<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-6522
BANK OF BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2471221
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 FEDERAL STREET, 02110
BOSTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 434-2200
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: NOT APPLICABLE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1996:
<TABLE>
<S> <C>
Common Stock, $1.50 par value ................................. 152,243,874
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BANK OF BOSTON CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
CONSOLIDATED SELECTED FINANCIAL DATA........................................................... 3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet............................................................. 4
Consolidated Statement of Income....................................................... 6
Consolidated Statement of Changes in Stockholders' Equity.............................. 7
Consolidated Statement of Cash Flows................................................... 8
Notes to Financial Statements.......................................................... 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 15
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................................... 39
ITEM 5. Other Information...................................................................... 39
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 39
SIGNATURES..................................................................................... 40
LIST OF TABLES
Consolidated Average Balance Sheet--Nine Quarters............................................ 32
Consolidated Statement of Income--Nine Quarters.............................................. 33
Average Balances and Interest Rates--Quarter................................................. 34
Average Balances and Interest Rates--First Half.............................................. 36
Change in Net Interest Revenue--Volume and Rate Analysis..................................... 38
</TABLE>
2
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
QUARTERS ENDED JUNE 30 ------- -------
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest revenue............................. $ 438 $ 434
Provision for credit losses...................... 50 40
Noninterest income............................... 324 236
Noninterest expense.............................. 406 392
Net income....................................... 178 133
Per common share:
Primary........................................ 1.54 1.11
Fully diluted.................................. 1.52 1.10
Market value per common share:
High........................................... 51 1/2 38 1/4
Low............................................ 46 29 3/8
<CAPTION>
SIX MONTHS ENDED JUNE 30
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest revenue............................. $ 872 $ 860
Provision for credit losses...................... 100 130
Noninterest income............................... 550 529
Noninterest expense.............................. 811 775
Net income....................................... 295 259
Per common share:
Primary........................................ 2.50 2.19
Fully diluted.................................. 2.46 2.14
Market value per common share:
High........................................... 51 1/2 38 1/4
Low............................................ 41 5/8 25 5/8
<CAPTION>
AT JUNE 30
<S> <C> <C>
BALANCE SHEET DATA:
Loans and lease financing........................ $32,885 $31,388
Total assets..................................... 50,830 45,254
Deposits......................................... 33,305 29,121
Total stockholders' equity....................... 3,960 3,465
Book value per common share...................... 30.50 26.49
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1....................................... 7.9% 7.7%
Total........................................ 12.5 13.0
Leverage ratio................................. 7.6 7.3
</TABLE>
3
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 2,351 $ 2,645
Interest bearing deposits in other banks................... 1,191 1,250
Federal funds sold and securities purchased under agree-
ments to resell........................................... 2,166 1,350
Trading securities......................................... 1,649 1,109
Mortgages held for sale.................................... 889
Securities
Available for sale....................................... 6,430 5,014
Held to maturity (fair value of $616 in 1996 and $620 in
1995)................................................... 633 613
Loans and lease financing
United States Operations................................. 23,743 22,498
International Operations................................. 9,142 8,569
------- -------
Total loans and lease financing (net of unearned income
of $275 in 1996 and $253 in 1995)..................... 32,885 31,067
Reserve for credit losses.................................. (744) (736)
------- -------
Net loans and lease financing............................ 32,141 30,331
Premises and equipment, net................................ 647 617
Due from customers on acceptances.......................... 472 359
Accrued interest receivable................................ 475 456
Other assets............................................... 2,675 2,764
------- -------
TOTAL ASSETS............................................... $50,830 $47,397
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Domestic offices
Noninterest bearing................................... $ 4,620 $ 4,839
Interest bearing...................................... 17,358 16,564
Overseas offices
Noninterest bearing................................... 617 552
Interest bearing...................................... 10,710 8,993
------- -------
Total deposits...................................... 33,305 30,948
Funds borrowed
Federal funds purchased................................. 1,758 1,675
Term federal funds purchased............................ 1,254 869
Securities sold under agreements to repurchase.......... 1,881 1,226
Other funds borrowed.................................... 3,963 4,993
Acceptances outstanding................................... 472 359
Accrued expenses and other liabilities.................... 1,605 1,437
Notes payable............................................. 2,632 2,139
------- -------
TOTAL LIABILITIES......................................... 46,870 43,646
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock without par value
Authorized shares--10,000,000
Issued and outstanding shares--4,593,941.............. 508 508
Common stock, par value $1.50 in 1996 and $2.25 in 1995
Authorized shares--300,000,000 in 1996 and 200,000,000
in 1995
Issued shares--113,182,698 in 1996 and 112,571,508 in
1995
Outstanding shares--113,182,698 in 1996 and
112,086,150 in 1995.................................. 170 253
Surplus................................................. 1,043 932
Retained earnings....................................... 2,198 2,020
Net unrealized gain on securities available for sale,
net of tax............................................. 47 64
Treasury stock, at cost (485,358 shares in 1995)........ (22)
Cumulative translation adjustments, net of tax.......... (6) (4)
------- -------
TOTAL STOCKHOLDERS' EQUITY................................ 3,960 3,751
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $50,830 $47,397
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS
JUNE 30 ENDED JUNE 30
----------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and lease financing, including
fees.................................... $ 770 $ 808 $ 1,580 $ 1,554
Securities............................... 110 87 213 162
Trading securities....................... 51 43 92 84
Mortgages held for sale.................. 5 17 9
Federal funds sold and securities
purchased under agreements to resell.... 42 93 83 196
Deposits in other banks.................. 28 67 51 132
-------- -------- -------- --------
Total interest income.................. 1,001 1,103 2,036 2,137
-------- -------- -------- --------
INTEREST EXPENSE
Deposits of domestic offices............. 164 159 333 298
Deposits of overseas offices............. 198 257 385 479
Funds borrowed........................... 155 215 357 422
Notes payable............................ 46 38 89 78
-------- -------- -------- --------
Total interest expense................. 563 669 1,164 1,277
-------- -------- -------- --------
NET INTEREST REVENUE..................... 438 434 872 860
Provision for credit losses.............. 50 40 100 130
-------- -------- -------- --------
Net interest revenue after provision for
credit losses........................... 388 394 772 730
-------- -------- -------- --------
NONINTEREST INCOME
Financial service fees................... 89 113 96 219
Trust and agency fees.................... 55 57 106 110
Trading profits and commissions.......... 24 6 37 7
Net securities gains..................... 4 17 6
Other income............................. 152 60 294 187
-------- -------- -------- --------
Total noninterest income............... 324 236 550 529
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries................................. 185 179 372 356
Employee benefits........................ 42 41 84 81
Occupancy expense........................ 37 34 74 69
Equipment expense........................ 25 26 51 50
Other expense............................ 117 112 230 219
-------- -------- -------- --------
Total noninterest expense.............. 406 392 811 775
-------- -------- -------- --------
Income before income taxes................. 306 238 511 484
Provision for income taxes................. 128 105 216 225
-------- -------- -------- --------
NET INCOME................................. $ 178 $ 133 $ 295 $ 259
======== ======== ======== ========
NET INCOME APPLICABLE TO COMMON STOCK...... $ 169 $ 124 $ 276 $ 240
======== ======== ======== ========
PER COMMON SHARE
Net income
Primary.................................. $ 1.54 $ 1.11 $ 2.50 $ 2.19
Fully diluted............................ $ 1.52 $ 1.10 $ 2.46 $ 2.14
Dividends declared......................... $ .44 $ .27 $ .81 $ .54
AVERAGE NUMBER OF COMMON SHARES (IN
THOUSANDS)
Primary.................................. 109,725 111,369 110,380 109,335
Fully diluted............................ 111,253 112,933 112,064 112,718
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995
SIX MONTHS ENDED JUNE 30 ------ ------
<S> <C> <C>
PREFERRED STOCK
Balance, January 1............................................ $ 508 $ 508
------ ------
Balance, June 30.............................................. 508 508
------ ------
COMMON STOCK
Balance, January 1............................................ 253 242
Change in par value........................................... (84)
Common stock issued
Exercise of stock options.................................... 1
Conversion of subordinated convertible debentures............ 8
Acquisition of The Boston Bancorp............................ 1
------ ------
Balance, June 30.............................................. 170 251
------ ------
SURPLUS
Balance, January 1............................................ 932 810
Change in par value........................................... 84
Dividend reinvestment and stock purchase plan................. 9
Exercise of stock options..................................... (24) 5
Conversion of subordinated debentures......................... 71
Acquisition of Ganis Credit Corporation....................... 1
Restricted stock grants, net of forfeitures................... 3 1
Acquisition of The Boston Bancorp............................. 47
Other, principally employee benefit plans..................... 1 3
------ ------
Balance, June 30.............................................. 1,043 900
------ ------
RETAINED EARNINGS
Balance, January 1............................................ 2,020 1,655
Net income.................................................... 295 259
Restricted stock grants, net of forfeitures................... (8) (5)
Cash dividends declared
Preferred stock.............................................. (19) (19)
Common stock................................................. (90) (59)
------ ------
Balance, June 30.............................................. 2,198 1,831
------ ------
NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE
Balance, January 1............................................ 64 (40)
Change in net unrealized gain (loss) on securities available
for sale, net of tax......................................... (17) 17
------ ------
Balance, June 30.............................................. 47 (23)
------ ------
TREASURY STOCK
Balance, January 1............................................ (22) (27)
Purchases of treasury stock--5,405,000 shares in 1996......... (255) (28)
Treasury stock reissued
Dividend reinvestment and stock purchase plan--491,586 shares
in 1996..................................................... 23 9
Exercise of stock options--1,132,988 shares in 1996.......... 51 1
Conversion of subordinated debentures........................ 15
Acquisition of The Boston Bancorp--3,751,091 shares in 1996.. 181
Acquisition of Ganis Credit Corporation--153,741 shares in
1996........................................................ 7 21
Restricted stock grants--222,410 shares in 1996.............. 10 7
Other, principally employee benefit plans--138,542 shares in
1996........................................................ 5 2
------ ------
Balance, June 30..............................................
------ ------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1............................................ (4) (6)
Translation adjustments, net of tax........................... (2) 4
------ ------
Balance, June 30.............................................. (6) (2)
------ ------
Total Stockholders' Equity, June 30........................... $3,960 $3,465
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995
SIX MONTHS ENDED JUNE 30 ------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 295 $ 259
Reconciliation of net income to net cash used for operating
activities:
Provision for credit losses............................... 100 130
Depreciation and amortization............................. 54 108
Provision for deferred taxes.............................. 60 20
Net gains on sales of securities and other assets......... (229) (131)
Change in trading securities.............................. (540) (278)
Change in mortgages held for sale, net.................... 247 (196)
Net change in interest receivables and payables........... (22) 21
Other, net................................................ (37) (289)
------- -------
Net cash used for operating activities................... (72) (356)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided from interest bearing deposits in other
banks...................................................... 59 39
Net cash provided from (used for) federal funds sold and
securities purchased under agreements to resell............ (816) 427
Purchases of securities held to maturity.................... (50) (416)
Purchases of securities available for sale.................. (3,556) (1,781)
Sales of securities available for sale...................... 1,509 1,311
Maturities of securities held to maturity................... 25 287
Maturities of securities available for sale................. 603 468
Dispositions of venture capital investments................. 92 65
Loans and lease financing originated by nonbank entities.... (7,327) (3,669)
Loans and lease financing collected by nonbank entities..... 6,414 3,124
Proceeds from sales of loan portfolios by bank
subsidiaries............................................... 1,429
Net cash used for lending activities of bank subsidiaries... (1,002) (1,406)
Lease financing originated by bank entities................. (2) (2)
Lease financing collected by bank entities.................. 12 10
Proceeds from sales of other real estate owned.............. 15 23
Expenditures for premises and equipment..................... (104) (82)
Proceeds from sales of business units, premises and
equipment.................................................. 184 122
Other, net.................................................. (19) (65)
------- -------
Net cash used for investing activities.................. (3,963) (116)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided from (used for) deposits.................. 2,357 (2,235)
Net cash provided from funds borrowed, net.................. 1,206 2,685
Net repayments of notes payable............................. (122) (4)
Net proceeds from issuance of notes payable................. 615 40
Net proceeds from issuance of common stock.................. 56 28
Purchases of treasury stock................................. (255) (28)
Dividends paid.............................................. (109) (78)
------- -------
Net cash provided from financing activities............. 3,748 408
Effect of foreign currency translation on cash.............. (7) (1)
------- -------
Net change in cash and due from banks....................... (294) (65)
CASH AND DUE FROM BANKS AT JANUARY 1........................ 2,645 2,317
------- -------
CASH AND DUE FROM BANKS AT JUNE 30.......................... $ 2,351 $ 2,252
======= =======
Interest payments made...................................... $ 1,168 $ 1,243
Income tax payments made.................................... $ 156 $ 302
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements of Bank of
Boston Corporation (the Corporation) are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information contained herein have
been made. Certain amounts reported in prior periods have been reclassified
for comparative purposes. This information should be read in conjunction with
the Corporation's 1995 Annual Report on Form 10-K.
2. ACQUISITIONS AND DIVESTITURES:
In March 1996, the Corporation recognized a gain of $60 million, or $39
million net of tax, from the first phase of the sale of its mortgage banking
subsidiary to a newly formed independent mortgage company, HomeSide, Inc.
(HomeSide). The Corporation retained a 45% interest in the new company, and
two equity investment firms held the remaining interest. In May 1996, in the
second phase of the transaction, Barnett Mortgage Company was acquired by
HomeSide, resulting in an additional gain of $46 million, or $28 million net
of tax. As a result of these transactions, the Corporation, Barnett Banks and
the two equity investment firms each hold an approximate one-third interest in
HomeSide.
On June 28, 1996, the Corporation completed its acquisition of The Boston
Bancorp, the holding company of South Boston Savings Bank, a Massachusetts
chartered savings bank with $1.3 billion of deposits at June 30, 1996. The
Corporation exchanged 4.6 million shares of its common stock, with a value of
approximately $229 million, for all of the outstanding common stock of
Bancorp. The Corporation has purchased an equivalent amount of shares in the
open market for this transaction. The acquisition was accounted for as a
purchase and, accordingly, the assets and liabilities of Bancorp were recorded
at their estimated fair values as of the acquisition date. Goodwill resulting
from the transaction is being amortized over a ten-year period. The
acquisition has been included in the accompanying consolidated financial
statements since the acquisition date. Pro forma results of operations
including Bancorp for the six months ended June 30, 1996 and 1995 are not
presented since the results would not have been significantly different in
relation to the Corporation's results of operations.
On July 29, 1996, the Corporation completed its merger transaction with
BayBanks, Inc. (BayBanks). The Corporation issued 43.6 million shares of its
common stock in exchange for substantially all of the outstanding shares of
BayBanks common stock by exchanging 2.2 shares of its common stock for each
outstanding BayBanks share. The transaction was accounted for under the
pooling of interests method of accounting. Under this method, the historical
assets, liabilities and results of operations of BayBanks, as reported in its
consolidated financial statements, will be combined with the Corporation's
consolidated financial statements, for all periods presented, after
reclassifications are made to conform BayBanks classifications to those of the
Corporation, as if the Corporation and BayBanks had always operated as a
combined entity. The transaction is not reflected in the accompanying
consolidated financial statements since the merger occurred after the date of
such financial statements. In connection with the approval of the transaction
by regulatory authorities, the Corporation agreed to sell 20 branches of the
resulting combined entity, comprising a total of approximately $860 million in
deposits. The sale of these branches is expected to be completed in
approximately six months.
The following tables present supplemental condensed combined financial
information for the Corporation, giving effect to the BayBanks merger as a
pooling of interests as though the Corporation and BayBanks had been combined
as of the beginning of the earliest period presented. Certain historical data
of BayBanks have been reclassified to conform to the Corporation's
classifications. The supplemental condensed combined financial information
does not reflect anticipated merger and restructuring costs expected to be
incurred in connection with the merger, or the expected sale of branches
discussed above. The merger and restructuring costs, which were originally
estimated to be approximately $140 million ($83 million after-tax), continue
to be evaluated along with the estimated cost savings expected to result from
the integration of these two institutions, both of which are likely to
increase upon finalization of the integration plan. The supplemental condensed
combined financial information is not necessarily indicative of actual
financial position that may exist, or of actual results that may be obtained
in the future.
9
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND DIVESTITURES (CONTINUED):
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks.................................. $ 3,307 $ 3,561
Interest bearing deposits in other banks................. 1,192 1,356
Federal funds sold and securities purchased under
agreements to resell.................................... 2,516 1,548
Trading account securities............................... 1,732 1,159
Mortgages held for sale.................................. 23 910
Securities available for sale............................ 8,459 7,582
Securities held to maturity.............................. 686 660
Loans and leases......................................... 40,653 38,870
Reserve for credit losses................................ (894) (890)
Premises and equipment, net ............................. 856 832
Due from customers on acceptances........................ 473 360
Accrued interest receivable.............................. 555 554
Other assets............................................. 2,829 2,921
------- -------
TOTAL ASSETS............................................. $62,387 $59,423
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................. $43,494 $41,064
Funds borrowed........................................... 9,215 9,503
Acceptances outstanding.................................. 473 360
Accrued expenses and other liabilities................... 1,611 1,605
Notes payable............................................ 2,632 2,189
------- -------
TOTAL LIABILITIES........................................ 57,425 54,721
------- -------
Stockholders' equity:
Preferred stock......................................... 508 508
Common stock............................................ 235 350
Surplus................................................. 1,389 1,235
Retained earnings....................................... 2,785 2,553
Net unrealized gain on securities available for sale,
net of tax............................................. 51 82
Treasury stock, at cost................................. (22)
Cumulative translation adjustments, net of tax.......... (6) (4)
------- -------
TOTAL STOCKHOLDERS' EQUITY............................... 4,962 4,702
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $62,387 $59,423
======= =======
</TABLE>
10
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND DIVESTITURES (CONTINUED):
SUPPLEMENTAL CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------- -----------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and lease financing, including fees.. $ 937 $ 962 $ 1,915 $ 1,857
Securities................................. 139 124 277 238
Trading securities......................... 52 44 93 85
Mortgages held for sale.................... 1 5 18 9
Federal funds sold and securities purchased
under agreements to resell................ 45 95 88 199
Deposits in other banks.................... 28 67 52 132
------- ------- -------- --------
Total interest income.................... 1,202 1,297 2,443 2,520
------- ------- -------- --------
INTEREST EXPENSE
Deposits of domestic offices............... 228 214 461 404
Deposits of overseas offices............... 198 258 385 479
Funds borrowed............................. 159 229 370 452
Notes payable.............................. 46 39 90 79
------- ------- -------- --------
Total interest expense................... 631 740 1,306 1,414
------- ------- -------- --------
NET INTEREST REVENUE......................... 571 557 1,137 1,106
Provision for credit losses.................. 57 46 114 143
------- ------- -------- --------
Net interest revenue after provision for
credit losses............................... 514 511 1,023 963
------- ------- -------- --------
NONINTEREST INCOME
Financial service fees..................... 134 155 185 301
Trust and agency fees...................... 62 63 119 121
Trading profits and commissions............ 25 7 38 9
Net securities gains....................... 4 17 6
Other income............................... 157 66 307 198
------- ------- -------- --------
Total noninterest income................. 382 291 666 635
------- ------- -------- --------
NONINTEREST EXPENSE
Salaries................................... 244 231 485 458
Employee benefits.......................... 49 51 101 101
Occupancy expense.......................... 50 47 101 94
Equipment expense.......................... 34 33 68 66
Other expense.............................. 154 149 302 292
------- ------- -------- --------
Total noninterest expense................ 531 511 1,057 1,011
------- ------- -------- --------
Income before income taxes................... 365 291 632 587
Provision for income taxes................... 151 123 263 264
------- ------- -------- --------
NET INCOME................................... $ 214 $ 168 $ 369 $ 323
======= ======= ======== ========
NET INCOME APPLICABLE TO COMMON STOCK........ $ 205 $ 159 $ 350 $ 304
======= ======= ======== ========
PER COMMON SHARE
Net income
Primary.................................... $ 1.33 $ 1.03 $ 2.27 $ 2.01
Fully diluted.............................. $ 1.32 $ 1.02 $ 2.24 $ 1.96
Dividends declared(1)........................ $ .44 $ .27 $ .81 $ .54
AVERAGE NUMBER OF COMMON SHARES (IN
THOUSANDS)
Primary.................................... 153,650 153,877 154,318 151,777
Fully diluted.............................. 155,183 155,529 156,018 155,248
</TABLE>
- --------
(1) Combined dividends declared represent the historical cash dividends of the
Corporation
11
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES:
A summary comparison of securities available for sale by type is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------- -------------------
CARRYING CARRYING
COST VALUE COST VALUE
------ -------- -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury.............................. $1,252 $1,243 $ 660 $ 665
U.S. government agencies and corporations--
Mortgage-backed securities................ 3,532 3,518 2,969 3,037
States and political subdivisions.......... 15 15 19 21
Foreign debt securities.................... 694 716 698 685
Other debt securities...................... 525 522 299 290
Marketable equity securities............... 157 234 100 152
Other equity securities.................... 182 182 164 164
------ ------ -------- --------
$6,357 $6,430 $ 4,909 $ 5,014
====== ====== ======== ========
</TABLE>
Other equity securities included in securities available for sale are not
traded on established exchanges and are carried at cost.
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
-------------------- --------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury....................... $ 3 $ 3 $ 4 $ 4
U.S. government agencies and
corporations--Mortgage-backed
securities......................... 549 532 523 530
States and political subdivisions... 4 4 5 5
Foreign debt securities............. 11 11 11 11
Other equity securities............. 66 66 70 70
---- ---- ---- ----
$633 $616 $613 $620
==== ==== ==== ====
</TABLE>
Other equity securities included in securities held to maturity represent
securities, such as Federal Reserve Bank and Federal Home Loan Bank stock,
which are not traded on established exchanges and have only redemption
capabilities. Fair values for such securities are considered to approximate
cost.
12
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LOANS AND LEASE FINANCING:
The following are the details of loan and lease financing balances:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------- -----------
(IN MILLIONS)
<S> <C> <C>
UNITED STATES OPERATIONS:
Commercial, industrial and financial.................. $11,682 $11,439
Commercial real estate:
Construction.......................................... 352 336
Other commercial...................................... 2,192 2,272
Consumer-related loans:
Residential mortgages................................. 1,978 2,105
Home equity loans..................................... 1,998 1,756
Other................................................. 4,299 3,397
Lease financing......................................... 1,461 1,409
Unearned income......................................... (219) (216)
------- -------
23,743 22,498
------- -------
INTERNATIONAL OPERATIONS:
Loans and lease financing............................. 9,198 8,606
Unearned income....................................... (56) (37)
------- -------
9,142 8,569
------- -------
$32,885 $31,067
======= =======
</TABLE>
5. RESERVE FOR CREDIT LOSSES:
An analysis of the reserve for credit losses is as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------- ------------------
1996 1995 1996 1995
------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD............... $ 732 $ 696 $ 735 $ 680
Provision.................................. 50 40 100 130
Reserves of entities sold.................. (11) (32)
Reserve of acquired bank................... 2 2
Domestic credit losses:
Commercial, industrial and financial..... (6) (12) (10) (22)
Commercial real estate................... (3) (17) (16) (24)
Consumer-related loans:
Residential mortgages.................... (1) (2) (6) (6)
Home equity loans........................ (1) (2) (4) (4)
Other.................................... (28) (15) (52) (28)
International credit losses................ (14) (10) (23) (28)
------- ------- -------- -------
Total credit losses.................... (53) (58) (111) (112)
------- ------- -------- -------
Domestic recoveries:
Commercial, industrial and financial..... 2 3 6 4
Commercial real estate................... 2 3 3 4
Consumer-related loans:
Residential mortgages.................... 1
Home equity loans........................ 1 1 2
Other.................................... 5 5 10 11
International recoveries................... 4 2 8 5
------- ------- -------- -------
Total recoveries....................... 13 14 29 26
------- ------- -------- -------
Net credit losses.......................... (40) (44) (82) (86)
------- ------- -------- -------
BALANCE, END OF PERIOD..................... $ 744 $ 692 $ 744 $ 692
======= ======= ======== =======
</TABLE>
13
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RESERVE FOR CREDIT LOSSES (CONTINUED):
At June 30, 1996, loans for which impairment has been recognized in
accordance with SFAS No. 114 totaled $253 million, of which $67 million
related to loans with no valuation reserve and $186 million related to loans
with a valuation reserve of $44 million. For the quarter and six months ended
June 30, 1996, average impaired loans were approximately $230 million and $218
million, respectively. Interest recognized on impaired loans during the second
quarter and six months ended June 30, 1996 was not material.
6. NOTES PAYABLE:
During the first quarter of 1996, the Corporation issued $125 million in
senior floating rate medium-term notes, due 1997, and $75 million in senior
floating rate medium-term notes, due 1999. During the second quarter of 1996,
the Corporation issued $150 million in senior floating rate medium-term notes,
due 1997, and $50 million in senior floating rate medium-term notes, due 1998.
The rates on these notes ranged from 5.41% to 5.66% at June 30, 1996. In June
1996, the Corporation's $100 million floating rate senior notes, issued in
1994, matured.
7. CONTINGENCIES:
The Corporation and its subsidiaries are defendants in a number of legal
proceedings arising in the normal course of business. Management, after
reviewing all actions and proceedings pending against or involving the
Corporation and its subsidiaries, considers that the aggregate loss, if any,
resulting from the final outcome of these proceedings should not be material
to the Corporation's financial statements.
8. CAPITAL CHANGES:
In April 1996, stockholders of the Corporation authorized an increase in the
authorized shares of the Corporation's common stock from 200 million shares,
par value $2.25 per share, to 300 million shares, par value $1.50 per share.
This change in par value resulted in the transfer of $84 million from common
stock to surplus in the accompanying consolidated balance sheet.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Corporation's net income for the quarter ended June 30, 1996 was $178
million, compared with net income of $133 million for the same period in 1995.
Net income per common share was $1.54 on a primary basis and $1.52 on a fully
diluted basis for the second quarter of 1996, compared with net income per
common share of $1.11 on a primary basis and $1.10 on a fully diluted basis
for the second quarter of 1995. Net income for the first half of 1996 was $295
million compared with $259 million for the first half of 1995. Net income per
common share was $2.50 on a primary basis and $2.46 on a fully diluted basis
for the first half of 1996, compared with $2.19 on a primary basis and $2.14
on a fully diluted basis for the first half of 1995.
On March 15, 1996, the Corporation completed its previously announced
transaction with two equity investment firms, in which the Corporation's
mortgage banking subsidiary, BancBoston Mortgage Corporation (BBMC), was sold
to a newly formed independent mortgage company, HomeSide, Inc. (HomeSide),
with the Corporation retaining a 45 percent interest in HomeSide. The second
phase of this transaction, in which Barnett Mortgage Company was acquired by
HomeSide, was completed during the second quarter of 1996, upon which the
Corporation, Barnett Bank and the equity investment firms now each hold an
approximate one-third interest in HomeSide. Under the agreement relating to
the sale of BBMC, the Corporation agreed to receive a fixed price of $225
million and maintain a risk management program designed to protect the
enterprise value of BBMC. Upon closing the first phase of the transaction in
the first quarter of 1996, the Corporation realized a gain of $60 million ($39
million after-tax). An additional gain of $46 million ($28 million after-tax)
was recognized in the second quarter of 1996 upon the closing of the second
phase of the transaction. The combined first and second quarter gains were
offset by an after-tax loss related to risk management activities of $111
million ($70 million after-tax) recorded in the first quarter of 1996 (see
"Noninterest Income" section).
On June 28, 1996, the Corporation completed its previously announced
acquisition of The Boston Bancorp (Bancorp), the holding company of South
Boston Savings Bank, a Massachusetts chartered savings bank with approximately
$1.3 billion in deposits. The Corporation exchanged 4.6 million shares of its
common stock, with a value of approximately $229 million, for all the
outstanding common stock of Bancorp. The Corporation has purchased an
equivalent amount of shares in the open market for this transaction. Since the
transaction was completed at the end of the second quarter and was accounted
for as a purchase, it had no effect on quarterly earnings.
On July 29, 1996, the Corporation completed its previously announced
acquisition of BayBanks, Inc. (BayBanks), a $12 billion bank holding company
based in Boston, in a tax-free exchange of stock, whereby the Corporation
exchanged 2.2 shares of its common stock for each share of BayBanks common
stock. The transaction was accounted for as a pooling of interests. To address
competitive issues raised by the Department of Justice and the Massachusetts
Attorney General in connection with this transaction, the Corporation agreed
to sell 20 branches having aggregate deposits of approximately $860 million,
which represented approximately 3 percent of the combined institutions'
Massachusetts deposits. The combination of the two Boston-based institutions
created a consumer and corporate banking entity operating in 36 states and 25
countries, with over $60 billion in assets and $40 billion in deposits.
Additional information on certain of these transactions can be found in Note
2 to the Financial Statements.
15
<PAGE>
NET INTEREST REVENUE--(FULLY TAXABLE EQUIVALENT BASIS)
The discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue--Volume
and Rate Analysis appearing elsewhere in this report. For this review,
interest income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to a fully taxable equivalent basis. This
adjustment has been calculated using a federal income tax rate of 35 percent,
plus applicable state and local taxes, net of related federal tax benefits.
The following tables present summaries of net interest revenue, on a fully
taxable equivalent basis, and related average loans and lease financing and
average earning asset balances and net interest margin for United States and
International Operations:
<TABLE>
<CAPTION>
CHANGE
1996 1995 AMOUNT
QUARTERS ENDED JUNE 30 ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States Operations:
Net interest revenue................................. $ 308 $ 322 $ (14)
Average loans and lease financing.................... 23,416 23,099 317
Average earning assets............................... 29,708 28,471 1,237
Net interest margin.................................. 4.16% 4.54% (.38)%
International Operations:
Net interest revenue................................. $ 132 $ 114 $ 18
Average loans and lease financing.................... 8,856 7,829 1,027
Average earning assets............................... 12,732 10,499 2,233
Net interest margin.................................. 4.18% 4.35% (.17)%
Consolidated:
Net interest revenue................................. $ 440 $ 436 $ 4
Average loans and lease financing.................... 32,272 30,928 1,344
Average earning assets............................... 42,440 38,970 3,470
Net interest margin.................................. 4.17% 4.49% (.32)%
<CAPTION>
CHANGE
1996 1995 AMOUNT
SIX MONTHS SIX ENDED JUNE 30 ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States Operations:
Net interest revenue................................. $ 619 $ 652 $ (33)
Average loans and lease financing.................... 23,013 22,923 90
Average earning assets............................... 29,425 28,063 1,362
Net interest margin.................................. 4.23% 4.69% (.46)%
International Operations:
Net interest revenue................................. $ 256 $ 211 $ 45
Average loans and lease financing.................... 8,802 7,605 1,197
Average earning assets............................... 12,597 10,420 2,177
Net interest margin.................................. 4.09% 4.08% .01%
Consolidated:
Net interest revenue................................. $ 875 $ 863 $ 12
Average loans and lease financing.................... 31,815 30,528 1,287
Average earning assets............................... 42,022 38,483 3,539
Net interest margin.................................. 4.19% 4.52% (.33)%
</TABLE>
Domestic net interest revenue and margin decreased in both the quarterly and
six-month comparisons due to narrower spreads, in part, caused by the
aggressive marketing of a new higher-rate savings product which was first
introduced during the second quarter of 1995, the introduction of a
promotional-rate credit card product in the latter part of 1995, and lower
loan fees. Partially offsetting the decrease in net interest revenue was an
16
<PAGE>
increase in average earning assets from the 1995 periods, including a change
in the mix of average earning assets consisting of loan and lease financing
growth coupled with even higher growth of other earning assets. The growth in
other average earning assets principally reflected increased securities
available for sale, mainly for asset and liability management purposes, and
increased trading securities resulting from the Corporation's Emerging Markets
business activities, which was partially offset by decreased mortgages held
for sale in the quarterly comparison as a result of the sale of the
Corporation's mortgage banking business. Since securities available for sale
and trading securities generally have lower yields than loans, the mix change
also contributed to the decline in domestic margin from the 1995 periods.
Internationally, the growth in net interest revenue of $18 million in the
quarterly comparison and $45 million in the six-month comparison was primarily
driven by the Corporation's Latin American operations. These increases
reflected an increase in average earning assets of $2.2 billion over the 1995
periods, including $1.0 billion and $1.2 billion increases in average loans
and lease financing in the quarterly and six-month comparisons, respectively.
International volume growth included approximately $600 million and $700
million in average loans and leases in Brazil in the quarterly and six-month
comparisons, respectively, and over $400 million and $100 million in average
loans and leases in Argentina and Chile, respectively, in both comparisons.
For both the quarterly and six-month comparisons, the impact of these volume
increases on net interest revenue was partially offset by lower Argentine net
interest margin, reflecting lower interest rates stemming from increasing
economic stability in that country, and mix changes in Argentina's average
earnings assets. The decline in interest rates and changes in mix in Argentina
were primarily responsible for the decrease in international margin in the
quarterly comparison; the impact of these factors on international margin in
the six-month comparison was offset by wider Brazilian and Chilean spreads, as
well as favorable mix changes in Brazil during the first quarter of 1996.
When compared to the first quarter of 1996, consolidated net interest
revenue increased $3 million and margin declined 4 basis points. The increase
in net interest revenue from the prior quarter reflected a higher volume of
average earning assets and a higher international margin, partially offset by
lower spreads from domestic operations. The latter reflected a lower level of
loan fees, which was mainly responsible for the modest decline in consolidated
margin from the first quarter.
The level of net interest revenue and margin reported for the quarter ended
June 30, 1996 is not necessarily indicative of future results. The Corporation
has experienced and could continue to experience pressure on its margin in the
future. Future levels of net interest revenue and margin will be affected by
competitive pricing pressure on retail deposits, loans and other products; the
mix and volume of assets and liabilities; the interest rate environment; the
economic and political situations in countries where the Corporation does
business; and other factors.
PROVISION FOR CREDIT LOSSES
The provision for credit losses in each quarter reflected management's
assessment of the adequacy of the reserve for credit losses, considering the
current risk characteristics of the loan portfolio and economic conditions.
The provision for credit losses was $50 million for the quarter ended June
30, 1996, compared with $40 million for the same period in 1995. For the six
months of 1996, the provision for credit losses was $100 million compared with
$130 million for the first six months of 1995, including a special provision
of $50 million in the first quarter of 1995 reflecting management's intent to
strengthen further the Corporation's loan loss reserve. The special provision
of $50 million recorded in the first quarter of 1995 related to the
uncertainty caused by economic events impacting the Argentine and Mexican
economies in the early part of 1995, and industry trends in consumer credit,
combined with the growth in the Corporation's Latin American lending and
domestic consumer lending portfolios.
The amount of future provisions will continue to be a function of the
regular quarterly review of the reserve for credit losses, based upon
management's assessment of risk at that time, and, as such, there can be no
assurance as to the level of future provisions.
17
<PAGE>
NONINTEREST INCOME
The following table sets forth the components of noninterest income.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
---------------- -----------------
1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Financial service fees
Deposit fees.............................. $ 29 $ 29 $ 60 $ 59 $ 1
Letter of credit and acceptance fees...... 15 16 $ (1) 31 35 (4)
Net mortgage servicing fees............... 27 (27) (91) 48 (139)
Loan-related fees......................... 20 17 3 40 30 10
Other financial service fees.............. 25 24 1 56 47 9
---- ---- ---- ---- ---- -----
Total financial service fees............ 89 113 (24) 96 219 (123)
Trust and agency fees....................... 55 57 (2) 106 110 (4)
Trading profits and commissions............. 24 6 18 37 7 30
Net securities gains........................ 4 4 17 6 11
Net equity and mezzanine profits............ 77 23 54 114 39 75
Net foreign exchange trading profits........ 11 16 (5) 23 28 (5)
Other income................................ 18 21 (3) 51 45 6
Gain (loss) on sales of businesses.......... 46 46 106 75 31
---- ---- ---- ---- ---- -----
Total................................... $324 $236 $ 88 $550 $529 $ 21
==== ==== ==== ==== ==== =====
</TABLE>
Lower financial service fees during the first six months of 1996 reflected
$111 million of pre-tax losses ($70 million after-tax) from BBMC's risk
management activities, net of decreased mortgage servicing amortization,
recorded during the first quarter of 1996. These losses resulted from the
change in market value of contracts used to manage prepayment risk in the
mortgage servicing portfolio which, in turn, protected the economic value of
BBMC pending the completion of its sale to HomeSide. The value of mortgage
servicing rights is affected by the expected level of prepayments made by
mortgage holders resulting from changes in mortgage rates. The value of the
contracts purchased to manage this risk fluctuates inversely with the value of
the mortgage servicing assets. Due to the sharp increase in long-term interest
rates during the first quarter of 1996, the value of these contracts declined.
Concurrently, the value of the mortgage servicing assets and the amount of
gain to be recognized by the Corporation on the disposition of BBMC increased.
As a result, the losses from risk management activities were substantially
offset by the combined first and second quarter pre-tax gains of $106 million
($67 million after-tax) realized on the sale of BBMC, which are included in
gains on sales of businesses. Lower financial service fees also reflected a
reduction in net mortgage servicing fees of approximately $27 million due to
the sale of BBMC in March 1996.
Excluding net mortgage servicing fees, financial service fees increased $3
million in the quarterly comparison and $16 million in the six-month
comparison. These increases in financial service fees were primarily due to
increased loan-related fees in both the quarterly and six-month comparisons,
reflecting higher syndication fees generated by the Corporation's Global
Capital Markets business. Also, in the six-month comparison, higher advisory
and Latin American credit card fees generated the increase in other financial
service fees. Letter of credit and acceptance fees declined from the first
half of 1995 due to lower fees in Brazil, Asia and Europe.
Net equity and mezzanine profits increased significantly compared with the
prior year periods due to a higher level of gains realized on the dispositions
of investments primarily as a result of a seasoning of the portfolio and
favorable market conditions. The portfolio has been steadily growing and is
diversified as to industry, geography and type of investment. The lower trust
and agency fees reflected the Corporation's sale of its corporate trust
business and joint venture of its stock transfer business in the fourth
quarter of 1995. Excluding
18
<PAGE>
the effects of these transactions, trust and agency fees increased by $10
million from the second quarter of 1995 and $19 million from the first half of
1995, mainly due to higher fees from the Corporation's Brazilian mutual fund
and domestic private banking businesses. Both of these areas are generating
higher volumes with mutual funds in Brazil growing to over $3.0 billion and
domestic personal assets under management now totaling approximately $17
billion. Compared to prior year periods, trading account profits and
commissions improved mainly due to increases from the Corporation's Global
Capital Markets and Latin American units. Net securities gains increased from
the prior year periods as certain domestic securities were sold as part of a
repositioning of the available for sale securities portfolio. Net foreign
exchange trading profits declined from the prior year periods reflecting lower
profits from Latin America and Asia.
The gain on sales of businesses in 1996 reflected the gain on the sale of
BBMC as discussed above, and, in 1995, reflected the sale of the Corporation's
Maine and Vermont banking subsidiaries for a gain of $75 million ($30 million
after-tax).
NONINTEREST EXPENSE
The following table sets forth the components of noninterest expense.
Information on the change in noninterest expense follows the table.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
---------------- ----------------
1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Employee costs............................... $227 $220 $ 7 $456 $437 $19
Occupancy and equipment...................... 62 60 2 125 119 6
Other........................................ 116 109 7 227 214 13
---- ---- --- ---- ---- ---
Noninterest expense before OREO costs........ 405 389 16 808 770 38
OREO costs................................. 1 3 (2) 3 5 (2)
---- ---- --- ---- ---- ---
Total.................................... $406 $392 $14 $811 $775 $36
==== ==== === ==== ==== ===
</TABLE>
The increase in noninterest expense came from ongoing expansion and
investment spending in several of the Corporation's growth businesses, mainly
Latin America, Global Capital Markets and Consumer Finance. Initiatives in
these units included: branch expansion and growth in fee-based businesses in
Latin America; the hiring of sales and trading professionals in all the Global
Capital Markets businesses, including the start-up of a high-yield debt unit;
and marketing campaigns related to credit card, home equity and other products
in Consumer Finance. Second quarter 1996 expense levels also included higher
incentive compensation costs related to improved business unit performance
along with higher litigation costs.
The comparisons of noninterest expense with the 1995 periods are affected by
the elimination of FDIC insurance premiums in 1996, which amounted to $11
million in the second quarter of 1995 and $23 million in the first half of
1995, and the absence of operating expenses associated with disposed
businesses, including BBMC and the corporate trust and stock transfer
businesses. Total staff levels declined by about 5 percent, or 900, from June
1995, principally due to the sale of BBMC and the joint venture of the stock
transfer business.
PROVISION FOR INCOME TAXES
The Corporation's tax provision was $128 million in the second quarter of
1996, compared with $105 million in the second quarter of 1995. For the first
six months of 1996, the Corporation's provision for income taxes was $216
million, compared with $225 million for the first six months of 1995,
including $45 million associated with the $75 million pre-tax gain on the
sales of its Maine and Vermont banking subsidiaries during the first quarter
of 1995. The high level of tax associated with this gain reflected the lower
tax bases in these
19
<PAGE>
investments as a result of $35 million of non-tax deductible goodwill
associated with these subsidiaries. Excluding this gain and related tax
provision, the Corporation's effective tax rate in the first six months of
1995 was 44 percent, compared to an effective tax rate of 42 percent in the
first six months of 1996, the same rates as in the respective second quarters
of 1995 and 1996. The reduction in the effective tax rate reflected the effect
of mid-1995 changes in Massachusetts tax law which permit apportionment of a
bank's taxable income and reduce the state income tax rate for banks from 12.5
percent to 10.5 percent to be phased in over five years.
FINANCIAL CONDITION
CONSOLIDATED BALANCE SHEET
At June 30, 1996, the Corporation's total assets were $50.8 billion compared
with $47.4 billion at December 31, 1995. The $3.4 billion increase was due to
a higher level of earning assets, mainly loans and securities (see "Credit
Profile" below for a further discussion of loans). Contributing to this
increase was the Corporation's acquisition of Bancorp, which added $1.3
billion in domestic deposit liabilities and a comparable level of liquid
assets, primarily securities available for sale, to the June 30 balance sheet.
The increase in other earning assets of $400 million was primarily
attributable to an increase in overnight federal funds at June 30, and an
increase in trading securities, mainly in Brazil, partially offset by a
reduction in mortgages held for sale resulting from the sale of BBMC. The
decline in other assets reflected the removal of over $500 million of mortgage
servicing rights from the Corporation's balance sheet due to the sale of BBMC.
The Corporation's deposit levels increased $2.4 billion reflecting the
addition of $1.3 billion in deposits from the acquisition of Bancorp as well
as increases in wholesale deposit funding. The increase in wholesale deposit
funding was partially offset by declines in wholesale funding from FNBB's note
program. Notes payable increased approximately $500 million from December 31,
1995, mainly due to the issuance of medium-term notes by the Corporation and
additional subscriptions of Brazilian debt, partially offset by the maturity
of the Corporation's senior notes.
CREDIT PROFILE
A discussion of the Corporation's credit management policies is included on
page 28 of its 1995 Annual Report to Stockholders, which is incorporated by
reference into its 1995 Annual Report on Form 10-K.
The segments of the lending portfolio are as follows:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1996 1996 1995 1995 1995
------- -------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States Operations:
Commercial, industrial and
financial.................. $11,682 $11,361 $11,439 $11,789 $11,907
Commercial real estate:
Construction.............. 352 323 336 412 327
Other commercial.......... 2,192 2,096 2,272 2,303 2,489
Consumer-related loans:
Residential mortgages..... 1,978 2,109 2,105 3,333 3,243
Home equity loans......... 1,998 1,867 1,756 1,645 1,509
Other..................... 4,299 3,843 3,397 3,131 2,834
Lease financing............. 1,461 1,414 1,409 1,373 1,356
Unearned income............. (219) (217) (216) (216) (211)
------- ------- ------- ------- -------
23,743 22,796 22,498 23,770 23,454
------- ------- ------- ------- -------
International Operations:
Loans and lease financing,
net of unearned income..... 9,142 8,606 8,569 7,921 7,934
------- ------- ------- ------- -------
Total loan and lease fi-
nancing.................. $32,885 $31,402 $31,067 $31,691 $31,388
======= ======= ======= ======= =======
</TABLE>
20
<PAGE>
The $1.8 billion increase in loans and lease financing since December 31,
1995, reflected higher consumer-related loans, mainly credit card and home
equity loans, as well as higher commercial and industrial loans and
international loans, partially offset by declines in the residential mortgages
and commercial real estate loans. The $1.2 billion increase in domestic loans
primarily reflects the Corporation's reentry into the domestic credit card
business during the latter part of 1995, as well as the origination activities
of its home equity lending business and national consumer finance franchise.
The growth in commercial and industrial loans occurred in various regional and
national portfolios; loan levels are also affected by the timing of
syndication activity. The decline in residential mortgage loans reflected the
sale of approximately $300 million of loans in connection with the
Corporation's program to remove low-return assets from the balance sheet,
partially offset by the addition of residential mortgages to the balance sheet
upon completion of the Bancorp acquisition in late June. The increase in
international loans and lease financing reflected ongoing growth in the Latin
American portfolios, primarily those of Argentina and Brazil. A further
discussion of the Argentine and Brazilian operations is included in the
"Cross-Border Outstandings" section.
Approximately 65 percent of domestic commercial real estate loans were
located in New England at June 30, 1996, compared with approximately 70
percent at December 31, 1995. The portion of domestic commercial real estate
loans located outside of New England was dispersed among 22 and 25 states at
June 30, 1996 and December 31, 1995, respectively.
The Corporation's total loan portfolio at June 30, 1996 and December 31,
1995, included $1.3 billion of highly leveraged transaction (HLT) loans to 103
and 101 customers, respectively. The average HLT loan size at June 30, 1996
and December 31, 1995, was $13 million. The amount of unused commitments for
HLTs at June 30, 1996 was $697 million, compared with $639 million at December
31, 1995. The amount of unused commitments does not necessarily represent the
actual future funding requirements of the Corporation, since a portion can be
syndicated or assigned to others or may expire without being drawn upon. At
June 30, 1996 and December 31, 1995, there were no nonaccrual HLT loans. There
were no credit losses from HLT loans during the first half of 1996. The
Corporation does not currently anticipate a substantial increase in HLT
lending over the June 30, 1996 level.
A discussion of the Corporation's real estate and HLT lending activities,
policies and the effect of these activities on results of operations is
included on page 30 of its 1995 Annual Report to Stockholders, which is
incorporated by reference into its 1995 Annual Report on Form 10-K.
21
<PAGE>
NONACCRUAL LOANS AND OREO
The details of consolidated nonaccrual loans and OREO are as follows:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1996 1996 1995 1995 1995
------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States:
Commercial, industrial and fi-
nancial...................... $128 $ 79 $ 66 $105 $106
Commercial real estate:
Construction.................. 9 21 24 23 16
Other......................... 61 74 78 82 85
Consumer-related loans:
Residential mortgages......... 32 32 29 30 31
Home equity loans............. 19 15 14 16 14
Other......................... 37 39 32 30 21
---- ---- ---- ---- ----
286 260 243 286 273
---- ---- ---- ---- ----
International................... 57 63 66 69 66
---- ---- ---- ---- ----
Total nonaccrual loans...... 343 323 309 355 339
OREO............................ 44 48 50 62 78
---- ---- ---- ---- ----
Total....................... $387 $371 $359 $417 $417
==== ==== ==== ==== ====
Nonaccrual loans and OREO as a
percent of related asset
categories..................... 1.2% 1.2% 1.2% 1.3% 1.3%
</TABLE>
The increase in nonaccrual loans and OREO from December 31, 1995, included
an increase in commercial and industrial nonaccrual loans, reflecting higher
nonaccrual loans in various portfolios, including the diversified, asset-based
and specialized finance portfolios as well as the New England corporate
banking portfolio. This increase was partially offset by continuing decreases
in commercial real estate nonaccrual loans and OREO. The level of nonaccrual
loans and OREO is influenced by the economic environment, interest rates, the
regulatory environment and other internal and external factors. The
Corporation expects that it will experience additional increases in its
nonaccrual loans; however, it believes that the level of its nonaccrual loans
and leases and OREO will remain within a reasonable range relative to its
asset levels.
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at June 30, 1996 was $744 million, or 2.26
percent of outstanding loans and leases, compared with $736 million, or 2.37
percent, at December 31, 1995, and $692 million, or 2.20 percent at June 30,
1995. The reserve for credit losses was 217 percent of nonaccrual loans and
leases at June 30, 1996, compared with 238 percent at December 31, 1995, and
204 percent at June 30, 1995.
Net credit losses were $40 million for the second quarter of 1996, and $82
million for the first half of 1996. This compares with $44 million for the
second quarter of 1995, and $86 million for the first half of 1995. During the
second quarter and first six months of 1996, lower net credit losses from the
commercial real estate and commercial and industrial portfolios as well as
higher overall recoveries were offset, in part, by higher net credit losses
from the other consumer-related portfolio. Net credit losses from the other
consumer-related portfolio amounted to $23 million in the second quarter of
1996, compared to $20 million in the first quarter of 1996, and $10 million in
the second quarter of 1995. The increases in the quarterly and six-month
comparisons were principally due to higher net credit losses from the national
consumer finance portfolio. While international net credit losses increased in
the quarterly comparison, primarily due to higher net credit losses from the
Brazilian consumer loan portfolio, the decrease in international net credit
losses in the six-month comparison reflected lower net credit losses from the
loan portfolios in Argentina and Uruguay. As a percentage of average loans and
22
<PAGE>
leases on an annualized basis, net credit losses were .50 percent in the
second quarter of 1996, compared with .54 percent for the first quarter of
1996, and .57 percent for the second quarter of 1995.
Net credit losses are as follows:
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
---------------- ------------
1996 1995 1996 1995
------- ------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Operations:
Commercial, industrial and finan-
cial............................ $ 4 $ 9 $ 4 $ 18
Commercial real estate........... 1 14 13 20
Consumer-related loans:
Residential mortgages............ 1 2 5 6
Home equities.................... 1 1 3 2
Other............................ 23 10 42 17
------- ------- ----- -----
30 36 67 63
International Operations........... 10 8 15 23
------- ------- ----- -----
Total.......................... $ 40 $ 44 $ 82 $ 86
======= ======= ===== =====
</TABLE>
CROSS-BORDER OUTSTANDINGS
At June 30, 1996 and December 31, 1995, total cross-border outstandings
represented 15 percent and 16 percent of consolidated total assets,
respectively. 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 accrued interest receivable.
In addition to credit risk, cross-border outstandings have the risk that, as
a result of political or economic conditions in a country, borrowers are
unable to meet their contractual payment obligations of principal and/or
interest when due because of the unavailability of, or restrictions on,
foreign exchange needed by borrowers to repay their obligations. The
Corporation manages its cross-border outstandings using country exposure
limits. A discussion of the Corporation's credit management policies is
included on page 28 of its 1995 Annual Report to Stockholders, which is
incorporated by reference into its 1995 Annual Report on Form 10-K.
Excluded from cross-border outstandings for a given country are:
. Local currency assets funded with U.S. dollars or other non-local
currency where the providers of funds agree that, in the event their
claims cannot be repaid in the designated currency due to currency
exchange restrictions 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 June 30, 1996, such
transactions related to emerging markets countries totaled $1.8 billion
compared with $1.3 billion at December 31, 1995.
. Local currency outstandings funded with local currency.
. U.S. dollar or other non-local currency outstandings reallocated as a
result of external guarantees or cash collateral.
. U.S. dollar or other non-local currency outstandings reallocated as a
result of insurance contracts, primarily issued by U.S. government
agencies.
23
<PAGE>
Cross-border outstandings in countries which individually amounted to 1.0
percent or more of consolidated total assets at June 30, 1996 and December 31,
1995 were approximately as follows:
<TABLE>
<CAPTION>
CONSOLIDATED PERCENTAGE OF
PUBLIC BANKS OTHER TOTAL TOTAL ASSETS COMMITMENTS (2)
------ ----- ------ ------------ ------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1996(1)
Argentina............. $610 $15 $1,810 $2,435 4.8% $35
Brazil................ 15 70 745 830 1.6 30
Chile................. 140 195 270 605 1.2 25
December 31, 1995(1)
Argentina............. $465 $50 $1,710 $2,225 4.7% $45
Brazil................ 25 20 980 1,025 2.2 35
Chile................. 150 125 365 640 1.4 15
United Kingdom........ 100 570 670 1.4 130
</TABLE>
- --------
(1) Cross-border outstandings in countries which fell within .75 percent and 1
percent of consolidated total assets at June 30, 1996 and December 31,
1995, were approximately as follows: United Kingdom $415 million at June
30, 1996; South Korea $395 million at June 30, 1996 and $365 million at
December 31, 1995.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.
To comply with the regulatory definition of cross-border outstandings, the
Corporation included approximately $1.2 billion and $1.3 billion of
Argendollar outstandings in its cross-border totals for Argentina at June 30,
1996 and December 31, 1995, respectively. These outstandings are payable to
the Corporation in U.S. dollars, which are funded entirely by dollars borrowed
within Argentina.
EMERGING MARKETS COUNTRIES
At June 30, 1996, approximately $4.8 billion of the Corporation's cross-
border outstandings, or approximately 9.4 percent of total assets, were to
emerging markets countries, of which $4.6 billion were to countries in which
the Corporation maintains a branch network and/or subsidiaries. Total cross-
border outstandings at December 31, 1995 were $4.6 billion. These cross-border
outstandings, of which approximately 78 percent were loans at June 30, 1996,
were mainly comprised of short-term trade credits, non-trade-related loans and
leases not subject to country debt rescheduling agreements, government
securities and capital investments in branches and subsidiaries.
ARGENTINA AND BRAZIL
During the first half of 1996, the Argentine economy continued to improve
slowly with the government's announcement of a series of political and
economic measures aimed at stimulating growth. Total deposits in the country's
financial system have grown by an average of approximately 16 percent in the
first six months of 1996, while loans are recovering more gradually. The
Corporation's Argentine deposits increased approximately $225 million from
December 31, 1995, and its loans increased by approximately $300 million from
December 31, 1995, including increases in both commercial and consumer
lending. The level of Argentine nonaccrual loans declined from $52 million at
December 31, 1995, to $41 million at June 30, 1996, and net credit losses also
declined from $13 million in the first six months of 1995, to $9 million in
the first six months of 1996.
In July 1996, Argentine Economic Minister Cavallo resigned and was replaced
by a newly appointed Economic Minister, Mr. Roque Fernandez, who very recently
announced a series of new economic measures designed to reduce the country's
fiscal deficit through increased fuel prices and taxes, and reductions in
24
<PAGE>
government spending. The Corporation plans to monitor and assess any future
impact that these measures may have on the Argentine economy and banking
system.
During the second quarter of 1996, Brazil's inflation averaged 1.3 percent
per month compared with .5 percent per month during the first quarter of 1996.
However, average monthly inflation during the first six months of 1996
compares favorably to average monthly inflation of 1.9 percent in 1995. The
Brazilian government continues to manage closely the country's exchange rate
policy. The exchange rate at June 30, 1996 was 1 Real to the U.S. dollar.
Certain local Brazilian banks experienced liquidity and other problems in
1995, which continued into the first half of 1996. This has generally resulted
in customers moving their funds to banks perceived to have more stability,
contributing, in part, to the increases in the Corporation's deposit and
mutual funds levels. The Corporation's deposit levels in Brazil increased from
December 31, 1995 by over $400 million, or 50 percent, to approximately $850
million at June 30, 1996. Additionally, the Corporation's mutual funds under
management in Brazil increased by approximately $800 million from December 31,
1995, to $3.3 billion at June 30, 1996.
The Corporation's loan level in Brazil increased by approximately $270
million from December 31, 1995, to $2.5 billion at June 30, 1996, including
increases from various segments of the loan portfolio. Net credit losses
increased from $1 million in the first quarter of 1996, to $4 million in the
second quarter of 1996, reflecting higher credit losses from the consumer
portfolio. Nonaccrual loans and OREO remained flat with the first quarter of
1996 at $12 million, which compared to $8 million for the fourth quarter of
1995.
During the second quarter of 1996, the Corporation's Argentine and Brazilian
operations continued to structure their balance sheets to take positions in
their local currencies as deemed appropriate. Such positions are taken when
the Corporation believes that it can maximize its spread from interest
operations by funding local currency assets with U.S. dollars rather than
using local currency liabilities or by funding U.S. dollar assets with local
currency liabilities. The average currency positions for Argentina and Brazil
during the second quarter of 1996 were $112 million and $32 million,
respectively, compared to $56 million and $112 million, respectively, in the
first quarter of 1996. Additionally, the Corporation maintained average
positions in Chile and Korea of $23 million and $101 million, respectively,
during the second quarter of 1996, which compared to $13 million and $92
million, respectively, during the first quarter of 1996. Currency positions
are actively managed and, therefore, it is not unusual for levels to fluctuate
from period to period. To date, these positions have been liquid in nature and
local management has been able to close and re-open these positions as
necessary. For additional information related to the Corporation's currency
positions, see page 37 of the Corporation's 1995 Annual Report to
Stockholders, which is incorporated by reference into its 1995 Annual Report
on Form 10-K.
The economic situation in Latin America can be volatile, including the
effect of world financial markets on these economies. As such, changes in the
economies of the Latin American countries in which the Corporation does
business could have an impact on the Corporation in the future. The
Corporation has not experienced any collection problems as a result of
currency restrictions or foreign exchange liquidity problems on its current
portfolio of cross-border outstandings to emerging markets countries. However,
if actions implemented by Latin American governments do not remain effective
over time, particularly with regard to liquidity, the Corporation's operations
could experience adverse effects, including stress on liquidity, deterioration
of credit quality, a decline in the value of its securities portfolio and
declines in loan and deposit levels. The Corporation will continue to monitor
the economies of Latin American countries in which it has local operations,
cross-border outstandings and/or currency positions. Each emerging markets
country is at a different stage of development with a unique set of economic
fundamentals; therefore, it is not possible to predict what developments will
occur and what impact these developments will ultimately have on the economies
of these countries or on the Corporation's financial statements. For
additional information related to the Corporation's Latin American cross-
border outstandings, see pages 35 through 38 of the Corporation's 1995 Annual
Report to Stockholders, which is incorporated by reference into its 1995
Annual Report on Form 10-K.
25
<PAGE>
LIQUIDITY MANAGEMENT
The Corporation's liquid assets, which 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,
stood at $6.6 billion at June 30, 1996, compared with $5.8 billion at December
31, 1995. Also, the Corporation has access to additional funding through the
public markets. Management considers overall liquidity at June 30, 1996 to be
adequate to meet current obligations, support expectations for future changes
in asset and liability levels and carry on normal operations. For additional
information related to the Corporation's liquidity management, see pages 38
and 39 of the Corporation's 1995 Annual Report to Stockholders, which is
incorporated by reference into its 1995 Annual Report on Form 10-K.
INTEREST RATE RISK
Interest rate risk is defined as the exposure of the Corporation's net
income or financial position to adverse movements in interest rates. The
Corporation manages its interest rate risk within policies and limits
established by the Asset and Liability Management Committee (ALCO) and
approved by the Board of Directors (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 internal and external factors.
Interest rate risk related to non-trading, U.S. dollar denominated
positions, which represents a significant portion of the consolidated balance
sheet at June 30, 1996, is managed centrally through the Boston Treasury
Group. Interest rate risk associated with these positions is evaluated and
managed through several modeling methodologies. The two principal
methodologies used are market value sensitivity and net interest revenue at
risk. The results of these models are reviewed monthly with ALCO and at least
quarterly with the Board.
These methodologies are designed to isolate the effects of market changes in
interest rates on the Corporation's existing positions, and they exclude other
factors, such as competitive pricing considerations, future changes in asset
and liability mix and other management actions and, therefore, are not by
themselves measures of future levels of net interest revenue.
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
interest revenue at risk over the next twelve months. Under current ALCO
directives, market value sensitivity cannot exceed 4 percent of risk-based
capital and net interest revenue at risk cannot exceed 2 percent of net
interest revenue over the next twelve-month period. The ALCO market value
sensitivity directive was increased during the current quarter from 3 percent
of risk-based capital at March 31, 1996. The following table shows the
Corporation's market value sensitivity and net interest revenue at risk
positions at June 30, 1996 and December 31, 1995, respectively.
MARKET VALUE SENSITIVITY AND NET INTEREST REVENUE AT RISK POSITIONS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------------- ---------------------
QUARTERLY QUARTERLY
QUARTER-END AVERAGE QUARTER-END AVERAGE
----------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Market Value Sensitivity
(1)...................... $146 $160 $87 $84
% of risk-based capital.. 2.7% 3.0% 1.6% 1.6%
- -------------------------------------------------------------------------------
Net Interest Revenue at
Risk (2)................. $ 20 $ 22 $24 $21
% of net interest reve-
nue...................... 1.1% 1.3% 1.4% 1.2%
</TABLE>
26
<PAGE>
- --------
(1) Based on a 100 basis point adverse interest rate shock.
(2) Based on the greater of a 100 basis point adverse interest rate shock or a
200 basis point adverse change in interest rates over the next twelve-
month period. At June 30, 1996, the adverse position was based upon a 100
basis point upward interest rate shock. At December 31, 1995, the adverse
position was based upon a 200 basis point decline in interest rates over
the next twelve-month period. See further discussion below.
At June 30, 1996, the Corporation's adverse market value sensitivity was to
rising interest rates. The increase in the market value sensitivity position
since December 31, 1995, was primarily due to an increase in fixed rate assets
and, therefore, lengthening asset durations, and the termination of $8.2
billion of a series of interest rate futures contracts during the first
quarter of 1996 that were linked to the Corporation's short-term floating rate
wholesale funding.
The Corporation's adverse net interest revenue at risk position was to
rising interest rates at June 30, 1996, and to declining rates at December 31,
1995. The change in exposure is primarily due to changes in the terms and
repricing characteristics of balance sheet and off-balance sheet items at a
specific point in time, including the termination of the series of futures
contracts discussed above, which resulted in an increase in floating rate
liabilities.
The market value sensitivity and the net interest revenue at risk positions
were in compliance with ALCO directives during the quarter ended June 30,
1996. The level of exposure maintained by the Corporation is a function of the
market environment and will change from period to period based on interest
rate and other economic expectations.
Non-U.S. dollar denominated interest rate risk is managed by the
Corporation's overseas units, with oversight by the Treasury group in Boston.
The Corporation, through ALCO, has established limits for its non-U.S. dollar
denominated interest rate risk using cumulative gap limits for each country in
which the Corporation has local market interest rate risk. During the second
quarter of 1996, the cumulative gap positions in each country were within ALCO
limits. The level of interest rate risk positions taken by the overseas units
varies based on economic conditions in the country at the particular point in
time.
Additional information with respect to the Corporation's management of
interest rate risk is included on pages 39 to 43 of the Corporation's 1995
Annual Report to Stockholders which is incorporated by reference in its 1995
Annual Report on Form 10-K.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation utilizes a variety of financial instruments to manage
interest rate risk, including derivatives and securities. Derivatives provide
the Corporation with significant flexibility in managing its interest rate
risk exposure, enabling it to manage risk efficiently and respond quickly to
changing market conditions by minimizing the impact on balance sheet leverage.
The Corporation routinely uses non-leveraged rate-related derivative
instruments, primarily interest rate swaps and futures, as part of its asset
and liability management practices. All derivative activities are managed on a
comprehensive basis, are included in the overall market value sensitivity and
net interest revenue at risk measures and limits described above, and are
subject to credit standards similar to those for balance sheet exposures.
27
<PAGE>
The following table summarizes the notional amounts and fair values of
interest rate derivatives and foreign exchange contracts included in the
Corporation's asset and liability management portfolio.
<TABLE>
<CAPTION>
JUNE 30, 1996 (1) DECEMBER 31, 1995 (1)
----------------------------------------------- ------------------------------------------------
FAIR VALUE (2)(3) FAIR VALUE (2)(3)
NOTIONAL -------------------- UNRECOGNIZED (4) NOTIONAL --------------------- UNRECOGNIZED (4)
AMOUNT ASSET LIABILITY GAIN (LOSS) AMOUNT ASSET LIABILITY GAIN (LOSS)
-------- -------- ---------- ---------------- -------- --------- ---------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Futures and forwards.. $ 2,846 $ 6 $(69) $12,518 $ 10 $(89)
Interest rate swaps... 7,037 28 63 (21) 5,828 92 7 102
Interest rate options
Purchased............. 277 (3) 3,968 119 2
Written or sold....... 360 34
------- -------- -------- ---- ------- --------- -------- ----
Total interest rate con-
tracts................. $10,160 $ 28 $ 69 $(93) $22,674 $ 211 $ 51 $ 15
======= ======== ======== ==== ======= ========= ======== ====
Foreign exchange spot
and forward contracts
(5).................... $ 1,218 $ 9 $ 2 $ 7 $ 1,257 $ 3 $ 5 $ (2)
------- -------- -------- ---- ------- --------- -------- ----
Total foreign exchange
contracts.............. $ 1,218 $ 9 $ 2 $ 7 $ 1,257 $ 3 $ 5 $ (2)
======= ======== ======== ==== ======= ========= ======== ====
</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. The majority of derivatives that are part of the ALM
portfolio are accounted for on the accrual basis, and not carried at fair
value. In certain cases, contracts, such as futures, are subject to daily
cash settlements; as such, the fair value of these instruments is zero.
(3) The credit exposure of interest rate derivatives and foreign exchange
contracts at June 30, 1996 and December 31, 1995, is represented by the
fair value of contracts reported in the "Asset" column.
(4) 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. This includes amounts related to contracts which have
been terminated. Such amounts are recognized as an adjustment of yield of
the linked assets or liabilities over the period being managed. At June
30, 1996, there were $23 million of unrecognized gains and $49 million of
unrecognized losses related to terminated contracts that are being
amortized as an adjustment of the yield of the assets or liabilities to
which they were linked over a weighted average period of 31 months and 18
months, respectively. At December 31, 1995, unrecognized gains of $32
million and unrecognized losses of $2 million related to terminated
contracts were being amortized over weighted average periods of 32 months
and 23 months, respectively.
(5) Foreign exchange spot and forward contracts are used to manage the risk
related to foreign exchange transactions in the Corporation's overseas
operations.
The decrease in fair value of interest rate derivative contracts, as
reflected in the change from a net unrecognized gain of $15 million at
December 31, 1995, to a net unrecognized loss of $93 million at June 30, 1996,
was primarily due to an increase in long-term interest rates during the first
and second quarters, which principally impacted the receive fixed interest
rate swap portfolio and resulted in a decline in its fair value.
The Corporation's utilization of derivative instruments is modified from
time to time in response to changing market conditions, as well as changes in
the characteristics and mix of the Corporation's related assets and
liabilities. In this respect, during the first quarter the Corporation
terminated $8.2 billion of a series of interest rate futures contracts that
were linked to the Corporation's continuing need for short-term wholesale
funding. The remaining unrecognized loss of $48 million at June 30, 1996
related to the terminated futures contracts is being amortized to net interest
revenue as an adjustment of the yield of the short-term liabilities to which
they were linked over the remainder of the period that was being managed.
28
<PAGE>
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability
management purposes as of June 30, 1996.
<TABLE>
<CAPTION>
REMAINING MATURITY
--------------------------------------------------------------
JUNE 30, DECEMBER 31,
1996 1995
1996 1997 1998 1999 2000 2001+ TOTAL TOTAL
------ ---- ---- ---- ---- ------ -------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
Domestic
Receive fixed rate
swaps(1)
Notional amount........ $ 172 $201 $ 60 $340 $1,500 $ 2,273 $ 2,453
Weighted average
receive rate.......... 5.91% 8.20% 5.60% 5.50% 6.38% 6.35% 6.35%
Weighted average pay
rate.................. 5.48% 5.51% 5.40% 5.52% 5.51% 5.51% 5.86%
Pay fixed rate swaps(1)
Notional amount........ $ 53 $ 3 $ 32 $ 2 $ 42 $ 36 $ 168 $ 301
Weighted average
receive rate.......... 5.41% 6.07% 5.75% 5.12% 5.52% 5.57% 5.54% 6.19%
Weighted average pay
rate.................. 5.74% 7.36% 8.71% 7.15% 7.11% 7.08% 6.98% 6.81%
Basis swaps(2)
Notional amount........ $ 471 $ 75 $ 50 $ 50 $ 297 $ 943 $ 1,599
Weighted average
receive rate.......... 5.49% 5.60 5.53 5.83% 5.89% 5.65% 5.97%
Weighted average pay
rate.................. 5.46% 5.52 5.47 5.58% 5.67% 5.54% 5.86%
Total Domestic Interest
Rate Swaps
Notional amount........ $ 696 $279 $142 $ 2 $432 $1,833 $ 3,384 $ 4,353
Weighted average
receive rate(3)....... 5.59% 7.48% 5.61% 5.12% 5.54% 6.28% 6.12% 6.20%
Weighted average pay
rate(3)............... 5.49% 5.53% 6.17% 7.15% 5.68% 5.57% 5.59% 5.93%
Total International
Interest Rate Swaps
Notional Amount(4)..... $3,653 $ 3,653 $ 1,475
OTHER DERIVATIVE
PRODUCTS
Futures and
forwards(5)........... $2,846 $ 2,846 $12,518
Interest rate
options(6)
Purchased............. 277 277 3,968
Written or sold....... 360
------ ---- ---- ---- ---- ------ ------- -------
Total Consolidated
Notional Amount........ $7,472 $279 $142 $ 2 $432 $1,833 $10,160 $22,674
====== ==== ==== ==== ==== ====== ======= =======
</TABLE>
- --------
(1) Of the receive fixed rate swaps, $1 billion were linked to floating rate
loans, and the remainder principally to fixed rate notes payable. Of the
swaps linked to notes payable, approximately $1 billion are scheduled to
mature in 2001 and thereafter. The majority of pay fixed rate swaps are
linked to fixed rate securities and short-term bank notes.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
floating rates. The majority of basis swaps are linked to short-term bank
notes and floating rate mortgages.
(3) The majority of the Corporation's interest rate swaps accrue at LIBOR
(London Interbank Offered Rate). In arriving at the variable weighted
average receive and pay rates, LIBOR rates in effect as of June 30, 1996
have been implicitly assumed to remain constant throughout the terms of
the swaps. Future changes in LIBOR rates would affect the variable rate
information disclosed.
(4) The majority of the international portfolio is comprised of swaps entered
into by the Corporation's Brazilian operation with a weighted average
maturity of less than 90 days. These swaps typically include the exchange
of floating rate indices that are limited to the Brazilian market.
(5) At December 31, 1995, the majority of the futures used by the Corporation
were linked to short-term liabilities and were exchange-traded
instruments. The reference instruments for these contracts comprise the
major types available, such as Eurodollar deposits and U.S. Treasury
notes. During the first quarter of 1996, the Corporation terminated a
series of futures contracts which accounts for the majority of the decline
from December 31, 1995 (see discussion above). The majority of the futures
contracts at June 30, 1996 were entered into by the Corporation's
Brazilian operation and are linked to short-term interest bearing assets
and liabilities. Average rates are not meaningful for these products.
(6) At December 31, 1995, primarily includes interest rate options used to
manage prepayment risk related to the mortgage servicing portfolio of the
Corporation's mortgage banking subsidiary which was sold in the first
quarter of 1996.
29
<PAGE>
Derivatives not used for asset and liability management are included in the
derivatives trading portfolio. The primary focus of the Corporation's
derivatives trading activities is related to providing risk management
products to its customers.
The following table summarizes the notional amounts and fair values of
interest rate derivatives and foreign exchange contracts included in the
Corporation's trading portfolio.
<TABLE>
<CAPTION>
JUNE 30, 1996 (1) DECEMBER 31, 1995 (1)
------------------------ ------------------------
FAIR FAIR
VALUE (2)(3)(4) VALUE (2)(3)(4)
NOTIONAL --------------- NOTIONAL ---------------
AMOUNT ASSET LIABILITY AMOUNT ASSET LIABILITY
-------- ----- --------- -------- ----- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Futures and forwards....... $46,415 $ 45 $ 47 $30,789
Interest rate swaps........ 8,214 49 65 9,169 $ 91 $ 80
Interest rate options
Purchased................. 5,287 10 3,411 9
Written or sold........... 6,210 11 3,986 9
------- ---- ---- ------- ---- ----
Total interest rate con-
tracts.................. $66,126 $104 $123 $47,355 $100 $ 89
======= ==== ==== ======= ==== ====
Foreign exchange contracts
Spot and forward
contracts................. $17,510 $177 $179 $13,072 $171 $167
Options purchased.......... 895 17 1,044 13
Options written or sold.... 831 16 1,130 16
------- ---- ---- ------- ---- ----
Total foreign exchange
contracts............... $19,236 $194 $195 $15,246 $184 $183
======= ==== ==== ======= ==== ====
</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. The fair value amounts of the trading portfolio are
included in other assets or other liabilities, as applicable. In certain
cases, contracts, such as futures, are subject to daily cash settlements;
as such, the fair value of these instruments is zero.
(3) The credit exposure of interest rate derivatives and foreign exchange
contracts at June 30, 1996 and December 31, 1995 is represented by the
fair value of contracts reported in the "Asset" column.
(4) The average asset and liability fair value amounts for interest rate
contracts included in the trading portfolio for the quarters ended June
30, 1996 and December 31, 1995 were $113 million and $123 million,
respectively, and $89 million and $71 million, respectively. The average
asset and liability fair value amounts for foreign exchange contracts
included in the trading portfolio were $185 million and $186 million,
respectively, for the quarter ended June 30, 1996, and $233 million and
$222 million, respectively, for the quarter-ended December 31, 1995.
Net trading gains from interest rate derivatives for the quarter and six
months ended June 30, 1996 were $2 million and $7 million, respectively, and
for the quarter and six months ended June 30, 1995 were $3 million and $4
million, respectively. Net trading gains from foreign exchange activities,
which include foreign exchange spot, forward and option contracts, for the
quarter and six months ended June 30, 1996 were $11 million and $23 million,
respectively, and for the quarter and six months ended June 30, 1995 were $16
million and $28 million, respectively.
Additional information on the Corporation's derivative products, including
accounting policies, is included on pages 40 to 42 of, and in Notes 1 and 20
to the Financial Statements in, the Corporation's 1995 Annual Report to
Stockholders, which is incorporated by reference in its 1995 Annual Report on
Form 10-K.
30
<PAGE>
CAPITAL
The Corporation's Tier 1 and total capital ratios were 7.9 percent and 12.5
percent, respectively, at June 30, 1996, compared with 8.0 percent and 12.8
percent, respectively, at December 31, 1995. The Corporation's leverage ratio
at June 30, 1996 was 7.6 percent compared with 7.4 percent at December 31,
1995.
As of June 30, 1996, the capital ratios of the Corporation and all of its
banking subsidiaries exceeded the minimum capital ratio requirements of the
"well capitalized" category under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). The capital categories of the Corporation's
banking subsidiaries are determined solely for purposes of applying FDICIA's
provisions and, accordingly, such capital categories may not constitute an
accurate representation of the overall financial condition or prospects of any
of the Corporation's banking subsidiaries.
At June 30, 1996, total stockholders' equity stood at $4.0 billion, which
compared to $3.8 billion at December 31, 1995. The increase in stockholders'
equity primarily reflects the Corporation's retention of earnings during the
first half of 1996. During the first six months of 1996, the Corporation
purchased 5.4 million shares of its common stock in the open market, all of
which were reissued at June 30, 1996. In addition, during July the Corporation
repurchased shares on the open market equal to the amount issued in the
Bancorp acquisition, after which the Board voted to terminate any remaining
authority for the Corporation to buyback its shares.
In July 1996, the Board declared a quarterly common stock dividend of $.44
per share, payable on August 30, 1996, to stockholders of record on August 5,
1996. The payment and level of future common dividends will continue to be
determined by the Board based on the Corporation's financial condition, recent
earnings history and other factors.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This standard is based on a financial-
components approach under which an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred as a result
of a transfer of financial assets, and derecognizes financial assets when
control has been surrendered and derecognizes liabilities when extinguished.
This standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and must be
applied prospectively. The Corporation does not expect that, upon adoption,
this standard will have a material effect on its consolidated financial
statements.
31
<PAGE>
CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER
LAST NINE QUARTERS
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- ------------------------------- ---------------
2 3 4 1 2 3 4 1 2
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing
deposits in other
banks.................. $ 902 $ 1,131 $ 1,062 $ 1,262 $ 1,309 $ 1,249 $ 1,350 $ 1,309 $ 1,312
Federal funds sold and
securities purchased
under agreements to
resell................. 3,485 2,595 1,711 1,364 1,166 824 746 1,249 1,341
Trading securities...... 402 618 750 694 787 867 864 1,107 1,569
Mortgages held for
sale................... 824 651 315 256 254 478 737 930 31
Securities.............. 3,164 3,489 4,435 4,288 4,526 4,824 5,247 5,653 5,915
Loans and lease
financing.............. 29,105 30,362 31,076 30,123 30,928 31,625 31,763 31,357 32,272
------- ------- ------- ------- ------- ------- ------- ------- -------
Total earning
assets.............. 37,882 38,846 39,349 37,987 38,970 39,867 40,707 41,605 42,440
Other assets............ 4,820 5,079 5,051 4,858 5,131 5,318 5,526 5,409 4,647
------- ------- ------- ------- ------- ------- ------- ------- -------
Total assets......... $42,702 $43,925 $44,400 $42,845 $44,101 $45,185 $46,233 $47,014 $47,087
======= ======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Domestic offices:
Noninterest bearing.... $ 4,403 $ 4,477 $ 4,701 $ 4,194 $ 4,196 $ 4,291 $ 4,457 $ 4,519 $ 4,278
Interest bearing....... 16,672 17,309 17,388 15,827 16,228 16,686 17,152 17,107 17,084
Overseas offices:
Noninterest bearing.... 393 415 481 415 416 501 492 499 465
Interest bearing....... 6,764 7,703 7,875 8,318 7,967 7,790 8,202 8,698 9,302
------- ------- ------- ------- ------- ------- ------- ------- -------
Total deposits....... 28,232 29,904 30,445 28,754 28,807 29,268 30,303 30,823 31,129
Federal funds purchased
and repurchase
agreements............. 4,014 3,728 3,333 3,699 3,896 3,310 3,892 3,417 4,324
Other funds borrowed.... 4,124 3,633 3,861 3,585 4,278 5,369 4,620 5,010 3,655
Notes payable........... 1,957 1,987 2,141 2,133 2,062 2,065 2,109 2,374 2,584
Other liabilities....... 1,404 1,625 1,491 1,467 1,661 1,643 1,647 1,647 1,692
Stockholders' equity.... 2,971 3,048 3,129 3,207 3,397 3,530 3,662 3,743 3,703
------- ------- ------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders'
equity.............. $42,702 $43,925 $44,400 $42,845 $44,101 $45,185 $46,233 $47,014 $47,087
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
32
<PAGE>
CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS
LAST NINE QUARTERS
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- --------------------------- -------------
2 3 4 1 2 3 4 1 2
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST REVENUE: $374.5 $423.9 $433.4 $425.9 $434.1 $439.4 $441.8 $433.6 $438.0
Taxable equivalent
adjustment............ 1.5 1.3 2.7 1.4 1.9 1.5 5.0 2.2 1.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Total net interest
revenue................ 376.0 425.2 436.1 427.3 436.0 440.9 446.8 435.8 439.5
Provision for credit
losses................. 25.0 25.0 35.0 90.0 40.0 45.0 75.0 50.0 50.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue
after provision for
credit losses.......... 351.0 400.2 401.1 337.3 396.0 395.9 371.8 385.8 389.5
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST INCOME:
Financial service
fees.................. 93.9 104.3 105.5 105.6 113.3 117.6 186.2 6.8 89.1
Trust and agency
fees.................. 50.3 50.6 53.1 52.7 57.2 58.2 48.9 51.0 55.2
Trading profits and
commissions........... 1.2 10.9 (.1) 1.1 6.1 6.6 8.3 12.3 24.3
Net securities gains... 5.9 1.3 2.5 6.1 .2 .8 1.9 13.4 3.5
Other income........... 41.0 35.1 37.6 127.7 59.3 65.4 67.9 142.7 151.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
income.............. 192.3 202.2 198.6 293.2 236.1 248.6 313.2 226.2 323.8
------ ------ ------ ------ ------ ------ ------ ------ ------
NONINTEREST EXPENSE:
Salaries............... 161.5 168.1 177.8 176.4 179.6 191.1 188.8 186.5 185.3
Employee benefits...... 37.0 38.6 35.1 40.4 40.9 41.5 38.6 42.6 41.9
Occupancy expense...... 33.1 35.2 34.4 34.9 34.4 35.6 35.3 37.0 36.8
Equipment expense...... 23.4 24.2 24.9 24.1 25.7 25.2 25.4 26.2 25.4
Acquisition,
divestiture and
restructuring
expenses.............. 16.4 5.0 28.2
Other expense.......... 101.0 107.2 109.7 107.4 111.5 99.8 112.9 112.2 117.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total noninterest
expense............. 372.4 378.3 381.9 383.2 392.1 393.2 429.2 404.5 406.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 170.9 224.1 217.8 247.3 240.0 251.3 255.8 207.5 306.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes.................. 74.9 98.8 94.3 120.6 104.8 109.9 108.4 88.8 127.3
Taxable equivalent
adjustment............. 1.5 1.3 2.7 1.4 1.9 1.5 5.0 2.2 1.5
------ ------ ------ ------ ------ ------ ------ ------ ------
76.4 100.1 97.0 122.0 106.7 111.4 113.4 91.0 128.8
------ ------ ------ ------ ------ ------ ------ ------ ------
NET INCOME.............. $ 94.5 $124.0 $120.8 $125.3 $133.3 $139.9 $142.4 $116.5 $178.1
====== ====== ====== ====== ====== ====== ====== ====== ======
PER COMMON SHARE:
Net Income:
Primary................ $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11 $ 1.17 $ 1.18 $ .97 $ 1.54
Fully diluted.......... .77 1.04 1.01 1.04 1.10 1.15 1.17 .95 1.52
Cash dividends
declared............... .22 .22 .27 .27 .27 .37 .37 .37 .44
</TABLE>
33
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1996
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
ASSETS ------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest Bearing Deposits with Other Banks
U.S. ............................................. $ 225 $ 4 6.31%
International..................................... 1,087 24 8.95
------- ------
Total............................................ 1,312 28 8.50
------- ------ -----
Federal Funds Sold and Resale Agreements
U.S. ............................................. 343 4 5.07
International..................................... 998 38 15.31
------- ------
Total............................................ 1,341 42 12.70
------- ------ -----
Trading Securities
U.S. ............................................. 502 6 5.10
International..................................... 1,067 45 16.97
------- ------
Total............................................ 1,569 51 13.17
------- ------ -----
Mortgages Held for Sale
U.S. ............................................. 19 3.25
International..................................... 12 5.83
-------
Total............................................ 31 4.21
------- -----
Securities.........................................
U.S. .............................................
Available for sale(3)............................. 4,564 74 6.50
Held to maturity.................................. 639 10 6.38
International
Available for sale(3)............................. 696 26 14.99
Held to maturity.................................. 16 1 19.80
------- ------
Total............................................ 5,915 111 7.52
------- ------ -----
Loans and Leases (Net of Unearned Income)
U.S. ............................................. 23,416 494
International..................................... 8,856 277 12.56
------- ------
Total loans and lease financing(2)............... 32,272 771 9.60
------- ------ -----
Earning assets.................................... 42,440 1,003 9.50
------- ------ -----
Nonearning assets................................. 4,647
-------
Total Assets..................................... $47,087
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits...........................................
U.S.
Savings deposits.................................. $ 8,931 $ 62 2.81%
Time deposits..................................... 8,153 114 5.63
International..................................... 9,302 186 8.03
------- ------
Total............................................ 26,386 362 5.52
------- ------ -----
Federal Funds Purchased and Repurchase Agreements
U.S. ............................................. 4,213 59 5.66
International..................................... 111 5 16.89
------- ------
Total............................................ 4,324 64 5.95
------- ------ -----
Other Funds Borrowed
U.S............................................... 2,869 42 5.83
International..................................... 786 49 25.19
------- ------
Total............................................ 3,655 91 10.00
------- ------ -----
Notes Payable
U.S. ............................................. 2,023 32 6.47
International..................................... 561 14 9.99
------- ------
Total............................................ 2,584 46 7.23
------- ------ -----
Total interest bearing liabilities............... 36,949 563 6.13
------- ------ -----
Demand deposits U.S................................ 4,278
Demand deposits International...................... 465
Other noninterest bearing liabilities.............. 1,692
Total Stockholders' Equity....................... 3,703
-------
Total Liabilities and Stockholders' Equity....... $47,087
=======
Net Interest Revenue As a Percentage of Average
Interest Earning Assets
U.S. ............................................. $29,708 $ 308 4.16%
International..................................... 12,732 132 4.18
------- ------
Total............................................ $42,440 $ 440 4.17
======= ======
</TABLE>
- --------
(1)Income is shown on a fully taxable equivalent basis.
(2)Loans and lease financing includes nonaccrual and renegotiated balances.
(3)Average rates for securities available for sale are based on the securities'
amortized cost.
34
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
ASSETS ------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest Bearing Deposits with Other Banks
U.S. ............................................. $ 362 $ 3 3.62%
International..................................... 947 64 26.91
------- ------
Total............................................ 1,309 67 20.49
------- ------ -----
Federal Funds Sold and Resale Agreements
U.S. ............................................. 598 9 5.96
International..................................... 568 84 59.61
------- ------
Total............................................ 1,166 93 32.10
------- ------ -----
Trading Securities
U.S. ............................................. 227 3 6.35
International..................................... 560 40 28.50
------- ------
Total............................................ 787 43 22.10
------- ------ -----
Mortgages Held for Sale
U.S. ............................................. 254 5 7.62
------- ------ -----
Securities
U.S.
Available for sale(3)............................. 2,210 38 6.82
Held to maturity.................................. 1,721 29 6.88
International
Available for sale(3)............................. 387 15 13.40
Held to maturity.................................. 208 6 12.15
------- ------
Total............................................ 4,526 88 7.80
------- ------ -----
Loans and Leases (Net of Unearned Income)
U.S. ............................................. 23,099 507 8.81
International..................................... 7,829 302 15.45
------- ------
Total loans and lease financing (2).............. 30,928 809 10.49
------- ------ -----
Earning assets.................................... 38,970 1,105 11.38
------- ------ -----
Nonearning assets................................. 5,131
-------
Total Assets..................................... $44,101
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S.
Savings deposits.................................. $ 8,640 $ 56 2.61%
Time deposits..................................... 7,588 106 5.60
International..................................... 7,967 254 12.79
------- ------
Total............................................ 24,195 416 6.90
------- ------ -----
Federal Funds Purchased and Repurchase Agreements
U.S. ............................................. 3,740 45 4.77
International..................................... 156 12 31.10
------- ------
Total............................................ 3,896 57 5.82
------- ------ -----
Other Funds Borrowed
U.S............................................... 3,448 55 6.44
International..................................... 830 103 49.76
------- ------
Total............................................ 4,278 158 14.84
------- ------ -----
Notes Payable
U.S. ............................................. 1,911 35 7.27
International..................................... 151 3 9.56
------- ------
Total............................................ 2,062 38 7.44
------- ------ -----
Total interest bearing liabilities............... 34,431 669 7.80
------- ------ -----
Demand deposits U.S............................... 4,196
Demand deposits International..................... 416
Other noninterest bearing liabilities............. 1,661
Total Stockholders' Equity....................... 3,397
-------
Total Liabilities and Stockholders' Equity....... $44,101
=======
Net Interest Revenue As a Percentage of Average
Interest Earning Assets
U.S. ............................................. $28,471 $ 322 4.54%
International..................................... 10,499 114 4.35
------- ------
Total............................................ $38,970 $ 436 4.49
======= ======
</TABLE>
- --------
(1)Income is shown on a fully taxable equivalent basis.
(2)Loans and lease financing includes nonaccrual and renegotiated balances.
(3)Average rates for securities available for sale are based on the securities'
amortized cost.
35
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, 1996
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
ASSETS ------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest Bearing Deposits with Other Banks
U.S. ............................................. $ 210 $ 6 6.07%
International..................................... 1,100 45 8.26
------- ------
Total............................................ 1,310 51 7.90
------- ------ -----
Federal Funds Sold and Resale Agreements
U.S. ............................................. 266 7 5.09
International..................................... 1,029 76 14.97
------- ------
Total............................................ 1,295 83 12.94
------- ------ -----
Trading Securities
U.S. ............................................. 422 11 5.31
International..................................... 916 81 17.73
------- ------
Total............................................ 1,338 92 13.81
------- ------ -----
Mortgages Held for Sale
U.S. ............................................. 455 16 7.06
International..................................... 25 1 6.07
------- ------
Total............................................ 480 17 7.00
------- ------ -----
Securities
U.S.
Available for sale(3)............................. 4,426 145 6.57
Held to maturity.................................. 633 20 6.33
International
Available for sale(3)............................. 670 46 13.94
Held to maturity.................................. 55 4 15.89
------- ------
Total............................................ 5,784 215 7.22
------- ------ -----
Loans and Leases (Net of Unearned Income)
U.S. ............................................. 23,013 984 8.60
International..................................... 8,802 597 13.64
------- ------
Total loans and lease financing(2)............... 31,815 1,581 9.99
------- ------ -----
Earning assets.................................... 42,022 2,039 9.76
------- ------ -----
Nonearning assets................................. 5,033
-------
Total Assets..................................... $47,055
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S. .............................................
Savings deposits.................................. $ 9,192 $ 128 2.80%
Time deposits..................................... 7,903 223 5.69
International..................................... 9,000 367 8.19
------- ------
Total............................................ 26,095 718 5.53
------- ------ -----
Federal Funds Purchased and Repurchase Agreements
U.S. ............................................. 3,766 108 5.73
International..................................... 105 7 13.75
------- ------
Total............................................ 3,871 115 5.95
------- ------ -----
Other Funds Borrowed
U.S. ............................................. 3,405 103 6.10
International..................................... 928 139 30.25
------- ------
Total............................................ 4,333 242 11.27
------- ------ -----
Notes Payable
U.S. ............................................. 1,966 64 6.55
International..................................... 513 25 9.95
------- ------
Total............................................ 2,479 89 7.25
------- ------ -----
Total interest bearing liabilities............... 36,778 1,164 6.37
------- ------ -----
Demand deposits U.S............................... 4,398
Demand deposits International..................... 482
Other noninterest bearing liabilities............. 1,673
Total Stockholders' Equity....................... 3,724
-------
Total Liabilities and Stockholders' Equity....... $47,055
=======
Net Interest Revenue As a Percentage of Average
Interest Earning Assets
U.S. ............................................. $29,425 $ 619 4.23%
International..................................... 12,597 256 4.09
------- ------
Total............................................ $42,022 $ 875 4.19
======= ======
</TABLE>
- --------
(1)Income is shown on a fully taxable equivalent basis.
(2)Loans and lease financing includes nonaccrual and renegotiated balances.
(3)Average rates for securities available for sale are based on the securities'
amortized cost.
36
<PAGE>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995
---------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
ASSETS ------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest Bearing Deposits with Other Banks
U.S. ............................................. $ 245 $ 5 4.57%
International..................................... 1,041 127 24.49
------- ------
Total............................................ 1,286 132 20.70
------- ------ -----
Federal Funds Sold and Resale Agreements
U.S. ............................................. 563 17 5.99
International..................................... 702 179 51.40
------- ------
Total............................................ 1,265 196 31.18
------- ------ -----
Trading Securities
U.S. ............................................. 211 7 6.43
International..................................... 530 77 29.48
------- ------
Total............................................ 741 84 22.92
------- ------ -----
Mortgages Held for Sale
U.S. ............................................. 255 9 6.79
------- ------ -----
Securities
U.S.
Available for sale(3)............................. 2,210 74 6.73
Held to maturity.................................. 1,656 56 6.81
International
Available for sale(3)............................. 343 24 12.40
Held to maturity.................................. 199 10 10.13
------- ------
Total............................................ 4,408 164 7.52
------- ------ -----
Loans and Leases (Net of Unearned Income)
U.S. ............................................. 22,923 1,006 8.85
International..................................... 7,605 549 14.55
------- ------
Total loans and lease financing(2)............... 30,528 1,555 10.27
------- ------ -----
Earning assets.................................... 38,483 2,140 11.21
------ -----
Nonearning assets................................. 4,990
-------
Total Assets..................................... $43,473
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
U.S.
Savings deposits.................................. $ 8,669 $ 107 2.52%
Time deposits..................................... 7,359 198 5.41
International..................................... 8,142 472 11.69
------- ------
Total............................................ 24,170 777 6.49
------- ------ -----
Federal Funds Purchased and Repurchase Agreements
U.S. ............................................. 3,636 88 4.91
International..................................... 163 26 32.02
------- ------
Total............................................ 3,799 114 6.07
------- ------ -----
Other Funds Borrowed
U.S. ............................................. 3,037 96 6.33
International..................................... 897 212 47.61
------- ------
Total............................................ 3,934 308 15.74
------- ------ -----
Notes Payable
U.S. ............................................. 1,954 69 7.11
International..................................... 144 9 11.96
------- ------
Total............................................ 2,098 78 7.44
------- ------ -----
Total interest bearing liabilities............... 34,001 1,277 7.57
------- ------ -----
Demand deposits U.S................................ 4,195
Demand deposits International...................... 416
Other noninterest bearing liabilities.............. 1,563
Total Stockholders' Equity....................... 3,298
-------
Total Liabilities and Stockholders' Equity....... $43,473
=======
Net Interest Revenue as a Percentage of Average
Interest Earning Assets
U.S. ............................................. $28,063 $ 652 4.69%
International..................................... 10,420 211 4.08
------- ------
Total............................................ $38,483 $ 863 4.52
======= ======
</TABLE>
- --------
(1)Income is shown on a fully taxable equivalent basis.
(2)Loans and lease financing includes nonaccrual and renegotiated balances.
(3)Average rates for securities available for sale are based on the securities'
amortized cost.
37
<PAGE>
CHANGE IN NET INTEREST REVENUE--VOLUME AND RATE ANALYSIS
SECOND QUARTER 1996 COMPARED WITH SECOND QUARTER 1995
The following table presents, on a fully taxable equivalent basis, an
analysis of the effect on net interest revenue of volume and rate changes. The
change due to the volume/rate variance has been allocated to volume, and the
change because of the difference in the number of days in the periods has been
allocated to rate.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
DUE TO CHANGE IN
--------------------- NET
VOLUME RATE CHANGE
---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest income:
Loans and lease financing.......... U.S. $ 7 $ (20) $ (13)
International 32 (57) (25)
-----
(38)
-----
Other earning assets............... U.S. 15 (4) 11
International 42 (117) (75)
-----
(64)
-----
Total interest income.............. 82 (184) (102)
Total interest expense............. 46 (152) (106)
-----
Net interest revenue............... $ 4
=====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
The following table presents, on a fully taxable equivalent basis, an
analysis of the effect on net interest revenue of volume and rate changes. The
change due to the volume/rate variance has been allocated to volume, and the
change because of the difference in the number of days in the periods has been
allocated to rate.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
DUE TO CHANGE IN
--------------------- NET
VOLUME RATE CHANGE
---------- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest income:
Loans and lease financing.......... U.S. $ 4 $ (26) $ (22)
International 81 (33) 48
-----
26
-----
Other earning assets............... U.S. 41 (4) 37
International 66 (230) (164)
-----
(127)
-----
Total interest income.............. 172 (273) (101)
Total interest expense............. 98 (211) (113)
-----
Net interest revenue............... $ 12
=====
</TABLE>
38
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
("Society") and certain Society directors. The action was brought by a Society
stockholder, individually and as a class action on behalf of all Society
stockholders of record on the date the Corporation's proposed acquisition of
Society was announced, and sought an injunction with respect to the
acquisition and damages in an unspecified amount. In May 1993, the Chancery
Court denied the plaintiff's motion for a preliminary injunction and in July
1993, the Corporation acquired Society. On January 23, 1995, the defendants
filed a motion for summary judgment with the Chancery Court and on June 15,
1995, the Court granted summary judgment in favor of the defendants on all
claims except for an aiding and abetting claim against the Corporation on
which no summary judgment motion has yet been filed. The Chancery Court also
denied plaintiff's motion for rehearing. Following the entry of an Order of
Final Judgment by the Chancery Court, the plaintiff appealed the June 15, 1995
opinion to the Delaware Supreme Court. On June 25, 1996, the Supreme Court
affirmed the Chancery Court's decision in its entirety, and remanded the case
on the sole remaining claim for aiding and abetting.
ITEM 5. OTHER INFORMATION
On July 25, 1996, J. Donald Monan retired from the class of directors whose
term expires in 1997, and Henrique de Campos Meirellas was appointed to fill
the vacancy in that class. On July 29, 1996, immediately following the
effective time of the Corporation's acquisition of BayBanks (the
"Acquisition"), the Corporation's Board of Directors was expanded by four
members to a total of eighteen members, and John A. Cervieri Jr., William M.
Crozier, Jr., Thomas R. Piper and Glenn P. Strehle became members of the
Board. Messrs. Crozier and Strehle were each assigned to the class of
directors whose term expires in 1999, and Messrs. Cervieri and Piper were
assigned to the class of directors whose term expires in 1998 and 1997,
respectively. In order to keep the three classes of directors as nearly equal
in number as possible, John W. Rowe resigned from the class of directors whose
term expires in 1999 and was elected to the class of directors whose term
expires in 1997.
In addition, as previously disclosed, immediately following the effective
time of the Acquisition, Mr. Crozier became Chairman of the Board, with
Charles K. Gifford and Mr. Meirellas continuing to serve as Chief Executive
Officer and President, respectively, of the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3 --By-Laws of the Corporation, as amended through July 25, 1996.
11 --Computation of Earnings Per Share.
12(a) --Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (excluding interest on deposits).
12(b) --Computation of the Corporation's Consolidated Ratio of Earnings to
Fixed Charges (including interest on deposits).
27 --Financial Data Schedule
(b) Current Reports on Form 8-K.
During the second quarter of 1996, the Corporation filed two Current Reports
on Form 8-K. The current reports, dated April 18, 1996 and May 16, 1996,
contained information pursuant to Items 5 and 7 of Form 8-K. The Corporation
also filed Current Reports on Form 8-K, dated July 18, 1996 and July 25, 1996,
which contained information pursuant to Items 5 and 7 and Items 2, 5 and 7,
respectively, of Form 8-K.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF BOSTON CORPORATION
/s/ Charles K. Gifford
-------------------------------------
Charles K. Gifford
Chief Executive Officer
/s/ William J. Shea
-------------------------------------
William J. Shea
Vice Chairman, Chief Financial
Officer and Treasurer
Date: August 14, 1996
40
<PAGE>
BANK OF BOSTON CORPORATION
--------------------------
BY-LAWS
--------------------------
Revised to July 25, 1996
<PAGE>
BY-LAWS
OF
BANK OF BOSTON CORPORATION
-----------------
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF THE STOCKHOLDERS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
<CAPTION>
ARTICLE II
BOARD OF DIRECTORS
<S> <C> <C>
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
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 15. Fees and Expenses of Directors.................. 10
SECTION 16. Validity of Acts of Directors................... 10
SECTION 17. Transactions with the Corporation............... 10
<CAPTION>
ARTICLE III
COMMITTEES
<S> <C> <C>
SECTION 1. Executive Committee.............................. 11
SECTION 2. Audit Committee.................................. 12
SECTION 3. Compensation Committee........................... 13
SECTION 4. Board Governance and Nominating Committee........ 14
SECTION 5. Community Investment Committee................... 14
SECTION 6. Other Committees................................. 15
SECTION 7. Changes in Committee Membership; Filling of
Vacancies........................................ 15
SECTION 8. Records of Committee Action and Board
of Directors' Approval........................... 15
SECTION 9. Committee Proceedings............................ 15
SECTION 10. Action of Committees without a Meeting........... 16
SECTION 11. General Authority of Committees.................. 16
<CAPTION>
ARTICLE IV
OFFICERS
<S> <C> <C>
SECTION 1. Titles and Qualifications........................ 16
SECTION 2. Appointment and Terms of Office.................. 17
SECTION 3. Duties; Fidelity Bond............................ 17
SECTION 4. The Chief Executive Officer...................... 17
SECTION 5. The Chairman of the Board........................ 17
SECTION 6 The President and Chief Operating Officer........ 17
SECTION 7. The Vice Chairmen................................ 18
SECTION 8. The Treasurer.................................... 18
SECTION 9. The Comptroller.................................. 18
SECTION 10. The Clerk and the Secretary of the
Board of Directors............................... 18
SECTION 11. The General Auditor.............................. 19
SECTION 12. The Vice Presidents.............................. 19
SECTION 13. The Assistant Treasurers and
Assistant Clerks................................. 19
SECTION 14. Resignation...................................... 19
SECTION 15. Vacancies........................................ 19
SECTION 16. Compensation of Officers, Employees and
Other Agents..................................... 19
SECTION 17. Designated Officer............................... 20
</TABLE>
<PAGE>
iii
ARTICLE V
STOCK
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. Stock Certificates............................... 20
SECTION 2. Transfer of Stock................................ 20
SECTION 3. Transfer Agent and Registrar;
Regulations...................................... 21
SECTION 4. Lost, Mutilated or Destroyed Certificates........ 21
SECTION 5. Record Date for Determination of Stockholders'
Rights; Close of Transfer Books.................. 21
SECTION 6. Dividends........................................ 22
SECTION 7. Control Share Acquisitions....................... 22
<CAPTION>
ARTICLE VI
GENERAL PROVISIONS
<S> <C> <C>
SECTION 1. Offices.......................................... 22
SECTION 2. Seal............................................. 22
SECTION 3. Fiscal Year...................................... 23
SECTION 4. Execution of Instruments......................... 23
SECTION 5. Voting of Securities............................. 23
SECTION 6. Powers of Attorney............................... 23
SECTION 7. Issue of Debt Securities and
Other Obligations................................ 24
SECTION 8. Corporate Records................................ 24
SECTION 9. Indemnification of Directors, Officers
and Others....................................... 24
<CAPTION>
ARTICLE VII
AMENDMENTS
<S> <C> <C>
SECTION 1. General.......................................... 27
<CAPTION>
ARTICLE VIII
EMERGENCY BY-LAWS
<S> <C> <C>
SECTION 1. Effective Period................................. 27
SECTION 2. Meetings of the Board of Directors............... 28
SECTION 3. Emergency Location of Head Office................ 28
SECTION 4. Preservation of Continuity of Management......... 28
SECTION 5. Immunity......................................... 28
SECTION 6. Amendment of Emergency By-Laws................... 28
</TABLE>
<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 Chief Executive Officer or the Chairman of the Board or by
a majority of the directors, and shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer upon
the written application of stockholders who hold one hundred percent in interest
of the capital stock of the corporation entitled to be voted at the proposed
meeting. Such request shall state the purpose or purposes of the proposed
meeting and may designate the place, date and hour of such meeting; provided,
however, that no such request shall designate a date not a full business day or
an hour not within normal business hours as the date or hour of such meeting.
As used in these By-Laws, the expression business day means a day other
than a day which, at a particular place, is a public holiday or a day other than
a day on which
<PAGE>
-2-
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 l0
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
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
<PAGE>
-3-
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 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
<PAGE>
-4-
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
Chief Executive Officer or the Chairman of the Board or, in their absence, the
President, 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 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
<PAGE>
-5-
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 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
<PAGE>
-6-
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 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
<PAGE>
-7-
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.
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, or at such
other location as the Board may determine, promptly 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.
<PAGE>
-8-
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 Chief Executive Officer 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.
SECTION 9. Organization of Meetings. At each meeting of the Board of
Directors, the Chairman of the Board or, in his or her absence, the Chief
Executive Officer or, in their absence, an officer designated by the Chief
Executive Officer, 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.
<PAGE>
-9-
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
Chief Executive Officer or the Clerk. Such resignation shall take effect upon
its receipt or at any later date specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 13. Removal. A director may be removed by the affirmative vote
of a majority of the shares outstanding and entitled to vote in the election of
directors only for cause. A director may be removed for cause only after
reasonable notice and opportunity to be heard before the stockholders. For such
time as the corporation is subject to paragraph (a) of Section 50A of Chapter
156B of the Massachusetts General Laws, "cause" with respect to the removal of
any director by the stockholders shall mean only (a) conviction of a felony, (b)
declaration of unsound mind by order of court, (c) gross dereliction of duty,
(d) commission of an action involving moral turpitude, or (e) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results both in an improper substantial personal
benefit and a material injury to the corporation.
If at any time the corporation shall no longer be subject to paragraph (a)
of Section 50A of Chapter 156B of the Massachusetts General Laws, (a) a director
may be removed from office with or without cause by the vote of the holders of a
majority of the shares entitled to vote in the election of directors and may be
removed from office with cause by vote of a majority of the directors then in
office, and (b) a director may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him or her.
SECTION 14. Vacancies. The Board of Directors may act notwithstanding a
vacancy or vacancies in its membership; but if the office of any director shall
become vacant by reason of an increase in size of the Board of 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
<PAGE>
-10-
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 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 Chief Executive Officer and such
number
<PAGE>
-11-
of other directors 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. At all
meetings of the Executive Committee, the Chief Executive Officer or, in his or
her absence, an officer designated by the Chief Executive Officer, or in the
absence of such a designation, a director chosen by a majority of the directors
present shall preside.
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.
In addition to its other duties, the Executive Committee shall establish
the quarterly provision and reserve for credit losses, make recommendations
concerning dividends and shall be available to the Chief Executive Officer, at
his discretion, to discuss strategic opportunities.
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
<PAGE>
-12-
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 Chief Executive Officer or
by any two 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 Committee. There shall be a Compensation
Committee composed of such number of directors 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 or any subsidiary.
<PAGE>
-13-
The duties of the Compensation Committee shall be
(a) to review the Corporation's overall executive compensation strategy;
(b) to review the design and administration of executive compensation and
incentive plans and employee benefit plans, including ensuring that all
plans are consistent with the Corporation's strategy and budget;
(c) to review all new equity-related plans for executive officers and
Directors prior to submission to stockholders;
(d) to make recommendations to the Board of Directors on new corporate-wide
benefit plans or any material changes to existing plans;
(e) 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;
(f) to review the compensation of the Chief Executive Officer, the
President and the Chairman of the Board and that of other employee
Directors and to make recommendations to the Board of Directors;
(g) to review and approve the recommendations of the Chief Executive
Officer on compensation for key executive officers;
(h) to review diversity representation at the senior and mid-management
level;
(i) to conduct an annual evaluation of the Chief Executive Officer;
(j) to review succession and development plans for Executive Management and
the Chief Executive Officer;
(k) to review candidate assessment and selection for key executive officer
positions;
(l) to review major organizational changes proposed by the Chief Executive
Officer, as appropriate; and
(m) to perform such functions as may be assigned to it from time to time by
the Board of Directors.
SECTION 4. Board Governance and Nominating Committee. There shall be a Board
Governance and Nominating Committee composed of such number of directors (no
more than two of which may be members of Executive Management) as the Board
of Directors, by resolution passed by vote of a majority of the entire Board,
may appoint. The Chief Executive Officer shall serve as a member of the
Committee.
The duties of this Committee shall be
(a) to review the size and composition of the Board of Directors and the
tenure of directors;
<PAGE>
-14-
(b) to recommend criteria for qualifications for Board membership, such as
experience, affiliations, and personal characteristics;
(c) to review the qualifications of individual nominees for director as
recommended by the Chief Executive Officer or by a stockholder and to make
recommendations to the Board of Directors;
(d) to review the composition of the committees as recommended by the
Chief Executive Officer;
(e) to review the compensation and benefits of non-employee Directors and
to make recommendations to the Board of Directors; and
(f) to evaluate the effectiveness of the Board of Directors;
(g) to evaluate the responsibilities and effectiveness of Board Committees
and to make recommendations to the Board with respect thereto;
(h) to perform such other functions as may be assigned to it from time to
time by the Board of Directors.
SECTION 5. 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 6. 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.
<PAGE>
-15-
SECTION 7. 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 8. 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 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 9. 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 10. 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
<PAGE>
-16-
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 11. General Authority of Committees. Any committee appointed by
the Board of Directors pursuant to this Article III shall be at liberty
(a) to meet and confer with employees of the corporation and its
subsidiaries on all matters relating to the work of the committee which
fall within the purview of such employees and to be informed by any of
them as to the policies, practices, and controls of the division or
department of the corporation or of the subsidiary of the corporation to
which he or she is assigned;
(b) to examine all reports which are relevant to the work of the
committee (i) made by the corporation or any of its subsidiaries to
regulatory authorities and (ii) of examinations of the corporation or any
of its subsidiaries made by regulatory authorities.
ARTICLE IV
OFFICERS
SECTION 1. Titles and Qualifications. The officers of the corporation
shall be a Chief Executive Officer, a Chairman of the Board, a President, a
Treasurer, a Comptroller, a Clerk, a General Auditor, one or more Vice
Presidents of any rank 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 Chief Executive Officer, the
Chairman of the Board and the President must be directors.
SECTION 2. Appointment and Terms of Office. The Chief Executive Officer,
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 serve at the pleasure of the Board 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, the Chief Executive Officer 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 or the appointing
officer 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, or the
Chief Executive Officer, or the President, as the case may be. The Board of
Directors shall provide for such bond
<PAGE>
-17-
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 Chief Executive Officer. The Chief Executive Officer of
the corporation shall have the general control and management of, and shall be
responsible to the Board for the conduct of, its business, affairs and
operations. The Chief Executive Officer shall report to the Board of Directors
on the business, affairs and financial condition of the corporation. The Chief
Executive Officer shall have such powers and shall perform such duties as are
usually incident to the Office of Chief Executive Officer and such additional
duties may be prescribed by law, the Articles of Organization and these By-Laws
or as may be conferred upon or assigned to him or her by the Board of Directors.
In the absence of the Chairman of the Board, the Chief Executive Officer shall
preside at meetings of the Board of Directors. The Chief Executive Officer shall
be a member of the Executive Committee and shall preside at meetings of that
Committee.
SECTION 5. The Chairman of the Board. The Chairman of the Board shall
preside at meetings of the Board of Directors. The Chairman of the Board shall
have such powers and shall perform such duties as may be prescribed by law, the
Articles of Organization and these By-Laws or as may be conferred upon or
assigned to him or her by the Board of Directors. The Chairman of the Board
shall have such additional responsibilities and shall discharge such further
duties as from time to time may be requested of him or her by the Chief
Executive Officer. The Chairman of the Board shall be a member of the Executive
Committee.
SECTION 6. The President and Chief Operating Officer. The President
shall be the Chief Operating Officer of the Corporation and shall have the day
to day responsibility for the control and management of its operations of the
Corporation. In the absence of the Chairman of the Board and the Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors.
The President shall be subject to the direction of the Chief Executive Officer
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 Chief Executive
Officer. He or she shall have such powers and duties as are usually incident to
the Office of President and Chief Operating Officer.
SECTION 7. 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
Chief Executive Officer or the President. The Vice Chairmen shall be senior in
rank to the Vice Presidents of any rank.
SECTION 8. 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
<PAGE>
-18-
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.
SECTION 9. 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.
SECTION 10. The Clerk and the Secretary of the Board of Directors. The
Clerk shall be the principal recording officer of the corporation. He or she
shall be the Secretary of the Board of Directors and of the Executive Committee
and of the Audit Committee. He or she shall attend and keep minutes of all
proceedings at meetings of the stockholders, the Board of Directors, the
Executive Committee and of each committee appointed by the Board of Directors
which shall not have appointed any other person to serve as its secretary. The
Clerk shall have charge of the corporate seal, minute books of the corporation
and of such other corporate records, books and papers as the Board of Directors
or the Executive Committee may order to be kept in his or her custody or under
his or her control. The Clerk shall have authority to affix the seal of the
corporation to all instruments executed under seal and to attest thereto. As
required by law, these By-Laws or the Board of Directors, the Clerk shall give
or cause to be given notice to the stockholders of each annual and special
meeting and to the directors of each regular and special meeting of the Board of
Directors except the first meeting after their election in each year; and the
Clerk shall perform such other duties as may be imposed upon him or her by law,
these By-Laws, the Board of Directors, the Audit Committee or the Chief
Executive Officer , 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.
SECTION 11. 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, the Chief Executive
Officer, or the President.
SECTION 12. The Vice Presidents. Each Vice President of whatever rank
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 Chief Executive Officer or the
President. The
<PAGE>
-19-
Executive Vice President shall be senior in rank to all other Vice Presidents
including Senior Vice Presidents.
SECTION 13. 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 Chief Executive Officer, 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 Chief Executive Officer 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 14. Resignation. Any officer may resign at any time by giving
written notice to the Chairman of the Board, the Chief Executive Officer, 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 required to
make it effective.
SECTION 15. Vacancies. Any vacancy occurring in the offices of the
Chairman of the Board, the Chief Executive Officer, the President, the
Treasurer, the Comptroller, the Clerk and the General Auditor shall be promptly
filled by the Board of Directors. Any vacancy occurring in the offices of Vice
Chairmen or Vice President may be filled by the Board of Directors. Except for
those offices to be filled by the Board of Directors, the Chief Executive
Officer may fill any vacancy occurring in any office by reason of death,
resignation, retirement or other cause and may, in his or her discretion, leave
offices unfilled for such period as he or she may determine.
SECTION 16. 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 17. 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 Chief Executive
Officer, 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
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 of the
Board, the Chief Executive Officer, the President or a
<PAGE>
-20-
Vice President of any rank 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.
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
<PAGE>
-21-
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 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
<PAGE>
-22-
Massachusetts General Laws shall not apply to "control share acquisitions" of
the corporation within the meaning of said Chapter 110D.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Offices. The principal office of the corporation shall be in
the City of Boston, County of Suffolk, Commonwealth of Massachusetts. The
corporation may also have offices at such other place or places within or
without the Commonwealth of Massachusetts as the Board of Directors may from
time to time determine.
SECTION 2. Seal. The seal of the corporation shall be in the following
form:
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 . 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 any one of the Chief
Executive Officer, the Chairman of the Board, the President, any Vice Chairman,
any Vice President of whatever rank, 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 5 . Voting of Securities. Unless otherwise ordered by the Board
of Directors, the Chief Executive Officer, the Chairman of the Board, the
President, each
<PAGE>
-23-
Vice Chairman, the Treasurer, each Vice President of any rank, and the Clerk,
each acting alone, shall have authority on behalf of the corporation (a) to
attend and act and vote in person for the corporation and as its duly appointed
agent and attorney-in-fact at any meeting of the holders of securities or
creditors of any person (as hereinafter defined) any securities of whom are
owned or held with power to vote by the corporation or any indebtedness of whom
is owed to the corporation, (b) to appoint, by an instrument in writing, a proxy
or several proxies to attend and act and vote for the corporation at any such
meeting and (c) to execute and deliver in the name and on behalf of the
corporation any consent or waiver by the corporation as a security holder or
creditor of any such person. As used in this Section, the word "person" includes
a natural person, a corporation, a company, a partnership, a voluntary
association, a proprietorship, a 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 6. Powers of Attorney. The Chief Executive Officer, 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 Chief Executive Officer, 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 7. 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.
<PAGE>
-24-
SECTION 8. Corporate Records. The original, or attested copies, of the
Articles of Organization, By-Laws and records of all meetings of incorporators
and stockholders, and stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in the Commonwealth of Massachusetts at the principal office of
the corporation, or at an office of its Clerk, its resident agent or its
transfer agent. Such copies and records need not all be kept in the same office.
They shall be available at all reasonable times for inspection by any
stockholder for any proper purpose. They shall not be available for inspection
to secure a list of stockholders or other information for the purpose of selling
such list or information or copies thereof or of using the same for a purpose
other than in the interest of the applicant, as a stockholder, relative to the
affairs of the corporation.
SECTION 9 . 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
<PAGE>
-25-
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
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 shall, to the extent legally permissible, indemnify
each person who serves at the request of the corporation as a director 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,
and the Board of Directors of the corporation may, to the extent legally
permissible, indemnify any person who serves as a trustee, employee or agent of
the corporation or who serves at the request of the corporation as an officer,
trustee, employee or agent of any wholly-owned subsidiary 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 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 trustee,
employee or agent of the corporation or a director, officer, trustee, employee
or agent 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 person who
serves at the request of the corporation as a director of a 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 in connection
with the defense or disposition of any such action, suit or other proceeding
shall, and if incurred by a person who serves as a trustee, employee or agent of
the corporation or who serves at the request of the corporation as an officer,
trustee, employee or agent of a wholly-owned subsidiary of the corporation may,
in each case to the extent legally permissible, 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 of persons who serve as a trustee, employee or agent of the
corporation or who serve at the request of the corporation as an officer,
trustee, employee or agent of a wholly-owned subsidiary of the corporation 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 an officer or trustee of any wholly owned subsidiary of the
corporation 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
<PAGE>
-26-
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.
(c) As used in this Section, the terms "director", "officer", "trustee",
"employee" and "agent" 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, trustees, employees and agents of wholly-owned subsidiaries of the
corporation and persons who serve in any capacity with respect to any employee
benefit plan maintained by the corporation or 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 this Section
l0 shall not be exclusive of or affect any other rights to which any director,
officer, trustee , employee, agent 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, officers, trustees, employees and
agents of the corporation and persons who serve at the request of the
corporation as directors, officers, trustees, employees or agents of wholly-
owned subsidiaries of the corporation or in any capacity with respect to any
employee benefit plan maintained by the corporation or 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
<PAGE>
-27-
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 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
<PAGE>
-28-
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 11
BANK OF BOSTON CORPORATION
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30 June 30
<S> <C> <C> <C> <C> <C>
EARNINGS (in millions) 1996 1995 1996 1995
-------- ---- ---- ---- ----
1. Net income $ 178 $ 133 $ 295 $ 259
2. Less: Preferred dividends 9 9 19 19
------- ------- ------- -------
3. Net income applicable to primary and fully diluted
earnings per common share $ 169 $ 124 276 $ 240
======= ======= ======= =======
SHARES (in thousands)
------
4. Weighted average number of common shares outstanding 109,725 111,369 110,380 109,335
5. Incremental shares from assumed exercise
of dilutive stock options as of the beginning
of the period using the treasury stock method 1,528 1,564 1,684 1,605
6. Incremental shares from assumed conversion
of debentures at date of issuance 1,778
------- ------- ------- -------
7. Adjusted number of common shares 111,253 112,933 112,064 112,718
======= ======= ======= =======
PER SHARE CALCULATION
---------------------
8. Primary net income per common share $ 1.54 $ 1.11 $ 2.50 $ 2.19
(Item 3/Item 4)
9. Fully diluted net income per common share $ 1.52 $ 1.10 $ 2.46 $ 2.14
(Item 3/Item 7)
</TABLE>
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(a)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (excluding interest on
deposits) for the six months ended June 30, 1996 and 1995
and for the five years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Net income (loss) $ 295 $ 259 $ 541 $ 435 $ 299 $ 279 $ (113)
Extraordinary items, net of tax 7 (73) (8)
Cumulative effect of changes
in accounting principles,
net of tax (24)
Income tax expense (benefit) 216 225 444 349 215 153 (58)
----- ----- ----- ----- ----- ----- -----
Pretax earnings (loss) $ 511 $ 484 $ 985 $ 791 $ 490 $ 359 $ (179)
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 15 14 29 27 27 28 30
Interest on borrowed funds 446 500 1,021 998 378 345 362
----- ----- ----- ----- ----- ----- -----
Total fixed charges 461 514 1,050 1,025 405 373 392
----- ----- ----- ----- ----- ----- -----
Earnings (for ratio calculation) $ 972 $ 998 $ 2,035 $ 1,816 $ 895 $ 732 $ 213
===== ===== ===== ===== ===== ===== =====
Total fixed charges $ 461 $ 514 $ 1,050 $ 1,025 $ 405 $ 373 $ 392
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed
charges 2.11 1.94 1.94 1.77 2.21 1.96 .54
===== ===== ===== ===== ===== ===== =====
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges
"earnings" represent income (loss) before extraordinary
items and cumulative effect of changes in accounting principles plus applicable
income taxes and fixed charges. "Fixed charges" include
gross interest expense (excluding interest on deposits) and the proportion
deemed representative of the interest factor of rent expense, net
of income from subleases. For the year ended December 31, 1991, earnings were
insufficient to cover fixed charges. Additional earnings necessary for the year
ended December 31, 1991 to bring the ratio of earnings to fixed charges to a
one-to-one basis are $179 million.
<PAGE>
BANK OF BOSTON CORPORATION EXHIBIT 12(b)
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Including Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (including interest on
deposits) for the six months ended June 30, 1996 and 1995
and for the five years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Net income (loss) $ 295 $ 259 $ 541 $ 435 $ 299 $ 279 $ (113)
Extraordinary items, net of tax 7 (73) (8)
Cumulative effect of changes
in accounting principles,
net of tax (24)
Income tax expense (benefit) 216 225 444 349 215 153 (58)
----- ----- ----- ----- ----- ----- -----
Pretax earnings (loss) $ 511 $ 484 $ 985 $ 791 $ 490 $ 359 $ (179)
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 15 14 29 27 27 28 30
Interest on borrowed funds 446 500 1,021 998 378 345 362
Interest on deposits 718 777 1,557 1,148 1,016 1,407 1,808
----- ----- ----- ----- ----- ----- -----
Total fixed charges 1,179 1,291 2,607 2,173 1,421 1,780 2,200
----- ----- ----- ----- ----- ----- -----
Earnings (for ratio calculation) $ 1,690 $ 1,775 $ 3,592 $ 2,964 $ 1,911 $ 2,139 $ 2,021
===== ===== ===== ===== ===== ===== =====
Total fixed charges $ 1,179 $ 1,291 $ 2,607 $ 2,173 $ 1,421 $ 1,780 $ 2,200
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed
charges 1.43 1.37 1.38 1.36 1.34 1.20 .92
===== ===== ===== ===== ===== ===== =====
</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. For the year ended December 31, 1991, earnings were
insufficient to cover fixed charges. Additional earnings necessary for the year
ended December 31, 1991 to bring the ratio of earnings to fixed charges to a
one-to-one basis are $179 million.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,351
<INT-BEARING-DEPOSITS> 1,191
<FED-FUNDS-SOLD> 2,166
<TRADING-ASSETS> 1,649
<INVESTMENTS-HELD-FOR-SALE> 6,430
<INVESTMENTS-CARRYING> 633
<INVESTMENTS-MARKET> 616
<LOANS> 32,885
<ALLOWANCE> (744)
<TOTAL-ASSETS> 50,830
<DEPOSITS> 33,305
<SHORT-TERM> 7,773
<LIABILITIES-OTHER> 3,160
<LONG-TERM> 2,632
<COMMON> 170
0
508
<OTHER-SE> 3,282
<TOTAL-LIABILITIES-AND-EQUITY> 50,830
<INTEREST-LOAN> 1,580
<INTEREST-INVEST> 213
<INTEREST-OTHER> 243
<INTEREST-TOTAL> 2,036
<INTEREST-DEPOSIT> 718
<INTEREST-EXPENSE> 1,164
<INTEREST-INCOME-NET> 872
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 230
<INCOME-PRETAX> 511
<INCOME-PRE-EXTRAORDINARY> 295
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 295
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.46
<YIELD-ACTUAL> 4.19
<LOANS-NON> 343
<LOANS-PAST> 9
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 735
<CHARGE-OFFS> (111)
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 744
<ALLOWANCE-DOMESTIC> 428
<ALLOWANCE-FOREIGN> 174
<ALLOWANCE-UNALLOCATED> 142
</TABLE>
