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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ___________ to __________
Commission file number: 1-6522
BANK OF BOSTON CORPORATION
(Exact name of Registrant as
specified in its charter)
Massachusetts 04-2471221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Federal Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (6l7) 434-2200
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
Title of each class
-------------------
Common Stock, par value $2.25 per share
Preferred Stock Purchase Rights
Adjustable Rate Cumulative Preferred Stock, Series A (liquidation preference $50
per share)
Adjustable Rate Cumulative Preferred Stock, Series B (liquidation preference $50
per share)
Adjustable Rate Cumulative Preferred Stock, Series C (liquidation preference
$100 per share)
Depositary Shares, each representing one-tenth of a share of 8.60% Cumulative
Preferred Stock, Series E (liquidation preference $25 per Depositary Share)
Depositary Shares, each representing one-tenth of a share of 7 7/8% Cumulative
Preferred Stock, Series F (liquidation preference $25 per Depositary Share)
Name of each exchange on which registered:
------------------------------------------
Each class is registered on the Boston Stock Exchange and on the New York Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act: None
-------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Aggregate market value of shares of common Number of shares of common
stock held by non-affiliates of Registrant as stock outstanding as of
of February 24, 1995 February 24, 1995
--------------------------------------------- --------------------------
$ 3,228,114,968 107,571,821
Documents Incorporated by Reference:
------------------------------------
1. Pertinent extracts from Registrant's 1994 Annual Report to Stockholders
(Parts I, II and IV).
2. Pertinent extracts from Registrant's Proxy Statement in connection with the
Registrant's 1995 Annual Meeting of Stockholders (Part III).
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INDEX
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<CAPTION>
Name of Item Page
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<S> <C> <C>
PART I
Item 1. Business............................................ 3
Statistical Disclosure by Bank Holding Companies.... 13
Item 2. Properties.......................................... 18
Item 3. Legal Proceedings................................... 18
Item 3A. Executive Officers of the Corporation............... 21
Item 4. Submission of Matters to a Vote
of Security Holders............................... 22
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................... 22
Item 6. Selected Financial Data............................. 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 22
Item 8. Financial Statements and Supplementary Data......... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 23
PART III
Item 10. Directors and Executive Officers of the Registrant.. 24
Item 11. Executive Compensation.............................. 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 24
Item 13. Certain Relationships and Related Transactions...... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K....................................... 25
SIGNATURES
Signatures.......................................... II-1
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PART I
Item 1. Business.
THE CORPORATION
Bank of Boston Corporation (the "Corporation") is a registered bank holding
company, organized in 1970 under Massachusetts law with both national and
international operations. Through its subsidiaries, the Corporation is engaged
in providing a wide variety of retail, corporate and international financial
services to individuals, corporate and institutional customers, governments and
other financial institutions. These services include retail banking, consumer
finance, private banking, trust, mortgage origination and servicing, domestic
corporate and investment banking, leasing, international banking, commercial
real estate lending, correspondent banking, and securities and payments
processing. The Corporation's principal subsidiary is The First National Bank
of Boston ("FNBB"), a national banking association with its headquarters in
Massachusetts. Other major banking subsidiaries of the Corporation are Bank of
Boston Connecticut ("BKB Connecticut") and Rhode Island Hospital Trust National
Bank ("Hospital Trust"). As previously reported, the Corporation entered into
agreements in June, 1994 for the sale of two of its subsidiaries, Bank of
Vermont and Casco Northern Bank, N.A. ("Casco"). The sales of Bank of Vermont
and Casco were completed on January 27, 1995 and February 16, 1995,
respectively.
As of December 31, 1994, approximately 77% of the Corporation's total
loan volume consisted of domestic loans and leases, with the balance overseas.
The Corporation's banking subsidiaries currently maintain 272 branches in
Massachusetts, Rhode Island and Connecticut. The Corporation, through its
subsidiaries, has a presence in 31 states of the United States and in 23 foreign
countries. As of December 31, 1994, the Corporation's subsidiaries employed, in
the aggregate, 18,355 full-time equivalent employees in their domestic and
foreign operations.
The executive office of the Corporation and the head office of FNBB
are located at 100 Federal Street, Boston, Massachusetts 02110 (Telephone (617)
434-2200).
BUSINESS OF THE CORPORATION
The Corporation's business is generally focused in the areas of
personal banking, corporate banking and global banking. The Corporation's
management is comprised of the Chairman's Office, which consists of Chairman and
Chief Executive Officer Ira Stepanian, President and Chief Operating Officer
Charles K. Gifford, Vice Chairman Edward A. O'Neal, and Vice Chairman, Chief
Financial Officer and Treasurer William J. Shea, and a Corporate Working
Committee. The Corporation's business is made up of core business units and
corporate-wide support areas, each led by an executive with authority to operate
and manage his or her respective area. These twenty-six executives, along with
the members of the Chairman's Office, comprise the Corporate Working Committee.
These core business and corporate wide support areas work closely with one
another and each is linked to one of the members of the Chairman's Office. For
discussions of the Corporation's business activities, including its lending
activities, its cross-border outstandings and the management of its off-balance
sheet exposure, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 31 through 53, including "Cross-Border
Outstandings" and "Emerging Markets Countries" on pages 41 through 44, and
"Interest Rate Risk Management" on pages 50 and 51, of the Corporation's 1994
Annual Report to Stockholders, which pages are included in Exhibit 13 hereto and
which discussions are incorporated herein by reference.
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Activities in which the Corporation and its subsidiaries are presently
engaged or which they may undertake in the future are subject to certain
statutory and regulatory restrictions. Banks and bank holding companies are
extensively regulated under both federal and state law. There are various legal
limitations upon the extent to which bank subsidiaries of the Corporation can
finance or otherwise supply funds to the Corporation or certain of its
affiliates. See "Supervision and Regulation."
For financial information on the Corporation's revenue, income and
average assets attributable to its domestic and international operations, see
"Segment Information" which appears in Note 26 to the Financial Statements and
"Cross-Border Outstandings" and "Emerging Markets Countries," which appear on
page 41 and pages 42 through 44, respectively, of the Corporation's 1994 Annual
Report to Stockholders, which pages are included in Exhibit 13 hereto and which
information is hereby incorporated by reference.
COMPETITION AND INDUSTRY CONSOLIDATION
The Corporation's subsidiaries compete with other major financial
institutions, including commercial banks, investment banks, mutual savings
banks, savings and loan associations, credit unions, consumer finance companies,
money market funds and other nonbank institutions, such as insurance companies,
major retailers, brokerage firms, and investment companies in New England,
throughout the United States, and internationally. Principal methods of
competing effectively in the financial services industry are to improve customer
service through the quality and range of services available, to improve
efficiencies and to price services competitively.
One outgrowth of the competitive environment discussed above has been
significant consolidation within the financial services industry both on a
national and regional level. The Corporation engages on an ongoing basis in
reviewing and discussing possible acquisitions of financial institutions and
banking and other assets, as well as reviewing and discussing possible strategic
partnerships and joint ventures, in order to expand its business and enhance
customer service incident to the implementation of its business strategy. In May
1994, the Corporation completed its acquisition of BankWorcester Corporation
("BankWorcester"), the holding company for Worcester County Institution for
Savings, which had approximately $1.5 billion in assets. In August 1994, the
Corporation completed its acquisition of Pioneer Financial, A Co-operative Bank
("Pioneer Bank"), based in Middlesex County, Massachusetts, which had
approximately $800 million in assets. On February 10, 1995, the Corporation
completed its acquisition of Ganis Credit Corporation ("Ganis"), a consumer
finance company based in California. Ganis, which had loan origination volume of
approximately $380 million in 1994, engages primarily in collateralized lending
for recreational vehicles and boats. The Corporation intends to continue to
explore opportunities as they arise in order to take advantage of the continuing
consolidation in the financial services industry and improve service to its
customers.
In September 1994, federal legislation was enacted which permits
certain interstate banking transactions. It is anticipated that this
legislation may facilitate consolidation within financial institutions that
currently have separate operations in two or more states and in the financial
services industry. See "Supervision and Regulation" for a discussion of the
impact of this and other legislation upon the Corporation and its subsidiaries.
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SUPERVISION AND REGULATION
The business in which the Corporation and its subsidiaries are engaged
is subject to extensive supervision, regulation and examination by various bank
regulatory authorities and other agencies of federal and state governments. The
supervision, regulation and examination to which the Corporation and its
subsidiaries are subject are often intended by the regulators primarily for the
protection of depositors or are aimed at carrying out broad public policy goals
rather than for the protection of security holders.
Several of the more significant regulatory provisions applicable to
banks and bank holding companies to which the Corporation and its subsidiaries
are subject are discussed below along with certain regulatory matters concerning
the Corporation and its bank subsidiaries. To the extent that the following
information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory provisions. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Corporation and its subsidiaries.
The Corporation
The Corporation, as a bank holding company under the Bank Holding
Company Act of 1956, as amended, (the "BHCA"), is registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and is
regulated under the provisions of the BHCA. The BHCA requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
it may acquire substantially all of the assets of any bank, or ownership or
control of any voting shares of any bank, if, after such acquisition, it would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank.
Under the BHCA, the Corporation is prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank and from engaging in
any business other than that of banking, managing or controlling banks or
furnishing services to, or acquiring premises for, its affiliated banks. The
Corporation may, however, engage in, and own voting shares of companies engaging
in certain activities determined by the Federal Reserve Board, by order or by
regulation, to be so closely related to banking or to managing or controlling
banks "as to be a proper incident thereto." The location of such "nonbank"
subsidiaries of the Corporation is not restricted geographically under the BHCA.
The Corporation is required by the BHCA to file with the Federal Reserve Board
periodic reports and such additional reports as the Federal Reserve Board may
require. The Federal Reserve Bank of Boston (the "Federal Reserve") performs
examinations of the Corporation and certain of its subsidiaries.
Since the Corporation is also a bank holding company under the laws of
Massachusetts, the Commissioner of Banks for The Commonwealth of Massachusetts
(the "Massachusetts Commissioner") has authority to require certain reports from
the Corporation from time to time and to examine the Corporation and each of its
subsidiaries other than national banking associations. Prior approval of the
Massachusetts Board of Bank Incorporation (the "BBI") also may be required
before the Corporation may acquire any additional commercial banks located in
Massachusetts. Acquisitions by the Corporation of non-Massachusetts banks or
bank holding companies may be subject to the prior approval by both the
Massachusetts and the applicable state or federal banking regulators.
Massachusetts has an interstate bank acquisition law which permits banking
organizations outside Massachusetts to acquire Massachusetts banking
organizations if the state law of the acquirer permits acquisitions of banking
organizations in that state by Massachusetts-based banking organizations.
Legislation
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has been proposed in Massachusetts to provide for an early opt-in to the federal
interstate banking legislation. See "Legislation" below with respect to the
federal interstate banking legislation enacted in 1994.
Massachusetts has a business combinations law which provides that if
any acquirer buys 5% or more of a target company's stock without the prior
approval of the target company's board of directors, it generally may not (i)
complete the acquisition through a merger, (ii) pledge or sell any assets of the
target company, or (iii) engage in other self-dealing transactions with the
target company for a period of three years. The prior board approval requirement
does not apply if the acquirer buys at least 90% of the target company's
outstanding stock in the transaction in which it crosses the 5% threshold or if
the acquirer, after crossing the threshold, obtains the approval of the target
company's board of directors and two-thirds of the target company's stock held
by persons other than the acquirer. This legislation automatically applies to
Massachusetts corporations, including the Corporation, which did not elect to
"opt out" of the statute. Massachusetts law also provides for classified boards
of directors for most public companies incorporated in Massachusetts, unless the
company elected to "opt out" of the law. As a result of this law, the
Corporation's Board of Directors is divided into three classes of Directors and
the three-year terms of the classes are staggered.
Other Massachusetts legislation exists which is intended to provide
limited anti-takeover protection to certain Massachusetts corporations by
preventing an acquirer of certain percentages of such corporation's stock from
obtaining voting rights in such stock unless the corporation's other
stockholders authorize such voting rights. The legislation automatically
applies to certain Massachusetts corporations which have not elected to "opt
out" of the statute. The Corporation, by vote of its Board of Directors, has
"opted out" of the statute's coverage.
In June 1990, the Board of Directors of the Corporation adopted a
stockholder rights plan providing for a dividend of one preferred stock purchase
right for each outstanding share of common stock of the Corporation (the
"Rights"). Under certain circumstances, the Rights would enable stockholders to
purchase common stock of the Corporation or of an acquiring Corporation at a
substantial discount. The dividend was distributed on July 12, 1990 to
stockholders of record on that date. Holders of shares of the Corporation's
common stock issued subsequent to that date receive the Rights with their
shares. The Rights trade automatically with shares of the Corporation's common
stock and become exercisable only under certain circumstances.
The purpose of the Rights is to encourage potential acquirers to
negotiate with the Corporation's Board of Directors prior to attempting a
takeover and to provide the Board with leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights may have certain
anti-takeover effects. The Rights should not interfere, however, with any
merger or other business combination approved by the Board of Directors. For a
further discussion of the Corporation's stockholder rights plan, see the
description of the Rights set forth in the Corporation's registration statement
on Form 8-A relating to the Rights (including the Rights Agreement, dated as of
June 28, 1990, between the Corporation and FNBB, as Rights Agent, which is
attached as an exhibit to the Form 8-A), which is incorporated herein by
reference.
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The Corporation's Bank Subsidiaries
General
The Corporation's bank subsidiaries that are national banks are
subject to the supervision of, and are regularly examined by the Office of the
Comptroller of the Currency (the "OCC"). The Corporation's state-chartered bank
subsidiary is subject to the supervision of, and is regularly examined by, the
Federal Deposit Insurance Corporation (the "FDIC") as well as by its state
regulator. The Corporation's subsidiary banks' domestic deposits are insured by
the Bank Insurance Fund of the FDIC to the extent allowed by law and,
accordingly, the banks are subject to the regulations of the FDIC. As members
of the Federal Reserve System, the nationally chartered banks are also subject
to regulation by the Federal Reserve Board. Hospital Trust, as a member of the
Federal Home Loan Bank of Boston, is also subject to the regulations of the
Federal Housing Finance Board.
FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a bank can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled bank or (ii) any assistance provided by the
FDIC to a commonly controlled bank in danger of default. The term "default" is
defined as the appointment of a conservator or receiver for such bank and "in
danger of default" as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance. In
addition, FIRREA broadened the enforcement powers of the federal banking
agencies, including the power to impose fines and penalties over all financial
institutions. Further, under FIRREA the failure to meet capital guidelines
could subject a financial institution to a variety of regulatory actions,
including the termination of deposit insurance by the FDIC.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") also provides for expanded regulation of financial institutions.
Under FDICIA, banks are placed in one of five capital categories, ranging from
"well-capitalized" to "critically undercapitalized," for which the federal
banking agencies have established specific capital ratio levels. Pursuant to
the agencies' regulations, an institution is considered "well capitalized" if it
has a total risk-based capital ratio of at least 10%, a tier 1 risk-based
capital ratio of at least 6%, a leverage capital ratio of at least 5% and is not
subject to a cease and desist order, formal agreement, capital directive, or
prompt corrective action directive that requires it to achieve or maintain a
higher level of capital. At December 31, 1994, all of the Corporation's banking
subsidiaries satisfied the requirements of the "well capitalized" category. The
capital categories of the Corporation's bank subsidiaries are determined solely
for purposes of applying FDICIA's provisions, and such capital categories
may not constitute an accurate representation of the overall financial condition
or prospects of any of the Corporation's bank subsidiaries.
FDICIA imposes significant operational and management restrictions on
banks that are not considered at least "adequately capitalized". Under FDICIA, a
bank in the "undercapitalized" category must submit a capital restoration plan
guaranteed by its parent company and is subject to limitations in numerous areas
including, but not limited to: asset growth; acquisitions; branching; new
business lines; acceptance of brokered deposits; and borrowings from the Federal
Reserve. Progressively more burdensome restrictions are applied to banks in the
"significantly undercapitalized" or "critically undercapitalized" categories. In
addition, a bank's primary federal banking agency may downgrade the bank's
capital category to the next lower category if the agency determines that the
bank is in an unsafe or unsound condition or engaged in an
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unsafe or unsound practice. An unsafe or unsound practice can include receiving
a rating on the bank's most recent examination of three or worse (on a scale of
1 (best) to 5 (worst)), with respect to its asset quality, management, earnings
or liquidity.
FDICIA and the regulations issued thereunder also have (i) placed
limitations on the use of brokered deposits by banks that are less than well
capitalized; (ii) established restrictions on the investments and activities of
state chartered banks; (iii) implemented uniform real estate lending rules; (iv)
prescribed standards to limit credit exposure risks between banks; (v) revised
risk-based capital rules to include components related to interest rate risk;
(vi) amended various consumer banking laws; (vii) increased restrictions on
loans to a bank's insiders; (viii) established safety and soundness standards in
a number of areas; and (ix) implemented requirements with respect to independent
audits, audit committees and certain management reports related to financial
statements, internal controls and compliance with designated laws and
regulations.
Other Regulatory Restrictions
The FDIC's deposit insurance assessments have moved from a flat-rate
system to a risk-based system. The risk-based system places a bank in one of
nine risk categories, principally on the basis of its capital level and an
evaluation of the bank's risk to the Bank Insurance Fund, and bases premiums on
the probability of loss to the FDIC with respect to each individual bank.
During 1994, the FDIC's risk-based system provided that the highest and lowest
premiums assessable per $100 of insured deposits were $.31 and $.23,
respectively.
The Corporation's domestic subsidiary banks and the subsidiaries of
such banks are subject to a large number of other regulatory restrictions,
including certain restrictions upon: (i) any extensions of credit by such banks
to, from or for the benefit of the Corporation and the Corporation's nonbank
affiliates (collectively with the Corporation, the "Affiliates"), (ii) the
purchase of assets or services from or the sale of assets or the provision of
services to Affiliates, (iii) the issuance of a guarantee, acceptance or letter
of credit on behalf of or for the benefit of Affiliates, (iv) the purchase of
securities of which an Affiliate is a principal underwriter during the existence
of the underwriting and (v) investments in stock or other securities issued by
Affiliates or acceptance thereof as collateral for an extension of credit. The
Corporation and all of its subsidiaries, including FNBB, are also subject to
certain restrictions with respect to engaging in the issue, flotation,
underwriting, public sale or distribution of certain types of securities. In
addition, under both the BHCA and regulations which have been issued by the
Federal Reserve Board, the Corporation and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of any property or the furnishing of any service. In
operations in other countries, the Corporation and FNBB are also subject to
restrictions imposed by the laws and banking authorities of such countries.
The Corporation's bank subsidiaries are also required to maintain cash
reserves against deposits and are subject to restrictions, among others, upon
(i) the nature and amount of loans which they may make to a borrower; (ii) the
nature and amount of securities in which they may invest; (iii) the amount which
may be invested in bank premises; (iv) the geographic location of their
branches; and (v) the nature and extent to which they can borrow money.
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Dividends
The payment of dividends by the Corporation is determined by the Board
of Directors based on the Corporation's liquidity, asset quality profile,
capital adequacy, and recent earnings history, as well as economic conditions
and other factors, including applicable government regulations and policies and
the amount of dividends payable to the Corporation by its subsidiaries.
In 1994, the aggregate dividends declared by the Corporation on its
common and preferred stock were approximately $136 million. For each of the
first three quarters of 1994, a dividend of $.22 per share was declared and paid
on the Corporation's common stock. In the fourth quarter of 1994 and the first
quarter of 1995, the Corporation declared and paid a dividend on its common
stock of $.27 per share.
The Corporation is a legal entity separate and distinct from its
subsidiary banks and its other nonbank subsidiaries. The Corporation's revenues
(on a parent company only basis) result primarily from interest and dividends
paid to the Corporation by its subsidiaries. The right of the Corporation, and
consequently the right of creditors and stockholders of the Corporation, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to the
prior claims of creditors of the subsidiary (including depositors, in the case
of banking subsidiaries), except to the extent that claims of the Corporation in
its capacity as a creditor may be recognized.
It is the policy of the OCC and the Federal Reserve Board that banks
and bank holding companies, respectively, should pay dividends only out of
current earnings and only if after paying such dividends the bank or bank
holding company would remain adequately capitalized. Federal banking regulators
also have authority to prohibit banks and bank holding companies from paying
dividends if they deem such payment to be an unsafe or unsound practice. In
addition, it is the position of the Federal Reserve Board that a bank holding
company is expected to act as a source of financial strength to its subsidiary
banks.
Various federal and state laws, regulations and policies limit the
ability of the Corporation's subsidiaries to pay dividends to the Corporation.
Federal banking law requires the approval of the OCC if the aggregate total of
the dividends declared by any of the Corporation's national bank subsidiaries in
any calendar year will exceed the bank's net profits, as defined by applicable
regulation, for that year combined with retained net profits for the preceding
two years. Also, state law requires the approval of state bank regulatory
authorities if the dividends declared by state banks exceed similar prescribed
limits. In 1994, an aggregate of approximately $125 million of dividends were
declared and paid by three of the Corporation's bank subsidiaries and one
nonbank subsidiary. The payment of any future dividends by the Corporation's
subsidiaries will be determined based on a number of factors, including the
subsidiary's liquidity, asset quality profile, capital adequacy and recent
earnings history. See the related discussions set forth below in "Capital" and
"Legislation."
Capital
Information concerning the Corporation and its bank subsidiaries with
respect to capital is set forth under the caption "Capital Management" in the
Corporation's 1994 Annual Report to Stockholders on pages 52 and 53, which pages
are included in Exhibit 13 hereto and which discussion is incorporated herein by
reference. See also "Legislation" below and "Dividends" above.
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Legislation
In addition to extensive existing government regulation, federal and
state statutes and regulations can change in unpredictable ways, often with
significant effects on the way in which financial institutions may conduct
business. The enactment of banking legislation such as FIRREA and FDICIA has
affected the banking industry by, among other things, broadening the powers of
the federal banking agencies in a number of areas. Other legislation which has
been enacted in recent years has substantially increased the level of
competition among commercial banks, thrift institutions and non-banking
institutions, including insurance companies, brokerage firms, mutual funds,
investment banks and major retailers.
On September 23, 1994, the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "Development Act") was enacted. The Development
Act establishes financial and other assistance for entities involved primarily
in community development activities. The Development Act's provisions also make
changes in a number of areas including, among others: (i) increasing
restrictions on some types of high interest loans; (ii) improving small business
access to capital; (iii) requiring federal banking agencies to, among other
things, coordinate examinations and establish uniform regulations and guidelines
where appropriate; (iv) simplifying and expediting the processing and approvals
for certain applications; (v) clarifying the FDIC's powers as a conservator or
receiver; (vi) expanding the exemptions available to a holding company's
subsidiary banks with respect to FDICIA's audit requirements; (vii) adding
flexibility to FDICIA's safety and soundness standards by, among other things,
permitting their issuance as guidelines and allowing banking agencies more
discretion in handling noncompliance; (viii) amending certain requirements on
insider loans; (ix) modifying local residency requirements for national bank
directors; (x) limiting the applicability of certain real estate settlement
procedures; and (xi) extending some management interlocks exemptions.
On September 28, 1994, the Riegle-Neal Interstate Banking and
Branching Act of 1994 (the "Interstate Act") was enacted. The Interstate Act's
provisions, among other things: (i) permit bank holding companies to acquire
control of banks in any state beginning September 28, 1995, subject to (a)
specified maximum national and state deposit concentration limits; (b) any
applicable state law provisions requiring that the acquired bank has to have
been in existence for a specified period of up to 5 years; (c) any applicable
nondiscriminatory state provisions that make an acquisition of a bank contingent
upon a requirement to hold a portion of such bank's assets available for call by
a state sponsored housing entity; and (d) applicable anti-trust laws; (ii)
authorize interstate mergers by banks in different states, including branching
through bank mergers, beginning June 1, 1997, subject to the provisions noted in
(i) and to any state laws that opt in as of an earlier date or opt out of the
provision entirely; (iii) authorize states to enact legislation permitting
interstate de novo branching; and (iv) provide for certain additional
limitations on foreign bank activities.
The full impact of the Development Act and the Interstate Act will not
be completely known until the enactment and implementation by the various
federal banking agencies of the underlying regulations and actions required by
the Acts. However, it is anticipated that the Development Act may reduce
certain regulatory burdens on financial institutions and the Interstate Act may
facilitate consolidation within financial institutions that currently have
separate operations in two or more states and in the financial services
industry.
Additional legislation which is considered from time to time could
affect the business of the Corporation. See also "Supervision and Regulation --
the Corporation" discussed above.
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Regulatory Matters
During 1994, the remaining regulatory agreements between certain of
the Corporation's subsidiaries and their respective regulatory agencies were
terminated. Information on the agreements is set forth below.
As previously reported, in 1991, BKB Connecticut entered into a
stipulation and agreement with the Connecticut Banking Commissioner. The
agreement was terminated in July 1994 as a result of progress made by BKB
Connecticut in the areas addressed in the agreement.
As previously reported, in May and June of 1994, the Corporation
merged Mechanics Bank, South Shore Bank and Multibank West into FNBB. As a
result of those mergers, a 1992 memorandum of understanding between South Shore
Bank and the FDIC and the Massachusetts Commissioner and a 1991 order between
Multibank West and the FDIC ceased to be in effect.
As previously reported, in January 1994, the Securities and Exchange
Commission (the "Commission") commenced an administrative proceeding against the
Corporation. The administrative proceeding relates to the Commission's claim
that the Corporation's second quarter 1989 Form 10-Q did not disclose known
trends or uncertainties with respect to the Corporation's credit portfolio, and
specifically, its domestic commercial real estate portfolio. The Corporation
reported a significant loss in the third quarter of 1989 as a result of adding
to its reserve for credit losses, primarily due to deterioration in the credit
quality of its domestic commercial real estate portfolio. Management believes
that the disclosures made in its second quarter 1989 Form 10-Q were appropriate
and intends to defend the action vigorously. A hearing before an administrative
law judge was conducted in May 1994, and the parties subsequently filed post-
trial briefs. Although management cannot predict the outcome of this
proceeding, an unfavorable outcome will not result in any monetary penalties to
the Corporation.
GOVERNMENTAL POLICIES AND ECONOMIC CONDITIONS
The earnings and business of the Corporation and its subsidiaries are
affected by a number of external influences. The economic and political
conditions in which the Corporation and its subsidiaries operate can vary
greatly. Such conditions can include volatile foreign exchange markets and, in
certain countries, high rates of inflation and foreign exchange liquidity
problems. In 1994, the U.S. economy continued to grow at a strong pace.
Economic expansion in New England, though more moderate, also showed continued
momentum, and the Corporation experienced improved domestic loan demand over the
course of the past year. Since the state of the regional economy reflects
structural as well as cyclical forces, it is expected that New England will
continue to lag the nation in job growth, as it has since the late 1980's.
The Corporation's earnings and business are also affected by the
policies of various government and regulatory authorities in New England and
throughout the United States, as well as foreign governments and international
agencies, including, in the United States, the Federal Reserve Board. Important
functions of the Federal Reserve Board, in addition to those enumerated under
"Supervision and Regulation" above, are to regulate the supply of money and of
bank credit, to deal with general economic conditions within the United States
and to be responsive to international economic conditions. From time to time,
the Federal Reserve Board and the central banks of foreign countries have taken
specific steps to effect changes in the value of the United States dollar in
foreign currency markets as well as to control domestic
11
<PAGE>
inflation and to control the country's money supply. The instruments of monetary
policy employed by the Federal Reserve Board for these purposes (including
interest rates and the level of cash reserves banks are required to maintain
against deposits) influence, in various ways the interest rates paid on interest
bearing liabilities and the interest received on earning assets, as well as the
overall level of bank loans, investments and deposits. Inflation has generally
had a minimal impact on the Corporation because substantially all of its assets
and liabilities are of a monetary nature and a large portion of its operations
are based in the United States, where inflation has been low. Prospective
domestic and international economic and political conditions and the policies of
the Federal Reserve Board, as well as other domestic and international
regulatory authorities, may effect the future business and earnings of the
Corporation.
During the first quarter of 1995, certain emerging markets countries
including those in Latin America have experienced, to varying degrees, stress in
world financial markets and local financial system strains, including pressure
on the banking systems. Concern has focused on areas such as currency exchange
rates, system liquidity, public budgets, external debt servicing requirements,
balance of payments and prospects for economic growth in various countries. The
difficulties in Latin America have been significantly influenced by economic
problems in Mexico and the devaluation of the Mexican peso in December 1994.
This is particularly true in Argentina, a country where the Corporation
maintains significant local banking operations, and where the banking system has
come under stress. The government of Argentina has taken steps in the first
quarter aimed at addressing these issues. Brazil, another country where the
Corporation has significant local operations, has also taken actions in the
first quarter pursuant to its economic program to deal with the strains on their
financial system. While the Corporation cannot predict the ultimate outcome of
these various government actions or the effect of the stresses on the Argentine
banking system, the financial markets in Argentina and Brazil reflected some
stabilization in late March.
To date, the economic strains in Latin America have not had a
significant effect on the Corporation's results of operations or financial
condition and while spreads recently have increased due to higher interest
rates, the Corporation expects some deterioration in credit quality over time in
Argentina. If the government actions which are currently being undertaken in
Argentina are not effective or if the banking system in Argentina is strained
further, particularly with regard to banking system liquidity, the Corporation's
Argentine operation could experience adverse effects including stress on local
liquidity, deterioration in credit quality, increased credit costs, reduction in
value of its securities portfolio, and declines in its loan volume.
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. It is not possible to predict what effect the economic situation in
Latin America will have on those local economies or the Corporation. The
Corporation will continue to monitor the economic situation in those Latin
American countries in which the Corporation has local operations or cross-border
exposure, particularly in Argentina and Brazil. Additional information with
respect to these countries is included in "Cross-Border Outstandings," and
"Emerging Markets Countries" on pages 41 through 44 of the Corporation's 1994
Annual Report to Stockholders, which pages are included in Exhibit 13 hereto and
which discussions are incorporated herein by reference.
This section should be read in conjunction with "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
contained in the Corporation's 1994 Annual Report to Stockholders on pages 31
through 53, which pages are included in Exhibit 13 hereto and which discussion
is incorporated herein by reference.
12
<PAGE>
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The information set forth below is being provided in accordance with the
Securities Exchange Act of 1934, Industry Guide 3.
Average Balances and Interest Rates
The information required by this item is presented on pages 54 through 56 of
the Corporation's 1994 Annual Report to Stockholders, which pages are included
in Exhibit 13 hereto, and such information is incorporated herein by reference.
Change in Net Interest Revenue-Volume and Rate Analysis: 1994 compared with
1993, and 1993 compared with 1992
The information required by this item is presented on page 57 of the
Corporation's 1994 Annual Report to Stockholders, which page is included in
Exhibit 13 hereto, and such information is incorporated herein by reference.
Securities
The following table sets forth the carrying values of securities held to
maturity on the dates indicated:
<TABLE>
<CAPTION>
December 31 1994 1993 1992
(in millions)
<S> <C> <C> <C>
U.S. Treasury $ 12 $ 317 $ 285
U.S. government agencies
and corporations -
Mortgage-backed securities 1,449 1,046 1,775
States and political subdivisions 30 29 51
Foreign debt securities 123 109 125
Other debt securities 175
Marketable equity securities 31
Other equity securities 89 68 193
----- ----- -----
$ 1,703 $ 1,569 $ 2,635
===== ===== =====
</TABLE>
The following table sets forth the carrying values of securities available for
sale on the dates indicated:
<TABLE>
<CAPTION>
December 31 1994 1993 1992
(in millions)
<S> <C> <C> <C>
U.S. Treasury $ 1,487 $ 110 $ 526
U.S. government agencies
and corporations -
Mortgage-backed securities 766 498 568
Foreign debt securities 384 490 344
Other debt securities 142 150 49
Marketable equity securities 72 74
Other equity securities 146 116 10
----- ----- -----
$ 2,997 $ 1,438 $ 1,497
===== ===== =====
</TABLE>
13
<PAGE>
The following tables set forth the relative maturities and weighted average
interest rates of securities available for sale and held to maturity at December
31, 1994, excluding equity securities. Certain securities, such as mortgage-
backed securities, may not become due at a single maturity date. Such
securities have been classified within the category that represents the due
dates for the majority of the instrument. Rates for states and political
subdivisions are stated on a fully taxable equivalent basis assuming a 35%
federal income tax rate, adjusted for applicable state and local income taxes
net of related federal tax benefit.
<TABLE>
<CAPTION>
After One But After Five But
Within Five Within Ten After Ten
Within One Year Years Years Years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
(dollars in millions)
U.S. Treasury $ 415 5.6% $ 1,072 6.9% $ 1,487 6.5%
U.S. government agencies
and corporations -
Mortgage-backed securities 57 5.3 184 5.0 $ 34 5.5% $ 491 5.3% 766 5.3
Foreign debt securities 125 10.0 149 14.1 110 11.8 384 12.1
Other debt securities 18 13.1 70 12.5 53 8.0 1 6.0 142 10.8
----- ------ ----- ----- ------
Total carrying value $ 615 6.7 $ 1,475 7.7 $ 197 9.7 $ 492 5.3 $ 2,779 7.2
===== ====== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
After One But After Five But
Within Five Within Ten After Ten
Within One Year Years Years Years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
(dollars in millions)
U.S. Treasury $ 6 5.2% $ 1 5.2% $ 5 6.7% $ 12 5.9%
U.S. government agencies
and corporations -
Mortgage-backed securities 439 6.9 289 7.6 $ 721 5.7% 1,449 6.5
States and political subdivisions 13 7.3 7 9.7 7 7.0 3 8.6 30 7.9
Foreign debt securities 22 6.1 98 5.3 3 6.8 123 5.5
----- ------ ----- ----- ------
Total carrying value $ 41 6.4 $ 545 6.7 $ 304 7.6 $ 724 5.7 $ 1,614 6.4
===== ====== ===== ===== ======
</TABLE>
14
<PAGE>
Loans and Leases
A portion of the information required by this item is presented on page 39 of
the Corporation's 1994 Annual Report to Stockholders, which page is included in
Exhibit 13 hereto, and such information is incorporated herein by reference.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the maturities and interest rate sensitivity, based
on original contractual terms, of the Corporation's loans at December 31, 1994,
exclusive of domestic office loans secured by 1-4 family residential properties,
domestic office loans to individuals and lease financing:
<TABLE>
<CAPTION>
After One
But
Within Within After
December 31, 1994 One Year Five Five Total
(in millions) Years Years
<S> <C> <C> <C> <C>
Commercial, industrial and financial $ 5,144 $ 3,939 $ 2,516 $ 11,599
Real estate:
Construction 181 130 41 352
Other commercial 1,462 1,516 160 3,138
Overseas offices 6,348 568 131 7,047
------ ----- ----- ------
$ 13,135 $ 6,153 $ 2,848 $ 22,136
====== ===== ===== ======
Loans with predetermined interest rates $ 4,131 $ 1,607 $ 365 $ 6,103
Loans with floating interest rates 9,004 4,546 2,483 16,033
------ ----- ----- ------
$ 13,135 $ 6,153 $ 2,848 $ 22,136
====== ===== ====== ======
</TABLE>
The Corporation does not have an automatic renewal policy for maturing loans.
Rather, loans are renewed at the maturity date only at the request of those
customers who are deemed to be creditworthy by the Corporation. Additionally,
the Corporation reviews such requests in substantially the same manner as
applications by new customers for extensions of credit. The maturity dates and
interest terms of renewed loans are based, in part, upon the needs of the
individual customer and the Corporation's credit review and evaluation of
current and future economic conditions. Since these factors have varied
considerably, and will most likely continue to do so, the Corporation believes
it is impracticable to estimate the amount of loans in the portfolio which may
be renewed in the future.
Nonaccrual Loans and Leases
The majority of the information required by this item is presented on pages 44
through 46 of the Corporation's 1994 Annual Report to Stockholders, which
pages are included in Exhibit 13 hereto, and such information is incorporated
herein by reference.
The following table sets forth an analysis of interest income related to loans
and leases on nonaccrual status:
<TABLE>
<CAPTION>
December 31, 1994
United States International Consolidated
(in millions)
<S> <C> <C> <C>
Interest income that would have been
recognized if the loans had been
current at original contractual
rates $ 36 $ 9 $ 45
Amount recognized as interest income 4 3 7
----- ---- ----
Difference $ 32 $ 6 $ 38
===== ==== ====
</TABLE>
15
<PAGE>
Cross-Border Outstandings
The information required by this item is presented on pages 41 through 44 of
the Corporation's 1994 Annual Report to Stockholders, which pages are included
in Exhibit 13 hereto, and such information is incorporated herein by reference.
Reserve for Credit Losses: Allocation of Reserve for Credit Losses and Analysis
of Reserve for Credit Losses
The information required by this item is presented on pages 47 and 48 of the
Corporation's 1994 Annual Report to Stockholders, which pages are included in
Exhibit 13 hereto, and such information is incorporated herein by reference.
Deposits
A portion of the information required by this item is presented on pages 54
through 56 of the Corporation's 1994 Annual Report to Stockholders, which pages
are included in Exhibit 13 hereto, and such information is incorporated herein
by reference.
The aggregate amount of deposits by foreign depositors in domestic offices
averaged $863 million in 1994, $876 million in 1993 and $1,298 million in
1992. The following table presents the maturities of time certificates of
deposit and other time deposits issued by domestic offices in
denominations of $100,000 or more, at December 31, 1994:
<TABLE>
<CAPTION>
Certificates Time
of Deposit Deposits Total
<S> <C> <C> <C>
(in millions)
Maturing within three months $ 890 $ 7 $ 897
After three but within six months 291 10 301
After six but within twelve months 212 9 221
After twelve months 286 156 442
-------- ----- ------
$ 1,679 $ 182 $ 1,861
======== ===== ======
</TABLE>
The majority of foreign office deposits are in denominations of $100,000 or
more.
Return on Equity and Assets
The information required by this item is presented on page 30 of the
Corporation's 1994 Annual Report to Stockholders, which page is included in
Exhibit 13 hereto, and such information is incorporated herein by reference.
16
<PAGE>
Short-Term Borrowings
The following table summarizes the Corporation's short-term borrowings for the
three years ended December 31, 1994:
<TABLE>
<CAPTION>
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
(dollars in millions) At end of Interest During the During the During the
Category of Aggregate Short-Term Period Rate (1) Period Period Period
Borrowings
For the Year Ended December 31, 1994
<S> <C> <C> <C> <C> <C>
Federal funds purchased (2) $ 369 5.45% $ 1,131 $ 688 4.29%
Term federal funds purchased (2) 765 5.77 2,504 1,793 3.62
Securities sold under agreements to repurchase (3) 1,883 5.89 1,883 1,192 8.58
Demand notes issued to the U.S. Treasury (5) 389 4.69 1,060 324 3.97
All other (6) 2,733 18.44 3,697 2,895 17.36
For the Year Ended December 31, 1993
Federal funds purchased (2) $ 417 3.02% $ 783 $ 701 3.01%
Term federal funds purchased (2) 2,150 3.36 2,325 1,284 3.34
Securities sold under agreements to repurchase (3) (7) 799 6.72 1,002 832 4.38
Commercial paper (4) 35 15 3.59
Demand notes issued to the U.S. Treasury (5) 118 2.73 1,219 400 2.81
All other (6) (7) 1,164 24.77 1,164 708 8.42
For the Year Ended December 31, 1992
Federal funds purchased (2) $ 468 3.05% $ 729 $ 556 3.41%
Term federal funds purchased (2) 280 3.78 360 68 3.81
Securities sold under agreements to repurchase (3) (7) 1,122 13.95 2,117 1,253 4.78
Commercial paper (4) 42 14 3.63
Demand notes issued to the U.S. Treasury (5) 106 3.00 1,552 509 3.49
All other (6) (7) 576 31.09 674 504 10.86
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average interest rates at year-end are not necessarily
indicative of the Corporation's normal borrowing rates since interest
rates for certain categories of borrowing are subject to abnormal short-term
movements.
(2) Federal funds purchased are overnight transactions while term federal funds
purchased have maturities in excess of one day. A large portion of
federal funds purchased arise because of money market activity in federal funds
for regional correspondent banks.
(3) Securities sold under agreements to repurchase by domestic offices mature
within one year and are collateralized by U.S. Treasury and U.S.
government agencies and corporations securities. The majority of securities sold
under agreements to repurchase by overseas offices in 1994, 1993
and 1992 related to Brazilian operations of FNBB for which various Brazilian
government securities served as collateral.
(4) Commercial paper represents unsecured obligations with maximum maturities of
nine months.
(5) Demand notes issued to the U.S. Treasury represent depository liabilities
that are not subject to reserve requirements and bear interest at
one-quarter of one percent below the weekly average federal funds effective
interest rate as published by the Federal Reserve.
(6) The majority of other short-term borrowings represent secured and unsecured
obligations of the Corporation's overseas branches and subsidiaries.
(7)The weighted average rates and average interest rates during the period shown
above for the years ended December 31, 1993 and 1992 have declined based on the
Corporation's reclassification of translation losses and gains associated with
Brazilian local currency earning assets and interest bearing liabilities from
noninterest income to interest income and interest expense, respectively. The
reclassification had no effect on the Corporation's total revenue (the sum of
net interest revenue and noninterest income).
17
<PAGE>
Item 2. Properties.
The head offices of the Corporation and FNBB are located in a 37-story
building at 100 Federal Street, Boston, Massachusetts. In 1994, FNBB leased
approximately 82% of the building's approximately 1.3 million square feet.
FNBB's securities and payments processing center is located in Canton,
Massachusetts, where FNBB leases approximately 85% of the Canton office
building's approximately 275,000 square feet. FNBB's data processing and record
keeping operations are located at Columbia Park in Boston. The Columbia Park
facility, comprising approximately 405,000 square feet, and the land on which it
is situated are owned by FNBB. In addition, FNBB leases an operations facility
in Dedham, Massachusetts, which comprises approximately 158,000 square feet.
The headquarters for FNBB's operations in Argentina are located in a 10-
story historic landmark building in the center of Buenos Aires. The building
consists of approximately 256,000 square feet and is owned by FNBB. The
headquarters for FNBB's operations in Brazil are in 3 interconnected buildings
in the center of Sao Paulo. FNBB owns a total of 187,000 square feet in the
three buildings and leases another 58,000 square feet. In addition, in 1994,
FNBB purchased a 10-story, 100,000 square foot building in Sao Paulo in order to
consolidate its Brazilian operations into two locations.
Hospital Trust owns a 30-story building and a building adjacent thereto at
One Hospital Trust Plaza, Providence, Rhode Island. Hospital Trust occupies
approximately 40% of the complex's approximately 546,000 square feet. In
addition, Hospital Trust maintains an operations center in East Providence,
Rhode Island that also serves as the primary backup for FNBB's Columbia Park
facility. The East Providence operations center, which consists of
approximately 141,000 square feet, is owned by Hospital Trust.
BKB Connecticut's headquarters are in Hartford, Connecticut, where it has
offices at 31 Pratt Street and 100 Pearl Street. BKB Connecticut owns and
occupies approximately 50,000 square feet at the Pratt Street location, and owns
an undivided one-half interest in the Pearl Street location where it currently
occupies approximately 54,000 square feet. BKB Connecticut also maintains
regional offices in Connecticut, the largest of which is in Waterbury and
comprises approximately 157,000 square feet of owned space in three
interconnected buildings.
None of these properties is subject to any material encumbrance. The
Corporation's subsidiaries also own or lease numerous other premises used in
their domestic and foreign operations.
Item 3. Legal Proceedings.
The Corporation and its subsidiaries in 1994 were or currently are parties
to a number of legal proceedings that have arisen in connection with the normal
course of business activities of the Corporation, FNBB and the Corporation's
other subsidiaries, including the following matters:
Arnold/Society for Savings Bancorp, Inc. As previously reported, in March
1993, a complaint was filed in Delaware Chancery Court against the Corporation,
Society for Savings Bancorp, Inc. ("Bancorp") and Bancorp's directors who voted
in favor of the Corporation's acquisition of Bancorp. The action was brought by
a Bancorp stockholder, individually and as a class action on behalf of all
Bancorp stockholders of record on the date the acquisition was announced, and
sought an injunction with respect to the proposed acquisition and damages in
18
<PAGE>
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 hearings were held
before a three-judge panel and the full panel on April 5, 1994 and October 21,
1994, respectively. On December 28, 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 has remanded the case to the Chancery Court
for a determination of two issues: (i) the appropriate remedy, if any, for the
Bancorp directors' good faith omission of information in the proxy statement
relating to the value of prior bids for Bancorp's subsidiary, Fidelity
Acceptance Corporation, and (ii) whether there was any basis for the plaintiff's
claim that the Corporation aided and abetted Bancorp in this omission. The
Corporation has denied the plaintiff's allegations and, on January 23, 1995,
filed a motion for summary judgment with the Chancery Court.
Bancorp Class Action. As previously reported, a class action complaint was
filed in U.S. District Court for the District of Connecticut against Bancorp,
two of its then senior officers and one former officer. The complaint, as
subsequently amended, alleges that Bancorp's financial reports for fiscal years
1988, 1989, and the first half of 1990 contained material misstatements or
omissions concerning its real estate loan portfolio and other matters, in
violation of Connecticut common law and of Sections 10(b) and 20 of the
Securities Exchange Act of 1934. The action was brought by a Bancorp
shareholder, individually and as a class action on behalf of purchasers of
Bancorp's stock from January 19, 1989 through November 30, 1990 and seeks
damages in an unspecified amount. Bancorp and the defendant officers have
denied the allegations of the amended complaint and intend to defend the action
vigorously.
Lender Liability Litigation. The Corporation's subsidiaries, in the normal
course of their business in collecting outstanding obligations, are named as
defendants in complaints or counterclaims filed in various jurisdictions by
borrowers or others who allege that lending practices by such subsidiaries have
damaged the borrowers or others. Such claims, commonly referred to as lender
liability claims, frequently request not only relief from repayment of the debt
obligation, but also recovery of actual, consequential, and punitive damages.
During 1991, one such claim resulted in a judgment being entered against
Hospital Trust for approximately $4 million, plus interest. The judgment
against Hospital Trust remains on appeal.
Stranway/Elmendorf Case. As previously reported, in June 1985, a complaint
was filed against FNBB in the U.S. District Court for the District of New
Hampshire by private plaintiffs on behalf of the United States in a qui tam
action under 3l U.S.C. (S)3729, known as the False Claims Act. The complaint
alleges that FNBB failed to disclose, or made false statements, to the Farmer's
Home Administration ("FmHA") in connection with securing and inducing payment on
guarantees from the FmHA on loans by FNBB and certain investors to Stranway
Corporation and its subsidiary Elmendorf Board Corporation. Damages were
alleged in the amount of $50 million plus interest, costs and attorneys fees.
The United States, which must decide at the outset whether to take over civil
prosecution of a False Claims Act suit initiated by a private plaintiff,
declined to enter an appearance in and take over the action. The action was
transferred to the District of Massachusetts. On October 13, 1994, the District
Court entered an order (1) denying the plaintiff's motion to substitute a new
qui tam plaintiff and (2) dismissing the complaint against FNBB without
prejudice to the original qui tam plaintiff reinstating the action within 30
days. The original plaintiff elected not to do so and, instead, appealed the
District Court's order. The parties have now reached an agreement in principle
pursuant to which the plaintiff's appeal will be dismissed and this litigation
finally settled.
19
<PAGE>
Management, after reviewing all actions and proceedings pending against the
Corporation and its subsidiaries, considers that the aggregate loss, if any,
resulting from the final outcome of these proceedings will not be material to
the Corporation's results of operations or financial condition.
20
<PAGE>
Item 3A. Executive Officers of the Corporation.
Information with respect to the executive officers of the Corporation, as
of February 24, 1995, is set forth below. Executive Officers are generally
elected annually by the Board of Directors and hold office until the following
year and until their successors are chosen and qualified, unless they sooner
resign, retire, die or are removed. Except where otherwise noted, the positions
listed for the officers are for both the Corporation and FNBB.
<TABLE>
<CAPTION>
Date Assumed
Executive
-----------------
Name Age Current Position Officer Position
--------------------------- --- --------------------------- -----------------
<S> <C> <C> <C>
Ira Stepanian 58 Chairman of the Board of 1981
Directors and Chief
Executive Officer
Charles K. Gifford 52 President and Chief 1987
Operating Officer
Edward A. O'Neal 50 Vice Chairman 1992
William J. Shea 47 Vice Chairman, Chief 1993
Financial Officer &
Treasurer of the
Corporation and Vice
Chairman and Chief
Financial Officer of FNBB
Helen G. Drinan 47 Executive Director, Human 1993
Resources
Paul F. Hogan 50 Executive Director, Credit 1993
& Loan Review
Ira A. Jackson 46 Executive Director, 1987
External Affairs
Robert T. Jefferson 47 Comptroller 1993
Peter J. Manning 56 Executive Director, 1990
Mergers & Acquisitions,
Audit & Risk Review
Gary A. Spiess 54 General Counsel and Clerk 1987
of the Corporation and
General Counsel, Secretary
& Cashier of FNBB
Eliot N. Vestner, Jr. 59 Executive Counsel, 1987
Regulatory Affairs
Bradford H. Warner 43 Group Executive, Treasury 1989
Guilliaem Aertsen IV 47 Group Executive, Global 1993
Capital Markets & Real
Estate
Melville E. Blake III 40 Executive Director, 1993
Strategic Planning
Robert L. Champion, Jr. 50 Executive Director, 1993
Corporate Administrative
Services
Barbara F. Clark 48 Group Executive, Media & 1993
Communications
Edward P. Collins 47 Group Executive, US 1993
Corporate Banking, Leasing
& Asset Based Lending
Robert E. Gallery 43 Group Executive, NE Large 1993
Corporate Banking & NE
Corporate Banking, CT, RI
Susan P. Haney 47 Group Executive, The 1993
Private Bank
Thomas J. Hollister 40 Group Executive, Retail & 1993
Small Business
David W. Kruger 52 Group Executive, Global 1993
Products and Marketing &
Asia/Pacific
Michael R. Lezenski 47 Executive Director, 1993
Technology and System
Services, Chief Technology
Officer
Mark A. MacLennan 41 Group Executive, 1993
Multinational, Europe,
Central America/Caribbean,
International Financial
Institutions and
International Private
Banking
David E. McKown 57 Group Executive, 1993
Entrepreneurial Lending
Henrique Meirelles 49 Regional Manager, Brazil September 1994
Joanne E. Nuzzo 52 Executive Director, May 1994
Banking Operations
William H. Ott 42 Group Executive, Consumer 1993
Finance
Joe K. Pickett 49 Group Executive, Mortgage 1993
Banking
Richard A. Remis 40 Group Executive, NE 1993
Corporate Banking-MA & NH,
Financial Institutions
Manuel R. Sacerdote 52 Regional Manager, Southern September 1994
Cone (Argentina, Uruguay,
Chile)
Susannah M. Swihart 39 Group Executive, 1993
Specialized Finance
</TABLE>
21
<PAGE>
All of the foregoing individuals have been officers of the Corporation or
one of its subsidiaries for the past five years except for Messrs. Blake,
Champion, Gallery, O'Neal, Ott and Shea. Prior to joining the Corporation in
1990, Mr. Champion was Senior Vice President and Department Head, General
Services for Continental Bank from 1976. Mr. Gallery came to the Corporation in
1991 from The First National Bank of Chicago where he had been Division Manager,
Midwest since 1989. Prior to joining the Corporation in 1992, Mr. O'Neal was
employed by Chemical Banking Corporation as Senior Executive Vice President,
Operating Services and Nationwide Consumer in 1992, Vice Chairman and Director
from 1990 to 1991 and Group Executive Consumer Banking Group from 1987 to 1990.
Mr. Blake also joined the Corporation in 1992 and prior to that time had been
Vice President of the MAC Group/Gemini Consulting since 1988. Mr. Ott came to
the Corporation in 1992 from Constellation Bancorp where he served as Executive
Vice President, Community Banking Division, and prior to that time was an
Associate at TAC Associates from 1991 to 1992, Senior Vice President, Community
Banking Division of Fleet Bank from 1990 to 1991 and Vice President of Bank of
America from 1975 to 1990. Mr. Shea joined the Corporation in 1993 from Coopers
& Lybrand, where he had served as a partner since 1983 and as Vice Chairman
since 1991.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required by this Item is presented on pages 29, 30 and 58 of
the Corporation's 1994 Annual Report to Stockholders, which pages are included
in Exhibit 13 hereto, and such information is hereby incorporated by reference.
Item 6. Selected Financial Data.
The "Consolidated Selected Financial Data" of the Corporation for the six
years ended December 31, 1994 appears on pages 29 and 30 of the Corporation's
1994 Annual Report to Stockholders, which pages are included in Exhibit 13
hereto, and such information is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information in response to this Item is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 31 through 53 of the Corporation's 1994 Annual Report to Stockholders,
which pages are included in Exhibit 13 hereto, and such information is hereby
incorporated by reference.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item are
included on the pages of the Corporation's 1994 Annual Report to Stockholders
indicated below, which pages are included in Exhibit 13 hereto, and such
statements and data are hereby incorporated by reference.
<TABLE>
<CAPTION>
Page of 1994 Annual
Report to Stockholders
<S> <C>
Summary of Quarterly Consolidated Financial Information
and Common Stock Data........................................ 58
Report of Independent Accountants.............................. 60
Bank of Boston Corporation:
Consolidated Balance Sheet as of December 31, 1994
and 1993..................................................... 61
Consolidated Statement of Income for the years
ended December 31, 1994, 1993 and 1992....................... 62
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1993 and 1992......... 63 and 64
Consolidated Statement of Cash Flows for the years
ended December 31, 1994, 1993 and 1992....................... 65
Notes to Financial Statements.................................. 66 through 95
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
23
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the Executive Officers of the Corporation which
responds to this Item is contained in the response to Item 3A contained in Part
I of this Report and is hereby incorporated by reference herein. The
information that responds to this Item with respect to Directors is contained
under the heading "Election of Directors" in the Corporation's definitive proxy
statement for its 1995 Annual Meeting of Stockholders (the "Proxy Statement").
Information with respect to compliance by the Corporation's directors and
executive officers with Section 16(a) of the Exchange Act is contained under the
heading "Compliance with Section 16(a) of the Exchange Act" in the Proxy
Statement. The foregoing information from the Proxy Statement is hereby
incorporated by reference.
Item 11. Executive Compensation.
The information required in response to this Item is contained under the
heading "Compensation of Executive Officers" in the Proxy Statement. The
foregoing information from the Proxy Statement, with the exception of the
sections entitled "Compensation Committee Report on Executive Compensation" and
"Five-Year Stockholder Return Comparison," is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required in response to this Item is contained under the
headings "Security Ownership of Directors and Executive Officers" and "Security
Ownership of Certain Beneficial Owners" in the Proxy Statement. The foregoing
information from the Proxy Statement is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information required in response to this Item is contained under the
heading "Indirect Interest of Directors and Executive Officers in Certain
Transactions" in the Proxy Statement. The foregoing information from the Proxy
Statement is hereby incorporated by reference.
24
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The financial statements required in response to this Item are listed in
response to Item 8 of this Report and are incorporated herein by reference.
(a)(2) Financial statement schedules have been omitted because the information
is either not required, not applicable, or is included in the financial
statements or notes thereto.
(a)(3) Exhibits
3(a) - Restated Articles of Organization of the Corporation, as amended
through November 24, 1993 incorporated herein by reference to
Exhibit 3(a) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-6522).
3(b) - By-Laws of the Corporation, as amended through April 28, 1994.
4(a) - Indenture dated as of January 15, 1986 defining rights of holders
of the Corporation's 7 3/4% Convertible Subordinated Debentures Due
2011, incorporated herein by reference to Exhibit 4(b) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1985 (File No. 1-6522).
4(b) - Fiscal and Paying Agency Agreement dated as of February 10, 1986
defining rights of holders of the Corporation's Subordinated
Floating Rate Notes Due 2001, incorporated herein by reference to
Exhibit 4(d) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1985 (File No. 1-6522).
4(c) - Fiscal and Paying Agency Agreement dated as of August 26, 1986
defining rights of holders of the Corporation's Floating Rate
Subordinated Equity Commitment Notes Due 1998 incorporated herein
by reference to Exhibit 4(e) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1986 (File No. 1-6522).
4(d) - Indenture dated as of June 15, 1987 defining the rights of holders
of the Corporation's 9 1/2% Subordinated Equity Contract Notes due
1997, incorporated herein by reference to Exhibit 4(g) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, l987 (File No. 1-6522).
4(e) - Indenture dated as of July 15, 1988 and form of note defining
rights of the holders of the Corporation's 10.30% Subordinated
Notes due September 1, 2000, incorporated herein by reference to
Exhibit 4(i) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988 (File No. 1-6522).
25
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(3) Exhibits (cont'd)
4(f) - Subordinated Indenture dated as of June 15, 1992, as amended by the
First Supplemental Indenture dated as of June 24, 1993, and forms of
notes defining rights of the holders of the Corporation's 6 7/8%
Subordinated Notes due 2003, the 6 5/8% Subordinated Notes due 2005,
and the 6 5/8% Subordinated Notes due 2004, incorporated herein by
reference to Exhibit 4(d) to the Corporation's Registration
Statement on Form S-3 (Registration Number 33-48418), Exhibits 4(e)
and 4(f) to the Corporation's Current Report on Form 8-K dated June
24, 1993, Exhibit 4 to the Corporation's Current Report on Form 8-K
dated November 15, 1993, and Exhibit 4 to the Corporation's Current
Report on Form 8-K dated January 5, 1994 (File No. 1-6522).
4(g) - Senior Indenture dated as of June 15, 1992, and forms of notes
defining rights of the holders of the Corporation's Floating Rate
Notes due 1996, incorporated herein by reference to Exhibit 4(c) to
the Corporation's Registration Statement on Form S-3 (Registration
Number 33-48418), and Exhibit 4 to the Corporation's Current Report
on Form 8-K dated June 15, 1994 (File No. 1-6522).
4(h) - Rights Agreement, dated as of June 28, 1990, between the
Corporation and FNBB, as Rights Agent, and the description of the
Rights, incorporated herein by reference to the Corporation's
registration statement on Form 8-A relating to the Rights and to
Exhibit 1 of such registration statement (File No. 1-6522).
4(i) - Deposit Agreement, dated August 13, 1992 between the Corporation
and FNBB, as Depositary, relating to the Corporation's Depositary
Shares, each representing a one-tenth interest in the Corporation's
8.60% Cumulative Preferred Stock, Series E, incorporated herein by
reference to Exhibit 4(b) to the Corporation's Current Report on
Form 8-K dated August 13, 1992 (File No. 1-6522).
4(j) - Deposit Agreement, dated as of June 30, 1993 between the
Corporation and FNBB, as Depositary, relating to the Corporation's
Depositary Shares, each representing a one-tenth interest in the
Corporation's 7 7/8% Cumulative Preferred Stock, Series F,
incorporated herein by reference to Exhibit 4(b) to the
Corporation's Current Report on Form 8-K dated June 24, 1993 (File
No. 1-6522).
26
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(cont'd).
(a)(3) Exhibits (cont'd)
10(a) - Bank of Boston Corporation 1982 Stock Option Plan, as amended,
effective February 13, 1995.*
10(b) - Bank of Boston Corporation 1986 Stock Option Plan, as amended,
effective February 13, 1995.*
10(c) - Bank of Boston Corporation and its Subsidiaries Performance
Recognition Opportunity Plan, as amended effective June 23, 1994.*
10(d) - Bank of Boston Corporation Executive Deferred
Compensation Plan, as amended, effective June 23, 1994.*
10(e) - The First National Bank of Boston Bonus Supplemental Employee
Retirement Plan, as amended, through June 23, 1994.*
10(f) - Description of the Corporation's Supplemental Life Insurance
Plan, incorporated herein by reference to Exhibit 10(h) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-6522).*
10(g) - The First National Bank of Boston Excess Benefit Supplemental
Employee Retirement Plan, as amended, effective June 23, 1994,
1994.*
10(h) - Bank of Boston Corporation 1991 Long-Term Stock Incentive Plan,
as amended, effective February 13, 1995.*
10(i) - Employment Agreement dated July 7, 1992 between The First
National Bank of Boston and Edward A. O'Neal, incorporated herein
by reference to Exhibit 10(k) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No. 1-6522.)*
10(j) - Employment Agreement dated December 4, 1992 between The First
National Bank of Boston and William J. Shea, incorporated herein by
reference to Exhibit 10(l) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No. 1-6522.).*
10(k) - Bank of Boston Corporation Relocation Policy, as amended through
October, 1990, incorporated herein by reference to Exhibit 10(j) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 1-6522).*
----------------------------------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
27
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(3) Exhibits (cont'd)
10(l) - Description of the Corporation's Supplemental Long-Term
Disability Plan effective as of February 10, 1994, incorporated
herein by reference to Exhibit 10(l) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 (File No.
1-6522).*
10(m) - Bank of Boston Corporation's Director Stock Award Plan effective
as of January 1, 1995.*
10(n) - Lease dated as of September 1, 1991 between The First National
Bank of Boston and The Equitable Federal Street Realty Company
Limited Partnership, incorporated herein by reference to Exhibit
10(l) to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 1-6522).
10(o) - Form of Severance Agreement for certain officers, incorporated
herein by reference to Exhibit 10(a) to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 (File No.
1-6522).*
10(p) - Form of Severance Agreement for certain officers, incorporated
herein by reference to Exhibit 10(b) to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 (File No.
1-6522).*
10(q) - Bank of Boston Corporation Directors Deferred Compensation Plan
effective March 28, 1991.*
10(r) - The First National Bank of Boston Directors Deferred Compensation
Plan effective March 28, 1991.*
11 - Computation of earnings per common share.
12(a) - Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (excluding interest on deposits).
12(b) - Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (including interest on deposits).
12(c) - Computation of the Corporation's Consolidated Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividend Requirements
(excluding interest on deposits).
----------------------------------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
28
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(3) Exhibits (cont'd)
12(d) - Computation of the Corporation's Consolidated Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividend Requirements
(including interest on deposits).
13 - Pages 29 through 58 and 60 through 95 of the Corporation's 1994
Annual Report to Stockholders.
21 - List of subsidiaries of Bank of Boston Corporation.
23 - Consent of Independent Accountants.
24 - Power of attorney of certain officers and directors (included on
pages II-1 through II-2).
27 - Financial Data Schedule
99 - Notice of Annual Meeting and Proxy Statement for the Annual Meeting
of the Corporation's Stockholders to be held April 27, 1995,
incorporated herein by reference to the Corporation's filing under
Regulation 14A of the Exchange Act (File No. 1-6522).
(b) During the fourth quarter of 1994, the Corporation filed one Current Report
on Form 8-K. The current report dated December 16, 1994, contained
information pursuant to items 5 and 7 of Form 8-K. The Corporation also
filed one Current Report on Form 8-K dated January 19, 1995 which contained
information pursuant to items 5 and 7 of Form 8-K.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
and Commonwealth of Massachusetts, on the 30th day of March, 1995.
BANK OF BOSTON CORPORATION
By/s/ IRA STEPANIAN
---------------------------------
(Ira Stepanian)
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates listed below. By so signing, each of the undersigned, in his or her
capacity as a director or officer, or both, as the case may be, of the
Corporation, does hereby appoint Ira Stepanian, Charles K. Gifford, William J.
Shea, Bradford H. Warner, Robert T. Jefferson and Gary A. Spiess, and each of
them severally, or if more than one acts, a majority of them, his or her true
and lawful attorneys or attorney to execute in his or her name, place and stead,
in his or her capacity as a director or officer or both, as the case may be, of
the Corporation, any and all amendments to said report and all instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Each of said attorneys shall have full
power and authority to do and perform in the name and on behalf of each of the
undersigned, in any and all capacities, every act whatsoever requisite or
necessary to be done in the premises as fully and to all intents and purposes as
each of the undersigned might or could do in person, hereby ratifying and
approving the acts of said attorneys and each of them.
Signature Title Date
--------- ----- ----
Chairman of the Board of Directors,
Chief Executive Officer
/s/ IRA STEPANIAN and Director March 30, 1995
-------------------------- (Chief Executive Officer)
(Ira Stepanian)
President,
Chief Operating Officer
/s/ CHARLES K. GIFFORD and Director March 30, 1995
--------------------------
(Charles K. Gifford)
Vice Chairman,
Chief Financial Officer
/s/ WILLIAM J. SHEA and Treasurer March 30, 1995
-------------------------- (Chief Financial Officer)
(William J. Shea)
/s/ ROBERT T. JEFFERSON Comptroller March 30, 1995
------------------------------ (Chief Accounting Officer)
(Robert T. Jefferson)
II-1
<PAGE>
Signature Title Date
--------- ----- ----
/s/ WAYNE A. BUDD Director March 30, 1995
-------------------------------
(Wayne A. Budd)
/s/ WILLIAM F. CONNELL Director March 30, 1995
-------------------------------
(William F. Connell)
/s/ GARY L. COUNTRYMAN Director March 30, 1995
-------------------------------
(Gary L. Countryman)
/s/ ALICE F. EMERSON Director March 30, 1995
-------------------------------
(Alice F. Emerson)
/s/ THOMAS J. MAY Director March 30, 1995
-------------------------------
(Thomas J. May)
/s/ DONALD F. MCHENRY Director March 30, 1995
-------------------------------
(Donald F. McHenry)
/s/ J. DONALD MONAN Director March 30, 1995
-------------------------------
(J. Donald Monan)
/s/ PAUL C. O'BRIEN Director March 30, 1995
-------------------------------
(Paul C. O'Brien)
/s/ JOHN W. ROWE Director March 30, 1995
-------------------------------
(John W. Rowe)
/s/ RICHARD A. SMITH Director March 30, 1995
-------------------------------
(Richard A. Smith)
/s/ WILLIAM C. VAN FAASEN Director March 30, 1995
-------------------------------
(William C. Van Faasen)
/s/ THOMAS B. WHEELER Director March 30, 1995
-------------------------------
(Thomas B. Wheeler)
/s/ ALFRED M. ZEIEN Director March 30, 1995
-------------------------------
(Alfred M. Zeien)
II-2
<PAGE>
Exhibit 3(b)
BANK OF BOSTON CORPORATION
---------------------
BY-LAWS
---------------------
Revised to April 28, 1994
<PAGE>
BY-LAWS
OF
BANK OF BOSTON CORPORATION
---------------------
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF THE STOCKHOLDERS
PAGE
----
SECTION 1. Place of Meeting; Adjournment.......................... 1
SECTION 2. Annual Meeting......................................... 1
SECTION 3. Special Meetings....................................... 1
SECTION 4. Notices of Meetings.................................... 2
SECTION 5. Quorum................................................. 3
SECTION 6. Organization........................................... 4
SECTION 7. Voting by Stockholders; Proxies........................ 4
SECTION 8. Inspectors............................................. 5
SECTION 9. Action without Meeting................................. 5
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers; Issue of Stock......................... 5
SECTION 2. Number, Qualification, Election and Term of Office..... 5
SECTION 3. Nominations for Director............................... 6
SECTION 4. Quorum and Manner of Acting............................ 7
SECTION 5. First Meeting.......................................... 8
SECTION 6. Regular Meetings....................................... 8
SECTION 7. Special Meetings....................................... 8
SECTION 8. Notices of Meetings.................................... 8
SECTION 9. Organization of Meetings............................... 9
SECTION 10. Order of Business...................................... 9
SECTION 11. Action by Directors without a Meeting.................. 9
SECTION 12. Resignation............................................ 9
SECTION 13. Removal................................................ 9
SECTION 14. Vacancies.............................................. 10
<PAGE>
ii
PAGE
----
SECTION 15. Fees and Expenses of Directors......................... 10
SECTION 16. Validity of Acts of Directors.......................... 10
SECTION 17. Transactions with the Corporation...................... 10
ARTICLE III
COMMITTEES
SECTION 1. Executive Committee.................................... 11
SECTION 2. Audit Committee........................................ 12
SECTION 3. Compensation and Nominating Committee.................. 12
SECTION 4. Community Investment Committee......................... 14
SECTION 5. Other Committees....................................... 14
SECTION 6. Changes in Committee Membership; Filling of
Vacancies............................................. 14
SECTION 7. Records of Committee Action and Board
of Directors' Approval................................ 14
SECTION 8. Committee Proceedings.................................. 15
SECTION 9. Action of Committees without a Meeting................. 15
SECTION 10. General Authority of Committees........................ 15
ARTICLE IV
OFFICERS
SECTION 1. Titles and Qualifications.............................. 16
SECTION 2. Appointment and Terms of Office........................ 16
SECTION 3. Duties; Fidelity Bond.................................. 16
SECTION 4. The Chairman of the Board.............................. 16
SECTION 5. The President.......................................... 16
SECTION 6. The Vice Chairmen...................................... 17
SECTION 7. The Treasurer.......................................... 17
SECTION 8. The Comptroller........................................ 17
SECTION 9. The Clerk and the Secretary of the
Board of Directors.................................... 17
SECTION 10. The General Auditor.................................... 18
SECTION 11. The Vice Presidents.................................... 18
SECTION 12. The Assistant Treasurers and
Assistant Clerks...................................... 18
SECTION 13. Resignation............................................ 18
SECTION 14. Vacancies.............................................. 19
SECTION 15. Compensation of Officers, Employees and
Other Agents.......................................... 19
SECTION 16. Designated Officer..................................... 19
<PAGE>
iii
ARTICLE V
STOCK
PAGE
----
SECTION 1. Stock Certificates..................................... 19
SECTION 2. Transfer of Stock...................................... 19
SECTION 3. Transfer Agent and Registrar;
Regulations............................................ 20
SECTION 4. Lost, Mutilated or Destroyed Certificates.............. 20
SECTION 5. Record Date for Determination of Stockholders'
Rights; Close of Transfer Books....................... 20
SECTION 6. Dividends.............................................. 21
SECTION 7. Control Share Acquisitions............................. 21
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Offices................................................ 21
SECTION 2. Seal................................................... 22
SECTION 3. Fiscal Year............................................ 22
SECTION 4. Annual Reports......................................... 22
SECTION 5. Execution of Instruments............................... 22
SECTION 6. Voting of Securities................................... 22
SECTION 7. Powers of Attorney..................................... 23
SECTION 8. Issue of Debt Securities and
Other Obligations..................................... 23
SECTION 9. Corporate Records...................................... 23
SECTION 10. Indemnification of Directors, Officers
and Others............................................ 24
ARTICLE VII
AMENDMENTS
SECTION 1. General ............................................... 26
ARTICLE VIII
EMERGENCY BY-LAWS
SECTION 1. Effective Period....................................... 26
SECTION 2. Meetings of the Board of Directors..................... 27
SECTION 3. Emergency Location of Head Office...................... 27
SECTION 4. Preservation of Continuity of Management............... 27
SECTION 5. Immunity............................................... 27
SECTION 6. Amendment of Emergency By-Laws......................... 27
<PAGE>
BANK OF BOSTON CORPORATION
----------------
BY-LAWS
----------------
ARTICLE I
MEETINGS OF THE STOCKHOLDERS
SECTION 1. Place of Meeting; Adjournment. Meetings of the stockholders
may be held at the main office of the corporation in the City of Boston, County
of Suffolk, Commonwealth of Massachusetts, or at such places within or without
the Commonwealth of Massachusetts as may be specified in the notices of such
meetings; provided, that, when any meeting is convened, the presiding officer,
if directed by the Board of Directors, may adjourn the meeting for a period of
time not to exceed 30 days if (a) no quorum is present for the transaction of
business or (b) the Board of Directors determines that adjournment is necessary
or appropriate to enable the stockholders (i) to consider fully information
which the Board of Directors determines has not been made sufficiently or timely
available to stockholders or (ii) otherwise to exercise effectively their voting
rights. The presiding officer in such event shall announce the adjournment and
date, time and place of reconvening and shall cause notice thereof to be posted
at the place of meeting designated in the notice which was sent to the
stockholders, and if such date is more than 10 days after the original date of
the meeting the Clerk shall give notice thereof in the manner provided in
Section 4 of this Article I.
SECTION 2. Annual Meeting. The annual meeting of stockholders of the
corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held on such date and
at such time as shall be determined by the Board of Directors each year, which
date and time may subsequently be changed at any time, including the year any
such determination occurs.
SECTION 3. Special Meetings. Except as provided in the Articles of
Organization with respect to the ability of holders of preferred stock to call a
special meeting in certain circumstances, special meetings of the stockholders
may be called by the President at the direction of the Chairman of the Board or
by a majority of the directors, and shall be called by the Clerk, or in case of
the death, absence, incapacity or refusal of the Clerk, by any other officer
upon the written application of stockholders who hold one hundred percent in
interest of the capital stock of the corporation entitled to be voted at the
proposed meeting. Such request shall state the purpose or purposes of the
proposed meeting and may designate the place, date and hour of such meeting;
provided, however, that no such request shall designate a date not a full
business day or an hour not within normal business hours as the date or hour of
such meeting.
<PAGE>
-2-
As used in these By-Laws, the expression business day means a day other
than a day which, at a particular place, is a public holiday or a day other than
a day on which banking institutions at such place are allowed or required, by
law or otherwise, to remain closed.
SECTION 4. Notices of Meetings. A printed notice of the place, date and
hour and stating the purposes of each meeting of the stockholders shall be given
by the Clerk (or other person authorized by law or these By-Laws) at least 10
days before the date fixed for the meeting to each stockholder entitled to vote
at such meeting, and to each other stockholder who, under the Articles of
Organization or these By-Laws, is entitled to such notice, by leaving such
notice with him or her at his or her residence or usual place of business, or by
mailing such notice by mail, postage prepaid and addressed to such stockholder
at his or her address as it appears in the records of the corporation. Such
further notice shall be given by publication or otherwise, as may be required by
law or as may be ordered by the Board of Directors. No notice need be given to
any stockholder if such stockholder, or his or her authorized attorney, waives
such notice by a writing executed before or after the meeting and filed with the
records of the meeting or by his or her presence, in person or by proxy, at the
meeting.
It shall be the duty of every stockholder to furnish to the Clerk of the
corporation or to the transfer agent, if any, of the class of stock owned by
such stockholder, his or her post office address and to notify the Clerk or the
transfer agent of any change therein.
No business may be transacted at a meeting of the stockholders except that
(a) specified in the notice thereof given by or at the direction of the Board of
Directors or in a supplemental notice given by or at the direction of the Board
of Directors and otherwise in compliance with the provisions hereof, (b) brought
before the meeting by or at the direction of the Board of Directors or the
presiding officer or (c) properly brought before the meeting by or on behalf of
any stockholder who shall have been a stockholder of record at the time of
giving of notice by such stockholder provided for in this paragraph and who
shall continue to be entitled at the time of such meeting to vote thereat and
who complies with the notice procedures set forth in this paragraph with respect
to any business sought to be brought before the meeting by or on behalf of such
stockholder other than the election of directors and with the notice provisions
set forth in Section 3 of Article II with respect to the election of directors.
In addition to any other applicable requirements, for business to be properly
brought before a meeting by or on behalf of a stockholder (other than a
stockholder proposal included in the corporation's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), the stockholder must have given timely notice thereof in writing to the
Clerk of the corporation. In order to be timely given, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the corporation (a) not less than 75 nor more than 125 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the corporation or (b) in the case of a special meeting or in the event that the
annual meeting is called for a date (including any change in a date determined
by the Board pursuant to Section 2 of this Article I) more than 75 days prior to
such anniversary date, notice by the stockholder to be timely given must be so
<PAGE>
-3-
received not later than the close of business on the 20th day following the day
on which notice of the date of such meeting was mailed or public disclosure of
the date of such meeting was made, whichever first occurs. Such stockholder's
notice to the Clerk shall set forth as to each matter the stockholder proposes
to bring before the meeting (a) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business at
the meeting, (b) the name and record address of the stockholder proposing such
business, (c) the class and number of shares of capital stock of the corporation
held of record, owned beneficially and represented by proxy by such stockholder
as of the record date for the meeting (if such date shall then have been made
publicly available) and as of the date of such notice by the stockholder and (d)
all other information which would be required to be included in a proxy
statement or other filings required to be filed with the Securities and Exchange
Commission if, with respect to any such item of business, such stockholder were
a participant in a solicitation subject to Regulation 14A under the Exchange
Act (the "Proxy Rules"). In the event the proposed business to be brought
before the meeting by or on behalf of a stockholder relates or refers to a
proposal or transaction involving the stockholder or a third party which, if it
were to have been consummated at the time of the meeting, would have required of
such stockholder or third party or any of the affiliates of either of them any
prior notification to, filing with, or any orders or other action by, any
governmental authority, then any such notice to the Clerk shall be accompanied
by appropriate evidence of the making of all such notifications or filings and
the issuance of all such orders and the taking of all such actions by all such
governmental authorities.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at any meeting except in accordance with the procedures set
forth in this Section 4; provided, however, that nothing in this Section 4 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before such meeting.
The presiding officer of the meeting may, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedures, and if he or she should so
determine, he or she shall so declare to the meeting and that business shall be
disregarded.
SECTION 5. Quorum. At all meetings of the stockholders, the holders of
record of a majority in interest of all stock issued, outstanding and entitled
to vote thereat, or, if two or more classes of stock are issued, outstanding and
entitled to vote as separate classes, a majority in interest of each class,
present in person or represented by proxy, shall constitute a quorum requisite
for the transaction of business, except as otherwise provided by law, by the
Articles of Organization or by these By-Laws. Stock of the corporation owned
directly or indirectly by the corporation, if any, other than shares of stock
held in a fiduciary capacity shall not be deemed outstanding for this purpose.
If a quorum is not present or represented at any meeting of the stockholders,
the stockholders present or represented and entitled to vote thereat, present in
person or represented by proxy, by a majority vote, shall have the power to
adjourn the meeting from time to time without notice other than announcement at
the meeting until the requisite amount of voting stock shall be present or
represented. At any adjourned meeting at which a quorum is present or
represented, any business may be transacted
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which might have been transacted at the meeting as first convened had there been
a quorum. The stockholders present at a duly organized meeting may continue to
transact business until adjournment notwithstanding the withdrawal of one or
more stockholders or their proxy or proxies so as to leave less than a quorum
present or represented.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board or the President or, in their absence, any Vice Chairman,
or in the absence of all such officers, a person chosen by majority vote of the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall act as chairman; and the Clerk, or in his or her absence, any
Assistant Clerk, or in the absence of all such officers, any person present
appointed by the chairman shall act as secretary of the meeting. The secretary
of the meeting need not be sworn.
SECTION 7. Voting by Stockholders; Proxies. Except as otherwise provided
by law or the Articles of Organization, at all meetings of stockholders each
stockholder shall have one vote for each share of stock entitled to vote and
registered in his or her name. Any stockholder may vote in person or by proxy
dated not more than six months prior to the meeting and filed with the secretary
of the meeting. Every proxy shall be in writing, executed by a stockholder or
his or her authorized attorney-in-fact, and dated. A proxy need not be sealed,
witnessed or acknowledged. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the corporation receives a specific written
notice to the contrary from any one of them. No proxy shall be valid after the
final adjournment of the meeting.
The attendance at any meeting of a stockholder who has therefore given a
proxy shall not have the effect of revoking the same unless the stockholder so
attending shall, in writing, so notify the secretary of the meeting at any time
prior to the voting of the proxy.
The corporation shall not, directly, or indirectly, vote any of its own
stock other than shares of stock held in a fiduciary capacity. Any shares
disqualified from being voted shall not be counted in determining the proportion
of or the number of shares or votes required to pass or to vote upon or to
consent or assent to any matter.
Prior to each meeting of stockholders, the Clerk shall make or cause to be
made a full, true and complete list, in alphabetical order, of stockholders
entitled to notice of and to vote at the meeting showing the number of shares of
each class having voting rights held of record by each. When a determination of
stockholders entitled to vote at any meeting has been made as provided by law,
such determination shall apply to any adjournment of such meeting, except when
the determination has been made by the closing of the transfer books and the
stated period has expired.
At all meetings of stockholders, all questions, except as otherwise
expressly provided by law or the Articles of Organization or these By-Laws,
shall be determined by a majority vote of the stockholders entitled to vote
thereon who are present in person or represented by proxy, or, if two or more
classes of stock are entitled to vote
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as separate classes, a majority vote of the stockholders of each class, present
in person or represented by proxy. Except as otherwise expressly provided by
law, the Articles of Organization or these By-Laws, at all meetings of
stockholders the voting shall be by show of hands or voice vote, but any
qualified voter may demand a stock vote, by shares of stock, upon any question,
whereupon such stock vote shall be taken by ballot, each of which shall state
the name of the stockholder voting and the number of shares voted by him or her,
and, if such ballot be cast by a proxy, it shall also state the name of the
proxy. All elections shall be decided by plurality vote.
SECTION 8. Inspectors. At each meeting of the stockholders, the polls
shall be opened and closed by the proxies and ballots shall be received and
taken in charge by and all questions touching on the qualifications of voters
and the validity of proxies and the acceptance and rejection of votes shall be
decided by two inspectors. Such inspectors shall be appointed by the Board of
Directors before or at the meeting, or, if no such appointment shall have been
made, then by the presiding officer at the meeting. If for any reason any
inspector previously appointed shall fail to attend or refuse or be unable to
serve, an inspector in place of the one so failing to attend or refusing or
unable to serve shall be appointed, either by the Board of Directors or by the
presiding officer at the meeting. No director or candidate for the office of
director shall be appointed an inspector. The inspectors shall file with the
Clerk or other secretary of the meeting a certificate setting forth the results
of each vote taken by ballot at the meeting.
SECTION 9. Action without Meeting. Any action which may be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action by a writing filed with the records of the
meetings of stockholders. Any such consent shall be treated for all purposes as
a vote at a meeting and may be described as such in any certificate or other
document filed with or furnished to any public official, governmental agency or
other person having dealings with the corporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers; Issue of Stock. The property and business of
the corporation shall be managed by the Board of Directors which may exercise
all powers of the corporation except such powers as are by law or by the
Articles of Organization or by these By-Laws conferred upon or reserved to the
stockholders. The Board of Directors and the Executive Committee shall have
power to issue and sell or otherwise dispose of such shares of the corporation's
authorized but unissued capital stock to such persons and at such times and for
such consideration and upon such terms as it shall determine from time to time.
SECTION 2. Number, Qualification, Election and Term of Office. The Board
of Directors shall be composed of not less than three nor more than thirty-five
directors. Within the limits specified, the number of directors shall be
determined from time to time by vote of a majority of the entire Board;
provided, however, that no decrease in the
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number of directors constituting the entire Board of Directors made pursuant to
this Section 2 shall shorten the term of any incumbent director. The Board of
Directors shall be divided into three classes, as nearly equal in number as
possible. The Directors need not be stockholders. To be nominated to serve or to
serve as a director, an individual must be eligible to serve as a director both
at the time the Board of Directors votes to nominate such individual or receives
notice in accordance with Section 3 of this Article of a stockholder's intent to
nominate such individual and at the time of such election, and the stockholder
making such nomination (and any party on whose behalf or in concert with whom
such stockholder is acting) must be qualified at the time of making such
nomination to have such individual serve as the nominee of such stockholder (and
any party on whose behalf or in concert with whom such stockholder is acting) if
such individual is elected. At each annual meeting of stockholders, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a term continuing until the annual meeting held in
the third year following the year of their election and until their successors
are duly elected and qualified or until their earlier resignation, death or
removal; provided, that in the event of failure to hold such an annual meeting
or to hold such election at such meeting, the election of directors may be held
at any special meeting of the stockholders called for that purpose. Directors,
except those appointed by the Board of Directors to fill vacancies, shall be
elected by a plurality vote of the stockholders, voting by ballot either in
person or by proxy. As used in these By-Laws, the expression "entire Board"
means the number of directors in office at a particular time.
SECTION 3. Nominations for Director. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors, except as provided in the Articles of Organization with respect to
nominations by holders of preferred stock in certain circumstances. Nominations
of persons for election to the Board of Directors at the annual meeting may be
made at the annual meeting of stockholders (a) by the Board of Directors or at
the direction of the Board of Directors by any nominating committee or person
appointed by the Board or (b) by any stockholder of record at the time of giving
of notice provided for in this Section 3 and who shall continue to be entitled
at the time of the meeting to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 3 rather than
the notice procedures with respect to other business set forth in Section 4 of
Article I. Nominations by stockholders shall be made only after timely notice
by such stockholder in writing to the Clerk of the corporation. In order to be
timely given, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the corporation not less than 75
nor more than 125 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders of the corporation; provided, however,
that in the event that the meeting is called for a date, including any change in
a date determined by the Board pursuant to Section 2 of Article I, more than 75
days prior to such anniversary date, notice by the stockholder to be timely
given must be so received not later than the close of business on the 20th day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever first occurs.
Such stockholder's notice to the Clerk shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal
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occupation or employment of the person, (iii) the class and number of shares of
capital stock of the corporation, if any, which are beneficially owned by the
person, (iv) any other information regarding the nominee as would be required to
be included in a proxy statement or other filings required to be filed pursuant
to the Proxy Rules, and (v) the consent of each nominee to serve as a director
of the corporation if so elected; and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder, (ii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the stockholder as of the record date for the meeting (if such date
shall then have been made publicly available) and as of the date of such notice,
(iii) a representation that the stockholder intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice,
(iv) a representation that the stockholder (and any party on whose behalf or in
concert with whom such stockholder is acting) is qualified at the time of giving
such notice to have such individual serve as the nominee of such stockholder
(and any party on whose behalf or in concert with whom such stockholder is
acting) if such individual is elected, accompanied by copies of any notification
or filings with, or orders or other actions by, any governmental authority which
are required in order for such stockholder (and any party on whose behalf such
stockholder is acting) to be so qualified, (v) a description of all arrangements
or understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder and (vi) such other information
regarding such stockholder as would be required to be included in a proxy
statement or other filings required to be filed pursuant to the Proxy Rules. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as director. No person shall be eligible for
election as a director unless nominated in accordance with the procedures set
forth herein.
The presiding officer of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
foregoing procedures, and if he or she should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
SECTION 4. Quorum and Manner of Acting. One-third of the directors in
office (but in no event fewer than two) shall constitute a quorum for the
transaction of business at any meeting and, except as otherwise provided by law
or these By-Laws, the act of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors.
Directors shall be deemed present at a meeting when present in person or by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. In the absence of a quorum, a majority of the directors present, or if
only two directors are present, either director, or the sole director present,
may adjourn any meeting to a day certain or from time to time until a quorum is
present. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted if the meeting had been held
when originally called. A director may not vote or otherwise act by proxy.
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SECTION 5. First Meeting. The Board of Directors elected at any annual
meeting of stockholders shall meet at the Head Office of The First National Bank
of Boston in the City of Boston and Commonwealth of Massachusetts, immediately
after the final adjournment of such meeting or as soon as practicable (but not
more than 30 days) thereafter for purposes of organization, the election of
officers for the succeeding year and the transaction of other business. No
notice of such meeting need be given.
SECTION 6. Regular Meetings. Except for the first meeting of the Board of
Directors to be held immediately following the annual election of directors,
regular meetings of the Board of Directors shall be held on the fourth Thursday
in each month, except the month in which the annual election of directors is
held, at one o'clock in the afternoon in the directors' room at the Head Office
of The First National Bank of Boston in the City of Boston, or at such other
time or at such other place, or both, as shall be designated in the notice of
meeting given to the directors as provided in these By-Laws. If the day
designated for a regular meeting of the Board of Directors would not be a
business day (as defined in Section 3 of Article I of these By-Laws) at the
place where the meeting is to be held, then the meeting shall be held on such
other business day as the Board of Directors may have previously designated, or
if no such day shall have been designated, the meeting shall be held on the
first business day at such place preceding the date originally designated for
such meeting. Any regular meeting of the Board of Directors may be dispensed
with by an appropriate vote passed by the Board of Directors at any prior
meeting.
SECTION 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President and shall be called
by the Clerk at the written request of three or more directors. Special
meetings of the Board of Directors may be held at such place and time as may be
designated in the call of the meeting.
SECTION 8. Notices of Meetings. Notice of the time and place of each
regular or special meeting of the Board of Directors shall be given to each
director at least 48 hours before such meeting if delivered personally or sent
by mail or at least 24 hours before such meeting if given by telephone, telex,
telegraph or other electronic means. Notice by mail shall be deemed to be given
when deposited in the post office or a letter box in postage-paid sealed
wrappers or when transmitted by telegraph or telex, and addressed separately to
each director at his or her address appearing on the records of the corporation.
Notices of meetings of the Board of Directors need not include a statement of
the business to be transacted thereat unless required by law or these By-Laws.
No notice of any adjourned meeting of the Board of Directors need be given other
than by announcement at the session of the meeting which is being adjourned.
Failure to give any such notice of any meeting, or any irregularity in the
notice thereof, shall not invalidate any proceedings taken thereat if a quorum
is present and if all absent directors, either before or after the meeting,
shall sign a waiver of notice or a consent to the holding of such meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the minutes of the meetings to which they relate.
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SECTION 9. Organization of Meetings. At each meeting of the Board of
Directors, the Chairman of the Board or the President or, in their absence, any
Vice Chairman, or in the absence of all such officers, a director chosen by a
majority of the directors present shall act as chairman. The Clerk, or, in his
or her absence, any person appointed by the chairman, shall act as secretary of
the meeting and keep minutes of the proceedings. The secretary of the meeting
need not be sworn.
SECTION 10. Order of Business. At all meetings of the Board of Directors,
business shall be transacted in the order determined by the chairman of the
meeting, subject to approval of the directors present thereat.
SECTION 11. Action by Directors without a Meeting. Unless otherwise
restricted by the Articles of Organization or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee. Any such consent shall be
treated for all purposes as a vote duly adopted by the Board of Directors or
such committee at a meeting and may be described as such in any certificate or
other document filed with or furnished to any public official, governmental
agency or other person having dealings with the corporation.
SECTION 12. Resignation. Any director may resign at any time by giving
written notice of his or her resignation to the Chairman of the Board or the
President or the Clerk. Such resignation shall take effect upon its receipt or
at any later date specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 13. Removal. A director may be removed by the affirmative vote of
a majority of the shares outstanding and entitled to vote in the election of
directors only for cause. A director may be removed for cause only after
reasonable notice and opportunity to be heard before the stockholders. For such
time as the corporation is subject to paragraph (a) of Section 50A of Chapter
156B of the Massachusetts General Laws, "cause" with respect to the removal of
any director by the stockholders shall mean only (a) conviction of a felony, (b)
declaration of unsound mind by order of court, (c) gross dereliction of duty,
(d) commission of an action involving moral turpitude, or (e) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results both in an improper substantial personal
benefit and a material injury to the corporation.
If at any time the corporation shall no longer be subject to paragraph (a)
of Section 50A of Chapter 156B of the Massachusetts General Laws, (a) a director
may be removed from office with or without cause by the vote of the holders of a
majority of the shares entitled to vote in the election of directors and may be
removed from office with cause by vote of a majority of the directors then in
office, and (b) a director may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him or her.
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SECTION 14. Vacancies. The Board of Directors may act notwithstanding a
vacancy or vacancies in its membership; but if the office of any director shall
become vacant by reason of an increase in size of the Board of Directors, or the
death, resignation, disqualification or removal of a director or otherwise, such
vacancy or vacancies shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum. Any director elected in accordance with this Section 14 shall hold
office for the remainder of the full term of the class of directors in which the
vacancy occurred or the new directorship was created and until his or her
successor shall have been elected and qualified or until his or her earlier
resignation, death or removal.
SECTION 15. Fees and Expenses of Directors. Each director who is not an
officer or employee of the corporation or any of its affiliates may be paid such
fees for his or her services and for attendance at meetings of the Board of
Directors or of any committee thereof as the Board of Directors may determine
from time to time to be appropriate. Such fees may be payable currently or on a
deferred basis. In addition, each such director shall be entitled to
reimbursement for reasonable expenses incurred by him or her in order to attend
meetings of the Board of Directors and committees thereof or otherwise in
connection with the performance of his or her duties as a director.
SECTION 16. Validity of Acts of Directors. All action taken by any
meeting of the Board of Directors or of a committee of the directors or by any
person acting as a director shall, notwithstanding that it shall afterwards be
discovered that there was some defect in the election or appointment or
continuance in office of any such director or person acting as a director, or
that they or any of them were disqualified, or had vacated office, or were not
entitled to vote in relation to the matter acted upon, be as valid as if such
person had been duly elected or appointed, had continued in office and was
qualified to be a director and entitled to vote on such matter.
SECTION 17. Transactions with the Corporation. No contract or other
transaction between the corporation and one or more of its directors or between
the corporation or any other corporation, partnership, voluntary association,
trust or other organization of which any of its directors is a director or
officer or in which he or she has any financial interest shall be void or
voidable for this reason or because any such director is present at or
participates in the meeting of the Board of Directors or of the committee
thereof which authorizes the contract or transactions or because his or her vote
is counted for such purpose (a) if the material facts as to the contract or
transaction and as to his or her relationship or interest are disclosed to the
Board of Directors or such committee and the Board of Directors or such
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of disinterested directors even though the
disinterested directors be less than a quorum or (b) if the material facts as to
the contract or transaction and as to his or her relationship or interest are
disclosed or are known to the shareholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by vote of the
shareholders or (c) if the contract or transaction is fair and reasonable as to
the corporation as of the time it is authorized, approved or ratified by the
Board of Directors, such committee or the shareholders. Common or interested
directors may
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be counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE III
COMMITTEES
SECTION 1. Executive Committee. There shall be an Executive Committee
composed of the Chairman of the Board, the President and such number of other
directors, not less than five nor more than seven, as the Board of Directors may
appoint from time to time by resolution passed by the vote of a majority of the
entire Board. The Board of Directors may also, from time to time, by similar
resolution, appoint one or more alternate members of the Executive Committee who
may attend and act in the place of any absent or disqualified member or members
of the Executive Committee at any meeting thereof. Subject to the provisions of
Section 6 of this Article III, the term of office of any appointed member or
alternate member of the Executive Committee shall expire on the date specified
in the resolution of appointment or any earlier date on which he or she ceases
to be a director. Any director who has served as a member or alternate member
of the Executive Committee shall be eligible for reappointment to a new term of
office.
During the intervals between meetings of the Board of Directors, the
Executive Committee, unless expressly provided otherwise by law or these By-
Laws, shall have and may exercise all the authority of the Board of Directors,
except that it shall not be entitled to
(i) change the principal office of the corporation;
(ii) amend or repeal these By-Laws or to adopt new by-laws;
(iii) elect officers required by law to be elected by the stockholders
or directors or to fill vacancies in any such offices;
(iv) change the number of the Board of Directors or to fill vacancies
in the Board of Directors;
(v) remove officers or directors from office;
(vi) fix the remuneration of any director for serving on the Board of
Directors or any Committee thereof or for services to the corporation in
any other capacity;
(vii) authorize the payment of any dividend or distribution to
stockholders;
(viii) authorize the reacquisition for value of stock of the
corporation; or
(ix) authorize a merger of a subsidiary entity into the corporation.
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The action taken by the Executive Committee at each meeting shall be
reported to the Board of Directors and shall be subject to alteration or repeal
by the latter, provided that no alteration or repeal by the Board of Directors
of action taken by the Executive Committee shall prejudice the rights or acts of
any third person.
The Executive Committee shall hold meetings at such times and places and
upon such notice as it may from time to time determine. Other meetings of the
Executive Committee may be called at any time by the Chairman of the Board or by
the President or by any three members of the Executive Committee or by the
Secretary of the Board of Directors at the written request of the person or
persons entitled to call such a meeting.
SECTION 2. Audit Committee. There shall be an Audit Committee composed of
such number of directors (not less than three) as the Board of Directors, by
resolution passed by the vote of a majority of the entire Board may appoint,
none of whom shall be an employee of the corporation.
The duties of the Audit Committee shall be
(a) to recommend to the Board of Directors for approval by the
stockholders the appointment of a firm of independent public accountants
("the Auditors") to audit the accounts of the corporation and such of its
subsidiaries as the Committee may recommend for the financial year in
respect of which such appointment is made;
(b) to make, or cause to be made by the Auditors, such examinations or
audits of the affairs and operations of the corporation or of any one or
more of its subsidiaries, of such scope, with such objects, and at such
times or intervals as the Committee may determine in its discretion or as
may be ordered by the Board of Directors or the Executive Committee;
(c) to submit to the Board of Directors as soon as may be convenient
following the conclusion of each examination or audit made by or at the
direction of the Committee, a written report relative thereto;
(d) to oversee the activities of the General Auditor and his or her
staff. The Committee shall also be responsible for conducting periodic
performance evaluations and establishing the compensation of the General
Auditor; and
(e) to review matters associated with internal control and the management
of risk.
A notation with respect to each report made to the Board of Directors by
the Audit Committee and of the action taken thereon by the Board of Directors
shall be made in the minutes of the latter.
SECTION 3. Compensation and Nominating Committee. There shall be a
Compensation and Nominating Committee composed of such number of directors (not
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less than three nor more than six) as the Board of Directors, by resolution
passed by vote of a majority of the entire Board, may appoint, none of whom
shall be an employee of the corporation. The Chairman of the Board and the
President shall serve as ex officio members of the Committee solely when it is
acting in its capacity as a nominating committee pursuant to subparagraphs (e)
and (f). The Chairman of the Board and the President shall not be deemed to be
members of the Committee when it is acting with respect to compensation matters
pursuant to subparagraphs (a) through (d).
No person who serves as a member of the Compensation and Nominating
Committee when it acts with respect to compensation matters shall be eligible
for an award of bonus under any bonus plan or incentive plan or otherwise or for
the grant of an option of contingent credit under any stock option plan or stock
bonus plan.
The duties of the Compensation and Nominating Committee shall be
(a) after considering the recommendations of the Chairman of the Board,
to make recommendations to the Board of Directors from time to time as to
the salaries of all employees of the corporation who are in positions or at
salary levels designated from time to time by the Board of Directors on the
recommendation of the Committee;
(b) to review the salary programs and other benefit plans or arrangements
affecting directors or employees of the corporation (except any such
program, plan or arrangement imposed upon the corporation by law), to
discharge any other responsibility placed upon the Committee by any such
benefit plans or arrangements or specifically delegated by the Board of
Directors to the Committee and from time to time to present to the Board of
Directors the views of the Committee with respect to proposed changes in
any such program, plan or other arrangement, which shall have been brought
to their attention by management;
(c) to make, or cause to be made, such special studies and reports
pertaining to the corporation's compensation policies and practices as may
be requested of the Committee from time to time by the Board of Directors;
and
(d) to execute as it sees fit from time to time the powers and to
discharge the duties vested in it from time to time by the terms of any
pension or other benefit plan or arrangement affecting directors or
employees of the corporation.
(e) to consider and recommend to the Board of Directors candidates for
appointment or election as directors who are proposed to it by the Chairman
of the Board, by any other officer of the corporation, or any director or
stockholder; and
(f) to perform such functions as may be assigned to it from time to time
by the Board of Directors.
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SECTION 4. Community Investment Committee. The Board of Directors may
from time to time appoint a Community Investment Committee composed of not less
than three nor more than five directors.
The duties of the Committee shall be from time to time to review and
evaluate the policies established by the corporation's subsidiary banks relating
to the discharge by the subsidiary banks of their responsibilities under the
Community Reinvestment Act of 1977, as amended (Section 2901 et seq. of Title 12
of the United States Code) and regulations thereunder, or any other applicable
Federal or state law or regulations thereunder relating to substantially the
same subject as the Community Reinvestment Act of 1977, as amended, and oversee
the implementation of such policies by the corporation's subsidiary banks and
make reports to the Board of Directors from time to time of its findings and
recommendations.
SECTION 5. Other Committees. The Board of Directors may, from time to
time, by resolution passed by the vote of a majority of the entire Board,
constitute such other standing or special committees as it deems desirable and
may dissolve any such committee by like resolution at its pleasure. Each such
committee shall have such authority and perform such duties not inconsistent
with law and these By-Laws as may be assigned to it by the Board of Directors.
Vacancies in any such committee shall be filled by resolution passed by the vote
of a majority of the entire Board. No such committee shall be granted or shall
exercise any authority which shall have been delegated to another committee by
these By-Laws or by resolution of the Board of Directors or which, in the
absence of such delegation, could not be exercised by the Executive Committee.
SECTION 6. Changes in Committee Membership; Filling of Vacancies. The
Board of Directors by resolution passed by a vote of the majority of the entire
Board may at any time or from time to time
(a) increase or reduce the number of members of any committee, within any
applicable limits imposed by these By-Laws,
(b) remove any member from any committee,
(c) appoint a director to fill a vacancy in, or to be an additional
member of, any committee, and
(d) discharge any committee except a standing committee established
pursuant to this Article III.
SECTION 7. Records of Committee Action and Board of Directors' Approval.
Each committee appointed by the Board of Directors shall keep a record of its
acts and proceedings which shall be open for inspection at any time by any
director. Such record shall be submitted to the Board of Directors at such time
or times as may be required by these By-Laws or as may be requested by the Board
of Directors. Failure to submit such record, or failure of the Board of
Directors to approve any action indicated therein shall not invalidate any
action otherwise lawful, to the extent that it
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has been carried out by the corporation prior to the time the record of such
action was, or should have been, submitted to the Board of Directors as herein
provided. The action of the Board of Directors at any meeting with respect to
action taken by any standing committee shall be recorded in the minutes of the
meeting.
SECTION 8. Committee Proceedings. In the absence of specific provisions
in these By-Laws or regulations imposed by the Board of Directors, a committee
may meet and adjourn and otherwise regulate its meetings as it thinks fit. A
committee may appoint a chairman of its meetings if none has been appointed by
the Board of Directors or is designated elsewhere in this Article III. If no
such chairman has been appointed, or if at any meeting the chairman is not
present within five minutes after the time appointed for the holding of the
meeting, the members present may choose one of their number to be chairman of
the meeting. A quorum for the transaction of business at any meeting of a
committee shall be a majority of the fixed number of members thereof for the
time being (whether or not any seat is vacant) unless a different rule shall
have been adopted by a resolution passed by the vote of a majority of the Board
of Directors. A resolution passed by the vote of a majority of the members
present at the time of voting if a quorum is present shall be the act of the
committee. In the case of an equality of votes the Chairman shall have a second
or casting vote. A committee cannot sub-delegate any of its powers or duties
within its membership or to any other person or persons unless authorized to do
so by the Board of Directors or these By-Laws. Committee members cannot vote by
proxy.
SECTION 9. Action of Committees without a Meeting. Any action required or
permitted to be taken by a committee of the Board of Directors may be taken
without a meeting if all members of the committee consent thereto in writing
either before or after the action is taken and the writing or writings
evidencing such consent are filed with the minutes of proceedings of such
committee. For all purposes of these By-Laws, any such consent shall constitute
a resolution duly passed by such committee.
SECTION 10. General Authority of Committees. Any committee appointed by
the Board of Directors pursuant to this Article III shall be at liberty
(a) to meet and confer with employees of the corporation and its
subsidiaries on all matters relating to the work of the committee which
fall within the purview of such employees and to be informed by any of them
as to the policies, practices, and controls of the division or department
of the corporation or of the subsidiary of the corporation to which he or
she is assigned;
(b) to examine all reports which are relevant to the work of the
committee (i) made by the corporation or any of its subsidiaries to
regulatory authorities and (ii) of examinations of the corporation or any
of its subsidiaries made by regulatory authorities.
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ARTICLE IV
OFFICERS
SECTION 1. Titles and Qualifications. The officers of the corporation
shall be a Chairman of the Board, a President, a Treasurer, a Comptroller, a
Clerk, a General Auditor, one or more Executive Vice Presidents and such other
officers including one or more Vice Chairmen as may be appointed from time to
time in accordance with these By-Laws. Except as otherwise provided by law, the
duties of any two officers may be discharged by the same person, but the
President shall not serve at the same time as Treasurer, Comptroller, or Clerk.
The Chairman of the Board and the President must be directors.
SECTION 2. Appointment and Terms of Office. The Chairman of the Board,
the President, any Vice Chairman, any Vice President, the Treasurer, the
Comptroller, the Clerk and the General Auditor shall be chosen by a majority
vote of the entire Board at the first meeting of the Board of Directors
following each annual meeting of stockholders (or special meeting of
stockholders in lieu of such annual meeting) or by the Board of Directors from
time to time and each shall hold office until the following first meeting of the
Board of Directors and until his or her successor is chosen and qualifies,
unless he or she sooner resigns, retires, dies, is removed or becomes
disqualified. Other officers may be appointed from time to time by the Board of
Directors, the Chairman of the Board or the President. Each other officer shall
have such title, exercise such power and perform such duties and hold office for
such term as shall be determined by the Board of Directors, the Chairman of the
Board or the President, as the case may be.
SECTION 3. Duties; Fidelity Bond. The duties and authority of each
officer of the corporation, other than as set forth in these By-Laws, shall be
prescribed and may be varied from time to time by the Board of Directors, the
Chairman of the Board or the President, as the case may be. The Board of
Directors shall provide for such bond and fidelity insurance covering the
officers of the corporation and for the faithful and honest discharge of their
duties as the Board may determine. Such bonds or insurance may be in
individual, schedule or blanket form and the premiums therefor shall be paid by
the corporation.
SECTION 4. The Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the corporation and shall have the general
control and management of the business and affairs of the corporation. When
present, he or she shall preside at all meetings of the Board of Directors and
of stockholders. He or she shall have such powers and duties as usually are
incident to the Office of Chief Executive Officer and shall perform such other
duties as may be imposed on him or her by law, the Articles of Organization and
these By-Laws, or as may be assigned to him or her by the Board of Directors.
The Chairman of the Board shall be a member of the Executive Committee. A
vacancy occurring in the office of the Chairman of the Board shall be filled
promptly by the Board of Directors.
SECTION 5. The President. The President shall be the Chief Operating
Officer of
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the corporation and shall have the general control and management of
the operations of the corporation. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the Board of Directors and the
stockholders. The President shall be subject to the direction of the Board of
Directors and of the Chairman of the Board under whose direct supervision he or
she shall be. The President shall perform such duties as may be imposed on him
or her by law, the Articles of Organization and these By-Laws or as may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
He or she shall have such powers and duties as are usually incident to the
Office of President and Chief Operating Officer. The President shall be a
member of the Executive Committee. A vacancy occurring in the office of the
President shall be filled promptly by the Board of Directors.
SECTION 6. The Vice Chairmen. Each Vice Chairman shall perform the duties
imposed upon him or her by these By-Laws or assigned to him or her by the Board
of Directors, the Chairman of the Board or the President. The Vice Chairmen
shall be senior in rank to the Executive Vice Presidents and all other Vice
Presidents including Senior Vice Presidents. In the absence of the Chairman of
the Board and the President, a Vice Chairman, if one is in office, shall preside
at all meetings of the stockholders, of the Board of Directors and of the
Executive Committee held during such absence. A vacancy occurring in an office
of a Vice Chairman may be filled by the Board of Directors.
SECTION 7. The Treasurer. The Treasurer shall have custody and control
over all funds and securities of the corporation, maintain full and adequate
accounts of all moneys received and paid by him or her on account of the
corporation and, subject to the control of the Board of Directors shall
discharge all duties incident to the office of Treasurer. The Treasurer shall
have authority, in connection with the normal business of the corporation, to
sign or endorse negotiable instruments, contracts, leases and other documents.
The Treasurer shall render an account of his or her transactions to the Board of
Directors whenever and as often as may be requested. A vacancy in the office of
Treasurer shall be filled promptly by the Board of Directors.
SECTION 8. The Comptroller. The Comptroller shall be the chief accounting
officer of the corporation. He or she shall establish accounting policy for the
corporation, maintain complete and accurate books and records concerning its
financial transactions, prepare its financial statements and, subject to the
control of the Board of Directors, discharge all duties incident to the office
of the Comptroller. The Comptroller shall have authority, in connection with
the normal business of the corporation, to sign or endorse negotiable
instruments, contracts, leases and other documents. A vacancy in the office of
Comptroller shall be filled promptly by the Board of Directors.
SECTION 9. The Clerk and the Secretary of the Board of Directors. The
Clerk shall be the principal recording officer of the corporation. He or she
shall be the Secretary of the Board of Directors and of the Executive Committee
and of the Audit Committee. He or she shall attend and keep minutes of all
proceedings at meetings of the stockholders, the Board of Directors, the
Executive Committee and of each committee appointed by the Board of Directors
which shall not have appointed any other person
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to serve as its secretary. The Clerk shall have charge of the corporate seal,
minute books of the corporation and of such other corporate records, books and
papers as the Board of Directors or the Executive Committee may order to be kept
in his or her custody or under his or her control. The Clerk shall have
authority to affix the seal of the corporation to all instruments executed under
seal and to attest thereto. As required by law, these By-Laws or the Board of
Directors, the Clerk shall give or cause to be given notice to the stockholders
of each annual and special meeting and to the directors of each regular and
special meeting of the Board of Directors except the first meeting after their
election in each year; and the Clerk shall perform such other duties as may be
imposed upon him or her by law, these By-Laws, the Board of Directors, the Audit
Committee or the Chairman of the Board, under whose direct supervision he or she
shall be. The Clerk shall be a resident of the Commonwealth of Massachusetts
unless a resident agent has been appointed by the corporation pursuant to law to
accept service of process. A vacancy in the office of Clerk shall be filled
promptly by the Board of Directors.
SECTION 10. The General Auditor. The General Auditor shall direct the
internal audit activities of the corporation and shall provide the Audit
Committee with objective and timely information to aid in measuring and
evaluating the operations of the corporation. In the conduct of this
responsibility, the General Auditor shall perform such duties as may be imposed
upon him or her by these By-Laws, the Board of Directors and the Audit
Committee. To assure the professional independence of the General Auditor, he or
she shall report directly and solely to the Audit Committee. For purposes of
internal administration, the General Auditor shall report to a senior officer of
the corporation other than the Chairman of the Board or the President. A vacancy
occurring in the office of the General Auditor shall be filled promptly by the
Board of Directors.
SECTION 11. The Vice Presidents. Each Vice President shall perform the
duties imposed upon him or her by these By-Laws or assigned to him or her by the
Board of Directors, the Chairman of the Board or the President. The Executive
Vice President shall be senior in rank to all other Vice Presidents including
Senior Vice Presidents. A vacancy occurring in an office of a Vice President
may be filled by the Board of Directors.
SECTION 12. The Assistant Treasurers and Assistant Clerks. Each Assistant
Treasurer shall perform such duties as may be assigned to him or her by the
Board of Directors, the Chairman of the Board, the President or the Treasurer.
Each Assistant Clerk shall perform such duties as may be assigned to him or her
by the Board of Directors, the Chairman of the Board, the President or the
Clerk, and shall have the authority to affix the seal of the corporation to all
instruments executed under seal and to attest thereto.
SECTION 13. Resignation. Any officer may resign at any time by giving
written notice to the Chairman of the Board, the President or the Clerk. The
resignation of any officer shall take effect upon its receipt or on any later
date specified therein; and unless otherwise specified therein, the acceptance
of such resignation shall not be
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required to make it effective.
SECTION 14. Vacancies. Except for those offices to be filled by the Board
of Directors, the Chairman of the Board or the President may fill any vacancy
occurring in any office by reason of death, resignation, retirement or other
cause and may, in its discretion, leave offices unfilled for such period as it
may determine.
SECTION 15. Compensation of Officers, Employees and Other Agents. The
Board of Directors shall have power to fix, and to vary from time to time, the
compensation of all officers, employees and other agents of the corporation for
their services as such.
SECTION 16. Designated Officer. The term designated officer of the
corporation, whenever it appears in a resolution or vote of the Board of
Directors of the corporation shall refer to any one of the Chairman of the
Board, the President, any Vice Chairman, the Treasurer, an Assistant Treasurer,
the Comptroller, any Vice President of whatever rank, the Clerk, an Assistant
Clerk, the Secretary of the Board of Directors, the Executive Counsel, the
General Counsel and the General Auditor unless the resolution or vote of the
Board of Directors otherwise provides.
ARTICLE V
STOCK
SECTION 1. Stock Certificates. Each stockholder shall be entitled to a
certificate or certificates of stock of the corporation in such form as the
Board of Directors may from time to time prescribe. Each certificate shall be
numbered and entered in the books of the corporation as it is issued, shall
state the holder's name and the number and the class and the designation of the
series, if any, of his or her shares, shall be signed by the Chairman, the
President or a Vice President and by the Treasurer or an Assistant Treasurer and
may, but need not, be sealed with the seal of the corporation. If any stock
certificate is signed by a transfer agent, or by a registrar, other than a
director, officer or employee of the corporation, the signatures of the officers
of the corporation may be facsimiles. In case any officer who has signed or
whose facsimile signature has been placed on any certificate shall have ceased
to be such officer before such certificate is issued, it may nevertheless be
issued by the corporation and delivered with the same effect as if he or she
were such officer at the time of issue. Every certificate of stock which is
subject to any restriction on transfer pursuant to the Articles of Organization,
these By-Laws or any agreement to which the corporation is a party, or which is
issued while the corporation is authorized to issue more than one class or
series of stock, shall have the restriction noted conspicuously on the
certificate and shall also set forth on the face or back the full text of the
restriction or the preferences, voting powers, qualifications and special or
relative rights of each class or series or, alternatively, a statement of the
existence of such restriction and such preferences, powers, qualifications and
rights and a statement that the corporation will furnish a copy of the
restriction and such preferences, powers, qualifications and rights to the
holder of such certificate upon written request and without charge.
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SECTION 2. Transfer of Stock. Subject to any applicable transfer
restrictions at the time in force, shares of stock of the corporation shall be
transferable upon its books by the holders thereof in person or by their duly
authorized attorneys or legal representatives. Such transfer shall be effected
by delivery of the old certificate, together with a duly executed assignment and
power to transfer endorsed thereon or attached thereto and with such proof of
the authenticity of the signature and such proof of authority to make the
transfer as the corporation or its agents may reasonably require, to the person
in charge of the stock and transfer books and ledgers or to such other person as
the Board of Directors may designate, who shall thereupon cancel the old
certificate and issue a new certificate. The corporation may treat the holder
of record of any share or shares of stock as the owner of such stock, and shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, or otherwise, save as expressly provided by law.
SECTION 3. Transfer Agent and Registrar; Regulations. The corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors at which the shares of the capital stock of
the corporation shall be transferable, and also one or more registry offices,
each in charge of a registrar designated by the Board of Directors, where such
shares of stock shall be registered, and no certificate for shares of the
capital stock of the corporation in respect of which a registrar and transfer
agent shall have been designated, shall be valid unless countersigned by such
transfer agent and registered by such registrar. The Board of Directors may
also make such additional rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the corporation.
SECTION 4. Lost, Mutilated or Destroyed Certificates. No certificate for
shares of stock of the corporation shall be issued in place of any certificate
alleged to have been lost, mutilated or destroyed, except upon production of
such evidence of the loss, mutilation or destruction and upon indemnification of
the corporation and its agents to such extent and in such manner as the Board of
Directors may prescribe and as permitted by law.
SECTION 5. Record Date for Determination of Stockholders' Rights; Close of
Transfer Books. The Board of Directors may fix in advance a date, not exceeding
60 days preceding the date of any meeting of stockholders, or the date fixed for
the payment of any dividend, or the making of any other distribution to
stockholders, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or the
last day on which the consent or dissent of stockholders may be effectively
expressed for any purpose, as the record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or receive any such allotment of rights, or as the last day on
which stockholders may effectively exercise rights in respect of any such change
or conversion or exchange of capital stock, or as the last day on which they may
effectively express such consent or dissent, and in such case only stockholders
of
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record on the date so fixed shall be so entitled, notwithstanding any
transfer of stock on the books of the corporation after the date fixed as
aforesaid. In lieu of fixing such a record date or last day, the Board of
Directors may close the transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed:
(i) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given.
(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of
Directors acts with respect thereto.
SECTION 6. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Organization, may be
declared by the Board of Directors at any regular or special meeting, payable in
cash, in property, or in shares of the capital stock, subject to the
limitations, if any, imposed by law or the Articles of Organization. Before
payment of any dividends, there may be set aside out of any funds of the
corporation available for dividends, such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
Board of Directors shall think conducive to the interests of the corporation,
and the Board of Directors may modify or abolish any such reserve.
SECTION 7. Control Share Acquisitions. Until such time as this Section 7
shall be repealed or these By-Laws shall be amended to provide otherwise, in
each case in accordance with Article VII of these By-Laws, the provisions of
Chapter 110D of the Massachusetts General Laws shall not apply to "control share
acquisitions" of the corporation within the meaning of said Chapter 110D.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Offices. The principal office of the corporation shall be in
the City of Boston, County of Suffolk, Commonwealth of Massachusetts. The
corporation may also have offices at such other place or places within or
without the Commonwealth of Massachusetts as the Board of Directors may from
time to time determine.
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SECTION 2. Seal. The seal of the corporation shall be in the following
form: [Seal, consists of a circle with a star in the center and the words "Bank
of Boston Corporation" and "Massachusetts" and the year "1970".]
When authorized by the Board of Directors and to the extent permitted by
law and these By-Laws, a facsimile of the corporate seal may be affixed or
reproduced.
SECTION 3. Fiscal Year. The fiscal year of the corporation shall be
coincident with the calendar year unless another fiscal year shall have been
fixed by the Board of Directors.
SECTION 4. Annual Reports. The Chairman of the Board or the President
shall make and present to the annual meeting of stockholders a report showing
the aggregate amounts of assets and liabilities of the corporation as of the end
of the last preceding fiscal year. A copy of such report shall be mailed to
each stockholder of the corporation. Such report may also contain such other
information and may be in such detail as either the Chairman of the Board or the
President may determine in his or her absolute discretion.
SECTION 5. Execution of Instruments. All contracts, conveyances, promises
or orders for the payment of money or other obligations authorized by the Board
of Directors to be executed or endorsed by an officer of the corporation in its
behalf shall be executed or endorsed by the Chairman of the Board, the
President, any Vice Chairman, any Vice President, the Treasurer and the Clerk,
except as the Board of Directors may generally or in particular cases otherwise
determine and except that checks drawn on any dividend and special accounts may
bear the facsimile signature, affixed thereto by a mechanical device, of such
officer or agent as the Board of Directors shall authorize, and except also that
bonds, notes, debentures or other evidences of indebtedness authenticated by a
manual signature on behalf of a trustee or an authenticating agent appointed by
the Board of Directors may bear such facsimile signature or signatures of such
officer or officers of the corporation as the Board of Directors shall
authorize.
SECTION 6. Voting of Securities. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the President, each Vice Chairman, the
Treasurer, each Executive Vice President, each Senior Vice President, each Vice
President and the Clerk, each acting alone, shall have authority on behalf of
the corporation (a) to attend and act and vote in person for the corporation and
as its duly appointed agent and attorney-in-fact at any meeting of the holders
of securities or creditors of any person (as hereinafter defined) any securities
of whom are owned or held with power to vote by the corporation or any
indebtedness of whom is owed to the
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corporation, (b) to appoint, by an instrument in writing, a proxy or several
proxies to attend and act and vote for the corporation at any such meeting and
(c) to execute and deliver in the name and on behalf of the corporation any
consent or waiver by the corporation as a security holder or creditor of any
such person. As used in this Section, the word "person" includes a natural
person, a corporation, a company, a partnership, a voluntary association, a
proprietorship, a trust, an estate, a government (national, state, regional or
local) or a department or agency thereof, and any other form of legal entity
however designated and wherever formed or existing. Each officer named in this
Section and each person designated by any such officer as a proxy for this
corporation shall have and may exercise at any such meeting any and all rights
and powers incident to the ownership of such securities or indebtedness which an
owner would have if personally present.
SECTION 7. Powers of Attorney. The Chairman of the Board, the President,
each Vice Chairman, or any Executive Vice President may from time to time and at
any time by power of attorney appoint any person (as defined in Section 6 of
this Article VI) or persons to be the attorney or attorneys of the corporation
for such purposes and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Board of Directors) and for such
period and subject to such conditions as the officer making such appointment may
think fit, and any such power of attorney may contain such provisions for the
protection and convenience of persons dealing with such attorney or attorneys as
the officer making such appointment may think it and may also authorize any
such attorney to appoint a substitute or substitutes and to delegate all or any
of the powers, authorities and discretions vested in any such attorney or
attorneys, except such power of substitution (without prejudice to the power of
such attorney or attorneys to exercise concurrently any of the powers delegated
and to revoke or vary any such appointment). The Chairman of the Board, the
President, each Vice Chairman, or any Executive Vice President may at any time
revoke any power of attorney executed by any of those officers currently or
formerly in office, provided that no such revocation shall invalidate any act
performed by the attorney or attorneys (or any substitute or substitutes
appointed thereunder) in the exercise of the powers conferred thereby between
the revocation thereof and the time such revocation becomes known to the
attorney or attorneys, or to any such substitute or substitutes, and any such
power of attorney shall at all times be conclusively binding on the corporation
and its successors in favor of third parties who have not received notice of the
revocation thereof.
SECTION 8. Issue of Debt Securities and Other Obligations. The Board of
Directors shall have the power to authorize and cause to be executed and issued
bonds, notes, debentures, warrants, guaranties or other obligations of the
corporation, secured or not secured, upon such terms, in such manner and upon
such conditions as may be fixed or approved by vote of the Board of Directors or
of the Executive Committee prior to the issue thereof.
SECTION 9. Corporate Records. The original, or attested copies, of the
Articles or Organization, By-Laws and records of all meetings of incorporators
and stockholders, and stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in the
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Commonwealth of Massachusetts at the principal office of the corporation, or at
an office of its Clerk, its resident agent or its transfer agent. Such copies
and records need not all be kept in the same office. They shall be available at
all reasonable times for inspection by any stockholder for any proper purpose.
They shall not be available for inspection to secure a list of stockholders or
other information for the purpose of selling such list or information or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
SECTION 10. Indemnification of Directors, Officers and Others. (a) The
corporation shall, to the extent legally permissible, indemnify each of the
directors and officers of the corporation against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by such director or officer
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such director or officer may be
involved or with which such director or officer may be threatened, while in
office or thereafter, by reason of such director or officer being or having been
such a director or officer of the corporation or by reason of such director or
officer serving or having served at the request of the corporation as a
director, officer or trustee of a wholly owned subsidiary of the corporation or
having served in any capacity with respect to any employee benefit plan
maintained by the corporation or any wholly owned subsidiary of the corporation,
except with respect to any matter as to which such director or officer shall
have been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
corporation or of such subsidiary or, to the extent that such matter relates to
service with respect to any such employee benefit plan, in the best interest of
the participants or beneficiaries of such employee benefit plan; provided,
however, that as to any matter disposed of by a compromise payment by such
director or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be ordered by a court or unless such
compromise shall be approved as in the best interest of the corporation, after
notice that it involves such indemnification: (i) by a disinterested majority of
the directors of the corporation then in office; or (ii) by a majority of the
disinterested directors of the corporation then in office, provided that there
has been obtained an opinion in writing of independent legal counsel to the
effect that such director or officer appears to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
corporation; or (iii) by the holders of a majority of the outstanding stock at
the time entitled to vote for directors, voting as a single class, exclusive of
any stock owned by any interested director or officer. Expenses, including
counsel fees, reasonably incurred by any director or officer of the corporation
in connection with the defense or disposition of any such action, suit or other
proceeding shall be paid from time to time by the corporation in advance of the
final disposition thereof upon receipt of an undertaking by such director or
officer to repay the amounts so paid to the corporation if it is ultimately
determined that indemnification for such expenses is not authorized under this
paragraph (a). If in an action, suit or proceeding brought by or in the right
of the corporation, a director of the corporation is held not liable for
monetary damages, whether because that director is relieved of personal
liability under the provisions of
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Article 6 of the Articles of Organization of the corporation or otherwise, that
director shall be deemed to have met the standard of conduct set forth above and
to be entitled to indemnification for expenses reasonably incurred in the
defense of such action, suit or proceeding.
(b) The corporation may indemnify each person who serves at the request of
the corporation as a director, officer or trustee of any wholly owned subsidiary
of the corporation or in any capacity with respect to any employee benefit plan
maintained by the corporation or any such subsidiary against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees, reasonably incurred by such person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such person may be involved or
with which such person may be threatened, while in office or thereafter, by
reason of such person being or having been a director, officer or trustee of
such subsidiary or having acted in any such capacity with respect to any such
employee benefit plan, except with respect to any matter as to which such person
shall have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his or her action was in the best interest of the
corporation or of such subsidiary or, to the extent that such matter relates to
service with respect to any such employee benefit plan, in the best interest of
the participants or beneficiaries of such employee benefit plan. Expenses,
including counsel fees, reasonably incurred by any such person in connection
with the defense or disposition of any such action, suit or other proceeding may
be paid from time to time by the corporation in advance of the final disposition
thereof upon receipt of an undertaking by such person to repay the amounts so
paid to the corporation if it is ultimately determined that indemnification for
such expenses is not authorized under this Section. Except as hereinafter
provided in this paragraph (b), indemnification under this paragraph (b) shall
be made by the corporation only as authorized by the Board of Directors of the
corporation in each specific case.
To the extent that any person who serves at the request of the corporation
as a director, officer of trustee of any wholly owned subsidiary of the
corporation or in any capacity with respect to any employee benefit plan
maintained by the corporation or any such subsidiary has been wholly successful
in the defense of any action, suit or proceeding referred to above in this
paragraph (b) or of any claim or issue therein, such person shall, without
further authorization of the Board of Directors of the corporation, be
indemnified by the corporation as herein above provided upon presentation to the
Board of Directors of the corporation of a claim for indemnification and
evidence reasonably satisfactory to the Board of Directors of the corporation of
such wholly successful defense. As used in this paragraph (b) the term "wholly
successful" means that the action, suit or proceeding or the claim or issue has
been finally terminated without a finding of liability or guilt against the
person seeking indemnification and the time for taking an appeal or other court
or administrative action therein has expired or, in the case of a threatened
proceeding, a reasonable period of time, determined by independent legal counsel
selected by the Board of Directors of the corporation, has elapsed since the
threat was made without the proceeding having been instituted and, in either
case, without any payment or promise having been made to induce a settlement or
compromise.
<PAGE>
-26-
(c) As used in this Section, the terms "director", "officer" and "trustee"
include the relevant individual's heirs, executors and administrators, an
"interested" director or officer is one against whom in such capacity the
proceedings in question or another proceeding on the same or similar grounds is
then pending, and a "wholly owned subsidiary" means any corporation, business
trust, partnership or other business entity of which the corporation owns
directly or through one or more wholly owned subsidiaries all of the outstanding
capital stock or other shares of beneficial interest (other than directors'
qualifying shares) entitled to vote generally. All directors, officers and
trustees of wholly owned subsidiaries of the corporation and persons who serve
in any capacity with respect to any employee benefit plan maintained by any such
subsidiary shall be deemed to serve or to have served in such capacity at the
request of the corporation. The indemnification by the corporation provided for
in his Section l0 shall not be exclusive of or affect any other rights to which
any director, officer, trustee or pension plan fiduciary or other person may be
entitled. Nothing contained in this Section shall either limit the power of the
corporation to indemnify corporate personnel other than directors and officers
or affect any rights to indemnification by the corporation to which corporate
personnel other than directors and officers of the corporation and persons who
serve at the request of the corporation as directors, officers or trustees of
wholly owned subsidiaries of the corporation or in any capacity with respect to
any employee benefit plan maintained by any such subsidiary may be entitled by
contract or otherwise under law.
ARTICLE VII
AMENDMENTS
SECTION 1. General. These By-Laws may be amended, added to or repealed in
whole or in part (a) by vote of the stockholders at a meeting where the
substance of the proposed amendment is stated in the notice of the meeting, or
(b) by vote of a majority of the entire Board, except that no amendment may be
made by the Board of Directors on matters reserved to the stockholders by law or
the Articles of Organization or which changes the provisions of these By-Laws
relating to the removal of directors or to the requirements for amendment of
these By-Laws. Notice of any amendment, addition or repeal of any By-Law by the
directors stating the substance of such action shall be given to all
stockholders entitled to vote on amending the By-Laws not later than the time
when notice is given of the meeting of stockholders next following such action
by the Board of Directors. Any By-Law adopted by the directors may be amended
or repealed by the stockholders.
ARTICLE VIII
EMERGENCY BY-LAWS
SECTION 1. Effective Period. The emergency By-Laws set forth in this
Article VIII shall be effective only during the continuance of a national
emergency proclaimed by the President of the United States of America or by
other governmental authority following an attack on the United States of America
or another catastrophic event as a result of which a regular quorum of the Board
of Directors or of the Executive
<PAGE>
-27-
Committee cannot readily be convened. During any such emergency, the provisions
of this Article VIII shall supersede any different provisions contained in the
preceding Articles of these By-Laws.
SECTION 2. Meetings of the Board of Directors. During any such emergency,
a meeting of the Board of Directors may be called by any director or officer who
deems it necessary. The meeting shall be held at such time or place as the
person calling the meeting may specify in giving notice thereof. Such notice
may be given in writing or orally and by such means of communication (including
announcement by radio) as in the judgment of the person giving the same are then
feasible to reach as many of the directors as it is reasonably possible to reach
under the prevailing circumstances. Two directors shall constitute a quorum for
the transaction of business at any such meeting.
SECTION 3. Emergency Location of Head Office. With effect during any such
emergency, the Board of Directors may change the location of the Head Office of
the corporation or designate one or more alternative locations or authorize one
or more officers to do so.
SECTION 4. Preservation of Continuity of Management. In order to preserve
continuity of management of the corporation during any such emergency, the Board
of Directors may provide and from time to time change lines of succession in
management in the event that during such emergency any or all of the officers
shall die or be missing or for any reason be rendered incapable of discharging
his or her or their respective duties.
SECTION 5. Immunity. No director, officer or employee of the corporation
acting in accordance with these emergency By-Laws shall be liable for any act or
omission except willful misconduct.
SECTION 6. Amendment of Emergency By-Laws. The provisions of this Article
VIII can be amended or repealed during any emergency by resolution of the
directors or the shareholders but no such amendment or repeal shall prejudice
any rights or immunities acquired by any director, officer or employee under
Section 5 of this Article VIII in respect of action taken or omitted by him or
her prior to such amendment or repeal. Any such amendment may make such further
or different provisions as may be deemed to be practical and necessary to deal
with the circumstances of the emergency.
<PAGE>
Exhibit 10(a)
Effective January 1, 1984
As amended through February 13, 1995
BANK OF BOSTON CORPORATION
1982 Stock Option Plan
1. Purpose.
-------
The purpose of the 1982 Stock Option Plan is to enable Bank of Boston
Corporation to provide a special incentive to a limited number of senior
executives of the Corporation, the Bank and its other Subsidiaries who are in a
position to have a significant effect upon the Corporation's business and
earnings. In order to accomplish this purpose, the Plan authorizes the grant or
award to such senior executives (i) of options to purchase Common Stock, (ii) of
contingent cash units, as described in Section 6 and Section 10, or (iii) of
both such options and such contingent cash units. Increased ownership of Common
Stock will provide such senior executives with an additional incentive to take
into account the long-term interests of the Corporation.
2. Definitions.
-----------
As used herein, the following words or terms have the meanings set forth
below. The masculine gender is used throughout the Plan but is intended to
apply to members of both sexes.
2.1. "Bank" means The First National Bank of Boston, a national banking
association.
2.2. "Board of Directors" means the Board of Directors of the Corporation.
2.3. "Code" means the Internal Revenue Code of 1954, as amended from time
to time, or any successor statute.
2.4. "Committee" means the Compensation Committee of the Board of
Directors.
2.5. "Common Stock" means the Common Stock of the Corporation.
2.6. "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.7. "Earnings Per Share" means Plan Net Income computed on a fully
diluted earnings per share basis.
<PAGE>
-2-
2.8. "Earnings Per Share Target" shall mean the goal (whether expressed as
a fixed amount, a percentage, a formula or otherwise) adopted by the Board of
Directors, as described in the Guidelines, for the total of the Earnings Per
Share for the three consecutive fiscal years beginning with the fiscal year in
which a Unit is awarded.
2.9. "Fair Market Value", in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the last
preceding day on which such prices of Common Stock are so quoted. In the event
"NYSE-Composite Transactions" cease to be reported, the Committee shall adopt
some other appropriate method for determining such Fair Market Value.
2.10. "Guidelines" means the General Guidelines for interpreting and
administering this Plan as approved from time to time by the Committee and
adopted by the Board of Directors.
2.11. "Incentive Stock Option" means a stock option which satisfies the
requirements of section 422A of the Code.
2.12. "Participant" means an individual holding a stock option or stock
options granted to him under the Plan.
2.13. "Plan" means the 1982 Stock Option Plan set forth herein.
2.14. "Plan Net Income" means the consolidated annual income after taxes
of the Corporation for the fiscal year determined by the Committee, in its sole
discretion, to reflect the operating results of the Corporation and its
subsidiaries for such fiscal year giving consideration to the appropriate
treatment for this purpose of unusual or non-recurring items of income or
expense.
2.15. "Retirement" means termination of employment with the Corporation or
any Subsidiary if such termination of employment constitutes normal retirement,
early retirement, disability retirement or other retirement as provided for at
the time of such termination of employment under the applicable retirement
program then maintained by the Corporation or any Subsidiary, provided that the
Participant does not continue in the employment of the Corporation or any
Subsidiary.
<PAGE>
-3-
2.16. "Return on Equity," when used in reference to the Corporation, means
Plan Net Income for a given fiscal year divided by the average stockholders'
equity of the Corporation for that fiscal year, as determined by the Committee
for such fiscal year to be appropriate to carry out the purpose of the Plan.
2.17. "Subsidiary" or "Subsidiaries" means a corporation or corporations
in which the Corporation owns, directly or indirectly, stock possessing 50
percent or more of the total combined voting power of all classes of stock or
over which the Corporation has effective voting control.
2.18. "Unit" means a contingent cash unit as described in Section 6 and
Section 10.
3. Administration.
--------------
3.1. The Plan shall be administered by the Committee. The members of the
Committee shall not include any person who is at the time he exercises
discretion in administering the Plan (or has been at any time within one year
prior thereto) eligible to participate in the Plan or in any other plan of the
Corporation or any of its affiliates entitling participants therein to acquire
stock, stock options or stock appreciation rights of the Corporation or any of
its affiliates (as defined for purposes of Rule 16b-3 issued by the Securities
and Exchange Commission).
3.2. Subject to the provisions set forth herein, the Committee shall have
full authority to determine the provisions of options and Units to be granted or
awarded under the Plan, to interpret the terms of the Plan and of options and
Units granted or awarded under the Plan, to adopt, amend and rescind rules and
guidelines for the administration of the Plan and for its own acts and
proceedings and to decide all questions and settle all controversies and
disputes which may arise in connection with the Plan.
3.3. Notwithstanding Section 3.2 and subject to the provisions set forth
herein, the Board of Directors shall have full authority to determine the
provisions of options granted under the Plan to the President, Chairman, any
Vice Chairman and any other officer or officers that the Board of Directors,
upon recommendation of the Committee, shall approve and the Units awarded in
connection therewith. The grant of such options and award of Units, if any,
shall be approved by the disinterested Directors, as defined for purposes of
Rule 16b-3 issued by the Securities and Exchange Commission.
<PAGE>
-4-
3.4. The decision of the Committee or the Board of Directors on any matter
as to which the Committee or the Board of Directors is given authority under
subsections 3.2 and 3.3 above shall be final and binding on all persons
concerned.
3.5. Nothing in the Plan shall be deemed to give any officer or employee,
or his legal representatives or assigns, any right to participate in the Plan,
except to such extent, if any, as the Committee or the Board of Directors may
have determined or approved pursuant to the provisions of the Plan.
4. Shares Subject to the Plan.
--------------------------
4.1. The maximum number of shares of Common Stock which may be delivered
upon the exercise of options granted under the Plan shall be 567,000, subject to
adjustment in accordance with the provisions of Section 11.
4.2. If any option granted under the Plan terminates without having been
exercised in full (including an option which terminates by agreement between the
Corporation and the Participant), the number of shares of Common Stock as to
which such option has not been exercised prior to termination shall be available
for future grants within the limits set forth in subsection 4.1.
4.3. Shares of Common Stock delivered upon the exercise of options shall
consist of shares of authorized and unissued Common Stock, except that the Board
of Directors may from time to time in its discretion determine in any case that
the shares to be so delivered shall consist of shares of authorized and issued
Common Stock reacquired by the Corporation and held in its Treasury. No
fractional shares of Common Stock shall be delivered upon the exercise of an
option.
5. Eligibility for Options.
-----------------------
Employees eligible to receive options under the Plan shall be those senior
executives of the Corporation, the Bank and the Corporation's other Subsidiaries
who, in the opinion of the Committee or the Board of Directors, have senior-
level management responsibilities and are in a position to have a significant
effect upon the Corporation's business and consolidated earnings.
<PAGE>
-5-
6. Units Awarded under the Plan.
----------------------------
In connection with the grant of options under the Plan, the Committee or
the Board of Directors, as the case may be, may, in accordance with procedures
established by the Committee, make awards to Participants of Units entitling
such Participants to receive certain cash payments upon the maturity of such
Units, as described in Section 10.
7. Eligibility for Units.
---------------------
Employees eligible to receive Units under the Plan shall be limited to
those employees who are eligible to receive options.
8. Grant or Award of Options and Units.
-----------------------------------
8.1. From time to time while the Plan is in effect the Committee or the
Board of Directors pursuant to Section 3.3, may, in the absolute discretion of
each, select from among the persons eligible to receive options (including
persons to whom options or Units were previously granted or awarded) those
persons to whom options or Units are to be granted or awarded. It is
contemplated that, in general, options and Units will be granted or awarded
every two years, but the Committee or the Board of Directors may in their
discretion determine that because of special circumstances options and Units are
to be granted or awarded, at any time fixed by the Committee or the Board of
Directors, to one or more persons eligible to receive options under the Plan.
8.2. The Committee or the Board of Directors, as the case may be, shall,
in the absolute discretion of each, determine the number of shares of Common
Stock to be subject to each option granted under the Plan and the number of
Units to be awarded to each eligible executive.
8.3. In determining the number of shares of Common Stock to be subject to
any option granted to any person under the Plan, the Committee or the Board of
Directors may, in the absolute discretion of each, take into account the desire
of such person to receive (i) an option on a lesser number of shares than
tentatively decided on by the Committee or the Board of Directors and (ii) a
number of Units based on the reduction in the number of shares to be subject to
the option. The terms, limits and procedures related to such adjustments shall
be set forth in the Guidelines.
<PAGE>
-6-
8.4. No option or Unit may be granted under the Plan after December 23,
1991, but options theretofore granted may extend beyond that date and Units
theretofore awarded may mature after that date.
9. Provisions of Options.
---------------------
9.1 Incentive Stock Options or Other Options. Options granted under the
----------------------------------------
Plan may be either Incentive Stock Options or options which do not qualify as
Incentive Stock Options, as the Committee or the Board of Directors, as the case
may be, shall determine at the time of each grant of options hereunder. It is
contemplated that the options granted under the Plan will to the extent
possible, but subject to the discretion of the Committee or the Board of
Directors, as the case may be, qualify as Incentive Stock Options.
9.2. Stock Option Certificates or Agreements. Options granted under the
---------------------------------------
Plan shall be evidenced by certificates or agreements in such form as the
Committee or the Board of Directors, as the case may be, shall from time to time
approve. Such certificates or agreements shall comply with the terms and
conditions of the Plan and may contain such other provisions not inconsistent
with the terms and conditions of the Plan as the Committee or the Board of
Directors shall deem advisable. In the case of options intended to qualify as
Incentive Stock Options, the certificates or agreements shall contain such
provisions relating to exercise and other matters as are required of Incentive
Stock Options under the Code.
9.3. Terms and Conditions. All options granted under the Plan shall be
--------------------
subject to the following terms and conditions to the extent applicable and to
such other terms and conditions not inconsistent therewith as the Committee or
the Board of Directors shall determine.
9.3.1. Option Price. The option price per share of Common Stock,
------------
with respect to each option, shall not be less than the Fair Market Value
per share at the time the option is granted.
9.3.2. Number of Shares of Common Stock Subject to Incentive Stock
-----------------------------------------------------------
Options. In the case of an option intended to qualify as an Incentive
-------
Stock Option, the aggregate Fair Market Value (determined as of the time
the option is granted) of the stock with respect to which
<PAGE>
-7-
Incentive Stock Options granted after December 31, 1986 are exercisable for
the first time by the Participant during any calendar year (under all plans
of the Participant's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this Section
9.3.2 shall be construed and applied in accordance with Section 422A (b)(7)
of the Code and the regulations, if any, promulgated thereunder.
9.3.3. Period of Options. An option shall be exercisable during such
-----------------
period of time as the Committee or the Board of Directors may specify
(subject to subsection 9.4 below), but not after the expiration of ten
years from the date the option is granted.
9.3.4. Exercise of Options.
-------------------
9.3.4.1. Each option shall be made exercisable at such time or
times as the Committee or the Board of Directors shall determine, but in
all events, subject to the provisions of Section 9.3.2. It is contemplated
that the Committee or the Board of Directors will normally provide that the
right to exercise an option will accrue immediately with respect to 25
percent of the number of shares of Common Stock subject to the option and
that the right to exercise the option with respect to the balance of the
shares subject thereto will accrue in substantially equal installments on
the first three anniversaries of the date of grant. However, the Committee
or the Board of Directors may in any case provide that the option will be
exercisable immediately with respect to all the shares of Common Stock
subject to the option or that the right to exercise the option will accrue
in different installments and at different times from those set forth
above, if in the opinion of the Committee or the Board of Directors such
provisions are appropriate taking into account the age of the Participant
and other relevant circumstances. In the case of an option made
exercisable in installments, the Committee or the Board of Directors may
later determine to accelerate the time at which one or more of such
installments may be exercised.
9.3.4.2. In the case of an option, granted prior to December 31,
1986, intended to qualify as an Incentive Stock Option, the option shall
not be exercisable while there is outstanding (within the meaning of
section 422A(c)(7) of the Code, as in effect prior to the Tax
<PAGE>
-8-
Reform Act of 1986) any Incentive Stock Option which was granted before the
granting of such option to the Participant to purchase stock in his
employer corporation (whether the Corporation or any Subsidiary) or in a
corporation which (at the time of the granting of such option) is a parent
or subsidiary corporation of the employer corporation, or in a predecessor
corporation of any of such corporations (the words "parent or subsidiary
corporation of the employer corporation, or in a predecessor corporation of
any such corporations" are meant to have the meaning of such words as used
in Section 422A(b)(7) of the Code).
9.3.4.3. Any exercise of an option shall be in writing signed by
the proper person and delivered or mailed to the Secretary of the
Committee, accompanied by the option certificate or agreement and payment
in full for the number of shares in respect of which the option is
exercised.
9.3.4.4. In the event an option is exercised by the executor or
administrator of a deceased Participant, or by the person or persons to
whom the option has been transferred by the Participant's will or the
applicable laws of descent and distribution, the Corporation shall be under
no obligation to deliver stock thereunder unless and until the Corporation
is satisfied that the person or persons exercising the option is or are the
duly appointed executor or administrator of the deceased Participant or the
person or persons to whom the option has been transferred by the
Participant's will or by the applicable laws of descent and distribution.
9.3.5. Payment for and Delivery of Stock. The shares of stock
---------------------------------
purchased on any exercise of an option granted hereunder shall be paid for
in full in cash or, if permitted by the Committee or the Board of
Directors, in shares of unrestricted Common Stock at the time of such
exercise. A Participant shall have the rights of a shareholder only as to
stock actually issued to him.
9.3.6. Listing of Stock, Withholding and Other Legal Requirements.
----------------------------------------------------------
The Corporation shall not be obligated to deliver any stock until all
federal and state laws and regulations which the Corporation may deem
applicable have been complied with, nor, in the event the outstanding
<PAGE>
-9-
Common Stock is at the time listed upon any stock exchange, until the stock
to be delivered has been listed or authorized to be added to the list upon
official notice of issuance to such exchange. Without limiting the
generality of the foregoing, the Committee or the Board of Directors shall
require, on such terms as it deems necessary, that the Participant pay to
the Corporation, or make other satisfactory provision for the payment of,
any federal, state or local taxes required by law to be withheld in respect
of the exercise of any option. In the Committee's or the Board's
discretion, a Participant may elect to satisfy all or a portion of his or
her federal, state and local tax withholding requirements or liability, up
to the amount calculated by applying the Participant's maximum marginal tax
rate, by having shares of Common Stock withheld from the shares otherwise
issuable upon the exercise of an option, or by delivering to the
Corporation previously owned shares of Common Stock, valued at their Fair
Market Value on the date that withholding taxes are determined. In
addition, if the shares of stock subject to any option have not been
registered in accordance with the Securities Act of 1933, as amended, the
Corporation may require the person or persons who wishes or wish to
exercise such option to make such representation or agreement with respect
to the sale of stock acquired on exercise of the option as will be
sufficient, in the opinion of the Corporation's General Counsel, to avoid
violation of said Act.
9.3.7. Non-transferability of Options. No option may be transferred
------------------------------
by the Participant otherwise than by will or by the laws of descent and
distribution, and during the Participant's lifetime the option may be
exercised only by him.
9.3.8. Death. If a Participant dies at a time when he is entitled to
-----
exercise an option (including death during the three-year period under
subsection 9.3.9 or the three-month period under subsection 9.3.10(a), then
at any time or times within three years after his death such option may be
exercised, as to all or any of the shares which the Participant was
entitled to purchase thereunder immediately prior to his death, by his
executor or administrator or the person or persons to whom the option is
transferred by will or the applicable laws of descent and
<PAGE>
-10-
distribution, and except as so exercised such option shall expire at the
end of such three-year period. In no event, however, may any option granted
under the Plan be exercised after the expiration of ten years from the date
the option was granted.
9.3.9. Retirement. In the event of a Participant's Retirement at a
----------
time when he is entitled to exercise an option, then at any time or times
within three years after his Retirement he may exercise such option as to
all or any of the shares which he was entitled to purchase thereunder
immediately prior to his Retirement, and except as so exercised such option
shall expire at the end of such three-year period, subject, however, to the
provisions of subsection 9.3.8. In no event, however, may any option
granted under the Plan be exercised after the expiration of ten years from
the date the option was granted.
9.3.10. Termination of Employment. If the employment of a
-------------------------
Participant terminates for any reason other than his death or his
Retirement, all options held by the Participant shall thereupon expire
subject to the following provisions:
(a) If such termination of employment occurs by the voluntary
act of the Participant, then at any time or times within three months
after such termination of employment (but not after the expiration of
ten years from the date the option was granted), the Participant may
exercise such option as to all or any of the shares which he was
entitled to purchase thereunder immediately prior to such termination
of employment, and except as so exercised such option shall expire at
the end of such period of three months, subject, however, to the
provisions of subsection 9.3.8; and
(b) If such termination of employment does not occur by the
voluntary act of the Participant, such option may be exercised
following such termination of employment only to the extent, if any,
approved by the Committee or the Board of Directors. If the Committee
or the Board of Directors so decides, an option may provide that a
leave of absence granted by the Corporation or a Subsidiary is not a
termination of employment for the purpose of this subsection 9.3.10,
and in the absence of such a provision the
<PAGE>
-11-
Committee or the Board of Directors may in any particular case
determine that such a leave of absence is not a termination of
employment for such purpose.
9.4. Authority of the Committee and the Board of Directors. The Committee
-----------------------------------------------------
and the Board of Directors shall have the authority, either generally or in
particular instances, to waive compliance by a Participant with any obligation
to be performed by him under an option and to waive any condition or provision
of an option, except that the Committee and the Board of Directors may not (i)
increase the total number of shares covered by the option (except in accordance
with Section 11), (ii) reduce the option price per share (except in accordance
with Section 11) or (iii) extend the term of the option to more than ten years,
subject, however, to the provisions of Section 13.
10. Provisions of Units.
-------------------
10.1. Amount Payable. Each Unit shall be deemed to have an initial value
--------------
equal to the Fair Market Value of a share of Common Stock at the time the Unit
is awarded. As soon as practicable after the maturity (as described below) of a
Unit, the eligible executive to whom the Unit was awarded shall be entitled to
receive an amount of money equal to the applicable percentage, as described in
subsection 10.2, multiplied by the initial value of the Unit. Units shall
mature at the end of the second fiscal year of the Corporation following the
fiscal year in which they are awarded.
10.2. Applicable Percentage. The percentage to be applied to the initial
---------------------
value of a Unit in computing the amount payable upon maturity thereof may vary
from 0 to 150 percent and shall be determined from a matrix table recommended by
the Chairman and President, approved by the Committee and adopted by the Board
of Directors. Such matrix shall be made a part of the Guidelines, as in effect
at the time of the award of such Unit. Such percentage shall depend upon the
following factors:
10.2.1. The relationship between (i) the average Return on Equity of
the Corporation for the three years commencing with the fiscal year of the
Corporation in which the Unit is awarded and ending with the fiscal year of
the Corporation in which the Unit matures and (ii) the median of the
average returns on equity for such three years for a representative group
of large
<PAGE>
-12-
commercial banks or bank holding companies selected from time to time by
the Committee and adopted by the Board of Directors (a list of which shall
be a part of the Guidelines); and
10.2.2. The extent to which the Earnings Per Share of the Corporation
for the three years set forth in subsection 10.2.1 achieves the Earnings
Per Share Target previously fixed by the Board of Directors.
The Committee shall deliver to each Participant to whom Units are awarded a
copy of the matrix table applicable to such award and shall notify such
Participant of the Earnings Per Share target referred to in subsection 10.2.2.
above.
10.3. Nontransferability of Units. No Units may be transferred by the
---------------------------
Participant otherwise than by will or the laws of descent and distribution.
10.4. Death or Other Termination of Employment. If the employment of a
----------------------------------------
Participant terminates for any reason, whether by death, Retirement or
otherwise, all Units held by the Participant shall thereupon terminate unless
the Committee or the Board of Directors otherwise determines. The Committee or
the Board of Directors may in its discretion determine that some or all of the
Units so held shall continue in effect as if the Participant's employment had
not terminated and that on maturity of such Units all or a portion of the amount
payable in respect of such Units under subsection 10.1 shall be paid to the
Participant or in the event of his death to his estate or other beneficiary.
11. Changes in Stock.
----------------
In the event of a stock dividend, stock split or other change in corporate
structure or capitalization affecting the Common Stock which becomes effective
after the adoption of the Plan by the Board of Directors, the Committee shall
make appropriate adjustments in (i) the number and kind of shares of stock on
which options may thereafter be granted hereunder, (ii) the number and kind of
shares of stock remaining subject to each option outstanding at the time of such
change and (iii) the option price. The Committee's determination shall be
binding on all persons concerned. Subject to any required action by the
stockholders, if the Corporation shall be the surviving corporation in any
merger or consolidation (other than a merger or consolidation in which the
Corporation survives but in which a
<PAGE>
-13-
majority of its outstanding shares are converted into securities of another
corporation or are exchanged for other consideration), any option granted
hereunder shall pertain and apply to the securities which a holder of the number
of shares of stock of the Corporation then subject to the option would have been
entitled to receive, but a dissolution or liquidation of the Corporation or a
merger or consolidation in which the Corporation is not the surviving
corporation or in which a majority of its outstanding shares are so converted or
exchanged shall cause every option hereunder to terminate; provided that if any
such dissolution, liquidation, merger or consolidation is contemplated, the
Corporation shall either arrange for any corporation succeeding to the business
and assets of the Corporation to issue to the Participants replacement options
on such corporation's stock which will to the extent possible preserve the value
of the outstanding options or shall make the outstanding options fully
exercisable, subject to the provisions Section 9.3.2, at least 20 days before
the effective date of any such dissolution, liquidation, merger or
consolidation. The existence of the Plan shall not prevent any such change or
other transaction and no Participant thereunder shall have any right except as
herein expressly set forth.
12. Employment Rights.
-----------------
Neither the adoption of the Plan nor any grant of options or award of Units
confers upon any employee of the Corporation or a Subsidiary any right to
continued employment with the Corporation or a Subsidiary, as the case may be,
nor does it interfere in any way with the rights of the Corporation or a
Subsidiary to terminate the employment of any of its employees at any time.
13. Discontinuance, Cancellation, Amendment and Termination.
-------------------------------------------------------
The Committee or the Board of Directors, as the case may be, may at any
time discontinue granting options or awarding units under the Plan and, with the
consent of the Participant, may at any time cancel an existing option in whole
or in part and grant another option to the Participant for such number of shares
as the Committee or the Board of Directors, as the case may be, specifies. The
Board of Directors may at any time or times amend the Plan for the purpose of
satisfying the requirements of any changes in applicable laws or regulations or
for any other purpose which may at the time be permitted by law or may at any
time terminate the Plan as to any further grants of options, provided that
<PAGE>
-14-
no such amendment shall (a) increase the maximum number of shares available
under the Plan except as provided in Section 11, (b) decrease the minimum option
price of options thereafter to be granted to less than the Fair Market Value at
the time the options are granted, or (c) increase the time limits for granting
or exercising options thereafter to be granted. The Committee may make non-
material amendments to the Plan.
14. Effective Date.
--------------
The Plan shall become effective upon its adoption by the Board of
Directors, and options may be granted under the Plan from and after the date of
such adoption; provided, however, that if prior to December 23, 1982 the
stockholders of the Corporation have not approved the Plan, the Plan shall
terminate and all options theretofore granted and Units theretofore awarded
shall terminate and cease to be of any force or effect.
<PAGE>
Exhibit 10(b)
BANK OF BOSTON CORPORATION
1986 Stock Option Plan
(As amended through February 13, 1995)
1. Purpose.
-------
The purpose of the 1986 Stock Option Plan is to enable Bank of Boston
Corporation to provide a special incentive to a limited number of key officers
of the Corporation, the Bank and its other Subsidiaries who are in a position to
have a significant effect upon the Corporation's business and earnings. In
order to accomplish this purpose, the Plan authorizes the grant to such officers
of options to purchase Common Stock and, in the case of the grant of
Nonstatutory Stock Options (as hereinafter defined), the provision of cash
payments as described in Section 6 and Section 10. Increased ownership of
Common Stock will provide such key officers with an incentive to further the
long-term interests of the Corporation.
2. Definitions.
-----------
As used herein, the following words or terms have the meanings set forth
below. The masculine gender is used throughout the Plan but is intended to apply
to members of both sexes.
2.1. "Bank" means The First National Bank of Boston, a national banking
association.
2.2. "Board of Directors" means the Board of Directors of the
Corporation.
2.3. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
2.4. "Committee" means the Compensation Committee of the Board of
Directors.
2.5. "Common Stock" means the Common Stock of the Corporation.
2.6. "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.7. "Fair Market Value", in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the
<PAGE>
-2-
last preceding day on which such prices of Common Stock are so quoted. In the
event "NYSE-Composite Transactions" cease to be reported, the Committee shall
adopt some other appropriate method for determining such Fair Market Value.
2.8. "Guidelines" means the General Guidelines for interpreting and
administering this Plan as approved from time to time by the Committee and
adopted by the Board of Directors.
2.9. "Incentive Stock Option" means a stock option which satisfies the
requirements of section 422A(b) of the Code.
2.10. "Nonstatutory Stock Option" means a stock option which does not
qualify as an Incentive Stock Option.
2.11. "Participant" means an individual holding a stock option or stock
options granted to him under the Plan.
2.12. "Plan" means the 1986 Stock Option Plan set forth herein.
2.13. "Retirement" means termination of employment with the Corporation or
any Subsidiary if such termination of employment constitutes normal retirement,
early retirement, disability retirement or other retirement as provided for at
the time of such termination of employment under the applicable retirement
program then maintained by the Corporation or any Subsidiary, provided that the
Participant does not continue in the employment of the Corporation or any
Subsidiary.
2.14. "Subsidiary" means a corporation or other entity in which the
Corporation owns, directly or indirectly or has the power to vote or cause to be
voted, stock or other ownership interests representing more than 50 percent or
of the total combined voting power.
2.15. "Tax Offset Payment" means a payment provided under Section 6 and
Section 10 of this Plan in respect of the exercise of a Nonstatutory Stock
Option.
3. Administration.
--------------
3.1. The Plan shall be administered by the Committee. The members of
the Committee shall not include any person who is at the time he exercises
discretion in administering the Plan (or has been at any time within one year
prior thereto) eligible to participate in the Plan or in any other plan of the
<PAGE>
-3-
Corporation or any of its affiliates entitling participants therein to acquire
stock, stock options or stock appreciation rights of the Corporation or any of
its affiliates (as defined for purposes of Rule 16b-3 issued by the Securities
and Exchange Commission).
3.2. Subject to the provisions set forth herein, the Committee shall have
full authority to determine the provisions of options granted under the Plan and
the amount of Tax Offset Payments made in connection therewith, to interpret the
terms of the Plan and of options granted under the Plan, to adopt, amend and
rescind rules and guidelines for the administration of the Plan and for its own
acts and proceedings and to decide all questions and settle all controversies
and disputes which may arise in connection with the Plan.
3.3 Notwithstanding Section 3.2 and subject to the provisions set forth
herein, the Board of Directors shall have full authority to determine the
provisions of options granted under the Plan to the President, Chairman, any
Vice Chairman and any other officer or officers that the Board of Directors,
upon recommendation of the Committee, shall approve and the amount of Tax Offset
Payments made in connection therewith. The grant of such options and Tax Offset
Payments, if any, shall be approved by the disinterested Directors, as defined
for purposes of Rule 16b-3 issued by the Securities and Exchange Commission.
3.4. The decision of the Committee or the Board of Directors on any
matter as to which the Committee or the Board of Directors is given authority
under subsections 3.2 and 3.3 above shall be final and binding on all persons
concerned.
3.5. Nothing in the Plan shall be deemed to give any officer or employee,
or his legal representatives or assigns, any right to participate in the Plan,
except to such extent, if any, as the Committee or the Board of Directors may
have determined or approved pursuant to the provisions of the Plan.
4. Shares Subject to the Plan.
--------------------------
4.1. The maximum number of shares of Common Stock which may be delivered
upon the exercise of options granted under the Plan shall be 600,000, subject to
adjustment in accordance with the
<PAGE>
-4-
provisions of Section 11.
4.2. If any option granted under the Plan terminates without having been
exercised in full (including an option which terminates by agreement between the
Corporation and the Participant), the number of shares of Common Stock as to
which such option has not been exercised prior to termination shall be available
for future grants within the limits set forth in subsection 4.1.
4.3. Shares of Common Stock delivered upon the exercise of options shall
consist of shares of authorized and unissued Common Stock, except that the Board
of Directors may from time to time in its discretion determine in any case that
the shares to be so delivered shall consist of shares of authorized and issued
Common Stock reacquired by the Corporation and held in its Treasury. No
fractional shares of Common Stock shall be delivered upon the exercise of an
option.
5. Eligibility for Options.
-----------------------
Employees eligible to receive options under the Plan shall be those
officers of the Corporation, the Bank and the Corporation's other Subsidiaries
who, in the opinion of the Committee or the Board of Directors, are in a
position to have a significant effect upon the Corporation's business and
consolidated earnings.
6. Tax Offset Payments.
-------------------
In the case of a Nonstatutory Stock Option, the Committee or the Board of
Directors, as the case may be, may, in accordance with procedures established by
the Committee, provide for payment in cash, in connection with the exercise of
the option, of an amount measured by reference to the difference between the
option exercise price and the Fair Market Value of the Common Stock subject to
the option determined at the time of exercise or at a later date, as more fully
described in Section 10.
7. Eligibility of Tax Offset Payments.
----------------------------------
Eligibility to receive Tax Offset Payments under the Plan shall be limited
to (i) officers to whom Nonstatutory Stock Options are or have been granted
under this Plan and (ii) the person or persons entitled to exercise such options
after the death of such officers.
<PAGE>
-5-
8. Grant of Options and Associated Tax Offset Payments.
---------------------------------------------------
8.1. From time to time while the Plan is in effect the Committee or the
Board of Directors pursuant to Section 3.3, may, in the absolute discretion of
each, select from among the persons eligible to receive options (including
persons to whom options were previously granted) those persons to whom options
are to be granted. It is contemplated that, in general, options will be granted
not more than once in a calendar year and that, in general, provisions for Tax
Offset Payments in respect of the exercise of Nonstatutory Stock Options if made
at all, will be made at the time such options are granted. However, the
Committee or the Board of Directors, as the case may be, may in the discretion
of each determine that because of special circumstances options or rights of Tax
Offset Payments are to be granted, at any time fixed by the Committee or the
Board of Directors, to one or more persons eligible to receive options or Tax
Offset Payments under the Plan.
8.2. The Committee or the Board of Directors, as the case may be, shall,
in the absolute discretion of each, determine the number of shares of Common
Stock to be subject to each option granted by it under the Plan and, subject to
the limitations of subsection 10.1, the calculation to be made under Section 10
in determining the amount of any Tax Offset Payment made under the Plan.
8.3. No option may be granted under the Plan after January 23, 1996, but
options theretofore granted may extend beyond that date. No right to a Tax
Offset Payment may be granted later than the date on which the option to which
the Tax Offset Payment pertains is exercised. The right to a Tax Offset Payment
shall expire upon the expiration or forfeiture of the related option.
9. Provisions of Options.
---------------------
9.1 Incentive Stock Options or Nonstatutory Stock Options. Options
-----------------------------------------------------
granted under the Plan may be either Incentive Stock Options or Nonstatutory
Stock Options, as the Committee or the Board of Directors, as the case may be,
shall determine at the time of each grant of options hereunder. It is
contemplated that the options granted under the Plan will to the extent
possible, but subject to the discretion of the Committee or the Board of
Directors, as the case may be, qualify as Incentive Stock Options.
<PAGE>
-6-
9.2. Stock Option Certificates or Agreements. Options granted under
---------------------------------------
the Plan shall be evidenced by certificates or agreements in such form as the
Committee or the Board of Directors, as the case may be, shall from time to time
approve. Such certificates or agreements shall comply with the terms and
conditions of the Plan and may contain such other provisions not inconsistent
with the terms and conditions of the Plan as the Committee or the Board of
Directors shall deem advisable. In the case of options intended to qualify as
Incentive Stock Options, the certificates or agreements shall contain such
provisions relating to exercise and other matters as are required of Incentive
Stock Options under the Code. Where provision is made for a Tax Offset Payment
upon exercise of an option, the option certificate or agreement shall also
contain such provisions pertaining to such Tax Offset Payment, not inconsistent
with the terms and conditions of the Plan, as the Committee or the Board of
Directors shall deem advisable.
9.3. Terms and Conditions. All options granted under the Plan shall
--------------------
be subject to the following terms and conditions to the extent applicable and to
such other terms and conditions not inconsistent therewith as the Committee or
the Board of Directors shall determine.
9.3.1. Option Price. The option price per share of Common Stock,
------------
with respect to each option, shall not be less than the Fair Market Value
per share at the time the option is granted.
9.3.2. Number of Shares of Common Stock Subject to Incentive Stock
-----------------------------------------------------------
Options. In the case of an option intended to qualify as an Incentive
-------
Stock Option, the aggregate Fair Market Value (determined as of the time
the option is granted) of the stock with respect to which Incentive Stock
Options granted after December 31, 1986 are exercisable for the first time
by the Participant during any calendar year (under all plans of the
Participant's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this Section
9.3.2 shall be construed and applied in accordance with Section 422A (b)(7)
of the Code and the regulations, if any, promulgated thereunder.
9.3.3. Period of Options. An option shall be exercisable during
-----------------
such period of time as the Committee or the Board of Directors may specify
(subject to subsection 9.4 below), but not
<PAGE>
-7-
after the expiration of ten years from the date the option is granted.
9.3.4. Exercise of Options.
-------------------
9.3.4.1. Each option shall be made exercisable at such time or
times as the Committee or the Board of Directors shall determine, but
in all events, subject to the provisions of Section 9.3.2. It is
contemplated that the Committee or the Board of Directors will
normally provide that the right to exercise an option will accrue
immediately with respect to 25 percent of the number of shares of
Common Stock subject to the option and that the right to exercise the
option with respect to the balance of the shares subject thereto will
accrue in substantially equal installments on the first three
anniversaries of the date of grant. However, the Committee or the
Board of Directors may in any case provide that the option will be
exercisable immediately with respect to all the shares of Common
Stock subject to the option or that the right to exercise the option
will accrue in different installments and at different times from
those set forth above, if in the opinion of the Committee or the
Board of Directors such provisions are appropriate taking into
account the age of the Participant and other relevant circumstances.
In the case of an option made exercisable in installments, the
Committee or the Board of Directors may later determine to accelerate
the time at which one or more of such installments may be exercised.
9.3.4.2. Notwithstanding the provisions of paragraph 9.3.4.1, if
any person is entitled to receive a Tax Offset Payment in connection
with the exercise of a Nonstatutory Stock Option, the option shall
not be exercisable prior to the expiration of six months from the
date on which the right to such Tax Offset Payment was granted.
9.3.4.3. Any exercise of an option shall be in writing signed by
the proper person and delivered or mailed to the Secretary of the
Committee, accompanied by the option certificate or agreement and
payment in full for the number of shares in respect of which the
option is exercised.
<PAGE>
-8-
9.3.4.4. In the event an option is exercised by the executor or
administrator of a deceased Participant, or by the person or persons
to whom the option has been transferred by the Participant's will or
the applicable laws of descent and distribution, the Corporation
shall be under no obligation to deliver stock thereunder or make any
Tax Offset Payment in respect thereof unless and until the
Corporation is satisfied that the person or persons exercising the
option is or are the duly appointed executor or administrator of the
deceased Participant or the person or persons to whom the option has
been transferred by the Participant's will or by the applicable laws
of descent and distribution.
9.3.5. Payment for and Delivery of Stock. The shares of stock
---------------------------------
purchased on any exercise of an option granted hereunder shall be paid for
in full in cash or, if permitted by the Committee or the Board of
Directors, in shares of unencumbered Common Stock at the time of such
exercise. A Participant shall have the rights of a shareholder only as to
stock actually issued to him.
9.3.6. Listing of Stock, Withholding and Other Legal Requirements.
----------------------------------------------------------
The Corporation shall not be obligated to deliver any stock until all
federal and state laws and regulations which the Corporation may deem
applicable have been complied with, nor, in the event the outstanding
Common Stock is at the time listed upon any stock exchange, until the stock
to be delivered has been listed or authorized to be added to the list upon
official notice of issuance to such exchange. Without limiting the
generality of the foregoing, the Committee or the Board of Directors shall
require, on such terms as it deems necessary, that the Participant pay to
the Corporation, or make other satisfactory provision for the payment of,
any federal, state or local taxes required by law to be withheld in respect
of the exercise of any option or the receipt of any Tax Offset Payment. In
the Committee's or the Board's discretion, a Participant may elect to
satisfy all or a portion of his or her federal, state and local tax
withholding requirements or liability, up to the amount calculated by
applying the Participant's maximum marginal tax rate, by having shares of
<PAGE>
-9-
Common Stock withheld from the shares otherwise issuable upon the exercise
of an option, or by delivering to the Corporation previously owned shares
of Common Stock, valued at their Fair Market Value on the date that
withholding taxes are determined. In addition, if the shares of stock
subject to any option have not been registered in accordance with the
Securities Act of 1933, as amended, the Corporation may require the person
or persons who wishes or wish to exercise such option to make such
representation or agreement with respect to the sale of stock acquired on
exercise of the option as will be sufficient, in the opinion of the
Corporation's General Counsel, to avoid violation of said Act.
9.3.7. Non-transferability of Options. No option may be transferred
------------------------------
by the Participant otherwise than by will or by the laws of descent and
distribution, and during the Participant's lifetime the option may be
exercised only by him.
9.3.8. Death During Employment. If a Participant dies during
-----------------------
employment after attaining age 62 and at a time when he is entitled to
exercise an option, then at any time or times within three years after
death (or such greater or lesser period after death as may be specified in
the certificate or agreement evidencing the option) such option may be
exercised in part or in full as to all of the shares subject to the option,
subject to the provisions of Section 9.3.2. If a Participant dies during
employment prior to attaining age 62 and at a time when he is entitled to
exercise an option, then at any time or times within one year after death
(or such greater or lesser period after death as may be specified in the
certificate or agreement evidencing the option) such option may be
exercised, but only as to any or all of those shares which the Participant
was entitled to purchase immediately prior to his death. In either case,
options exercisable after death may be exercised by the executor or
administrator of the deceased Participant or by the person or persons to
whom the option is transferred by will or the applicable laws of descent
and distribution, and except as so exercised shall expire at the end of the
specified post-death exercise period. In no event, however, may any
option granted under the Plan be exercised after the expiration of ten
years from the date the option was granted or, if the option exercise
period
<PAGE>
-10-
established at time of grant was less than ten years, then after the
expiration of such shorter period.
9.3.9. Retirement. In the event of a Participant's Retirement at a
----------
time when he is entitled to exercise an option, then at any time or times
within the period determined under (a) or (b) below, whichever is
applicable, such option may be exercised as follows:
(a) In the case of Retirement after attaining age 62, then within
three years after Retirement (or such greater or lesser period after
Retirement as may be specified in the certificate or agreement
evidencing the option) the Participant may exercise such option in
full or in part as to all of the shares subject to the option,
subject to the provisions of Section 9.3.2. If the Participant dies
within this three-year (or other specified) post-retirement exercise
period, his option may be exercised, by his executor or administrator
or the person or persons to whom the option is transferred by the
laws of descent and distribution, to the same extent as if the
deceased Participant had survived, during a period equal to the
greater of one year from the date of his death or the remainder of
such three-year or other specified post-Retirement exercise period.
(b) In the case of Retirement prior to attaining age 62, then
within six months after Retirement (or such greater or lesser period
after Retirement as may be specified in the certificate or agreement
evidencing the option) the Participant may exercise such option only
as to those shares which he was entitled to purchase immediately
prior to his Retirement. If the Participant dies within this six-
month (or other specified) post-Retirement exercise period, his
option may be exercised by his executor or administrator or the
person or persons to whom the option is transferred by the laws of
descent and distribution, to the same extent as if the deceased
Participant had survived, during the greater of one year from the
date of his death or, if a post-Retirement exercise period greater
than one year was specified in the option certificate or agreement,
the remainder of such longer period.
<PAGE>
-11-
Except as exercised within the applicable period described above, each option
shall expire at the end of such period. In no event, however, may any option
granted under the Plan be exercised after the expiration of ten years from the
date the option was granted or, if the option exercise period established at
time of grant was less than ten years, then after the expiration of such shorter
period.
9.3.10. Other Termination of Employment. If the employment of a
-------------------------------
Participant terminates for any reason other than his death or Retirement,
all options held by the Participant shall thereupon expire subject to the
following provisions:
(a) If termination of employment occurs by the voluntary act of
the Participant, then at any time or times within three months after
such termination of employment (but not after the expiration of ten
years from the date the option was granted or, if the option exercise
period established at time of grant was less than ten years, then
after the expiration of such shorter period), the Participant may
exercise such option as to all or any of the shares which he was
entitled to purchase thereunder immediately prior to such termination
of employment, and except as so exercised such option shall expire at
the end of such period of three months; and
(b) If termination of employment does not occur by the voluntary
act of the Participant, such option may be exercised following such
termination of employment only to the extent, if any, approved by the
Committee or the Board of Directors. If the Committee or the Board of
Directors so decides, an option may provide that a leave of absence
granted by the Corporation or a Subsidiary is not a termination of
employment for the purpose of this subsection 9.3.10, and in the
absence of such a provision the Committee or the Board of Directors
may in any particular case determine that such a leave of absence is
not a termination of employment for such purpose.
9.4. Authority of the Committee and the Board of Directors. The
-----------------------------------------------------
Committee or the Board of Directors shall have the authority, either
generally or in particular instances, to waive compliance by a Participant
with any obligation to be performed by him under an option and to
<PAGE>
-12-
waive any condition or provision of an option, except that the Committee
and the Board of Directors may not (i) increase the total number of shares
covered by the option (except in accordance with Section 11), (ii) reduce
the option price per share (except in accordance with Section 11) or (iii)
extend the term of the option to more than ten years, subject, however, to
the provisions of Section 13.
10. Terms and Conditions of Tax Offset Payments.
-------------------------------------------
10.1. Amount Payable. Each person entitled to a Tax Offset Payment shall
--------------
receive, at the time specified in subsection 10.3 below, an amount of money
equal to a percentage (up to the lesser of 150 percent or the applicable
percentage as hereinafter defined), determined by the Committee or the Board of
Directors at the time the right of the Tax Offset Payment is granted, of the
taxable amount realized in connection with the exercise of the option to which
the Tax Offset Payment pertains. For purposes of the preceding sentence, the
taxable amount realized upon the exercise of an option shall be the excess of
(a) over (b), where little (b) is the aggregate price paid in cash on exercise
of the option, and (a) is the adjusted aggregate Fair Market Value of the shares
of Common Stock received upon exercise of the option, such adjusted aggregate
Fair Market Value to be determined as follows: the number of shares received
upon exercise shall first be reduced by a number equal to the number of shares
of unencumbered Common Stock (if any) paid as part of the option exercise price,
and the net number so arrived at shall then be multiplied by the Fair Market
Value of a share of Common Stock measured as of the payment date specified under
subsection 10.3. For purposes of this Section, the applicable percentage shall
be that percentage which, when applied against the taxable spread realized in
connection with the exercise of the option (the "option spread"), provides an
amount, after reduction for federal income taxes applicable in respect of such
amount, equal to the federal income tax due with respect to the option spread,
in each case assuming that the amount or spread subject to tax is taxed as the
regular maximum marginal rate applicable to individuals under the Code as in
effect for the year in which the income in respect of the option exercise is
realized.
<PAGE>
-13-
10.2. Conditions of Payment. In the case of a Participant who is subject
---------------------
to the restrictions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Act"), in respect of the exercise of an option, no Tax Offset
Payment shall be made in connection with such exercise unless (i) where the
exercise does not occur within a "window period" (as hereinafter defined), the
Participant irrevocably commits not to elect under section 83(b) of the Code to
have the income in respect of the option exercise realized and measured at the
time of exercise, or (ii) where exercise does occur within a "window period" (as
hereinafter defined), the Participant either irrevocably commits to elect or
irrevocably commits not to elect (under section 83(b) of the Code) immediate
realization and measurement of such income. For purposes of the foregoing
sentence, a Participant's irrevocable commitment must be made at or prior to
exercise of the option and must be made in a form and manner acceptable to the
Committee. As used in this subsection, "window period" means a period,
determined by the Committee, which satisfies such exercise-period requirements
as may at the time of exercise of a stock appreciation right be required to be
satisfied, under rules adopted by the Securities and Exchange Commission and
then in effect, in order to assure that the exercise of such a right is exempt
from the operation of Section 16(b) of the Securities Exchange Act of 1934, as
amended.
10.3. Time of Payment. In the case of a Participant described in
---------------
subsection 10.2 who commits thereunder not to make an election under section
83(b) of the Code, payment of the amount determined under subsection 10.1 shall
be made on, or as soon as practicable following, the date which is six months
after the exercise of the option to which the Tax Offset Payment pertains. In
the case of a Participant who at time of exercise is not subject to the
restrictions of Section 16(b) of the Act, or who is described in subsection 10.2
and commits thereunder to make an election under section 83(b) of the Code,
payment of the amount determined under subsection 10.1 shall be made on, or as
soon as practicable following, the date of exercise of the option to which the
Tax Offset Payment pertains.
10.4. Nontransferability. The right to receive a Tax Offset Payment may
------------------
not be transferred apart from the option to which it pertains.
<PAGE>
-14-
11. Changes in Stock.
----------------
In the event of a stock dividend, stock split or other change in corporate
structure or capitalization affecting the Common Stock which becomes effective
after the adoption of the Plan by the Board of Directors, the Committee shall
make appropriate adjustments in (i) the number and kind of shares of stock or
securities on which options may thereafter be granted hereunder, (ii) the number
and kind of shares of stock or securities remaining subject to each option
outstanding at the time of such change and (iii) the option price. The
Committee's determination shall be binding on all persons concerned. Subject to
any required action by the stockholders, if the Corporation shall be the
surviving corporation in any merger or consolidation (other than a merger or
consolidation in which the Corporation survives but in which a majority of its
outstanding shares are converted into securities of another corporation or are
exchanged for other consideration), any option granted hereunder shall pertain
and apply to the securities which a holder of the number of shares of stock of
the Corporation then subject to the option would have been entitled to receive,
but a dissolution or liquidation of the Corporation or a merger or consolidation
in which the Corporation is not the surviving corporation or in which a majority
of its outstanding shares are so converted or exchanged shall cause every option
hereunder to terminate; provided that if any such dissolution, liquidation,
merger or consolidation is contemplated, the Corporation shall either arrange
for any corporation succeeding to the business and assets of the Corporation to
issue to the Participants replacement options on such corporation's stock which
will to the extent possible preserve the value of the outstanding options or
shall make the outstanding options fully exercisable, subject to the provisions
of Section 9.3.2, at least 20 days before the effective date of any such
dissolution, liquidation or consolidation. The existence of the Plan shall not
prevent any such change or other transaction and no Participant thereunder shall
have any right except as herein expressly set forth.
<PAGE>
-15-
12. Employment Rights.
-----------------
Neither the adoption of the Plan nor any grant of options or rights in
respect of Tax Offset Payments confers upon any employee of the Corporation or a
Subsidiary any right to continued employment with the Corporation or a
Subsidiary, as the case may be, nor does it interfere in any way with the rights
of the Corporation or a Subsidiary to terminate the employment of any of its
employees at any time.
13. Discontinuance, Cancellation, Amendment and Termination.
-------------------------------------------------------
The Committee or the Board of Directors, as the case may be, may at any
time discontinue granting options or providing for Tax Offset Payments under the
Plan and, with the consent of the Participant, may at any time cancel an
existing option in whole or in part and grant another option to the Participant
for such number of shares as the Committee or the Board of Directors, as the
case may be, specifies. The Board of Directors may at any time or times amend
the Plan for the purpose of satisfying the requirements of any changes in
applicable laws or regulations or for any other purpose which may at the time be
permitted by law or may at any time terminate the Plan as to any further grants
of options, provided that no such amendment shall (a) increase the maximum
number of shares available under the Plan except as provided in Section 11, (b)
decrease the minimum option price of options thereafter to be granted to less
than the Fair Market Value at the time the options are granted, or (c) increase
the time limits for granting or exercising options thereafter to be granted.
The Committee may make non-material amendments to the Plan.
14. Effective Date.
--------------
The Plan shall become effective upon its adoption by the Board of
Directors, and options may be granted under the Plan from and after the date of
such adoption; provided, however, that if prior to January 23, 1987 the
stockholders of the Corporation have not approved the Plan, the Plan shall
terminate and all options and rights to Tax Offset Payments theretofore granted
shall terminate and cease to be of any force or effect.
<PAGE>
Exhibit 10(c)
SECOND AMENDMENT TO THE
BANK OF BOSTON CORPORATION
AND ITS SUBSIDIARIES
PERFORMANCE RECOGNITION OPPORTUNITY PLAN
The Bank of Boston Corporation and its Subsidiaries Performance Recognition
Opportunity Plan (the "Plan") is hereby amended, effective as of June 23, 1994
unless otherwise noted, as follows:
1. Section 2 is amended by appending the following to the end thereof:
2.17 Beneficial Owner has the meaning defined in Rule 13d-3 under the
----------------
Securities Exchange Act of 1934, or any similar successor provision.
2.18 Change in Control means the occurrence of any of the following
-----------------
events:
(1) There is an acquisition of control of the Corporation as
defined in Section 2(a)(2) of the Bank Holding Company Act of 1956, or
any similar successor provision, as in effect at the time of the
acquisition; or
(2) Continuing Directors constitute two-thirds (2/3) or less
of the membership of the Board of Directors, whether as the result of
a merger, consolidation, sale of assets or other reorganization, a
proxy contest, or for any other reason or reasons; or
(3) Any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Corporation representing twenty-
five percent (25%) or more of the combined voting power of the
Corporation's then outstanding voting securities; or
(4) There is a change in control of the Corporation of a
nature that would be required to be reported in response to item 1(a)
of Current Report on Form 8-K or item 6(e) of Schedule 14A of
Regulation 14A or any similar item, schedule or form under the
Securities Exchange Act of 1934, as in effect at the time of the
change, whether or not the Corporation
<PAGE>
is then subject to such reporting requirement, including without
limitation a merger or consolidation of the Corporation with any other
corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving or parent entity) forty-five percent (45%) or more of the
combined voting power of the voting securities (entitled to vote
generally for the election of directors) of the Corporation or such
surviving or parent entity outstanding immediately after such merger
or consolidation and which would result in Continuing Directors
immediately prior to such merger or consolidation constituting more
than two-thirds (2/3) of the membership of the Board of Directors or
the board of such surviving or parent entity immediately after such
merger or consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar
transaction) in which no Person acquired twenty-five percent (25%) or
more of the combined voting power of the Corporation's then
outstanding securities; or
(5) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale
or disposition by the Corporation of all or substantially all of the
Corporation's assets (or any transaction having a similar effect).
2.19 Continuing Director means any director (i) who has
-------------------
continuously been a member of the Board of Directors since not later than
the date of this Amendment or (ii) who is a successor of a director
described in clause (i), if such successor (and any intervening successor)
shall have been recommended or elected to succeed a Continuing Director by
a majority of the then Continuing Directors.
<PAGE>
2.20 Person has the meaning given in Section 3(a)(9) of the
------
Securities Exchange Act of 1934, as modified and used in Sections 13(d) and
14(d) thereof; however, a Person shall not include (i) the Corporation or
any of its subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant
to a registered offering of such securities in accordance with an agreement
with the Corporation, or (iv) a corporation owned, directly or indirectly,
by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation.
2. Section 6 is amended by appending the following to the end thereof:
6.4 Awards Upon a Change in Control.
-------------------------------
Notwithstanding Section 6.3.4 or any other provision of the Plan,
within 30 days following a Change in Control, the Corporation, or any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of
the Corporation, shall pay to each employee who was, immediately prior to
such Change in Control, an Eligible Employee, a lump sum amount, in cash,
equal to the sum of:
(a) any unpaid incentive compensation, awards or bonuses awarded to
the Eligible Employee in accordance with the Corporation's then
current award determination process under the Plan, with respect to
the completed Performance Year preceding such Change in Control; and
(b) a pro rata portion to the date of such Change in Control of the
aggregate value of any any unpaid incentive compensation, awards or
bonuses allocated to, or projected for, the Eligible Employee in
accordance with the Corporation's then current award determination
process under the Plan, with respect to the Performance Year in which
such Change in Control occurs.
<PAGE>
3. Section 7.1 is amended by adding the following to the end thereof:
Notwithstanding the foregoing, no such amendment, modification, suspension
or termination made after a Change in Control shall adversely affect, with
respect to such Change in Control, the amounts payable as set forth in
Section 6.4 or any other obligations, under the Plan, of the Corporation or
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
and/or assets of the Corporation.
<PAGE>
Amendment To The Bank of Boston
and Its Subsidiaries Performance
Recognition Opportunity Plan
The Bank of Boston and Its Subsidiaries Performance Recognition
Opportunity Plan is hereby amended effective January 27, 1994 as follows:
1) Section 6.3.2 of the Plan is hereby amended in its entirety as
follows:
"6.3.2 Approval of Awards. After all the steps contemplated in 6.3.1
-------------------
have been completed, the Office of the Chairman shall approve the schedule of
Eligible Employees receiving awards and the amount of awards for each, except
that (i) the Committee shall approve the amount of the awards, if any, for those
senior executives of the Participating Subsidiaries so designated by it from
time to time, and (ii) the Committee shall recommend to the Board of Directors
for approval the amount of the awards, if any, for each of the Chairman of the
Board of Directors, the President and any Vice Chairman of the Board of
Directors or such other officer or officers as the Committee may recommend and
that the Board does so approve. Awards may be approved by the Office of the
Chairman, the Committee and the Board of Directors for up to as many as all or
as few as none of the persons listed on the schedule of Eligible Employees and
awards shall be in such amounts as the Office of the Chairman, the Committee and
the Board of Directors, respectively, approves."
2) Any and all references in the Plan to "Office of the CEO" shall be
changed to Office of the Chairman.
<PAGE>
-6-
BANK OF BOSTON CORPORATION
AND ITS SUBSIDIARIES
PERFORMANCE RECOGNITION OPPORTUNITY PLAN
(as amended and restated effective January 1, 1991)
1. Purpose. The purpose of the Bank of Boston Corporation and its Subsidiaries
-------
Performance Recognition Opportunity Plan (the "Plan") described herein is to
establish a corporate-wide umbrella incentive/bonus plan for all non-base salary
compensation plans and awards and to reward selected exempt-level employees of
Bank of Boston Corporation (the "Corporation") and Participating Subsidiaries
for job performance during the year.
2. Definitions. Except where the context otherwise indicates, as used herein:
-----------
2.1. Base Salary means the annualized rate of an Eligible Employee's salary
-----------
on December 31 of a Performance Year including any amounts that would have been
received by the Eligible Employee during the Performance Year but for (a) an
election under Section 401(k) or Section 125 of the Internal Revenue Code of
1986, as amended, or (b) a deferral election under a nonqualified plan of
deferred compensation maintained by the Corporation or one of its subsidiaries,
but excluding any awards made under the Plan and any other awards, rights or
benefits made under any qualified or non-qualified benefit or incentive plans or
arrangements; except that in the case of an Eligible Employee who has died,
retired or become totally and permanently disabled Base Salary shall mean such
annualized rate at the time of his or her death or retirement.
2.2. BKB means The First National Bank of Boston, a national banking
---
association.
2.3. Board of Directors means the Board of Directors of the Corporation.
------------------
2.4. Office of the CEO shall mean the Chairman and President of the
-----------------
Corporation; no other member of the Office of the CEO shall be considered a
member
<PAGE>
-7-
of the Office of the CEO for purposes of this plan unless designated as such by
the Chairman or the President.
2.5. Committee means the Compensation and Nominating Committee of the Board
---------
of Directors.
2.6. Comparable Banking Institutions are those companies designated on a
-------------------------------
schedule captioned "Table of Comparable Banking Institutions" as adopted by the
Committee as part of the Guidelines.
2.7. Eligible Employee means, for a Performance Year, for Category III plans
-----------------
and awards, any exempt-level employee of the Corporation, BKB or any of the
Participating Subsidiaries who is determined to be eligible under the Plan by
the Office of the CEO with the approval of the Committee.
2.8. Guidelines means the General Guidelines for interpreting and
----------
administering the Plan as approved from time to time by the Board of Directors,
or by the Committee as the case may be.
2.9. Human Resources means the Human Resources function of BKB.
---------------
2.10. Participating Subsidiary means a corporation or other entity in which
------------------------
the Corporation owns, directly or indirectly or has the power to vote or cause
to be voted, stock or other ownership interests representing more than 50
percent of the total combined voting power and which has been approved for
participation in the Plan by the Committee.
2.11. Performance Year means a fiscal year of the Corporation while the Plan
----------------
is in effect.
2.12. Pool Allocation Formula means the criteria by which the Office of the
-----------------------
CEO allocates amounts in the PRO Pool to the business or administrative groups
of Participating Subsidiaries.
2.13. PRO Pool means the pool established for a Performance Year pursuant to
--------
(S)5.3.2
<PAGE>
-8-
3. Administration.
--------------
3.1. Authority to Interpret the Plan and Adopt Policy. The Plan shall be
------------------------------------------------
administered by Human Resources. The Committee shall have the power to
interpret the Plan and adopt and amend rules and regulations thereto.
Interpretations of the Committee, including, but not limited to the severability
of any and all of the provisions hereof shall be final, conclusive and binding
on all Eligible Employees and any person claiming under or through any Eligible
Employee.
3.2. Approvals by the Board of Directors. Any matter under the Plan which
-----------------------------------
requires adoption or approval by the Board of Directors shall generally be
submitted to the Board of Directors after the approval of the Committee.
Recommendations concerning any such matters shall generally be made to the
Committee by the Office of the CEO.
4. Categories of Non-base Salary Compensation Plans and Awards.
------------------------------------------------------------
4.1 Category I. Includes hiring bonuses, instant awards, special short-term
-----------
sales performance programs and contests and such other programs and awards
deemed appropriate by Human Resources for inclusion in this Category.
4.2 Category II. Includes plans of only fee based businesses that either do
-----------
not have a credit risk or have a credit risk of limited duration. For inclusion
in this category, plans must establish increased performance and/or revenue
targets by individual participant, must be reviewed prior to the beginning of a
Performance Year to determine appropriateness in light of strategic plan goals,
and must be reviewed quarterly against established goals prior to pay out.
These plans will be reviewed by Group and Corporate Center Executives and Human
Resources prior to implementation and approved by the Office of the CEO.
4.3 Category III. Incentive/bonus plans funded by the PRO Pool and includes
-------------
annual performance awards and any business unit plans with a credit component
and/or tied to business unit profitability.
<PAGE>
-9-
5. Funding Mechanisms for each Category.
-------------------------------------
5.1 Category I. The plans under this Category will be funded by budgets
----------
proposed annually by Group and Corporate Center Executives, reviewed by Human
Resources, and approved by the Office of the CEO.
5.2 Category II. The plans under this Category will be funded in an amount
-----------
determined by Human Resources and approved by the Office of the CEO to reward
individual participants for attaining pre-determined performance and/or revenue
targets.
5.3 Category III. The plans and awards under this Category will be funded
------------
through the PRO Pool as determined in Sections 5.3.1 through 5.3.5.
5.3.1. Procedures Relating to Determination of the PRO Pool. The
------------------------------------------------------
Committee shall adopt as part of the Guidelines:
(a) the appropriate business targets and performance measures to be
used to determine the PRO Pool for a Performance Year, and
(b) the Table of Comparable Banking Institutions,
In general these items shall be adopted during or before the first quarter of
the Performance Year and may be changed prospectively during the first quarter
of a subsequent Performance Year upon adoption by the Committee.
5.3.2. Determination of the PRO Pool. The PRO Pool available for a
-----------------------------
Performance Year shall equal the aggregate Base Salaries of all Eligible
Employees multiplied by a percentage (the "Funding Percentage") determined by
the Committee in its sole discretion, giving due regard to the acomplishment of
the business targets and performance measures determined under 5.3.1(a). The
Funding Percentage may be adjusted by the Committee in its discretion up to 25%
based upon the Corporation's performance in relation to Comparable Banking
Institutions on measures such as capital adequacy, asset and credit quality,
market perception, and such other measures as the Committee deems appropriate.
Generally, the Funding Percentage shall not be less than 4.9%.
<PAGE>
-10-
5.3.3. Responsibilities of Finance. As soon as practicable after the
---------------------------
close of a Performance Year, the Finance Group of BKB will provide Human
Resources with an assessment of the Corporation's performance relative to the
business targets and performance measures determined under Section 5.3.1(a).
The Finance Group will also provide Human Resources with calculations of
performance measures for the Corporation determined by Human Resources to be
appropriate for the Performance Year as well as other pertinent financial
information which may include information on capital adequacy, asset and credit
quality and market perception for the latest fiscal year for each of the banking
institutions listed on the Table of Comparable Bank Institutions in effect.
Calculations and information with respect to Comparable Banking Institutions
will be based upon published financial data of such Comparable Banking
Institutions giving consideration to the appropriate treatment of unusual or
non-recurring items of income or expense in making performance comparisons under
the Plan.
5.3.4. Responsibilities of Human Resources, Office of the CEO and the
--------------------------------------------------------------
Committee. After receiving the information and calculations referred to in
---------
5.3.3, Human Resources will compare the Corporation's performance relative to
the achievement of the business targets and performance measures determined
under Section 5.3.1(a), and taking into account the Corporation's performance
relative to the Comparable Banking Institutions, will determine and recommend to
the Office of the CEO the Funding Percentage and the amount of PRO Pool for the
Performance Year. The Office of the CEO will present to the Committee for their
approval the recommended calculation of the Funding Percentage and the amount of
the PRO Pool, together with comparisons of the Corporation's performance
relative to Comparable Banking Institutions and the Corporation's achievement of
the business targets and performance measures under Section 5.3.1(a) for the
Committee's review.
<PAGE>
-11-
5.3.5. Allocation of the PRO Pool.
--------------------------
The PRO Pool shall be allocated to the business and administrative
groups of the Participating Subsidiaries pursuant to the Office of the CEO's
Pool Allocation Formula. Amounts so allocated shall be used for the payment of
any one or more types of bonus, incentive, commission or similar non-Base Salary
compensaton made pursuant to plans established by the various group or divisions
of each Participating Subsidiary.
6. Determination and Approval of Awards.
------------------------------------
6.1 Category I. The appropriate Group or Corporate Center Executive, or the
----------
officer or committee designated in the plan, shall determine and approve awards
and payments made pursuant to plans under this Category.
6.2 Category II. The appropriate Group or Corporate Center Executive, or
-----------
the officer or committee determined under the plan, shall determine and approve
awards and payments made pursuant to plans under this Category.
6.3 Category III The determination and approval of awards under this
------------
Category shall be as set forth in Sections 6.3.1 through 6.3.5.
6.3.1 Determination of Performance Awards. During the first quarter
------------------------------------
of a Performance Year, the Office of the CEO and the Group and Corporate Center
Executives will prepare a schedule indicating (i) the name of each Eligible
Employee proposed for an award and (ii) his or her Performance Award for the
previous Performance Year. In making a recommendation concerning whether a
Performance Award for a Performance Year will be made to an Eligible Employee,
and, if so, in determining the amount of such award, consideration shall be
given to one or more of the following factors: (i) the level of responsibility
of the Eligible Employee, (ii) the personal contribution to the Corporation
and/or the Participating Subsidiary made by the Eligible Employee, (iii) the
performance of the business group or unit in which the Eligible Employee works,
and (iv) any minimum and average award guidelines established by Human
Resources. In making such recommendations, the Office of the
<PAGE>
-12-
CEO and the Group and Corporate Center Executives shall have discretion to
recommend up to as much as all, and as little as none, of such allocated pool to
any Eligible Employee.
6.3.2 Approval of Awards. After all the steps contemplated in 6.3.1
------------------
have been completed, the Office of the CEO shall approve the schedule of
Eligible Employees receiving awards and the amount of awards for each, except
that (i) the Committee shall approve the amount of the awards, if any, for the
top fifty officers of the Participating Subsidiaries, and (ii) the Committee
shall recommend to the Board of Directors for approval the amount of award, if
any, for each of the Chairman, President, and Vice Chairman or such other
officer or officers as the Committee may recommend and that the Board does so
approve. Awards may be approved by the Office of the CEO, the Committee and the
Board of Directors for up to as many as all or as few as none of the persons
listed on the schedule of Eligible Employees and awards shall be in such amounts
as the Office of the CEO, the Committee and the Board of Directors,
respectively, approves.
6.3.3 Undistributed Amounts. The aggregate awards approved in a
---------------------
Performance Year may be less than all of the available PRO Pool for a
Performance Year. The undistributed amount in such pool shall be reallocated to
the general funds of the Corporation.
6.3.4 Announcement and Timing of Awards. Awards shall be announced in
---------------------------------
writing in the year following the Performance Year to which the awards relate
promptly after the amount of the awards have been approved by the Office of the
CEO, the Committee or the Board of Directors, as the case may be. No Eligible
Employee shall be entitled to any award under the Plan unless and until the date
on which a written announcement of an award has been delivered to him or her or
to his or her beneficiary.
6.3.5. Awards Available Under Special Circumstances. Performance
--------------------------------------------
Awards may be made to an Eligible Employee (or his or her beneficiary in the
event of his or her death during a Performance Period) if the employee is an
Eligible Employee
<PAGE>
-13-
during a Performance Year and during that Performance Year: (i) dies or becomes
totally and permanently disabled; (ii) retires, including a qualified early
retirement, pursuant to the provisions of any pension or retirement plan of the
Corporation, BKB or any of the other Subsidiaries in which he or she is a
participant; (iii) is on a leave of absence from the Corporation, BKB or any of
the other Subsidiaries, which leave is approved at any time by the Committee for
purposes of the Plan; or (iv) terminates service, which termination is approved
at any time by the Committee for purposes of the Plan. Under this provision,
awards for the Performance Year may be made in such amounts as the Office of the
CEO, the Committee or the Board of Directors, as the case may be, deems
appropriate under the circumstances.
7. Modifications and Termination.
-----------------------------
7.1. In General. The Board of Directors may, generally upon the approval of
----------
the Committee and the recommendation of the Office of the CEO, or the Committee
may, generally upon the recommendation of the Office of the CEO, amend, modify,
suspend or terminate in whole or in part, and, if terminated, may reinstate, any
or all of the provisions of the Plan from time to time or repeal the Plan
entirely or direct the discontinuance of granting awards hereunder either
temporarily or permanently.
7.2. Effect on Previously Granted Awards. Amendment of the Plan shall have
-----------------------------------
no effect on the terms and conditions of awards outstanding for which a
Participant has received written notification for a Performance Year.
8. General Provisions.
------------------
8.1. Employment Rights. Neither the qualification or designation of any
-----------------
person as an Eligible Employee for a Performance Year nor the grant of an award
hereunder to any person shall give such person any right to be retained in the
employ of one or more of the Corporation, BKB or any of the other Subsidiaries
or any rights with respect to any other Award Years.
<PAGE>
-14-
8.2. Non-entitlement to an Award. The fact that a person may generally be
---------------------------
eligible for an award shall not constitute entitlement to an award for any
Performance Year.
8.3. Assignment, Pledge, etc. Prohibited. Except to the extent otherwise
-----------------------------------
specifically provided in the Plan, no payment of an award pursuant to the Plan,
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, hypothecation, encumbrance or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, hypothecate, encumber or
charge the same shall be void.
8.4. Other Plans Not Prohibited. The Plan is not intended to and shall not
--------------------------
preclude the establishment or operation by the Corporation, BKB or any of the
other Subsidiaries, or the grant, award or payment by the Corporation, BKB, or
any of the other Subsidiaries of any right, benefit or amount under, any thrift,
savings, investment, stock purchase, stock option, profit sharing, pension,
retirement, medical, life or other insurance, or other non-bonus benefit or
incentive plan, arrangement or award for any employee or employees, whether or
not such employee or employees are at the same time an Eligible Employee or
Eligible Employees in the Plan. Any such plan, arrangement or award, other than
the Plan, referred to in this section may be authorized and payments made
thereunder independent of and in addition to the Plan.
8.5. Awards Not Considered Salary. Unless any one or more of the plans
----------------------------
referred to in Section 8.4 provide to the contrary, the amounts of awards under
the Plan shall not be included in calculations of salary for the purpose of
determining retirement or pension benefits, insurance benefits or other benefit
plan computations.
8.6. Governing Law. The Plan and all actions taken hereunder shall be
-------------
governed by the laws of the Commonwealth of Massachusetts.
RJK/1471
<PAGE>
Exhibit 10(d)
SECOND AMENDMENT TO
BANK OF BOSTON CORPORATION
AND ITS SUBSIDIARIES
DEFERRED COMPENSATION PLAN
The Bank of Boston Corporation and its Subsidiaries Deferred Compensation Plan,
as amended (the "Plan"), is hereby amended, effective as of June 23, 1994 unless
otherwise noted, as follows:
1. Section 2(m) is restated in its entirety as follows:
(m) "Change of Control" means the occurrence of any one of the following
events:
(i) a Bank Holding Company Act Control Acquisition; or
(ii) a Twenty-five Percent Stock Acquisition;
(iii) an Unusual Board Change; or
(iv) a Securities Law Change of Control; or
(v) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of
the Corporation's assets (or any transaction having a similar
effect).
2. Section 2(o) is restated in its entirety as follows:
(o) "Continuing Director" means any director (i) who has continuously
been a member of the Board of Directors of the Corporation since not later
than the date of the Plan or (ii) who is a successor of a director
described in clause (i), if such successor (and any intervening successor)
shall have been recommended or elected to succeed a Continuing Director by
a majority of the then Continuing Directors.
<PAGE>
3. Section 2(q) is restated in its entirety as follows:
(q) "Securities Law Change of Control" means a change in control of
the Corporation of a nature that would be required to be reported in
response to item 1(a) of Current Report on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form under
the Exchange Act, as in effect at the time of the change, whether or not
the Corporation is then subject to such reporting requirement, including
without limitation a merger or consolidation of the Corporation with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or parent
entity) forty-five percent (45%) or more of the combined voting power of
the voting securities (entitled to vote generally for the election of
directors) of the Corporation or such surviving or parent entity
outstanding immediately after such merger or consolidation and which would
result in Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds (2/3) of the membership of
the Board of Directors or the board of such surviving or parent entity
immediately after such merger or consolidation or (ii) a merger or
consolidation effected to implement a recapitalization of the Corporation
(or similar transaction) in which no Person acquired twenty-five percent
(25%) or more of the combined voting power of the Corporation's then
outstanding securities.
4. Section 2(r) is restated in its entirety as follows:
(r) A "Twenty-Five Percent Stock Acquisition" occurs when any Person
is or becomes the Beneficial Owner, directly or indirectly, of securities
of the Corporation representing twenty-five percent (25%) or more of the
combined voting power of the Corporation's then outstanding voting
securities. "Person" has the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Corporation or any of its
subsid-
<PAGE>
iaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to a registered
offering of such securities in accordance with an agreement with the
Corporation, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation. "Beneficial Owner" has the
meaning defined in Rule 13d-3 under the Exchange Act.
5. The third sentence of Section 6(d) is amended to read as follows:
If (a) a Change of Control should occur, (b) the Participant should
terminate employment with the Employer after the Participant's 55th
birthday, or (c) the Participant should terminate employment with the
Employer on account of death prior to retirement or Disability of at least
thirty (30) months' duration, the interest credited to the Participant's
Deferral Accounts for all years (and fractional years expressed in days) of
his or her participation in the Plan shall be recalculated in the manner
described in the first sentence of this paragraph at 130% times the
Declared Rate for each such year.
6. Section 10 is amended by deleting the following text from the second
sentence of the second paragraph thereof:
, or if a majority of the Continuing Directors has determined pursuant to
Section 2(m) above that an event does not constitute a Change of Control
and subsequently revokes such determination within 10 days of such
revocation,
<PAGE>
7. Section 13 is amended by appending the following separate paragraph to the
end thereof:
Notwithstanding the foregoing, no amendment or termination made after a
Change of Control shall adversely affect, with respect to such Change of
Control, the benefits provided by Section 6(d) hereof or any other
obligations, under the Plan, of the Corporation or any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Corporation.
<PAGE>
First Amendment To The
Bank of Boston Corporation and Its Subsidiaries
Deferred Compensation Plan
The Bank of Boston Corporation and Its Subsidiaries Deferred Compensation
Plan is hereby amended as follows:
1) Effective October 25, 1990, the definition of "Committee" under Section
2(c) is hereby amended to read as follows:
"Committee" means the Compensation and Nominating Committee of the Board of
Directors of the Corporation."
2) The first sentence of Section 6(c) is hereby amended to read as follows:
"As of the end of each calendar year, the Employer shall credit to a
separate Deferral Account for each eligible Participant the sum of (i) and
(ii) below, minus (iii) below, where (i) is such amount as would have been
contributed by the Employer on behalf of the Participant as a matching
contribution under the Participant's 401(k) Plan for such year but for the
limitations imposed upon such 401(k) Plan by the sections 415, 401(a)(17)
or 402(g) of the Code, or by the nondiscrimination requirements of sections
401(k) or 401(m) of the Code; (ii) is an amount equal to a percentage to be
specified by the Committee of the Participant's Salary deferred under this
Plan for such year; provided, that the sum of (i) and
--------
(ii) shall not exceed four percent of the Participant's Salary for such
year or such other percentage or amount as may be determined by the
Committee; and (iii) is such offsets or reductions as may be specified by
the Committee."
3) The third sentence of Section 6(d) shall be amended to read as follows:
"If the Participant should terminate employment with the Employer after the
Participant's 55th birthday, or on account of death prior to retirement or
Disability of at least thirty (30) months' duration, the interest credited
to the Participant's Deferral Accounts for all years (and fractional years
expressed in days) of his or her participation in the Plan shall be
recalculated in the manner described in the first sentence of this
paragraph at 130% times the Declared Rate for each such year."
<PAGE>
BANK OF BOSTON CORPORATION AND ITS SUBSIDIARIES
DEFERRED COMPENSATION PLAN
1. Purpose and Effective Date.
--------------------------
The purpose of this Plan is to provide an arrangement whereby eligible
executives can elect to defer receipt of designated percentages or amounts of
their salary and bonuses. The Plan is effective January 1, 1988. It is
intended that this Plan supplant certain existing nonqualified deferred
compensation agreements between the Employer and individual executives.
2. Definitions.
-----------
(a) "Plan" means the Bank of Boston Corporation and Its Subsidiaries
Deferred Compensation Plan as set forth herein and as from time to time amended.
(b) "Employer" means Bank of Boston Corporation and such of its
subsidiaries which participate in the Plan.
(c) "Committee" means the Compensation Committee of the Board of Directors
of the Corporation.
(d) "Corporation" means Bank of Boston Corporation.
(e) "Bank" means The First National Bank of Boston.
6
<PAGE>
(f) "Participant" means an executive who participates in the Plan.
(g) "Salary" means the fixed basic compensation of a Participant from the
Employer for a calendar year, excluding any special compensation such as
overtime, bonus payments, disability insurance benefits, severance pay or other
similar distributions, as well as contributions under any employee benefit plan;
provided, that Salary shall include amounts that would have been received by the
Participant from the Employer as fixed basic compensation but for an election
under section 401(k) or section 125 of the Code or a deferral election under
this Plan.
(h) "Bonus" means, for any calendar year, such amount or amounts as are
payable to a Participant under any incentive award or bonus program provided by
the Employer that the Committee designates prior to the start of such calendar
year.
(i) "401(k) Plan" means, with respect to any Participant, any qualified
plan maintained by the Participant's Employer that includes a cash or deferred
arrangement qualified under section 401(k) of the Code.
(j) "Deferral Account" means the account described in Section 6.
(k) "Declared Rate" means, with respect to 1988, 10.61%, and with respect
to subsequent calendar years the one-hundred-twenty (120)-month-rolling average
rate of ten-year United States Treasury Notes or such other rate as may be
prescribed from time to time by the Committee. For any calendar year the one-
hundred-twenty (120)-month-rolling average rate will be determined by the
Committee as of the preceding month of December and will be the average of the
rates in effect for each of the one-hundred-twenty (120) months ending with that
December.
7
<PAGE>
(1) "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
(m) "Change of Control" means the occurrence of any of the following
events:
(i) a Bank Holding Company Act Control Acquisition,
(ii) a Twenty Percent Stock Acquisition,
(iii) an Unusual Board Change, or
(iv) a Securities Law Change of Control,
unless, in the case of an event specified in item (i), (ii) or (iii), a majority
of the Continuing Directors shall determine, not later than 10 days after the
Corporation knows or can reasonably be expected to know of the event, that the
event shall not constitute a Change of Control for purposes of this Plan. A
majority of the Continuing Directors may at any time prior to the expiration of
such l0-day period (or prior to the expiration of any extension of such period
pursuant to this sentence) extend such period or impose such time and other
limitations on their determination as they may consider appropriate, and at any
time may revoke their determination made in accordance with the preceding
sentence that an event did not constitute a Change of Control for purposes of
this Plan. A determination by a majority of the Continuing Directors that an
event did not constitute a Change of Control under item (i), (ii) or (iii) shall
not be deemed to apply to any other event, however closely related.
(n) "Bank Holding Company Act Control Acquisition" means an acquisition of
control of the Corporation as defined in Section 2(a)(2) of the Bank Holding
Company Act of 1956, or any similar successor provision, as in effect at the
time of the acquisition.
(o) "Continuing Director" means any director (i) who has continuously been
a member of the Board of Directors of the Corporation since not later than
December 31, 1987, or (ii) who is a successor of a Continuing Director as
defined in (i) if such successor (and any
8
<PAGE>
intervening successor) shall have been recommended or elected to succeed a
continuing Director by a majority of the then Continuing Directors.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
(q) "Securities Law Change of Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
item 1(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of
Regulation 14A or any similar item, schedule or form under the Exchange Act, as
in effect at the time of the change, whether or not the corporation is then
subject to such reporting requirement.
(r) A "Twenty Percent Stock Acquisition" occurs when a "person" (other
than the Corporation, any subsidiary of the Corporation, any employee benefit
plan of the Corporation or of any subsidiary of the Corporation, or any "person"
organized, appointed or established by the Corporation for or pursuant to any
such plan), alone or together with its "affiliates" and its associates, becomes
the "beneficial owner" of 20% or more of the common stock of the Corporation
then outstanding. The terms "person", "affiliate", "associate" and "beneficial
owner" have the meanings given to them in Section 2 of the Exchange Act and
Rules 12b-2, 13d-3 and 13d-5 under the Exchange Act, or any similar successor
provision or rule, as in effect at the time when the "person" becomes such a
"beneficial owner". The term "person" includes a group referred to in Rule 13d-
5 under the Exchange Act, or any similar successor rule, as in effect when the
group becomes such a "beneficial owner".
(s) An "Unusual Board Change" occurs when continuing Directors constitute
two-thirds or less of the membership of the Board of Directors of the
Corporation, whether as the result of a merger, consolidation, sale of assets or
other reorganization, a proxy contest, or for any other
9
<PAGE>
reason or reasons.
(t) "Disability" means a disability as defined in the Bank's long-term
disability insurance plan.
3. Eligibility.
-----------
Such key employees of the Employer as are selected by the Committee shall
be eligible to participate in the Plan provided they complete such forms as the
Committee may require. The Committee may require as a condition of eligibility
that certain employees, specified by the Committee, waive, effective as of
January 1, 1988, certain existing deferred compensation agreements or
arrangements they may have with the Employer, and agree to payment under this
Plan of any or all amounts deferred pursuant to such agreements and
arrangements. However, the form and timing of payments under this Plan of any
such amounts previously deferred will be as provided in the existing agreements
or arrangements except as provided in Sections 10 and 13.
4. Elective Deferrals.
------------------
A Participant may elect to defer such portion of his or her Salary or Bonus
otherwise payable in or for a calendar year as the Committee may prescribe prior
to the start of such calendar year.
5. Deferral Elections.
------------------
A Participant's election of deferral under Section 4 shall be in the form
prescribed by the Committee. The election of deferral must be filed prior to
the first day of the calendar year for
10
<PAGE>
which the Salary or Bonus is earned. Each election shall specify the percentage
or amount of the Participant's Salary or Bonus to be credited to his or her
Deferral Account instead of being paid currently to the Participant, and the
form and timing of the distributions in respect of such deferral. Each election
shall be binding with respect to the Salary and Bonus for such period (not less
than one year) as the Committee shall specify (the "Deferral Period") and shall
be irrevocable after January 1 of the calendar year to which it applies, or in
the case of a Deferral Period of more than one year, January 1 of the first
calendar year to which it applies.
6. Deferral Account.
----------------
The Employer shall maintain one or more Deferral Accounts on behalf of each
Participant as follows:
(a) Opening Balance. If the Participant has deferred compensation prior
---------------
to January 1, 1988 pursuant to one or more agreements or arrangements with his
or her Employer and has agreed to the modification of such agreements or
arrangements pursuant to the second paragraph of Section 3, the Employer shall
credit to a Deferral Account for the Participant the amount credited to the
Participant's account or accounts as of December 31, 1987 under such prior
agreements or arrangements.
(b) Deferrals. On and after January 1, 1988 the Employer shall credit to
---------
a separate Deferral Account for the Participant the amounts of Salary or Bonus,
as applicable, which the Participant elected to defer, as of the dates the
Salary or Bonus would have been payable if not deferred.
(c) Employer Credits. As of the end of each calendar year, the Employer
----------------
shall credit to the Deferral Account of each eligible Participant maintained
under Section 6(b) for such year
11
<PAGE>
the sum of (i) and (ii) below, minus (iii) below, where (i) is such amount as
would have been contributed by the Employer on behalf of the Participant as a
matching contribution under the Participant's 401(k) Plan for such year but for
the limitations imposed upon such 401(k) Plan by section 415 or by the
nondiscrimination requirements of sections 401(k) or 401(m) of the Code; (ii) is
an amount equal to a percentage to be specified by the Committee of the
Participant's Salary deferred under this Plan for such year; provided, that the
--------
sum of (i) and (ii) shall not exceed six percent of the Participant's Salary for
such year or such other percentage or amount as may be determined by the
Committee; and (iii) is such offsets or reductions as may be specified by the
Committee. The Committee may impose such conditions on eligibility for the
Employer credits pursuant to this Section as it determines in its sole
discretion. The Employer shall notify each Participant if additional amounts are
to be credited to his or her Deferral Account for any year pursuant to this
Section. To the extent specified by the Committee, the Employer will also credit
to the Deferral Account of each affected Participant such amounts as may be
necessary to restore any contribution or benefit the Participant may lose under
any tax-qualified plans maintained by the Employer as a result of the
Participant's deferrals under the Plan.
(d) Interest. Subject to Section 15 and the remaining provisions of this
--------
paragraph, at the end of each month the Employer shall credit to each of the
Participant's Deferral Accounts an amount equal to the amount in such Deferral
Account as of the end of the immediately preceding calendar month without regard
to interest credited pursuant to this sentence for the current calendar year
times one-twelfth of the lesser of (i) 65% of the Declared Rate or (ii) six
percent. The interest credits shall be compounded annually. If the Participant
should terminate employment with the Employer after the Participant's 55th
birthday and during or after the last year of the most recent Deferral Period
for which the Participant has made an election, or on account of death prior to
retirement or Disability of at least thirty (30) months' duration, the interest
credited to the Participant's Deferral Accounts for all years (and fractional
years
12
<PAGE>
expressed in days) of his or her participation in the Plan shall be recalculated
in the manner described in the first sentence of this paragraph at 130% times
the Declared Rate for each such year. Interest shall continue to be credited
pursuant to this paragraph until the commencement of benefits.
7. Form and Timing of Distributions.
--------------------------------
(a) Retirement, Disability or Termination of Employment. Upon the
---------------------------------------------------
Participant's retirement, disability or termination of employment for reasons
other than death, the Participant shall be entitled to receive the balance in
each of his or her Deferral Accounts calculated as of the last day of the
calendar quarter preceding the event that gives rise to the distribution. Each
Deferral Account shall be payable as the Participant shall have specified in his
or her election of deferral from among the forms prescribed by the Committee
and, if payment is made other than in an immediate lump sum, shall be adjusted
to reflect continued interest credits in such manner as the Committee shall
prescribe. Payment shall be made or commence as soon as practicable following
the event giving rise to the distribution. Notwithstanding the foregoing,
however, except as provided in Sections 10 and 13, payment of the amount
credited to any Participant as an opening balance under Section 6(a) plus
interest credited thereon pursuant to Section 6(d) shall be made in the form
elected by the Participant under his or her agreements or arrangements existing
prior to January 1, 1986.
(b) Death. If the Participant dies prior to the commencement of payment of
-----
his or her Deferral Accounts as described in Section 7(a), the Participant's
designated beneficiary or beneficiaries shall be entitled to receive a ten-year
certain annuity payable in level quarterly amounts with an assumed rate of 10%
interest credited and compounded quarterly. The principal used to calculate the
quarterly payments will be the balance in the Participant's Deferral Accounts as
of the date of death, including interest recalculated in the manner
13
<PAGE>
described in Section 6(d) at 130% of the Declared Rate for each year (and
fractional years expressed in days) of his or her participation in the Plan,
plus any deferrals of Salary or Bonus which the Participant had elected to make
but did not complete because of his or her death and the matching credits which
the Employer would have added to the Deferral Accounts had the Participant
completed his or her final Deferral Period. For purposes of the preceding
sentence, it will be assumed that the Participant would have continued to earn
the same Salary during the remainder of the Deferral Period as he or she earned
at the time of death and that he or she would have received the same Bonus
amount for each year remaining in the Deferral Period as the Bonus received for
the year of death. If the Participant dies after payment of his or her Deferral
Accounts has commenced but prior to the exhaustion of any such Account, payment
of the remaining balance of such Account shall continue to the Participant's
designated beneficiary or beneficiaries in the form selected by the Participant.
8. Emergency Benefit.
-----------------
If a Participant suffers a financial emergency, upon the written request of
the Participant the Committee, in its sole discretion, may distribute to the
Participant at such time as the Committee may prescribe that portion of his or
her Deferral Accounts, if any, which the Committee determines is necessary to
meet the immediate financial emergency. For purposes of this Section, a
Participant's Deferral Accounts shall include interest credited in the manner
described in Section 6(d) at the lesser of 65% of the Declared Rate or 6% for
each year (and fractional years expressed in days) of his or her participation
in the Plan, unless the Participant shall have attained age 55 prior to the
filing of the written request, in which case the interest in his or her Deferral
Accounts shall be recalculated in the manner described in Section 6(d) at 130%
of the Declared Rate for each year (and fractional years expressed in days) of
the Participant's participation in the Plan. A financial emergency shall
include major uninsured medical expense or education of the Participant or the
Participant's spouse or dependent, the
14
<PAGE>
purchase of a principal residence for the Participant, and such other financial
emergencies as the Committee may, in its discretion, determine, provided that
the Participant demonstrates to the Committee's satisfaction that he or she
lacks available resources to meet the emergency. Any such distribution shall
reduce the balance in the Participant's Deferral Accounts available for
distribution in accordance with Section 7.
9. Administration of the Plan.
--------------------------
The Committee shall oversee the administration of the Plan by the Bank's
Human Resources Department. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such
interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant. The
Committee shall exercise its discretion under the Plan in such manner as it
determines appropriate and may, in its discretion, waive the application of any
rule to any Participant. The Committee shall have no responsibility to exercise
its discretion in a uniform manner among similarly situated Participants, and no
decision with respect to any Participant shall give any other Participant the
right to have the same decision applied to him or her.
10. Nature of Claim for Payments.
----------------------------
Except as herein provided the Employer shall not be required to set aside
or segregate any assets of any kind to meet any of its obligations hereunder,
and all obligations of the Employer hereunder shall be reflected by book entries
only. The Participant shall have no rights on account of this Plan in or to any
specific assets of the Employer. Any rights that the Participant may have on
account of this Plan shall be those of a general, unsecured creditor of the
Employer.
15
<PAGE>
The Corporation may establish a trust of which the Corporation is treated
as the owner under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor
trust"), and may from time to time deposit funds in such trust to facilitate
payment of the benefits provided under the Plan. In the event the Corporation
establishes such a grantor trust with respect to the Plan and at the time of a
Change of Control., such trust (i) has not been terminated or revoked and (ii)
is not "fully funded" (as hereinafter defined), the Corporation shall within ten
days of such Change of Control, or if a majority of the Continuing Directors has
determined pursuant to Section 2(m) above that an event does not constitute a
Change of Control and subsequently revokes such determination within 10 days of
such revocation, deposit in such grantor trust assets sufficient to cause the
trust to be "fully funded" as of the date of the deposit. For purposes of this
paragraph, the grantor trust shall be deemed "fully funded" as of any date if,
as of that date, the fair market value of the assets held in trust with respect
to this Plan is not less than the aggregate present value as of that date of (1)
all benefits then in pay status under the Plan (including benefits not yet
commenced but in respect of Participants who have retired, died or otherwise
terminated employment under circumstances entitling them to such benefits
hereunder) plus (2) all benefits that would be payable under the Plan if all
other Participants were deemed to have retired or terminated employment (other
than by reason of death) under circumstances entitling them to benefits on that
date. In applying the preceding sentence, the value of Deferral Accounts shall
include interest recalculated in the manner described in Section 6(d) at 130% of
the Declared Rate for each year (and fractional years expressed in days) of the
Participant's participation in the Plan, -whether or not such rate would in fact
apply were such Accounts to become payable, and present value shall be
determined by using the Bank's base rate in effect on the day of the Change of
Control.
In the event a grantor trust is established and, following a Change of
Control, the Corporation obtains an opinion of counsel acceptable to itself and
to the trustee of such trust, that the Plan would be deemed "funded" for
purposes of Title I of ERISA by reason of such
16
<PAGE>
trust, or that amounts held by the grantor trust with respect to the Plan would
by reason of the existence of such trust be includible in the income of
Participants prior to distribution, and as a result thereof the grantor trust is
terminated, all Deferral Accounts, to the extent of the assets then held in such
trust, shall become payable in the form of lump sum distributions. In such
event, the interest credited to the Deferral Accounts of the Participants shall
be recalculated in the manner described in Section 6(d) at 130% of the Declared
Rate for each year (and fractional years expressed in days) of the Participant's
participation in the Plan.
11. Rights Are Non-Assignable.
-------------------------
Neither the Participant nor any beneficiary nor any other person shall have
any right to assign or otherwise alienate the right to receive payments
hereunder, in whole or in part, which payments are expressly agreed to be
nonassignable and non-transferable, whether voluntarily or involuntarily.
12. Taxes.
------
If the Employer is required to withhold taxes from payments under the
Plan, the amounts payable to Participants shall be reduced by the tax so
withheld.
13. Termination; Amending.
---------------------
The Plan shall continue in effect until terminated by action of the Board
of Directors of the Corporation. Upon termination of the Plan, no deferral of
Salary or Bonuses thereafter paid to a Participant shall be made and no
individual not a Participant as of the date of termination shall become a
Participant thereafter. If, at the time of termination, there is any
Participant or beneficiary of a Participant who is or will be entitled to a
payment hereunder, the Committee
17
<PAGE>
shall elect either (a) to make payments to such Participants or beneficiaries in
the normal course as if the Plan had continued in effect, or (b) to pay to such
Participants or beneficiaries the balance in the Participant's Deferral Accounts
in single lump-sum payments. For purposes of calculating the lump-sum payment
referred to in the preceding sentence, the interest credited to the Deferral
Accounts of any Participant who had not died, terminated employment or retired
prior to the termination of the Plan shall be recalculated in the manner
described in Section 6(d) at 130% of the Declared Rate for each year (and
fractional years expressed in days) of his or her participation in the Plan.
The Committee may at any time and from time to time amend the Plan in any
manner; provided that, subject to Section 15, no such amendment shall reduce the
amounts previously credited to the Deferral Account of any Participant,
including interest calculated pursuant to Section 6(d), for periods prior to the
date of such amendment, or change the time or form of payment hereunder; and
provided, further, that no amendment shall eliminate or reduce the Corporation's
obligation to deposit assets in the grantor trust as described in Section 10 in
the event of a Change of Control. The Retirement Plan Committee of the Bank may
make nonmaterial changes to the Plan.
14. Employment Rights.
-----------------
Nothing in this Plan shall give any Participant any right to be employed or
to continue employment by the Employer.
15. Change in or Interpretation of Law.
----------------------------------
It is contemplated that in connection with its obligations under the Plan,
the Employer may invest in one or more insurance contracts on the lives of the
Participants or may otherwise
18
<PAGE>
invest its assets in a manner calculated to provide an after-tax yield
sufficient to meet its obligations hereunder. In the event of any change in the
federal income tax law or regulations which the Committee, in its judgment,
determines will increase the after-tax cost of the Plan to the Employer, or will
reduce the after-tax yield from any such contracts or other investments, the
Committee reserves the right, in its discretion, to reduce the Declared Rate
appropriately to reflect the Employer's increased cost, including, if the
Committee deems it necessary, on a retroactive basis. In the event of any change
in or interpretation of law which, in the opinion of counsel acceptable to the
Committee, would cause the Plan to be other than an unfunded plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees (such an unfunded plan being
hereinafter referred to as an "exempt plan") and to be subject to the funding
requirements of Title I of the Employee Retirement Income Security Act, as
amended ("ERISA"), the Committee may terminate the participation of such
Participants as may be necessary to preserve or restore the Plan's status as an
exempt plan and may accelerate payment of their Deferral Accounts or take such
other action as may be necessary to preserve or restore such status. If payments
to any Participant are accelerated in accordance with the preceding sentence,
the Participant's Deferral Accounts will include interest recalculated in the
manner described in Section 6(d) at 130% of the Declared Rate for each year (and
fractional years expressed in days) of the Participant's participation in the
Plan.
16. Forfeitures.
-----------
Notwithstanding anything in this Plan to the contrary, any benefits payable
to a Participant hereunder may be forfeited, discontinued or reduced prior to a
Change of Control, if the Committee determines, in its discretion, based-on the
advice and recommendation of management, that (i) the Participant has been
convicted of a felony, (ii) the Participant has failed to contest a prosecution
for a felony, or (iii) the Participant has engaged in willful
19
<PAGE>
misconduct or dishonesty, any of which is directly harmful to the business or
reputation of the Corporation. Following a Change of Control, a Participant's
benefits may be forfeited, discontinued or reduced only if the Participant has
been convicted of a felony or has failed to contest a prosecution for a felony.
20
<PAGE>
Exhibit 10(e)
SECOND AMENDMENT TO
THE FIRST NATIONAL BANK OF BOSTON
BONUS SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
The First National Bank of Boston Bonus Supplemental Employee Retirement Plan,
as amended (the "Plan"), is hereby amended, effective as of June 23, 1994 unless
otherwise noted, as follows:
1. Section 2(k) is restated in its entirety as follows:
(k) "Change of Control" means the occurrence of any one of the following
events:
(i) a Bank Holding Company Act Control Acquisition; or
(ii) a Twenty-five Percent Stock Acquisition; or
(iii) an Unusual Board Change; or
(iv) a Securities Law Change of Control; or
(v) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of
the Corporation's assets (or any transaction having a similar
effect).
2. Section 2(m) is restated in its entirety as follows:
(m) "Continuing Director" means any director (i) who has continuously
been a member of the Board of Directors of the Corporation since not later
than the date of the Plan or (ii) who is a successor of a director
described in clause (i), if such successor (and any intervening successor)
shall have been recommended or elected to succeed a Continuing Director by
a majority of the then Continuing Directors.
<PAGE>
3. Section 2(o) is restated in its entirety as follows:
(o) "Securities Law Change of Control" means a change in control of
the Corporation of a nature that would be required to be reported in
response to item 1(a) of Current Report on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form under
the Exchange Act, as in effect at the time of the change, whether or not
the Corporation is then subject to such reporting requirement, including
without limitation a merger or consolidation of the Corporation with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or parent
entity) forty-five percent (45%) or more of the combined voting power of
the voting securities (entitled to vote generally for the election of
directors) of the Corporation or such surviving or parent entity
outstanding immediately after such merger or consolidation and which would
result in Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds (2/3) of the membership of
the Board of Directors of the Corporation or the board of such surviving or
parent entity immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no Person acquired twenty-
five percent (25%) or more of the combined voting power of the
Corporation's then outstanding securities.
4. Section 2(p) is restated in its entirety as follows:
(p) A "Twenty-Five Percent Stock Acquisition" occurs when any Person
is or becomes the Beneficial Owner, directly or indirectly, of securities
of the Corporation representing twenty-five percent (25%) or more of the
combined voting power of the Corporation's then outstanding voting
securities. "Person" has the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Corporation or any of its
subsid-
<PAGE>
iaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to a registered
offering of such securities in accordance with an agreement with the
Corporation, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation. "Beneficial Owner" has the
meaning defined in Rule 13d-3 under the Exchange Act.
5. Section 5(b) is amended by adding a new sentence at the end thereof as
follows:
If termination of employment or death occurs on or after a Change
of Control, the amount determined above as well as any amounts to be
credited to a Participant's Cash Balance Bonus Account pursuant to the last
sentence of Section 4(a) shall be multiplied by 100%.
6. Section 8 is amended by deleting the following text from the second
sentence of the second paragraph thereof:
, or if a majority of the Continuing Directors has determined pursuant to
Section 2(k) above that an event does not constitute a Change of Control
and subsequently revokes such determination, within 10 days of such
revocation,
7. Section 11 is amended by restating the second paragraph thereof in its
entirety and adding a third paragraph as follows:
The Committee may at any time and from time to time amend the Plan in
any manner; provided, that no such amendment by the Committee shall reduce
the amounts previously credited on behalf of any Participant for periods
prior to the date of such amendment. The Retirement Plan Committee of the
Bank may make nonmaterial changes to the Plan.
<PAGE>
Notwithstanding the foregoing, no termination or amendment made after
a Change of Control shall (i) reduce the amounts previously credited on
behalf of any Participant for periods prior to the date of such Change of
Control, (ii) eliminate or reduce the obligation to deposit assets in the
grantor trust described in Section 8 in the event of a Change of Control,
or (iii) eliminate or reduce, with respect to such Change of Control, any
such obligations of any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation.
8. Section 14 is amended by restating the first sentence thereof in its
entirety as follows:
A Participant shall forfeit any and all benefits provided hereunder if
such Participant retires or otherwise terminates employment (other than by
reason of death) prior to the earlier of (i) occurrence of a Change of
Control or (ii) attaining age 55.
<PAGE>
FIRST AMENDMENT TO THE FIRST NATIONAL BANK
OF BOSTON BONUS SUPPLEMENTAL EMPLOYEE
RETIREMENT PLAN
The First National Bank of Boston Bonus Supplemental Employee
Retirement Plan is hereby amended, effective January 1, 1990, as follows:
1. Section 3 is hereby amended to read as follows:
"Such key employees of the Employer as are selected by the Committee
upon recommendation of senior management shall be eligible to
participate in the Plan."
2. The following new sentence is hereby added at the end of
Section 4(a):
"Individuals who become Participants in the Plan after the effective
date hereof will be treated as Participants as of the effective date
for purposes of Cash Balance Bonus Account credits and interest
credits; provided however, that any amounts to be credited to a
Participant's Cash Balance Bonus Account pursuant to this sentence
shall be multiplied by the factor set forth in Section 5(b) determined
in accordance with the Participant's termination of employment or
death."
3. Section 5 is hereby amended in its entirety to read as follows:
Participants, including individuals who become Participants in the
Plan after the effective date hereof, shall be eligible for a Prior
Plan Bonus Annuity as follows:
The Prior Plan Bonus Annuity is an annual amount, payable in the form
of a single life annuity beginning at age 65, equal to 1.75% of an
amount determined by aggregating a Participant's Bonus, if any, for
the years 1984 through 1988 inclusive, dividing the result by five (or
such fewer number of years as the Participant was eligible during such
period for a Bonus), and multiplying the quotient by such
Participant's Years of Benefit Service. For purposes of this Section,
Years of Benefit Service under this Plan shall be equal to Years of
Benefit Service credited under the Retirement Plan except that Years
of Benefit Service after December 31, 1988 shall not be taken into
account.
(a) For Participants who were eligible to participate in the Plan as
of the effective date hereof, the amount determined in the preceding
paragraph shall be multiplied by the following factor determined in
accordance with the Participant's termination of employment or death:
7/3/90
<PAGE>
<TABLE>
<CAPTION>
IF TERMINATION OF EMPLOYMENT
OR DEATH OCCURS PERCENTAGE
---------------------------- ----------
<S> <C>
On or before March 30, 1989 0%
Between March 31, 1989 and
March 30, 1990 (inclusive) 20%
Between March 31, 1990 and 40%
March 30, 1991 (inclusive)
Between March 31, 1991 and 60%
March 30, 1992 (inclusive)
Between March 31, 1992 and 80%
March 30, 1993 (inclusive)
On or after March 31, 1993 100%
</TABLE>
(b) For Participants who become eligible to participate in the Plan after
the effective date hereof, the amount determined above as well as any
amounts to be credited to a Participant's Cash Balance Bonus Account
pursuant to the last sentence of Section 4(a) shall be multiplied by
the following factor determined in accordance with the Participant's
termination of employment or death:
<TABLE>
<CAPTION>
IF TERMINATION OF EMPLOYMENT
OR DEATH OCCURS PERCENTAGE
---------------------------- ----------
<S> <C>
On or between the date the Participant 20%
becomes eligible to participate in the Plan
and the immediately next following March 30th
Between the March 31st immediately following 20%
the date the Participant becomes eligible
to participate in the Plan and the first March
30th anniversary (inclusive)
Between the first March 31st anniversary and 40%
the second March 30th anniversary (inclusive)
Between the second March 31st anniversary and 60%
the third March 30th anniversary (inclusive)
Between the third March 31st anniversary and 80%
the fourth March 30th anniversary (inclusive)
On or after the fourth March 31st anniversary 100%
</TABLE>
RJK/999
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
BONUS SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
1. Purpose and Effective Date.
--------------------------
The purpose of this Plan is to provide an arrangement whereby eligible
executives can be compensated for the reduction in retirement benefits that
would otherwise be incurred by such executive as a result of the exclusion of
bonus payments in the calculation of retirement benefits under the Retirement
Plan. The Plan is effective January 1, 1989.
2. Definitions.
-----------
(a) "Plan" means The First National Bank of Boston Bonus Supplemental
Employee Retirement Plan as set forth herein and as from time to time amended.
(b) "Employer" means The First National Bank of Boston and such of its
affiliates which participate in the Plan.
(c) "Committee" means the Compensation Committee of the Board of Directors
of the Bank.
(d) "Corporation" means Bank of Boston Corporation.
(e) "Bank" means The First National Bank of Boston.
(f) "Participant" means an executive who participates in the Plan.
(g) "Bonus" means, for any calendar year, such amount or amounts as
are payable whether actually paid or deferred, to a Participant under any
incentive award or bonus program provided by the Employer that the Committee
designates prior to the start of such calendar year.
(h) "Retirement Plan" means the Retirement Plan of The First National Bank
of Boston and Certain Affiliated Companies.
<PAGE>
(i) "Interest Rate", means the earnings equivalent rate at which Cash
Balance Accounts are periodically increased under the Retirement Plan.
(j) "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
(k) "Change of Control" means the occurrence of any of the following
events:
(i) a Bank Holding Company Act Control Acquisition,
(ii) a Twenty Percent Stock Acquisition,
(iii) an Unusual Board Change, or
(iv) a Securities Law Change of Control, unless, in the case of an
event specified in item (i), (ii) or (iii), a majority of the Continuing
Directors shall determine, not later than 10 days after the Corporation knows or
can reasonably be expected to know of the event, that the event shall not
constitute a Change of Control for purposes of this Plan. A majority of the
Continuing Directors may at any time prior to the expiration of such 10-day
period (or prior to the expiration of any extension of such period pursuant to
this sentence) extend such period or impose such time and other limitations on
their determination as they may consider appropriate, and at any time may revoke
their determination made in accordance with the preceding sentence that an event
did not constitute a Change of Control for purposes of this Plan. A
determination by a majority of the Continuing Directors that an event did not
constitute a Change of Control under item (i), (ii) or (iii) shall not be deemed
to apply to any other event, however closely related.
(1) "Bank Holding Company Act Control Acquisition" means an acquisition of
control of the Corporation as defined in Section 2(a)(2) of the Bank Holding
Company Act of 1956, or any similar successor provision, as in effect at the
time of the acquisition.
<PAGE>
(m) "Continuing Director" means any director (i) who has continuously been
a member of the Board of Directors of the Corporation since not later than
December 31, 1987, or (ii) who is a successor of a Continuing Director as
defined in (i) if such successor (and any intervening successor) shall have been
recommended or elected to succeed a Continuing Director by a majority of the
then Continuing Directors.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
(o) "Securities Law Change of Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
item 1(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of
Regulation 14A or any similar item, schedule or form under the Exchange Act, as
in effect at the time of the change, whether or not the Corporation is then
subject to such reporting requirement.
(p) A "Twenty Percent Stock Acquisition" occurs when a "person" (other than
the Corporation, any subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any subsidiary of the Corporation, or any "person"
organized, appointed or established by the Corporation for or pursuant to any
such plan), alone or together with its "affiliates" and its "associates",
becomes the "beneficial owner" of 20% or more of the common stock of the
Corporation then outstanding. The terms "Person", "affiliate", "associate" and
"beneficial owner" have the meanings given to them in Section 2 of the Exchange
Act and Rules 12b-2, 13d-3 and 13d-5 under the Exchange Act, or any similar
successor provision or rule, as in effect at the time when the "person" becomes
such a "beneficial owner". The term "person" includes a group referred to in
Rule 13d-5 under the Exchange Act, or any similar successor rule, as in effect
when the group becomes such a "beneficial owner".
<PAGE>
(q) An "Unusual Board Change" occurs when Continuing Directors constitute
two-thirds or less of the membership of the Board of Directors of the
Corporation, whether as the result of a merger, consolidation, sale of assets or
other reorganization, a proxy contest, or for any other reason or reasons.
3. Eligibility.
-----------
Such Executive Officers (as that term is defined in Section 6 of the By-
Laws of the Bank) of the Bank and such other officers of the Employer as are
selected by the Committee shall be eligible to participate in the Plan.
4. Cash Balance Bonus SERP
-----------------------
(a) Cash Balance Bonus Account
--------------------------
The Employer shall maintain one or more accounts (hereinafter called the
Cash Balance Bonus Account or Bonus Account) on behalf of each Participant
reflecting credits and adjustments as hereinafter set forth. As of April 1 of
each calendar year commencing after January 1, 1989, there shall be credited to
the Bonus Account of each Participant a credit equal to the Participant's Bonus
earned in the prior calendar year times a percentage factor determined in
accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE PERCENTAGE
------------------------ ----------
<S> <C>
Less than 1 year 0.00%
1 to 2 years 3.25%
3 to 4 years 4.00%
5 to 9 years 5.00%
10 to 14 years 6.00%
15 to 19 years 8.00%
20 to 34 years 11.00%
35 to 39 years 6.00%
40 years or more 0.00%
</TABLE>
<PAGE>
For purposes of this section, Years of Benefit Service under this Plan
shall be equal to Years of Benefit Service credited under the Retirement Plan.
If as a result of a Participant's completion of an additional Year of Benefit
Service he becomes eligible during the calendar year for a different percentage
factor, he shall be deemed to be entitled to the new percentage commencing at
the same time and determined in the same manner as set forth in Section 3.2 of
the Retirement Plan.
(b) Interest.
---------
Interest on the balance standing to a Participant's Bonus Account as of
January 1 will be credited to such Account as of December 31 of such year, prior
to the crediting of any Cash Balance Bonus SERP credits for such year. Interest
will be credited at the Interest Rate determined under the Retirement Plan.
5. Prior Plan Bonus Annuity
------------------------
Participants shall be eligible for a Prior Plan Bonus Annuity as
follows:
The Prior Plan Bonus Annuity is an annual amount, payable in the form of a
single life annuity beginning at age 65, equal to 1.75% of an amount determined
by aggregating a Participant's Bonus for the years 1984 through 1988 inclusive,
dividing by five (or such fewer number of years as the Participant was eligible
during such period for a Bonus) multiplying the quotient by such Participant's
Years of Benefit Service. For purposes of this Section, Years of Benefit
Service under this Plan shall be equal to Years of Benefit Service credited
under the Retirement Plan except that Years of Benefit Service after December
31, 1988 shall not be taken into account.
<PAGE>
The amount determined in the preceding paragraph shall be multiplied by the
following factor determined in accordance with the Participant's termination of
employment or death:
<TABLE>
<CAPTION>
IF TERMINATION OF EMPLOYMENT
OR DEATH OCCURS ON OR BETWEEN PERCENTAGE
----------------------------- ----------
<S> <C>
Through March 30, 1989 0%
March 31, 1989 and March 30, 1990 20%
March 31, 1990 and March 30, 1991 40%
March 31, 1991 and March 30, 1992 60%
March 31, 1992 and March 30, 1993 80%
March 31, 1993 and thereafter 100%
</TABLE>
6. Form and Timing of Benefit Distributions.
----------------------------------------
(a) Retirement or Termination of Employment.
Upon a Participant's retirement or termination of employment (for reasons
other than death) after attaining age 55, the Participant shall be entitled to
receive the Prior Plan Bonus Annuity (if any) determined in accordance with
Section 5, reduced as set forth below, and the balance in his or her Cash
Balance Bonus Account determined as of the date benefits commence. If the
payment of benefits commences prior to the Participant attaining age 65, the
Prior Plan Bonus Annuity shall be automatically reduced to reflect an early
commencement date by applying the applicable percentage factor from the
following table:
<TABLE>
<CAPTION>
AGE OF PARTICIPANT AT
COMMENCEMENT OF BENEFITS PERCENTAGE FACTOR
------------------------ -----------------
<S> <C>
65 100%
64 .93%
63 .87%
62 .81%
61 .76%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
60 .71%
59 .67%
58 .63%
57 .59%
56 .56%
55 .52%
</TABLE>
The Prior Plan Bonus Annuity and Cash Balance Bonus Account shall be paid
in the same form, on the same dates and over the same period as payment under
the Retirement Plan, with the exception that the optional form of payment
described in Section 7.4(c) of the Retirement Plan is not available as a
distribution option. If the Bonus Account is paid in a form other than a Lump
Sum, such Bonus Account shall be converted into an annuity form by applying the
same factors and assumptions as provided under Section 4.2 of the Retirement
Plan.
(b) Death.
If the Participant dies prior to the commencement of payment of benefits
hereunder, the Participant's spouse and/or designated beneficiary shall be
entitled to receive the following benefits:
(i) Prior Plan Bonus Annuity
The Participant's spouse, if any, shall be entitled to an annuity equal to
the annuity (if any) such spouse would have received in respect of the remainder
(if any) of the Participant's Prior Plan Bonus Annuity had the Participant
terminated employment on the day before his death, survived to age 55, begun
receiving it in the 50% joint and survivor annuity form described in Section 7.2
of the Retirement Plan (except that if the Participant had at least 20 Years of
Vesting Service he shall be deemed instead to have elected a 100% qualified
joint and survivor annuity described in Section 7.4 (a)), and died immediately
thereafter. Years of Vesting Service under this Plan shall mean the number of
Years of Vesting Service credited under the Retirement Plan.
<PAGE>
(ii) Cash Balance Bonus Account.
The Participant's spouse or designated beneficiary shall be entitled to
receive the balance of such Participant's Bonus Account in such form as selected
by the Participant's spouse or designated beneficiary and permitted under the
terms of the Retirement Plan.
If the Participant dies after the commencement of benefits hereunder, no
death benefit shall be payable hereunder except as provided under a joint and
survivor annuity form or other form of benefit selected by the Participant at
the time of commencement of benefits prior to his or her death.
7. Administration of the Plan.
--------------------------
The Committee shall oversee the administration of the Plan by the Bank's
Human Resources Department. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such
interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant. The
Committee shall exercise its discretion under the Plan in such manner as it
determines appropriate and may, in its discretion, waive the application of any
rule to any Participant. The Committee shall have no responsibility to exercise
its discretion in a uniform manner among similarly situated Participants, and no
decision with respect to any Participant shall give any other Participant the
right to have the same decision applied to him or her.
8. Nature of Claim for Payments.
----------------------------
Except as herein provided the Employer shall not be required to set
aside or segregate any assets of any kind to meet any of its obligations
hereunder, and all obligations of the Employer hereunder shall be reflected by
book entries only. The Participant shall have no rights on account of this
<PAGE>
Plan in or to any specific assets of the Employer. Any rights that the
Participant may have on account of this Plan shall be those of a general,
unsecured creditor of the Employer.
The Bank may establish a trust of which the Bank is treated as the owner
under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and
may from time to time deposit funds in such trust to facilitate payment of the
benefits provided under the Plan. In the event the Bank establishes such a
grantor trust with respect to the Plan and, at the time of a Change of Control,
such trust (i) has not been terminated or revoked and (ii) is not "fully funded"
(as hereinafter defined), the Bank shall within ten days of such Change of
Control, or if a majority of the Continuing Directors has determined pursuant to
Section 2(k) above that an event does not constitute a Change of Control and
subsequently revokes such determination, within 10 days of such revocation,
deposit in such grantor trust assets sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this paragraph, the
grantor trust shall be deemed "fully funded" as of any date if, as of that date,
the fair market value of the assets held in trust with respect to this Plan is
not less than the aggregate present value as of that date of (1) all benefits
then in pay status under the Plan (including benefits not yet commenced but in
respect of Participants who have retired, died or otherwise terminated
employment under circumstances entitling them to such benefits hereunder) plus
(2) all benefits that would be payable under the Plan if all other Participants
were deemed to have retired or terminated employment (other than by reason of
death) under circumstances entitling them to benefits on that date. In applying
the preceding sentence, the Bank shall apply such interest, mortality or other
assumptions as shall have been specified by the Board of Directors of the Bank
prior to the Change of Control. If, prior to the Change
<PAGE>
of Control, the Bank has deposited in such grantor trust amounts estimated to be
sufficient to cause the trust to be "fully funded," the Bank shall be under no
obligation following the Change of Control to deposit additional amounts in
trust. If the Board of Directors has not specified the assumptions to be used in
funding the grantor trust (and amounts estimated to be sufficient to cause the
trust to be "fully funded" have not been deposited), then for purposes of the
funding obligations under this paragraph the Bank shall first determine the
value of each Prior Plan Bonus Annuity and Bonus Account, then determine the
benefits that would be payable in the future in respect of such benefits, and
then determine the present value of such benefits by applying (i) as an interest
assumption, the Bank's base rate in effect on the date of the Change of Control,
and (ii) as a mortality assumption (to the extent applicable), the mortality
assumptions used in determining actuarial equivalency among annuity benefits
under the Bank's defined benefit Retirement Plan as in effect immediately prior
to the Change of Control, or if no such plan is then in effect, the mortality
assumptions used as of such date by the Pension Benefit Guaranty Corporation in
determining the present value of benefits upon plan termination.
In the event a grantor trust is established and, following a Change of
Control, the trustee of such trust determines, based on a change in the federal
tax or revenue laws, a published ruling or similar announcement issued by the
Internal Revenue Service, a regulation issued by the Secretary of the Treasury,
a decision by a court of competent jurisdiction involving a Participant or a
beneficiary, or a closing agreement made under section 7121 of the Code that is
approved by the Internal Revenue Service and involves a Participant or a
beneficiary, that amounts held by the grantor trust with respect to the Plan
<PAGE>
would by reason of the existence of such trust be includable in the income of
Participants, Prior Plan Bonus Annuities and Bonus Accounts of the affected
Participants and beneficiaries, to the extent of the assets held in such trust,
shall become payable in the form of lump sum distributions.
9. Rights Are Non-Assignable.
-------------------------
Neither the Participant nor any beneficiary nor any other person
shall have any right to assign or otherwise alienate the right to receive
payments hereunder, in whole or in part, which payments are expressly agreed to
be non-assignable and non-transferable, whether voluntarily or involuntarily.
10. Taxes.
-----
If the Employer is required to withhold taxes from payments under the Plan,
the amounts payable to Participants shall be reduced by the tax so withheld.
11. Termination; Amending.
---------------------
The Plan shall continue in effect until terminated by action of the Board
of Directors of the Bank. Upon termination of the Plan, no further benefit
shall be accrued hereunder. If, at the time of termination, there is any
Participant or beneficiary of a Participant who is or will be entitled to a
payment hereunder, the Committee shall elect either (a) to make payments to such
Participants or beneficiaries in the normal course as if the Plan had continued
in effect, or (b) to pay to such Participants or beneficiaries the balance of
the Participant's payments in single lump-sum payments.
The Committee may at any time and from time to time amend the Plan in any
manner; provided, that no such amendment shall reduce the amounts previously
<PAGE>
credited on behalf of any Participant for periods prior to the date of such
amendment, and provided further, that no such Amendment made after a Change of
Control shall eliminate or reduce the Bank's obligation to deposit assets in the
grantor trust as described in Section 8 in the event of a Change of Control.
The Retirement Plan Committee of the Bank may make nonmaterial changes to the
Plan.
12. Employment Rights.
-----------------
Nothing in this Plan shall give any Participant any right to be employed or
to continue employment by the Employer.
13. Change of Status.
----------------
In the event a Participant ceases to be eligible to participate in
the Plan (as determined by the Committee in accordance with Section 3 above)
prior to termination of employment or death, the following rules shall apply:
(i) the individual shall forthwith cease to accrue service for purposes of
determining Years of Benefit Service under Section 5 (relating to the Prior Plan
Bonus Annuity); (ii) the individual shall continue to receive interest credits
as determined under Section 4(b), but shall not be eligible for any other
credits to his or her Bonus Account. The amount of benefit, if any, to which a
former Participant shall be entitled upon subsequent determination of employment
or death shall be determined in accordance with the generally applicable
provisions of the Plan.
14. Forfeitures.
-----------
A Participant shall forfeit any and all benefits provided hereunder
<PAGE>
if such Participant retires or otherwise terminates employment (other than by
reason of death) prior to attaining age 55.
Notwithstanding anything in this Plan to the contrary, any benefits payable
to a Participant hereunder may be forfeited, discontinued or reduced prior to a
Change of Control, if the Committee determines, in its discretion, based on the
advice and recommendation of management, that (i) the Participant has been
convicted of a felony, (ii) the Participant has failed to contest a prosecution
for a felony, or (iii) the Participant has engaged in willful misconduct or
dishonesty, any of which is directly harmful to the business or reputation of
the Corporation. Following a Change of Control, a Participant's benefits may be
forfeited, discontinued or reduced only if the Participant has been convicted of
a felony or has failed to contest a prosecution for a felony.
RJK/914
<PAGE>
Exhibit 10(g)
FIRST AMENDMENT TO
THE FIRST NATIONAL BANK OF BOSTON
EXCESS BENEFIT SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
The First National Bank of Boston Excess Benefit Supplemental Employee
Retirement Plan (the "Plan") is hereby amended, effective as of June 23, 1994
unless otherwise noted, as follows:
1. Section 2(j) is restated in its entirety as follows:
(j) "Change of Control" means the occurrence of any one of the following
events:
(i) a Bank Holding Company Act Control Acquisition; or
(ii) a Twenty-five Percent Stock Acquisition; or
(iii) an Unusual Board Change; or
(iv) a Securities Law Change of Control; or
(v) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of
the Corporation's assets (or any transaction having a similar
effect).
2. Section 2(l) is restated in its entirety as follows:
(l) "Continuing Director" means any director (i) who has continuously
been a member of the Board of Directors of the Corporation since not later
than the date of the Plan or (ii) who is a successor of a director
described in clause (i), if such successor (and any intervening successor)
shall have been recommended or elected to succeed a Continuing Director by
a majority of the then Continuing Directors.
<PAGE>
3. Section 2(n) is restated in its entirety as follows:
(n) "Securities Law Change of Control" means a change in control of
the Corporation of a nature that would be required to be reported in
response to item 1(a) of Current Report on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form under
the Exchange Act, as in effect at the time of the change, whether or not
the Corporation is then subject to such reporting requirement, including
without limitation a merger or consolidation of the Corporation with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving or parent
entity) forty-five percent (45%) or more of the combined voting power of
the voting securities (entitled to vote generally for the election of
directors) of the Corporation or such surviving or parent entity
outstanding immediately after such merger or consolidation and which would
result in Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds (2/3) of the membership of
the Board of Directors of the Corporation or the board of such surviving or
parent entity immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no Person acquired twenty-
five percent (25%) or more of the combined voting power of the
Corporation's then outstanding securities.
4. Section 2(o) is restated in its entirety as follows:
(o) A "Twenty-Five Percent Stock Acquisition" occurs when any Person
is or becomes the Beneficial Owner, directly or indirectly, of securities
of the Corporation representing twenty-five percent (25%) or more of the
combined voting power of the Corporation's then outstanding voting
securities. "Person" has the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Corporation or any of its
subsid-
<PAGE>
iaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to a registered
offering of such securities in accordance with an agreement with the
Corporation, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation. "Beneficial Owner" has the
meaning defined in Rule 13d-3 under the Exchange Act.
5. Section 8 is amended by deleting the following text from the second sentence
of the second paragraph thereof:
, or if a majority of the Continuing Directors has determined pursuant to
Section 2(k) above that an event does not constitute a Change of Control
and subsequently revokes such determination within 10 days of such
revocation.
6. Section 11 is amended by restating the second paragraph thereof in its
entirety and adding a third paragraph as follows:
The Committee may at any time and from time to time amend the Plan in
any manner; provided, that no such amendment shall reduce the amounts
previously credited on behalf of any Participant for periods prior to the
date of such amendment. The Retirement Plan Committee of the Bank may make
nonmaterial changes to the Plan.
Notwithstanding the foregoing, no termination or amendment made after
a Change of Control shall (i) reduce the amounts previously credited on
behalf of any Participant for periods prior to the date of such Change of
Control, (ii) eliminate or reduce the obligation to deposit assets in the
grantor trust described in Section 8 in the event of a Change of Control,
or (iii) eliminate or reduce, with respect to such Change of Control, any
such obligations of any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation.
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
EXCESS BENEFIT SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
1. Purpose and Effective Date.
--------------------------
The purpose of this Plan is to provide an arrangement whereby eligible
executives can be compensated for the reduction in retirement benefits that
would otherwise be incurred by such executive as a result of the limitations
imposed by sections 415 and 401(a)(17) of the Code in the calculation of
retirement benefits under the Retirement Plan. The Plan is effective January 1,
1989.
2. Definitions.
-----------
(a) "Plan" means The First National Bank of Boston Excess Benefit
Supplemental Employee Retirement Plan as set forth herein and as from time to
time amended.
(b) "Employer" means The First National Bank of Boston and such of
its affiliates which participate in the Plan.
(c) "Committee" means the Compensation Committee of the Board of
Directors of the Bank.
(d) "Corporation" means Bank of Boston Corporation.
(e) "Bank" means The First National Bank of Boston.
(f) "Participant" means an executive who participates in the Plan.
(g) "Retirement Plan" means the Retirement Plan of The First National
Bank of Boston and Certain Affiliated Companies.
(h) "Interest Rate" means the earnings equivalent rate at which Cash
Balance Accounts are periodically increased under the Retirement Plan.
(i) "Code" means the Internal Revenue Code of 1986 as amended from
time to time.
(j) "Change of Control" means the occurrence of any of the following
events:
<PAGE>
(i) a Bank Holding Company Act Control Acquisition,
(ii) a Twenty Percent Stock Acquisition,
(iii) an Unusual Board Change, or
(iv) a Securities Law Change of Control, unless, in the case of an
event specified in item (i), (ii) or (iii), a majority of the
Continuing Directors shall determine, not later than 10 days after the
Corporation knows or can reasonably be expected to know of the event,
that the event shall not constitute a Change of Control for purposes
of this Plan. A majority of the Continuing Directors may at any time
prior to the expiration of such 10-day period (or prior to the
expiration of any extension of such period pursuant to this sentence)
extend such period or impose such time and other limitations on their
determination as they may consider appropriate, and at any time may
revoke their determination made in accordance with the preceding
sentence that an event did not constitute a Change of Control for
purposes of this Plan. A determination by a majority of the Continuing
Directors that an event did not constitute a Change of Control under
item (i), (ii) or (iii) shall not be deemed to apply to any other
event, however closely related.
(k) "Bank Holding Company Act Control Acquisition" means an acquisition of
control of the Corporation as defined in Section 2(a)(2) of the Bank Holding
Company Act of 1956, or any similar successor provision, as in effect at the
time of the acquisition.
(l) "Continuing Director" means any director (i) who has continuously been
a member of the Board of Directors of the Corporation since not later than
December 31, 1987, or (ii) who is a successor of a Continuing Director as
defined in (i) if such successor (and any intervening successor) shall have been
recommended or elected to succeed a Continuing Director by a majority of the
then Continuing Directors.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
(n) "Securities Law Change of Control" means a change in control of the
Corporation of a
<PAGE>
nature that would be required to be reported in response to item 1(a) of Current
Report on Form 8-K or item 6(e) of Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act, as in effect at the time of the
change, whether or not the Corporation is then subject to such reporting
requirement.
(o) A "Twenty Percent Stock Acquisition" occurs when a "person" (other
than the Corporation, any subsidiary of the Corporation, any employee benefit
plan of the Corporation or of any subsidiary of the Corporation, or any "person"
organized, appointed or established by the Corporation for or pursuant to any
such plan), alone or together with its "affiliates" and its "associates",
becomes the "beneficial owner" of 20% or more of the common stock of the
Corporation then outstanding. The terms "person", "affiliate", "associate" and
"beneficial owner" have the meanings given to them in Section 2 of the Exchange
Act and Rules 12b-2, 13d-3 and 13d-5 under the Exchange Act, or any similar
successor provision or rule, as in effect at the time when the "person" becomes
such a "beneficial owner". The term "person" includes a group referred to in
Rule 13d-5 under the Exchange Act, or any similar successor rule, as in effect
when the group becomes such a "beneficial owner".
(p) An "Unusual Board Change" occurs when Continuing Directors constitute
two-thirds or less of the membership of the Board of Directors of the
Corporation, whether as the result of a merger, consolidation, sale of assets or
other reorganization, a proxy contest, or for any other reason or reasons.
3. Eligibility.
-----------
Such key employees of the Employer as are selected by the Committee shall
be eligible to participate in the Plan.
4. Cash Balance Excess Benefit SERP.
--------------------------------
(A) Cash Balance Excess Benefit Account
-----------------------------------
The Employer shall maintain one or more accounts (hereinafter called the
Cash Balance
<PAGE>
Excess Benefit Account or Excess Benefit Account) on behalf of each Participant
reflecting credits and adjustments as hereinafter set forth. For each calendar
year commencing on or after January 1, 1989, there shall be credited to the
Excess Benefit Account of each Participant an amount equal to the excess, if
any, of (a) over (b) where
(a) is the Annual Cash Balance Credit to which the Participant would have
been entitled under the Retirement Plan if such Annual Cash Balance Credit
were assumed (i) to be calculated without regard to the limitations of
section 415 of the Code or the provisions of Section 13.1 of the Retirement
Plan designed to comply with such limitations, and (ii) to be based on the
executive's "Current Compensation" as defined in the Retirement Plan
without regard to the limitations of section 401(a)(17) of the Code and the
corresponding limitations under the provisions of the Retirement Plan, and
(b) is the Annual Cash Balance Credit to which the Participant is in fact
entitled under the Retirement Plan.
Excess Benefit Credits shall be applied as of the last day of the calendar
year or as of such other times as Annual Cash Balance Credits are applied
under the Retirement Plan.
(B) Interest
--------
Interest on the balance standing to a Participant's Excess Benefit Account
shall be credited at the same time, same rate, and under the same circumstances
as interest is credited to a Participant's Cash Balance Account under the
Retirement Plan.
5. Prior Plan Excess Benefit Annuity.
---------------------------------
Participant's shall be entitled to receive a Prior Plan Excess Benefit
Annuity equal to the excess if any, of (a) over (b) where
(a) is the annual Prior Plan Annuity to which a Participant would have
been entitled under the Retirement Plan if such benefit were assumed (i) to
be calculated without regard to
<PAGE>
the limitations of section 415 of the Code or the provisions of Section
13.01 of the Retirement Plan designed to comply with such limitations, and
(ii) to be based on the Participant's "Current Compensation" as defined in
the Retirement Plan without regard to the limitations of section 401(a)(17)
of the Code and the corresponding limitations under the provisions of the
Retirement Plan, and (b) is the annual Prior Plan Annuity to which a
Participant is in fact entitled under the Retirement Plan.
6. Form and Timing of Benefit Distributions.
----------------------------------------
Upon a Participant's retirement, termination of employment or death, the
Participant or such other person or persons as may at that time be entitled to
receive payments with respect to a Participant shall be entitled to receive the
Prior Plan Excess Benefit Annuity (if any) determined in accordance with Section
5, and the balance in the Participant's Cash Balance Excess Benefit Account
determined as of the date benefits commence. The Prior Plan Excess Benefit
Annuity and Cash Balance Excess Benefit Account shall be paid in the same form,
on the same dates and over the same period as payment under the Retirement Plan,
with the exception that the optional form of payment described in Section 7.4(c)
of the Retirement Plan is not available as a distribution option. If the Excess
Benefit Account is paid in a form other than a Lump Sum, such Excess Benefit
Account shall be converted into an annuity form as provided under Section 4.2 of
the Retirement Plan.
7. Administration of the Plan.
--------------------------
The Committee shall oversee the administration of the Plan by the Bank's
Human Resources Department. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such
interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant. The
Committee shall exercise its discretion under the Plan in such manner as it
determines appropriate and may, in its discretion, waive the application of any
rule to any Participant. The
<PAGE>
Committee shall have no responsibility to exercise its discretion in a uniform
manner among similarly situated Participants, and no decision with respect to
any Participant shall give any other Participant the right to have the same
decision applied to him or her.
8. Nature of Claim for Payments.
----------------------------
Except as herein provided the Employer shall not be required to set aside
or segregate any assets of any kind to meet any of its obligations hereunder,
and all obligations of the Employer hereunder shall be reflected by book entries
only. The Participant shall have no rights on account of this Plan in or to any
specific assets of the Employer. Any rights that the Participant may have on
account of this Plan shall be those of a general, unsecured creditor of the
Employer.
The Bank may establish a trust of which the Bank is treated as the owner
under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and
may from time to time deposit funds in such trust to facilitate payment of the
benefits provided under the Plan. In the event the Bank establishes such a
grantor trust with respect to the Plan and, at the time of a Change of Control,
such trust (i) has not been terminated or revoked and (ii) is not "fully funded"
(as hereinafter defined), the Bank shall within ten days of such Change of
Control, or if a majority of the Continuing Directors has determined pursuant to
Section 2(k) above that an event does not constitute a Change of Control and
subsequently revokes such determination, within 10 days of such revocation,
deposit in such grantor trust assets sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this paragraph, the
grantor trust shall be deemed "fully funded" as of any date if, as of that date,
the fair market value of the assets held in trust with respect to this Plan is
not less than the aggregate present value as of that date of (1) all benefits
then in pay status under the Plan (including benefits not yet commenced but in
respect of Participants who have retired, died or otherwise terminated
employment under circumstances entitling them to such benefits hereunder) plus
(2) all benefits that would be payable under the Plan if all other Participants
were deemed to have retired or terminated employment (other than
<PAGE>
by reason of death) under circumstances entitling them to benefits on that date.
In applying the preceding sentence, the Bank shall apply such interest,
mortality or other assumptions as shall have been specified by the Board of
Directors of the Bank prior to the Change of Control. If, prior to the Change of
Control, the Bank has deposited in such grantor trust amounts estimated to be
sufficient to cause the trust to be "fully funded," the Bank shall be under no
obligation following the Change of Control to deposit additional amounts in
trust. If the Board of Directors has not specified the assumptions to be used in
funding the grantor trust (and amounts estimated to be sufficient to cause the
trust to be "fully funded" have not been deposited), then for purposes of the
funding obligations under this paragraph the Bank shall first determine the
value of each Prior Plan Excess Benefit Annuity and Excess Benefit Account, then
determine the benefits that would be payable in the future in respect of such
benefits, and then determine the present value of such benefits by applying (i)
as an interest assumption, the Bank's base rate in effect on the date of the
Change of Control, and (ii) as a mortality assumption (to the extent
applicable), the mortality assumptions used in determining actuarial equivalency
among annuity benefits under the Bank's defined benefit Retirement Plan as in
effect immediately prior to the Change of Control, or if no such plan is then in
effect, the mortality assumptions used as of such date by the Pension Benefit
Guaranty Corporation in determining the present value of benefits upon plan
termination.
In the event a grantor trust is established and, following a Change of
Control, the trustee of such trust determines, based on a change in the federal
tax or revenue laws, a published ruling or similar announcement issued by the
Internal Revenue Service, a regulation issued by the Secretary of the Treasury,
a decision by a court of competent jurisdiction involving a Participant or a
beneficiary, or a closing agreement made under section 7121 of the Code that is
approved by the Internal Revenue Service and involves a Participant or a
beneficiary, that amounts held by the grantor trust with respect to the Plan
would by reason of the existence of such trust be includible in the income of
Participants, Prior Plan Excess Benefit Annuities and Excess Benefit Accounts of
the affected Participants and beneficiaries, to the extent of the assets held in
such trust, shall become payable in the form of lump sum distributions.
<PAGE>
9. Rights Are Non-Assignable.
-------------------------
Neither the Participant nor any beneficiary nor any other person shall have
any right to assign or otherwise alienate the right to receive payments
hereunder, in whole or in part, which payments are expressly agreed to be non-
assignable and non-transferable, whether voluntarily or involuntarily.
10. Taxes.
------
If the Employer is required to withhold taxes from payments under the
Plan, the amounts payable to Participants shall be reduced by the tax so
withheld.
11. Termination; Amending.
---------------------
The Plan shall continue in effect until terminated by action of the Board
of Directors of the Bank. Upon termination of the Plan, no further amounts paid
to a Participant shall be used as the basis for providing benefits hereunder and
no individual not a Participant as of the date of termination shall become a
Participant thereafter. If, at the time of termination, there is any
Participant or beneficiary of a Participant who is or will be entitled to a
payment hereunder, the Committee shall elect either (a) to make payments to such
Participants or beneficiaries in the normal course as if the Plan had continued
in effect, or (b) to pay to such Participants or beneficiaries the balance of
the Participant's payments in single lump-sum payments.
The Committee may at any time and from time to time amend the Plan in any
manner; provided, that no such amendment shall reduce the amounts previously
credited on behalf of any Participant for periods prior to the date of such
amendment, and provided further, that no such Amendment made after a Change of
Control shall eliminate or reduce the Bank's obligation to deposit assets in the
grantor trust as described in Section 8 in the event of a Change of Control.
The Retirement Plan Committee of the Bank may make nonmaterial changes to the
Plan.
<PAGE>
12. Employment Rights.
-----------------
Nothing in this Plan shall give any Participant any right to be employed
or to continue employment by the Employer.
13. Forfeitures.
-----------
Notwithstanding anything in this Plan to the contrary, any benefits
payable to a Participant hereunder may be forfeited, discontinued or reduced
prior to a Change of Control, if the Committee determines, in its discretion,
based on the advice and recommendation of management, that (i) the Participant
has been convicted of a felony, (ii) the Participant has failed to contest a
prosecution for a felony, or (iii) the Participant has engaged in willful
misconduct or dishonesty, any of which is directly harmful to the business or
reputation of the Corporation. Following a Change of Control, a Participant's
benefits may be forfeited, discontinued or reduced only if the Participant has
been convicted of a felony or has failed to contest a prosecution for a felony.
RJK/681
<PAGE>
Exhibit 10(h)
BANK OF BOSTON CORPORATION
1991 Long-Term Stock Incentive Plan
(As amended through February 13, 1995)
1. Purpose.
-------
The Bank of Boston Corporation 1991 Long-Term Stock Incentive Plan (the
"Plan") has been adopted to encourage and create significant ownership of the
Common Stock of the Corporation by key officers and employees of the Corporation
and its Affiliates. Additional purposes of the Plan include providing a
meaningful incentive to Participants to make substantial contributions to the
Corporation's future success, enhancing the Corporation's ability to attract and
retain persons who will make such contributions, and ensuring that the
Corporation has competitive compensation opportunities for such key officers and
employees.
By meeting these objectives, the Plan is intended to benefit the interests of
the stockholders of the Corporation.
2. Definitions.
-----------
As used herein, the following words or terms have the meanings set forth
below. The masculine gender is used throughout the Plan but is intended to
apply to members of both sexes.
2.1. "Affiliate" means any business entity that is directly or indirectly
controlled by the Corporation or any entity in which the Corporation has a
significant equity interest, as determined by the Committee or the Board of
Directors.
2.2. "Award" means any Option, Stock Appreciation Right or Restricted Stock
granted under the Plan.
2.3. "Board of Directors" means the Board of Directors of the Corporation,
except that, whenever action is to be taken under the Plan with respect to a
Reporting Person, "Board of Directors" shall mean only such directors who are
disinterested persons within the meaning of Rule 16b-3 under the Exchange Act or
any successor rule.
<PAGE>
-2-
2.4. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
2.5. "Committee" means the Compensation and Nominating Committee of the
Board of Directors. "Committee," whenever action is to be taken under the Plan
with respect to a Reporting Person, shall mean only such members who are
disinterested persons within the meaning of Rule 16b-3 under the Exchange Act or
any successor rule. To the extent that the Committee delegates its power to
make Awards as permitted by Section 4.1, all references in the Plan to the
Committee's authority to make Awards and determinations with respect thereto
shall be deemed to include the Committee's delegate or delegates.
2.6. "Common Stock" or "Stock" means the Common Stock of the Corporation.
2.7. "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.8. "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
2.9. "Disability" means a physical or mental condition of such a nature that
it would qualify a Participant for benefits under the long-term disability
insurance plan of The First National Bank of Boston or any successor plan.
2.10. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
2.11. "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the last
preceding day on which such prices of Common Stock are so quoted. In the event
"NYSE-Composite Transactions" cease to be reported, the Committee shall adopt
some other appropriate method for determining Fair Market Value.
<PAGE>
-3-
2.12. "Incentive Stock Option" means an Option which is intended to satisfy
the requirements of Section 422(b) of the Code or any successor provision.
2.13. "Nonstatutory Stock Option" means an Option which is not intended to
qualify as an Incentive Stock Option.
2.14. "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.
2.15. "Participant" means an individual selected by the Committee or the
Board of Directors to receive an Award under the Plan.
2.16. "Reporting Person" means a person required to file reports under
Section 16(a) of the Exchange Act or any successor statute.
2.17. "Restricted Stock" means shares of Common Stock awarded to a
Participant, subject to such forfeiture provisions or restrictions on transfer,
if any, as may be established by the Committee or the Board of Directors.
2.18. "Retirement" means termination of employment with the Corporation or
any Affiliate if such termination of employment constitutes normal retirement,
early retirement, disability retirement or other retirement as provided for at
the time of such termination of employment under the applicable retirement
program then maintained by the Corporation or the Affiliate, provided that the
Participant does not continue in the employment of the Corporation or any
Affiliate and provided further that such termination does not constitute a
Termination for Cause.
2.19. "Stock Appreciation Right" or "SAR" means a right to receive the
excess, if any, of the Fair Market Value of a share of Common Stock on the date
the Stock Appreciation Right is exercised over the grant price of the SAR.
2.20. "Termination for Cause" means the termination of a Participant's
employment due to any act which, in the discretion of the Committee or the Board
of Directors, as the case may be, is deemed inimical to the best interests of
the Corporation or any Affiliate, including, but not limited to: (i) willful and
gross misconduct in respect of the Participant's duties for the Corporation or
the Affiliate, (ii) conviction of a felony or perpetration of a common law
fraud, (iii) willful failure to comply with applicable laws or regulations with
respect to the execution of the Corporation's or the Affiliate's
<PAGE>
businesses or (iv) theft, fraud, embezzlement, dishonesty or other conduct which
has resulted or is likely to result in material economic or other damage to the
Corporation or any Affiliate.
3. Effective Date and Term.
-----------------------
The Plan shall become effective upon its approval by the Corporation's
stockholders, and Awards may be granted under the Plan from and after the date
of such approval. No Awards may be made under the Plan after December 31, 1996,
but Awards theretofore granted may extend beyond that date.
4. Administration.
--------------
4.1. The Plan shall be administered by the Committee. Subject to the
provisions set forth herein, the Committee shall have full authority to
determine the provisions of Awards, to interpret the terms of the Plan and of
Awards made under the Plan, to adopt, amend and rescind rules and guidelines for
the administration of the Plan and for its own acts and proceedings and to
decide all questions and settle all controversies and disputes which may arise
in connection with the Plan. To the extent permitted by applicable law, the
Committee may delegate to one or more executive officers who are also directors
of the Corporation the power to make Awards to Participants who are not
Reporting Persons at the time of such Awards and all determinations under the
Plan with respect thereto, provided that the Committee shall fix the maximum
amount of Awards for such Participants as a group.
4.2. Notwithstanding Section 4.1 and subject to the provisions set forth
herein, the Board of Directors shall have full authority to determine the
provisions of Awards made under the Plan to (i) the Chairman of the Board of
Directors, President and any Vice Chairman of the Board of the Board of
Directors and (ii) any other officer or officers that the Board of Directors,
upon recommendation of the Committee, shall designate.
4.3. The decision of the Committee or the Board of Directors on any matter
as to which the Committee or the Board of Directors is given authority under
Sections 4.1 and 4.2 above shall be final and binding on all persons concerned.
5. Shares Subject to the Plan.
--------------------------
5.1. The maximum number of shares of Common Stock that will be available for
issuance under the Plan shall be 7,447,749, subject to adjustment in accordance
with the provisions of Section 5.3.
<PAGE>
-5-
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
5.2. If any Award in respect of shares of Common Stock expires or is
terminated unexercised or is forfeited for any reason or settled in a manner
that results in fewer shares outstanding than were initially awarded, including
without limitation the surrender of shares as full or partial payment for the
Award or any tax obligation thereon, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall remain available for issuance under the Plan.
5.3. In the event of a stock dividend, stock split or other change in
corporate structure or capitalization affecting the Common Stock or any other
transaction (including, without limitation, an extraordinary cash dividend)
which, in the determination of the Committee or the Board of Directors, affects
the Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under the Plan,
then the Committee or the Board of Directors shall equitably adjust any or all
of (i) the number and kind of shares in respect of which Awards may be made
under the Plan, (ii) the number and kind of shares subject to outstanding
Awards, and (iii) the Option or grant price with respect to any of the
foregoing, provided that the number of shares subject to any Award shall always
be a whole number. In the event of any merger, consolidation, dissolution or
liquidation of the Corporation, the Committee or the Board of Directors, in its
sole discretion, may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine, make outstanding Awards fully exercisable, or amend
or terminate such Awards upon such terms and conditions as it shall provide
(which, in the case of the termination of the vested portion of any Award, shall
require payment or other consideration which the Committee or the Board of
Directors deems equitable in the circumstances).
6. Eligibility for Awards.
----------------------
Any officer or employee of the Corporation or its Affiliates who, in the
opinion of the Committee or the Board of Directors, is in a position to have a
significant effect upon the Corporation's business and
<PAGE>
-6-
consolidated earnings, shall be eligible to receive an Award under the Plan.
7. Grant of Awards.
---------------
7.1. From time to time while the Plan is in effect, the Committee or the
Board of Directors pursuant to Section 4.2, may, in the absolute discretion of
each, select from among the persons eligible to receive Awards (including
persons to whom Awards were previously granted) those persons to whom Awards are
to be granted.
7.2. The Committee or the Board of Directors, as the case may be, shall, in
the absolute discretion of each, determine the number of shares of Common Stock
or SARs to be subject to each Award made by it under the Plan.
8. Options.
-------
8.1. Incentive Stock Options or Nonstatutory Stock Options. Options granted
-----------------------------------------------------
under the Plan may be either Incentive Stock Options or Nonstatutory Stock
Options, as the Committee or the Board of Directors, as the case may be, shall
determine at the time of each grant of Options hereunder. The terms and
conditions of Incentive Stock Options shall be subject to and comply with
Section 422(b) of the Code or any successor provision, and any regulations
thereunder.
8.2. Option Price. The Option price per share of Common Stock, with respect
------------
to each Option, shall not be less than the Fair Market Value per share at the
time the Option is granted.
8.3. Period of Options. An Option shall be exercisable during such period
-----------------
of time as the Committee or the Board of Directors may specify, subject, in the
case of Incentive Stock Options, to any limitation required by the Code. It is
contemplated that the Committee or the Board of Directors will normally provide
that an Option shall not be exercisable after the expiration of ten years from
the date the Option is granted.
8.4. Exercise of Options. Each Option shall be made exercisable at such
-------------------
time or times as the Committee or the Board of Directors shall determine. It is
contemplated that the Committee or the Board of Directors will normally provide
that the right to exercise an Option will accrue immediately with respect to 50
percent of the number of shares of Common Stock subject to the Option and that
the right to exercise the Option with respect to the balance of the shares
subject thereto will accrue on the
<PAGE>
-7-
first anniversary of the date of grant. However, the Committee or the Board of
Directors may, in its discretion, in any case provide that the Option will be
exercisable immediately with respect to all the shares of Common Stock subject
to the Option or that the right to exercise the Option will accrue in different
installments and at different times from those set forth above. In the case of
an Option made exercisable in installments, the Committee or the Board of
Directors may later determine to accelerate the time at which one or more of
such installments may be exercised. The Committee or the Board of Directors may
impose such conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state tax or securities laws, as it
considers necessary or advisable.
8.5. Payment for and Delivery of Stock. The shares of Stock purchased on
---------------------------------
any exercise of an Option granted hereunder shall be paid for in full in cash at
the time of such exercise or, to the extent permitted by the Committee or the
Board of Directors, by delivery of shares of Common Stock, valued at their Fair
Market Value on the date of delivery, or such other lawful consideration as the
Committee or the Board of Directors may determine. The Committee or the Board
of Directors may provide for the automatic award of an Option upon the delivery
of shares to the Corporation in payment of another Option for up to the number
of shares delivered to the Corporation in payment of such other Option.
8.6 Termination of Employment.
-------------------------
8.6.1. Death during Employment. If a Participant dies during employment
-----------------------
after attaining age 62 and at a time when he is entitled to exercise an Option,
then at any time or times within three years after death (or such greater or
lesser period after death as may be specified in the documentation evidencing
the Option) such Option may be exercised in part or in full as to all of the
shares subject to the Option. If a Participant dies during employment prior to
attaining age 62 and at a time when he is entitled to exercise an Option, then
at any time or times within one year after death (or such greater or lesser
period after death as may be specified in the documentation evidencing the
Option) such Option may be exercised, but only as to any or all of those shares
which the Participant was entitled to purchase immediately prior to his death.
In either case, Options exercisable after death may be exercised by the
Participant's Designated Beneficiary, and except as so exercised shall expire at
the end of the specified post-death exercise period. In no event, however, may
any Option granted under the Plan be exercised
<PAGE>
-8-
after the expiration of the Option exercise period established at the time of
grant.
8.6.2. Retirement or Disability. In the event of a Participant's
------------------------
Retirement or Disability at a time when he is entitled to exercise an Option,
then at any time or times within the period determined under (a) or (b) below,
whichever is applicable, such Option may be exercised as follows:
(a) In the case of Retirement or Disability after attaining age 62,
then within three years after Retirement or Disability (or such greater or
lesser period after Retirement or Disability as may be specified in the
documentation evidencing the Option) the Participant may exercise such Option in
full or in part as to all of the shares subject to the Option. If the
Participant dies within this three-year (or other specified) post-Retirement or
post-Disability exercise period, his Option may be exercised by his Designated
Beneficiary, to the same extent as if the deceased Participant had survived,
during a period equal to the greater of one year from the date of his death or
the remainder of such three-year or other specified post-Retirement or post-
Disability exercise period.
(b) In the case of Retirement or Disability prior to attaining age 62,
then within one year after Retirement or Disability (or such greater or lesser
period after Retirement or Disability as may be specified in the documentation
evidencing the Option) the Participant may exercise such Option only as to those
shares which he was entitled to purchase immediately prior to his Retirement or
Disability. If the Participant dies within this one-year (or other specified)
post-Retirement or post-Disability exercise period, his Option may be exercised
by his Designated Beneficiary, to the same extent as if the deceased Participant
had survived, during the greater of one year from the date of his death or, if a
post-Retirement or post-Disability exercise period greater than one year was
specified in the Option documentation, the remainder of such longer period.
Except as exercised within the applicable period described above, each Option
shall expire at the end of such period. In no event, however, may any Option
granted under the Plan be exercised after the expiration of the Option exercise
period established at the time of grant.
8.6.3. Other Termination of Employment. If the employment of a
-------------------------------
Participant terminates for any reason other than his death, Retirement or
Disability, all Options held by the Participant may be exercised following such
termination of employment only to the extent, if any, approved by the
<PAGE>
-9-
Committee or the Board of Directors and, except to such extent, shall expire
upon such termination. If the Committee or the Board of Directors so decides, an
Option may provide that a leave of absence granted by the Corporation or an
Affiliate is not a termination of employment for the purpose of this subsection
8.6.3, and in the absence of such a provision the Committee or the Board of
Directors may in any particular case determine that such a leave of absence is
not a termination of employment for such purpose.
9. Stock Appreciation Rights.
-------------------------
9.1. Grant Forms of SARs. Subject to the provisions of the Plan, the
-------------------
Committee or the Board of Directors may award SARs related to an Option (at or
after the award of the Option, subject to the provisions of Section 3), or alone
and unrelated to an Option.
9.2. Grant Price. The Committee or the Board of Directors shall establish
-----------
the grant price of an SAR at the time the SAR is granted, which price shall not
be less than the Fair Market Value of the Common Stock at the time of grant.
9.3. Payment of SARs. SARs may be payable in cash, shares of Common Stock
---------------
or a combination of the two, as provided by the Committee or the Board of
Directors. Shares issued on the settlement of the exercise of SARs shall be
valued at their Fair Market Value on the date of exercise.
9.4. Termination of Employment. The Committee or the Board of Directors
-------------------------
shall determine the effect on an SAR of the death, Retirement, Disability or
other termination of employment of a Participant and the extent to which, and
the period during which, the Participant or the Participant's legal
representative, guardian or Designated Beneficiary may receive payment of such
an SAR.
10. Restricted Stock.
----------------
10.1. Restrictions on Shares. Subject to the provisions of the Plan, the
----------------------
Committee or the Board of Directors may award shares of Restricted Stock, alone
or in combination with other Awards under the Plan. Such shares may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as
permitted by the Committee or the Board of Directors, during the period, if any,
that such shares are subject to forfeiture or, to the extent provided in Section
10.2, during a period after such shares are delivered to the Participant free of
any risk of forfeiture.
<PAGE>
-10-
10.2. Lapse of Restrictions. Except as provided in this Section 10.2 or in
---------------------
Section 10.4 below, shares of Restricted Stock granted as of any date shall be
subject to the forfeiture restrictions described in Section 10.5 and shall
become free of such restrictions in the following installments: one-third on the
third anniversary of the date of grant, an additional one-third on the fourth
anniversary of the date of grant, and the remaining one-third on the fifth
anniversary of the date of grant. Notwithstanding the lapse of forfeiture
restrictions as of any anniversary of the date of grant, 50% of the shares freed
of such restrictions as of such date may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee or the
Board of Directors, until the earliest of (i) ten years after the date of grant,
(ii) the date on which the Participant attains age 55 or (iii) the date of the
Participant's death or Disability. Notwithstanding the provisions of Section
10.1 or this Section 10.2, the Committee or the Board of Directors may, in its
discretion, award shares of Restricted Stock having different terms from those
set forth above, including, without limitation, shares which are nonforfeitable
or freely transferable upon grant and shares having restrictions which lapse
upon the attainment of specified performance goals or targets, as determined by
the Committee or the Board of Directors.
10.3. Participants' Rights in Restricted Stock. Shares of Restricted Stock
----------------------------------------
shall be evidenced in such manner as the Committee or the Board of Directors may
determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and, except as otherwise
determined by the Committee or the Board of Directors, shall be delivered to the
Participant upon the lapse of forfeiture restrictions with respect to such
shares. Except as otherwise provided by the Committee or the Board of
Directors, during the period that shares of Restricted Stock are subject to
forfeiture and after such shares are delivered to the Participant free of any
risk of forfeiture, dividends with respect to any such shares shall be paid to,
and voting rights with respect to any such shares shall be vested in, the
Participant. The Committee or the Board of Directors may provide that the
payment of any dividends payable with respect to shares of Restricted Stock that
are subject to forfeiture may be deferred by the Participant, with or without
interest.
<PAGE>
-11-
10.4. Death, Retirement or Disability; Other Terminations of Restrictions.
--------------------------------------------------------------------
10.4.1. Death. Except as otherwise provided by the Committee or the
-----
Board of Directors, if a Participant dies, then any shares of Restricted Stock
awarded pursuant to the Plan that have not been forfeited shall be delivered to
the Participant's Designated Beneficiary free of any restrictions (other than
restrictions that may be required under federal or state securities laws).
10.4.2. Retirement or Disability. Except as otherwise provided by the
------------------------
Committee or the Board of Directors, in the event of a Participant's Retirement
or Disability, then any shares of Restricted Stock awarded pursuant to the Plan
that have not been forfeited shall be delivered to the Participant free of any
restrictions (other than restrictions that may be required under federal or
state securities laws).
10.4.3. Other Terminations of Restrictions. In addition to the
----------------------------------
provisions for the termination of restrictions set forth in subsections 10.4.1
and 10.4.2, the Committee or the Board of Directors may terminate or modify
restrictions on Restricted Stock at any time to the extent it so determines.
10.5. Forfeiture of Awards. If a Participant terminates employment for any
--------------------
reason other than one of the reasons specified in subsections 10.4.1 or 10.4.2,
then any shares of Restricted Stock which are then subject to forfeiture shall
thereupon automatically be forfeited to the Corporation. For purposes of this
Section 10.5, a Participant shall not be considered to have terminated
employment if he is employed, by the Corporation or any Affiliate or if he is on
a leave of absence from the Corporation or any Affiliate under circumstances
which the Committee or the Board of Directors determines should not result in
forfeiture under the Plan.
10.6. Consideration for Restricted Stock. Shares of Restricted Stock shall
----------------------------------
be issued for no cash consideration or such minimum consideration as may be
required under applicable law.
11. General Provisions Applicable to Awards.
---------------------------------------
11.1. Non-transferability of Awards. No Award under the Plan may be
-----------------------------
transferred by the Participant otherwise than by will or by the laws of descent
and distribution, and during the Participant's lifetime, Options or SARs may be
exercised only by the Participant or by the Participant's guardian or legal
representative.
<PAGE>
-12-
11.2. Documentation of Awards. Each Award under the Plan shall be evidenced
-----------------------
by a writing delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee or the Board of Directors considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable tax and regulatory laws and accounting principles. The Committee or
the Board of Directors need not require the execution of any instrument or
acknowledgement of notice of a Grant under the Plan, in which case the
acceptance of such an Award by the respective Participant will constitute
agreement to the terms and conditions of the Award.
11.3. Committee or Board of Director Discretion. Each type of Award may be
-----------------------------------------
made alone, in addition to or in relation to any other type of Award. The terms
of each type of Award need not be identical, and the Committee or the Board of
Directors need not treat Participants uniformly. Except as otherwise provided
by the Plan or a particular Award, any determination with respect to an Award
may be made by the Committee or the Board of Directors at the time of award or
at any time thereafter.
11.4. Tax Withholding. The Committee or the Board of Directors shall
---------------
require, on such terms as it deems necessary, that the Participant pay to the
Corporation, or make other satisfactory provision for payment of, any federal,
state or local taxes required by law to be withheld in respect of Awards under
the Plan. In the Committee's or the Board's discretion, a Participant may elect
to satisfy all or a portion of his or her federal, state and local tax
withholding requirements or liability, up to the amount calculated by applying
the Participant's maximum marginal tax rate, by having shares of Common Stock
withheld from the shares otherwise issuable in connection with the event
creating the tax obligation, or by delivering to the Corporation previously
owned shares of Common Stock, valued at their Fair Market Value on the date that
withholding taxes are determined. The Corporation and its Affiliates may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
11.5. Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee or the Board of
Directors considers necessary or advisable to achieve the purposes
<PAGE>
-13-
of the Plan or comply with applicable laws. Notwithstanding the provisions of
this Section 11.5, Awards to any such individuals who are Reporting Persons
shall be made in accordance with the other provisions of the Plan, except as
otherwise permitted by Rule 16b-3 under the Exchange Act or any successor rule.
11.6. Amendment of Award. The Committee or the Board of Directors may
------------------
amend, modify, terminate or waive any condition or provision of any outstanding
Award, including substituting therefor another Award of the same or a different
type, changing the date of exercise or realization and converting an Incentive
Stock Option to a Nonstatutory Stock Option; provided, however, that the
Committee or the Board of Directors may not (except in accordance with Section
5.3) increase the number of shares subject to any outstanding Award or decrease
the Option or award price of the Award. The Participant's consent to any such
action shall be required unless the Committee or the Board of Directors
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
12. Miscellaneous.
-------------
12.1. No Right to Employment. No person shall have any claim or right to be
----------------------
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Corporation and its
Affiliates expressly reserve the right at any time to terminate the employment
of a Participant free from any liability or claim under the Plan, except as may
be expressly provided in the applicable Award.
12.2. No Rights as Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the stock at the time
of the Award except as otherwise provided in the applicable Award.
12.3. No Fractional Shares. No fractional shares of Common Stock shall be
--------------------
issued under the Plan, and cash shall be paid in lieu of any fractional shares
in settlement of Awards granted under the Plan.
12.4. Unfunded Plan. The Plan shall be unfunded, shall not create (or be
-------------
construed to create) a trust or a separate fund or funds, and shall not
establish any fiduciary relationship between the
<PAGE>
-14-
Corporation and any Participant or other person.
12.5. Successors and Assigns. The Plan shall be binding on all successors
----------------------
and assigns of the Participant, including without limitation the Participant's
Designated Beneficiary or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
12.6. Amendment of Plan. The Board of Directors may amend, suspend or
-----------------
terminate the Plan or any portion thereof at any time. The Committee may make
non-material amendments to the Plan.
12.7. Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
<PAGE>
Exhibit 10(m)
BANK OF BOSTON CORPORATION
Director Stock Award Plan
(As amended, effective January 1, 1995)
1. Purpose.
The Bank of Boston Corporation Director Stock Award Plan (the "Plan") has
been adopted to assist in attracting and retaining non-employee members of the
Corporation's Board of Directors and to promote identification of their
interests with those of stockholders of the Corporation.
2. Definitions.
As used herein, the following words or terms have the meanings set forth
below:
2.1 "Affiliate" means any business entity that is directly or indirectly
controlled by the Corporation or any entity in which the Corporation has a
significant equity interest, as determined by the Director of Human Resources.
2.2 "Annual Cash Retainer" means the annual cash retainer for Non-
Employee Directors, exclusive of meeting fees and committee retainers.
2.3 "Award" means the Shares awarded under the Plan.
2.4 "Award Date" means January 1 and July 1 of each year, commencing on
July 1, 1993.
2.5 "Award Period" means a six-month period immediately preceding each
Award Date; provided, however, that the initial Award Period under the Plan
shall begin on May 1, 1993 and shall end on June 30, 1993.
2.6 "Board of Directors" means the Board of Directors of the Corporation.
2.7 "Common Stock" means the Common Stock, par value $2.25 per share, of
the Corporation.
2.8 "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
<PAGE>
-2-
2.9 "Director of Human Resources" means the Director of Human Resources
of the Corporation.
2.10 "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "New York Stock Exchange Composite Transactions" section of the
Eastern Edition of The Wall Street Journal, or if no prices are quoted for that
day, for the last preceding day on which such prices of Common Stock are so
quoted. In the event "New York Stock Exchange Composite Transactions" cease to
be reported, the Director of Human Resources shall adopt some other appropriate
method for determining Fair Market Value.
2.11 "Full Award" means a number of Shares (rounded to the nearest whole
share) having an aggregate Fair Market Value on the last business day of the
immediately preceding Award Period equal to 50% of the Annual Cash Retainer in
effect at the beginning of such Award Period.
2.12 "Non-Employee Director" means as of any date a person who on such
date is a director of the Corporation and is not an employee of the Corporation
or any Affiliate. A director of the Corporation who is also an employee of the
Corporation or any Affiliate shall become eligible to participate in the Plan
upon termination of such employment.
2.13 "Prorated Award" means a Full Award multiplied by a fraction, the
numerator of which is the number of days that a person served as a Non-Employee
Director during the immediately preceding Award Period and the denominator of
which is the total number of days in such Award Period.
2.14 "Shares" means shares of Common Stock.
3. Effective Date.
The Plan shall become effective on May 1, 1993, subject to the approval of
the Corporation's stockholders at the Corporation's 1993 Annual Meeting of
Stockholders.
<PAGE>
-3-
4. Administration.
4.1 The Plan shall be administered by the Director of Human Resources.
Subject to the provisions set forth herein, the Director of Human Resources
shall have full authority to construe and interpret the terms of the Plan and to
make all determinations and take all other actions necessary or advisable for
the administration of the Plan, except that the persons entitled to receive
Awards and the dates and amounts of such Awards shall be determined as provided
in Article 7, and the Director of Human Resources shall have no discretion as to
such matters. The Director of Human Resources may delegate to one or more
officers of the Corporation or any Affiliate the authority to perform
administrative functions under the Plan.
4.2 Any determinations or actions made or taken by the Director of Human
Resources pursuant to this Article shall be binding and final.
5. Shares Available for Awards.
5.1 The maximum number of Shares that may be issued under the Plan shall
be 100,000, subject to adjustment in accordance with the provisions of Section
5.2. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
5.2 In the event of any change in the outstanding shares of Common Stock
by reason of a stock dividend or distribution, stock split, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Corporation is the
surviving corporation, the number and kind of Shares awarded thereafter in each
grant under the Plan and the total number and kind of Shares that may be issued
under the Plan shall be equitably adjusted by the Board of Directors, whose
determination shall be binding and final.
6. Eligibility.
Awards shall be made only to Non-Employee Directors, as provided in
Article 7.
<PAGE>
-4-
7. Awards.
In consideration of past services rendered, on each Award Date, each person
who is then a Non-Employee Director shall, automatically and without necessity
of any action by the Director of Human Resources, be entitled to receive (i) a
Full Award, in the case of a person who was a Non-Employee Director during all
of the immediately preceding Award Period or (ii) a Prorated Award, in the case
of a person who was a Non-Employee Director for less than all of such Award
Period. Stock certificates representing Awards shall be delivered to Non-
Employee Directors as soon as practicable following each Award Date, unless
other arrangements are made with the Corporation by the Non-Employee Director.
In lieu of receiving Shares following each Award Date, each Non-Employee
Director may elect to defer the receipt of his or her Shares under the Plan in
accordance with Section 8 below. Awards hereunder shall be in addition to, and
not in lieu of, the Non-Employee Director's Annual Cash Retainer, meeting fees
and other compensation payable to each Non-Employee Director as a result of his
or her service on the Board of Directors or any committee thereof.
8. Deferral of Awards.
8.1 Election of Deferral. A Non-Employee Director may elect to defer all
of his or her Awards otherwise payable in or for a calendar year, subject to
such conditions as the Director of Human Resources may prescribe prior to the
start of such calendar year. A Non-Employee Director's election of deferral
shall be in the form prescribed by the Director of Human Resources and must be
filed prior to the first day of the calendar year for which the Awards are
earned. Each election shall be binding with respect to the Awards for such
calendar year and shall be irrevocable after January 1 of the calendar year to
which it applies. A new Non-Employee Director must make an election of deferral
within 30 days of the date upon which he or she first becomes a director of the
Corporation. A new election of deferral must be filed for each calendar year.
<PAGE>
-5-
8.2 Share Deferral Account. The Corporation shall maintain a Share
Deferral Account on behalf of each Non-Employee Director who files an election
of deferral pursuant to Section 8.1. On each Award Date, the Corporation shall
credit to such Account the number of Shares otherwise payable to the Non-
Employee Director as a Full or Prorated Award, if not deferred.
8.3 Dividend Credits. As of each date a dividend is paid on the Common
Stock, the Corporation shall credit to each Non-Employee Director's Share
Deferral Account the number of Shares (rounded to the nearest thousandth of a
share) determined by multiplying the total number of Shares credited to such
account as of the dividend record date by the per share dividend amount, and
then dividing the product by the Fair Market Value of a share of Common Stock on
the dividend payment date.
8.4 Form and Timing of Distribution. Upon a Non-Employee Director's
ceasing to be a director of the Corporation, credits to such Non-Employee
Director's Share Deferral Account shall be distributed to him or her in whole
shares of Common Stock (together with cash in lieu of a fractional share) as
soon as practicable following his or her retirement or termination as a
director. If a Non-Employee Director dies before receiving distribution of his
or her Share Deferral Account, distribution shall be made to such Non-Employee
Director's designated beneficiary or, in the absence of a designated beneficiary
or if the designated beneficiary does not survive the Non-Employee Director,
distribution shall be made to such Non-Employee Director's estate.
9. General Provisions.
9.1 Non-Assignability. No right to receive an Award hereunder shall be
transferable or assignable by a Plan participant other than by will or the laws
of descent and distribution.
9.2 No Right to Service. Participating in the Plan does not constitute a
guarantee or contract of service as a director.
<PAGE>
-6-
9.3 Amendment and Termination. The Board of Directors may amend, suspend
or terminate the Plan or any portion thereof at any time; provided, however,
that the provisions of the Plan relating to the determination of persons
entitled to receive Awards pursuant to Article 7 and the dates and amounts of
such Awards shall not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
9.4 Registration of Shares. Nothing in the Plan shall be construed to
require the Corporation to register under the Securities Act of 1933, as
amended, any Shares awarded under the Plan.
9.5 Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
<PAGE>
Exhibit 10(q)
FIRST AMENDMENT TO THE
BANK OF BOSTON CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
The Bank of Boston Corporation Directors' Deferred Compensation Plan is
hereby amended as follows effective March 28, 1991 unless otherwise noted:
1) Effective October 25, 1990, the definition of Committee under Section
2(b) is hereby amended to read as follows:
"Committee" means the Compensation and Nominating Committee of the
Board of Directors of the Corporation."
2) The second sentence of Section 6(c) is hereby amended to read as
follows:
"If the Participant should cease to be a member of the Board of
Directors after the Participant has served continuously for 60 (sixty)
months as a Director of Bank of Boston Corporation, or should cease to
be a member of the Board of Directors following a Change of Control,
or if the Participant should die while still an Outside Director, the
interest credited to the Participant's Deferral Accounts for all years
(and fractional years expressed in days) of his or her participation
in the Plan shall be recalculated in the manner described in the first
sentence of this paragraph at 130% times the Declared Rate for each
such year."
3) The language "(including for purposes of this Section an Honorary
Director)" is hereby deleted from the first sentence of Section 7(a).
<PAGE>
4) The third sentence of Section 7(a) is hereby amended to read as
follows:
"Payment shall be made or commence on the benefit commencement date
elected by the Participant on his or her election of deferral except
that such date shall in no event be earlier than the date on which the
Participant attains age 55."
5) The first sentence of Section 7(c) is hereby amended to read as
follows:
"Upon a Participant's ceasing to be an Outside Director (for reasons
other than death) following a Change of Control, benefits in respect
of the Participant shall be paid in accordance with paragraph (a)
above as though the Participant had served continuously for 60 (sixty)
months as a Director of Bank of Boston Corporation, attained age 55
and subsequently resigned."
2
<PAGE>
BANK OF BOSTON CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
1. Purpose and Effective Date.
--------------------------
The purpose of this Plan is to provide an arrangement whereby outside
directors can elect to defer receipt of designated percentages or amounts of
their retainers and committee fees. The Plan is effective March 1, 1988.
2. Definitions.
-----------
(a) "Plan" means the Bank of Boston Corporation Directors' Deferred
Compensation Plan as set forth herein and as from time to time amended.
(b) "Committee" means the Compensation Committee of the Board of Directors
of the Corporation.
(c) "Corporation" means Bank of Boston Corporation.
(d) "Bank" means The First National Bank of Boston.
(e) "Outside Director" means a director of the Corporation who is not an
employee of the Corporation or any of its subsidiaries.
(f) "Participant" means an outside Director who participates in the Plan.
(g) "Deferral Account" means the account described in Section 6.
<PAGE>
(h) "Declared Rate" means, with respect to 1988, 10.61%, and with respect
to subsequent calendar years the one-hundred-twenty (120)-month-rolling average
rate of ten year United States Treasury Notes or such other rate as may be
prescribed from time to time by the Committee. For any calendar year the one-
hundred-twenty (120)-month-rolling average rate will be determined by the
Committee as of the preceding month of December and will be the average of the
rates in effect for each of the one hundred twenty (120) months ending with that
December.
(i) "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
(j) "Change of Control" means the occurrence of any of the following
events:
(i) a Bank Holding Company Act Control Acquisition,
(ii) a Twenty Percent Stock Acquisition,
(iii) an Unusual Board Change, or
(iv) a Securities Law Change of Control, unless, in the case of an
event specified in item (i), (ii) or (iii), a majority of the Continuing
Directors shall determine, not later than 10 days after the Corporation knows or
can reasonably be expected to know of the event, that the event shall not
constitute a Change of Control for purposes of this Plan. A majority of the
Continuing Directors may at any time prior to the expiration of such 10-day
period (or prior to the expiration of any extension of such period pursuant to
this sentence) extend such period or impose such time and other limitations on
their determination as they may consider appropriate, and at any time may revoke
their determination made in accordance with the preceding sentence that an event
did not constitute a Change of Control for purposes of this Plan. A
determination by a majority of the Continuing Directors that an event did not
constitute a Change of Control under item (i), (ii) or (iii) shall not be deemed
to apply to any other event, however closely related.
2
<PAGE>
(k) "Bank Holding Company Act Control Acquisition" means an acquisition of
control of the Corporation as defined in Section 2(a)(2) of the Bank Holding
Company Act of 1956, or any similar successor provision, as in effect at the
time of the acquisition.
(l) "Continuing Director" means any director (i) who has continuously been
a member of the Board of Directors of the Corporation since not later than
December 31, 1987, or (ii) who is a successor of a Continuing Director as
defined in (i) if such successor (and any intervening successor) shall have been
recommended or elected to succeed a continuing Director by a majority of the
then Continuing Directors.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
(n) "Securities Law Change of Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
item l(a) of Current Report on Form S-K or item 6(e) of Schedule 14A of
Regulation 14A or any similar item, schedule or form under the Exchange Act, as
in effect at the time of the change, whether or not the Corporation is then
subject to such reporting requirement.
(o) A "Twenty Percent Stock Acquisition" occurs when a "person" (other
than the Corporation, any subsidiary of the Corporation, any employee benefit
plan of the Corporation or of any subsidiary of the Corporation, or any "person"
organized, appointed or established by the Corporation for or pursuant to any
such plan), alone or together with its "affiliates" and its "associates,"
becomes the "beneficial owner" of 20% or more of the common stock of the
Corporation then outstanding. The terms "person," "affiliate," "associate" and
"beneficial owner" have the meanings given to them in Section 2 of the Exchange
Act and Rules 12b-2,
3
<PAGE>
13d-3 and 13d-5 under the Exchange Act, or any similar successor provision or
rule, as in effect at the time when the "person" becomes such a "beneficial
owner." The term "person" includes a group referred to in Rule 13d-5 under the
Exchange Act, or any similar successor rule, as in effect when the group becomes
such a "beneficial owner."
(p) An "Unusual Board Change" occurs when Continuing Directors constitute
two-thirds or less of the membership of the Board of Directors of the
Corporation, whether as the result of a merger, consolidation, sale of assets or
other reorganization, a proxy contest, or for any other reason or reasons.
3. Eligibility.
-----------
An Outside Director shall be eligible to participate in the Plan provided
he or she completes such forms as the Committee may require.
4. Elective Deferrals.
------------------
A Participant may elect to defer all or any portion of his or her retainer
or other fees otherwise payable in or for a calendar year, subject to such
minimum deferral amounts as the Committee may prescribe prior to the start of
such calendar year.
5. Deferral Elections.
------------------
A Participant's election of deferral under Section 4 shall be in the form
prescribed by the Committee. The election of deferral must be filed prior to
the first day of the calendar year for which the retainer or other fee is
earned. Each election shall specify the percentage or amount of the
Participant's retainer or other fee to be credited to his or her Deferral
Account instead of being paid currently to the Participant, and the form and
timing of the
4
<PAGE>
distributions in respect of such deferral. Each election shall be binding with
respect to the retainer and other fees for such period (not less than one year)
as the Committee shall specify (the "Deferral Period") and shall be irrevocable
after January 1 of the calendar year to which it applies, or in the case of a
Deferral Period of more than one year, January 1 of the first calendar year to
which it applies.
6. Deferral Account.
----------------
The Corporation shall maintain one or more Deferral Accounts on behalf of
each Participant as follows:
(a) Opening Balance. If the Participant has deferred retainers or fees
---------------
prior to January 1, 1988 pursuant to one or more agreements with the Corporation
and, prior to March 1, 1988, has agreed to the transfer of some or all of the
credit balances under such agreements to this Plan, the Corporation shall credit
to a Deferral Account for the Participant such transferred balances, determined
as of February 29, 1988 under the terms of such prior agreements.
(b) Deferrals. Where applicable, the Corporation shall credit to a
---------
separate Deferral Account for the Participant such amounts of retainer or other
fees, deferred by the Participant prior to January 1, 1988 for the period March
1, 1988 through December 31, 1988, as the Participant has chosen to be credited
under this Plan. On and after January 1, 1989, for each deferral election made
by the Participant, the Corporation shall credit to a Deferral Account for the
Participant the amounts of retainer or other fees, as applicable, which the
Participant has elected to defer. In each case credits shall be made as of the
dates the retainer or other fees would have been payable if not deferred.
5
<PAGE>
(c) Interest. Subject to Section 12 and the remaining provisions of this
--------
paragraph, at the end of each month the Corporation shall credit to each of the
Participant's Deferral Accounts an amount equal to the amount in such Deferral
Account as of the end of the immediately preceding calendar month (without
regard to interest credited pursuant to this sentence for the current calendar
year) times one twelfth of the lesser of (i) 65% of the Declared Rate or (ii)
six percent. The interest credits shall be compounded annually. If the
Participant should cease to be a member of the Board of Directors after the
Participant has become or has been requested to become an Honorary Director' and
during or after the last year of the most recent Deferral Period for which the
Participant has made an election, or should cease to be a member of the Board of
Directors following a Change of Control, or if the Participant should die while
still an Outside Director, the interest credited to the Participant's Deferral
Accounts for all years (and fractional years expressed in days) of his or her
participation in the Plan shall be recalculated in the manner described in the
first sentence of this paragraph at 130% times the Declared Rate for each such
year. Interest shall continue to be credited pursuant to this paragraph until
the commencement of benefits.
7. Form and Timing of Distributions.
--------------------------------
(a) In General. Upon the Participant's ceasing to be an Outside Director
----------
(including for purposes of this Section an Honorary Director) for reasons other
than death, the Participant shall be entitled to receive the balance in each of
his or her Deferral Accounts calculated as of the last day of the calendar
quarter preceding the event that gives rise to the distribution. Each Deferral
Account shall be payable as the Participant shall have specified in his or her
election of deferral from among the forms prescribed by the Committee, and, if
payment is made other than in an immediate lump sum, shall be adjusted to
reflect continued interest credits in such
6
<PAGE>
manner as the Committee shall prescribe. Payment shall be made or commence on
the benefit commencement date elected by the Participant in his or her election
of deferral. Notwithstanding the foregoing, however, except as provided in
Sections 9 and 11 and paragraph (c) below, payment of any amounts credited to a
Participant as an opening balance under Section 6(a) or credited to a Deferral
Account under the first sentence of Section 6(b), plus interest credited thereon
pursuant to Section 6(c), shall be made in the form specified by the
Participant's agreements existing prior to 1988.
(b) Death. If the Participant dies prior to the commencement of payment of
-----
his or her Deferral Accounts as described in Section 7(a), the Participant's
designated beneficiary or beneficiaries shall be entitled to receive a benefit
payable in the form and at the time elected by the Participant in his or her
election of deferral. The amount used to calculate the beneficiary's benefit
will be the balances in the Participant's Deferral Accounts as of the date of
death, including interest recalculated in the manner described in Section 6(c)
at 130% of the Declared Rate for each year (and fractional years expressed in
days) of his or her participation in the Plan, plus any deferrals of retainer or
other fees which the Participant had elected to make but did not complete
because of his or her death, adjusted, if payment is made in a form other than
an immediate lump sum, to reflect continued interest credits during the pay out
period in such manner as the Committee shall prescribe. For purposes of the
preceding sentence, it will be assumed that the Participant would have continued
to receive the same retainer and other fees for each year remaining in the
Deferral Period as he or she received for the year of death. If the Participant
dies after payment of his or her Deferral Accounts has commenced but prior to
the exhaustion of any such Account, payment of the remaining balance of such
Account shall continue to the Participant's designated beneficiary or
beneficiaries in the form selected by the Participant.
7
<PAGE>
(c) Change of Control. Upon a Participant's ceasing to be an Outside
-----------------
Director (for reasons other than death) following a Change of Control, benefits
in respect of the Participant shall be paid in accordance with paragraph (a)
above as though the Participant had been requested to become an Honorary
Director and had subsequently resigned. Notwithstanding the foregoing, the
Committee by action taken prior to the Change of Control may provide for the
acceleration of any benefits payable following the Change of Control for
Participants described in the preceding sentence, including without limitation
benefits payable in respect of amounts credited as an opening balance under
Section 6(a) or credited to a Deferral Account under the first sentence of
Section 6(b), plus interest thereon.
8. Administration of the Plan.
---------------------------
The Committee shall oversee the administration of the Plan by the Bank's
Human Resources Department. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such
interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant. The
Committee shall exercise its discretion under the Plan in such manner as it
determines appropriate and may, in its discretion, waive the application of any
rule to any Participant. The Committee shall have no responsibility to exercise
its discretion in a uniform manner among similarly situated Participants, and no
decision with respect to any Participant shall give any other Participant the
right to have the same decision applied to him or her.
9. Nature of Claim for Payments.
----------------------------
Except as herein provided the Corporation shall not be required to set
aside or segregate any assets of any kind to meet any of its obligations
hereunder, and all obligations of
8
<PAGE>
the Corporation hereunder shall be reflected by book entries only. The
Participant shall have no rights on account of this Plan in or to any specific
assets of the Corporation. Any rights that the Participant may have on account
of this Plan shall be those of a general, unsecured creditor of the Corporation.
The Corporation may establish a trust of which the Corporation is treated
as the owner under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor
trust"), and may from time to time deposit funds in such trust to facilitate
payment of the benefits provided under the Plan. In the event the Corporation
establishes such a grantor trust with respect to the Plan and, at the time of a
Change of Control, such trust (i) has not been terminated or revoked and (ii) is
not "fully funded" (as hereinafter defined), the Corporation shall within ten
days of such Change of Control, or if a majority of the Continuing Directors has
determined pursuant to Section 2(j) above that an event does not constitute a
Change of Control and subsequently revokes such determination, within ten days
of such revocation, deposit in such grantor trust assets sufficient to cause the
trust to be "fully funded" as of the date of the deposit. For purposes of this
paragraph, the grantor trust shall be deemed "fully funded" as of any date if,
as of that date, the fair market value of the assets held in trust with respect
to this Plan is not less than the aggregate present value as of that date of (1)
all benefits then in pay status under the Plan (including benefits not yet
commenced but in respect of Participants who have retired, died or resigned
under circumstances entitling them to such benefits hereunder) plus (2) all
benefits that would be payable under the Plan if all other Participants were
deemed to have retired or resigned (other than by reason of death) under
circumstances entitling them to benefits on that date. In applying the
preceding sentence, the Corporation shall apply such interest, mortality or
other assumptions as shall have been specified by the Board of Directors prior
to the Change of Control. If, prior to the Change of Control, the Corporation
has deposited in such grantor trust amounts estimated to be sufficient to cause
the trust to be "fully
9
<PAGE>
funded," the Corporation shall be under no obligation following the Change of
Control to deposit additional amounts in trust. If the Board of Directors has
not specified the assumptions to be used in funding the grantor trust (and
amounts estimated to be sufficient to cause the trust to be "fully funded" have
not been deposited), then for purposes of the funding obligations under this
paragraph the Corporation shall:
(A) determine the value of each Deferral Account using the interest rate
assumption that would apply under Section 6(c) if the Participant were
deemed to have retired or resigned immediately following the Change of
Control, or that actually applies under Section 6(c) or Section 7(b)
in respect of benefits in pay status or for Participants who have
retired, died or resigned but whose benefits have not yet commenced;
(B) determine the benefits that would be payable in the future in respect
of each such Deferral Account; and
(C) determine the present value of such benefits by applying (i) as an
interest assumption, the Bank's base rate in effect on the date of the
Change of Control, and (ii) as a mortality assumption (to the extent
applicable), the mortality assumptions used in determining actuarial
equivalency among annuity benefits under the Bank's defined benefit
Retirement Plan as in effect immediately prior to the Change of
Control, or if no such plan is then in effect, the mortality
assumptions used as of such date by the Pension Benefit Guaranty
Corporation in determining the present value of benefits upon plan
termination.
10
<PAGE>
In the event a grantor trust is established and, following a Change of
Control, the trustee of such trust determines, based on a change in the federal
tax or revenue laws, a published ruling or similar announcement issued by the
Internal Revenue Service, a regulation issued by the Secretary of the Treasury,
a decision by a court of competent jurisdiction involving a Participant or a
beneficiary, or a closing agreement made under section 7121 of the Code that is
approved by the Internal Revenue Service and involves a Participant or a
beneficiary, that amounts held by the grantor trust with respect to the Plan
would by reason of the existence of such trust be includible in the income of
Participants or their beneficiaries (or any of them) prior to distribution, the
Deferral Accounts of the affected Participants and beneficiaries, to the extent
of the assets held in such trust, shall become payable in the form of lumpsum
distributions. In such event, the interest credited to the Deferral Accounts of
the Participants shall be recalculated in the manner described in Section 6(c)
at 130% of the Declared Rate for each year (and fractional years expressed in
days) of the Participant's participation in the Plan.
10. Rights Are Non-Assignable.
-------------------------
Neither the Participant nor any beneficiary nor any other person shall have
any right to assign or otherwise alienate the right to receive payments
hereunder, in whole or in part, which payments are expressly agreed to be
nonassignable and non-transferable, whether voluntarily or involuntarily.
11. Termination; Amendment.
----------------------
The Plan shall continue in effect until terminated by action of the Board
of Directors of the Corporation. Upon termination of the Plan, no deferral of
retainer or other fees thereafter
11
<PAGE>
paid to a Participant shall be made and no individual not a Participant as of
the date of termination shall become a Participant thereafter. If, at the time
of termination, there is any Participant or beneficiary of a Participant who is
or will be entitled to a payment hereunder, the Committee shall elect either (a)
to make payments to such Participants or beneficiaries in the normal course as
if the Plan had continued in effect, or (b) to pay to such Participants or
beneficiaries the balance in the Participant's Deferral Accounts in single lump-
sum payments. For purposes of calculating the lump-sum payment referred to in
the preceding sentence, the interest credited to the Deferral Accounts of any
Participant who had not died, retired or resigned prior to the termination of
the Plan shall be recalculated in the manner described in Section 6(c) at 130%
of the Declared Rate for each year (and fractional years expressed in days) of
his or her participation in the Plan.
The Committee may at any time and from time to time amend the Plan in any
manner; provided that, subject to Section 12, no such amendment shall reduce the
amounts previously credited to the Deferral Account of any Participant,
including interest calculated pursuant to Section 6(c), for periods prior to the
date of such amendment, or change the time or form of payment hereunder; and
provided, further, that no amendment shall eliminate or reduce the Corporation's
obligation to deposit assets in the grantor trust as described in Section 9 in
the event of a Change of Control.
12. Change in or Interpretation of Law.
----------------------------------
It is contemplated that in connection with its obligations under the Plan,
the Corporation may invest in one or more insurance contracts on the lives of
the Participants or may otherwise invest its assets in a manner calculated to
provide an after-tax yield sufficient to meet its obligations hereunder. In the
event of any change in the federal income tax law or
12
<PAGE>
regulations which the Committee, in its judgment, determines will increase the
after-tax cost of the Plan to the Corporation or will reduce the after-tax yield
from any such contracts or other investments, the Committee reserves the right,
in its discretion, to reduce the Declared Rate appropriately to reflect the
Corporation's increased cost, including, if the Committee deems it necessary, on
a retroactive basis.
13
<PAGE>
Exhibit 10(r)
FIRST AMENDMENT TO THE
FIRST NATIONAL BANK OF BOSTON
DIRECTORS' DEFERRED COMPENSATION PLAN
The First National Bank of Boston Directors' Deferred Compensation Plan is
hereby amended effective March 28, 1991 as follows:
1) The second sentence of Section 6(c) is hereby amended to read as
follows:
"If the Participant should cease to be a member of the Board of Directors
after the Participant has served continuously for 60 (sixty) months as a
Director of The First National Bank of Boston, or should cease to be a
member of the Board of Directors following a Change of Control, or if the
Participant should die while still an Outside Director, the interest
credited to the Participant's Deferral Accounts for all years (and
fractional years expressed in days) of his or her participation in the Plan
shall be recalculated in the manner described in the first sentence of this
paragraph at 130% times the Declared Rate for each such year."
2) The language "(including for purposes of this Section an Honorary
Director)" is hereby deleted from the first sentence of Section 7(a).
3) The third sentence of Section 7(a) is hereby amended to read as
follows:
"Payment shall be made or commence on the benefit commencement date
elected by the Participant on his or her election of deferral except that
such date shall in no event be earlier than the date on which the
Participant attains age 55."
4) The first sentence of Section 7(c) is hereby amended to read as
follows:
<PAGE>
"Upon a Participant's ceasing to be an Outside Director (for reasons
other than death) following a Change of Control, benefits in respect
of the Participant shall be paid in accordance with paragraph (a)
above as though the Participant had served continuously for 60 (sixty)
months as a Director of The First National Bank of Boston, attained
age 55 and subsequently resigned."
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
DIRECTORS' DEFERRED COMPENSATION PLAN
1. Purpose and Effective Date.
--------------------------
The purpose of this Plan is to provide an arrangement whereby outside
directors can elect to defer receipt of designated percentages or amounts of
their retainers and committee fees. The Plan is effective March 1, 1988.
2. Definitions.
-----------
(a) "Plan" means The First National Bank of Boston Directors' Deferred
Compensation Plan as set forth herein and as from time to time amended.
(b) "Committee" means the Compensation Committee of the
Board of Directors of the Bank.
(c) "Bank" means The First National Bank of Boston.
(d) "Corporation" means Bank of Boston Corporation.
(e) "Outside Director" means a director of the Bank who is not an employee
of the Corporation or any of its subsidiaries.
(f) "Participant" means an outside Director who participates in the Plan.
(g) "Deferral Account" means the account described in Section 6.
<PAGE>
(h) "Declared Rate" means, with respect to 1988, 10.61%, and with respect
to subsequent calendar years the one-hundred-twenty (120)-month-rolling average
rate of ten-year United States Treasury Notes or such other rate as may be
prescribed from time to time by the Committee. For any calendar year the one-
hundred-twenty (120)-month-rolling average rate will be determined by the
Committee as of the preceding month of December and will be the average of the
rates in effect for each of the one hundred twenty (120) months ending with that
December.
(i) "Code" means the Internal Revenue Code of 1986 as amended from time to
time.
(j) "Change of Control" means the occurrence of any of the following
events:
(i) a Bank Holding Company Act Control Acquisition,
(ii) a Twenty Percent Stock Acquisition,
(iii) an Unusual Board Change, or
(iv) a Securities Law Change of Control, unless, in the case of an
event specified in item (i), (ii) or (iii), a majority of the Continuing
Directors shall determine, not later than 10 days after the Corporation knows or
can reasonably be expected to know of the event, that the event shall not
constitute a Change of Control for purposes of this Plan. A majority of the
Continuing Directors may at any time prior to the expiration of such 10-day
period (or prior to the expiration of any extension of such period pursuant to
this sentence) extend such period or impose such time and other limitations on
their determination as they may consider appropriate', and at any time may
revoke their determination made in accordance with the preceding sentence that
an event did not constitute a Change of Control for purposes of this Plan. A
determination by a majority of the Continuing Directors that an event did not
constitute a Change of Control under item (i), (ii) or (iii) shall not be deemed
to apply to any other event, however closely related.
2
<PAGE>
(k) "Bank Holding Company Act Control Acquisition" means an acquisition of
control of the Corporation as defined in Section 2(a)(2) of the Bank Holding
Company Act of 1956, or any similar successor provision, as in effect at the
time of the acquisition.
(l) "Continuing Director" means any director of the Corporation (i) who has
continuously been a member of the Board of Directors of the Corporation since
not later than December 31, 1987, or (ii) who is a successor of a Continuing
Director as defined in (i) if such successor (and any intervening successor)
shall have been recommended or elected to succeed a Continuing Director by a
majority of the then Continuing Directors.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
(n) "Securities Law Change of Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
item l(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of
Regulation 14A or any similar item, schedule or form under the Exchange Act, as
in effect at the time of the change, whether or not the Corporation is then
subject to such reporting requirement.
(o) A "Twenty Percent Stock Acquisition" occurs when a "person" (other than
the Corporation, any subsidiary of the Corporation, any employee benefit plan of
the Corporation or of any subsidiary of the Corporation, or any "person"
organized, appointed or established by the Corporation for or pursuant to any
such plan), alone or together with its "affiliates" and its "associates,"
becomes the "beneficial owner" of 20% or more of the common stock of the
Corporation then outstanding. The terms "person," "affiliate," "associate" and
"beneficial owner" have the meanings given to them in Section 2 of the Exchange
Act and Rules 12b-2,
3
<PAGE>
13d-3 and 13d-5 under the Exchange Act, or any similar successor provision or
rule, as in effect at the time when the "person" becomes such a "beneficial
owner." The term "person" includes a group referred to in Rule 13d-5 under the
Exchange Act, or any similar successor rule, as in effect when the group becomes
such a "beneficial owner."
(p) An "Unusual Board Change" occurs when Continuing Directors constitute
two-thirds or less of the membership of the Board of Directors of the
Corporation, whether as the result of a merger, consolidation, sale of assets or
other reorganization, a proxy contest, or for any other reason or reasons.
3. Eligibility.
-----------
An Outside Director shall be eligible to participate in the Plan provided
he or she completes such forms as the Committee may require.
4. Elective Deferrals.
------------------
A Participant may elect to defer all or any portion of his or her retainer
or other fees otherwise payable in or for a calendar year, subject to such
minimum deferral amounts as the Committee may prescribe prior to the start of
such calendar year.
5. Deferral Elections.
------------------
A Participant's election of deferral under Section 4 shall be in the form
prescribed by the Committee. The election of deferral must be filed prior to
the first day of the calendar year for which the retainer or other fee is
earned. Each election shall specify the percentage or amount of the
Participant's retainer or other fee to be credited to his or her Deferral
4
<PAGE>
Account instead of being paid currently to the Participant, and the form and
timing of the distributions in respect of such deferral. Each election shall be
binding with respect to the retainer and other fees for such period (not less
than one year) as the Committee shall specify (the "Deferral Period") and shall
be irrevocable after January 1 of the calendar year to which it applies, or in
the case of a Deferral Period of more than one year, January 1 of the first
calendar year to which it applies.
6. Deferral Account.
----------------
The Bank shall maintain one or more Deferral Accounts on behalf of each
Participant as follows:
(a) Opening Balance. If the Participant has deferred retainers or fees
---------------
prior to January 1, 1988 pursuant to one or more agreements with the Bank and,
prior to March 1, 1988, has agreed to the transfer of some or all of the credit
balances under such agreements to this Plan, the Bank shall credit to a Deferral
Account for the Participant such transferred balances, determined as of February
29, 1988 under the terms of such prior agreements.
(b) Deferrals. Where applicable, the Bank shall credit to a separate
---------
Deferral Account for the Participant such amounts of retainer or other fees,
deferred by the Participant prior to January 1, 1988 for the period March 1,
1988 through December 31, 1988, as the Participant has chosen to be credited
under this Plan. On and after January 1, 1989, for each deferral election made
by the Participant, the Bank shall credit to a Deferral Account for the
Participant the amounts of retainer or other fees, as applicable, which the
Participant has elected to defer. In each case credits shall be made as of the
dates the retainer or other fees would have been payable if not deferred.
5
<PAGE>
(c) Interest. Subject to Section 12 and the remaining provisions of this
---------
paragraph, at the end of each month the Bank shall credit to each of the
Participant's Deferral Accounts an amount equal to the amount in such Deferral
Account as of the end of the immediately preceding calendar month (without
regard to interest credited pursuant to this sentence for the current calendar
year) times one-twelfth of the lesser of (i) 65% of the Declared Rate or (ii)
six percent. The interest credits shall be compounded annually. If the
Participant should cease to be a member of the Board of Directors after the
Participant has become or has been requested to become an Honorary Director and
during or after the last year of the most recent Deferral Period for which the
Participant has made an election, or should cease to be a member of the Board of
Directors following a Change of Control, or if the Participant should die while
still an Outside Director, the interest credited to the Participant's Deferral
Accounts for all years (and fractional years expressed in days) of his or her
participation in the Plan shall be recalculated in the manner described in the
first sentence of this paragraph at 130% times the Declared Rate for each such
year. Interest shall continue to be credited pursuant to this paragraph until
the commencement of benefits.
7. Form and Timing of Distributions.
--------------------------------
(a) In General. Upon the Participant's ceasing to be an outside Director
----------
(including for purposes of this Section an Honorary Director) for reasons other
than death, the Participant shall be entitled to receive the balance in each of
his or her Deferral Accounts calculated as of the last day of the calendar
quarter preceding the event that gives rise to the distribution. Each Deferral
Account shall be payable as the Participant shall have specified in his or her
election of deferral from among the forms prescribed by the Committee and, if
payment is made other than in an immediate lump sum, shall be adjusted to
reflect continued interest credits in such manner as the Committee shall
prescribe. Payment shall be made or commence on the benefit commencement date
elected by the Participant in his or her election of deferral.
6
<PAGE>
Notwithstanding the foregoing, however, except as provided in Sections 9 and 11
and paragraph (c) below, payment of any amounts credited to a Participant as an
opening balance under Section 6(a) or credited to a Deferral Account under the
first sentence of Section 6(b), plus interest credited thereon pursuant to
Section 6(c), shall be made in the form specified by the Participant's
agreements existing prior to 1988.
(b) Death. If the Participant dies prior to the commencement of payment of
------
his or her Deferral Accounts as described in Section 7(a), the Participant's
designated beneficiary or beneficiaries shall be entitled to receive a benefit
payable in the form and at the time elected by the Participant in his or her
election of deferral. The amount used to calculate the beneficiary's benefit
will be the balances in the Participant's Deferral Accounts as of the date of
death, including interest recalculated in the manner described in Section 6(c)
at 130% of the Declared Rate for each year (and fractional years expressed in
days) of his or her participation in the Plan, plus any deferrals of retainer or
other fees which the Participant had elected to make but did not complete
because of his or her death, adjusted, if payment is made in a form other than
an immediate lump sum, to reflect continued interest credits during the pay out
period in such manner as the Committee shall prescribe. For purposes of the
preceding sentence, it will be assumed that the Participant would have continued
to receive the same retainer and other fees for each year remaining in the
Deferral Period as he or she received for the year of death. If the Participant
dies after payment of his or her Deferral Accounts has commenced but prior to
the exhaustion of any such Account, payment of the remaining balance of such
Account shall continue to the Participant's designated beneficiary or
beneficiaries in the form selected by the Participant.
(c) Change of Control. Upon a Participant's ceasing to be an Outside
-----------------
Director (for reasons other than death) following a Change of Control, benefits
in respect of the participant shall be paid in accordance with paragraph (a)
above as though the Participant had been
7
<PAGE>
requested to become an Honorary Director and had subsequently resigned.
Notwithstanding the foregoing, the Committee by action taken prior to the Change
of Control may provide for the acceleration of any benefits payable following
the Change of Control for Participants described in the preceding sentence,
including without limitation benefits payable in respect of amounts credited as
an opening balance under Section 6(a) or credited to a Deferral Account under
the first sentence of Section 6(b), plus interest thereon.
8. Administration of the Plan.
--------------------------
The Committee shall oversee the administration of the Plan by the Bank's
Human Resources Department. The Committee shall have the exclusive power to
interpret the Plan and to decide all matters under the Plan. Such
interpretation and decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any Participant. The
Committee shall exercise its discretion under the Plan in such manner as it
determines appropriate and may, in its discretion, waive the application of any
rule to any Participant. The Committee shall have no responsibility to exercise
its discretion in a uniform manner among similarly situated Participants, and no
decision with respect to any Participant shall give any other Participant the
right to have the same decision applied to him or her.
9. Nature of Claim for Payments.
----------------------------
Except as herein provided the Bank shall not be required to set aside or
segregate any assets of any kind to meet any of its obligations hereunder, and
all obligations of the Bank hereunder shall be reflected by book entries only.
The Participant shall have no rights on account of this Plan in or to any
specific assets of the Bank. Any rights that the Participant may have on
account of this Plan shall be those of a general, unsecured creditor of the
Bank.
8
<PAGE>
The Bank may establish a trust of which the Bank is treated as the owner
under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and
may from time to time deposit funds in such trust to facilitate payment of the
benefits provided under the Plan. In the event the Bank establishes such a
grantor trust with respect to the Plan and, at the time of a change of Control,
such trust (i) has not been terminated or revoked and (ii) is not "fully funded"
(as hereinafter defined), the Bank shall within ten days of such Change of
Control, or if a majority of the Continuing Directors has determined pursuant to
Section 2(j) above that an event does not constitute a Change of Control and
subsequently revokes such determination, within ten days of such revocation,
deposit in such grantor trust assets sufficient to cause the trust to be "fully
funded" as of the date of the deposit. For purposes of this paragraph, the
grantor trust shall be deemed "fully funded" as of any date if, as of that date,
the fair market value of the assets held in trust with respect to this Plan is
not less than the aggregate present value as of that date of (1) all benefits
then in pay status under the Plan (including benefits not yet commenced but in
respect of Participants who have retired, died or resigned under circumstances
entitling them to such benefits hereunder) plus (2) all benefits that would be
payable under the Plan if all other Participants were deemed to have retired or
resigned (other than by reason of death) under circumstances entitling them to
benefits on that date. In applying the preceding sentence, the Bank shall apply
such interest, mortality or other assumptions as shall have been specified by
the Board of Directors prior to the Change of Control. If, prior to the Change
of Control, the Bank has deposited in such grantor trust amounts estimated to be
sufficient to cause the trust to be "fully funded," the Bank shall be under no
obligation following the Change of Control to deposit additional amounts in
trust. If the Board of Directors has not specified the assumptions to be used
in funding the grantor trust (and amounts estimated to be sufficient to cause
the trust to be "fully funded" have not been deposited), then for purposes of
the funding obligations under this paragraph the Bank shall
(A) determine the value of each Deferral Account using the interest rate
assumption
9
<PAGE>
that would apply under Section 6(c) if the Participant were deemed to
have retired or resigned immediately following the Change of Control,
or that actually applies under Section 6(c) or Section 7(b) in respect
of benefits in pay status or for Participants who have already
retired, died or resigned but whose benefits have not yet commenced;
(B) determine the benefits that would be payable in the future in respect
of each such Deferral Account; and
(C) determine the present value of such benefits by applying (i) as an
interest assumption, the Bank's base rate in effect on the date of the
Change of Control, and (ii) as a mortality assumption (to the extent
applicable), the mortality assumptions used in determining actuarial
equivalency among annuity benefits under the Bank's defined benefit
Retirement Plan as in effect immediately prior to the Change of
Control, or if no such plan is then in effect, the mortality
assumptions used as of such date by the Pension Benefit Guaranty
Corporation in determining the present value of benefits upon plan
termination.
In the event a grantor trust is established and, following a Change of
Control, the trustee of such trust determines, based on a change in the federal
tax or revenue laws, a published ruling or similar announcement issued by the
Internal Revenue Service, a regulation issued by the Secretary of the Treasury,
a decision by a court of competent jurisdiction involving a Participant or a
beneficiary, or a closing agreement made under section 7121 of the Code that is
approved by the Internal Revenue Service and involves a Participant or a
beneficiary, that amounts held by the grantor trust with respect to the Plan
would by reason of the existence of such trust be includible in the income of
Participants or their beneficiaries (or any of them) prior to distribution, the
Deferral Accounts of the affected Participants and
10
<PAGE>
beneficiaries, to the extent of the assets held in such trust, shall become
payable in the form of lumpsum distributions. In such event, the interest
credited to the Deferral Accounts of the Participants shall be recalculated in
the manner described in Section 6(c) at 130% of the Declared Rate for each year
(and fractional years expressed in days) of the Participant's participation in
the Plan.
10. Rights Are Non-Assignable.
-------------------------
Neither the Participant nor any beneficiary nor any other person shall have
any right to assign or otherwise alienate the right to receive payments
hereunder, in whole or in part, which payments are expressly agreed to be
nonassignable and non-transferable, whether voluntarily or involuntarily.
11. Termination; Amendment.
----------------------
The Plan shall continue in effect until terminated by action of the Board
of Directors of the Bank. Upon termination of the Plan, no deferral of retainer
or other fees thereafter paid to a Participant shall be made and no individual
not a Participant as of the date of termination shall become a Participant
thereafter. If, at the time of termination, there is any Participant or
beneficiary of a Participant who is or will be entitled to a payment hereunder,
the Committee shall elect either (a) to make payments to such Participants or
beneficiaries in the normal course as if the Plan had continued in effect, or
(b) to pay to such Participants or beneficiaries the balance in the
Participant's Deferral Accounts in single lump-sum payments. For purposes of
calculating the lump-sum payment referred to in the preceding sentence, the
interest credited to the Deferral Accounts of any Participant who had not died,
retired or resigned prior to the termination of the Plan shall be recalculated
in the manner described in Section 6(c) at 130% of the Declared Rate for each
year (and fractional years expressed in days) of his
11
<PAGE>
or her participation in the Plan.
The Committee may at any time and from time to time amend the Plan in any
manner; provided that, subject to Section 12, no such amendment shall reduce the
amounts previously credited to the Deferral Account of any Participant,
including interest calculated pursuant to Section 6(c), for periods prior to the
date of such amendment, or change the time or form of payment hereunder; and
provided, further, that no amendment shall eliminate or reduce the Bank's
obligation to deposit assets in the grantor trust as described in Section 9 in
the event of a Change of Control.
12. Change in or Interpretation of Law.
----------------------------------
It is contemplated that the Bank in connection with its obligations under
the Plan may invest in one or more insurance contracts on the lives of
Participants or may otherwise invest its assets in a manner calculated to
provide an after-tax yield sufficient to meet its obligations hereunder. In the
event of any change in the federal income tax law or regulations which the
Committee, in its judgment, determines will increase the after-tax cost of the
Plan to the Bank or will reduce the after-tax yield from any such contracts or
other investments, the Committee reserves the right, in its discretion, to
reduce the Declared Rate appropriately to reflect the Bank's increased cost,
including, if the Committee deems it necessary, on a retroactive basis.
12
<PAGE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
Computation of Per Share Earnings
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
EARNINGS Years Ended December 31
--------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
1. Net income $ 435,362 $ 299,026 $ 278,881
2. Less: Preferred dividends 37,455 34,689 19,870
-------- -------- --------
3. Net income applicable to primary
earnings per common share 397,907 264,337 259,011
4. Add: Interest expense on convertible
debentures, net of tax 4,303 4,303 4,382
-------- -------- --------
5. Net income applicable to fully diluted
earnings per common share $ 402,210 $ 268,640 $ 263,393
======== ======== ========
<CAPTION>
SHARES
------
<S> <C> <C> <C>
6. Weighted average number of common
shares outstanding 106,730 105,336 101,977
7. Incremental shares from assumed exercise
of dilutive stock options as of the beginning
of the period using the treasury stock method 668 888 1,137
8. Incremental shares from assumed conversion
of debentures at date of issuance 4,029 4,034 4,043
-------- -------- --------
9. Adjusted number of common shares 111,427 110,258 107,157
======== ======== ========
<CAPTION>
PER SHARE CALCULATION
---------------------
<S> <C> <C> <C>
10. Primary net income per common share $ 3.73 $ 2.51 $ 2.54
(Item 3 + Item 6); see note below
11. Fully diluted net income per common share $ 3.61 $ 2.44 $ 2.45
(Item 5 + Item 9); see note below
</TABLE>
Note - Income per common share before extraordinary items and cumulative effect
of changes in accounting principles, net of tax, on both a primary and fully
diluted basis for the years ended December 31, 1994, 1993 and 1992 is computed
by adding to the numerator the extraordinary loss from early extinguishment of
debt, net of tax, in 1994 of $6,535 and subtracting from the numerator the
cumulative effect of accounting changes, net of tax, in 1993 of $24,203 and the
extraordinary item of $72,968 in 1992.
<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 five years ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
(Dollars in thousands)
1994 1993 1992 1991 1990
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 435,362 $299,026 $278,881 $(113,155) $(468,248)
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 349,414 214,683 152,781 (57,990) 2,579
---------- -------- -------- --------- ---------
Pretax earnings (loss) 791,311 489,506 358,694 (178,903) (509,318)
---------- -------- -------- --------- ---------
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 26,713 27,063 28,159 30,370 38,747
Interest on borrowed funds 997,601 377,874 44,908 361,510 592,028
---------- -------- -------- --------- ---------
Total fixed charges 1,024,314 404,937 373,067 391,880 630,775
---------- -------- -------- --------- ---------
Earnings (for ratio calculation) $1,815,625 $894,443 $731,761 $ 212,977 $ 121,457
========== ======== ======== ========= =========
Total fixed charges $1,024,314 $404,937 $373,067 $ 391,880 $ 630,775
========== ======== ======== ========= =========
Ratio of earnings to fixed
charges 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. Ratios for the periods
presented reflect the reclassification of Brazilian gains and losses, more fully
discussed in Note 25 to the Financial Statements contained in the Corporation's
1994 Annual Report to Stockholders.
<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 five years ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
(Dollars in thousands)
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 435,362 $ 299,026 $ 278,881 $ (113,155) $ (468,248)
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 349,414 214,683 152,781 (57,990) 2,579
----------- ----------- ----------- ----------- -----------
Pretax earnings (loss) 791,311 489,506 358,694 (178,903) (509,318)
----------- ----------- ----------- ----------- -----------
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 26,713 27,063 28,159 30,370 38,747
Interest on borrowed funds 997,601 377,874 344,908 361,510 592,028
Interest on deposits 1,148,611 1,015,956 1,406,742 1,808,436 2,420,296
----------- ----------- ----------- ----------- -----------
Total fixed charges 2,172,925 1,420,893 1,779,809 2,200,316 3,051,071
----------- ----------- ----------- ----------- -----------
Earnings (for ratio calculation) $ 2,964,236 $ 1,910,399 $ 2,138,503 $ 2,021,413 $ 2,541,753
=========== =========== =========== =========== ===========
Total fixed charges $ 2,172,925 $ 1,420,893 $ 1,779,809 $ 2,200,316 $ 3,051,071
=========== =========== =========== =========== ===========
Ratio of earnings to fixed
charges 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 (including
interest on deposits) and the proportion deemed representative of the interest
factor of rent expense, net of income from subleases. Ratios for the periods
presented reflect the reclassification of Brazilian translation gains and
losses, more fully discussed in Note 25 to the Financial Statements contained in
the Corporation's 1994 Annual Report to Stockholders.
<PAGE>
EXHIBIT 12(c)
BANK OF BOSTON CORPORATION
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to combined fixed charges and preferred
stock dividend requirements (excluding interest on deposits) for the five years
ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 435,362 $299,026 $278,881 $(113,155) $(468,248)
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 349,414 214,683 152,781 (57,990) 2,579
---------- -------- -------- --------- ---------
Pretax earnings (loss) $ 791,311 $489,506 $358,694 $(178,903) $(509,318)
========== ======== ======== ========= =========
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor $ 26,713 $ 27,063 $ 28,159 $ 30,370 $ 38,747
Interest on borrowed funds 997,601 377,874 344,908 361,510 592,028
---------- -------- -------- --------- ---------
Total fixed charges 1,024,314 404,937 373,067 391,880 630,775
Preferred stock dividend
requirements 67,053 61,377 33,186 13,255 13,748
---------- -------- -------- --------- ---------
Total combined fixed charges
and preferred stock dividend
requirements $1,091,367 $466,314 $406,253 $ 405,135 $ 644,523
========== ======== ======== ========= =========
Earnings (for ratio calculation)
(Pretax earnings (loss)
plus total fixed charges) $1,815,625 $894,443 $731,761 $ 212,977 $ 121,457
========== ======== ======== ========= =========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 1.66 1.92 1.80 .53 .19
==== ==== ==== === ===
</TABLE>
For purposes of computing the consolidated ratio of earnings to combined fixed
charges and preferred stock dividend requirements, "earnings" represent income
(loss) before extraordinary items and cumulative effect of changes in accounting
principles plus applicable income taxes and fixed charges. "Fixed charges"
include gross interest expense (excluding interest on deposits) and the
proportion deemed representative of the interest factor of rent expense, net of
income from subleases. Pretax earnings required for preferred stock dividends
were computed using tax rates for the applicable year. No tax adjustments were
made in loss years. Ratios for the periods presented reflect the
reclassification of Brazilian translation gains and losses, more fully discussed
in Note 25 to the Financial Statements contained in the Corporation's 1994
Annual Report to Stockholders.
<PAGE>
EXHIBIT 12(d)
BANK OF BOSTON CORPORATION
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDEND REQUIREMENTS
(Including Interest on Deposits)
The Corporation's ratios of earnings to combined fixed charges and preferred
stock dividend requirements (including interest on deposits) for the five
years ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
(Dollars in thousands)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 435,362 $ 299,026 $ 278,881 $ (113,155) $ (468,248)
Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649)
Cumulative effect of changes
in accounting principles, net of tax (24,203)
Income tax expense (benefit) 349,414 214,683 152,781 (57,990) 2,579
---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) $ 791,311 $ 489,506 $ 358,694 $ (178,903) $ (509,318)
========== ========== ========== ========== ==========
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor $ 26,713 $ 27,063 $ 28,159 $ 30,370 $ 38,747
Interest on borrowed funds 997,601 377,874 344,908 361,510 592,028
Interest on deposits 1,148,611 1,015,956 1,406,742 1,808,436 2,420,296
---------- ---------- ---------- ---------- ----------
Total fixed charges 2,172,925 1,420,893 1,779,809 2,200,316 3,051,071
Preferred stock dividend
requirements 67,053 61,377 33,186 13,255 13,748
---------- ---------- ---------- ---------- ----------
Total combined fixed charges
and preferred stock dividend
requirements $2,239,978 $1,482,270 $1,812,995 $2,213,571 $3,064,819
========== ========== ========== ========== ==========
Earnings (for ratio calculation)
(Pretax earnings (loss)
plus total fixed charges) $2,964,236 $1,910,399 $2,138,503 $2,021,413 $2,541,753
========== ========== ========== ========== ==========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 1.32 1.29 1.18 .91 .83
==== ==== ==== === ===
</TABLE>
For purposes of computing the consolidated ratio of earnings to combined fixed
charges and preferred stock dividend requirements, "earnings" represent income
(loss) before extraordinary items and cumulative effect of changes in
accounting principles plus applicable income taxes and fixed charges. "Fixed
charges" include gross interest expense (including interest on deposits) and
the proportion deemed representative of the interest factor of rent expense,
net of income from subleases. Pretax earnings required for preferred stock
dividends were computed using tax rates for the applicable year. No tax
adjustments were made in loss years. Ratios for the periods presented reflect
the reclassification of Brazilian translation gains and losses, more fully
discussed in Note 25 to the Financial Statements contained in the
Corporation's 1994 Annual Report to Stockholders.
<PAGE>
Exhibit 13
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED SELECTED FINANCIAL DATA Years Ended December 31
--------------------------------------------------------------------------------
(dollars in millions, except
per share amounts) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income(1)........... $3,718 $2,739 $3,007 $3,285 $4,235 $4,714
Interest expense(1).......... 2,146 1,394 1,752 2,170 3,012 3,325
------- ------- ------- ------ ------ ------
Net interest revenue........ 1,572 1,345 1,255 1,115 1,223 1,389
Provision for credit losses.. 130 70 181 519 764 774
------- ------- ------- ------ ------ ------
Net interest revenue after
provision for credit
losses..................... 1,442 1,275 1,074 596 459 615
Noninterest income(1)(2)..... 828 746 759 763 764 1,019
Noninterest expense(3)....... 1,479 1,531 1,474 1,538 1,732 1,411
------- ------- ------- ------ ------ ------
Income (Loss) before income
taxes, extraordinary items
and cumulative effect of
changes in accounting
principles.................. 791 490 359 (179) (509) 223
Provision for (Benefit from)
income taxes................ 349 215 153 (58) 3 85
------- ------- ------- ------ ------ ------
Income (Loss) before
extraordinary items and
cumulative effect of changes
in accounting principles.... 442 275 206 (121) (512) 138
Extraordinary items
Gains (losses) from early
extinguishment of debt,
net of tax................ (7) 8 44
Recognition of prior year
tax benefit carryforwards. 73
Cumulative effect of changes
in accounting principles,
net(4)...................... 24
------- ------- ------- ------ ------ ------
Net income (loss)........... $ 435 $ 299 $ 279 $ (113) $ (468) $ 138
======= ======= ======= ====== ====== ======
Net income (loss) applicable
to common stock............ $ 398 $ 264 $ 259 $ (126) $ (482) $ 124
======= ======= ======= ====== ====== ======
Per common share
Income (Loss) before
extraordinary items and
cumulative effect of changes
in accounting principles
Primary.................... $ 3.79 $ 2.28 $ 1.82 $(1.42) $(5.67) $ 1.37
Fully diluted.............. 3.67 2.22 1.78 (1.42) (5.67) 1.37
Net income (loss)
Primary.................... 3.73 2.51 2.54 (1.33) (5.20) 1.37
Fully diluted.............. 3.61 2.44 2.45 (1.33) (5.20) 1.37
Cash dividends declared...... .93 .40 .10 .10 .82 1.24
Average number of common
shares (in thousands)
Primary.................... 106,730 105,336 101,977 94,730 92,634 90,435
Fully diluted.............. 111,427 110,258 107,157 94,730 92,634 90,777
</TABLE>
--------------------------------------------------------------------------------
(1) During 1994, the Corporation reclassified the translation losses and gains
associated with Brazilian local currency earning assets and interest
bearing liabilities from noninterest income to interest income and
interest expense, respectively, and reclassified all prior periods. The
reclassification had no effect on the Corporation's total revenue (the sum
of net interest revenue and noninterest income).
(2) Includes, in 1994, a $27 million gain from the sale of the Corporation's
domestic factoring business; in 1990, a $43 million gain from the
settlement of certain pension obligations; and, in 1989, $190 million of
gains from the sales of the Corporation's domestic credit card portfolios
and a $52 million gain from the settlement of certain pension obligations.
(3) Includes acquisition-related costs of $21 million in 1994 in connection
with the Corporation's acquisitions of BankWorcester Corporation and
Pioneer Financial, A Co-operative Bank. Includes acquisition-related costs
and restructuring charges of $85 million in 1993, primarily in connection
with the Corporation's mergers with Society for Savings Bancorp, Inc.
(Society) and Multibank Financial Corp., as well as estimated costs of
downsizing and reconfiguring certain of the Corporation's business and
corporate units. Also includes restructuring charges of $54 million in
1991 and $139 million in 1990, including $7 million in 1991 and $89
million in 1990 in connection with a Society restructuring plan; and $47
million in 1991 and $50 million in 1990 in connection with the
Corporation's plans for the consolidation and downsizing of various
domestic and international operations and facilities and staff reductions.
(4) Includes a cumulative benefit of $77 million resulting from the adoption
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," and a cumulative charge of $53 million, net of taxes,
relating to a change in accounting methodology pertaining to the valuation
of purchased mortgage servicing rights.
29
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED SELECTED FINANCIAL DATA Years Ended December 31
----------------------------------------------------------------------------------
(dollars in millions,
except per share amounts) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS
Return on average as-
sets................... 1.01% .78% .76% (.30)% (1.07)% .32%
Return on average common
equity(5).............. 15.82 11.78 13.37 (7.28) (21.68) 5.18
Common dividend payout
ratio.................. 24.9 14.4 3.4 NM NM 155.0
Common equity to total
assets................. 5.9 5.9 5.7 4.5 4.7 5.0
Average total stockhold-
ers' equity to average
total assets........... 7.0 7.1 6.0 5.1 5.6 6.0
Risk-based capital ra-
tios
Tier 1................. 7.0 7.2 7.1 5.2 5.3 NA
Total.................. 12.2 12.4 12.0 9.3 9.4 NA
Leverage ratio.......... 6.5 6.8 6.6 4.6 4.5 NA
Net credit losses to av-
erage loans and lease
financing.............. .82 .84 1.22 1.87 2.50 1.65
Reserve for credit
losses to loans and
lease financing........ 2.19 2.68 3.63 4.14 3.90 3.20
Reserve for credit
losses to nonaccrual
loans and lease
financing.............. 186.22 139.69 118.51 69.48 53.93 59.34
Nonaccrual loans and
OREO as a percent of
related asset catego-
ries................... 1.4 2.3 3.7 7.2 8.1 6.0
Market value/book value. 104.69 101.28 126.2 63.9 32.5 73.5
BALANCE SHEET DATA AT
DECEMBER 31
Loans and lease financ-
ing.................... $31,005 $28,782 $25,399 $25,368 $26,220 $30,772
Reserve for credit loss-
es..................... (680) (770) (923) (1,051) (1,023) (983)
Total assets............ 44,630 40,588 37,315 38,309 39,351 46,663
Deposits................ 31,356 29,614 29,102 29,291 31,813 34,105
Funds borrowed.......... 6,360 4,975 2,947 4,634 2,704 6,420
Notes payable........... 2,169 1,973 1,686 1,419 1,536 2,124
Stockholders' equity.... 3,142 2,912 2,554 1,919 2,046 2,562
Common shares outstand-
ing (in thousands)..... 106,547 105,801 104,664 95,025 93,575 91,057
Common stockholders of
record(6).............. 23,005 23,633 25,263 27,665 27,414 22,700
Number of employees..... 18,355 18,644 19,459 18,752 20,339 21,733
Per common share
Book value............. $ 24.72 $ 22.71 $ 20.21 $ 18.00 $ 19.64 $ 25.85
Market value........... 25 7/8 23 25 1/2 11 1/2 6 3/8 19
AVERAGE BALANCE SHEET
DATA
Loans and lease financ-
ing.................... $29,790 $26,586 $25,330 $26,167 $28,949 $32,061
Securities.............. 3,510 3,624 4,704 5,098 4,509 4,831
Other earning assets.... 4,845 4,089 3,195 3,298 6,865 3,243
------- ------- ------- ------- ------- -------
Total earning assets... 38,145 34,299 33,229 34,563 40,323 40,135
------- ------- ------- ------- ------- -------
Cash and due from banks. 2,071 1,790 1,596 1,485 1,780 1,826
Other assets............ 2,845 2,278 2,030 1,867 1,667 1,713
------- ------- ------- ------- ------- -------
Total average assets... $43,061 $38,367 $36,855 $37,915 $43,770 $43,674
======= ======= ======= ======= ======= =======
Deposits................ $29,301 $28,539 $29,028 $29,861 $33,505 $29,440
Funds borrowed.......... 7,180 4,349 3,485 3,544 4,518 7,823
Other liabilities....... 1,488 1,017 919 1,014 1,218 1,551
Notes payable........... 2,069 1,743 1,197 1,552 2,098 2,254
Stockholders' equity.... 3,023 2,719 2,226 1,944 2,431 2,606
------- ------- ------- ------- ------- -------
Total average
liabilities and
stockholders' equity... $43,061 $38,367 $36,855 $37,915 $43,770 $43,674
======= ======= ======= ======= ======= =======
----------------------------------------------------------------------------------
</TABLE>
(5) For purposes of this ratio, preferred stock dividends have been deducted
from net income.
(6) The number of stockholders of record includes banks and brokers who act as
nominees, each of whom may represent more than one stockholder.
NM--Not meaningful.
NA--Information for calculating the risk-based capital ratios and leverage
ratio prior to 1990 is unavailable.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OP-
ERATIONS
-------------------------------------------------------------------------------
Bank of Boston Corporation is a superregional bank holding company with both
domestic and international operations. The Corporation's major banking subsid-
iaries are The First National Bank of Boston (FNBB), Bank of Boston Connecti-
cut (Connecticut) and Rhode Island Hospital Trust National Bank (Hospital
Trust). At December 31, 1994, the Corporation also owned Bank of Vermont (Ver-
mont) and Casco Northern Bank, N.A. (Casco), in Maine. As discussed under the
caption "Acquisitions and Divestitures", the sales of these two banking sub-
sidiaries were completed during the first quarter of 1995.
RESULTS OF OPERATIONS
The following is a discussion and analysis of the Corporation's consolidated
results of operations. In order to understand this section in context, it
should be read in conjunction with the Financial Statements included in this
report. The amounts discussed reflect a reclassification of Brazilian transla-
tion gains and losses from noninterest income to interest income and expense.
This reclassification is discussed in Note 25 to the Financial Statements.
OVERVIEW
The Corporation's net income in 1994 was $435 million, compared with net in-
come of $299 million in 1993 and $279 million in 1992. Net income per common
share was $3.73 on a primary basis and $3.61 on a fully diluted basis in 1994,
compared with net income per common share of $2.51 on a primary basis and
$2.44 on a fully diluted basis in 1993 and $2.54 per share on a primary basis
and $2.45 per share on a fully diluted basis in 1992.
The 1994 results included:
. $21 million ($12 million net of tax) of acquisition-related costs in con-
nection with the Corporation's acquisitions of BankWorcester Corporation
(BankWorcester) and Pioneer Financial, A Co-operative Bank (Pioneer).
. An extraordinary loss, net of tax, of $7 million related to the prepay-
ment of $186 million of senior debt by a non-banking subsidiary and the
redemption of $179 million of the Corporation's floating rate notes.
The 1993 results included:
. $85 million ($57 million net of tax) of both acquisition-related costs in
connection with the Corporation's July 1993 mergers with Society for Sav-
ings Bancorp, Inc. (Society) and Multibank Financial Corp. (Multibank),
and restructuring charges related to the downsizing and reconfiguration
of certain of the Corporation's business and corporate units.
. $24 million of income, net of tax, from the cumulative effect of changes
in accounting principles, reflecting a $77 million benefit as a result of
adopting Statement of Financial Accounting Standards (SFAS) No. 109, "Ac-
counting for Income Taxes," and a $53 million after-tax charge as a re-
sult of a change in accounting with respect to the valuation of purchased
mortgage servicing rights (PMSR).
The 1992 results included:
. $73 million of extraordinary income related to the recognition of prior
year tax benefit carryforwards.
Excluding the effects of these items, net income for 1994 was $454 million,
compared with $332 million in 1993 and $206 million in 1992. On this basis,
primary and fully diluted earnings per share were $3.90 and $3.78, respective-
ly, in 1994 compared with $2.82 and $2.73 in 1993 and $1.82 and $1.78 in 1992.
31
<PAGE>
This improvement in net income is reflected in the Corporation's quarterly op-
erating income and efficiency ratio. Operating income equals total revenue (net
interest revenue plus noninterest income) less noninterest expense. The calcu-
lation of operating income excludes acquisition-related costs, restructuring
charges, costs from other real estate owned (OREO) and special revenue and ex-
pense items. The operating efficiency ratio is calculated by dividing such non-
interest expense by total revenue. Below is a trend analysis of operating in-
come and the efficiency ratio for selected quarters.
[BAR GRAPH DESCRIPTION BELOW]
BAR GRAPH ENTITLED, "OPERATING INCOME AND EFFICIENCY RATIO"
-----------------------------------------------------------
The Corporation's operating income was $256 million in the fourth quarter of
1994, compared with $219 million in the second quarter of 1994, $199 million in
the fourth quarter of 1993, $167 million in the second quarter of 1993 and $162
million in the fourth quarter of 1992. The efficiency ratio, which also
improved during this time period, was 59.6% in the fourth quarter of 1994, 61.4%
in the second quarter of 1994, 63.1% in the fourth quarter of 1993, 68.1% in the
second quarter of 1993 and 68.8% in the fourth quarter of 1992.
NET INTEREST REVENUE
The following table presents a summary of net interest revenue, related average
earning assets and net interest margin. For this review of net interest reve-
nue, interest income that is either exempt from federal income taxes or taxed
at a preferential rate has been adjusted to a fully taxable equivalent basis.
This adjustment has been calculated using a federal income tax rate of 35% in
1994 and 1993, and 34% in 1992, plus applicable state and local taxes, net of
related federal tax benefits.
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992
<S> <C> <C> <C>
UNITED STATES
Net interest revenue.................................... $ 1,224 $ 1,088 $ 1,034
Tax equivalent adjustment............................... 7 8 11
------- ------- -------
Net interest revenue -- (fully taxable equivalent
basis)................................................. $ 1,231 $ 1,096 $ 1,045
======= ======= =======
Average loans and lease financing....................... $23,038 $21,063 $20,892
Average earning assets.................................. $28,339 $26,742 $27,305
Net interest margin..................................... 4.34% 4.10% 3.83%
INTERNATIONAL
Net interest revenue -- (fully taxable equivalent
basis)................................................. $ 348 $ 257 $ 221
======= ======= =======
Average loans and lease financing....................... $ 6,752 $ 5,523 $ 4,438
Average earning assets.................................. $ 9,806 $ 7,557 $ 5,924
Net interest margin..................................... 3.54% 3.40% 3.73%
CONSOLIDATED
Net interest revenue.................................... $ 1,572 $ 1,345 $ 1,255
Tax equivalent adjustment............................... 7 8 11
------- ------- -------
Net interest revenue -- (fully taxable equivalent
basis)................................................. $ 1,579 $ 1,353 $ 1,266
======= ======= =======
Average loans and lease financing....................... $29,790 $26,586 $25,330
Average earning assets.................................. $38,145 $34,299 $33,229
Net interest margin..................................... 4.14% 3.94% 3.81%
---------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
1994 VS. 1993
The domestic net interest revenue increase of $135 million resulted from both a
higher level of earning assets and wider spreads. Average earning assets in-
creased $1.6 billion, reflecting a $2.0 billion increase in average loan volume
offset by a $.4 billion decline in other earning assets, mainly mortgages held
for sale. Contributing to the loan volume increase was a higher level of con-
sumer-related loans, which accounted for slightly more than half of the in-
crease. This growth was mainly the result of the acquisitions of BankWorcester
and Pioneer; a decision to retain a greater volume of residential mortgages
versus selling these loans into the secondary market; and higher levels of
loans from other areas such as Fidelity Acceptance Corporation, the Corpora-
tion's Minnesota-based consumer finance subsidiary. In addition, the Corpora-
tion's average volume of domestic commercial loans increased as growth from
some of the Corporation's specialty lending areas and the New England commer-
cial lending business more than offset declines from the factoring and real es-
tate businesses. The Corporation sold its factoring business during 1994. The
wider domestic spreads mainly reflected growth in earning asset yields, which
took place during the course of 1994. This growth outpaced increases in rates
paid on interest bearing liabilities, mainly retail deposits, which have lagged
the general increase in interest rates in 1994. The widening of spreads was
also mainly responsible for the domestic net interest margin increasing by 24
basis points compared with 1993. Information on the Corporation's management of
interest rate risk is discussed under the caption "Interest Rate Risk Manage-
ment."
The international net interest revenue increase of $91 million was primarily
attributable to the Corporation's operations in Latin America. A significant
factor in this increase was an improved performance from operations in Brazil.
In analyzing Brazil's performance during 1994, the year can be discussed by re-
viewing events in the first half of 1994 and then reviewing events in the sec-
ond half of the year. During the first half of 1994, Brazil's net interest rev-
enue increased from 1993 as earning asset growth more than offset narrower
spreads. The effect of narrower spreads was mitigated to some extent by a cur-
rency position maintained by the Corporation. From 1992 through the inception
of Brazil's new economic program on July 1, 1994, the Corporation had sought to
capitalize on the spread between the very high interest rates on Brazilian lo-
cal currency earning assets and the devaluation of Brazil's currency against
the U.S. dollar by following a strategy of investing dollar
denominated/indexed interest bearing liabilities in local currency earning as-
sets. The incremental benefit to consolidated net interest revenue from main-
taining this position was not material (further discussion of the Brazilian
currency position is included under the caption "Emerging Markets Countries").
Although there was no further devaluation of Brazil's currency during the sec-
ond half of 1994, the Corporation was able to pursue other opportunities and
continued to profit from its currency position as the government implemented
its new economic program. As a result of this new program coupled with govern-
ment intervention in the financial markets, which occurred during the second
half of 1994, inflation has declined substantially, from a monthly rate of ap-
proximately 50% in June 1994, to a current monthly rate of approximately 1%;
the Brazilian currency strengthened versus the U.S. dollar; and real interest
rates (the excess of local interest rates over Brazilian inflation) increased.
By adopting funding strategies which benefited from these economic changes,
spreads from Brazilian operations widened in the second half of 1994. Specifi-
cally, the Corporation benefited from the combined effects of funding a portion
of local currency earning assets with dollar denominated/indexed liabilities,
which carried a lower borrowing rate, and being in an asset sensitive position
(earning assets repricing faster than interest bearing liabilities) while real
interest rates were rising.
Overall, Brazilian loan volume increased approximately $450 million in 1994,
and Brazil's full year increase in net interest revenue accounted for approxi-
mately two-thirds of the total international growth from 1993. In addition,
Brazil's second half performance was the major factor behind the international
margin improving 14 basis points compared with 1993. The remaining growth in
international net interest revenue came mainly from Argentine operations, as a
$500 million growth in average loans was partially offset by a lower margin.
The Argentine loan growth came from its large corporate, middle market and re-
tail portfolios. The Corporation's operations in Argentina and Brazil are fur-
ther discussed under the caption "Emerging Markets Countries."
1993 VS. 1992
The improvement in net interest revenue resulted, in part, from a $51 million
increase from domestic operations. The domestic increase was mainly attribut-
able to wider spreads resulting from lower deposit costs, higher levels of non-
interest bearing sources of funds, including deposits and stockholders' equity
and a decline in nonaccrual loans and leases and OREO. The increase in interna-
tional net interest revenue of $36 million was mainly caused by a $1.1 billion
increase in average loan volume stemming from Latin American operations, par-
ticularly Argentina and Brazil. Narrower international spreads partially offset
the benefits of this loan growth.
33
<PAGE>
The 13 basis point increase in consolidated net interest margin reflected a
higher domestic margin, resulting from the same factors that caused the growth
in net interest revenue discussed above. The margin improvement from domestic
operations was partially offset by a decline in margin from international oper-
ations. Spreads narrowed in Argentina, mainly because of the stabilizing econo-
my, which resulted in declining inflation. In addition, spreads on local cur-
rency operations (local currency assets funded with local currency liabilities)
in Brazil were narrower, resulting, in part, from a change in the mix of assets
from higher-yielding loans to other earning assets.
**************
The increases in net interest revenue and margin which occurred during 1994 are
not necessarily indicative of future results. During 1994, the Corporation ben-
efited from interest rate increases on domestic retail deposits not keeping
pace with the growth in other market rates of interest and from the effects of
the new Brazilian economic program. Future levels of net interest revenue and
margin will be affected by competitive pricing pressure on retail deposits,
loans and other products; the evolution of Brazil's economic program; the mix
and volume of assets and liabilities; the current interest rate environment;
the economic and political conditions in the countries where the Corporation
does business; and other factors.
NONINTEREST INCOME
Noninterest income is composed of the following:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Financial service fees (see table below)................ $396 $350 $355
Trust and agency fees................................... 201 178 166
Trading profits and commissions......................... 16 24 16
Securities gains, net................................... 14 32 39
Mezzanine/venture capital profits, net.................. 30 38 17
Net foreign exchange trading profits.................... 42 45 41
Gain from sale of domestic factoring business........... 27
Recognition of deferred gain from the 1984 sale of the
headquarters building................................... 16
Other................................................... 102 79 109
---- ---- ----
$828 $746 $759
==== ==== ====
---------------------------------------------------------------------------------------------------
</TABLE>
Financial service fees are composed of the following:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Deposit fees............................................ $126 $122 $119
Letter of credit and acceptance fees.................... 61 58 55
Mortgage servicing fees
Fee income............................................ 125 105 99
Amortization of mortgage servicing assets............. (68) (99) (71)
---- ---- ----
Net mortgage servicing fees........................... 57 6 28
Loan-related fees....................................... 60 45 35
Factoring fees.......................................... 4 24 28
Other................................................... 88 95 90
---- ---- ----
$396 $350 $355
==== ==== ====
---------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
1994 VS. 1993
The $46 million increase in financial service fees primarily reflected im-
provements in net mortgage servicing fees and loan-related fees. Net mortgage
servicing fees increased $51 million compared with 1993, reflecting an in-
crease in BancBoston Mortgage Corporation's servicing portfolio, which rose to
$38 billion at December 31, 1994 from $28 billion a year ago, as well as lower
amortization of PMSR, resulting from a declining rate of current and estimated
future mortgage prepayments as mortgage interest rates have risen. Loan-re-
lated fees improved $15 million, mainly reflecting growth in syndication ac-
tivity. The major factor offsetting these improvements was a decline of $20
million in factoring fees due to the previously mentioned 1994 sale of the
factoring business. A gain of $27 million was recorded on the sale of the do-
mestic factoring business.
Trust and agency fees improved $23 million from 1993, primarily as a result of
increased volumes and new business in the domestic stock transfer and Latin
American mutual fund businesses, while the $18 million decline in securities
gains reflected a lower level of sales. In addition, both trading account
profits and mezzanine/venture capital profits declined $8 million. The de-
crease in trading account profits was due to lower profits from Latin American
securities trading, and the drop in mezzanine/venture capital profits mainly
reflected the absence of a large gain recorded from one sale transaction in
1993, which was partially offset by a greater volume of smaller gains in 1994.
Other income in 1994, which improved $23 million from 1993, includes a $23
million gain recognized in the first quarter from the sale of securities orig-
inally acquired in connection with loan restructurings and $15 million of ex-
change-rate related profits recorded during the third quarter, arising from
the strengthening of Brazil's currency against the U.S. dollar subsequent to
the implementation of Brazil's new economic program on July 1, 1994. Addi-
tional information on the Brazilian currency position is included under the
captions "Net Interest Revenue" and "Emerging Markets Countries". These in-
creases were partially offset by the effect of approximately $15 million of
third quarter charges associated with certain investments, including invest-
ments in foreign equity subsidiaries and writedowns of domestic investments
acquired in connection with loan restructurings.
1993 VS. 1992
The $5 million decline in financial service fees was mainly due to a $22 mil-
lion decrease in net mortgage servicing fees, partially offset by a $10 mil-
lion increase in loan-related fees and slight improvements in deposit and let-
ter of credit and acceptance fees. As a result of a substantial increase in
mortgage prepayments that began in the latter half of 1992 and continued
throughout 1993, amortization of PMSR was increased. In addition, effective
January 1, 1993, the Corporation changed its method of evaluating the carrying
value of PMSR to a discounted method adopted by the banking regulators in the
first quarter of 1993. As a result of this change in method, the Corporation
recorded an additional charge of $17 million in 1993, all of which was re-
corded in the first quarter. The cumulative effect of applying this new method
is discussed in Note 9 to the Financial Statements.
During 1993, there was a $21 million increase in mezzanine/venture capital
profits as a result of a large gain from one sale transaction; a $12 million
increase in trust and agency fees, principally from higher domestic stock
transfer and Latin American mutual fund fees; and an $8 million increase in
trading profits and commissions, primarily from the Argentine securities port-
folio. More than offsetting these improvements were declines in several nonin-
terest income categories, including the recognition, in 1992, of the remaining
$16 million of unamortized gain from the 1984 sale of the Corporation's head-
quarters building, resulting from the termination of the original lease agree-
ment and subsequent entry into a new lease of the building, and a $30 million
decline in other income due, in part, to a $14 million decline in gains from
the sales of mortgage servicing rights and lower gains from the sales of as-
sets received in connection with lending activities.
35
<PAGE>
NONINTEREST EXPENSE
Noninterest expense is composed of the following:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Salaries................................................ $ 665 $ 635 $ 605
Employee benefits....................................... 148 136 121
Occupancy expense....................................... 135 128 126
Equipment expense....................................... 96 96 101
Professional fees....................................... 54 56 68
FDIC deposit insurance.................................. 51 62 56
Other................................................... 287 289 284
------ ------ ------
Noninterest expense, excluding OREO costs and special
charges.............................................. 1,436 1,402 1,361
OREO costs.............................................. 22 44 113
Acquisition-related costs and restructuring charges..... 21 85
------ ------ ------
Total................................................. $1,479 $1,531 $1,474
====== ====== ======
</TABLE>
-------------------------------------------------------------------------------
1994 VS. 1993
Excluding OREO costs, acquisition-related costs and restructuring charges,
noninterest expense increased $34 million, or 2%, from 1993. This growth is
primarily attributable to higher employee costs of $42 million, which re-
flected an increase of 269 full-time equivalent employees in Latin America, as
the Corporation continued its strategic expansion in this area; higher compen-
sation rates, including normal salary and incentive compensation increases;
and a decline in the amount of loan origination costs deferred, reflecting a
lower volume of originations in 1994. These increases were mitigated by a
lower level of domestic employees. Despite the aforementioned increase in the
number of employees in Latin America and the addition of approximately 850 em-
ployees from the BankWorcester and Pioneer acquisitions, the total number of
full-time equivalent employees declined by 289, to 18,355, at December 31,
1994. This reduction was achieved mainly from completing the integration of
the operations of Society, Multibank, BankWorcester and Pioneer and the sales
of the factoring and freight management businesses. Nonemployee costs declined
$8 million, reflecting an $11 million decline in FDIC deposit insurance, the
result of lower assessment rates and a partial refund of 1993's assessment,
and lower legal fees. These declines were partially offset by increases in
various nonemployee cost categories from the 1994 acquisitions of
BankWorcester and Pioneer.
1993 VS. 1992
Excluding OREO costs, acquisition-related costs and restructuring charges,
noninterest expense increased $41 million, or 3%, from 1992. This mainly re-
sulted from higher employee costs of $45 million, reflecting increased invest-
ments in growth businesses, mainly in Latin America and domestic personal
banking; a higher average number of employees; normal salary increases; and
the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Bene-
fits Other than Pensions." Additional information on SFAS No. 106 can be found
in Note 16 to the Financial Statements. In addition, advertising costs in-
creased $8 million and FDIC deposit insurance grew $6 million, reflecting
higher assessment rates. These increases were partially offset by a $12 mil-
lion decline in professional fees, attributable to lower consulting and legal
expenses.
OREO COSTS
The reduction in OREO costs from 1993 and 1992 primarily reflected lower valu-
ation adjustments on OREO properties. OREO costs are influenced by the level
of OREO properties and the economies of the areas where the properties are lo-
cated. Additional information on OREO can be found under the caption
"Nonaccrual Loans and OREO."
ACQUISITION-RELATED COSTS AND RESTRUCTURING CHARGES
During the second quarter of 1994, in connection with its acquisition of
BankWorcester, the Corporation recorded acquisition- related costs of $16 mil-
lion. In addition, during the third quarter of 1994, in connection with its
acquisition of Pioneer, the Corporation recorded acquisition-related costs of
$5 million. Additional information on these costs is contained in Note 18 to
the Financial Statements.
During the third quarter of 1993, the Corporation recorded acquisition-related
costs of $68 million in connection with its mergers with Society and Multibank
and restructuring charges of $17 million in connection with downsizing and
reconfiguring certain of the Corporation's business and corporate units. Addi-
tional information on these items is contained in Note 18 to the Financial
Statements.
36
<PAGE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $130 million in 1994, compared with $70
million in 1993 and $181 million in 1992. The provision for credit losses in
each year reflected management's assessment of the adequacy of the reserve for
credit losses, including the risk characteristics of the loan portfolio and
economic conditions. In addition, the level of the provision for credit losses
in 1994 also reflected the effect of transferring certain lower quality real
estate exposures to an accelerated disposition portfolio (see further discus-
sion under the caption "Accelerated Disposition Portfolio"). The amount of fu-
ture provisions will be a function of the regular quarterly review of the re-
serve for credit losses, which considers the risk characteristics of the loan
portfolio and the economic conditions existing at that time (see further dis-
cussion under the caption "Reserve for Credit Losses").
PROVISION FOR INCOME TAXES
The 1994 income tax provision was $349 million, compared with $215 million for
1993 and $153 million for 1992. These provisions reflect effective tax rates of
44% for 1994 and 1993 and 43% for 1992. The upward trend in the provision for
income taxes is principally due to an increase in pre-tax income. Effective
January 1, 1993, the Corporation adopted, prospectively, SFAS No. 109, which
primarily affected the manner in which the Corporation accounted for deferred
income taxes. The cumulative effect to January 1, 1993 of adopting SFAS No. 109
was an increase to net income of $77 million. In 1992, the Corporation recog-
nized prior year tax benefit carryforwards of $73 million as extraordinary in-
come. Additional information about the Corporation's income taxes, including
information about the adoption of SFAS No. 109, appears in Note 20 to the Fi-
nancial Statements.
FINANCIAL CONDITION
Credit, liquidity, interest rate and capital management are important elements
to be considered in understanding and assessing the Corporation's financial
condition. A discussion of these areas follows:
CREDIT MANAGEMENT
The Corporation employs a risk management process on a global basis to manage
all forms of credit risk, including balance sheet and off-balance-sheet expo-
sures. Responsibility for this process is shared between line units and an in-
dependent credit organization, which reports to the Senior Credit Officer (SCO)
of the Corporation. Line management has primary responsibility to evaluate
credit risk, ensure that each individual credit exposure is appropriately risk
rated and monitor and manage credit risks within policy and portfolio guide-
lines. The independent credit organization includes a credit information unit,
which provides reports on credit exposures on a global basis, and a staff of
credit officers, reporting directly to the SCO. These credit officers are as-
signed to work with the various line units and ensure the integrity of the
credit process.
The SCO chairs the Credit Policy Committee (CPC), which establishes all credit
policies for the Corporation, approves underwriting standards and concentration
limits, and grants credit approval authorities. In addition, the credit organi-
zation monitors compliance by individual units with the Corporation's credit
policies, works to ensure that credit due diligence and credit administration
meet acceptable standards, and is responsible for the effectiveness of the loan
review process.
All credit exposures in the Corporation are assigned a credit risk rating on a
ten grade scale. In general, commercial credit facilities are rated individu-
ally while credit exposures in homogenous products, such as consumer loans or
pools of small commercial loans meeting certain underwriting standards, are
rated on a portfolio basis. Risk ratings are integral to the management of the
credit portfolio and are used to set relationship hold limits, as well as to
monitor the credit risk in sub-portfolios and in the Corporation's aggregate
portfolio. Line credit relationship managers and their supervisors are respon-
sible for assigning risk ratings. A Risk Review unit, which reports indepen-
dently of both the line and credit organizations, audits the integrity of risk
ratings and the adequacy of the credit process for all units of the Corpora-
tion.
The level of management needed to approve credit exposures varies according to
the size and level of risk of the credit. All credits for new relationships in
excess of $10 million and certain renewals or increases to existing customers
meeting specified size and risk rating thresholds must be approved by the Se-
nior Credit Committee (SCC). The SCC is chaired by the SCO and is composed of
senior credit officers and senior line managers on a rotating basis.
37
<PAGE>
Portfolio limits and underwriting standards are established for large credit
exposures with common risk characteristics, such as industry or product type.
Portfolio limits and underwriting standards are proposed by a line portfolio
manager and reviewed and approved by the CPC annually. The Corporation reviews
the risk rating profiles and trends of defined portfolios on an ongoing basis.
An important aspect of the Corporation's portfolio management is the manage-
ment of large, individual credits, which are governed by relationship limits,
set according to risk rating. The Corporation has also established target risk
rating profiles for business units across the Corporation. These limits are
reviewed regularly and adjusted based on the Corporation's assessment of rele-
vant conditions.
The Corporation also sets limits on cross-border exposures to borrowers and
counterparties domiciled in other countries. Limits are proposed by the coun-
try manager and approved by the Chairman and President of the Corporation in
consultation with the Country Exposure Committee. This Committee is comprised
of senior line, credit and finance officers familiar with the Corporation's
international operations.
The Corporate Finance unit is integral to portfolio management and to enhanc-
ing the liquidity of the wholesale loan portfolio. Corporate Finance is re-
sponsible for arranging participations in loans where the Corporation is a
lead bank. This unit maintains contact with other institutional lenders and
investors in bank structured loans, maintains information on credit structure
and pricing by risk category, evaluates the market liquidity of facilities,
and syndicates BKB-agented facilities to attain desired hold levels.
The Corporation employs a corporate-wide process to review individual credits
and identify emerging problems. Credits that deteriorate into certain defined
risk categories are managed by a separate Loan Review unit composed of profes-
sional asset recovery specialists who establish detailed asset management
plans designed to mitigate risk of credit loss to the Corporation. This unit
seeks to improve the quality of a loan to a satisfactory level; however, based
on an economic analysis, it may otherwise maximize collection of the loan by
selling the debt claim to investors.
While sound credit policies serve to reduce the Corporation's exposure to
credit risks, they do not insulate the Corporation from losses.
LOANS AND LEASES
PORTFOLIO DIVERSIFICATION
Since the end of 1989, the Corporation has changed the profile of its loan and
lease portfolio in line with its strategic objectives of achieving more bal-
ance among its consumer, commercial and international portfolios and reducing
its levels of commercial real estate and highly leveraged transaction (HLT)
loans. At December 31, 1994, the portfolio was comprised of 53% domestic com-
mercial loans, 24% domestic consumer-related loans and 23% international
loans. This compares with the December 31, 1989 portfolio (before acquisi-
tions, accounted for as poolings of interests) of 74% domestic commercial
loans, 14% domestic consumer-related loans and 12% international loans. The
following chart depicts the change in the Corporation's credit profile that
has occurred over the past five years, including a breakdown of the domestic
commercial loan portfolio among real estate, HLTs and others. To illustrate
the changes that have occurred, loans and leases for 1989 are shown as origi-
nally reported by the Corporation.
[PIE CHART DESCRIPTION BELOW]
PIE CHART ENTITLED, "LOANS BY TYPE"
-----------------------------------
At December 31, 1994, loans and leases were comprised of: 24% consumer; 23%
international; 11% commercial real estate, 4% HLTs and 38% other commercial and
industrial. At December 31, 1989 loans and leases, as originally reported by
the Corporation, were comprised of: 14% consumer; 12% international; 21%
commercial real estate; 21% HLTs and 32% other commercial and industrial.
38
<PAGE>
As seen in the chart on the preceding page, the Corporation made progress in
its strategy to grow the consumer and international loan portfolios. Consumer-
related loans, which are comprised of loans to individuals and residential
mortgages, have increased to $7.5 billion at December 31, 1994, from $3.5 bil-
lion at December 31, 1989. This increase was primarily accomplished through the
acquisition of companies such as BankWorcester, Pioneer, Multibank and Society,
including its wholly owned consumer finance subsidiary, Fidelity Acceptance
Corporation. In addition, the Corporation has grown its residential mortgage
portfolio by retaining more of the loans originated by its mortgage banking
subsidiary, BancBoston Mortgage Corporation, rather than selling the loans into
the secondary market.
International loans have also increased over the past five years to $7.1 bil-
lion at December 31, 1994, from $3.1 billion at December 31, 1989. This growth
has primarily occurred in Latin America, particularly in the loan portfolios of
Argentina and Brazil. Total loans from these two countries have grown approxi-
mately $3.3 billion since December 31, 1989. A further discussion of the Argen-
tine and Brazilian operations is included under the caption "Emerging Markets
Countries."
While the increases in the consumer and international portfolios were occur-
ring, total domestic commercial loans declined $2.1 billion. Within this port-
folio, domestic commercial real estate loans declined to $3.5 billion at Decem-
ber 31, 1994 from $5.3 billion at December 31, 1989, and HLT loans declined to
$1.3 billion at the end of 1994 from $5.3 billion at the end of 1989. Partially
offsetting these declines was a $3.7 billion increase in the remaining domestic
commercial portfolio, which included growth in several businesses, including
New England commercial lending and specialized industries lending.
The following table presents details of consolidated loan and lease financing
balances outstanding on the dates indicated. All amounts, including those for
1989, reflect the acquisitions of Society and Multibank.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------------------------------------------------------------
(dollars in 1994 1993 1992 1991 1990 1989
millions) BALANCE PERCENT Balance Percent Balance Percent Balance Percent Balance Percent Balance Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Commercial,
industrial and
financial......... $11,805 38.1% $11,991 41.7% $10,329 40.7% $10,346 40.8% $11,414 43.5% $13,336 43.3%
Commercial real
estate
Construction...... 354 1.1 617 2.1 854 3.4 1,028 4.1 1,520 5.8 2,658 8.6
Other commercial. 3,141 10.1 3,123 10.8 3,202 12.6 3,587 14.2 3,864 14.7 4,408 14.3
Consumer-related
loans
Secured by 1-4
family
residential
properties ...... 5,004 16.1 4,159 14.5 3,630 14.3 3,884 15.3 3,505 13.4 4,003 13.0
Other............. 2,462 7.9 1,610 5.6 1,436 5.6 1,506 5.9 1,663 6.3 2,203 7.2
Lease financing.... 1,366 4.4 1,264 4.4 1,214 4.7 1,277 5.0 1,381 5.3 1,556 5.1
Unearned income.... (216) (.7) (204) (.7) (205) (.8) (243) (1.0) (395) (1.5) (550) (1.8)
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
23,916 77.0 22,560 78.4 20,460 80.5 21,385 84.3 22,952 87.5 27,614 89.7
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
INTERNATIONAL
Commercial and
industrial........ 5,136 16.6 4,650 16.2 3,646 14.4 2,928 11.5 2,193 8.4 2,229 7.3
Banks and other
financial
institutions...... 614 2.0 602 2.1 385 1.5 152 .6 155 .6 46 .2
Governments and
official
institutions...... 33 .1 22 .1 54 .2 141 .6 209 .8 252 .8
Lease financing.... 329 1.1 265 .9 218 .9 242 1.0 142 .5 186 .6
All other.......... 1,053 3.4 791 2.7 721 2.8 609 2.4 642 2.5 530 1.7
Unearned income.... (76) (.2) (108) (.4) (85) (.3) (89) (.4) (73) (.3) (85) (.3)
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
7,089 23.0 6,222 21.6 4,939 19.5 3,983 15.7 3,268 12.5 3,158 10.3
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans and
lease financing... $31,005 100.0% $28,782 100.0% $25,399 100.0% $25,368 100.0% $26,220 100.0% $30,772 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
1994 VS. 1993
During 1994, domestic loans and leases increased $1.3 billion, to $23.9 bil-
lion, from $22.6 billion at December 31, 1993. Consumer-related loans grew
$1.7 billion as a result of the acquisitions of BankWorcester and Pioneer, a
greater retention of residential mortgages and higher levels of loans in Fi-
delity Acceptance Corporation. Commercial, industrial and financial loans de-
clined slightly from the end of 1993, reflecting the sale of the factoring
business, a greater volume of syndication activity and a strategic decision to
reduce the level of lower-yielding loans. A majority of the domestic loans and
leases were to borrowers domiciled in New England. During 1994, international
loans and leases increased $.9 billion, to $7.1 billion, from $6.2 billion at
December 31, 1993, which mainly reflected growth in the Corporation's Argen-
tine and Brazilian portfolios.
DOMESTIC COMMERCIAL REAL ESTATE LOANS
The table below details domestic commercial real estate loans by geographic
location for the last three years. The portion attributable to other states at
the end of 1994 was dispersed among approximately 24 states.
<TABLE>
<CAPTION>
Other
New Other
MA CT England States Total
-------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994................ $1,480 $411 $629 $ 975 $3,495
====== ==== ==== ====== ======
BALANCE AT DECEMBER 31, 1993................ $1,348 $578 $790 $1,024 $3,740
====== ==== ==== ====== ======
BALANCE AT DECEMBER 31, 1992................ $1,323 $730 $782 $1,221 $4,056
====== ==== ==== ====== ======
-------------------------------------------------------------------------------
</TABLE>
A significant portion of the commercial real estate portfolio is comprised of
loans from which ultimate payment to the Corporation is expected to come from
the sale, operation or refinancing of the underlying property. The collateral
underlying these loans is valued at least annually using various real estate
valuation techniques, including discounted cash flows and appraisals. The re-
maining portfolio is primarily composed of outstandings, secured by real es-
tate, where the underlying business credit, rather than the property, is
viewed as the principal source of repayment and is usually occupied by the
owner. Overall, the level of commercial real estate loans to all geographic
areas declined during 1994, except for loans collateralized by properties lo-
cated in Massachusetts. The increase in Massachusetts was due, in part, to the
acquisitions of BankWorcester and Pioneer.
HLTS
Included in commercial, industrial and financial loans are loans made by many
of the Corporation's lending businesses to finance transactions involving
leveraged buyouts, acquisitions, and recapitalizations. These loans are desig-
nated as HLTs, if, by the nature of the loan terms and the profile of the cus-
tomer, the transaction qualifies for this classification under the current
bank regulatory definition of HLTs. Additionally, the HLT definition encom-
passes other, more traditional credit arrangements, where a high degree of
leverage would be expected, such as asset-based lending and lending to the
communications industry, particularly cable, where equity is traditionally low
and cash flow is the predominant factor in assessing repayment ability. The
following is a summary of the Corporation's HLT portfolio for the last three
years:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992
<S> <C> <C> <C>
Total loans............................................. $1,272 $1,304 $1,587
Number of companies..................................... 84 75 77
Average loan size....................................... $ 15 $ 17 $ 21
Unused lending commitments.............................. $ 653 $ 540 $ 404
Nonaccrual loans........................................ $ 1 $ 10 $ 57
Net chargeoffs.......................................... $ 6 $ 21 $ 19
Mezzanine and venture capital investments............... $ 105 $ 121 $ 152
</TABLE>
-------------------------------------------------------------------------------
40
<PAGE>
The Corporation's HLT loan portfolio is spread among a variety of industries.
At December 31, 1994, the largest segments of the HLT loan portfolio by indus-
try were as follows: food, beverage and tobacco industry--$184 million to ten
customers; communications industry--$132 million to twelve customers; restau-
rant chains--$132 million to three customers; and the transportation industry--
$130 million to six customers. Yields on HLT loans are generally higher than
most other commercial loans. Typically, interest rates on new HLTs range from
1.5% to 2.75% over LIBOR and fees charged range from .75% to 1.5% of the prin-
cipal amount committed. The Corporation has historically been involved in
transactions that are designated as HLTs and it expects to continue to agent
and participate in such transactions in the future.
CROSS-BORDER OUTSTANDINGS
At December 31, 1994, total cross-border outstandings represented 15% of con-
solidated total assets, compared with 14% at December 31, 1993, and 15% at De-
cember 31, 1992.
In accordance with the bank regulatory rules, cross-border outstandings are:
. Amounts payable to the Corporation in U.S. dollars or other non-local
currencies.
. Amounts payable in local currency but funded with U.S. dollars or other
non-local currencies.
Included in these outstandings are deposits in other banks, resale agreements,
trading securities, securities available for sale, securities held to maturity,
loans and lease financing, amounts due from customers on acceptances and ac-
crued interest receivable.
Excluded from cross-border outstandings for a given country are:
. Local currency assets funded with U.S. dollars or other non-local cur-
rency where the provider of funds agrees that, in the event their claim
cannot be repaid in the designated currency due to currency exchange re-
strictions in a given country, they may either accept payment in local
currency or wait to receive the non-local currency until such time as it
becomes available in the local market. At December 31, 1994, such trans-
actions related to emerging markets countries totaled $.9 billion com-
pared with $.6 billion at December 31, 1993.
. Local currency outstandings funded with local currency.
. U.S. dollar or other non-local currency outstandings reallocated as a re-
sult of external guarantees or cash collateral.
Cross-border outstandings in countries which individually amounted to 1.0% or
more of consolidated total assets at December 31, 1994, 1993 and 1992 were ap-
proximately as follows:
<TABLE>
<CAPTION>
Percentage of
Public Banks Other Total Total Assets Commitments(2)
--------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
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
DECEMBER 31, 1993(/1/)
Argentina............... $255 $225 $1,025 $1,505 3.7% $ 40
Brazil.................. 110 695 805 2.0 20
United Kingdom.......... 15 565 580 1.4 145
DECEMBER 31, 1992(/1/)
Argentina............... $ 90 $ 5 $ 845 $ 940 2.5% $ 40
Brazil.................. 20 540 560 1.5 20
Japan................... 465 50 515 1.4 20
United Kingdom.......... 35 555 590 1.6 130
--------------------------------------------------------------------------------
</TABLE>
(1) Cross-border outstandings in countries which fell within .75% and 1% of
consolidated total assets at December 31, 1994, 1993 and 1992 were
approximately as follows: 1994--None; 1993--Canada $315 million, Chile $395
million and Korea $310 million; 1992--Canada $285 million, Chile $360
million and Korea $330 million.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.
41
<PAGE>
To comply with the regulatory definition of cross-border outstandings, the Cor-
poration included approximately $1 billion in its cross-border outstandings to
Argentina at December 31, 1994, related to Argendollar operations, compared
with approximately $.7 billion at December 31, 1993 and $.4 billion at December
31, 1992. These are operations comprised of amounts payable to the Corporation
in U.S. dollars by Argentine customers, which are funded entirely by dollars
borrowed within Argentina.
EMERGING MARKETS COUNTRIES
At December 31, 1994, approximately $3.9 billion of the Corporation's cross-
border outstandings were to emerging markets countries, of which approximately
80% 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 subsidiar-
ies.
Approximately $3.4 billion of the cross-border outstandings to emerging markets
countries were to Argentina, Brazil, Chile and Uruguay, four countries in which
the Corporation maintains branch networks and subsidiaries. Cross-border
outstandings to Uruguay were $202 million at December 31, 1994, while amounts
for Argentina, Brazil and Chile are shown in the preceding table. In addition,
cross-border outstandings to Mexico and Colombia, two countries where the Cor-
poration is in the process of opening new subsidiary banks, were $202 million
and $128 million, respectively, at December 31, 1994. In late December 1994,
the Mexican government announced its intention to allow the peso to float
freely against the U.S. dollar. As a result, the peso has weakened consider-
ably, Mexico's non-local currency reserves continued to decline and the Mexican
economy and financial markets have experienced instability. To date, the Corpo-
ration has only experienced minimal losses in Mexico and has not experienced
any collection problems with respect to its portfolio of Mexican cross-border
outstandings. This portfolio is comprised of trade-related loans, loans to cus-
tomers affiliated with multinational corporations, loans which are collateral-
ized and certain Mexican government securities. Recently, the United States
government, the International Monetary Fund and the Bank for International Set-
tlements have announced a financial aid package for Mexico, which was intended
to help the Mexican government stabilize its economy. No assurance, however,
can be given that the situation in Mexico will not result in additional losses
to the Corporation.
The Corporation has operated in Argentina since 1917, has a network of over 40
branches and is one of the largest foreign banks in the country. During the
last few years, the Argentine economy has improved as a result of political
stability, a balanced budget, privatization of government-run businesses and
declining inflation. Annual inflation was approximately 4% in 1994. This period
of economic improvement has enabled the Corporation to increase its loan port-
folio, grow its existing businesses and expand into others. The Corporation has
historically been an active lender to large corporate customers; however, dur-
ing the past few years, growth has also been experienced in both the middle
market and consumer-related portfolios, particularly residential mortgages. In
addition, the Corporation has significantly increased its credit card business
and offers a wide variety of other products and services to its customers, in-
cluding mutual funds, brokerage, custody and portfolio management. While there
has not been a devaluation of the Argentine peso since 1991, the Argentine
stock and bond markets have recently been under pressure, which has been influ-
enced by the economic problems experienced by Mexico. This has resulted in a
decline in the value of various types of Argentine government bonds held by the
Corporation, all of which are contained in its available for sale portfolio. At
December 31, 1994, these securities had a carrying value of approximately $230
million, and reflected an unrealized loss which amounted to approximately $30
million, net of tax. The pressure on the Argentine markets has continued during
the first quarter of 1995 and the after-tax unrealized loss increased to ap-
proximately $60 million by mid-February. While there is no indication that the
Argentine government will not honor its obligations, the timing and level at
which the markets stabilize will be dependent on a number of factors, including
stabilization of Mexico's economy, the ability of the Argentine government to
continue its economic policies and investor confidence. To date, the Argentine
government has continued to maintain its economic policies, including its an-
nounced intention to maintain an exchange rate of one Argentine peso to one
U.S. dollar. It is not possible, however, to predict what effect, if any, eco-
nomic events in Latin America will ultimately have on the Argentine economy or
the Corporation.
The Corporation has operated in Brazil since 1946, has a network of nearly 30
branches and is one of the largest foreign banks in the country. The principal
businesses of the Corporation's Brazilian operation include corporate lending,
trade financing, treasury, mutual funds, custody and credit cards. For many
years, Brazil's economy experienced high inflation. Average monthly inflation
was 25% in 1992, 30% in 1993 and 50% for the first half of 1994. On July 1,
1994, however, a new economic program was implemented in Brazil, which estab-
lished a new currency and lowered the monthly inflation rate to a current level
of approximately 1%. In addition, Fernando Henrique Cardoso, a principal archi-
tect of Brazil's new economic program, was
42
<PAGE>
elected president in October 1994 and took office in January 1995. The new Bra-
zilian currency, after starting out in a one to one relationship with the U.S.
dollar on July 1, has strengthened and has been trading within a band of ap-
proximately .84 to .86 Brazilian reals per one U.S. dollar. The government has
announced its intention to intervene in the exchange rate market in order to
minimize volatility; however, the trading band could increase or decrease from
its current level. Certain additional economic reform measures have been an-
nounced in connection with the new economic program; however, these measures
continue to be modified by the government as it assesses its strategy. As dis-
cussed under the captions "Net Interest Revenue" and "Noninterest Income," the
Corporation's revenues benefited in the last half of 1994 as a result of posi-
tioning its balance sheet to take advantage of both interest rate and foreign
exchange rate movements which resulted from implementation of the new economic
program. As in Argentina, the Brazilian stock and bond markets have come under
pressure as a result of Mexico's recent economic problems; however, these dif-
ficulties have not materially affected the value of the Corporation's Brazilian
securities. The Corporation continues to monitor and evaluate the Brazilian
economic program as it evolves, including its effect on the banking industry,
and will adjust its strategy as deemed appropriate. It is not possible, howev-
er, to predict what effect this program will ultimately have on the Corpora-
tion.
Changes in aggregate cross-border outstandings to Argentina and Brazil since
December 31, 1993 were approximately as follows:
<TABLE>
<CAPTION>
Argentina Brazil
----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Cross-border outstandings at December 31, 1993...................... $1,505 $805
Change in non-trade-related loans and leases not subject to country
debt rescheduling.................................................. 441 110
Net change in trade-related cross-border outstandings, primarily
short-term......................................................... (87) (124)
Net change in investment and trading securities..................... 32 5
Net change in placements............................................ (22)
Other............................................................... 1 4
------ ----
Cross-border outstandings at December 31, 1994...................... $1,870 $800
====== ====
----------------------------------------------------------------------------------------
</TABLE>
Of the total cross-border outstandings to Argentina and Brazil at December 31,
1994:
. Approximately 80% for Argentina and 90% for Brazil are loans.
. Approximately 22% for Argentina and 49% for Brazil are trade-related.
When deemed appropriate, the Corporation will structure its balance sheet to
take positions in the currencies of emerging markets countries. This usually
occurs when the Corporation believes that it can maximize its spread from in-
terest operations by funding local currency assets with U.S. dollars rather
than using local currency liabilities. Whenever these positions are taken, they
are subject to limits established by the Corporation's Asset/Liability Commit-
tee (ALCO), with the amount of, and compliance with, the limits subject to reg-
ular review. At December 31, 1994, emerging markets countries in which the Cor-
poration maintained such a position were as follows: Argentina $95 million;
Brazil $84 million; Colombia $17 million; and Chile $7 million. The average
amounts of these positions for full year 1994 were as follows: Argentina $69
million; Brazil $108 million; and Chile $13 million (see further discussion of
the Brazilian position under the caption "Net Interest Revenue"). The Colombian
position was only maintained during the last two months of 1994. These posi-
tions expose the Corporation to losses should the local currencies weaken
against the U.S. dollar at a rate greater than increases in local currency in-
terest rates; such losses could be significant if a major unanticipated devalu-
ation occurs. To date, however, these positions have been liquid in nature and
local management has been able to close and re-open these positions as desired.
43
<PAGE>
The Corporation has not experienced any collection problems as a result of cur-
rency restrictions or foreign exchange liquidity problems on its current port-
folio of cross-border outstandings to emerging markets countries, despite
Mexico's recent economic problems, which have caused instability in the finan-
cial markets of many such countries. Each emerging market country is at a dif-
ferent stage of development with a unique set of economic fundamentals. Accord-
ingly, the Corporation will continue to assess its level of cross-border
outstandings and, where applicable, its currency position for each emerging
market country on a case by case basis. When deemed appropriate and as market
conditions permit, the Corporation may increase or decrease these balances for
certain countries from the December 31, 1994 levels.
******************
The Corporation's ability and willingness to extend new credit is a function of
a variety of factors, including competition for customers' business; an analy-
sis of a loan's potential profitability; acquisitions or divestitures of compa-
nies or portfolios; and economic conditions in New England, other parts of the
United States and other countries where the Corporation does business. In addi-
tion, certain segments of the loan portfolio may increase or decrease from the
December 31, 1994 level in accordance with strategic or credit management deci-
sions made by the Corporation. Given these factors, the rate of loan growth ex-
perienced during the past few years may not be indicative of future loan lev-
els. Further information on the Corporation's loan and lease portfolio can be
found in Note 6 to the Financial Statements.
NONACCRUAL LOANS AND LEASES AND OREO
TREND ANALYSIS
The following graph portrays the trend of consolidated nonaccrual loans and
OREO over the last five years:
[BAR GRAPH DESCRIPTION BELOW]
BAR GRAPH ENTITLED, "TREND OF NONACCRUAL LOANS AND OREO"
--------------------------------------------------------
The Corporation's nonaccrual loans and leases and OREO declined to $441 million
at December 31, 1994, compared with $659 million at December 31, 1993, $949
million at December 31, 1992, $1,839 million at December 31, 1991 and $2,141
million at December 31, 1990. The percentage of nonaccrual loans and leases and
OREO to related assets, which has also declined during this period, was 1.4% at
December 31, 1994, 2.3% at December 31, 1993, 3.7% at December 31, 1992, 7.2% at
December 31, 1991 and 8.1% at December 31, 1990.
The decline from $2.1 billion at December 31, 1990 to $441 million at December
31, 1994 reflects the Corporation's active management of the portfolio, includ-
ing the restructuring of certain credits and the establishment of an acceler-
ated disposition portfolio in 1994, as well as the improved United States and
New England economies. Additional information on restructured loans and the ac-
celerated disposition portfolio are provided below.
44
<PAGE>
The following is a summary of nonaccrual loans and leases by type and as a per-
centage of the related consolidated loan category:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------------------
(dollars in millions)
1994 1993 1992 1991 1990
PERCENT Percent Percent Percent Percent
OF LOAN of Loan of Loan of Loan of Loan
BALANCE CATEGORY Balance Category Balance Category Balance Category Balance Category
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Commercial, industrial
and financial.......... $113 1.0% $119 1.0% $201 1.9% $ 385 3.7% $ 419 3.7%
Real estate
Construction........... 13 3.7 30 4.9 81 9.5 123 11.9 288 18.9
Other commercial....... 106 3.4 230 7.4 345 10.8 740 20.6 900 23.3
Consumer-related loans
Secured by 1-4 family
residential
properties............ 44 .9 64 1.5 58 1.6 70 1.8 60 1.7
Other.................. 24 1.0 10 .6 26 1.8 32 2.1 42 2.5
Lease financing......... 1 .1 2 .2 5 .5 6 .6
---- ---- ---- ------ ------
300 1.2 454 2.0 713 3.5 1,355 6.3 1,715 7.5
INTERNATIONAL
Commercial and
industrial............. 17 .3 63 1.4 54 1.5 56 1.9 81 3.7
Banks and other
financial institutions. 1 .2 1 .2 2 1.5 6 4.1
Governments and
official institutions.. 3 11.8 4 8.0 53 37.5 82 39.1
Lease financing......... 1 1.1 2 1.4 3 4.2
All other............... 47 4.5 31 4.0 6 .8 45 7.4 10 1.7
---- ---- ---- ------ ------
65 .9 97 1.6 66 1.3 158 4.0 182 5.6
Total nonaccrual
loans and leases....... 365 1.2 551 1.9 779 3.1 1,513 6.0 1,897 7.2
OREO.................... 76 108 170 326 244
---- ---- ---- ------ ------
Total................... $441 $659 $949 $1,839 $2,141
==== ==== ==== ====== ======
---------------------------------------------------------------------------------------------------------------
</TABLE>
The largest category, slightly less than half the total of nonaccrual loans and
OREO at December 31, 1994, related to credits secured by domestic commercial
real estate. Three quarters of these assets are secured by properties located
in New England. The management of the Corporation's nonaccrual loan and lease
and OREO portfolio is discussed above under the caption "Credit Management."
The following table presents a five-year analysis of the Corporation's loans
and leases that were over ninety days past due and remained on accrual status:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans and leases over ninety days past due
and on accrual status.................... $13 $ 7 $ 6 $ 3 $53
---------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
The following table summarizes the changes in nonaccrual loans and leases and
OREO that have occurred during the last three years:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992
<S> <C> <C> <C>
Beginning balance....................................... $ 659 $ 949 $ 1,839
Assets from acquired banks.............................. 20
Additions............................................... 610 486 670
Sales, restructurings, payments and other decreases..... (380) (482) (1,073)
Transfers to accelerated disposition portfolio, before
writedowns............................................. (252)
Charge-offs and valuation adjustments, excluding
writedowns
associated with transfers to the accelerated
disposition portfolio.................................. (216) (294) (487)
----- ----- -------
Ending balance.......................................... $ 441 $ 659 $ 949
===== ===== =======
Ending balance as a percentage of related assets........ 1.4 % 2.3 % 3.7 %
===== ===== =======
</TABLE>
--------------------------------------------------------------------------------
The level of nonaccrual loans and leases and OREO is influenced by the economic
environment, interest rates and other internal and external factors. While the
Corporation has experienced a decline in the balance of its nonaccrual loans
and leases and OREO during the past few years, during 1994, additions exceeded
outflows before the effect of charge-offs, valuation adjustments and transfers
to the accelerated disposition portfolio. The ratio of nonaccrual loans and
OREO to related asset categories has declined to 1.4% of related assets at De-
cember 31, 1994, the lowest level in over fifteen years. No assurance, however,
can be given that this historically low level can be sustained by the Corpora-
tion. Information on the Corporation's accounting policy for nonaccrual loans
and leases is included in Note 1 to the Financial Statements.
ACCELERATED DISPOSITION PORTFOLIO
During 1994, in order to expedite the disposition of problem real estate expo-
sures and to strengthen its balance sheet, the Corporation transferred certain
of its lower quality real estate exposures, including a portion which was on
nonaccrual status, to an accelerated disposition portfolio. In connection with
the transfer, the Corporation recorded chargeoffs of $119 million to reduce the
carrying value of the exposures to their estimated disposition value of $395
million at the date of transfer. Subsequent to transfer, the Corporation dis-
posed of $260 million of the portfolio, leaving a balance of $135 million at
December 31, 1994. This balance included $17 million of off-balance-sheet expo-
sure and $118 million of balance sheet assets.
Exposures in the portfolio are carried at the lower of their established carry-
ing values at date of transfer or their current estimated disposition values.
Changes in value of the exposures that occur subsequent to transfer are re-
corded as a component of noninterest income. Gains, if any, are not recognized
until realized. There were no significant gains or losses with respect to this
portfolio during 1994. The Corporation is actively engaged in formal selling
efforts and expects to dispose of the remaining portfolio during 1995.
RENEGOTIATED LOANS
Loans are renegotiated when the Corporation determines that it will ultimately
receive greater economic value by revising the terms than through foreclosure,
liquidation or bankruptcy. Candidates for renegotiation must meet specific
guidelines and undergo extensive due diligence reviews. Once a renegotiation
takes place, the loan is subject to the accounting and disclosure rules pre-
scribed by SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings."
Renegotiated loans at the end of each of the last five years were as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Renegotiated loans............................ $ 68 $ 225 $ 401 $ 353 $ 141
==== ===== ===== ===== =====
Approximate yield on renegotiated loans....... 9% 8% 8% 8% 7%
==== ===== ===== ===== =====
--------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
The decrease during 1994 is mainly attributable to the transfer of loans into
the accelerated disposition portfolio, the receipt of principal payments on
loans and a sharp decline in the number of loans which have been renegotiated
during the past two years due, in part, to the improved domestic commercial
real estate market. Additional information with respect to the Corporation's
renegotiated loans is included in Note 6 to the Financial Statements.
In connection with the restructuring of loans, the Corporation may obtain eq-
uity interests in the borrower. Such interests, which are included in other as-
sets, amounted to $23 million at December 31, 1994, $41 million at December 31,
1993, $30 million at the end of 1992 and 1991 and $32 million at December 31,
1990.
RESERVE FOR CREDIT LOSSES
The Corporation determines the level of its reserve for credit losses consider-
ing evaluations of individual credits and concentrations of credit risks, net
losses charged to the reserve, changes in quality of the credit portfolio, lev-
els of nonaccrual loans and leases, current economic conditions, cross-border
risks, changes in size and character of the credit risks and other pertinent
factors. The amount of the reserve is reviewed by management quarterly.
The reserve has declined each year since 1991, reflecting improvements in the
credit profile of the Corporation. During this same period, the reserve as a
percentage of nonaccrual loans has increased. No assurance can be given, howev-
er, as to the future level of the reserve, which will continue to be a function
of management's evaluation of the Corporation's credit exposures.
The following table presents a five-year analysis of the Corporation's reserve
for credit losses and related ratios:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1...... $ 770 $ 923 $ 1,051 $ 1,023 $ 983
Provision*.............. 130 70 181 519 764
Reserves of acquired
banks.................. 25
Credit losses, excluding
those related to
accelerated disposition
portfolio.............. (194) (273) (412) (598) (796)
Total recoveries....... 68 50 103 107 72
------- ------- ------- ------- -------
Net credit losses....... (126) (223) (309) (491) (724)
Credit losses related to
accelerated disposition
portfolio.............. (119)
------- ------- ------- ------- -------
BALANCE, DECEMBER 31.... $ 680 $ 770 $ 923 $ 1,051 $ 1,023
======= ======= ======= ======= =======
Loans and lease financ-
ing at December 31..... $31,005 $28,782 $25,399 $25,368 $26,220
Average loans and lease
financing.............. $29,790 $26,586 $25,330 $26,167 $28,949
Reserve for credit
losses to total loans
and leases at
December 31............ 2.19% 2.68% 3.63% 4.14% 3.90%
Reserve for credit
losses to nonaccrual
loans and leases at
December 31............ 186% 140% 119% 69% 54%
Reserve for credit
losses to nonaccrual
and renegotiated loans
and leases at December
31..................... 157% 99% 78% 56% 50%
Net credit losses to av-
erage loans and lease
financing.............. .82% .84% 1.22% 1.87% 2.50%
Net credit losses to
provision for credit
losses................. 188.37% 317.95% 170.94% 94.49% 94.82%
Total recoveries to to-
tal credit losses...... 21.74% 18.36% 25.09% 17.94% 9.01%
----------------------------------------------------------------------------------
</TABLE>
* The international provisions were: $29 million in 1994; $26 million in 1993;
$12 million in 1992; $(1) million in 1991; and $(28) million in 1990.
47
<PAGE>
The following table presents a five-year analysis of the Corporation's credit
losses and recoveries:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
DOMESTIC CREDIT LOSSES
Commercial, industrial and fi-
nancial........................ $ (28) $ (55) $ (98) $(164) $(256)
Real estate
Construction................... (10) (19) (59) (108) (140)
Other commercial............... (40) (63) (129) (188) (242)
Consumer-related loans
Secured by 1-4 family residen-
tial properties............... (14) (22) (24) (17) (8)
Other.......................... (54) (47) (46) (65) (66)
Lease financing................. (1) (1) (2) (2)
----- ----- ----- ----- -----
(146) (207) (357) (544) (714)
INTERNATIONAL CREDIT LOSSES..... (48) (66) (55) (54) (82)
----- ----- ----- ----- -----
Credit losses, excluding those
related to exposures
transferred to accelerated
disposition portfolio......... (194) (273) (412) (598) (796)
DOMESTIC RECOVERIES
Commercial, industrial and fi-
nancial........................ 14 15 32 44 19
Real estate
Construction................... 4 2 4 4 4
Other commercial............... 13 6 3 4 5
Consumer-related loans
Secured by 1-4 family residen-
tial properties............... 2 4 3 2 1
Other.......................... 17 17 19 18 15
----- ----- ----- ----- -----
50 44 61 72 44
INTERNATIONAL RECOVERIES........ 18 6 42 35 28
----- ----- ----- ----- -----
Total recoveries............... 68 50 103 107 72
----- ----- ----- ----- -----
Net credit losses, excluding
those related to exposures
transferred to accelerated
disposition portfolio......... (126) (223) (309) (491) (724)
Credit losses related to expo-
sures transferred to acceler-
ated disposition portfolio..... (119)
----- ----- ----- ----- -----
Total net credit losses........ $(245) $(223) $(309) $(491) $(724)
===== ===== ===== ===== =====
---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's reserve for credit losses is a general reserve available for
chargeoffs of all categories of extensions of credit. While the entire reserve
for credit losses is available for all credit categories, the Corporation has
made an allocation of its reserve by individual loan category, giving consider-
ation to management's evaluation of risk in the portfolios. The following table
presents this allocation of the reserve by loan and lease financing category,
with the excess between the total reserve and the amounts specifically allo-
cated to each loan category identified as "unallocated." For the percentage of
loans outstanding in each category to total loans, refer to the table under the
caption "Loans and Lease Financing."
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------------------------------
(dollars in millions)
1994 1993 1992 1991 1990
PERCENT Percent Percent Percent Percent
AMOUNT OF TOTAL Amount of Total Amount of Total Amount of Total Amount of Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Commercial, industrial
and financial.......... $253 37.2% $246 31.9% $273 29.5% $ 429 40.9% $ 392 38.3%
Commercial real estate,
including construction. 136 20.0 234 30.3 320 34.7 298 28.3 409 40.0
Consumer related loans
Secured by 1-4 family
residential proper-
ties.................. 20 3.0 25 3.2 27 2.9 21 2.0 10 1.0
Other.................. 74 10.9 61 8.0 60 6.5 79 7.5 50 4.9
Lease financing......... 21 3.0 18 2.4 4 .5 5 .5 6 .6
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
504 74.1 584 75.8 684 74.1 832 79.2 867 84.8
INTERNATIONAL........... 85 12.5 86 11.2 120 13.0 102 9.7 125 12.2
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
589 86.6 670 87.0 804 87.1 934 88.9 992 97.0
Unallocated............. 91 13.4 100 13.0 119 12.9 117 11.1 31 3.0
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
$680 100.0% $770 100.0% $923 100.0% $1,051 100.0% $1,023 100.0%
==== ===== ==== ===== ==== ===== ====== ===== ====== =====
---------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
LIQUIDITY MANAGEMENT
Liquidity is defined as the ability to meet known near-term and projected long-
term funding commitments, while supporting selective business expansion, in ac-
cordance with the Corporation's strategic plan. The Corporation proactively
manages liquidity to ensure its ability to meet present and future funding
needs. Liquidity is monitored on a daily basis and is reviewed monthly by ALCO,
which is chaired by the Treasury Group Executive. It is also reviewed monthly
by the Executive Committee of the Corporation's Board of Directors; a review by
the full Board of Directors (the Board) occurs quarterly. Available liquidity
sources are measured against anticipated needs for the Corporation as a whole,
the Parent Company and each of the subsidiary banks. Alternative funding strat-
egies are reviewed, updated and implemented by ALCO as considered necessary.
The Corporation's liquid assets consist primarily of interest bearing deposits
in other banks, federal funds sold and resale agreements, money market loans,
and unencumbered U.S. Treasury and government agency securities. The following
presents the levels of the Corporation's liquid assets as of each of the last
three year-ends:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in billions) 1994 1993 1992
<S> <C> <C> <C>
Liquid assets........................................... $ 4.6 $4.5 $4.7
---------------------------------------------------------------------------------------------------
</TABLE>
Deposits are the principal source of the Corporation's funding. The following
chart portrays information related to the Corporation's deposit liabilities for
the last three years:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(dollars in billions) 1994 1993 1992
<S> <C> <C> <C>
DOMESTIC
Interest bearing....................................... $16.8 $17.5 $19.6
Noninterest bearing.................................... 4.9 5.0 4.5
----- ----- -----
Total................................................ $21.7 $22.5 $24.1
===== ===== =====
INTERNATIONAL
Interest bearing....................................... $ 9.1 $ 6.6 $ 4.6
Noninterest bearing.................................... .6 .5 .4
----- ----- -----
Total................................................ $ 9.7 $ 7.1 $ 5.0
===== ===== =====
CONSOLIDATED
Interest bearing....................................... $25.9 $24.1 $24.2
Noninterest bearing.................................... 5.5 5.5 4.9
----- ----- -----
Total................................................ $31.4 $29.6 $29.1
===== ===== =====
DEPOSITS AS A PERCENTAGE OF
Loans.................................................. 101% 103% 115%
Total assets........................................... 70% 73% 78%
</TABLE>
The following table presents the level of domestic interest bearing deposits by
category for the last three years:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in billions) 1994 1993 1992
<S> <C> <C> <C>
Domestic interest bearing deposits
Retail................................................. $16.0 $15.7 $17.3
Wholesale.............................................. .5 1.1 .6
Brokered CDs........................................... .3 .7 1.7
----- ----- -----
Total................................................ $16.8 $17.5 $19.6
===== ===== =====
---------------------------------------------------------------------------------------------------
</TABLE>
Interest bearing deposits from international offices have grown $2.5 billion
since December 31, 1993 and $4.5 billion since December 31, 1992. This growth
has mainly been used to fund an increase in the Corporation's loan and lease
portfolio. The outflow of domestic retail deposits, which has occurred during
the past few years, is a trend experienced generally by the banking industry,
as competition for investor funds from non-banking sources has increased and
interest rates have been at historically low levels. This decline in 1994 was
more than offset by retail deposits acquired from the purchases of
BankWorcester and Pioneer. Wholesale deposits and deposits obtained through re-
tail programs with brokers (brokered CDs) have also declined
49
<PAGE>
during this period. The Corporation has funded a portion of its loan growth
through the wholesale funding markets, mainly through the issuance of short-
term bank notes by FNBB, its largest subsidiary. This short-term note program,
which was initiated in late 1993, has grown from $350 million in outstandings
at December 31, 1993 to $1.6 billion at December 31, 1994. The portfolio of
these notes outstanding at December 31, 1994 matures between January and De-
cember 1995.
During 1994, FNBB issued $200 million of subordinated notes and the Corpora-
tion issued $100 million of senior notes and $300 million of subordinated
notes. In addition, the Corporation has a shelf registration filed with the
Securities and Exchange Commission with a remaining availability of $1.4 bil-
lion, which can be used for the issuance of equity or debt securities, includ-
ing the use of a medium-term note program established by the Corporation in
December 1994. The Corporation's ability to access funds at competitive rates
improved during the last two years as it received upgrades from all major rat-
ing agencies, the last of which was received in December 1994. Additional in-
formation on the Corporation's notes payable can be found in Note 11 to the
Financial Statements.
Based upon the Corporation's liquid asset level and its ability to access the
public markets for additional funding when necessary, management believes that
its liquidity position at December 31, 1994 is adequate to support the Corpo-
ration's future needs.
Bank of Boston Corporation (on a Parent Company only basis) obtains its fund-
ing primarily through the public markets and through dividends from subsidiar-
ies. The balance sheet of the Parent Company reflected a liquid asset level in
excess of short-term funding commitments of $208 million at December 31, 1994,
compared with $194 million at December 31, 1993 and $272 million at the end of
1992. During 1994, Parent Company liquidity increased as a result of the issu-
ance of $400 million of senior and subordinated notes coupled with the receipt
of $125 million of dividends from subsidiaries. The major uses of Parent Com-
pany liquidity during the year included the purchase of $180 million of subor-
dinated notes from FNBB, the redemption of $179 million of its own floating
rate notes, payments of $136 million of dividends on common and preferred
stock and the repurchase of $27 million of its common stock in the open mar-
ket. The latter was done in connection with a stock buyback program for up to
$50 million of the Corporation's common stock announced in November 1994. The
shares purchased under this program were used primarily to fund the purchase
of Ganis Credit Corporation (Ganis), with additional shares to be used in con-
nection with certain employee benefit plans. Management considers the Parent
Company's overall liquidity at December 31, 1994 to be adequate to meet cur-
rent obligations and carry on normal operations.
INTEREST RATE RISK MANAGEMENT
Interest rate risk can be defined as the exposure of the Corporation's net in-
come or financial position to adverse movements in interest rates. The Corpo-
ration manages its interest rate risk within policies and limits established
by ALCO and approved by the Board. ALCO issues strategic directives to specify
the extent to which Board-approved rate risk limits are utilized, taking into
account the results of the rate risk modeling process as well as other inter-
nal and external factors.
Interest rate risk related to non-trading, U.S. dollar denominated positions,
which represent over 85% of the consolidated balance sheet, is managed cen-
trally through the Boston Treasury Group. Interest rate risk associated with
these positions is evaluated and managed through several modeling methodolo-
gies. The interest rate risk models are applied to the Corporation's existing
or "static" balance sheet and off-balance-sheet positions and employ a number
of assumptions, such as the behavior of multiple interest rate indices and the
duration and repricing characteristics of various assets and liabilities. The
two principal methodologies used are market value sensitivity and net interest
revenue at risk.
Market value sensitivity is defined as a change in market value, or the eco-
nomic value of the institution, resulting from changes in interest rates. Mar-
ket value sensitivity is determined by calculating the effect on the Corpora-
tion's existing assets, liabilities and off-balance-sheet positions given an
immediate rise or fall in interest rates ("rate shock"). The market value sen-
sitivity is evaluated using multiple interest rate scenarios.
Net interest revenue at risk is defined as the exposure of the Corporation's
net interest revenue over the next twelve months to an adverse movement in in-
terest rates. Net interest revenue at risk is modeled based on both interest
rate shock scenarios and a gradual change in interest rates over a period of
time. The simulated net interest revenue under these scenarios is used to
evaluate how differences in asset, liability and off-balance-sheet repricing
structures will be reflected in the next twelve months' results of operations.
These two methodologies provide different but complementary measures of the
level of interest rate risk: the longer term view is modeled through market
value sensitivity, while the shorter term view is evaluated through net inter-
est revenue at risk over the next twelve months. Both of these methodologies
are designed to isolate the effects of market changes in interest rates on the
Corporation's existing positions from other factors such as competitive pric-
ing considerations, future changes in the asset
50
<PAGE>
and liability mix and other management actions, and therefore are not by them-
selves measures of future levels of net interest revenue.
At December 31, 1994, the Corporation maintained a modest risk position to ben-
efit from future increases in domestic rates. As a result, the U.S. dollar net
interest revenue at risk based on a gradual 200 basis point adverse movement in
market rates was estimated at $11 million, or less than 1% of net interest rev-
enue over a one year period, while the Corporation's market value sensitivity
to an adverse 100 basis point interest rate shock was negligible. During 1994,
net interest revenue at risk averaged $7 million, or less than .5% of annual
net interest revenue, while market value sensitivity at risk averaged $11 mil-
lion or less than .2% of total risk based capital. These levels were well
within ALCO limits. Under current ALCO directives, net interest revenue at risk
cannot exceed 2% of the Corporation's net interest revenue over the next twelve
month period given a 100 basis point adverse interest rate shock or a 200 basis
point adverse change in interest rates over the period, and market value sensi-
tivity cannot exceed 2% of the Corporation's total risk-based capital given a
100 basis point adverse interest rate shock. The Corporation has generally op-
erated well below these limits, however, the level of future interest rate risk
positions can be changed quickly through the use of derivatives and/or balance
sheet instruments.
The non-U.S. dollar denominated interest rate risk is managed by the Corpora-
tion's overseas units, with oversight by the Boston Treasury Group. The Corpo-
ration, through ALCO, has established limits for its non-U.S. dollar interest
rate risk using cumulative gap limits for each country in which the Corporation
has local market interest rate risk. Gap is the difference between the amount
of assets and liabilities that mature or are repriced during a given period of
time. A "positive" gap results when more assets than liabilities mature in or
are repriced in a given time frame. Conversely, a "negative" gap results when
there are more liabilities than assets maturing or being repriced during a
given period of time. The gap limits are updated at least annually for current
market conditions, and consider what the impact of a particular interest rate
movement in the country would have on the cumulative gap position. The level of
interest rate risk positions taken by these units varies based on economic con-
ditions in the country at a particular point in time. The overseas units report
compliance with these limits to the Boston Treasury Group on a regular basis.
The Corporation does not use gap analysis for managing its more complex non-
trading, U.S. dollar denominated positions since such analysis does not include
significant variables that are considered in the market sensitivity and net in-
terest revenue at risk methodologies discussed above. For example, these models
consider rate of change differentials, such as federal funds rates versus sav-
ings accounts rates; maturity effects, such as calls on securities; and rate
barrier effects, such as caps and floors on assets and liabilities. In addi-
tion, the models capture the effects of prepayment volatility on various fixed
rate assets such as residential mortgages, mortgage-backed securities and con-
sumer loans; therefore, the Corporation does not believe that gap analysis pro-
vides a meaningful understanding of its domestic interest rate risk position.
The Corporation utilizes a variety of financial instruments to manage interest
rate risk including derivatives and securities. Derivatives provide the Corpo-
ration with significant flexibility in managing its interest rate risk expo-
sure, enabling it to efficiently manage risk and respond quickly to changing
market conditions by minimizing the impact on balance sheet leverage. The Cor-
poration routinely uses non-leveraged rate related derivative instruments, pri-
marily interest rate swaps and futures, as part of its asset and liability man-
agement practices. All derivative activities are managed on a comprehensive ba-
sis, are subject to the overall income and market value at risk measures and
limits described above, and are subject to similar credit standards as balance
sheet exposures. The Corporation has historically experienced minimal credit
losses related to its derivative products.
The Corporation has experienced a decline in the market value of derivatives
and the domestic available for sale debt securities portfolio that are used for
asset and liability management purposes, reflecting the increase in domestic
interest rates that occurred during 1994. Interest rate derivatives used for
asset and liability management had an unrecognized net loss of $140 million at
December 31, 1994 compared with an unrecognized net gain of $53 million at De-
cember 31, 1993. The debt securities portfolio, excluding the international se-
curities portfolio which is discussed under the caption "Emerging Market Coun-
tries", had an unrealized loss of $43 million at December 31, 1994, compared
with an unrealized gain of $7 million at December 31, 1993. Since these deriva-
tives and securities are used as part of the overall management of the Corpora-
tion's domestic interest rate risk, the declines in the fair values must be
considered in conjunction with the performance of assets and liabilities over
the same time period, which increased in value. In addition, the Corporation's
interest rate risk position had a positive effect on its domestic net interest
margin, which increased to 4.34% in 1994 from 4.10% in 1993 (see "Results of
Operations--Net Interest Revenue" for additional information with respect to
this increase in domestic margin). Additional information with respect to the
Corporation's asset and liability derivatives and securities, including ac-
counting policies, is included in Notes 1, 5 and 21 to the Financial State-
ments.
51
<PAGE>
TRADING ACTIVITIES
The primary focus of the Corporation's trading activities is related to provid-
ing risk management products to its customers. Market trading instruments in-
clude securities, foreign exchange, interest rate and currency derivatives. The
Corporation takes modest risk positions, all of which are subject to ALCO-ap-
proved limits.
The Corporation's balance sheet trading activities primarily relate to posi-
tions in various government securities and tax-exempt securities of state and
local entities. Trading account profits were $9 million in 1994, $19 million in
1993 and $13 million in 1992.
Interest rate derivatives trading activities, which include interest rate swaps
and interest rate options, futures and forwards, resulted in $7 million of
trading profits in 1994, $5 million in 1993 and $3 million in 1992.
Foreign exchange trading activities principally include trading of spot and
forward contracts in major foreign currencies such as the Canadian dollar,
pound sterling, deutschemark and Japanese yen. Foreign exchange profits for
1994, 1993 and 1992 were $42 million, $45 million, and $41 million, respective-
ly.
CAPITAL MANAGEMENT
At December 31, 1994, the Corporation had $3.1 billion in stockholders' equity,
compared with $2.9 billion at December 31, 1993 and $2.6 billion at the end of
1992. The growth in stockholders' equity from the end of 1993 mainly resulted
from retention of earnings, net of the payment of dividends on common and pre-
ferred stock, the decline in the value of securities available for sale and the
purchase of treasury stock.
In January, April and July 1994, the Board declared quarterly dividends of $.22
per share on the Corporation's common stock; in October 1994 and January 1995,
quarterly dividends of $.27 were declared. The level of dividends paid on the
Corporation's common stock is determined by the Board based on the Corpora-
tion's liquidity, asset quality profile, capital adequacy and recent earnings
history, as well as economic conditions and other factors deemed relevant by
the Board, including applicable government regulations and policies and the
amount of dividends paid to the Corporation by its subsidiaries.
A capital planning process is in place to assist the Corporation and its bank-
ing subsidiaries in maintaining appropriate capital levels and ratios. Regula-
tory risk-based capital requirements take into account the differing risk pro-
files of banking organizations by assigning risk weights to both assets and the
credit equivalent amounts of off-balance-sheet exposures. Capital is divided
into two tiers. Tier 1 capital includes common stockholders' equity and quali-
fying preferred stock, and the tier 1 capital ratio is defined as the ratio of
tier 1 capital to total risk-adjusted assets. Tier 2, or supplementary capital,
includes, subject to certain limitations, limited-life preferred stock, manda-
tory convertible securities, subordinated debt and a portion of the reserve for
credit losses. Total capital is defined as the sum of tier 1 and tier 2 capi-
tal, and the total capital ratio is defined as the ratio of total capital to
total risk adjusted assets. Banking organizations are also subject to a minimum
leverage capital ratio, which is defined as the ratio of tier 1 capital to ad-
justed total average assets.
The following table presents the Corporation's regulatory capital position:
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992 Regulatory Well Capitalized
Minimum Minimum
<S> <C> <C> <C> <C> <C>
Risk-based capital
ratios
Tier 1 capital ratio... 7.0% 7.2% 7.1% 4.00% 6.00%
Total capital ratio.... 12.2% 12.4% 12.0% 8.00% 10.00%
Leverage ratio.......... 6.5% 6.8% 6.6% 3.00%* 5.00%
Tier 1 capital.......... $ 2,874 $ 2,754 $ 2,437
Total capital........... $ 4,974 $ 4,725 $ 3,987
Total risk-adjusted
assets................. $40,786 $38,179 $34,405
</TABLE>
--------------------------------------------------------------------------------
* Plus an additional cushion of at least 100 to 200 basis points for all but
the most highly rated institutions.
52
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) es-
tablished minimum ratios for banks to be considered "well capitalized." These
ratios are determined solely for the purpose of applying FDICIA's provisions
and, accordingly, such capital categories may not constitute an accurate repre-
sentation of the overall financial condition or prospects of any bank. At De-
cember 31, 1994, the capital ratios of all of the Corporation's banking subsid-
iaries exceeded the minimum capital ratio requirements for a "well capitalized"
institution under FDICIA.
In order to support the balance sheet growth of the Corporation's banking sub-
sidiaries and to assist them in maintaining desired levels of regulatory capi-
tal, the Corporation has made capital contributions, and may make future capi-
tal contributions, to certain of its banking subsidiaries. While there were no
capital contributions made to banking subsidiaries during 1994, the Corporation
purchased a $180 million subordinated note, which qualifies as tier 2 capital,
from FNBB during the first quarter. Capital contributions were made during 1993
and consisted of $240 million to FNBB and $39 million to various other banking
subsidiaries. During 1994, $125 million of dividends were paid to the Parent
Company by its subsidiaries, including $95 million from banking subsidiaries
and $30 million from a non-banking subsidiary. The level of future dividends
from the Corporation's subsidiaries is dependent on a number of factors, in-
cluding capital adequacy, net income, liquidity, asset quality and economic
conditions. In addition, bank regulations require the approval of bank regula-
tory authorities if dividends declared by bank subsidiaries exceed certain pre-
scribed limits (see Note 14 to the Financial Statements).
ACQUISITIONS AND DIVESTITURES
The acquisition and divestiture transactions described below reflect the con-
tinuing execution of the Corporation's business strategy, including an expan-
sion of its personal banking business, particularly in target markets in south-
ern New England, and the exiting of non-strategic, less profitable businesses.
The Corporation continues to engage, on an ongoing basis, in reviewing and dis-
cussing possible acquisitions of financial institutions, as well as banking and
other assets, and sales of existing businesses. The Corporation intends to con-
tinue to explore acquisition opportunities as the banking industry continues to
consolidate. The banking industry's consolidation may be facilitated by the
Riegle-Neal Interstate Banking and Branching Efficiency Act, which was signed
into law in September 1994, and which will phase in interstate banking and
branching over a three-year period.
During 1994, the following events occurred:
. The Corporation completed the sale of its factoring business. The domes-
tic operation was sold in January and the Canadian business was sold in
October.
. In May, the Corporation completed its acquisition of BankWorcester, a
$1.5 billion bank holding company headquartered in Worcester, Massachu-
setts. This transaction was accounted for as a purchase.
. In May, the Corporation completed the sale of its freight management
business.
. In June, the Corporation announced an agreement to sell two of its bank-
ing subsidiaries, Vermont and Casco. At December 31, 1994, Casco had $1.1
billion and Vermont had $.7 billion of total assets. The sales of these
two subsidiaries were completed in the first quarter of 1995.
. In August, the Corporation completed its acquisition of Pioneer based in
Middlesex County, Massachusetts, with total assets of approximately $800
million. This transaction was accounted for as a purchase.
. In November, the Corporation announced a definitive agreement to acquire
Ganis, a consumer finance company with loan origination volume of approx-
imately $380 million in 1994. Ganis, which is headquartered in Newport
Beach, California, specializes in collateralized lending for recreational
vehicles and boats. This transaction was completed during the first quar-
ter of 1995.
During 1993, the Corporation completed its mergers with Society, a bank holding
company based in Hartford, Connecticut and Multibank, a bank holding company
based in Dedham, Massachusetts. These two mergers added nearly $5 billion in
total assets to the Corporation. These mergers were accounted for as poolings
of interests and, as such, are reflected in the consolidated financial state-
ments as though the Corporation, Society and Multibank had been combined as of
the beginning of the earliest period presented.
Additional information on certain of the transactions described above is in-
cluded in Note 2 to the Financial Statements.
53
<PAGE>
BANK OF BOSTON CORPORATION
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------------------------------------------------------
(dollars in millions) AVERAGE AVERAGE
BALANCE INTEREST(1) RATE
<S> <C> <C> <C>
ASSETS
Interest bearing deposits with other banks
U.S............................................... $ 181 $ 7 3.97%
International(2).................................. 864 109 12.54
------- ------
Total............................................ 1,045 116 11.06
------- ------ -----
Federal funds sold and resale agreements
U.S............................................... 1,301 53 4.05
International(2).................................. 1,255 547 43.62
------- ------
Total............................................ 2,556 600 23.47
------- ------ -----
Trading securities
U.S............................................... 160 8 5.34
International(2).................................. 398 105 26.26
------- ------
Total............................................ 558 113 20.27
------- ------ -----
Loans held for sale
U.S.(3)........................................... 686 43 6.30
------- ------ -----
Securities
U.S.
Available for sale(4)............................ 1,422 93 6.58
Held to maturity................................. 1,550 89 5.75
International(2)
Available for sale(4)............................ 332 47 14.63
Held to maturity................................. 206 17 8.12
------- ------
Total............................................ 3,510 246 7.00
------- ------ -----
Loans and lease financing
U.S............................................... 23,038 1,788 7.76
International(2).................................. 6,752 819 12.14
------- ------
Total loans and lease financing(5)............... 29,790 2,607 8.75
------- ------ -----
Earning assets.................................... 38,145 3,725 9.77
------ -----
Nonearning assets................................. 4,916
-------
Total assets(6).................................. $43,061
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S.
Savings deposits................................. $ 9,585 196 2.04%
Time deposits.................................... 7,536 341 4.53
International(2)
Banks in foreign countries....................... 2,118 277 13.09
Other foreign savings and time................... 5,062 334 6.60
------- ------
Total............................................ 24,301 1,148 4.72
------- ------ -----
Federal funds purchased and repurchase agreements
U.S............................................... 3,470 132 3.80
International(2).................................. 203 65 31.96
------- ------
Total............................................ 3,673 197 5.36
------- ------ -----
Other funds borrowed
U.S............................................... 2,327 118 5.06
International(2).................................. 1,180 553 46.87
------- ------
Total............................................ 3,507 671 19.13
------- ------ -----
Notes payable
U.S............................................... 1,942 117 6.02
International(2).................................. 127 13 10.36
------- ------
Total............................................ 2,069 130 6.28
------- ------ -----
Total interest bearing liabilities............... 33,550 2,146 6.40
------ -----
Demand deposits-U.S............................... 4,553
Demand deposits-International..................... 447
Other noninterest-bearing liabilities............. 1,488
Total stockholders' equity....................... 3,023
-------
Total liabilities and stockholders' equity(6).... $43,061
=======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS
U.S............................................... $28,339 $1,231 4.34%
International..................................... 9,806 348 3.54%
------- ------
Total............................................ $38,145 $1,579 4.14%
======= ======
</TABLE>
--------------------------------------------------------------------------------
(1) Income is shown on a fully taxable equivalent basis.
(2) In 1994, the Corporation reclassified the translation losses and gains
associated with Brazilian local currency earning assets and interest bearing
liabilities from noninterest income to interest income and interest expense,
respectively, and reclassified all prior periods. This reclassification is
more fully discussed in Note 25 to the Financial Statements.
(3) Amounts include the Corporation's accelerated disposition portfolio.
(4) Average rates for securities available for sale are based on the
securities' amortized cost.
(5) Loans and lease financing includes nonaccrual and renegotiated balances.
Interest on loans and lease financing includes net fees earned of $52
million.
(6) As of December 31, 1994, average International assets and liabilities as a
percentage of total average consolidated assets and liabilities,
respectively, amounted to 26%.
54
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Year Ended December 31, 1993
--------------------------------------------------------------------------------
(dollars in millions) Average Average
Balance Interest(1) Rate
<S> <C> <C> <C>
ASSETS
Interest bearing deposits with other banks
U.S............................................. $ 341 $ 11 3.22%
International(2)................................ 952 130 13.66
------- ------
Total.......................................... 1,293 141 10.91
------- ------ -----
Federal funds sold and resale agreements
U.S............................................. 962 29 3.07
International(2)................................ 482 109 22.56
------- ------
Total.......................................... 1,444 138 9.59
------- ------ -----
Trading securities
U.S............................................. 152 6 4.03
International(2)................................ 129 4 3.19
------- ------
Total.......................................... 281 10 3.65
------- ------ -----
Loans held for sale
U.S............................................. 1,071 76 7.06
------- ------ -----
Securities(3)
U.S............................................. 3,153 188 5.95
International(2)................................ 471 77 16.35
------- ------
Total.......................................... 3,624 265 7.30
------- ------ -----
Loans and lease financing
U.S............................................. 21,063 1,602 7.60
International(2)................................ 5,523 515 9.32
------- ------
Total loans and lease financing(4)............. 26,586 2,117 7.96
------- ------ -----
Earning assets.................................. 34,299 2,747 8.01
------ -----
Nonearning assets............................... 4,068
-------
Total assets(5)................................ $38,367
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S.
Savings deposits............................... $ 9,367 212 2.30%
Time deposits.................................. 9,199 425 4.62
International(2)
Banks in foreign countries..................... 1,461 80 5.46
Other foreign savings and time................. 3,657 299 8.18
------- ------
Total......................................... 23,684 1,016 4.29
------- ------ -----
Federal funds purchased and repurchase
agreements
U.S............................................. 2,697 81 3.02
International(2)................................ 119 19 15.80
------- ------
Total.......................................... 2,816 100 3.57
------- ------ -----
Other funds borrowed
U.S............................................. 879 49 5.59
International(2)................................ 654 115 17.54
------- ------
Total.......................................... 1,533 164 10.69
------- ------ -----
Notes payable
U.S............................................. 1,654 105 6.32
International(2)................................ 89 9 10.22
------- ------
Total.......................................... 1,743 114 6.52
------- ------ -----
Total interest bearing liabilities............. 29,776 1,394 4.70
------ -----
Demand deposits-U.S............................. 4,470
Demand deposits-International................... 385
Other noninterest bearing liabilities........... 1,017
Total stockholders' equity..................... 2,719
-------
Total liabilities and stockholders' equity(5).. $38,367
=======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
INTEREST EARNING ASSETS
U.S............................................. $26,742 $1,096 4.10%
International................................... 7,557 257 3.40%
------- ------
Total.......................................... $34,299 $1,353 3.94%
======= ======
</TABLE>
--------------------------------------------------------------------------------
(1) Income is shown on a fully taxable equivalent basis.
(2) In 1994, the Corporation reclassified the translation losses and gains
associated with Brazilian local currency earning assets and interest bearing
liabilities from noninterest income to interest income and interest expense,
respectively, and reclassified all prior periods. This reclassification is
more fully discussed in Note 25 to the Financial Statements.
(3) Prior to January 1, 1994, average balances for securities available for
sale and securities held to maturity were not separately accumulated.
(4) Loans and lease financing includes nonaccrual and renegotiated balances.
Interest on loans and lease financing includes net fees earned of $56
million.
(5) As of December 31, 1993, average International assets and liabilities as a
percentage of total average consolidated assets and liabilities,
respectively, amounted to 23%.
55
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Year Ended December 31, 1992
-------------------------------------------------------------------------------
(dollars in millions) Average Average
Balance Interest(1) Rate
<S> <C> <C> <C>
ASSETS
Interest bearing deposits with other banks
U.S............................................. $ 350 $ 13 3.60%
International(2)................................ 896 174 19.40
------- ------
Total........................................... 1,246 187 14.96
------- ------ -----
Federal funds sold and resale agreements
U.S............................................. 913 32 3.54
International(2)................................ 126 48 38.25
------- ------
Total........................................... 1,039 80 7.75
------- ------ -----
Trading securities
U.S............................................. 169 7 4.43
International(2)................................ 58 2 2.51
------- ------
Total........................................... 227 9 3.94
------- ------ -----
Loans held for sale
U.S............................................. 683 58 8.47
------- ------ -----
Securities(3)
U.S.............................................. 4,298 301 7.00
International(2)................................ 406 86 21.16
------- ------
Total........................................... 4,704 387 8.22
------- ------ -----
Loans and lease financing
U.S............................................. 20,892 1,712 8.20
International(2)................................ 4,438 585 13.17
------- ------
Total loans and lease financing(4).............. 25,330 2,297 9.07
------- ------ -----
Earning assets................................... 33,229 3,018 9.08
------ -----
Nonearning assets................................ 3,626
-------
Total assets(5)................................. $36,855
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S.
Savings deposits................................ $ 9,461 303 3.28%
Time deposits................................... 11,159 638 5.72
International(2)
Banks in foreign countries...................... 1,479 138 9.35
Other foreign savings and time.................. 2,759 328 11.87
------- ------
Total.......................................... 24,858 1,407 5.66
------- ------ -----
Federal funds purchased and repurchase agreements
U.S............................................. 1,764 53 3.02
International(2)................................ 113 28 25.06
------- ------
Total........................................... 1,877 81 4.34
------- ------ -----
Other funds borrowed
U.S............................................. 1,161 73 6.28
International(2)................................ 447 117 26.05
------- ------
Total........................................... 1,608 190 11.78
------- ------ -----
Notes payable
U.S............................................. 1,087 62 5.69
International(2)................................ 110 12 11.07
------- ------
Total........................................... 1,197 74 6.18
------- ------ -----
Total interest bearing liabilities.............. 29,540 1,752 5.98
------ -----
Demand deposits-U.S.............................. 3,847
Demand deposits-International.................... 323
Other noninterest bearing liabilities............ 919
Total stockholders' equity...................... 2,226
-------
Total liabilities and stockholders' equity(5)... $36,855
=======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST
EARNING ASSETS
U.S.............................................. $27,305 $1,045 3.83%
International.................................... 5,924 221 3.73%
------- ------
Total........................................... $33,229 $1,266 3.81%
======= ======
</TABLE>
-------------------------------------------------------------------------------
(1) Income is shown on a fully taxable equivalent basis.
(2) In 1994, the Corporation reclassified the translation losses and gains
associated with Brazilian local currency earning assets and interest bearing
liabilities from noninterest income to interest income and interest expense,
respectively, and reclassified all prior periods. This reclassification is
more fully discussed in Note 25 to the Financial Statements.
(3) Prior to January 1, 1994, average balances for securities available for
sale and securities held to maturity were not separately accumulated.
(4) Loans and lease financing includes nonaccrual and renegotiated balances.
Interest on loans and lease financing includes net fees earned of $49
million.
(5) As of December 31, 1992, average International assets and liabilities as a
percentage of total average consolidated assets and liabilities,
respectively, amounted to 19%.
56
<PAGE>
BANK OF BOSTON CORPORATION
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
The following tables present, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes for 1994 com-
pared with 1993 and 1993 compared with 1992. The change due to the volume/rate
variance has been allocated to volume, and the change because of the difference
in the number of days in the periods has been allocated to rate.
<TABLE>
<CAPTION>
1994 compared with 1993 1993 Compared with 1992
------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
--------------------- ----------------------
(in millions) Volume Rate Net Change Volume Rate Net Change
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest bearing
deposits in other banks
U.S. .................. $ (6) $ 2 $ (4) $ (2) $ (2)
International.......... (11) (10) (21) $ 8 (52) (44)
---- -----
(25) (46)
---- -----
Federal funds sold and
resale agreements
U.S. .................. 14 10 24 1 (4) (3)
International.......... 337 101 438 81 (20) 61
---- -----
462 58
---- -----
Trading securities
U.S. .................. 2 2 (1) (1)
International.......... 71 30 101 2 2
---- -----
103 1
---- -----
Loans held for sale
U.S. .................. (25) (8) (33) 28 (10) 18
---- -----
Securities
U.S. .................. (14) 8 (6) (49) (64) (113)
International.......... 8 (21) (13) 11 (20) (9)
---- -----
(19) (122)
---- -----
Loans and lease
financing
U.S. .................. 153 33 186 13 (123) (110)
International.......... 149 155 304 101 (171) (70)
---- -----
490 (180)
---- -----
Interest income......... 375 603 978 85 (356) (271)
---- -----
INTEREST BEARING FUNDS
Deposits
U.S. savings........... 7 (23) (16) (91) (91)
U.S. time.............. (76) (8) (84) (91) (122) (213)
International.......... 175 57 232 65 (152) (87)
---- -----
132 (391)
---- -----
Federal funds purchased
and repurchased
agreements
U.S. .................. 30 21 51 28 28
International.......... 27 19 46 1 (10) (9)
---- -----
97 19
---- -----
Other borrowed funds
U.S. .................. 73 (4) 69 (16) (8) (24)
International.......... 247 191 438 36 (38) (2)
---- -----
507 (26)
---- -----
Notes payable
U.S. .................. 17 (5) 12 36 7 43
International.......... 4 4 (2) (1) (3)
---- -----
16 40
---- -----
Interest expense........ 216 536 752 43 (401) (358)
---- -----
Net interest revenue.... $226 $ 87
==== =====
</TABLE>
--------------------------------------------------------------------------------
57
<PAGE>
BANK OF BOSTON CORPORATION
SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL INFORMATION AND COMMON STOCK DATA
In the opinion of management, all adjustments, which include only normal re-
curring adjustments necessary to present fairly the results of operations for
each of the following quarterly periods, have been made.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
(dollars in millions,
except per share amounts) 1994 1993
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income(1)...... $ 1,071 $ 1,083 $ 840 $ 724 $ 722 $ 699 $ 658 $ 660
Interest expense(1)..... 638 659 466 383 373 358 327 336
------- ------- ------- ------- ------- ------- ------- -------
Net interest revenue.... 433 424 374 341 349 341 331 324
Provision for credit
losses(2)............... 35 25 25 45 10 10 28 22
------- ------- ------- ------- ------- ------- ------- -------
Net interest revenue
after provision for
credit losses........... 398 399 349 296 339 331 303 302
Noninterest
income(1)(3)............ 199 202 192 235 190 191 190 175
Noninterest expense(4).. 382 378 372 347 347 440 368 376
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes, extraordinary
item and cumulative
effect of changes in
accounting principles.. 215 223 169 184 182 82 125 101
Provision for income
taxes................... 94 99 75 81 79 41 54 41
------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles............. 121 124 94 103 103 41 71 60
Extraordinary loss from
early extinguishment of
debt, net of tax....... (7)
Cumulative effect of
changes in accounting
principles, net........ 24
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 121 $ 124 $ 94 $ 96 $ 103 $ 41 $ 71 $ 84
======= ======= ======= ======= ======= ======= ======= =======
AVERAGE BALANCE SHEET
DATA
Loans and lease
financing............... $31,076 $30,362 $29,105 $28,615 $28,172 $26,953 $25,854 $25,224
Securities.............. 4,435 3,489 3,164 2,945 3,194 3,561 3,838 3,909
Other earning assets.... 3,838 4,995 5,613 4,942 4,763 4,306 3,731 3,543
------- ------- ------- ------- ------- ------- ------- -------
Total earning assets... 39,349 38,846 37,882 36,502 36,129 34,820 33,423 32,676
Cash and due from banks. 2,178 2,116 1,828 2,157 1,924 1,845 1,716 1,672
Other assets............ 2,873 2,963 2,992 2,555 2,350 2,403 2,362 2,103
------- ------- ------- ------- ------- ------- ------- -------
Total average assets... $44,400 $43,925 $42,702 $41,214 $40,403 $39,068 $37,501 $36,451
======= ======= ======= ======= ======= ======= ======= =======
Deposits................ $30,445 $29,904 $28,232 $28,615 $29,247 $28,543 $28,194 $28,162
Funds borrowed.......... 7,194 7,361 8,138 6,030 5,390 4,915 3,921 3,141
Other liabilities....... 1,491 1,625 1,404 1,433 1,073 1,085 1,022 886
Notes payable........... 2,141 1,987 1,957 2,194 1,876 1,752 1,670 1,669
Stockholders' equity.... 3,129 3,048 2,971 2,942 2,817 2,773 2,694 2,593
------- ------- ------- ------- ------- ------- ------- -------
Total average
liabilities and
stockholders' equity... $44,400 $43,925 $42,702 $41,214 $40,403 $39,068 $37,501 $36,451
======= ======= ======= ======= ======= ======= ======= =======
PER COMMON SHARE
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles
Primary................ $ 1.04 $ 1.07 $ .80 $ .88 $ .88 $ .30 $ .60 $ .49
Fully diluted.......... $ 1.01 $ 1.04 $ .77 $ .85 $ .85 $ .30 $ .59 $ .48
Net Income
Primary................ $ 1.04 $ 1.07 $ .80 $ .82 $ .88 $ .30 $ .60 $ .72
Fully diluted.......... $ 1.01 $ 1.04 $ .77 $ .79 $ .85 $ .30 $ .59 $ .70
Cash dividends declared. $ .27 $ .22 $ .22 $ .22 $ .10 $ .10 $ .10 $ .10
Market value
High................... $29 1/8 $27 3/8 $28 1/2 $25 5/8 $25 5/8 $25 7/8 $28 3/8 $28 7/8
Low.................... $24 5/8 $24 3/8 $23 1/8 $22 5/8 $21 3/8 $23 1/2 $20 1/2 $ 24
AVERAGE NUMBER OF COMMON
SHARES
(in thousands)
Primary................ 107,108 106,981 106,619 106,198 105,644 105,443 105,285 104,962
Fully diluted.......... 111,831 111,690 111,286 110,817 110,308 110,446 110,077 110,079
--------------------------------------------------------------------------------------------
</TABLE>
(1) During the first quarter of 1994, the Corporation reclassified the
translation losses and gains associated with Brazilian local currency
earning assets and interest bearing liabilities from noninterest income to
interest income and interest expense, respectively, and reclassified all
prior periods. The reclassification had no effect on the Corporation's
total revenue (the sum of net interest revenue and noninterest income).
(2) A portion of the provision for credit losses in the first quarter of 1994
reflects the transfer of certain lower quality real estate exposures to an
accelerated disposition portfolio. At the point of transfer, and after an
additional review of each exposure, the Corporation took a chargeoff of
$119 million.
(3) Includes a $27 million gain from the sale of the domestic factoring
business in the first quarter of 1994.
(4) Includes $5 million and $16 million of acquisition-related costs in the
third and second quarters of 1994, respectively, related to the
Corporation's acquisitions of Pioneer Financial, A Co-operative Bank and
BankWorcester Corporation. Includes $85 million of acquisition-related
costs and restructuring charges in the third quarter of 1993, primarily in
connection with the Corporation's mergers with Society for Savings
Bancorp, Inc. and Multibank Financial Corp., as well as costs of
downsizing and reconfiguring certain of the Corporation's business and
corporate units.
The common stock of the Corporation, which is the only class of its
securities entitled to vote at the Annual Meeting, is listed and traded on
the New York and Boston Stock Exchanges.
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
The Board of Directors and Stockholders
Bank of Boston Corporation:
We have audited the accompanying consolidated balance sheets of Bank of Boston
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1994.
These financial statements are the responsibility of the Corporation's manage-
ment. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bank of Boston
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the consoli-
dated results of their operations and cash flows for each of the years in the
three year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 1, 9, 16 and 20 to the financial statements, the Corpora-
tion has adopted Statement of Financial Accounting Standards No. 106, "Employ-
ers' Accounting for Postretirement Benefits Other Than Pensions," Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," and
changed its method of accounting for purchased mortgage servicing rights, ef-
fective January 1, 1993; and adopted Statement of Financial Accounting Stan-
dards No. 115, "Accounting for Certain Investments in Debt and Equity Securi-
ties," effective December 31, 1993.
Boston, Massachusetts
January 19, 1995
60
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET December 31
---------------------------------------------------------------------------------
(in millions, except share and per share amounts) 1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks (Notes 3 and 4)....................... $ 2,317 $ 2,539
Interest bearing deposits in other banks (Note 4)............. 1,556 991
Federal funds sold and securities purchased under agreements
to resell..................................................... 1,232 1,455
Trading securities............................................ 553 306
Mortgages held for sale....................................... 183 1,322
Securities
Available for sale (Notes 4 and 5)............................ 2,997 1,438
Held to maturity (fair value of $1,626 in 1994 and $1,569 in
1993) (Notes 4 and 5)......................................... 1,703 1,569
Loans and lease financing (net of unearned income of $292 in
1994 and $312 in 1993) (Notes 4 and 6)........................ 31,005 28,782
Reserve for credit losses (Note 7)............................ (680) (770)
------- -------
Net loans and lease financing................................ 30,325 28,012
Premises and equipment, net................................... 569 522
Due from customers on acceptances............................. 314 391
Accrued interest receivable................................... 355 287
Other assets (Notes 8 and 16)................................. 2,526 1,756
------- -------
TOTAL ASSETS.................................................. $44,630 $40,588
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Domestic offices
Noninterest bearing.......................................... $ 4,900 $ 5,040
Interest bearing............................................. 16,841 17,496
Overseas offices
Noninterest bearing.......................................... 569 526
Interest bearing............................................. 9,046 6,552
------- -------
Total deposits.............................................. 31,356 29,614
Funds borrowed (Note 10)...................................... 6,360 4,975
Acceptances outstanding....................................... 316 391
Accrued expenses and other liabilities........................ 1,287 723
Notes payable (Note 11)....................................... 2,169 1,973
------- -------
Total liabilities............................................. 41,488 37,676
------- -------
Commitments and contingencies (Notes 2, 21, 23 and 24)
Stockholders' equity (Note 13)
Preferred stock without par value (Note 12)
Authorized shares -- 10,000,000
Issued shares -- 4,593,941................................... 508 508
Common stock, par value $2.25 (Notes 11 and 17)
Authorized shares -- 200,000,000.............................
Issued shares -- 107,584,349 in 1994 and 105,801,268 in 1993
Outstanding shares -- 106,547,149 in 1994 and 105,801,268 in
1993......................................................... 242 238
Surplus....................................................... 810 769
Retained earnings (Notes 14 and 17)........................... 1,655 1,362
Net unrealized gain (loss) on securities available for sale,
net of tax (Note 5)........................................... (40) 43
Treasury stock, at cost (1,037,200 shares).................... (27)
Cumulative translation adjustments, net of tax................ (6) (8)
------- -------
Total stockholders' equity.................................... 3,142 2,912
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $44,630 $40,588
======= =======
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME Years Ended December 31
---------------------------------------------------------------------------------
<S> <C> <C> <C>
(in millions, except share and per share amounts) 1994 1993 1992
INTEREST INCOME
Loans and lease financing, including fees............ $ 2,606 $ 2,112 $ 2,291
Securities........................................... 242 261 382
Trading securities................................... 113 10 9
Mortgages held for sale.............................. 41 76 58
Federal funds sold and securities purchased under
agreements to resell................................ 600 139 81
Deposits in other banks.............................. 116 141 186
------- ------- -------
Total interest income................................ 3,718 2,739 3,007
------- ------- -------
INTEREST EXPENSE
Deposits of domestic offices......................... 520 630 924
Deposits of overseas offices......................... 628 386 483
Funds borrowed....................................... 868 264 271
Notes payable........................................ 130 114 74
------- ------- -------
Total interest expense............................... 2,146 1,394 1,752
------- ------- -------
Net interest revenue................................. 1,572 1,345 1,255
Provision for credit losses (Note 7)................. 130 70 181
------- ------- -------
Net interest revenue after provision for credit loss-
es.................................................. 1,442 1,275 1,074
------- ------- -------
NONINTEREST INCOME
Financial service fees............................... 396 350 355
Trust and agency fees................................ 201 178 166
Trading profits and commissions...................... 16 24 16
Securities gains, net (Notes 5 and 20)............... 14 32 39
Other income (Note 15)............................... 201 162 183
------- ------- -------
Total noninterest income............................. 828 746 759
------- ------- -------
NONINTEREST EXPENSE
Salaries............................................. 665 635 605
Employee benefits (Note 16).......................... 148 136 121
Occupancy expense (Note 23).......................... 135 128 126
Equipment expense.................................... 96 96 101
Other real estate owned expense...................... 22 44 113
Acquisition and restructuring expense (Note 18)...... 21 85
Other expense (Note 19).............................. 392 407 408
------- ------- -------
Total noninterest expense............................ 1,479 1,531 1,474
------- ------- -------
Income before income taxes, extraordinary items and
cumulative effect of changes in accounting
principles.......................................... 791 490 359
Provision for income taxes (Note 20)................. 349 215 153
------- ------- -------
Income before extraordinary items and cumulative ef-
fect of changes in accounting principles............ 442 275 206
Extraordinary items
Extraordinary loss from early extinguishment of debt,
net of tax (Note 11)................................ (7)
Recognition of prior year tax benefit carryforwards
(Note 20)........................................... 73
------- ------- -------
Income before cumulative effect of changes in ac-
counting principles................................. 435 275 279
Cumulative effect of changes in accounting princi-
ples, net (Notes 9 and 20).......................... 24
------- ------- -------
NET INCOME........................................... $ 435 $ 299 $ 279
======= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK................ $ 398 $ 264 $ 259
======= ======= =======
PER COMMON SHARE
Income before extraordinary items and cumulative ef-
fect of changes in accounting principles
Primary.............................................. $ 3.79 $ 2.28 $ 1.82
Fully diluted........................................ $ 3.67 $ 2.22 $ 1.78
Net income
Primary.............................................. $ 3.73 $ 2.51 $ 2.54
Fully diluted........................................ $ 3.61 $ 2.44 $ 2.45
Cash dividends declared.............................. $ .93 $ .40 $ .10
AVERAGE NUMBER OF COMMON SHARES (in thousands)
Primary.............................................. 106,730 105,336 101,977
Fully diluted........................................ 111,427 110,258 107,157
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Two Years Ended December 31, 1994
-----------------------------------------------------------------------------------------------------------------------------
(in millions, except share and per share amounts) Net
Unrealized
Gain (Loss) Cumulative
Preferred Common Retained On Treasury Translation
Stock Stock Surplus Earnings Securities Stock Adjustments Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................. $438 $236 $750 $1,136 $ (1) $(5) $2,554
Net income -- 1993.... 299 299
Common stock issued in
connection with:
Dividend reinvestment
and stock purchase
plan -- 286,201
shares.............. 1 6 7
Exercise of stock
options -- 800,524
shares (Note 17).... 1 11 1 13
Restricted stock
grants, net of
forfeitures --
13,740 shares
(Note 17)........... 1 1
Other, principally
employee benefit
plans -- 116,223
shares.............. 3 3
Preferred stock
issued -- 280,000
shares (Note 12)..... 70 (2) 68
Cash dividends
declared
Preferred stock (Note
12)................. (35) (35)
Common stock -- $.40
per share........... (38) (38)
Net unrealized gain on
securities available
for sale, net of tax
(Note 5)............. $43 43
Translation
adjustments, net of
tax.................. (3) (3)
---- ---- ---- ------ ---- ---- --- ------
BALANCE, DECEMBER 31,
1993................. 508 238 769 1,362 43 (8) 2,912
Net income -- 1994.... 435 435
Common stock issued in
connection with:
Dividend reinvestment
and stock purchase
plan -- 1,103,539
shares.............. 2 25 27
Exercise of stock
options -- 427,756
shares (Note 17).... 1 5 6
Restricted stock
grants, net of
forfeitures --
252,363 shares
(Note 17)........... 1 9 (6) 4
Other, principally
employee benefit
plans -- 118,223
shares.............. 2 2
Purchase of treasury
stock -- 1,037,200
shares............... (27) (27)
Cash dividends
declared
Preferred stock (Note
12)................. (37) (37)
Common stock -- $.93
per share........... (99) (99)
Change in net
unrealized gain
(loss) on securities
available for sale,
net of tax (Note 5).. (83) (83)
Translation
adjustments, net of
tax.................. 2 2
---- ---- ---- ------ ---- ---- --- ------
BALANCE, DECEMBER 31,
1994................. $508 $242 $810 $1,655 $(40) $(27) $(6) $3,142
==== ==== ==== ====== ==== ==== === ======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 1992
----------------------------------------------------------------------------------------
(in millions, except Cumulative
share and per share Preferred Common Retained Treasury Translation
amounts) Stock Stock Surplus Earnings Stock Adjustments Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1992................... $208 $214 $614 $ 887 $(1) $(3) $1,919
Net income -- 1992...... 279 279
Common stock issued in
connection with:
Public offering --
8,493,000 shares..... 19 128 147
Dividend reinvestment
and stock purchase
plan -- 104,997
shares................ 2 2
Exercise of stock
options -- 783,227
shares (Note 17)...... 2 8 10
Restricted stock
grants, net of
forfeitures -- 181,725
shares (Note 17)...... 1 4 (3) 2
Other, principally
employee benefit
plans -- 174,314
shares................ 2 2
Preferred stock
issued -- 920,000
shares (Note 12)....... 230 (8) 222
Cash dividends declared
Preferred stock (Note
12)................... (19) (19)
Common stock -- $.10
per share............. (8) (8)
Translation adjustments,
net of tax............. (2) (2)
---- ---- ---- ------ --- --- ------
BALANCE, DECEMBER 31,
1992................... $438 $236 $750 $1,136 $(1) $(5) $2,554
==== ==== ==== ====== === === ======
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
BANK OF BOSTON CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended December 31
---------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 435 $ 299 $ 279
Reconciliation of net income to net cash provided
from operating activities
Cumulative effect of change in accounting for in-
come taxes........................................ (77)
Cumulative effect of change in accounting for pur-
chased mortgage servicing rights, net of tax...... 53
Extraordinary income from recognition of prior year
tax benefit carryforwards......................... (73)
Extraordinary loss from early extinguishment of
debt, net of tax.................................. 7
Provision for credit losses........................ 130 70 181
Depreciation and amortization...................... 177 175 153
Provision for deferred taxes....................... 70 119 110
Net gains on sales of securities and other assets.. (114) (68) (86)
Change in trading securities....................... (247) (114) 8
Change in mortgages held for sale.................. 1,139 (399) (442)
Change in securities available for sale, net of
transfers......................................... 992 2,575
Net change in interest receivables and payables.... (162) 4 9
Other, net......................................... (15) 133 (367)
------- ------- -------
Net cash provided from operating activities....... 1,420 1,187 2,347
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided from (used for) interest bearing
deposits in other banks........................... (565) 316 (119)
Net cash provided from (used for) federal funds
sold and securities purchased under agreements to
resell............................................ 223 (267) (314)
Purchases of securities held to maturity........... (1,373) (1,723) (1,433)
Purchase of securities available for sale.......... (4,294)
Sales of securities available for sale............. 2,541
Maturities of securities held to maturity.......... 993 1,808 999
Maturities of securities available for sale........ 231
Dispositions of venture capital investments........ 121 97 71
Loans and lease financing originated by nonbank en-
tities............................................ (2,773) (3,589) (4,190)
Loans and lease financing collected by nonbank en-
tities............................................ 2,814 3,365 4,459
Proceeds from sales of loan portfolios by bank sub-
sidiaries......................................... 76 171 25
Loan portfolios purchased by bank subsidiaries..... (44) (97)
Net cash used for lending activities of bank sub-
sidiaries......................................... (2,455) (3,394) (780)
Lease financing originated by bank entities........ (24) (50) (7)
Lease financing collected by bank entities......... 24 22 17
Proceeds from sales of other real estate owned..... 53 142 310
Expenditures for premises and equipment............ (187) (97) (74)
Proceeds from sales of business units, premises and
equipment......................................... 159 8 12
Other, net......................................... (380) (168) 24
------- ------- -------
Net cash used for investing activities............. (4,816) (3,403) (1,097)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided from (used for) deposits......... 1,742 512 (189)
Net cash provided from (used for) funds borrowed... 1,385 2,028 (1,687)
Net proceeds from issuance of notes payable........ 698 519 304
Repayments/repurchases of notes payable............ (502) (231) (32)
Net proceeds from issuance of common stock......... 36 20 156
Net proceeds from issuance of preferred stock...... 68 222
Purchase of treasury stock......................... (27)
Dividends paid..................................... (136) (73) (27)
------- ------- -------
Net cash provided from (used for) financing activi-
ties.............................................. 3,196 2,843 (1,253)
------- ------- -------
Effect of foreign currency translation on cash..... (22) (24) (47)
------- ------- -------
Net change in cash and due from banks.............. (222) 603 (50)
Cash and due from banks at January 1............... 2,539 1,936 1,986
------- ------- -------
Cash and due from banks at December 31............. $ 2,317 $ 2,539 $ 1,936
======= ======= =======
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial reporting and accounting policies of Bank of Boston Corporation
(the Corporation) conform to generally accepted accounting principles. Certain
prior period amounts have been reclassified to conform with current financial
statement presentation. The following is a summary of the significant account-
ing policies.
BASIS OF PRESENTATION
The consolidated financial statements include the Corporation and its majority
owned subsidiaries, including its major banking subsidiaries: The First Na-
tional Bank of Boston (FNBB); Casco Northern Bank, N.A. (Casco); Bank of Boston
Connecticut (Connecticut); Rhode Island Hospital Trust National Bank (Hospital
Trust); and Bank of Vermont (Vermont). The Corporation's sales of Vermont and
Casco, which will be completed in the first quarter of 1995, are discussed in
Note 2. All material intercompany accounts and transactions have been elimi-
nated in consolidation. Investments in 20% to 50%-owned companies are accounted
for using the equity method. The equity interest in their earnings is included
in other income. The excess of cost over the assigned value of the net assets
of companies acquired, or goodwill, is included in other assets and is amor-
tized on a straight-line basis, generally over periods ranging from fifteen to
twenty-five years.
FOREIGN CURRENCY TRANSLATION
The Corporation translates the financial statements of its foreign operations
in accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation." Under the provisions of SFAS No. 52, a func-
tional currency is designated for each foreign unit, generally the currency of
the primary economic environment in which it operates. Where the functional
currency is not the U.S. dollar, assets and liabilities are translated into
U.S. dollars at period-end exchange rates, while income and expenses are trans-
lated using average rates for the period. The resulting translation adjustments
and any related hedge gains and losses are recorded, net of tax, as a separate
component of stockholders' equity.
For foreign units operating in highly inflationary economies, the functional
currency is the U.S. dollar. Their financial statements are translated into
U.S. dollars using period-end exchange rates for monetary assets and liabili-
ties, exchange rates in effect on the date of acquisition for property and
equipment (and related depreciation) and certain investments, and the average
exchange rate during the period for income and expenses. The resulting transla-
tion adjustments and related hedge gains and losses for these units are re-
corded in current period income.
The Corporation hedges a portion of its exposure to translation gains and
losses in overseas branches and foreign subsidiaries through the purchase of
foreign exchange rate contracts and through investments in fixed assets and
certain securities.
TRADING SECURITIES
Trading securities comprise securities purchased in connection with the Corpo-
ration's trading activities and, as such, are expected to be sold in the near
term. The Corporation reports trading securities at fair value; realized and
unrealized gains and losses on trading securities are recorded currently in
trading profits and commissions, a component of noninterest income. Obligations
to deliver securities not yet purchased are reported as funds borrowed.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
Effective December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Under this standard,
all debt and equity securities that are not purchased in connection with the
Corporation's trading activities are classified as either securities held to
maturity or securities available for sale. Securities held to maturity are debt
securities that the Corporation has the positive intent and ability to hold to
maturity. These securities are reported at cost, adjusted for amortization of
premium and accretion of discount. Securities available for sale are debt secu-
rities that the Corporation may not hold to maturity, as well as equity securi-
ties. These securities include debt securities that are purchased in connection
with the Corporation's asset/liability risk management strategy and that may be
sold in response to changes in interest rates, resultant prepayment risk and
other related factors; securities held in connection with the Corporation's
venture capital and mezzanine financing business; and other securities that are
intended to be held for indefinite periods of time, but which may not be held
to maturity. Within the available for sale category, equity securities that
have a readily determinable fair value and debt securities are reported at fair
value, with unrealized gains and losses recorded, net of tax, as a separate
component of stockholders' equity. Equity securities that do not have a readily
determinable fair value are reported at cost. If a security available for sale
or a security held to maturity has experienced a decline in value that is
deemed other than
66
<PAGE>
temporary, it is written down to its estimated fair value through a charge to
current period income. Realized gains and losses with respect to securities,
which are generally computed on a specific identified cost basis, are included
in securities gains, except for gains and losses with respect to venture capi-
tal and mezzanine securities, which are included in other income.
INTEREST RATE DERIVATIVES AND FOREIGN EXCHANGE CONTRACTS
The Corporation enters into a variety of interest rate derivatives in connec-
tion with its trading activities, including providing these products to its
customers, and as part of its interest rate risk management strategy. Such de-
rivatives include interest rate futures and forwards, interest rate swaps and
interest rate options. Derivatives are classified as part of the trading or as-
set and liability management portfolio.
Derivatives included in the trading portfolio are carried at fair value. Real-
ized and unrealized changes in fair value are recognized in current period in-
come as a component of trading profits and commissions.
The asset and liability management portfolio is composed of derivatives used by
the Corporation as part of its interest rate risk management strategy. When a
derivative is designated as part of the asset and liability management portfo-
lio it is linked to the related asset and/or liability. Income or loss on the
derivative is recognized on the same basis as the linked asset or liability. If
the related asset is carried at fair value or the lower of cost or fair value,
the fair value of the derivative is combined with the fair value of the asset
and is recognized in income based on the method of accounting used for the
linked asset. If the asset or liability is carried at cost, the derivative is
either accounted for on the accrual basis, with income or expense accrued over
the life of the agreement as an adjustment to the yield of the related asset or
liability, or marked to fair value, with any gain or loss deferred and amor-
tized over the period being managed as an adjustment to the yield of the re-
lated asset or liability. In this connection, interest rate swaps, caps and
floors are accounted for on the accrual basis and interest rate futures, for-
wards and other option agreements are marked to fair value, with gains and
losses deferred and amortized over the period being managed. The Corporation
does not utilize written options as part of its interest rate risk management
strategy unless they are included as part of an overall option strategy that
effectively creates a net purchased option position. If a contract is terminat-
ed, any remaining unrecognized gain or loss is deferred and amortized as an ad-
justment to the yield of the related asset or liability over the remainder of
the period that is being managed. If the linked asset or liability is disposed
of prior to the end of the period being managed, the related derivative is
marked to fair value, with any resulting gain or loss recognized in current pe-
riod income as an adjustment to the gain or loss on the disposal of the related
asset or liability.
The Corporation also enters into foreign exchange contracts in conjunction with
its trading activities, including providing these products to its customers,
and to hedge a portion of its own foreign exchange risk, which is principally
related to foreign currency translation (see "Foreign Currency Translation"
above). The trading portfolio includes foreign currency spot, forward, future,
option and cross-currency interest rate swap contracts. Foreign exchange trad-
ing positions are valued at current market rates, with the net foreign exchange
trading gain or loss recorded in the statement of income as a component of
other income.
LOANS AND LEASE FINANCING
Loans are reported at their principal outstanding, net of charge-offs and un-
earned income, if any. Mortgages held for sale are reported separately at the
lower of aggregate cost or fair value.
Interest income on loans is accrued as earned. Unearned income on loans and
leases is recognized on a basis approximating a level rate of return over the
term of the loan. Loan origination fees and costs are accounted for in accor-
dance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases," which
requires the deferral of these fees and costs and subsequent amortization to
income over the life of the related credit or facility. Fees that adjust the
yield on the underlying credit are included in interest income on loans and
lease financing. Fees for credit related services are included in financial
service fees, a component of noninterest income.
Lease financing receivables, including leveraged leases, are reported at the
aggregate of lease payments receivable and the estimated residual values, net
of unearned and deferred income, including unamortized investment credits.
Leveraged leases are reported net of nonrecourse debt. Unearned income is rec-
ognized to yield a level rate of return on the net investment in the leases.
67
<PAGE>
The Corporation places loans and leases on nonaccrual status when any portion
of the principal or interest is ninety days past due, unless it is well se-
cured and in the process of collection, or earlier when concern exists as to
the ultimate collectibility of principal or interest. Whenever a loan or lease
is placed on nonaccrual status, all other credit exposures to the same bor-
rower are also placed on nonaccrual status, except when it can be clearly dem-
onstrated that such credit exposures are well secured, fully performing and
insulated from the weakness surrounding the nonaccrual credit to which they
relate. When loans or leases are placed on nonaccrual status, the related in-
terest receivable is reversed against interest income of the current period.
Interest payments received on nonaccrual loans and leases are applied as a re-
duction of the principal balance when concern exists as to the ultimate col-
lection of principal; otherwise, such payments are recognized as interest in-
come. Loans and leases are removed from nonaccrual status when they become
current as to both principal and interest and concern no longer exists as to
the ultimate collectibility of principal or interest.
The Corporation may renegotiate the contractual terms of a loan because of a
deterioration in the financial condition of the borrower. The carrying value
of a renegotiated loan is reduced by the fair value of any asset or equity in-
terest received, and by the extent, if any, that future cash receipts required
under the new terms do not equal the loan balance at the time of renegoti-
ation. Renegotiated loans performing in accordance with their new terms are
not reported as nonaccrual loans unless concern exists as to the ultimate
collectibility of principal or interest under the new terms. Interest, if any,
is recognized in income to yield a level rate of return over the life of the
renegotiated loan.
RESERVE FOR CREDIT LOSSES AND PROVISION FOR CREDIT LOSSES
The reserve for credit losses is available for future charge-offs of exten-
sions of credit. The reserve is increased by the provision for credit losses
and by recoveries of items previously charged off, and is decreased as credits
are charged off. A charge-off occurs once a probability of loss has been de-
termined, with consideration given to such factors as the customer's financial
condition, underlying collateral and guarantees.
The provision for credit losses is based upon management's estimate of the
amount necessary to maintain the reserve at an adequate level, considering
evaluations of individual credits and concentrations of credit risk, net
losses charged to the reserve, changes in quality of the credit portfolio,
levels of nonaccrual loans and leases, current economic conditions, cross-bor-
der risks, changes in the size and character of the credit risks and other
pertinent factors.
Beginning in 1995, the Corporation will adopt, prospectively, 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 address the accounting for certain impaired
loans. Under the standards, loans are impaired when it is probable that all
principal and interest amounts due will not be collected in accordance with
their original contractual terms. The standards require each such impaired
loan to be evaluated based on the present value of expected future cash flows
discounted at each loan's original effective interest rate; however, if the
loan is collateral dependent, it can be valued based on the fair value of the
collateral. The loan's observable market value may be used as an alternate
valuation technique. To the extent that the recorded investment in a loan ex-
ceeds the valuation measured under one of the above methodologies, a valuation
allowance is established for the difference. Any valuation allowances neces-
sary under the standards are to be considered in determining the level of the
Corporation's overall reserve for credit losses. The Corporation does not ex-
pect the adoption of the standards to have a material effect on its results of
operations or financial position.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized
over the lesser of the estimated life of the improvement or the term of the
lease.
PURCHASED AND EXCESS MORTGAGE SERVICING ASSETS
Purchased mortgage servicing rights (PMSR) represent the cost of purchasing
the right to service mortgage loans originated by others. Excess mortgage ser-
vicing receivables (EMSR) represent the present value of the servicing fee in-
come retained when mortgage loans are sold in excess of a normal servicing fee
rate. PMSR and EMSR are reported as assets and are amortized as reductions of
servicing fee income, a component of noninterest income, over the estimated
servicing period in proportion to the estimated future net cash flows from the
loans serviced.
68
<PAGE>
Remaining PMSR asset balances are evaluated for impairment by determining their
estimated aggregate recoverable amount through applying the discount rate in
effect at the time the servicing portfolios were purchased to the estimated fu-
ture net cash flows from servicing the underlying mortgages. The carrying value
is written down for any impairment; such writedowns are recorded as reductions
of servicing fee income. Prior to 1993, this valuation was performed on an
undiscounted basis. Note 9 includes information with respect to this change in
accounting principle. EMSR is also evaluated for impairment based on estimated
future cash flows on a discounted basis.
ACCELERATED DISPOSITION PORTFOLIO
In 1994, the Corporation transferred certain lower quality real estate expo-
sures to an accelerated disposition portfolio, which is included in other as-
sets. The exposures were transferred at their estimated disposition values,
with the excess, if any, of the exposures over the disposition values charged
to the reserve for credit losses. Subsequent declines in disposition value are
recorded in noninterest income. Gains, if any, are not recognized until real-
ized. Income recognition is based upon existing policies for accruing and
nonaccrual loans and other real estate owned.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO), which is included in other assets, includes
properties on which the Corporation has foreclosed and taken title. OREO is re-
ported at the lower of the carrying value of the loan or the fair value of the
property obtained, less estimated selling costs. The excess, if any, of the
loan over the fair value of the property at the time of transfer from loans to
OREO is charged to the reserve for credit losses. Subsequent declines in the
fair value of the property and net operating results of the property are re-
corded in noninterest expense.
INCOME TAXES
The Corporation accounts for income taxes in accordance with SFAS No. 109, "Ac-
counting for Income Taxes," which was prospectively adopted effective January
1, 1993. Note 20 includes additional information with respect to the adoption
of this standard. Current tax liabilities or assets are recognized, through
charges or credits to the current tax provision, for the estimated taxes pay-
able or refundable for the current year. Net deferred tax liabilities or assets
are recognized, through charges or credits to the deferred tax provision, for
the estimated future tax effects, based on enacted tax rates, attributable to
temporary differences and tax benefit carryforwards. Deferred tax liabilities
are recognized for temporary differences that will result in amounts taxable in
the future, and deferred tax assets are recognized for temporary differences
and tax benefit carryforwards that will result in amounts deductible or credit-
able in the future. The effect of enacted changes in tax law, including changes
in tax rates, on these deferred tax assets and liabilities is recognized in in-
come in the period that includes the enactment date. A deferred tax valuation
reserve is established if it is more likely than not that all or a portion of
the Corporation's deferred tax assets will not be realized. Changes in the de-
ferred tax valuation reserve are recognized through charges or credits to the
deferred tax provision.
For financial reporting purposes, investment tax credits received in connection
with lease financing are recognized as lease income over the investment life of
the related asset.
PER SHARE CALCULATIONS
Primary net income per common share is computed by dividing net income, reduced
by dividends on preferred stock, by the weighted average number of common
shares outstanding for each period presented.
For fully diluted net income per common share, net income is reduced by pre-
ferred stock dividends and increased by the interest, net of income tax bene-
fit, recorded on the Corporation's convertible debentures. Such adjusted net
income is divided by the weighted average number of common shares outstanding
for each period plus the shares representing the dilutive effect of stock op-
tions outstanding and the shares that would result from conversion of the Cor-
poration's convertible debentures. The effect of stock options and convertible
debentures is excluded from the computation of fully diluted net income per
common share in periods in which their effect would be anti-dilutive.
2 MERGERS, ACQUISITIONS AND DIVESTITURES
In July 1993, the Corporation completed its mergers with Society for Savings,
Bancorp, Inc. (Society), a $2.4 billion registered bank holding company based
in Hartford, Connecticut, and Multibank Financial Corp. (Multibank), a $2.4
billion registered bank holding company based in Dedham, Massachusetts. In con-
nection with the merger with Society, the Corporation issued 9.6 million shares
of its common stock for all of the outstanding shares of Society common stock
by exchanging .80 of a share of its common stock for each outstanding Society
share. In connection with the merger with Multibank, the Corporation issued
10.4 million shares of its common stock for all of the outstanding shares of
Multibank common stock by exchanging 1.125 shares of its common stock for each
outstanding Multibank share. These mergers were accounted for as poolings of
interests
69
<PAGE>
and as such are reflected in the accompanying consolidated financial state-
ments as though the Corporation, Society and Multibank had been combined as of
the beginning of the earliest period presented.
In May 1994, the Corporation completed its acquisition of BankWorcester Corpo-
ration (BankWorcester), a $1.5 billion bank holding company based in Worces-
ter, Massachusetts. The total purchase price amounted to $243 million. In ad-
dition, in August 1994, the Corporation completed its acquisition of Pioneer
Financial, A Co-operative Bank (Pioneer), a $.8 billion bank based in Middle-
sex County, Massachusetts. The total purchase price amounted to $117 million.
The acquisitions were accounted for as purchases and, accordingly, the assets
and liabilities of each were recorded at their estimated fair values as of the
acquisition dates. Goodwill resulting from the acquisitions is being amortized
over a twenty-five year period for BankWorcester and a fifteen-year period for
Pioneer. Core deposit intangible resulting from the BankWorcester acquisition
is being amortized over a seven-year period. Both acquisitions have been in-
cluded in the accompanying consolidated financial statements since their re-
spective acquisition dates. Pro forma results of operations including
BankWorcester and Pioneer for the years ended December 31, 1994 and 1993 are
not presented, since the results would not have been significantly different
in relation to the Corporation's results of operations.
In June 1994, the Corporation announced a definitive agreement to sell two of
its affiliate banks, Vermont and Casco. Vermont had $664 million in assets and
$516 million in deposits as of December 31, 1994, had 214 employees and oper-
ated 12 branches. Casco had $1,128 million in assets and $877 million in de-
posits as of December 31, 1994, had 497 employees and operated 34 branches.
The sales of Vermont and Casco will be completed in the first quarter of 1995.
During 1994, the Corporation completed the sale of its United States factoring
business, and recorded an after-tax gain of approximately $16 million on the
transaction.
In November 1994, the Corporation announced a definitive agreement to acquire
Ganis Credit Corporation (Ganis), a privately-held consumer finance company
headquartered in Newport Beach, California, and will complete the acquisition
in the first quarter of 1995. At the date of closing, the Corporation will pay
Ganis stockholders approximately $22 million in Corporation common stock, and
will pay up to an additional $14 million in common stock if Ganis achieves
certain performance goals over the next several years. A majority of the Cor-
poration's shares of treasury stock, which was purchased in the open market in
December 1994, will be used for the transaction. As of December 31, 1994,
Ganis had approximately 150 employees in eleven United States offices.
3 STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, cash and due from banks are con-
sidered to be cash equivalents. Foreign currency cash flows are converted to
U.S. dollars using average rates for the period. During 1994, 1993 and 1992,
the Corporation paid interest of approximately $2,241 million, $2,810 million
and $1,766 million, respectively. The Corporation paid income taxes of approx-
imately $173 million in 1994, $56 million in 1993 and $49 million in 1992.
During 1994, 1993 and 1992, the Corporation transferred approximately $74 mil-
lion, $132 million and $249 million, respectively, to OREO from loans. Loans
made to facilitate sales of OREO properties totaled approximately $2 million,
$9 million and $51 million in 1994, 1993, and 1992, respectively. Noncash
transactions during 1993 included transfers of approximately $861 million of
securities held to maturity to securities available for sale, in connection
with the Corporation's mergers with Society and Multibank, as well as the Cor-
poration's adoption of SFAS No. 115. In accordance with the new standard, cash
flows from purchases, sales and maturities of securities available for sale in
1994 are classified as investing activities in the accompanying consolidated
statement of cash flows. In previous periods, these cash flows are classified
as an operating activity and presented on a net basis.
4 RESERVE REQUIREMENTS, RESTRICTED DEPOSITS AND PLEDGED ASSETS
At December 31, 1994 and 1993, cash and due from banks included $818 million
and $1,392 million, respectively, to satisfy the reserve requirements of the
Federal Reserve System and various foreign central banks. Interest bearing de-
posits in other banks held to satisfy foreign central bank reserve require-
ments totaled $30 million and $39 million at December 31, 1994 and 1993, re-
spectively.
At December 31, 1994 and 1993, securities, loans and other assets with a book
value of $4,077 million and $3,757 million, respectively, were pledged to
collateralize repurchase agreements, public deposits and other items.
70
<PAGE>
5 SECURITIES
<TABLE>
<CAPTION>
A summary comparison of securities available for sale by type is as follows:
December 31, 1994
-------------------------------------------------------------------------------
(in millions) GROSS GROSS
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury........... $1,500 $13 $1,487
U.S. government agencies
and corporations --
Mortgage-backed
securities............. 796 30 766
Foreign debt securities. 432 $ 4 52 384
Other debt securities... 142 142
Marketable equity
securities............. 52 21 1 72
Other equity securities. 146 146
------ --- --- ------
$3,068 $25 $96 $2,997
====== === === ======
<CAPTION>
December 31, 1993
-------------------------------------------------------------------------------
(in millions) Gross Gross
Unrealized Unrealized Carrying
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury........... $ 108 $ 2 $ 110
U.S. government agencies
and corporations --
Mortgage-backed
securities............. 493 6 $ 1 498
Foreign debt securities. 441 49 490
Other debt securities... 150 150
Marketable equity
securities............. 58 20 4 74
Other equity securities. 116 116
------ --- --- ------
$1,366 $77 $ 5 $1,438
====== === === ======
-------------------------------------------------------------------------------
</TABLE>
Other equity securities included in securities available for sale are not
traded on established exchanges, and are carried at cost. However, in accor-
dance with SFAS No. 107, "Disclosures About Fair Values of Financial Instru-
ments," fair values were estimated for these securities. These fair values ex-
ceeded cost by $70 million and $45 million at December 31, 1994 and 1993, re-
spectively. Further information with respect to the fair value of these securi-
ties is included in Note 28.
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------------------
(in millions) GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury........... $ 12 $ 1 $ 11
U.S. government agencies
and corporations --
Mortgage-backed
securities............. 1,449 74 1,375
States and political
subdivisions............ 30 30
Foreign debt securities. 123 2 121
Other equity securities. 89 89
------ --- ------
$1,703 $77 $1,626
====== === ======
</TABLE>
-------------------------------------------------------------------------------
71
<PAGE>
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------------------------------------------------------------
(in millions) Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C><C>
U.S. Treasury...................... $ 317 $ 317
U.S. government agencies and
corporations --
Mortgage-backed securities........ 1,046 $2 1,044
States and political subdivisions.. 29 $2 31
Foreign debt securities............ 109 109
Other equity securities............ 68 68
------ ------ ------ ------
$1,569 $2 $2 $1,569
====== ====== ====== ======
---------------------------------------------------------------------------------------------------
</TABLE>
Other equity securities included in securities held to maturity represent secu-
rities, such as Federal Reserve Bank and Federal Home Loan Bank stock, which
are not traded on established exchanges and have only redemption capabilities.
Fair values for such securities are considered to approximate cost.
A summary of debt securities available for sale by contractual maturity is as
follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
FAIR Fair
COST VALUE Cost Value
<S> <C> <C> <C> <C>
Within one year.................... $ 617 $ 615 $ 362 $ 369
After one but within five years.... 1,502 1,475 317 352
After five but within ten years.... 238 197 105 114
After ten years.................... 513 492 408 413
------ ------ ------ ------
$2,870 $2,779 $1,192 $1,248
====== ====== ====== ======
A summary of debt securities held to maturity by contractual maturity is as
follows:
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
AMORTIZED FAIR Amortized Fair
COST VALUE Cost Value
<S> <C> <C> <C> <C>
Within one year.................... $ 41 $ 41 $ 397 $ 398
After one but within five years.... 545 527 168 168
After five but within ten years.... 304 293 93 94
After ten years.................... 724 676 843 841
------ ------ ------ ------
$1,614 $1,537 $1,501 $1,501
====== ====== ====== ======
---------------------------------------------------------------------------------------------------
</TABLE>
Certain securities, such as mortgage-backed securities, may not become due at a
single maturity date. Such securities have been classified within the category
that encompasses the due dates for the majority of the instrument.
Included in 1994's securities gains were gross gains of $23 million and gross
losses of $9 million related to the sale of debt securities available for sale.
Total proceeds from such securities sales amounted to $2,243 million. For 1993,
securities gains included gross gains of $39 million and gross losses of $1
million related to debt securities sales. Total proceeds from such securities
sales in 1993 amounted to $4,247 million. For 1992, securities gains included
gross gains of $51 million and gross losses of $16 million related to debt se-
curities sales. Total proceeds from such securities sales in 1992 amounted to
$5,675 million.
72
<PAGE>
6 LOANS AND LEASE FINANCING
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
UNITED STATES
Commercial, industrial and financial................................ $11,805 $11,991
Commercial real estate
Construction..................................................... 354 617
Other commercial................................................. 3,141 3,123
Consumer-related loans
Secured by 1-4 family residential properties..................... 5,004 4,159
Other............................................................ 2,462 1,610
Lease financing..................................................... 1,366 1,264
Unearned income..................................................... (216) (204)
------- -------
23,916 22,560
------- -------
INTERNATIONAL
Commercial and industrial........................................... 5,136 4,650
Banks and other financial institutions.............................. 614 602
Governments and official institutions............................... 33 22
Lease financing..................................................... 329 265
All other........................................................... 1,053 791
Unearned income..................................................... (76) (108)
------- -------
7,089 6,222
------- -------
$31,005 $28,782
======= =======
---------------------------------------------------------------------------------------------------
</TABLE>
Renegotiated loans that are performing in accordance with their new terms are
classified as accruing loans. Such loans amounted to $68 million and $225 mil-
lion at December 31, 1994 and 1993, respectively. At December 31, 1994 and
1993, there were no material commitments to lend additional funds to customers
whose loans have been renegotiated. For the years ended December 31, 1994 and
1993, interest income that would have been recognized if the loans had been
current at their original contractual rates amounted to $9 million and $21 mil-
lion, respectively, while the amount recognized as interest income in the same
periods amounted to $7 million and $18 million, respectively.
7 RESERVE FOR CREDIT LOSSES
An analysis of changes in the reserve for credit losses follows:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
BALANCE, JANUARY 1...................................... $ 770 $ 923 $1,051
Reserves of acquired banks.............................. 25
Provision............................................... 130 70 181
Credit losses........................................... (194) (273) (412)
Recoveries.............................................. 68 50 103
----- ----- ------
Net credit losses...................................... (126) (223) (309)
Credit losses related to exposures transferred to
accelerated disposition portfolio...................... (119)
----- ----- ------
BALANCE, DECEMBER 31.................................... $ 680 $ 770 $ 923
===== ===== ======
---------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
8 OTHER ASSETS
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
Accounts receivable................................................. $ 541 $ 445
Purchased and excess mortgage servicing assets...................... 428 273
Prepaid pension cost................................................ 174 174
Goodwill and other intangibles...................................... 312 127
Precious metal assets............................................... 175 151
Investments in limited partnerships................................. 148 123
Equity investments in affiliates.................................... 109 77
Accelerated disposition portfolio................................... 118
OREO................................................................ 76 108
Refundable income taxes............................................. 29 43
Equity investments from loan restructurings......................... 23 41
All other........................................................... 393 194
------ ------
$2,526 $1,756
====== ======
---------------------------------------------------------------------------------------------------
</TABLE>
9 CHANGE IN ACCOUNTING FOR PURCHASED MORTGAGE SERVICING RIGHTS
Effective January 1, 1993, the Corporation elected to change its method of ac-
counting for PMSR to conform its financial reporting to regulatory accounting
rules adopted by the banking regulators in the first quarter of 1993. The cumu-
lative effect to January 1, 1993 of adopting this change in accounting princi-
ple was a decrease in income of $53 million (net of taxes of $32 million), or
$.50 per common share on a primary basis and $.48 per common share on a fully
diluted basis. If this accounting method had been applied during 1992, income
before extraordinary items and net income would have been reduced by approxi-
mately $19 million, or $.19 per common share on a primary basis and $.18 per
common share on a fully diluted basis.
10 FUNDS BORROWED
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
Federal funds purchased............................................. $ 369 $ 417
Term federal funds purchased........................................ 765 2,150
Securities sold under agreements to repurchase...................... 1,883 799
Short-term bank notes............................................... 1,569 350
Demand notes issued to the U.S. Treasury............................ 389 118
All other............................................................ 1,385 1,141
------ ------
$6,360 $4,975
====== ======
---------------------------------------------------------------------------------------------------
</TABLE>
All other funds borrowed include borrowings with maturities of greater than one
year of $221 million at December 31, 1994 and $327 million at December 31,
1993. At December 31, 1994 and 1993, the Corporation had availability under
various borrowing arrangements of $1,736 million and $1,949 million, respec-
tively. The Corporation had no significant compensating balance arrangements at
December 31, 1994 and 1993.
74
<PAGE>
11 NOTES PAYABLE
<TABLE>
<CAPTION>
By Remaining Maturity At December 31
---------------------------------------------------------------------------------------------------
(in millions) Due Due Over 1994 1993
1-5 Years 6-15 Years 15 Years Total Total
<S> <C> <C> <C> <C> <C>
PARENT COMPANY
Senior notes..................... $100 $ 100 $ 179
Subordinated notes............... 235 $1,085 1,320 1,020
Convertible subordinated
debentures....................... $94 94 94
---- ------ --- ------ ------
Subtotal......................... 335 1,085 94 1,514 1,293
SUBSIDIARIES
Senior notes..................... 119 124 243 466
Subordinated notes............... 15 397 412 214
---- ------ --- ------ ------
Subtotal......................... 134 521 655 680
---- ------ --- ------ ------
$469 $1,606 $94 $2,169 $1,973
==== ====== === ====== ======
---------------------------------------------------------------------------------------------------
</TABLE>
Notes payable are unsecured obligations of the Corporation or its subsidiaries.
Certain of the indentures under which these notes were issued prohibit the Cor-
poration from making any payment or other distribution in the stock of FNBB un-
less FNBB unconditionally guarantees payment of principal and interest on the
notes. The distribution shown above by remaining maturity is based on contrac-
tual maturity.
Notes payable at December 31, 1994 and 1993 include fixed rate notes of $1,534
million and $1,036 million, respectively, and variable rate notes of $635 mil-
lion and $937 million, respectively. Fixed rate notes outstanding at December
31, 1994 mature at various dates through 2011 at interest rates ranging from
6.63% to 10.30%. The consolidated weighted average interest rates on fixed rate
notes at December 31, 1994 and 1993 were 7.74% and 8.00%, respectively. The
Corporation has entered into interest rate swap agreements that have effec-
tively converted its fixed rate obligations to floating rate obligations. At
December 31, 1994, such interest rates ranged from 5.31% to 6.08%. Variable
rate notes outstanding, with interest rates ranging from 6.05% to 10.75% at De-
cember 31, 1994, mature at various dates through 2002. The consolidated
weighted average interest rates on variable rate notes at December 31, 1994 and
1993, were 7.24% and 6.71%, respectively.
The 7.75% convertible subordinated debentures are convertible at the option of
the holder into 4,028,838 shares of common stock of the Corporation at any time
on or before June 15, 2011, at a conversion price of $23.42 per share, subject
to certain adjustments. The debentures are redeemable at the option of the Cor-
poration, in whole or in part, at any time, at 100.78% until December 15, 1995,
and 100% thereafter, of the outstanding principal amount plus accrued interest.
During 1994, the Corporation redeemed its floating rate notes due September
2000, with a carrying value of $179 million, at their principal amount plus ac-
crued interest, and a nonbanking subsidiary of the Corporation prepaid $186
million of its senior notes, with fixed interest rates ranging from 6.67% to
9.50%, at their principal amount plus accrued interest and a prepayment penal-
ty. The loss on these early extinguishments of debt amounted to $7 million, net
of tax, or $.06 per common share on both a primary and fully diluted basis, and
is presented as an extraordinary item in the accompanying consolidated state-
ment of income.
Notes payable maturing during the next five years amount to: $104 million in
1996, $221 million in 1997 and $144 million in 1998.
75
<PAGE>
12 PREFERRED STOCK
A summary of the Corporation's Adjustable Rate Cumulative Preferred Stock (Ad-
justable Rate Preferred Stock) issued and outstanding is as follows:
<TABLE>
<CAPTION>
Series A Series B Series C
-----------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994 AND 1993
<S> <C> <C> <C>
Shares................................................ 1,044,843 1,574,315 774,783
Amount (in millions).................................. $ 52 $ 79 $ 77
Dividend rates
At December 31, 1994................................ 6.35% 6.10% 5.55%
Minimum............................................. 6.00% 6.00% 5.50%
Maximum............................................. 13.00% 13.00% 12.50%
Dividends per share
1994................................................ $ 3.02 $ 3.02 $ 5.51
1993................................................ $ 3.01 $ 3.01 $ 5.51
1992................................................ $ 3.13 $ 3.04 $ 5.54
Liquidation preference per share...................... $ 50 $ 50 $ 100
-----------------------------------------------------------------------------------------
</TABLE>
A summary of the Corporation's Fixed Rate Cumulative Preferred Stock (Fixed
Rate Preferred Stock) issued and outstanding is as follows:
<TABLE>
<CAPTION>
Series E Series F
-----------------------------------------------------------------------------------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994 AND 1993
Shares.................................................. 920,000 280,000
Amount (in millions).................................... $ 230 $ 70
Dividend rate........................................... 8.60% 7.88%
Dividends per share..................................... $ 21.50 $ 19.69
Liquidation preference per share........................ $ 250 $ 250
-----------------------------------------------------------------------------------------
</TABLE>
The Fixed Rate Preferred Stock is held in the form of depositary shares, with
each depositary share representing a one-tenth interest in a share of the re-
spective preferred stock, and entitles the holder to a proportional interest in
all rights and preferences of a share of Fixed Rate Preferred Stock, including
dividend, voting, redemption and liquidation rights.
Dividends on all series of preferred stock are cumulative and, when declared,
are payable quarterly. The dividend rates for the Adjustable Rate Preferred
Stock are determined according to a formula based upon the highest of three in-
terest rate benchmarks. Neither the Adjustable Rate Preferred Stock nor the
Fixed Rate Preferred Stock have preemptive or general voting rights. The pre-
ferred stock is redeemable, in whole or in part, at the option of the Corpora-
tion as follows: Series A Preferred Stock is redeemable at $50 per share, Se-
ries B Preferred Stock is redeemable at $51.50 per share through June 19, 1995,
and at $50 per share thereafter, and Series C Preferred Stock is redeemable at
$103 per share through November 13, 1995, and at $100 per share thereafter. The
Series E and Series F Preferred Stock will not be redeemable prior to September
15, 1997 and July 15, 1998, respectively. On and after these respective dates,
the Series E and Series F Preferred Stock will be redeemable at $250 per share.
13 STOCKHOLDER RIGHTS PLAN
In 1990, the Board of Directors of the Corporation adopted a stockholder rights
plan. The plan provides for the distribution of one preferred stock purchase
right for each outstanding share of common stock of the Corporation. Each right
entitles the holder, following the occurrence of certain events, to purchase a
unit, consisting of one-thousandth of a share of Junior Participating Preferred
Stock, Series D, at a purchase price of $50 per unit, subject to adjustment.
The rights will not be exercisable or transferable apart from the common stock
except under certain circumstances in which a person or group of affiliated
persons acquires, or commences a tender offer to acquire, 15% or more of the
Corporation's common stock. Rights held by such an acquiring person or persons
may thereafter become void. Under certain circumstances, a right may become a
right to purchase common stock or assets of the Corporation or common stock of
an acquiring corporation at a substantial discount. Under certain circumstanc-
es, the Corporation may redeem the rights at $.01 per right. The rights will
expire in July 2000 unless earlier redeemed or exchanged by the Corporation.
76
<PAGE>
14 DIVIDENDS AND LOAN RESTRICTIONS
Bank regulations require the approval of bank regulatory authorities if the
dividends declared by a bank subsidiary exceed certain prescribed limits. For
1995, aggregate dividend declarations by the Corporation's bank subsidiaries
without prior regulatory approval are limited to approximately $658 million of
their undistributed earnings at December 31, 1994, plus an additional amount
equal to their net profits, as defined, for 1995 up to the date of any dividend
declaration. However, for any dividend declaration, the Corporation's subsidi-
aries, as well as the Corporation itself, must consider additional factors such
as the amount of current period net income, liquidity, asset quality, capital
adequacy and economic conditions. It is likely that these factors would further
limit the amount of dividends which the banking subsidiaries could declare. In
addition, bank regulators have the authority to prohibit banks and bank holding
companies from paying dividends if they deem such payment to be an unsafe or
unsound practice.
Each bank subsidiary is also prohibited by the bank regulatory authorities from
granting loans and advances to the Parent Company that exceed certain limits.
Assuming declaration of the maximum amount of dividends under the regulations
described above, any loans and advances would be limited to an aggregate of ap-
proximately $316 million and would be subject to specific collateral require-
ments.
Under the foregoing regulations, an aggregate of approximately $2,487 million
of the Parent Company's investment in bank subsidiaries of $3,461 million,
which includes bank holding companies and their subsidiaries, was restricted
from transfer to the Parent Company at December 31, 1994.
15 OTHER INCOME
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Mezzanine/venture capital profits, net.................. $ 30 $ 38 $ 17
Net foreign exchange trading profits.................... 42 45 41
Precious metal income................................... 13 9 11
Net gains from sales of mortgage inventories............ 13 10 3
Gains from sales of mortgage servicing rights........... 11 1 15
Recognition of deferred gain from 1984 sale of the head-
quarters building...................................... 16
Equity in undistributed earnings of affiliates.......... 1 16 12
Exchange-rate related profits from Brazil............... 15
Gain on sale of domestic factoring business............. 27
All other............................................... 49 43 68
---- ---- ----
$201 $162 $183
==== ==== ====
</TABLE>
--------------------------------------------------------------------------------
16 EMPLOYEE BENEFITS
The Corporation maintains non-contributory defined benefit pension plans (the
Plans) covering substantially all domestic employees. The Corporation funds the
Plans in compliance with the requirements of the Employee Retirement Income Se-
curity Act of 1974.
The principal plan is an account balance defined benefit plan in which each em-
ployee has an account to which amounts are allocated based on level of pay and
years of service, and which grows at a specific rate of interest. Benefits ac-
crued prior to 1989 are based on years of service, highest average compensation
and social security benefits.
77
<PAGE>
Employee benefits expense was reduced by net pension income of the Plans, which
included the following:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Service cost (benefits earned during the period)........$ 20 $ 17 $ 15
Interest cost on projected benefit obligation........... 22 20 18
Return on plan assets
Actual................................................. 8 (43) (29)
Actuarial deferral of gains (losses)................... (51) 4 (4)
Amortization
Unrecognized net asset................................. (4) (4) (4)
Unrecognized prior service cost........................ 1 3 3
Other, net ............................................ 1 (2) (1)
---- ---- --------
Net pension (income)....................................$ (3) $ (5) $ (2)
==== ==== ========
The following table sets forth the funded status of the Plans:
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Projected benefit obligation
Vested benefits........................................ $215 $183 $ 155
Nonvested benefits..................................... 32 29 26
---- ---- --------
Accumulated benefit obligation.......................... 247 212 181
Effect of projected future compensation levels.......... 60 62 65
---- ---- --------
Projected benefit obligation............................$307 $274 $ 246
==== ==== ========
Plan assets at fair value (primarily listed stocks and
fixed income securities)...............................$432 $444 $ 395
==== ==== ========
Plan assets in excess of projected benefit obligation...$125 $170 $ 149
Unrecognized net loss................................... 50 17
Unrecognized prior service cost......................... 12 21 23
Unrecognized net asset.................................. (13) (17) (21)
---- ---- --------
Prepaid pension cost....................................$174 $174 $ 168
==== ==== ========
Assumptions used in actuarial computations were:
Weighted average discount rate......................... 8.25% 7.5% 8.0-10.0%
Rate of increase in future compensation levels......... 4.5% 4.5% 5.0-6.0%
Expected long-term rate of return on assets............ 9.5% 9.5% 7.6-10.0%
---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation also maintains nonqualified deferred compensation and retire-
ment plans for certain officers. All benefits provided under these plans are
unfunded and any payments to plan participants are made by the Corporation. As
of December 31, 1994 and 1993, approximately $17 million and $14 million, re-
spectively, were included in accrued expenses and other liabilities for these
plans. For the years ended December 31, 1994, 1993 and 1992, expense related to
these plans was $3 million, $1 million and $2 million, respectively.
The Corporation provides certain health and life insurance benefits for retired
domestic employees. Eligible employees currently receive credits up to $10,000
based on years of service, which are used to purchase postretirement health
care coverage through the Corporation. Life insurance coverage is dependent on
years of service at retirement. Prior to 1993, the costs of these health and
life insurance benefits, which included the costs of current and prior plans,
were expensed as paid. Effective January 1, 1993, the Corporation adopted SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than Pen-
sions," which requires the recognition of postretirement benefits over the
service lives of the employees rather than on a cash basis. The Corporation
elected to recognize its accumulated benefit obligation of $82 million at Janu-
ary 1, 1993 on a straight-line basis over a twenty-year transition period.
Amounts charged to employee benefits expense for these benefits were $10 mil-
lion in both 1994 and 1993 and $4 million in 1992. The increase in expense in
1993 primarily resulted from the adoption of SFAS No. 106.
78
<PAGE>
The components of postretirement benefits expense were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
Service cost (benefits earned during the period)... $ 1 $ 1
Interest cost on projected benefit obligation...... 5 6
Amortization
Unrecognized transition obligation............... 4 4
Unamortized gain................................. (1)
--- ---
Net postretirement benefits expense.............. $10 $10
=== ===
</TABLE>
The following table sets forth the status of the Corporation's accumulated
postretirement benefit obligation:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(dollars in millions) DECEMBER 31 December 31 January 1
1994 1993 1993
<S> <C> <C> <C>
Accumulated benefit obligation
Retirees....................................... $ 50 $ 62 $ 69
Active employees -- eligible to retire......... 7 5 5
Active employees -- not eligible to retire..... 9 10 8
------------ ------------ ------------
Accumulated postretirement benefit obligation.. 66 77 82
Unrecognized net gain.......................... 15 4
Unrecognized transition obligation............. (73) (77) (82)
------------ ------------ ------------
Postretirement benefit liability............... $ 8 $ 4
============ ============ ============
Weighted average discount rate................. 8.25% 7.5% 8.5%
Health care cost trend rate.................... 11.0% 12.0% 13.0%
declining to declining to declining to
5% IN 2001 5% in 2001 5% in 2001
Rate of increase in future compensation levels. 4.5% 4.5% 5.0%
---------------------------------------------------------------------------------------------------
</TABLE>
In 1994 and 1993, an increase of 1% in the assumed health care cost trend rate
would result in increases of 5.9% and 4.8%, respectively, in the accumulated
postretirement benefit obligation, and 4.9% and 4.1%, respectively, in annual
postretirement benefits expense.
The Corporation maintains thrift incentive plans covering the majority of do-
mestic employees. Under these plans, employer contributions are generally based
on the amount of eligible employee contributions. The amounts charged to oper-
ating expense for these plans were $12 million, $10 million and $8 million in
the years ended December 31, 1994, 1993 and 1992, respectively.
17 STOCK OPTIONS AND AWARDS
The Corporation's stock incentive plans include the 1991 Long-Term Stock Incen-
tive Plan (the 1991 Plan), and the 1986 and 1982 Stock Option Plans (the 1986
and 1982 Plans). The 1991 Plan provides for the award of stock options, re-
stricted stock and stock appreciation rights (SARs) to key employees. Awards
may be made under the 1991 Plan until December 31, 1996. No additional grants
may be made under the 1986 and 1982 Plans. Shares issued under these plans may
be authorized but unissued shares, treasury shares or shares purchased on the
open market.
Options are granted at prices not less than the fair market value of the common
stock on the date of grant, and are generally exercisable in equal installments
on the date of grant and the first anniversary of the grant date. Under the
1986 Plan, options granted are generally exercisable in equal installments on
the date of grant and each of the three anniversary dates thereafter. Options
under the 1982 Plan are fully vested. All options expire not later than 10
years after the date of grant. The 1986 Plan allowed for the granting of rights
to receive Tax Offset Payments with respect to Non-Qualified Stock Options
which are intended to compensate the participant for the difference in tax
treatment of Incentive Stock Options and Non-Qualified Stock Options. At Decem-
ber 31, 1994, Tax Offset Payments with respect to 103,581 options, granted in
1987, were outstanding. There was no compensation expense for Tax Offset Pay-
ments for the years ended December 31, 1994, 1993 and 1992. As of December 31,
1994, no SARs were outstanding.
79
<PAGE>
A total of 7,319,927 shares of common stock were reserved for issuance under
the above plans at December 31, 1994. Options outstanding at December 31, 1994
were at prices ranging from $6.10 to $30.50 per share.
The following is a summary of the changes in options outstanding:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Options outstanding, January 1.......................... 2,976,751 3,705,690 3,733,165
Granted ($20 to $28 per share).......................... 927,489 445,103 857,408
Exercised ($5.63 to $25.50 per share)................... (427,756) (800,524) (783,227)
Canceled................................................ (85,664) (373,518) (101,656)
--------- --------- ---------
Options outstanding, December 31........................ 3,390,820 2,976,751 3,705,690
========= ========= =========
Options exercisable, December 31........................ 2,890,244 2,731,896 3,020,511
========= ========= =========
Shares available for future grants...................... 3,929,107 5,087,600 2,309,692
========= ========= =========
-----------------------------------------------------------------------------------------
</TABLE>
Under terms of restricted stock awards, employees are generally required to
maintain employment with the Corporation for a period of five years after the
award in order to become fully vested in the shares awarded. Performance based
restricted stock has also been awarded, which vests if the market price of the
Corporation's common stock reaches certain stated levels within specified peri-
ods. The restricted stock is recorded at the fair market value of the common
stock on the date of award or, if a performance based award, the value required
for vesting. At the date of award, unearned compensation of the same amount is
recorded as a reduction of retained earnings and is amortized as compensation
expense over the vesting period.
The following is a summary of the activity in restricted stock:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------------------------------------------
(shares) 1994 1993 1992
<S> <C> <C> <C>
Beginning balance...................................... 509,490 496,425 308,950
Awards................................................ 282,200 111,100 205,560
Forfeitures........................................... (29,837) (87,360) (11,835)
Released from restriction............................. (78,589) (10,675) (6,250)
------- ------- -------
Ending balance.......................................... 683,264 509,490 496,425
======= ======= =======
(in millions)
Unearned compensation at year-end (a reduction of
retained earnings)..................................... $ 11 $ 5 $ 5
Compensation expense.................................... $ 4 $ 1 $ 1
-----------------------------------------------------------------------------------------
</TABLE>
18 ACQUISITION AND RESTRUCTURING EXPENSE
During 1993, the Corporation recorded acquisition-related costs and restructur-
ing charges of $85 million, primarily in connection with its mergers with Soci-
ety and Multibank. The costs also included the estimated costs of downsizing
and reconfiguring certain of the Corporation's business and corporate units.
The costs included only specific, reasonably measurable costs that directly re-
sulted from the mergers or the downsizing and reconfiguration plan and were in-
cremental to the Corporation's normal costs of operations, and did not contain
any provisions for general reserves or operating losses of the affected opera-
tions.
The following table sets forth significant components of the costs:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(in millions) Employee
Professional reduction Conversion
Fees Costs Costs Properties Total
<S> <C> <C> <C> <C> <C>
Mergers..................... $13 $17 $29 $ 9 $68
Downsizing and
reconfiguration............ 12 3 2 17
--- --- --- --- ---
Total...................... $13 $29 $32 $11 $85
=== === === === ===
-----------------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
Significant components of the acquisition-related costs were professional fees,
including investment banking, legal and accounting fees, stock registration
costs and other costs of effecting the mergers; employee reduction costs, prin-
cipally termination benefits paid to employees; conversion costs, including
costs to convert loans, deposits and other computer systems of the acquired
banks to a common Corporation system, costs of replacing Society and Multibank
customers' checkbooks, automatic teller machine cards and other deposit docu-
ments and costs to dispose of systems hardware and software of the acquired
banks; and property related costs, including costs related to the closing of 24
branches and the disposition of other principal properties, such as post-clos-
ing lease payments and other monthly costs. Components related to the downsiz-
ing and reconfiguration plan included employee reduction costs and estimated
costs related to the disposal of branches and other principal properties and
exiting operating leases. Total employee reduction related to both the mergers
and the downsizing and reconfiguration plan amounted to 950. During 1993, the
Corporation charged costs totaling $40 million to the reserve created by the
charges. Charges to the reserve during 1994 totaled $35 million.
The remaining reserve of $10 million is principally comprised of the Corpora-
tion's liability for termination benefits and ongoing lease costs for facili-
ties that have been vacated. With the exception of the continuation of certain
long-term lease payments related to exited facilities, the remaining charges
are expected to be incurred in 1995.
During 1994, in connection with its acquisition of BankWorcester, the Corpora-
tion recorded acquisition-related costs of $16 million. Significant components
of the costs included $6 million for estimated costs of employee reduction of
220, and $10 million for the costs of conversions which were completed in 1994,
consisting of costs to convert loans, deposits and other computer systems to a
common Corporation system and costs of replacing customers' checkbooks, auto-
matic teller machine cards and other deposit documents. In addition, during
1994, in connection with its acquisition of Pioneer, the Corporation recorded
acquisition-related costs of $4 million, comprised of estimated costs of em-
ployee reduction of 194, and paid $1 million of other acquisition-related costs
consisting principally of conversion costs, resulting in total expense for this
acquisition recorded in 1994 of $5 million. During 1994, the Corporation
charged costs totaling $12 million to the BankWorcester and Pioneer reserves.
The remaining reserve for these two acquisitions of $8 million at December 31,
1994 is principally comprised of the Corporation's liability for employee ter-
mination benefits. These remaining charges are expected to be incurred in 1995.
19 OTHER EXPENSE
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
FDIC deposit insurance.......................... $ 51 $ 62 $ 56
Legal fees...................................... 25 27 31
Consulting and other professional fees.......... 29 29 37
Communications.................................. 62 59 58
Advertising..................................... 41 37 29
Forms and supplies.............................. 23 24 23
Travel and customer contact..................... 22 22 25
Software costs.................................. 19 19 18
Other staff costs............................... 17 15 14
Amortization of goodwill and other intangibles.. 17 12 11
All other....................................... 86 101 106
---- ---- ----
$392 $407 $408
==== ==== ====
-------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
20 INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
CURRENT TAX PROVISION
Federal................................................. $ 91 $ 16 $ 9
Foreign
Based on income........................................ 48 27 15
Withheld on interest and dividends..................... 15 8 5
State and local......................................... 125 45 14
---- ---- ----
279 96 43
---- ---- ----
DEFERRED TAX PROVISION (BENEFIT)
Federal................................................. 115 107 76
State and local......................................... (45) 12 34
---- ---- ----
70 119 110
---- ---- ----
Income tax provision before extraordinary items and
cumulative effect of changes in accounting principles.. 349 215 153
INCOME TAXES APPLICABLE TO EXTRAORDINARY ITEMS AND
CHANGES IN ACCOUNTING PRINCIPLES
Loss from early extinguishment of debt.................. (4)
Recognition of prior year tax benefit carryforwards..... (73)
Change in accounting for income taxes................... (77)
Change in accounting for PMSR........................... (32)
---- ---- ----
$345 $106 $ 80
==== ==== ====
---------------------------------------------------------------------------------------------------
</TABLE>
Excluded from the above table are tax effects related to certain items which
were recorded directly in stockholders' equity, including foreign currency
translation, market value adjustments related to securities available for sale,
stock options and restricted stock. Net tax effects recorded directly in stock-
holders' equity amounted to a $63 million benefit in 1994, a $26 million charge
in 1993 and a $3 million benefit in 1992. The income tax provision included tax
provisions related to securities gains of $6 million in 1994, $13 million in
1993 and $15 million in 1992.
The following table reconciles the expected federal tax provision before ex-
traordinary items and cumulative effect of changes in accounting principles,
based on the federal statutory tax rate of 35% in 1994 and 1993 and 34% in
1992, to the actual consolidated tax provision before extraordinary items and
cumulative effect of changes in accounting principles:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Expected tax provision applicable to income before
extraordinary items and cumulative effect of changes in
accounting principles.................................. $277 $171 $122
Effect of
State and local income taxes, net of federal tax
benefit................................................ 52 37 32
Tax-exempt income...................................... (2) (3) (4)
Non-creditable foreign taxes........................... 9 5 2
Other, net............................................. 13 5 1
---- ---- ----
Actual tax provision before extraordinary items and
cumulative effect of changes in accounting principles.. $349 $215 $153
==== ==== ====
</TABLE>
--------------------------------------------------------------------------------
82
<PAGE>
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
DEFERRED TAX ASSETS
Federal and state tax benefit carryforwards............... $ 13 $ 282
Reserve for credit losses................................. 307 331
Interest on nonaccrual loans.............................. 83 81
Unrealized loss on securities available for sale.......... 32
PMSR...................................................... 23 21
Deferred credit related fees.............................. 13 20
Foreign operations........................................ 19
Other..................................................... 82 57
----- -----
Deferred tax assets...................................... 572 792
Valuation reserve......................................... (56)
----- -----
Deferred tax assets, net of reserve...................... 572 736
----- -----
DEFERRED TAX LIABILITIES
Leasing operations........................................ (474) (615)
Pension obligations....................................... (71) (75)
Unrealized gain on securities available for sale.......... (30)
Foreign operations........................................ (15)
Other..................................................... (26) (18)
----- -----
Deferred tax liabilities................................. (571) (753)
----- -----
Net deferred tax asset (liability)........................ $ 1 $ (17)
===== =====
---------------------------------------------------------------------------------------------------
</TABLE>
During 1993, the Corporation's federal income tax rate was increased to 35%;
the effect of this change was not significant to the deferred tax balance. Ef-
fective January 1, 1993, the Corporation adopted prospectively SFAS No. 109,
which principally affects accounting for deferred income taxes. The cumulative
effect to January 1, 1993 of adopting the standard was an increase to net in-
come of $77 million, or $.74 per common share on a primary basis and $.70 per
common share on a fully diluted basis.
During 1994, the Corporation eliminated its deferred tax valuation reserve as a
result of writing off certain fully reserved state deferred tax assets, execut-
ing certain tax planning strategies and partially settling an Internal Revenue
Service (IRS) examination. The execution of the tax planning strategies and the
partial settlement of the IRS examination resulted in the realization of de-
ferred tax assets, some of which had been partially reserved. The deferred tax
provision was reduced by the release of these reserves; however, this reduction
was offset by an increase in the current tax provision from these events. Ac-
cordingly, there was no net effect on the Corporation's earnings. It is ex-
pected that the Corporation's deferred tax assets at December 31, 1994 will be
realized from the reversal of existing deferred tax liabilities and from the
recognition of future taxable income, without relying on tax planning strate-
gies that the Corporation might not ordinarily follow. The Corporation's fed-
eral tax benefit carryforwards at December 31, 1994 amounted to $13 million,
and are comprised of $10 million of foreign tax credit carryforwards, which ex-
pire in 1997 through 1999, and $3 million of alternative minimum tax credit
carryforwards, which have no expiration period.
Domestic pre-tax income was $613 million in 1994, $279 million in 1993 and $251
million in 1992. Foreign pre-tax income, defined as income generated from oper-
ations that are located outside the United States, was $178 million in 1994,
$125 million in 1993 and $108 million in 1992.
83
<PAGE>
21 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Off-balance-sheet financial instruments represent various degrees and types of
risk to the Corporation, including credit, interest rate, foreign exchange rate
and liquidity risk.
INTEREST RATE DERIVATIVES AND FOREIGN EXCHANGE CONTRACTS
In the normal course of its business, the Corporation enters into a variety of
interest rate derivatives and foreign exchange contracts as part of its trading
activities, which primarily focus on providing these products to customers, and
in its interest rate and currency risk management strategy. These products in-
volve, to varying degrees, credit risk and market risk. Credit risk is the pos-
sibility that a loss may occur if a counterparty to a transaction fails to per-
form according to the terms of the contract. Market risk is the effect of a
change in interest rates or currency rates on the value of a financial instru-
ment. The notional amount of interest rate derivatives and foreign exchange
contracts is the amount upon which interest and other payments under the con-
tract are based. For interest rate derivatives, the notional amount is typi-
cally not exchanged. Therefore, the notional amounts should not be taken as the
measure of credit or market risk.
The Corporation controls credit risk arising from interest rate derivatives and
foreign exchange contracts using credit procedures similar to those used for
traditional lending activities. The Corporation believes that fair value, which
approximates the cost to replace the contract at the current market rates
should the counterparty default prior to settlement date, is generally repre-
sentative of credit exposure related to interest rate derivatives and foreign
exchange contracts at a point in time. Counterparty credit risk is reduced
through the use of master netting agreements. Such agreements provide for the
offsetting of amounts receivable and payable under interest rate derivatives or
foreign exchange contracts with the same counterparty. The market risk associ-
ated with interest rate derivatives and foreign exchange contracts is managed
by establishing and monitoring limits as to the types and degree of risk that
may be undertaken.
Interest rate derivatives utilized by the Corporation include futures and for-
wards, interest rate swaps and interest rate options.
Futures and forward contracts generally are contracts for the delayed delivery
of securities or money market instruments in which the buyer agrees to pur-
chase, and the seller agrees to deliver, a specific instrument at a predeter-
mined date for a specific price. Risks on both types of agreements stem from
market movements in the underlying securities' values and interest rates and
from the ability of the counterparties to meet the terms of the contracts. The
Corporation's counterparty risk for futures is limited, as the majority of
these transactions are executed on organized exchanges that assume the obliga-
tions of counterparties, and generally require security deposits and daily set-
tlement of variation margins.
Interest rate swaps generally involve the exchange of fixed and variable rate
interest payments between two parties based on a common notional principal
amount and maturity date. The primary risks associated with interest rate swaps
are the exposure to movements in interest rates and the ability of the
counterparties to meet the terms of the contracts.
Interest rate options are contracts that allow the holder of the option to re-
ceive cash, purchase, sell or enter into a financial instrument at a specified
price within a specified period of time. Options include interest rate caps and
floors, which are types of interest rate protection instruments involving po-
tential payment between seller and buyer of an interest differential. In addi-
tion, other types of option products provide the holder with the right to enter
into interest rate swap, cap and floor agreements with the "writer". The pri-
mary risks associated with all types of options are the exposure to current,
and the possibility of future, movements in interest rates and the ability of
the counterparties to meet the terms of the contracts.
Foreign exchange contracts include such commitments as foreign currency spot,
forward, futures, option and swap contracts. The primary risks in these trans-
actions arise from exposure to changes in foreign currency exchange rates and
the ability of the counterparties to deliver under the terms of the contract.
84
<PAGE>
TRADING PORTFOLIO
The following is a summary of the Corporation's notional amounts and fair val-
ues 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>
Fair Value Average
At Year End(2) Fair Value(3)
--------------- ---------------
Notional
Amount Asset Liability Asset Liability
---------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
1994
Interest rate contracts(1)
Futures and forwards........................... $17,257
Interest rate swaps............................ 12,604 $ 75 $ 40 $113 $ 59
Interest rate options
Written or sold.............................. 5,639 36 24
Purchased.................................... 4,251 55 35
------- ---- ---- ---- ----
Total interest rate contracts................... $39,751 $130 $ 76 $148 $ 83
======= ==== ==== ==== ====
Foreign exchange contracts(1)
Spot and forward contracts..................... $17,142 $172 $186 $262 $267
Options written or sold........................ 753 9 16
Options purchased.............................. 811 8 16
------- ---- ---- ---- ----
Total foreign exchange contracts................ $18,706 $180 $195 $278 $283
======= ==== ==== ==== ====
1993
Interest rate contracts(1)
Futures and forwards........................... $15,026
Interest rate swaps............................ 6,732 $160 $ 76
Interest rate options
Written or sold.............................. 5,744 14
Purchased.................................... 4,922 25
------- ---- ----
Total interest rate contracts................... $32,424 $185 $ 90
======= ==== ====
Foreign exchange contracts(1)
Spot and forward contracts..................... $21,592 $210 $220
Options written or sold........................ 613 22
Options purchased.............................. 691 21
------- ---- ----
Total foreign exchange contracts................ $22,896 $231 $242
======= ==== ====
---------------------------------------------------------------------------------------------------
</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 ex-
changed in an arms length transaction with a third party as of the balance
sheet date. These amounts are included in other assets or other liabilities,
as applicable. In certain cases, contracts, such as futures and forwards,
are subject to daily cash settlements; as such, the fair value of these
instru-ments 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) Information with respect to average fair value for 1993 is not available.
Net trading gains or losses from interest rate derivatives and foreign exchange
contracts are recorded in trading account profits and commissions and other in-
come, respectively. Net trading gains from interest rate derivatives for the
years ended December 31, 1994, 1993 and 1992 were $7 million, $5 million and $3
million, respectively, and from foreign exchange contracts $42 million, $45
million and $41 million, respectively.
85
<PAGE>
ASSET AND LIABILITY MANAGEMENT PORTFOLIO
The following is a summary of interest rate derivatives and foreign exchange
contracts included in the Corporation's asset and liability management portfo-
lio.
<TABLE>
<CAPTION>
Fair Value(1)(2)
-------------------
Notional Unrecognized
Amount Asset Liability Gain (Loss)(3)
---------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
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
Written or sold............................... 6,125 19 (17)
Purchased..................................... 7,709 39 49
------- ------- -------- -----
Total interest rate contracts.................. $34,121 $ 59 $ 244 $(140)
======= ======= ======== =====
Foreign exchange spot and forward contracts(1). $ 604 $ 2 $ 5 $ (4)
======= ======= ======== =====
DECEMBER 31, 1993
Interest rate contracts(1)
Futures and forwards........................... $ 3,581 $ 2 $ 2
Interest rate swaps............................ 3,463 70 $ 23 46
Interest rate options
Written or sold............................... 39
Purchased..................................... 414 5 1 5
------- ------- -------- -----
Total interest rate contracts.................. $ 7,497 $ 77 $ 24 $ 53
======= ======= ======== =====
Foreign exchange spot and forward contracts(1). $ 556 $ 13 $ 13
======= ======= =====
---------------------------------------------------------------------------------------------------
</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 arms length transaction with a third party as of the balance
sheet date. In certain cases, instruments, such as futures and forwards, 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. Since these derivatives are part of the
asset and liability management portfolio, the majority are accounted for on
the accrual basis, and not carried at fair value.
(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 the unrecognized gains or losses
at December 31, 1994 and 1993 were $35 million and $15 million,
respectively, of unrecognized gains from contracts which have been
terminated. These gains are being amortized to net interest revenue over a
weighted average period of 14 months and 12 months, respectively.
As of December 31, 1994, the total notional amount of the Corporation's inter-
est rate contracts used to manage interest rate risk had increased by $27 bil-
lion from December 31, 1993. The majority of this change was due to increases in
exchange-traded futures and interest rate options in order to adjust the
Corporation's interest rate risk position in response to rising domestic in-
terest rates.
86
<PAGE>
The following table summarizes the remaining maturity of interest rate deriva-
tive financial instruments entered into for asset and liability management pur-
poses as of December 31, 1994:
<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......... $ 390 $ 12 $ 169 $ 50 $1,840 $ 2,461
Weighted average re-
ceive rate............. 7.73% 7.11% 9.04% 5.46% 6.22% 6.64%
Weighted average pay
rate................... 6.00% 6.71% 6.01% 5.25% 5.78% 5.82%
Pay fixed rate swaps (1)
Notional amount......... $ 442 $ 67 $ 48 $ 28 $ 42 $ 11 $ 638
Weighted average re-
ceive rate............. 6.06% 5.93% 6.09% 6.01% 5.77% 5.97% 6.02%
Weighted average pay
rate................... 4.85% 7.26% 8.31% 8.99% 7.37% 7.70% 5.76%
Basis swaps (2)
Notional amount......... $ 143 $ 21 $ 5 $ 2 $ 171
Weighted average re-
ceive rate............. 5.92% 6.45% 6.45% 6.45% 6.01%
Weighted average pay
rate................... 5.72% 5.69% 5.69% 5.69% 5.71%
TOTAL DOMESTIC INTEREST
RATE SWAPS
Notional amount......... $ 975 $ 100 $ 222 $ 80 $ 42 $1,851 $ 3,270
Weighted average receive
rate (3)............... 6.71% 6.19% 8.34% 5.68% 5.77% 6.22% 6.49%
Weighted average pay
rate (3)............... 5.44% 6.86% 6.51% 6.57% 7.37% 5.79% 5.81%
TOTAL INTERNATIONAL IN-
TEREST RATE SWAPS--
NOTIONAL AMOUNT (4).... $ 451 $ 451
------- ------- ------ ----- ----- ------ -------
TOTAL CONSOLIDATED IN-
TEREST RATE SWAPS--
NOTIONAL AMOUNT........ $ 1,426 $ 100 $ 222 $ 80 $ 42 $1,851 $ 3,721
------- ------- ------ ----- ----- ------ -------
OTHER DERIVATIVE PROD-
UCTS
Futures and forwards
(5).................... $ 3,481 $10,729 $2,326 $ 30 $16,566
Interest rate options
Written or sold......... 6,125 6,125
Purchased............... 7,072 474 39 81 $ 43 7,709
------- ------- ------ ----- ----- ------ -------
TOTAL CONSOLIDATED
NOTIONAL AMOUNT....... $18,104 $11,303 $2,587 $ 191 $ 85 $1,851 $34,121
======= ======= ====== ===== ===== ====== =======
------------------------------------------------------------------------------------
</TABLE>
(1) Of the receive fixed rate swaps, approximately $1 billion are linked to
floating rate loans, and the remainder principally to fixed rate notes pay-
able. Of the swaps linked to notes payable, approximately $1 billion are
scheduled to mature in 2000 and thereafter. Of the pay fixed rate swaps,
$410 million are linked to floating rate funds borrowed and the remainder
principally to fixed rate loans.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
floating rates. All of the basis swaps are linked to loans.
(3) The majority of the Corporation's interest rate swaps accrue at LIBOR (Lon-
don Interbank Offered Rate). In arriving at the variable weighted average
receive and pay rates, LIBOR rates in effect as of December 31, 1994 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 45 days. These swaps typically include the exchange of floating rate
indices which are limited to the Brazilian market.
(5) The majority of the futures used by the Corporation are linked to funds
borrowed and are exchange-traded instruments. The reference instruments for
these contracts comprise the major types available, such as Eurodollar de-
posits and U.S. Treasury notes. The forwards are used to manage the inter-
est rate risk related to the Corporation's mortgages held for sale. Average
rates are not meaningful for these products.
87
<PAGE>
CREDIT RELATED FINANCIAL INSTRUMENTS
A commitment to extend credit is a legally binding agreement to lend to a cus-
tomer in the future that generally expires within a specified period of time.
The extension of a commitment, which is subject to the Corporation's credit re-
view and approval policies, gives rise to credit exposure when certain borrow-
ing conditions are met and it is drawn upon. Until such time, it represents
only potential exposure. In connection with entering into a commitment, the
Corporation may obtain collateral if deemed necessary, based upon the Corpora-
tion's credit evaluation. Such collateral varies but may include securities,
receivables, inventory, fixed assets, personal property and real estate. The
obligation to lend generally may be voided if the customer's financial condi-
tion deteriorates or if the customer fails to meet certain covenants. Commit-
ments to extend credit do not reflect the actual demand on liquidity that the
Corporation will be subjected to in the future, since historical experience
with loan commitments indicates that a large portion generally expire without
being drawn upon.
Standby letters of credit and foreign office guarantees are commitments that
are primarily issued to third parties to guarantee obligations of the Corpora-
tion's customers. Standby letters of credit may be issued as credit enhance-
ments for corporate customers' commercial paper, bond issuances by municipali-
ties or other debt obligations, and to guarantee other financial performance of
a customer. The Corporation has current exposure only to the extent that a cus-
tomer may default on the underlying transaction. The risks involved in the is-
suance of standby letters of credit and foreign office guarantees are primarily
credit risks. Again, the Corporation's credit review and approval policies and
practices are adhered to when evaluating issuances of standbys or guarantees
for customers. Similar to commitments to extend credit, the Corporation may ob-
tain various types of collateral, if deemed necessary, based upon the Corpora-
tion's credit evaluation.
The following table summarizes the Corporation's credit related financial in-
struments:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
Fee based or otherwise legally binding commitments to extend
credit(1)........................................................... $19,948 $17,391
Standby letters of credit, foreign office guarantees and similar
instruments(2)..................................................... $ 2,157 $ 2,344
Commercial letters of credit........................................ $ 1,174 $ 1,033
---------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of participations conveyed to others of $324 million in 1994 and $549
million in 1993.
(2) Net of participations conveyed to others of $364 million in 1994 and $293
million in 1993.
22 CONCENTRATIONS OF CREDIT RISK
Credit risk associated with concentrations can arise when changes in economic,
industry or geographic factors affect groups of counterparties with similar
economic characteristics, whose aggregate credit exposure is significant to the
Corporation's total credit exposure. Consistent policies exist regarding the
requirement for collateral security on asset based and real estate credits. Ap-
proximately half of the Corporation's business activity in both 1994 and 1993
was with customers located within New England. Information with respect to the
Corporation's overseas business activities and its geographic concentrations is
included in Note 26. The Corporation's commitments to lend and loans collater-
alized by domestic commercial real estate properties were approximately $5 bil-
lion and $4 billion in 1994 and 1993, respectively, of which 75%, in both
years, was related to properties in New England. Also, combined domestic credit
exposure from consumer lending and credits secured by 1-4 family residential
properties totaled $9 billion and $7 billion in 1994 and 1993, respectively.
There were no other significant concentrations of credit risk.
23 LEASE COMMITMENTS
Rental expense for leases of real estate and equipment is summarized below:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Rental expense...................... $92 $94 $97
Less sublease rental income......... 12 12 13
--- --- ---
Net rental expense.................. $80 $82 $84
=== === ===
---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has obligations under noncancelable operating leases for real
estate and equipment which include renewal options and escalation clauses. The
Corporation's minimum future rentals under its leases, exclusive of executory
costs and net of sublease rental income, for the years 1995 through 1999 are
$79 million, $75 million, $67 million, $67 million and
88
<PAGE>
$62 million, respectively, and $509 million for 2000 and later. Capital leases,
the minimum rentals of which are included in the preceding amounts, are not
significant.
24 CONTINGENCIES
The Corporation and its subsidiaries are defendants in a number of legal pro-
ceedings arising in the normal course of business, including claims that bor-
rowers or others have been damaged as a result of the lending practices of the
Corporation's subsidiaries. Management, after reviewing all actions and pro-
ceedings 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 finan-
cial condition.
25 RECLASSIFICATION OF TRANSLATION GAINS AND LOSSES
Prior to Brazil implementing its new economic program on July 1, 1994, the
country had been experiencing high inflation, with very high interest rates on
local currency earning assets and interest bearing liabilities, as well as sub-
stantial devaluations of the Brazilian currency against the U.S. dollar. As a
result, interest income and interest expense from these assets and liabilities
had a significant effect on consolidated interest income and interest expense,
while the related translation gains and losses were recorded in noninterest in-
come. In order to better present the results of its interest operations, the
Corporation, during the first half of 1994, reclassified the translation losses
associated with Brazilian local currency earning assets and the translation
gains associated with local currency interest bearing liabilities from nonin-
terest income to interest income and interest expense, respectively. While the
reclassification had no effect on the Corporation's total revenue (the sum of
net interest revenue and noninterest income), it provided a better presentation
of consolidated interest income, interest expense and related yields; net in-
terest revenue and margin; and noninterest income. Prior periods were reclassi-
fied for comparative purposes. During the second half of 1994, high inflation
and devaluation were absent from the Brazilian economy. Consequently, a reclas-
sification was not relevant or appropriate for that period.
The following tables present a summary of the reclassification discussed above
and its effect on consolidated net interest revenue (on a fully taxable equiva-
lent basis), net interest margin and noninterest income for the years indicat-
ed:
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1994 1993 1992 1994 1993 1992
Net Interest Revenue Noninterest Income Total Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Before reclassification. $ 1,881 $ 1,527 $1,317 $ 526 $ 572 $ 708 $2,407 $2,099 $2,025
Reclassification of
Translation losses on
earning assets........ (4,295) (4,085) (2,100) 4,295 4,085 2,100
Translation gains on
interest bearing
liabilities........... 3,993 3,911 2,049 (3,993) (3,911) (2,049)
------- ------- ------ ------- ------- ------- ------ ------ ------
Net reclassification... (302) (174) (51) 302 174 51
------- ------- ------ ------- ------- ------- ------ ------ ------
After reclassification.. $ 1,579 $ 1,353 $1,266 $ 828 $ 746 $ 759 $2,407 $2,099 $2,025
======= ======= ====== ======= ======= ======= ====== ====== ======
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
1994 1993 1992 1994 1993 1992
Consolidated International
Net Interest Margin Net Interest Margin
<S> <C> <C> <C> <C> <C> <C>
Before reclassification. 4.93% 4.45% 3.96% 6.63% 5.70% 4.59%
Effect of net
reclassification....... (.79) (.51) (.15) (3.09) (2.30) (.86)
------- ------- ------ ------- ------- -------
After reclassification.. 4.14% 3.94% 3.81% 3.54% 3.40% 3.73%
======= ======= ====== ======= ======= =======
---------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
26 SEGMENT INFORMATION
The Corporation operates within the financial services industry. Services are
provided through a network of offices located both in the United States and
overseas. The following geographic segment information presents asset and in-
come statement information segregated into regional locations based upon the
domicile of the customer or borrower, but without regard to such factors as
method of funding (i.e., local vs. non-local currency) or location of any cash
collateral or guarantees. As a result of the inter-relationships that exist
within the Corporation's worldwide network, allocations of certain income and
expense items are necessarily based on assumptions and subjective criteria.
Estimates of interest costs charged to users of funds, stockholders' equity
and overhead, and administrative and other expenses incurred by one area on
behalf of another are allocated on a management accounting basis. The informa-
tion presented is based on reporting assumptions in place at December 31,
1994. Certain prior period amounts have been reclassified to conform to the
current presentation.
<TABLE>
<CAPTION>
Income
Total Total Before Net Total
Revenue(1) Expense(1) Taxes(2) Income Assets
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in millions)
DECEMBER 31, 1994
International
Latin America.............. $ 480 $ 331 $149 $ 83 $ 7,822
Europe..................... 72 40 32 18 1,776
Asia/Pacific............... 55 39 16 9 973
All other regions.......... 14 11 3 2 337
------ ------ ---- ---- -------
Total International........ 621 421 200 112 10,908
Domestic.................... 1,779 1,188 591 323 33,722
------ ------ ---- ---- -------
Total...................... $2,400 $1,609 $791 $435(3) $44,630
====== ====== ==== ==== =======
DECEMBER 31, 1993
International
Latin America.............. $ 364 $ 265 $ 99 $ 56 $ 6,630
Europe..................... 60 47 13 7 1,546
Asia/Pacific............... 49 51 (2) (1) 976
All other regions.......... 19 23 (4) (3) 234
------ ------ ---- ---- -------
Total International........ 492 386 106 59 9,386
Domestic.................... 1,599 1,215 384 240 31,202
------ ------ ---- ---- -------
Total...................... $2,091 $1,601 $490 $299(4)(6) $40,588
====== ====== ==== ==== =======
DECEMBER 31, 1992
International
Latin America.............. $ 325 $ 203 $122 $ 71 $ 4,954
Europe..................... 30 92 (62) (36) 1,539
Asia/Pacific............... 53 44 9 5 902
All other regions.......... 18 15 3 2 211
------ ------ ---- ---- -------
Total International........ 426 354 72 42 7,606
Domestic.................... 1,588 1,301 287 237 29,709
------ ------ ---- ---- -------
Total...................... $2,014 $1,655 $359 $279(5)(6) $37,315
====== ====== ==== ==== =======
</TABLE>
-------------------------------------------------------------------------------
(1) Total revenue includes net interest revenue and noninterest income. Total
expense includes the provision for credit losses and noninterest expense.
(2) Excludes extraordinary items and cumulative effect of changes in
accounting principles.
(3) Includes a $7 million extraordinary loss, net of tax, from early
extinguishment of debt that, for purposes of this analysis, has been
allocated to Domestic.
(4) Includes both a $24 million cumulative effect of a change in accounting, net
of tax, for PMSR attributable to domestic operations and a change in
accounting for income taxes that, for purposes of this analysis, has been
allocated to Domestic.
(5) Includes a $73 million extraordinary gain from the recognition of prior
year tax benefit carryforwards that, for purposes of this analysis, has been
allocated to Domestic.
(6) The method used to allocate income taxes between International and
Domestic was revised in 1994 to better reflect the impact of the
Corporation's worldwide tax position. Prior years have been reclassified,
resulting in reductions of International net income of $20 million and $10
million for 1993 and 1992, respectively, that are offset by equal increases
in Domestic net income.
90
<PAGE>
27 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The following is a condensed balance sheet of the Corporation (Parent Company
only):
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993
<S> <C> <C>
ASSETS
Cash and short-term investments in bank subsidiary.................. $ 205 $ 207
Advances to subsidiaries
Bank subsidiaries.................................................. 36 64
Nonbank subsidiaries............................................... 217 226
Subordinated notes receivable from bank subsidiary................. 580 400
Investments in subsidiaries
Bank subsidiaries.................................................. 3,461 3,175
Nonbank subsidiaries............................................... 137 135
Other assets........................................................ 43 23
------ ------
TOTAL ASSETS...................................................... $4,679 $4,230
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Commercial paper due to nonbank subsidiary.......................... $ 10
Notes payable....................................................... $1,514 1,293
Other liabilities................................................... 23 15
------ ------
Total liabilities.................................................. 1,537 1,318
------ ------
Total stockholders' equity......................................... 3,142 2,912
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $4,679 $4,230
====== ======
</TABLE>
The following is a condensed statement of income of the Corporation (Parent
Company only):
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
OPERATING INCOME
Dividends from subsidiaries
Bank subsidiaries...................................... $ 95 $ 7
Nonbank subsidiaries................................... 30
Interest from subsidiaries
Bank subsidiaries...................................... 46 37 $ 28
Nonbank subsidiaries................................... 9 3 4
---- ---- ----
Total operating income................................ 180 47 32
---- ---- ----
OPERATING EXPENSE
Interest expense........................................ 79 51 49
Other expense, net...................................... 5 4 4
---- ---- ----
Total operating expense............................... 84 55 53
---- ---- ----
Income (Loss) before income taxes, equity in
undistributed net income of subsidiaries and cumulative
effect of change in accounting principle............... 96 (8) (21)
Benefit from income taxes............................... (11) (6) (3)
---- ---- ----
Income (Loss) before equity in undistributed net income
of subsidiaries and cumulative effect of change in
accounting principle................................... 107 (2) (18)
Equity in undistributed net income of subsidiaries...... 328 303 297
---- ---- ----
Income before cumulative effect of change in accounting
principle............................................... 435 301 279
Cumulative effect of change in accounting for income
taxes................................................... (2)
---- ---- ----
NET INCOME.............................................. $435 $299 $279
==== ==== ====
---------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
The following is a condensed statement of cash flows of the Corporation (Parent
Company only):
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 435 $ 299 $ 279
Reconciliation of net income to net cash provided from
(used for) operating activities
Cumulative effect of change in accounting for income
taxes................................................. 2
Equity in undistributed net income of subsidiaries.... (328) (303) (297)
Net change in interest receivables and payables....... 6 (1)
Other, net............................................ (11) (12) (9)
----- ----- -----
Net cash provided from (used for) operating
activities........................................... 96 (8) (28)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided from (used for) short-term investments
in banking subsidiary.................................. 1 81 (136)
Net cash provided from (used for) advances to
subsidiaries............................................ 37 (149) 129
Investments in subsidiaries............................. (39) (299) (164)
Purchase of subordinated note receivable from bank
subsidiary.............................................. (180) (150)
----- ----- -----
Net cash used for investing activities............... (181) (367) (321)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used for commercial paper...................... (10) (3)
Repayments/repurchases of notes payable................. (179) (88)
Net proceeds from issuance of notes payable............. 400 449
Net proceeds from issuance of common stock.............. 36 20 156
Net proceeds from issuance of preferred stock........... 68 222
Purchase of treasury stock.............................. (27)
Dividends paid.......................................... (136) (73) (27)
----- ----- -----
Net cash provided from financing activities............. 84 376 348
----- ----- -----
Net change in cash and due from banks................... (1) 1 (1)
Cash and due from banks at January 1.................... 1 1
----- ----- -----
Cash and due from banks at December 31.................. $ 1
===== ===== =====
Interest payments made.................................. $ 73 $ 46 $ 50
Income tax refunds received............................. $ (8) $ (2)
---------------------------------------------------------------------------------------------------
</TABLE>
In 1992, the Corporation transferred BancBoston Leasing Services, Inc. (BBLSI),
a nonbank project finance leasing subsidiary, to FNBB. The transfer was accom-
plished by a capital contribution of all of the shares of BBLSI from the Corpo-
ration to FNBB. The capital contribution, reported in the Parent Company only
financial statements, amounted to $45 million.
28 FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires that the Corporation disclose estimated fair values for
certain of its financial instruments. Financial instruments include such items
as loans, deposits, securities, interest rate and foreign exchange rate con-
tracts, swaps and other instruments as defined by the standard.
Fair value estimates are generally subjective in nature and are dependent upon
a number of significant assumptions associated with each instrument or group of
similar instruments, including estimates of discount rates, risks associated
with specific financial instruments, estimates of future cash flows and rele-
vant available market information. Fair value information is intended to repre-
sent an estimate of an amount at which a financial instrument could be ex-
changed in a current transaction between a willing buyer and seller engaging in
an exchange transaction. However, since there are no established trading mar-
kets for a significant portion of the Corporation's financial instruments, the
Corporation may not be able to immediately settle its financial instruments; as
such, the fair values are not necessarily indicative of the amounts that could
be realized through immediate settlement. In addition, the majority of the Cor-
poration's financial instruments, such as loans and deposits, are held to matu-
rity and are realized or paid according to the contractual agreement with the
customer.
92
<PAGE>
Where available, quoted market prices are used to estimate fair values. Howev-
er, due to the nature of the Corporation's financial instruments, in many in-
stances quoted market prices are not available. Accordingly, the Corporation
has estimated fair values based on other valuation techniques, such as dis-
counting estimated future cash flows using a rate commensurate with the risks
involved or other acceptable methods. Fair values are estimated without regard
to any premium or discount that may result from concentrations of ownership of
a financial instrument, possible income tax ramifications, or estimated trans-
action costs. Fair values are also estimated at a specific point in time and
are based on interest rates and other assumptions at that date. As events
change the assumptions underlying these estimates, the fair values of financial
instruments will change.
Disclosure of fair values is not required for certain items such as lease fi-
nancing, investments accounted for under the equity method of accounting, obli-
gations for pensions and other postretirement benefits, premises and equipment,
OREO, prepaid expenses, PMSR, core deposit intangibles and other customer rela-
tionships, other intangible assets and income tax assets and liabilities. Ac-
cordingly, the aggregate fair value amounts presented do not purport to repre-
sent, and should not be considered representative of, the underlying "market"
or franchise value of the Corporation.
Because the standard permits many alternative calculation techniques and be-
cause numerous assumptions have been used to estimate the Corporation's fair
values, reasonable comparisons of the Corporation's fair value information with
other financial institutions' fair value information cannot necessarily be
made.
The methods and assumptions used to estimate the fair values of each class of
financial instrument are as follows:
CASH AND DUE FROM BANKS, INTEREST BEARING DEPOSITS IN OTHER BANKS, FEDERAL
FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL, FUNDS BORROWED,
DUE FROM CUSTOMERS ON ACCEPTANCES AND ACCEPTANCES OUTSTANDING These items are
generally short-term in nature and, accordingly, the carrying amounts reported
in the balance sheet are reasonable approximations of their fair values.
TRADING SECURITIES Trading securities are carried at fair value in the balance
sheet. Such values are generally based on quoted market prices.
MORTGAGES HELD FOR SALE Fair values are based on the estimated value at which
the loans could be sold in the secondary market. The fair value of commitments
to issue mortgage loans, net of forward contracts to sell mortgage loans, is
included as part of the disclosure of off-balance-sheet financial instruments.
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY Fair values are
principally based on quoted market prices. For certain debt and equity invest-
ments made in connection with the Corporation's venture capital and mezzanine
financing business that do not trade on established exchanges and for which
markets do not exist, estimates of fair value are based upon management's re-
view of the investee's financial results, condition and prospects.
LOANS The fair value of accruing consumer mortgage loans is estimated using
market quotes or by discounting contractual cash flows, adjusted for credit
risk and prepayment estimates. Discount rates are obtained from secondary mar-
ket sources. The fair values of accruing home equity loans are estimated using
comparable market information adjusted for credit and other relevant character-
istics. The fair value of all other accruing loans is estimated by discounting
cash flows, using interest rates that consider the credit and interest rate
risks inherent in the loans, and current economic and lending conditions. The
fair value of nonaccrual loans is primarily estimated by discounting manage-
ment's estimate of future cash flows using a rate commensurate with the risks
involved.
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS The carrying amount of accrued in-
terest receivable approximates its fair value. Financial instruments classified
as other assets subject to the disclosure requirements of the standard consist
principally of the accelerated disposition portfolio, accounts receivable, EMSR
and investments in limited partnerships. The carrying amount of real estate as-
sets held for accelerated disposition approximates fair value, as such assets
are carried at the lower of their value upon transfer to the portfolio or their
current estimated disposition value. The carrying amounts of short-term receiv-
ables are considered to approximate their fair value. For longer-term receiv-
ables, fair value is estimated by discounting expected future cash flows using
a discount rate commensurate with the risks involved. The fair value of EMSR is
based on the present value of expected future cash flows and the estimated ser-
vicing life. Estimates of fair value of investments in limited partnerships are
based upon management's review of the investee's financial results, condition
and prospects.
93
<PAGE>
DEPOSITS The fair values of deposits subject to immediate withdrawal, such as
interest and noninterest bearing checking, passbook savings and money market
deposit accounts, are equal to their carrying amounts. The carrying amounts for
variable rate certificates of deposit and other time deposits approximate their
fair values at the reporting date. Fair values for fixed rate certificates of
deposit and other time deposits are estimated by discounting future cash flows
using interest rates currently offered on time deposits with similar remaining
maturities.
ACCRUED EXPENSES AND OTHER LIABILITIES Financial instruments classified as ac-
crued expenses and other liabilities subject to the disclosure requirements of
the standard consist principally of short-term liabilities; the carrying
amounts approximate their fair values.
NOTES PAYABLE The fair value of long-term borrowings is estimated using second-
ary market prices and does not include the fair values of related interest rate
swap agreements, which are presented separately.
FOREIGN EXCHANGE RATE AND INTEREST RATE FINANCIAL INSTRUMENTS The fair values
of foreign exchange rate and interest rate contracts, including contracts used
to manage interest rate, currency and market risks, are estimated based on mar-
ket information adjusted for credit and other relevant characteristics using
pricing models, including option models.
OTHER UNRECOGNIZED FINANCIAL INSTRUMENTS The fair value of commitments to ex-
tend credit is estimated using the fees charged to enter into similar legally
binding agreements, taking into account the remaining terms of the agreements
and customers' credit ratings. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the com-
mitted rates. The fair values of foreign office guarantees and letters of
credit are based on fees charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
The estimated fair values of the Corporation's financial instruments at Decem-
ber 31, 1994 and 1993 are presented in the following table. The estimated fair
value of loans exceeded their carrying amount, net of the reserve for credit
losses, principally because the estimated fair values under the standard do not
take into account concentrations of credit risk, including the size of credits
and other factors considered by management in its determination of the level of
the reserve for credit losses. In addition, the reserve for credit losses con-
siders credit losses related to other financial instruments, principally com-
mitments to lend and letters of credit.
94
<PAGE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------
(in millions) 1994 1993
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...... $ 2,317 $ 2,317 $ 2,539 $ 2,539
Interest bearing deposits in
other banks.................. 1,556 1,556 991 991
Federal funds sold and
securities purchased under
agreements to resell........ 1,232 1,232 1,455 1,455
Trading securities........... 553 553 306 306
Mortgages held for sale(1)... 183 184 1,322 1,322
Securities(2)
Available for sale.......... 2,997 3,067 1,438 1,483
Held to maturity............ 1,703 1,626 1,569 1,569
Loans........................ 29,310 27,253
Reserve for credit losses(3). (680) (770)
------- -------
28,630 29,200 26,483 27,200
Due from customers on
acceptances.................. 314 314 391 391
Accrued interest receivable.. 355 355 287 287
Financial instruments
included in other assets.... 829 857 596 626
LIABILITIES
Deposits..................... 31,356 31,322 29,614 29,736
Funds borrowed............... 6,360 6,360 4,975 4,975
Acceptances outstanding...... 316 316 391 391
Financial instruments
included in accrued expenses
and other liabilities....... 595 595 398 398
Notes payable................ 2,169 2,057 1,973 2,024
INTEREST RATE CONTRACTS(4)
Trading
Asset....................... 130 185
Liability................... (76) (90)
Asset and liability
management
Asset....................... 59 77
Liability................... (244) (24)
FOREIGN EXCHANGE CONTRACTS(4)
Trading
Asset....................... 180 231
Liability................... (195) (242)
Asset and liability
management
Asset....................... 2 13
Liability................... (5)
OTHER UNRECOGNIZED FINANCIAL
INSTRUMENTS
Fee based or otherwise
legally binding commitments
to extend credit............ (33) (27)
Standby and commercial
letters of credit, foreign
office guarantees and
similar instruments......... (50) (42)
</TABLE>
-------------------------------------------------------------------------------
(1) 1993 fair value information related to instruments hedging mortgages held
for sale has been reclassified to be consistent with 1994 presentation. A
fair value of $2 million has been reclassified, solely for purposes of
this presentation, from mortgages held for sale to the fair value of
interest rate contracts included above.
(2) Securities include investments made in connection with the Corporation's
venture capital and mezzanine financing business that do not trade on
established exchanges, and for which no markets exist. At December 31,
1994 and 1993, these investments were classified as securities available
for sale, and their estimated fair values exceeded the related carrying
amounts by $70 million and $45 million, respectively.
(3) The reserve for credit losses is established for future charge-offs
arising from all extensions of credit. The Corporation has not made a
specific allocation of the reserve to other instruments such as leases,
commitments to extend credit, standby letters of credit and interest rate
contracts. Accordingly, a separate determination of the reserve allocable
to loans is not made.
(4) Additional information with respect to interest rate and foreign exchange
contracts can be found in Note 21 to the Financial Statements. The
Corporation's accounting policy related to such instruments is discussed
in Note 1 to the Financial Statements.
95
<PAGE>
Exhibit 21
List of Subsidiaries of Bank of Boston Corporation
There is no parent company of Bank of Boston Corporation (the "Corporation").
The First National Bank of Boston (the "FNBB"), all of whose voting securities
(except for directors' qualifying shares) are owned directly or indirectly by
the Corporation, is the principal subsidiary of the Corporation. Other major
banking subsidiaries of the Corporation are Bank of Boston Connecticut and Rhode
Island Hospital Trust National Bank.
A number of entities which are owned wholly or in part, either directly or
indirectly, by the Corporation are not listed below. However, their assets if
considered in the aggregate as a single subsidiary would not constitute a
significant subsidiary of the Corporation.
JURISDICTION
NAME OF SUBSIDIARY(1) OF INCORPORATION
The First National Bank of Boston(2) US
BancBoston Financial Company MA
Bank of Boston International US Edge Act Corp.
Boston Overseas Financial Corp. US Edge Act Corp.
Boston World Holding Corporation MA
BancBoston Leasing, Inc. MA
BancBoston Leasing Services, Inc. MA
BancBoston Mortgage Corporation FLA
BancBoston Ventures Inc. MA
Ganis Credit Corporation DE
1784 Investor Services, Inc. MA
BancBoston Capital Inc.(3) MA
BancBoston Holdings, Inc. MA
Rhode Island Hospital Trust National Bank(2) US
Bank of Boston Connecticut(4) CT
Bank of Boston Florida, N.A. US
Thor Credit Corp. DE
Bullfinch Indemnity, Ltd. VT
BancBoston Trust Company of New York NY
BancBoston Investments Inc. MA
BancBoston Real Estate Capital Corporation(2) MA
Bank of Boston Maine, N.A. US
Boston International Holdings Corporation MA
Boston Overseas Holding Corporation MA
Colonial Bancorp, Inc. MA
Bank of Boston Connecticut(2)(4) CT
BancBoston Capital Inc.(3) MA
Fidelity Acceptance Corporation MN
FSC Corp MA
FNBC Acceptance Corporation AL
First Louisiana Acceptance Corporation LA
Multibank Financial Corp. MA
____________________________________________________________
(1) Except as noted, each such business organization is either wholly-owned by
the Corporation or wholly-owned by a one hundred percent owned subsidiary of
the Corporation.
(2) FNBB and certain other subsidiaries own a number of subsidiaries which hold
real property acquired in connection with certain loan workout situations.
If considered in the aggregate as a single subsidiary, they would not
constitute a significant subsidiary.
(3) BancBoston Capital, Inc. is owned 24.9% by the Corporation and 75.1% by Bank
of Boston Connecticut.
(4) Bank of Boston Connecticut is owned 57% by BancBoston Holdings, Inc. and 43%
by Colonial Bancorp, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
Bank of Boston Corporation
We consent to the incorporation by reference, in the registration statements of
Bank of Boston Corporation on Form S-3 (Registration Nos. 33-29515, 33-52571 and
33-57723) and on Forms S-8 (Registration Nos. 33-23407, 33-1899, 33-11186,
33-64462, 33-65850 and 33-66012) of our report dated January 19, 1995 on our
audits of the consolidated financial statements of Bank of Boston Corporation
and Subsidiaries as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, included in the Corporation's 1994
Annual Report to Stockholders and in Exhibit 13 to the Corporation's 1994 Annual
Report on Form 10-K. Our report, referred to above, includes an explanatory
paragraph related to the Corporation's adoption of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions"; Statement of Financial Accounting Standards, 109,
"Accounting for Income Taxes"; the change in its method of accounting for
purchased mortgage servicing rights, effective January 1, 1993; and its adoption
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective December 31, 1993.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,317,094
<INT-BEARING-DEPOSITS> 1,556,567
<FED-FUNDS-SOLD> 1,231,977
<TRADING-ASSETS> 552,820
<INVESTMENTS-HELD-FOR-SALE> 2,996,809
<INVESTMENTS-CARRYING> 1,703,459
<INVESTMENTS-MARKET> 1,626,490
<LOANS> 31,004,677
<ALLOWANCE> (680,196)
<TOTAL-ASSETS> 44,629,863
<DEPOSITS> 31,356,285
<SHORT-TERM> 6,360,255
<LIABILITIES-OTHER> 1,602,498
<LONG-TERM> 2,168,610
<COMMON> 242,065
0
508,436
<OTHER-SE> 2,391,714
<TOTAL-LIABILITIES-AND-EQUITY> 44,629,863
<INTEREST-LOAN> 2,606,502
<INTEREST-INVEST> 242,227
<INTEREST-OTHER> 870,030
<INTEREST-TOTAL> 3,718,759
<INTEREST-DEPOSIT> 1,148,611
<INTEREST-EXPENSE> 2,146,212
<INTEREST-INCOME-NET> 1,572,547
<LOAN-LOSSES> 130,000
<SECURITIES-GAINS> 13,663
<EXPENSE-OTHER> 392,052
<INCOME-PRETAX> 791,311
<INCOME-PRE-EXTRAORDINARY> 441,897
<EXTRAORDINARY> (6,535)
<CHANGES> 0
<NET-INCOME> 435,362
<EPS-PRIMARY> 3.73
<EPS-DILUTED> 3.61
<YIELD-ACTUAL> 4.14
<LOANS-NON> 365,260
<LOANS-PAST> 13,061
<LOANS-TROUBLED> 68,495
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 770,279
<CHARGE-OFFS> (193,921)
<RECOVERIES> 68,042
<ALLOWANCE-CLOSE> 680,200
<ALLOWANCE-DOMESTIC> 503,800
<ALLOWANCE-FOREIGN> 85,200
<ALLOWANCE-UNALLOCATED> 91,200
</TABLE>
