<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-6522
BANK OF BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2471221
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYERIDENTIFICATION NO.)
OFINCORPORATION OR ORGANIZATION)
100 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
(617) 434-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
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. [X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1995:
Common Stock, $2.25 par value.........................112,205,144
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<PAGE>
BANK OF BOSTON CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
CONSOLIDATED SELECTED FINANCIAL DATA..................................... 3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet...................................... 4
Consolidated Statement of Income................................ 6
Consolidated Statement of Changes in Stockholders' Equity....... 7
Consolidated Statement of Cash Flows............................ 8
Notes to Financial Statements................................... 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 14
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 43
ITEM 5. Other Information............................................... 43
ITEM 6. Exhibits and Reports on Form 8-K................................ 44
SIGNATURES............................................................... 45
LIST OF TABLES
Consolidated Average Balance Sheet--Nine Quarters..................... 32
Consolidated Statement of Income--Nine Quarters....................... 33
Average Balances and Interest Rates--Quarter.......................... 34
Average Balances and Interest Rates--Nine Months...................... 38
Change in Net Interest Revenue--Volume and Rate Analysis.............. 42
</TABLE>
2
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
QUARTERS ENDED SEPTEMBER 30 ------- -------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest revenue............................................ $ 439 $ 424
Provision for credit losses..................................... 45 25
Noninterest income.............................................. 249 202
Noninterest expense............................................. 393 378
Net income...................................................... 140 124
Per common share:
Net income:
Primary....................................................... 1.17 1.07
Fully diluted................................................. 1.15 1.04
Market value per common share:
High.......................................................... 47 5/8 27 3/8
Low........................................................... 36 3/4 24 3/8
NINE MONTHS ENDED SEPTEMBER 30
INCOME STATEMENT DATA:
Net interest revenue............................................ $ 1,299 $ 1,139
Provision for credit losses..................................... 175 95
Noninterest income.............................................. 778 629
Noninterest expense............................................. 1,168 1,097
Income before extraordinary item................................ 399 322
Net income...................................................... 399 315
Per common share:
Income before extraordinary item:
Primary....................................................... 3.36 2.75
Fully diluted................................................. 3.27 2.66
Net income:
Primary....................................................... 3.36 2.69
Fully diluted................................................. 3.27 2.60
Market value per common share:
High.......................................................... 47 5/8 28 1/2
Low........................................................... 25 5/8 22 5/8
AT SEPTEMBER 30
BALANCE SHEET DATA:
Loans and lease financing....................................... $31,691 $30,881
Total assets.................................................... 46,083 44,294
Deposits........................................................ 30,009 30,313
Total stockholders' equity...................................... 3,593 3,113
Book value per common share..................................... 27.50 24.30
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1........................................................ 7.8% 6.9%
Total......................................................... 12.7 11.9
Leverage ratio.................................................. 7.3 6.4
</TABLE>
3
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 2,208 $ 2,317
Interest bearing deposits in other banks............... 1,249 1,556
Federal funds sold and securities purchased under
agreements to resell.................................. 1,236 1,232
Trading securities..................................... 594 553
Mortgages held for sale................................ 558 183
Securities (Note 4):
Available for sale................................... 3,277 2,997
Held to maturity (fair value of $1,786 in 1995 and
$1,626 in 1994)..................................... 1,765 1,703
Loans and lease financing (Note 5):....................
United States Operations............................. 23,770 23,916
International Operations............................. 7,921 7,089
------- -------
Total loans and lease financing (net of unearned
income of $259 in 1995 and $292 in 1994)............ 31,691 31,005
Reserve for credit losses (Note 6)..................... (704) (680)
------- -------
Net loans and lease financing........................ 30,987 30,325
Premises and equipment, net............................ 589 569
Due from customers on acceptances...................... 381 314
Accrued interest receivable............................ 405 355
Other assets........................................... 2,834 2,526
------- -------
TOTAL ASSETS........................................... $46,083 $44,630
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing............................... $ 4,914 $ 4,900
Interest bearing.................................. 16,407 16,841
Overseas offices:
Noninterest bearing............................... 611 569
Interest bearing.................................. 8,077 9,046
------- -------
Total deposits.................................. 30,009 31,356
Funds borrowed:
Federal funds purchased............................. 996 369
Term federal funds purchased........................ 1,138 765
Securities sold under agreements to repurchase...... 1,160 1,883
Other funds borrowed................................ 5,426 3,343
Acceptances outstanding............................... 381 316
Accrued expenses and other liabilities................ 1,321 1,287
Notes payable (Note 7)................................ 2,059 2,169
------- -------
TOTAL LIABILITIES..................................... 42,490 41,488
------- -------
Commitments and contingencies (Notes 2 and 8)
Stockholders' equity:
Preferred stock without par value:
Authorized shares--10,000,000
Issued and outstanding shares--4,593,941......... 508 508
Common stock, par value $2.25:
Authorized shares--200,000,000
Issued shares--112,159,497 in 1995 and
107,584,349 in 1994 Outstanding shares--
112,159,497 in 1995 and 106,547,149 in 1994...... 252 242
Surplus............................................. 916 810
Retained earnings................................... 1,927 1,655
Net unrealized loss on securities available for
sale, net of tax................................... (6) (40)
Treasury stock, at cost (1,037,200 shares in 1994).. (27)
Cumulative translation adjustments, net of tax...... (4) (6)
------- -------
TOTAL STOCKHOLDERS' EQUITY............................ 3,593 3,142
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $46,083 $44,630
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees... $ 840 $ 722 $ 2,394 $ 1,854
Securities.................................. 88 61 250 165
Trading securities.......................... 61 30 145 57
Mortgages held for sale..................... 8 10 17 36
Federal funds sold and securities purchased
under agreements to resell................. 71 223 267 456
Deposits in other banks..................... 45 38 177 79
------- ------- -------- --------
Total interest income..................... 1,113 1,084 3,250 2,647
------- ------- -------- --------
INTEREST EXPENSE:
Deposits of domestic offices................ 172 132 470 380
Deposits of overseas offices................ 229 202 709 435
Funds borrowed.............................. 234 295 656 600
Notes payable............................... 39 31 116 93
------- ------- -------- --------
Total interest expense.................... 674 660 1,951 1,508
------- ------- -------- --------
NET INTEREST REVENUE: 439 424 1,299 1,139
Provision for credit losses (Note 6)........ 45 25 175 95
------- ------- -------- --------
Net interest revenue after provision for
credit losses.............................. 394 399 1,124 1,044
------- ------- -------- --------
NONINTEREST INCOME:
Financial service fees...................... 118 104 337 291
Trust and agency fees....................... 58 51 168 148
Other income (Note 2)....................... 73 47 273 190
------- ------- -------- --------
Total noninterest income.................. 249 202 778 629
------- ------- -------- --------
NONINTEREST EXPENSE:
Salaries.................................... 191 168 547 488
Employee benefits........................... 42 39 123 112
Occupancy expense........................... 36 35 105 100
Equipment expense........................... 25 24 75 71
Other expense............................... 99 112 318 326
------- ------- -------- --------
Total noninterest expense................. 393 378 1,168 1,097
------- ------- -------- --------
Income before income taxes and extraordinary
item....................................... 250 223 734 576
Provision for income taxes.................. 110 99 335 254
------- ------- -------- --------
Income before extraordinary item............ 140 124 399 322
Extraordinary loss from early extinguishment
of debt, net of tax........................ (7)
------- ------- -------- --------
NET INCOME.................................. $ 140 $ 124 $ 399 $ 315
======= ======= ======== ========
NET INCOME APPLICABLE TO COMMON STOCK....... $ 131 $ 115 $ 371 $ 287
======= ======= ======== ========
PER COMMON SHARE:
Income before extraordinary item:
Primary................................... $ 1.17 $ 1.07 $ 3.36 $ 2.75
Fully diluted............................. $ 1.15 $ 1.04 $ 3.27 $ 2.66
Net income (Note 7):
Primary................................... $ 1.17 $ 1.07 $ 3.36 $ 2.69
Fully diluted............................. $ 1.15 $ 1.04 $ 3.27 $ 2.60
Dividends declared.......................... $ .37 $ .22 $ .91 $ .66
AVERAGE NUMBER OF COMMON SHARES (IN
THOUSANDS):
Primary................................... 111,865 106,981 110,188 106,602
Fully diluted............................. 113,803 111,690 113,458 111,391
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
QUARTERS ENDED SEPTEMBER 30
BALANCE, BEGINNING OF PERIOD................................... $3,465 $3,005
Net income..................................................... 140 124
Common stock issued in connection with:
Dividend reinvestment and common stock purchase plan......... 12 7
Restricted stock grants, net of forfeitures and change in
unearned compensation....................................... 7 1
Other, principally employee benefit plans.................... 5 2
Cash dividends declared:
Preferred stock.............................................. (9) (9)
Common stock................................................. (41) (24)
Change in net unrealized loss on securities available for sale,
net of tax.................................................... 16 6
Translation adjustments, net of tax............................ (2) 1
------ ------
BALANCE, END OF PERIOD......................................... $3,593 $3,113
====== ======
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30
BALANCE, BEGINNING OF PERIOD................................... $3,142 $2,912
Net income..................................................... 399 315
Common stock issued in connection with:
Dividend reinvestment and common stock purchase plan......... 30 18
Conversion of subordinated debentures........................ 94
Acquisition of Ganis Credit Corporation...................... 22
Restricted stock grants, net of forfeitures and change in
unearned compensation....................................... 10 2
Other, principally employee benefit plans.................... 16 7
Purchase of treasury stock..................................... (28)
Cash dividends declared:
Preferred stock.............................................. (28) (28)
Common stock................................................. (100) (70)
Change in net unrealized loss on securities available for sale,
net of tax.................................................... 34 (45)
Translation adjustments, net of tax............................ 2 2
------ ------
BALANCE, END OF PERIOD......................................... $3,593 $3,113
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 399 $ 315
Reconciliation of net income to net cash provided from (used for)
operating activities:
Extraordinary loss from early extinguishment of debt, net of
tax........................................................... 7
Provision for credit losses.................................... 175 95
Depreciation and amortization.................................. 149 131
Provision for (benefit from) deferred taxes.................... 53 (132)
Net gains on sales of securities and other assets.............. (158) (66)
Change in trading securities................................... (41) (450)
Change in mortgages held for sale.............................. (375) 1,007
Net change in interest receivables and payables................ (20) (137)
Other, net..................................................... (230) 192
------- -------
Net cash provided from (used for) operating activities....... (48) 962
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided from (used for) interest bearing deposits in
other banks..................................................... 307 (181)
Net cash used for federal funds sold and securities purchased
under agreements to resell...................................... (4) (493)
Purchases of securities held to maturity......................... (541) (1,297)
Purchases of securities available for sale....................... (2,425) (3,006)
Sales of securities available for sale........................... 1,496 2,315
Maturities of securities held to maturity........................ 470 614
Maturities of securities available for sale...................... 696 185
Dispositions of venture capital investments...................... 84 15
Loans and lease financing originated by nonbank entities......... (5,599) (2,902)
Loans and lease financing collected by nonbank entities.......... 4,533 2,414
Net cash provided from (used for) lending activities of bank
subsidiaries.................................................... 150 (1,751)
Lease financing originated by bank entities...................... (3) (20)
Lease financing collected by bank entities....................... 44 20
Proceeds from sales of other real estate owned................... 41 38
Expenditures for premises and equipment.......................... (134) (142)
Proceeds from sales of business units and premises and equipment. 127 135
Other, net....................................................... (214) (432)
------- -------
Net cash used for investing activities....................... (972) (4,488)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided from (used for) deposits....................... (1,347) 698
Net cash provided from funds borrowed............................ 2,360 2,309
Net repayments of notes payable.................................. (154) (538)
Net proceeds from issuance of notes payable...................... 138 696
Net proceeds from issuance of common stock....................... 48 25
Dividends paid................................................... (128) (98)
------- -------
Net cash provided from financing activities.................. 917 3,092
Effect of foreign currency translation on cash................... (6) (21)
------- -------
NET CHANGE IN CASH AND DUE FROM BANKS............................ (109) (455)
CASH AND DUE FROM BANKS AT JANUARY 1............................. 2,317 2,539
------- -------
CASH AND DUE FROM BANKS AT SEPTEMBER 30.......................... $ 2,208 $ 2,084
======= =======
Interest payments made........................................... $ 1,920 $ 1,618
Income tax payments made......................................... $ 362 $ 90
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements of Bank of
Boston Corporation (the Corporation) are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information contained herein have
been made. Certain amounts reported in prior periods have been reclassified
for comparative purposes. This information should be read in conjunction with
the Corporation's 1994 Annual Report on Form 10-K.
2. ACQUISITIONS AND DIVESTITURES: During the first quarter of 1995, the
Corporation completed its acquisition of Ganis Credit Corporation (Ganis), a
privately-held consumer finance company headquartered in Newport Beach,
California. The Corporation paid Ganis stockholders approximately $22 million
in Corporation common stock and used 773,621 shares of its treasury stock,
previously purchased in the open market, for the transaction. The Corporation
will pay Ganis stockholders up to an additional $14 million in common stock if
Ganis achieves certain performance goals over the next several years. The
acquisition was accounted for as a purchase and, accordingly, the assets and
liabilities of Ganis were recorded at their estimated fair values as of the
acquisition date. Goodwill resulting from the acquisition is being amortized
over a fifteen-year period. The acquisition has been included in the
accompanying consolidated financial statements since the acquisition date.
Early in the first quarter of 1995, the Corporation completed the sales of
two of its affiliate banks, Bank of Vermont and Casco Northern Bank, N.A. The
sales resulted in a combined pre-tax gain of approximately $75 million, or $30
million net of tax.
During the third quarter of 1995, the Corporation announced an agreement to
purchase 93 branches and approximately $200 million in assets and assume
certain liabilities of Banco Integrado Departmental (BID) from the Central
Bank of Argentina. The transaction is subject to the completion of final
documentation, and could be completed as early as the fourth quarter of 1995.
In addition, the Corporation announced a definitive agreement to acquire The
Boston Bancorp, the holding company of South Boston Savings Bank (South
Boston), a Massachusetts chartered savings bank. Pursuant to the agreement,
South Boston will convert most of its assets into cash equivalents, including
its commercial real estate loan portfolio and the majority of its investment
securities, prior to the closing of the transaction. The Corporation will
assume all of South Boston's deposits, currently approximating $1.3 billion.
The Corporation will pay for the acquisition with shares of its common stock,
which it anticipates it will purchase in the open market. The transaction,
which is subject to the approval of the shareholders of The Boston Bancorp and
regulatory approvals, is anticipated to close in the middle of 1996, and will
be accounted for as a purchase.
3. SIGNIFICANT NONCASH TRANSACTIONS--STATEMENT OF CASH FLOWS: During the
first nine months of 1995 and 1994, the Corporation transferred approximately
$38 million and $60 million, respectively, to Other Real Estate Owned (OREO)
from loans. There were no loans made to facilitate sales of OREO properties in
the first nine months of 1995; such loans in the first nine months of 1994
were immaterial. Other significant noncash transactions in 1995 included the
issuance of common stock totaling approximately $94 million in connection with
the Corporation's first quarter redemption of its convertible subordinated
debentures due 2011. During the first nine months of 1994, the Corporation
transferred a total of $387 million of lower quality real estate exposure to
an accelerated disposition portfolio.
9
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIES: A summary comparison of securities available for sale by type
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------- -------------------
CARRYING CARRYING
COST VALUE COST VALUE
------ -------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury........................ $ 660 $ 664 $ 1,500 $ 1,487
U.S. government agencies and
corporations--mortgage-backed
securities.......................... 1,468 1,475 796 766
Foreign debt securities.............. 630 570 432 384
Other debt securities................ 276 272 142 142
Marketable equity securities......... 87 123 52 72
Other equity securities.............. 173 173 146 146
------ ------ -------- --------
$3,294 $3,277 $3,068 $2,997
====== ====== ======== ========
</TABLE>
Other equity securities included in securities available for sale are not
traded on established exchanges, and are carried at cost.
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
--------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury...................... $ 10 $ 10 $ 12 $ 11
U.S. government agencies and
corporations--mortgage-backed
securities........................ 1,534 1,555 1,449 1,375
States and political subdivisions.. 17 17 30 30
Foreign debt securities............ 120 120 123 121
Other equity securities............ 84 84 89 89
--------- --------- -------- --------
$1,765 $ 1,786 $ 1,703 $ 1,626
========= ========= ======== ========
</TABLE>
Other equity securities included in securities held to maturity principally
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.
10
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LOANS AND LEASE FINANCING: The following are the details of loans and lease
financing balances:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN MILLIONS)
<S> <C> <C>
UNITED STATES OPERATIONS:
Commercial, industrial and financial.............. $11,789 $11,805
Commercial real estate:
Construction.................................... 412 354
Other commercial................................ 2,303 3,141
Consumer-related loans:
Secured by 1-4 family residential properties.... 4,978 5,004
Other........................................... 3,131 2,462
Lease financing................................... 1,373 1,366
Unearned income................................... (216) (216)
------- -------
23,770 23,916
------- -------
INTERNATIONAL OPERATIONS:
Loans and lease financing......................... 7,964 7,165
Unearned income................................... (43) (76)
------- -------
7,921 7,089
------- -------
$31,691 $31,005
======= =======
</TABLE>
11
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESERVE FOR CREDIT LOSSES: An analysis of the reserve for credit losses
is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
QUARTERS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------- --------------
1995 1994 1995 1994
------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD.............. $692 $676 $680 $770
Provision................................. 45 25 175 95
Reserves of acquired entities............. 6 8 6 25
Reserves of banking subsidiaries sold..... (32)
Domestic credit losses:
Commercial, industrial and financial.... (8) (10) (30) (22)
Commercial real estate.................. (11) (12) (35) (36)
Consumer-related loans:
Secured by 1-4 family residential
properties........................... (5) (3) (14) (9)
Other................................. (16) (14) (45) (43)
International credit losses............... (15) (13) (43) (34)
------- ------- ------ ------
Total credit losses....................... (55) (52) (167) (144)
------- ------- ------ ------
Domestic recoveries:
Commercial, industrial and financial.... 2 3 6 11
Commercial real estate.................. 6 5 10 12
Consumer-related loans:
Secured by 1-4 family residential
properties........................... 1 2 2
Other................................. 5 5 16 13
International recoveries.................. 3 6 8 12
------- ------- ------ ------
Total recoveries.......................... 16 20 42 50
------- ------- ------ ------
Net credit losses excluding those
related to exposures transferred to the
accelerated disposition portfolio...... (39) (32) (125) (94)
Credit losses related to exposures
transferred to the accelerated
disposition portfolio.................. (119)
------- ------- ------ ------
Net credit losses......................... (39) (32) (125) (213)
------- ------- ------ ------
BALANCE, END OF PERIOD.................... $704 $677 $704 $677
======= ======= ====== ======
</TABLE>
Effective January 1, 1995, the Corporation adopted, prospectively, Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosure". These standards
require that loans be classified and accounted for as impaired loans when it
is probable that the Corporation will be unable to collect all principal and
interest due on a loan in accordance with the loan's original contractual
terms. For purposes of applying these standards, impaired loans have been
defined as all nonaccrual loans, exclusive of residential mortgage loans,
consumer loans and leases.
Impaired loans are valued based on the fair value of the related collateral
in the case of commercial real estate loans and, for all other impaired loans,
based on the present value of expected future cash flows, using the interest
rate in effect at the time the loan was placed on nonaccrual status.
Impairment exists when the recorded investment in a loan exceeds the value of
the loan measured using the above-mentioned techniques. Such impairment is
recognized as a valuation reserve, which is included as a part of the
Corporation's overall reserve for credit losses.
12
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RESERVE FOR CREDIT LOSSES (CONTINUED):
The Corporation recognizes interest income on impaired loans consistent with
its nonaccrual policy. When loans are placed on nonaccrual status, the related
interest receivable is reversed against current period interest income.
Interest payments received on nonaccrual loans are applied as a reduction of
the principal balance when concern exists as to the ultimate collectibility of
principal; otherwise, such payments are recorded as interest income.
Adoption of the above-mentioned standards did not have a material effect on
the Corporation's financial position or results of operations and did not
result in any additional provision for credit losses as of January 1, 1995. At
September 30, 1995, loans for which impairment has been recognized in
accordance with these standards totaled $282 million, of which $76 million
related to loans with no valuation reserve and $206 million related to loans
with a valuation reserve of $38 million. For the quarter and nine months ended
September 30, 1995, average impaired loans were approximately $279 million and
$276 million, respectively. Interest recognized on impaired loans during the
third quarter and nine months ended September 30, 1995 was not material.
7. NOTES PAYABLE: In February 1995, the Corporation announced that it would
redeem its 7.75% convertible subordinated debentures at 100.78% of their
principal amount plus accrued interest to the date of redemption.
Substantially all holders of the debt opted to convert their bonds to common
stock prior to redemption, resulting in the issuance by the Corporation of
approximately 4,008,000 shares of its common stock in March 1995. Of the total
shares issued, approximately 530,000 shares were treasury shares which had
been purchased by the Corporation in the open market. The remaining principal
was redeemed by the Corporation. Primary earnings per share for the nine
months ended September 30, 1995 would have been $3.33 had the debentures been
converted on January 1, 1995. In September 1995, the Corporation redeemed its
10.3% subordinated notes due September 2000 at their principal amount plus
accrued interest. The carrying value of the notes at the time of redemption
was $150 million.
8. CONTINGENCIES: The Corporation and its subsidiaries are defendants in a
number of legal proceedings arising in the normal course of business,
including claims that borrowers or others have been damaged as a result of the
Corporation's lending practices. 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 to its results of operations or
financial condition.
9. OTHER EVENTS: Effective in the fourth quarter of 1995, the Corporation
formed a joint venture with Boston Financial Data Services (a joint venture of
State Street Bank and Trust Company and DST Systems, Inc.) that will focus on
providing stock transfer and related shareholder services. The joint venture,
in which the Corporation will be a 50% investor, will be accounted for as an
equity investment. In addition, the Corporation completed the sale of its
corporate trust business to State Street Bank and Trust Company early in the
fourth quarter.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Corporation's net income for the quarter ended September 30, 1995 was
$140 million, compared with $124 million for the same period in 1994. Net
income per common share was $1.17 on a primary basis and $1.15 on a fully
diluted basis for the third quarter of 1995, compared with $1.07 on a primary
basis and $1.04 on a fully diluted basis for the third quarter of 1994. Net
income for the first nine months of 1995 was $399 million compared with $315
million for the first nine months of 1994. Net income per common share was
$3.36 on a primary basis and $3.27 on a fully diluted basis for the first nine
months of 1995, compared with $2.69 on a primary basis and $2.60 on a fully
diluted basis for the first nine months of 1994. The 1994 results included an
extraordinary loss, net of tax, of $7 million in the first quarter related to
the prepayment of $186 million of senior debt by a non-banking subsidiary and
the redemption of $179 million of the Corporation's floating rate notes. The
comparisons reflect the acquisitions of BankWorcester Corporation
(BankWorcester), Pioneer Financial, A Co-operative Bank (Pioneer), Ganis
Credit Corporation (Ganis) and Century Acceptance Corporation (Century) during
the second and third quarters of 1994 and first and third quarters of 1995,
respectively, all of which were recorded as purchases. In addition, the
comparisons reflect the sale of the Corporation's U.S. factoring business in
the first quarter of 1994, and the sales of the Corporation's banking
subsidiaries in Maine and Vermont early in the first quarter of 1995.
Additional information on the acquisition of Ganis and the sales of Maine and
Vermont can be found in Note 2 to the Financial Statements.
During the third quarter of 1995, the Corporation announced an agreement to
purchase 93 branch offices and approximately $200 million in assets and assume
certain liabilities of Banco Integrado Departmental (BID) from the Central
Bank of Argentina. BID is one of the largest financial institutions offered
for sale by the Central Bank in connection with the current financial industry
consolidation occurring in Argentina. The branch network is principally
located in the Buenos Aires, Santa Fe and Cordoba provinces in central
Argentina. The transaction could be completed as early as the fourth quarter
of this year.
Also in the third quarter, the Corporation announced a definitive agreement
to acquire The Boston Bancorp, the holding company of South Boston Savings
Bank (South Boston), a Massachusetts chartered savings bank. Pursuant to the
agreement, South Boston will convert most of its assets into cash equivalents,
including its commercial real estate portfolio and the majority of its
investment securities, prior to the closing of the transaction. The
Corporation will assume all of South Boston's deposits, currently
approximating $1.3 billion. The Corporation will pay for the acquisition with
shares of its common stock, which it anticipates it will purchase in the open
market. The transaction, which is subject to The Boston Bancorp's
shareholders' and regulators' approvals, is anticipated to close in the middle
of 1996, and will be accounted for as a purchase.
Effective in the fourth quarter of 1995, the Corporation formed a joint
venture with Boston Financial Data Services (a joint venture of State Street
Bank and Trust Company and DST Systems, Inc.), combining their respective
stock transfer businesses into a single entity to be 50 percent owned by each
party. Additionally, in October, the Corporation completed the sale of its
corporate trust business to State Street Bank and Trust Company, which was
announced in the second quarter.
NET INTEREST REVENUE--(FULLY TAXABLE EQUIVALENT BASIS)
The discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue--Volume
and Rate Analysis on pages 34 through 42 of this report. For this review,
interest income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to a fully taxable equivalent basis. This
adjustment has been calculated using a federal income tax rate of 35%, plus
applicable state and local taxes, net of related federal tax benefits. This
adjustment was not material in any of the periods presented.
14
<PAGE>
Consolidated net interest revenue, on a fully taxable equivalent basis, was
$441 million for the third quarter of 1995 compared with $425 million for the
same period in 1994. For the first nine months of 1995, consolidated net
interest revenue was $1,304 million compared with $1,143 million for the same
period in 1994. Consolidated net interest margin in the third quarter of 1995
was 4.39% compared with 4.34% in the third quarter of 1994. For the first nine
months of 1995, consolidated net interest margin was 4.48% compared with 4.05%
for the first nine months of 1994.
The following table presents a summary of net interest revenue, on a fully
taxable equivalent basis, and related average earning asset balances and net
interest margins for United States and International Operations:
<TABLE>
<CAPTION>
CHANGE
1995 1994 AMOUNT
QUARTERS ENDED SEPTEMBER 30 ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
UNITED STATES OPERATIONS:
Net interest revenue............................. $ 323 $ 319 $ 4
Average loans and lease financing................ 23,730 23,431 299
Average earning assets........................... 28,888 28,710 178
Net interest margin.............................. 4.43% 4.41% .02%
INTERNATIONAL OPERATIONS:
Net interest revenue............................. $ 118 $ 106 $ 12
Average loans and lease financing................ 7,895 6,931 964
Average earning assets........................... 10,979 10,136 843
Net interest margin.............................. 4.27% 4.15% .12%
CONSOLIDATED:
Net interest revenue............................. $ 441 $ 425 $ 16
Average loans and lease financing................ 31,625 30,362 1,263
Average earning assets........................... 39,867 38,846 1,021
Net interest margin.............................. 4.39% 4.34% .05%
<CAPTION>
CHANGE
1995 1994 AMOUNT
NINE MONTHS ENDED SEPTEMBER 30 ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
UNITED STATES OPERATIONS:
Net interest revenue............................. $ 975 $ 893 $ 82
Average loans and lease financing................ 23,195 22,720 475
Average earning assets........................... 28,340 28,071 269
Net interest margin.............................. 4.60% 4.25% .35%
INTERNATIONAL OPERATIONS:
Net interest revenue............................. $ 329 $ 250 $ 79
Average loans and lease financing................ 7,702 6,646 1,056
Average earning assets........................... 10,608 9,679 929
Net interest margin.............................. 4.15% 3.46% .69%
CONSOLIDATED:
Net interest revenue............................. $ 1,304 $ 1,143 $ 161
Average loans and lease financing................ 30,897 29,366 1,531
Average earning assets........................... 38,948 37,750 1,198
Net interest margin.............................. 4.48% 4.05% .43%
</TABLE>
Both domestic and international operations contributed to the improvements
in net interest revenue and margin from the third quarter and first nine
months of 1994.
Domestic net interest revenue for the third quarter and first nine months of
1995 increased $4 million and $82 million, respectively, from the third
quarter and first nine months of 1994, while domestic margin increased 2 basis
points in the quarterly comparison and 35 basis points in the nine-month
comparison. Domestic net
15
<PAGE>
interest revenue and margin increased from the 1994 periods mainly due to
increases and favorable mix changes in average earning assets, including a
reduction in lower-yielding treasury assets and an increase in higher-yielding
loans and leases. Volume increases included average consumer-related loan
growth of approximately $1.0 billion and $1.3 billion from the third quarter
and first nine months of 1994, respectively, reflecting growth of the
Corporation's Fidelity Acceptance Corporation unit's consumer loan portfolio
and the effects of the acquisitions of Pioneer, BankWorcester, Ganis and
Century. Partially offsetting this growth were reductions in the average
commercial loan portfolios, particularly real estate, from the 1994 periods,
partly due to the divestitures of the Corporation's Maine and Vermont banking
subsidiaries. In the quarterly comparisons of domestic net interest revenue
and margin, the favorable effects of volume increases and mix changes were
partially offset by a cumulative adjustment to the Corporation's leveraged
lease revenue, resulting from changes in the Massachusetts income tax rate,
and by narrower spreads, mainly due to higher deposit costs in 1995. In the
nine-month comparisons, net interest revenue and margin also benefited from
wider spreads, as increases in rates on earning assets generally outpaced rate
increases on interest-bearing liabilities.
International net interest revenue and margin increased $12 million and 12
basis points, respectively, in the quarterly comparisons, and $79 million and
69 basis points, respectively, in the nine-month comparisons. Compared to the
1994 periods, international net interest revenue and margin benefited from
wider spreads as well as increases in average earning assets, including a
shift in mix to higher-yielding loans from lower-yielding treasury assets. The
increase in spreads was, in part, due to the effects of positions taken by the
Corporation in Latin America which enabled the Corporation to benefit from
prevailing interest rates. International volume growth included increases of
approximately $600 million and $700 million in average loans and leases in
Argentina from the third quarter and first nine months of 1994, respectively.
The favorable effects of wider spreads, volume increases and mix changes were
partially offset by the absence of approximately $20 million of revenue
recognized in the third quarter of 1994 from Brazilian operations, which
resulted from the Corporation successfully positioning itself to take
advantage of interest rate movements during the initial phase of Brazil's new
economic program implemented on July 1, 1994.
As compared to the second quarter of 1995, consolidated net interest revenue
increased $5 million due to a $700 million increase in average loans and
leases, primarily from the domestic consumer-related and international
portfolios, offset, in part, by a 10 basis point decline in net interest
margin. The lower margin reflects the cumulative leveraged lease adjustment
and narrower spreads from domestic and Argentine operations, partially offset
by wider spreads from Brazilian and Chilean operations. The Corporation
expects there could be continued pressure on margin. Future levels of net
interest revenue and margin will continue to be affected by competitive
pricing pressure on retail deposits, loans and other products; developments in
the economic and political situations in Argentina and Brazil and in other
countries where the Corporation does business; the current interest rate
environment; and other factors.
PROVISION FOR CREDIT LOSSES
The provision for credit losses reflects management's assessment of the
adequacy of the reserve for credit losses, considering the current risk
characteristics of the loan portfolio and economic conditions.
The provision for credit losses was $45 million for the quarter ended
September 30, 1995, compared with $25 million for the same period in 1994, and
$40 million for the quarter ended June 30, 1995. For the first nine months of
1995, the provision for credit losses was $175 million, including a special
provision of $50 million in the first quarter reflecting management's intent
to strengthen further the Corporation's loan loss reserve, compared with $95
million for the first nine months of 1994. The level of the provision for
credit losses in the first nine months of 1994 reflected, in part, the effect
of transferring certain lower quality real estate exposure to an accelerated
disposition portfolio in the first quarter of 1994.
The amount of future provisions will continue to be a function of the
regular quarterly review of the reserve for credit losses, based upon
management's assessment of risk at that time, and, as such, there can be no
assurance as to the level of future provisions.
16
<PAGE>
NONINTEREST INCOME
The following tables set forth the components of noninterest income, as well
as a further breakdown of financial service fees.
NONINTEREST INCOME
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------- ----------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Financial service fees..................... $118 $104 $14 $337 $291 $ 46
Trust and agency fees...................... 58 51 7 168 148 20
Trading profits and commissions............ 7 11 (4) 14 16 (2)
Securities portfolio gains, net............ 1 1 7 11 (4)
Mezzanine/venture capital profits, net..... 25 9 16 65 27 38
Foreign exchange trading profits, net...... 15 11 4 43 31 12
Other income............................... 25 15 10 69 78 (9)
---- ---- --- ---- ---- ----
Subtotal................................. 249 202 47 703 602 101
Gain from sales of businesses.............. 75 27 48
---- ---- --- ---- ---- ----
Total.................................... $249 $202 $47 $778 $629 $149
==== ==== === ==== ==== ====
</TABLE>
Noninterest income before gains from sales of businesses grew $47 million
and $101 million from the third quarter and first nine months of 1994,
respectively. Changes in financial service fee categories are detailed below.
The improvement in trust and agency fees from both prior periods mainly
reflected higher fees from the Brazilian mutual fund business, as the total
funds under management increased to $2.1 billion at September 30, 1995, from
$1.0 billion a year ago, and from the domestic stock transfer business, which
was spun off into a joint venture effective in October 1995. Trading account
profits were down from the third quarter of 1994, which benefited from an
unusually high level of profits from international securities trading.
Mezzanine/venture capital profits showed improvement in both prior period
comparisons as a result of a high level of sales activity. Foreign exchange
profits were higher compared with prior periods as increases were posted by
international and domestic treasury operations.
The increase in other income from the third quarter of 1994, included higher
gains from the sale of mortgage servicing rights, while the decline from the
first nine months of 1994 was due, in part, to the absence of net gains
recorded during the first quarter of 1994 from the sale of securities
originally acquired in connection with loan restructurings. Other income in
the third quarter of 1994 included $15 million of exchange rate-related
profits stemming from the strengthening of Brazil's currency against the U.S.
dollar subsequent to the implementation of that country's new economic
program. In addition, other income in the third quarter of last year included
the effect of approximately $15 million of charges associated with certain
investments, including investments in foreign equity subsidiaries and
writedowns of domestic investments acquired in connection with loan
restructurings.
Gains from sales of businesses included the first quarter of 1995 sale of
the Corporation's Maine and Vermont banking subsidiaries for a pre-tax gain of
$75 million ($30 million after-tax) and the first quarter of 1994 sale of its
United States factoring business for a gain of $27 million ($15 million after-
tax).
17
<PAGE>
FINANCIAL SERVICE FEES
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------- ----------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Deposit fees............................... $ 29 $ 32 $(3) $ 88 $ 93 $(5)
Letter of credit and acceptance fees....... 18 17 1 53 44 9
Net mortgage servicing fees................ 22 16 6 70 40 30
Loan-related fees.......................... 20 15 5 50 44 6
Other...................................... 29 24 5 76 70 6
---- ---- --- ---- ---- ---
Total.................................... $118 $104 $14 $337 $291 $46
==== ==== === ==== ==== ===
</TABLE>
Financial service fees increased $14 million from the third quarter of 1994
and $46 million from the first nine months of 1994. The growth in loan-related
and other financial service fees is mainly driven by higher syndication and
advisory fees, reflecting the Corporation's increased emphasis on the capital
markets business. Letter of credit and acceptance fees increased compared with
the prior year periods due to a higher volume of business. Deposit fees
declined compared to the 1994 periods mainly resulting from the sales of the
Corporation's Maine and Vermont banking subsidiaries.
The increase in net mortgage servicing fee income reflected the growth in the
average servicing portfolio to approximately $39 billion during the third
quarter of 1995, from approximately $34 billion during the third quarter of
1994. Also contributing to the change in net mortgage servicing fee income in
the nine-month comparison were profits from contracts used to manage prepayment
risk of the servicing portfolio partially offset by the impact of changing
interest rates on amortization of the servicing assets.
NONINTEREST EXPENSE
The following tables set forth the components of noninterest expense.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------- --------------------
1995 1994 CHANGE 1995 1994 CHANGE
---- ---- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Employee costs........................ $233 $207 $26 $ 670 $ 600 $70
Occupancy & equipment................. 61 59 2 180 171 9
Professional fees..................... 13 16 (3) 36 41 (5)
Other................................. 84 85 (1) 276 246 30
---- ---- --- ------ ------ ---
Noninterest expense, before
acquisition-related charges and
OREO costs......................... 391 367 24 1,162 1,058 104
Acquisition-related charges........... 5 (5) 21 (21)
OREO costs............................ 2 6 (4) 6 18 (12)
---- ---- --- ------ ------ ---
Total............................... $393 $378 $15 $1,168 $1,097 $71
==== ==== === ====== ====== ===
</TABLE>
Noninterest expense, before acquisition-related charges and OREO costs, was
$391 million in the third quarter of 1995, compared with $367 million in the
third quarter of 1994, and $1,162 million in the first nine months of 1995,
compared with $1,058 million in the first nine months of 1994.
Compared with the 1994 periods, the growth in noninterest expense reflected
increases in the Corporation's Latin American and personal banking businesses,
two businesses which the Corporation has been expanding. In addition, the
increase in employee costs included the effect of higher merit increases and
higher levels of
18
<PAGE>
incentive compensation, including stock awards made to senior management under
a plan tied to the Corporation's common stock price. Nonemployee costs
increased due, in part, to higher levels of advertising and travel expense,
including spending on key business initiatives and the promotion of new
products. Partially offsetting these higher costs were lower professional fees
and declines in FDIC insurance premiums of $14 million and $16 million from the
third quarter and first nine months of 1994, respectively, reflecting a
reduction by the FDIC in its assessment rate retroactive to the month of June
1995. In addition, the 1995 periods reflected increased amortization of
goodwill stemming from the Corporation's 1994 acquisitions, and the absence of
a property tax rebate in the current year. The decline in OREO costs was
primarily due to lower valuation adjustments.
In connection with its acquisitions of BankWorcester and Pioneer, the
Corporation recorded $21 million in acquisition-related charges comprised
principally of severance costs and estimated costs to consolidate facilities
and operations. A majority of the costs associated with these acquisitions were
incurred through June 30, 1995.
PROVISION FOR INCOME TAXES
The provision for income taxes was $110 million and $99 million for the third
quarter of 1995 and 1994, respectively, representing an effective tax rate of
44%. For the first nine months of 1995, the provision for income taxes was $335
million, including $45 million associated with the $75 million gain on the
sales of the Corporation's Maine and Vermont banking subsidiaries. The high
level of tax associated with the gain on the sales of Maine and Vermont
reflected the lower tax bases in these investments as a result of $35 million
of non-tax deductible goodwill relating to these subsidiaries. Excluding this
gain and related tax provision, the Corporation's effective tax rate in the
first nine months of 1995 was 44%, the same rate as in the first nine months of
1994.
During the third quarter of 1995, the Massachusetts Legislature passed into
law a bill to reduce the state income tax rate for banks from 12.5% to 10.5%
over the next five years and to permit apportionment of a bank's taxable
income. Additionally, the third quarter of 1995 reflected the Corporation's
favorable settlement on an outstanding Massachusetts tax matter relating to
income earned on certain securities. The rate and apportionment changes
necessitated the revaluation of the Corporation's Massachusetts banking
subsidiary's net deferred tax assets, which offset the favorable effects on the
provision of the rate reduction, the apportionment change, and the settlement.
This resulted in the effective tax rate remaining the same as in the 1994
periods.
FINANCIAL CONDITION
-------------------
CONSOLIDATED BALANCE SHEET
At September 30, 1995, the Corporation's total assets were $46.1 billion, an
increase of $1.5 billion from December 31, 1994. Loans and leases grew by over
$680 million due to higher levels of domestic consumer-related and Latin
American loans partially offset by the decline in loans resulting from the
sales of the Maine and Vermont banking subsidiaries during the first quarter of
1995. Domestic deposits declined approximately $400 million resulting from a
$1.3 billion decrease in deposits from the sales of the Maine and Vermont
banking subsidiaries offset, in part, by approximately $900 million of deposit
inflows from a new retail product which was first offered in the second quarter
of 1995. The reduction in deposits from overseas was related to a shift in
funding from Eurodollar deposits to term federal funds purchased during the
first quarter. Funds borrowed increased approximately $2.4 billion from
December 31, 1994, mainly as a result of the aforementioned shift to term
federal funds and increased borrowings of $1.2 billion under The First National
Bank of Boston's medium-term bank note program. Notes payable declined by $110
million due to the conversion into common stock of $94 million of the
Corporation's subordinated debt in the first quarter of 1995, and the
redemption of $150 million of its subordinated debt in the third quarter of
1995. This was partially offset by new issuances of debt during the third
quarter of 1995.
19
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts
of these assets may not be recoverable.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This Statement amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," to require that rights to service mortgage loans
originated for sale be recognized as separate assets either upon origination
(if a definitive plan to sell the loans and retain the rights exists) or upon
sale of the loans based on the relative fair values of the rights and loans,
similar to purchased mortgage servicing rights. This Statement also requires
that mortgage servicing rights be assessed for impairment based on the fair
value of those rights.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages, but does not require, adoption of a
fair value-based accounting method for stock-based compensation arrangements
which would supercede the provisions of Accounting Principles Board Opinion
No. 25 (Opinion No. 25), "Accounting for Stock Issued to Employees." An entity
may continue to apply Opinion No. 25 provided the entity discloses its pro
forma net income and earnings per share as if the fair value-based method had
been applied in measuring compensation cost.
These Statements, which are effective January 1, 1996, are not expected to
have a material effect on the Corporation's financial statements.
LIQUIDITY MANAGEMENT
At September 30, 1995, the Corporation's level of liquid assets, which
primarily consist 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, stood at $5.2 billion, compared with $4.6
billion at December 31, 1994. The Corporation continues to have access to
funds at market rates, and earlier this year it received upgrades of its long-
term debt from three major rating agencies. Management considers overall
liquidity at September 30, 1995 to be adequate to meet current obligations,
support its expectations for future changes in asset and liability levels and
carry on normal operations.
INTEREST RATE RISK MANAGEMENT
Interest rate risk is defined as the exposure of the Corporation's net
income or financial position to adverse movements in interest rates. The
Corporation manages its interest rate risk within policies and limits
established by the Asset and Liability Management Committee (ALCO) and
approved by the Board of Directors. ALCO issues strategic directives to
specify the extent to which Board-approved interest rate risk limits may be
utilized taking into account the results of rate risk modeling processes as
well as other internal and external factors.
Interest rate risk related to non-trading, U.S. dollar denominated
positions, which represents the significant portion of the consolidated
balance sheet, is managed centrally through the Boston Treasury Group, using
several modeling methodologies. These models are applied to the Corporation's
existing or "static" balance sheet and off-balance-sheet positions and employ
a number of assumptions. The two principal methodologies used are net interest
income and market value sensitivity at risk. These two methodologies provide
different but complementary measures of the level of the Corporation's U.S.
dollar denominated interest rate risk.
20
<PAGE>
These methodologies are designed to isolate the effects of market changes in
interest rates on the Corporation's existing positions and they exclude the
effects from other factors, such as competitive pricing considerations, future
changes in asset and liability mix, and other management actions. Therefore,
these methodologies are not by themselves measures of future levels of net
interest revenue. As discussed in the Net Interest Revenue section above, the
Corporation's domestic margin has been impacted by competitive pressures which
have increased domestic deposit costs and correspondingly reduced domestic
spreads.
In terms of the effect from market changes in interest rates at September
30, 1995, the Corporation maintained a modest risk position to benefit from
future increases in domestic interest rates over the next twelve months. As a
result, the U.S. dollar denominated net interest revenue at risk based on a
gradual 200 basis point adverse movement in market rates over a one-year
period was approximately $13 million or less than 1% of annualized net
interest revenue at September 30, 1995, which compared to $11 million at
December 31, 1994.
While the Corporation is positioned to benefit from an increase in interest
rates in the short term, it would benefit from a decline in rates over the
long term as measured by its market value sensitivity at risk. The
Corporation's market value sensitivity at risk to an adverse 100 basis point
interest rate shock was $83 million or 1.5% of risk-based capital. At December
31, 1994, these measures were essentially neutral. The change in the market
value sensitivity at risk from December 31, 1994, is mainly due to a change in
the Corporation's balance sheet mix, including an increase in fixed rate
assets, such as securities and consumer loans.
The level of both net interest revenue and market value sensitivity at risk
were within ALCO limits, which remain unchanged from the limits in place at
December 31, 1994. The level of future interest rate risk positions can be
changed quickly through the use of derivatives and/or balance sheet
instruments.
The Corporation utilizes a variety of financial instruments to manage
interest rate risk, including derivatives. The Corporation routinely uses non-
leveraged rate-related derivative instruments, primarily interest rate swaps,
options and futures, as part of its asset and liability management practices.
These derivatives provide the Corporation with significant flexibility in
managing its interest rate risk exposure by allowing it to respond quickly to
changes in market conditions while minimizing the impact on balance sheet
leverage. All derivative activities are managed on a comprehensive basis, are
included in the overall income and market value at risk measures and limits
described above, and are subject to credit standards similar to those applied
to balance sheet exposures.
Additional information with respect to the Corporation's interest rate risk
management process is included on pages 50 and 51 of the Corporation's Annual
Report to Stockholders, which is incorporated by reference in its 1994 Annual
Report on Form 10-K.
As detailed in the table below, the fair value of interest rate derivatives
increased from December 31, 1994, which resulted in a decline in the
unrecognized loss from $140 million at December 31, 1994, to $7 million at
September 30, 1995. The change in the fair value of this portfolio reflects
the effect of changes in interest rates during 1995, coupled with a lower
level of derivatives outstanding. The decline in the notional amount of
derivatives was due, in part, to the increase in balance sheet items, such as
securities, used as part of the Corporation's asset and liability management
strategy. Since these derivatives are used as part of the overall management
of the Corporation's domestic interest rate risk, changes in the fair value of
this portfolio are considered within the Corporation's overall domestic
interest rate risk exposure.
In response to the interest rate environment prevailing during the second
and third quarters of 1995, the Corporation terminated $5.5 billion of
interest rate futures and $0.4 billion of interest rate swaps that were part
of the domestic asset and liability management portfolio. These contracts were
linked to short-term liabilities. The termination of these contracts resulted
in a net loss of $16.6 million that is being amortized into net interest
revenue as an adjustment to short-term liability yields over the remainder of
the period being managed.
21
<PAGE>
The following is a summary of interest rate derivatives and foreign exchange
contracts included in the Corporation's asset and liability management
portfolio.
<TABLE>
<CAPTION>
FAIR VALUE(1)(2) UNRECOGNIZED
NOTIONAL ------------------- GAIN/
AMOUNT ASSET LIABILITY (LOSS)(3)
-------- ------- ---------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1995
Interest rate contracts(1):
Futures and forwards............... $13,738 $ 2 $ (68)
Interest rate swaps................ 5,470 36 $ 40 21
Interest rate options(4):
Purchased........................ 2,231 37 40
Written or sold.................. 45
------- ------- -------- -----
Total interest rate contracts........ $21,484 $75 $ 40 $ (7)
======= ======= ======== =====
Foreign exchange contracts(1):
Spot and forward contracts......... $ 1,953 $ 6 $ 7 $ (2)
======= ======= ======== =====
DECEMBER 31, 1994
Interest rate contracts(1):
Futures and forwards............... $16,566 $ 1 $ 36
Interest rate swaps................ 3,721 19 $225 (208)
Interest rate options:
Purchased........................ 7,709 39 49
Written or sold.................. 6,125 19 (17)
------- ------- -------- -----
Total interest rate contracts........ $34,121 $59 $244 $(140)
======= ======= ======== =====
Foreign exchange contracts(1):
Spot and forward contracts......... $ 604 $ 2 $ 5 $ (4)
======= ======= ======== =====
</TABLE>
- --------
(1) Contracts under master netting agreements are shown on a net basis.
(2) Fair value represents the amount at which a given instrument could be
exchanged in an arm's length transaction with a third party as of the
balance sheet date. In certain cases, instruments such as futures, are
subject to daily cash settlements; as such, the fair value of these
instruments is zero. The credit exposure of interest rate derivatives and
foreign exchange contracts is represented by the fair value of contracts
reported in the "Asset" column.
(3) Unrecognized gain or loss represents the amount of gain or loss, based on
fair value, that has not been recognized in the income statement at the
balance sheet date. Such amounts are recognized as an adjustment of yield
over the period being managed. Included in unrecognized gains or losses
are gains or losses from contracts which have been terminated. At
September 30, 1995 there were $41 million of unrecognized gains and $39
million of unrecognized losses that are being amortized to net interest
revenue over a weighted average period of 33 months and 37 months,
respectively. At December 31, 1994, there were unrecognized gains of $35
million that were being amortized to net interest revenue over a weighted
average period of 14 months.
(4) Includes contracts used to manage prepayment risk related to the
Corporations's mortgage servicing portfolio. The results of such contracts
are included in net mortgage servicing fees and are discussed above under
the caption "Financial Service Fees."
22
<PAGE>
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability
management purposes as of September 30, 1995:
<TABLE>
<CAPTION>
MATURITY
1995 1996 1997 1998 1999 2000+ TOTAL
-------- ------ ------ ---- ---- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Domestic:
Receive fixed rate
swaps(1)
Notional amount........ $ 90 $ 381 $ 171 $ 60 $1,840 $ 2,542
Weighted average
receive rate.......... 8.59% 6.15% 9.01% 5.61% 6.22% 6.47%
Weighted average pay
rate.................. 5.89% 5.88% 5.90% 5.91% 5.89% 5.89%
Pay fixed rate swaps(1)
Notional amount........ $ 84 $ 57 $ 35 $ 45 $ 103 $ 324
Weighted average
receive rate.......... 5.75% 5.98% 6.19% 6.05% 5.99% 5.96%
Weighted average pay
rate.................. 6.92% 7.95% 8.70% 7.36% 7.11% 7.41%
Basis swaps(2)
Notional amount........ $1,114 $ 50 $ 1,164
Weighted average
receive rate.......... 5.89% 6.21% 5.90%
Weighted average pay
rate.................. 6.02% 5.95% 6.02%
------ ------ ------ ---- ---- ------ -------
Total Domestic Interest
Rate Swaps:
Notional amount........ $ 90 $1,579 $ 228 $ 95 $ 45 $1,993 $ 4,030
Weighted average
receive rate(3)....... 8.59% 5.95% 8.25% 5.82% 6.05% 6.21% 6.26%
Weighted average pay
rate(3)............... 5.89% 6.03% 6.41% 6.93% 7.36% 5.95% 6.05%
Total International
Interest Rate Swaps
Notional Amount(4)...... $1,111 $ 329 $ 1,440
------ ------ ------ ---- ---- ------ -------
Total Consolidated
Interest Rate Swaps
Notional Amount......... $1,201 $1,908 $ 228 $ 95 $ 45 $1,993 $ 5,470
------ ------ ------ ---- ---- ------ -------
Other Derivative Products
Futures and forwards(5). 5,008 6,430 2,300 13,738
Interest rate options:
Purchased.............. 1,685 382 40 81 43 2,231
Sold................... 45 45
------ ------ ------ ---- ---- ------ -------
Total Consolidated
Notional Amount......... $7,894 $8,765 $2,568 $176 $ 88 $1,993 $21,484
====== ====== ====== ==== ==== ====== =======
</TABLE>
- --------
(1) Of the receive fixed swaps, $1 billion were linked to floating rate loans,
and the remainder principally to fixed rate notes payable. Of the swaps
linked to notes payable, approximately $1 billion are scheduled to mature
in 2000 and thereafter.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
floating rates. The majority of the basis swaps are linked to loans.
(3) The majority of the Corporation's interest rate swaps accrue at LIBOR
(London Interbank Offered Rate). In arriving at the variable weighted
average receive and pay rates, LIBOR rates in effect as of September 30,
1995 have been implicitly assumed to remain constant throughout the term
of the swap. Future changes in LIBOR rates would affect the variable rate
information disclosed.
(4) The majority of the international portfolio is comprised of swaps from the
Corporation's Brazilian operation with a weighted average maturity of less
than 51 days. These swaps typically include the exchange of floating rate
indices which are limited to the Brazilian market.
(5) The majority of the futures and forwards used by the Corporation are
linked to funds borrowed, other exchange-traded instruments and mortgages
held for sale. The reference instruments for these contracts are mainly
Eurodollar deposits and U.S. Treasury notes.
23
<PAGE>
Derivatives not used in the asset and liability management portfolio are
included in the derivatives trading portfolio. The primary focus of the
Corporation's derivatives trading activities is related to providing risk
management products to its customers. Net trading gains (losses) from interest
rate derivatives for the quarter and nine months ended September 30, 1995 were
($0.3) million and $3.3 million, respectively, and for the quarter and nine
months ended September 30, 1994 were $3.0 million and $6.5 million,
respectively. Net trading gains from foreign exchange activities for the
quarter and nine months ended September 30, 1995 were $15 million and $43
million, respectively, and for the quarter and nine months ended September 30,
1994 were $11 million and $31 million, respectively.
The following is a summary of the Corporation's notional amounts and fair
values of interest rate derivatives and foreign exchange contracts included in
its trading portfolio. Detailed information about the maturity profiles of
trading instruments is not provided since these instruments may be traded at
any time.
<TABLE>
<CAPTION>
TRADING PORTFOLIO
-------------------------------
AVERAGE
FAIR VALUE(2) FAIR VALUE(3)
NOTIONAL --------------- ---------------
AMOUNT ASSET LIABILITY ASSET LIABILITY
-------- ----- --------- ----- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1995
Interest rate contracts(1):
Futures and forwards................. $25,475
Interest rate swaps.................. 7,065 $ 69 $ 46 $ 69 $ 45
Interest rate option:
Written or sold.................... 3,971 7 10
Purchased.......................... 3,401 9 17
------- ---- ----- ---- ----
Total interest rate contracts.......... $39,912 $ 78 $ 53 $ 86 $ 55
======= ==== ===== ==== ====
Foreign exchange contracts(1):
Spot and forward contracts........... $16,609 $255 $235 $285 $275
Options written or sold.............. 902 26 20
Options purchased.................... 864 26 20
------- ---- ----- ---- ----
Total foreign exchange contracts....... $18,375 $281 $261 $305 $295
======= ==== ===== ==== ====
DECEMBER 31, 1994
Interest rate contracts(1):
Futures and forwards................. $17,257
Interest rate swaps.................. 12,604 $ 75 $ 40 $ 92 $ 45
Interest rate options:
Written or sold.................... 5,639 36 31
Purchased.......................... 4,251 55 45
------- ---- ----- ---- ----
Total interest rate contracts.......... $39,751 $130 $ 76 $137 $ 76
======= ==== ===== ==== ====
Foreign exchange contracts(1):
Spot and forward contracts........... $17,142 $172 $ 186 $233 $244
Options written or sold.............. 753 9 13
Options purchased.................... 811 8 11
------- ---- ----- ---- ----
Total foreign exchange contracts....... $18,706 $180 $195 $244 $257
======= ==== ===== ==== ====
</TABLE>
- --------
(1) Contracts under master netting agreements are shown on a net basis.
(2) Fair value represents the amount at which a given instrument could be
exchanged in an arm's length transaction with a third party as of the
balance sheet date. In certain cases, contracts such as futures and
forwards, are subject to daily cash settlements; as such, the fair value
of these instruments is zero.
(3) Average fair value represents averages for third quarter 1995 and fourth
quarter 1994.
24
<PAGE>
Additional information on the Corporation's derivative products, including
accounting policies, is provided in Notes 1 and 21 to the Financial Statements
in the Corporation's 1994 Annual Report to Stockholders, which is incorporated
by reference in its 1994 Annual Report on Form 10-K.
CAPITAL
The Corporation's Tier 1 and total capital ratios were 7.8% and 12.6%,
respectively, at September 30, 1995, compared with 7.0% and 12.2%,
respectively, at December 31, 1994. The Corporation's leverage ratio at
September 30, 1995 was 7.3% compared with 6.5% at December 31, 1994. The
improvement in these ratios reflected the impact of current year earnings and
the sales of the Maine and Vermont banking subsidiaries, which resulted in a
lower level of risk adjusted assets and the removal of $35 million of goodwill
from the Corporation's balance sheet. In addition, the Corporation's Tier 1
capital ratio benefited from the conversion of $94 million of the
Corporation's convertible subordinated debt during the first quarter into
common stock. The redemption of $150 million of subordinated debt in the third
quarter partially offset the improvement in the total capital ratio. The
redemption and conversion of subordinated debt is more fully discussed in Note
7 to the Financial Statements.
As of September 30, 1995, the capital ratios of the Corporation and all of
its banking subsidiaries exceeded the minimum capital ratio requirements of
the "well capitalized" category under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). The capital categories of the
Corporation's banking subsidiaries are determined solely for purposes of
applying FDICIA's provisions and, accordingly, such capital categories may not
constitute an accurate representation of the overall financial condition or
prospects of any of the Corporation's banking subsidiaries.
In October 1995, the Board of Directors declared a quarterly common dividend
of $.37 per share, payable on November 24, 1995. The payment and level of
future common dividends will continue to be determined by the Board of
Directors based on the Corporation's financial condition, recent earnings
history and other factors.
CREDIT PROFILE
The segments of the lending portfolio are as follows:
<TABLE>
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1995 1995 1995 1994 1994
-------- ------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and
financial...................... $11,789 $11,907 $11,684 $11,805 $11,987
Commercial real estate:
Construction.................. 412 327 355 354 464
Other......................... 2,303 2,489 2,645 3,141 3,110
------- ------- ------- ------- -------
Total commercial real
estate..................... 2,715 2,816 3,000 3,495 3,574
Real estate loans secured by
1-4 family residential
properties..................... 4,978 4,752 4,635 5,004 4,878
Loans to individuals............ 3,131 2,834 2,603 2,462 2,373
Lease financing................. 1,373 1,356 1,350 1,366 1,312
Unearned income................. (216) (211) (216) (216) (199)
------- ------- ------- ------- -------
23,770 23,454 23,056 23,916 23,925
======= ======= ======= ======= =======
International:
Loans and lease financing, net
of unearned income............. 7,921 7,934 7,383 7,089 6,956
------- ------- ------- ------- -------
Total loan and lease
financing.................. $31,691 $31,388 $30,439 $31,005 $30,881
======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
The decline in domestic loans and leases from December 31, 1994, reflected a
$1.2 billion reduction from the sales of the Maine and Vermont banking
subsidiaries, of which approximately $500 million was related to commercial
real estate loans. Excluding these sales, domestic loans and leases grew
approximately $1.1 billion primarily due to higher levels of consumer-related
loans. The international portfolio increased by $832 million principally due
to ongoing growth in the Latin American, particularly Argentine, portfolios. A
further discussion of the Argentine and Brazilian operations is included under
the caption "Emerging Markets Countries."
The Corporation's domestic commercial real estate loans amounted to $2.7
billion at September 30, 1995 and $3.5 billion at December 31, 1994.
Approximately 70 of these loans were collateralized by properties located in
New England at September 30, 1995 and December 31, 1994.
The Corporation's total loan portfolio at September 30, 1995 and December
31, 1994 included $1.3 billion of highly leveraged transaction (HLT) loans to
103 and 84 customers, respectively. The average HLT loan size was $13 million
at September 30, 1995 and $15 million at December 31, 1994. The amount of
unused commitments for HLTs at September 30, 1995 was $507 million compared
with $653 million at December 31, 1994. The amount of unused commitments does
not necessarily represent the actual future funding requirements of the
Corporation, since a portion can be syndicated or assigned to others or may
expire without being drawn upon. At September 30, 1995, there were no HLT
loans on nonaccrual status compared with approximately $0.4 million at
December 31, 1994. There were recoveries from the HLT portfolio of $4.2
million during the third quarter and first nine months of 1995, compared with
net credit losses from the HLT portfolio of $1.0 million and $4.0 million
during the third quarter and first nine months of 1994, respectively. The
Corporation does not currently anticipate a substantial increase in HLT
lending over the September 30, 1995 level.
A discussion of the Corporation's real estate and HLT lending activities and
policies is included on pages 38 through 41 of its 1994 Annual Report to
Stockholders, which is incorporated by reference in its 1994 Annual Report on
Form 10-K.
NONACCRUAL LOANS AND OREO
The details of consolidated nonaccrual loans and OREO are as follows:
<TABLE>
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1995 1995 1995 1994 1994
-------- ------- -------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and
financial........................ $105 $106 $111 $113 $119
Commercial real estate:
Construction.................... 23 16 20 13 18
Other........................... 82 85 97 106 119
---- ---- ---- ---- ----
Total commercial real estate.. 105 101 117 119 137
Real estate loans secured by 1-4
family residential properties.... 46 45 44 44 35
Loans to individuals.............. 30 21 22 24 15
---- ---- ---- ---- ----
286 273 294 300 306
---- ---- ---- ---- ----
International....................... 69 66 57 65 71
---- ---- ---- ---- ----
Total nonaccrual loans........ 355 339 351 365 377
OREO................................ 62 78 71 76 93
---- ---- ---- ---- ----
Total......................... $417 $417 $422 $441 $470
==== ==== ==== ==== ====
Nonaccrual loans and OREO as a per-
cent of related asset categories... 1.3% 1.3% 1.4% 1.4% 1.5%
</TABLE>
26
<PAGE>
The decline in nonaccrual loans and OREO from December 31, 1994, included a
$27 million reduction from the sales of the Corporation's Maine and Vermont
banking subsidiaries that were completed early in the first quarter of 1995.
The level of nonaccrual loans and OREO is influenced by the economic
environment, interest rates, the regulatory environment and other internal and
external factors. As such, no assurance can be given as to future levels of
nonaccrual loans and leases and OREO.
During 1994, the Corporation transferred certain of its lower quality real
estate exposures, including a portion which was on nonaccrual status, to an
accelerated disposition portfolio (ADP). During the first quarter of 1995, the
Corporation disposed of substantially all its ADP assets, which totaled $118
million at December 31, 1994.
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at September 30, 1995 was $704 million, or
2.22%, of outstanding loans and leases, compared with $680 million or 2.19%,
at December 31, 1994. The reserve for credit losses was 198% of nonaccrual
loans and leases at September 30, 1995, compared with 186% at December 31,
1994. During the first quarter of 1995, the Corporation implemented Statement
of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosure." These Statements
affect the evaluation of the reserve for credit losses and require that
impaired loans be evaluated based on the present value of expected future cash
flows or the fair value of the collateral, as applicable. The adoption of
these new Statements, which is more fully discussed in Note 6 to the Financial
Statements, did not have a significant effect on the Corporation's financial
statements.
Net credit losses were $39 million for the third quarter of 1995, and $125
million for the first nine months of 1995. This compares with $32 million for
the third quarter of 1994, and $94 million for the first nine months of 1994,
excluding $119 million of first quarter 1994 writedowns in connection with the
accelerated disposition portfolio. As a percentage of average loans and leases
on an annualized basis, net credit losses were .49% in the third quarter of
1995, compared with .57% for the second quarter of 1995, and .42% for the
third quarter of 1994. The increase in net credit losses from the 1994 nine-
month period was mainly due to higher international credit losses, principally
resulting from the Argentine consumer portfolio and a charge-off of an
Australian credit, and higher domestic commercial and industrial credit
losses. In addition, there was an overall lower level of recoveries.
Net credit losses are as follows:
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------- -------------
1995 1994 1995 1994*
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Domestic:
Commercial, industrial and financial........ $ 6 $ 6 $ 24 $10
Commercial real estate...................... 5 7 25 25
Consumer-related loans:
Secured by 1-4 family residential
properties............................... 5 2 12 7
Other..................................... 11 10 29 30
------ ------ ------ -----
27 25 90 72
------ ------ ------ -----
International................................. 12 7 35 22
------ ------ ------ -----
Total................................... $39 $32 $125 $94
====== ====== ====== =====
</TABLE>
- --------
* Excludes credit losses in connection with assets transferred to the
accelerated disposition portfolio.
27
<PAGE>
CROSS-BORDER OUTSTANDINGS
At September 30, 1995 and December 31, 1994, total cross-border outstandings
represented 15% of consolidated total assets. Cross-border outstandings to
emerging market countries were approximately 9% for both periods. In
accordance with bank regulatory rules, cross-border outstandings are 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. Excluded from cross-border outstandings for a given country
are:
. Local currency assets funded with U.S. dollars or other non-local
currency where the provider of funds agrees that, in the event their
claim cannot be repaid in the designated currency due to currency
exchange restrictions in a given country, they will either accept payment
in local currency or wait to receive the non-local currency until such
time as it becomes available. At September 30, 1995, such transactions
related to emerging markets countries totaled $1.2 billion compared with
$0.9 billion at December 31, 1994.
. Local currency outstandings funded with local currency.
. U.S. dollar or other non-local currency outstandings reallocated as a
result of external guarantees and cash collateral
. U.S. dollar or other non-local currency outstandings reallocated as
result of insurance contracts, primarily issued by United States
government agencies
Cross-border outstandings in countries which individually amounted to 1.0%
or more of consolidated total assets at September 30, 1995 and December 31,
1994, were approximately as follows:
<TABLE>
<CAPTION>
CONSOLIDATED PERCENTAGE OF
PUBLIC BANKS OTHER TOTAL TOTAL ASSETS COMMITMENTS(2)
------ ----- ------ ------------ ------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1995(1)
Argentina............... $385 $ 50 $1,615 $2,050 4.5% $ 40
Brazil.................. 10 30 815 855 1.9 45
Chile................... 115 145 375 635 1.4 10
United Kingdom.......... 60 500 560 1.2 125
DECEMBER 31, 1994(1)
Argentina............... $305 $ 40 $1,525 $1,870 4.2% $ 95
Brazil.................. 5 795 800 1.8 30
Chile................... 115 90 290 495 1.1 35
United Kingdom.......... 5 595 600 1.3 115
</TABLE>
- --------
(1) There were no countries in which cross-border outstandings fell within
.75% and 1% of consolidated total assets at September 30, 1995 or December
31, 1994.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.
In accordance with the regulatory definition of cross-border outstandings,
included in Argentine cross-border outstandings are approximately $1 billion
of Argendollar outstandings at September 30, 1995 and December 31, 1994.
Argendollar outstandings are U.S. dollar claims from Argentine customers
payable to the Corporation in Argentina which are funded entirely by U.S.
dollars borrowed in Argentina.
EMERGING MARKETS COUNTRIES
At September 30, 1995, approximately $4.2 billion of the Corporation's
cross-border outstandings were to emerging markets countries, of which
approximately 82% were loans. These cross-border outstandings were mainly
comprised of short-term trade credits, non-trade-related loans and leases not
subject to country debt rescheduling agreements and capital investments in
branches and subsidiaries.
28
<PAGE>
Approximately $4.0 billion of the cross-border outstandings to emerging
markets countries were to Argentina, Brazil, Chile, Colombia, Mexico and
Uruguay, six countries in which the Corporation maintains branches and/or
subsidiaries. At September 30, 1995, cross-border outstandings to Colombia,
Mexico and Uruguay were $120 million, $130 million and $240 million,
respectively. The Corporation's Mexican subsidiary bank commenced operations
in October.
Changes in aggregate cross-border outstandings to Argentina and Brazil since
December 31, 1994 were approximately as follows:
<TABLE>
<CAPTION>
ARGENTINA BRAZIL
--------- ------
(IN MILLIONS)
<S> <C> <C>
Cross-border outstandings at December 31, 1994............. $1,870 $800
Change in non-trade-related loans and leases not subject to
country debt rescheduling................................. 34 92
Net change in trade-related cross-border outstandings,
primarily short-term...................................... 5 4
Net change in investment and trading securities............ 152 (35)
Net change in placements................................... (3)
Other...................................................... (8) (6)
------ ----
Cross-border outstandings at September 30, 1995............ $2,050* $855*
====== ====
</TABLE>
- --------
* Approximately 20% for Argentina and 46% for Brazil are trade-related.
As noted above, a significant portion of the Corporation's activities in
emerging markets countries are conducted in Argentina and Brazil. During the
third quarter, Argentina's economy experienced an increase in overall
financial system liquidity. This was caused, in part, by government actions to
delay the implementation of certain reserve requirements to spur economic
development and by an agreement with the International Monetary Fund that
relaxed certain fiscal targets. The Corporation's Argentine loan and deposit
levels remained stable compared to the prior quarter while spreads declined
slightly reflecting the drop in interest rates. The Corporation's Argentine
bond portfolio increased by $160 million from June 30, 1995, which was due to
a change in reserve requirements, which now can be met using interest bearing
assets such as securities and to an increase in trading account securities.
The after-tax unrealized loss on the bond portfolio was $34 million at
September 30, 1995, $37 million at June 30, 1995, and $30 million at December
31, 1994. The Corporation continues to expect some additional deterioration in
credit quality and is closely monitoring the situation. If the actions
implemented by the Argentine government do not remain effective over time,
particularly with regard to liquidity, the Corporation's Argentine operations
could experience adverse effects including stress on local liquidity,
deterioration of credit quality, a further decline in the value of its bond
portfolio and declines in loan and deposit values.
As discussed previously, during the third quarter the Corporation announced
an agreement to purchase 93 branch offices and approximately $200 million in
assets and assume certain liabilities of BID, one of the largest financial
institutions offered for sale by the Central Bank in connection with the
current financial industry consolidation occurring in Argentina.
Brazil continued to implement measures related to its July 1994 economic
plan aimed at controlling inflation, which declined slightly during the third
quarter, and local liquidity. During the quarter, the exchange rate fluctuated
within the government's targeted band of .93 to .99 Brazilian reals per U.S.
dollar, and the high real interest rate environment prevailed. In addition,
certain local banks experienced a deterioration in their financial condition
which has not significantly impacted the Corporation's operations. The
Corporation's Brazilian operations experienced an increase in loan levels and
spreads from the second quarter of 1995. The Corporation continues to monitor
and evaluate the Brazilian economic program as it evolves and will adjust its
strategy as deemed appropriate. It is not possible to predict what effect the
economic program or further deterioration in the financial condition of
certain local banks will ultimately have on the Corporation.
29
<PAGE>
During the third quarter of 1995, a number of the Corporation's operations
located in Latin America continued to structure their balance sheets to take
positions in their local currencies. The Corporation's Argentine operations
had an average currency position of $68 million during the quarter compared to
an average of $14 million in the second quarter. This position resulted from
funding local currency assets with U.S. dollars. The average positions
maintained by the Corporation's other Latin American operations were not
significant during the quarter. These positions continue to be subject to
limits established by the Corporation's ALCO, with the amount of, and
compliance with, the limits subject to regular review. For additional
information related to the Corporation's Latin American balance sheet currency
positions, see page 43 of the Corporation's Annual Report to Stockholders,
which is incorporated by reference in its 1994 Annual Report on Form 10-K.
It is expected that the economic situation in Latin America, including the
effects of world financial markets on these economies, will continue to be
unsettled. The Corporation, however, has not experienced any collection
problems as a result of currency restrictions or foreign exchange liquidity
problems on its current portfolio of cross-border outstandings to emerging
markets countries. The Corporation will continue to monitor the economic
situation in Latin America and also its effect on those countries in which it
has local operations, cross-border outstandings and, where applicable,
currency positions. Each emerging markets country is at a different stage of
development with a unique set of economic fundamentals, therefore, it is not
possible to predict what effect the economic situation in Latin America will
ultimately have on the economies of these countries or on the Corporation's
results of operations. For additional information related to the Corporation's
Latin American cross-border outstandings, see pages 12 and 13 of the
Corporation's Annual Report on Form 10-K as well as pages 41 through 44 of the
Corporation's Annual Report to Stockholders, which is incorporated by
reference in that Form 10-K.
----------------
The Corporation's results of operations continue to be affected by the
economies of the United States and New England. Management, however, cannot
currently predict to what extent changes in the condition of the domestic
economic recovery or future interest rate changes will affect future periods.
In addition, it is uncertain what impact future changes in the economies in
Latin America and other foreign countries where the Corporation does business
will have on future periods. No assurance, therefore, can be given that the
results reported during the first nine months of 1995 will continue.
30
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
31
<PAGE>
CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER
LAST NINE QUARTERS
<TABLE>
<CAPTION>
1993 1994 1995
--------------- ------------------------------- -------------------------
3 4 1 2 3 4 1 2 3
------- ------- ------- ------- ------- ------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing
deposits in other
banks.................. $ 1,305 $ 1,185 $ 1,083 $ 902 $ 1,131 $ 1,062 $ 1,262 $ 1,309 $ 1,249
Federal funds sold and
securities purchased
under agreements to
resell................. 1,367 2,005 2,447 3,485 2,595 1,711 1,364 1,166 824
Trading securities...... 300 259 452 402 618 750 694 787 867
Loans held for sale..... 1,334 1,314 960 824 651 315 256 254 478
Securities.............. 3,561 3,194 2,945 3,164 3,489 4,435 4,288 4,526 4,824
Loans and lease
financing.............. 26,953 28,172 28,615 29,105 30,362 31,076 30,123 30,928 31,625
------- ------- ------- ------- ------- ------- -------- ------- --------
Total earning assets.. 34,820 36,129 36,502 37,882 38,846 39,349 37,987 38,970 39,867
Other assets............ 4,248 4,274 4,712 4,820 5,079 5,051 4,858 5,131 5,318
------- ------- ------- ------- ------- ------- -------- ------- --------
TOTAL ASSETS............ $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $ 42,845 $44,101 $ 45,185
======= ======= ======= ======= ======= ======= ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing.... $ 4,578 $ 4,863 $ 4,633 $ 4,403 $ 4,477 $ 4,701 $ 4,194 $ 4,196 $ 4,291
Interest bearing....... 18,360 18,096 17,110 16,672 17,309 17,388 15,827 16,228 16,686
Overseas offices:
Noninterest bearing.... 387 469 497 393 415 481 415 416 501
Interest bearing....... 5,218 5,819 6,375 6,764 7,703 7,875 8,318 7,967 7,790
------- ------- ------- ------- ------- ------- -------- ------- --------
Total deposits........ 28,543 29,247 28,615 28,232 29,904 30,445 28,754 28,807 29,268
Federal funds purchased
and repurchase
agreements............. 3,430 3,787 3,619 4,014 3,728 3,333 3,699 3,896 3,310
Other funds borrowed.... 1,485 1,603 2,411 4,124 3,633 3,861 3,585 4,278 5,369
Notes payable........... 1,752 1,876 2,194 1,957 1,987 2,141 2,133 2,062 2,065
Other liabilities....... 1,085 1,073 1,433 1,404 1,625 1,491 1,467 1,661 1,643
Stockholders' equity.... 2,773 2,817 2,942 2,971 3,048 3,129 3,207 3,397 3,530
------- ------- ------- ------- ------- ------- -------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $39,068 $40,403 $41,214 $42,702 $43,925 $44,400 $ 42,845 $44,101 $ 45,185
======= ======= ======= ======= ======= ======= ======== ======= ========
</TABLE>
32
<PAGE>
CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS
LAST NINE QUARTERS
<TABLE>
<CAPTION>
1993 1994 1995
------------- ---------------------------- --------------------
3 4 1 2 3 4 1 2 3
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST REVENUE: $340.8 $349.3 $340.7 $374.5 $423.9 $433.4 $425.9 $434.1 $439.4
Taxable equivalent
adjustment............. 2.3 2.0 1.5 1.5 1.3 2.7 1.4 1.9 1.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Total net interest
revenue................ 343.1 351.3 342.2 376.0 425.2 436.1 427.3 436.0 440.9
Provision for credit
losses................. 10.0 10.0 45.0 25.0 25.0 35.0 90.0 40.0 45.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue
after provision for
credit losses.......... 333.1 341.3 297.2 351.0 400.2 401.1 337.3 396.0 395.9
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST INCOME:
Financial service fees.. 90.9 95.2 92.4 93.9 104.3 105.5 105.6 113.3 117.6
Trust and agency fees... 43.1 45.5 47.7 50.3 50.6 53.1 52.7 57.2 58.2
Trading profits and
commissions............ 6.9 3.9 3.9 1.2 10.9 (.1) 1.1 6.1 6.6
Securities portfolio
gains, net............. 11.0 8.8 3.9 5.9 1.3 2.5 6.1 .2 .8
Other income............ 39.3 35.6 87.2 41.0 35.1 37.6 127.7 59.3 65.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
income................ 191.2 189.0 235.1 192.3 202.2 198.6 293.2 236.1 248.6
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST EXPENSE:
Salaries................ 160.4 153.3 157.8 161.5 168.1 177.8 176.4 179.6 191.1
Employee benefits....... 32.2 32.7 36.9 37.0 38.6 35.1 40.4 40.9 41.5
Occupancy expense....... 32.2 31.3 31.9 33.1 35.2 34.4 34.9 34.4 35.6
Equipment expense....... 23.3 23.4 23.6 23.4 24.2 24.9 24.1 25.7 25.2
Acquisition-related
charges................ 85.0 16.4 5.0
Other expense........... 107.1 105.9 96.5 101.0 107.2 109.7 107.4 111.5 99.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
expense............... 440.2 346.6 346.7 372.4 378.3 381.9 383.2 392.1 393.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes and extraordinary
item................... 84.1 183.7 185.6 170.9 224.1 217.8 247.3 240.0 251.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes.................. 40.4 79.2 81.4 74.9 98.8 94.3 120.6 104.8 109.9
Taxable equivalent
adjustment............. 2.3 2.0 1.5 1.5 1.3 2.7 1.4 1.9 1.5
------ ------ ------ ------ ------ ------ ------ ------ ------
42.7 81.2 82.9 76.4 100.1 97.0 122.0 106.7 111.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
extraordinary item..... 41.4 102.5 102.7 94.5 124.0 120.8 125.3 133.3 139.9
Extraordinary item...... (6.6)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME.............. $ 41.4 $102.5 $ 96.1 $ 94.5 $124.0 $120.8 $125.3 $133.3 $139.9
====== ====== ====== ====== ====== ====== ====== ====== ======
PER COMMON SHARE:
Income before
extraordinary item:
Primary................ $ .30 $ .88 $ .88 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11 $ 1.17
Fully diluted.......... .30 .85 .85 .77 1.04 1.01 1.04 1.10 1.15
Net Income:
Primary................ $ .30 $ .88 $ .82 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11 $ 1.17
Fully diluted.......... .30 .85 .79 .77 1.04 1.01 1.04 1.10 1.15
Cash dividends declared. .10 .10 .22 .22 .22 .27 .27 .27 .37
</TABLE>
33
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, 1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with
Other Banks U.S..................... $ 155 $ 3 6.66%
International........... 1,094 42 15.19
------- ------
Total................. 1,249 45 14.13
------- ------ -----
Federal Funds Sold and Resale
Agreements U.S..................... 233 3 5.87
International........... 591 68 45.62
------- ------
Total................. 824 71 34.40
------- ------ -----
Trading Securities U.S..................... 154 2 6.10
International........... 713 59 32.41
------- ------
Total................. 867 61 27.74
------- ------ -----
Loans Held for Sale U.S..................... 478 9 7.08
------- ------ -----
Securities U.S.
Available for sale(2).. 2,553 41 6.40
Held to maturity....... 1,585 27 6.71
International
Available for sale(2).. 462 15 11.61
Held to maturity....... 224 6 9.70
------- ------
Total................. 4,824 89 7.33
------- ------ -----
Loans and Leases
(Net of Unearned Income) U.S..................... 23,730 524 8.76
International........... 7,895 316 15.90
------- ------
Total loans and lease
financing(3)............ 31,625 840 10.54
------- ------ -----
Earning assets.......... 39,867 1,115 11.09
------- ------ -----
Nonearning assets....... 5,318
-------
TOTAL ASSETS............ $45,185
=======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
34
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS--(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, 1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits.......................... $ 9,149 $ 66 2.87%
Time deposits............................. 7,537 110 5.79
International.............................. 7,790 225 11.44
------- ----
Total.................................... 24,476 401 6.50
------- ---- -----
Federal Funds Purchased
and
Repurchase Agreements U.S........................................ 3,150 37 4.61
International.............................. 160 10 24.40
------- ----
Total.................................... 3,310 47 5.57
------- ---- -----
Other Funds Borrowed U.S........................................ 4,539 71 6.21
International.............................. 830 116 55.70
------- ----
Total.................................... 5,369 187 13.86
------- ---- -----
Notes Payable U.S........................................ 1,862 33 7.08
International.............................. 203 6 11.00
------- ----
Total.................................... 2,065 39 7.47
------- ---- -----
Total interest bearing liabilities......... 35,220 674 7.59
------- ---- -----
Demand deposits U.S........................ 4,291
Demand deposits International.............. 501
Other noninterest bearing liabilities...... 1,643
Total Stockholders' Equity................. 3,530
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $45,185
-------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S........................................ $28,888 $323 4.43%
International.............................. 10,979 118 4.27
------- ----
Total.................................... $39,867 $441 4.39
======= ====
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
35
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with
Other Banks U.S..................... $ 144 $ 2 4.81%
International........... 987 36 14.76
------- ------
Total................. 1,131 38 13.50
------- ------ -----
Federal Funds Sold and Resale
Agreements U.S..................... 1,317 15 4.42
International........... 1,278 208 64.69
------- ------
Total................. 2,595 223 34.11
------- ------ -----
Trading Securities U.S..................... 242 4 5.71
International........... 376 26 27.75
------- ------
Total................. 618 30 19.12
------- ------ -----
Loans Held for Sale U.S..................... 651 10 6.17
------- ------ -----
Securities U.S.
Available for sale(2).. 1,300 19 5.83
Held to maturity....... 1,626 25 5.95
International...........
Available for sale(2).. 373 14 15.00
Held to maturity....... 190 4 8.35
------- ------
Total................. 3,489 62 7.00
------- ------ -----
Loans and Leases
(Net of Unearned Income) U.S..................... 23,431 463 7.84
International........... 6,931 259 14.81
------- ------
Total loans and lease
financing(3)............ 30,362 722 9.43
------- ------ -----
Earning assets.......... 38,846 1,085 11.08
------- ------ -----
Nonearning assets....... 5,079
-------
TOTAL ASSETS............ $43,925
=======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
36
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS--(CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S.
Savings deposits.......................... $ 9,897 $ 51 2.06%
Time deposits............................. 7,412 84 4.49
International.............................. 7,703 199 10.23
------- ----
Total.................................... 25,012 334 5.30
------- ---- -----
Federal Funds Purchased
and
Repurchase Agreements U.S........................................ 3,596 36 3.94
International.............................. 132 17 50.98
------- ----
Total.................................... 3,728 53 5.61
------- ---- -----
Other Funds Borrowed U.S........................................ 2,506 31 4.91
International.............................. 1,127 211 74.37
------- ----
Total.................................... 3,633 242 26.46
------- ---- -----
Notes Payable U.S........................................ 1,836 28 6.01
International.............................. 151 3 7.76
------- ----
Total.................................... 1,987 31 6.14
------- ---- -----
Total interest bearing liabilities......... 34,360 660 7.62
---- -----
Demand deposits U.S........................ 4,477
Demand deposits International.............. 415
Other noninterest bearing liabilities...... 1,625
Total Stockholders' Equity................. 3,048
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $43,925
=======
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S........................................ $28,710 $319 4.41%
International.............................. 10,136 106 4.15
------- ----
Total.................................... $38,846 $425 4.34
======= ====
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
37
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with
Other Banks U.S..................... $ 215 $ 8 5.07%
International........... 1,059 169 21.26
------- -----
Total................. 1,274 177 18.53
------- ----- -----
Federal Funds Sold and Resale
Agreements U.S..................... 451 20 5.97
International........... 665 247 49.66
------- -----
Total................. 1,116 267 31.99
------- ----- -----
Trading Securities U.S..................... 192 9 6.34
International........... 591 136 30.67
------- -----
Total................. 783 145 24.71
------- ----- -----
Loans Held for Sale U.S..................... 330 17 6.94
------- ----- -----
Securities U.S.
Available for sale(2).. 2,327 116 6.67
Held to maturity....... 1,630 82 6.73
International
Available for sale(2).. 381 40 14.04
Held to maturity....... 210 15 9.55
------- -----
Total................. 4,548 253 7.45
------- ----- -----
Loans and Leases
(Net of Unearned Income) U.S..................... 23,195 1,531 8.82
International 7,702 865 15.02
------- -----
Total loans and lease
financing(3)............ 30,897 2,396 10.37
------- ----- -----
Interest-Earning Assets. 38,948 3,255 11.17
------- ----- -----
Non-Interest-Earning
Assets.................. 5,101
-------
TOTAL ASSETS............ $44,049
=======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
38
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S........................................
Savings deposits.......................... $ 8,831 $ 175 2.64%
Time deposits............................. 7,418 307 5.54
International.............................. 8,024 697 11.60
------- ------
Total.................................... 24,273 1,179 6.49
------- ------ -----
Federal Funds Purchased
and
Repurchase Agreements U.S........................................ 3,472 125 4.82
International.............................. 162 36 29.47
------- ------
Total.................................... 3,634 161 5.92
------- ------ -----
Other Funds Borrowed U.S........................................ 3,543 166 6.28
International.............................. 875 329 50.17
------- ------
Total.................................... 4,418 495 14.97
------- ------ -----
Notes Payable U.S........................................ 1,923 102 7.10
International.............................. 164 14 11.56
------- ------
Total.................................... 2,087 116 7.45
------- ------ -----
Total interest bearing Liabilities......... 34,412 1,951 7.58
------ -----
Demand deposits U.S........................ 4,228
Demand deposits International.............. 444
Other noninterest bearing liabilities...... 1,591
Total Stockholders' Equity................. 3,374
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $44,049
=======
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S........................................ $28,340 $ 975 4.60%
International.............................. 10,608 329 4.15
------- ------
Total.................................... $38,948 $1,304 4.48
======= ======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
39
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C>
ASSETS
Interest Bearing Deposits with
Other Banks U.S..................... $ 192 $ 5 3.93%
International........... 848 74 11.62
------- ------
Total................. 1,040 79 10.20
------- ------ -----
Federal Funds Sold and Resale
Agreements U.S..................... 1,495 44 3.89
International........... 1,346 412 40.95
------- ------
Total................. 2,841 456 21.44
------- ------ -----
Trading Securities U.S..................... 179 7 5.14
International........... 310 50 21.73
------- ------
Total................. 489 57 15.65
------- ------ -----
Loans Held for Sale U.S..................... 811 38 6.36
------- ------ -----
Securities U.S.
Available for sale(2).. 1,206 60 6.65
Held to maturity....... 1,467 59 5.39
International...........
Available for sale(2).. 320 36 14.92
Held to maturity....... 210 12 7.89
------- ------
Total................. 3,203 167 6.98
------- ------ -----
Loans and Leases
(Net of Unearned Income) U.S..................... 22,720 1,288 7.58
International........... 6,646 566 11.38
------- ------
Total loans and lease
financing(3)............ 29,366 1,854 8.44
------- ------ -----
Earning assets.......... 37,750 2,651 9.39
------- ------ -----
Nonearning assets....... 4,871
-------
TOTAL ASSETS............ $42,621
=======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
40
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits U.S........................................
Savings deposits.......................... $ 9,525 $ 140 1.97%
Time deposits............................. 7,506 250 4.46
International.............................. 6,951 425 8.17
------- ------
Total.................................... 23,982 815 4.55
------- ------ -----
Federal Funds Purchased
and
Repurchase Agreements U.S........................................ 3,559 97 3.63
International.............................. 228 48 28.21
------- ------
Total.................................... 3,787 145 5.11
------- ------ -----
Other Funds Borrowed U.S........................................ 2,211 80 4.87
International.............................. 1,180 375 42.48
------- ------
Total.................................... 3,391 455 17.95
------- ------ -----
Notes Payable U.S........................................ 1,920 83 5.75
International.............................. 125 10 10.77
------- ------
Total.................................... 2,045 93 6.06
------- ------ -----
Total interest bearing liabilities......... 33,205 1,508 6.07
------- ------ -----
Demand deposits U.S........................ 4,504
Demand deposits International.............. 435
Other noninterest bearing liabilities...... 1,488
Total Stockholders' Equity................. 2,989
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $42,621
=======
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S........................................ $28,071 $ 893 4.25%
International.............................. 9,679 250 3.46
------- ------
Total.................................... $37,750 $1,143 4.05
======= ======
</TABLE>
- --------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
41
<PAGE>
CHANGE IN NET INTEREST REVENUE--VOLUME AND RATE ANALYSIS
The following table presents, on a fully taxable equivalent basis, an
analysis of the effect on net interest revenue of volume and rate changes. The
change due to the volume/rate variance has been allocated to volume.
THIRD QUARTER 1995 COMPARED WITH THIRD QUARTER 1994
<TABLE>
<CAPTION>
INCREASE(DECREASE)
DUE TO CHANGE IN
---------------------
VOLUME RATE NET CHANGE
---------- --------- ----------
(IN MILLIONS)
<C> <S> <C> <C> <C>
Interest income:
Loans and lease financing U.S................ $ 7 $ 54 $ 61
International...... 38 19 57
----
Total............. 118
----
Other earnings assets U.S................ (3) 13 10
International...... (6) (92) (98)
----
Total............. (88)
----
Total interest income 29 1 30
Total interest expense 17 (3) 14
----
Net interest revenue $ 16
====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1994
<TABLE>
<CAPTION>
INCREASE(DECREASE)
DUE TO CHANGE IN
--------------------
VOLUME RATE NET CHANGE
---------- --------- ----------
(IN MILLIONS)
<C> <S> <C> <C> <C>
Interest income:
Loans and lease financing U.S................. $ 32 $ 211 $ 243
International....... 118 181 299
-----
Total.............. 542
-----
Other earnings assets U.S................. (10) 49 39
International....... (26) 49 23
-----
Total.............. 62
-----
Total interest income 101 503 604
Total interest expense 60 383 443
-----
Net interest revenue $ 161
=====
</TABLE>
42
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
("Bancorp") and certain Bancorp directors. 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 Corporation proposed acquisition of
Bancorp was announced, and sought an injunction with respect to the
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 appealed that decision to the Delaware Supreme
Court and in December 1994, the Delaware Supreme Court issued a decision,
which affirmed, in part, and reversed, in part, the Chancery Court's decision.
The Delaware Supreme Court remanded the case to the Chancery Court for a
determination of certain issues. On January 23, 1995, the defendants filed a
motion for summary judgment with the Chancery Court and on June 15, 1995, the
Court granted summary judgment in favor of the defendants on all claims except
for an aiding and abetting claim against the Corporation on which no summary
judgment motion has yet been filed. The Chancery Court also denied plaintiff's
motion for rehearing. Following the entry of an Order of Final Judgment by the
Chancery Court, the plaintiff appealed the June 15, 1995 opinion to the
Delaware Supreme Court. The parties are currently briefing the appeal.
As previously reported, in 1990 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 on July 14, 1995 filed a motion for summary judgment. The
plaintiff has filed its opposition to summary judgment, but the court has not
yet rendered a decision.
ITEM 5. OTHER INFORMATION.
On October 10, 1995, the Corporation announced that it had reached a
definitive agreement to acquire The Boston Bancorp ("Bancorp"), including its
state-chartered subsidiary, South Boston Savings Bank ("SBSB"). Under the
terms of the agreement, the Corporation will pay a premium of approximately
$40 million over the adjusted net book value of Bancorp at the time of
closing. The purchase price will be paid in common stock of the Corporation,
valued at the time of closing, and the Corporation expects to buy back
sufficient shares of its common stock in the open market to cover the shares
to be issued in the transaction. Prior to closing, SBSB will convert into cash
equivalents most of its assets, including the majority of its investment
portfolio and its commercial real estate portfolio. SBSB had approximately $2
billion in assets, $1.3 billion in deposits and 7 branches at September 30,
1995. The transaction has been approved by the boards of directors of both
companies. The transaction is subject to the approval of Bancorp's
shareholders, the Office of the Comptroller of the Currency (the "OCC") and
the Board of Bank Incorporation of the Commonwealth of Massachusetts. The
transaction may not be consummated until the 30th day after OCC approval is
received, during which time the United States Department of Justice has
jurisdiction to challenge the transaction on antitrust grounds. The
Corporation's objective is to consummate the transaction by the middle of
1996, although no assurances can be given that the requisite shareholder or
regulatory approvals will be granted or, if granted, that such approvals will
be received within these time frames.
43
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11 Computation of Earnings Per Share.
12(a) -- Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (excluding interest on deposits).
12(b) -- Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (including interest on deposits).
27 -- Financial Data Schedule
(b) Current Reports on Form 8-K.
During the third quarter of 1995, the Corporation filed one Current Report on
Form 8-K, dated July 20, 1995, which contained information pursuant to Items 5
and 7 of Form 8-K. The Corporation also filed a Current Report on Form 8-K,
dated October 19, 1995, which contained information pursuant to Items 5 and 7
of Form 8-K.
44
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Bank of Boston Corporation
/s/ Charles K. Gifford
_____________________________________
CHARLES K. GIFFORD CHAIRMAN OF THE
BOARD OF DIRECTORS, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/s/ William J. Shea
_____________________________________
WILLIAM J. SHEA VICE CHAIRMAN,
CHIEF FINANCIAL OFFICER AND
TREASURER
Date: November 14, 1995
45
<PAGE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS
1. Net income............................... $140 $124 $399 $315
2. Less: Preferred dividends................ 9 9 28 28
------- ------- -------- --------
3. Net income applicable to primary earnings
per common share.......................... 131 115 371 287
4. Add: Interest expense on convertible
debentures, net of tax.................... 1 3
------- ------- -------- --------
5. Net income applicable to fully diluted
earnings per common share................. $131 $116 $371 $290
======= ======= ======== ========
SHARES (in thousands)
6. Weighted average number of common shares
outstanding............................... 111,865 106,981 110,188 106,602
7. Incremental shares from assumed exercise
of dilutive stock options as of the
beginning of the period using the treasury
stock method.............................. 1,938 680 2,089 759
8. Incremental shares from assumed
conversion of debentures at date of
issuance.................................. 4,029 1,181 4,030
------- ------- -------- --------
9. Adjusted number of common shares......... 113,803 111,690 113,458 111,391
======= ======= ======== ========
PER SHARE CALCULATION
10. Primary net income per common share (Item
3 / Item 6)............................... $1.17 $1.07 $3.36 $2.69
11. Fully diluted net income per common share
(Item 5 / Item 9)......................... $1.15 $1.04 $3.27 $2.60
</TABLE>
Note--Income per common share before extraordinary items, net of tax, on
both a primary and fully diluted basis for the nine months ended September 30,
1994 is computed by adding $7 million to the numerator.
<PAGE>
EXHIBIT 12(A)
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 nine months ended September 30, 1995 and 1994 and for the
five years ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- -------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ---- ---- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).............. $ 399 $ 315 $ 435 $299 $279 $(113) $(468)
Extraordinary items, net of
tax........................... 7 7 (73) (8) (44)
Cumulative effect of changes in
accounting principles, net of
tax........................... (24)
Income tax expense (benefit)... 335 254 349 215 153 (58) 3
------ ------ ------ ---- ---- ----- -----
Pretax earnings (loss)........ $ 734 $ 576 $ 791 $490 $359 $(179) $(509)
------ ------ ------ ---- ---- ----- -----
Fixed charges:
Portion of rental expense (net
of sublease rental income)
which approximates the
interest factor.............. 21 20 27 27 28 30 39
Interest on borrowed funds..... 772 693 998 378 345 362 592
------ ------ ------ ---- ---- ----- -----
Total fixed charges........... 793 713 1,025 405 373 392 631
====== ====== ====== ==== ==== ===== =====
Earnings (for ratio
calculation).................. $1,527 $1,289 $1,816 $895 $732 $ 213 $ 122
====== ====== ====== ==== ==== ===== =====
Total fixed charges............ $ 793 $ 713 $1,025 $405 $373 $ 392 $ 631
====== ====== ====== ==== ==== ===== =====
Ratio of earnings to fixed
charges....................... 1.93 1.81 1.77 2.21 1.96 .54 .19
====== ====== ====== ==== ==== ===== =====
</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. For the
years ended December 31, 1991 and 1990, earnings were insufficient to cover
fixed charges. Additional earnings necessary for the years ended December 31,
1991 and 1990 to bring the ratios of earnings to fixed charges to one-to-one
basis are $179 million and $509 million, respectively.
<PAGE>
EXHIBIT 12(B)
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 nine months ended September 30, 1995 and 1994 and for the
five years ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- -------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........ $ 399 $ 315 $ 435 $ 299 $ 279 $ (113) $ (468)
Extraordinary items, net
of tax.................. 7 7 (73) (8) (44)
Cumulative effect of
changes in accounting
principles, net of tax.. (24)
Income tax expense
(benefit)............... 335 254 349 215 153 (58) 3
------ ------ ------ ------ ------ ------ ------
Pretax earnings (loss).. $ 734 $ 576 $ 791 $ 490 $ 359 $ (179) $ (509)
------ ------ ------ ------ ------ ------ ------
Fixed charges:
Portion of rental
expense (net of
sublease rental income)
which approximates the
interest factor........ 21 20 27 27 28 30 39
Interest on borrowed
funds................... 772 693 998 378 345 362 592
Interest on deposits..... 1,179 815 1,148 1,016 1,407 1,808 2,420
------ ------ ------ ------ ------ ------ ------
Total fixed charges..... 1,972 1,528 2,173 1,421 1,780 2,200 3,051
====== ====== ====== ====== ====== ====== ======
Earnings (for ratio
calculation)............ $2,706 $2,104 $2,964 $1,911 $2,139 $2,021 $2,542
====== ====== ====== ====== ====== ====== ======
Total fixed charges...... $1,972 $1,528 $2,173 $1,421 $1,780 $2,200 $3,051
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges........... 1.37 1.38 1.36 1.34 1.20 .92 .83
====== ====== ====== ====== ====== ====== ======
</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. For the
years ended December 31, 1991 and 1990, earnings were insufficient to cover
fixed charges. Additional earnings necessary for the years ended December 31,
1991 and 1990 to bring the ratios of earnings to fixed charges to one-to-one
basis are $179 million and $509 million, respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,208
<INT-BEARING-DEPOSITS> 1,249
<FED-FUNDS-SOLD> 1,236
<TRADING-ASSETS> 594
<INVESTMENTS-HELD-FOR-SALE> 3,277
<INVESTMENTS-CARRYING> 1,765
<INVESTMENTS-MARKET> 1,787
<LOANS> 31,691
<ALLOWANCE> (704)
<TOTAL-ASSETS> 46,083
<DEPOSITS> 30,009
<SHORT-TERM> 6,700
<LIABILITIES-OTHER> 1,702
<LONG-TERM> 2,059
<COMMON> 252
0
508
<OTHER-SE> 2,833
<TOTAL-LIABILITIES-AND-EQUITY> 46,083
<INTEREST-LOAN> 2,394
<INTEREST-INVEST> 250
<INTEREST-OTHER> 606
<INTEREST-TOTAL> 3,250
<INTEREST-DEPOSIT> 1,179
<INTEREST-EXPENSE> 1,951
<INTEREST-INCOME-NET> 1,299
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 312
<INCOME-PRETAX> 734
<INCOME-PRE-EXTRAORDINARY> 399
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399
<EPS-PRIMARY> 3.36
<EPS-DILUTED> 3.27
<YIELD-ACTUAL> 4.48
<LOANS-NON> 355
<LOANS-PAST> 8
<LOANS-TROUBLED> 27
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 680
<CHARGE-OFFS> (167)
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 704
<ALLOWANCE-DOMESTIC> 420
<ALLOWANCE-FOREIGN> 177
<ALLOWANCE-UNALLOCATED> 107
</TABLE>
