conditions of the FDIC's
approval order relating to the merger of two other banks
into South Shore Bank. The conditions of the approval order
require, among other things, a plan to reduce classified
asset levels and that South Shore Bank have, as of December
31, 1993, a minimum tier 1 leverage capital ratio of at
least 6.0%. As of December 31, 1993, South Shore Bank was
in compliance with the capital ratio aspects of, and had
adopted or was implementing improvements in the various
areas addressed in, the agreement and approval order.
As previously reported, as part of the 1991 merger of two
of Multibank's banking subsidiaries, the FDIC issued an
approval order which requires that the resulting bank,
Multibank West, comply with certain conditions. The
approval order addresses, among other things, uniform
policies and procedures, risk ratings, asset quality,
reserves and funds management, and requires that Multibank
West maintain an equity-to-assets ratio of at least 5%.
Multibank West, which is required to file periodic progress
reports with the FDIC, has complied with all of the aspects of
the approval order.
The Corporation is currently in the process of seeking
regulatory approval to merge Mechanics Bank, South Shore
Bank and Multibank West into FNBB. While it is anticipated
that the mergers will be consummated by mid-year 1994, there
can be no assurances that the requisite regulatory approvals
will be granted or, if granted, that such approvals will be
received within this time frame.
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. Although management cannot predict the outcome
of this proceeding, an unfavorable outcome will not result
in any monetary penalties to the Corporation.
16
<PAGE> 20
GOVERNMENTAL POLICIES AND ECONOMIC CONDITIONS
The earnings and business of the Corporation and its
subsidiaries are affected by a number of external
influences. The economic and political conditions in which
the Corporation and its subsidiaries operate can vary
greatly. Such conditions include volatile foreign exchange
markets and, in certain countries, high rates of inflation
and foreign exchange liquidity problems. In 1993, the
economies of New England and the United States reflected
modest improvement and for most of 1993, the Corporation
experienced improved domestic loan demand. The economic
downturn in New England, however, predated the national
recession and since the state of the regional economy
reflects structural as well as cyclical forces, New
England's economic recovery may be slower and more uneven
than for the country as a whole.
The Corporation's earnings and business are also affected
by the policies of various government and regulatory
authorities in New England and throughout the United States,
as well as foreign governments and international agencies,
including, in the United States, the Federal Reserve Board.
Important functions of the Federal Reserve Board, in
addition to those enumerated under "Supervision and
Regulation," are to regulate the supply of money and of bank
credit, to deal with general economic conditions within the
United States and to be responsive to international economic
conditions. From time to time, the Federal Reserve Board
and the central banks of foreign countries have taken
specific steps to effect changes in the value of the United
States dollar in foreign currency markets as well as to
control domestic inflation and to control the country's
money supply. The instruments of monetary policy employed
by the Federal Reserve Board for these purposes (including
interest rates and the level of cash reserves banks are
required to maintain against deposits) influence in various
ways the interest rates paid on interest bearing liabilities
and the interest received on earning assets, as well as the
overall level of bank loans, investments and deposits.
Inflation has generally had a minimal impact on the
Corporation because substantially all of its assets and
liabilities are of a monetary nature and a large portion of
its operations are based in the United States, where
inflation has been low. As discussed in "Management's
Financial Review," a currency position maintained by the
Corporation in Brazil, a country with a hyperinflationary
economy, has had an effect on the levels of net interest
17
<PAGE> 21
revenue, noninterest income and net interest margin, while
modestly benefiting total revenue. Prospective domestic and
international economic and political conditions and the
policies of the Federal Reserve Board, as well as other
domestic and international regulatory authorities, may
effect the future business and earnings of the Corporation.
This section should be read in conjunction with
"Management's Financial Review" contained in the
Corporation's 1993 Annual Report to Stockholders on pages 32
through 51, which pages are included in Exhibit 13 hereto
and which discussion is incorporated herein by reference.
18
<PAGE> 22
CONSOLIDATED STATISTICAL INFORMATION
The "Consolidated Statistical Information" is incorporated
herein by reference from the following pages of the
Corporation's 1993 Annual Report to Stockholders, which
pages are included in Exhibit 13 hereto. This information
should be read in conjunction with the financial statements
incorporated by reference in Item 8 of this Report.
Page of 1993 Annual
Report to Stockholders
Average Balances and Interest Rates:
Consolidated 79
United States Operations 80
International Operations 81
Change in Net Interest Revenue-Volume and
Rate Analysis:
1993 compared with 1992 82
1992 compared with 1991 83
Geographic Segment Information 84
Cross-border Outstandings 86 and 87
Loans and Lease Financing 88
Nonaccrual Loans and Leases 89
Reserve for Credit Losses:
Allocation of Reserve for Credit Losses 90
Analysis of Reserve for Credit Losses 91
Securities 92
Deposits 92
Short-term Borrowings 93
Consolidated Selected Financial Data-Selected
Ratios 31
Item 2. Properties.
The head offices of the Corporation and FNBB are
located in a 37-story building at 100 Federal Street,
Boston, Massachusetts. In 1993, FNBB leased approximately
70% of the building's approximately 1.3 million square feet.
FNBB's securities and payments processing center is located
in Canton, Massachusetts, where FNBB leases approximately
85% of the Canton office building's approximately 275,000
square feet. FNBB's data processing and record keeping
operations are located at Columbia Park in Boston. The
Columbia Park facility, comprising approximately 405,000
square feet, and the land on which it is situated are owned
by FNBB. In addition, FNBB leases Multibank's former
19
<PAGE> 23
operations facility in Dedham, Massachusetts, which
comprises approximately 158,000 square feet. The
headquarters for FNBB's operations in Argentina and Brazil
are located in a 10-story building in Buenos Aires and a
20-story building in Sao Paulo, respectively. The Buenos
Aires and Sao Paulo facilities, comprising approximately
256,000 and 187,000 square feet, respectively, are owned by FNBB.
Hospital Trust owns a 30-story building and a building
adjacent thereto at One Hospital Trust Plaza, Providence,
Rhode Island. Hospital Trust occupies approximately 40% of
the complex's approximately 546,000 square feet. In
addition, Hospital Trust maintains an operations center in
East Providence, Rhode Island that also serves as the
primary backup for FNBB's Columbia Park facility. The East
Providence operations center, which consists of approximately
141,000 square feet, is owned by Hospital Trust.
BKB Connecticut has recently moved its headquarters to
Hartford, Connecticut where it has offices at 31 Pratt Street
and 100 Pearl Street. BKB Connecticut owns and occupies
approximately 50,000 square feet at the Pratt Street
location, which was the former Bancorp headquarters. BKB
Connecticut owns an undivided one-half interest in the Pearl Street
location and currently occupies approximately 54,000 square feet.
BKB Connecticut also maintains regional offices in Connecticut, the
largest of which is in Waterbury and comprises approximately
157,000 square feet of owned space in three interconnected buildings.
Casco's headquarters are located at One and Two
Monument Square in Portland, Maine. Casco leases approximately
135,000 square feet of the complex and currently occupies
approximately 76,000 square feet of that space. Bank of Vermont's
headquarters in Burlington, Vermont consist of approximately 77,000
square feet of owned space in four interconnected buildings.
None of these properties is subject to any material
encumbrance. The Corporation's subsidiaries also own or
lease numerous other premises used in domestic and foreign
operations.
Item 3. Legal Proceedings.
The Corporation and its subsidiaries in 1993 were or
currently are parties to a number of legal proceedings that
have arisen in connection with the normal course of business
20
<PAGE> 24
activities of the Corporation, FNBB and the Corporation's
other subsidiaries, including the following matters:
Arnold/Society for Savings Bancorp, Inc. As previously
reported, in March, 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, 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 May 1993, the Chancery Court denied
the plaintiff's motion for a preliminary injunction and in
July 1993, the Corporation acquired Bancorp. In December
1993, the Chancery Court granted summary judgment in favor
of the Corporation, Bancorp and Bancorp's former directors.
The plaintiff has appealed that decision to the Delaware Supreme
Court, where the matter is currently pending.
Bancorp Class Action. As previously reported, a class
action complaint was filed in U.S. District Court for the
District of Connecticut against Bancorp, two of its then
senior officers and one former officer. The complaint, as
subsequently amended, alleges that Bancorp's financial
reports for fiscal years 1988, 1989, and the first half of
1990 contained material misstatements or omissions
concerning its real estate loan portfolio and other matters,
in violation of Connecticut common law and of Sections 10(b)
and 20 of the Securities Exchange Act of 1934. The action
was brought by a Bancorp shareholder, individually and as a
class action on behalf of purchasers of Bancorp's stock from
January 19, 1989 through November 30, 1990 and seeks damages
in an unspecified amount. Bancorp and the defendant
officers have denied the allegations of the amended
complaint and intend to defend the action vigorously.
Lender Liability Litigation. The Corporation's
subsidiaries, in the normal course of their business in
collecting outstanding obligations, are named as defendants
in complaints or counterclaims filed in various
jurisdictions by borrowers or others who allege that lending
practices by such subsidiaries have damaged the borrowers or
others. Such claims, commonly referred to as lender
liability claims, frequently request not only relief from
repayment of the debt obligation, but also recovery of
actual, consequential, and punitive damages, some in very
large dollar amounts. During 1991, one such claim resulted
in a judgment being entered against Hospital Trust for
21
<PAGE> 25
approximately $4.0 million, plus interest. The judgment
against Hospital Trust remains on appeal.
Stranway/Elmendorf Case. As previously reported, in June
1985 a complaint was filed against FNBB in the U.S. District
Court for the District of New Hampshire by private
plaintiffs on behalf of the United States in a qui tam
action under 3l U.S.C. # 3729, known as the False Claims
Act. The complaint alleges that FNBB failed to disclose, or
made false statements, to the Farmer's Home Administration
("FmHA") in connection with securing and inducing payment on
guarantees from the FmHA on loans by FNBB and certain
investors to Stranway Corporation and its subsidiary
Elmendorf Board Corporation. Damages are alleged in the
amount of $50,000,000, plus interest, costs and attorneys
fees. The United States, which must decide at the outset
whether to take over civil prosecution of a False Claims Act
suit initiated by a private plaintiff, has declined to enter
an appearance in and take over the action. The action was
transferred to the District of Massachusetts. In 1986, FNBB
filed a motion to dismiss the suit for lack of subject
matter jurisdiction and the motion was denied by the
District Court in 1988. Discovery has been essentially
completed in the case. FNBB denies the allegations in the
complaint and intends to continue to defend the action
vigorously.
Management, after reviewing all actions and proceedings
pending against the Corporation and its subsidiaries,
considers that the aggregate loss, if any, resulting from
the final outcome of these proceedings will not be
material.
22
<PAGE> 26
Item 3A. Executive Officers of the Corporation.
Information with respect to the executive officers of the
Corporation, as of March 1, 1994, is set forth below.
Executive Officers are generally elected annually by the
Board of Directors and hold office until the following year
and until their successors are chosen and qualified, unless
they sooner resign, retire, die or are removed. Except
where otherwise noted, the positions listed for the officers
are for both the Corporation and FNBB.
<TABLE>
<CAPTION>
Date
Assumed
Executive
Officer
Name and Age Current Position Position
- --------------- ---------------- --------
<S> <C> <C>
Ira Stepanian Chairman of the Board 1981
57 of Directors and
Chief Executive Officer
Charles K. Gifford President and Chief Operating 1987
51 Officer
Edward A. O'Neal Vice Chairman 1992
49
William J. Shea Vice Chairman, Chief Financial January 1993
46 Officer & Treasurer of the
Corporation and Vice Chairman
and Chief Financial Officer of
FNBB
Constantin R. Boden Group Executive, 1990
57 Latin America, Asia
International Private Banking
Helen G. Drinan Executive Director, April 1993
46 Human Resources
Paul F. Hogan Executive Director, April 1993
49 Credit & Loan Review
Ira A. Jackson Executive Director, 1987
45 External Affairs
Robert T. Jefferson Comptroller March 1993
46
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
Date
Assumed
Executive
Officer
Name and Age Current Position Position
- --------------- ---------------- --------
<S> <C> <C>
Peter J. Manning Executive Director, 1990
55 Mergers & Acquisitions,
Audit & Risk Review
Gary A. Spiess General Counsel and Clerk 1987
53 of the Corporation
and General Counsel,
Secretary & Cashier of FNBB
Eliot N. Vestner, Jr. Executive Counsel, 1987
58 Regulatory Affairs
Bradford H. Warner Group Executive, Treasury 1989
42
Guilliaem Aertsen IV Group Executive, October 1993
46 Real Estate (FNBB)
Melville E. Blake III Executive Director, October 1993
39 Strategic Planning (FNBB)
Robert L. Champion, Jr. Executive Director, October 1993
49 Corporate Administrative
Services (FNBB)
Barbara F. Clark Group Executive, October 1993
47 Media & Communications
(FNBB)
Edward P. Collins Group Executive, October 1993
46 US Lending, Leasing & Asset
Based Lending (FNBB)
Robert E. Gallery Group Executive, October 1993
42 NE Large Corporate Banking
& NE Corporate Banking,
CT, RI (FNBB)
Susan P. Haney Group Executive, October 1993
46 The Private Bank (FNBB)
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
Date
Assumed
Executive
Officer
Name and Age Current Position Position
- --------------- ---------------- --------
<S> <C> <C>
Thomas J. Hollister Group Executive, October 1993
39 Retail & Small Business
(FNBB)
David W. Kruger Group Executive, October 1993
51 Global Products (FNBB)
Michael R. Lezenski Executive Director, October 1993
46 Technology Services &
Banking Operations (FNBB)
Mark A. MacLennan Group Executive, October 1993
40 Multinational, Europe &
Financial Institutions
(FNBB)
David E. McKown Group Executive, October 1993
56 Entrepreneurial Lending,
Mezzanine & Corporate
Finance (FNBB)
William H. Ott Group Executive, October 1993
41 Consumer Finance (FNBB)
Joe K. Pickett Group Executive, October 1993
48 Mortgage Banking (FNBB)
Richard A. Remis Group Executive, October 1993
39 NE Corporate Banking-MA,
ME, NH & VT (FNBB)
Susannah M. Swihart Group Executive, October 1993
38 Specialized Finance (FNBB)
</TABLE>
All of the foregoing individuals have been
officers of the Corporation or one of its subsidiaries for
the past five years except for Ms. Haney and Messrs. Blake,
Champion, Gallery, O'Neal, Ott and Shea. Prior to joining
the Corporation in 1990, Ms. Haney was Senior Vice
President/Manager of Portfolio Accounting for The Boston
Company since 1988 and Mr. Champion was Senior Vice
President and Department Head, General Services for
Continental Bank from 1976. Mr. Gallery came to the
Corporation in 1991 from The First National Bank of Chicago
where he was Division Manager, Midwest since 1989. Prior to
25
<PAGE> 29
joining the Corporation in 1992, Mr. O'Neal was employed by
Chemical Banking Corporation as Senior Executive Vice
President, Operating Services and Nationwide Consumer in
1992, Vice Chairman and Director from 1990 to 1991 and Group
Executive Consumer Banking Group from 1987 to 1990. Mr.
Blake also joined the Corporation in 1992 and prior to that
time was Vice President of the MAC Group/Gemini Consulting
since 1988. Mr. Ott also came to the Corporation in 1992
from Constellation Bancorp where he served as Executive Vice
President, Community Banking Division, and prior to that
time was an Associate at TAC Associates from 1991 to 1992,
Senior Vice President, Community Banking Division of Fleet
Bank from 1990 to 1991 and Vice President of Bank of America
from 1975 to 1990. Mr. Shea joined the Corporation in 1993
from Coopers & Lybrand, where he had served as a partner
since 1983 and as Vice Chairman since 1991.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
26
<PAGE> 30
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information required by this Item is presented on
pages 30, 31 and 95 of the Corporation's 1993 Annual Report
to Stockholders, which pages are included in Exhibit 13
hereto, and such information is hereby incorporated by
reference.
Item 6. Selected Financial Data.
The "Consolidated Selected Financial Data" of the
Corporation for the six years ended December 31, 1993
appears on pages 30 and 31 of the Corporation's 1993 Annual
Report to Stockholders, which pages are included in Exhibit
13 hereto, and such information is hereby incorporated by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The information in response to this Item is included in
"Management's Financial Review" on pages 32 through 51 of
the Corporation's 1993 Annual Report to Stockholders, which
pages are included in Exhibit 13 hereto, and such
information is hereby incorporated by reference.
27
<PAGE> 31
Item 8. Financial Statements and Supplementary Data.
<TABLE>
The financial statements and supplementary data required
by this Item are included on the pages of the Corporation's
1993 Annual Report to Stockholders indicated below, which
pages are included in Exhibit 13 hereto, and such statements
and data are hereby incorporated by reference.
<CAPTION>
Page of 1993 Annual
Report to Stockholders
<S> <C>
Report of Independent Accountants 53
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet as of December 31, 1993
and 1992 54
Consolidated Statement of Income for the years
ended December 31, 1993, 1992 and 1991 55
Consolidated Statement of Changes in Stockholders'
Equity for
the years ended December 31, 1993, 1992 and 1991 56 and 57
Consolidated Statement of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 58
Notes to Financial Statements 59 through 78
Summary of Quarterly Consolidated Financial Information
and Common Stock Data 95
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
28
<PAGE> 32
PART III
Item 10. Directors and Executive Officers of the
Registrant.
Information concerning the Executive Officers of the
Corporation which responds to this Item is contained in the
response to Item 3A contained in Part I of this Report and
is hereby incorporated by reference herein. The information
that responds to this Item with respect to Directors, is
contained under the heading "Election of Directors" in the
Corporation's definitive proxy statement for its 1994 Annual
Meeting of Stockholders, which is required to be filed
pursuant to Regulation 14A of the Exchange Act and which
will be filed with the Commission not later than 120 days
after the end of the Corporation's fiscal year (the "Proxy
Statement"). Information with respect to compliance by the
Corporation's directors and executive officers with Section
16(a) of the Exchange Act is contained under the heading
"Compliance with Section 16(a) of the Exchange Act" in the
Proxy Statement. Pursuant to General Instruction G(3) to
Form 10-K, the foregoing information from the Proxy
Statement is hereby incorporated by reference.
Item 11. Executive Compensation.
The information required in response to this Item is
contained under the heading "Compensation of Executive
Officers" in the Proxy Statement. Pursuant to General
Instruction G(3) to Form 10-K, the foregoing information
from the Proxy Statement, with the exception of the sections
entitled "Compensation Committee Report on Executive
Compensation" and "Five-Year Stockholder Return Comparison,"
is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information required in response to this Item is
contained under the heading "Beneficial Ownership of
Securities" in the Proxy Statement. Pursuant to General
Instruction G(3) to Form 10-K, the foregoing information
from the Proxy Statement is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
The information required in response to this Item is
contained under the heading "Indirect Interest of Directors
and Executive Officers in Certain Transactions" in the Proxy
Statement. Pursuant to General Instruction G(3) to Form
10-K, the foregoing information from the Proxy Statement is
hereby incorporated by reference.
29
<PAGE> 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a)(1) The financial statements required in response to
this Item are listed in response to Item 8 of this
Report and are incorporated herein by reference.
(a)(2) Financial Statement Schedules.
Schedules have been omitted because the information is
either not required, not applicable, or is included in
the financial statements or notes thereto.
(a)(3) Exhibits
3(a) - Restated Articles of Organization of the
Corporation, as amended through November 24,
1993.
3(b) - By-Laws of the Corporation, as amended through
October 28, 1993.
4(a) - Indenture dated as of January 15, 1986 defining
rights of holders of the Corporation's 7 3/4%
Convertible Subordinated Debentures Due 2011,
incorporated herein by reference to Exhibit 4(b)
to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1985 (File No.
1-6522).
4(b) - Fiscal and Paying Agency Agreement dated as of
February 10, 1986 defining rights of holders of
the Corporation's Subordinated Floating Rate
Notes Due 2001, incorporated herein by reference
to Exhibit 4(d) to the Corporation's Annual
Report on Form 10-K for the year ended December
31, 1985 (File No. 1-6522).
4(c) - Fiscal and Paying Agency Agreement dated as of
August 26, 1986 defining rights of holders of
the Corporation's Floating Rate Subordinated
Equity Commitment Notes Due 1998 incorporated
herein by reference to Exhibit 4(e) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1986 (File No. 1-6522).
30
<PAGE> 34
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
4(d) - Indenture dated as of June 15, 1987 defining the
rights of holders of the Corporation's 9 1/2%
Subordinated Equity Contract Notes due 1997,
incorporated herein by reference to Exhibit 4(g)
to the Corporation's Annual Report on Form 10-K
for the year ended December 31, l987 (File No.
1-6522).
4(e) - Indenture dated as of July 15, 1988 and form of
note defining rights of the holders of the
Corporation's 10.30% Subordinated Notes due
September 1, 2000, incorporated herein by
reference to Exhibit 4(i) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-6522).
4(f) - Fiscal and Paying Agency Agreement dated as of
September 12, 1985 defining rights of holders of
the Corporation's Floating Rate Notes Due 2000,
incorporated herein by reference to Exhibit 4(c)
to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1985 (File No.
1-6522).
4(g) - Subordinated Indenture dated as of June 15,
1992, as amended by the First Supplemental
Indenture dated as of June 24, 1993, and forms
of notes defining rights of the holders of the
Corporation's 6 7/8% Subordinated Notes due
2003, the 6 5/8% Subordinated Notes due 2005,
and the 6 5/8% Subordinated Notes due 2004,
incorporated herein by reference to Exhibit 4(d)
to the Corporation's Registration Statement on
Form S-3 (Registration Number 33-48418), to
Exhibits 4(e) and 4(f) to the Corporation's Current
Report on Form 8-K dated June 24, 1993, to Exhibit
4 to the Corporation's Current Report on Form 8-K
dated November 15, 1993 and to Exhibit 4 to the
Corporation's Current Report on Form 8-K dated
January 5, 1994 (File No. 1-6522).
31
<PAGE> 35
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
4(h) - Rights Agreement, dated as of June 28, 1990,
between the Corporation and FNBB, as Rights
Agent, and the description of the Rights,
incorporated herein by reference to the
Corporation's registration statement on Form 8-A
relating to the Rights and to Exhibit 1 of such
registration statement (File No. 1-6522).
4(i) - Deposit Agreement, dated August 13, 1992 between
the Corporation and FNBB, as Depositary,
relating to the Corporation's Depositary Shares,
each representing a one-tenth interest in the
Corporation's 8.60% Cumulative Preferred Stock,
Series E, incorporated herein by reference to
Exhibit 4(b) to the Corporation's Current Report
on Form 8-K dated August 13, 1992 (File No.
1-6522).
4(j) - Deposit Agreement, dated as of June 30, 1993
between the Corporation and FNBB, as Depositary,
relating to the Corporation's Depositary Shares,
each representing a one-tenth interest in the
Corporation's 7 7/8% Cumulative Preferred Stock,
Series F, incorporated herein by reference to
Exhibit 4(b) to the Corporation's Current Report
on Form 8-K dated June 24, 1993 (File No.
1-6522).
10(a) Bank of Boston Corporation 1982 Stock Option
Plan as amended through August 24, 1989,
incorporated herein by reference to Exhibit
10(a) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1989 (File
No. 1-6522).*
____________________________________________________________
* Indicates that document is a management contract or
compensatory plan or arrangement that is required to be
filed as an exhibit to this Report pursuant to Item 14(c) of
Form 10-K.
32
<PAGE> 36
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
10(b) Bank of Boston Corporation 1986 Stock Option
Plan as amended through August 24, 1989,
incorporated herein by reference to Exhibit
10(b) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1989 (File
No. 1-6522).*
10(c) Bank of Boston Corporation and its Subsidiaries
Performance Recognition Opportunity Plan, as
amended effective January 27, 1994.*
10(d) Bank of Boston Corporation Executive
Non-Qualified Deferred Compensation Plan, as
amended through March 12, 1991, incorporated
herein by reference to Exhibit 10(d) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992 (File No.
1-6522).*
10(e) The First National Bank of Boston Bonus
Supplemental Employee Retirement Plan, as
amended through September 13, 1990, incorporated
herein by reference to Exhibit 10(e) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No.
1-6522).*
10(f) Description of the Corporation's Supplemental
Life Insurance Plan, incorporated herein by
reference to Exhibit 10(h) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-6522).*
10(g) The First National Bank of Boston Excess Benefit
Supplemental Employee Retirement Plan, effective
as of January 1, 1989, incorporated herein by
reference to Exhibit 10(g) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-6522).*
____________________________________________________________
* Indicates that document is a management contract or
compensatory plan or arrangement that is required to be
filed as an exhibit to this Report pursuant to Item 14(c) of
Form 10-K.
33
<PAGE> 37
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
10(h) Bank of Boston Corporation 1991 Long-Term Stock
Incentive Plan, as amended through January 27,
1994.*
10(i) Employment Agreement dated July 7, 1992 between
The First National Bank of Boston and Edward A.
O'Neal, incorporated herein by reference to
Exhibit 10(k) to the Corporation's Annual Report
on Form 10-K for the year ended December 31,
1992 (File No. 1-6522).*
10(j) Employment Agreement dated December 4, 1992
between The First National Bank of Boston and
William J. Shea, incorporated herein by
reference to Exhibit 10(l) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992 (File No. 1-6522).*
10(k) Bank of Boston Corporation Relocation Policy, as
amended through October, 1990, incorporated
herein by reference to Exhibit 10(j) to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1990 (File No.
1-6522).*
10(l) - Description of the Corporation's
Supplemental Long-Term Disability Plan effective
as of February 10, 1994.*
10(m) Bank of Boston Corporation's Director Stock
Award Plan effective as of May 1, 1993.*
10(n) Lease dated as of September 1, 1991 between The
First National Bank of Boston and The Equitable
Federal Street Realty Company Limited
Partnership, incorporated herein by reference to
Exhibit 10(l) to the Corporation's Annual Report
on Form 10-K for the year ended December 31,
1991 (File No. 1-6522).
_____________________________________________________________
* Indicates that document is a management contract or
compensatory plan or arrangement that is required to be
filed as an exhibit to this Report pursuant to Item 14(c) of
Form 10-K.
34
<PAGE> 38
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
11 - Computation of earnings per common 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).
13 - Pages 30 through 51, 53 through 93 and 95 of the
Corporation's 1993 Annual Report to
Stockholders.
21 - List of subsidiaries of Bank of Boston
Corporation.
23 - Consent of Independent Accountants.
24 - Power of attorney of certain officers and
directors (included on pages II-1 through
II-2).
35
<PAGE> 39
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (cont'd).
(a)(3) Exhibits (cont'd)
99 - Notice of Annual Meeting and Proxy Statement for
the Annual Meeting of the Corporation's
Stockholders to be held April 28, 1994.
(Pursuant to General Instruction G(3) to Form
10-K, the information required to be filed by
Part III hereof is incorporated by reference
from the Corporation's definitive proxy
statement which is required to be filed pursuant
to Regulation 14A and which will be filed with
the Commission not later than 120 days after the
end of the Corporation's fiscal year.)
(b) During the fourth quarter of 1993, the Corporation
filed three Current Reports on Form 8-K. The current
reports, dated October 28, 1993, November 2, 1993 and
November 15, 1993, contained information pursuant to
Items 5 and 7 of Form 8-K. The Corporation also filed
one Current Report on Form 8-K, dated January 5, 1994,
which contained information pursuant to Items 5 and 7 of
Form 8-K.
36
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Boston, and Commonwealth of Massachusetts, on the 4th day of
March, 1994.
BANK OF BOSTON CORPORATION
By /s/ IRA STEPANIAN
-------------------------------
(Ira Stepanian)
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the following
persons in the capacities and on the dates listed below. By
so signing, each of the undersigned, in his or her capacity
as a director or officer, or both, as the case may be, of
the Corporation, does hereby appoint Ira Stepanian, Charles
K. Gifford, William J. Shea, Bradford H. Warner, Robert T.
Jefferson and Gary A. Spiess, and each of them severally, or
if more than one acts, a majority of them, his or her true
and lawful attorneys or attorney to execute in his or her
name, place and stead, in his or her capacity as a director
or officer or both, as the case may be, of the Corporation,
any and all amendments to said report and all instruments
necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission. Each
of said attorneys shall have full power and authority to do
and perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises as fully
and to all intents and purposes as each of the undersigned
might or could do in person, hereby ratifying and approving
the acts of said attorneys and each of them.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors,
Chief Executive Officer and Director
/s/ IRA STEPANIAN (Chief Executive Officer) March 4, 1994
- -----------------------------
(Ira Stepanian)
/s/ CHARLES K. GIFFORD President and Chief Operating March 4, 1994
- ----------------------------- Officer and Director
(Charles K. Gifford)
/s/ WILLIAM J. SHEA Vice Chairman, March 4, 1994
- ----------------------------- Chief Financial Officer and Treasurer
(William J. Shea) (Chief Financial Officer)
/s/ ROBERT T. JEFFERSON Comptroller March 4, 1994
- ----------------------------- (Chief Accounting Officer)
(Robert T. Jefferson)
</TABLE>
II-1
<PAGE> 41
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WAYNE A. BUDD Director March 4, 1994
- -----------------------------
(Wayne A. Budd)
/s/ JOHN J. CAREY Director March 4, 1994
- -----------------------------
(John J. Carey)
/s/ WILLIAM F. CONNELL Director March 4, 1994
- -----------------------------
(William F. Connell)
/s/ GARY L. COUNTRYMAN Director March 4, 1994
- -----------------------------
(Gary L. Countryman)
/s/ ALICE F. EMERSON Director March 4, 1994
- -----------------------------
(Alice F. Emerson)
/s/ DONALD F. MCHENRY Director March 4, 1994
- -----------------------------
(Donald F. McHenry)
/s/ J. DONALD MONAN Director March 4, 1994
- -----------------------------
(J. Donald Monan)
/s/ PAUL C. O'BRIEN Director March 4, 1994
- -----------------------------
(Paul C. O'Brien)
/s/ JOHN W. ROWE Director March 4, 1994
- -----------------------------
(John W. Rowe)
Director , 1994
- -----------------------------
(Richard A. Smith)
/s/ WILLIAM C. VAN FAASEN Director March 4, 1994
- -----------------------------
(William C. Van Faasen)
/s/ THOMAS B. WHEELER Director March 4, 1994
- -----------------------------
(Thomas B. Wheeler)
/s/ ALFRED M. ZEIEN Director March 4, 1994
- -----------------------------
(Alfred M. Zeien)
/s/ CHARLES A. ZRAKET Director March 4, 1994
- -----------------------------
(Charles A. Zraket)
</TABLE>
II-2
<PAGE> 1
EXHIBIT 3(a)
BANK OF BOSTON CORPORATION
Boston, Massachusetts
Restated
Articles of Organization
Rev.11/93
<PAGE> 2
BANK OF BOSTON CORPORATION
Restated
Articles of Organization
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
ARTICLE 1
Name 1
ARTICLE 2
Purpose 1
ARTICLE 3
Authorized Capital Stock 1
ARTICLE 4
Common Stock 1
Preferred Stock, General 1
Preferred Stock, Series A 2
Preferred Stock, Series B 18
Preferred Stock, Series C 34
Preferred Stock, Series D 49
Preferred Stock, Series E 60
Preferred Stock, Series F 70
ARTICLE 5
Transfer Restrictions, if any 80
ARTICLE 6
Amendment of By-Laws 80
Stockholders Meetings 80
Corporation as Partner 80
Limitation on Director Liability 80
</TABLE>
<PAGE> 3
BANK OF BOSTON CORPORATION
ARTICLES OF ORGANIZATION
Restated
November 24, 1993
ARTICLE 1
The name by which the corporation shall be known is "Bank of Boston
Corporation."
ARTICLE 2
The purposes for which the corporation is formed are as follows:
To buy, sell, deal in, or hold securities of every kind and
description; and in general to carry on any business permitted to
corporations organized under Chapter 156B of the Massachusetts General
Laws as now in force or hereafter amended.
ARTICLE 3
The total number of shares and the par value, if any, of each class of stock
which the corporation is authorized to issue is as follows:
Preferred Stock, no par value: 10,000,000
Common Stock par value $2.25 per share: 200,000,000
ARTICLE 4
(A) There shall be a class of common stock having a par value of $2.25 per
share consisting of 200,000,000 shares. The holders of record of such common
stock shall have one vote for each share of such common stock held by them,
respectively.
(B) There shall be a class of Preferred Stock consisting of 10,000,000 shares
without par value. The shares of the Preferred Stock are to be issuable at any
time or from time to time in one or more series as and when established by the
Board of Directors, each such series to have such
<PAGE> 4
designation or title as may be fixed by the Directors prior to the issuance of
any shares thereof, and each such series may differ from every other series
already outstanding as may be determined by the Directors prior to the issuance
of any shares thereof, in any or all of the following, but in no other
respects:
(a) the rate of dividend (cumulative or non-cumulative) to which holders of
the Preferred Stock of any such series shall be entitled;
(b) the terms and manner of the redemption by the corporation of the Preferred
Stock of any such series;
(c) the special or relative rights of the holders of the Preferred Stock of
any such series in the event of the voluntary or involuntary liquidation,
distribution or sale of assets, dissolution or winding-up of the
corporation;
(d) the terms of the sinking fund or redemption or purchase account, if any,
to be provided for the Preferred Stock of any such series;
(e) the right, if any, of the holders of Preferred Stock of any such series
to convert the same into stock of any other class or classes or into other
securities of the corporation, and the terms and conditions of such
conversion; and
(f) the voting rights, if any, of the holders of Preferred Stock of any such
series.
(C) Preferred Stock, Series A
1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this
Article 4, the following capitalized words and expressions have the respective
meanings set out below:
"Applicable Rate" Except as provided below in this definition, the
Applicable Rate for any quarterly dividend period commencing on or after
June 16, 1984 shall be (x) 1.95% less than (y) the highest of the Treasury
Bill Rate, the Ten Year Constant Maturity Rate
2
<PAGE> 5
and the Twenty Year Constant Maturity Rate (each as hereinafter defined) for
such dividend period. If the corporation determines in good faith that:
(i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Twenty Year Constant Maturity Rate cannot be determined for
any particular quarterly dividend period, then the Applicable Rate for
such dividend period shall be 1.95% less than the higher of whichever two
of such rates can be so determined;
(ii) only one of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Twenty Year Constant Maturity Rate can be determined for any
particular quarterly dividend period, then the Applicable Rate for such
dividend period shall be 1.95% less than the rate that can be so
determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate
and the Twenty Year Constant Maturity Rate can be determined for any
particular quarterly dividend period, then the Applicable Rate in effect
for the preceding quarterly dividend period shall be continued for such
dividend period.
However, the Applicable Rate for any quarterly dividend period shall in no
event be less than six percent (6%) per annum nor greater than thirteen
percent (13%) per annum.
"Articles of Organization" mean the Articles of Organization of the
corporation as amended and in effect from time to time, including the
amendment thereof effected pursuant to this paragraph.
"Board of Governors" means the Board of Governors of the Federal Reserve
System or any governmental entity which may be granted the powers referred
to herein currently exercised by the Board of Governors.
"Calendar Period" means a period of fourteen calendar days.
3
<PAGE> 6
"Common Stock" means the capital stock of the corporation so designated and
authorized from time to time and being stock which is junior to all series
of the Preferred Stock in respect of dividend payments and of distributions
or payments upon Liquidation.
"corporation" means Bank of Boston Corporation and includes any successor
corporation by merger, consolidation or otherwise if the stockholders of the
former continue as stockholders of the continuing or combined corporation.
"Junior Dividend Stock" means (i) the Common Stock and (ii) any series of
the Preferred Stock which is specifically made junior to the Series A Stock,
and any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of payments of dividends.
"Junior Liquidation Stock" means (i) the Common Stock and (ii) any series of
the Preferred Stock which is specifically made junior to the Series A Stock
and any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of distributions or payments upon
Liquidation.
"Junior Stock" means the Common Stock, the Junior Dividend Stock and the
Junior Liquidation Stock.
"Liquidation" means the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding up of the corporation, but shall
not include (i) merger or consolidation of the corporation with another
corporation pursuant to any statute which provides in effect that the
stockholders of the former shall continue as stockholders of the continuing
or combined corporation and (ii) the acquisition by the corporation of
assets or stock of another corporation.
"Preferred Stock" means the authorized class of the capital stock of the
corporation so designated of which there are currently 10,000,000 shares
authorized.
"Series A Stock" means the series of Preferred Stock created by this
paragraph.
4
<PAGE> 7
"Special Securities" means securities which can, at the option of the
holder, be surrendered at face value in payment of federal estate taxes or
which provide tax benefits for the holder and are priced to reflect such tax
benefits or which were issued at a deep or substantial discount.
"Ten Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years).
"Ten Year Constant Maturity Rate" Except as provided below in this
definition, the Ten Year Constant Maturity Rate for each quarterly dividend
period shall be the arithmetic average (rounded, if not a whole multiple of
five hundredths of a percentage point, to the nearest whole such fraction of
a percentage point) of the two most recent weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average Yield, if only one such
yield shall be published during the relevant Calendar Period) as published
weekly by the Board of Governors during the Calendar Period immediately
prior to the 10 calendar days preceding the 15th day of March, June,
September or December, as the case may be, occurring prior to the
commencement of the dividend period for which the dividend rate on the
shares of the Series A Stock is being determined. If the Board of Governors
does not publish such a weekly per annum Ten Year Average Yield during any
such Calendar Period, then the Ten Year Constant Maturity Rate for such
dividend period shall be the arithmetic average of the two most recent
weekly per annum Ten Year Average Yields (or the one weekly per annum Ten
Year Average Yield, if only one such yield shall be published during the
relevant Calendar Period), as published weekly during such Calendar Period
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If a per annum Ten Year Average Yield shall
not be published by the Board of Governors or by any Federal Reserve Bank or
by any U.S. Government department or agency during such Calendar Period,
then the Ten Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the two most recent weekly per
5
<PAGE> 8
annum average yields to maturity (or the one weekly per annum average yield
to maturity, if only one such yield shall be published during the relevant
Calendar Period) for all of the actively traded marketable U.S. Treasury
fixed interest rate securities (other than Special Securities) then having
maturities of not less than eight nor more than 12 years, as published for
such Calendar Period by the Board of Governors or, if the Board of Governors
shall not publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the corporation. If the
corporation determines in good faith that for any reason the corporation
cannot determine the Ten Year Constant Maturity Rate for any dividend period
as provided above in this paragraph, then the Ten Year Constant Maturity
Rate for such dividend period shall be the arithmetic average of the per
annum average yields to maturity based upon the closing bids during such
Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with
a final maturity date not less than eight nor more than 12 years from the
date of each such quotation, as chosen and quoted daily for each business
day in New York City (or less frequently if daily quotations shall not be
generally available) to the corporation by at least three recognized dealers
in U.S. Government securities selected by the corporation.
"Treasury Bill Rate" Except as provided below in this definition, the
Treasury Bill Rate for any quarterly dividend period shall be the arithmetic
average (rounded, if not a whole multiple of five hundredths of a percentage
point, to the nearest whole such fraction of a percentage point) of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for three-month U.S. Treasury bills, as
published weekly by the Board of Governors during the Calendar Period
immediately prior to the 10 calendar days preceding the 15th day of March,
June, September or December, as the case may be, occurring prior to the
commencement of the dividend period for which the dividend rate on the
shares of the Series A Stock is being determined. If the Board of Governors
does not publish such a weekly per annum market
6
<PAGE> 9
discount rate during any such Calendar Period, then the Treasury Bill Rate
for such dividend period shall be the arithmetic average of the two most
recent weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate shall be published during the
relevant Calendar Period) for three-month U.S. Treasury bills, as published
weekly during such Calendar Period by any Federal Reserve Bank or by any
U.S. Government department or agency selected by the corporation. If a per
annum market discount rate for three-month U.S. Treasury bills shall not be
published by the Board of Governors or by any Federal Reserve Bank or by any
U.S. Government department or agency during such Calendar Period, then the
Treasury Bill Rate for such dividend period shall be the arithmetic average
of the two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period) of all of the U.S. Treasury
bills then having maturities of not less than 80 nor more than 100 days, as
published during such Calendar Period by the Board of Governors or, if the
Board of Governors shall not publish such rates, by any Federal Reserve Bank
or by any such U.S. Government department or agency selected by the
corporation. If the corporation determines in good faith that for any
reason no such U.S. Treasury bill rates are published as provided above
during such Calendar Period, then the Treasury Bill Rate for such dividend
period shall be the arithmetic average of the per annum market discount
rates based upon the closing bids during such Calendar Period for each of
the issues of marketable non-interest bearing U.S. Treasury securities with
a maturity of not less than 80 nor more than 100 days from the date of each
such quotation, as chosen and quoted daily for each business day in New York
City (or less frequently if daily quotations shall not be generally
available) to the corporation by at least three recognized dealers in U.S.
Government securities selected by the corporation. If the corporation
determines in good faith that for any reason the corporation cannot
determine the Treasury Bill Rate for any dividend period as provided above
in this paragraph, the Treasury Bill Rate for such dividend period shall be
the arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of
7
<PAGE> 10
the issues of marketable interest-bearing U.S. Treasury securities with a
maturity of not less than 80 nor more than 100 days from the date of each
such quotation, as chosen and quoted daily for each business day in New York
City (or less frequently if daily quotations shall not be generally
available) to the corporation by a least three recognized dealers in U.S.
Government securities selected by the corporation.
"Twenty Year Average Yield" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 20 years).
"Twenty Year Constant Maturity Rate" Except as provided below in this
definition, the Twenty Year Constant Maturity Yield for any quarterly
dividend period shall be the arithmetic average (rounded, if not a whole
multiple of five hundredths of a percentage point, to the nearest whole such
fraction of a percentage point) of the two most recent weekly per annum
Twenty Year Average Yields (or the one weekly per annum Twenty Year Average
Yield, if only one such yield shall be published during the relevant
Calendar Period), as published weekly by the Board of Governors during the
Calendar Period immediately prior to the 10 calendar days preceding the 15th
day of March, June, September or December, as the case may be occurring
prior to the commencement of the dividend period for which the dividend rate
on the shares of the Series A Stock is being determined. If the Board of
Governors does not publish such a weekly per annum Twenty Year Average Yield
during any such Calendar Period, then the Twenty Year Constant Maturity Rate
for such dividend period shall be the arithmetic average of the two most
recent weekly per annum Twenty Year Average Yields (or the one weekly per
annum Twenty Year Average Yield, if only one such yield shall be published
during the relevant Calendar Period), as published weekly during such
Calendar Period by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the corporation. If a per annum Twenty
Year Average Yield shall not be published by the Board of Governors or by
any Federal Reserve Bank or by any U.S. Government department or agency
during such Calendar Period, then the Twenty Year Constant Maturity Rate for
such dividend
8
<PAGE> 11
period shall be the arithmetic average of the two most recent weekly per
annum average yields to maturity (or the one weekly per annum average yield
to maturity, if only one such yield shall be published during the relevant
Calendar Period) for all of the actively traded marketable U.S. Treasury
fixed interest rate securities (other than Special Securities) then having
maturities of not less than 18 nor more 2 than 22 years, as published during
such Calendar Period by the Board of Governors or, if the Board of Governors
shall not publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the corporation. If the
corporation determines in good faith that for any reason the corporation
cannot determine the Twenty Year Constant Maturity Rate for any dividend
period as provided above in this paragraph, then the Twenty Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of
the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special Securities)
with a final maturity date not less than 18 nor more than 22 years from the
date of each such quotation, as chosen and quoted daily for each business
day in New York City (or less frequently if daily quotations shall not be
generally available) to the corporation by at least three recognized dealers
of national reputation in U.S. Government securities selected by the
corporation.
2. NUMBER OF SHARES AND DESIGNATION. 1,045,712 shares of Preferred Stock are
hereby constituted as a series of Preferred Stock, liquidation preference $50
per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series
A. No additional shares of Preferred Stock may be issued as Series A Stock.
3. PREFERENCES. The preferences of each share of the Series A Stock with
respect to dividend payments or to distributions or payments upon Liquidation
will be in every respect on a parity with the preferences of every other share
of Preferred Stock and of every other class of the capital stock of the
corporation (other than Common Stock) from time to time outstanding, which
other shares of the Preferred Stock and which other classes of capital stock
are
9
<PAGE> 12
not made senior or junior to the Series A Stock as to dividend payments or to
distributions or payments upon Liquidation.
4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series
A Stock shall be entitled, before any distribution or payment is made upon any
of the Junior Liquidation Stock, to be paid in cash an amount equal to $50 per
share of Series A Stock so held by them plus all accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for such payment.
If upon Liquidation, the amounts payable with respect to shares of Series A
Stock and to any other shares of the capital stock of the corporation ranking
as to any such distribution on a parity with the Series A Stock are not paid in
full, the holders of shares of the Series A Stock and of such other shares
shall share ratably in any such distribution of assets of the corporation in
proportion to the full respective preferential amounts to which they are
entitled.
Notice of Liquidation, stating the date when and the place where the amount
payable on Liquidation will be paid, shall be sent by the Clerk of the
corporation by first class mail, postage prepaid, at least thirty (30) but no
more than sixty (60) days prior to the date fixed for such liquidation payment,
to the holders of the shares of the Series A Stock, at their respective
addresses appearing on the books of the corporation. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice, and failure
duly to give such notice by mail to any holder of shares of Series A Stock, or
any defect in such notice, shall not affect the validity of the proceedings for
the making of liquidation payments on any other shares of the Series A Stock or
of any other series or class of the capital stock of the corporation. If such
notice shall have been duly mailed and if, on or before the date fixed for
liquidation payments designated in such notice, the funds necessary for such
liquidation payments shall have been provided by the corporation in accordance
with the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series A Stock shall not have been delivered for
cancellation, the shares represented
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thereby shall no longer be deemed outstanding on and after the date such funds
shall have been so provided, the dividends thereon shall cease to accrue from
and after the date fixed for such liquidation payments so designated, and all
rights with respect to the shares of the Series A Stock shall terminate
forthwith after such liquidation payment date, excepting only the right of the
holder to receive the liquidation price thereof of $50 per share plus unpaid
dividends accrued to such liquidation payment date but without interest
thereon. The corporation's obligation to provide funds for liquidation
payments shall be deemed fulfilled if, on or before the liquidation payment
date, the corporation shall deposit with a bank or trust company (which may be
an affiliate of the corporation), having capital and surplus of at least
$50,000,000, funds necessary for such liquidation payments, in trust, with
irrevocable instructions that such funds be applied to such liquidation
payments. Any interest accrued on such funds shall be paid to the corporation
from time to time. Any funds so deposited and unclaimed at the end of five
years from such liquidation payment date shall be released or repaid to the
corporation, after which the holder or holders of shares of Series A Stock
shall look only to the corporation for payment of liquidation payments.
5. DIVIDENDS.
(a) Dividend Rate. Dividends on each share of the Series A Stock shall be
payable (i) at a quarterly rate of 10.60% per annum for the quarter ended
June 15, 1984 and (ii) for each quarterly dividend period commencing on or
after June 16, 1984, at a rate computed by multiplying $50 by the Applicable
Rate (as defined herein) for such period and multiplying the result by the
fraction of a year represented by such period, based upon a year of 365 or
366 days, as the case may be.
(b) Payment of Dividends. Dividends on each share of the Series A Stock
shall be fully cumulative and shall accrue whether or not earned, without
interest, from the date of issuance of each share, and shall be payable in
arrears on the 15th day of March, June, September and December in each year
in which such shares are outstanding out of funds legally available for the
payment of dividends, when, as and if declared by the Board of Directors.
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In the event that there shall be outstanding shares of any other series of
the Preferred Stock or of any other class of the capital stock of the
corporation ranking on a parity as to dividends with shares of the Series A
Stock, the corporation, in making any dividend payment on account of arrears
on shares of the Series A Stock or such other series of the Preferred Stock
or such other class of capital stock, shall make payment ratably upon all
outstanding shares of the Series A Stock, such other series of the Preferred
Stock and such other class of capital stock in proportion to the respective
amounts of dividends in arrears upon all such outstanding shares of the
Series A Stock, such other series of the Preferred Stock and such other
class of capital stock to the date of such dividend payment.
So long as any shares of the Series A Stock are outstanding, the corporation
shall not (i) declare or pay or set apart for payment any dividend or other
distribution (other than dividends or distributions payable in shares of
Junior Stock) for any period upon any Junior Stock or any stock of the
corporation ranking on a parity with the Series A Stock as to dividends or
upon Liquidation or (ii) redeem, purchase or otherwise acquire for any
consideration any shares of Junior Stock or any capital stock of the
corporation ranking on a parity with the Series A Stock as to dividends or
upon Liquidation, unless, in either case, all dividends payable to holders
of shares of the Series A Stock and of any stock of the corporation ranking
on a parity therewith as to dividends for its current dividend period and
all past dividend periods have been paid (or are contemporaneously being
paid), or a sum sufficient for the payment thereof has been irrevocably set
aside in trust for the holders of all such shares; except that,
notwithstanding clause (i) of this paragraph 5(b), the corporation may pay
dividends on the shares of the Series A Stock and shares of stock of the
corporation ranking on a parity therewith as to dividends ratably in
accordance with the sums which would be payable on such shares if all
dividends, including accumulations, if any, were declared and paid in full.
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6. REDEMPTION.
(a) Redemption Price. Shares of the Series A Stock shall not be redeemable
on or prior to March 30, 1989. After March 30, 1989, and in accordance with
this paragraph 6, the shares of the Series A Stock shall be redeemable at
any time or from time to time, in whole or in part, at the option of the
corporation by vote of its Board of Directors; provided, however, that any
partial redemption, in the opinion of an investment banking firm of national
reputation selected by the corporation, shall not adversely affect the
marketability of those shares of Series A Stock not redeemed. The
redemption price shall be $51.50 per share if shares are redeemed on or
prior to March 30, 1994 and $50 per share if shares are redeemed thereafter,
plus in each case an amount equal to all unpaid dividends, whether or not
earned or declared, accrued to the date fixed for redemption.
(b) Redemption Procedure. Notice of any proposed redemption of all or any
of the shares of the Series A Stock under this paragraph 6 shall be sent by
the Clerk of the corporation by first class mail, postage prepaid, at least
thirty (30) but not more than sixty (60) days prior to the date fixed for
such redemption, to the holders of the shares of the Series A Stock to be
redeemed, at their respective addresses appearing on the books of the
corporation. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder receives such notice, and failure duly to give such notice by mail to
any holder of shares of Series A Stock designated for redemption, or any
defect in such notice, shall not affect the validity of the proceedings for
the redemption of any other shares of the Series A Stock. If such notice of
redemption shall have been duly mailed and if, on or before the date fixed
for redemption designated in such notice, the funds necessary for the
redemption shall have been provided by the corporation in accordance with
the provisions of the following sentence, then notwithstanding that any
certificate of shares of Series A Stock so called for redemption shall not
have been delivered for cancellation, the shares represented thereby shall
no longer be deemed outstanding on and after the date such
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<PAGE> 16
funds shall have been so provided, the dividends thereon shall cease to
accrue from and after the date of redemption so designated, and all rights
with respect to the shares of the Series A Stock so called for redemption
shall terminate forthwith after such redemption date, excepting only the
right of each holder to receive the redemption price thereof plus unpaid
dividends accrued to such redemption date but without interest thereon. The
corporation's obligation to provide funds for redemption shall be deemed
fulfilled if, on or before the redemption date, the corporation shall
deposit with a bank or trust company (which may be an affiliate of the
corporation), having capital and surplus of at least $50,000,000, funds
necessary for such redemption, in trust, with irrevocable instructions that
such funds be applied to the redemption of the shares of Series A Stock so
called for redemption. Any interest accrued on such funds shall be paid to
the corporation from time to time. Any funds so deposited and unclaimed at
the end of five years from such redemption date shall be released or repaid
to the corporation, after which the holder or holders of such shares of
Series A Stock so called for redemption shall look only to the corporation
for payment of the redemption price.
(c) Pro Rata Redemption. If any proposed redemption of shares of the Series
A Stock shall be of less than all then outstanding shares of Series A Stock,
such redemption shall be made on a pro rata basis, as nearly as possible,
among all holders of shares of the Series A Stock outstanding at the time of
redemption in the same proportion that each such holder's then respective
holding of such shares shall bear to the aggregate number of such shares
then outstanding.
(d) Dividend Arrearages. Notwithstanding the foregoing provisions of this
paragraph 6, if any dividends on shares of the Series A Stock are in
arrears, no other shares of the Preferred Stock shall be redeemed, and the
corporation shall not purchase or otherwise acquire any shares of the
Preferred Stock unless all outstanding shares of the Series A Stock are
simultaneously redeemed in accordance with the foregoing provisions of this
paragraph 6, and the corporation shall not purchase or otherwise acquire any
shares of the Series A Stock; provided, however, that the foregoing shall
not prevent the purchase or acquisition of
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<PAGE> 17
shares of the Series A Stock pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of the Series A
Stock.
7. VOTING RIGHTS.
(a) General. The holders of shares of Series A Stock shall not, by virtue
of their ownership thereof, be entitled to vote upon any matter except as
otherwise provided in the Articles of Organization or by law. Whenever the
holders of any shares of the Series A Stock shall be entitled to vote upon
any matter, each outstanding share of the Series A Stock entitled to vote on
such matter shall be entitled to one (1) vote.
(b) Two-Thirds Approval. So long as any shares of the Series A Stock are
outstanding, the corporation shall not, without first obtaining the consent,
given in writing or in person or by proxy or at a meeting called for the
purpose, of the holders of at least two-thirds (2/3rds) of the outstanding
shares of the Series A Stock:
(i) authorize or create any other class of capital stock (or series
thereof) the shares of which rank prior to shares of Preferred Stock in
respect of dividend payments or distributions or payments upon
Liquidation; or authorize, create or issue any bonds, notes, debentures,
obligations, stock or other securities by their terms convertible into or
evidencing a right to purchase shares of stock of any other class of
capital stock (or series thereof) the shares of which rank prior to the
shares of Preferred Stock in respect of dividend payments or
distributions or payments upon Liquidation;
(ii) authorize or create any other series of Preferred Stock, the shares
of which rank prior to shares of Series A Stock in respect of dividend
payments or distributions or payments upon Liquidation; or authorize,
create or issue any bonds, notes, debentures, obligations, stock or other
securities by their terms convertible into or evidencing a right to
purchase shares of any other series of Preferred Stock which rank prior
to the shares of Series A Stock in respect of dividend payments or
distributions or payments upon Liquidation;
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<PAGE> 18
(iii) reclassify any shares of any class of capital stock into a class
ranking prior to the Preferred Stock in respect of dividend payments or
distributions or payments upon Liquidation; reclassify any shares of
Preferred Stock into a series which ranks prior to Series A Stock in
respect of dividend payments or distributions or payments upon
Liquidation; or reclassify any shares of Junior Stock into Series A
Stock; or
(iv) authorize any amendment to the Articles of Organization which would
adversely affect the rights of the holders of the Series A Stock. For
the purposes of this subparagraph (iv), the term "adversely affects"
shall have the meaning as it has in Section 77 of Chapter 156B of the
Massachusetts General Laws, as in effect on April 29, 1983.
(c) Special Voting Rights. Notwithstanding the foregoing, in the event
that, at any time after the date of original issue of the shares of the
Series A Stock, an amount equal to the full accrued dividends for six or
more quarterly dividend periods, whether or not consecutive, shall not have
been paid or declared and a sum sufficient for the payment thereof
irrevocably set aside in trust for the holders of all of such shares, the
Board of Directors of the corporation shall promptly take all necessary
actions to increase the authorized number of directors of the corporation by
one (1) and the holders of the shares of the Series A Stock then outstanding
shall be entitled (by series, voting as a single class) to elect one (1)
person director to the Board of Directors of the corporation (such right to
elect one (1) director being hereinafter sometimes referred to as the
"special voting rights"), each outstanding share having such right being
entitled for such purpose to one vote; provided, however, that at such time
as the arrearage in payment of dividends which gave rise to the exercise of
the special voting rights has been cured with regard to the Series A Stock
by waiver or payment of all accrued dividends, the right of the holders of
such shares so to vote as provided in this paragraph 7(c) shall cease
(subject to renewal from time to time upon the same terms and conditions)
and the term of office of the person who is at that time a director elected
by
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such holders shall terminate and the number of directors of the corporation
shall be automatically reduced by one (1).
(d) Special Voting Rights; Procedure. At any time after the special voting
rights shall have become vested in the holders of the shares of the Series A
Stock as provided in paragraph 7(c), the Clerk of the corporation, as
promptly as possible but in any event within twenty (20) days after receipt
of the written request of the holders of 10% of the shares of the Series A
Stock then outstanding, addressed to the corporation at its principal
office, shall call a special meeting of the holders of the shares of the
Series A Stock for the purpose of electing such additional director, such
meeting to be held at any place as provided by the By-Laws of the
corporation for meetings of the corporation's stockholders, and upon not
less than ten (10) nor more than twenty (20) days notice. If such meeting
shall not be so called within twenty (20) days after receipt of the request
by the Clerk of the corporation, then the holders of 10% of the shares of
the Series A Stock then outstanding may, by written notice to the Clerk of
the corporation, designate any person to call such meeting, and the person
so designated may call such meeting at any such place as provided above and
upon not less than ten (10) nor more than twenty (20) days notice and for
that purpose shall have access to the stockholder record books of the
corporation. No such special meeting of the holders of the shares of the
Series A Stock and no adjournment thereof shall be held on a date later than
thirty days before the annual meeting of stockholders of the corporation.
At any meeting so called or at any annual meeting held at any time when the
special voting rights are in effect, the holders of a majority of the shares
of the Series A Stock then outstanding, present in person or by proxy, shall
be sufficient to constitute a quorum for the election of such additional
director, and such additional director, together with any and all other
directors who are then members of the Board of Directors, shall constitute
the duly elected directors of the corporation.
(e) Vacancy in Office of Director Elected by Holders of Series A Stock.
With respect to a vacancy arising in the directorship referred to in
paragraph 7(c) at any time
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when the special voting rights are in effect pursuant to paragraph 7(c),
upon the written request of the holders of 10% of the shares of the Series A
Stock then outstanding, addressed to the corporation at its principal
office, the Clerk of the corporation shall give notice of a special meeting
of holders of the shares of the Series A Stock of the election of a director
to fill such vacancy caused by the death, resignation or other inability to
serve as a director elected by such holders, to be held not less than ten
(10) nor more than twenty (20) days following receipt by the Clerk of the
corporation of such written request. So long as special voting rights are
in effect pursuant to paragraph 7(c), any director who shall have been so
elected by the holders of the Series A Stock may be removed at any time,
either with or without cause, only by the affirmative vote of the holders of
the shares at the time entitled to cast a majority of the votes entitled to
be cast for the election of such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be
filled by the vote of such holders.
8. STATUS OF REDEEMED SHARES OF SERIES A STOCK. All shares of Series A Stock
which have been redeemed by the corporation pursuant to paragraph 6 shall have,
after such redemption, the status of authorized but unissued shares of
Preferred Stock without designation of series and may be reissued but not as
shares of Series A Stock.
(D) Preferred Stock, Series B
1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this
Article 4, the following capitalized words and expressions have the respective
meanings set out below:
"Applicable Rate" Except as provided below in this definition, the
Applicable Rate for any quarterly dividend period commencing on or after
September 16, 1985 shall be (x) 2.20% less than (y) the highest of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year
Constant Maturity Rate (each as hereinafter defined) for such dividend
period. If the corporation determines in good faith that:
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(i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate
and the Twenty Year Constant Maturity Rate cannot be determined for any
particular quarterly dividend period, then the Applicable Rate for such
dividend period shall be 2.20% less than the higher of whichever two of such
rates can be so determined;
(ii) only one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate can be determined
for any particular quarterly dividend period, then the Applicable Rate for
such dividend period shall be 2.20% less than the rate that can be so
determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate
and the Twenty Year Constant Maturity Rate can be determined for any
particular quarterly dividend period, then the Applicable Rate in effect for
the preceding quarterly dividend period shall be continued for such dividend
period.
However, the Applicable Rate for any quarterly dividend period shall in no
event be less than six percent (6%) per annum nor greater than thirteen percent
(13%) per annum.
"Articles of Organization" means the Articles of Organization of the
corporation as amended and in effect from time to time, including the
amendment thereof effected pursuant to this paragraph.
"Board of Governors" means the Board of Governors of the Federal Reserve
System or any governmental entity which may be granted the powers referred
to herein currently exercised by the Board of Governors.
"Calendar Period" means a period of fourteen calendar days.
"Common Stock" means the capital stock of the corporation so designated and
authorized from time to time and being stock which is junior to all series
of the Preferred Stock in respect of dividend payments and of distributions
or payments upon Liquidation.
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"corporation" means Bank of Boston Corporation and includes any successor
corporation by merger, consolidation or otherwise if the stockholders of the
former continue as stockholders of the continuing or combined corporation.
"Junior Dividend Stock" means (i) the Common Stock and (ii) any series of
the Preferred Stock which is specifically made junior to the Series B Stock
and any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of payments of dividends.
"Junior Liquidation Stock" means (i) the Common Stock and (ii) any series of
the Preferred Stock which is specifically made junior to the Series B Stock
and any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of distributions or payments upon
Liquidation.
"Junior Stock" means the Common Stock, the Junior Dividend Stock and the
Junior Liquidation Stock.
"Liquidation" means the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding up of the corporation, but shall
not include (i) the merger or consolidation of the corporation with another
corporation pursuant to any statute which provides in effect that the
stockholders of the former shall continue as stockholders of the continuing
or combined corporation and (ii) the acquisition by the corporation of
assets or stock of another corporation.
"Preferred Stock" means the authorized class of the capital stock of the
corporation so designated of which there are currently 10,000,000 shares
authorized.
"Series B Stock" means the series of Preferred Stock created by this
paragraph.
"Special Securities" means securities which can, at the option of the
holder, be surrendered at face value in payment of federal estate taxes or
which provide tax benefits for the holder and are priced to reflect such
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tax benefits or which were issued at a deep or substantial discount.
"Ten Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of 10 years).
"Ten Year Constant Maturity Rate" Except as provided below in this
definition, the Ten Year Constant Maturity Rate for each quarterly dividend
period shall be the arithmetic average (rounded, if not a whole multiple of
five hundredths of a percentage point, to the nearest whole such fraction of
a percentage point) of the two most recent weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average Yield, if only one such
yield shall be published during the relevant Calendar Period) as published
weekly by the Board of Governors during the Calendar Period immediately
prior to the 10 calendar days preceding the 15th day of March, June,
September or December, as the case may be, occurring prior to the
commencement of the dividend period for which the dividend rate on the
shares of the Series B Stock is being determined. If the Board of Governors
does not publish such a weekly per annum Ten Year Average Yield during any
such Calendar Period, then the Ten Year Constant Maturity Rate for such
dividend period shall be the arithmetic average of the two most recent
weekly per annum Ten Year Average Yields (or the one weekly per annum Ten
Year Average Yield, if only one such yield shall be published during the
relevant Calendar Period), as published weekly during such Calendar Period
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If a per annum Ten Year Average Yield shall
not be published by the Board of Governors or by any Federal Reserve Bank or
by any U.S. Government department or agency during such Calendar Period,
then the Ten Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the two most recent weekly per annum average
yields to maturity (or the one weekly per annum average yield to maturity,
if only one such yield shall be published during the relevant Calendar
Period) for all of the actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) then having
maturities of not less than eight
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nor more than 12 years, as published for such Calendar Period by the Board
of Governors or, if the Board of Governors shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If the corporation determines in good faith
that for any reason the corporation cannot determine the Ten Year Constant
Maturity Rate for any dividend period as provided above in this paragraph,
then the Ten Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the per annum average yields to maturity based
upon the closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less than
eight nor more than 12 years from the date of each such quotation, as chosen
and quoted daily for each business day in New York City (or less frequently
if daily quotations shall not be generally available) to the corporation by
at least three recognized dealers in U.S. Government securities selected by
the corporation.
"Treasury Bill Rate" Except as provided below in this definition, the
Treasury Bill Rate for any quarterly dividend period shall be the arithmetic
average (rounded, if not a whole multiple of five hundredths of a percentage
point, to the nearest whole such fraction of a percentage point) of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for three-month U.S. Treasury bills, as
published weekly by the Board of Governors during the Calendar Period
immediately prior to the 10 calendar days preceding the 15th day of March,
June, September or December, as the case may be, occurring prior to the
commencement of the dividend period for which the dividend rate on the
shares of the Series B Stock is being determined. If the Board of Governors
does not publish such a weekly per annum market discount rate during any
such Calendar Period, then the Treasury Bill Rate for such dividend period
shall be the arithmetic average of the two most recent weekly per annum
market discount rates (or the one weekly per annum market discount rate, if
only one such rate shall be published during the relevant Calendar Period)
for three-month U.S.
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Treasury bills, as published weekly during such Calendar Period by any
Federal Reserve Bank or any U.S. Government department or agency selected by
the corporation. If a per annum market discount rate for three-month U.S.
Treasury bills shall not be published by the Board of Governors or by any
Federal Reserve Bank or by any U.S. Government department or agency during
such Calendar Period, then the Treasury Bill Rate for such dividend period
shall be the arithmetic average of the two most recent weekly per annum
market discount rates (or the one weekly per annum market discount rate, if
only one such rate shall be published during the relevant Calendar Period)
of all of the U.S. Treasury Bills then having maturities of not less than 80
nor more than 100 days, as published during such Calendar Period by the
Board of Governors or, if the Board of Governors shall not publish such
rates, by any Federal Reserve Bank or by any such U.S. Government department
or agency selected by the corporation. If the corporation determines in
good faith that for any reason no such U.S. Treasury Bill rates are
published as provided above during such Calendar Period, then the Treasury
Bill Rate for such dividend period shall be the arithmetic average of the
per annum market discount rates based upon the closing bids during such
Calendar Period for each of the issues of marketable non-interest bearing
U.S. Treasury securities with a maturity of not less than 80 or more than
100 days from the date of each such quotation, as chosen and quoted daily
for each business day in New York City (or less frequently if daily
quotations shall be generally available) to the corporation by at least
three recognized dealers in U.S. Government securities selected by the
corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Treasury Bill Rate for any
dividend period as provided above in this paragraph, the Treasury Bill Rate
for such dividend period shall be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar
Period for each of the issues of marketable interest-bearing U.S. Treasury
securities with a maturity of not less than 80 nor more than 100 days from
the date of each such quotation, as chosen and quoted daily for each
business day in New York City (or less frequently if daily quotations shall
not be generally available) to the
23
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corporation by at least three recognized dealers in U.S. Government
securities selected by the corporation.
"Twenty Year Average Yield" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 20 years).
"Twenty Year Constant Maturity Rate" Except as provided below in this
definition, the Twenty Year Constant Maturity Yield for any quarterly
dividend period shall be the arithmetic average (rounded, if not a whole
multiple of five hundredths of a percentage point, to the nearest whole such
fraction of a percentage point) of the two most recent weekly per annum
Twenty Year Average Yields (or the one weekly per annum Twenty Year Average
Yield, if only one such yield shall be published during the relevant
Calendar Period), as published weekly by the Board of Governors during the
Calendar Period immediately prior to the 10 calendar days preceding the 15th
day of March, June, September or December, as the case may be, occurring
prior to the commencement of the dividend period for which the dividend rate
on the shares of the Series B Stock is being determined. If the Board of
Governors does not publish such a weekly per annum Twenty Year Average Yield
during any such Calendar Period, then the Twenty Year Constant Maturity Rate
for such dividend period shall be the arithmetic average of the two most
recent weekly per annum Twenty Year Average Yields, (or the one weekly per
annum Twenty Year Average Yield, if only one such yield shall be published
during the relevant Calendar Period), as published weekly during such
Calendar Period by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the corporation. If a per annum Twenty
Year Average Yield shall not be published by the Board of Governors or by
any Federal Reserve Bank or by any U.S. Government department or agency
during such Calendar Period, then the Twenty Year Constant Maturity Rate for
such dividend period shall be the arithmetic average of the two most recent
weekly per annum average yields to maturity (or the one weekly per annum
average yield to maturity, if only one such yield shall be published during
the relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
24
<PAGE> 27
then having maturities of not less than 18 nor more than 22 years, as
published during such Calendar Period by the Board of Governors or, if the
Board of Governors shall not publish such yields, by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the
corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Twenty Year Constant Maturity
Rate for any dividend period as provided above in this paragraph, then the
Twenty Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the per annum average yields to maturity based upon
the closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less than 18
nor more than 22 years from the date of each such quotation, as chosen and
quoted daily for each business day in New York City (or less frequently if
daily quotations shall not be generally available) to the corporation by at
least three recognized dealers of national reputation in U.S. Government
securities selected by the corporation.
2. NUMBER OF SHARES AND DESIGNATION. 1,576,068 shares of Preferred Stock are
hereby constituted as a series of Preferred Stock, liquidation preference $50
per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series
B. No additional shares of Preferred Stock may be issued as Series B Stock.
3. PREFERENCES. The preferences of each share of the Series B Stock with
respect to dividend payments or to distributions or payments upon Liquidation
will be in every respect on a parity with the preferences of every other share
of Preferred Stock and of every other class of the capital stock of the
corporation (other than Common Stock), from time to time outstanding, which
other shares of the Preferred Stock and which other classes of capital stock
are not made senior or junior to the Series B Stock as to dividend payments or
to distributions or payments upon Liquidation.
4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series
B Stock shall be entitled, before any distribution or payment is made upon any
of the Junior
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Liquidation Stock, to be paid in cash an amount equal to $50 per share of
Series B Stock so held by them plus all accrued and unpaid dividends thereon
(whether or not earned or declared) to the date fixed for such payment. If
upon Liquidation, the amounts payable with respect to shares of Series B Stock
and to any other shares of the capital stock of the corporation ranking as to
any such distribution on a parity with the Series B Stock are not paid in full,
the holders of shares of the Series B Stock and of such other shares shall
share ratably in any such distribution of assets of the corporation in
proportion to the full respective preferential amounts to which they are
entitled.
Notice of Liquidation, stating the date when and the place where the amount
payable on Liquidation will be paid, shall be sent by the Clerk of the
corporation by first class mail, postage prepaid, at least thirty (30) but no
more than sixty (60) days prior to the date fixed for such liquidation payment,
to the holders of the shares of the Series B Stock, at their respective
addresses appearing on the books of the corporation. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice, and failure
duly to give such notice by mail to any holder of shares of Series B Stock, or
any defect in such notice, shall not affect the validity of the proceedings for
the making of liquidation payments on any other shares of the Series B Stock or
of any other series or class of the capital stock of the corporation. If such
notice shall have been duly mailed and if, on or before the date fixed for
liquidation payments designated in such notice, the funds necessary for such
liquidation payments shall have been provided by the corporation in accordance
with the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series B Stock shall not have been delivered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding on and after the date such funds shall have been set aside, the
dividends thereon shall cease to accrue from and after the date fixed for such
liquidation payments so designated, and all rights with respect to the shares
of the Series B Stock shall terminate forthwith after such liquidation payment
date, excepting only the right of the holder to receive the liquidation price
thereof of $50 per share plus unpaid dividends accrued to such liquidation
payment date but
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without interest thereon. The corporation's obligation to provide funds for
liquidation payments shall be deemed fulfilled if, on or before the liquidation
payment date, the corporation shall deposit with a bank or trust company (which
may be an affiliate of the corporation), having a capital and surplus of at
least $50,000,000, funds necessary for such liquidation payments, in trust,
with irrevocable instructions that such funds be applied to such liquidation
payments. Any interest accrued on such funds shall be paid to the corporation
from time to time. Any funds so deposited and unclaimed at the end of five
years from such liquidation payment date shall be released or repaid to the
corporation, after which the holder or holders of shares of Series B Stock
shall look only to the corporation for payment of liquidation payments.
5. DIVIDENDS.
(a) Dividend Rate. Dividends on each share of the Series B Stock shall be
payable (i) at a quarterly rate of 8.30% per annum for the quarter ended
September 15, 1985, and (ii) for each quarterly dividend period commencing
on or after September 16, 1985, at a rate computed by multiplying $50 by the
Applicable Rate (as defined herein) for such period and multiplying the
result by the fraction of a year represented by such period, based upon a
year of 365 or 366 days, as the case may be.
(b) Payment of Dividends. Dividends on each share of the Series B Stock
shall be fully cumulative and shall accrue whether or not earned, without
interest, from the date of issuance of each share, and shall be payable in
arrears on the 15th day of March, June, September, and December in each year
in which such shares are outstanding out of funds legally available for the
payment of dividends, when, as and if declared by the Board of Directors.
In the event that there shall be outstanding shares of any other series of
the Preferred Stock or of any other class of the capital stock of the
corporation ranking on a parity as to dividends with shares of the Series B
Stock, the corporation, in making any dividend payment on account of arrears
on shares of the Series B Stock or such other
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series of the Preferred Stock or such other class of capital stock, shall
make payment ratably upon all outstanding shares of the Series B Stock, such
other series of the Preferred Stock and such other class of capital stock in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of the Series B Stock, such other series of the Preferred
Stock and such other class of capital stock to the date of such dividend
payment.
So long as any shares of the Series B Stock are outstanding, the corporation
shall not (i) declare or pay or set apart for payment any dividend or other
distribution (other than dividends or distributions payable in shares of
Junior Stock) for any period upon any Junior Stock or any stock of the
corporation ranking on a parity with the Series B Stock as to dividends or
upon Liquidation or (ii) redeem, purchase or otherwise acquire for any
consideration any shares of Junior Stock or any capital stock of the
corporation ranking on a parity with the Series B Stock as to dividends or
upon Liquidation, unless, in either case, all dividends payable to holders
of shares of the Series B Stock and of any stock of the corporation ranking
on a parity therewith as to dividends for its current dividend period and
all past dividend periods have been paid (or are contemporaneously being
paid), or a sum sufficient for the payment thereof has been irrevocably set
aside in trust for the holders of all such shares; except that,
notwithstanding clause (i) of this paragraph 5(b) the corporation may pay
dividends on the shares of the Series B Stock and shares of stock of the
corporation ranking on a parity therewith as to dividends ratably in
accordance with the sums which would be payable on such shares if all
dividends, including accumulations, if any, were declared and paid in full.
6. REDEMPTION.
(a) Redemption Price. Shares of the Series B Stock shall not be redeemable
on or prior to June 20, 1990. After June 20, 1990, and in accordance with
this paragraph 6, the shares of the Series B Stock shall be redeemable at
any time or from time to time, in whole or in part, at the option of the
corporation by vote of its Board of Directors; provided, however, that any
partial redemption,
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in the opinion of an investment banking firm of national reputation selected
by the corporation, shall not adversely affect the marketability of those
shares of Series B Stock not redeemed. The redemption price shall be $51.50
per share if shares are redeemed on or prior to June 20, 1995 and $50 per
share if shares are redeemed thereafter, plus in each case an amount equal
to all unpaid dividends, whether or not earned or declared, accrued to the
date fixed for redemption.
(b) Redemption Procedure. Notice of any proposed redemption of all or any
of the shares of the Series B Stock under this paragraph 6 shall be sent by
the Clerk of the corporation by first class mail, postage prepaid, at least
thirty (30) but not more than sixty (60) days prior to the date fixed for
such redemption, to the holders of the shares of the Series B Stock to be
redeemed, at their respective addresses appearing on the books of the
corporation. Any notice which is mailed in the manner herein provided shall
be conclusively presumed to have been duly given, whether or not the holder
receives such notice, and failure duly to give such notice by mail to any
holder of shares of Series B Stock designated for redemption, or any defect
in such notice, shall not affect the validity of the proceedings for the
redemption of any other shares of the Series B Stock. If such notice of
redemption shall have been duly mailed and if, on or before the date fixed
for redemption designated in such notice, the funds necessary for the
redemption shall have been provided by the corporation in accordance with
the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series B Stock so called for redemption shall not
have been delivered for cancellation, the shares represented thereby shall
no longer be deemed outstanding on and after the date such funds shall have
been set aside, the dividends thereon shall cease to accrue from and after
the date of redemption so designated, and all rights with respect to the
shares of the Series B Stock so called for redemption shall terminate
forthwith after such redemption date, excepting only the right of each
holder to receive the redemption price thereof plus unpaid dividends accrued
to such redemption date but without interest thereon. The corporation's
obligation to provide funds for redemption shall be deemed fulfilled if, on
or before the redemption
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date, the corporation shall deposit with a bank or trust company (which may
be an affiliate of the corporation), having a capital and surplus of at
least $50,000,000, funds necessary for such redemption, in trust, with
irrevocable instructions that such funds be applied to the redemption of the
shares of Series B Stock so called for redemption. Any interest accrued on
such funds shall be paid to the corporation from time to time. Any funds so
deposited and unclaimed at the end of five years from such redemption date
shall be released or repaid to the corporation, after which the holder or
holders of shares of Series B Stock so called for redemption shall look only
to the corporation for payment of the redemption price.
(c) Pro Rata Redemption. If any proposed redemption of shares of the Series
B Stock shall be less than all then outstanding shares of Series B Stock,
such redemption shall be made on a pro rata basis, as nearly as possible,
among all holders of shares of the Series B Stock outstanding at the time of
redemption in the same proportion that each such holder's then respective
holding of such shares shall bear to the aggregate number of such shares
then outstanding.
(d) Dividend Arrearages. Notwithstanding the foregoing provisions of this
paragraph 6, if any dividends on shares of the Series B Stock are in
arrears, no other shares of the Preferred Stock shall be redeemed, and the
corporation shall not purchase or otherwise acquire any shares of the
Preferred Stock, unless all outstanding shares of the Series B Stock are
simultaneously redeemed in accordance with the foregoing provisions of this
paragraph 6, and the corporation shall not purchase or otherwise acquire any
shares of the Series B Stock; provided, however, that the foregoing shall
not prevent the purchase or acquisition of shares of the Series B Stock
pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding shares of the Series B Stock.
7. VOTING RIGHTS.
(a) General. The holders of shares of Series B Stock shall not, by virtue
of their ownership thereof, be entitled to vote upon any matter except as
otherwise provided in the Articles of Organization or by law.
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Whenever the holders of any shares of the Series B Stock shall be entitled
to vote upon any matter, each outstanding share of the Series B Stock
entitled to vote on such matter shall be entitled to one (1) vote.
(b) Two-Thirds Approval. So long as any shares of the Series B Stock are
outstanding, the corporation shall not, without first obtaining the consent,
given in writing or in person or by proxy or at a meeting called for the
purpose, of the holders of at least two-thirds (2/3rds) of the outstanding
shares of the Series B Stock:
(i) authorize or create any other class of capital stock (or series
thereof), the shares of which rank prior to shares of Preferred Stock in
respect of dividend payments or distributions or payments upon
Liquidation; or authorize, create or issue any bonds, notes, debentures,
obligations, stock or other securities by their terms convertible into
or evidencing a right to purchase shares of stock of any other class of
capital stock (or series thereof) the shares of which rank prior to the
shares of Preferred Stock in respect of dividend payments or
distributions or payments upon Liquidation;
(ii) authorize or create any other series of Preferred Stock, the shares
of which rank prior to shares of Series B Stock in respect of dividend
payments or distributions or payments upon Liquidation; or authorize,
create or issue any bonds, notes, debentures, obligations, stock or other
securities by their terms convertible into or evidencing a right to
purchase shares of any other series of Preferred Stock which rank prior
to the shares of Series B Stock in respect of dividend payments or
distributions or payments upon Liquidation;
(iii) reclassify any shares of any class of capital stock into a class
ranking prior to the Preferred Stock in respect of dividend payments
or distributions or payments upon Liquidation; reclassify any shares of
Preferred Stock into a series which ranks prior to Series B Stock in
respect of dividend payments or distributions or payments upon
Liquidation; or reclassify any shares of Junior Stock into Series B
Stock; or
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(iv) authorize any amendment to the Articles of Organization which would
adversely affect the rights of the holders of the Series B Stock. For
the purposes of this subparagraph (iv), the term "adversely affects"
shall have the same meaning as it has in Section 77 of Chapter 156B of
the Massachusetts General Laws, as in effect on November 25, 1983.
(c) Special Voting Rights. Notwithstanding the foregoing, in the event
that, at any time after the date of original issue of the shares of the
Series B Stock, an amount equal to the full accrued dividends for six (6) or
more quarterly dividend periods, whether or not consecutive, shall not have
been paid or declared and a sum sufficient for the payment thereof
irrevocably set aside in trust for the holders of all of such shares, the
Board of Directors of the corporation shall promptly take all necessary
actions to increase the authorized number of directors of the corporation by
one (1) and the holders of the shares of the Series B Stock then outstanding
shall be entitled (by series, voting as a single class) to elect one (1)
person director to the Board of Directors of the corporation (such right to
elect one (1) director being hereinafter sometimes referred to as the
"special voting rights"), each outstanding share having such right being
entitled for such purpose to one vote; provided, however, that at such time
as the arrearage in payment of dividends which gave rise to the exercise of
the special voting rights has been cured with regard to the Series B Stock
by waiver or payment of all accrued dividends, the right of the holders of
such shares so to vote as provided in this paragraph 7(c) shall cease
(subject to renewal from time to time upon the same terms and conditions)
and the term of office of the person who is at that time a director elected
by such holders shall terminate and the number of directors of the
corporation shall be automatically reduced by one (1).
(d) Special Voting Rights; Procedure. At any time after the special voting
rights shall have become vested in the holders of the shares of the Series B
Stock as provided in paragraph 7(c), the Clerk of the corporation, as
promptly as possible but in any event within twenty (20) days after receipt
of the written request of the holders of 10% of
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the shares of the Series B Stock then outstanding, addressed to the
corporation at its principal office, shall call a special meeting of the
holders of the shares of the Series B Stock for the purpose of electing such
additional director, such meeting to be held at any place as provided by the
By-Laws of the corporation for meetings of the corporation's stockholders,
and upon not less than ten (10) nor more than twenty (20) days notice. If
such meeting shall not be so called within twenty (20) days after receipt of
the request by the Clerk of the corporation, then the holders of 10% of the
shares of the Series B Stock then outstanding may, by written notice to the
Clerk of the corporation, designate any person to call such meeting, and the
person so designated may call such meeting, at any such place as provided
above and upon not less than ten (10) nor more than twenty (20) days notice
and for that purpose shall have access to the stockholder record books of
the corporation. No such special meeting of the holders of the shares of
the Series B Stock and no adjournment thereof shall be held on a date later
than thirty (30) days before the annual meeting of stockholders of the
corporation. At any meeting so called or at any annual meeting held at any
time when the special voting rights are in effect, the holders of a majority
of the shares of the Series B Stock then outstanding, present in person or
by proxy, shall be sufficient to constitute a quorum for the election of
such additional director, and such additional director, together with any
and all other directors who are then members of the Board of Directors,
shall constitute the duly elected directors of the corporation.
(e) Vacancy in Office of Director Elected by Holders of Series B Stock.
With respect to a vacancy arising in the directorship referred to in
paragraph 7(c) at any time when the special voting rights are in effect
pursuant to paragraph 7(c), upon the written request of the holders of 10%
of the shares of the Series B Stock then outstanding, addressed to the
corporation at its principal office, the Clerk of the corporation shall give
notice of a special meeting of holders of the shares of the Series B Stock
of the election of a director to fill such vacancy caused by the death,
resignation or other inability to serve as a director elected by such
holders, to be held not less than ten (10) nor more than twenty (20) days
following receipt
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by the Clerk of the corporation of such written request. So long as special
voting rights are in effect pursuant to paragraph 7(c), any director who
shall have been so elected by the holders of the Series B Stock may be
removed at any time, either with or without cause, only by the affirmative
vote of the holders of the shares at the time entitled to cast a majority of
the votes entitled to be cast for the election of such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders.
8. STATUS OF REDEEMED SHARES OF SERIES B STOCK. All shares of the Series B
Stock which have been redeemed by the corporation pursuant to paragraph 6 shall
have, after such redemption, the status of authorized but unissued shares of
Preferred Stock without designation of series and may be reissued but not as
shares of Series B Stock.
(E) Preferred Stock, Series C
1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this
Article 4, the following capitalized words and expressions have the respective
meanings set out below:
"Applicable Rate" Except as provided below in this definition, the
Applicable Rate for any quarterly dividend period commencing on or after
December 16, 1985 shall be (x) 2.75% less than (y) the highest of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year
Constant Maturity Rate (each as hereinafter defined) for such dividend
period. If the corporation determines in good faith that:
(i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Twenty Year Constant Maturity Rate cannot be determined for
any particular quarterly dividend period, then the Applicable Rate for
such dividend period shall be 2.75% less than the higher of whichever two
of such rates can be so determined;
(ii) only one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate can be
determined for any particular
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quarterly dividend period, then the Applicable Rate for such dividend
period shall be 2.75% less than the rate that can be so determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Twenty Year Constant Maturity Rate can be determined for any
particular quarterly dividend period, then the Applicable Rate in effect
for the preceding quarterly dividend period shall be continued for such
dividend period.
However, the Applicable Rate for any quarterly dividend period shall in no
event be less than five and one-half percent (5 1/2%) per annum nor greater
than twelve and one-half percent (12 1/2%) per annum.
"Articles of Organization" means the Articles of Organization of the
corporation as amended and in effect from time to time, including the
amendment thereof effected pursuant to this paragraph.
"Board of Governors" means the Board of Governors of the Federal Reserve
System or any governmental entity which may be granted the powers referred
to herein currently exercised by the Board of Governors.
"Calendar Period" means a period of fourteen calendar days.
"Common Stock" means the capital stock of the corporation so designated and
authorized from time to time and being stock which is junior to all series
of the Preferred Stock in respect of dividend payments and of distributions
or payments upon Liquidation.
"corporation" means Bank of Boston Corporation and includes any successor
corporation by merger, consolidation or otherwise if the stockholders of the
former continue as stockholders of the continuing or combined corporation.
"Junior Dividend Stock" means (i) the Common Stock and (ii) any series
of the Preferred Stock which is specifically made junior to the Series C
Stock, and any class of capital stock of the corporation which is
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specifically made junior to the Preferred Stock, in respect of payments of
dividends.
"Junior Liquidation Stock" means (i) the Common Stock and (ii) any series
of the Preferred Stock which is specifically made junior to the Series C
Stock and any class of capital stock of the corporation which is
specifically made junior to the Preferred Stock, in respect of distributions
or payments upon Liquidation.
"Junior Stock" means the Common Stock, the Junior Dividend Stock and the
Junior Liquidation Stock.
"Liquidation" means the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding up of the corporation, but shall
not include (i) the merger or consolidation of the corporation with
another corporation pursuant to any statute which provides in effect that
the stockholders of the former shall continue as stockholders of the
continuing or combined corporation and (ii) the acquisition by the
corporation of assets or stock of another corporation.
"Preferred Stock" means the authorized class of the capital stock of the
corporation so designated of which there are currently 10,000,000 shares
authorized.
"Series C Stock" means the series of Preferred Stock created by this
paragraph.
"Special Securities" means securities which can, at the option of the
holder, be surrendered at face value in payment of federal estate taxes or
which provide tax benefits for the holder and are priced to reflect such tax
benefits or which were issued at a deep or substantial discount.
"Ten Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of 10 years).
"Ten Year Constant Maturity Rate" Except as provided below in this
definition, the Ten Year Constant Maturity Rate for each quarterly dividend
period shall be the
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arithmetic average (rounded, if not a whole multiple of five hundredths of a
percentage point, to the nearest whole such fraction of a percentage point)
of the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such yield shall be
published during the relevant Calendar Period) as published weekly by the
Board of Governors during the Calendar Period immediately prior to the 10
calendar days preceding the 15th day of March, June, September or December,
as the case may be, occurring prior to the commencement of the dividend
period for which the dividend rate on the shares of the Series C Stock is
being determined. If the Board of Governors does not publish such a weekly
per annum Ten Year Average Yield during any such Calendar Period, then the
Ten Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the two most recent weekly per annum Ten Year Average
Yields (or the one weekly per annum Ten Year Average Yield, if only one such
yield shall be published during the relevant Calendar Period), as published
weekly during such Calendar Period by any Federal Reserve Bank or by any
U.S. Government department or agency selected by the corporation. If a per
annum Ten Year Average Yield shall not be published by the Board of
Governors or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Ten Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of
the two most recent weekly per annum average yields to maturity (or the one
weekly per annum average yield to maturity, if only one such yield shall be
published during the relevant Calendar Period) for all of the actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) then having maturities of not less than eight nor more
than 12 years, as published for such Calendar Period by the Board of
Governors or, if the Board of Governors shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If the corporation determines in good faith
that for any reason the corporation cannot determine the Ten Year Constant
Maturity Rate for any dividend period as provided above in this paragraph,
then the Ten Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the per annum average yields to maturity based
upon the
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closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than eight nor more
than 12 years from the date of each such quotation, as chosen and quoted
daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the corporation by at least
three recognized dealers in the U.S. Government securities selected by the
corporation.
"Treasury Bill Rate" Except as provided below in this definition, the
Treasury Bill Rate for any quarterly dividend period shall be the arithmetic
average (rounded, if not a whole multiple of five hundredths of a percentage
point, to the nearest whole such fraction of a percentage point) of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for three-month U.S. Treasury bills, as
published weekly by the Board of Governors during the Calendar Period
immediately prior to the 10 calendar days preceding the 15th day of March,
June, September or December, as the case may be, occurring prior to the
commencement of the dividend period for which the dividend rate on the
shares of the Series C Stock is being determined. If the Board of Governors
does not publish such a weekly per annum market discount rate during any
such Calendar Period, then the Treasury Bill Rate for such dividend period
shall be the arithmetic average of the two most recent weekly per annum
market discount rates, (or the one weekly per annum market discount rate, if
only one such rate shall be published during the relevant Calendar Period)
for three-month U.S. Treasury bills as published weekly during such Calendar
Period by any Federal Reserve Bank or any U.S. Government department or
agency selected by the corporation. If a per annum market discount rate for
three-month U.S. Treasury bills shall not be published by the Board of
Governors or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury Bill
Rate for such dividend period shall be the arithmetic average of the two
most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such
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rate shall be published during the relevant Calendar Period) of all of the
U.S. Treasury bills then having maturities of not less than 80 nor more than
100 days, as published during such Calendar Period by the Board of
Governors or, if the Board of Governors shall not publish such rates, by any
Federal Reserve Bank or by any such U.S. Government department or agency
selected by the corporation. If the corporation determines in good faith
that for any reason no such U.S. Treasury bill rates are published as
provided above during such Calendar Period, or if for any reason the
corporation cannot determine the Treasury Bill Rate for any quarterly
dividend period as provided above in this paragraph, then the Treasury Bill
Rate for such dividend period shall be the arithmetic average of the per
annum market discount rates based upon the closing bids during such Calendar
Period for each of the issues of marketable non-interest bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than 100
days from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations
shall be generally available) to the corporation by at least three
recognized dealers in U.S. Government securities selected by the
corporation.
"Twenty Year Average Yield" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 20 years.
"Twenty Year Constant Maturity Rate" Except as provided below in this
definition, the Twenty Year Constant Maturity Yield for any quarterly
dividend period shall be the arithmetic average (rounded, if not a whole
multiple of five hundredths of a percentage point, to the nearest whole such
fraction of a percentage point) of the two most recent weekly per annum
Twenty Year Average Yields (or the one weekly per annum Twenty Year Average
Yield, if only one such yield shall be published during the relevant
Calendar Period), as published weekly by the Board of Governors during the
Calendar Period immediately prior to the 10 calendar days preceding the 15th
day of March, June, September or December, as the case may be, occurring
prior to the commencement of the dividend period for which the dividend rate
on the shares of the Series C Stock is
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being determined. If the Board of Governors does not publish such a weekly
per annum Twenty Year Average Yield during any such Calendar Period, then
the Twenty Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield, if
only one such yield shall be published during the relevant Calendar Period),
as published weekly during such Calendar Period by any Federal Reserve Bank
or by any U.S. Government department or agency selected by the corporation.
If a per annum Twenty Year Average Yield shall not be published by the Board
of Governors or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Twenty Year
Constant Maturity Rate for such dividend period shall be the arithmetic
average of the two most recent weekly per annum average yields to maturity
(or the one weekly per annum average yield to maturity, if only one such
yield shall be published during the relevant Calendar Period) for all of the
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) then having maturities of not less than 18
nor more than 22 years, as published during such Calendar Period by the
Board of Governors or, if the Board of Governors shall not publish such
yields, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the corporation. If the corporation determines in good
faith that for any reason the corporation cannot determine the Twenty Year
Constant Maturity Rate for any dividend period as provided above in this
paragraph, then the Twenty Year Constant Maturity Rate for such dividend
period shall be the arithmetic average of the per annum average yields to
maturity based upon the closing bids during Calendar Period for each of the
issues of actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) with a final maturity date not
less than 18 nor more than 22 years from the date of each such quotation, as
chosen and quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to the
corporation by at least three recognized dealers of national reputation in
U.S. Government securities selected by the corporation.
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2. NUMBER OF SHARES AND DESIGNATION. 775,390 shares of Preferred Stock are
hereby constituted as a series of Preferred Stock, liquidation preference $100
per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series
C. No additional shares of Preferred Stock may be issued as Series C Stock.
3. PREFERENCES. The preferences of each share of the Series C Stock with
respect to dividend payments or to distributions or payments upon Liquidation
will be in every respect on a parity with the preferences of every other share
of Preferred Stock and of every other class of the capital stock of the
corporation (other than Common Stock), from time to time outstanding, which
other shares of the Preferred Stock and which other classes of capital stock
are not made senior or junior to the Series C Stock as to dividend payments or
to distributions or payments upon Liquidation.
4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series
C Stock shall be entitled, before any distribution or payment is made upon any
of the Junior Liquidation Stock, to be paid in cash an amount equal to $100 per
share of Series C Stock so held by them plus all accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for such payment.
If upon Liquidation, the amounts payable with respect to shares of Series C
Stock and to any other shares of the capital stock of the corporation ranking
as to any such distribution on a parity with the Series C Stock are not paid in
full, the holders of shares of the Series C Stock and of such other shares
shall share ratably in any such distribution of assets of the corporation in
proportion to the full respective preferential amounts to which they are
entitled.
Notice of Liquidation, stating the date when and the place where the amount
payable on Liquidation will be paid, shall be sent by the Clerk of the
corporation by first class mail, postage prepaid, at least thirty (30) but no
more than sixty (60) days prior to the date fixed for such liquidation payment,
to the holders of the shares of the Series C Stock, at their respective
addresses appearing on the books of the corporation. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice,
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and failure duly to give such notice by mail to any holder of shares of Series
C Stock, or any defect in such notice, shall not affect the validity of the
proceedings for the making of liquidation payments on any other shares of the
Series C Stock or of any other series or class of the capital stock of the
corporation. If such notice shall have been duly mailed and if, on or before
the date fixed for liquidation payments designated in such notice, the funds
necessary for such liquidation payments shall have been provided by the
corporation in accordance with the provisions of the following sentence, then
notwithstanding that any certificate of shares of Series C Stock shall not have
been delivered for cancellation, the shares represented thereby shall no longer
be deemed outstanding on and after the date such funds shall have been so
provided, the dividends thereon shall cease to accrue from and after the date
fixed for such liquidation payments so designated, and all rights with respect
to the shares of the Series C Stock shall terminate forthwith after such
liquidation payment date, excepting only the right of the holder to receive the
liquidation price thereof of $100 per share plus unpaid dividends accrued to
such liquidation payment date but without interest thereon. The corporation's
obligation to provide funds for liquidation payments shall be deemed fulfilled
if, on or before the liquidation payment date, the corporation shall deposit
with a bank or trust company (which may be an affiliate of the corporation),
having a capital and surplus of at least $50,000,000, funds necessary for such
liquidation payments, in trust, with irrevocable instructions that such funds
be applied to such liquidation payments. Any interest accrued on such funds
shall be paid to the corporation from time to time. Any funds so deposited and
unclaimed at the end of five years from such liquidation payment date shall be
released or repaid to the corporation, after which the holder or holders of
shares of Series C Stock shall look only to the corporation for payment of
liquidation payments.
5. DIVIDENDS.
(a) Dividend Rate. Dividends on each share of the Series C Stock shall be
payable (i) at a quarterly rate of 7.70% per annum for the period ended
December 15, 1985, and (ii) for each quarterly dividend period commencing on
or after December 16, 1985, at a rate computed by multiplying $100
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<PAGE> 45
by the Applicable Rate (as defined herein) for such period and multiplying
the result by the fraction of a year represented by such period, based upon
a year of 365 or 366 days, as the case may be.
(b) Payment of Dividends. Dividends on each share of the Series C Stock
shall be fully cumulative and shall accrue whether or not earned, without
interest, from the date of issuance of each share, and shall be payable in
arrears on the 15th day of March, June, September and December in each year
in which such shares are outstanding out of funds legally available for the
payment of dividends, when, as and if declared by the Board of Directors.
In the event that there shall be outstanding shares of any other series of
the Preferred Stock or of any other class of the capital stock of the
corporation ranking on a parity as to dividends with shares of the Series C
Stock, the corporation, in making any dividend payment on account of arrears
on shares of the Series C Stock or such other series of the Preferred Stock
or such other class of capital stock, shall make payment ratably upon all
outstanding shares of the Series C Stock, such other series of the Preferred
Stock and such other class of capital stock in proportion to the respective
amounts of dividends in arrears upon all such outstanding shares of the
Series C Stock, such other series of the Preferred Stock and such other
class of capital stock to the date of such dividend payment.
So long as any shares of the Series C Stock are outstanding, the corporation
shall not (i) declare or pay or set apart for payment any dividend or other
distribution (other than dividends or distributions payable in shares of
Junior Stock) for any period upon any Junior Stock or any stock of the
corporation ranking on a parity with the Series C Stock as to dividends or
upon Liquidation or (ii) redeem, purchase or otherwise acquire for any
consideration any shares of Junior Stock or any capital stock of the
corporation ranking on a parity with the Series C Stock as to dividends or
upon Liquidation, unless, in either case, all dividends payable to holders
of shares of the Series C Stock and of any stock of the corporation ranking
on a parity therewith as to dividends for its current dividend period and
all past dividend
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periods have been paid (or are contemporaneously being paid), or a sum
sufficient for the payment thereof has been irrevocably set aside in trust
for the holders of all such shares; except that, notwithstanding clause (i)
of this paragraph 5(b), the corporation may pay dividends on the shares of
the Series C Stock and shares of stock of the corporation ranking on a
parity therewith as to dividends ratably in accordance with the sums which
would be payable on such shares if all dividends, including accumulations,
if any, were declared and paid in full.
6. REDEMPTION.
(a) Redemption Price. Shares of the Series C Stock shall not be redeemable
on or prior to November 14, 1990. After November 14, 1990 and in accordance
with this paragraph 6, the shares of the Series C Stock shall be redeemable
at any time or from time to time, in whole or in part, at the option of the
corporation by vote of its Board of Directors; provided, however, that any
partial redemption, in the opinion of an investment banking firm of national
reputation selected by the corporation, shall not adversely affect the
marketability of those shares of Series C Stock not redeemed. The
redemption price shall be $103.00 per share if shares are redeemed on or
prior to November 14, 1995 and $100 per share if shares are redeemed
thereafter, plus in each case an amount equal to all unpaid dividends,
whether or not earned or declared, accrued to the date fixed for redemption.
(b) Redemption Procedure. Notice of any proposed redemption of all or any
of the shares of the Series C Stock under this paragraph 6 shall be sent by
the Clerk of the corporation by first class mail, postage prepaid, at least
thirty (30) but not more than sixty (60) days prior to the date fixed for
such redemption, to the holders of the shares of the Series C Stock to be
redeemed, at their respective addresses appearing on the books of the
corporation. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder receives such notice, and failure duly to give such notice by mail to
any holder of shares of Series C Stock designated for redemption, or any
defect in such notice, shall not affect the validity of the proceedings for
the redemption of any
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<PAGE> 47
other shares of the Series C Stock. If such notice of redemption shall have
been duly mailed and if, on or before the date fixed for redemption
designated in such notice, the funds necessary for the redemption shall have
been provided by the corporation in accordance with the provisions of the
following sentence, then, notwithstanding that any certificate of shares of
Series C Stock so called for redemption shall not have been delivered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding on and after the date such funds shall have been so provided,
the dividends thereon shall cease to accrue from and after the date of
redemption so designated, and all rights with respect to the shares of the
Series C Stock so called for redemption shall terminate forthwith after such
redemption date, excepting only the right of each holder to receive the
redemption price thereof plus unpaid dividends accrued to such redemption
date but without interest thereon. The corporation's obligation to provide
funds for redemption shall be deemed fulfilled if, on or before the
redemption date, the corporation shall deposit with a bank or trust company
(which may be an affiliate of the corporation), having a capital and surplus
of at least $50,000,000, funds necessary for such redemption, in trust, with
irrevocable instructions that such funds be applied to the redemption of the
shares of Series C Stock so called for redemption. Any interest accrued on
such funds shall be paid to the corporation from time to time. Any funds so
deposited and unclaimed at the end of five years from such redemption date
shall be released or repaid to the corporation, after which the holder or
holders of shares of Series C Stock so called for redemption shall look only
to the corporation for payment of the redemption price.
(c) Pro Rata Redemption. If any proposed redemption of shares of the Series
C Stock shall be less than all then outstanding shares of Series C Stock,
such redemption shall be made on a pro rata basis, as nearly as possible,
among all holders of shares of the Series C Stock outstanding at the time of
redemption in the same proportion that each such holder's then respective
holding of such shares shall bear to the aggregate number of such shares
then outstanding.
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(d) Dividend Arrearages. Notwithstanding the foregoing provisions of this
paragraph 6, if any dividends on shares of the Series C Stock are in
arrears, no other shares of the Preferred Stock shall be redeemed, and the
corporation shall not purchase or otherwise acquire any shares of the
Preferred Stock, unless all outstanding shares of the Series C Stock are
simultaneously redeemed, and the corporation shall not purchase or otherwise
acquire any shares of the Series C Stock; provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of the
Series C Stock pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of the Series C Stock.
7. VOTING RIGHTS.
(a) General. The holders of shares of Series C Stock shall not, by virtue
of their ownership thereof, be entitled to vote upon any matter except as
otherwise provided in the Articles of Organization or by law. Whenever the
holders of any shares of the Series C Stock shall be entitled to vote upon
any matter, each outstanding share of the Series C Stock entitled to vote on
such matter shall be entitled to one (1) vote.
(b) Two-Thirds Approval. So long as any shares of the Series C Stock are
outstanding, the corporation shall not, without first obtaining the consent,
given in writing or in person or by proxy or at a meeting called for the
purpose, of the holders of at least two-thirds (2/3rds) of the outstanding
shares of the Series C Stock:
(i) authorize or create any other class of capital stock (or series
thereof), the shares of which rank prior to shares of Preferred Stock
in respect of dividend payments or distributions or payments upon
Liquidation; or authorize, create or issue any bonds, notes, debentures,
obligations, stock or other securities by their terms convertible into or
evidencing a right to purchase shares of stock of any other class of
capital stock (or series thereof) the shares of which rank prior to the
shares of Preferred Stock in respect of dividend payments or
distributions or payments upon Liquidation;
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(ii) authorize or create any other series of Preferred Stock, the shares
of which rank prior to shares of Series C Stock in respect of dividend
payments or distributions or payments upon Liquidation; or authorize,
create or issue any bonds, notes, debentures, obligations, stock or other
securities by their terms convertible into or evidencing a right to
purchase shares of any other series of Preferred Stock which rank prior
to the shares of Series C Stock in respect of dividend payments or
distributions or payments upon Liquidation;
(iii) reclassify any shares of any class of capital stock into a class
ranking prior to the Preferred Stock in respect of dividend payments
or distributions or payments upon Liquidation; reclassify any shares of
Preferred Stock into a series which ranks prior to Series C Stock in
respect of dividend payments or distributions or payments upon
Liquidation; or reclassify any shares of Junior Stock into Series C
Stock; or
(iv) authorize any amendment to the Articles of Organization which would
adversely affect the rights of the holders of the Series C Stock.
For the purposes of this subclause (iv), the term "adversely affects"
shall have the same meaning as it has in Section 77 of Chapter 156B of
the Massachusetts General Laws, as in effect on February 10, 1984.
(c) Special Voting Rights. Notwithstanding the foregoing, in the event
that, at any time after the date of original issue of the shares of the
Series C Stock, an amount equal to the full accrued dividends for six (6) or
more quarterly dividend periods, whether or not consecutive, shall not have
been paid or declared and a sum sufficient for the payment thereof
irrevocably set aside in trust for the holders of all of such shares, the
Board of Directors of the corporation shall promptly take all necessary
actions to increase the authorized number of directors of the corporation by
one (1) and the holders of the shares of the Series C Stock then outstanding
shall be entitled (by series, voting as a single class) to elect one (1)
person director to the Board of Directors of the corporation (such right to
elect one (1) director being
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hereinafter sometimes referred to as the "special voting rights"), each
outstanding share having such right being entitled for such purpose to one
vote; provided, however, that at such time as the arrearage in payment of
dividends which gave rise to the exercise of the special voting rights has
been cured with regard to the Series C Stock by waiver or payment of all
accrued dividends, the right of the holders of such shares so to vote as
provided in this paragraph 7(c) shall cease (subject to renewal from time to
time upon the same terms and conditions) and the term of office of the
person who is at that time a director elected by such holders shall
terminate and the number of directors of the corporation shall be
automatically reduced by one (1).
(d) Special Voting Rights; Procedure. At any time after the special voting
rights shall have become vested in the holders of the shares of the Series C
Stock as provided in paragraph 7(c), the Clerk of the corporation, as
promptly as possible but in any event within twenty (20) days after receipt
of the written request of the holders of 10% of the shares of the Series C
Stock then outstanding, addressed to the corporation at its principal
office, shall call a special meeting of the holders of the shares of the
Series C Stock for the purpose of electing such additional director, such
meeting to be held at any place as provided by the By-Laws of the
corporation for meetings of the corporation's stockholders, and upon not
less than ten (10) nor more than twenty (20) days notice. If such meeting
shall not be so called within twenty (20) days after receipt of the request
by the Clerk of the corporation, then the holders of 10% of the shares of
the Series C Stock then outstanding may, by written notice to the Clerk of
the corporation, designate any person to call such meeting, and the person
so designated may call such meeting, at any such place as provided above and
upon not less than ten (10) nor more than twenty (20) days notice and for
that purpose shall have access to the stockholder record books of the
corporation. No such special meeting of the holders of the shares of the
Series C Stock and no adjournment thereof shall be held on a date later than
thirty (30) days before the annual meeting of stockholders of the
corporation. At any meeting so called or at any annual meeting held at any
time when the special voting rights are in effect, the holders of a majority
of the
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shares of the Series C Stock then outstanding, present in person or by
proxy, shall be sufficient to constitute a quorum for the election of such
additional director, and such additional director, together with any and all
other directors who are then members of the Board of Directors, shall
constitute the duly elected directors of the corporation.
(e) Vacancy in Office of Director Elected by Holders of Series C Stock.
With respect to a vacancy arising in the directorship referred to in
paragraph 7(c) at any time when the special voting rights are in effect
pursuant to paragraph 7(c), upon the written request of the holders of 10%
of the shares of the Series C Stock then outstanding, addressed to the
corporation at its principal office, the Clerk of the corporation shall give
notice of a special meeting of holders of the shares of the Series C Stock
of the election of a director to fill such vacancy caused by the death,
resignation or other inability to serve as a director elected by such
holders, to be held not less than ten (10) nor more than twenty (20) days
following receipt by the Clerk of the corporation of such written request.
So long as special voting rights are in effect pursuant to paragraph 7(c),
any director who shall have been so elected by the holders of the Series C
Stock may be removed at any time, either with or without cause, only by the
affirmative vote of the holders of the shares at the time entitled to cast a
majority of the votes entitled to be cast for the election of such director
at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders.
8. STATUS OF REDEEMED SHARES OF SERIES C STOCK. All shares of the Series C
Stock which have been redeemed by the corporation pursuant to paragraph 6
shall have, after such redemption, the status of authorized but unissued
shares of Preferred Stock without designation of series and may be reissued
but not as shares of Series C Stock.
(F) Preferred Stock, Series D
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as
"Junior Participating Preferred Stock,
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Series D" and the number of shares constituting such series shall be 200,000.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any shares of
any series of preferred stock ranking prior and superior to the shares of
Junior Participating Preferred Stock, Series D with respect to dividends,
the holders of shares of Junior Participating Preferred Stock, Series D
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the 15th day of March, June, September and
December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Junior Participating Preferred Stock, Series D, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $3.10 or (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all noncash dividends or
other distributions other than a dividend payable in shares of common stock,
par value $2.25 per share, of the corporation (the "Common Stock") or a
subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of
a share of Junior Participating Preferred Stock, Series D. In the event the
corporation shall at any time after June 28, 1990 (the "Rights Declaration
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Junior Participating Preferred
Stock, Series D were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
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outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The corporation shall declare a dividend or distribution on the Junior
Participating Preferred Stock, Series D as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $3.10 per
share on the Junior Participating Preferred Stock, Series D shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Junior Participating Preferred Stock, Series D from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Junior Participating Preferred Stock, Series D, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Participating Preferred Stock,
Series D entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Junior Participating Preferred Stock, Series D in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Junior
Participating Preferred Stock, Series D entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
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no more than 30 days prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Junior Participating Preferred
Stock, Series D shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Junior Participating Preferred Stock, Series D shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the corporation. In the event the corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Junior Participating Preferred Stock, Series D
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Junior Participating Preferred Stock, Series D and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the corporation.
(C)(i) If at any time dividends on any Junior Participating Preferred
Stock, Series D shall be in arrears in an amount equal to the full accrued
dividends for six (6) or more quarterly dividends periods, whether or not
consecutive, shall not have been paid or declared and a sum sufficient for
the payment thereof irrevocably set aside in trust for the holders of all of
such shares, the Board of Directors of the corporation shall promptly take
all necessary actions to increase the authorized number of directors of the
corporation by one (1) and the holders of the shares of the Junior
Participating Preferred Stock, Series D then outstanding shall be
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entitled (by series, voting as a single class) to elect one (1) person
director to the Board of Directors of the corporation (such right to elect
one (1) director being hereinafter sometimes referred to as the "special
voting rights"), each outstanding share having such right being entitled for
such purpose to one vote; provided, however, that at such time as the
arrearage in payment of dividends which gave rise to the exercise of the
special voting rights has been cured with regard to the Junior Participating
Preferred Stock, Series D by waiver or payment of all accrued dividends, the
right of the holders of such shares so to vote as provided in this paragraph
(C)(i) of this Section 3 shall cease (subject to renewal from time to time
upon the same terms and conditions) and the term of office of the person who
is at that time a director elected by such holders shall terminate and the
number of directors of the corporation shall be automatically reduced by one
(1).
(ii) At any time after the special voting rights shall have become vested
in the holders of the shares of the Junior Participating Preferred Stock,
Series D as provided in paragraph (C)(i) of this Section 3, the Clerk of the
corporation, as promptly as possible but in any event within twenty (20)
days after receipt of the written request of the holders of 10% of the
shares of the Junior Participating Preferred Stock, Series D then
outstanding, addressed to the corporation at its principal office, shall
call a special meeting of the holders of the shares of the Junior
Participating Preferred Stock, Series D for the purpose of electing such
additional director, such meeting to be held at any place as provided by the
Bylaws of the corporation for meetings of the corporation's stockholders,
and upon not less then ten (10) nor more than twenty (20) days notice. If
such meeting shall not be so called within twenty (20) days after receipt of
the request by the Clerk of the corporation, then the holders of 10% of the
shares of the Junior Participating Preferred Stock, Series D then
outstanding may, by written notice to the Clerk of the corporation,
designate any person to call such meeting, and the person so designated may
call such meeting, at any such place as provided above and upon not less
then ten (10) nor more than twenty (20) days notice and for that purpose
shall have access to the stockholder record books of the corporation. No
such special meeting
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of the holders of the shares of the Junior Participating Preferred Stock,
Series D and no adjournment thereof shall be held on a date later than
thirty (30) days before the annual meeting of stockholders of the
corporation. At any meeting so called or at any annual meeting held at any
time when the special voting rights are in effect, the holders of a majority
of the shares of the Junior Participating Preferred Stock, Series D then
outstanding, present in person or by proxy, shall be sufficient to
constitute a quorum for the election of such additional director, and such
additional director, together with any and all other directors who are then
members of the Board of Directors, shall constitute the duly elected
directors of the corporation.
(C)(iii) With respect to a vacancy arising in the directorship referred to
in paragraph (C)(i) of this Section 3 at any time when the special voting
rights are in effect pursuant to paragraph (C)(i) of this Section 3, upon
the written request of the holders of 10% of the shares of the Junior
Participating Preferred Stock, Series D then outstanding, addressed to the
corporation at its principal office, the Clerk of the corporation shall give
notice of a special meeting of holders of the shares of the Junior
Participating Preferred Stock, Series D of the election of a director to
fill such vacancy caused by death, resignation or other inability to serve
as a director elected by such holders, to be held not less than ten (10) nor
more than twenty (20) days following receipt by the Clerk of the corporation
of such written request. So long as special voting rights are in effect
pursuant to paragraph (i) of this Section 3(c), any director who shall have
been so elected by the holders of the Junior Participating Preferred Stock,
Series D may be removed at any time, either with or without cause, only by
the affirmative vote of the holders of the shares at the time entitled to
cast a majority of the votes entitled to be cast for the election of such
director at a special meeting of such holders called for that purpose, and
any vacancy thereby created may be filled by the vote of such holders.
(D) Except as set forth herein, holders of Junior Participating Preferred
Stock, Series D shall have no special voting rights and their consent shall
not be
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required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Participating Preferred Stock, Series D as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Junior
Participating Preferred Stock, Series D outstanding shall have been paid in
full, the corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Participating Preferred Stock,
Series D;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Participating
Preferred Stock, Series D, except dividends paid ratably on the Junior
Participating Preferred Stock, Series D and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Participating
Preferred Stock, Series D, provided that the corporation may at any time
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Junior Participating Preferred Stock, Series D;
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(iv) purchase or otherwise acquire for consideration any shares of
Junior Participating Preferred Stock, Series D, or any shares of stock
ranking on a parity with the Junior Participating Preferred Stock, Series
D, except pursuant to Section 8 or in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
The corporation shall not permit any subsidiary of the corporation to
purchase or otherwise acquire for consideration any shares of stock of the
corporation unless the corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Junior Participating Preferred Stock,
Series D purchased or otherwise acquired by the corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Participating Preferred Stock,
Series D unless, prior thereto, the holders of shares of Junior
Participating Preferred Stock, Series D shall have received $1,000.00 per
share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Series D
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Liquidation Preference"). Following the payment of the full amount of the
Series D Liquidation Preference, no additional distributions shall be made
to the holders of shares of Junior Participating Preferred Stock, Series D
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series D Liquidation Preference by (ii) 1,000
(as appropriately adjusted as set forth in subparagraph (C) below to reflect
such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii) immediately above
being referred to as the "Adjustment Number"). Following the payment of the
full amount of the Series D Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Junior Participating Preferred
Stock, Series D and Common Stock, respectively, holders of Junior
Participating Preferred Stock, Series D and holders of shares of Common
Stock shall receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to one (1)
with respect to such Junior Participating Preferred Stock, Series D and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series D Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Junior Participating Preferred Stock, Series
D, then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(C) In the event the corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted
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by multiplying such Adjustment Number by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
7. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
or any other property, then in any such case the shares of Junior Participating
Preferred Stock, Series D shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1000 times the aggregate amount of stock,
securities, cash or any other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or exchanged. In
the event the corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Junior Participating Preferred Stock, Series D shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. REDEMPTION. The outstanding shares of Junior Participating Preferred Stock,
Series D may be redeemed at the option of the Board of Directors as a whole,
but not in part, at any time, or from time to time, at a cash price per share
equal to 100 percent of (i) the product of the Adjustment Number times the
Average Market Value (as such term is hereinafter defined) of the Common Stock,
plus (ii) all dividends which on the redemption date have accrued on the shares
to be redeemed and have not been paid, or declared and a sum sufficient for the
payment thereof set apart, without interest. The "Average Market Value" is the
average of the closing sale prices of the Common Stock
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during the 30 day period immediately preceding the date before the redemption
date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock Exchange,
or, if such stock is not listed on such Exchange, on the principal United
States securities exchange registered under the Securities Exchange Act of
1934, as amended, on which such stock is listed, or, if such stock is not
listed on any such exchange, the average of the closing sale prices with
respect to a share of Common Stock during such 30 day period, as quoted on the
National Association of Securities Dealers, Inc. Automated Quotations System
or any system then in use, or if no such quotations are available, the fair
market value of the Common Stock as determined by the Board of Directors in
good faith.
9. RANKING. The Junior Participating Preferred Stock, Series D shall rank
junior to all other series of the corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
10. AMENDMENT. At such time as shares of Junior Participating Preferred
Stock, Series D are outstanding, the Articles of Organization of the
corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Junior
Participating Preferred Stock, Series D so as to affect them adversely without
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Junior Participating Preferred Stock, Series D, voting separately as
a class.
11. FRACTIONAL SHARES. Junior Participating Preferred Stock, Series D may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holders fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Junior Participating Preferred Stock, Series D.
12. CANCELLATION. Any shares of the Junior Participating Preferred Stock,
Series D redeemed, exchanged, or purchased or otherwise acquired by the
corporation in any manner whatsoever shall be retired and canceled promptly
after the
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acquisition thereof; all such shares shall upon their cancellation become
authorized but unissued shares of preferred stock.
(G) Preferred Stock, Series E
1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this
Article 4, the following capitalized words and expressions have the respective
meanings set out below:
"Articles of Organization" means the Articles of Organization of the
corporation as amended and in effect from time to time, including the amendment
thereof effected pursuant to this paragraph.
"Common Stock" means the capital stock of the corporation so designated and
authorized from time to time and being stock which is junior to all series of
the Preferred Stock in respect of dividend payments and of distribution or
payments upon Liquidation.
"corporation" means Bank of Boston Corporation and includes any successor
corporation by merger, consolidation or otherwise if the stockholders of the
former continue as stockholders of the continuing or combined corporation.
"Junior Dividend Stock" means (i) the Common Stock, (ii) any series of the
Preferred Stock which is specifically made junior to the Series E Stock,
including the corporation's Junior Participating Preferred Stock, Series D and
(iii) any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of payments of dividends.
"Junior Liquidation Stock" means (i) the Common Stock, (ii) any series of
the Preferred Stock which is specifically made junior to the Series E Stock,
including the corporation's Junior Participating Preferred Stock, Series D and
(iii) any class of capital stock of the corporation which is specifically made
junior to the Preferred Stock, in respect of distributions or payments upon
Liquidation.
"Junior Stock" means the Common Stock, the Junior Dividend Stock and the
Junior Liquidation Stock.
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"Liquidation" means the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding up of the corporation, but shall not
include (i) the merger or consolidation of the corporation with another
corporation pursuant to any statute which provides in effect that the
stockholders of the former shall continue as stockholders of the continuing or
combined corporation and (ii) the acquisition by the corporation of assets or
stock of another corporation.
"Preferred Stock" means the authorized class of the capital stock of the
corporation so designated of which there are currently 10,000,000 shares
authorized.
"Series E Stock" means the series of Preferred Stock created by this
paragraph.
2. NUMBER OF SHARES AND DESIGNATION. 920,000 shares of Preferred Stock are
hereby constituted as a series of Preferred Stock, liquidation preference $250
per share, and designated as 8.60% Cumulative Preferred Stock, Series E. No
additional shares of Preferred Stock may be issued as Series E Stock.
3. PREFERENCES. The preferences of each share of the Series E Stock with
respect to dividend payments or to distributions or payments upon Liquidation
will be in every respect on a parity with the preferences of every other share
of Preferred Stock and of every other class of the capital stock of the
corporation (other than Common Stock), from time to time outstanding, which
other shares of the Preferred Stock and which other classes of capital stock
are not made senior or junior to the Series E Stock as to dividend payments or
to distributions or payments upon Liquidation.
4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series
E Stock shall be entitled, before any distribution or payment is made upon any
of the Junior Liquidation Stock, to be paid in cash an amount equal to $250 per
share of Series E Stock so held by them plus all accrued and unpaid dividends
thereon (whether or not earned or declared) to the date fixed for such payment.
If upon Liquidation, the amounts payable with respect to shares of
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Series E Stock and to any other shares of the capital stock of the corporation
ranking as to any such distribution on a parity with the Series E Stock are not
paid in full, the holders of shares of the Series E Stock and of such other
shares shall share ratably in any such distribution of assets of the
corporation in proportion to the full respective preferential amounts to which
they are entitled.
Notice of Liquidation, stating the date when and the place where the amount
payable on Liquidation will be paid, shall be sent by the Clerk of the
corporation by first class mail, postage prepaid, at least thirty (30) but no
more than sixty (60) days prior to the date fixed for such liquidation payment,
to the holders of the shares of the Series E Stock, at their respective
addresses appearing on the books of the corporation. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice, and failure
duly to give such notice by mail to any holder of shares of Series E Stock, or
any defect in such notice, shall not affect the validity of the proceedings for
the making of liquidation payments on any other shares of the Series E Stock or
of any other series or class of the capital stock of the corporation. If such
notice shall have been duly mailed and if, on or before the date fixed for
liquidation payments designated in such notice, the funds necessary for such
liquidation payments shall have been provided by the corporation in accordance
with the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series E Stock shall not have been delivered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding on and after the date such funds shall have been so provided, the
dividends thereon shall cease to accrue from and after the date fixed for such
liquidation payments so designated, and all rights with respect to the shares
of the Series E Stock shall terminate forthwith after such liquidation payment
date, excepting only the right of the holder to receive the liquidation price
thereof of $250 per share plus unpaid dividends accrued to such liquidation
payment date but without interest thereon. The corporation's obligation to
provide funds for liquidation payments shall be deemed fulfilled if, on or
before the liquidation payment date, the corporation shall deposit with a bank
or trust company (which may be an affiliate of the corporation), having a
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capital and surplus of at least $50,000,000, funds necessary for such
liquidation payments, in trust, with irrevocable instructions that such funds
be applied to such liquidation payments. Any interest accrued on such funds
shall be paid to the corporation from time to time. Any funds so deposited and
unclaimed at the end of five years from such liquidation payment date shall be
released or repaid to the corporation, after which the holder or holders of
shares of Series E Stock shall look only to the corporation for payment of
liquidation payments.
5. DIVIDENDS.
(a) Dividend Rate. Dividends on each share of the Series E Stock shall be
payable quarterly based on an annual rate of 8.60% multiplied by $250.
Dividends payable on the Series E Stock for any period less than a full
dividend period shall be computed on the basis of a 360-day year consisting of
twelve 30-day months.
(b) Payment of Dividends. Dividends on each share of the Series E Stock
shall be fully cumulative and shall accrue whether or not earned, without
interest, from the date of issuance of each share, and shall be payable in
arrears on the 15th day of March, June, September and December in each year,
commencing on December 15, 1992, in which such shares are outstanding out of
funds legally available for the payment of dividends, when, as and if declared
by the Board of Directors.
In the event that there shall be outstanding shares of any other series of
the Preferred Stock or of any other class of the capital stock of the
corporation ranking on a parity as to dividends with shares of the Series E
Stock, the corporation, in making any dividend payment on account of arrears on
shares of the Series E Stock or such other series of the Preferred Stock or
such other class of capital stock, shall make payment ratably upon all
outstanding shares of the Series E Stock, such other series of the Preferred
Stock and such other class of capital stock in proportion to the respective
amounts of dividends in arrears upon all such outstanding shares of the Series
E Stock, such other series of the Preferred Stock and such other class of
capital stock to the date of such dividend payment.
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So long as any shares of the Series E Stock are outstanding, the corporation
shall not (i) declare or pay or set apart for payment any dividend or other
distribution (other than dividends or distributions payable in shares of Junior
Stock) for any period upon any Junior Stock or any stock of the corporation
ranking on a parity with the Series E Stock as to dividends or upon Liquidation
or (ii) redeem, purchase or otherwise acquire for any consideration any shares
of Junior Stock or any capital stock of the corporation ranking on a parity
with the Series E Stock as to dividends or upon Liquidation, unless, in either
case, all dividends payable to holders of shares of the Series E Stock and of
any stock of the corporation ranking on a parity therewith as to dividends for
its current dividend period and all past dividend periods have been paid (or
are contemporaneously being paid), or a sum sufficient for the payment thereof
has been irrevocably set aside in trust for the holders of all such shares;
except that, notwithstanding clause (i) of this paragraph 5(b), the corporation
may pay dividends on the shares of the Series E Stock and shares of stock of
the corporation ranking on a parity therewith as to dividends ratably in
accordance with the sums which would be payable on such shares if all
dividends, including accumulations, if any, were declared and paid in full.
6. REDEMPTION.
(a) Redemption Price. Shares of the Series E Stock shall not be redeemable
prior to September 15, 1997. On and after such date, and in accordance with
this paragraph 6, the shares of the Series E Stock shall be redeemable at any
time or from time to time, in whole or in part, at the option of the
corporation by vote of its Board of Directors, with the prior approval of the
Board of Governors of the Federal Reserve System (if such approval is required
at the time of redemption). The redemption price shall be $250 per share plus
an amount equal to all unpaid dividends, whether or not earned or declared,
accrued to the date fixed for redemption.
(b) Redemption Procedure. Notice of any proposed redemption of all or any
of the shares of the Series E Stock under this paragraph 6 shall be sent by the
Clerk of the corporation by first class mail, postage prepaid, at least thirty
(30) but not more than sixty (60) days prior to the
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date fixed for such redemption, to the holders of the shares of the Series E
Stock to be redeemed, at their respective addresses appearing on the books of
the corporation. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder receives such notice, and failure duly to give such notice by mail to
any holder of shares of Series E Stock designated for redemption, or any defect
in such notice, shall not affect the validity of the proceedings for the
redemption of any other shares of the Series E Stock. If such notice of
redemption shall have been duly mailed and if, on or before the date fixed for
redemption designated in such notice, the funds necessary for the redemption
shall have been provided by the corporation in accordance with the provisions
of the following sentence, then, notwithstanding that any certificate of shares
of Series E Stock so called for redemption shall not have been delivered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding on and after the date such funds shall have been so provided, the
dividends thereon shall cease to accrue from and after the date of redemption
so designated, and all rights with respect to the shares of the Series E Stock
so called for redemption shall terminate forthwith after such redemption date,
excepting only the right of each holder to receive the redemption price thereof
plus unpaid dividends accrued to such redemption date but without interest
thereon. The corporation's obligation to provide funds for redemption shall be
deemed fulfilled if, on or before the redemption date, the corporation shall
deposit with a bank or trust company (which may be an affiliate of the
corporation), having a capital and surplus of at least $50,000,000, funds
necessary for such redemption, in trust, with irrevocable instructions that
such funds be applied to the redemption of the shares of Series E Stock so
called for redemption. Any interest accrued on such funds shall be paid to the
corporation from time to time. Any funds so deposited and unclaimed at the end
of five years from such redemption date shall be released or repaid to the
corporation, after which the holder or holders of shares of Series E Stock so
called for redemption shall look only to the corporation for payment of the
redemption price.
(c) Pro Rata Redemption. If any proposed redemption of shares of the Series
E Stock shall be less than all then outstanding shares of Series E Stock, such
redemption shall
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be made on a pro rata basis, as nearly as possible, among all holders of shares
of the Series E Stock outstanding at the time of redemption in the same
proportion that each such holder's then respective holding of such shares shall
bear to the aggregate number of such shares then outstanding.
(d) Dividend Arrearages. Notwithstanding the foregoing provisions of this
paragraph 6, if any dividends on shares of the Series E Stock are in arrears,
no other shares of the Preferred Stock shall be redeemed, and the corporation
shall not purchase or otherwise acquire any shares of the Preferred Stock,
unless all outstanding shares of the Series E Stock are simultaneously redeemed
in accordance with the foregoing provisions of this paragraph 6, and the
corporation shall not purchase or otherwise acquire any shares of the Series E
Stock; provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of the Series E Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of the Series
E Stock.
7. VOTING RIGHTS.
(a) General. The holders of shares of Series E Stock shall not, by virtue
of their ownership thereof, be entitled to vote upon any matter except as
otherwise provided in the Articles of Organization or by law. Whenever the
holders of any shares of the Series E Stock shall be entitled to vote upon any
matter, each outstanding share of the Series E Stock entitled to vote on such
matter shall be entitled to one (1) vote.
(b) Two-Thirds Approval. So long as any shares of the Series E Stock are
outstanding, the corporation shall not, without first obtaining the consent,
given in writing or in person or by proxy or at a meeting called for the
purpose, of the holders of at least two-thirds (2/3rds) of the outstanding
shares of the Series E Stock:
(i) authorize or create any other class of capital stock (or series
thereof), the shares of which rank prior to shares of Preferred Stock
in respect of dividend payments or distributions or payments upon
Liquidation; or authorize, create or issue any bonds, notes,
debentures, obligations, stock or
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other securities by their terms convertible into or evidencing a right
to purchase shares of stock of any other class of capital stock (or
series thereof) the shares of which rank prior to the shares of
Preferred Stock in respect of dividend payments or distributions or
payments upon Liquidation;
(ii) authorize or create any other series of Preferred Stock, the
shares of which rank prior to shares of Series E Stock in respect of
dividend payments or distributions or payments upon Liquidation; or
authorize, create or issue any bonds, notes, debentures, obligations,
stock or other securities by their terms convertible into or
evidencing a right to purchase shares of any other series of Preferred
Stock which rank prior to the shares of Series E Stock in respect of
dividend payments or distributions or payments upon Liquidation;
(iii) reclassify any shares of any class of capital stock into a
class ranking prior to the Preferred Stock in respect of dividend
payments or distributions or payments upon Liquidation; reclassify any
shares of Preferred Stock into a series which ranks prior to Series E
Stock in respect of dividend payments or distributions or payments
upon Liquidation; or reclassify any shares of Junior Stock into Series
E Stock; or
(iv) authorize any amendment to the Articles of Organization
which would adversely affect the rights of the holders of the Series E
Stock. For the purposes of this subparagraph (iv), the term
"adversely affects" shall have the same meaning as it has in Section
77 of Chapter 156B of the Massachusetts General Laws, as in effect on
August 6, 1992.
(c) Special Voting Rights. Notwithstanding the foregoing, in the event
that, at any time after the date of original issue of the shares of the Series
E Stock, an amount equal to the full accrued dividends for six (6) or more
quarterly dividend periods, whether or not consecutive,
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shall not have been paid or declared and a sum sufficient for the payment
thereof irrevocably set aside in trust for the holders of all of such shares,
the Board of Directors of the corporation shall promptly take all necessary
actions to increase the authorized number of directors of the corporation by
one (1), and the holders of the shares of the Series E Stock then outstanding
shall be entitled (by series, voting as a single class) to elect one (1) person
director to the Board of Directors of the corporation (such right to elect one
(1) director being hereinafter sometimes referred to as the "special voting
rights"), each outstanding share having such right being entitled for such
purpose to one vote; provided, however, that at such time as the arrearage in
payment of dividends which gave rise to the exercise of the special voting
rights has been cured with regard to the Series E Stock by waiver or payment of
all accrued dividends, the right of the holders of such shares so to vote as
provided in this paragraph 7(c) shall cease (subject to renewal from time to
time upon the same terms and conditions), and the term of office of the person
who is at that time a director elected by such holders shall terminate and the
number of directors of the corporation shall be automatically reduced by one
(1).
(d) Special Voting Rights; Procedure. At any time after the special voting
rights shall have become vested in the holders of the shares of the Series E
Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly
as possible but in any event within twenty (20) days after receipt of the
written request of the holders of 10% of the shares of the Series E Stock then
outstanding, addressed to the corporation at its principal office, shall call a
special meeting of the holders of the shares of the Series E Stock for the
purpose of electing such additional director, such meeting to be held at any
place as provided by the By-Laws of the corporation for meetings of the
corporation's stockholders, and upon not less than ten (10) nor more than
twenty (20) days notice. If such meeting shall not be so called within twenty
(20) days after receipt of the request by the Clerk of the corporation, then
the holders of 10% of the shares of the Series E Stock then outstanding may, by
written notice to the Clerk of the corporation, designate any person to call
such meeting, and the person so designated may call such meeting, at any such
place as provided above and upon not less than ten (10) nor more than
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twenty (20) days notice and for that purpose shall have access to the
stockholder record books of the corporation. No such special meeting of the
holders of the shares of the Series E Stock and no adjournment thereof shall be
held on a date later than thirty (30) days before the annual meeting of
stockholders of the corporation. At any meeting so called or at any annual
meeting held at any time when the special voting rights are in effect, the
holders of a majority of the shares of the Series E Stock then outstanding,
present in person or by proxy, shall be sufficient to constitute a quorum for
the election of such additional director, and such additional director,
together with any and all other directors who are then members of the Board of
Directors, shall constitute the duly elected directors of the corporation.
(e) Vacancy in Office of Director Elected by Holders of Series E Stock.
With respect to a vacancy arising in the directorship referred to in paragraph
7(c) at any time when the special voting rights are in effect pursuant to
paragraph 7(c), upon the written request of the holders of 10% of the shares of
the Series E Stock then outstanding, addressed to the corporation at its
principal office, the Clerk of the corporation shall give notice of a special
meeting of holders of the shares of the Series E Stock of the election of a
director to fill such vacancy caused by the death, resignation or other
inability to serve as a director elected by such holders, to be held not less
than ten (10) nor more than twenty (20) days following receipt by the Clerk of
the corporation of such written request. So long as special voting rights are
in effect pursuant to paragraph 7(c), any director who shall have been so
elected by the holders of the Series E Stock may be removed at any time, either
with or without cause, only by the affirmative vote of the holders of the
shares at the time entitled to cast a majority of the votes entitled to be cast
for the election of such director at a special meeting of such holders called
for that purpose, and any vacancy thereby created may be filled by the vote of
such holders.
8. STATUS OF REDEEMED SHARES OF SERIES E STOCK. All shares of the Series E
Stock which have been redeemed by the corporation pursuant to paragraph 6 shall
have, after such redemption, the status of authorized but unissued shares of
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Preferred Stock without designation of series and may be reissued but not as
shares of Series E Stock.
(H) Preferred Stock, Series F
1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this
Section 4, the following capitalized words and expressions have the respective
meanings set out below:
"Articles of Organization" mean the Articles of Organization of the
corporation as amended and in effect from time to time, including the
amendment thereof effected pursuant to this paragraph.
"Common Stock" means the capital stock of the corporation so designated and
authorized from time to time and being stock which is junior to all series
of the Preferred Stock in respect of dividend payments and of distributions
or payments upon Liquidation.
"corporation" means Bank of Boston Corporation and includes any successor
corporation by merger, consolidation or otherwise if the stockholders of the
former continue as stockholders of the continuing or combined corporation.
"Junior Dividend Stock" means (i) the Common Stock, (ii) any series of the
Preferred Stock which is specifically made junior to the Series F Stock,
including the corporation's Junior Participating Preferred Stock, Series D
and (iii) any class of capital stock of the corporation which is
specifically made junior to the Preferred Stock, in respect of payments of
dividends.
"Junior Liquidation Stock" means (i) the Common Stock, (ii) any series of
the Preferred Stock which is specifically made junior to the Series F Stock,
including the corporation's Junior Participating Preferred Stock, Series D
and (iii) any class of capital stock of the corporation which is
specifically made junior to the Preferred Stock, in respect of distributions
or payments upon Liquidation.
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"Junior Stock" means the Common Stock, the Junior Dividend Stock and the
Junior Liquidation Stock.
"Liquidation" means the voluntary or involuntary liquidation, distribution
or sale of assets, dissolution or winding up of the corporation, but shall
not include (i) the merger or consolidation of the corporation with another
corporation pursuant to any statute which provides in effect that the
stockholders of the former shall continue as stockholders of the continuing
or combined corporation and (ii) the acquisition by the corporation of
assets or stock of another corporation.
"Preferred Stock" means the authorized class of the capital stock of the
corporation so designated of which there are currently 10,000,000 shares
authorized.
"Series F Stock" means the series of Preferred Stock created by this
paragraph.
2. NUMBER OF SHARES AND DESIGNATION. 280,000 shares of Preferred Stock are
hereby constituted as a series of Preferred Stock, liquidation preference $250
per share, and designated as 7 7/8% Cumulative Preferred Stock, Series F. No
additional shares of Preferred Stock may be issued as Series F Stock.
3. PREFERENCES. The preferences of each share of the Series F Stock with
respect to dividend payments or to distributions or payments upon Liquidation
will be in every respect on a parity with the preferences of every other share
of Preferred Stock and of every other class of the capital stock of the
corporation (other than Common Stock), from time to time outstanding, which
other shares of the Preferred Stock and which other classes of capital stock
are not made senior or junior to the Series F Stock as to dividend payments or
to distributions or payments upon Liquidation.
4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series
F Stock shall be entitled, before any distribution or payment is made upon any
of the Junior Liquidation Stock, to be paid in cash an amount equal to $250 per
share of Series F Stock so held by them plus all accrued and unpaid dividends
thereon (whether or not earned
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or declared) to the date fixed for such payment. If upon Liquidation, the
amounts payable with respect to shares of Series F Stock and to any other
shares of the capital stock of the corporation ranking as to any such
distribution on a parity with the Series F Stock are not paid in full, the
holders of shares of the Series F Stock and of such other shares shall share
ratably in any such distribution of assets of the corporation in proportion to
the full respective preferential amounts to which they are entitled.
Notice of Liquidation, stating the date when and the place where the amount
payable on Liquidation will be paid, shall be sent by the Clerk of the
corporation by first class mail, postage prepaid, at least thirty (30) but no
more than sixty (60) days prior to the date fixed for such liquidation payment,
to the holders of the shares of the Series F Stock, at their respective
addresses appearing on the books of the corporation. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice, and failure
duly to give such notice by mail to any holder of shares of Series F Stock, or
any defect in such notice, shall not affect the validity of the proceedings for
the making of liquidation payments on any other shares of the Series F Stock or
of any other series or class of the capital stock of the corporation. If such
notice shall have been duly mailed and if, on or before the date fixed for
liquidation payments designated in such notice, the funds necessary for such
liquidation payments shall have been provided by the corporation in accordance
with the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series F Stock shall not have been delivered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding on and after the date such funds shall have been so provided, the
dividends thereon shall cease to accrue from and after the date fixed for such
liquidation payments so designated, and all rights with respect to the shares
of the Series F Stock shall terminate forthwith after such liquidation payment
date, excepting only the right of the holder to receive the liquidation price
thereof of $250 per share plus unpaid dividends accrued to such liquidation
payment date but without interest thereon. The corporation's obligation to
provide funds for liquidation payments shall be deemed fulfilled if, on or
before the liquidation payment date, the
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corporation shall deposit with a bank or trust company (which may be an
affiliate of the corporation), having a capital and surplus of at least
$50,000,000, funds necessary for such liquidation payments, in trust, with
irrevocable instructions that such funds be applied to such liquidation
payments.
Any interest accrued on such funds shall be paid to the corporation from
time to time. Any funds so deposited and unclaimed at the end of five years
from such liquidation payment date shall be released or repaid to the
corporation, after which the holder or holders of shares of Series F Stock
shall look only to the corporation for payment of liquidation payments.
5. DIVIDENDS.
(a) Dividend Rate. Dividends on each share of the Series F Stock shall be
payable quarterly based on an annual rate of 7 7/8% multiplied by $250.
Dividends payable on the Series F Stock shall be computed (i) for any period
other than a full dividend period, on the basis of a 360-day year consisting
of twelve 30-day months and (ii) for each full dividend period, by dividing
the annual dividend rate by four.
(b) Payment of Dividends. Dividends on each share of the Series F Stock
shall be fully cumulative and shall accrue whether or not earned, without
interest, from the date of issuance of each share, and shall be payable in
arrears on the 15th day of March, June, September and December in each year,
commencing on September 15, 1993, in which such shares are outstanding out
of funds legally available for the payment of dividends, when, as and if
declared by the Board of Directors.
In the event that there shall be outstanding shares of any other series of
the Preferred Stock or of any other class of the capital stock of the
corporation ranking on a parity as to dividends with shares of the Series F
Stock, the corporation, in making any dividend payment on account of arrears
on shares of the Series F Stock or such other series of the Preferred Stock
or such other class of capital stock, shall make payment ratably upon all
outstanding shares of the Series F Stock, such other
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<PAGE> 76
series of the Preferred Stock and such other class of capital stock in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of the Series F Stock, such other series of the Preferred
Stock and such other class of capital stock to the date of such dividend
payment.
So long as any shares of the Series F Stock are outstanding, the corporation
shall not (i) declare or pay or set apart for payment any dividend or other
distribution (other than dividends or distributions payable in shares of
Junior Stock) for any period upon any Junior Stock or any stock of the
corporation ranking on a parity with the Series F Stock as to dividends or
upon Liquidation or (ii) redeem, purchase or otherwise acquire for any
consideration any shares of Junior Stock or any capital stock of the
corporation ranking on a parity with the Series F Stock as to dividends or
upon Liquidation, unless, in either case, all dividends payable to holders
of shares of the Series F Stock and of any stock of the corporation ranking
on a parity therewith as to dividends for its current dividend period and
all past dividend periods have been paid (or are contemporaneously being
paid), or a sum sufficient for the payment thereof has been irrevocably set
aside in trust for the holders of all such shares; except that,
notwithstanding clause (i) of this paragraph 5(b), the corporation may pay
dividends on the shares of the Series F Stock and shares of stock of the
corporation ranking on a parity therewith as to dividends ratably in
accordance with the sums which would be payable on such shares if all
dividends, including accumulations, if any, were declared and paid in full.
6. REDEMPTION.
(a) Redemption Price. Shares of the Series F Stock shall not be redeemable
prior to July 15, 1998. On and after such date, and in accordance with this
paragraph 6, the shares of the Series F Stock shall be redeemable at any
time or from time to time, in whole or in part, at the option of the
corporation by vote of its Board of Directors, with the prior approval of
the Board of Governors of the Federal Reserve System (if such approval is
required at the time of redemption). The redemption price shall be $250 per
share plus an amount equal to all
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unpaid dividends, whether or not earned or declared, accrued to the date
fixed for redemption.
(b) Redemption Procedure. Notice of any proposed redemption of all or any
of the shares of the Series F Stock under this paragraph 6 shall be sent by
the Clerk of the corporation by first class mail, postage prepaid, at least
thirty (30) but not more than sixty (60) days prior to the date fixed for
such redemption, to the holders of the shares of the Series F Stock to be
redeemed, at their respective addresses appearing on the books of the
corporation. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder receives such notice, and failure duly to give such notice by mail to
any holder of shares of Series F Stock designated for redemption, or any
defect in such notice, shall not affect the validity of the proceedings for
the redemption of any other shares of the Series F Stock. If such notice of
redemption shall have been duly mailed and if, on or before the date fixed
for redemption designated in such notice, the funds necessary for the
redemption shall have been provided by the corporation in accordance with
the provisions of the following sentence, then, notwithstanding that any
certificate of shares of Series F Stock so called for redemption shall not
have been delivered for cancellation, the shares represented thereby shall
no longer be deemed outstanding on and after the date such funds shall have
been so provided, the dividends thereon shall cease to accrue from and after
the date of redemption so designated, and all rights with respect to the
shares of the Series F Stock so called for redemption shall terminate
forthwith after such redemption date, excepting only the right of each
holder to receive the redemption price thereof plus unpaid dividends accrued
to such redemption date but without interest thereon. The corporation's
obligation to provide funds for redemption shall be deemed fulfilled if, on
or before the redemption date, the corporation shall deposit with a bank or
trust company (which may be an affiliate of the corporation), having a
capital and surplus of at least $50,000,000, funds necessary for such
redemption, in trust, with irrevocable instructions that such funds be
applied to the redemption of the shares of Series F Stock so called for
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<PAGE> 78
redemption. Any interest accrued on such funds shall be paid to the
corporation from time to time.
Any funds so deposited and unclaimed at the end of five years from such
redemption date shall be released or repaid to the corporation, after which
the holder or holders of shares of Series F Stock so called for redemption
shall look only to the corporation for payment of the redemption price.
(c) Pro Rata Redemption. If any proposed redemption of shares of the Series
F Stock shall be less than all then outstanding shares of Series F Stock,
such redemption shall be made on a pro rata basis, as nearly as possible,
among all holders of shares of the Series F Stock outstanding at the time of
redemption in the same proportion that each such holder's then respective
holding of such shares shall bear to the aggregate number of such shares
then outstanding.
(d) Dividend Arrearages. Notwithstanding the foregoing provisions of this
paragraph 6, if any dividends on shares of the Series F Stock are in
arrears, no other shares of the Preferred Stock shall be redeemed, and the
corporation shall not purchase or otherwise acquire any shares of the
Preferred Stock, unless all outstanding shares of the Series F Stock are
simultaneously redeemed in accordance with the foregoing provisions of this
paragraph 6, and the corporation shall not purchase or otherwise acquire any
shares of the Series F Stock; provided, however, that the foregoing shall
not prevent the purchase or acquisition of shares of the Series F Stock
pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding shares of the Series F Stock.
7. VOTING RIGHTS.
(a) General. The holders of shares of Series F Stock shall not, by virtue
of their ownership thereof, be entitled to vote upon any matter except as
otherwise provided in the Articles of Organization or by law. Whenever the
holders of any shares of the Series F Stock shall be entitled to vote upon
any matter, each outstanding share of the Series F Stock entitled to vote on
such matter shall be entitled to one (1) vote.
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<PAGE> 79
(b) Two-Thirds Approval. So long as any shares of the Series F Stock are
outstanding, the corporation shall not, without first obtaining the consent,
given in writing or in person or by proxy or at a meeting called for the
purpose, of the holders of at least two-thirds (2/3rds) of the outstanding
shares of the Series F Stock:
(i) authorize or create any other class of capital stock (or series
thereof), the shares of which rank prior to shares of Preferred Stock
in respect of dividend payments or distributions or payments upon
Liquidation; or authorize, create or issue any bonds, notes,
debentures, obligations, stock or other securities by their terms
convertible into or evidencing a right to purchase shares of stock of
any other class of capital stock (or series thereof) the shares of
which rank prior to the shares of Preferred Stock in respect of
dividend payments or distributions or payments upon Liquidation;
(ii) authorize or create any other series of Preferred Stock, the
shares of which rank prior to shares of Series F Stock in respect of
dividend payments or distributions or payments upon Liquidation; or
authorize, create or issue any bonds, notes, debentures, obligations,
stock or other securities by their terms convertible into or
evidencing a right to purchase shares of any other series of Preferred
Stock which rank prior to the shares of Series F Stock in respect of
dividend payments or distributions or payments upon Liquidation;
(iii) reclassify any shares of any class of capital stock into a class
ranking prior to the Preferred Stock in respect of dividend payments
or distributions or payments upon Liquidation; reclassify any shares
of Preferred Stock into a series which ranks prior to Series F Stock
in respect of dividend payments or distributions or payments upon
Liquidation; or reclassify any shares of Junior Stock into Series F
Stock; or
(iv) authorize any amendment to the Articles of Organization which
would adversely affect the rights of the holders of the Series F
Stock. For the purposes of
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this subparagraph (iv), the term "adversely affects" shall have the
same meaning as it has in Section 77 of Chapter 156B of the Massachusetts
General Laws, as in effect on June 24, 1993.
(c) Special Voting Rights. Notwithstanding the foregoing, in the event
that, at any time after the date of original issue of the shares of the
Series F Stock, an amount equal to the full accrued dividends for six (6) or
more quarterly dividend periods, whether or not consecutive, shall not have
been paid or declared and a sum sufficient for the payment thereof
irrevocably set aside in trust for the holders of all of such shares, the
Board of Directors of the corporation shall promptly take all necessary
actions to increase the authorized number of directors of the corporation by
one (1), and the holders of the shares of the Series F Stock then
outstanding shall be entitled (by series, voting as a single class) to elect
one (1) person director to the Board of Directors of the corporation (such
right to elect one (1) director being hereinafter sometimes referred to as
the "special voting rights"), each outstanding share having such right being
entitled for such purpose to one vote; provided, however, that at such time
as the arrearage in payment of dividends which gave rise to the exercise of
the special voting rights has been cured with regard to the Series F Stock
by waiver or payment of all accrued dividends, the right of the holders of
such shares so to vote as provided in this paragraph 7(c) shall cease
(subject to renewal from time to time upon the same terms and conditions),
and the term of office of the person who is at that time a director elected
by such holders shall terminate and the number of directors of the
corporation shall be automatically reduced by one (1).
(d) Special Voting Rights; Procedure. At any time after the special voting
rights shall have become vested in the holders of the shares of the Series F
Stock as provided in paragraph 7(c), the Clerk of the corporation, as
promptly as possible but in any event within twenty (20) days after receipt
of the written request of the holders of 10% of the shares of the Series F
Stock then outstanding, addressed to the corporation at its principal
office, shall call a special meeting of the holders of the shares of the
Series F Stock for the purpose of electing such
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additional director, such meeting to be held at any place as provided by the
By-Laws of the corporation for meetings of the corporation's stockholders,
and upon not less than ten (10) nor more than twenty (20) days notice. If
such meeting shall not be so called within twenty (20) days after receipt of
the request by the Clerk of the corporation, then the holders of 10% of the
shares of the Series F Stock then outstanding may, by written notice to the
Clerk of the corporation, designate any person to call such meeting, and the
person so designated may call such meeting, at any such place as provided
above and upon not less than ten (10) nor more than twenty (20) days notice
and for that purpose shall have access to the stockholder record books of
the corporation. No such special meeting of the holders of the shares of
the Series F Stock and no adjournment thereof shall be held on a date later
than thirty (30) days before the annual meeting of stockholders of the
corporation. At any meeting so called or at any annual meeting held at any
time when the special voting rights are in effect, the holders of a majority
of the shares of the Series F Stock then outstanding, present in person or
by proxy, shall be sufficient to constitute a quorum for the election of
such additional director, and such additional director, together with any
and all other directors who are then members of the Board of Directors,
shall constitute the duly elected directors of the corporation.
(e) Vacancy in Office of Director Elected by Holders of Series F Stock.
With respect to a vacancy arising in the directorship referred to in
paragraph 7(c) at any time when the special voting rights are in effect
pursuant to paragraph 7(c), upon the written request of the holders of 10%
of the shares of the Series F Stock then outstanding, addressed to the
corporation at its principal office, the Clerk of the corporation shall give
notice of a special meeting of holders of the shares of the Series F Stock
of the election of a director to fill such vacancy caused by the death,
resignation or other inability to serve as a director elected by such
holders, to be held not less than ten (10) nor more than twenty (20) days
following receipt by the Clerk of the corporation of such written request.
So long as special voting rights are in effect pursuant to paragraph 7(c),
any director who shall have been so elected by the holders of the Series F
Stock may be
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removed at any time, either with or without cause, only by the affirmative
vote of the holders of the shares at the time entitled to cast a majority of
the votes entitled to be cast for the election of such director at a special
meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders.
8. STATUS OF REDEEMED SHARES OF SERIES F STOCK. All shares of the Series F
Stock which have been redeemed by the corporation pursuant to paragraph 6 shall
have, after such redemption, the status of authorized but unissued shares of
Preferred Stock without designation of series and may be reissued but not as
shares of Series F Stock.
ARTICLE 5
The restrictions, if any, imposed by these Articles of Organization upon the
transfer of shares of stock of any class are as follows: None.
ARTICLE 6
(A) The Directors may amend, add to or repeal the By-Laws in whole or in part
except with respect to any provision thereof which, by law or the By-Laws
requires action of the stockholders.
(B) Meetings of the stockholders may be held anywhere in the United States.
(C) The corporation may be a partner in any business enterprise which the
corporation would have the power to conduct by itself.
(D) No director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided,
however, that this provision shall not eliminate the liability of a director,
to the extent that such liability is provided by applicable law, (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
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intentional misconduct or a knowing violation of law, (iii) under Section 61 or
62 (or successor provisions) of Chapter 156B of the Massachusetts General Laws
or (iv) for any transaction from which the director derived an improper
personal benefit. This provision shall not eliminate the liability of a
director for any act or omission occurring prior to the date upon which this
provision becomes effective. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
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<PAGE> 1
EXHIBIT 3(b)
BANK OF BOSTON CORPORATION
BY-LAWS
Revised to October 28, 1993
<PAGE> 2
BY-LAWS
OF
BANK OF BOSTON CORPORATION
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF THE STOCKHOLDERS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Place of Meeting;Adjournment 1
SECTION 2. Annual Meeting 1
SECTION 3. Special Meetings 2
SECTION 4. Notices of Meetings 2
SECTION 5. Quorum 5
SECTION 6. Organization 5
SECTION 7. Voting by Stockholders; Proxies 6
SECTION 8. Inspectors 7
SECTION 9. Action without Meeting 7
</TABLE>
ARTICLE II
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. General Powers; Issue of Stock 8
SECTION 2. Number, Qualification, Election and
Term of Office 8
SECTION 3. Nominations for Director 9
SECTION 4. Quorum and Manner of Acting 11
SECTION 5. First Meeting 11
SECTION 6. Regular Meetings 12
SECTION 7. Special Meetings 12
SECTION 8. Notices of Meetings 12
SECTION 9. Organization of Meetings 13
SECTION 10. Order of Business. 13
SECTION 11. Action by Directors without a
Meeting 13
SECTION 12. Resignation 14
SECTION 13. Removal 14
SECTION 14. Vacancies 14
SECTION 15. Fees and Expenses of Directors 15
SECTION 16. Validity of Acts of Directors 15
SECTION 17. Transactions with the Corporation 15
</TABLE>
<PAGE> 3
ARTICLE III
COMMITTEES
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Executive Committee 16
SECTION 2. Audit Committee 18
SECTION 3. Compensation and Nominating Committee 19
SECTION 4. Community Investment Committee 20
SECTION 5. Other Committees 21
SECTION 6. Changes in Committee Membership;
Filling of Vacancies 21
SECTION 7. Records of Committee Action and Board
of Directors' Approval 21
SECTION 8. Committee Proceedings 22
SECTION 9. Action of Committees without a Meeting 22
SECTION 10. General Authority of Committees 23
</TABLE>
ARTICLE IV
OFFICERS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. Titles and Qualifications 23
SECTION 2. Appointment and Terms of Office 23
SECTION 3. Duties; Fidelity Bond 24
SECTION 4. The Chairman of the Board 24
SECTION 5. The President 25
SECTION 6. The Vice Chairmen 25
SECTION 7. The Treasurer 25
SECTION 8. The Comptroller 26
SECTION 9. The Clerk and the Secretary of the
Board of Directors 26
SECTION 10. The General Auditor 27
SECTION 11. The Vice Presidents 27
SECTION 12. The Assistant Treasurers and
Assistant Clerks 27
SECTION 13. Resignation 27
SECTION 14. Vacancies 28
SECTION 15. Compensation of Officers, Employees
and Other Agents 28
SECTION 16. Designated Officer 28
</TABLE>
<PAGE> 4
ARTICLE V
STOCK
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Stock Certificates 28
SECTION 2. Transfer of Stock 29
SECTION 3. Transfer Agent and Registrar;
Regulations 30
SECTION 4. Lost, Mutilated or Destroyed
Certificates 30
SECTION 5. Record Date for Determination of
Stockholders Rights; Close of
Transfer Books 30
SECTION 6. Dividends 31
SECTION 7. Control Share Acquisitions 32
</TABLE>
ARTICLE VI
GENERAL PROVISIONS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. Offices 32
SECTION 2. Seal 32
SECTION 3. Fiscal Year 32
SECTION 4. Annual Reports 32
SECTION 5. Execution of Instruments 33
SECTION 6. Voting of Securities 33
SECTION 7. Powers of Attorney 34
SECTION 8. Issue of Debt Securities and
Other Obligations 35
SECTION 9. Corporate Records 35
SECTION 10. Indemnification of Directors, Officers
and Others 35
</TABLE>
ARTICLE VII
AMENDMENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. General 39
</TABLE>
ARTICLE VIII
EMERGENCY BY-LAWS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. Effective Period 39
SECTION 2. Meetings of the Board of Directors 40
SECTION 3. Emergency Location of Head Office 40
SECTION 4. Preservation of Continuity of Management 40
SECTION 5. Immunity 40
SECTION 6. Amendment of Emergency By-Laws 40
</TABLE>
<PAGE> 5
BANK OF BOSTON CORPORATION
BY-LAWS
ARTICLE I
MEETINGS OF THE STOCKHOLDERS
SECTION 1. Place of Meeting; Adjournment. Meetings of the
stockholders may be held at the main office of the corporation in the City of
Boston, County of Suffolk, Commonwealth of Massachusetts, or at such places
within or without the Commonwealth of Massachusetts as may be specified in the
notices of such meetings; provided, that, when any meeting is convened, the
presiding officer, if directed by the Board of Directors, may adjourn the
meeting for a period of time not to exceed 30 days if (a) no quorum is present
for the transaction of business or (b) the Board of Directors determines that
adjournment is necessary or appropriate to enable the stockholders (i) to
consider fully information which the Board of Directors determines has not been
made sufficiently or timely available to stockholders or (ii) otherwise to
exercise effectively their voting rights. The presiding officer in such event
shall announce the adjournment and date, time and place of reconvening and
shall cause notice thereof to be posted at the place of meeting designated in
the notice which was sent to the stockholders, and if such date is more than 10
days after the original date of the meeting the Clerk shall give notice thereof
in the manner provided in Section 4 of this Article I.
SECTION 2. Annual Meeting. The annual meeting of stockholders of
the corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held on such date and
at such time as shall be determined by the Board of Directors each year, which
date and time may subsequently be changed at any time, including the year any
such determination occurs.
<PAGE> 6
-2-
SECTION 3. Special Meetings. Except as provided in the Articles
of Organization with respect to the ability of holders of preferred stock to
call a special meeting in certain circumstances, special meetings of the
stockholders may be called by the President at the direction of the Chairman
of the Board or by a majority of the directors, and shall be called by the
Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by
any other officer upon the written application of stockholders who hold one
hundred percent in interest of the capital stock of the corporation entitled to
be voted at the proposed meeting. Such request shall state the purpose or
purposes of the proposed meeting and may designate the place, date and hour of
such meeting; provided, however, that no such request shall designate a date
not a full business day or an hour not within normal business hours as the date
or hour of such meeting.
As used in these By-Laws, the expression business day means a day
other than a day which, at a particular place, is a public holiday or a day
other than a day on which banking institutions at such place are allowed or
required, by law or otherwise, to remain closed.
SECTION 4. Notices of Meetings. A printed notice of the place,
date and hour and stating the purposes of each meeting of the stockholders
shall be given by the Clerk (or other person authorized by law or these
By-Laws) at least 10 days before the date fixed for the meeting to each
stockholder entitled to vote at such meeting, and to each other stockholder
who, under the Articles of Organization or these By-Laws, is entitled to such
notice, by leaving such notice with him or her at his or her residence or usual
place of business, or by mailing such notice by mail, postage prepaid and
addressed to such stockholder at his or her address as it appears in the
records of the corporation. Such further notice shall be given by publication
or otherwise, as may be required by law or as may be ordered by the Board of
Directors. No notice need be given to any stockholder if such stockholder, or
his or her authorized attorney, waives such notice by a writing executed before
or after the meeting and filed with the records of the meeting or by his or her
presence, in person or by proxy, at the meeting.
<PAGE> 7
-3-
It shall be the duty of every stockholder to furnish to the Clerk
of the corporation or to the transfer agent, if any, of the class of stock
owned by such stockholder, his or her post office address and to notify the
Clerk or the transfer agent of any change therein.
No business may be transacted at a meeting of the stockholders
except that (a) specified in the notice thereof given by or at the direction of
the Board of Directors or in a supplemental notice given by or at the direction
of the Board of Directors and otherwise in compliance with the provisions
hereof, (b) brought before the meeting by or at the direction of the Board of
Directors or the presiding officer or (c) properly brought before the meeting
by or on behalf of any stockholder who shall have been a stockholder of record
at the time of giving of notice by such stockholder provided for in this
paragraph and who shall continue to be entitled at the time of such meeting to
vote thereat and who complies with the notice procedures set forth in this
paragraph with respect to any business sought to be brought before the meeting
by or on behalf of such stockholder other than the election of directors and
with the notice provisions set forth in Section 3 of Article II with respect to
the election of directors. In addition to any other applicable requirements,
for business to be properly brought before a meeting by or on behalf of a
stockholder (other than a stockholder proposal included in the corporation's
proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), the stockholder must have given timely
notice thereof in writing to the Clerk of the corporation. In order to be
timely given, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the corporation (a) not less
than 75 nor more than 125 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders of the corporation or (b) in the case
of a special meeting or in the event that the annual meeting is called for a
date (including any change in a date determined by the Board pursuant to
Section 2 of this Article I) more than 75 days prior to such anniversary date,
notice by the stockholder to be timely given must be so received not later than
the close
<PAGE> 8
-4-
of business on the 20th day following the day on which notice of the date of
such meeting was mailed or public disclosure of the date of such meeting was
made, whichever first occurs. Such stockholder's notice to the Clerk shall set
forth as to each matter the stockholder proposes to bring before the meeting
(a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and record address of the stockholder proposing such business, (c) the
class and number of shares of capital stock of the corporation held of record,
owned beneficially and represented by proxy by such stockholder as of the
record date for the meeting (if such date shall then have been made publicly
available) and as of the date of such notice by the stockholder and (d) all
other information which would be required to be included in a proxy statement
or other filings required to be filed with the Securities and Exchange
Commission if, with respect to any such item of business, such stockholder
were a participant in a solicitation subject to Regulation 14A under the
Exchange Act (the "Proxy Rules"). In the event the proposed business to be
brought before the meeting by or on behalf of a stockholder relates or refers
to a proposal or transaction involving the stockholder or a third party which,
if it were to have been consummated at the time of the meeting, would have
required of such stockholder or third party or any of the affiliates of either
of them any prior notification to, filing with, or any orders or other action
by, any governmental authority, then any such notice to the Clerk shall be
accompanied by appropriate evidence of the making of all such notifications or
filings and the issuance of all such orders and the taking of all such actions
by all such governmental authorities.
Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at any meeting except in accordance with the
procedures set forth in this Section 4; provided, however, that nothing in this
Section 4 shall be deemed to preclude discussion by any stockholder of any
business properly brought before such meeting.
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that business
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was not properly brought before the meeting in accordance with the foregoing
procedures, and if he or she should so determine, he or she shall so declare to
the meeting and that business shall be disregarded.
SECTION 5. Quorum. At all meetings of the stockholders, the
holders of record of a majority in interest of all stock issued, outstanding
and entitled to vote thereat, or, if two or more classes of stock are issued,
outstanding and entitled to vote as separate classes, a majority in interest of
each class, present in person or represented by proxy, shall constitute a
quorum requisite for the transaction of business, except as otherwise provided
by law, by the Articles of Organization or by these By-Laws. Stock of the
corporation owned directly or indirectly by the corporaton, if any, other than
shares of stock held in a fiduciary capacity shall not be deemed outstanding
for this purpose. If a quorum is not present or represented at any meeting of
the stockholders, the stockholders present or represented and entitled to vote
thereat, present in person or represented by proxy, by a majority vote, shall
have the power to adjourn the meeting from time to time without notice other
than announcement at the meeting until the requisite amount of voting stock
shall be present or represented. At any adjourned meeting at which a quorum is
present or represented, any business may be transacted which might have been
transacted at the meeting as first convened had there been a quorum. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment notwithstanding the withdrawal of one or more
stockholders or their proxy or proxies so as to leave less than a quorum
present or represented.
SECTION 6. Organization. At every meeting of the stockholders,
the Chairman of the Board or the President or, in their absence, a person
chosen by majority vote of the stockholders entitled to vote thereat, present
in person or represented by proxy, shall act as chairman; and the Clerk, or in
his or her absence, any Assistant Clerk, or in the absence of all such
officers, any person present appointed by the chairman shall act as secretary
of the meeting. The secretary of the meeting need not be sworn.
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SECTION 7. Voting by Stockholders; Proxies. Except as otherwise
provided by law or the Articles of Organization, at all meetings of
stockholders each stockholder shall have one vote for each share of stock
entitled to vote and registered in his or her name. Any stockholder may vote
in person or by proxy dated not more than six months prior to the meeting and
filed with the secretary of the meeting. Every proxy shall be in writing,
executed by a stockholder or his or her authorized attorney-in-fact, and dated.
A proxy need not be sealed, witnessed or acknowledged. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the corporation
receives a specific written notice to the contrary from any one of them. No
proxy shall be valid after the final adjournment of the meeting.
The attendance at any meeting of a stockholder who has therefore
given a proxy shall not have the effect of revoking the same unless the
stockholder so attending shall, in writing, so notify the secretary of the
meeting at any time prior to the voting of the proxy.
The corporation shall not, directly, or indirectly, vote any of
its own stock other than shares of stock held in a fiduciary capacity. Any
shares disqualified from being voted shall not be counted in determining the
proportion of or the number of shares or votes required to pass or to vote upon
or to consent or assent to any matter.
Prior to each meeting of stockholders, the Clerk shall make or
cause to be made a full, true and complete list, in alphabetical order, of
stockholders entitled to notice of and to vote at the meeting showing the
number of shares of each class having voting rights held of record by each.
When a determination of stockholders entitled to vote at any meeting has been
made as provided by law, such determination shall apply to any adjournment of
such meeting, except when the determination has been made by the closing of the
transfer books and the stated period has expired.
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At all meetings of stockholders, all questions, except as
otherwise expressly provided by law or the Articles of Organization or these
By-Laws, shall be determined by a majority vote of the stockholders entitled to
vote thereon who are present in person or represented by proxy, or, if two or
more classes of stock are entitled to vote as separate classes, a majority vote
of the stockholders of each class, present in person or represented by proxy.
Except as otherwise expressly provided by law, the Articles of Organization or
these By-Laws, at all meetings of stockholders the voting shall be by show of
hands or voice vote, but any qualified voter may demand a stock vote, by shares
of stock, upon any question, whereupon such stock vote shall be taken by
ballot, each of which shall state the name of the stockholder voting and the
number of shares voted by him or her, and, if such ballot be cast by a proxy,
it shall also state the name of the proxy. All elections shall be decided by
plurality vote.
SECTION 8. Inspectors. At each meeting of the stockholders, the
polls shall be opened and closed by the proxies and ballots shall be received
and taken in charge by and all questions touching on the qualifications of
voters and the validity of proxies and the acceptance and rejection of votes
shall be decided by two inspectors. Such inspectors shall be appointed by the
Board of Directors before or at the meeting, or, if no such appointment shall
have been made, then by the presiding officer at the meeting. If for any
reason any inspector previously appointed shall fail to attend or refuse or be
unable to serve, an inspector in place of the one so failing to attend or
refusing or unable to serve shall be appointed, either by the Board of
Directors or by the presiding officer at the meeting. No director or candidate
for the office of director shall be appointed an inspector. The inspectors
shall file with the Clerk or other secretary of the meeting a certificate
setting forth the results of each vote taken by ballot at the meeting.
SECTION 9. Action without Meeting. Any action which may be taken
by stockholders may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action by a writing filed with the records of
the meetings of stockholders. Any such consent shall be
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treated for all purposes as a vote at a meeting and may be described as such in
any certificate or other document filed with or furnished to any public
official, governmental agency or other person having dealings with the
corporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers; Issue of Stock. The property and
business of the corporation shall be managed by the Board of Directors which
may exercise all powers of the corporation except such powers as are by law or
by the Articles of Organization or by these By-Laws conferred upon or reserved
to the stockholders. The Board of Directors and the Executive Committee shall
have power to issue and sell or otherwise dispose of such shares of the
corporation's authorized but unissued capital stock to such persons and at such
times and for such consideration and upon such terms as it shall determine from
time to time.
SECTION 2. Number, Qualification, Election and Term of Office.
The Board of Directors shall be composed of not less than three nor more than
thirty-five directors. Within the limits specified, the number of directors
shall be determined from time to time by vote of a majority of the entire
Board; provided, however, that no decrease in the number of directors
constituting the entire Board of Directors made pursuant to this Section 2
shall shorten the term of any incumbent director. The Board of Directors shall
be divided into three classes, as nearly equal in number as possible. The
Directors need not be stockholders. To be nominated to serve or to serve as a
director, an individual must be eligible to serve as a director both at the
time the Board of Directors votes to nominate such individual or receives
notice in accordance with Section 3 of this Article of a stockholder's intent
to nominate such individual and at the time of such election, and the
stockholder making such nomination (and any party on whose behalf or in concert
with whom such stockholder is acting) must be qualified at the time of making
such nomination to have such individual serve as the nominee of such
stockholder (and any party on whose behalf or in
<PAGE> 13
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concert with whom such stockholder is acting) if such individual is elected.
At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office
for a term continuing until the annual meeting held in the third year following
the year of their election and until their successors are duly elected and
qualified or until their earlier resignation, death or removal; provided, that
in the event of failure to hold such an annual meeting or to hold such election
at such meeting, the election of directors may be held at any special meeting
of the stockholders called for that purpose. Directors, except those appointed
by the Board of Directors to fill vacancies, shall be elected by a plurality
vote of the stockholders, voting by ballot either in person or by proxy. As
used in these By-Laws, the expression "entire Board" means the number of
directors in office at a particular time.
SECTION 3. Nominations for Director. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors, except as provided in the Articles of Organization with
respect to nominations by holders of preferred stock in certain circumstances.
Nominations of persons for election to the Board of Directors at the annual
meeting may be made at the annual meeting of stockholders (a) by the Board of
Directors or at the direction of the Board of Directors by any nominating
committee or person appointed by the Board or (b) by any stockholder of record
at the time of giving of notice provided for in this Section 3 and who shall
continue to be entitled at the time of the meeting to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 3 rather than the notice procedures with respect to other business
set forth in Section 4 of Article I. Nominations by stockholders shall be made
only after timely notice by such stockholder in writing to the Clerk of the
corporation. In order to be timely given, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 75 nor more than 125 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders of the
corporation; provided, however, that in
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the event that the meeting is called for a date, including any change in a date
determined by the Board pursuant to Section 2 of Article I, more than 75 days
prior to such anniversary date, notice by the stockholder to be timely given
must be so received not later than the close of business on the 20th day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever first occurs.
Such stockholder's notice to the Clerk shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the corporation, if any, which
are beneficially owned by the person, (iv) any other information regarding the
nominee as would be required to be included in a proxy statement or other
filings required to be filed pursuant to the Proxy Rules, and (v) the consent
of each nominee to serve as a director of the corporation if so elected; and
(b) as to the stockholder giving the notice, (i) the name and record address of
the stockholder, (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder as of the record
date for the meeting (if such date shall then have been made publicly
available) and as of the date of such notice, (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice, (iv) a representation that the
stockholder (and any party on whose behalf or in concert with whom such
stockholder is acting) is qualified at the time of giving such notice to have
such individual serve as the nominee of such stockholder (and any party on
whose behalf or in concert with whom such stockholder is acting) if such
individual is elected, accompanied by copies of any notification or filings
with, or orders or other actions by, any governmental authority which are
required in order for such stockholder (and any party on whose behalf such
stockholder is acting) to be so qualified, (v) a description of all
arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such stockholder and (vi) such
other
<PAGE> 15
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information regarding such stockholder as would be required to be included in a
proxy statement or other filings required to be filed pursuant to the Proxy
Rules. The corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as director. No person shall be
eligible for election as a director unless nominated in accordance with the
procedures set forth herein.
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he or she should so determine,
he or she shall so declare to the meeting and the defective nomination shall be
disregarded.
SECTION 4. Quorum and Manner of Acting. One-third of the
directors in office (but in no event fewer than two) shall constitute a quorum
for the transaction of business at any meeting and, except as otherwise
provided by law or these By-Laws, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Directors shall be deemed present at a meeting when
present in person or by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. In the absence of a quorum, a
majority of the directors present, or if only two directors are present, either
director, or the sole director present, may adjourn any meeting to a day
certain or from time to time until a quorum is present. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted if the meeting had been held when originally called.
A director may not vote or otherwise act by proxy.
SECTION 5. First Meeting. The Board of Directors elected at any
annual meeting of stockholders shall meet at the Head Office of The First
National Bank of Boston in the City of Boston and Commonwealth of
Massachusetts, immediately after the final adjournment of such meeting or as
soon as practicable (but not more than 30 days) thereafter for purposes of
organization, the election of
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officers for the succeeding year and the transaction of other business. No
notice of such meeting need be given.
SECTION 6. Regular Meetings. Except for the first meeting of the
Board of Directors to be held immediately following the annual election of
directors, regular meetings of the Board of Directors shall be held on the
fourth Thursday in each month, except the month in which the annual election of
directors is held, at one o'clock in the afternoon in the directors' room at
the Head Office of The First National Bank of Boston in the City of Boston, or
at such other time or at such other place, or both, as shall be designated in
the notice of meeting given to the directors as provided in these By-Laws. If
the day designated for a regular meeting of the Board of Directors would not be
a business day (as defined in Section 3 of Article I of these By-Laws) at the
place where the meeting is to be held, then the meeting shall be held on such
other business day as the Board of Directors may have previously designated, or
if no such day shall have been designated, the meeting shall be held on the
first business day at such place preceding the date originally designated for
such meeting. Any regular meeting of the Board of Directors may be dispensed
with by an appropriate vote passed by the Board of Directors at any prior
meeting.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the Clerk at the written request of three or more directors.
Special meetings of the Board of Directors may be held at such place and time
as may be designated in the call of the meeting.
SECTION 8. Notices of Meetings. Notice of the time and place of
each regular or special meeting of the Board of Directors shall be given to
each director at least 48 hours before such meeting if delivered personally or
sent by mail or at least 24 hours before such meeting if given by telephone,
telex, telegraph or other electronic means. Notice by mail shall be deemed to
be given when deposited in the post office or a letter box in postage-paid
sealed wrappers or when transmitted by telegraph or telex, and addressed
separately to each director at his or her address
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appearing on the records of the corporation. Notices of meetings of the Board
of Directors need not include a statement of the business to be transacted
thereat unless required by law or these By-Laws. No notice of any adjourned
meeting of the Board of Directors need be given other than by announcement at
the session of the meeting which is being adjourned. Failure to give any such
notice of any meeting, or any irregularity in the notice thereof, shall not
invalidate any proceedings taken thereat if a quorum is present and if all
absent directors, either before or after the meeting, shall sign a waiver of
notice or a consent to the holding of such meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed with
the minutes of the meetings to which they relate.
SECTION 9. Organization of Meetings. At each meeting of the
Board of Directors, the Chairman of the Board or the President or, in their
absence, a director chosen by a majority of the directors present shall act as
chairman. The Clerk, or, in his or her absence, any person appointed by the
chairman, shall act as secretary of the meeting and keep minutes of the
proceedings. The secretary of the meeting need not be sworn.
SECTION 10. Order of Business. At all meetings of the Board of
Directors, business shall be transacted in the order determined by the chairman
of the meeting, subject to approval of the directors present thereat.
SECTION 11. Action by Directors without a Meeting. Unless
otherwise restricted by the Articles of Organization or these By-Laws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if a
written consent thereto is signed by all members of the Board of Directors or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or of such committee.
Any such consent shall be treated for all purposes as a vote duly adopted by
the Board of Directors or such committee at a meeting and may be described as
such in any certificate or other document filed with or furnished to
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any public official, governmental agency or other person having dealings with
the corporation.
SECTION 12. Resignation. Any director may resign at any time by
giving written notice of his or her resignation to the Chairman of the Board or
the President or the Clerk. Such resignation shall take effect upon its
receipt or at any later date specified therein; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 13. Removal. A director may be removed by the
affirmative vote of a majority of the shares outstanding and entitled to vote
in the election of directors only for cause. A director may be removed for
cause only after reasonable notice and opportunity to be heard before the
stockholders. For such time as the corporation is subject to paragraph (a) of
Section 50A of Chapter 156B of the Massachusetts General Laws, "cause" with
respect to the removal of any director by the stockholders shall mean only (a)
conviction of a felony, (b) declaration of unsound mind by order of court, (c)
gross dereliction of duty, (d) commission of an action involving moral
turpitude, or (e) commission of an action which constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
corporation.
If at any time the corporation shall no longer be subject to
paragraph (a) of Section 50A of Chapter 156B of the Massachusetts General Laws,
(a) a director may be removed from office with or without cause by the vote of
the holders of a majority of the shares entitled to vote in the election of
directors and may be removed from office with cause by vote of a majority of
the directors then in office, and (b) a director may be removed for cause only
after reasonable notice and opportunity to be heard before the body proposing
to remove him or her.
SECTION 14. Vacancies. The Board of Directors may act
notwithstanding a vacancy or vacancies in its membership; but if the office of
any director shall become vacant by reason of an increase in size of the Board
of
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Directors, or the death, resignation, disqualification or removal of a director
or otherwise, such vacancy or vacancies shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum. Any director elected in accordance with this
Section 14 shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or the new directorship was created and
until his or her successor shall have been elected and qualified or until his
or her earlier resignation, death or removal.
SECTION 15. Fees and Expenses of Directors. Each director who is
not an officer or employee of the corporation or any of its affiliates may be
paid such fees for his or her services and for attendance at meetings of the
Board of Directors or of any committee thereof as the Board of Directors may
determine from time to time to be appropriate. Such fees may be payable
currently or on a deferred basis. In addition, each such director shall be
entitled to reimbursement for reasonable expenses incurred by him or her in
order to attend meetings of the Board of Directors and committees thereof or
otherwise in connection with the performance of his or her duties as a
director.
SECTION 16. Validity of Acts of Directors. All action taken by
any meeting of the Board of Directors or of a committee of the directors or by
any person acting as a director shall, notwithstanding that it shall afterwards
be discovered that there was some defect in the election or appointment or
continuance in office of any such director or person acting as a director, or
that they or any of them were disqualified, or had vacated office, or were not
entitled to vote in relation to the matter acted upon, be as valid as if such
person had been duly elected or appointed, had continued in office and was
qualified to be a director and entitled to vote on such matter.
SECTION 17. Transactions with the Corporation. No contract or
other transaction between the corporation and one or more of its directors or
between the corporation or any other corporation, partnership, voluntary
association, trust or other organization of which any of its directors is a
director or officer or in which he or she has any
<PAGE> 20
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financial interest shall be void or voidable for this reason or because any
such director is present at or participates in the meeting of the Board of
Directors or of the committee thereof which authorizes the contract or
transactions or because his or her vote is counted for such purpose (a) if the
material facts as to the contract or transaction and as to his or her
relationship or interest are disclosed to the Board of Directors or such
committee and the Board of Directors or such committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of disinterested directors even though the disinterested directors be less than
a quorum or (b) if the material facts as to the contract or transaction and as
to his or her relationship or interest are disclosed or are known to the
shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of the shareholders or (c) if the
contract or transaction is fair and reasonable as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, such
committee or the shareholders. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee thereof which authorizes the contract or transaction.
ARTICLE III
COMMITTEES
SECTION 1. Executive Committee. There shall be an Executive
Committee composed of the Chairman of the Board, the President and such number
of other directors, not less than five nor more than seven, as the Board of
Directors may appoint from time to time by resolution passed by the vote of a
majority of the entire Board. The Board of Directors may also, from time to
time, by similar resolution, appoint one or more alternate members of the
Executive Committee who may attend and act in the place of any absent or
disqualified member or members of the Executive Committee at any meeting
thereof. Subject to the provisions of Section 6 of this Article III, the term
of office of any appointed member or alternate member of the Executive
Committee shall expire on the date specified in the resolution of appointment
or any earlier date on which he or she ceases to be a director. Any director
who has
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served as a member or alternate member of the Executive Committee shall be
eligible for reappointment to a new term of office.
During the intervals between meetings of the Board of Directors,
the Executive Committee, unless expressly provided otherwise by law or these
By-Laws, shall have and may exercise all the authority of the Board of
Directors, except that it shall not be entitled to
(i) change the principal office of the corporation;
(ii) amend or repeal these By-Laws or to adopt new by-laws;
(iii) elect officers required by law to be elected by the
stockholders or directors or to fill vacancies in any such offices;
(iv) change the number of the Board of Directors or to fill
vacancies in the Board of Directors;
(v) remove officers or directors from office;
(vi) fix the remuneration of any director for serving on the Board
of Directors or any Committee thereof or for services to the corporation
in any other capacity;
(vii) authorize the payment of any dividend or distribution to
stockholders;
(viii) authorize the reacquisition for value of stock of the
corporation; or
(ix) authorize a merger of a subsidiary entity into the
corporation.
The action taken by the Executive Committee at each meeting shall
be reported to the Board of Directors and shall be subject to alteration or
repeal by the latter, provided that no alteration or repeal by the Board of
Directors of action taken by the Executive Committee shall prejudice the rights
or acts of any third person.
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The Executive Committee shall hold meetings at such times and
places and upon such notice as it may from time to time determine. Other
meetings of the Executive Committee may be called at any time by the Chairman
of the Board or by the President or by any three members of the Executive
Committee or by the Secretary of the Board of Directors at the written request
of the person or persons entitled to call such a meeting.
SECTION 2. Audit Committee. There shall be an Audit Committee
composed of such number of directors (not less than three) as the Board of
Directors, by resolution passed by the vote of a majority of the entire Board
may appoint, none of whom shall be an employee of the corporation.
The duties of the Audit Committee shall be
(a) to recommend to the Board of Directors for approval by the
stockholders the appointment of a firm of independent public accountants
("the Auditors") to audit the accounts of the corporation and such of its
subsidiaries as the Committee may recommend for the financial year in
respect of which such appointment is made;
(b) to make, or cause to be made by the Auditors, such
examinations or audits of the affairs and operations of the corporation or
of any one or more of its subsidiaries, of such scope, with such objects,
and at such times or intervals as the Committee may determine in its
discretion or as may be ordered by the Board of Directors or the Executive
Committee;
(c) to submit to the Board of Directors as soon as may be
convenient following the conclusion of each examination or audit made by or
at the direction of the Committee, a written report relative thereto; and
(d) to oversee the activities of the General Auditor and his or
her staff. The Committee shall also be responsible for conducting periodic
performance evaluations and establishing the compensation of the General
Auditor.
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A notation with respect to each report made to the Board of
Directors by the Audit Committee and of the action taken thereon by the Board
of Directors shall be made in the minutes of the latter.
SECTION 3. Compensation and Nominating Committee. There shall be
a Compensation and Nominating Committee composed of such number of directors
(not less than three nor more than six) as the Board of Directors, by
resolution passed by vote of a majority of the entire Board, may appoint, none
of whom shall be an employee of the corporation. The Chairman of the Board and
the President shall serve as ex officio members of the Committee solely when it
is acting in its capacity as a nominating committee pursuant to subparagraphs
(e) and (f). The Chairman of the Board and the President shall not be deemed
to be members of the Committee when it is acting with respect to compensation
matters pursuant to subparagraphs (a) through (d).
No person who serves as a member of the Compensation and
Nominating Committee when it acts with respect to compensation matters shall be
eligible for an award of bonus under any bonus plan or incentive plan or
otherwise or for the grant of an option of contingent credit under any stock
option plan or stock bonus plan.
The duties of the Compensation and Nominating Committee shall be
(a) after considering the recommendations of the Chairman of the
Board, to make recommendations to the Board of Directors from time to time
as to the salaries of all employees of the corporation who are in positions
or at salary levels designated from time to time by the Board of Directors
on the recommendation of the Committee;
(b) to review the salary programs and other benefit plans or
arrangements affecting directors or employees of the corporation (except
any such program, plan or arrangement imposed upon the corporaton by law),
to discharge any other responsibility placed upon the
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Committee by any such benefit plans or arrangements or specifically
delegated by the Board of Directors to the Committee and from time to time
to present to the Board of Directors the views of the Committee with
respect to proposed changes in any such program, plan or other arrangement,
which shall have been brought to their attention by management;
(c) to make, or cause to be made, such special studies and reports
pertaining to the corporation's compensation policies and practices as may
be requested of the Committee from time to time by the Board of Directors;
(d) to execute as it sees fit from time to time the powers and to
discharge the duties vested in it from time to time by the terms of any
pension or other benefit plan or arrangement affecting directors or
employees of the corporation;
(e) to consider and recommend to the Board of Directors candidates
for appointment or election as directors who are proposed to it by the
Chairman of the Board, by any other officer of the corporation, or any
director or stockholder; and
(f) to perform such functions as may be assigned to it from time
to time by the Board of Directors.
SECTION 4. Community Investment Committee. The Board of
Directors may from time to time appoint a Community Investment Committee
composed of not less than three nor more than five directors.
The duties of the Committee shall be from time to time to review
and evaluate the policies established by the corporation's subsidiary banks
relating to the discharge by the subsidiary banks of their responsibilities
under the Community Reinvestment Act of 1977, as amended (Section 2901 et seq.
of Title 12 of the United States Code) and regulations thereunder, or any other
applicable Federal or state law or regulations thereunder relating to
substantially the same subject as the Community Reinvestment Act of 1977, as
amended, and oversee the
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implementation of such policies by the corporation's subsidiary banks and make
reports to the Board of Directors from time to time of its findings and
recommendations.
SECTION 5. Other Committees. The Board of Directors may, from
time to time, by resolution passed by the vote of a majority of the entire
Board, constitute such other standing or special committees as it deems
desirable and may dissolve any such committee by like resolution at its
pleasure. Each such committee shall have such authority and perform such
duties not inconsistent with law and these By-Laws as may be assigned to it by
the Board of Directors. Vacancies in any such committee shall be filled by
resolution passed by the vote of a majority of the entire Board. No such
committee shall be granted or shall exercise any authority which shall have
been delegated to another committee by these By-Laws or by resolution of the
Board of Directors or which, in the absence of such delegation, could not be
exercised by the Executive Committee.
SECTION 6. Changes in Committee Membership; Filling of Vacancies.
The Board of Directors by resolution passed by a vote of the majority of the
entire Board may at any time or from time to time
(a) increase or reduce the number of members of any committee,
within any applicable limits imposed by these By-Laws,
(b) remove any member from any committee,
(c) appoint a director to fill a vacancy in, or to be an
additional member of, any committee, and
(d) discharge any committee except a standing committee
established pursuant to this Article III.
SECTION 7. Records of Committee Action and Board of Directors'
Approval. Each committee appointed by the Board of Directors shall keep a
record of its acts and proceedings which shall be open for inspection at any
time by any director. Such record shall be submitted to the Board of Directors
at such time or times as may be required
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by these By-Laws or as may be requested by the Board of Directors. Failure to
submit such record, or failure of the Board of Directors to approve any action
indicated therein shall not invalidate any action otherwise lawful, to the
extent that it has been carried out by the corporation prior to the time the
record of such action was, or should have been, submitted to the Board of
Directors as herein provided. The action of the Board of Directors at any
meeting with respect to action taken by any standing committee shall be
recorded in the minutes of the meeting.
SECTION 8. Committee Proceedings. In the absence of specific
provisions in these By-Laws or regulations imposed by the Board of Directors, a
committee may meet and adjourn and otherwise regulate its meetings as it thinks
fit. A committee may appoint a chairman of its meetings if none has been
appointed by the Board of Directors or is designated elsewhere in this Article
III. If no such chairman has been appointed, or if at any meeting the chairman
is not present within five minutes after the time appointed for the holding of
the meeting, the members present may choose one of their number to be chairman
of the meeting. A quorum for the transaction of business at any meeting of a
committee shall be a majority of the fixed number of members thereof for the
time being (whether or not any seat is vacant) unless a different rule shall
have been adopted by a resolution passed by the vote of a majority of the Board
of Directors. A resolution passed by the vote of a majority of the members
present at the time of voting if a quorum is present shall be the act of the
committee. In the case of an equality of votes the Chairman shall have a
second or casting vote. A committee cannot sub-delegate any of its powers or
duties within its membership or to any other person or persons unless
authorized to do so by the Board of Directors or these By-Laws. Committee
members cannot vote by proxy.
SECTION 9. Action of Committees without a Meeting. Any action
required or permitted to be taken by a committee of the Board of Directors may
be taken without a meeting if all members of the committee consent thereto in
writing either before or after the action is taken and the writing or writings
evidencing such consent are filed with the
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minutes of proceedings of such committee. For all purposes of these By-Laws,
any such consent shall constitute a resolution duly passed by such committee.
SECTION 10. General Authority of Committees. Any committee
appointed by the Board of Directors pursuant to this Article III shall be at
liberty
(a) to meet and confer with employees of the corporation and its
subsidiaries on all matters relating to the work of the committee which
fall within the purview of such employees and to be informed by any of them
as to the policies, practices, and controls of the division or department
of the corporation or of the subsidiary of the corporation to which he or
she is assigned;
(b) to examine all reports which are relevant to the work of the
committee (i) made by the corporation or any of its subsidiaries to
regulatory authorities and (ii) of examinations of the corporation or any
of its subsidiaries made by regulatory authorities.
ARTICLE IV
OFFICERS
SECTION 1. Titles and Qualifications. The officers of the
corporation shall be a Chairman of the Board, a President, a Treasurer, a
Comptroller, a Clerk, a General Auditor, one or more Executive Vice Presidents
and such other officers including one or more Vice Chairmen as may be appointed
from time to time in accordance with these By-Laws. Except as otherwise
provided by law, the duties of any two officers may be discharged by the same
person, but the President shall not serve at the same time as Treasurer,
Comptroller, or Clerk. The Chairman of the Board and the President must be
directors.
SECTION 2. Appointment and Terms of Office. The Chairman of the
Board, the President, any Vice Chairman, any Vice President, the Treasurer, the
Comptroller, the
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Clerk and the General Auditor shall be chosen by a majority vote of the entire
Board at the first meeting of the Board of Directors following each annual
meeting of stockholders (or special meeting of stockholders in lieu of such
annual meeting) or by the Board of Directors from time to time and each shall
hold office until the following first meeting of the Board of Directors and
until his or her successor is chosen and qualifies, unless he or she sooner
resigns, retires, dies, is removed or becomes disqualified. Other officers may
be appointed from time to time by the Board of Directors, the Chairman of the
Board or the President. Each other officer shall have such title, exercise
such power and perform such duties and hold office for such term as shall be
determined by the Board of Directors, the Chairman of the Board or the
President, as the case may be.
SECTION 3. Duties; Fidelity Bond. The duties and authority of
each officer of the corporation, other than as set forth in these By-Laws,
shall be prescribed and may be varied from time to time by the Board of
Directors, the Chairman of the Board or the President, as the case may be. The
Board of Directors shall provide for such bond and fidelity insurance covering
the officers of the corporation and for the faithful and honest discharge of
their duties as the Board may determine. Such bonds or insurance may be in
individual, schedule or blanket form and the premiums therefor shall be paid by
the corporation.
SECTION 4. The Chairman of the Board. The Chairman of the Board
shall be the Chief Executive Officer of the corporation and shall have the
general control and management of the business and affairs of the corporation.
When present, he or she shall preside at all meetings of the Board of Directors
and of stockholders. He or she shall have such powers and duties as usually
are incident to the Office of Chief Executive Officer and shall perform such
other duties as may be imposed on him or her by law, the Articles of
Organization and these By-Laws, or as may be assigned to him or her by the
Board of Directors. The Chairman of the Board shall be a member of the
Executive Committee. A vacancy occurring in the office of the Chairman of the
Board shall be filled promptly by the Board of Directors.
<PAGE> 29
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SECTION 5. The President. The President shall be the Chief
Operating Officer of the corporation and shall have the general control and
management of the operations of the corporation. In the absence of the
Chairman of the Board, the President shall preside at all meetings of the Board
of Directors and the stockholders. The President shall be subject to the
direction of the Board of Directors and of the Chairman of the Board under
whose direct supervision he or she shall be. The President shall perform such
duties as may be imposed on him or her by law, the Articles of Organization and
these By-Laws or as may be assigned to him or her by the Board of Directors or
the Chairman of the Board. He or she shall have such powers and duties as are
usually incident to the Office of President and Chief Operating Officer. The
President shall be a member of the Executive Committee. A vacancy occurring in
the office of the President shall be filled promptly by the Board of Directors.
SECTION 6. The Vice Chairmen. Each Vice Chairman shall perform
the duties imposed upon him or her by these By-Laws or assigned to him or her
by the Board of Directors, the Chairman of the Board or the President. The
Vice Chairmen shall be senior in rank to the Executive Vice Presidents and all
other Vice Presidents including Senior Vice Presidents. A vacancy occurring in
an office of a Vice Chairman may be filled by the Board of Directors.
SECTION 7. The Treasurer. The Treasurer shall have custody and
control over all funds and securities of the corporation, maintain full and
adequate accounts of all moneys received and paid by him or her on account of
the corporation and, subject to the control of the Board of Directors shall
discharge all duties incident to the office of Treasurer. The Treasurer shall
have authority, in connection with the normal business of the corporation, to
sign or endorse negotiable instruments, contracts, leases and other documents.
The Treasurer shall render an account of his or her transactions to the Board
of Directors whenever and as often as may be requested. A vacancy in the
office of Treasurer shall be filled promptly by the Board of Directors.
<PAGE> 30
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SECTION 8. The Comptroller. The Comptroller shall be the chief
accounting officer of the corporation. He or she shall establish accounting
policy for the corporation, maintain complete and accurate books and records
concerning its financial transactions, prepare its financial statements and,
subject to the control of the Board of Directors, discharge all duties incident
to the office of the Comptroller. The Comptroller shall have authority, in
connection with the normal business of the corporation, to sign or endorse
negotiable instruments, contracts, leases and other documents. A vacancy in
the office of Comptroller shall be filed promptly by the Board of Directors.
SECTION 9. The Clerk and the Secretary of the Board of Directors.
The Clerk shall be the principal recording officer of the corporation. He or
she shall be the Secretary of the Board of Directors and of the Executive
Committee and of the Audit Committee. He or she shall attend and keep minutes
of all proceedings at meetings of the stockholders, the Board of Directors, the
Executive Committee and of each committee appointed by the Board of Directors
which shall not have appointed any other person to serve as its secretary. The
Clerk shall have charge of the corporate seal, minute books of the corporation
and of such other corporate records, books and papers as the Board of Directors
or the Executive Committee may order to be kept in his or her custody or under
his or her control. The Clerk shall have authority to affix the seal of the
corporation to all instruments executed under seal and to attest thereto. As
required by law, these By-Laws or the Board of Directors, the Clerk shall give
or cause to be given notice to the stockholders of each annual and special
meeting and to the directors of each regular and special meeting of the Board
of Directors except the first meeting after their election in each year; and
the Clerk shall perform such other duties as may be imposed upon him or her by
law, these By-Laws, the Board of Directors, the Audit Committee or the Chairman
of the Board, under whose direct supervision he or she shall be. The Clerk
shall be a resident of the Commonwealth of Massachusetts unless a resident
agent has been appointed by the corporation pursuant to law to accept service
of process. A vacancy in
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the office of Clerk shall be filled promptly by the Board of Directors.
SECTION 10. The General Auditor. The General Auditor shall
direct the internal audit activities of the corporation and shall provide the
Audit Committee with objective and timely information to aid in measuring and
evaluating the operations of the corporation. In the conduct of this
responsibility, the General Auditor shall perform such duties as may be imposed
upon him or her by these By-Laws, the Board of Directors and the Audit
Committee. To assure the professional independence of the General Auditor, he
or she shall report directly and solely to the Audit Committee. For purposes
of internal administration, the General Auditor shall report to a senior
officer of the corporation other than the Chairman of the Board or the
President. A vacancy occurring in the office of the General Auditor shall be
filled promptly by the Board of Directors.
SECTION 11. The Vice Presidents. Each Vice President shall
perform the duties imposed upon him or her by these By- Laws or assigned to him
or her by the Board of Directors, the Chairman of the Board or the President.
The Executive Vice President shall be senior in rank to all other Vice
Presidents including Senior Vice Presidents. A vacancy occurring in an office
of a Vice President may be filled by the Board of Directors.
SECTION 12. The Assistant Treasurers and Assistant Clerks. Each
Assistant Treasurer shall perform such duties as may be assigned to him or her
by the Board of Directors, the Chairman of the Board, the President or the
Treasurer. Each Assistant Clerk shall perform such duties as may be assigned
to him or her by the Board of Directors, the Chairman of the Board, the
President or the Clerk, and shall have the authority to affix the seal of the
corporation to all instruments executed under seal and to attest thereto.
SECTION 13. Resignation. Any officer may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Clerk. The resignation of any officer shall take effect upon its receipt or on
any later
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date specified therein; and unless otherwise specified therein, the acceptance
of such resignation shall not be required to make it effective.
SECTION 14. Vacancies. Except for those offices to be filled by
the Board of Directors, the Chairman of the Board or the President may fill any
vacancy occurring in any office by reason of death, resignation, retirement or
other cause and may, in its discretion, leave offices unfilled for such period
as it may determine.
SECTION 15. Compensation of Officers, Employees and Other Agents.
The Board of Directors shall have power to fix, and to vary from time to time,
the compensation of all officers, employees and other agents of the corporation
for their services as such.
SECTION 16. Designated Officer. The term designated officer of
the corporation, whenever it appears in a resolution or vote of the Board of
Directors of the corporation shall refer to any one of the Chairman of the
Board, the President, any Vice Chairman, the Treasurer, an Assistant Treasurer,
the Comptroller, any Vice President of whatever rank, the Clerk, an Assistant
Clerk, the Secretary of the Board of Directors, the Executive Counsel, the
General Counsel and the General Auditor unless the resolution or vote of the
Board of Directors otherwise provides.
ARTICLE V
STOCK
SECTION 1. Stock Certificates. Each stockholder shall be
entitled to a certificate or certificates of stock of the corporation in such
form as the Board of Directors may from time to time prescribe. Each
certificate shall be numbered and entered in the books of the corporation as it
is issued, shall state the holder's name and the number and the class and the
designation of the series, if any, of his or her shares, shall be signed by the
Chairman, the President or a Vice President and by the Treasurer or an
Assistant Treasurer and may, but need not, be sealed with
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the seal of the corporation. If any stock certificate is signed by a transfer
agent, or by a registrar, other than a director, officer or employee of the
corporation, the signatures of the officers of the corporation may be
facsimiles. In case any officer who has signed or whose facsimile signature
has been placed on any certificate shall have ceased to be such officer before
such certificate is issued, it may nevertheless be issued by the corporation
and delivered with the same effect as if he or she were such officer at the
time of issue. Every certificate of stock which is subject to any restriction
on transfer pursuant to the Articles of Organization, these By-Laws or any
agreement to which the corporation is a party, or which is issued while the
corporation is authorized to issue more than one class or series of stock,
shall have the restriction noted conspicuously on the certificate and shall
also set forth on the face or back the full text of the restriction or the
preferences, voting powers, qualifications and special or relative rights of
each class or series or, alternatively, a statement of the existence of such
restriction and such preferences, powers, qualifications and rights and a
statement that the corporation will furnish a copy of the restriction and such
preferences, powers, qualifications and rights to the holder of such
certificate upon written request and without charge.
SECTION 2. Transfer of Stock. Subject to any applicable transfer
restrictions at the time in force, shares of stock of the corporation shall be
transferable upon its books by the holders thereof in person or by their duly
authorized attorneys or legal representatives. Such transfer shall be effected
by delivery of the old certificate, together with a duly executed assignment
and power to transfer endorsed thereon or attached thereto and with such proof
of the authenticity of the signature and such proof of authority to make the
transfer as the corporation or its agents may reasonably require, to the person
in charge of the stock and transfer books and ledgers or to such other person
as the Board of Directors may designate, who shall thereupon cancel the old
certificate and issue a new certificate. The corporation may treat the holder
of record of any share or shares of stock as the owner of such stock, and shall
not be bound to
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recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, or otherwise, save as expressly provided by law.
SECTION 3. Transfer Agent and Registrar; Regulations. The
corporation shall, if and whenever the Board of Directors shall so determine,
maintain one or more transfer offices or agencies, each in charge of a transfer
agent designated by the Board of Directors at which the shares of the capital
stock of the corporation shall be transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares
of the capital stock of the corporation in respect of which a registrar and
transfer agent shall have been designated, shall be valid unless countersigned
by such transfer agent and registered by such registrar. The Board of
Directors may also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the corporation.
SECTION 4. Lost, Mutilated or Destroyed Certificates. No
certificate for shares of stock of the corporation shall be issued in place of
any certificate alleged to have been lost, mutilated or destroyed, except upon
production of such evidence of the loss, mutilation or destruction and upon
indemnification of the corporation and its agents to such extent and in such
manner as the Board of Directors may prescribe and as permitted by law.
SECTION 5. Record Date for Determination of Stockholders' Rights;
Close of Transfer Books. The Board of Directors may fix in advance a date, not
exceeding 60 days preceding the date of any meeting of stockholders, or the
date fixed for the payment of any dividend, or the making of any other
distribution to stockholders, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or the last day on which the consent or dissent of stockholders may be
effectively expressed for any purpose, as the record date for the determination
of the stockholders entitled to notice of, and to vote at, any
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such meeting and any adjournment thereof, or entitled to receive payment of any
such dividend or distribution, or receive any such allotment of rights, or as
the last day on which stockholders may effectively exercise rights in respect
of any such change or conversion or exchange of capital stock, or as the last
day on which they may effectively express such consent or dissent, and in such
case only stockholders of record on the date so fixed shall be so entitled,
notwithstanding any transfer of stock on the books of the corporation after the
date fixed as aforesaid. In lieu of fixing such a record date or last day, the
Board of Directors may close the transfer books for all or any part of such
period.
If no record date is fixed and the transfer books are not closed:
(i) The record date for determining stockholders having the right
to notice of or to vote at a meeting of stockholders shall be at the close
of business on the date next preceeding the day on which notice is given.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors acts with respect thereto.
SECTION 6. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Organization, may be
declared by the Board of Directors at any regular or special meeting, payable
in cash, in property, or in shares of the capital stock, subject to the
limitations, if any, imposed by law or the Articles of Organization. Before
payment of any dividends, there may be set aside out of any funds of the
corporation available for dividends, such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the corporation, or for such other purpose as
the Board of Directors shall think conducive to the interests of the
corporation, and
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the Board of Directors may modify or abolish any such reserve.
SECTION 7. Control Share Acquisitions. Until such time as this
Section 7 shall be repealed or these By-Laws shall be amended to provide
otherwise, in each case in accordance with Article VII of these By-Laws, the
provisions of Chapter 110D of the Massachusetts General Laws shall not apply to
"control share acquisitions" of the corporation within the meaning of said
Chapter 110D.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Offices. The principal office of the corporation
shall be in the City of Boston, County of Suffolk, Commonwealth of
Massachusetts. The corporation may also have offices at such other place or
places within or without the Commonwealth of Massachusetts as the Board of
Directors may from time to time determine.
SECTION 2. Seal. The seal of the corporation shall be in the
following form:
(Image omitted is a circle with the words "Bank of Boston Corporation" inside
the outer edge, the date "1970" in the center and the word "Massachusetts"
below the date)
When authorized by the Board of Directors and to the extent permitted by law
and these By-Laws, a facsimile of the corporate seal may be affixed or
reproduced.
SECTION 3. Fiscal Year. The fiscal year of the corporation shall
be coincident with the calendar year unless another fiscal year shall have been
fixed by the Board of Directors.
SECTION 4. Annual Reports. The Chairman of the Board or the
President shall make and present to the annual meeting of stockholders a report
showing the aggregate amounts of assets and liabilities of the corporation as
of the end of the last preceding fiscal year. A copy of such report shall be
mailed to each stockholder of the
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corporation. Such report may also contain such other information and may be in
such detail as either the Chairman of the Board or the President may determine
in his or her absolute discretion.
SECTION 5. Execution of Instruments. All contracts, conveyances,
promises or orders for the payment of money or other obligations authorized by
the Board of Directors to be executed or endorsed by an officer of the
corporation in its behalf shall be executed or endorsed by the Chairman of the
Board, the President, any Vice Chairman, any Vice President, the Treasurer and
the Clerk, except as the Board of Directors may generally or in particular
cases otherwise determine and except that checks drawn on any dividend and
special accounts may bear the facsimile signature, affixed thereto by a
mechanical device, of such officer or agent as the Board of Directors shall
authorize, and except also that bonds, notes, debentures or other evidences of
indebtedness authenticated by a manual signature on behalf of a trustee or an
authenticating agent appointed by the Board of Directors may bear such
facsimile signature or signatures of such officer or officers of the
corporation as the Board of Directors shall authorize.
SECTION 6. Voting of Securities. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the President, each Vice
Chairman, the Treasurer, each Executive Vice President, each Senior Vice
President, each Vice President and the Clerk, each acting alone, shall have
authority on behalf of the corporation (a) to attend and act and vote in person
for the corporation and as its duly appointed agent and attorney-in-fact at any
meeting of the holders of securities or creditors of any person (as hereinafter
defined) any securities of whom are owned or held with power to vote by the
corporation or any indebtedness of whom is owed to the corporation, (b) to
appoint, by an instrument in writing, a proxy or several proxies to attend and
act and vote for the corporation at any such meeting and (c) to execute and
deliver in the name and on behalf of the corporation any consent or waiver by
the corporation as a security holder or creditor of any such person. As used
in this Section, the word "person" includes a natural person, a corporation, a
company, a partnership, a voluntary association, a proprietorship, a
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trust, an estate, a government (national, state, regional or local) or a
department or agency thereof, and any other form of legal entity however
designated and wherever formed or existing. Each officer named in this Section
and each person designated by any such officer as a proxy for this corporation
shall have and may exercise at any such meeting any and all rights and powers
incident to the ownership of such securities or indebtedness which an owner
would have if personally present.
SECTION 7. Powers of Attorney. The Chairman of the Board, the
President, each Vice Chairman, or any Executive Vice President may from time to
time and at any time by power of attorney appoint any person (as defined in
Section 6 of this Article VI) or persons to be the attorney or attorneys of the
corporation for such purposes and with such powers, authorities and discretions
(not exceeding those vested in or exercisable by the Board of Directors) and
for such period and subject to such conditions as the officer making such
appointment may think fit, and any such power of attorney may contain such
provisions for the protection and convenience of persons dealing with such
attorney or attorneys as the officer making such appointment may think it and
may also authorize any such attorney to appoint a substitute or substitutes and
to delegate all or any of the powers, authorities and discretions vested in any
such attorney or attorneys, except such power of substitution (without
prejudice to the power of such attorney or attorneys to exercise concurrently
any of the powers delegated and to revoke or vary any such appointment). The
Chairman of the Board, the President, each Vice Chairman, or any Executive Vice
President may at any time revoke any power of attorney executed by any of those
officers currently or formerly in office, provided that no such revocation
shall invalidate any act performed by the attorney or attorneys (or any
substitute or substitutes appointed thereunder) in the exercise of the powers
conferred thereby between the revocation thereof and the time such revocation
becomes known to the attorney or attorneys, or to any such substitute or
substitutes, and any such power of attorney shall at all times be conclusively
binding on the corporation and its successors in favor of third parties who
have not received notice of the revocation thereof.
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SECTION 8. Issue of Debt Securities and Other Obligations. The
Board of Directors shall have the power to authorize and cause to be executed
and issued bonds, notes, debentures, warrants, guaranties or other obligations
of the corporation, secured or not secured, upon such terms, in such manner and
upon such conditions as may be fixed or approved by vote of the Board of
Directors or of the Executive Committee prior to the issue thereof.
SECTION 9. Corporate Records. The original, or attested copies,
of the Articles or Organization, By-Laws and records of all meetings of
incorporators and stockholders, and stock and transfer records, which shall
contain the names of all stockholders and the record address and the amount of
stock held by each, shall be kept in the Commonwealth of Massachusetts at the
principal office of the corporation, or at an office of its Clerk, its resident
agent or its transfer agent. Such copies and records need not all be kept in
the same office. They shall be available at all reasonable times for
inspection by any stockholder for any proper purpose. They shall not be
available for inspection to secure a list of stockholders or other information
for the purpose of selling such list or information or copies thereof or of
using the same for a purpose other than in the interest of the applicant, as a
stockholder, relative to the affairs of the corporation.
SECTION 10. Indemnification of Directors, Officers and Others.
(a) The corporation shall, to the extent legally permissible, indemnify each of
the directors and officers of the corporation against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees, reasonably incurred by such director
or officer in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such director or officer
may be involved or with which such director or officer may be threatened, while
in office or thereafter, by reason of such director or officer being or having
been such a director or officer of the corporation or by reason of such
director or officer serving or having served at the request of the corporation
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as a director, officer or trustee of a wholly owned subsidiary of the
corporation or having served in any capacity with respect to any employee
benefit plan maintained by the corporation or any wholly owned subsidiary of
the corporation, except with respect to any matter as to which such director or
officer shall have been adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his or her action was in the best interest
of the corporation or of such subsidiary or, to the extent that such matter
relates to service with respect to any such employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan;
provided, however, that as to any matter disposed of by a compromise payment by
such director or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be ordered by a court or unless such
compromise shall be approved as in the best interest of the corporation, after
notice that it involves such indemnification: (i) by a disinterested majority
of the directors of the corporation then in office; or (ii) by a majority of
the disinterested directors of the corporation then in office, provided that
there has been obtained an opinion in writing of independent legal counsel to
the effect that such director or officer appears to have acted in good faith in
the reasonable belief that his or her action was in the best interest of the
corporation; or (iii) by the holders of a majority of the outstanding stock at
the time entitled to vote for directors, voting as a single class, exclusive of
any stock owned by any interested director or officer. Expenses, including
counsel fees, reasonably incurred by any director or officer of the corporation
in connection with the defense or disposition of any such action, suit or other
proceeding shall be paid from time to time by the corporation in advance of the
final disposition thereof upon receipt of an undertaking by such director or
officer to repay the amounts so paid to the corporation if it is ultimately
determined that indemnification for such expenses is not authorized under this
paragraph (a). If in an action, suit or proceeding brought by or in the right
of the corporation, a director of the corporation is held not liable for
monetary damages, whether because that director
<PAGE> 41
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is relieved of personal liability under the provisions of Article 6 of the
Articles of Organization of the corporation or otherwise, that director shall
be deemed to have met the standard of conduct set forth above and to be
entitled to indemnification for expenses reasonably incurred in the defense of
such action, suit or proceeding.
(b) The corporation may indemnify each person who serves at the
request of the corporation as a director, officer or trustee of any wholly
owned subsidiary of the corporation or in any capacity with respect to any
employee benefit plan maintained by the corporation or any such subsidiary
against all liabilities and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and counsel fees,
reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which such person may be involved or with which such person may be
threatened, while in office or thereafter, by reason of such person being or
having been a director, officer or trustee of such subsidiary or having acted
in any such capacity with respect to any such employee benefit plan, except
with respect to any matter as to which such person shall have been adjudicated
in any proceeding not to have acted in good faith in the reasonable belief that
his or her action was in the best interest of the corporation or of such
subsidiary or, to the extent that such matter relates to service with respect
to any such employee benefit plan, in the best interest of the participants or
beneficiaries of such employee benefit plan. Expenses, including counsel fees,
reasonably incurred by any such person in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the corporation in advance of the final disposition thereof upon
receipt of an undertaking by such person to repay the amounts so paid to the
corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this Section. Except as hereinafter provided
in this paragraph (b), indemnification under this paragraph (b) shall be made
by the corporation only as authorized by the Board of Directors of the
corporation in each specific case.
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To the extent that any person who serves at the request of the
corporation as a director, officer of trustee of any wholly owned subsidiary of
the corporation or in any capacity with respect to any employee benefit plan
maintained by the corporation or any such subsidiary has been wholly successful
in the defense of any action, suit or proceeding referred to above in this
paragraph (b) or of any claim or issue therein, such person shall, without
further authorization of the Board of Directors of the corporation, be
indemnified by the corporation as hereinabove provided upon presentation to the
Board of Directors of the corporation of a claim for indemnification and
evidence reasonably satisfactory to the Board of Directors of the corporation
of such wholly successful defense. As used in this paragraph (b) the term
"wholly successful" means that the action, suit or proceeding or the claim or
issue has been finally terminated without a finding of liability or guilt
against the person seeking indemnification and the time for taking an appeal or
other court or administrative action therein has expired or, in the case of a
threatened proceeding, a reasonable period of time, determined by independent
legal counsel selected by the Board of Directors of the corporation, has
elapsed since the threat was made without the proceeding having been instituted
and, in either case, without any payment or promise having been made to induce
a settlement or compromise.
(c) As used in this Section, the terms "director", "officer" and
"trustee" include the relevant individual's heirs, executors and
administrators, an "interested" director or officer is one against whom in such
capacity the proceedings in question or another proceeding on the same or
similar grounds is then pending, and a "wholly owned subsidiary" means any
corporation, business trust, partnership or other business entity of which the
corporation owns directly or through one or more wholly owned subsidiaries all
of the outstanding capital stock or other shares of beneficial interest (other
than directors' qualifying shares) entitled to vote generally. All directors,
officers and trustees of wholly owned subsidiaries of the corporation and
persons who serve in any capacity with respect to any employee benefit plan
maintained by any such subsidiary shall be deemed to serve
<PAGE> 43
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or to have served in such capacity at the request of the corporation. The
indemnification by the corporation provided for in his Section l0 shall not be
exclusive of or affect any other rights to which any director, officer, trustee
or pension plan fiduciary or other person may be entitled. Nothing contained
in this Section shall either limit the power of the corporation to indemnify
corporate personnel other than directors and officers or affect any rights to
indemnification by the corporation to which corporate personnel other than
directors and officers of the corporation and persons who serve at the request
of the corporation as directors, officers or trustees of wholly owned
subsidiaries of the corporation or in any capacity with respect to any employee
benefit plan maintained by any such subsidiary may be entitled by contract or
otherwise under law.
ARTICLE VII
AMENDMENTS
SECTION 1. General. These By-Laws may be amended, added to or
repealed in whole or in part (a) by vote of the stockholders at a meeting where
the substance of the proposed amendment is stated in the notice of the meeting,
or (b) by vote of a majority of the entire Board, except that no amendment may
be made by the Board of Directors on matters reserved to the stockholders by
law or the Articles of Organization or which changes the provisions of these
By-Laws relating to the removal of directors or to the requirements for
amendment of these By-Laws. Notice of any amendment, addition or repeal of any
By-Law by the directors stating the substance of such action shall be given to
all stockholders entitled to vote on amending the By-Laws not later than the
time when notice is given of the meeting of stockholders next following such
action by the Board of Directors. Any By-Law adopted by the directors may be
amended or repealed by the stockholders.
ARTICLE VIII
EMERGENCY BY-LAWS
SECTION 1. Effective Period. The emergency By-Laws set forth in
this Article VIII shall be effective only during the continuance of a national
emergency proclaimed
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by the President of the United States of America or by other governmental
authority following an attack on the United States of America or another
catastrophic event as a result of which a regular quorum of the Board of
Directors or of the Executive Committee cannot readily be convened. During any
such emergency, the provisions of this Article VIII shall supersede any
different provisions contained in the preceding Articles of these By-Laws.
SECTION 2. Meetings of the Board of Directors. During any such
emergency, a meeting of the Board of Directors may be called by any director or
officer who deems it necessary. The meeting shall be held at such time or
place as the person calling the meeting may specify in giving notice thereof.
Such notice may be given in writing or orally and by such means of
communication (including announcement by radio) as in the judgment of the
person giving the same are then feasible to reach as many of the directors as
it is reasonably possible to reach under the prevailing circumstances. Two
directors shall constitute a quorum for the transaction of business at any such
meeting.
SECTION 3. Emergency Location of Head Office. With effect during
any such emergency, the Board of Directors may change the location of the Head
Office of the corporation or designate one or more alternative locations or
authorize one or more officers to do so.
SECTION 4. Preservation of Continuity of Management. In order to
preserve continuity of management of the corporation during any such emergency,
the Board of Directors may provide and from time to time change lines of
succession in management in the event that during such emergency any or all of
the officers shall die or be missing or for any reason be rendered incapable
of discharging his or her or their respective duties.
SECTION 5. Immunity. No director, officer or employee of the
corporation acting in accordance with these emergency By-Laws shall be liable
for any act or omission except willful misconduct.
SECTION 6. Amendment of Emergency By-Laws. The provisions of
this Article VIII can be amended or repealed
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during any emergency by resolution of the directors or the shareholders but no
such amendment or repeal shall prejudice any rights or immunities acquired by
any director, officer or employee under Section 5 of this Article VIII in
respect of action taken or omitted by him or her prior to such amendment or
repeal. Any such amendment may make such further or different provisions as
may be deemed to be practical and necessary to deal with the circumstances of
the emergency.
<PAGE> 1
EXHIBIT 10(c)
Amendment To The Bank of Boston
and Its Subsidiaries Performance
Recognition Opportunity Plan
The Bank of Boston and Its Subsidiaries Performance Recognition Opportunity
Plan is hereby amended effective January 27, 1994 as follows:
1) Section 6.3.2 of the Plan is hereby amended in its entirety as follows:
"6.3.2 Approval of Awards. After all the steps contemplated in 6.3.1
have been completed, the Office of the Chairman shall approve the schedule of
Eligible Employees receiving awards and the amount of awards for each, except
that (i) the Committee shall approve the amount of the awards, if any, for
those senior executives of the Participating Subsidiaries so designated by it
from time to time, and (ii) the Committee shall recommend to the Board of
Directors for approval the amount of the awards, if any, for each of the
Chairman of the Board of Directors, the President and any Vice Chairman of the
Board of Directors or such other officer or officers as the Committee may
recommend and that the Board does so approve. Awards may be approved by the
Office of the Chairman, the Committee and the Board of Directors for up to as
many as all or as few as none of the persons listed on the schedule of Eligible
Employees and awards shall be in such amounts as the Office of the Chairman,
the Committee and the Board of Directors, respectively, approves."
2) Any and all references in the Plan to "Office of the CEO" shall be
changed to Office of the Chairman.
<PAGE> 1
EXHIBIT 10(h)
BANK OF BOSTON CORPORATION
1991 Long-Term Stock Incentive Plan
(As amended through January 27, 1994)
1. Purpose.
The Bank of Boston Corporation 1991 Long-Term Stock Incentive Plan
(the "Plan") has been adopted to encourage and create significant ownership of
the Common Stock of the Corporation by key officers and employees of the
Corporation and its Affiliates. Additional purposes of the Plan include
providing a meaningful incentive to Participants to make substantial
contributions to the Corporation's future success, enhancing the Corporation's
ability to attract and retain persons who will make such contributions, and
ensuring that the Corporation has competitive compensation opportunities for
such key officers and employees.
By meeting these objectives, the Plan is intended to benefit the
interests of the stockholders of the Corporation.
2. Definitions.
As used herein, the following words or terms have the meanings set
forth below. The masculine gender is used throughout the Plan but is intended
to apply to members of both sexes.
2.1. "Affiliate" means any business entity that is directly or
indirectly controlled by the Corporation or any
<PAGE> 2
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entity in which the Corporation has a significant equity interest, as
determined by the Committee or the Board of Directors.
2.2. "Award" means any Option, Stock Appreciation Right or Restricted
Stock granted under the Plan.
2.3. "Board of Directors" means the Board of Directors of the
Corporation, except that, whenever action is to be taken under the Plan with
respect to a Reporting Person, "Board of Directors" shall mean only such
directors who are disinterested persons within the meaning of Rule 16b-3 under
the Exchange Act or any successor rule.
2.4. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
2.5. "Committee" means the Compensation and Nominating Committee of
the Board of Directors. "Committee," whenever action is to be taken under the
Plan with respect to a Reporting Person, shall mean only such members who are
disinterested persons within the meaning of Rule 16b-3 under the Exchange Act
or any successor rule. To the extent that the Committee delegates its power to
make Awards as permitted by Section 4.1, all references in the Plan to the
Committee's authority to make Awards and determinations with respect thereto
shall be deemed to include the Committee's delegate or delegates.
2.6. "Common Stock" or "Stock" means the Common Stock of the
Corporation.
<PAGE> 3
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2.7. "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.8. "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
2.9. "Disability" means a physical or mental condition of such a
nature that it would qualify a Participant for benefits under the long-term
disability insurance plan of The First National Bank of Boston or any successor
plan.
2.10. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
2.11. "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the last
preceding day on which such prices of Common Stock are so quoted. In the event
"NYSE-Composite Transactions" cease to be reported, the Committee shall adopt
some other appropriate method for determining Fair Market Value.
2.12. "Incentive Stock Option" means an Option which is intended to
satisfy the requirements of Section 422(b) of
<PAGE> 4
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the Code or any successor provision.
2.13. "Nonstatutory Stock Option" means an Option which is not
intended to qualify as an Incentive Stock Option.
2.14. "Option" means an Incentive Stock Option or a Nonstatutory
Stock Option.
2.15. "Participant" means an individual selected by the Committee or
the Board of Directors to receive an Award under the Plan.
2.16. "Reporting Person" means a person required to file reports under
Section 16(a) of the Exchange Act or any successor statute.
2.17. "Restricted Stock" means shares of Common Stock awarded to a
Participant, subject to such forfeiture provisions or restrictions on transfer,
if any, as may be established by the Committee or the Board of Directors.
2.18. "Retirement" means termination of employment with the Corporation
or any Affiliate if such termination of employment constitutes normal
retirement, early retirement, disability retirement or other retirement as
provided for at the time of such termination of employment under the applicable
retirement program then maintained by the Corporation or the Affiliate,
provided that the Participant does not continue in the employment of the
Corporation or any Affiliate and provided further that such termination does
not constitute a Termination for Cause.
2.19. "Stock Appreciation Right" or "SAR" means a right to receive the
excess, if any, of the Fair Market Value of a
<PAGE> 5
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share of Common Stock on the date the Stock Appreciation Right is exercised
over the grant price of the SAR.
2.20. "Termination for Cause" means the termination of a Participant's
employment due to any act which, in the discretion of the Committee or the
Board of Directors, as the case may be, is deemed inimical to the best
interests of the Corporation or any Affiliate, including, but not limited to:
(i) willful and gross misconduct in respect of the Participant's duties for the
Corporation or the Affiliate, (ii) conviction of a felony or perpetration of a
common law fraud, (iii) willful failure to comply with applicable laws or
regulations with respect to the execution of the Corporation's or the
Affiliate's businesses or (iv) theft, fraud, embezzlement, dishonesty or other
conduct which has resulted or is likely to result in material economic or other
damage to the Corporation or any Affiliate.
3. Effective Date and Term.
The Plan shall become effective upon its approval by the Corporation's
stockholders, and Awards may be granted under the Plan from and after the date
of such approval. No Awards may be made under the Plan after December 31,
1996, but Awards theretofore granted may extend beyond that date.
4. Administration.
4.1. The Plan shall be administered by the Committee. Subject to the
provisions set forth herein, the Committee shall have full authority to
determine the provisions of Awards, to interpret the terms of the Plan and of
Awards
<PAGE> 6
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made under the Plan, to adopt, amend and rescind rules and guidelines for the
administration of the Plan and for its own acts and proceedings and to decide
all questions and settle all controversies and disputes which may arise in
connection with the Plan. To the extent permitted by applicable law, the
Committee may delegate to one or more executive officers who are also directors
of the Corporation the power to make Awards to Participants who are not
Reporting Persons at the time of such Awards and all determinations under the
Plan with respect thereto, provided that the Committee shall fix the maximum
amount of Awards for such Participants as a group.
4.2. Notwithstanding Section 4.1 and subject to the provisions set
forth herein, the Board of Directors shall have full authority to determine the
provisions of Awards made under the Plan to (i) the Chairman of the Board of
Directors, President and any Vice Chairman of the Board of the Board of
Directors and (ii) any other officer or officers that the Board of Directors,
upon recommendation of the Committee, shall designate.
4.3. The decision of the Committee or the Board of Directors on any
matter as to which the Committee or the Board of Directors is given authority
under Sections 4.1 and 4.2 above shall be final and binding on all persons
concerned.
<PAGE> 7
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5. Shares Subject to the Plan.
5.1. The maximum number of shares of Common Stock that will be
available for issuance under the Plan shall be 7,447,749, subject to adjustment
in accordance with the provisions of Section 5.3. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.
5.2. If any Award in respect of shares of Common Stock expires or is
terminated unexercised or is forfeited for any reason or settled in a manner
that results in fewer shares outstanding than were initially awarded, including
without limitation the surrender of shares as full or partial payment for the
Award or any tax obligation thereon, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall remain available for issuance under the Plan.
5.3. In the event of a stock dividend, stock split or other change in
corporate structure or capitalization affecting the Common Stock or any other
transaction (including, without limitation, an extraordinary cash dividend)
which, in the determination of the Committee or the Board of Directors, affects
the Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under the Plan,
then the Committee or the Board of Directors shall equitably adjust any or all
of (i) the number and kind of
<PAGE> 8
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shares in respect of which Awards may be made under the Plan, (ii) the number
and kind of shares subject to outstanding Awards, and (iii) the Option or grant
price with respect to any of the foregoing, provided that the number of shares
subject to any Award shall always be a whole number. In the event of any
merger, consolidation, dissolution or liquidation of the Corporation, the
Committee or the Board of Directors, in its sole discretion, may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate
number of shares reserved for issuance under the Plan and in the number and
purchase price (if any) of shares subject to such Awards as it may determine,
make outstanding Awards fully exercisable, or amend or terminate such Awards
upon such terms and conditions as it shall provide (which, in the case of the
termination of the vested portion of any Award, shall require payment or other
consideration which the Committee or the Board of Directors deems equitable in
the circumstances).
6. Eligibility for Awards.
Any officer or employee of the Corporation or its Affiliates who, in
the opinion of the Committee or the Board of Directors, is in a position to
have a significant effect upon the Corporation's business and consolidated
earnings, shall be eligible to receive an Award under the Plan.
7. Grant of Awards.
7.1. From time to time while the Plan is in effect, the Committee or
the Board of Directors pursuant to Section 4.2,
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may, in the absolute discretion of each, select from among the persons eligible
to receive Awards (including persons to whom Awards were previously granted)
those persons to whom Awards are to be granted.
7.2. The Committee or the Board of Directors, as the case may be,
shall, in the absolute discretion of each, determine the number of shares of
Common Stock or SARs to be subject to each Award made by it under the Plan.
8. Options.
8.1. Incentive Stock Options or Nonstatutory Stock Options. Options
granted under the Plan may be either Incentive Stock Options or Nonstatutory
Stock Options, as the Committee or the Board of Directors, as the case may be,
shall determine at the time of each grant of Options hereunder. The terms and
conditions of Incentive Stock Options shall be subject to and comply with
Section 422(b) of the Code or any successor provision, and any regulations
thereunder.
8.2. Option Price. The Option price per share of Common Stock, with
respect to each Option, shall not be less than the Fair Market Value per share
at the time the Option is granted.
8.3. Period of Options. An Option shall be exercisable during such
period of time as the Committee or the Board of Directors may specify, subject,
in the case of Incentive Stock Options, to any limitation required by the Code.
It is contemplated that the Committee or the Board of Directors
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will normally provide that an Option shall not be exercisable after the
expiration of ten years from the date the Option is granted.
8.4. Exercise of Options. Each Option shall be made exercisable at
such time or times as the Committee or the Board of Directors shall determine.
It is contemplated that the Committee or the Board of Directors will normally
provide that the right to exercise an Option will accrue immediately with
respect to 50 percent of the number of shares of Common Stock subject to the
Option and that the right to exercise the Option with respect to the balance of
the shares subject thereto will accrue on the first anniversary of the date of
grant. However, the Committee or the Board of Directors may, in its
discretion, in any case provide that the Option will be exercisable immediately
with respect to all the shares of Common Stock subject to the Option or that
the right to exercise the Option will accrue in different installments and at
different times from those set forth above. In the case of an Option made
exercisable in installments, the Committee or the Board of Directors may later
determine to accelerate the time at which one or more of such installments may
be exercised. The Committee or the Board of Directors may impose such
conditions with respect to the exercise of Options, including conditions
relating to applicable federal or state tax or securities laws, as it considers
necessary or advisable.
<PAGE> 11
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8.5. Payment for and Delivery of Stock. The shares of Stock
purchased on any exercise of an Option granted hereunder shall be paid for in
full in cash at the time of such exercise or, to the extent permitted by the
Committee or the Board of Directors, by delivery of shares of Common Stock,
valued at their Fair Market Value on the date of delivery, or such other lawful
consideration as the Committee or the Board of Directors may determine. The
Committee or the Board of Directors may provide for the automatic award of an
Option upon the delivery of shares to the Corporation in payment of another
Option for up to the number of shares delivered to the Corporation in payment
of such other Option.
8.6. Termination of Employment.
8.6.1. Death during Employment. If a Participant dies during
employment after attaining age 62 and at a time when he is entitled to
exercise an Option, then at any time or times within three years after death
(or such greater or lesser period after death as may be specified in the
documentation evidencing the Option) such Option may be exercised in part or in
full as to all of the shares subject to the Option. If a Participant dies
during employment prior to attaining age 62 and at a time when he is entitled
to exercise an Option, then at any time or times within one year after death
(or such greater or lesser period after death as may be specified in the
documentation evidencing the Option) such Option may be exercised, but only as
to any
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or all of those shares which the Participant was entitled to purchase
immediately prior to his death. In either case, Options exercisable after
death may be exercised by the Participant's Designated Beneficiary, and except
as so exercised shall expire at the end of the specified post-death exercise
period. In no event, however, may any Option granted under the Plan be
exercised after the expiration of the Option exercise period established at the
time of grant.
8.6.2. Retirement or Disability. In the event of a Participant's
Retirement or Disability at a time when he is entitled to exercise an Option,
then at any time or times within the period determined under (a) or (b) below,
whichever is applicable, such Option may be exercised as follows:
(a) In the case of Retirement or Disability after attaining
age 62, then within three years after Retirement or Disability (or such
greater or lesser period after Retirement or Disability as may be specified in
the documentation evidencing the Option) the Participant may exercise such
Option in full or in part as to all of the shares subject to the Option. If
the Participant dies within this three-year (or other specified)
post-Retirement or post-Disability exercise period, his Option may be
exercised by his Designated Beneficiary, to the same extent as if the
deceased Participant had survived, during a period equal to the greater of one
year from the date of his death or the remainder of such three-year or other
specified post-
<PAGE> 13
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Retirement or post-Disability exercise period.
(b) In the case of Retirement or Disability prior to
attaining age 62, then within one year after Retirement or Disability (or such
greater or lesser period after Retirement or Disability as may be specified in
the documentation evidencing the Option) the Participant may exercise such
Option only as to those shares which he was entitled to purchase immediately
prior to his Retirement or Disability. If the Participant dies within this
one-year (or other specified) post- Retirement or post-Disability exercise
period, his Option may be exercised by his Designated Beneficiary, to the same
extent as if the deceased Participant had survived, during the greater of one
year from the date of his death or, if a post-Retirement or post-Disability
exercise period greater than one year was specified in the Option
documentation, the remainder of such longer period.
Except as exercised within the applicable period described above, each
Option shall expire at the end of such period. In no event, however, may any
Option granted under the Plan be exercised after the expiration of the Option
exercise period established at the time of grant.
8.6.3. Other Termination of Employment. If the employment of a
Participant terminates for any reason other than his death, Retirement or
Disability, all Options held by the Participant may be exercised following
such termination of employment only to the extent if any,
<PAGE> 14
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approved by the Committee or the Board of Directors and, except to such extent,
shall expire upon such termination. If the Committee or the Board of Directors
so decides, an Option may provide that a leave of absence granted by the
Corporation or an Affiliate is not a termination of employment for the purpose
of this subsection 8.6.3, and in the absence of such a provision the Committee
or the Board of Directors may in any particular case determine that such a
leave of absence is not a termination of employment for such purpose.
9. Stock Appreciation Rights.
9.1. Grant Forms of SARs. Subject to the provisions of the Plan, the
Committee or the Board of Directors may award SARs related to an Option (at or
after the award of the Option, subject to the provisions of Section 3), or
alone and unrelated to an Option.
9.2. Grant Price. The Committee or the Board of Directors shall
establish the grant price of an SAR at the time the SAR is granted, which price
shall not be less than the Fair Market Value of the Common Stock at the time of
grant.
9.3. Payment of SARs. SARs may be payable in cash, shares of Common
Stock or a combination of the two, as provided by the Committee or the Board of
Directors. Shares issued on the settlement of the exercise of SARs shall be
valued at their Fair Market Value on the date of exercise.
<PAGE> 15
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9.4. Termination of Employment. The Committee or the Board of
Directors shall determine the effect on an SAR of the death, Retirement,
Disability or other termination of employment of a Participant and the extent
to which, and the period during which, the Participant or the Participant's
legal representative, guardian or Designated Beneficiary may receive payment of
such an SAR.
10. Restricted Stock.
10.1. Restrictions on Shares. Subject to the provisions of the Plan,
the Committee or the Board of Directors may award shares of Restricted Stock,
alone or in combination with other Awards under the Plan. Such shares may not
be sold, assigned, transferred, pledged or otherwise encumbered, except as
permitted by the Committee or the Board of Directors, during the period, if
any, that such shares are subject to forfeiture or, to the extent provided in
Section 10.2, during a period after such shares are delivered to the
Participant free of any risk of forfeiture.
10.2. Lapse of Restrictions. Except as provided in this Section 10.2
or in Section 10.4 below, shares of Restricted Stock granted as of any date
shall be subject to the forfeiture restrictions described in Section 10.5 and
shall become free of such restrictions in the following installments:
one-third on the third anniversary of the date of grant, an additional
one-third on the fourth anniversary of the date of grant, and the remaining
one-third on the fifth anniversary of the date of grant. Notwithstanding the
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- 16 -
lapse of forfeiture restrictions as of any anniversary of the date of grant,
50% of the shares freed of such restrictions as of such date may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Committee or the Board of Directors, until the earliest of (i) ten years
after the date of grant, (ii) the date on which the Participant attains age 55
or (iii) the date of the Participant's death or Disability. Notwithstanding
the provisions of Section 10.1 or this Section 10.2, the Committee or the Board
of Directors may, in its discretion, award shares of Restricted Stock having
different terms from those set forth above, including, without limitation,
shares which are nonforfeitable or freely transferable upon grant and shares
having restrictions which lapse upon the attainment of specified performance
goals or targets, as determined by the Committee or the Board of Directors.
10.3. Participants' Rights in Restricted Stock. Shares of Restricted
Stock shall be evidenced in such manner as the Committee or the Board of
Directors may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and, except
as otherwise determined by the Committee or the Board of Directors, shall be
delivered to the Participant upon the lapse of forfeiture restrictions with
respect to such shares. Except as otherwise provided by the Committee or the
Board of Directors, during the period that shares of
<PAGE> 17
- 17 -
Restricted Stock are subject to forfeiture and after such shares are delivered
to the Participant free of any risk of forfeiture, dividends with respect to
any such shares shall be paid to, and voting rights with respect to any such
shares shall be vested in, the Participant. The Committee or the Board of
Directors may provide that the payment of any dividends payable with respect to
shares of Restricted Stock that are subject to forfeiture may be deferred by
the Participant, with or without interest.
10.4. Death, Retirement or Disability; Other Terminations of
Restrictions
10.4.1. Death. Except as otherwise provided by the Committee or
the Board of Directors, if a Participant dies, then any shares of Restricted
Stock awarded pursuant to the Plan that have not been forfeited shall be
delivered to the Participant's Designated Beneficiary free of any restrictions
(other than restrictions that may be required under federal or state securities
laws).
10.4.2. Retirement or Disability. Except as otherwise provided
by the Committee or the Board of Directors, in the event of a Participant's
Retirement or Disability, then any shares of Restricted Stock awarded pursuant
to the Plan that have not been forfeited shall be delivered to the Participant
free of any restrictions (other than restrictions that may be required under
federal or state securities laws).
<PAGE> 18
- 18 -
10.4.3. Other Terminations of Restrictions. In addition to the
provisions for the termination of restrictions set forth in subsections 10.4.1
and 10.4.2, the Committee or the Board of Directors may terminate or modify
restrictions on Restricted Stock at any time to the extent it so determines.
10.5. Forfeiture of Awards. If a Participant terminates employment
for any reason other than one of the reasons specified in subsections 10.4.1 or
10.4.2, then any shares of Restricted Stock which are then subject to
forfeiture shall thereupon automatically be forfeited to the Corporation. For
purposes of this Section 10.5, a Participant shall not be considered to have
terminated employment if he is employed, by the Corporation or any Affiliate or
if he is on a leave of absence from the Corporation or any Affiliate under
circumstances which the Committee or the Board of Directors determines should
not result in forfeiture under the Plan.
10.6. Consideration for Restricted Stock. Shares of Restricted
Stock shall be issued for no cash consideration or such minimum consideration
as may be required under applicable law.
11. General Provisions Applicable to Awards.
11.1. Non-transferability of Awards. No Award under the Plan may
be transferred by the Participant otherwise than by will or by the laws of
descent and distribution, and during the Participant's lifetime, Options or
SARs may be exercised
<PAGE> 19
- 19 -
only by the Participant or by the Participant's guardian or legal
representative.
11.2. Documentation of Awards. Each Award under the Plan shall be
evidenced by a writing delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Committee or the Board of
Directors considers necessary or advisable to achieve the purposes of the Plan
or comply with applicable tax and regulatory laws and accounting principles.
The Committee or the Board of Directors need not require the execution of any
instrument or acknowledgement of notice of a Grant under the Plan, in which
case the acceptance of such an Award by the respective Participant will
constitute agreement to the terms and conditions of the Award.
11.3. Committee or Board of Director Discretion. Each type of Award
may be made alone, in addition to or in relation to any other type of Award.
The terms of each type of Award need not be identical, and the Committee or
the Board of Directors need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Committee or the Board of Directors at
the time of award or at any time thereafter.
<PAGE> 20
- 20 -
11.4. Tax Withholding. The Committee or the Board of Directors shall
require, on such terms as it deems necessary, that the Participant pay to the
Corporation, or make other satisfactory provision for payment of, any federal,
state or local taxes required by law to be withheld in respect of Awards under
the Plan. In the Committee's or the Board of Directors' discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value on the date of delivery. The Corporation and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.
11.5. Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee or the
Board of Directors considers necessary or advisable to achieve the purposes of
the Plan or comply with applicable laws. Notwithstanding the provisions of
this Section 11.5, Awards to any such individuals who are Reporting Persons
shall be made in accordance with the other provisions of the Plan, except as
otherwise permitted by Rule 16b-3 under the Exchange Act or any successor rule.
<PAGE> 21
- 21 -
11.6. Amendment of Award. The Committee or the Board of Directors
may amend, modify, terminate or waive any condition or provision of any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonstatutory Stock Option; provided, however,
that the Committee or the Board of Directors may not (except in accordance with
Section 5.3) increase the number of shares subject to any outstanding Award or
decrease the Option or award price of the Award. The Participant's consent to
any such action shall be required unless the Committee or the Board of
Directors determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
12. Miscellaneous.
12.1. No Right to Employment. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Corporation and
its Affiliates expressly reserve the right at any time to terminate the
employment of a Participant free from any liability or claim under the Plan,
except as may be expressly provided in the applicable Award.
12.2. No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a
<PAGE> 1
EXHIBIT 10(L)
Description
of
Supplemental Long Term Disability Plan
Under the Bank's Group Long Term Disability Insurance Policy (the "Policy"),
employees may be entitled to disability benefits of 60% of base salary, subject
to certain Policy dollar limits. The Bank has made available to its senior
executives, including Messrs. Stepanian and Gifford, a supplemental long term
disability plan which provides a disability benefit equal to the benefit not
covered under the Policy because of Policy dollar limits, thus enabling the
senior executives to receive a long term disability benefit of 60% of base
salary.
<PAGE> 1
EXHIBIT 10(m)
BANK OF BOSTON CORPORATION
Director Stock Award Plan
(Effective May 1, 1993)
1. Purpose.
The Bank of Boston Corporation Director Stock Award Plan (the "Plan")
has been adopted to assist in attracting and retaining non-employee members of
the Corporation's Board of Directors and to promote identification of their
interests with those of stockholders of the Corporation.
2. Definitions.
As used herein, the following words or terms have the meanings set
forth below:
2.1 "Affiliate" means any business entity that is directly or
indirectly controlled by the Corporation or any entity in which the Corporation
has a significant equity interest, as determined by the Director of Human
Resources.
2.2 "Award" means the Shares awarded under the Plan.
2.3 "Award Date" means January 1 and July 1 of each year, commencing
on July 1, 1993.
2.4 "Award Period" means a six-month period immediately preceding
each Award Date; provided, however, that the initial Award Period under the
Plan shall begin on May 1, 1993 and shall end on June 30, 1993.
2.5 "Board of Directors" means the Board of Directors of the
Corporation.
2.6 "Common Stock" means the Common Stock, par value $2.25 per share,
of the Corporation.
<PAGE> 2
-2-
2.7 "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.8 "Director of Human Resources" means the Director of Human
Resources of the Corporation.
2.9 "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "New York Stock Exchange Composite Transactions" section of the
Eastern Edition of The Wall Street Journal, or if no prices are quoted for that
day, for the last preceding day on which such prices of Common Stock are so
quoted. In the event "New York Stock Exchange Composite Transactions" cease to
be reported, the Director of Human Resources shall adopt some other appropriate
method for determining Fair Market Value.
2.10 "Full Award" means a number of Shares (rounded to the nearest
whole share) having an aggregate Fair Market Value of $5,000 on the last
business day of the immediately preceding Award Period.
2.11 "Non-Employee Director" means as of any date a person who on such
date is a director of the Corporation and is not an employee of the Corporation
or any Affiliate. A director of the Corporation who is also an employee of the
Corporation or any Affiliate shall become eligible to participate in the Plan
upon termination of such employment.
2.12 "Prorated Award" means a Full Award multiplied by a fraction, the
numerator of which is the number of days that a person served as a Non-Employee
Director during the
<PAGE> 3
-3-
immediately preceding Award Period and the denominator of which is the total
number of days in such Award Period.
2.13 "Shares" means shares of Common Stock.
3. Effective Date.
The Plan shall become effective on May 1, 1993, subject to the approval of
the Corporation's stockholders at the Corporation's 1993 Annual Meeting of
Stockholders.
4. Administration.
4.1 The Plan shall be administered by the Director of Human
Resources. Subject to the provisions set forth herein, the Director of Human
Resources shall have full authority to construe and interpret the terms of the
Plan and to make all determinations and take all other actions necessary or
advisable for the administration of the Plan, except that the persons entitled
to receive Awards and the dates and amounts of such Awards shall be determined
as provided in Article 7, and the Director of Human Resources shall have no
discretion as to such matters. The Director of Human Resources may delegate to
one or more officers of the Corporation or any Affiliate the authority to
perform administrative functions under the Plan.
4.2 Any determinations or actions made or taken by the Director of
Human Resources pursuant to this Article shall be binding and final.
5. Shares Available for Awards.
5.1 The maximum number of Shares that may be issued under the Plan
shall be 100,000, subject to adjustment in accordance with the provisions of
Section 5.2. Shares
<PAGE> 4
-4-
issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
5.2 In the event of any change in the outstanding shares of Common
Stock by reason of a stock dividend or distribution, stock split,
recapitalization, combination or exchange of shares, or by reason of any
merger, consolidation, spinoff or other corporate reorganization in which the
Corporation is the surviving corporation, the number and kind of Shares awarded
thereafter in each grant under the Plan and the total number and kind of Shares
that may be issued under the Plan shall be equitably adjusted by the Board of
Directors, whose determination shall be binding and final.
6. Eligibility.
Awards shall be made only to Non-Employee Directors, as provided in Article
7.
7. Awards.
In consideration of past services rendered, on each Award Date, each person
who is then a Non-Employee Director shall, automatically and without necessity
of any action by the Director of Human Resources, be entitled to receive (i) a
Full Award, in the case of a person who was a Non-Employee Director during all
of the immediately preceding Award Period or (ii) a Prorated Award, in the case
of a person who was a Non-Employee Director for less than all of such Award
Period. Stock certificates representing Awards shall be delivered to
Non-Employee Directors as soon as practicable following each Award Date, unless
other arrangements are
<PAGE> 5
-5-
made with the Corporation by the Non-Employee Director.
8. General Provisions.
8.1 Non-Assignability. No right to receive an Award hereunder shall
be transferable or assignable by a Plan participant other than by will or the
laws of descent and distribution.
8.2 No Right to Service. Participating in the Plan does not
constitute a guarantee or contract of service as a director.
8.3 Amendment and Termination. The Board of Directors may amend,
suspend or terminate the Plan or any portion thereof at any time; provided,
however, that the provisions of the Plan relating to the determination of
persons entitled to receive Awards pursuant to Article 7 and the dates and
amounts of such Awards shall not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code of 1986, as
amended, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
8.4 Registration of Shares. Nothing in the Plan shall be construed
to require the Corporation to register under the Securities Act of 1933, as
amended, any Shares awarded under the Plan.
8.5 Governing Law. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of the Commonwealth of
Massachusetts.
<PAGE> 1
<TABLE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Years Ended December 31
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
EARNINGS
1. Net income (loss) $ 299,026 $ 278,881 $ (113,155)
2. Less: Preferred dividends 34,689 19,870 13,205
--------- --------- ---------
3. Net income applicable to primary
earnings per common share 264,337 259,011 (126,360)
4. Add: Interest expense on convertible
debentures, net of tax (a) 4,303 4,382
--------- --------- ---------
5. Net income applicable to fully diluted
earnings per common share $ 268,640 $ 263,393 $ (126,360)
========= ========= =========
SHARES
6. Weighted average number of common shares outstanding 105,336 101,977 94,730
7. Incremental shares from assumed exercise
of dilutive stock options as of the beginning
of the period using the treasury stock method (a) 888 1,137
8. Incremental shares from assumed conversion
of debentures at date of issuance (a) 4,034 4,043
--------- --------- ---------
9. Adjusted number of common shares 110,258 107,157 94,730
========= ========= =========
PER SHARE CALCULATION
10. Primary net income per common share $ 2.51 $ 2.54 $ (1.33)
(Item 3 + Item 6); see note below
11. Fully diluted net income per common share $ 2.44 $ 2.45 $ (1.33)
(Item 5 + Item 9); see note below
<FN>
(a) The effect of stock options and convertible debentures is excluded from the computation of fully diluted net income
(loss) per common share in years in which their effect is antidilutive.
</TABLE>
Note - Income (Loss) per common share before extraordinary items and cumulative
effect of changes in accounting principles, net of tax, on both a primary and
fully diluted basis for the years ended December 31, 1993, 1992 and 1991 is
computed by subtracting from the numerator the cumulative effect of accounting
changes, net of tax, in 1993 of $24,203 and the extraordinary items of $72,968
and $7,758 in 1992 and 1991, respectively.
<PAGE> 1
EXHIBIT 12(a)
<TABLE>
BANK OF BOSTON CORPORATION
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 five years ended December 31, 1993 were as follows:
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in thousands)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 214,683 152,781 (57,990) 2,579 84,951
---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) 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 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 1,719,111 1,029,054 608,552 1,229,816 1,953,723
---------- ---------- ---------- ---------- ----------
Total fixed charges 1,746,174 1,057,213 638,922 1,268,563 1,989,205
---------- ---------- ---------- ---------- ----------
Earnings (for ratio calculation) $ 2,235,680 $ 1,415,907 $ 460,019 $ 759,245 $ 2,212,270
========== ========== ========== ========== ==========
Total fixed charges $ 1,746,174 $ 1,057,213 $ 638,922 $ 1,268,563 $ 1,989,205
========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges 1.28 1.34 .72 .60 1.11
========== ========== ========== ========== ==========
</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.
<PAGE> 1
EXHIBIT 12(b)
<TABLE>
BANK OF BOSTON CORPORATION
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 five years ended December 31, 1993 were as follows:
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in thousands)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax (72,968) (7,758) (43,649)
Cumulative effect of changes in
accounting principles, net of tax (24,203)
Income tax expense (benefit) 214,683 152,781 (57,990) 2,579 84,951
---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) 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 27,063 28,159 30,370 38,747 35,482
Interest on borrowed funds 1,719,111 1,029,054 608,552 1,229,816 1,953,723
Interest on deposits 3,856,025 2,771,873 2,731,559 3,236,691 3,357,336
---------- ---------- ---------- ---------- ----------
Total fixed charges 5,602,199 3,829,086 3,370,481 4,505,254 5,346,541
---------- ---------- ---------- ---------- ----------
Earnings (for ratio calculation) $ 6,091,705 $ 4,187,780 $ 3,191,578 $ 3,995,936 $ 5,569,606
========== ========== ========== ========== ==========
Total fixed charges $ 5,602,199 $ 3,829,086 $ 3,370,481 $ 4,505,254 $ 5,346,541
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.09 1.09 .95 .89 1.04
========== ========== ========== ========== ==========
</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.
<PAGE> 1
<TABLE>
EXHIBIT 12(c)
BANK OF BOSTON CORPORATION
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 five years
ended December 31, 1993 were as follows:
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in thousands)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax (72,968) (7,758) (43,649)
Cumulative effect of changes in
accounting principles, net of tax (24,203)
Income tax expense (benefit) 214,683 152,781 (57,990) 2,579 84,951
---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) $ 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 $ 27,063 $ 28,159 $ 30,370 $ 38,747 $ 35,482
Interest on borrowed funds 1,719,111 1,029,054 608,552 1,229,816 1,953,723
---------- ---------- ---------- ---------- ----------
Total fixed charges 1,746,174 1,057,213 638,922 1,268,563 1,989,205
Preferred stock dividend
requirements 61,377 33,186 13,255 13,748 22,568
---------- ---------- ---------- ---------- ----------
Total combined fixed charges
and preferred stock dividend
requirements $ 1,807,551 $ 1,090,399 $ 652,177 $ 1,282,311 $ 2,011,773
========== ========== ========== ========== ==========
Earnings (for ratio calculation)
(Pretax earnings (loss)
plus total fixed charges) $ 2,235,680 $ 1,415,907 $ 460,019 $ 759,245 $ 2,212,270
========== ========== ========== ========== ==========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 1.24 1.30 .71 .59 1.10
========== ========== ========== ========== ==========
</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.
<PAGE> 1
<TABLE>
EXHIBIT 12(d)
BANK OF BOSTON CORPORATION
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 five years
ended December 31, 1993 were as follows:
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
(Dollars in thousands)
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114
Extraordinary items, net of tax (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 214,683 152,781 (57,990) 2,579 84,951
---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) $ 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 $ 27,063 $ 28,159 $ 30,370 $ 38,747 $ 35,482
Interest on borrowed funds 1,719,111 1,029,054 608,552 1,229,816 1,953,723
Interest on deposits 3,856,025 2,771,873 2,731,559 3,236,691 3,357,336
---------- ---------- ---------- ---------- ----------
Total fixed charges 5,602,199 3,829,086 3,370,481 4,505,254 5,346,541
Preferred stock dividend
requirements 61,377 33,186 13,255 13,748 22,568
---------- ---------- ---------- ---------- ----------
Total combined fixed charges
and preferred stock dividend
requirements $ 5,663,576 $ 3,862,272 $ 3,383,736 $ 4,519,002 $ 5,369,109
========== ========== ========== ========== ==========
Earnings (for ratio calculation)
(Pretax earnings (loss)
plus total fixed charges) $ 6,091,705 $ 4,187,780 $ 3,191,578 $ 3,995,936 $ 5,569,606
========== ========== ========== ========== ==========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 1.08 1.08 .94 .88 1.04
========== ========== ========== ========== ==========
</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 (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.
<PAGE> 1
<TABLE>
BANK OF BOSTON CORPORATION
--------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA(1)
Interest income........................................ $ 6,823.9 $ 5,106.7 $4,454.9 $5,689.4 $6,699.5 $5,237.1
Interest expense....................................... 5,305.1 3,800.9 3,340.1 4,466.5 5,311.1 3,872.4
--------- --------- -------- -------- -------- --------
Net interest revenue............................... 1,518.8 1,305.8 1,114.8 1,222.9 1,388.4 1,364.7
Provision for credit losses(2)......................... 70.1 180.6 518.7 764.3 773.7 176.0
--------- --------- -------- -------- -------- --------
Net interest revenue after provision for credit
losses........................................... 1,448.7 1,125.2 596.1 458.6 614.7 1,188.7
Noninterest income(3).................................. 571.6 707.6 762.9 764.1 1,019.2 764.8
Noninterest expense(2)(4).............................. 1,530.8 1,474.1 1,537.9 1,732.0 1,410.8 1,366.0
--------- --------- -------- -------- -------- --------
Income (Loss) before income taxes, extraordinary items
and cumulative effect of changes in accounting
principles........................................... 489.5 358.7 (178.9) (509.3) 223.1 587.5
Provision for (Benefit from) income taxes.............. 214.7 152.8 (58.0) 2.6 85.0 205.1
--------- --------- -------- -------- -------- --------
Income (Loss) before extraordinary items and cumulative
effect of changes in accounting principles........... 274.8 205.9 (120.9) (511.9) 138.1 382.4
Extraordinary items:
Recognition of prior year tax benefit
carryforwards.................................... 73.0
Gains from early extinguishment of debt, net of
tax.............................................. 7.8 43.7
Cumulative effect of changes in accounting principles,
net(5)............................................... 24.2
--------- --------- -------- -------- -------- --------
Net income (loss).................................. $ 299.0 $ 278.9 $ (113.1) $ (468.2) $ 138.1 $ 382.4
========= ========= ======== ======== ======== ========
Net income (loss) applicable to common stock....... $ 264.3 $ 259.0 $ (126.4) $ (482.0) $ 124.2 $ 368.0
========= ========= ======== ======== ======== ========
Per common share:
Income (Loss) before extraordinary items and
cumulative effect of changes in accounting
principles:
Primary............................................ $ 2.28 $ 1.82 $ (1.42) $ (5.67) $ 1.37 $ 4.28
Fully diluted...................................... 2.22 1.78 (1.42) (5.67) 1.37 4.12
Net income (loss):
Primary............................................ 2.51 2.54 (1.33) (5.20) 1.37 4.28
Fully diluted...................................... 2.44 2.45 (1.33) (5.20) 1.37 4.12
Cash dividends declared(6)........................... .40 .10 .10 .82 1.24 1.12
Average number of common shares: (in thousands)
Primary............................................ 105,336 101,977 94,730 92,634 90,435 86,078
Fully diluted...................................... 110,258 107,157 94,730 92,634 90,777 90,478
AVERAGE BALANCE SHEET DATA(1)
Loans and lease financing(2)........................... $ 26,586 $ 25,330 $ 26,167 $ 28,949 $ 32,061 $ 29,588
Securities............................................. 3,624 4,704 5,098 4,509 4,831 4,341
Other earning assets................................... 4,089 3,195 3,298 6,865 3,243 2,578
--------- --------- -------- -------- -------- --------
Total Earning Assets................................. 34,299 33,229 34,563 40,323 40,135 36,507
--------- --------- -------- -------- -------- --------
Cash and due from banks................................ 1,790 1,596 1,485 1,780 1,826 1,795
Other assets(2)........................................ 2,278 2,030 1,867 1,667 1,713 1,814
--------- --------- -------- -------- -------- --------
Total Average Assets................................. $ 38,367 $ 36,855 $ 37,915 $ 43,770 $ 43,674 $ 40,116
========= ========= ======== ======== ======== ========
Deposits............................................... $ 28,539 $ 29,028 $ 29,861 $ 33,505 $ 29,440 $ 26,539
Funds borrowed......................................... 4,349 3,485 3,544 4,518 7,823 7,959
Other liabilities...................................... 1,017 919 1,014 1,218 1,551 1,142
Notes payable.......................................... 1,743 1,197 1,552 2,098 2,254 2,194
Stockholders' equity................................... 2,719 2,226 1,944 2,431 2,606 2,282
--------- --------- -------- -------- -------- --------
Total Average Liabilities and Stockholders' Equity... $ 38,367 $ 36,855 $ 37,915 $ 43,770 $ 43,674 $ 40,116
========= ========= ======== ======== ======== ========
<FN>
(1) Consolidated selected financial data for each of the five years in the
period ended December 31, 1992 has been restated, except where specifically
noted, to reflect the Corporation's mergers with Society for Savings
Bancorp, Inc. (Bancorp) and Multibank Financial Corp. (Multibank), which
were completed in July 1993 and accounted for as poolings of interests.
(2) During 1993, in response to guidance issued by banking regulators, the
Corporation reclassified its in-substance repossessions (ISRs) from other
real estate owned (OREO) to loans. In addition, valuation adjustments to
write down the loans to the fair value of the underlying collateral are
treated as credit losses rather than OREO expense. All prior period amounts
were reclassified for comparative purposes. Accordingly, valuation
adjustments related to ISRs were reclassified from OREO expense to the
provision for credit losses for each period, with corresponding amounts
recorded as credit losses. The reclassifications of these valuation
adjustments for each of the five years in the period ended December 31, 1992
amounted to $37 million, $54 million, $36 million, $4 million and zero,
respectively.
(3) Includes a $43 million gain from the settlement of certain pension
obligations in 1990, and in 1989, $190 million of gains from sales of the
domestic credit card portfolios and a $52 million gain from the settlement
of certain pension obligations.
(4) Includes merger and restructuring charges of $85 million in 1993, primarily
in connection with the Corporation's mergers with Bancorp and Multibank, as
well as other expense reduction initiatives of the Corporation. Also
includes restructuring charges of $54 million in 1991, and $139 million in
1990, including $7 million in 1991 and $89 million in 1990 in connection
with a Bancorp restructuring plan, and $47 million in 1991, and $50 million
in 1990 in connection with the Corporation's plans for the consolidation and
downsizing of various domestic and international operations and facilities
and staff reductions.
(5) Includes a cumulative benefit of $77 million resulting from the adoption of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," and a cumulative charge of $53 million, net of taxes,
relating to a change in accounting methodology pertaining to the valuation
of purchased mortgage servicing rights.
(6) Amounts represent the historical cash dividends of the Corporation.
</TABLE>
30
<PAGE> 2
<TABLE>
BANK OF BOSTON CORPORATION
--------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA,
--------------------------------------------------------------------------------
CONTINUED
<CAPTION>
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SELECTED RATIOS(1)
Return on average assets............................... .78% .76% (.30)% (1.07)% .32% .95%
Return on average common equity(7)..................... 11.78 13.37 (7.28) (21.68) 5.18 17.75
Common dividend payout ratio(8)........................ 14.4 3.4 NM NM 155.0 24.0
Common equity to total assets.......................... 5.9 5.7 4.5 4.7 5.0 5.3
Average total stockholders' equity to average total
assets............................................... 7.1 6.0 5.1 5.6 6.0 5.7
Risk-based capital ratios:
Tier 1............................................... 7.2 7.1 5.2 5.3 NA NA
Total................................................ 12.4 12.0 9.3 9.4 NA NA
Leverage ratio......................................... 6.8 6.6 4.6 4.5 NA NA
Net credit losses to average loans and lease
financing............................................ .84 1.22 1.87 2.50 1.65 .74
Reserve for credit losses to loans and lease
financing............................................ 2.68 3.63 4.14 3.90 3.20 2.33
Reserve for credit losses to nonaccrual loans and lease
financing............................................ 139.69 118.51 69.48 56.26 59.34 66.99
Nonaccrual loans and OREO as a percent of related asset
categories........................................... 2.3 3.7 7.2 7.8 6.0 4.1
Market value/book value................................ 101.28 126.2 63.9 32.5 73.5 92.1
BALANCE SHEET DATA AT DECEMBER 31(1)
Loans and lease financing.............................. $ 28,782 $ 25,399 $ 25,368 $ 26,210 $ 30,762 $ 31,752
Reserve for credit losses.............................. (770) (923) (1,051) (1,023) (983) (741)
Total assets........................................... 40,588 37,315 38,309 39,351 46,663 42,893
Deposits............................................... 29,614 29,102 29,291 31,813 34,105 28,739
Funds borrowed......................................... 4,975 2,947 4,634 2,704 6,420 8,312
Notes payable.......................................... 1,973 1,686 1,419 1,536 2,124 1,859
Stockholders' equity................................... 2,912 2,554 1,919 2,046 2,562 2,501
Common shares outstanding (in thousands)............... 105,801 104,664 95,025 93,575 91,057 89,408
Common stockholders of record(9)....................... 23,633 25,263 27,665 27,414 22,700 22,551
Number of employees.................................... 18,644 19,459 18,752 20,339 21,733 22,462
Per common share:
Book value........................................... $ 22.71 $ 20.21 $ 18.00 $ 19.64 $ 25.85 $ 25.65
Market value......................................... 23 25 1/2 11 1/2 6 3/8 19 23 5/8
<FN>
(1) Consolidated selected financial data for each of the five years in the
period ended December 31, 1992 has been restated, except where specifically
noted, to reflect the Corporation's mergers with Society for Savings
Bancorp, Inc. (Bancorp) and Multibank Financial Corp. (Multibank), which
were completed in July 1993 and accounted for as poolings of interests.
(7) For purposes of this ratio, preferred stock dividends have been deducted
from net income.
(8) Ratios are based on the historical cash dividends and net income applicable
to common stock of the Corporation.
(9) The number of stockholders of record includes banks and brokers who act as
nominees, each of whom may represent more than one stockholder.
NM - Not meaningful
NA - Information for calculating the risk-based capital ratios and leverage
ratio prior to 1990 is unavailable.
</TABLE>
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Bank of Boston Corporation is a superregional bank holding company with both
national and international operations. The Corporation's major banking
subsidiaries are The First National Bank of Boston (FNBB), South Shore Bank,
Mechanics Bank and Multibank West, all with headquarters in Massachusetts; Casco
Northern Bank, N.A. (Casco), in Maine; Bank of Boston Connecticut (Connecticut);
Rhode Island Hospital Trust National Bank (Hospital Trust), and Bank of Vermont
(Vermont). FNBB is the largest of the banking subsidiaries with total assets of
$29.5 billion, representing approximately three-quarters of the Corporation's
total assets as of December 31, 1993.
MERGERS, ACQUISITIONS AND BUSINESS UNIT SALES
During 1993, the Corporation completed its mergers with Society for Savings
Bancorp, Inc. (Bancorp), a registered bank holding company based in Hartford,
Connecticut and Multibank Financial Corp. (Multibank), a registered bank holding
company based in Dedham, Massachusetts. These two mergers combined to add nearly
$5 billion in total assets to the Corporation. These mergers were accounted for
as poolings of interests and as such, are reflected in the consolidated
financial statements as though the Corporation, Bancorp and Multibank had been
combined as of the beginning of the earliest period presented. In addition, on
September 21, 1993, the Corporation announced that it had reached a definitive
agreement to acquire BankWorcester Corporation (BankWorcester). The
BankWorcester transaction is subject to approval by the bank regulators.
Additional information on the transactions described above is included in Note 2
to the Financial Statements.
On December 7, 1993, the Corporation announced the sale of its United States and
Canadian factoring businesses. The sale of the United States business was
completed on January 31, 1994, and the Corporation recorded a pre-tax gain of
approximately $27 million on the transaction at that time. The sale of the
Canadian business is subject to regulatory approval and is expected to close in
mid-1994 for an additional pre-tax gain of approximately $5 million. The
factoring businesses' contribution to the Corporation's net income was not
material.
The Corporation engages on an ongoing basis in reviewing and discussing possible
acquisitions of financial institutions, as well as banking and other assets, in
order to expand its business incident to the implementation of its business
strategy. The Corporation intends to continue to explore acquisition
opportunities as they arise in order to take advantage of the continuing
consolidation in the banking industry.
REVIEW OF FINANCIAL STATEMENTS
The following is a discussion and analysis of the Corporation's consolidated
results of operations and financial position. In order to understand this
section in context, it should be read in conjunction with the Financial
Statements on pages 53 through 78 and Consolidated Statistical Information on
pages 79 through 94 of this report.
OVERVIEW
Results of Operations
In 1993, the Corporation reported net income of $299 million, or $2.51 per share
on a primary basis and $2.44 per share on a fully diluted basis. This compares
with net income of $279 million, or $2.54 per share on a primary basis and $2.45
per share on a fully diluted basis, in 1992.
The Corporation's 1993 net income included $77 million of income representing
the cumulative effect to January 1, 1993 of its adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
and a $53 million charge (net of income taxes of $32 million) representing the
cumulative effect to January 1, 1993 of a change in its accounting for purchased
mortgage servicing rights (PMSR). In addition, 1993's net income included a $57
million charge (net of income taxes of $28 million) for merger and restructuring
charges, primarily related to the Corporation's 1993 mergers with Bancorp and
Multibank. The Corporation's 1992 net income included $73 million of
extraordinary income related to the recognition of prior year tax benefit
carryforwards. Excluding the cumulative effect of accounting changes and merger
and restructuring charges, net income for 1993 was $332 million. This
represented an increase of $126 million, compared with 1992's net income of $206
million, measured on the same basis.
Pre-tax income in 1993, on a fully taxable equivalent basis and excluding the
effect of 1993's $85 million merger and restructuring charge, increased $213
million from 1992, caused, in part, by a $179 million decline in credit costs,
which includes the provision for credit losses and costs related to other real
estate owned (OREO). The provision for credit losses declined $110 million,
reflecting management's assessment of the current risk characteristics of the
loan portfolio and level of the reserve for credit losses in light of further
declines in nonaccrual loans and leases and net credit losses, as well as
modestly improved United States and New England economies. Nonaccrual loans and
leases were $551 million at December 31, 1993, compared with $779 million at
December 31, 1992 and $1,513 million at December 31, 1991. Net credit losses
were $223 million in 1993, compared with $309 million in 1992 and $490 million
in 1991. OREO costs declined $69 million in 1993, primarily because of lower
valuation adjustments reflecting the lower level of OREO. In addition to the
significant reduction in credit costs during 1993, total revenue, which is the
sum of net interest revenue on a fully taxable equivalent basis and noninterest
income, increased by $74 million. This was mainly the result of improved net
interest revenue reflecting wider domestic spreads and higher international
average loan volume. Noninterest expense, before OREO costs and merger and
restructuring charges, increased $41 million from 1992. This reflected a higher
average number of employees, normal salary increases, higher advertising
expenses and an increase in Federal Deposit Insurance Corporation (FDIC) deposit
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CONTINUED
insurance. A significant portion of the increase in noninterest expense was
attributable to the Corporation's increased investment in growth businesses,
mainly in Latin America and domestic Retail and Small Business Banking. While
the full year increase in noninterest expense was $41 million, there was a $24
million decline between the first and second half of 1993. In addition,
noninterest expense in the fourth quarter of 1993 was $15 million lower than in
the fourth quarter of 1992.
In 1991, the Corporation reported a net loss of $113 million, or $1.33 per share
on both a primary and fully diluted basis. This compares with net income in 1992
of $279 million. Credit costs in 1992 were $338 million lower than 1991,
reflecting a significant decline in the levels of nonaccrual loans and net
credit losses, while total revenue, on a fully taxable equivalent basis, was
$126 million higher in 1992 compared with 1991. In addition, 1991 included a $54
million restructuring charge.
Consolidated Balance Sheet
At December 31, 1993, Bank of Boston Corporation was the nineteenth largest bank
holding company in the United States, with total assets of $40.6 billion,
compared with $37.3 billion at the end of 1992. The change in total assets from
the end of 1992 included a $3.4 billion increase in loans, partially offset by a
$1.1 billion decline in securities.
Loans and leases were $28.8 billion at December 31, 1993, compared with $25.4
billion at the end of 1992. Loans from domestic operations grew $2.1 billion,
reflecting a $1.7 billion increase in commercial and industrial loans and a $.5
billion increase in residential mortgages, which more than offset a $.3 billion
decline in commercial real estate loans. Loans from international operations
grew $1.3 billion since December 31, 1992, and have grown $2.2 billion since
December 31, 1991. These increases were attributable to higher levels of Latin
American loans, as the Corporation has expanded its Latin American businesses,
particularly in Argentina and Brazil. These two countries accounted for most of
the increase in international loans.
Nonaccrual loans and leases and OREO amounted to $659 million, or 2.3% of
related asset categories, at December 31, 1993, compared with $949 million, or
3.7%, and $1,838 million, or 7.2% of related asset categories, at December 31,
1992 and 1991, respectively.
The reserve for credit losses was $770 million at December 31, 1993, compared
with $923 million at the end of 1992. The reserve as a percent of nonaccrual
loans and leases was 140% at December 31, 1993, and 119% at the end of 1992. The
reserve as a percent of total loans and leases was 2.68% at the end of 1993, and
3.63% at the end of 1992.
Securities, including both securities available for sale and securities held to
maturity, decreased $1.1 billion from December 31, 1992. The comparative split
of securities between securities available for sale and securities held to
maturity was affected by the transfer of certain Bancorp and Multibank
securities from the held to maturity to the available for sale category at the
date of their mergers with the Corporation. In addition, mezzanine and venture
securities were reclassified from the held to maturity to the available for sale
category at December 31, 1993 in connection with the Corporation's adoption of
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on December 31, 1993. The adoption of SFAS No. 115 also resulted in
a $42 million increase in stockholders' equity as of December 31, 1993. The
overall decline in total securities resulted, in part, from sales of securities
available for sale. The Corporation recognized $32 million of gains on sales of
securities in 1993, of which $25 million came from the domestic available for
sale portfolio and the balance from the international available for sale
portfolio. Additional information regarding the Corporation's securities and its
accounting policies, including the adoption of SFAS No. 115, can be found in
Notes 1 and 5 to the Financial Statements.
Deposits were $29.6 billion at December 31, 1993, representing a $.5 billion
increase from the end of 1992. This reflected a $.6 billion increase in
noninterest bearing deposits, primarily from domestic offices. Total interest
bearing deposits declined $.1 billion, including a $2.1 billion decline from
domestic offices, offset by a $2.0 billion increase from international offices.
In addition, funds borrowed grew $2.0 billion between December 31, 1992 and
December 31, 1993.
Stockholders' equity totaled $2.9 billion at December 31, 1993, compared with
$2.6 billion at the end of 1992. The Corporation's regulatory risk-based capital
ratios at December 31, 1993 were 7.2% for tier 1 capital and 12.4% for total
capital, and its leverage ratio was 6.8%. This compares with ratios of 7.1% for
tier 1 capital, 12.0% for total capital and 6.6% for leverage at December 31,
1992. All of the capital ratios exceeded the minimum requirements set by current
regulations. The increase in stockholders' equity and the capital ratios at the
end of 1993 mainly reflected the retention of earnings coupled with the issuance
of $70 million of preferred stock on June 30, 1993. In addition, the total
capital ratio benefited from the issuance of $450 million of subordinated notes
during the year. The Board of Directors declared quarterly common dividends of
$.10 per share in each quarter of 1993 and on January 27, 1994 declared a
quarterly common dividend of $.22 per share.
RESULTS OF OPERATIONS
REVENUE
Total revenue, the sum of net interest revenue on a fully taxable equivalent
basis and noninterest income, was $2,098 million in 1993, compared with $2,024
million in 1992. During 1993, the Corporation continued its strategy of
maintaining a currency position in Brazil that is designed to capitalize on the
spread between local Brazilian interest rates and devaluation. This strategy has
involved investing capital or dollar denominated/indexed liabilities in local
currency assets, leaving the Corporation "underhedged". With local Brazilian
interest rates exceeding the rate of devaluation during the past two years, such
a strategy has
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CONTINUED
enabled the Corporation to improve its total revenue compared with what would
have been earned from funding local currency assets with local currency
liabilities. The Corporation accounts for this position in accordance with SFAS
No. 52, "Foreign Currency Translation," which results in higher levels of net
interest revenue that are partially offset by translation losses included in
noninterest income.
<TABLE>
Below is an analysis of total revenue, net interest revenue, noninterest
income and net interest margin showing the effect of the Brazilian currency
position for 1993 and 1992; such a position was not significant in 1991.
Consolidated total revenue and net interest revenue are presented on a fully
taxable equivalent basis. Total revenue attributable to the Corporation's
entire Brazilian operation, including the portion related to the currency
position, represented approximately 5% of consolidated total revenue in 1993
and 1992.
<CAPTION>
NET INTEREST REVENUE NONINTEREST INCOME TOTAL REVENUE
YEARS ENDED DECEMBER 31 1993 1992 CHANGE 1993 1992 CHANGE 1993 1992 CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Consolidated, excluding estimated
effect of Brazilian
currency position................... $1,335 $1,250 $ 85 $ 745 $ 757 $ (12) $ 2,080 $2,007 $ 73
Estimated effect of Brazilian currency
position............................ 192 67 125 (174) (50) (124) 18 17 1
------ ------ ----- ----- ----- ------ ------- ------ ----
Total consolidated.................... $1,527 $1,317 $ 210 $ 571 $ 707 $ (136) $ 2,098 $2,024 $ 74
====== ====== ===== ===== ===== ====== ======= ====== ====
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED INTERNATIONAL
NET INTEREST MARGIN NET INTEREST MARGIN
YEARS ENDED DECEMBER 31 1993 1992 CHANGE 1993 1992 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Excluding estimated effect of Brazilian currency
position............................................. 3.89% 3.76% .13% 3.16% 3.46% (.30)%
Estimated effect of Brazilian currency position........ .56 .20 .36 2.54 1.13 1.41
---- ---- --- ---- ---- ----
Total net interest margin.............................. 4.45% 3.96% .49% 5.70% 4.59% 1.11%
==== ==== === ==== ==== ====
</TABLE>
An increase in the average level of the Brazilian currency position from
approximately $40 million in 1992 to approximately $80 million in 1993, coupled
with higher Brazilian interest and devaluation rates in 1993, have significantly
affected the levels of consolidated net interest revenue, noninterest income and
net interest margin as compared with 1992. There was little change, however, in
the total revenue from this position, which was estimated to be $18 million in
1993, compared with $17 million in 1992. Additional revenue from maintaining a
higher average position in 1993 was offset by a narrowing of the spread between
local interest rates and devaluation. The level of the position grew during the
course of 1993, and stood at $103 million at December 31, 1993, compared with
$27 million at December 31, 1992.
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 during the past
year when market conditions warranted. Management will continue to closely
monitor the position and will alter the present strategy if necessary. The
position could increase or decrease from the year-end 1993 level. The level of
the position and, in turn, its effect on total revenue, net interest revenue,
noninterest income and net interest margin, will continue to be a function of
management's assessment of the frequently changing economic situation in Brazil,
a country that continues to be hindered by hyperinflation and economic
difficulties. In addition, 1994 is a presidential election year in Brazil, which
brings with it the potential for change in economic policy, both before and
after the election. There can be no assurance, given the hyperinflationary
conditions and economic difficulties experienced by Brazil, that the results of
this position will not have an adverse effect on future levels of total
revenue, net interest revenue, noninterest income and net interest margin.
The following pages present a detailed analysis of the Corporation's net
interest revenue, net interest margin and noninterest income.
NET INTEREST REVENUE
(FULLY TAXABLE EQUIVALENT BASIS)
This discussion of net interest revenue excludes the estimated effect of the
Brazilian currency position discussed above. 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% for 1993, and 34% for 1992 and
1991, plus applicable state and local income taxes, net of related federal
income tax benefits.
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<TABLE>
The following table shows a summary of net interest revenue, related average
earning assets and net interest margin. Consolidated and international net
interest revenue and margin exclude the estimated effect of the Brazilian
currency position.
<CAPTION>
YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C>
UNITED STATES OPERATIONS
Net interest revenue..................................................... $ 1,087.8 $1,033.8 $ 951.2
Tax equivalent adjustment................................................ 7.8 10.8 20.8
--------- -------- --------
Net interest revenue -- (fully taxable equivalent basis)................. $ 1,095.6 $1,044.6 $ 972.0
========= ======== ========
Average loans and lease financing........................................ $ 21,063 $ 20,892 $ 22,729
Average earning assets................................................... $ 26,742 $ 27,305 $ 30,043
Net interest margin...................................................... 4.10% 3.83% 3.24%
INTERNATIONAL OPERATIONS
Net interest revenue -- (fully taxable equivalent basis)................. $ 239.1 $ 205.2 $ 163.6
========= ======== ========
Average loans and lease financing........................................ $ 5,523 $ 4,438 $ 3,438
Average earning assets................................................... $ 7,557 $ 5,924 $ 4,520
Net interest margin...................................................... 3.16% 3.46% 3.62%
CONSOLIDATED
Net interest revenue..................................................... $ 1,326.9 $1,239.0 $1,114.8
Tax equivalent adjustment................................................ 7.8 10.8 20.8
--------- -------- --------
Net interest revenue -- (fully taxable equivalent basis)................. $ 1,334.7 $1,249.8 $1,135.6
========= ======== ========
Average loans and lease financing........................................ $ 26,586 $ 25,330 $ 26,167
Average earning assets................................................... $ 34,299 $ 33,229 $ 34,563
Net interest margin...................................................... 3.89% 3.76% 3.29%
</TABLE>
1993 Compared with 1992
Consolidated net interest revenue, on a fully taxable equivalent basis, was
$1,335 million in 1993, an increase of $85 million from $1,250 million in 1992.
Consolidated net interest margin grew 13 basis points, from 3.76% in 1992 to
3.89% in 1993.
The improvement in net interest revenue resulted, in part, from a $51 million
increase from domestic operations. The domestic increase was mainly attributable
to wider domestic spreads resulting from lower deposit costs, higher levels of
noninterest bearing sources of funds, including deposits and stockholders'
equity, and a decline in nonaccrual loans and leases and OREO. Although average
domestic loan volume was up only slightly from 1992 and, therefore, contributed
modestly to the growth in domestic net interest revenue, there was a $2.1
billion increase in the ending balance of domestic loans and leases between
December 31, 1992 and December 31, 1993. Domestic loans and leases declined
during the course of 1992 and through the first quarter of 1993, with growth in
the portfolio occurring during the last three quarters of 1993. The increase in
international net interest revenue of $34 million was mainly caused by a $1.1
billion increase in average loan volume stemming from Latin American operations,
particularly Argentina and Brazil. Narrower international spreads partially
offset the improvement that resulted from volume growth.
The 13 basis point increase in consolidated net interest margin reflected a
higher domestic margin, resulting from the same factors that caused the growth
in net interest revenue as discussed above. The margin improvement from domestic
operations was partially offset by a decline in margin from international
operations. Spreads narrowed in Argentina, mainly because of the stabilizing
economy, which has resulted in declining inflation. In addition, spreads on
local currency operations (local currency assets funded with local currency
liabilities) in Brazil were narrower, stemming, in part, from a change in the
mix of assets from higher-yielding loans to other earning assets.
The levels of increases in net interest revenue and margin from 1992 to 1993 are
not necessarily indicative of future results. Net interest revenue and margin
are affected by the current interest rate environment, the mix and volume of
assets and liabilities, the level of nonperforming assets, competitive pressure,
economic and political conditions in the countries where the Corporation does
business, and other factors. As such, there can be no assurance as to the future
levels of net interest revenue or margin.
1992 Compared with 1991
Consolidated net interest revenue, on a fully taxable equivalent basis and
excluding the estimated effect of the Brazilian currency position, was $1,250
million in 1992, compared with $1,136 million in 1991. In addition, net interest
margin grew from 3.29% in 1991 to 3.76% in 1992. The improvement in net interest
revenue mainly reflected a $73 million increase from domestic operations,
stemming from lower funding costs, a decline in the level of nonaccrual loans
and leases and OREO, and higher levels of noninterest bearing sources of funds,
including deposits and stockholders' equity. These same factors helped increase
the domestic margin. The positive factors affecting domestic net interest
revenue more than offset a decline caused by a $2.7 billion drop in average
earning assets. Net interest revenue from international operations grew $41
million due to average loan growth of $1 billion, primarily in Latin America.
The loan growth more than offset the effect of a 16 basis point decline in
international margin.
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<TABLE>
NONINTEREST INCOME
The following is an analysis of the major components of noninterest income.
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
Financial service fees (see table below)........................................... $ 350 $ 355 $ 357
Trust and agency fees.............................................................. 178 166 157
Trading profits and commissions.................................................... 24 16 22
Securities gains................................................................... 32 39 29
Mezzanine/venture capital profits.................................................. 38 17 41
Net foreign exchange trading profits............................................... 45 41 41
Gains from sales of mortgage servicing rights...................................... 1 15 34
Recognition of deferred gain from the 1984 sale of the headquarters building....... 16
Other.............................................................................. 77 92 82
----- ----- -----
Subtotal..................................................................... 745 757 763
Estimated effect of Brazilian currency position.................................... (174) (50)
----- ----- -----
Total........................................................................ $ 571 $ 707 $ 763
===== ===== =====
</TABLE>
<TABLE>
The following is an analysis of the major components of financial service fees.
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
Deposit fees....................................................................... $ 122 $ 119 $ 111
Letter of credit and acceptance fees............................................... 58 55 51
Mortgage servicing fees:
Fee income....................................................................... 105 99 91
Amortization of mortgage servicing assets........................................ (99) (71) (37)
----- ----- -----
Net mortgage servicing fees.................................................... 6 28 54
Loan-related fees.................................................................. 45 35 28
Factoring fees..................................................................... 29 31 34
Other.............................................................................. 90 87 79
----- ----- -----
Total.......................................................................... $ 350 $ 355 $ 357
===== ===== =====
</TABLE>
1993 Compared with 1992
Consolidated noninterest income was $571 million in 1993, compared with $707
million in 1992. This decline was mainly caused by a $124 million increase in
net translation/hedge losses from the estimated effect of the Corporation's
Brazilian currency position; however, the negative effect on noninterest income
from this currency position was offset by a $125 million increase in net
interest revenue. A detailed discussion of the Brazilian currency position is
included on page 33. Excluding the estimated effect of the Brazilian currency
position, noninterest income in 1993 was $745 million, compared with $757
million in 1992.
During 1993, there was a $21 million increase in profits from mezzanine and
venture investments, as a result of a large gain from one sale transaction
recorded in 1993; a $17 million increase in financial service fees (excluding
net mortgage servicing fees), including a $10 million increase in loan-related
fees; a $12 million increase in trust and agency fees, principally from higher
stock transfer and international mutual fund fees, and an $8 million increase in
trading profits and commissions, primarily from Argentine securities. Trading
profits and commissions included $5 million in 1993 and $3 million in 1992 from
trading in off-balance-sheet financial markets instruments. More than offsetting
these improvements were declines in several noninterest income categories,
including a $22 million decrease in net mortgage servicing fees, which reflected
a $28 million increase in the level of amortization of mortgage servicing
assets. The increase in amortization was moderated by a $6 million increase in
gross mortgage servicing fees, stemming from a higher level of originations and
the retention of servicing business.
As a result of a substantial increase in mortgage prepayments that began in the
latter half of 1992 and continued throughout 1993, amortization of PMSR was
increased. In addition, effective January 1, 1993, the Corporation changed its
method of evaluating the carrying value of PMSR to a discounted method adopted
by the banking regulators in the first quarter of 1993. The Corporation recorded
an additional charge of $17 million in 1993 from applying this new methodology,
all of which was recorded in the first quarter of 1993. The cumulative effect of
applying this new method to January 1, 1993 is discussed in Note 9 to the
Financial Statements. Also, beginning in the first quarter of 1993, the
Corporation refined its risk management strategy with respect to PMSR by
entering into contracts that are designed to reimburse the Corporation for a
portion of the reduction in value of PMSR, as interest rates fall and
prepayments increase. The level of amortization in 1993 was modestly benefited
by these contracts. The Corporation will continue its regular review of the
mortgage servicing portfolio and, if conditions warrant, will adjust its future
amortization levels or take additional writedowns in light of changes in
interest rates, prepayment experience and other factors. No assurance can be
given as to the future level of net mortgage servicing fees, as they will be
affected by a variety of factors including changes in the level of mortgage
interest rates.
Additional items affecting noninterest income were: the recognition in 1992 of
the remaining $16 million unamor-
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CONTINUED
tized gain from the 1984 sale of the Corporation's headquarters building, as a
result of the termination of the original lease agreement and subsequent entry
into a new lease of the building; a $14 million decline in gains from the sales
of mortgage servicing rights, and a $7 million decline in securities gains, as
lower gains from sales of U.S. government securities more than offset higher
gains from sales of Argentine securities. The $15 million decline in other
income included lower gains from the sales of assets received in connection with
lending activities.
1992 Compared with 1991
Noninterest income declined $56 million from 1991, of which $50 million was
attributable to the estimated effect of the Brazilian currency position on 1992
results. The estimated effect of this position on 1991 was not significant.
Excluding the estimated effect of the Brazilian currency position, noninterest
income declined $6 million from 1991. Net mortgage servicing fees declined $26
million because of higher amortization of mortgage servicing assets, resulting
from the higher level of prepayments that the Corporation began experiencing in
the second half of 1992. In addition, profits from mezzanine and venture
investments declined $24 million as the third quarter of 1991 included a large
gain from one sale transaction, and gains from sales of mortgage servicing
rights declined $19 million, mainly from Bancorp's 1991 sale of its entire
portfolio of these rights. These declines were partially offset by a $24 million
increase in financial service fees, excluding net mortgage servicing fees, the
recognition in 1992 of the remaining $16 million unamortized gain from the 1984
sale of the Corporation's headquarters building discussed above, a $10 million
increase in securities gains and a $9 million increase in trust and agency fees.
<TABLE>
NONINTEREST EXPENSE
The following table is an analysis of the major components of noninterest
expense.
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
Salaries...................................................................... $ 635 $ 605 $ 571
Employee benefits............................................................. 136 121 113
Occupancy expense............................................................. 128 126 135
Equipment expense............................................................. 96 101 103
Professional fees............................................................. 56 68 80
FDIC deposit insurance........................................................ 62 56 56
Other......................................................................... 289 284 293
------- ------ ------
Noninterest expense, excluding OREO costs and special charges............. 1,402 1,361 1,351
OREO costs.................................................................... 44 113 113
Merger and restructuring charge............................................... 85 54
Acquisition-related costs..................................................... 20
------- ------ ------
Total................................................................. $ 1,531 $1,474 $1,538
======= ====== ======
</TABLE>
1993 Compared with 1992
Noninterest expense was $1,531 million in 1993, compared with $1,474 million in
1992. Noninterest expense, excluding OREO costs and special charges, increased
$41 million from $1,361 million in 1992 to $1,402 million in 1993. This mainly
resulted from an increase in employee costs, including a $30 million rise in
salaries and a $15 million increase in employee benefits. The growth in employee
costs reflected increased investments in growth businesses, mainly in Latin
America and domestic Retail and Small Business Banking, a higher average number
of employees, normal salary increases and the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions."
Additional information on SFAS No. 106 can be found in Note 16 to the Financial
Statements. In addition, advertising costs increased $8 million and FDIC deposit
insurance grew $6 million reflecting higher assessment rates. These increases
were partially offset by a $12 million decline in professional fees,
attributable to lower consulting and legal expense, and a $5 million decline in
equipment expense, caused by lower rent and repair expenses.
While noninterest expense grew $41 million and the average number of employees
increased as described above, noninterest expense, excluding OREO costs, in the
fourth quarter of 1993 was $15 million less than the fourth quarter of 1992, and
the number of employees declined by 815 between December 31, 1992 and December
31, 1993, from 19,459 to 18,644. The improvement in the fourth quarter
comparison reflected management's efforts to reduce costs and staff levels, as
well as the integration of the operations of Bancorp and Multibank, which are
discussed below. There can be no assurance, however, that these improvements in
noninterest expense and the trend in employee levels will continue as the
Corporation continues to assess new business opportunities and additional
investments in businesses considered strategically important to the Corporation.
During the third quarter of 1993, the Corporation recorded $85 million of merger
and restructuring charges ($57 million after taxes). These charges were
primarily recorded in connection with the July 1993 mergers with Bancorp and
Multibank and included investment banking and other professional fees, stock
issuance costs and other expenses associated with the mergers, as well as
estimated costs to reorganize and restructure facilities and operations, systems
conversion costs and severance costs associated with the integration of these
entities. A portion of the total charge covered the costs of other expense
reduction initiatives in the Corporation. Since both of the mergers represented
in-
37
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CONTINUED
market combinations, the Corporation estimates that it will achieve cost
savings, primarily through reductions in staff, as well as systems and space
consolidations. Current estimates are that the Corporation will achieve savings
approximating 40% of the annual pre-merger level of noninterest expense
(excluding OREO costs) of Bancorp's and Multibank's New England operations.
Certain of these savings were achieved in the second half of 1993, and
additional savings will be achieved through 1995, as the Corporation implements
the remainder of its detailed integration plans. There can be no assurance,
however, as to the level or timing of actual cost savings from the integrations
of Bancorp and Multibank. In addition, these savings could be offset by
increased costs from new business opportunities or additional investments in
businesses considered strategically important to the Corporation.
OREO costs declined $69 million from 1992, reflecting lower valuation writedowns
associated with these assets, as the OREO balance declined 36% from December 31,
1992 to December 31, 1993.
1992 Compared with 1991
Noninterest expense, excluding OREO costs, restructuring charges and
acquisition-related costs, increased $10 million in 1992 from 1991. Employee
costs rose $42 million, mainly reflecting an increase in incentive compensation,
higher employee costs from Brazilian and Argentine operations, an increase in
the number of domestic employees and normal salary increases. In addition,
advertising expense grew $9 million stemming from new domestic and international
advertising campaigns launched in 1992. Factors, which offset the growth in
employee costs and advertising expense, were the absence of a $17 million
write-off of computer equipment, bank premises, and undeveloped real estate
recorded by Bancorp in 1991, a $12 million decline in professional fees as a
result of lower problem loan-related expenses and proactive management of legal
fees, and a $9 million decline in occupancy expense as lower domestic rent
expense, the result of space consolidations and the renegotiation of leases,
more than offset the absence of amortization associated with the unamortized
gain from the 1984 sale of the Corporation's headquarters building.
In addition, 1991 included a $54 million restructuring charge ($7 million of
which was recorded by Bancorp) incurred mainly in connection with the
Corporation's plans for the consolidation and downsizing of various domestic and
international operations and facilities and reducing the number of employees.
Also included in 1991 were $20 million of expenses associated with the
Corporation's unsuccessful bid to acquire the failed Bank of New England
franchise and merger discussions with Shawmut National Corporation that were
terminated.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $70 million in 1993, compared with $180
million in 1992, and $519 million in 1991. The $110 million decline from 1992
reflected management's assessment of the current risk characteristics of the
loan portfolio and level of the reserve for credit losses in light of further
declines in nonaccrual loans and leases and net credit losses, as well as
modestly improved United States and New England economies and other factors.
Nonaccrual loans and leases declined $962 million, from $1,513 million at the
end of 1991 to $551 million at the end of 1993 and, as a result, the reserve for
credit losses increased to 140% of nonaccrual loans and leases at December 31,
1993, compared with 119% at the end of 1992, and 69% at the end of 1991.
Consolidated net credit losses declined to $223 million in 1993, compared with
$309 million in 1992, and $490 million in 1991. Net credit losses exceeded the
provision for credit losses in each of the last two years: by $153 million in
1993, and by $128 million in 1992. While it is anticipated that the provision
for credit losses will increase from the 1993 level, the amount will be a
function of the quarterly review of the reserve for credit losses. This review
will be affected by the risk characteristics of the portfolio and the economic
conditions existing at that time and, therefore, there can be no assurance as to
the amount of future provisions.
During 1993, the Corporation reclassified in-substance repossessions (ISRs) from
OREO to nonaccrual loans. ISRs are loans where the borrower has little or no
remaining equity in the collateral when considering its fair value; where
repayment can only be expected to come from the operation or sale of the
property and where the borrower has effectively abandoned control of the
property, or where it is doubtful that the borrower will be able to rebuild
equity in the property. Although the Corporation did not possess title to these
properties, it carried these properties as OREO since 1989, as required by the
bank regulators. In June 1993, however, the regulators revised their position to
allow ISRs to be carried as loans. The Corporation chose to reclassify ISRs from
OREO to nonaccrual loans, and has restated the balance sheets and income
statements of all prior periods for comparative purposes. Additional information
on the reclassification of ISRs is included in Note 6 to the Financial
Statements.
PROVISION FOR INCOME TAXES
The 1993 income tax provision was $215 million, compared with a provision of
$153 million in 1992, and a benefit of $58 million in 1991. The current year
provision included the effect of the 1993 federal income tax law changes, which
were not significant. A minor increase in the provision from a higher income tax
rate on current earnings was offset by required adjustments to the Corporation's
deferred tax balance. Effective January 1, 1993, the Corporation adopted
prospectively SFAS No. 109, which principally affected the manner in which the
Corporation accounted for deferred income taxes. The cumulative effect to
January 1, 1993 of adopting SFAS No. 109 was an increase to net income of $77
million. The 1992 provision was offset by the recognition of prior year tax
benefit carryforwards of $73 million, which are shown separately as
extraordinary income. The 1991 income tax benefit included $52 million ($34
million after federal income tax effect) from a tax settlement reached with The
Commonwealth of Massachusetts and $25 million from the refund of prior years'
federal minimum taxes. These benefits were offset by the inability of the
38
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CONTINUED
Corporation to recognize in 1991, for financial statement purposes, $61 million
of tax benefits related to foreign tax credits and net operating loss
carryforwards in that year. Additional information with respect to the
Corporation's income taxes, including information related to the adoption of
SFAS No. 109, is included in Note 20 to the Financial Statements.
FINANCIAL CONDITION
Asset quality and asset/liability management, including liquidity, interest rate
risk and capital resources, are important elements to be considered in
understanding and assessing the Corporation's financial condition. Inflation has
generally had a minimal impact on the Corporation because substantially all of
its assets and liabilities are of a monetary nature and a large portion of its
operations are based in the United States, where inflation has been low. As
discussed on page 33, a currency position maintained by the Corporation in
Brazil, a country with a hyperinflationary economy, has had an effect on the
levels of net interest revenue, noninterest income and net interest margin,
while modestly benefiting total revenue.
ASSET QUALITY
CREDIT POLICY
The Senior Credit Officer, in consultation with the Credit Policy Committee, is
responsible for ensuring that credit policies are well constructed and complete,
approving underwriting guidelines and approving those credit authorities over $1
million that are granted to individual officers. In addition, the Credit
Department, reporting to the Senior Credit Officer, is responsible for ensuring
that credit due diligence and administration meet the Corporation's standards
and conform to the Corporation's policies. The Credit Policy Committee is
responsible for reviewing and approving portfolio concentration limits relating
to industry, geography and product type.
The Corporation also has a risk rating system that is intended to assess risk in
the credit portfolio and identify problems before they result in losses. This
system, which is overseen by the Risk Review Department, is an important element
in the monitoring process. The Risk Review Department is independent from the
core businesses' credit areas. It reviews the risk rating process and tests the
ratings that are established by lending officers.
While sound credit policies serve to reduce the Corporation's exposure to credit
risks, they do not insulate the Corporation from losses.
LOANS AND LEASES
Of the Corporation's $35.9 billion in earning assets at December 31, 1993, 80%
were loans and leases, compared with 77% at the end of 1992. The remaining
earning assets were invested in interest bearing deposits in other banks,
federal funds sold and resale agreements, mortgages held for sale and
securities. The size of the loan portfolio relative to total earning assets
exposes the Corporation to varying degrees of credit risk. While the Corporation
experienced deterioration in certain portions of its loan portfolio in prior
years, particularly in the domestic commercial real estate portfolio, nonaccrual
loans and leases and OREO have been reduced to $659 million at December 31,
1993, from $949 million at the end of 1992, and $1,838 million at the end of
1991. These decreases included reductions in domestic commercial real estate
nonaccrual loans and OREO of $227 million in 1993 and $591 million in 1992. The
reductions reflected the results of a number of programs introduced by the
Corporation over the last few years that reinforced its commitment to a stronger
management of credit, as well as the effects of modestly improved economies in
the United States and New England in 1993. Further discussion on the management
of the Corporation's domestic commercial real estate portfolio can be found in
the Domestic Commercial Real Estate Loans and OREO section on page 40.
Domestic loans and leases as of December 31, 1993 were $22.6 billion and
accounted for 78% of the consolidated portfolio, compared with $20.5 billion and
81% at the end of 1992, and $21.4 billion and 84% at the end of 1991. Slightly
more than half of the domestic loans and leases were to borrowers domiciled in
New England. The $2.1 billion growth in 1993 included a $.6 billion increase in
loans from the Specialized Finance businesses, mainly Energy and Utilities,
Transportation and Environmental Services, as the Corporation benefited from its
status as a top-tier relationship bank to these industries; a $.5 billion
increase in residential mortgages, resulting from a decision to retain more
mortgages in 1993 rather than sell them into the secondary market, and a $.3
billion increase in loans from the New England Corporate lending businesses. The
remainder of the increase came from other commercial lending businesses and
loans to individuals. The domestic loan growth has been helped by the Bank of
Boston Credit Initiative that was announced in May 1992. The largest single
category of domestic loans and leases, which is diversified as to industry,
consists of lending to commercial, industrial and financial borrowers, and
equaled 53% of domestic loans and leases at December 31, 1993. Retail loans,
which include residential mortgage, home equity and installment loans, amounted
to 26% of the domestic portfolio. Loans secured by commercial real estate were
17% of the domestic portfolio and represented the only industry concentration
that exceeded 10% of the portfolio.
While total domestic loans and leases rose $2.1 billion during 1993, the
proportion of domestic loans and leases to total loans and leases has declined
during the past two years. This resulted from an increase in international loans
and leases, from $4.0 billion at December 31, 1991, and $4.9 billion at December
31, 1992 to $6.2 billion at December 31, 1993. These increases mainly reflected
growth in the Corporation's Argentine and Brazilian portfolios. The Corporation
has a strong market position in both of these countries. Information on the
Corporation's cross-border outstandings to these and other countries can be
found in Consolidated Statistical Information on pages 86 and 87.
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Consolidated loans and leases grew 13% from the end of 1992 and the Corporation
continues to pursue new lending opportunities. The Corporation's ability to
extend new credit, however, is a function of a variety of factors, including
competition for customers' business and the economies in New England, other
parts of the United States and in other countries where the Corporation does
business. As such, there can be no assurance that the rate of loan growth
experienced in 1993 will be sustained in the future. Further information on the
Corporation's loan and lease portfolio can be found in Consolidated Statistical
Information on pages 88 through 89 and in Note 6 to the Financial Statements.
Domestic Commercial Real Estate Loans and OREO
The Corporation's domestic commercial real estate portfolio, including OREO, was
$3.8 billion at December 31, 1993, compared with $4.2 billion at the end of
1992, and $4.9 billion at the end of 1991. The $1.1 billion decrease since the
end of 1991 reflected the effect of tighter underwriting standards for new loans
and renewals or extensions of existing loans; payments received; sales of OREO
properties; credit losses and valuation adjustments recorded, and proactive
management of the portfolio. The table below details domestic commercial real
estate loans and OREO by geographic location. The portion attributable to other
states at the end of 1993 was spread among approximately 23 states.
<TABLE>
DOMESTIC COMMERCIAL REAL ESTATE OUTSTANDINGS
BY GEOGRAPHIC LOCATION
<CAPTION>
OTHER NEW OTHER
(IN MILLIONS) MASSACHUSETTS CONNECTICUT ENGLAND FLORIDA TEXAS STATES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................ $1,373 $607 $802 $187 $ 54 $823 $3,846
====== ==== ==== ==== ==== ==== ======
Balance at December 31, 1992................ $1,348 $775 $805 $234 $ 91 $971 $4,224
====== ==== ==== ==== ==== ==== ======
Balance at December 31, 1991................ $1,774 $964 $854 $268 $115 $963 $4,938
====== ==== ==== ==== ==== ==== ======
</TABLE>
Developmental real estate outstandings, which are included in the totals shown
above, were approximately $3.2 billion at December 31, 1993, compared with $3.3
billion at the end of 1992. These are assets from which ultimate payment to the
Corporation is expected to come from the sale, operation or refinancing of the
underlying property. The collateral underlying developmental real estate
outstandings is valued at least annually using various real estate valuation
techniques, including discounted cash flows and appraisals. The remaining
portfolio of $.6 billion at December 31, 1993, and $.9 billion at the end of
1992 was primarily composed of outstandings, secured by real estate, where the
property is not viewed as the principal source of repayment and is usually
occupied by the owner.
The Corporation has been an active real estate lender for over forty years.
While it has had experience with the cyclical nature of real estate markets,
the simultaneous deterioration in New England and several other markets
nationwide had a significant adverse effect on the quality of the Corporation's
domestic commercial real estate portfolio during the past several years. These
markets have experienced overbuilding, high vacancy rates and reduced lease
rates, which have triggered a shortfall of revenues. This effect has been
experienced with respect to all types of properties to such an extent that many
borrowers have been unable to service their debt. Through its active management
of the portfolio during the past few years and because of a modestly improved
economy in 1993, the Corporation has been able to reduce its domestic
commercial real estate nonaccrual loans and OREO. The reduced interest rate
environment has assisted in these efforts. At December 31, 1993, total domestic
commercial real estate nonaccrual loans and OREO were $367 million, compared
with $594 million at the end of 1992, and $1,185 million at the end of 1991.
<TABLE>
The following table details domestic commercial real estate nonaccrual loans and
OREO by geographic location at December 31, 1993:
DOMESTIC COMMERCIAL REAL ESTATE NONACCRUAL LOANS AND OREO
BY GEOGRAPHIC LOCATION
<CAPTION>
OTHER NEW OTHER
(DOLLARS IN MILLIONS) MASSACHUSETTS CONNECTICUT ENGLAND FLORIDA TEXAS STATES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................ $103 $ 68 $ 52 $15 $ 8 $121 $ 367
==== ==== ==== === ==== ==== ====
Percent of related outstandings............. 9% 13% 6% 8% 15% 11% 10%
Balance at December 31, 1992................ $179 $118 $ 88 $22 $12 $175 $ 594
==== ==== ==== === ==== ==== ====
Percent of related outstandings............. 13% 15% 11% 9% 13% 18% 14%
Balance at December 31, 1991................ $358 $237 $177 $45 $24 $344 $1,185
==== ==== ==== === === ==== =====
Percent of related outstandings............. 20% 25% 21% 17% 21% 36% 24%
</TABLE>
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The Corporation continues to actively manage its pool of domestic commercial
real estate loans and OREO in an effort to minimize losses by quickly
identifying and resolving problems. The Boston-based Real Estate Department
manages the majority of the Corporation's accruing domestic commercial real
estate loans. The Asset Recovery Department, which includes real estate lenders
and workout specialists, handles substantially all of the Corporation's domestic
nonaccrual commercial real estate loans and OREO. These departments continually
review their portfolios and update plans for resolution of problem real estate
assets, focusing on the sale and refinancing options that are realistically
available in the current market. An essential part of the workout strategy is
the regular monitoring of property cash flows. Where appropriate, these
departments will work with borrowers and guarantors of loans to improve equity
in the properties or otherwise renegotiate the credits so that they can make a
positive contribution to the Corporation. If a renegotiation is accomplished, it
is accounted for in accordance with SFAS No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings" (see discussion of Renegotiated
Loans on page 44). If warranted, the Corporation will foreclose on the
collateral. When a property becomes owned, the strategy is to dispose of the
property as soon as possible with the objective of maximizing value to the
Corporation.
Domestic OREO, which is included in the preceding table, was $106 million at
December 31, 1993, compared with $168 million at the end of 1992, and $322
million at the end of 1991.
The commercial real estate portfolio is affected by changes in the economy,
interest rates, the supply of commercial properties and other factors. While the
level of domestic commercial real estate nonaccrual loans and OREO has declined
during the past three years, no assurance can be given as to the future level of
domestic commercial real estate nonaccrual loans and OREO.
HLTs
Loans made by many of the Corporation's lending divisions to finance
transactions involving leveraged buyouts, acquisitions, and recapitalizations
are classified as HLTs, if, by the nature of the loan terms and the profile of
the customer, the transaction qualifies for this classification under the
current bank regulatory definition of HLTs.
The HLT definition encompasses areas where a high degree of leverage would be
expected in a traditional lending environment, such as asset-based lending and
lending to the communications industry, particularly cable, where equity is
traditionally low and cash flow is the predominant factor in assessing repayment
ability. Under the definition, an HLT is a credit extended to, or an investment
made in, a business where the transaction involves the buyout, acquisition, or
recapitalization of an existing business, and where one of the following three
criteria is met: the transaction at least doubles the customer's liabilities and
results in a leverage ratio greater than 50%; the transaction results in a
leverage ratio greater than 75%, or the transaction is designated an HLT by its
syndication agent. Leverage is defined as the ratio of total liabilities, which
include subordinated debt and nonperpetual preferred stock, to total assets. The
definition excludes loans and exposures to customers in which the total original
financing package, including all obligations held by all participants, amounts
to $20 million or less. Delisting of a credit from HLT status is allowed under
certain circumstances related to the customer's performance.
HLT loans were $1.3 billion, or 5% of the total loan and lease portfolio, at
December 31, 1993, compared with $1.6 billion, or 6%, at the end of 1992 and
$2.6 billion, or 10%, at end of 1991. The decline in HLT loans from December 31,
1992 was mainly a result of a combination of principal payments and delistings.
Of the total HLT portfolio outstanding at December 31, 1993, 94% were domestic
credits that were spread over 21 states, with 13% to companies with headquarters
in New England.
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<TABLE>
The following is an analysis of the year-end outstanding HLT loan portfolio by
industry, segregated between those in which the Corporation has a lending
specialization and others:
HLT LOANS BY INDUSTRY
<CAPTION>
DECEMBER 31
NUMBER OF PERCENT OF 1993 1992 1991
(DOLLARS IN MILLIONS) COMPANIES OUTSTANDING Outstandings Outstandings
<S> <C> <C> <C> <C> <C>
INDUSTRY SPECIALIZATION
Cable................................................. 9 13% $ 167 $ 447 $ 538
Broadcasting.......................................... 6 4 56 137 324
Media and publishing.................................. 4 7 90 71 172
-- ---- ------ ------ ------
Total communications................................ 19 24 313 655 1,034
High technology....................................... 3 2 22 70 224
Transportation........................................ 4 9 119 115 124
Energy and utilities.................................. 3 5 70 19 30
Insurance and mutual funds............................ 2 3 37 18 39
-- ---- ------ ------ ------
Total industry specialization....................... 31 43 561 877 1,451
-- ---- ------ ------ ------
OTHERS
Food, beverages and tobacco........................... 12 21 271 50 169
Consumer products/retailing........................... 7 6 81 127 182
Metals................................................ 1 2 27 132 208
Machinery, equipment and components................... 4 5 69 159 212
Textiles and apparel.................................. 3 4 50 51 71
Health care........................................... 4 4 51 32 73
Other................................................. 13 15 194 159 254
-- ---- ------ ------ ------
Total others........................................ 44 57 743 710 1,169
-- ---- ------ ------ ------
Total HLTs........................................ 75 100% $1,304 $1,587 $2,620
== ==== ====== ====== ======
</TABLE>
<TABLE>
The following is an analysis of the HLT loan portfolio by loan size at the end
of 1993, 1992 and 1991:
HLT LOANS BY SIZE
<CAPTION>
DECEMBER 31 1993 1992 1991
NUMBER OF AVERAGE
(DOLLARS IN MILLIONS) COMPANIES OUTSTANDINGS LOAN SIZE Average Loan Size
<S> <C> <C> <C> <C> <C>
OUTSTANDING LOAN SIZE
$0 - 24.................................................... 57 $ 650 $11 $ 12 $ 13
$25 - 49................................................... 14 441 32 37 36
$50 - 74................................................... 4 213 53 63 66
$75 - 99................................................... 96
$100+...................................................... 114 120
-- ------
75 $1,304 17 21 23
== ====== === ===== =====
</TABLE>
In addition to the loans above, certain of the Corporation's outstanding
mezzanine and venture capital investments meet the definition of HLT
investments. Such investments amounted to $121 million in 24 companies at
December 31, 1993, compared with $152 million in 32 companies at December 31,
1992, and $193 million in 43 companies at the end of 1991.
The amount of unused lending commitments for HLTs at December 31, 1993 was $540
million, compared with $404 million at December 31, 1992, and $639 million at
the end of 1991. These totals do not necessarily represent the actual future
funding by the Corporation since a portion can be syndicated or assigned to
others or may expire without being drawn upon. During 1993, the Corporation made
commitments in connection with HLT financings of approximately $654 million,
with an average commitment size of approximately $30 million.
The Corporation recognizes that in an economic downturn or sustained period of
high interest rates, borrowers whose loans are classified as HLTs may experience
financial stress. As a result, risks associated with certain of these
transactions may be higher than for more traditional financings. The approval
process for HLTs includes varying levels of individual and committee reviews
based upon the loan size. The process also includes a review by the Syndications
Division if distribution of the transaction is contemplated. Individual
customer, underwriting and internal limits are in effect for all of the
Corporation's loans, including special limits, established in 1990, on HLTs held
for the Corporation's own account. These special limits are $50 million if the
HLT is agented by the Corporation and $25 million for all other HLTs. Once
originated, all credits are subject to periodic reviews, with the frequency of
the review determined by the loan's risk rating.
In general, HLT loans are assets that yield more than most commercial loans.
Typically, interest rates on new HLTs range from 1.5% to 2.75% over LIBOR and
fees charged range from .75% to 1.5% of the principal amount committed. Certain
fees are deferred and recognized as income in future periods in accordance with
SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases."
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During 1993, the Corporation recognized approximately $16 million of fee income
on HLT loans, of which $8 million related to fees received and deferred in prior
years and $7 million reflected fees received and recognized in 1993 from loans
originated prior to 1993. In addition, the Corporation received $4 million of
fees related to loans originated in 1993, of which $1 million was recognized as
income during the year.
During 1992, the Corporation recognized approximately $26 million of fee income
on HLT loans, of which $7 million related to fees received and deferred in prior
years and $18 million reflected fees received and recognized in 1992 from loans
originated prior to 1992. In addition, the Corporation received $3 million of
fees related to loans originated in 1992, of which $1 million was recognized as
income during that year.
During 1991, the Corporation recognized approximately $18 million of fee income
on HLT loans.
HLT net credit losses were $21 million in 1993, compared with $19 million in
1992, and $50 million in 1991. Of the total net credit losses during the past
three years, 68% related to three large credits. The 1993 and 1992 net credit
losses included $7 million, and $8 million, respectively, related to HLTs
collateralized by commercial real estate. HLT nonaccruals at December 31, 1993
were $10 million compared with $57 million at December 31, 1992, and $155
million at the end of 1991. Included in the nonaccrual amounts for 1993, 1992
and 1991 were $4 million, $14 million and $22 million, respectively, which were
collateralized by commercial real estate and are, therefore, also reflected in
the amounts and tables detailed in the Domestic Commercial Real Estate Loans and
OREO section on pages 40 to 41.
Over the past several years, the Corporation has experienced a significant
reduction in its HLT activities. At the end of 1989, the Corporation's HLT loan
portfolio stood at $5.3 billion, compared with $1.3 billion at the end of 1993,
a 75% reduction. During 1993, 1992 and 1991, respectively, twenty new loans
totaling $380 million, eight new loans totaling $116 million and twelve new
loans totaling $145 million were funded. It is estimated that the new HLT loans
did not make a significant contribution to the Corporation's pre-tax results and
gross revenues in 1993, 1992 and 1991. Historically, the Corporation has been
actively 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 level at December 31, 1993.
NONACCRUAL LOANS AND LEASES AND OREO
Under the Corporation's nonaccrual policy, a loan or lease is placed on
nonaccrual status when collectibility of principal or interest is doubtful, or
when any portion of the principal or interest is ninety days past due, unless it
is well secured and in the process of collection. Whenever a loan or lease is
placed on nonaccrual status, all other credit exposures to the same borrower are
also placed on nonaccrual status; exceptions are made only when it can be
clearly demonstrated that such credits are well secured, fully performing and
insulated from the weakness surrounding the nonaccrual credit to which they
relate. Interest payments received on nonaccrual loans and leases are applied as
a reduction of the principal balance when concern exists as to the ultimate
collection of principal; otherwise such payments are recognized as interest
income.
<TABLE>
The following table is a summary of nonaccrual loans and leases and OREO:
<CAPTION>
DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
DOMESTIC NONACCRUAL LOANS AND LEASES
Commercial, industrial and financial............................................. $ 118 $ 201 $ 385
Construction..................................................................... 30 81 123
Other commercial real estate..................................................... 231 345 740
Real estate secured by 1-4 family residences..................................... 64 58 69
Loans to individuals............................................................. 10 26 32
Lease financing.................................................................. 1 2 5
----- ----- ------
454 713 1,354
INTERNATIONAL NONACCRUAL LOANS AND LEASES 97 66 159
----- ----- ------
Total nonaccrual loans and leases 551 779 1,513
OREO
Domestic......................................................................... 106 168 322
International.................................................................... 2 2 3
----- ----- ------
Total nonaccrual loans and leases and OREO..................................... $ 659 $ 949 $1,838
===== ===== ======
Nonaccrual loan and leases and OREO as a percent of related asset categories....... 2.3% 3.7% 7.2%
===== ===== ======
</TABLE>
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<TABLE>
The following table summarizes the changes in nonaccrual loans and leases and
OREO that have occurred during the last two years:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992
<S> <C> <C>
(IN MILLIONS)
Beginning balance......................................................................... $ 949 $ 1,838
Additions................................................................................. 486 670
Sales, restructurings, payments and other decreases....................................... (482) (1,072)
Charge-offs and valuation adjustments..................................................... (294) (487)
------ --------
Ending balance............................................................................ $ 659 $ 949
====== ========
</TABLE>
The level of nonaccrual loans and leases and OREO is influenced by the economic
environment, interest rates, regulatory attitudes and other internal and
external factors. While the Corporation has experienced a decline in the balance
of its nonaccrual loans and leases and OREO during the past two years,
additions, as seen in the above table, exceeded outflows before the effect of
charge-offs and valuation adjustments, by $4 million in 1993; for the second
half of 1993, additions were higher than outflows by $54 million. At December
31, 1993, the ratio of nonaccrual loans and OREO to related asset categories was
2.3%, the lowest reported by the Corporation in over a decade. Given this low
level of nonaccrual loans and leases and OREO, the Corporation may experience an
increase in the level of these assets in 1994.
RENEGOTIATED LOANS
Loans are renegotiated when the Corporation determines that it will ultimately
receive greater economic value by relaxing the terms than through foreclosure,
liquidation or bankruptcy. Candidates for renegotiation must meet specific
guidelines and undergo extensive due diligence reviews. Guidelines consider the
quality of the borrower and the borrower's ability to enhance the value of the
property; the collateral; the ability of the guarantor, if any, to perform, and
the economic value of the renegotiated loan relative to foreclosure and other
options. Renegotiation also allows the Corporation to maintain the customer
relationship and grants the customer more time to regain equity in the property.
The terms of the renegotiation generally involve some or all of the following
characteristics: a reduction in the interest pay rate to reflect actual property
income, an extension of loan maturity date to allow time for stabilization of
property income and partial forgiveness of principal and interest. In certain
circumstances, the Corporation also obtains the right to share in future
benefits arising from the upside potential of the collateral. Once a
renegotiation takes place, the loan is subject to the accounting and disclosure
rules prescribed by SFAS No. 15.
Renegotiated loans, which are performing in accordance with their new terms and,
therefore, are not included in nonaccrual loans, amounted to $225 million at
December 31, 1993, compared with $401 million at December 31, 1992, and $353
million at the end of 1991. The average current yield on these loans was
approximately 8% at December 31, 1993, 1992 and 1991. Of the renegotiated loans
at December 31, 1993, $126 million were domestic commercial real estate loans.
Additionally, in connection with the restructuring of loans, the Corporation may
obtain equity interests in the borrower. Such interests, which are included in
other assets, amounted to $41 million at December 31, 1993, compared with $30
million at the end of 1992 and 1991.
During 1993, $19 million of loans were renegotiated. These additions to the
renegotiated portfolio were more than offset by the transfer to a conventional
fully performing status of $143 million of loans, that had sustained a market
rate of interest, in conformity with SFAS No. 15. Other outflows from the
renegotiated loan portfolio during 1993 included the transfer of $21 million to
nonaccrual status. Additional information with respect to the Corporation's
renegotiated loans is included in Note 6 to the Financial Statements.
RESERVE FOR CREDIT LOSSES
The Corporation determines the level of its reserve for credit losses using a
credit-by-credit assessment of higher risk credit exposures in the portfolio,
based upon internal credit ratings, and an analysis of loan concentrations by
industry for the rest of the portfolio; an evaluation of credit risk related to
off-balance-sheet financial instruments; cross-border risks, and other internal
and external factors. The other factors considered in the assessment include
current economic and political conditions, levels of nonaccrual and other
problem credits, historical trends in the portfolio and the level and quality of
credit management.
The reserve for credit losses was $770 million at December 31, 1993, compared
with $923 million at the end of 1992, and $1,051 million at the end of 1991. The
reserve for credit losses was 2.68% of loans and leases at December 31, 1993,
compared with 3.63% at December 31, 1992, and 4.14% at the end of 1991. The
reserve as a percentage of nonaccrual loans was 140% at December 31, 1993,
compared with 119% at December 31, 1992, and 69% at the end of 1991. As a
percentage of nonaccrual and renegotiated loans, the reserve was 99% at December
31, 1993, compared with 78% at December 31, 1992, and 56% at the end of 1991.
44
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<TABLE>
Net credit losses for 1993, 1992 and 1991 were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
DOMESTIC NET CREDIT LOSSES
Commercial, industrial and financial............................................. $ 40 $ 66 $ 120
Commercial real estate........................................................... 73 181 287
Real estate secured by 1-4 family residences..................................... 18 21 16
Loans to individuals............................................................. 31 27 46
Lease financing.................................................................. 1 1 2
----- ----- -----
163 296 471
INTERNATIONAL NET CREDIT LOSSES.................................................... 60 13 19
----- ----- -----
Total.......................................................................... $223 $ 309 $ 490
===== ===== =====
Net credit losses to average loans and leases...................................... .84% 1.22% 1.87%
</TABLE>
<TABLE>
The higher level of international net credit losses in 1993 was mainly due to
charge-offs taken on certain Asian loans. The Corporation exercises considerable
efforts to recover loans even though they have been charged off. The following
table compares gross credit losses with recoveries for 1993, 1992 and 1991.
<CAPTION>
YEARS END DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Gross credit losses................................................................. $273 $ 412 $ 597
Recoveries.......................................................................... $ 50 $ 103 $ 107
Ratio of recoveries to gross credit losses.......................................... 18.3% 25.0% 17.9%
</TABLE>
OFF-BALANCE-SHEET CREDIT-RELATED INSTRUMENTS
In the normal course of business, the Corporation makes various commitments,
which differ from the Corporation's funded lending activities in that they are
executory in nature. These include credit-related obligations, such as
commitments to extend credit, standby letters of credit and foreign office
guarantees, that are provided to meet the financing needs of customers. In
addition, credit risk is also contained in the off-balance-sheet financial
markets instruments, which are discussed on page 47. Off-balance-sheet
instruments are subject to the same credit standards, financial controls and
monitoring practices used for loans and leases. At December 31, 1993, the
Corporation's unused commitments to lend, net of participations to other
financial institutions, aggregated $17.4 billion, compared with $15.0 billion at
the end of 1992. These amounts do not reflect the actual demand on liquidity
that the Corporation will be subjected to in the future, since historical
experience with loan commitments indicates that a portion generally expire
without being drawn upon. Standby letters of credit and foreign office
guarantees, net of participations, were $2.3 billion at December 31, 1993,
compared with $2.1 billion at the end of 1992. Additional information with
respect to the Corporation's off-balance-sheet credit-related instruments is
included in Notes 21 and 28 to the Financial Statements.
ASSET/LIABILITY MANAGEMENT
The Boston-based Treasury Department is responsible for managing the
Corporation's asset/liability process with respect to liquidity and interest
rate risk. In addition, the Corporation relies upon the collective experience of
its management in Treasury areas throughout its global network. Capital is
managed by Treasury in coordination with the Finance function.
LIQUIDITY MANAGEMENT
Liquidity is defined as the ability to meet known near-term and projected
long-term funding commitments, while supporting selective business expansion in
accordance with the Corporation's strategic plan. The Corporation proactively
manages liquidity to ensure its ability to meet present and future funding
needs. Liquidity is monitored on a daily basis and is reviewed monthly by the
Executive Committee of the Corporation's Board of Directors; a review by the
full Board of Directors occurs quarterly. Management's Asset/Liability Committee
(ALCO), which is chaired by the Treasury Department Executive, reviews liquidity
monthly. The adequacy of sources of liquidity is measured against anticipated
needs for the Corporation as a whole, the Parent Company and each of the
subsidiary banks. Alternative funding strategies are reviewed by ALCO, updated
and implemented as considered necessary.
Deposits are the principal source of the Corporation's liquidity and amounted to
$29.6 billion, or 73%, of total assets at December 31, 1993, as compared with
$29.1 billion, or 78%, of total assets at December 31, 1992. In addition,
deposits were 103% of the Corporation's outstanding loans and leases at December
31, 1993, compared with 115% at the end of 1992. The overall increase in
deposits from the end of 1992 was mainly due to higher levels of interest
bearing deposits in overseas offices and noninterest bearing deposits in
domestic offices, partially offset by a decline in interest bearing deposits in
domestic offices. International interest bearing deposits increased $2 billion
and were mainly used to fund the Corporation's Latin American loan growth, while
a $.5 billion increase in domestic noninterest bearing deposits primarily
resulted from a higher volume of business from mortgage banking companies and
customers. Included in the increase in international interest bearing deposits
was a $.4 billion increase from the Corporation's banking operation in
Argentina, which represented growth of 54% from December 31, 1992. During the
year, the
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Corporation expanded its retail operation in Argentina as the local economy
continued its improvement and loan demand rose. A $2.1 billion decline in
interest bearing deposits in domestic offices was due to a combination of a
lower level of deposits obtained through retail programs with brokers (brokered
CDs) and a decline in retail deposits. The level of brokered CDs declined $1
billion since the end of 1992, from $1.7 billion to $700 million. Brokered CDs
had been issued with original maturities of one to three years; however, they
are no longer actively used as a source of additional liquidity. The Corporation
has replaced these deposits and funded a portion of its loan growth through the
wholesale funding markets, which included the use of term federal funds
purchased and FNBB's short-term Bank Note program discussed below. With respect
to domestic retail interest bearing deposits, the banking industry continued to
be challenged by the issue of deposit retention during 1993 in the face of
historically low interest rates. New deposit products such as the "First Rate
Plus" and "Max" accounts enabled the Corporation to better compete for consumer
deposits and are part of the Corporation's strategic emphasis on Retail and
Small Business Banking.
The Corporation's liquid assets consist primarily of interest bearing deposits
in other banks, federal funds sold and resale agreements, money market loans,
and unencumbered U.S. Treasury and government agency securities. At December 31,
1993, total liquid assets stood at $4.5 billion, compared with $4.7 billion at
December 31, 1992. The Corporation's ability to access funds at market rates
continued to improve in 1993 as it received upgrades from all major ratings
agencies during the year. In 1993, the Corporation issued $70 million of
preferred stock and $450 million of subordinated debt, while FNBB commenced a $2
billion short-term Bank Note program. At December 31, 1993, $350 million of
notes from this program were outstanding and it is anticipated that FNBB will be
issuing additional notes in 1994. Management believes that its liquidity
position at December 31, 1993 is adequate to support the Corporation's future
liquidity needs.
The balance sheet of Bank of Boston Corporation (on a Parent Company only basis)
reflected a liquid asset level in excess of short-term funding commitments of
$194 million at December 31, 1993, compared with $272 million at the end of
1992. During 1993, Parent Company liquidity was increased as a result of the
aforementioned issuances of $450 million of subordinated notes and $70 million
of preferred stock. The major uses of liquidity during the year included $299
million of capital cash contributions and $149 million of advances to various
banking and non-banking subsidiaries. These funds provided capital in support of
balance sheet growth during the year and enabled the banking subsidiaries to
maintain appropriate regulatory capital ratios (see further discussion in the
Capital Management section on page 49). In addition, the Parent Company called
for redemption $88 million of its notes payable that were due in 1996, and used
$73 million for dividend payments on common and preferred stock. Management
considers the Parent Company's overall liquidity at December 31, 1993 to be
adequate to meet current obligations and carry on normal operations. At December
31, 1993, substantially all of the Parent Company's funding came from
stockholders' equity and notes payable with no scheduled principal payment dates
until 1997. In January, 1994, the Parent Company issued $300 million of
subordinated notes and, in February 1994, announced its intent to redeem $179
million of notes payable due in September, 2000.
INTEREST RATE RISK MANAGEMENT
Interest rate risk can be defined as an exposure to a movement in interest rates
that could have an adverse 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 limit its risk of exposure to changes
in interest rates, while also allowing for some imbalance that could enable it
to profit from favorable market opportunities. The Corporation uses certain
balance sheet items and off-balance-sheet financial markets instruments,
including interest rate futures and swaps, in the management of its interest
rate risk. Off-balance-sheet financial markets instruments 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. Historically, the Corporation has not had a
significant amount of anticipatory hedge transactions. Additional information on
off-balance-sheet financial markets instruments is included on page 47.
The Corporation manages its interest rate risk within policies approved and
limits established by the Board of Directors. The Executive Committee of the
Board of Directors reviews the Corporation's interest rate risk profile on a
monthly basis; a review by the full Board of Directors occurs quarterly. ALCO
determines appropriate general guidelines and specific directives for the
management of interest rate risk within Board established policy and limits.
ALCO also reviews the Corporation's interest rate risk profile, including
tactical and planned strategic management initiatives, monthly. The Treasury
Department Executive, who is the Chairman of ALCO, is responsible for reporting
on the Corporation's interest rate risk management initiatives to the Chairman's
Office, ALCO, and the Board of Directors.
Interest rate risk limits and directives are established to restrict volatility
in income at risk and market value sensitivity, which could result under various
interest rate scenarios. A variety of methodologies, including static gap
analysis, net interest revenue simulation and market value modeling, are used to
evaluate the Corporation's exposure to various potential changes in interest
rates and to facilitate the management of interest rate exposure. One method of
monitoring interest rate risk is through the analysis of gap positions. Simply
stated, gap is the difference between the amount of assets and the amount of
liabilities that mature or are repriced during a given period of time. A
'positive' gap results when more assets than liabilities mature or are repriced
in a given time frame. Conversely, a 'negative' gap results when there are more
liabilities than assets maturing or being repriced during a given period of
time. Gap positions can be quickly modified by management as warranted by market
conditions.
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<TABLE>
The following table shows the gap position of the Corporation at December 31,
1993.
INTEREST SENSITIVITY GAP ANALYSIS(1)
<CAPTION>
AFTER 1
AFTER 3 YEAR
MONTHS BUT BUT
WITHIN 3 WITHIN WITHIN AFTER 5 NONINTEREST
(IN MILLIONS) MONTHS 1 YEAR 5 YEARS YEARS BEARING TOTAL
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in other
banks............................. $ 839 $ 146 $ 6 $ 991
Federal funds sold and securities
purchased under agreements to
resell............................ 1,434 20 1,454
Trading securities(2)............... 306 306
Mortgages held for sale(2).......... 1,322 1,322
Securities:
Available for sale(3)........... 620 262 306 $ 77 $ 173 1,438
Held to maturity(3)............. 171 716 577 37 68 1,569
Loans and lease financing(4):
United States operations........ 14,250 2,998 4,308 549 (308) 21,797
International operations........ 3,472 2,058 526 70 89 6,215
Other nonearning assets............. 5,496 5,496
-------- ------ ------ ----- ------- -------
TOTAL ASSETS........................ $ 22,414 $6,200 $5,723 $ 733 $ 5,518 $40,588
======== ====== ====== ===== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits:
Domestic offices(5)............. $ 13,088 $2,482 $1,418 $ 508 $ 5,040 $22,536
Overseas offices................ 5,671 803 77 1 526 7,078
Funds borrowed...................... 4,084 779 106 6 4,975
Notes payable....................... 507 163 514 789 1,973
Noninterest bearing liabilities..... 1,115 1,115
Stockholders' equity................ 2,911 2,911
-------- ------ ------ ----- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................ $ 23,350 $4,227 $2,115 $1,304 $ 9,592 $40,588
======== ====== ====== ====== ======= =======
Interest sensitivity gap before the
net effect of off-balance-sheet
financial markets instruments..... $ (936) $1,973 $3,608 $ (571) $(4,074)
Net effect of off-balance-sheet
financial markets
instruments(6).................... (1,205) (307) 357 1,155
-------- ------ ------ -----
Interest sensitivity gap adjusted
for off-balance-sheet financial
markets instruments............... $ (2,141) $1,666 $3,965 $ 584 $(4,074)
======== ====== ====== ====== =======
CUMULATIVE INTEREST SENSITIVITY
GAP............................... $ (475) $3,490 $4,074 $ 0
====== ====== ====== =======
<FN>
(1) Allocations to specific interest sensitivity periods are based primarily on
the earlier of the repricing or maturity date.
(2) Since trading securities and mortgages held for sale are expected to be sold
in a relatively short period of time, they are included in the "within 3
months" category.
(3) Noninterest bearing securities include certain venture capital debt and
equity securities, as well as Federal Reserve and Federal Home Loan Bank
stock.
(4) Nonaccrual loans and leases and the reserve for credit losses are shown
within the "noninterest bearing" category.
(5) Domestic savings deposits and NOW accounts have been allocated 100% to the
"within 3 months" category based upon the Corporation's recent experience
with these deposits and assessment of current market conditions.
(6) Includes off-balance-sheet financial markets instruments used to modify the
repricing sensitivity of certain assets and liabilities, principally loans,
deposits and notes payable.
</TABLE>
Exposure to interest rate risk can be altered by management, as warranted,
through changes in the Corporation's asset/liability structure or the use of
off-balance-sheet financial markets instruments, such as interest rate futures
and swap agreements. During the year, the Corporation maintained a modest
repricing imbalance on assets and liabilities, enabling it to benefit from a
decline in long term rates, which resulted in a flattening of the yield curve.
This action contributed to the Corporation's improvement in net interest revenue
throughout 1993.
OFF-BALANCE-SHEET FINANCIAL MARKETS INSTRUMENTS
The Corporation, through its subsidiary banks, participates as a counterparty in
various off-balance-sheet financial markets instruments. Such instruments are
also known as derivatives. 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 such transactions in
connection with its trading activities, including offering them to its
customers. For asset/liability management purposes, these instruments may also
be used to manage the Corporation's own interest rate and currency risks. The
principal or notional values of commitments related to off-balance-sheet
financial markets instruments 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. Gains and losses stemming from changes in the market values of the
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financial markets instruments entered into in connection with the Corporation's
trading activities are recognized currently as part of trading profits and
commissions or foreign exchange profits. The majority of the Corporation's off-
balance-sheet financial markets instruments, not used in managing interest rate
or foreign exchange risk, are hedged with other such instruments. Profits and
losses from instruments used to manage the Corporation's own balance sheet
interest rate or foreign exchange risk are netted against the results of the
item being hedged.
The Corporation enters into foreign exchange contracts and foreign currency
options primarily in connection with its trading activities and to hedge foreign
currency risk. In addition, the Corporation uses foreign exchange contracts to
hedge a portion of its exposure to translation gains and losses from overseas
branches and foreign subsidiaries. Foreign exchange contracts include such
commitments as foreign currency spot, forward, futures, option and swap
contracts. The risks in these transactions result from trading in a volatile
commodity and the ability of the counterparties to deliver under the terms of
the contract. The Corporation actively monitors all transactions and positions
against predetermined limits assigned to business units and types of currency to
ensure reasonable risk taking.
The Corporation enters into interest rate swap agreements in connection with its
trading activities, including offering these agreements to its customers, and to
manage its own interest rate risk. These agreements generally involve the
exchange of fixed and variable rate interest payments between two parties based
on a common notional principal amount and maturity date. The notional value is
the basis for calculating payment streams and is never exchanged. The primary
risks associated with swaps are the exposure to movements in interest rates and
the ability of the counterparties to meet the terms of the contracts.
The Corporation uses futures and forward contracts, including forward rate
agreements, in connection with its trading activities and to manage its own
interest rate exposure. Futures and forward contracts generally are contracts
for the delayed delivery of securities or money market instruments in which the
buyer agrees to purchase and the seller agrees to make a delivery of a specific
instrument at a predetermined date for a specific price. These contracts also
include agreements that are settled between counterparties based on a notional
principal value and do not involve an actual movement of principal. Risks on
both types of agreements stem from market movements in the underlying
securities' values and interest rates and from the ability of the counterparties
to meet the terms of the contracts.
The Corporation purchases and writes (or sells) interest rate options in
connection with its trading and risk management activities, including providing
these products to its customers, and to manage its own interest rate exposure.
Interest rate options are contracts that allow the holder of the option to
receive cash, purchase, sell or enter into a financial instrument at a specified
price within a specified period of time. Options include interest rate caps and
floors, which are types of interest rate protection instruments involving
potential payment between the seller and buyer of an interest differential. In
addition, other types of option products provide the holder with the right to
enter into interest rate swap, cap and floor agreements with the "writer". The
primary risks associated with all types of options are the exposure to current
and expected movements in interest rates and the ability of the counterparties
to meet the terms of the contracts.
<TABLE>
The following presents information concerning the off-balance-sheet financial
markets instruments discussed above as of December 31, 1993:
<CAPTION>
RISK MANAGEMENT PORTFOLIO
TRADING PORTFOLIO AVERAGE
NOTIONAL FAIR NOTIONAL REMAINING FAIR UNRECOGNIZED
(DOLLARS IN MILLIONS) AMOUNT VALUE(1) AMOUNT MATURITY VALUE(1) GAIN(2)
<S> <C> <C> <C> <C> <C> <C>
Futures and forwards................................ $15,026 $3,581 3 months $ 2 $ 2
Interest rate swaps................................. 6,732 $ 84 3,463 4 years 47 46
Interest rate options:
Written or sold................................. 5,744 (14) 39 6 months
Purchased....................................... 4,922 25 414 3 years 5 5
Foreign exchange:
Spot and forward contracts...................... 21,592 (10) 556 3 months 13
Options written or sold......................... 613 (22)
Options purchased............................... 691 21
<FN>
(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 December
31, 1993. In certain cases, such as the futures and forwards contained in
the trading portfolio, instruments are subject to daily cash settlements; as
such the fair value of these instruments is zero. Instruments in the trading
portfolio are marked to market with changes in fair value recognized as
either trading profits and commissions or foreign exchange trading profits.
Additional information on amounts recognized as trading profits and
commissions and foreign exchange trading profits is included in the
Noninterest Income section on page 36.
(2) Unrecognized gain represents the amount of gain earned on the instruments as
of December 31, 1993 that has not been recognized in the income statement
or, in certain cases, cumulative translation adjustments. The unrecognized
gain for interest rate swaps contained in the risk management portfolio
includes $15 million associated with swaps that were transferred to the
trading portfolio during the year. This $15 million represents the remaining
unamortized amount of the deferred gain that existed as of the date of
transfer to the trading portfolio. The notional and fair values of these
swaps are included in the trading portfolio.
</TABLE>
Historically, the Corporation has experienced minimal credit losses associated
with its off-balance-sheet financial markets instruments. Additional information
with respect to the Corporation's off-balance-sheet financial markets
instruments, including its accounting policies, is included in Notes 1, 21 and
28 to the Financial Statements.
CAPITAL MANAGEMENT
At December 31, 1993, the Corporation had $2.9 billion in stockholders' equity,
compared with $2.6 billion at December 31, 1992. The growth in stockholders'
equity from the end of 1992 mainly reflected retention of earnings, the issuance
of $70 million of preferred stock during the year
48
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MANAGEMENT'S FINANCIAL REVIEW
- --------------------------------------------------------------------------------
CONTINUED
and a $42 million increase from the Corporation's adoption of SFAS No. 115 (see
Note 5 to the Financial Statements for further discussion of SFAS No. 115).
These increases were partially offset by the payment of $73 million in dividends
on common and preferred stock.
Regulatory risk-based capital requirements take into account the differing risk
profiles of banking organizations by assigning risk weights to both assets and
the credit equivalent amounts of off-balance-sheet exposures. In addition,
capital is divided into two tiers. Tier 1 capital includes common stockholders'
equity and qualifying preferred stock. Tier 2, or supplementary capital,
includes, subject to certain limitations, limited-life preferred stock,
mandatory convertible securities, subordinated debt and a portion of the reserve
for credit losses. Total capital is defined as the sum of tier 1 and tier 2
capital.
At December 31, 1993, banking organizations were required to meet a minimum
total capital ratio of 8%, with at least one-half being in the form of tier 1
capital. In addition, higher tier 1 and total capital ratios can be imposed on
particular institutions at the discretion of the regulatory agencies. Banking
organizations are also subject to a minimum leverage capital ratio, which is
defined as the ratio of tier 1 capital to adjusted total average assets, of 3%;
however, all but the most highly rated organizations are expected to maintain an
additional cushion of at least 100 to 200 basis points above this minimum.
<TABLE>
The following presents the Corporation's regulatory capital position:
REGULATORY CAPITAL
<CAPTION>
REGULATORY
DECEMBER 31 1993 1992 MINIMUM
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Risk-based capital ratios:
Tier 1 capital ratio............................................ 7.2% 7.1% 4.00%
Total capital ratio............................................. 12.4% 12.0% 8.00%
Leverage ratio...................................................... 6.8% 6.6% 3.00%(1)
Tier 1 capital...................................................... $ 2,754 $ 2,437
Total capital....................................................... $ 4,725 $ 3,987
Total risk-adjusted assets.......................................... $ 38,179 $34,405
<FN>
(1) Plus an additional cushion of at least 100 to 200 basis points for all but
the most highly rated institutions.
</TABLE>
The Corporation has in place a capital planning process, to assist the
Corporation and its banking subsidiaries in maintaining appropriate capital
levels and ratios. In June 1993, the Corporation issued $70 million of preferred
stock and $100 million of subordinated notes and in November 1993, it issued an
additional $350 million of subordinated notes. The Corporation, as a condition
of the Federal Reserve Board's approval of the Multibank merger, committed to
use the proceeds from the June preferred stock and subordinated note issuances
exclusively in addressing any needs in the Corporation's banking subsidiaries.
By December 31, 1993, the Corporation had fulfilled this commitment.
During 1993, the Board of Directors declared quarterly dividends of $.10 per
share on the Corporation's common stock and in January 1994, a quarterly
dividend of $.22 was declared. The payment of dividends on the Corporation's
common stock is determined by the Board of Directors based on the Corporation's
liquidity, asset quality profile, capital adequacy and recent earnings history,
as well as economic conditions and other factors deemed relevant by the Board of
Directors, including applicable government regulations and policies and the
amount of dividends paid to the Corporation by its subsidiaries. On October 7,
1993, a 1991 agreement between the Corporation and the Federal Reserve and the
Division of Banking Supervision and Regulation of the Federal Reserve Board was
terminated. Among other things, this agreement had required regulatory approval
of the declaration and payment of dividends on the Corporation's common stock.
At December 31, 1993, all of the Corporation's banking subsidiaries' capital
ratios met both the minimum regulatory requirements and the capital ratio
aspects of the "well capitalized" category under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) (see further discussion of FDICIA
on page 50). The "well capitalized" minimum ratios are 6% for tier 1 capital,
10% for total capital and 5% for leverage. The Corporation's banking subsidiary
located in Connecticut, as well as two of the subsidiaries acquired in
connection with the Multibank merger (South Shore Bank and Multibank West)
would, in each case, not currently be considered "well capitalized" under FDICIA
due to an existing agreement or order with their respective bank regulatory
agency. The Connecticut banking subsidiary is subject to a stipulation and
agreement with the Connecticut Banking Commissioner and South Shore Bank is
subject to a memorandum of understanding (MOU) with the FDIC and the
Massachusetts Commissioner of Banks. Multibank West, the resulting bank from the
1991 merger of two of Multibank's banking subsidiaries, is subject to the
conditions of the FDIC's approval order in connection with that merger. The
agreements and approval order with respect to these subsidiaries require that
the subsidiary banks meet and maintain certain specific capital ratios. Each of
these banking subsidiaries is in compliance with the capital ratio aspects of
its respective agreement or approval order. The Corporation expects to merge
South Shore Bank, Multibank West and Mechanics Bank into FNBB during the first
half of 1994. These mergers are subject to regulatory approval and no assurance
can be given that such approval will be obtained. The capital categories of the
Corporation's banking subsidiaries are determined solely for the purpose of
applying FDICIA's provisions and, accordingly, such capital categories may not
constitute an
49
<PAGE> 21
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MANAGEMENT'S FINANCIAL REVIEW
- --------------------------------------------------------------------------------
CONTINUED
accurate representation of the overall financial condition or prospects of any
of the Corporation's banking subsidiaries.
In order to support the balance sheet growth of the Corporation's banking
subsidiaries and to assist them in maintaining regulatory capital at desired
levels, the Corporation has made capital contributions, and may make future
capital contributions, to certain of its banking subsidiaries. Such capital
contributions during 1993 consisted of $240 million to FNBB, $17 million to
Connecticut, $12 million to South Shore Bank, $4 million to Vermont, $3 million
to Multibank West and $3 million to Casco. During 1993, Hospital Trust paid $7
million in dividends to the Parent Company. The level of future dividends from
bank subsidiaries is dependent on a number of factors. Such factors include
capital adequacy, net income, liquidity, asset quality and economic conditions.
In addition, bank regulations require the approval of bank regulatory
authorities if dividends declared by bank subsidiaries exceed certain prescribed
limits. Also, under the Connecticut banking subsidiary's regulatory agreement
discussed above, the Connecticut subsidiary would need regulatory approval to
remit a dividend to the Parent Company.
During the first quarter of 1993, the Office of the Comptroller of the Currency
terminated its formal agreements with FNBB, Hospital Trust and Casco. In
addition, an MOU between Vermont and the FDIC was lifted in October 1993 and a
similar agreement between Mechanics Bank and the FDIC was lifted in January
1994. Additional information on dividends and the remaining subsidiary
regulatory agreements can be found in Notes 14 and 25 to the Financial
Statements.
REGULATORY AND ACCOUNTING ISSUES
New Accounting Standards
As discussed previously, the Corporation has adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," SFAS No. 109,
"Accounting for Income Taxes," and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," in its 1993 Financial Statements.
Additional information on SFAS Nos. 106, 109 and 115 can be found in Notes 16,
20 and 5 to the Financial Statements, respectively.
In addition, SFAS No. 112, "Employers' Accounting for Postemployment Benefits
Other than Pensions," is required to be adopted beginning in 1994; Financial
Accounting Standards Board (FASB) Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts," is also required to be adopted beginning in 1994,
and SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," is
required to be adopted beginning in 1995. Information on SFAS No. 112, FASB
Interpretation No. 39 and SFAS No. 114 can be found in Notes 16, 21 and 6 to the
Financial Statements, respectively.
SECURITIES AND EXCHANGE COMMISSION ADMINISTRATIVE PROCEEDING
As previously announced by the Corporation in its public filings, in January
1994, the Securities and Exchange Commission (SEC) instituted an administrative
proceeding against the Corporation. The administrative proceeding relates to the
SEC'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 the domestic commercial real estate
portfolio.
Management believes that the disclosures made in its second quarter of 1989 Form
10-Q were appropriate and intends to defend this action vigorously. While there
can be no assurance as to the outcome of this matter, the ultimate disposition
will not result in monetary penalties to the Corporation.
FDICIA
FDICIA has provided for expanded regulation of financial institutions. The
applicability of many of its provisions is based upon an institution's capital
category in relation to the five categories established by FDICIA (for which the
banking agencies have set specific capital ratio and other requirements). The
federal banking agencies have issued regulations in a number of areas to
implement FDICIA's provisions and these regulations impose progressively more
restrictive constraints on the operations and management of banks, which are not
at least "adequately capitalized,"as they move into lower capital categories. As
noted on page 49, all of the Corporation's banking subsidiaries have capital
ratios that meet the requirements of the "well capitalized" category under
FDICIA.
Additionally, the regulations issued by the banking agencies under FDICIA, among
other things: establish a risk-based system for deposit insurance premiums;
limit the ability of many banks to use brokered deposits; increase requirements
related to independent audits; restrict investments and activities of
state-chartered banks; set standards for real estate lending; increase lending
restrictions with respect to a bank's executive officers and directors, and
establish standards in a number of areas with respect to safety and soundness.
Certain of these provisions are discussed elsewhere in this report.
The Corporation continues to analyze the effect of, and address its ongoing
compliance with, the various regulations issued under FDICIA. It is anticipated
that FDICIA, and the regulations enacted thereunder, will continue to result in
more limitations on banking activities generally, and increased costs for the
Corporation and the banking industry because of higher FDIC assessments, and
higher costs of compliance, documentation and record keeping.
50
<PAGE> 22
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MANAGEMENT'S FINANCIAL REVIEW
- --------------------------------------------------------------------------------
CONTINUED
SUMMARY
Significant progress was made by the Corporation during 1993:
- 1993 net income, excluding the cumulative effects of accounting changes and
merger and restructuring charges improved 61% over 1992's income before
extraordinary item.
- Loans and leases grew $3.4 billion between December 31, 1992 and December
31, 1993.
- Nonaccrual loans and leases and OREO declined 31% between December 31, 1992
and December 31, 1993.
- Net credit losses declined from $309 million in 1992 to $223 million in
1993.
- The Corporation added nearly $5 billion in assets through its mergers with
Bancorp and Multibank.
The economies of the United States and New England improved modestly in 1993
contributing, in part, to many of the improvements noted above. Management,
however, cannot currently predict to what extent the domestic economic recovery
will affect future periods. In addition, it is uncertain what impact future
changes in the economies in Latin America and other foreign countries where the
Corporation does business will have on future periods. No assurance, therefore,
can be given that the positive trends achieved in 1993 will continue.
51
<PAGE> 23
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
Bank of Boston Corporation:
We have audited the accompanying consolidated balance sheets of Bank of Boston
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1993.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bank of Boston
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and cash flows for each of the years in
the three year period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 5, 9, 16 and 20 to the financial statements, the
Corporation has adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," and changed its method of accounting for purchased mortgage servicing
rights, effective January 1, 1993; and adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective December 31, 1993.
Boston, Massachusetts
January 20, 1994
53
<PAGE> 24
<TABLE>
Bank of Boston Corporation
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
Cash and due from banks (Notes 3 and 4)................................................. $ 2,539,286 $ 1,936,396
Interest bearing deposits in other banks (Note 4)....................................... 991,389 1,307,497
Federal funds sold and securities purchased under agreements to resell.................. 1,454,478 1,187,013
Trading securities...................................................................... 305,775 192,198
Mortgages held for sale................................................................. 1,321,607 922,311
Securities:
Available for sale (fair value of $1,523,736 in 1992) (Notes 4 and 5)................. 1,437,887 1,497,138
Held to maturity (fair value of $1,568,617 in 1993 and $2,754,838 in 1992) (Notes 4
and 5).............................................................................. 1,568,823 2,635,399
Loans and lease financing (net of unearned income of $311,955 in 1993 and $290,139 in
1992)
(Notes 4 and 6)....................................................................... 28,781,974 25,399,332
Reserve for credit losses (Note 7)...................................................... (770,279) (923,120)
------------ -----------
Net loans and lease financing................................................... 28,011,695 24,476,212
Premises and equipment, net............................................................. 522,271 507,059
Due from customers on acceptances....................................................... 391,204 228,524
Accrued interest receivable............................................................. 287,368 287,955
Other real estate owned (Note 6)........................................................ 107,845 169,757
Other assets (Notes 8 and 16)........................................................... 1,648,274 1,967,110
------------ -----------
TOTAL ASSETS............................................................................ $ 40,587,902 $37,314,569
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing................................................................. $ 5,040,028 $ 4,513,995
Interest bearing.................................................................... 17,495,905 19,579,369
Overseas offices:
Noninterest bearing................................................................. 525,620 434,320
Interest bearing.................................................................... 6,552,592 4,573,970
------------ -----------
Total deposits.................................................................. 29,614,145 29,101,654
Funds borrowed (Note 10)................................................................ 4,974,580 2,946,827
Acceptances outstanding................................................................. 391,484 228,626
Accrued expenses and other liabilities.................................................. 723,266 797,895
Notes payable (Note 11)................................................................. 1,972,758 1,686,037
------------ -----------
Total liabilities....................................................................... 37,676,233 34,761,039
------------ -----------
Commitments and contingencies (Notes 2, 21, 23 and 24)
Stockholders' equity (Note 13):
Preferred stock without par value (Note 12):
Authorized shares - 10,000,000
Issued shares - 4,593,941 in 1993 and 4,313,941 in 1992............................. 508,436 438,436
Common stock, par value $2.25 (Notes 11 and 17):
Authorized shares - 200,000,000
Issued shares - 105,801,268 in 1993 and 104,783,039 in 1992
Outstanding shares - 105,801,268 in 1993 and 104,664,290 in 1992.................... 238,053 235,762
Surplus............................................................................... 768,372 749,491
Retained earnings (Notes 14 and 17)................................................... 1,361,960 1,135,647
Net unrealized gain on securities available for sale (Note 5)......................... 42,980 226
Cumulative translation adjustments.................................................... (8,132) (5,182)
Treasury stock, at cost (118,749 shares in 1992)...................................... (850)
------------ -----------
Total stockholders' equity.............................................................. 2,911,669 2,553,530
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $ 40,587,902 $37,314,569
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE> 25
<TABLE>
BANK OF BOSTON CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INTEREST INCOME
Loans and lease financing, including fees............................... $3,035,050 $3,180,378 $3,343,127
Securities.............................................................. 1,068,555 563,485 446,314
Trading securities...................................................... 10,353 9,154 17,363
Mortgages held for sale................................................. 75,592 57,888 38,710
Federal funds sold and securities purchased under agreements to
resell................................................................ 1,569,654 516,413 120,923
Deposits in other banks................................................. 1,064,717 779,407 488,458
----------- ----------- ----------
Total interest income............................................... 6,823,921 5,106,725 4,454,895
----------- ----------- ----------
INTEREST EXPENSE
Deposits of domestic offices............................................ 629,556 923,609 1,389,258
Deposits of overseas offices............................................ 2,956,469 1,848,264 1,342,301
Funds borrowed.......................................................... 1,605,538 955,412 498,120
Notes payable........................................................... 113,573 73,642 110,432
----------- ----------- ----------
Total interest expense.............................................. 5,305,136 3,800,927 3,340,111
----------- ----------- ----------
Net interest revenue.............................................. 1,518,785 1,305,798 1,114,784
Provision for credit losses (Notes 6 and 7)............................. 70,126 180,567 518,656
----------- ----------- ----------
Net interest revenue after provision for credit losses.............. 1,448,659 1,125,231 596,128
----------- ----------- ----------
NONINTEREST INCOME
Financial service fees.................................................. 349,966 355,076 356,962
Trust and agency fees................................................... 177,648 166,092 157,396
Trading profits and commissions......................................... 23,605 15,779 22,368
Securities gains (Notes 5 and 20)....................................... 32,207 38,987 29,053
Other income (Note 15).................................................. (11,796) 131,640 197,131
----------- ----------- ----------
Total noninterest income............................................ 571,630 707,574 762,910
----------- ----------- ----------
NONINTEREST EXPENSE
Salaries................................................................ 634,581 604,874 571,377
Employee benefits (Note 16)............................................. 136,139 120,818 112,543
Occupancy expense (Note 23)............................................. 127,828 126,488 134,892
Equipment expense....................................................... 96,220 100,825 102,816
Other real estate owned expense (Note 6)................................ 43,809 112,670 112,741
Merger and restructuring expense (Note 18).............................. 85,000 53,623
Other expense (Note 19)................................................. 407,206 408,436 449,949
----------- ----------- ----------
Total noninterest expense........................................... 1,530,783 1,474,111 1,537,941
----------- ----------- ----------
Income (Loss) before income taxes, extraordinary items and cumulative
effect of changes in accounting principles............................ 489,506 358,694 (178,903)
Provision for (Benefit from) income taxes (Note 20)..................... 214,683 152,781 (57,990)
----------- ----------- ----------
Income (Loss) before extraordinary items and cumulative effect of
changes in accounting principles...................................... 274,823 205,913 (120,913)
Extraordinary items:
Recognition of prior year tax benefit carryforwards (Note 20)......... 72,968
Gains from early extinguishment of debt, net of tax (Notes 11 and
20)................................................................. 7,758
----------- ----------- ----------
Income (Loss) before cumulative effect of changes in accounting
principles............................................................ 274,823 278,881 (113,155)
Cumulative effect of changes in accounting principles, net (Notes 9 and
20)................................................................... 24,203
----------- ---------- ----------
NET INCOME (LOSS)................................................. $ 299,026 $ 278,881 $ (113,155)
=========== ========== ==========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK...................... $ 264,337 $ 259,011 $ (126,360)
=========== ========== ==========
PER COMMON SHARE
Income (Loss) before extraordinary items and cumulative effect of
changes in accounting principles:
Primary............................................................. $ 2.28 $ 1.82 $ (1.42)
Fully diluted....................................................... $ 2.22 $ 1.78 $ (1.42)
Net income (loss):
Primary............................................................. $ 2.51 $ 2.54 $ (1.33)
Fully diluted....................................................... $ 2.44 $ 2.45 $ (1.33)
Cash dividends declared................................................. $ .40 $ .10 $ .10
AVERAGE NUMBER OF COMMON SHARES
Primary............................................................. 105,336 101,977 94,730
Fully diluted....................................................... 110,258 107,157 94,730
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE> 26
<TABLE>
BANK OF BOSTON CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) CUMULATIVE
TWO YEARS ENDED DECEMBER 31, PREFERRED COMMON RETAINED ON TRANSLATION TREASURY
1993 STOCK STOCK SURPLUS EARNINGS SECURITIES ADJUSTMENTS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
BALANCE, JANUARY 1, 1992....... $ 208,436 $ 214,082 $ 613,984 $ 887,108 $(333) $(3,484) $ (877) $1,918,916
Net income -- 1992............. 278,881 278,881
Common stock issued in
connection with:
Public offering -- 8,493,000
shares..................... 19,109 127,462 146,571
Dividend reinvestment and
stock purchase plan --
104,997 shares............. 236 2,043 2,279
Exercise of stock options --
783,227 shares (Note 17)... 1,534 7,494 9,028
Restricted stock grants, net
of forfeitures
-- 181,725 shares.......... 409 3,771 4,180
Change in unearned
compensation related to
restricted stock grants
(Note 17).................. (2,838) (2,838)
Other, principally employee
benefit plans
-- 174,314 shares.......... 392 2,336 27 2,755
Preferred stock issued in
connection with public
offering -- 920,000 shares
(Note 12).................... 230,000 (7,599) 222,401
Cash dividends declared:
Preferred stock (Note 12).... (19,052) (19,052)
Common stock -- $.10 per
share...................... (8,452) (8,452)
Change in net unrealized gains
and losses on marketable
equity securities of
nonbanking subsidiary........ 559 559
Translation adjustments, net of
tax.......................... (1,698) (1,698)
--------- --------- --------- ---------- ------- ------- -------- ----------
BALANCE, DECEMBER 31, 1992..... 438,436 235,762 749,491 1,135,647 226 (5,182) (850) 2,553,530
Net income -- 1993............. 299,026 299,026
Common stock issued in
connection with:
Dividend reinvestment and
stock purchase plan --
286,201 shares............. 644 5,943 31 6,618
Exercise of stock options --
800,524 shares (Note 17)... 1,354 11,293 747 13,394
Restricted stock grants, net
of forfeitures
-- 13,740 shares (Note
17)........................ 31 1,510 (1,871) 72 (258)
Change in unearned
compensation related to
restricted stock grants
(Note 17).................. 1,734 1,734
Other, principally employee
benefit plans
-- 116,223 shares.......... 262 2,540 2,802
Preferred stock issued in
connection with public
offering -- 280,000 shares
(Note 12).................... 70,000 (2,405) 67,595
Cash dividends declared:
Preferred stock (Note 12).... (34,459) (34,459)
Common stock -- $.40 per
share...................... (38,117) (38,117)
Net unrealized gain on
securities available for sale
(Note 5)..................... 42,754 42,754
Translation adjustments, net of
tax.......................... (2,950) (2,950)
--------- --------- --------- ---------- ------- ------- -------- ----------
BALANCE, DECEMBER 31, 1993..... $ 508,436 $ 238,053 $ 768,372 $1,361,960 $42,980 $(8,132) $ 0 $2,911,669
========= ========= ========= ========== ======= ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE> 27
<TABLE>
BANK OF BOSTON CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CONTINUED
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) CUMULATIVE
PREFERRED COMMON RETAINED ON TRANSLATION TREASURY
YEAR ENDED DECEMBER 31, 1991 STOCK STOCK SURPLUS EARNINGS SECURITIES ADJUSTMENTS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
BALANCE, JANUARY 1, 1991....... $ 208,436 $ 210,859 $ 606,945 $1,024,102 $(2,807) $(1,005) $ (1,005) $2,045,525
Net loss -- 1991............... (113,155) (113,155)
Common stock issued in
connection with:
Dividend reinvestment and
stock purchase plan --
723,386 shares............. 1,627 2,718 4,345
Exercise of stock options --
20,546 shares (Note 17).... 46 306 352
Restricted stock grants, net
of forfeitures
-- 244,150 shares.......... 546 1,846 2,392
Change in unearned
compensation related to
restricted stock grants
(Note 17).................. (2,245) (2,245)
Other, employee benefit plans
-- 446,163 shares.......... 1,004 2,169 (3) 128 3,298
Cash dividends declared:
Preferred stock (Note 12).... (13,255) (13,255)
Common stock -- $.10 per
share...................... (8,336) (8,336)
Change in net unrealized gains
and losses on marketable
equity securities of
nonbanking subsidiary........ 2,474 2,474
Translation adjustments, net of
tax.......................... (2,479) (2,479)
--------- --------- --------- ---------- ------ ------- -------- ----------
BALANCE, DECEMBER 31, 1991..... $ 208,436 $ 214,082 $ 613,984 $ 887,108 $ (333) $(3,484) $ (877) $1,918,916
========= ========= ========= ========== ====== ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE> 28
<TABLE>
BANK OF BOSTON CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................................... $ 299,026 $ 278,881 $ (113,155)
Reconciliation of net income (loss) to net cash provided from operating
activities:
Cumulative effect of change in accounting for income taxes........... (77,163)
Cumulative effect of change in accounting for PMSR, net ot tax....... 52,960
Extraordinary income from recognition of prior year tax benefit
carryforwards...................................................... (72,968)
Extraordinary gains from early extinguishment of debt, net of tax.... (7,758)
Provision for credit losses.......................................... 70,126 180,567 518,656
Depreciation and amortization........................................ 175,244 153,238 116,358
Provision for deferred taxes......................................... 118,818 109,934 101,636
Net gains on sales of securities and other assets.................... (68,382) (86,773) (103,715)
Change in trading securities......................................... (113,577) 8,057 (23,309)
Change in mortgages held for sale.................................... (399,296) (441,846) (186,254)
Change in securities available for sale, net of transfers............ 991,827 2,575,266
Net change in interest receivables and payables...................... 3,929 9,110 (9,460)
Other, net........................................................... 400,419 10,022 (121,374)
----------- ---------- ----------
Net cash provided from operating activities........................ 1,453,931 2,723,488 171,625
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided from (used for) interest bearing deposits in other
banks................................................................ 316,108 (118,569) 47,755
Net cash provided from (used for) federal funds sold and securities
purchased under agreements to resell................................. (267,465) (313,792) 371,212
Purchases of securities held to maturity............................... (1,722,476) (1,433,038) (8,295,182)
Sales of securities held to maturity................................... 9,820 8,064 3,356,035
Maturities of securities held to maturity.............................. 1,807,983 999,001 3,570,171
Dispositions of venture capital investments............................ 96,627 71,170 54,558
Loans and lease financing originated by nonbank entities............... (5,418,156) (5,323,498) (5,453,265)
Loans and lease financing collected by nonbank entities................ 4,927,419 5,214,499 5,542,951
Proceeds from sales of loan portfolios by bank subsidiaries............ 171,059 25,313 32,090
Loan portfolios purchased by bank subsidiaries......................... (44,000) (97,375) (698,700)
Net cash provided from (used for) lending activities of bank
subsidiaries......................................................... (3,393,717) (779,825) 1,045,387
Lease financing originated by bank entities............................ (50,429) (7,365) (40,333)
Lease financing collected by bank entities............................. 22,193 17,215 26,535
Proceeds from sales of other real estate owned......................... 141,995 309,508 185,651
Expenditures for premises and equipment................................ (96,785) (73,755) (52,134)
Proceeds from sales of business units, premises and equipment.......... 7,552 11,973 10,036
Other, net............................................................. (177,761) 16,126 572,331
----------- ---------- ----------
Net cash provided from (used for) investing activities............... (3,670,033) (1,474,348) 275,098
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided from (used for) deposits............................. 512,491 (189,229) (2,516,344)
Net cash provided from (used for) funds borrowed....................... 2,027,753 (1,687,196) 2,132,104
Proceeds from issuance of notes payable................................ 519,024 304,605 116,012
Repayments/repurchases of notes payable................................ (230,763) (31,716) (426,592)
Net proceeds from issuance of common stock............................. 19,883 155,936 7,887
Net proceeds from issuance of preferred stock.......................... 67,595 222,401
Dividends paid......................................................... (72,576) (27,504) (28,964)
----------- ---------- ----------
Net cash provided from (used for) financing activities............... 2,843,407 (1,252,703) (715,897)
----------- ---------- ----------
Effect of foreign currency translation on cash......................... (24,415) (46,772) (76,790)
----------- ---------- ----------
Net change in cash and due from banks.................................. 602,890 (50,335) (345,964)
Cash and due from banks at January 1................................... 1,936,396 1,986,731 2,332,695
----------- ---------- ----------
Cash and due from banks at December 31................................. $ 2,539,286 $1,936,396 $1,986,731
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE> 29
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial reporting and accounting policies of Bank of Boston Corporation
(the Corporation) conform to generally accepted accounting principles. Prior
period financial statements have been restated to give retroactive effect to the
mergers with Society for Savings Bancorp, Inc. (Bancorp) and Multibank Financial
Corp. (Multibank) completed on July 9, 1993 and July 13, 1993, respectively,
which were accounted for as poolings of interests. See Note 2 for additional
information regarding the mergers. In addition, certain prior period amounts
have been reclassified to conform with current financial statement presentation.
The following is a summary of the significant accounting policies.
Basis of Presentation. The consolidated financial statements include the
Corporation and its majority owned subsidiaries, including its major banking
subsidiaries: The First National Bank of Boston (FNBB); South Shore Bank;
Mechanics Bank; Multibank West; Casco Northern Bank, N.A. (Casco); Bank of
Boston Connecticut (Connecticut); Rhode Island Hospital Trust National Bank
(Hospital Trust); and Bank of Vermont (Vermont). Intercompany accounts and
transactions have been eliminated in consolidation. Investments in 20% to
50%-owned companies are accounted for using the equity method. The equity
interest in their earnings is included in other income. The excess of cost over
the assigned value of the net assets of companies acquired is included in other
assets and is amortized on a straight-line basis predominantly over a
twenty-five year period.
Foreign Currency Translation. The Corporation translates the financial
statements of its foreign operations in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Under the
provisions of SFAS No. 52, a functional currency is designated for each foreign
unit, generally the currency of the primary economic environment in which it
operates. Where the functional currency is not the U.S. dollar, assets and
liabilities are translated into U.S. dollars at period-end exchange rates, while
income and expenses are translated using average rates for the period. The
resulting translation adjustments and any related hedge gains and losses are
recorded, net of tax, as a separate component of stockholders' equity.
For foreign units operating in a highly inflationary economy, the functional
currency is the U.S. dollar. Their financial statements are translated into U.S.
dollars using period-end exchange rates for monetary assets and liabilities,
exchange rates in effect on the date of acquisition for property and equipment
(and related depreciation) and certain investments, and an average exchange rate
during the period for income and expenses. The resulting translation adjustments
and related hedge gains and losses for these units are recorded in the income
statement as a component of other income.
The Corporation hedges a portion of its exposure to translation gains and losses
in overseas branches and foreign subsidiaries through the purchase of foreign
exchange rate contracts and through investments in fixed assets and certain
securities.
Securities. Effective December 31, 1993, the Corporation adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Additional
information with respect to this change in accounting principle is included in
Note 5. Under this new standard, all debt and equity securities are classified
into one of three categories: securities held to maturity, securities available
for sale or trading securities. Securities held to maturity are debt securities
that the Corporation has the positive intent and ability to hold to maturity.
These securities are reported at cost, adjusted for amortization of premium and
accretion of discount. Securities available for sale are debt securities that
the Corporation may not hold to maturity, and equity securities. Excluded from
this category are securities purchased in connection with the Corporation's
trading activities. Securities available for sale include securities which are
purchased in connection with the Corporation's asset/liability risk management
strategy and may be sold in response to changes in interest rates, resultant
prepayment risk and other related factors; securities held in connection with
the Corporation's venture capital and mezzanine financing business, and other
securities that are intended to be held for indefinite periods of time, but
which may not be held to maturity. Within the available for sale category,
equity securities that have a readily determinable fair value and debt
securities are reported at fair value, with unrealized gains and losses,
generally computed on a specific identified cost basis, recorded net of tax, as
a separate component of stockholders' equity. Securities that are not traded on
established exchanges are reported at cost. Prior to the adoption of SFAS No.
115, securities available for sale and marketable equity securities not
designated as available for sale were reported at the lower of aggregate cost or
fair value. There were no valuation adjustments with respect to any period under
the prior policy. If a security available for sale or a security held to
maturity has experienced a decline in value that is other than temporary, it is
written down to its estimated fair value through a charge to current period
income. Realized gains and losses are generally computed on a specific
identified cost basis and are included in current period income. Trading
securities include securities purchased in connection with the Corporation's
trading activities and as such are expected to be sold in the near term. The
Corporation reports trading securities at fair value; realized and unrealized
gains and losses on trading securities are recorded currently in trading profits
and commissions, a component of noninterest income. Obligations to deliver
securities not yet purchased are reported as funds borrowed.
Foreign Exchange Trading. Foreign exchange trading positions, including foreign
currency spot, forward, future, option and cross-currency interest rate swap
positions, are valued at current market rates. Net foreign exchange trading
gains or losses are recorded in the income statement as a component of other
income.
59
<PAGE> 30
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
Interest Rate Contracts. Futures and forward contracts, including future rate
agreements, and interest rate swap agreements entered into in connection with
trading activities, are reported at fair value, with gains and losses recognized
currently in trading profits and commissions. Gains and losses on futures and
forward contracts used to manage interest rate exposure are deferred and
amortized over the period being managed as a component of interest income or
expense. Income or expense on interest rate swap agreements used to manage
interest rate exposure is accrued over the life of the agreement as an
adjustment to interest income or expense.
Options purchased and written in connection with trading activities are reported
at fair value, with gains and losses recognized currently in trading profits and
commissions. Gains and losses on agreements used to manage interest rate
exposure are amortized over the life of the agreement as an adjustment to
interest income or expense.
Loans and Lease Financing. Loans are reported at their principal outstanding,
net of charge-offs and unearned income, if any. Mortgages held for sale are
reported at the lower of aggregate cost or fair value. Loans include in-
substance repossessions (ISRs). As discussed more fully in Note 6, ISRs were
previously classified as other real estate owned.
Interest income on loans is accrued as earned. Unearned income on loans and
leases is recognized on a basis approximating a level rate of return over the
term of the loan. Loan origination fees and costs are accounted for in
accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases," which requires the deferral of these fees and costs and subsequent
amortization to income over the life of the related credit or facility. Fees
that adjust the yield on the underlying credit are included in interest income
on loans and lease financing. Fees for credit related services are included in
financial service fees, a component of noninterest income.
Lease financing receivables, including leveraged leases, are reported at the
aggregate of lease payments receivable and the estimated residual values, net of
unearned and deferred income, including unamortized investment credits.
Leveraged leases are reported net of nonrecourse debt. Unearned income is
recognized in income to yield a level rate of return on the net investment in
the leases.
The Corporation places loans and leases on nonaccrual status when any portion of
the principal or interest is ninety days past due, unless it is well secured and
in the process of collection, or earlier when concern exists as to the ultimate
collectibility of principal or interest. Whenever a loan or lease is placed on
nonaccrual status, all other credit exposures to the same borrower are also
placed on nonaccrual status, except when it can be clearly demonstrated that
such credit exposures are well secured, fully performing and insulated from the
weakness surrounding the nonaccrual credit to which they relate. When loans or
leases are placed on nonaccrual status, the related interest receivable is
reversed against interest income of the current period. Interest payments
received on nonaccrual loans and leases are applied as a reduction of the
principal balance when concern exists as to the ultimate collection of
principal; otherwise such payments are recognized as interest income. Loans and
leases are removed from nonaccrual status when they become current as to both
principal and interest and concern no longer exists as to the collectibility of
principal or interest.
The Corporation may renegotiate the contractual terms of a loan because of a
deterioration in the financial condition of the borrower. The carrying value of
a renegotiated loan is reduced by the fair value of any asset or equity interest
received, and by the extent, if any, that future cash receipts required under
the new terms do not equal the loan balance at the time of renegotiation.
Renegotiated loans performing in accordance with their new terms are not
reported as nonaccrual loans unless concern exists as to the ultimate collection
of principal or interest. Interest, if any, is recognized in income to yield a
level rate of return over the life of the renegotiated loan.
Reserve for Credit Losses and Provision for Credit Losses. The reserve for
credit losses is available for future charge-offs of extensions of credit. The
reserve is increased by the provision for credit losses and by recoveries of
items previously charged off, and is decreased as credits are charged off. A
charge-off occurs once a probability of loss has been determined, with
consideration given to such factors as the customer's financial condition,
underlying collateral and guarantees.
The provision for credit losses is based upon management's estimate of the
amount necessary to maintain the reserve at an adequate level, considering
evaluations of individual credits and concentrations of credit risk, net losses
charged to the reserve, changes in quality of the credit portfolio, levels of
nonaccrual loans and leases, current economic conditions, cross-border risks,
changes in the size and character of the credit risks and other pertinent
factors.
Other Real Estate Owned. Other real estate owned (OREO) includes properties on
which the Corporation has foreclosed and taken title. OREO is reported at the
lower of the carrying value of the loan or the fair value of the property
obtained, less estimated selling costs. The excess, if any, of the loan over the
fair value of the property at the time of transfer from loans to OREO is charged
to the reserve for credit losses. Subsequent declines in the value of the
property and net operating results of the property are recorded in noninterest
expense.
Purchased and Excess Mortgage Servicing Assets. Purchased mortgage servicing
rights (PMSR) represent the cost of purchasing the right to service mortgage
loans originated by others. Excess mortgage servicing receivables (EMSR)
represent the present value of the servicing fee income retained when mortgage
loans are sold in excess of a normal servicing fee rate. PMSR and EMSR are
reported as assets and are amortized as reductions of servicing fee income, a
component of noninterest income, over the estimated servicing period in
proportion to the estimated future net cash flows from the loans serviced.
60
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
Remaining PMSR asset balances are evaluated for impairment by determining their
estimated recoverable amount through 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. The carrying value is written
down for any impairment; such writedowns are recorded as reductions of servicing
fee income. Prior to 1993, this valuation was performed on an undiscounted
basis. Note 9 includes additional information with respect to this change in
accounting principle. EMSR is also evaluated for impairment based on estimated
future cash flows on a discounted basis.
Premises and Equipment. Premises and equipment are reported at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the estimated life of the
improvement or the term of the lease.
Precious Metals. The Corporation engages in various precious metal activities
including sales and consignment of precious metals to commercial customers and
investors, arbitrage activities and trading of precious metals. Substantially
all precious metal positions resulting from the commercial business and
arbitrage activities are hedged with futures and forward contracts. Such
precious metal positions are reported at cost and the difference between the
fixed futures or forward contract price and cost is amortized into precious
metal income, a component of nontinterest income, over the life of the contract.
Unhedged positions are valued at fair value with gains and losses recorded in
precious metal income. Fees received in connection with precious metal
activities are recorded in precious metal income as earned. Precious metal
assets, including receivables from the commercial business, are recorded in
other assets.
Income Taxes. The Corporation accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes," which was prospectively adopted
effective January 1, 1993, and, in connection therewith, records certain items
of income and expense in different periods for financial reporting than for
income tax reporting purposes. Note 20 includes additional information with
respect to the adoption of this new accounting standard. Under this new
standard, current tax liabilities or assets are recognized, through charges or
credits to the current tax provision, for the estimated taxes payable or
refundable for the current year. Net deferred tax liabilities or assets are
recognized, through charges or credits to the deferred tax provision, for the
estimated future tax effects, based on enacted tax rates, attributable to
temporary differences and tax benefit carryforwards. Deferred tax liabilities
are recognized for temporary differences that will result in amounts taxable in
the future and deferred tax assets are recognized for temporary differences and
tax benefit carryforwards that will result in amounts deductible or creditable
in the future. A deferred tax valuation reserve is established if it is more
likely than not that all or a portion of the Corporation's deferred tax assets
will not be realized. Changes in the deferred tax valuation reserve are
recognized through charges or credits to the deferred tax provision.
For financial reporting purposes, investment tax credits received in connection
with lease financing are recognized as lease income over the investment life of
the related asset.
Per Share Calculations. Primary net income per common share is computed by
dividing net income, reduced by dividends on preferred stock, by the weighted
average number of common shares outstanding for each period presented.
For fully diluted net income per common share, net income is reduced by
preferred stock dividends and increased by the interest, net of income tax
benefit, recorded on the Corporation's convertible debentures. Such adjusted net
income is divided by the weighted average number of common shares outstanding
for each period plus the shares representing the dilutive effect of stock
options outstanding and the shares that would result from conversion of the
Corporation's convertible debentures. The effect of stock options and
convertible debentures is excluded from the computation of fully diluted net
income per common share in periods in which their effect would be anti-dilutive.
Cash dividends declared per common share for all periods presented represent the
historical cash dividends of the Corporation.
2 MERGERS AND ACQUISITIONS
On July 9, 1993 and July 13, 1993, respectively, the Corporation completed its
mergers with Bancorp, a $2.4 billion registered bank holding company based in
Hartford, Connecticut, and Multibank, a $2.4 billion registered bank holding
company based in Dedham, Massachusetts. In connection with the merger with
Bancorp, the Corporation issued 9.6 million shares of its common stock for all
of the outstanding shares of Bancorp common stock by exchanging .80 of a share
of its common stock for each outstanding Bancorp share. In connection with the
merger with Multibank, the Corporation issued 10.4 million shares of its common
stock for all of the outstanding shares of Multibank common stock by exchanging
1.125 shares of its common stock for each outstanding Multibank share. These
mergers were accounted for as poolings of interests and as such are reflected in
the consolidated financial statements as though the Corporation, Bancorp and
Multibank had been combined as of the beginning of the earliest period
presented. As a condition of the approval of the Corporation's merger with
Multibank by the Board of Governors of the Federal Reserve System (the Federal
Reserve Board), in June 1993, the Corporation raised regulatory capital of
approximately $170 million, comprised of $70 million of preferred stock and $100
million of subordinated debt. This regulatory capital was required to be
maintained exclusively for use in addressing any needs in the Corporation's
banking subsidiaries. By December 31, 1993, the Corporation had utilized this
capital accordingly. Notes 11 and 12 provide additional information concerning
this preferred stock and subordinated debt.
The following table sets forth the results of operations of Bancorp, Multibank
and the Corporation for the six months ended June 30, 1993. These six month
results are included
61
<PAGE> 32
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
in the results of operations for the year ended December 31, 1993, presented in
the accompanying consolidated statement of income. The combined amounts reflect
adjustments to conform Bancorp's accounting policy for postretirement benefits
under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions," to that adopted by the Corporation and to eliminate unamortized
premium on loans purchased by a banking subsidiary of the Corporation from
Bancorp.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1993
(IN MILLIONS) BANCORP MULTIBANK CORPORATION COMBINED
<S> <C> <C> <C> <C>
Net interest revenue...... $62.4 $53.4 $598.2 $714.8
Noninterest income........ $14.2 $20.9 $270.2 $305.3
Net income................ $ 8.0 $ 9.5 $132.9 $155.1
</TABLE>
The following table sets forth reconciliations of revenue and net income
previously reported by the Corporation with the combined amounts presented in
the accompanying consolidated statements of income for the years ended December
31, 1992 and 1991. The combined amounts for the year ended December 31, 1992
reflect an adjustment to eliminate the effect of the purchase of loans by a
banking subsidiary of the Corporation from Bancorp during that year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS) BANCORP MULTIBANK CORPORATION COMBINED
<S> <C> <C> <C> <C>
Net interest revenue...... $107.7 $106.4 $1,087.4 $1,305.8
Noninterest income........ $ 33.3 $ 35.7 $ 640.3 $ 707.6
Net income................ $ 9.7 $ 4.6 $ 263.1 $ 278.9
YEAR ENDED DECEMBER 31, 1991
(IN MILLIONS) BANCORP MULTIBANK CORPORATION COMBINED
Net interest revenue...... $104.7 $103.5 $906.2 $1,114.8
Noninterest income........ $ 53.9 $ 39.3 $676.9 $ 762.9
Net income (loss)......... $(64.5) $(15.2) $(26.6) $(113.1)
</TABLE>
On September 21, 1993, the Corporation announced that it had reached a
definitive agreement to acquire BankWorcester Corporation (BankWorcester) for
$34 for each share of BankWorcester common stock outstanding, subject to an
upward adjustment if the acquisition is not consummated on or before June 30,
1994. It is expected that the total purchase price will approximate $247
million. BankWorcester, the holding company for Worcester County Institution for
Savings, had approximately $1.5 billion of assets, approximately $1.3 billion of
deposits and 28 branches at December 31, 1993. The acquisition has been approved
by the boards of directors of both companies and by BankWorcester's
stockholders, and remains subject to the receipt of required regulatory
approvals. The acquisition will be accounted for as a purchase.
3 STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, cash and due from banks are
considered to be cash equivalents. Foreign currency cash flows are converted to
U.S. dollars using average rates for the period. During 1993, 1992 and 1991, the
Corporation paid interest of approximately $5,302 million, $3,815 million and
$3,384 million, respectively. The Corporation paid income taxes of approximately
$56 million in 1993, $49 million in 1992, and received net income tax refunds of
approximately $94 million in 1991. During 1993, 1992 and 1991, the Corporation
transferred approximately $132 million, $249 million and $416 million,
respectively, to OREO from loans. Loans made to facilitate sales of OREO
properties totaled approximately $9 million, $51 million and $45 million in
1993, 1992, and 1991, respectively. Noncash transactions during 1993 also
included transfers of approximately $861 million of securities held to maturity
to securities available for sale. These transfers resulted from the
Corporation's mergers with Bancorp and Multibank, as well as the Corporation's
adoption of SFAS No. 115, which is described more fully in Note 5. During 1992,
approximately $66 million of securities held to maturity were transferred to
securities available for sale.
4 RESERVE REQUIREMENTS, RESTRICTED
DEPOSITS AND PLEDGED ASSETS
At December 31, 1993 and 1992, cash and due from banks included $1,392 million
and $662 million, respectively, to satisfy the reserve requirements of the
Federal Reserve and various foreign central banks. Interest bearing deposits in
other banks held to satisfy foreign central bank reserve requirements totaled
$39 million and $12 million at December 31, 1993 and 1992, respectively.
At December 31, 1993 and 1992, securities, loans and other assets with a book
value of $3,757 million and $5,467 million, respectively, were pledged to
collateralize repurchase agreements, public deposits and other items.
5 SECURITIES
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1993 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury.... $ 317,396 $ 276 $ 73 $ 317,599
U.S. government
agencies and
corporations --
Mortgage-backed
securities... 1,045,574 131 1,679 1,044,026
States and
political
subdivisions... 29,480 1,049 17 30,512
Foreign debt
securities..... 108,503 285 178 108,610
Other debt
securities..... 65 65
Other equity
securities..... 67,805 67,805
---------- ------ ------ ----------
$1,568,823 $1,741 $1,947 $1,568,617
========== ====== ====== ==========
</TABLE>
62
<PAGE> 33
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1992 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury... $ 285,177 $ 365 $ 113 $ 285,429
U.S. government
agencies and
corporations
--
Mortgage-backed
securities.... 1,774,677 27,796 1,151 1,801,322
States and
political
subdivisions... 51,104 1,385 6 52,483
Foreign debt
securities.... 125,244 116 866 124,494
Other debt
securities.... 175,074 17,518 192,592
Marketable
equity
securities.... 31,035 14,555 591 44,999
Other equity
securities.... 192,862 60,657 253,519
---------- -------- ------ ----------
$2,635,173 $122,392 $2,727 $2,754,838
========== ======== ====== ==========
</TABLE>
Other equity securities reported in securities held to maturity at December 31,
1993 represent securities, such as Federal Reserve Bank and Federal Home Loan
Bank stock, which are not traded on established exchanges and have only
redemption capabilities. Fair values for such securities are considered to
approximate cost.
A summary comparison of securities available for sale by type is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED CARRYING
DECEMBER 31, 1993 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury.... $ 108,017 $ 1,584 $ 109,601
U.S. government
agencies and
corporations --
Mortgage-backed
securities... 493,142 5,804 $ 774 498,172
States and
political
subdivisions... 478 4 474
Foreign debt
securities..... 441,038 49,622 594 490,066
Other debt
securities..... 149,585 149,585
Marketable equity
securities..... 57,959 19,989 3,618 74,330
Other equity
securities..... 115,659 115,659
---------- ------- ------ ----------
$1,365,878 $76,999 $4,990 $1,437,887
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
CARRYING GROSS GROSS
VALUE UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1992 (COST) GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Treasury...... $ 525,702 $3,546 $ 522,156
U.S. government
agencies and
corporations --
Mortgage-backed
securities........ 568,553 $16,558 1,100 584,011
Foreign debt
securities........ 344,218 15,585 565 359,238
Other debt
securities........ 49,093 106 49,199
Other equity
securities........ 9,572 60 500 9,132
---------- ------- ------ ----------
$1,497,138 $32,309 $5,711 $1,523,736
========== ======= ====== ==========
</TABLE>
On December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." In connection with the
adoption of this new standard, certain debt and equity securities, principally
venture capital and mezzanine securities with a cost and related unrealized gain
of $309 million and $16 million, respectively, were transferred from securities
held to maturity to securities available for sale. In addition, in accordance
with the new standard, all debt securities, and those equity securities with a
readily determinable fair value, were reported at fair value. The excess of fair
value over cost, which amounted to $42 million, net of tax, was reported as a
separate component of stockholders' equity. The remaining equity securities,
with a cost of $116 million, which are not traded on established exchanges, were
reported at cost. However, in accordance with SFAS No. 107, "Disclosures About
Fair Values of Financial Instruments," fair values were estimated for these
securities. These fair values exceeded cost by $45 million and $58 million at
December 31, 1993 and 1992, respectively. Further information with respect to
the fair value of these securities is included in Note 28.
<TABLE>
A summary of debt securities held to maturity by contractual maturity is as
follows:
<CAPTION>
1993 1992
DECEMBER 31 FAIR FAIR
(IN MILLIONS) COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Within one
year.......... $ 397.6 $ 398.4 $ 422.4 $ 423.8
After one but
within five
years......... 167.8 167.9 328.7 342.6
After five but
within ten
years......... 92.9 93.8 377.8 389.8
After ten
years......... 842.7 840.7 1,282.4 1,300.1
-------- -------- -------- --------
$1,501.0 $1,500.8 $2,411.3 $2,456.3
======== ======== ======== ========
</TABLE>
<TABLE>
A summary of debt securities available for sale by contractual maturity is as
follows:
<CAPTION>
1993 CARRYING 1992
DECEMBER 31 CARRYING VALUE FAIR
(IN MILLIONS) COST VALUE (COST) VALUE
<S> <C> <C> <C> <C>
Within one $ 369.4 $ 272.1
year.......... $ 362.6 $ 273.9
After one but 351.9 678.4
within five
years......... 317.0 684.6
After five but 114.1 119.9
within ten
years......... 105.0 127.9
After ten 412.5 417.2
years......... 407.7 428.2
-------- -------- -------- --------
$1,192.3 $1,247.9 $1,487.6 $1,514.6
======== ======== ======== ========
</TABLE>
Certain securities, such as mortgage-backed securities, may not become due at a
single maturity date. Such securities have been classified within the category
that encompasses the due dates for the majority of the instrument.
Included in 1993's securities gains were gross gains of $39 million and gross
losses of $.7 million related to the sale of debt securities. Total proceeds
from such sales amounted to $4,247 million. For 1992, securities gains included
gross gains of $51 million and gross losses of $16 million related to securities
sales. Total proceeds from securities sales in 1992 amounted to $5,675 million.
For 1991, securities gains included gross gains of $30 million and gross losses
of $2.8 million related to securities sales. Total
63
<PAGE> 34
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
proceeds from securities sales in 1991 amounted to $3,159 million.
6 LOANS AND LEASE FINANCING
<TABLE>
The following are the details of loan and lease financing balances:
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS)
United States Operations:
Commercial, industrial and
financial.......................... $ 11,991,440 $ 10,328,473
Real estate:
Secured by 1-4 family residential
properties....................... 4,159,069 3,630,181
Construction....................... 617,426 854,395
Other commercial................... 3,123,024 3,202,114
Loans to individuals................. 1,609,566 1,436,451
Lease financing...................... 1,263,267 1,213,851
Unearned income...................... (203,598) (205,394)
------------- ------------
22,560,194 20,460,071
------------- ------------
International Operations:
Commercial and industrial............ 4,650,227 3,645,799
Banks and other financial
institutions. . 602,287 385,054
Governments and official
institutions....................... 22,069 53,474
Lease financing...................... 264,597 218,442
All other............................ 790,957 721,237
Unearned income...................... (108,357) (84,745)
------------- ------------
6,221,780 4,939,261
------------- ------------
$ 28,781,974 $ 25,399,332
============= ============
</TABLE>
In 1993, in response to guidance issued by banking regulators, the Corporation
reclassified loans which met the definition of ISRs from OREO to loans. In
addition, valuation adjustments to write down the loans to the fair value of the
underlying collateral are treated as credit losses and charged to the reserve
for credit losses rather than OREO expense. All prior periods have been
reclassified for comparative purposes.
The application of this treatment resulted in $189 million of ISRs, previously
classified as OREO, being classified as other commercial real estate loans, and
reported as nonaccrual loans, at December 31, 1992. In addition, valuation
adjustments related to ISRs amounting to $37 million and $54 million for the
years ended December 31, 1992 and 1991, respectively, which had previously been
reported as OREO expense, have been reclassified to the provision for credit
losses, with corresponding amounts recorded as credit losses. These
reclassifications had no effect on net income or the ending balance of the
reserve for credit losses for any period.
Renegotiated loans that are performing in accordance with their new terms are
classified as accruing loans. Such loans amounted to $225 million and $401
million at December 31, 1993 and 1992, respectively. The average yield on these
loans was approximately 8% at December 31, 1993 and 1992. At December 31, 1993,
there were no material commitments to lend additional funds to customers whose
loans have been renegotiated. For the years ended December 31, 1993 and 1992,
interest income that would have been recognized if the loans had been current at
their original contractual rates amounted to $21 million and $37 million,
respectively, while the amount recognized as interest income in the same periods
amounted to $18 million and $21 million, respectively. In connection with the
restructuring of loans, the Corporation may also obtain equity interests in the
borrower. When the Corporation's equity interest exceeds twenty percent of the
company, the fair value of the Corporation's investment in and loans to the
borrower is transferred to other assets and accounted for as an investment. Such
equity interests amounted to $41 million at December 31, 1993 and $30 million at
December 31, 1992.
In May 1993, SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
was issued. This standard requires that impaired loans, including loans
restructured in a troubled debt restructuring involving a modification of terms,
be evaluated based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, if the loan is collateral dependent,
based on the fair value of the collateral. This standard is effective for fiscal
years beginning after December 15, 1994. The Corporation is currently evaluating
this new standard, which will be adopted prospectively, and has not yet
determined its potential effect.
7 RESERVE FOR CREDIT LOSSES
<TABLE>
An analysis of changes in the reserve for credit losses is as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Balance, January 1......... $ 923,120 $1,051,209 $1,022,625
Provision.................. 70,126 180,567 518,656
Credit losses.............. (273,101) (412,036) (597,240)
Recoveries................. 50,134 103,380 107,168
---------- ---------- ----------
Net credit losses.......... (222,967) (308,656) (490,072)
---------- ---------- ----------
Balance, December 31....... $ 770,279 $ 923,120 $1,051,209
========== ========== ==========
</TABLE>
8 OTHER ASSETS
<TABLE>
Other assets consisted of the following:
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS)
Accounts receivable..................... $ 445,394 $ 744,228
Purchased and excess mortgage servicing
assets................................. 272,776 318,517
Prepaid pension cost.................... 173,659 168,482
Excess of cost over assigned value of
net assets acquired.................... 127,383 139,636
Precious metal assets................... 151,078 110,015
Investments in limited partnerships..... 123,369 91,219
Equity investments in affiliates........ 76,698 74,382
Refundable income taxes................. 42,739 44,970
Other prepaid expenses.................. 33,474 37,716
Equity investments from loan
restructurings......................... 41,369 30,256
All other............................... 160,335 207,689
------------ -----------
$ 1,648,274 $ 1,967,110
============ ===========
</TABLE>
64
<PAGE> 35
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
9 CHANGE IN ACCOUNTING FOR PURCHASED MORTGAGE SERVICING RIGHTS
Effective January 1, 1993, the Corporation elected to change its method of
accounting for PMSR to conform its financial reporting to regulatory accounting
rules adopted by the banking regulators in the first quarter of 1993. 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 taxes of $32 million),
or $.50 per common share on a primary basis and $.48 per common share on a fully
diluted basis. If this new accounting method had been applied during 1992,
income before extraordinary items would have been reduced by approximately $19
million, or $.19 per common share on a primary basis and $.18 per common share
on a fully diluted basis. Determination of the effect of retroactive application
of the new accounting method during 1991 on results of that period was not
practicable.
10 FUNDS BORROWED
<TABLE>
Funds borrowed consisted of the following:
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS)
Federal funds purchased................. $ 417,107 $ 468,138
Term federal funds purchased............ 2,150,000 280,000
Securities sold under agreements to
repurchase............................. 798,842 1,121,655
Short-term bank notes................... 350,000
Demand notes issued to the U.S.
Treasury............................... 117,359 106,253
Federal Home Loan Bank borrowings....... 80,000 205,000
All other............................... 1,061,272 765,781
------------ -----------
$ 4,974,580 $ 2,946,827
============ ===========
</TABLE>
All other funds borrowed include long-term borrowings of $327 million at
December 31, 1993 and $395 million at December 31, 1992. At December 31, 1993
and 1992, the Corporation had availability under various borrowing arrangements
of $1,949 million and $763 million, respectively.
11 NOTES PAYABLE
<TABLE>
Notes payable consisted of the following:
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS)
PARENT COMPANY
Floating rate subordinated equity
commitment notes, due February
1996 (issued February 1984)..... $ 87,960
Subordinated equity contract
notes, due August 1997 (issued
August 1987).................... $ 129,255 129,255
Floating rate subordinated equity
commitment notes, 3.55% at
December 31, 1993, due August
1998 (issued August 1986)....... 106,400 106,400
Floating rate notes, 6.00% at
December 31, 1993, due September
2000 (issued September 1985).... 178,500 178,500
Subordinated notes, due September
2000 (issued August 1988)....... 150,000 150,000
Floating rate subordinated notes,
5.00% at December 31, 1993, due
February 2001 (issued February
1986)........................... 186,100 186,100
Subordinated notes, $100 million
principal, due July 2003 (issued
June 1993)...................... 99,873
Subordinated notes, $350 million
principal, due December 2005
(issued November 1993).......... 348,723
7.75% convertible subordinated
debentures, due June 2011
(issued January 1986)........... 94,396 94,660
---------- ----------
1,293,247 932,875
---------- ----------
SUBSIDIARIES
Medium term notes, weighted
average effective interest rate
of 8.88% at December 31, 1993,
due 1994........................ 108,300 113,137
8.375% subordinated capital notes,
due December 15, 1998........... 15,264 15,264
8.375% subordinated notes, $200
million principal, due December
2002 (issued December 1992)..... 198,835 198,705
Other notes, weighted average
effective interest rate of 8.26%
at December 31, 1993, due 1994
through 2001.................... 357,112 426,056
---------- ----------
679,511 753,162
---------- ----------
$1,972,758 $1,686,037
========== ==========
</TABLE>
Notes payable are unsecured obligations of the Corporation or its subsidiaries.
Certain of the indentures under which these notes were issued prohibit the
Corporation from making any payment or other distribution in the stock of FNBB
unless FNBB unconditionally guarantees payment of principal and interest on the
notes.
The Corporation's equity commitment and equity contract notes were designed to
qualify as capital under prior regulatory capital rules as a result of the
Corporation's commitment under the terms of the agreements to issue equity
securities equal to the principal amount of the notes on or before their
maturity. These notes continue to qualify as a component of total capital under
the current risk-based capital regulations. The Corporation's equity contract
notes bear interest at 9.50%. At the time of the issuance of these notes, the
Corporation entered into an interest rate swap agreement, which effectively
converted this fixed rate
65
<PAGE> 36
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
obligation into a floating rate obligation. Such interest rate was 3.58% at
December 31, 1993. In December 1993, the Corporation redeemed its equity
commitment notes due February 1996 at the principal amount plus accrued
interest.
The Corporation's subordinated notes due September 2000 are redeemable at par in
1995 and bear interest at 10.30%. When the notes were issued, the Corporation
entered into an interest rate swap agreement which, for the first seven years,
effectively converted the fixed rate obligation to a floating rate obligation.
At December 31, 1993, such interest rate was 3.85%.
The 7.75% convertible subordinated debentures are convertible at the option of
the holder into 4,030,586 shares of common stock of the Corporation at any time
on or before June 15, 2011, at a conversion price of $23.42 per share, subject
to certain adjustments. The debentures are redeemable at the option of the
Corporation, in whole or in part, at any time, at prices ranging from 101.55% in
1994 to 100% in 1995 of the principal amount plus accrued interest.
In June 1993, the Corporation issued $100 million of 6 7/8% Subordinated Notes,
due 2003. The subordinated notes are not subject to redemption prior to
maturity. The subordinated notes were issued by the Corporation as part of its
commitment to the Federal Reserve Board to raise regulatory capital in
connection with its merger with Multibank, as described in Note 2. When the
notes were issued, the Corporation entered into an interest rate swap agreement
which effectively converted the fixed rate obligation to a floating rate
obligation. At December 31, 1993, such interest rate was 4.14%.
In November 1993, the Corporation issued $350 million of 6 5/8% Subordinated
Notes, due 2005. The subordinated notes are not subject to redemption prior to
maturity. When the notes were issued, the Corporation entered into an interest
rate swap agreement which effectively converted the fixed rate obligation to a
floating rate obligation. At December 31, 1993, such interest rate was 3.87%.
Included in other notes at December 31, 1993 and 1992 were $266 million and $315
million, respectively, of senior notes issued by a nonbanking subsidiary of the
Corporation. The notes, due in installments through 1998, bear interest at rates
ranging from 6.67% to 9.50%. The notes can be prepaid at various dates at the
option of the issuer, with the payment of predetermined prepayment penalties.
During 1991, the Corporation repurchased and retired $15 million of its notes
payable at a gain. The gain, which amounted to $7.8 million or $.08 per common
share, net of taxes of $.8 million, is presented as an extraordinary item in the
consolidated statement of income.
Notes payable maturing during the next five years amount to: $133 million in
1994, $72 million in 1995, $39 million in 1996, $258 million in 1997 and $214
million in 1998.
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. The subordinated notes are not subject
to redemption prior to maturity. In February 1994, the Corporation notified the
holders of its floating rate notes due September 2000 that it would redeem those
notes in March 1994 at the principal amount plus accrued interest.
12 PREFERRED STOCK
On August 13, 1992, the Corporation sold 9.2 million depositary shares. Each
depositary share represents a one-tenth interest in a share of the Corporation's
8.60% Cumulative Preferred Stock, Series E, with a liquidation preference of
$250 per preferred share (Series E Preferred Stock). In June 1993, the
Corporation sold 2.8 million depositary shares. Each depositary share represents
a one-tenth interest in a share of the Corporation's 7 7/8% Cumulative Preferred
Stock, Series F, with a liquidation preference of $250 per preferred share
(Series F Preferred Stock). Each depositary share entitles the holder to a
proportional interest in all rights and preferences of a share of Series E or
Series F Preferred Stock, including dividend, voting, redemption and liquidation
rights. Both the Series E and Series F Preferred Stock have no preemptive or
general voting rights. The Series E and Series F Preferred Stock will not be
redeemable prior to September 15, 1997 and July 15, 1998, respectively. On and
after those dates, the Series E and Series F Preferred Stock will be redeemable
at the option of the Corporation, in whole or in part, at the liquidation
preference of $250 per share (equivalent to $25 per depositary share), plus
dividends accrued and unpaid at the respective redemption date. The depositary
shares with respect to the Series F Preferred Stock were issued by the
Corporation as part of its commitment to the Federal Reserve Board to raise
regulatory capital in connection with its merger with Multibank, as described in
Note 2.
<TABLE>
A summary of the Corporation's Adjustable Rate Cumulative Preferred Stock
(Adjustable Rate Preferred Stock) issued and outstanding is as follows:
<CAPTION>
SERIES A SERIES B SERIES C
<S> <C> <C> <C>
Outstanding at December 31,
1993 and 1992:
Shares....................... 1,044,843 1,574,315 774,783
Amount (in thousands)......... $ 52,242 $ 78,716 $ 77,478
Liquidation preference per
share......................... $ 50 $ 50 $ 100
Dividend rates:
At December 31, 1993......... 6.00% 6.00% 5.50%
Minimum....................... 6.00% 6.00% 5.50%
Maximum....................... 13.00% 13.00% 12.50%
Dividends per share:
1993......................... $ 3.01 $ 3.01 $ 5.51
1992.......................... $ 3.13 $ 3.04 $ 5.54
1991.......................... $ 3.37 $ 3.25 $ 5.96
</TABLE>
Dividends on all series of preferred stock are cumulative and, when declared,
are payable quarterly. The dividend rates for the Adjustable Rate Preferred
Stock are determined according to a formula based upon the highest of three
66
<PAGE> 37
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
interest rate benchmarks. The Adjustable Rate Preferred Stock has no preemptive
or general voting rights, and is redeemable, in whole or in part, at the option
of the Corporation. Series A Preferred Stock is redeemable at $51.50 per share
through March 29, 1994 and at $50 per share thereafter; Series B Preferred Stock
is redeemable at $51.50 per share through June 19, 1995 and at $50 per share
thereafter; and Series C Preferred Stock is redeemable at $103 per share through
November 13, 1995 and at $100 per share thereafter.
13 STOCKHOLDER RIGHTS PLAN
In 1990, the Board of Directors of the Corporation adopted a stockholder rights
plan. The plan provides for the distribution of one preferred stock purchase
right for each outstanding share of common stock of the Corporation. Each right
entitles the holder, following the occurrence of certain events, to purchase a
unit, consisting of one-thousandth of a share of Junior Participating Preferred
Stock, Series D, at a purchase price of $50 per unit, subject to adjustment. The
rights will not be exercisable or transferable apart from the common stock
except under certain circumstances in which a person or group of affiliated
persons acquires, or commences a tender offer to acquire, 15% or more of the
Corporation's common stock. Rights held by such an acquiring person or persons
may thereafter become void. Under certain circumstances, a right may become a
right to purchase common stock or assets of the Corporation or common stock of
an acquiring corporation at a substantial discount. Under certain circumstances,
the Corporation may redeem the rights at $.01 per right. The rights will expire
in July 2000 unless earlier redeemed or exchanged by the Corporation.
14 DIVIDENDS AND LOAN RESTRICTIONS
Bank regulations require the approval of bank regulatory authorities if the
dividends declared by banking subsidiaries exceed certain prescribed limits. For
1994, aggregate dividend declarations by the Corporation's banking subsidiaries
without prior regulatory approval are limited to approximately $503 million of
their undistributed earnings at December 31, 1993, plus an additional amount
equal to their net profits for 1994, as defined, up to the date of any dividend
declaration. However, for any dividend declaration, the Corporation's banking
subsidiaries, as well as the Corporation itself, must consider additional
factors such as: the amount of current period net income, liquidity, asset
quality profile, capital adequacy and economic conditions. It is likely that
these factors would further limit the amount of dividends which the banking
subsidiaries could declare. In addition, banking regulators have authority to
prohibit banks and bank holding companies from paying dividends if they deem
such payment to be an unsafe or unsound practice.
Each banking subsidiary is also prohibited by the bank regulatory authorities
from granting loans and advances to the Parent Company that exceed certain
limits. Assuming declaration of the maximum amount of dividends under the
regulations described above, any such loans and advances would be limited to an
aggregate of approximately $322 million and would be subject to specific
collateral requirements.
Under the foregoing regulations, an aggregate of approximately $2,350 million of
the Parent Company's investment in banking subsidiaries of $3,175 million, which
includes bank holding companies and their subsidiaries, was restricted from
transfer to the Parent Company at December 31, 1993.
15 OTHER INCOME
<TABLE>
The components of other income were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Mezzanine/venture capital
profits, net................. $ 38,066 $ 16,904 $ 40,908
Net foreign exchange trading
profits...................... 45,322 40,952 40,886
Precious metal income......... 9,326 10,664 18,990
Net gains from sales of
mortgage inventories......... 7,497 2,763 4,700
Gains from sales of mortgage
servicing rights............. 651 14,768 34,045
Recognition of deferred gain
from 1984 sale of the
headquarters building........ 16,200
Net translation/hedge results
from Brazilian currency
position..................... (174,000) (50,000)
Gain on sale of assets
received in connection with
lending activities........... 2,741 10,605 10,747
Equity in undistributed
earnings of affiliates....... 15,923 11,493 9,832
Gains on sales of branches and
other operations............. 8,403
All other..................... 42,678 57,291 28,620
-------- --------- ---------
$(11,796) $ 131,640 $ 197,131
======== ========= =========
</TABLE>
During 1993 and 1992, the Corporation maintained a currency position in Brazil
in order to take advantage of the spread between local Brazilian interest rates
and devaluation of Brazil's local currency. This position significantly affected
the levels of consolidated net interest revenue, noninterest income and net
interest margin in both periods. For the years ended December 31, 1993 and 1992,
this position resulted in net interest revenue of $192 million and $67 million,
respectively, and net translation/hedge losses, a component of noninterest
income, of $174 million and $50 million, respectively. The impact on 1991
results was not significant.
16 EMPLOYEE BENEFITS
The Corporation maintains non-contributory defined benefit pension plans (the
Plans) covering substantially all domestic employees. The Corporation funds the
Plans in compliance with the requirements of the Employee Retirement Income
Security Act.
The principal plan is an account balance defined benefit plan in which each
employee has an account to which amounts are allocated based on level of pay and
years of service and which grows at a specific rate of interest. Benefits
accrued
67
<PAGE> 38
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
prior to 1989 are based on years of service, highest average compensation and
social security benefits.
<TABLE>
Employee benefits expense was reduced by net pension income of the Plans, which
included the following:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost (benefits earned
during the period).......... $17,695 $ 15,405 $ 15,154
Interest cost on projected
benefit obligation........... 19,719 18,045 16,642
Return on plan assets:
Actual...................... (42,978) (29,449) (58,386)
Actuarial deferral of gains
(losses)................... 3,833 (4,339) 25,224
Amortization:
Unrecognized net asset...... (4,065) (4,066) (4,065)
Unrecognized prior service
cost....................... 2,974 2,974 3,177
Other, net................... (2,080) (439) (1,898)
------- -------- --------
Net pension income............ $(4,902) $ (1,869) $ (4,152)
======= ======== ========
</TABLE>
<TABLE>
The following table sets forth the funded status of the Plans:
<CAPTION>
DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Projected benefit obligation:
Vested benefits............ $ 182,918 $155,379 $104,712
Nonvested benefits......... 29,184 26,088 22,806
--------- -------- --------
Accumulated benefit
obligation................. 212,102 181,467 127,518
Effect of projected future
compensation levels........ 62,010 64,952 63,838
--------- -------- --------
Projected benefit
obligation.................. $ 274,112 $246,419 $191,356
========= ======== ========
Plan assets at fair value
(primarily listed stocks and
fixed income securities).... $ 443,601 $395,655 $363,762
========= ======== ========
Plan assets in excess of
projected benefit
obligation.................. $ 169,489 $149,236 $172,406
Unrecognized net (gain)
loss........................ (96) 17,274 (5,413)
Unrecognized prior service
cost....................... 21,238 23,009 24,479
Unrecognized net asset....... (16,972) (21,037) (25,103)
--------- -------- --------
Prepaid pension cost......... $ 173,659 $168,482 $166,369
========= ======== ========
Assumptions used in actuarial
computations were:
Weighted average discount
rate....................... 7.5% 8.0-10.0% 8.0-10.0%
Rate of increase in future
compensation levels......... 4.5% 5.0-6.0% 5.0-7.0%
Expected long-term rate of
return on assets............ 9.5% 7.6-10.0% 9.5-11.0%
</TABLE>
The Corporation also maintains nonqualified deferred compensation and retirement
plans for certain officers. All benefits provided under these plans are unfunded
and any payments to plan participants are made by the Corporation. As of
December 31, 1993 and 1992, approximately $14 million was included in accrued
expenses and other liabilities for these plans. For the years ended December 31,
1993, 1992 and 1991, expense related to these plans was $1.4 million, $1.6
million, and $1.5 million, respectively.
<TABLE>
The Corporation provides certain health and life insurance benefits for certain
retired employees. Eligible domestic employees currently receive credits, up to
$10,000, based on years of service which are used to purchase postretirement
health care coverage through the Corporation. Prior to 1993, the costs of these
health and life insurance benefits, which included the costs of current and
prior plans, were expensed currently as paid. Effective January 1, 1993, the
Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," which requires the recognition of postretirement
benefits over the service lives of the employees rather than on a cash basis.
The Corporation elected to recognize its accumulated benefit obligation of $82
million at January 1, 1993 on a straight-line basis over a 20-year transition
period. The adoption of the new standard resulted in an increase in 1993
employee benefits expense of approximately $4 million. The components of
postretirement benefits expense for the year ended December 31, 1993 were as
follows:
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost (benefits earned during the
period)......................................... $ 942
Interest cost on projected benefit obligation..... 5,712
Amortization:
Unrecognized transition obligation.............. 4,062
Unamortized gain................................ (340)
--------
Net postretirement benefits expense............. $ 10,376
========
</TABLE>
<TABLE>
The following table sets forth the status of the Corporation's accumulated
postretirement benefit obligation, which was unfunded, as of December 31, 1993
and January 1, 1993:
<CAPTION>
DECEMBER 31 JANUARY 1
1993 1993
<S> <C> <C>
(IN THOUSANDS)
Accumulated benefit obligation:
Retirees...................... $ 61,874 $ 69,159
Actives -- eligible to
retire...................... 4,974 4,533
Actives -- not eligible to
retire...................... 9,824 8,000
-------- --------
Accumulated postretirement
benefit obligation............ $ 76,672 $ 81,692
Unrecognized net gain........... 4,615
Unrecognized transition
obligation.................... (77,188) (81,692)
-------- --------
Postretirement benefit
liability..................... $ 4,099 $ 0
======== ========
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%. The assumed weighted average health
care cost trend rate was 12% for 1994. Such rate decreases gradually to 5%
through the year 2001 and remains level thereafter. The assumed rate of increase
in future compensation levels used was 4.5%.
An increase of 1% in the assumed health care cost trend rate would result in
increases of 4.8% in the accumulated postretirement benefit obligation and 4.1%
in annual postretirement benefits expense. Actual cash payments of
postretirement benefits other than pensions were $6.3 million, $4.1 million and
$4.2 million in the years ended December 31, 1993, 1992 and 1991, respectively.
The Corporation maintains thrift incentive plans covering the majority of
domestic employees. Under these plans, employer contributions are generally
based on the amount of eligible employee contributions. The amounts charged to
operating expense for these plans were $10 million in 1993, $8 million in 1992
and $9 million in 1991.
The Financial Accounting Standards Board has issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," to be effective for years beginning
after December 15, 1993, which requires accruing the expected cost of providing
postemployment benefits, such as salary continua-
68
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
tion, severance benefits, continuation of health care benefits and life
insurance coverage, to former or inactive employees, after employment but before
retirement, if certain conditions are met. This new standard is not expected to
have a material effect on the Corporation's financial statements.
17 STOCK OPTIONS AND AWARDS
The Corporation's stock incentive plans include the 1991 Long-Term Stock
Incentive Plan (the 1991 Plan), the 1986 and 1982 Stock Option Plans (the 1986
and 1982 Plans), the Multibank 1982 Employee Stock Option Plan (the Multibank
Plan) and the Society for Savings 1983 Stock Incentive Program (the Society
Plan). The 1991 Plan provides for the award of stock options, restricted stock
and stock appreciation rights (SARs) to key employees. Awards may be made under
the 1991 Plan until December 31, 1996. No additional grants may be made under
the 1982, 1986, Society, or Multibank Plans. Shares reserved under these plans
may be authorized but unissued shares, treasury shares or shares purchased on
the open market.
Options under the above plans are granted at prices not less than the fair
market value of the common stock on the date of grant. Stock options under the
1991 Plan are generally exercisable in equal installments on the date of grant
and the first anniversary of the grant date. Under the 1986 and 1982 Plans,
options granted are generally exercisable in equal installments on the date of
grant and each of the three anniversary dates thereafter. Options under the
Multibank and Society Plans are fully vested, with the exception of 334 options,
which will fully vest in 1994. All options expire not later than 10 years after
the date of grant. The 1986 Plan allowed for the granting of rights to receive
Tax Offset Payments with respect to Non-Qualified Stock Options, which are
intended to compensate the participant for the difference in tax treatment of
Incentive Stock Options and Non-Qualified Stock Options. At December 31, 1993,
Tax Offset Payments with respect to 115,294 options, granted in 1987, were
outstanding. There was no compensation expense for Tax Offset Payments for the
years ended December 31, 1993, 1992 and 1991.
A total of 8,064,351 shares of common stock were reserved for issuance under the
above plans at December 31, 1993. Options outstanding at December 31, 1993 were
at prices ranging from $5.63 to $30.50 per share.
<TABLE>
The following is a summary of the changes in options outstanding:
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Options outstanding,
January 1............. 3,705,690 3,733,165 2,813,052
Granted ($5.63 to $25.50
per share)............ 445,103 857,408 1,332,756
Exercised ($5.63 to
$24.63 per share)..... (800,524) (783,227) (20,546)
Canceled................ (373,518) (101,656) (392,097)
--------- --------- ---------
Options outstanding,
December 31........... 2,976,751 3,705,690 3,733,165
========= ========= =========
Options exercisable,
December 31........... 2,731,896 3,020,511 2,633,378
========= ========= =========
Shares available for
future grants......... 5,087,600 2,309,692 3,327,251
========= ========= =========
</TABLE>
Generally, SARs entitle the holder to receive an amount equal to the excess of
the fair market value of a share of common stock on the exercise date over the
fair market value at the date of grant. SARs are available under the 1991 Plan
and the 1988 Stock Appreciation Rights Plan (the 1988 SARs Plan). At December
31, 1993, 42,950 SARs were outstanding under the 1988 SARs Plan, at a grant
price of $24.63. At December 31, 1992 and 1991, 68,174 SARs were outstanding at
prices ranging from $22.75 to $24.63. No SARs have been granted under the 1991
Plan at December 31, 1993. Compensation expense (income) related to outstanding
SARs was $(30) thousand and $115 thousand for the years ended December 31, 1993
and 1992, respectively. There was no compensation expense for SARs in 1991.
The 1991 Plan also provides for the granting of restricted stock. Employees are
generally required to maintain employment with the Corporation for a period of
five years after the grant in order to become fully vested in the shares
granted. Restricted stock issued under the 1991 Plan is recorded at the fair
market value of the shares on the date of grant. The resulting unearned
compensation is recorded as a reduction of retained earnings and is amortized as
compensation expense over the restriction period. During 1993, 111,100 shares of
restricted stock were awarded, 87,360 shares were forfeited and 10,675 shares
were released from restrictions. At December 31, 1993, there were 509,490
restricted shares outstanding with associated unearned compensation, recorded as
a reduction of retained earnings, of $5.2 million. Compensation expense recorded
in the years ended December 31, 1993, 1992 and 1991 with respect to restricted
stock was $1.3 million, $1.2 million and $.3 million, respectively.
18 MERGER AND RESTRUCTURING EXPENSE
In 1993 and 1991, the Corporation recorded merger and restructuring charges of
$85 million and $54 million, respectively. The merger and restructuring charges
recorded in 1993 were primarily in connection with the Corporation's mergers
with Bancorp and Multibank. Such charges consisted of investment banking and
other professional fees, stock issuance costs, estimated facilities and
operations consolidation costs and severance costs associated with
69
<PAGE> 40
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
expected reorganization following the mergers. The charges also included the
cost of expense reduction initiatives undertaken by the Corporation. The 1991
restructuring charges were recorded primarily in connection with the
Corporation's plans for consolidating and downsizing various domestic and
international operations and facilities and reducing the number of employees.
<TABLE>
19 OTHER EXPENSE
The components of other expense were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
FDIC deposit insurance.......... $ 61,942 $ 56,390 $ 55,945
Professional:
Legal fees..................... 26,441 31,280 41,975
Consulting and other
professional fees............ 29,166 36,616 37,659
Communications.................. 59,307 57,895 55,580
Advertising..................... 37,572 29,492 20,527
Forms and supplies.............. 24,343 23,356 23,447
Travel and customer contact..... 22,018 24,944 23,198
Acquisition-related, evaluation
and bid costs.................. 19,801
Software costs.................. 19,154 17,645 17,175
Write off of real estate, bank
premises and computer
equipment...................... 16,519
Other staff costs............... 14,661 13,502 12,896
Amortization of excess of cost
over assigned value of net
assets acquired................ 11,961 11,373 10,910
Property and casualty
insurance...................... 6,759 8,872 7,365
Insurance claims and policy
reserves of insurance
subsidiary..................... 7,742 6,934 6,570
Non-income taxes................ 4,942 7,210 11,159
Regulatory examination fees..... 4,423 4,326 4,806
All other....................... 76,775 78,601 84,417
---------- --------- ---------
$ 407,206 $ 408,436 $ 449,949
========== ========= =========
</TABLE>
20 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 was an increase to net 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. Under this new standard, deferred tax assets and
liabilities are recognized for the estimated future income tax consequences
attributable to tax benefit carryforwards and to temporary differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are required to be
measured using enacted tax rates. The effect of enacted changes in tax law,
including changes in tax rates, on these deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date. During
1993, the Corporation's federal income tax rate was increased to 35%; the effect
of this change was not significant to the deferred tax balance.
The new standard also requires that a valuation reserve be established if it is
more likely than not that all or a portion of the deferred tax asset will not be
realized. At December 31, 1993, the Corporation had a $56 million valuation
reserve, which had decreased $5 million during 1993. This reserve has been
established for certain future state and federal tax benefits which may not be
fully utilized. It is expected that the deferred tax assets, net of the
valuation reserve, will be realized from the reversal of existing deferred tax
liabilities and from the recognition of future taxable income, without relying
on tax planning strategies that the Corporation ordinarily might not follow.
<TABLE>
The components of the net deferred tax liability at December 31, 1993 were as
follows:
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Federal and state tax benefit carryforwards........ $ 282,537
Reserve for credit losses.......................... 330,753
Interest on nonaccrual loans....................... 80,747
Purchased mortgage servicing rights................ 21,085
Deferred credit related fees....................... 19,956
Other.............................................. 56,982
---------
Deferred tax assets.............................. 792,060
Valuation reserve................................... (56,000)
---------
Deferred tax assets, net of reserve.............. 736,060
---------
Deferred tax liabilities:
Leasing operations................................. 615,443
Pension obligations................................ 74,989
Foreign operations................................. 14,600
Other.............................................. 48,180
---------
Deferred tax liabilities......................... 753,212
---------
Net deferred tax liability.......................... $ 17,152
=========
</TABLE>
<TABLE>
At December 31, 1993, the Corporation's federal tax benefit carryforwards were
as follows:
(IN MILLIONS)
<CAPTION>
ALTERNATIVE
FOREIGN MINIMUM INVESTMENT
YEAR OF TAX TAX TAX
EXPIRATION CREDIT CREDIT CREDIT TOTAL
<S> <C> <C> <C> <C>
1994................... $ 70.3 $ 1.3 $ 71.6
1995................... 34.4 1.9 36.3
1996................... 10.9 4.5 15.4
1997................... 25.0 7.3 32.3
1998................... 26.3 2.4 28.7
1999-2004.............. 62.1 62.1
None................... $19.9 19.9
------- ----- ----- -------
Total.................. $ 166.9 $19.9 $79.5 $ 266.3
======= ===== ===== =======
</TABLE>
In addition, at December 31, 1993, the Corporation had state tax benefit
carryforwards, net of federal tax effects, of $16.2 million that expire in 1994
through 1998.
70
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- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
The components of the provision for (benefit from) income taxes were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Current tax provision
(benefit):
Federal..................... $ 15,591 $ 9,374 $ (139,939)
Foreign:
Based on income........... 26,918 14,941 15,750
Withheld on interest and
dividends............... 8,499 4,663 5,593
State and local............. 44,857 13,869 (41,030)
--------- --------- ----------
95,865 42,847 (159,626)
--------- --------- ----------
Deferred tax provision
(benefit):
Federal..................... 106,439 75,723 23,784
State and local............. 12,379 34,211 13
Reduction of net deferred
tax asset................. 77,839
--------- --------- ----------
118,818 109,934 101,636
--------- --------- ----------
Income tax provision
(benefit) before
extraordinary items and
cumulative effect of changes
in accounting principles.... 214,683 152,781 (57,990)
Income taxes applicable to
extraordinary items and
changes in accounting
principles:
Recognition of prior year
tax benefit
carryforwards........... (72,968)
Gain from early
extinguishment of
debt.................... 815
Change in accounting for
purchased mortgage
servicing rights........ (32,362)
Change in accounting for
income taxes............ (77,163)
--------- --------- ----------
$ 105,158 $ 79,813 $ (57,175)
========= ========= ==========
</TABLE>
Not included in the above table were the tax effects related to certain items
which were recorded directly in stockholders' equity, including foreign currency
translation, market value adjustments related to securities available for sale,
stock options and restricted stock. Net tax effects recorded directly in
stockholders' equity amounted to a $26 million charge in 1993 and a $2.5 million
benefit in 1992. There were no such tax effects in 1991. The income tax
provision (benefit) included tax provisions related to securities gains of $13
million in 1993, $15 million in 1992 and $3.9 million in 1991.
During 1991, the Corporation recorded a $52 million state tax benefit as a
result of reaching a settlement with The Commonwealth of Massachusetts (the
Commonwealth) of tax claims by FNBB covering tax years 1976 through 1990. The
claims were based on FNBB's position that the exercise of the Commonwealth's
taxing authority over FNBB's income from sources outside Massachusetts,
including foreign countries, violated the federal and Massachusetts
constitutions. Under the terms of the settlement, the Commonwealth refunded $37
million in taxes paid by FNBB. The settlement also specified the Massachusetts
tax treatment associated with any federal tax adjustments subsequently
determined to affect FNBB's returns for tax years 1982 through 1990, which
resulted in a $15 million reduction in FNBB's state tax accruals.
The current federal income tax benefit for 1991 reflected the Corporation's
decision to carryback its 1990 net operating loss to recover taxes paid in prior
years, including a $25 million refund of federal minimum taxes. This decision
also resulted in the elimination of a majority of the Corporation's remaining
deferred tax asset in 1991, and changed the composition of the Corporation's tax
benefit carryforwards.
<TABLE>
The components of the deferred tax provision before extraordinary items and
cumulative effect of changes in accounting principles were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Reserve for credit losses..... $ 51,859 $ 51,162 $ (8,850)
Leasing operations............ 14,422 32,333 49,402
Interest on nonaccrual
loans........................ 12,375 52,009 5,714
Deferred credit related
fees......................... (3,833) (2,713) 2,652
Unremitted earnings of foreign
equity subsidiaries.......... 5,433 2,925 2,158
Foreign operations............ (12,888) (2,205) 1,247
Sale of headquarters
building..................... 7,113 3,160
Purchased mortgage servicing
rights....................... (7,861) (14,239) 3,715
Depreciation and
amortization................. 1,082 1,108 (2,648)
Net tax benefit carryforwards
realized (generated)......... 74,158 (33,808) (26,824)
Net unrecognized tax
benefits..................... 355 39,966
Other, net.................... (15,929) 15,894 31,944
-------- --------- ---------
$118,818 $ 109,934 $ 101,636
======== ========= =========
</TABLE>
<TABLE>
The following table reconciles the expected federal tax provision (benefit)
before extraordinary items and cumulative effect of changes in accounting
principles, based on the federal statutory tax rate of 35% in 1993 and 34% in
1992 and 1991, to the actual consolidated tax provision before extraordinary
items and cumulative effect of changes in accounting principles:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
Expected tax provision (benefit)
applicable to income (loss) before
extraordinary items and cumulative
effect of changes in accounting
principles......................... $171.3 $ 122.0 $ (60.8)
Effect of:
State and local income taxes, net
of federal tax benefit.......... 37.2 31.8 7.3
State tax case settlement, net of
federal tax provision............ (34.3)
Tax-exempt income.................. (2.8) (4.1) (9.4)
Minimum tax refund................. (24.6)
Foreign tax credit carryforward.... 19.4
Non-creditable foreign taxes....... 4.7 2.0 1.9
Tax benefits of net operating loss
not recognized................... 41.7
Other, net......................... 4.3 1.1 .8
-------- ------- -------
Actual tax provision (benefit)
before extraordinary items and
cumulative effect of changes in
accounting principles.............. $ 214.7 $ 152.8 $ (58.0)
======== ======= =======
</TABLE>
71
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
Domestic pre-tax income (loss) was $279 million in 1993, $251 million in 1992,
and $(261) million in 1991. Foreign pre-tax income, defined as income generated
from operations that are located outside the United States, was $125 million in
1993, $108 million in 1992, and $82 million in 1991.
21 FINANCIAL INSTRUMENTS WITH OFF-
BALANCE-SHEET RISK
Financial instruments with off-balance-sheet risk represent various degrees and
types of risk to the Corporation including credit, interest rate, foreign
exchange rate and liquidity risk. Interest rate and foreign exchange rate
contracts are entered into in connection with the Corporation's trading
activities, including providing certain of these products to its customers, and
to manage its own interest rate and foreign exchange exposure. The Corporation
enters into offsetting contracts or employs other hedging techniques in an
effort to limit its exposure to interest rate and foreign exchange rate risk.
CREDIT-RELATED INSTRUMENTS
A commitment to extend credit is a legally binding agreement to lend to a
customer in the future that generally expires within a specified period of time.
The extension of a commitment, which is subject to the Corporation's credit
review and approval policies, gives rise to credit exposure when certain
borrowing conditions are met and it is drawn upon. Until such time, it
represents only potential exposure. In connection with entering into a
commitment, the Corporation may obtain collateral if deemed necessary, based
upon the Corporation's credit evaluation. Such collateral varies but may include
securities, receivables, inventory, fixed assets, personal property and real
estate. The obligation to lend may be voided if the customer's financial
condition deteriorates or if the customer fails to meet certain covenants.
Commitments to extend credit do not reflect the actual demand on liquidity that
the Corporation will be subjected to in the future, since historical experience
with loan commitments indicates that a large portion generally expire without
being drawn upon.
Standby letters of credit and foreign office guarantees are commitments that are
primarily issued to a third party to guarantee an obligation by the
Corporation's customers. Standby letters of credit may be issued as credit
enhancements for corporate customers' commercial paper, bond issuances by
municipalities or other debt obligations, and to guarantee other financial
performance of a customer. The Corporation has a current exposure only to the
extent that a customer may default on the underlying transaction. The risks
involved in the issuance of standby letters of credit and foreign office
guarantees are primarily credit risks. Again, the Corporation's credit review
and approval policies and practices are adhered to when evaluating issuances of
standbys or guarantees for customers. Similar to commitments to extend credit,
the Corporation may obtain various types of collateral, if deemed necessary,
based upon the Corporation's credit evaluation.
FINANCIAL MARKETS INSTRUMENTS
The principal or notional value of commitments related to various financial
markets instruments should not be taken as the measure of credit, interest rate,
liquidity or foreign exchange risk, since these values do not represent the cost
of replacing the contracts at current rates. In addition, the principal or gross
notional values do not reflect the effect of hedges or other offsetting
positions. Except for instruments used to manage the Corporation's own balance
sheet interest rate and foreign exchange risk, gains and losses stemming from
changes in the market values of the financial markets instruments described
below are recognized currently as part of trading profits and commissions or
foreign exchange profits. The majority of the Corporation's off-balance-sheet
financial markets instruments not used in managing balance sheet, interest rate
or foreign exchange risk are hedged with other such instruments. The Corporation
has historically experienced minimal credit loss with respect to its capital
markets instruments.
The Corporation enters into foreign exchange contracts and foreign currency
options primarily in connection with its trading activities and to hedge foreign
currency risk. In addition, the Corporation uses foreign exchange contracts to
hedge a portion of its exposure to translation gains and losses from overseas
branches and foreign subsidiaries. Foreign exchange contracts include such
commitments as foreign currency spot, forward, futures, option and swap
contracts. The risks in these transactions arise from the ability of the
counterparties to deliver under the terms of the contract and the risk of
trading a volatile commodity. The Corporation actively monitors all transactions
and positions against predetermined limits assigned to business units and types
of currency to ensure reasonable risk taking.
The Corporation also enters into interest rate swap agreements in connection
with its trading activities, including offering these agreements to its
customers, and to manage its own interest rate risk. These agreements generally
involve the exchange of fixed and variable rate interest payments between two
parties based on a common notional principal amount and maturity date. The
notional value is the basis for calculating payment streams and is never
exchanged. The primary risks associated with swaps are the exposure to movements
in interest rates and the ability of the counterparties to meet the terms of the
contracts.
The Corporation uses futures and forward contracts, including future rate
agreements, in connection with its trading activities and to manage its own
interest rate exposure. Futures and forward contracts generally are contracts
for the delayed delivery of securities or money market instruments in which the
buyer agrees to purchase and the seller agrees to make delivery of a specific
instrument at a predetermined date for a specific price. These contracts also
include agreements which are settled between counterparties based on a notional
principal value and do not involve an actual movement of principal. Risks on
both types of agreements stem from market movements in the underlying
securities' values and interest rates and from the ability of the counterparties
to meet the terms of the contracts.
72
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
The Corporation purchases and writes interest rate options in connection with
its trading and risk management activities, including providing these products
to its customers, and to manage its own interest rate exposure. Interest rate
options are contracts that allow the holder of the option to receive cash,
purchase, sell or enter into a financial instrument at a specified price within
a specified period of time. Options include interest rate caps and floors, which
are types of interest rate protection instruments involving potential payment
between seller and buyer of an interest differential. In addition, other types
of option products provide the holder with the right to enter into interest rate
swap, cap, and floor agreements with the "writer." The primary risks associated
with all types of options are the exposure to current and expected movements in
interest rates and the ability of the counterparties to meet the terms of the
contracts.
<TABLE>
A summary of the principal or notional amounts of significant financial
instruments with off-balance-sheet risk is as follows:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992
<S> <C> <C>
(IN MILLIONS)
Fee based or otherwise legally binding
commitments to extend credit(1)............ $ 17,391 $ 15,034
Standby letters of credit, foreign office
guarantees and similar instruments(2)...... 2,344 2,144
Commercial letters of credit................ 1,033 726
Foreign exchange rate contracts:
Commitments to purchase foreign currencies
and U.S. dollar exchange................ 22,148 19,696
Notional value of options:
Written or sold......................... 613 772
Purchased................................ 691 754
Notional value of cross currency interest
rate swaps............................... 57 145
Interest rate contracts:
Futures and forwards...................... 18,607 13,287
Notional value of interest rate swaps...... 10,195 9,595
Notional value of options:
Written or sold......................... 5,783 5,289
Purchased................................ 5,336 5,085
Residential mortgage loans sold with
recourse................................... 119 205
<FN>
(1) Net of participations conveyed to others of $549 million in 1993 and $664
million in 1992.
(2) Net of participations conveyed to others of $293 million in 1993 and $292
million in 1992.
</TABLE>
The Corporation's off-balance-sheet financial instruments entered into in
connection with its trading activities include both foreign exchange rate and
interest rate contracts, which are valued at current market rates, with
unrealized gains and losses recorded on a net basis in the accompanying
consolidated balance sheet. These amounts represent the current cost of
replacing the outstanding contracts. The Corporation's credit exposure on these
contracts can be estimated as the gross aggregate unrealized gains, which
represent the maximum possible loss the Corporation would incur if all related
counterparties failed completely to perform according to the terms of their
contracts. At December 31, 1993, gross unrealized gains recorded in the
accompanying consolidated balance sheet were $190 million and $267 million on
interest rate and foreign exchange rate contracts, respectively. Included in the
above table are interest rate swap agreements used to manage interest rate
exposure, which are not valued at current market rates, and accordingly, are not
reflected in the $190 million discussed above, that have gross unrealized gains
at December 31, 1993. The notional value of these swaps was $1,350 million and
the gross unrealized gains were approximately $70 million.
In March 1992, Financial Accounting Standards Board Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts," was issued. The
interpretation, which is required to be adopted by the Corporation at the
beginning of 1994, will require the reporting of gross unrealized gains and
gross unrealized losses on the Corporation's 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.
Through December 31, 1993, 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, which the Corporation believes
was consistent with banking industry practice. The adoption of this
interpretation for balance sheet presentation purposes will not affect the net
income or capital of the Corporation, and will not affect the Corporation's
risk-based capital ratios, which have historically incorporated the gross
unrealized gains on these contracts. If this interpretation was currently
effective, the Corporation's assets and liabilities as of December 31, 1993
would have each increased by approximately $421 million.
22 CONCENTRATIONS OF CREDIT RISK
Credit risk associated with concentrations is impacted when changes in economic,
industry or geographic factors affect groups of counterparties with similar
economic characteristics, whose aggregate credit exposure is significant to the
Corporation's total credit exposure. Nearly half of the Corporation's business
activity is with customers located within New England. Information with respect
to the Corporation's overseas business activities and its geographic
concentrations is included in Note 26. As of December 31, 1993, the
Corporation's loans and commitments to lend collateralized by commercial real
estate properties were approximately $4 billion, of which two-thirds was related
to properties in New England. There were no other significant concentrations of
credit risk.
73
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
23 LEASE COMMITMENTS
<TABLE>
Rental expense for leases of real estate and equipment is summarized below:
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
Rental expense................. $93,819 $ 97,318 $ 104,398
Less sublease rental income.... 12,302 12,842 13,289
------- -------- ---------
Net rental expense............. $81,517 $ 84,476 $ 91,109
======= ======== =========
</TABLE>
The Corporation has obligations under noncancelable operating leases for real
estate and equipment which include renewal options and escalation clauses. The
Corporation's minimum future rentals under its leases, exclusive of executory
costs and net of sublease rental income, for the years 1994 through 1998 are $66
million, $61 million, $57 million, $52 million and $51 million, respectively,
and $439 million for 1999 and later. Capital leases, the minimum rentals of
which are included in the preceding amounts, are not significant.
24 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 lending practices of
the Corporation's subsidiaries. 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.
25 REGULATORY MATTERS
From 1989 through 1993, each of the Corporation, Bancorp and Multibank, as well
as each of their banking subsidiaries, operated at various times under a
regulatory agreement or order. At December 31, 1993, all such agreements or
orders had been terminated, except for those with Connecticut, South Shore Bank,
Multibank West and Mechanics Bank; the latter three are banking subsidiaries of
Multibank. The agreement with Mechanics Bank was terminated in January 1994.
The agreements with respect to Connecticut and South Shore Bank address certain
areas, including management, asset quality, reserves, profitability, capital
ratios and dividends. In addition, South Shore Bank is subject to certain
ongoing conditions of an approval order of the Federal Deposit Insurance
Corporation (the FDIC) relating to the merger of Durfee Attleboro Bank and
Falmouth National Bank into South Shore Bank. The conditions of the FDIC
approval order require, among other things, that a plan to reduce classified
asset levels and maintain certain capital ratios be implemented. Each of the
banks is required to file periodic progress reports with its regulator. Both
Connecticut and South Shore Bank are in compliance with the capital ratio
aspects of, and have adopted or are implementing improvements in various areas
addressed in, their respective agreements.
Multibank West is subject to an FDIC approval order resulting from the merger of
First Agricultural Bank and Multibank National of Western Massachusetts, in
which the resulting bank was named Multibank West. The approval order addresses,
among other things, uniform policies and procedures, risk ratings, asset
quality, reserves and funds management, and the maintenance of certain capital
ratios. Multibank West, who is required to file periodic progress reports with
the FDIC, has complied with all of the aspects of its approval order.
26 SEGMENT INFORMATION
The Corporation operates within the financial services industry segment.
Services are provided through a network of offices located both in the United
States and overseas. Geographic segment information for the Corporation for the
years ended December 31, 1993, 1992 and 1991 is presented in the Consolidated
Statistical Information section, under the caption Geographic Segment
Information, on pages 84 and 85.
27 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
<TABLE>
The following is a condensed balance sheet of the Corporation (Parent Company
only) at December 31, 1993 and 1992:
<CAPTION>
DECEMBER 31 1993 1992
<S> <C> <C>
(IN THOUSANDS)
ASSETS
Cash and short term investments in
bank subsidiary.................... $ 206,920 $ 288,026
Advances to subsidiaries:
Bank subsidiaries.................. 63,709 83,510
Nonbank subsidiaries................ 226,203 57,197
Subordinated notes receivable from
bank subsidiary..................... 400,000 400,000
Investments in subsidiaries:
Bank subsidiaries.................. 3,175,274 2,541,645
Nonbank subsidiaries................ 134,751 122,331
Other assets......................... 22,846 17,460
------------ ----------
TOTAL ASSETS......................... $ 4,229,703 $3,510,169
============ ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
1993 1992
Commercial paper due to nonbank
subsidiary.......................... $ 10,200 $ 10,000
Notes payable........................ 1,293,247 932,875
Other liabilities.................... 14,587 13,764
------------ ----------
Total liabilities.................... 1,318,034 956,639
------------ ----------
Total stockholders' equity........... 2,911,669 2,553,530
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................. $ 4,229,703 $3,510,169
============ ==========
</TABLE>
74
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
The following is a condensed income statement of the Corporation (Parent Company
only):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING INCOME
Dividend from bank
subsidiary............... $ 6,986
Interest from subsidiaries:
Bank subsidiaries...... 37,064 $ 27,866 $ 40,184
Nonbank subsidiaries... 3,159 4,605 6,787
--------- --------- ----------
Total operating income..... 47,209 32,471 46,971
--------- --------- ----------
OPERATING EXPENSE
Interest expense........... 51,075 48,943 65,952
Other expense, net......... 3,997 4,125 38,127
--------- --------- ----------
Total operating expense.... 55,072 53,068 104,079
--------- --------- ----------
Loss before income taxes,
equity in undistributed
net income (loss) of
subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle................ (7,863) (20,597) (57,108)
Benefit from income
taxes.................... (6,191) (2,555) (5,921)
--------- --------- ----------
Loss before equity in
undistributed net income
(loss) of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle................ (1,672) (18,042) (51,187)
Equity in undistributed net
income (loss) of
subsidiaries............. 302,411 296,923 (69,726)
--------- --------- ----------
Income (Loss) before
extraordinary item and
cumulative effect of
change in accounting
principle................ 300,739 278,881 (120,913)
Extraordinary gain from
early extinguishment of
debt, net of tax......... 7,758
Cumulative effect of change
in accounting for income
taxes.................... (1,713)
--------- --------- ----------
NET INCOME (LOSS).......... $ 299,026 $ 278,881 $ (113,155)
========= ========= ==========
</TABLE>
During 1991, the Corporation forgave $15 million of debt from BancBoston
Financial Company, a secured finance and factoring nonbank subsidiary of FNBB,
thereby providing additional capital to FNBB. The forgiveness of debt is
reported in the Parent Company's other expense and is offset by a reduction in
the Parent Company's equity in undistributed loss of subsidiaries.
<TABLE>
The following is a condensed statement of cash flows of the Corporation (Parent
Company only):
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ 299,026 $ 278,881 $ (113,155)
Reconciliation of net
income (loss) to net
cash used for
operating activities:
Cumulative effect of
change in accounting
for income taxes.... 1,713
Extraordinary gain
from early
extinguishment of
debt, net of tax.... (7,758)
Equity in
undistributed net
(income) loss of
subsidiaries........ (302,411) (296,923) 69,726
Net change in interest
receivables and
payables............ 5,676 (906) 1,173
Other, net............ (12,379) (8,611) 1,529
---------- ---------- ----------
Net cash used for
operating
activities........ (8,375) (27,559) (48,485)
---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Net cash provided from
(used for) short-term
investments in banking
subsidiary............ 81,420 (135,590) 192,800
Net cash provided from
(used for) advances to
subsidiaries.......... (149,205) 129,130 100,257
Investments in
subsidiaries.......... (299,000) (164,133) (62,431)
Purchase of subordinated
note receivable from
bank subsidiary....... (150,000)
---------- ---------- ----------
Net cash provided
from (used for)
investing
activities........ (366,785) (320,593) 230,626
---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net cash provided from
(used for) commercial
paper................. 200 (3,029) (131,499)
Repayments/repurchases
of notes payable...... (88,224) (31,167)
Net proceeds from
issuance of notes
payable............... 448,596
Net proceeds from
issuance of common
stock................. 19,883 155,418 7,887
Net proceeds from
issuance of preferred
stock................. 67,595 222,401
Dividends paid.......... (72,576) (27,504) (28,083)
---------- ---------- ----------
Net cash provided
from (used for)
financing
activities........ 375,474 347,286 (182,862)
---------- ---------- ----------
Net change in cash and
due from banks........ 314 (866) (721)
Cash and due from banks
at January 1.......... 236 1,102 1,823
---------- ---------- ----------
Cash and due from banks
at December 31........ $ 550 $ 236 $ 1,102
========== ========== ==========
Interest payments
made.................. $ 45,918 $ 50,004 $ 70,726
Income tax payments made
(refunds received).... $ (1,500) $ (253) $ 4,696
</TABLE>
In 1992, the Corporation transferred BancBoston Leasing Services, Inc. (BBLSI),
a nonbank project finance leasing
75
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
subsidiary, to FNBB. The transfer was accomplished by a capital contribution of
all of the shares of BBLSI from the Corporation to FNBB. The capital
contribution, reported in the Parent Company only financial statements, amounted
to $45 million.
28 FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Corporation disclose estimated fair values for certain of its financial
instruments. Financial instruments include such items as loans, deposits,
securities, interest rate and foreign exchange rate contracts, swaps and other
instruments as defined by the standard.
Fair value estimates are generally subjective in nature and are dependent upon a
number of significant assumptions associated with each instrument or group of
similar instruments, including estimates of discount rates, risks associated
with specific financial instruments, estimates of future cash flows and relevant
available market information. Fair value information is intended to represent an
estimate of an amount at which a financial instrument could be exchanged in a
current transaction between a willing buyer and seller engaging in an exchange
transaction. However, since there are no established trading markets for a
significant portion of the Corporation's financial instruments, the Corporation
may not be able to immediately settle its financial instruments; as such, the
fair values are not necessarily indicative of the amounts that could be realized
through immediate settlement. In addition, the majority of the Corporation's
financial instruments, such as loans and deposits, are held to maturity and are
realized or paid according to the contractual agreement with the customer.
Where available, quoted market prices are used to estimate fair values. However,
due to the nature of the Corporation's financial instruments, in many instances
quoted market prices are not available. Accordingly, the Corporation has
estimated fair values based on other valuation techniques, such as discounting
estimated future cash flows using a rate commensurate with the risks involved or
other acceptable methods. Fair values are estimated without regard to any
premium or discount that may result from concentrations of ownership of a
financial instrument, possible income tax ramifications, or estimated
transaction costs. Fair values are also estimated at a specific point in time
and are based on interest rates and other assumptions at that date. As events
change the assumptions underlying these estimates, the fair values of financial
instruments will change.
Disclosure of fair values is not required for certain items such as lease
financing, investments accounted for under the equity method of accounting,
obligations for pensions and other postretirement benefits, premises and
equipment, OREO, prepaid expenses, PMSR, core deposit intangibles and other
customer relationships, other intangible assets and income tax assets and
liabilities. Accordingly, the aggregate fair value amounts presented do not
purport to represent and should not be considered representative of the
underlying "market" or franchise value of the Corporation.
Because the standard permits many alternative calculation techniques and because
numerous assumptions have been used to estimate the Corporation's fair values,
reasonable comparisons of the Corporation's fair value information with other
financial institutions' fair value information cannot necessarily be made.
The methods and assumptions used to estimate the fair values of each class of
financial instruments are as follows:
Cash and due from banks, interest-bearing deposits in other banks, federal funds
sold and securities purchased under agreements to resell, funds borrowed, due
from customers on acceptances and acceptances outstanding. These items are
generally short-term in nature and, accordingly, the carrying amounts reported
in the balance sheet are reasonable approximations of their fair values.
Trading securities. Trading securities are carried at fair value on the balance
sheet. Such values are generally based on quoted market prices.
Mortgages held for sale. Fair values are based on the estimated value at which
the loans could be sold in the secondary market, considering the fair value of
commitments to issue mortgage loans, net of forward contracts to sell mortgage
loans.
Securities available for sale and securities held to maturity. Fair values are
principally based on quoted market prices. For certain debt and equity
investments made in connection with the Corporation's venture capital and
mezzanine financing business that do not trade on established exchanges and for
which markets do not exist, estimates of fair value are based upon management's
review of the investee's financial results, condition and prospects.
Loans. The fair value of accruing consumer mortgage loans is estimated using
market quotes or by discounting contractual cash flows, adjusted for credit risk
and prepayment estimates. Discount rates are obtained from secondary market
sources. The fair values of accruing home equity loans are estimated using
comparable market information adjusted for credit and other relevant
characteristics. The fair value of all other accruing loans is estimated by
discounting cash flows, using interest rates that consider the credit and
interest rate risks inherent in the loans, and current economic and lending
conditions.
The fair value of nonaccrual loans is estimated by discounting management's
estimate of future cash flows using a rate commensurate with the risks involved.
Accrued interest receivable and other assets. The carrying amount of accrued
interest receivable approximates its fair value. Financial instruments
classified as other assets subject to the disclosure requirements of the
standard consist principally of accounts receivable, EMSR and investments in
limited partnerships. The carrying amounts of short-term receivables are
considered to approximate their fair value. For longer-term receivables, fair
value is estimated by discounting expected future cash flows using a discount
rate commensurate with the risks involved. The fair value of EMSR is based on
the present value of expected future cash flows and the estimated servicing
life. Estimates of fair value of investments in limited partnerships are based
upon management's review of the investee's financial results, condition and
prospects.
76
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
Deposits. The fair values of deposits subject to immediate withdrawal such as
interest and noninterest bearing checking, passbook savings and money market
deposit accounts are equal to their carrying amounts. The carrying amounts for
variable-rate certificates of deposit and other time deposits approximate their
fair values at the reporting date. Fair values for fixed-rate certificates of
deposit and other time deposits are estimated by discounting future cash flows
using interest rates currently offered on time deposits with similar remaining
maturities.
Accrued expenses and other liabilities. Financial instruments classified as
accrued expenses and other liabilities subject to the disclosure requirements of
the standard consist principally of short-term liabilities and the carrying
amounts approximate their fair values.
Notes payable. The fair value of long-term borrowings is estimated using
secondary market prices and does not include the fair values of related interest
rate swap agreements, which are presented separately.
Foreign exchange rate and interest rate financial instruments. The fair values
of foreign exchange rate and interest rate contracts, including contracts used
to manage interest rate exposure and market risks, are estimated based on market
information adjusted for credit and other relevant characteristics using pricing
models, including option models.
Other unrecognized financial instruments. The fair value of commitments to
extend credit is estimated using the fees charged to enter into similar legally
binding agreements, taking into account the remaining terms of the agreements
and customers' credit ratings. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair values of foreign office guarantees and letters of
credit are based on fees charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties at
the reporting date.
77
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINUED
The estimated fair values of the Corporation's financial instruments at December
31, 1993 and 1992 are presented in the following tables. The estimated fair
value of loans exceeded their carrying amount, net of the reserve for credit
losses, principally because the estimated fair values under the standard do not
take into account concentrations of credit risk, including the size of credits
and other factors considered by management in its determination of the level of
the reserve for credit losses. In addition, the reserve for credit losses is
established on an undiscounted basis and, also, considers credit losses related
to other financial instruments, principally commitments to lend and letters of
credit. Further, the total estimated fair value of loans increased over the
related carrying amount as a result of the low interest rate environment.
<TABLE>
<CAPTION>
DECEMBER 31 1993 1992
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
ASSETS
Cash and due from
banks............... $ 2,539 $ 2,539 $ 1,936 $ 1,936
Interest bearing
deposits in other
banks............... 991 991 1,307 1,307
Federal funds sold and
securities purchased
under agreements to
resell.............. 1,454 1,454 1,187 1,187
Trading securities.... 306 306 192 192
Mortgages held for
sale................ 1,322 1,324 922 922
Securities(1):
Available for
sale.............. 1,438 1,483 1,497 1,524
Held to maturity.... 1,569 1,569 2,635 2,755
Loans................. 27,254 23,967
Reserve for credit
losses(2)........... (770) (923)
------- -------
26,484 27,200 23,044 23,600
Due from customers on
acceptances......... 391 391 229 229
Accrued interest
receivable.......... 287 287 288 288
Financial instruments
included in other
assets.............. 596 626 861 877
LIABILITIES
Deposits.............. 29,614 29,736 29,102 29,274
Funds borrowed........ 4,975 4,975 2,947 2,947
Acceptances
outstanding......... 391 391 229 229
Financial instruments
included in accrued
expenses and other
liabilities......... 398 398 532 532
Notes payable......... 1,973 2,024 1,686 1,709
<FN>
(1) For investments made in connection with the Corporation's venture capital
and mezzanine financing business that do not trade on established exchanges,
and for which no markets exist, fair values were estimated, based on
management's review of the investee's financial results, condition and
prospects. At December 31, 1993 these investments were classified as
securities available for sale, and their estimated fair value exceeded the
related carrying amount by $45 million. At December 31, 1992, these
investments were classified as securities held to maturity, and their
estimated fair value exceeded the related carrying amount by $58 million.
(2) The reserve for credit losses is established for future charge-offs arising
from all extensions of credit. The Corporation has not made a specific
allocation of the reserve to other instruments such as leases, commitments
to extend credit, standby letters of credit and interest rate contracts.
Accordingly, a separate determination of the reserve allocable to loans is
not made.
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 1993 1992
ESTIMATED ESTIMATED
FAIR FAIR
(IN MILLIONS) VALUE VALUE
<S> <C> <C>
OTHER FINANCIAL INSTRUMENTS CARRIED AT
FAIR VALUE
Interest rate contracts:
Futures and forwards(3)
Interest rate swaps:
In a net receivable position........ $160 $147
In a net payable position........... (76) (107)
Options:
Written or sold..................... (14) (69)
Purchased........................... 30 62
Foreign exchange rate contracts:
Commitments to purchase foreign
currencies and U.S. dollar exchange:
In a receivable position............ 246 310
In a payable position............... (243) (212)
Options:
Written or sold..................... (22) (45)
Purchased........................... 21 28
Cross-currency interest rate swaps.... (1) (3)
UNRECOGNIZED SWAPS USED TO MANAGE
INTEREST RATE EXPOSURE(4)
Interest rate swaps:
In a net receivable position........ 70 125
In a net payable position........... (23) (19)
OTHER UNRECOGNIZED FINANCIAL INSTRUMENTS
Fee based or otherwise legally binding
commitments to extend credit.......... (27) (45)
Standby and commercial letters of
credit, foreign office guarantees and
similar instruments................... (42) (55)
<FN>
(3) These contracts generally settle daily; as a result, fair value approximates
zero.
(4) Information with respect to the accounting for these instruments is included
in Note 1.
</TABLE>
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
The following three tables present average balance and interest rate information
for the Corporation on a consolidated basis and separately for its United States
and International Operations. Incorporated in these tables is an adjustment of
tax exempt income to a fully taxable equivalent basis. This adjustment is
calculated assuming a 35% federal income tax in 1993 and a 34% federal income
tax rate in 1992 and 1991 adjusted for applicable state and local income taxes
net of the related federal tax benefit. Data for loans includes nonaccrual and
renegotiated balances as well as fees earned on loans. Average rates for
interest bearing deposits of United States Operations have been calculated after
deducting applicable reserve requirements from average balances shown in the
table. Interest rates in International Operations reflect the Corporation's
operations in highly inflationary economies and include the effect of the
currency position maintained in Brazil, which is discussed in Management's
Financial Review on page 33.
<TABLE>
AVERAGE BALANCES AND INTEREST RATES -- CONSOLIDATED
<CAPTION>
YEARS ENDED DECEMBER 31 1993 1992 1991
AVERAGE AVERAGE Average Average Average Average
(DOLLARS IN MILLIONS) BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in
other banks.................. $ 1,293 $1,064.7 82.35% $1,246 $ 779.4 62.57% $1,267 $ 494.1 39.03%
Federal funds sold and resale
agreements................... 1,444 1,569.6 108.68 1,039 516.4 49.68 1,349 115.7 8.57
Trading securities............. 281 10.2 3.65 227 8.9 3.95 261 17.1 6.54
Mortgages held for sale........ 1,071 75.6 7.06 683 57.9 8.47 421 38.7 9.19
Securities:
U.S. Treasury................ 580 22.8 3.94 1,537 84.6 5.50 2,491 163.6 6.57
U.S. government agencies and
corporations............... 2,085 115.8 5.56 2,237 149.9 6.70 1,669 141.9 8.50
States and political
subdivisions............... 45 3.6 7.85 66 5.7 8.56 95 9.4 9.88
Other........................ 914 929.9 101.75 864 328.5 38.04 843 137.9 16.37
Loans and lease financing(1)... 26,586 3,039.5 11.43 25,330 3,186.2 12.58 26,167 3,357.3 12.83
------- -------- ------- ------- ------- ------- ------ ------- -------
Total earning assets --
interest income.............. 34,299 6,831.7 19.92 33,229 5,117.5 15.40 34,563 4,475.7 12.95
------- -------- ------- ------- ------- ------- ------ ------- -------
Cash and due from banks........ 1,790 1,596 1,485
Other assets................... 2,278 2,030 1,867
------- ------- -------
Total assets................... $38,367 $36,855 $37,915
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Savings...................... $ 9,367 211.9 2.30 $ 9,461 303.0 3.28 $ 9,596 482.9 5.14
Time......................... 9,199 425.2 4.62 11,159 638.0 5.72 12,601 943.7 7.52
International Operations..... 5,118 2,948.9 57.62 4,238 1,830.9 43.20 3,781 1,305.0 34.52
Federal funds purchased and
repurchase agreements........ 2,816 303.0 10.76 1,877 183.4 9.77 2,322 166.7 7.18
Other borrowed funds........... 1,533 1,302.5 84.97 1,608 772.0 47.99 1,222 313.4 26.02
Notes payable.................. 1,743 113.6 6.52 1,197 73.6 6.15 1,552 128.4 8.27
------- -------- ------- ------- ------- ------- ------ ------- -------
Total interest bearing funds --
interest expense............. 29,776 5,305.1 17.90 29,540 3,800.9 12.97 31,074 3,340.1 10.84
------- -------- ------- ------- ------- ------- ------ ------- -------
Demand and other noninterest
bearing deposits............. 4,855 4,170 3,883
Other liabilities.............. 1,017 919 1,014
Stockholders' equity........... 2,719 2,226 1,944
------- ------- -------
Total liabilities and
stockholders' equity......... $38,367 $36,855 $37,915
======= ======= =======
Net Interest Revenue........... $1,526.6 $1,316.6 $1,135.6
======= ======= =======
Interest Rate Spread(2)........ 2.02% 2.43% 2.11%
Interest Rate Margin(3)........ 4.45% 3.96% 3.29%
<FN>
(1) Interest on loans and lease financing includes net fees earned of $56
million in 1993, $49 million in 1992, and $42 million in 1991. Net fees from
International Operations were not significant in 1993, 1992 and 1991.
(2) Interest rate spread is the average rate earned on total average earning
assets less the average rate paid for average interest bearing funds.
(3) Interest rate margin is calculated by dividing net interest revenue by total
average earning assets.
</TABLE>
79
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
AVERAGE BALANCES AND INTEREST RATES -- UNITED STATES OPERATIONS
<CAPTION>
1993 1992 1991
YEARS ENDED DECEMBER 31 AVERAGE AVERAGE Average Average Average Average
(DOLLARS IN MILLIONS) BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in
other banks................ $ 341 $ 11.0 3.22% $ 350 $ 12.6 3.60% $ 479 $ 29.6 6.17%
Federal funds sold and resale
agreements................. 962 29.5 3.07 913 32.3 3.54 1,322 79.3 6.00
Trading securities........... 152 6.1 4.03 169 7.4 4.43 234 14.8 6.34
Mortgages held for sale...... 1,071 75.6 7.06 683 57.9 8.47 421 38.7 9.19
Securities:
U.S. Treasury.............. 580 22.8 3.94 1,537 84.6 5.50 2,491 163.6 6.57
U.S. government agencies
and corporations......... 2,085 115.8 5.56 2,237 149.9 6.70 1,669 141.9 8.50
States and political
subdivisions............. 45 3.6 7.85 66 5.7 8.56 95 9.4 9.88
Other...................... 443 45.4 10.23 458 60.7 13.27 603 51.8 8.60
Loans and lease financing.... 21,063 1,601.6 7.60 20,892 1,712.2 8.20 22,729 2,130.2 9.37
-------- -------- -------- -------- -------- --------
Total earning assets --
interest income............ 26,742 1,911.4 7.15 27,305 2,123.3 7.78 30,043 2,659.3 8.85
-------- ------ -------- -------- -------- ------
Cash and due from banks...... 1,458 1,319 1,297
Other assets................. 1,518 1,371 1,463
-------- -------- --------
Total assets................. $ 29,718 $ 29,995 $ 32,803
======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Savings.................... $ 9,367 211.9 2.30 $ 9,461 303.0 3.28 $ 9,596 482.9 5.14
Time....................... 9,199 425.2 4.62 11,159 638.0 5.72 12,601 943.7 7.52
Federal funds purchased and
repurchase agreements...... 2,697 81.5 3.02 1,764 53.4 3.02 2,220 119.1 5.36
Other borrowed funds......... 879 49.2 5.59 1,161 72.9 6.28 941 58.0 6.29
Notes payable................ 1,654 104.5 6.32 1,087 61.8 5.69 1,446 117.4 8.12
Intersegment funding, net.... (1,754) (56.5) (1,303) (50.4) (404) (33.8)
-------- -------- -------- -------- -------- --------
Total interest bearing funds
-- interest expense........ 22,042 815.8 3.73 23,329 1,078.7 4.67 26,400 1,687.3 6.46
-------- ------ -------- -------- -------- ------
Demand and other noninterest
bearing deposits........... 4,470 3,847 3,592
Other liabilities(1)......... 1,100 1,008 1,120
Stockholders' equity......... 2,106 1,811 1,691
-------- -------- --------
Total liabilities and
stockholders' equity....... $ 29,718 $ 29,995 $ 32,803
======== ======= =======
Net Interest Revenue......... $1,095.6 $1,044.6 $ 972.0
======== ======= =======
Interest Rate Spread(2)...... 3.42% 3.11% 2.39%
Interest Rate Margin(3)...... 4.10% 3.83% 3.24%
<FN>
(1) Other liabilities includes net noninterest bearing intersegment funding.
(2) Interest rate spread is the average rate earned on total average earning
assets less the average rate paid for average interest bearing funds.
(3) Interest rate margin is calculated by dividing net interest revenue by total
average earning assets.
</TABLE>
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- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
AVERAGE BALANCES AND INTEREST RATES -- INTERNATIONAL OPERATIONS
<CAPTION>
1993 1992 1991
YEARS ENDED DECEMBER 31 AVERAGE AVERAGE Average Average Average Average
(DOLLARS IN MILLIONS) BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing
deposits in other
banks................. $ 952 $1,053.7 110.64% $ 896 $ 766.8 85.59% $ 788 $ 464.5 58.99%
Resale agreements....... 482 1,540.1 319.08 126 484.1 384.13 27 36.4 133.42
Trading securities...... 129 4.1 3.19 58 1.5 2.54 27 2.3 8.29
Securities -- other..... 471 884.5 188.04 406 267.8 65.98 240 86.1 35.90
Loans and lease
financing............. 5,523 1,437.9 26.03 4,438 1,474.0 33.21 3,438 1,227.1 35.69
--------- -------- ------- -------- ------ --------
Total earning assets --
interest income....... 7,557 4,920.3 65.11 5,924 2,994.2 50.54 4,520 1,816.4 40.19
-------- ------- -------- ------ -------- ------
Cash and due from
banks................. 332 277 188
Other assets............ 760 659 404
--------- ------- ------
Total assets............ $8,649 $ 6,860 $5,112
========= ======= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Banks in foreign
countries........... $1,461 722.2 49.44 $ 1,479 534.2 36.12 $1,641 430.2 26.21
Other foreign savings
and time............ 3,657 2,226.7 60.89 2,759 1,296.7 47.00 2,140 874.8 40.89
--------- -------- ------- ------- -------- ------ ------ -------- ------
Total............... 5,118 2,948.9 57.62 4,238 1,830.9 43.20 3,781 1,305.0 34.52
Repurchase agreements... 119 221.5 184.67 113 130.0 115.76 102 47.6 46.71
Other borrowed funds.... 654 1,253.3 191.66 447 699.1 156.32 281 255.4 90.76
Notes payable........... 89 9.1 10.22 110 11.8 10.75 106 11.0 10.32
Intersegment funding,
net................... 1,754 56.5 1,303 50.4 404 33.8
--------- -------- ------- -------- ------ --------
Total interest bearing
funds -- interest
expense............... 7,734 4,489.3 58.05 6,211 2,722.2 43.83 4,674 1,652.8 35.36
-------- ------- -------- ------ -------- ------
Noninterest bearing
deposits.............. 385 323 291
Other liabilities(1).... (83) (89) (106)
Stockholders' equity.... 613 415 253
--------- ------- ------
Total liabilities and
stockholders'
equity................ $8,649 $ 6,860 $5,112
========= ======= ======
Net Interest Revenue.... $ 431.0 $ 272.0 $ 163.6
======== ======= ======
Interest Rate
Spread(2)............. 7.06% 6.71% 4.83%
Interest Rate
Margin(3)............. 5.70% 4.59% 3.62%
<FN>
(1) Other liabilities includes net noninterest bearing intersegment funding.
(2) Interest rate spread is the average rate earned on total average earning
assets less the average rate paid for average interest bearing funds.
(3) Interest rate margin is calculated by dividing net interest revenue by total
average earning assets.
</TABLE>
<TABLE>
AVERAGE ASSET AND LIABILITY RATIOS
<CAPTION>
YEAR ENDED DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
Average assets of International Operations to average consolidated assets........................ 23% 19% 13%
Average liabilities of International Operations to average consolidated liabilities.............. 23% 19% 14%
</TABLE>
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CONTINUED
<TABLE>
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
1993 Compared with 1992
The following table presents, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes for 1993 as
compared with 1992. The change due to the volume/rate variance has been
allocated to volume, and the change because of the difference in the number of
days in the periods has been allocated to rate.
<CAPTION>
Consolidated United States International
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Change in Net Due to Change in Net Due to Change in Net
(IN MILLIONS) Volume Rate Change Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest bearing
deposits in other
banks............. $ 39.0 $ 246.3 $ 285.3 $ (.3) $ (1.3) $ (1.6) $ 62.4 $ 224.5 $ 286.9
Federal funds sold
and resale
agreements........ 440.0 613.2 1,053.2 1.4 (4.2) (2.8) 1,138.0 (82.0) 1,056.0
Trading
securities........ 2.0 (.7) 1.3 (.6) (.7) (1.3) 2.2 .4 2.6
Mortgages held for
sale.............. 27.4 (9.7) 17.7 27.4 (9.7) 17.7
Securities:
U.S. Treasury..... (37.8) (24.0) (61.8) (37.8) (24.0) (61.8)
U.S. government
agencies and
corporations.... (8.5) (25.6) (34.1) (8.5) (25.6) (34.1)
States and
political
subdivisions.... (1.6) (.5) (2.1) (1.6) (.5) (2.1)
Other............. 51.3 550.1 601.4 (1.4) (13.9) (15.3) 121.4 495.3 616.7
Loans and lease
financing......... 143.7 (290.4) (146.7) 13.0 (123.6) (110.6) 282.4 (318.5) (36.1)
Adjustment(1)....... (442.3) 442.3 (31.9) 31.9 (543.2) 543.2
-------- -------- -------- ------ -------- -------- -------- -------- --------
Interest income..... 213.2 1,501.0 1,714.2 (40.3) (171.6) (211.9) 1,063.2 862.9 1,926.1
-------- -------- -------- ------ -------- -------- -------- -------- --------
INTEREST BEARING FUNDS
Deposits:
Savings........... (.3) (90.8) (91.1) (.3) (90.8) (91.1)
Time.............. (90.6) (122.2) (212.8) (90.6) (122.2) (212.8)
International
Operations...... 507.0 611.0 1,118.0 507.0 611.0 1,118.0
Federal funds
purchased and
repurchased
agreements........ 101.1 18.5 119.6 28.1 28.1 14.1 77.4 91.5
Other borrowed
funds............. (64.4) 594.9 530.5 (15.7) (8.0) (23.7) 396.2 158.0 554.2
Notes payable....... 35.5 4.5 40.0 35.8 6.9 42.7 (2.1) (.6) (2.7)
Intersegment
funding, net...... (14.5) 8.4 (6.1) 14.5 (8.4) 6.1
Adjustments(1)...... (322.8) 322.8 40.0 (40.0) 40.4 (40.4)
-------- -------- -------- ------ -------- -------- -------- -------- --------
Interest expense.... 165.5 1,338.7 1,504.2 (17.2) (245.7) (262.9) 970.1 797.0 1,767.1
-------- -------- -------- ------ -------- -------- -------- -------- --------
Net Interest
Revenue........... $ 47.7 $ 162.3 $ 210.0 $(23.1) $ 74.1 $ 51.0 $ 93.1 $ 65.9 $ 159.0
======= ======= ======= ===== ======= ======= ======= ======= =======
<FN>
(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 from year to year.
</TABLE>
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CONTINUED
<TABLE>
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
1992 Compared with 1991
The following table presents, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes for 1992 as
compared with 1991. The change due to the volume/rate variance has been
allocated to volume, and the change because of the difference in the number of
days in the periods has been allocated to rate.
<CAPTION>
Consolidated United States International
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Change in Net Due to Change in Net Due to Change in Net
(IN MILLIONS) Volume Rate Change Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest bearing
deposits in
other banks..... $ (12.8) $ 298.1 $ 285.3 $ (4.7) $ (12.3) $ (17.0) $ 92.8 $ 209.5 $ 302.3
Federal funds sold
and resale
agreements...... (153.9) 554.6 400.7 (14.5) (32.5) (47.0) 379.3 68.4 447.7
Trading
securities...... (1.4) (6.8) (8.2) (2.9) (4.5) (7.4) .8 (1.6) (.8)
Mortgages held for
sale............ 22.2 (3.0) 19.2 22.2 (3.0) 19.2
Securities:
U.S. Treasury... (52.4) (26.6) (79.0) (52.4) (26.6) (79.0)
U.S. government
agencies and
corporations... 38.0 (30.0) 8.0 38.0 (30.0) 8.0
States and
political
subdivisions... (2.5) (1.2) (3.7) (2.4) (1.3) (3.7)
Other........... 7.9 182.7 190.6 (19.2) 28.1 8.9 109.5 72.2 181.7
Loans and lease
financing....... (105.2) (65.9) (171.1) (150.6) (267.4) (418.0) 332.3 (85.4) 246.9
Adjustment(1)..... 54.7 (54.7) (26.5) 26.5 (205.0) 205.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Interest income... (205.4) 847.2 641.8 (213.0) (323.0) (536.0) 709.7 468.1 1,177.8
-------- -------- -------- -------- -------- -------- -------- -------- --------
INTEREST BEARING
FUNDS
Deposits:
Savings......... (5.5) (174.4) (179.9) (5.5) (174.4) (179.9)
Time............ (79.6) (226.1) (305.7) (79.6) (226.1) (305.7)
International
Operations.... 197.5 328.4 525.9 197.5 328.4 525.9
Federal funds
purchased and
repurchase
agreements...... (43.5) 60.2 16.7 (13.7) (52.0) (65.7) 12.0 70.4 82.4
Other borrowed
funds........... 194.1 264.5 458.6 15.0 (.1) 14.9 259.2 184.5 443.7
Notes payable..... (21.9) (32.9) (54.8) (20.4) (35.2) (55.6) .4 .4 .8
Intersegment
funding, net.... (34.8) 18.2 (16.6) 34.8 (18.2) 16.6
Adjustment(1)..... (393.7) 393.7 30.9 (30.9) 141.3 (141.3)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Interest
expense......... (152.6) 613.4 460.8 (108.1) (500.5) (608.6) 645.2 424.2 1,069.4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Interest
Revenue......... $ (52.8) $ 233.8 $ 181.0 $ (104.9) $ 177.5 $ 72.6 $ 64.5 $ 43.9 $ 108.4
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
(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 from year to year.
</TABLE>
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- --------------------------------------------------------------------------------
CONTINUED
GEOGRAPHIC SEGMENT INFORMATION
The following tables present geographic segment information for the Corporation
for each of the three years ended December 31, 1993. This geographic segment
information presents assets and income segregated into regional locations based
upon the domicile of the customer or borrower, but without regard to such
factors as method of funding (i.e., local vs. non-local currency) or location of
any cash collateral or guarantees. As a result of the inter-relationships that
exist within the Corporation's worldwide network, allocations of certain income
and expense items are necessarily based on assumptions and subjective criteria.
Interest expense allocations, for example, are based on an assumed average money
market rate. Corporate capital is allocated based primarily on geographic
location of average assets. Additionally, certain allocations have been made
among units based upon the Corporation's management accounting system whereby
noninterest income and noninterest expenses are adjusted to reflect the cost of
services provided by one unit to another, including corporate overhead.
The Corporation has a large branch network in Latin America, mainly in Argentina
and Brazil. Argentina continues to experience declining inflation and an
improving economy. The Corporation's Argentine operation has strategically grown
in line with the overall business expansion leading to an increase in indigenous
dollar lending. Brazil continues to be subject to hyperinflation and political
uncertainty. During 1993, the Corporation continued its strategy of maintaining
a currency position in Brazil that is designed to capitalize on the spread
between local Brazilian interest rates and devaluation. This has led to the
increase in net interest revenue offset by a decline in noninterest income
reported in Latin America for 1993 (See Management's Financial Review -- Results
of Operations on pages 33 and 34). While the Corporation has operated in Brazil
for many years and management is monitoring the situation in Brazil closely,
there can be no assurance that these conditions will not have an adverse effect
on future earnings and nonaccrual levels. For purposes of evaluating the
potential of certain risks associated with the Corporation's cross-border
outstandings (see pages 86 and 87), factors such as method of funding and
location of any cash collateral or guarantees should be taken into account.
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CONTINUED
<TABLE>
<CAPTION>
Total
All Inter- United
FOR THE YEAR ENDED Latin Asia/ Other national States
DECEMBER 31, 1993 America Europe Pacific Regions Operations Operations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net interest revenue.... $389.9 $ 24.6 $10.9 $ 5.6 $431.0 $1,087.8 $1,518.8
Provision for credit
losses................ 5.9 1.9 13.0 5.4 26.2 43.9 70.1
Net interest revenue
after provision for
credit losses......... 384.0 22.7 (2.1) .2 404.8 1,043.9 1,448.7
Noninterest income...... (48.4) 41.9 34.6 13.3 41.4 530.2 571.6
Noninterest expense..... 230.1 39.7 33.5 18.1 321.4 1,209.4 1,530.8
Noninterest allocations,
net charge (credit)... 5.8 12.0 1.1 18.9 (18.9)
Income (Loss) before
income taxes and
cumulative effect of
changes in accounting
principles............ 99.7 12.9 (2.1) (4.6) 105.9 383.6 489.5
Cumulative effect of
changes in accounting
principles(1)......... 24.2 24.2
NET INCOME (LOSS)....... 74.2 9.5 (1.7) (3.3) 78.7 220.3 299.0
TOTAL ASSETS AT DECEMBER
31.................... 6,630 1,546 976 234 9,386 31,202 40,588
TOTAL AVERAGE ASSETS.... 5,911 1,513 930 295 8,649 29,718 38,367
FOR THE YEAR ENDED
DECEMBER 31, 1992
Net interest revenue.... $232.6 $ 20.7 $12.6 $ 6.1 $272.0 $1,033.8 $1,305.8
Provision for credit
losses................ (33.0) 39.0 8.0 (2.0) 12.0 168.6 180.6
Net interest revenue
after provision for
credit losses......... 265.6 (18.3) 4.6 8.1 260.0 865.2 1,125.2
Noninterest income...... 68.7 19.0 36.5 11.6 135.8 571.8 707.6
Noninterest expense..... 195.4 42.1 31.6 17.0 286.1 1,188.0 1,474.1
Noninterest allocations,
net charge (credit)... 16.1 20.5 .8 .1 37.5 (37.5)
Income (Loss) before
income taxes and
extraordinary item.... 122.8 (61.9) 8.7 2.6 72.2 286.5 358.7
NET INCOME (LOSS)....... 106.8 (63.3) 6.5 2.6 52.6 226.3 278.9
TOTAL ASSETS AT DECEMBER
31.................... 4,954 1,539 902 211 7,606 29,709 37,315
TOTAL AVERAGE ASSETS.... 4,101 1,624 886 249 6,860 29,995 36,855
FOR THE YEAR ENDED
DECEMBER 31, 1991
Net interest revenue.... $116.0 $ 32.3 $ 9.6 $ 5.7 $163.6 $ 951.2 $1,114.8
Provision for credit
losses................ (5.0) 5.0 3.0 (4.0) (1.0) 519.7 518.7
Net interest revenue
after provision for
credit losses......... 121.0 27.3 6.6 9.7 164.6 431.5 596.1
Noninterest income...... 98.5 26.0 27.5 12.7 164.7 598.2 762.9
Noninterest expense..... 169.4 36.2 27.2 19.9 252.7 1,285.2 1,537.9
Noninterest allocations,
net charge (credit)... (9.8) 16.8 (.6) 6.4 (6.4)
Income (Loss) before
income taxes and
extraordinary item.... 59.9 .3 7.5 2.5 70.2 (249.1) (178.9)
NET INCOME (LOSS)....... 41.6 .3 5.3 1.8 49.0 (162.1) (113.1)
TOTAL ASSETS AT DECEMBER
31.................... 2,871 1,719 879 230 5,699 32,610 38,309
TOTAL AVERAGE ASSETS.... 2,525 1,623 756 208 5,112 32,803 37,915
<FN>
(1) Represents the change in accounting for purchased mortgage servicing rights
attributable to United States Operations and the change in accounting for
income taxes that, for purposes of this analysis only, has been allocated to
United States Operations.
</TABLE>
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CONTINUED
CROSS-BORDER OUTSTANDINGS
At December 31, 1993, total cross-border outstandings represented 14% of
consolidated total assets, while representing 15% at December 31, 1992 and 13%
at December 31, 1991. Cross-border outstandings are presented on a regulatory
basis and are defined as amounts payable to the Corporation in U.S. dollars or
other non-local currencies, plus amounts payable in local currency but funded
with U.S. dollars or other non-local currencies. Included in these outstandings
are deposits in other banks, resale agreements, securities available for sale,
securities held to maturity, trading securities, loans and lease financing,
amounts due from customers on acceptances and accrued interest receivable.
Excluded from the computation of cross-border outstandings for a given country
are local currency outstandings funded with local currency. Also excluded are
local currency transactions funded with non-local currency where the provider of
funds agrees that, in the event their claim cannot be repaid in U.S. dollars or
other non-local currency due to a situation unrelated to a normal credit risk,
they will either accept payment in local currency or wait to receive the
non-local currency until such time as it becomes available. In addition, U.S.
dollar or other non-local currency outstandings reallocated as a result of
external guarantees and cash collateral are also excluded.
<TABLE>
Cross-border outstandings in countries which individually amounted to 1.0% or
more of consolidated total assets at December 31, 1993, 1992 and 1991 were
approximately as follows:
<CAPTION>
Percentage
of
Consolidated
Public Banks Other Total Total Assets Commitments(2)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
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
DECEMBER 31, 1992(1)
Argentina............................. $ 90 $ 5 $ 845 $ 940 2.5% $ 40
Brazil................................ 20 540 560 1.5 20
Japan................................. 465 50 515 1.4 20
United Kingdom........................ 35 555 590 1.6 130
DECEMBER 31, 1991(1)
Argentina............................. $ 65 $ 470 $ 535 1.4% $ 20
Canada................................ $145 335 480 1.3 60
Japan................................. 670 25 695 1.8
United Kingdom........................ 150 645 795 2.1 75
<FN>
(1) Cross-border outstandings in countries which fell within .75% and 1% of
consolidated total assets at December 31, 1993, 1992 and 1991 were
approximately as follows: 1993, Canada $315 million, Chile $395 million and
Korea $310 million; 1992, Canada $285 million, Chile $360 million and Korea
$330 million; 1991, Brazil $305 million and Korea $310 million.
(2) Included within commitments are letters of credit and guarantees and the
undisbursed portion of loan commitments. Amounts presented are net of
reallocations.
</TABLE>
All of the overseas activities of the Corporation's subsidiaries and their
branches are subject to the political conditions in, and regulatory policies of,
the governments of the countries in which the activities are conducted,
including the policies of such governments toward indebtedness to foreign
lenders, private business and the United States. In addition, high rates of
inflation and local, regional and worldwide economic conditions affect local
economies and governments in varying degrees of severity and, accordingly, may
also affect the Corporation's overseas activities. The Corporation routinely
assesses the risks associated with all of its cross-border outstandings. This
process includes management's review of various factors affecting each country
and results in the establishment of individual country exposure limits. From
time to time, due to foreign exchange liquidity problems, currency restrictions
or other situations unrelated to normal credit risk, conditions in a country may
be such that non-local currency debt service payments are not made as originally
scheduled. This has occurred in many less developed countries (LDC) and debt,
which could not be serviced, had to be rescheduled. At December 31, 1993,
however, only $5 million of the Corporation's cross-border outstandings were
subject to country debt rescheduling agreements.
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CONTINUED
<TABLE>
At December 31, 1993, the Corporation had $3.2 billion of total LDC cross-border
outstandings, of which approximately $1,505 million, or 47%, related to
Argentina and $805 million, or 25%, related to Brazil. Changes in aggregate
cross-border outstandings to Argentina and Brazil since December 31, 1992 were
approximately as follows:
<CAPTION>
(IN MILLIONS) Argentina Brazil
<S> <C> <C>
Cross-border outstandings as of December 31, 1992............................................. $ 940 $560
Increase in non-trade related loans and leases not subject to country debt rescheduling....... 318 139
Net change in trade-related cross-border outstandings, primarily short-term................... 82 (1)
Increase in securities........................................................................ 153 110
Interest income accrued....................................................................... 99 50
Collections of interest....................................................................... (84) (43)
Other......................................................................................... (3) (10)
----- ----
Cross-border outstandings as of December 31, 1993............................................. $1,505(1) $805(2)
===== ====
<FN>
(1) Approximately 33% are trade-related outstandings and approximately 45% are
non-trade-related local-dollar loans funded by locally generated dollar
liabilities.
(2) Approximately 66% are trade-related outstandings.
</TABLE>
During 1993, the Argentine economy continued to stabilize, resulting in a
further decline in the country's inflation rate. Argentina's inflation, which
was at hyperinflationary levels in the late 1980's, has declined to
approximately 7% in 1993. As a result, the Corporation has strategically grown
its Argentine operation and, in turn, its cross-border outstandings, as credit
demand has increased and markets such as the retail segment have grown. The
growth in Argentine cross-border outstandings mainly reflected increases in
non-trade-related local-dollar loans funded by locally generated dollar
liabilities, securities available for sale and trade-related outstandings.
The increase in Brazilian cross-border outstandings reflected a higher level of
securities available for sale and non-trade-related loans. Contributing to this
increase was the Corporations's strategy to take a currency position by funding
local currency assets with capital and non-local currency liabilities, as local
currency interest rates continued to exceed the rate of devaluation. This
position, which leaves the Corporation "underhedged" and exposed to losses
should devaluation exceed local interest rates, is discussed further in
Management's Financial Review on page 33. The Brazilian economy continues to
experience difficulties and hyperinflationary conditions. Also, in 1994 there
will be a presidential election, which may result in changes in economic policy
both before and after the election. Management continues to monitor its position
in Brazil closely.
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,
except as such problems relate to its remaining $5 million portfolio of
non-trade-related cross-border outstandings, which is subject to country debt
rescheduling agreements. There can be no assurance, however, that such problems
will not occur.
87
<PAGE> 58
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
LOANS AND LEASE FINANCING
The loan and lease financing portfolio is diversified both in terms of
geography, industry and product. The only category of loans and leases which
exceeded 10% of the portfolio was loans collateralized by real estate. For a
discussion of the Corporation's domestic commercial real estate and highly
leveraged transaction portfolios, refer to Management's Financial Review on
pages 40 to 43. The following table presents details of consolidated loan and
lease financing balances outstanding on the dates indicated.
<CAPTION>
1993 1992 1991 1990 1989
DECEMBER 31 BALANCE PERCENT Balance Percent Balance Percent Balance Percent Balance Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
MILLIONS)
UNITED STATES
OPERATIONS
Commercial,
industrial and
financial...... $11,991.4 41.7% $10,328.5 40.7% $10,345.4 40.8% $11,413.8 43.5% $13,335.7 43.3%
Real Estate:
Secured by 1-4
family
residential
properties... 4,159.1 14.5 3,630.2 14.3 3,884.4 15.3 3,505.4 13.4 4,002.7 13.0
Construction.... 617.4 2.1 854.4 3.4 1,027.9 4.1 1,520.0 5.8 2,657.7 8.6
Other
commercial.... 3,123.0 10.8 3,202.1 12.6 3,587.3 14.2 3,863.6 14.7 4,407.9 14.3
Loans to
individuals..... 1,609.6 5.6 1,436.4 5.6 1,506.3 5.9 1,663.5 6.3 2,203.2 7.2
Lease
financing....... 1,263.3 4.4 1,213.9 4.7 1,277.0 5.0 1,380.5 5.3 1,556.6 5.1
Unearned
income.......... (203.6) (.7) (205.4) (.8) (243.0) (1.0) (395.1) (1.5) (550.3) (1.8)
--------- ----- -------- ---- -------- ---- -------- ---- -------- ----
22,560.2 78.4 20,460.1 80.5 21,385.3 84.3 22,951.7 87.5 27,613.5 89.7
========= ===== ======== ==== ======== ==== ======== ==== ======== ====
INTERNATIONAL
OPERATIONS
Commercial and
industrial..... 4,650.2 16.2 3,645.8 14.4 2,928.1 11.5 2,193.0 8.4 2,229.2 7.3
Banks and other
financial
institutions.... 602.3 2.1 385.0 1.5 152.0 .6 154.5 .6 46.3 .2
Governments and
official
institutions.... 22.1 .1 53.5 .2 140.7 .6 209.2 .8 251.6 .8
Lease
financing....... 264.6 .9 218.4 .9 241.8 1.0 142.1 .5 186.1 .6
All other........ 791.0 2.7 721.2 2.8 608.7 2.4 641.8 2.5 530.2 1.7
Unearned
income.......... (108.4) (.4) (84.7) (.3) (88.9) (.4) (72.5) (.3) (85.3) (.3)
--------- ----- -------- ---- -------- ---- -------- ---- -------- ----
6,221.8 21.6 4,939.2 19.5 3,982.4 15.7 3,268.1 12.5 3,158.1 10.3
--------- ----- -------- ---- -------- ---- -------- ---- -------- ----
$28,782.0 100.0% $25,399.3 100.0% $25,367.7 100.0% $26,219.8 100.0% $30,771.6 100.0%
========= ===== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
The Corporation does not have an automatic renewal policy for maturing loans.
Rather, loans are renewed at the maturity date only at the request of those
customers who are deemed to be creditworthy by the Corporation. Additionally,
the Corporation reviews such requests in substantially the same manner as
applications by new customers for extensions of credit. The maturity dates and
interest terms of renewed loans are based, in part, upon the needs of the
individual customer and the Corporation's credit review and evaluation of
current and future economic conditions. Since these factors have varied
considerably, and will most likely continue to do so, the Corporation believes
it is impracticable to estimate the amount of loans in the portfolio which may
be renewed in the future.
<TABLE>
The following table presents the maturities and interest rate sensitivity, based
on original contractual terms, of the Corporation's loans at December 31, 1993,
exclusive of domestic office loans secured by 1-4 family residential properties,
domestic office loans to individuals and lease financing.
<CAPTION>
AFTER
ONE
BUT
WITHIN AFTER
WITHIN FIVE FIVE
(IN MILLIONS) ONE YEAR YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
Commercial, industrial and financial....................................... $ 5,520.0 $3,938.6 $2,320.8 $11,779.4
Real estate:
Construction........................................................... 329.7 218.7 62.2 610.6
Other commercial....................................................... 1,389.4 1,513.4 214.4 3,117.2
Overseas offices........................................................... 5,786.5 429.7 74.0 6,290.2
-------- ------- ------- --------
$13,025.6 $6,100.4 $2,671.4 $21,797.4
======== ======= ======= ========
Loans with predetermined interest rates.................................... $ 3,103.7 $2,208.0 $ 436.6 $ 5,748.3
Loans with floating interest rates......................................... 9,921.9 3,892.4 2,234.8 16,049.1
-------- ------- ------- --------
$13,025.6 $6,100.4 $2,671.4 $21,797.4
======== ======= ======= ========
</TABLE>
88
<PAGE> 59
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
NONACCRUAL LOANS AND LEASES
The Corporation's policy for nonaccrual loans and leases is discussed in Note 1
to the Financial Statements under the caption Loans and Lease Financing.
The following is a summary of nonaccrual loans and leases by type and as a
percentage of the related consolidated loan category:
<CAPTION>
DECEMBER 31 1993 1992 1991 1990 1989
PERCENT Percent Percent Percent Percent
(DOLLARS IN OF LOAN of Loan of Loan of Loan of Loan
MILLIONS) BALANCE CATEGORY Balance Category Balance Category Balance Category Balance Category
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
OPERATIONS
Commercial,
industrial and
financial...... $118.8 1.0% $200.7 1.9% $ 385.0 3.7% $ 419.4 3.7% $ 252.7 1.9%
Real Estate:
Secured by
1-4 family
residen-
tial
properties... 63.9 1.5 58.6 1.6 69.4 1.8 60.1 1.7 36.6 .9
Construction... 30.1 4.9 80.9 9.5 122.7 11.9 288.0 18.9 339.2 12.8
Other
commercial... 230.7 7.4 344.7 10.8 739.8 20.6 899.7 23.3 699.0 15.9
Loans to
individuals.... 10.0 .6 26.4 1.8 32.2 2.1 41.7 2.5 31.1 1.4
Lease
financing...... 1.0 .1 1.6 .2 5.3 .5 5.8 .6 1.1 .1
------ ------ ------- ------- -------
454.5 2.0 712.9 3.5 1,354.4 6.3 1,714.7 7.5 1,359.7 4.9
------ ------ ------- ------- -------
INTERNATIONAL
OPERATIONS
Commercial and
industrial..... 63.0 1.4 53.7 1.5 56.2 1.9 80.7 3.7 126.6 5.7
Banks and other
financial
institutions... .7 .2 2.3 1.5 6.3 4.1 10.4 22.5
Governments and
official
institutions... 2.6 11.8 4.3 8.0 52.7 37.5 81.9 39.1 144.4 57.4
Lease
financing...... 1.5 1.1 2.1 1.4 2.9 4.2 3.9 3.9
All other........ 31.3 4.0 5.8 .8 45.2 7.4 10.6 1.7 1.5 .3
------ ------ ------- ------- -------
96.9 1.6 66.0 1.3 158.5 4.0 182.4 5.6 286.8 9.1
------ ------ ------- ------- -------
$551.4 1.9% $778.9 3.1% $1,512.9 6.0% $1,897.1 7.2% $1,646.5 5.4%
====== ====== ======= ======= =======
</TABLE>
In addition to nonaccrual loans and leases, the Corporation had other real
estate owned that, at December 31, amounted to $108 million in 1993, $170
million in 1992, $326 million in 1991, $244 million in 1990 and $188 million in
1989. At December 31, 1993, 1992, 1991, 1990 and 1989, $7.2 million, $5.6
million, $2.5 million, $53 million and $5.9 million, respectively, of loans and
leases were over ninety days past due and still on accrual status.
<TABLE>
The following is an analysis of interest income related to loans and leases on
nonaccrual status:
<CAPTION>
DECEMBER 31, 1993 United States International
(IN MILLIONS) Operations Operations Consolidated
<S> <C> <C> <C>
Interest income that would have been recognized if the loans had been
current at original contractual rates................................ $44.5 $8.8 $53.3
Amount recognized as interest income................................... 12.0 3.0 15.0
----- ---- -----
Difference............................................................. $32.5 $5.8 $38.3
===== ==== =====
</TABLE>
89
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
continued
RESERVE FOR CREDIT LOSSES
The Corporation's reserve for credit losses is available for future chargeoffs
of extensions of credit. The provision for credit losses, added to the reserve
by charges to income, is based upon management's estimation of the amount
necessary to maintain the reserve at an adequate level, considering evaluations
of individual credits and concentrations of credit risk, net losses charged to
the reserve, changes in the quality of the credit portfolio, levels of
nonaccrual loans and leases, current economic conditions, international transfer
risks, changes in the size and character of the credit risks and other pertinent
factors warranting current recognition. The Corporation charges all or a portion
of a loan or lease receivable against the reserve when a probability of loss has
been established, with consideration given to such factors as the customer's
financial condition, underlying collateral and guarantees. The Corporation uses
a loan rating system in its United States and International Operations to assist
management in its evaluation of the loan portfolio. At least annually,
individual loans are reviewed and ratings adjusted, if applicable, based upon
potential risk. If indicated by the assigned rating, particular loans are
reviewed more frequently.
<TABLE>
Allocation of Reserve for Credit Losses
The Corporation's reserve for credit losses is a general reserve available for
all categories of prospective credit loss. The Corporation has made an
allocation of its reserve giving consideration to management's evaluation of
risk in the portfolios. The following table presents the allocation of the
reserve by loan and lease financing category. For the percentage of loans
outstanding in each category to total loans, refer to the "Loans and Lease
Financing" table on page 88.
<CAPTION>
DECEMBER 31 1993 1992 1991
PERCENT Percent Percent
OF of of
(DOLLARS IN MILLIONS) AMOUNT TOTAL Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES OPERATIONS
Commercial, industrial and
financial....................... $245.6 31.9% $273.3 29.5% $ 428.7 40.9%
Real Estate:
Secured by 1-4 family
residential properties........ 24.8 3.2 26.9 2.9 21.4 2.0
Commercial including
construction................... 233.7 30.3 319.9 34.7 297.7 28.3
Loans to individuals.............. 61.4 8.0 59.9 6.5 79.0 7.5
Lease financing................... 18.3 2.4 4.2 .5 5.6 .5
------ ----- ----- ---- ------- ----
583.8 75.8 684.2 74.1 832.4 79.2
INTERNATIONAL OPERATIONS.......... 86.2 11.2 120.0 13.0 102.0 9.7
------ ----- ----- ---- ------- ----
670.0 87.0 804.2 87.1 934.4 88.9
Unallocated....................... 100.3 13.0 118.9 12.9 116.8 11.1
------ ----- ----- ---- ------- ----
$770.3 100.0% $923.1 100.0% $1,051.2 100.0%
======= ===== ===== ===== ======= =====
<CAPTION>
DECEMBER 31 1990 1989
Percent Percent
of of
(DOLLARS IN MILLIONS) Amount Total Amount Total
<S> <C> <C> <C> <C>
UNITED STATES OPERATIONS
Commercial, industrial and
financial....................... $ 392.3 38.3% $217.8 22.2%
Real Estate:
Secured by 1-4 family
residential properties........ 10.1 1.0 8.2 .8
Commercial including
construction................... 409.2 40.0 451.6 45.9
Loans to individuals.............. 49.7 4.9 29.1 3.0
Lease financing................... 5.8 .6 5.3 .5
---- ---- ----- ----
867.1 84.8 712.0 72.4
INTERNATIONAL OPERATIONS.......... 125.0 12.2 200.0 20.4
----- ---- ----- ----
992.1 97.0 912.0 92.8
Unallocated....................... 30.5 3.0 71.0 7.2
----- ---- ----- ----
$1,022.6 100.0% $983.0 100.0%
======= ===== ===== =====
</TABLE>
90
<PAGE> 61
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
Analysis of Reserve for Credit Losses
The following table presents a five year analysis of the Corporation's reserve
for credit losses:
<CAPTION>
DECEMBER 31 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
DOMESTIC OPERATIONS(1)
BALANCE, JANUARY 1.............................................. $ 803.1 $ 949.2 $ 897.6 $ 783.0 $ 375.9
Provision....................................................... 43.9 149.9 522.8 784.9 845.7
Domestic credit losses:
Commercial, industrial and financial.......................... (55.1) (98.0) (163.8) (255.8) (157.7)
Real estate:
Construction................................................ (18.5) (58.8) (108.0) (140.6) (187.9)
1-4 family................................................... (21.9) (24.0) (17.4) (7.6) (5.7)
Other........................................................ (63.3) (128.8) (187.5) (242.2) (73.0)
Loans to individuals........................................... (47.4) (46.3) (64.8) (66.3) (63.1)
Lease financing................................................ (.9) (.9) (1.8) (1.8) (1.1)
-------- ------- -------- -------- -------
Total domestic credit losses.................................... (207.1) (356.8) (543.3) (714.3) (488.5)
Domestic recoveries:
Commercial, industrial and financial.......................... 15.1 31.7 43.6 18.4 28.2
Real estate:
Construction................................................ 2.0 4.1 4.4 3.8 2.3
1-4 family................................................... 4.2 3.2 1.7 1.3 1.0
Other........................................................ 6.4 2.3 3.9 5.0 1.5
Loans to individuals........................................... 16.5 19.3 18.4 15.3 16.7
Lease financing................................................ .2 .1 .2 .2
-------- ------- -------- -------- -------
Total domestic recoveries....................................... 44.2 60.8 72.1 44.0 49.9
-------- ------- -------- -------- -------
Net domestic credit losses...................................... (162.9) (296.0) (471.2) (670.3) (438.6)
-------- ------- -------- -------- -------
BALANCE, DECEMBER 31............................................ 684.1 803.1 949.2 897.6 783.0
-------- ------- -------- -------- -------
INTERNATIONAL OPERATIONS
BALANCE, JANUARY 1.............................................. 120.0 102.0 125.0 200.0 389.0
Provision....................................................... 26.2 12.0 (1.0) (27.5) (72.0)
International credit losses..................................... (65.9) (55.3) (53.9) (82.2) (114.5)
International recoveries........................................ 5.9 42.6 35.0 27.8 24.1
-------- ------- -------- -------- -------
Net international credit losses................................. (60.0) (12.7) (18.9) (54.4) (90.4)
-------- ------- -------- -------- -------
Transfer to (from) unallocated reserve and domestic
operations..................................................... 18.7 (3.1) 6.9 (26.6)
-------- ------- -------- -------- -------
BALANCE, DECEMBER 31............................................ 86.2 120.0 102.0 125.0 200.0
-------- ------- -------- -------- -------
TOTAL DOMESTIC AND INTERNATIONAL RESERVE FOR
CREDIT LOSSES, DECEMBER 31..................................... $ 770.3 $ 923.1 $1,051.2 $1,022.6 $ 983.0
======= ====== ======= ======= ======
Loans and lease financing at December 31........................ $ 28,782 $25,399 $ 25,368 $ 26,210 $30,762
======= ====== ======= ======= ======
Average loans and lease financing............................... $ 26,586 $25,330 $ 26,167 $ 28,949 $32,061
======= ====== ======= ======= ======
Ratios:
Reserve for credit losses to loans and lease financing at
December 31................................................. 2.68% 3.63% 4.14% 3.90% 3.20%
Net credit losses to average loans and lease financing......... .84 1.22 1.87 2.50 1.65
Net credit losses to provision for credit losses............... 317.95 170.94 94.49 94.82 70.82
Total recoveries to total credit losses........................ 18.36 25.09 17.94 9.01 12.26
<FN>
(1) For basis of presentation only, in this analysis the unallocated reserve for
credit losses previously discussed has been included in Domestic Operations.
However, the unallocated reserve is part of the general reserve of the
Corporation and, as such, is available for both Domestic and International
credit losses.
</TABLE>
91
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
SECURITIES
On December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Notes 1 and 5 to the
Financial Statements describe the effect of the adoption of this standard on the
classification and carrying value of securities.
<TABLE>
The following table sets forth the carrying values of securities held to
maturity of the Corporation on the dates indicated:
<CAPTION>
DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
U.S. Treasury.................................................................. $ 317.4 $ 285.2 $ 331.6
U.S. government agencies and corporations--
Mortgage-backed securities................................................. 1,045.6 1,774.7 1,908.5
States and political subdivisions.............................................. 29.5 51.1 60.5
Foreign debt securities........................................................ 108.5 125.2 104.7
Other debt securities.......................................................... 175.1 207.1
Marketable equity securities................................................... 31.0 21.8
Other equity securities........................................................ 67.8 192.9 179.6
--------- -------- --------
$ 1,568.8 $2,635.2 $2,813.8
========= ======== ========
</TABLE>
<TABLE>
The following table sets forth the carrying values of securities available for
sale of the Corporation on the dates indicated:
<CAPTION>
DECEMBER 31 1993 1992 1991
<S> <C> <C> <C>
(IN MILLIONS)
U.S. Treasury.................................................................. $ 109.6 $ 525.7 $2,828.1
U.S. government agencies and corporations--
Mortgage-backed securities................................................. 498.2 568.5 514.0
States and political subdivisions.............................................. .5 14.4
Foreign debt securities........................................................ 490.0 344.2 178.5
Other debt securities.......................................................... 149.6 49.1 .5
Marketable equity securities................................................... 74.3
Other equity securities........................................................ 115.7 9.6 5.6
--------- -------- --------
$ 1,437.9 $1,497.1 $3,541.1
========= ======== ========
</TABLE>
<TABLE>
The following table sets forth the relative maturities and weighted average
interest rates of securities both available for sale and held to maturity at
December 31, 1993, excluding equity securities. Certain securities, such as
mortgage-backed securities, may not become due at a single maturity date. Such
securities have been classified within the category that represents the due
dates for the majority of the instrument. Rates for states and political
subdivisions are stated on a fully taxable equivalent basis assuming a 35%
federal income tax rate, adjusted for applicable state and local income taxes
net of the related federal tax benefit.
<CAPTION>
AFTER ONE BUT
WITHIN FIVE AFTER FIVE BUT
WITHIN ONE YEAR YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN
MILLIONS)
U.S. Treasury.... $394.8 3.2% $ 26.9 7.6% $ 5.3 6.0% $ 427.0 3.5%
U.S. government
agencies and
corporations--
Mortgage-backed
securities... 5.0 8.3 170.1 5.0 115.2 6.3 $1,253.5 5.7% 1,543.8 5.7
States and
political
subdivisions.... 17.4 5.8 8.9 9.2 2.4 10.4 1.3 8.8 30.0 7.3
Foreign debt
securities...... 305.0 125.5 226.4 7.8 66.7 7.7 .4 3.3 598.5 67.7
Other debt
securities...... 44.8 12.7 87.4 13.5 17.4 12.0 149.6 13.1
------ ------ ------ -------- --------
Total
carrying
value...... $767.0 52.5 $519.7 7.9 $207.0 7.3 $1,255.2 5.7 $2,748.9 19.3
====== ====== ====== ======== ========
</TABLE>
<TABLE>
DEPOSITS
The aggregate amount of deposits by foreign depositors in domestic offices
averaged $876 million in 1993, $1,298 million in 1992 and $1,922 million in
1991. The following table presents the maturities of time certificates of
deposit and other time deposits issued by domestic offices in denominations of
$100,000 or more, at December 31, 1993:
<CAPTION>
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
<S> <C> <C> <C>
(IN MILLIONS)
Maturing within three months.......................................................... $1,621.0 $ 6.4 $1,627.4
After three but within six months..................................................... 313.4 6.8 320.2
After six but within twelve months.................................................... 164.5 8.5 173.0
After twelve months................................................................... 616.0 134.4 750.4
-------- ----- -------
$2,714.9 $156.1 $2,871.0
======== ====== ========
</TABLE>
The majority of foreign office deposits are in denominations of $100,000 or
more.
92
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CONSOLIDATED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
CONTINUED
<TABLE>
SHORT-TERM BORROWINGS
<CAPTION>
Daily Weighted
Maximum Average Average
Amount Amount Interest
Weighted Outstanding Outstanding Rate
Balance Average During During During
(DOLLARS IN MILLIONS) at End of Interest the the the
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS Period Rate(1) Period Period Period
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1993
Federal funds purchased(2).......................... $ 417.1 3.02% $ 783.4 $ 700.7 3.01%
Term federal funds purchased(2)..................... 2,150.0 3.36 2,325.2 1,283.8 3.34
Securities sold under agreements to repurchase(3)... 798.8 39.45 1,001.7 832.2 28.73
Commercial paper(4)................................. 34.5 14.9 3.59
Demand notes issued to the U.S. Treasury(5)......... 117.4 2.73 1,219.4 400.2 2.81
All other(6)........................................ 1,164.1 171.5 1,164.1 707.5 169.37
FOR THE YEAR ENDED DECEMBER 31, 1992
Federal funds purchased(2).......................... $ 468.1 3.05% $ 729.0 $ 555.9 3.41%
Term federal funds purchased(2)..................... 280.0 3.78 360.0 67.8 3.81
Securities sold under agreements to repurchase(3)... 1,121.7 14.23 2,116.8 1,253.3 12.91
Commercial paper(4)................................. 41.5 13.7 3.63
Demand notes issued to the U.S. Treasury(5)......... 106.3 3.00 1,551.7 508.8 3.49
All other(6)........................................ 576.0 108.30 673.9 503.8 131.54
FOR THE YEAR ENDED DECEMBER 31, 1991
Federal funds purchased(2).......................... $ 503.6 4.19% $ 630.8 $ 566.8 5.63%
Term federal funds purchased(2)..................... 8.5 5.15 76.0 33.6 6.76
Securities sold under agreements to repurchase(3)... 2,058.7 4.88 2,930.4 1,721.8 7.68
Commercial paper(4)................................. 13.0 9.74 199.7 81.7 6.43
Demand notes issued to the U.S. Treasury(5)......... 1,315.9 4.07 1,330.8 557.5 5.49
All other(6)........................................ 544.8 96.07 551.4 359.4 63.05
<FN>
(1) The weighted average interest rates at year-end are not necessarily
indicative of the Corporation's normal borrowing rates since interest rates
for certain categories of borrowing are subject to abnormal short-term
movements.
(2) Federal funds purchased are overnight transactions while term federal funds
purchased have maturities in excess of one day. A large portion of federal
funds purchased arise because of money market activity in federal funds for
regional correspondent banks.
(3) Securities sold under agreements to repurchase by domestic offices mature
within one year and are collateralized by U.S. Treasury and U.S. government
agencies and corporations securities. The majority of securities sold under
agreements to repurchase by overseas offices in 1993 and 1992 related to the
Brazilian operation of FNBB for which various Brazilian government
securities served as collateral. The majority of securities sold under
agreements to repurchase by overseas offices in 1991 related to the Chilean
operations of FNBB for which various Chilean government securities served as
collateral.
(4) Commercial paper represents unsecured obligations with maximum maturities of
nine months.
(5) Demand notes issued to the U.S. Treasury represent depository liabilities
that are not subject to reserve requirements and bear interest at
one-quarter of one percent below the weekly average federal funds effective
interest rate as published by the Federal Reserve.
(6) The majority of other short-term borrowings represent secured and unsecured
obligations of the Corporation's overseas branches and subsidiaries.
</TABLE>
93
<PAGE> 64
<TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL
INFORMATION AND COMMON STOCK DATA
- --------------------------------------------------------------------------------
In the opinion of management, all adjustments which include only normal
recurring adjustments necessary to present fairly the the results of operations
for each of the following quarterly periods, have been made.
<CAPTION>
1993 1992
(IN MILLIONS, EXCEPT SHARE AND PER SHARE FOURTH THIRD SECOND FIRST Fourth Third Second First
AMOUNTS) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
Interest income....................... $2,225.2 $1,858.2 $1,434.0 $1,306.5 $1,283.2 $1,296.1 $1,276.8 $1,250.6
Interest expense...................... 1,792.5 1,487.0 1,066.6 959.0 933.7 959.6 954.9 952.7
------- ------- ------- ------- ------- ------- ------- -------
Net interest revenue(2)............... 432.7 371.2 367.4 347.5 349.5 336.5 321.9 297.9
Provision for credit losses........... 10.0 10.0 27.6 22.5 23.0 44.5 45.2 67.9
------- ------- ------- ------- ------- ------- ------- -------
Net interest revenue after provision for
credit losses....................... 422.7 361.2 339.8 325.0 326.5 292.0 276.7 230.0
Noninterest income(2)(3).............. 105.6 160.8 154.1 151.1 165.4 168.7 173.8 199.7
Noninterest expense(4)................ 346.6 440.2 368.3 375.7 387.0 365.5 361.0 360.6
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes, extraordinary
item, and cumulative effects of changes
in accounting principles............ 181.7 81.8 125.6 100.4 104.9 95.2 89.5 69.1
Provision for income taxes............ 79.2 40.4 54.2 40.9 42.7 40.3 41.6 28.2
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary item and
cumulative effect of changes in
accounting principles............... 102.5 41.4 71.4 59.5 62.2 54.9 47.9 40.9
Recognition of prior year tax benefit
carryforwards....................... 17.3 19.0 18.4 18.3
Cumulative effect of changes in
accounting
principles, net..................... 24.2
------- ------- ------- ------- ------- ------- ------- -------
Net Income............................ $ 102.5 $ 41.4 $ 71.4 $ 83.7 $ 79.5 $ 73.9 $ 66.3 $ 59.2
======= ======= ======= ======= ======= ======= ======= =======
AVERAGE BALANCE SHEET DATA(1)
Loans and lease financing............. $ 28,172 $ 26,953 $ 25,854 $ 25,224 $ 25,269 $ 25,577 $25,248 $ 25,198
Securities............................ 3,194 3,561 3,838 3,909 4,907 4,521 4,232 5,156
Other earning assets.................. 4,763 4,306 3,731 3,543 3,164 3,187 3,168 3,263
------- ------- ------- ------- ------- ------- ------- -------
Total earning assets.............. 36,129 34,820 33,423 32,676 33,340 33,285 32,648 33,617
Cash and due from banks............... 1,924 1,845 1,716 1,672 1,734 1,534 1,612 1,503
Other assets.......................... 2,350 2,403 2,362 2,103 2,222 2,055 1,980 1,874
------- ------- ------- ------- ------- ------- ------- -------
Total Average Assets.............. $ 40,403 $ 39,068 $ 37,501 $ 36,451 $ 37,296 $ 36,874 $36,240 $ 36,994
======= ======= ======= ======= ======= ======= ======= =======
Deposits.............................. $ 29,247 $ 28,543 $ 28,194 $ 28,162 $ 28,880 $ 29,011 $29,106 $ 29,114
Funds borrowed........................ 5,390 4,915 3,921 3,141 3,714 3,421 2,998 3,809
Other liabilities..................... 1,073 1,085 1,022 886 957 919 865 930
Notes payable......................... 1,876 1,752 1,670 1,669 1,223 1,186 1,187 1,192
Stockholders' equity.................. 2,817 2,773 2,694 2,593 2,522 2,337 2,084 1,949
------- ------- ------- ------- ------- ------- ------- -------
Total Average Liabilities and
Stockholders' Equity............ $ 40,403 $ 39,068 $ 37,501 $ 36,451 $ 37,296 $ 36,874 $36,240 $ 36,994
======= ======= ======= ======= ======= ======= ======= =======
PER COMMON SHARE(1)
Income before extraordinary item and
cumulative effect of changes in
accounting principles:
Primary............................. $ .88 $ .30 $ .60 $ .49 $ .52 $ .47 $ .43 $ .60
Fully diluted....................... $ .85 $ .30 $ .59 $ .48 $ .50 $ .46 $ .42 $ .59
Net Income:
Primary............................. $ .88 $ .30 $ .60 $ .72 $ .68 $ .65 $ .61 $ .60
Fully diluted....................... $ .85 $ .30 $ .59 $ .70 $ .66 $ .63 $ .59 $ .59
Cash dividends declared............... $ .10 $ .10 $ .10 $ .10 $ .10
Market value:
High................................. 25 5/8 25 7/8 28 3/8 28 7/8 26 25 24 7/8 20
Low................................. 21 3/8 23 1/2 20 1/2 24 19 3/8 18 7/8 16 1/4 11 5/8
AVERAGE NUMBER OF COMMON SHARES
(IN THOUSANDS)
Primary............................... 105,644 105,443 105,285 104,962 104,548 104,407 104,118 95,408
Fully diluted......................... 110,308 110,446 110,077 110,079 109,531 109,281 109,302 100,132
<FN>
(1) Quarterly consolidated financial information and common stock data for each of the quarters in the periods ended December
31, 1993 and 1992 have been restated, except for cash dividends declared, to reflect the Corporation's mergers with Bancorp and
Multibank, which were completed in July 1993 and accounted for as poolings of interests.
(2) The levels of consolidated net interest revenue and noninterest income in 1993 and 1992 are affected by the Corporation's
currency position in Brazil, which is maintained to take advantage of the spread between local Brazilian interest rates and
devaluation of Brazil's local currency. A detailed discussion of the Brazilian currency position is discussed in Management's
Financial Review on page 33.
(3) Includes a $17 million charge to net mortgage servicing fees in the first quarter of 1993 from applying the new method of
accounting for PMSR and $16 million in the first quarter of 1992 from the recognition of the remaining unamortized gain from
the 1984 sale of the Corporation's headquarters building following the termination of the original lease agreement and
subsequent entry into a new lease of the building.
(4) Includes $85 million in the third quarter of 1993 of merger and restructuring charges, primarily in connection with the
Corporation's mergers with Bancorp and Multibank, as well as other expense reduction initiatives of the Corporation.
</TABLE>
The common stock of the Corporation, which is the only class of its securities
entitled to vote at the Annual Meeting, is listed and traded on the New York and
Boston Stock Exchanges.
95
<PAGE> 1
Exhibit 21
List of Subsidiaries of Bank of Boston Corporation
There is no parent company of Bank of Boston
Corporation (the "Corporation"). The First
National Bank of Boston (the "FNBB"), all of whose
voting securities (except for directors' qualifying
shares) are owned by the Corporation, is the
principal subsidiary of the Corporation. Other
major banking subsidiaries of the Corporation are
Bank of Vermont, Casco Northern Bank, N.A., Bank of
Boston Connecticut, Rhode Island Hospital Trust
National Bank, South Shore Bank, Mechanics Bank and
Multbank West.
A number of entities which are owned wholly or in
part, either directly or indirectly, by the
Corporation are not listed below. However, their
assets if considered in the aggregate as a single
subsidiary would not constitute a significant
subsidiary of the Corporation.
<TABLE>
<CAPTION>
JURISDICTION
NAME OF SUBSIDIARY(1) OF INCORPORATION
<S> <C>
The First National Bank of Boston(2) US
BancBoston Financial Company MA
Bank of Boston International US Edge Act Corp.
Boston Overseas Financial Corp. US Edge Act Corp.
Boston World Holding Corporation MA
Bank of Boston Canada Canada
Boston Factors of Canada, Inc. Canada
BancBoston Leasing, Inc. MA
Boston Leasing Corporation MA
Randolph Computer Corporation DEL
BancBoston Leasing Services, Inc. MA
BancBoston Mortgage Corporation FLA
BancBoston Ventures Inc. MA
BancBoston Capital Inc.(3) MA
BancBoston Trust Company of New York NY
BancBoston Investments Inc. MA
BancBoston Real Estate Capital Corp.(2) MA
BankVermont Corporation VT
Bank of Vermont(2) VT
Boston Overseas Holding Corporation MA
Casco Northern Corporation MA
Casco Northern Bank, N.A(2) US
Colonial Bancorp, Inc. MA
Bank of Boston Connecticut(2)(4) CT
BancBoston Capital Inc.(3) MA
Fidelity Acceptance Corporation MN
Master Plans Corp. MA
<FN>
(1) Except as noted, each such business organization is
either wholly-owned by the Corporation or wholly-owned by
a one hundred percent owned subsidiary of the
Corporation.
(2) FNBB and certain other subsidiaries own a number of
subsidiaries which hold real property acquired in
connection with certain loan workout situations. If
considered in the aggregate as a single subsidiary, they
would not constitute a significant subsidiary.
(3) BancBoston Capital, Inc. is owned 24.9% by the
Corporation and 75.1% by Bank of Boston Connecticut.
(4) Bank of Boston Connecticut is owned 57% by Society for
Savings Bancorp, Inc. and 43% by Colonial Bancorp, Inc.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION
NAME OF SUBSIDIARY(1) OF INCORPORATION
<S> <C>
FSC Corp MA
FNBC Acceptance Corporation AL
First Louisiana Acceptance Corporation LA
Multibank Financial Corp. MA
Multibank West(2) MA
Mechanics Bank(2) MA
South Shore Bank(2) MA
Multibank Leasing Corporation MA
Multibank Services Corporation(5) MA
RIHT Financial Corporation MA
Rhode Island Hospital Trust National
Bank(2) US
Bank of Boston Florida, N.A. US
RIHT Life Insurance Co. AZ
Society for Savings Bancorp, Inc. MA
Bank of Boston Connecticut(4) CT
<FN>
(1) Except as noted, each such business organization is
either wholly-owned by the Corporation or wholly-owned by
a one hundred percent owned subsidiary of the
Corporation.
(2) FNBB and certain other subsidiaries own a number of
subsidiaries which hold real property acquired in
connection with certain loan workout situations. If
considered in the aggregate as a single subsidiary, they
would not constitute a significant subsidiary.
(3) BancBoston Capital, Inc. is owned 24.9% by the
Corporation and 75.1% by Bank of Boston Connecticut.
(4) Bank of Boston Connecticut is owned 57% by Society for
Savings Bancorp, Inc. and 43% by Colonial Bancorp, Inc.
(5) Multibank Services Corporation is owned 44% by South
Shore Bank, 30% by Mechanics Bank and 26% by Multibank
West.
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Bank of Boston Corporation
We consent to the incorporation by reference, in the registration statements of
Bank of Boston Corporation on Form S-3 (Registration No. 33-29515) and on Forms
S-8 (Registration Nos. 33-23407, 33-1899, 33-11186, 33-64462, 33-65850 and
33-66012) of our report dated January 20, 1994 on our audits of the
consolidated financial statements of Bank of Boston Corporation and
subsidiaries as of December 31, 1993 and 1992, and for each of the three years
in the period ended December 31, 1993, included in the Corporation's 1993
Annual Report to Stockholders and in Exhibit 13 to the Corporation's 1993
Annual Report on Form 10-K.
COOPERS & LYBRAND
Boston, Massachusetts
March 4, 1994
