<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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, BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 434-2200
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT: NOT APPLICABLE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996:
Common Stock, $1.50 par value 152,967,802
<PAGE>
BANK OF BOSTON CORPORATION
--------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED SELECTED FINANCIAL DATA 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet 4
Consolidated Statement of Income 6
Consolidated Statement of Changes in Stockholders' Equity 7
Consolidated Statement of Cash Flows 8
Notes to Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 38
ITEM 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
LIST OF TABLES
Consolidated Average Balance Sheet - Nine Quarters 31
Consolidated Statement of Income - Nine Quarters 32
Average Balances and Interest Rates - Quarter 33
Average Balances and Interest Rates - Nine Months 35
Change in Net Interest Revenue - Volume and Rate Analysis 37
</TABLE>
2
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30 1996 1995
---- ----
<S> <C> <C>
INCOME STATEMENT DATA
Net interest revenue $ 591 $ 570
Provision for credit losses 57 51
Noninterest income 337 305
Noninterest expense (1) 713 518
Net income (1) 80 175
Per common share
Primary (1) .46 1.06
Fully diluted (1) .45 1.05
Market value per common share
High 57 7/8 47 5/8
Low 50 1/8 36 3/4
NINE MONTH ENDED SEPTEMBER 30
INCOME STATEMENT DATA
Net interest revenue $ 1,728 $ 1,676
Provision for credit losses 171 194
Noninterest income 1,005 942
Noninterest expense (1) 1,772 1,531
Net income (1) 449 498
Per common share
Primary (1) 2.74 3.07
Fully diluted (1) 2.69 3.00
Market value per common share
High 57 7/8 47 5/8
Low 41 5/8 25 5/8
AT SEPTEMBER 30
BALANCE SHEET DATA
Loans and lease financing $ 42,053 $ 39,188
Total assets 61,963 57,559
Deposits 43,328 39,624
Total stockholders' equity 4,754 4,499
Book value per common share 27.81 25.69
Regulatory capital ratios
Risk-based capital ratios
Tier 1 8.3% 8.4%
Total 12.7 12.8
Leverage ratio 7.2 7.4
</TABLE>
(1) Reflects, in 1996, $180 million ($117 million after-tax, or $.76 per share
on a primary and fully diluted basis) of restructuring and merger-related
charges, recorded in connection with the Corporation's acquisition of
BayBanks, Inc. completed on July 29, 1996.
3
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30 DECEMBER 31
1996 1995
---------- ---------
<S> <C> <C>
Cash and due from banks $ 3,755 $ 3,561
Interest bearing deposits in other banks 1,251 1,356
Federal funds sold and securities purchased under agreements to resell 1,680 1,548
Trading securities 1,549 1,159
Mortgages held for sale 33 910
Securities
Available for sale 7,413 7,582
Held to maturity (fair value of $672 in 1996 and $667 in 1995) 685 660
Loans and lease financing
United States Operations 32,552 30,163
International Operations 9,501 8,707
------ ------
Total loans and lease financing (net of unearned income of $356 in
1996 and $277 in 1995) 42,053 38,870
Reserve for credit losses (897) (890)
------ ------
Net loans and lease financing 41,156 37,980
Premises and equipment, net 876 832
Due from customers on acceptances 486 360
Accrued interest receivable 519 554
Other assets 2,560 2,921
------ ------
TOTAL ASSETS $ 61,963 $ 59,423
====== ======
</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>
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30 DECEMBER 31
1996 1995
---------- ---------
<S> <C> <C>
Deposits
Domestic offices
Noninterest bearing $ 7,416 $ 7,127
Interest bearing 24,970 24,392
Overseas offices
Noninterest bearing 935 552
Interest bearing 10,007 8,993
------ ------
Total deposits 43,328 41,064
Funds borrowed
Federal funds purchased 636 1,869
Term federal funds purchased 1,626 870
Securities sold under agreements to repurchase 1,939 1,688
Other funds borrowed 5,049 5,076
Acceptances outstanding 487 360
Accrued expenses and other liabilities 1,298 1,605
Notes payable 2,846 2,189
------ ------
TOTAL LIABILITIES 57,209 54,721
------ ------
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 -152,634,188 in 1996 and 155,785,611 in 1995
Outstanding shares -152,634,188 in 1996 and 155,296,203 in 1995 229 350
Surplus 1,181 1,240
Retained earnings 2,789 2,548
Net unrealized gain on securities available for sale, net of tax 53 82
Treasury stock, at cost (489,408 shares in 1995) (22)
Cumulative translation adjustments, net of tax (6) (4)
------ ------
TOTAL STOCKHOLDERS' EQUITY 4,754 4,702
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,963 $ 59,423
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
BANK OF BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and lease financing, including fees $ 944 $ 1,006 $ 2,860 $ 2,863
Securities 146 124 423 362
Trading securities 36 61 129 146
Mortgages held for sale 9 18 17
Federal funds sold and securities
purchased under agreements to resell 50 74 138 274
Deposits in other banks 23 46 74 178
------- ------- ------- -------
Total interest income 1,199 1,320 3,642 3,840
------- ------- ------- -------
INTEREST EXPENSE
Deposits of domestic offices 242 235 704 640
Deposits of overseas offices 173 229 558 708
Funds borrowed 143 246 513 698
Notes payable 50 40 139 118
------- ------- ------- -------
Total interest expense 608 750 1,914 2,164
------- ------- ------- -------
NET INTEREST REVENUE 591 570 1,728 1,676
Provision for credit losses 57 51 171 194
------- ------- ------- -------
Net interest revenue after provision for
credit losses 534 519 1,557 1,482
------- ------- ------- -------
NONINTEREST INCOME
Financial service fees 140 162 327 465
Trust and agency fees 62 65 181 186
Trading profits and commissions 21 7 59 16
Net securities gains 7 1 24 7
Other income 107 71 414 268
------- ------- ------- -------
Total noninterest income 337 306 1,005 942
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries 244 246 729 704
Employee benefits 49 52 150 153
Occupancy expense 51 48 152 143
Equipment expense 34 34 102 99
Restructuring and merger-related costs 180 180
Other expense 155 138 459 432
------- ------- ------- -------
Total noninterest expense 713 518 1,772 1,531
------- ------- ------- -------
Income before income taxes 158 307 790 893
Provision for income taxes 78 132 341 395
------- ------- ------- -------
NET INCOME $ 80 $ 175 $ 449 $ 498
======= ======= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK $ 71 $ 166 $ 421 $ 470
======= ======= ======= =======
PER COMMON SHARE
Net income
Primary $ .46 $ 1.06 $ 2.74 $ 3.07
Fully diluted $ .45 $ 1.05 $ 2.69 $ 3.00
Dividends declared $ .44 $ .37 $ 1.25 $ .91
AVERAGE NUMBER OF COMMON SHARES (IN THOUSANDS)
Primary 153,103 155,660 153,715 153,086
Fully diluted 155,183 157,599 156,300 156,407
</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
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30
PREFERRED STOCK
Balance, January 1 $ 508 $ 508
-------- --------
Balance, September 30 508 508
-------- --------
COMMON STOCK
Balance, January 1 350 336
Change in par value (118)
Common stock issued
Dividend reinvestment and stock purchase plan 1
Exercise of stock options 3 2
Conversion of subordinated debentures 8
Acquisition of The Boston Bancorp 1
Acquisition of NFS Financial Corporation 2
Acquisition of BayBanks, Inc. (7)
-------- --------
Balance, September 30 229 349
-------- --------
SURPLUS
Balance, January 1 1,240 1,075
Change in par value 118
Dividend reinvestment and stock purchase plan 13 20
Exercise of stock options (25) 13
Acquisition of Ganis Credit Corporation 1
Conversion of subordinated debentures 71
Restricted stock grants, net of forfeitures 12 2
Acquisition of The Boston Bancorp 47
Acquisition of NFS Financial Corporation 37
Acquisition of BayBanks, Inc. (225)
Other, principally employee benefit plans 1 4
-------- --------
Balance, September 30 1,181 1,223
-------- --------
RETAINED EARNINGS
Balance, January 1 2,548 2,085
Net income 449 498
Restricted stock grants, net of forfeitures (3) 1
Payment on ESOP loan 3 3
Cash dividends declared
Preferred stock (28) (28)
Common stock (180) (130)
-------- --------
Balance, September 30 2,789 2,429
-------- --------
NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE
Balance, January 1 82 (40)
Change in net unrealized gain (loss) on securities available for sale, net of tax (29) 34
-------- --------
Balance, September 30 53 (6)
-------- --------
TREASURY STOCK
Balance, January 1 (22) (27)
Purchases of treasury stock (490) (28)
Treasury stock reissued
Dividend reinvestment and stock purchase plan 23 9
Exercise of stock options 52 1
Restricted stock grants, net of forfeitures 10 7
Conversion of subordinated debentures 15
Acquisition of The Boston Bancorp 181
Acquisition of BayBanks, Inc. 232
Acquisition of Ganis Credit Corporation 7 21
Other, principally employee benefit plans 7 2
-------- --------
Balance,September 30
-------- --------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (4) (6)
Change in translation adjustments, net of tax (2) 2
-------- --------
Balance, September 30 (6) (4)
-------- --------
TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $4,754 $4,499
======== ========
</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
-------- -------
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 449 $ 498
Reconciliation of net income to net cash
provided from (used for) operating activities
Provision for credit losses 171 194
Depreciation and amortization 111 170
Provision for deferred taxes 17 57
Net gains on sales of securities and other assets (292) (160)
Change in trading securities (666) (99)
Net change in mortgages held for sale 235 (394)
Net change in interest receivables and payables 23 (20)
Other, net (229) (198)
------- ------
Net cash provided from (used for) operating activities (181) 48
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided from interest bearing deposits in other banks 105 204
Net cash used for federal funds sold and securities
purchased under agreements to resell (132) (82)
Purchases of securities held to maturity (67) (2,239)
Purchases of securities available for sale (6,459) (2,663)
Sales of securities available for sale 3,340 1,708
Maturities of securities held to maturity 37 2,524
Maturities of securities available for sale 3,649 736
Loans and lease financing originated by nonbank entities (13,493) (5,599)
Loans and lease financing collected by nonbank entities 12,233 4,533
Proceeds from sales of loan portfolios by bank subsidiaries 142 131
Net cash used for lending activities of bank subsidiaries (2,178) (774)
Lease financing originated by bank entities (5) (3)
Lease financing collected by bank entities 16 44
Proceeds from sales of other real estate owned 32 61
Expenditures for premises and equipment (171) (164)
Proceeds from sales of business units, premises and equipment 203 130
Other, net (24) (257)
------- ------
Net cash used for investing activities (2,772) (1,710)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided from (used for) deposits 2,264 (624)
Net cash provided from funds borrowed 859 2,256
Net repayments of notes payable (256) (154)
Net proceeds from issuance of notes payable 913 138
Net proceeds from issuance of common stock 74 50
Purchases of treasury stock (490) (28)
Dividends paid (208) (158)
------- ------
Net cash provided from financing activities 3,156 1,480
Effect of foreign currency translation on cash (9) (6)
------- ------
NET CHANGE IN CASH AND DUE FROM BANKS 194 (188)
CASH AND DUE FROM BANKS AT JANUARY 1 3,561 3,146
------- ------
CASH AND DUE FROM BANKS AT SEPTEMBER 30 $ 3,755 $ 2,958
======= ======
Interest payments made $ 1,926 $ 2,124
Income tax payments made $ 343 $ 430
</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. The financial statements reflect the acquisition of
BayBanks, Inc. (BayBanks), which occurred on July 29, 1996. The acquisition
was accounted for as a pooling of interests and, accordingly, the
information included in the accompanying financial statements and notes
presents the combined financial position and results of operations of the
Corporation and BayBanks as if they had operated as a combined entity for
all periods presented. 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 and its
Current Report on Form 8-K dated September 6, 1996.
2. ACQUISITIONS AND DIVESTITURES:
During the first six months of 1996, the Corporation completed a
transaction with two equity investment firms in which its mortgage banking
subsidiary was sold to a newly formed independent mortgage company,
HomeSide, Inc. (HomeSide), and in the second phase of the transaction,
Barnett Mortgage Company was acquired by HomeSide. As a result of both
phases of the transaction, the Corporation realized gains of $106 million,
or $67 million after-tax. Under the sale agreement, the Corporation agreed
to maintain a risk management program designed to protect the enterprise
value of its mortgage banking subsidiary. The above-mentioned gains were
offset by $111 million of losses, or $70 million after-tax, net of
decreased servicing amortization, from the change in market value of
contracts used to manage the prepayment risk in the mortgage servicing
portfolio and the economic value of the mortgage banking subsidiary pending
the completion of the sale to HomeSide.
On June 28, 1996, the Corporation completed its acquisition of The Boston
Bancorp (Bancorp), the holding company of South Boston Savings Bank, a
Massachusetts chartered savings bank with $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 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 nine months ended September 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 acquisition of 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 book values of the
assets and liabilities of BayBanks, as reported in its consolidated balance
sheet, are carried over onto the Corporation's consolidated balance sheet,
and no goodwill or other intangible assets are created. 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 the fourth quarter of 1996. Information with
respect to restructuring and merger-related costs recorded upon completion
of the acquisition is included in Note 9.
The following tables set forth the results of operations of BayBanks and
the Corporation for the six months ended June 30, 1996. These six month
results are included in the results of operations for the nine months ended
September 30, 1996 presented in the accompanying consolidated statement of
income.
SIX MONTHS ENDED JUNE 30, 1996
(in millions, except per share amounts)
BAYBANKS CORPORATION COMBINED
-------- ----------- --------
Net interest revenue $ 265 $ 872 $ 1,137
Noninterest income $ 118 $ 550 $ 668
Net income $ 74 $ 295 $ 369
Net income per common share
Primary $ 3.71 $ 2.50 $ 2.27
Fully diluted $ 3.71 $ 2.46 $ 2.24
9
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND DIVESTITURES (CONTINUED):
The following table reconciles the revenue and net income previously
reported by the Corporation with the combined amounts presented in the
accompanying consolidated statements of income for the quarter and nine
months ended September 30, 1995.
QUARTER ENDED SEPTEMBER 30, 1995
(in millions, except per share amounts)
BAYBANKS CORPORATION COMBINED
-------- ----------- --------
Net interest revenue $ 131 $ 439 $ 570
Noninterest income $ 57 $ 249 $ 306
Net income $ 35 $ 140 $ 175
Net income per share
Primary $ 1.74 $ 1.17 $ 1.06
Fully diluted $ 1.74 $ 1.15 $ 1.05
NINE MONTHS ENDED SEPTEMBER 30, 1995
(in millions, except per share amounts)
BAYBANKS CORPORATION COMBINED
-------- ----------- --------
Net interest revenue $ 377 $ 1,299 $ 1,676
Noninterest income $ 164 $ 778 $ 942
Net income $ 99 $ 399 $ 498
Net income per share
Primary $ 5.11 $ 3.36 $ 3.07
Fully diluted $ 5.10 $ 3.27 $ 3.00
10
<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>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
-------------------------- ---------------------------
(in millions) COST CARRYING COST CARRYING
------- -------- -------- --------
VALUE VALUE
----- -----
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,760 $ 1,760 $ 2,556 $ 2,591
U.S. government
agencies and corporations -
Mortgage-backed securities 3,388 3,378 2,969 3,037
States and political subdivisions 157 157 245 248
Foreign debt securities 1,046 1,076 698 685
Other debt securities 335 331 343 334
Marketable equity
securities 169 240 170 222
Other equity securities 471 471 465 465
----- ----- ----- -----
$ 7,326 $ 7,413 $ 7,446 $ 7,582
===== ===== ===== =====
</TABLE>
Other equity securities included in securities available for sale are not traded
on established exchanges and are carried at cost.
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
AMORTIZED AMORTIZED
(in millions) COST FAIR VALUE COST FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1 $ 1 $ 4 $ 4
U.S. government
agencies and corporations -
Mortgage-backed securities 542 529 523 530
States and political subdivisions 6 6 5 5
Foreign debt securities 11 11 11 11
Other equity securities 125 125 117 117
--- --- --- ---
$ 685 $ 672 $ 660 $ 667
=== === === ===
</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.
11
<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>
SEPT. 30 DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
(in millions)
UNITED STATES OPERATIONS
Commercial, industrial and financial $ 13,828 $ 12,809
Commercial real estate
Construction 323 386
Other 3,228 3,393
Consumer-related loans
Residential mortgages 4,156 4,141
Home equity loans 2,842 2,556
Credit card loans 1,320 495
Other 5,349 5,059
Lease financing 1,778 1,564
Unearned income (272) (240)
--------- ---------
32,552 30,163
--------- ---------
INTERNATIONAL OPERATIONS
Loans and lease financing 9,585 8,744
Unearned income (84) (37)
--------- ---------
9,501 8,707
--------- ---------
$ 42,053 $ 38,870
========= =========
</TABLE>
5. RESERVE FOR CREDIT LOSSES:
An analysis of the reserve for credit losses is as follows:
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPT. 30 SEPT. 30
-------- --------
1996 1995 1996 1995
---- ----- ---- ----
<S> <C> <C> <C> <C>
(in millions)
BALANCE, BEGINNING OF PERIOD $ 895 $ 838 $ 890 $ 827
Provision 57 51 171 194
Reserves of entities sold (11) (32)
Reserve of acquired bank 14 2 14
Domestic credit losses
Commercial, industrial
and financial (3) (10) (16) (36)
Commercial real estate (3) (12) (23) (43)
Consumer-related loans
Residential mortgages (2) (6) (12) (16)
Credit card loans (7) (3) (16) (9)
Home equity loans (2) (3) (6) (7)
Other (42) (18) (103) (53)
International credit losses (14) (15) (36) (43)
------ ------ -------- -------
Total credit losses (73) (67) (212) (207)
------ ------ ------- -------
Domestic recoveries
Commercial, industrial
and financial 3 4 11 12
Commercial real estate 2 8 8 16
Consumer-related loans
Residential mortgages 1 3 2
Credit card loans 2 1
Home equity loans 2 2 3
Other 7 6 20 20
International recoveries 4 3 11 8
------ ------ ------- -------
Total recoveries 18 22 57 62
------ ------ ------- -------
Net credit losses (55) (45) (155) (145)
------ ------ ------- -------
BALANCE, END OF PERIOD $ 897 $ 858 $ 897 $ 858
====== ======= ======= ========
</TABLE>
12
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RESERVE FOR CREDIT LOSSES (CONTINUED):
At September 30, 1996, loans for which impairment has been recognized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan," totaled $320 million,
of which $53 million related to loans with no valuation reserve and $267
million related to loans with a valuation reserve of $72 million. For the
quarter and nine months ended September 30, 1996, average impaired loans
were approximately $293 million and $275 million, respectively. Interest
recognized on impaired loans during the third quarter and nine months ended
September 30, 1996 was not material.
6. NOTES PAYABLE:
During the first nine months of 1996, the Corporation issued $400 million
in senior floating and fixed rate medium-term notes. These notes, which
mature in 1997 through 1999, had weighted average interest rates of 5.66%
during the third quarter of 1996. The Corporation entered into interest
rate swap agreements that effectively converted the fixed rate obligations
to floating rate obligations. In June 1996, the Corporation's $100 million
floating rate senior notes, issued in 1994, matured. In September 1996, The
First National Bank of Boston (FNBB), a major banking subsidiary of the
Corporation, issued $200 million of 7 3/8% Subordinated Notes due 2006.
When the notes were issued, FNBB entered into an interest rate swap
agreement that effectively converted the fixed rate obligation to a
floating rate obligation. Such interest rate was 6.15% at September 30,
1996. The subordinated notes are not subject to redemption prior to
maturity.
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 $118
million from common stock to surplus in the accompanying consolidated
balance sheet.
9. RESTRUCTURING AND MERGER-RELATED COSTS:
During the third quarter of 1996, the Corporation recorded restructuring
and merger-related costs of $180 million ($117 million after-tax) in
connection with the BayBanks acquisition. Included in these costs were
employee-related severance and property related costs; professional fees
and other costs of effecting the acquisition; and systems and other
conversion costs which were incurred during the third quarter. Significant
components of the costs were as follows:
(in millions)
Personnel costs $ 81
Facility costs 50
Other costs 49
----
Total $180
----
Personnel costs relate primarily to the Corporation's plan to eliminate
approximately 2,100 executive, managerial and staff positions through
attrition, enhanced retirement plans and terminations. These costs include
severance and retirement plan costs as well as employee assistance costs
for separated employees. During the third quarter approximately 600
employees were either terminated or left the Corporation through enhanced
retirement plans. Facility costs relate to branch and back office
consolidations, and include lease termination costs and writedowns of bank
owned properties and other facility related costs. Other costs principally
consist of transaction related costs, such as professional fees and stock
registration costs, as well as systems costs and other costs of effecting
the acquisition which were incurred during the third quarter. Cash outlays
during the quarter amounted to $39 million, including $5 million of
termination benefits and $34 million of transaction, facility and systems
and other conversion costs. The remaining reserves and other liabilities of
$141 million at September 30, 1996 include expected cash outlays of $101
million and expected noncash costs of $40 million. Cash outlays are
expected to occur throughout the integration process, which the Corporation
expects to complete by the middle of 1997.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
GENERAL
On July 29, 1996, Bank of Boston Corporation (the Corporation) completed its
acquisition of BayBanks, Inc. (BayBanks). The Corporation acquired BayBanks in
a tax-free exchange of stock, whereby the Corporation exchanged 2.2 shares of
its common stock for each outstanding share of BayBanks common stock. Refer to
Note 2 to the Financial Statements for further discussion of this transaction.
The acquisition was accounted for as a pooling of interests and, accordingly,
the information included in this discussion presents the combined results of
BayBanks and the Corporation as if the Corporation and BayBanks had operated as
a combined entity for all periods presented. The combination of the two Boston-
based institutions created a consumer and corporate banking entity, with over
$60 billion in assets and $40 billion in deposits.
The Corporation's net income for the quarter ended September 30, 1996 was $80
million, compared with net income of $175 million for the same period in 1995.
Net income per common share was $.46 on a primary basis and $.45 on a fully
diluted basis for the third quarter of 1996, compared with net income per common
share of $1.06 on a primary basis and $1.05 on a fully diluted basis for the
third quarter of 1995. In the third quarter of 1996, the Corporation recorded
restructuring and merger-related charges of $180 million ($117 million after-
tax), or $.76 per share on a fully diluted basis, in connection with its
acquisition of BayBanks. Excluding the effects of the restructuring and merger-
related charges, net income for the third quarter of 1996 was $197 million, or
$1.21 per share on a fully diluted basis, compared to $175 million, or $1.05 per
share, in the third quarter of 1995. The Corporation expects to achieve total
annualized cost savings in connection with the integration of BayBanks of $230
million. The major systems and branch conversions are expected to be completed
by the middle of 1997, resulting in the full realization of these savings
occurring in the latter half of 1997. The Corporation's expectations with
respect to potential cost savings are forward-looking statements. Readers are
cautioned that many factors could affect the Corporation's future financial
performance and cause actual cost savings to differ materially from expected
amounts. These factors, some of which are beyond the control of the
Corporation, include, but are not limited to, the regulatory environment,
regional and national economic conditions, inflation, competition, changes in
integration plans, interest rate fluctuations and unanticipated changes in
business conditions. Therefore, the ultimate level of such expected cost
savings and the period within which such cost savings may be realized or
achieved cannot be predicted with certainty.
Net income for the first nine months of 1996 was $449 million, compared with
$498 million for the first nine months of 1995. Net income per common share was
$2.74 on a primary basis and $2.69 on a fully diluted basis for the first nine
months of 1996, compared with $3.07 on a primary basis and $3.00 on a fully
diluted basis for the first nine months of 1995. Excluding the effects of
restructuring and merger-related charges, net income for the first nine months
of 1996 was $566 million, or $3.44 per share on a fully diluted basis, compared
to $498 million, or $3.00 per share, for the 1995 nine-month period.
In connection with the BayBanks acquisition, and specifically to address
competitive issues raised by the Department of Justice and the Massachusetts
Attorney General relative to the transaction, the Corporation agreed to sell 20
branches having aggregate deposits of approximately $860 million. The
transaction is expected to be completed in the fourth quarter of 1996.
All comparisons are affected by the sale of the Corporation's corporate trust
business and the joint venture of its stock transfer business in the fourth
quarter of 1995, the acquisition of The Boston Bancorp (Bancorp) at the end of
the second quarter of 1996, and the sale of the Corporation's mortgage banking
subsidiary in the first half of 1996.
Additional information on certain of these transactions can be found in Note 2
to the Financial Statements.
The Corporation continues to explore, on an ongoing basis, acquisition and joint
venture opportunities, as well as analyze each of its businesses in the context
of competitive advantages, industry dynamics and growth potential, such as the
assignment in September of 1996 of two senior executives to evaluate the
Corporation's national consumer specialty businesses.
14
<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>
QUARTERS ENDED SEPTEMBER 30 Change
- --------------------------- 1996 1995 Amount
(dollars in millions) ----- ------ ------
<S> <C> <C> <C>
UNITED STATES OPERATIONS:
Net interest revenue $ 459 $ 456 $ 3
Average loans and lease financing 31,961 31,138 823
Average earning assets 40,477 39,286 1,191
Net interest margin 4.51% 4.60% (.09)%
INTERNATIONAL OPERATIONS:
Net interest revenue $ 137 $ 118 $ 19
Average loans and lease financing 9,262 7,895 1,367
Average earning assets 13,447 10,979 2,468
Net interest margin 4.07% 4.27% (.20)%
CONSOLIDATED:
Net interest revenue $ 596 $ 574 $ 22
Average loans and lease financing 41,223 39,033 2,190
Average earning assets 53,924 50,265 3,659
Net interest margin 4.40% 4.53% (.13)%
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 Change
- ------------------------------ 1996 1995 Amount
(dollars in millions) ----- ------ ------
<S> <C> <C> <C>
UNITED STATES OPERATIONS:
Net interest revenue $ 1,349 $ 1,360 $ (11)
Average loans and lease financing 31,220 30,218 1,002
Average earning assets 40,061 38,377 1,684
Net interest margin 4.50% 4.74% (.24)%
INTERNATIONAL OPERATIONS:
Net interest revenue $ 394 $ 329 $ 65
Average loans and lease financing 8,956 7,702 1,254
Average earning assets 12,880 10,608 2,272
Net interest margin 4.08% 4.15% (.07)%
CONSOLIDATED:
Net interest revenue $ 1,743 $ 1,689 $ 54
Average loans and lease financing 40,176 37,920 2,256
Average earning assets 52,941 48,985 3,956
Net interest margin 4.40% 4.61% (.21)%
</TABLE>
15
<PAGE>
Domestic net interest revenue increased $3 million, while net interest margin
decreased 9 basis points, in the quarterly comparison. The increase in net
interest revenue was primarily driven by an increase in average earning assets,
including growth in consumer-related loans and other average earning assets, and
a higher level of interest recoveries on loans. The growth in other average
earning assets principally reflected increased securities available for sale,
mainly for asset and liability management purposes, which were partially offset
by decreased mortgages held for sale, resulting from the sale of the mortgage
banking business. The impact of volume increases was partially offset by a
decrease in net interest margin, caused by narrower spreads, which were
mitigated by the addition of $1.3 billion of retail deposits from the June 28
acquisition of Bancorp, which replaced more expensive wholesale funding. In the
nine-month comparison, domestic net interest revenue decreased $11 million and
net interest margin decreased 24 basis points. The decrease in net interest
revenue was due to lower net interest margin, resulting from narrower spreads,
including competitive pricing pressures, and the aggressive marketing of a new
higher-rate savings product introduced during the second quarter of 1995.
Partially offsetting the decrease in net interest revenue was an increase in
average earning assets, as discussed above.
Internationally, the increase in net interest revenue of $19 million in the
quarterly comparison and $65 million in the nine-month comparison was primarily
driven by increases in average earning assets of $2.5 billion and $2.3 billion
in the quarterly and nine-month comparisons, respectively, reflecting increases
in the Corporation's Latin American operations, primarily Brazil and Argentina.
The increases in average earning assets included $1.4 billion and $1.3 billion
increases in average loans and lease financing and $1.1 billion and $.9 billion
in average treasury assets for the quarterly and nine-month comparisons,
respectively. Volume increases included approximately $700 million of average
loans and leases in Brazil for both comparisons, as well as $620 million and
$380 million in treasury assets in the quarterly and nine-month comparisons,
respectively. Average loans and leases in Argentina increased approximately $520
million and $450 million, and average treasury assets increased $490 million and
$510 million in the quarterly and nine-month comparisons, respectively. For both
the quarterly and nine-month comparisons, the impact of these volume increases
on net interest revenue was partially offset by tighter Brazilian and Argentine
net interest margins, reflecting lower interest rate spreads stemming from
increasing economic stability in these countries, and mix changes in Argentine
average earning assets. The decrease in interest rate spreads in Argentina and
Brazil and the changes in mix in Argentina were primarily responsible for the
decrease in international margin in the quarterly and nine-month comparisons.
The level of net interest revenue and margin reported for the quarter ended
September 30, 1996 is not necessarily indicative of future results. The
Corporation has experienced and could experience continued pressure on 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 current 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 was $57 million for the quarter ended September
30, 1996, compared with $51 million for the same period in 1995. For the first
nine months of 1996, the provision for credit losses was $171 million, compared
with $194 million for the first nine 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. This was due
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 provision for credit losses in each quarter reflects management's assessment
of the adequacy of the reserve for credit losses, considering the current risk
characteristics of the loan portfolio and economic conditions. The amount of
future provisions will continue to be a function of the regular quarterly review
of the reserve for credit losses, based upon management's assessment of risk at
that time, and, as such, there can be no assurance as to the level of future
provisions.
16
<PAGE>
NONINTEREST INCOME
The following table sets forth the components of noninterest income.
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------
1996 1995 Change 1996 1995 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Financial service fees
Deposit and ATM-related fees $ 61 $ 58 $ 3 $ 180 $ 173 $ 7
Letter of credit and acceptance fees 18 18 51 55 (4)
Syndication and agent fees 14 12 2 36 26 10
Other loan-related fees 9 8 1 28 25 3
Net mortgage servicing fees 3 25 (22) (82) 76 (158)
Other financial service fees 35 41 (6) 114 110 4
--- --- --- ----- --- ----
Total financial service fees 140 162 (22) 327 465 (138)
Mutual fund fees 24 18 6 69 48 21
Personal trust fees 32 29 3 97 84 13
Other trust and agency fees 6 18 (12) 15 54 (39)
Trading profits and commissions 21 7 14 59 16 43
Securities portfolio gains, net 7 1 6 24 7 17
Net equity and mezzanine profits 51 25 26 165 65 100
Net foreign exchange trading profits 13 16 (3) 37 45 (8)
Gain on sale of mortgage servicing 13 6 7 13 10 3
Other income 30 24 6 93 73 20
Gains on sales of businesses 106 75 31
--- --- --- ----- --- ----
Total $ 337 $ 306 $ 31 $ 1,005 $ 942 $ 63
=== === === ===== === ====
</TABLE>
Lower financial service fees during the first nine months of 1996 reflected $111
million of pre-tax losses ($70 million after-tax) from risk management
activities, net of decreased mortgage servicing amortization, recorded during
the first quarter of 1996 by BancBoston Mortgage Corporation (BBMC), the
Corporation's mortgage banking subsidiary. 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, Inc. 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 pre-tax gain of $106 million ($67 million after-tax) realized on the sale of
BBMC, which is included in gain on sales of businesses. Lower financial service
fees also reflected a reduction in net mortgage servicing fees of approximately
$22 million and $47 million in the quarterly and nine-month comparisons,
respectively, principally due to the sale of BBMC in March 1996.
Excluding the above-noted effects of BBMC, financial service fees were
relatively flat in the quarterly comparison and increased $20 million in the
nine-month comparison. The increase was primarily due to increases in deposit
and ATM-related fees, and syndication and agent fees, reflecting a higher volume
of transactions generated by the Corporation's Corporate Finance business.
Net equity and mezzanine profits increased significantly compared with the prior
year periods due to a higher level of gains realized on 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 level of net profits from
the equity and mezzanine business is impacted by market and economic conditions,
and, as such, fluctuates from period to period. Mutual fund fees increased in
the quarterly and nine-month comparisons primarily due to higher fees from the
Corporation's Brazilian mutual fund business, reflecting growth in these funds
to $3.5 billion at September 30, 1996, from $2.1 billion at September 30, 1995.
Lower other trust and agency fees reflected the Corporation's sale of its
corporate trust business and the joint venture of its stock transfer business in
17
<PAGE>
the fourth quarter of 1995. Compared to prior year periods, trading profits and
commissions increased, mainly due to increases from the Corporation's Global
Capital Markets and Latin American units. Net securities portfolio 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 decreased from the prior year periods
reflecting lower profits from Asia. The $13 million gain on the sale of
mortgage servicing in the third quarter of 1996 resulted from the sale of
BayBank's $4 billion mortgage servicing portfolio.
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.
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------- -----------
1996 1995 Change 1996 1995 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Employee costs $ 293 $ 298 $ (5) $ 879 $ 857 $ 22
Occupancy and equipment 85 82 3 254 242 12
Professional fees 15 17 (2) 42 50 (8)
Advertising and public relations 26 19 7 84 60 24
Communications 24 24 74 66 8
Goodwill amortization 7 5 2 17 13 4
FDIC insurance premiums 3 (3) 1 36 (35)
Other 78 68 10 234 199 35
---- ---- ---- ----- --- ----
Noninterest expense before
restructuring and merger-
related costs and OREO costs 528 516 12 1,585 1,523 62
Restructuring and merger-
related costs 180 180 180 180
OREO costs 5 2 3 7 8 (1)
---- ---- ---- ----- ------ ----
Total $ 713 $ 518 $ 195 $ 1,772 $ 1,531 $ 241
==== ==== ==== ====== ====== ====
</TABLE>
The increase in noninterest expense before restructuring and merger-related
costs and OREO of $12 million in the quarterly comparison and $62 million in the
nine-month comparison is primarily due to 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. The current period expense levels also included higher incentive
compensation costs related to improved business unit performance, and the
effects of the June 28, 1996 acquisition of Bancorp. These increases were
partially offset by cost savings related to the integration of BayBanks, the
elimination of FDIC insurance premiums in 1996, which amounted to $3 million in
the third quarter of 1995 and $36 million in the first nine months 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
decreased by about 7 percent, or 1,600, from September 1995, principally due to
the absence of the above businesses, and the BayBanks integration.
Legislation was passed at the end of the third quarter of 1996 to resolve issues
with respect to capitalization of the Savings Association Insurance Fund (SAIF).
The Corporation does not expect this legislation to have a material impact on
its results of operations.
In the third quarter of 1996, the Corporation recorded restructuring and merger-
related charges of $180 million in connection with its acquisition of BayBanks.
The charges included severance costs, primarily related to separation programs
and employee assistance costs,
18
<PAGE>
related to the Corporation's plan to eliminate approximately 2,100 positions;
facility costs and other restructuring and merger-related costs, including
consolidations of branch and back office operations, resulting in lease
termination costs and writedowns of bank owned property and equipment; and
professional fees and other costs of effecting the merger; as well as systems
and other conversion costs, which were incurred during the third quarter. (See
Note 9 to the Financial Statements for further discussion.)
OREO expense increased in the quarterly comparison due to a writedown on one
property.
PROVISION FOR INCOME TAXES
The Corporation's tax provision was $78 million in the third quarter of 1996,
compared with $132 million in the third quarter of 1995. Included in the third
quarter of 1996 is a tax benefit of $63 million related to the $180 million
restructuring and merger-related charges recorded in connection with the
acquisition of BayBanks. The low level of tax benefit associated with the
charge reflects the effect of certain non tax deductible costs associated with
the acquisition. For the first nine months of 1996, the provision for income
taxes was $341 million, compared with $395 million for the first nine months of
1995, including $45 million associated with the $75 million pre-tax gain on the
sales of the Corporation's 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 investments as a result of $35 million of
non-tax deductible goodwill associated with these subsidiaries. Excluding the
effects of the restructuring and merger-related charges and the gains on the
sales of the banking subsidiaries, the Corporation's effective tax rate was 42
percent for the third quarter and first nine-months of 1996, compared to an
effective tax rate of 43 percent for the third quarter and first nine-months of
1995. The reduction in the effective tax rate from 1995 periods is due to 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 September 30, 1996, the Corporation's total assets were $62.0 billion
compared with $59.4 billion at December 31, 1995. The $2.6 billion increase was
due to a higher level of earning assets, mainly loans and trading securities,
with the increases partially offset by a reduction in mortgages held for sale
resulting from the sale of BBMC (see "Credit Profile" below for a further
discussion of loans). 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. Domestic deposits increased approximately $.9 billion,
reflecting the addition of $1.3 billion of deposits from the acquisition of
Bancorp, partially offset by a decline in certain savings accounts. Deposits
overseas also increased $1.4 billion from December 31, 1995, primarily from the
Corporation's Latin American operations. Notes payable increased approximately
$660 million from December 31, 1995, mainly due to the issuance of medium-term
notes by the Corporation and additional issuances of Brazilian debt, partially
offset by the maturity of certain senior notes of the Corporation.
19
<PAGE>
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 and its Current Report on Form 8-K
dated September 6, 1996.
The segments of the lending portfolio are as follows:
<TABLE>
<CAPTION>
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1996 1996 1996 1995 1995
--------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
United States Operations
Commercial, industrial and financial $ 13,828 $ 12,915 $ 12,677 $ 12,809 $ 13,162
Commercial real estate
Construction 323 410 383 386 460
Other 3,228 3,326 3,242 3,393 3,340
Consumer-related loans
Residential mortgages 4,156 4,133 4,218 4,141 5,244
Home equity loans 2,842 2,775 2,644 2,556 2,455
Credit card 1,320 1,223 810 495 369
Other 5,349 5,218 5,200 5,059 4,820
Lease financing 1,778 1,627 1,565 1,564 1,510
Unearned income (272) (245) (240) (240) (238)
------ ------ ------ ------ ------
32,552 31,382 30,499 30,163 31,122
------ ------ ------ ------ ------
International Operations
Loans and lease financing, net of
unearned income 9,501 9,271 8,769 8,707 8,066
------ ------ ------ ------ ------
------
Total loan and lease financing $ 42,053 $ 40,653 $ 39,268 $ 38,870 $ 39,188
====== ====== ====== ====== ======
</TABLE>
The $3.2 billion increase in loans and lease financing since December 31, 1995
reflects a $2.4 billion increase in domestic loans, including increases in both
consumer-related and commercial, industrial and financial loans, and a $.8
billion increase in international loans. Domestic consumer-related loans
increased $1.4 billion, primarily reflecting the Corporation's re-entry 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 $1.0 billion increase in commercial and industrial loans
occurred in various regional and national portfolios, including specialized
industries, New England corporate banking and asset based lending; loan levels
are also affected by the timing of syndication activity. The $.8 billion
increase in international loans and lease financing since December 31, 1995,
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 74 percent of domestic commercial real estate loans were located
in New England at September 30, 1996, compared with approximately 76 percent at
December 31, 1995. The portion of domestic commercial real estate loans located
outside of New England was dispersed among 27 and 28 states at September 30,
1996 and December 31, 1995, respectively.
The Corporation's total loan portfolio at September 30, 1996 and December 31,
1995, included $1.6 billion and $1.3 billion of highly leveraged transaction
(HLT) loans to 129 and 101 customers, respectively. The average HLT loan size
at September 30, 1996 and December 31, 1995, was $12 million and $13 million,
respectively. The amount of unused commitments for HLTs at September 30, 1996
was $614 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 September 30, 1996 and
December 31, 1995, there were no nonaccrual HLT loans. Credit losses from HLT
loans were $1.2 million in the first nine months of 1996. The Corporation does
not currently anticipate a substantial increase in HLT lending over the
September 30, 1996 level.
20
<PAGE>
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 and its Current Report on
Form 8-K dated September 6, 1996.
NONACCRUAL LOANS AND OREO
The details of consolidated nonaccrual loans and OREO are as follows:
<TABLE>
<CAPTION>
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(dollars in millions) 1996 1996 1996 1995 1995
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
United States
Commercial, industrial and financial $ 114 $ 140 $ 93 $ 88 $ 120
Commercial real estate
Construction 9 10 22 25 23
Other 84 86 102 103 110
Consumer-related loans
Residential mortgages 60 45 46 42 43
Home equity loans 22 20 16 14 17
Credit card 5 2
Other 44 38 42 35 31
---- ---- ---- ---- ----
338 341 321 307 344
---- ---- ---- ---- ----
International 106 57 63 66 69
---- ---- ---- ---- ----
Total nonaccrual loans 444 398 384 373 413
OREO 52 62 65 69 81
---- ---- ---- ---- ----
Total $ 496 $ 460 $ 449 $ 442 $ 494
==== ==== ==== ==== ====
Nonaccrual loans and OREO as a
percent of related asset categories 1.2% 1.1% 1.1% 1.1% 1.3 %
</TABLE>
Nonaccrual loans and OREO at September 30, 1996 increased $54 million from
December 31, 1995, and $36 million from June 30, 1996. The increase from June
30, 1996 reflected the placement of a large international loan on nonaccrual
status, and additional increases in domestic consumer-related non-accrual loans,
about half of which resulted from conforming BayBanks consumer loan nonaccrual
policies to those of the Corporation. These increases were partially offset by
decreases in the domestic commercial loan portfolio as well as the commercial
real estate loan and OREO portfolios. The level of nonaccrual loans and OREO is
influenced by the economic environment, interest rates, and other internal and
external factors. As such, no assurance can be given as to future levels of
nonaccrual loans and leases and OREO.
RESERVE FOR CREDIT LOSSES
The reserve for credit losses at September 30, 1996 was $897 million, or 2.13
percent of outstanding loans and leases, compared with $895 million, or 2.20
percent, at June 30, 1996, and $858 million, or 2.19 percent at September 30,
1995. The reserve for credit losses was 202 percent of nonaccrual loans and
leases at September 30, 1996, compared with 225 percent at June 30, 1996, and
208 percent at September 30, 1995.
Net credit losses were $55 million for the third quarter of 1996, and $155
million for the first nine months of 1996. This compares with $45 million for
the third quarter of 1995, and $145 million for the first nine months of 1995.
Higher net credit losses for both the quarter and nine-month comparisons were
primarily driven by the increase in consumer-related loan net credit losses,
which was partially offset by lower net credit losses from the commercial real
estate and commercial and industrial portfolios. Net credit losses from the
consumer-related portfolio amounted to $44 million in the third quarter of
1996, compared to $23 million in the third quarter of 1995, and $110 million in
21
<PAGE>
the 1996 nine-month period, compared to $59 million in the 1995 nine-month
period. The increases in the quarterly and nine-month comparisons were
principally due to higher net credit losses from the national consumer finance
portfolios, principally Fidelity Acceptance Corporation, reflecting the
continuing upward trend of net credit losses in these portfolios. International
net credit losses decreased in both the quarterly and nine-month comparisons,
primarily due to lower net credit losses from the loan portfolios in Argentina
and Uruguay, partially offset by higher net credit losses in the Brazilian
consumer loan portfolio. As a percentage of average loans and leases on an
annualized basis, net credit losses were .53 percent in the third quarter of
1996, compared with .49 percent for the second quarter of 1996, and .46 percent
for the third quarter of 1995.
Net credit losses are as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
(in millions) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States Operations
Commercial, industrial and financial $ 6 $ 5 $ 24
Commercial real estate $ 1 4 15 27
Consumer-related loans
Residential mortgages 2 5 9 14
Credit card 7 3 14 8
Home equity loans 3 4 4
Other 35 12 83 33
---- ---- ---- ----
45 33 130 110
International Operations 10 12 25 35
---- ---- ---- ----
Total $ 55 $ 45 $ 155 $ 145
==== ==== ==== ====
</TABLE>
CROSS-BORDER OUTSTANDINGS
At September 30, 1996 and December 31, 1995, total cross-border outstandings
represented 13 percent and 14 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 to the Corporation 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 and its Current Report on Form 8-K dated September 6, 1996.
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
September 30, 1996, such transactions related to emerging markets
countries totaled $1.9 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.
22
<PAGE>
Cross-border outstandings in countries which individually amounted to 1.0
percent or more of consolidated total assets at September 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>
September 30, 1996 (1)
Argentina $490 $ 40 $1,940 $2,470 4.0% $ 65
Brazil 10 45 940 995 1.6 80
Chile 165 235 285 685 1.1 20
December 31, 1995 (1)
Argentina $465 $ 50 $1,710 $2,225 3.7% $ 45
Brazil 25 60 980 1,065 1.8 35
United Kingdom 125 570 695 1.1 130
Chile 150 140 365 655 1.1 15
</TABLE>
(1) There were no countries where cross-border outstandings fell within .75
percent and 1 percent of consolidated total assets at September 30, 1996 and
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 $1.5 billion and $1.3 billion of Argendollar
outstandings in its cross-border totals for Argentina at September 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 September 30, 1996, approximately $5.2 billion of the Corporation's cross-
border outstandings, or approximately 8.4 percent of total assets, were to
emerging markets countries, of which most were to countries in which the
Corporation maintains a branch network and/or subsidiaries, compared to $4.9
billion at December 31, 1995. These cross-border outstandings, of which
approximately 78 percent were loans at September 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 nine months of 1996, the Argentine government announced a
series of political and economic actions aimed at stimulating growth. The
government continues to propose measures to reduce both the fiscal deficit and
unemployment. The government has expressed expectations for continued low
inflation, which amounted to zero percent during the first nine months of 1996,
and an increase in credit activity, accompanied by declining interest rates.
Total deposits in the country's financial system, which have grown by
approximately 18 percent in the first nine months of 1996, remained steady
during the quarter. The Corporation's Argentine deposits increased by
approximately $400 million from December 31, 1995, and its loans increased by
approximately $420 million from December 31, 1995, including increases in both
commercial and consumer lending. The level of Argentine nonaccrual loans
increased from $52 million at December 31, 1995, to $82 million at September 30,
1996, due to the placement of one large international loan on nonaccrual status,
which was partially offset by decreases in other nonaccrual loans. Net credit
losses declined from $23 million in the first nine months of 1995, to $14
million in the first nine months of 1996.
Brazil's inflation rate of 8.5 percent for the first nine months of 1996
compares favorably to the inflation rate of 17.2 percent for the first nine
months of 1995. During the third quarter of 1996, Brazil's inflation averaged
.6 percent per month compared with 2.0
23
<PAGE>
percent per month during the third quarter of 1995. The government continued to
maintain a floating band exchange rate policy, which currently stands at 1.00 to
1.04 Reais to the U.S. dollar. The exchange rate at September 30, 1996 was 1.02
Reais to the U.S. dollar.
Certain local Brazilian banks experienced liquidity and other problems in 1995,
which continued into 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
approximately $600 million, to approximately $1 billion at September 30, 1996.
Additionally, the Corporation's mutual funds under management in Brazil
increased approximately $1 billion from December 31, 1995, to $3.5 billion at
September 30, 1996.
The Corporation's loan level in Brazil increased approximately $500 million
from December 31, 1995, to $2.7 billion at September 30, 1996, which included
increases from various segments of the loan portfolio. Net credit losses were
$4 million in both the third quarter and second quarter of 1996, primarily due
to higher credit losses from the consumer portfolio. Nonaccrual loans and OREO
increased from $12 million at the end of the second quarter of 1996 to $20
million at the end of the third quarter of 1996.
During the third 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 third quarter
of 1996 were $117 million and $105 million, respectively, compared to $112
million and $32 million, respectively, in the second quarter of 1996.
Additionally, the Corporation maintained average positions in Chile and Korea of
$42 million and $49 million, respectively, during the third quarter of 1996,
which compared to $23 million and $101 million, respectively, during the second
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 and its Current Report on Form 8-K dated September 6,
1996.
The economic situation in Latin American countries 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 economic actions
implemented by Latin American governments do not remain effective over time, 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 and its Current Report on Form 8-K dated
September 6, 1996.
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
$6.4 billion at September 30, 1996, compared with $7.4 billion at December 31,
1995. Also, the Corporation has access to additional funding through the public
markets. Management considers overall liquidity at September 30, 1996 to be
adequate to meet current obligations, to support expectations for future changes
in asset and liability levels and to 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 and its
Current report on Form 8-K dated September 6, 1996.
24
<PAGE>
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
September 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 3 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 from 2 percent of risk-based capital at December 31, 1995. The
following table shows the Corporation's market value sensitivity and net
interest revenue at risk positions at September 30, 1996 and December 31, 1995,
respectively.
MARKET VALUE SENSITIVITY AND NET
INTEREST REVENUE AT RISK POSITIONS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 (3)
------------------ ---------------------
Quarterly Quarterly
(dollars in millions) Quarter-end Average Quarter-end Average
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Value
Sensitivity (1)......... $142 $145 $ 87 $ 84
% of risk-based capital 2.1% 2.4% 1.6% 1.6%
- --------------------------------------------------------------------------------
Net Interest Revenue
at Risk (2)............. $ 29 $ 25 $ 24 $ 21
% of net interest revenue 1.3% 1.2% 1.4% 1.2%
- --------------------------------------------------------------------------------
</TABLE>
(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 September 30, 1996 and 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.
(3) December 31, 1995 amounts were not restated for the acquisition of BayBanks
due to the use of different interest rate risk modeling techniques by
BayBanks; consequently, restatement was impractical.
At September 30, 1996, and December 31, 1995, 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, the
25
<PAGE>
lengthening of 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 declining
interest rates at September 30, 1996 and December 31, 1995.
Non-U.S. dollar denominated interest rate risk is managed by the Corporation's
overseas units, with oversight by the Boston Treasury group. 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.
The level of U.S. dollar and Non-U.S. dollar interest rate 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 conditions at a
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 into its 1995 Annual Report
on Form 10-K and its Current Report on Form 8-K dated September 6, 1996.
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.
26
<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 (ALM) portfolio.
<TABLE>
<CAPTION>
September 30, 1996 (1) December 31, 1995 (1)
---------------------------------------------------------------------------------------------------
Notional Fair Value (2)(3) Unrecognized(4) NOTIONAL FAIR VALUE (2)(3) UNRECOGNIZED (4)
(DOLLARS IN MILLION) AMOUNT ASSET LIABILITY GAIN (LOSS) AMOUNT ASSET LIABILITY GAIN (LOSS)
- ----------------------- ---------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Futures and forwards $3,458 $1 $(55) $12,558 $10 $(89)
Interest rate swaps 6,984 4 73 (54) 5,852 $93 8 102
Interest rate options
Purchased 3,968 119 2
Written or sold 360 34
---------------------------------------------- ---------------------------------------------
Total interest rate contracts $10,442 $4 $74 $(109) $22,738 $212 $52 $15
============================================== =============================================
Foreign exchange spot and
forward contracts (5) $1,132 $6 $5 $1 $1,258 $3 $5 $(2)
---------------------------------------------- ---------------------------------------------
Total foreign exchange contracts $1,132 $6 $5 $1 $1,258 $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 arm's 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 derivative and foreign exchange
contracts at September 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
September 30, 1996, there were $20 million of unrecognized gains and $41
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 29 months and
16 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 $109 million at September 30, 1996, was primarily
due to an increase in long-term interest rates during the first three quarters
of 1996, 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 of 1996, 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 $40 million at September 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.
27
<PAGE>
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability management
purposes as of September 30, 1996.
<TABLE>
<CAPTION>
Remaining Maturity
--------------------------------------------------------------------
1996 1997 1998 1999
----------- ------------ ---------- ------------
(dollars in millions)
<S> <C> <C> <C> <C>
INTEREST RATE SWAPS
Domestic
Receive fixed rate swaps (1)
Notional amount $ 37 $ 201 $ 60
Weighted average receive rate 6.28% 8.20% 5.60%
Weighted average pay rate 5.59% 5.53% 5.81%
Pay fixed rate swaps (1)
Notional amount $ 28 $ 3 $ 32 $ 2
Weighted average receive rate 5.44% 5.83% 5.82% 5.66%
Weighted average pay rate 5.83% 7.36% 8.71% 7.15%
Basis swaps (2)
Notional amount $ 135 $ 75 $ 50
Weighted average receive rate 5.54% 5.57% 5.54%
Weighted average par rate 5.44% 5.56% 5.48%
Total Domestic Interest Rate Swaps
Notional amount $ 200 $ 279 $ 142 $ 2
Weighted average receive rate (3) 5.66% 7.47% 5.63% 5.66%
Weighted average pay rate (3) 5.52% 5.56% 6.35% 7.155
Total International Interest Rate Swaps
Notional Amount (4) $ 2,631 $ 1,272
OTHER DERIVATIVE PRODUCTS
Futures and forwards (5) $ 3,458
Interest rate options (6)
Purchased
Written or sold
--------- -------- ------ --------
Total Consolidated Notional Amount $ 6,289 $ 1,551 $ 142 $ 2
========= ======== ====== ========
<CAPTION>
Remaining Maturity
---------------------------------------------------------------------
Sept. 30, 1996 Dec. 31, 1995
2000 2001+ Total Total
----------- ------------ ---------- -------------
(dollars in millions)
<S> <C> <C> <C> <C>
INTEREST RATE SWAPS
Domestic
Receive fixed rate swaps (1)
Notional amount $ 340 $ 1,700 $ 2,338 $ 2,463
Weighted average receive rate 5.50% 6.46% 6.45% 6.36%
Weighted average pay rate 5.70% 5.75% 5.72% 5.87%
Pay fixed rate swaps (1)
Notional amount $ 39 $ 34 $ 138 $ 315
Weighted average receive rate 5.61% 5.75% 5.67% 6.25%
Weighted average pay rate 7.13% 7.11% 7.23% 6.91%
Basis swaps (2)
Notional amount $ 50 $ 295 $ 605 $ 1,599
Weighted average receive rate 5.88% 5.92% 5.76% 5.97%
Weighted average par rate 5.63% 5.67% 5.59% 5.86%
Total Domestic Interest Rate Swaps
Notional amount $ 429 $ 2,029 $ 3,081 $ 4,377
Weighted average receive rate (3) 5.55% 6.37% 6.28% 6.21%
Weighted average pay rate (3) 5.82% 5.76% 5.76% 5.94%
Total International Interest Rate Swaps
Notional Amount (4) $ 3,903 $ 1,475
OTHER DERIVATIVE PRODUCTS
Futures and forwards (5) $ 3,458 $ 12,558
Interest rate options (6)
Purchased 3,968
Written or sold 360
------- -------- ---------- ---------
Total Consolidated Notional Amount $ 429 $ 2,029 $ 10,442 $ 22,738
======= ======== ========== =========
</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 Corporations's interest rate swaps accrue at LIBOR
(London Interbank Offered Rate). In arriving at the variable weighted
average receive and pay rates, LIBOR rates in effect as of September 30,
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. These swaps are short-term
and 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
September 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.
28
<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>
September 30, 1996 (1) December 31, 1995 (1)
----------------------------------- -------------------------------------
Notional Fair Value (2)(3)(4) NOTIONAL FAIR VALUE (2)(3)(4)
(DOLLARS IN MILLIONS) AMOUNT ASSET LIABILITY AMOUNT ASSET LIABILITY
- ------------------------------------------------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Futures and forwards $50,044 $58 $61 $30,821
Interest rate swaps 7,521 58 45 9,169 $91 $80
Interest rate options
Purchased 6,478 20 3,411 9
Written or sold 4,504 20 3,986 9
----------------------------------- -------------------------------------
Total interest rate contracts $68,547 $136 $126 $47,387 $100 $ 89
=================================== =====================================
Foreign exchange contracts
Spot and forward contracts $20,691 $182 $180 $13,254 $172 $167
Options purchased 2,050 29 1,044 13
Options written or sold 1,738 25 1,130 16
----------------------------------- -------------------------------------
Total foreign exchange contracts $24,479 $211 $205 $15,428 $185 $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 arm's 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 derivative and foreign exchange
contracts at September 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
September 30, 1996 and December 31, 1995 were $121 million and $125
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 $202 million and $200
million, respectively, for the quarter ended September 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 nine months
ended September 30, 1996 were $.7 million and $7.8 million, respectively, and
for the quarter and nine months ended September 30, 1995 were ($.3) million and
$3.3 million, respectively. Net trading gains from foreign exchange activities,
which include foreign exchange spot, forward and option contracts, for the
quarter and nine months ended September 30, 1996 were $13 million and $37
million, respectively, and for the quarter and nine months ended September 30,
1995 were $16 million and $45 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 into its 1995 Annual Report on
Form 10-K and its Current Report on Form 8-K dated September 6, 1996.
29
<PAGE>
CAPITAL
The Corporation's Tier 1 and total capital ratios were 8.3 percent and 12.7
percent, respectively, at September 30, 1996, compared with 8.5 percent and 12.8
percent, respectively, at December 31, 1995. The Corporation's leverage ratio
at September 30, 1996 was 7.2 percent compared with 7.4 percent at December 31,
1995.
As of September 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.
In October 1996, the Board declared a quarterly common stock dividend of $.44
per share, payable on November 29, 1996, to stockholders of record on November
4, 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 (the FASB) issued SFAS
No. 125, ''Accounting for Transfer 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.
30
<PAGE>
Consolidated Balance Sheet Averages by Quarter
Last Nine Quarters
(in millions)
<TABLE>
<CAPTION>
1994 1995 1996
--------------------------------------------------------------------------------------------------
3 4 1 2 3 4 1 2 3
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in
other banks $ 1,133 $ 1,065 $ 1,262 $ 1,310 $ 1,332 $ 1,454 $ 1,338 $ 1,313 $ 1,256
Federal funds sold and
securities purchased under
agreements to resell 2,691 1,807 1,482 1,294 1,004 972 1,416 1,532 1,708
Trading securities 636 768 721 815 922 929 1,136 1,624 1,467
Loans held for sale 681 345 258 262 506 760 960 69 21
Securities 6,753 7,478 7,218 7,335 7,468 7,823 8,143 8,065 8,249
Loans and lease financing 36,589 37,606 36,894 37,811 39,033 39,357 39,179 40,114 41,223
------- ------- ------- ------- ------- ------- ------- ------ -------
Total earning assets 48,483 49,069 47,835 48,827 50,265 51,295 52,172 52,717 53,924
Other assets 6,055 6,036 5,722 6,034 6,447 6,506 6,415 5,664 6,125
------- ------- ------- ------- ------- ------- ------- ------ -------
TOTAL ASSETS $ 54,538 $ 55,105 $ 53,557 $ 54,861 $ 56,712 $ 57,801 $ 58,587 $ 58,381 $ 60,049
======= ======= ======= ======= ======= ======= ======= ====== =======
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
Noninterest bearing $ 6,469 $ 6,738 $ 6,079 $ 6,091 $ 6,285 $ 6,509 $ 6,586 $ 6,420 $ 6,694
Interest bearing 23,960 24,034 22,530 23,108 24,190 24,700 24,849 24,931 26,003
Overseas offices:
Noninterest bearing 415 481 415 416 501 492 499 465 491
Interest bearing 7,703 7,875 8,318 7,967 7,790 8,202 8,698 9,302 9,429
------ ------ ------ ------ ------ ------ ------- ------- ------
Total deposits 38,547 39,128 37,342 37,582 38,766 39,903 40,632 41,118 42,617
Federal funds purchased and
repurchase agreements 4,721 4,388 4,723 4,696 3,959 4,672 3,959 4,561 4,739
Other funds borrowed 3,726 3,913 3,684 4,432 5,661 4,683 5,102 3,721 3,562
Notes payable 2,041 2,192 2,183 2,112 2,115 2,159 2,421 2,584 2,674
Other liabilities 1,702 1,580 1,618 1,818 1,790 1,806 1,767 1,709 1,698
Stockholders' equity 3,801 3,904 4,007 4,221 4,421 4,578 4,706 4,688 4,759
------ ------ ------ ------ ------ ------ ------- ------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 54,538 $ 55,105 $ 53,557 $ 54,861 $ 56,712 $ 57,801 $ 58,587 $ 58,381 $ 60,049
====== ====== ====== ====== ====== ====== ======= ======= ======
</TABLE>
31
<PAGE>
Consolidated Statement of Income by Quarter - Taxable Equivalent Basis
Last Nine Quarters
(in millions, except per share amounts)
<TABLE>
<CAPTION>
1994 1995 1996
3 4 1 2 3 4 1 2 3
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INTEREST REVENUE: $ 543.9 $ 556.9 $ 549.0 $ 557.3 $ 569.6 $ 572.9 $ 565.5 $ 571.5 $ 591.4
Taxable equivalent adjustment 3.2 4.1 4.2 4.9 4.4 8.4 5.5 4.7 5.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total net interest revenue 547.1 561.0 553.2 562.2 574.0 581.3 571.0 576.2 596.4
Provision for credit losses 31.0 41.0 96.5 46.5 51.0 81.0 56.9 57.1 57.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net interest revenue after
provision for credit losses 516.1 520.0 456.7 515.7 523.0 500.3 514.1 519.1 539.4
----- ----- ----- ----- ----- ----- ----- ----- -----
NONINTEREST INCOME:
Financial service fees 148.4 148.6 146.7 155.9 162.2 230.6 51.6 135.3 140.4
Trust and agency fees 56.0 58.5 58.3 63.0 64.4 54.8 57.4 61.9 61.6
Trading profits and commissions 11.4 .5 1.8 6.8 7.2 9.1 12.9 25.0 20.7
Net securities gains 1.3 2.5 6.1 .2 .8 1.9 13.4 3.4 7.1
Other income 37.6 39.2 131.6 65.8 71.2 71.3 149.9 157.3 106.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Total noninterest income 254.7 249.3 344.5 291.7 305.8 367.7 285.2 382.9 336.5
----- ----- ----- ----- ----- ----- ----- ----- -----
NONINTEREST EXPENSE:
Salaries 218.8 227.8 227.0 230.7 245.9 243.2 240.8 239.9 244.2
Employee benefits 47.0 43.8 50.0 51.0 52.2 45.8 52.2 49.0 49.1
Occupancy expense 47.9 46.6 47.3 46.8 48.3 48.6 51.1 49.7 51.1
Equipment expense 31.5 31.4 32.2 33.6 33.5 33.8 34.3 33.9 34.2
Acquisition, divestiture and
restructuring expenses 5.0 28.2 180.0
Other expense 145.2 149.4 144.2 149.7 138.0 146.1 148.5 159.7 153.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Total noninterest expense 495.4 499.0 500.7 511.8 517.9 545.7 526.9 532.2 712.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 275.4 270.3 300.5 295.6 310.9 322.3 272.4 369.8 163.5
Provision for income taxes 119.2 114.7 140.5 123.0 132.0 133.6 112.0 151.3 78.5
Taxable equivalent adjustment 3.2 4.1 4.2 4.9 4.4 8.4 5.5 4.7 5.0
----- ----- ----- ----- ----- ----- ----- ----- -----
122.4 118.8 144.7 127.9 136.4 142.0 117.5 156.0 83.5
----- ----- ----- ----- ----- ----- ----- ----- -----
NET INCOME $ 153.0 $ 151.5 $ 155.8 $ 167.7 $ 174.5 $ 180.3 $ 154.9 $ 213.8 $ 80.0
===== ===== ===== ===== ===== ===== ===== ===== =====
PER COMMON SHARE:
Net Income:
Primary $ .96 $ .95 $ .98 $ 1.03 $ 1.06 $ 1.09 $ .94 $ 1.33 $ .46
Fully diluted .94 .92 .95 1.02 1.05 1.08 .93 1.32 .45
Cash dividends declared .22 .27 .27 .27 .37 .37 .37 .44 .44
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Quarter Ended September 30, 1996
(dollars In millions)
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
ASSETS VOLUME INTEREST(1) RATE
------------------------------------
<S> <C> <C> <C>
INTEREST BEARING DEPOSITS WITH
OTHER BANKS U.S. $ 173 $ 2 4.99%
International 1,083 21 7.44
------ -----
Total 1,256 23 7.10
------ ----- ----
FEDERAL FUNDS SOLD AND RESALE
AGREEMENTS U.S. 480 7 5.52
International 1,228 43 13.98
------ -----
Total 1,708 50 11.60
------ ----- -----
TRADING SECURITIES U.S. 470 7 6.13
International 997 29 11.67
------ -----
Total 1,467 36 9.89
------ ----- -----
MORTGAGES HELD FOR SAlE U.S. 21 8.74
------ -----
SECURITIES U.S.
Available for sale (2) 6,686 109 6.51
Held to maturity 686 10 6.06
International
Available for sale (2) 871 30 14.11
Held to maturity 6 1 31.12
------ -----
Total 8,249 150 7.23
------ ----- -----
LOANS AND LEASE FINANCING
(NET OF UNEARNED INCOME) U.S. 31,961 687 8.55
International 9,262 258 11.08
------ -----
Total loans and lease financing (3) 41,223 945 9.12
------ ----- -----
Earning assets 53,924 1,204 8.89
------ ----- -----
Nonearning assets 6,125
------
TOTAL ASSETS $ 60,049
======
---------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS U.S.
Savings deposits $ 15,001 $ 102 2.70%
Time deposits 11,002 153 5.55
International 9,429 160 6.76
------ -----
Total 35,432 415 4.67
------ ----- -----
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS U.S. 4,643 68 5.85
International 96 3 11.07
------ -----
Total 4,739 71 5.95
------ ----- -----
OTHER FUNDS BORROWED U.S. 2,580 37 5.74
International 982 35 14.22
------ -----
Total 3,562 72 8.08
------ ----- -----
NOTES PAYABLE U.S. 2,087 35 6.55
International 587 15 10.14
------ -----
Total 2,674 50 7.34
------ ----- -----
Total interest bearing liabilities 46,407 608 5.21
----- -----
Demand deposits U.S. 6,694
Demand deposits International 491
Other noninterest bearing liabilities 1,698
Total Stockholders' Equity 4,759
------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 60,049
======
---------------------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 40,477 $ 459 4.51%
International 13,447 137 4.07
------ -----
Total $ 53,924 $ 596 4.40%
====== =====
---------------------------------------------------------------------------------
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the securities'
amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
33
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Quarter Ended September 30, 1995
(dollars In millions)
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
ASSETS VOLUME INTEREST(1) RATE
------------------------------------
<S> <C> <C> <C>
INTEREST BEARING DEPOSITS WITH
OTHER BANKS U.S. $ 238 $ 4 6.40%
International 1,094 42 15.19
------ -----
Total 1,332 46 13.63
------ ----- -----
FEDERAL FUNDS SOLD AND RESALE
AGREEMENTS U.S. 413 6 5.91
International 591 68 45.62
------ -----
Total 1,004 74 29.31
------ ----- -----
TRADING SECURITIES U.S. 209 3 6.07
International 713 59 32.41
------ -----
Total 922 62 26.45
------ ----- -----
MORTGAGES HELD FOR SALE U.S. 506 9 7.03
------ ----- -----
SECURITIES U.S.
Available for sale (2) 2,903 47 6.46
Held to maturity 3,879 59 6.05
International
Available for sale (2) 462 15 14.28
Held to maturity 224 6 9.70
------ -----
Total 7,468 127 6.77
------ ----- -----
LOANS AND LEASE FINANCING
(NET OF UNEARNED INCOME) U.S. 31,138 690 8.79
International 7,895 316 15.90
------ -----
Total loans and lease
financing (3) 39,033 1,006 10.23
------ ----- -----
Earning assets 50,265 1,324 10.45
----- -----
Nonearning assets 6,447
------
TOTAL ASSETS $ 56,712
======
-------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS U.S.
Savings deposits $ 14,606 $ 100 2.76%
Time deposits 9,584 139 5.74
International 7,790 225 11.44
------ -----
Total 31,980 464 5.77
------ ----- -----
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS U.S. 3,799 46 4.81
International 160 10 24.40
------ -----
Total 3,959 56 5.60
------ ----- -----
OTHER FUNDS BORROWED U.S. 4,831 74 6.05
International 830 116 55.70
------ -----
Total 5,661 190 13.33
------ ----- -----
NOTES PAYABLE U.S. 1,912 34 7.06
International 203 6 11.00
------ -----
Total 2,115 40 7.44
------ ----- -----
Total interest bearing
liabilities 43,715 750 6.81
----- -----
Demand deposits U.S. 6,285
Demand deposits International 501
Other noninterest bearing
liabilities 1,790
Total Stockholders' Equity 4,421
------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 56,712
======
-------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 39,286 $ 456 4.60%
International 10,979 118 4.27
------ -----
Total $ 50,265 $ 574 4.53%
====== =====
----------------------------------------------------------------------
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
34
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Nine Months Ended September 30, 1996
(dollars In millions)
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
VOLUME INTEREST(1) RATE
----------------------------------
<S> <C> <C> <C> <C>
ASSETS
INTEREST BEARING DEPOSITS WITH
OTHER BANKS U.S. $ 211 $ 9 5.67%
International 1,091 65 8.01
------ -----
Total 1,302 74 7.63
------ ----- -----
FEDERAL FUNDS SOLD AND RESALE
AGREEMENTS U.S. 456 18 5.33
International 1,096 120 14.60
------ -----
Total 1,552 138 11.87
------ ----- -----
TRADING SECURITIES U.S. 466 20 5.62
International 943 110 15.58
------ -----
Total 1,409 130 12.29
------ ----- -----
MORTGAGES HELD FOR SALE U.S. 332 17 7.00
International 17 1 6.11
------ -----
Total 349 18 6.96
------ ----- -----
SECURITIES U.S.
Available for sale (2) 6,692 321 6.42
Held to maturity 684 31 6.08
International
Available for sale (2) 738 77 13.89
Held to maturity 39 5 16.60
------ -----
Total 8,153 434 6.98
------ ----- -----
LOANS AND LEASE FINANCING
(NET OF UNEARNED INCOME) U.S. 31,220 2,008 8.59
International 8,956 855 12.75
------ -----
Total loans and lease
financing (3) 40,176 2,863 9.52
------ ----- -----
Earning assets 52,941 3,657 9.23
----- -----
Nonearning assets 6,069
------
TOTAL ASSETS $ 59,010
======
-------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS U.S.
Savings deposits $ 14,938 $ 300 2.69%
Time deposits 10,325 435 5.62
International 9,145 527 7.69
------ -----
Total 34,408 1,262 4.90
------ ----- -----
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS U.S. 4,319 186 5.75
International 102 10 12.90
------ -----
Total 4,421 196 5.91
------ ----- -----
OTHER FUNDS BORROWED U.S. 3,180 142 5.98
International 946 175 24.66
------ -----
Total 4,126 317 10.26
------ ----- -----
NOTES PAYABLE U.S. 2,022 99 6.55
International 538 40 10.02
------ -----
Total 2,560 139 7.28
------ ----- -----
Total interest bearing
liabilities 45,515 1,914 5.62
----- -----
Demand deposits U.S. 6,567
Demand deposits International 485
Other noninterest bearing
liabilities 1,725
Total Stockholders' Equity 4,718
------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 59,010
======
-------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 40,061 $ 1,349 4.50%
International 12,880 394 4.08
------ -----
Total $ 52,941 $ 1,743 4.40%
====== =====
-------------------------------------------------------------------
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
35
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Nine Months Ended September 30, 1995
(dollars In millions)
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE
VOLUME INTEREST (1) RATE
------------------------------------
<S> <C> <C> <C> <C>
ASSETS
INTEREST BEARING DEPOSITS WITH
OTHER BANKS U.S. $ 243 $ 9 5.16%
International 1,059 169 21.26
------ -----
Total 1,302 178 18.26
------ ----- -----
FEDERAL FUNDS SOLD AND RESALE
AGREEMENTS U.S. 593 27 5.98
International 665 247 49.66
------ -----
Total 1,258 274 29.05
------ ----- -----
TRADING SECURITIES U.S. 229 10 6.37
International 591 136 30.67
------ -----
Total 820 146 23.90
------ ----- -----
MORTGAGES HELD FOR SALE U.S. 343 17 6.89
------ ----- -----
SECURITIES U.S.
Available for sale (2) 2,616 131 6.71
Held to maturity 4,135 186 6.02
International
Available for sale (2) 381 40 14.04
Held to maturity 210 15 9.55
------ -----
Total 7,342 372 6.77
------ ----- -----
LOANS AND LEASE FINANCING
(NET OF UNEARNED INCOME) U.S. 30,218 2,001 8.85
International 7,702 865 15.02
------ -----
Total loans and lease
financing (3) 37,920 2,866 10.11
------ ----- -----
Earning assets 48,985 3,853 10.52
----- -----
Nonearning assets 6,068
------
TOTAL ASSETS $ 55,053
======
-------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS U.S.
Savings deposits $ 14,191 $ 276 2.60%
Time deposits 9,090 375 5.52
International 8,024 697 11.60
------ -----
Total 31,305 1,348 5.75
------ ----- -----
FEDERAL FUNDS PURCHASED
AND REPURCHASE AGREEMENTS U.S. 4,294 161 5.03
International 162 36 29.47
------ -----
Total 4,456 197 5.92
------ ----- -----
OTHER FUNDS BORROWED U.S. 3,725 172 6.20
International 875 329 50.17
------ -----
Total 4,600 501 14.56
------ ----- -----
NOTES PAYABLE U.S. 1,973 104 7.08
International 164 14 11.56
------ -----
Total 2,137 118 7.43
------ ----- -----
Total interest bearing
liabilities 42,498 2,164 6.81
----- -----
Demand deposits U.S. 6,153
Demand deposits International 444
Other noninterest bearing
liabilities 1,742
Total Stockholders' Equity 4,216
------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 55,053
======
-------------------------------------------------------------------
NET INTEREST REVENUE
AS A PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS U.S. $ 38,377 $ 1,360 4.74%
International 10,608 329 4.15
------ -----
Total $ 48,985 $ 1,689 4.61%
====== =====
-------------------------------------------------------------------
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
securities' amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.
36
<PAGE>
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
Third Quarter 1996 Compared With Third 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
----------------
(IN MILLIONS) VOLUME RATE NET CHANGE
------ ---- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
LOANS AND LEASE FINANCING U.S. $ 18 $ (21) $ (3)
International 38 (96) (58)
---------
(61)
---------
OTHER EARNING ASSETS U.S. 6 1 7
International 32 (98) (66)
---------
(59)
---------
TOTAL INTEREST INCOME 82 (202) (120)
TOTAL INTEREST EXPENSE 41 (183) (142)
---------
NET INTEREST REVENUE $ 22
=========
</TABLE>
Nine Months Ended September 30, 1996 Compared With Nine Months Ended September
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
----------------
(IN MILLIONS) VOLUME RATE NET CHANGE
------ ---- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
LOANS AND LEASE FINANCING U.S. $ 64 $ (57) $ (7)
International 120 (130) (10)
---------
(3)
---------
OTHER EARNING ASSETS U.S. 32 4 36
International 98 (327) (229)
---------
(193)
---------
TOTAL INTEREST INCOME 273 (469) (196)
TOTAL INTEREST EXPENSE 144 (394) (250)
---------
NET INTEREST REVENUE $ 54
=========
</TABLE>
37
<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 judgement
motion was 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. While vigorously denying any wrongdoing of any kind,
including the claim that it aided and abetted any breach of fiduciary duty, the
Corporation agreed on September 20, 1996 to settle the lawsuit in order to avoid
the substantial expense and distraction associated with continued litigation.
The Chancery Court approved the settlement on November 6, 1996. The settlement
provides for payment by the Corporation of $5 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 - By-Laws of the Corporation, as amended through October 24, 1996
11 - Computation of Earnings Per Common Share
12(a) - Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (excluding interest on deposits)
12(b) - Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (including interest on deposits)
27.1 - Financial Data Schedule
27.2 - Restated Financial Data Schedule for the nine months ended
September 30, 1995
(b) Current Reports on Form 8-K
During the third quarter of 1996, the Corporation filed three Current
Reports on Form 8-K. The current reports, dated July 18, 1996, July 25, 1996
and September 6, 1996, contained information pursuant to Items 5 and 7,
Items 2, 5 and 7 and Items 5 and 7, respectively, of Form 8-K. The
Corporation also filed a Current Report on Form 8-K, dated October 17, 1996,
which contained information pursuant to Items 5 and 7 of Form 8-K.
38
<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: November 14, 1996
39
<PAGE>
EXHIBIT 3
[BANK OF BOSTON LOGO APPEARS HERE]
BANK OF BOSTON CORPORATION
---------------------
BY-LAWS
---------------------
REVISED TO OCTOBER 24, 1996
HH-895
REVISED (10/96)
<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
</TABLE>
ARTICLE II
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<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
</TABLE>
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SECTION 14. Vacancies.................................. 10
SECTION 15. Fees and Expenses of Directors............. 10
SECTION 16. Validity of Acts of Directors.............. 10
SECTION 17. Transactions with the Corporation.......... 10
</TABLE>
ARTICLE III
COMMITTEES
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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
</TABLE>
ARTICLE IV
OFFICERS
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SECTION 1. Titles and Qualifications.................. 16
SECTION 2. Appointment and Terms of Office............ 16
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 Executive Officers..................... 18
SECTION 9. The Treasurer.............................. 18
SECTION 10. The Comptroller............................ 18
SECTION 11 The Clerk and the Secretary of the
Board of Directors....................... 18
SECTION 12. The General Auditor........................ 19
SECTION 13. The Vice Presidents........................ 19
SECTION 14. The Assistant Treasurers and
Assistant Clerks.......................... 19
SECTION 15. Resignation................................ 19
SECTION 16. Vacancies.................................. 19
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SECTION 17. Compensation of Officers, Employees and
Other Agents................................ 20
SECTION 18. Designated Officer........................... 20
</TABLE>
ARTICLE V
STOCK
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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
</TABLE>
ARTICLE VI
GENERAL PROVISIONS
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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
</TABLE>
ARTICLE VII
AMENDMENTS
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SECTION 1. General..................................... 27
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ARTICLE VIII
EMERGENCY BY-LAWS
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SECTION 1. Effective Period........................... 28
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
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BY-LAWS
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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.
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As used in these By-Laws, the expression business day means a day other
than a day which, at a particular place, is a public holiday or a day other
than a day on which banking institutions at such place are allowed or
required, by law or otherwise, to remain closed.
SECTION 4. Notices of Meetings. A printed notice of the place, date and
hour and stating the purposes of each meeting of the stockholders shall be
given by the Clerk (or other person authorized by law or these By-Laws) at
least 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
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received not later than the close of business on the 20th day following the
day on which notice of the date of such meeting was mailed or public
disclosure of the date of such meeting was made, whichever first occurs. Such
stockholder's notice to the Clerk shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and record address of
the stockholder proposing such business, (c) the class and number of shares of
capital stock of the corporation held of record, owned beneficially and
represented by proxy by such stockholder as of the record date for the meeting
(if such date shall then have been made publicly available) and as of the date
of such notice by the stockholder and (d) all other information which would be
required to be included in a proxy statement or other filings required to be
filed with the Securities and Exchange Commission if, with respect to any such
item of business, such stockholder were a participant in a solicitation
subject to Regulation 14A under the Exchange Act (the "Proxy Rules"). In the
event the proposed business to be brought before the meeting by or on behalf
of a stockholder relates or refers to a proposal or transaction involving the
stockholder or a third party which, if it were to have been consummated at the
time of the meeting, would have required of such stockholder or third party or
any of the affiliates of either of them any prior notification to, filing
with, or any orders or other action by, any governmental authority, then any
such notice to the Clerk shall be accompanied by appropriate evidence of the
making of all such notifications or filings and the issuance of all such
orders and the taking of all such actions by all such governmental
authorities.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at any meeting except in accordance with the procedures set
forth in this Section 4; provided, however, that nothing in this Section 4
shall be deemed to preclude discussion by any stockholder of any business
properly brought before such meeting.
The presiding officer of the meeting may, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedures, and if he or she should
so determine, he or she shall so declare to the meeting and that business
shall be disregarded.
SECTION 5. Quorum. At all meetings of the stockholders, the holders of
record of a majority in interest of all stock issued, outstanding and entitled
to vote thereat, or, if two or more classes of stock are issued, outstanding
and entitled to vote as separate classes, a majority in interest of each
class, present in person or represented by proxy, shall constitute a quorum
requisite for the transaction of business, except as otherwise provided by
law, by the Articles of Organization or by these By-Laws. Stock of the
corporation owned directly or indirectly by the corporation, if any, other
than shares of stock held in a fiduciary capacity shall not be deemed
outstanding for this purpose. If a quorum is not present or represented at
any meeting of the stockholders, the stockholders present or represented and
entitled to vote thereat, present in person or represented by proxy, by a
majority vote, shall have the power to adjourn the meeting from time to time
without notice other than announcement at the meeting until the requisite
amount of voting stock shall be present or represented. At any adjourned
meeting at which a quorum is present or represented, any business may be
transacted
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which might have been transacted at the meeting as first convened had there
been a quorum. The stockholders present at a duly organized meeting may
continue to transact business until adjournment notwithstanding the withdrawal
of one or more stockholders or their proxy or proxies so as to leave less than
a quorum present or represented.
SECTION 6. Organization. At every meeting of the stockholders, the
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
<PAGE>
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as separate classes, a majority vote of the stockholders of each class,
present in person or represented by proxy. Except as otherwise expressly
provided by law, the Articles of Organization or these By-Laws, at all
meetings of stockholders the voting shall be by show of hands or voice vote,
but any qualified voter may demand a stock vote, by shares of stock, upon any
question, whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the stockholder voting and the number of shares voted
by him or her, and, if such ballot be cast by a proxy, it shall also state the
name of the proxy. All elections shall be decided by plurality vote.
SECTION 8. Inspectors. At each meeting of the stockholders, the polls
shall be opened and closed by the proxies and ballots shall be received and
taken in charge by and all questions touching on the qualifications of voters
and the validity of proxies and the acceptance and rejection of votes shall be
decided by two inspectors. Such inspectors shall be appointed by the Board of
Directors before or at the meeting, or, if no such appointment shall have been
made, then by the presiding officer at the meeting. If for any reason any
inspector previously appointed shall fail to attend or refuse or be unable to
serve, an inspector in place of the one so failing to attend or refusing or
unable to serve shall be appointed, either by the Board of Directors or by the
presiding officer at the meeting. No director or candidate for the office of
director shall be appointed an inspector. The inspectors shall file with the
Clerk or other secretary of the meeting a certificate setting forth the
results of each vote taken by ballot at the meeting.
SECTION 9. Action without Meeting. Any action which may be taken by
stockholders may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action by a writing filed with the records
of the meetings of stockholders. Any such consent shall be treated for all
purposes as a vote at a meeting and may be described as such in any
certificate or other document filed with or furnished to any public official,
governmental agency or other person having dealings with the corporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers; Issue of Stock. The property and business of
the corporation shall be managed by the Board of Directors which may exercise
all powers of the corporation except such powers as are by law or by the
Articles of Organization or by these By-Laws conferred upon or reserved to the
stockholders. The Board of Directors and the Executive Committee shall have
power to issue and sell or otherwise dispose of such shares of the
corporation's authorized but unissued capital stock to such persons and at
such times and for such consideration and upon such terms as it shall
determine from time to time.
SECTION 2. Number, Qualification, Election and Term of Office. The
Board of Directors shall be composed of not less than three nor more than
thirty-five directors. Within the limits specified, the number of directors
shall be determined from time to time by vote of a majority of the entire
Board; provided, however, that no decrease in the
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number of directors constituting the entire Board of Directors made pursuant
to this Section 2 shall shorten the term of any incumbent director. The Board
of Directors shall be divided into three classes, as nearly equal in number as
possible. The Directors need not be stockholders. To be nominated to serve or
to serve as a director, an individual must be eligible to serve as a director
both at the time the Board of Directors votes to nominate such individual or
receives notice in accordance with Section 3 of this Article of a
stockholder's intent to nominate such individual and at the time of such
election, and the stockholder making such nomination (and any party on whose
behalf or in concert with whom such stockholder is acting) must be qualified
at the time of making such nomination to have such individual serve as the
nominee of such stockholder (and any party on whose behalf or in concert with
whom such stockholder is acting) if such individual is elected. At each annual
meeting of stockholders, the successors to the class of directors whose term
expires at that meeting shall be elected to hold office for a term continuing
until the annual meeting held in the third year following the year of their
election and until their successors are duly elected and qualified or until
their earlier resignation, death or removal; provided, that in the event of
failure to hold such an annual meeting or to hold such election at such
meeting, the election of directors may be held at any special meeting of the
stockholders called for that purpose. Directors, except those appointed by the
Board of Directors to fill vacancies, shall be elected by a plurality vote of
the stockholders, voting by ballot either in person or by proxy. As used in
these By-Laws, the expression "entire Board" means the number of directors in
office at a particular time.
SECTION 3. Nominations for Director. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors, except as provided in the Articles of Organization with respect to
nominations by holders of preferred stock in certain circumstances.
Nominations of persons for election to the Board of Directors at the annual
meeting may be made at the annual meeting of stockholders (a) by the Board of
Directors or at the direction of the Board of Directors by any nominating
committee or person appointed by the Board or (b) by any stockholder of record
at the time of giving of notice provided for in this Section 3 and who shall
continue to be entitled at the time of the meeting to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 3 rather than the notice procedures with respect to other
business set forth in Section 4 of Article I. Nominations by stockholders
shall be made only after timely notice by such stockholder in writing to the
Clerk of the corporation. In order to be timely given, a stockholder's notice
shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than 75 nor more than 125 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders of the corporation; provided, however, that in the event that the
meeting is called for a date, including any change in a date determined by the
Board pursuant to Section 2 of Article I, more than 75 days prior to such
anniversary date, notice by the stockholder to be timely given must be so
received not later than the close of business on the 20th day following the
day on which notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever first occurs. Such
stockholder's notice to the Clerk shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal
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occupation or employment of the person, (iii) the class and number of shares
of capital stock of the corporation, if any, which are beneficially owned by
the person, (iv) any other information regarding the nominee as would be
required to be included in a proxy statement or other filings required to be
filed pursuant to the Proxy Rules, and (v) the consent of each nominee to
serve as a director of the corporation if so elected; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder, (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder as of the record
date for the meeting (if such date shall then have been made publicly
available) and as of the date of such notice, (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice, (iv) a representation that the
stockholder (and any party on whose behalf or in concert with whom such
stockholder is acting) is qualified at the time of giving such notice to have
such individual serve as the nominee of such stockholder (and any party on
whose behalf or in concert with whom such stockholder is acting) if such
individual is elected, accompanied by copies of any notification or filings
with, or orders or other actions by, any governmental authority which are
required in order for such stockholder (and any party on whose behalf such
stockholder is acting) to be so qualified, (v) a description of all
arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such stockholder and (vi) such
other information regarding such stockholder as would be required to be
included in a proxy statement or other filings required to be filed pursuant
to the Proxy Rules. The corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as
director. No person shall be eligible for election as a director unless
nominated in accordance with the procedures set forth herein.
The presiding officer of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
the foregoing procedures, and if he or she should so determine, he or she
shall so declare to the meeting and the defective nomination shall be
disregarded.
SECTION 4. Quorum and Manner of Acting. One-third of the directors in
office (but in no event fewer than two) shall constitute a quorum for the
transaction of business at any meeting and, except as otherwise provided by
law or these By-Laws, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. Directors shall be deemed present at a meeting when present in
person or by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. In the absence of a quorum, a majority of the
directors present, or if only two directors are present, either director, or
the sole director present, may adjourn any meeting to a day certain or from
time to time until a quorum is present. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted if the meeting had been held when originally called. A director
may not vote or otherwise act by proxy.
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SECTION 5. First Meeting. The Board of Directors elected at any annual
meeting of stockholders shall meet at the Head Office of The First National
Bank of Boston in the City of Boston and Commonwealth of Massachusetts, 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.
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.
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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.
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.
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SECTION 14. Vacancies. The Board of Directors may act notwithstanding a
vacancy or vacancies in its membership; but if the office of any director
shall become vacant by reason of an increase in size of the Board of
Directors, or the death, resignation, disqualification or removal of a
director or otherwise, such vacancy or vacancies shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum. Any director elected in accordance with this
Section 14 shall hold office for the remainder of the full term of the class
of directors in which the vacancy occurred or the new directorship was created
and until his or her successor shall have been elected and qualified or until
his or her earlier resignation, death or removal.
SECTION 15. Fees and Expenses of Directors. Each director who is not an
officer or employee of the corporation or any of its affiliates may be paid
such fees for his or her services and for attendance at meetings of the Board
of Directors or of any committee thereof as the Board of Directors may
determine from time to time to be appropriate. Such fees may be payable
currently or on a deferred basis. In addition, each such director shall be
entitled to reimbursement for reasonable expenses incurred by him or her in
order to attend meetings of the Board of Directors and committees thereof or
otherwise in connection with the performance of his or her duties as a
director.
SECTION 16. Validity of Acts of Directors. All action taken by any
meeting of the Board of Directors or of a committee of the directors or by any
person acting as a director shall, notwithstanding that it shall afterwards be
discovered that there was some defect in the election or appointment or
continuance in office of any such director or person acting as a director, or
that they or any of them were disqualified, or had vacated office, or were not
entitled to vote in relation to the matter acted upon, be as valid as if such
person had been duly elected or appointed, had continued in office and was
qualified to be a director and entitled to vote on such matter.
SECTION 17. Transactions with the Corporation. No contract or other
transaction between the corporation and one or more of its directors or
between the corporation or any other corporation, partnership, voluntary
association, trust or other organization of which any of its directors is a
director or officer or in which he or she has any financial interest shall be
void or voidable for this reason or because any such director is present at or
participates in the meeting of the Board of Directors or of the committee
thereof which authorizes the contract or transactions or because his or her
vote is counted for such purpose (a) if the material facts as to the contract
or transaction and as to his or her relationship or interest are disclosed to
the Board of Directors or such committee and the Board of Directors or such
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of disinterested directors even though the
disinterested directors be less than a quorum or (b) if the material facts as
to the contract or transaction and as to his or her relationship or interest
are disclosed or are known to the shareholders entitled to vote thereon and
the contract or transaction is specifically approved in good faith by vote of
the shareholders or (c) if the contract or transaction is fair and reasonable
as to the corporation as of the time it is authorized, approved or ratified by
the Board of Directors, such committee or the shareholders. Common or
interested directors may
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be counted in determining the presence of a quorum at a meeting of the Board
of Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE III
COMMITTEES
SECTION 1. Executive Committee. There shall be an Executive Committee
composed of the Chairman of the Board, the Chief Executive Officer and such
number 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
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(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 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
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(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.
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.
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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;
(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.
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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.
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
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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 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; and
(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
Executive 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
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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, the President, any Vice
Chairman, any Executive Vice President or any other Executive Officer. 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 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
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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 Executive Officers. The Chief Executive Officer, the
Chairman of the Board, the President, any Vice Chairman, any Executive Vice
President, the Clerk, and such other Executive Officers as may be so
designated from time to time by the Board of Directors shall be the Executive
Officers of the corporation.
SECTION 9. The Treasurer. The Treasurer shall have custody and control
over all funds and securities of the corporation, maintain full and adequate
accounts of all moneys received and paid by him or her on account of the
corporation and, subject to the control of the Board of Directors shall
discharge all duties incident to the office of Treasurer. The Treasurer shall
have authority, in connection with the normal business of the corporation, to
sign or endorse negotiable instruments, contracts, leases and other documents.
The Treasurer shall render an account of his or her transactions to the Board
of Directors whenever and as often as may be requested.
SECTION 10. 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 11. 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
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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 12. 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 13. 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 Executive Vice President shall be senior in rank to all other
Vice Presidents including Senior Vice Presidents.
SECTION 14. 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 15. 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 16. 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, Executive Vice Presidents, or other Executive
Officers not specifically referred to in the preceding sentence 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.
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SECTION 17. 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 18. 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 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
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proof of authority to make the transfer as the corporation or its agents may
reasonably require, to the person in charge of the stock and transfer books
and ledgers or to such other person as the Board of Directors may designate,
who shall thereupon cancel the old certificate and issue a new certificate.
The corporation may treat the holder of record of any share or shares of stock
as the owner of such stock, and shall not be bound to recognize any equitable
or other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, or otherwise,
save as expressly provided by law.
SECTION 3. Transfer Agent and Registrar; Regulations. The corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors at which the shares of the capital stock
of the corporation shall be transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares
of the capital stock of the corporation in respect of which a registrar and
transfer agent shall have been designated, shall be valid unless countersigned
by such transfer agent and registered by such registrar. The Board of
Directors may also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the corporation.
SECTION 4. Lost, Mutilated or Destroyed Certificates. No certificate
for shares of stock of the corporation shall be issued in place of any
certificate alleged to have been lost, mutilated or destroyed, except upon
production of such evidence of the loss, mutilation or destruction and upon
indemnification of the corporation and its agents to such extent and in such
manner as the Board of Directors may prescribe and as permitted by law.
SECTION 5. Record Date for Determination of Stockholders' Rights; Close
of Transfer Books. The Board of Directors may fix in advance a date, not
exceeding 60 days preceding the date of any meeting of stockholders, or the
date fixed for the payment of any dividend, or the making of any other
distribution to stockholders, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or the last day on which the consent or dissent of stockholders may be
effectively expressed for any purpose, as the record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend or distribution, or receive any such allotment of rights, or
as the last day on which stockholders may effectively exercise rights in
respect of any such change or conversion or exchange of capital stock, or as
the last day on which they may effectively express such consent or dissent,
and in such case only stockholders of 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:
<PAGE>
-22-
(i) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the date next preceding the day on which notice is given.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors acts with respect thereto.
SECTION 6. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Organization, may be
declared by the Board of Directors at any regular or special meeting, payable
in cash, in property, or in shares of the capital stock, subject to the
limitations, if any, imposed by law or the Articles of Organization. Before
payment of any dividends, there may be set aside out of any funds of the
corporation available for dividends, such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of
the corporation, and the Board of Directors may modify or abolish any such
reserve.
SECTION 7. Control Share Acquisitions. Until such time as this Section
7 shall be repealed or these By-Laws shall be amended to provide otherwise, in
each case in accordance with Article VII of these By-Laws, the provisions of
Chapter 110D of the Massachusetts General Laws shall not apply to "control
share acquisitions" of the corporation within the meaning of said Chapter
110D.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Offices. The principal office of the corporation shall be in
the City of Boston, County of Suffolk, Commonwealth of Massachusetts. The
corporation may also have offices at such other place or places within or
without the Commonwealth of Massachusetts as the Board of Directors may from
time to time determine.
SECTION 2. Seal. The seal of the corporation shall be in the following
form:
[seal]
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.
<PAGE>
-23-
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 Vice Chairman, the Treasurer, each Executive Officer, 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, any Executive Vice
President, any Executive Officer, or the Clerk 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
<PAGE>
-24-
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, any Executive Vice President, any Executive Officer, or the Clerk
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.
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,
<PAGE>
-25-
officer or trustee of a wholly owned subsidiary of the corporation or having
served in any capacity with respect to any employee benefit plan maintained by
the corporation or any wholly owned subsidiary of the corporation, except with
respect to any matter as to which such director or officer shall have been
adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of the
corporation or of such subsidiary or, to the extent that such matter relates
to service with respect to any such employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan;
provided, however, that as to any matter disposed of by a compromise payment
by such director or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be ordered by a court or unless
such compromise shall be approved as in the best interest of the corporation,
after notice that it involves such indemnification: (i) by a disinterested
majority of the directors of the corporation then in office; or (ii) by a
majority of the disinterested directors of the corporation then in office,
provided that there has been obtained an opinion in writing of independent
legal counsel to the effect that such director or officer appears to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the corporation; or (iii) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a
single class, exclusive of any stock owned by any interested director or
officer. Expenses, including counsel fees, reasonably incurred by any director
or officer of the corporation in connection with the defense or disposition of
any such action, suit or other proceeding shall be paid from time to time by
the corporation in advance of the final disposition thereof upon receipt of an
undertaking by such director or officer to repay the amounts so paid to the
corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this paragraph (a). If in an action, suit or
proceeding brought by or in the right of the corporation, a director of the
corporation is held not liable for monetary damages, whether because that
director is relieved of personal liability under the provisions of 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
<PAGE>
-26-
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 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
<PAGE>
-27-
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 9 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 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.
<PAGE>
-28-
SECTION 2. Meetings of the Board of Directors. During any such
emergency, a meeting of the Board of Directors may be called by any director
or officer who deems it necessary. The meeting shall be held at such time or
place as the person calling the meeting may specify in giving notice thereof.
Such notice may be given in writing or orally and by such means of
communication (including announcement by radio) as in the judgment of the
person giving the same are then feasible to reach as many of the directors as
it is reasonably possible to reach under the prevailing circumstances. Two
directors shall constitute a quorum for the transaction of business at any
such meeting.
SECTION 3. Emergency Location of Head Office. With effect during any
such emergency, the Board of Directors may change the location of the Head
Office of the corporation or designate one or more alternative locations or
authorize one or more officers to do so.
SECTION 4. Preservation of Continuity of Management. In order to
preserve continuity of management of the corporation during any such
emergency, the Board of Directors may provide and from time to time change
lines of succession in management in the event that during such emergency any
or all of the officers shall die or be missing or for any reason be rendered
incapable of discharging his or her or their respective duties.
SECTION 5. Immunity. No director, officer or employee of the
corporation acting in accordance with these emergency By-Laws shall be liable
for any act or omission except willful misconduct.
SECTION 6. Amendment of Emergency By-Laws. The provisions of this
Article VIII can be amended or repealed during any emergency by resolution of
the directors or the shareholders but no such amendment or repeal shall
prejudice any rights or immunities acquired by any director, officer or
employee under Section 5 of this Article VIII in respect of action taken or
omitted by him or her prior to such amendment or repeal. Any such amendment
may make such further or different provisions as may be deemed to be practical
and necessary to deal with the circumstances of the emergency.
<PAGE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
Sept. 30 Sept. 30
EARNINGS (in millions) 1996 1995 1996 1995
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1. Net income $ 80 $ 175 $ 449 $ 498
2. Less: Preferred dividends 9 9 28 28
------- ------- ------- -------
3. Net income applicable to primary and fully diluted
earnings per common share $ 71 $ 166 421 $ 470
======= ======= ======= =======
SHARES (in thousands)
------
4. Weighted average number of common shares outstanding 153,103 155,660 153,715 153,086
5. Incremental shares from assumed exercise
of dilutive stock options as of the beginning
of the period using the treasury stock method 2,080 1,939 2,585 2,140
6. Incremental shares from assumed conversion 1,181
of debentures at date of issuance -------- ------- ------- -------
7. Adjusted number of common shares 155,183 157,599 156,300 156,407
======== ======= ======= =======
PER SHARE CALCULATION
---------------------
8. Primary net income per common share $ .46 $ 1.06 $ 2.74 $ 3.07
(Item 3 divided by Item 4)
9. Fully diluted net income per common share $ .45 $ 1.05 $ 2.69 $ 3.00
(Item 3 divided by 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 nine months ended September 30, 1996 and 1995 and for the five
years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, Years Ended December 31,
(dollars in millions)
1996 1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 449 $ 498 $ 678 $ 542 $ 367 $ 338 $ (103)
Extraordinary items, net of tax 7 (73) (8)
Cumulative effect of changes
in accounting principles,
net of tax (24)
Income tax expense (benefit) 341 395 529 422 262 190 (51)
----- ----- ----- ----- ----- ---- ----
Pretax earnings (loss) $ 790 $ 893 $ 1,207 $ 971 $ 605 $ 455 $ (162)
===== ===== ===== ===== ===== ==== ====
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 30 28 38 35 36 37 39
Interest on borrowed funds 652 816 1,079 1,038 384 352 386
----- ----- ----- ----- ----- ---- ----
Total fixed charges 682 844 1,117 1,073 420 389 425
----- ----- ----- ----- ----- ---- ----
Earnings (for ratio calculation) $ 1,472 $ 1,737 $ 2,324 $ 2,044 $ 1,025 $ 844 $ 263
===== ===== ===== ===== ===== ==== ====
Total fixed charges $ 682 $ 844 $ 1,117 $ 1,073 $ 420 $ 389 $ 425
===== ===== ===== ===== ===== ==== ====
Ratio of earnings to fixed
charges 2.16 2.06 2.08 1.90 2.44 2.17 .62
===== ===== ===== ===== ===== ==== ====
</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 $162 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 nine months ended September 30, 1996 and 1995 and for the five
years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, Years Ended December 31,
(dollars in millions)
1996 1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 449 $ 498 $ 678 $ 542 $ 367 $ 338 $ (103)
Extraordinary items, net of tax 7 (73) (8)
Cumulative effect of changes
in accounting principles,
net of tax (24)
Income tax expense (benefit) 341 395 529 422 262 190 (51)
----- ----- ----- ----- ----- ----- -----
Pretax earnings (loss) $ 790 $ 893 $ 1,207 $ 971 $ 605 $ 455 $ (162)
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 30 28 38 35 36 37 39
Interest on borrowed funds 652 816 1,079 1,038 384 352 386
Interest on deposits 1,262 1,348 1,791 1,301 1,177 1,640 2,202
----- ----- ----- ----- ----- ----- -----
Total fixed charges 1,944 2,192 2,908 2,374 1,597 2,029 2,627
----- ----- ----- ----- ----- ----- -----
Earnings (for ratio calculation) $ 2,734 $ 3,085 $ 4,115 $ 3,345 $ 2,202 $ 2,484 $ 2,465
====== ===== ===== ===== ===== ===== =====
Total fixed charges $ 1,944 $ 2,192 $ 2,908 $ 2,374 $ 1,597 $ 2,029 $ 2,627
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed
charges 1.41 1.41 1.42 1.41 1.38 1.22 .94
===== ===== ===== ===== ===== ===== =====
</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 $162 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 SEPTEMBER 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,755
<INT-BEARING-DEPOSITS> 1,251
<FED-FUNDS-SOLD> 1,680
<TRADING-ASSETS> 1,549
<INVESTMENTS-HELD-FOR-SALE> 7,413
<INVESTMENTS-CARRYING> 685
<INVESTMENTS-MARKET> 672
<LOANS> 42,053
<ALLOWANCE> (897)
<TOTAL-ASSETS> 61,963
<DEPOSITS> 43,328
<SHORT-TERM> 8,441
<LIABILITIES-OTHER> 2,594
<LONG-TERM> 2,846
0
508
<COMMON> 229
<OTHER-SE> 4,017
<TOTAL-LIABILITIES-AND-EQUITY> 61,963
<INTEREST-LOAN> 2,860
<INTEREST-INVEST> 423
<INTEREST-OTHER> 359
<INTEREST-TOTAL> 3,642
<INTEREST-DEPOSIT> 1,262
<INTEREST-EXPENSE> 1,914
<INTEREST-INCOME-NET> 1,728
<LOAN-LOSSES> 171
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 459
<INCOME-PRETAX> 790
<INCOME-PRE-EXTRAORDINARY> 449
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449
<EPS-PRIMARY> 2.74
<EPS-DILUTED> 2.69
<YIELD-ACTUAL> 4.40
<LOANS-NON> 444
<LOANS-PAST> 40
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 890
<CHARGE-OFFS> (212)
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 897
<ALLOWANCE-DOMESTIC> 541
<ALLOWANCE-FOREIGN> 202
<ALLOWANCE-UNALLOCATED> 154
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY RESTATED FINANCIAL INFORMATION FOR THE PERIOD
ENDED SEPTEMBER 30, 1995 EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR
THE PERIOD ENDED SEPTEMBER 30,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,953
<INT-BEARING-DEPOSITS> 1,351
<FED-FUNDS-SOLD> 1,426
<TRADING-ASSETS> 671
<INVESTMENTS-HELD-FOR-SALE> 3,619
<INVESTMENTS-CARRYING> 3,944
<INVESTMENTS-MARKET> 3,985
<LOANS> 39,188
<ALLOWANCE> (858)
<TOTAL-ASSETS> 57,559
<DEPOSITS> 39,624
<SHORT-TERM> 7,432
<LIABILITIES-OTHER> 3,895
<LONG-TERM> 2,109
0
508
<COMMON> 350
<OTHER-SE> 3,641
<TOTAL-LIABILITIES-AND-EQUITY> 57,559
<INTEREST-LOAN> 2,863
<INTEREST-INVEST> 362
<INTEREST-OTHER> 615
<INTEREST-TOTAL> 3,840
<INTEREST-DEPOSIT> 1,348
<INTEREST-EXPENSE> 2,164
<INTEREST-INCOME-NET> 1,676
<LOAN-LOSSES> 194
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 432
<INCOME-PRETAX> 893
<INCOME-PRE-EXTRAORDINARY> 498
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 498
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.00
<YIELD-ACTUAL> 4.61
<LOANS-NON> 413
<LOANS-PAST> 43
<LOANS-TROUBLED> 31
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 827
<CHARGE-OFFS> (207)
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 858
<ALLOWANCE-DOMESTIC> 567
<ALLOWANCE-FOREIGN> 184
<ALLOWANCE-UNALLOCATED> 107
</TABLE>
