<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): SEPTEMBER 6, 1996
BANK OF BOSTON CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 1-6522 04-2471221
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 434-2200
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
-2-
ITEM 5. OTHER EVENTS.
- ----------------------
On July 29, 1996, Bank of Boston Corporation (the Corporation) completed
its acquisition of BayBanks, Inc. (BayBanks), and accounted for the acquisition
as a pooling of interests. Accordingly, the purpose of this Current Report on
Form 8-K is to file supplemental consolidated financial statements, supplemental
management's discussion and analysis of financial condition and results of
operations and supplemental statistical disclosure pursuant to Industry Guide 3
that reflect the acquisition as though the Corporation and BayBanks had operated
as a combined entity for all periods presented. Certain Industry Guide 3
information for the periods included in the supplemental consolidated financial
statements has not been presented, because either the information would not be
materially different from that of the Corporation prior to the acquisition, or
such information is included in the footnotes to supplemental financial
statements.
In addition, the Corporation filed a Current Report on Form 8-K dated May
16, 1996 that included certain pro forma combined financial information for the
Corporation and BayBanks as of March 31, 1996; in order to update that
information, attached hereto as exhibits and incorporated by reference herein is
pro forma combined financial information for the Corporation and BayBanks as of
June 30, 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
- -------------------------------------------
(a) Financial Statements.
The following supplemental consolidated financial information of the
Corporation, giving effect to the acquisition of BayBanks as a pooling of
interests, is included as Schedule A:
(i) Supplemental Consolidated Selected Financial Data
(ii) Supplemental Summary of Quarterly Consolidated Financial
Information and Common Stock Data
(iii) Supplemental Management's Discussion and Analysis of Financial
Condition and Results of Operations
(iv) Report of Independent Accountants
(v) Supplemental Consolidated Balance Sheet as of December 31, 1995 and
1994
(vi) Supplemental Consolidated Statement of Income for the years ended
December 31, 1995, 1994 and 1993
(vii) Supplemental Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1995, 1994 and 1993
(viii) Supplemental Consolidated Statement of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
(ix) Notes to Supplemental Financial Statements
(x) Supplemental Statistical Disclosure by Bank Holding Companies
(xi) Unaudited Supplemental Consolidated Balance Sheet as of June 30,
1996 and December 31, 1995
(xii) Unaudited Supplemental Consolidated Statement of Income for the
three and six months ended June 30, 1996 and 1995
(xiii) Notes to Unaudited Supplemental Financial Statements
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information is included as
Schedule B:
(i) Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996
(ii) Unaudited Pro Forma Combined Statement of Income for the six months
ended June 30, 1996 and the years ended December 31, 1995, 1994 and
1993
(iii) Notes to Unaudited Pro Forma Combined Financial Information
(c) Exhibits.
11 Computation of Supplemental Earnings Per Common Share
12(a) Computation of the Corporation's Supplemental Consolidated Ratio of
Earnings to Fixed Charges (excluding interest on deposits)
12(b) Computation of the Corporation's Supplemental Consolidated Ratio of
Earnings to Fixed Charges (including interest on deposits)
23(a) Consent of Coopers & Lybrand L.L.P. (with respect to the
Corporation)
23(b) Consent of KPMG Peat Marwick LLP (with respect to BayBanks)
27(a) Restated Financial Data Schedule for the six months ended
June 30, 1996
27(b) Restated Financial Data Schedule for the six months ended
June 30, 1995
27(c) Restated Financial Data Schedule for the year ended
December 31, 1995
27(d) Restated Financial Data Schedule for the year ended
December 31, 1994
99 Report of KPMG Peat Marwick LLP dated January 18, 1996 (with respect
to the consolidated financial statements of BayBanks, Inc. and
subsidiaries as of December 31, 1995 and 1994 and for each of the
years in the three-year period ended December 31, 1995)
<PAGE>
-3-
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 hereunto duly authorized.
BANK OF BOSTON CORPORATION
Dated: September 6, 1996 /s/ William J. Shea
-------------------
William J. Shea
Vice Chairman, Chief Financial
Officer and Treasurer
<PAGE>
Schedule A
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993 1992
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA (1)
Interest income.......................................................... $5,119 $4,376 $3,330 $3,664
Interest expense......................................................... 2,870 2,339 1,561 1,992
------- ------- ------- -------
Net interest revenue................................................ 2,249 2,037 1,769 1,672
Provision for credit losses.............................................. 275 154 107 288
------- ------- ------- -------
Net interest revenue after provision for credit losses.............. 1,974 1,883 1,662 1,384
Noninterest income....................................................... 1,309 1,035 945 1,020
Noninterest expense(2)................................................... 2,076 1,947 2,002 1,949
------- ------- ------- -------
Income (Loss) before income taxes, extraordinary items and
cumulative effect of changes in accounting principles.................. 1,207 971 605 455
Provision for (Benefit from) income taxes................................ 529 422 262 190
------- ------- ------- -------
Income (Loss) before extraordinary items and cumulative effect of
changes in accounting principles........................................ 678 549 343 265
Extraordinary items
Gains (losses) from early extinguishment of debt,
net of tax.......................................................... (7)
Recognition of prior year tax benefit carryforwards.................... 73
Cumulative effect of changes in accounting principles, net of tax(3)... 24
------- ------- ------- -------
Net income (loss)................................................... $678 $542 $367 $338
======= ======= ======= =======
Net income (loss) applicable to common stock........................ $641 $505 $332 $318
======= ======= ======= =======
Per common share
Income (Loss) before extraordinary items and cumulative
effect of changes in accounting principles
Primary............................................................. $4.17 $3.44 $2.09 $1.77
Fully diluted....................................................... 4.09 3.36 2.05 1.73
Net income (loss)
Primary............................................................. 4.17 3.39 2.26 2.30
Fully diluted....................................................... 4.09 3.31 2.21 2.24
Cash dividends declared (4)............................................ 1.28 .93 .40 .10
Average number of common shares (in thousands)
Primary................................................................ 153,856 148,913 147,033 138,444
Fully diluted.......................................................... 156,768 153,616 152,067 144,044
<CAPTION>
1991 1990
INCOME STATEMENT DATA (1)
Interest income.......................................................... $4,100 $5,160
Interest expense......................................................... 2,588 3,554
------- -------
Net interest revenue................................................ 1,512 1,606
Provision for credit losses.............................................. 684 1,054
------- -------
Net interest revenue after provision for credit losses.............. 828 552
Noninterest income....................................................... 974 939
Noninterest expense(2)................................................... 1,964 2,125
------- -------
Income (Loss) before income taxes, extraordinary items and
cumulative effect of changes in accounting principles.................. (162) (634)
Provision for (Benefit from) income taxes................................ (51) (52)
------- -------
Income (Loss) before extraordinary items and cumulative effect of
changes in accounting principles........................................ (111) (582)
Extraordinary items
Gains (losses) from early extinguishment of debt,
net of tax.......................................................... 8 44
Recognition of prior year tax benefit carryforwards
Cumulative effect of changes in accounting principles, net of tax(3)
------- -------
Net income (loss)................................................... $(103) $(538)
======= =======
Net income (loss) applicable to common stock........................ $(116) $(552)
======= =======
Per common share
Income (Loss) before extraordinary items and cumulative
effect of changes in accounting principles
Primary............................................................. $(.95) $(4.67)
Fully diluted....................................................... (.95) (4.66)
Net income (loss)
Primary............................................................. (.89) (4.32)
Fully diluted....................................................... (.89) (4.31)
Cash dividends declared (4)............................................ .10 .82
Average number of common shares (in thousands)
Primary................................................................ 129,978 127,759
Fully diluted.......................................................... 130,313 127,999
</TABLE>
(1) Consolidated selected financial data for each of the six years in the
period ended December 31, 1995 have been restated to reflect the
Corporation's acquisition of BayBanks, Inc. (BayBanks), which was completed
in July 1996 and was accounted for as a pooling of interests.
(2) Includes, in 1995, $28 million in charges mainly related to exiting,
reorganizing and downsizing certain business and corporate staff units.
Includes, in 1994, costs of $21 million in connection with the
Corporation's acquisitions of BankWorcester Corporation and Pioneer
Financial, A Co-operative Bank; and, in 1993, acquisition-related costs and
reorganization charges of $85 million, primarily in connection with the
Corporation's mergers with Society for Savings Bancorp, Inc. (Society) and
Multibank Financial Corp. (Multibank), as well as estimated costs of
downsizing and reconfiguring certain of the Corporation's business and
corporate units. Also includes reorganization charges of $54 million in
1991 and $139 million in 1990, comprised of $7 million in 1991 and $89
million in 1990 in connection with a Society reorganization plan, and $47
million in 1991 and $50 million in 1990 in connection with the
Corporation's plans for the consolidation and downsizing of various
domestic and international operations and facilities and staff reductions.
(3) Includes a cumulative benefit of $77 million resulting from the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," and a cumulative charge of $53 million, net of taxes,
relating to a change in accounting principles pertaining to the valuation
of purchased mortgage servicing rights (PMSR).
(4) Amounts represent the historical cash dividends of the Corporation.
F-1
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993 1992 1991 1990
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS(1)
Return on average assets......................................... 1.22% 1.01% .76% .73% (.22)% (1.00)%
Return on average common equity(5)............................... 16.86 15.50 11.39 12.86 (5.20) (19.90)
Common dividend payout ratio (6)................................. 28.1 24.9 14.4 3.4 NM NM
Common equity to total assets.................................... 7.1 6.2 6.1 5.9 4.6 4.7
Average total stockholders' equity to average total assets....... 7.7 7.1 7.1 6.0 5.1 5.6
Risk-based capital ratios
Tier 1...................................................... 8.5 7.7 7.7 7.4 5.5 5.4
Total....................................................... 12.8 12.7 12.4 11.8 9.7 9.6
Leverage ratio................................................... 7.4 6.7 6.9 6.6 4.8 4.5
Net credit losses to average loans and lease financing........... .51 .81 .87 1.38 1.99 2.42
Reserve for credit losses to loans and lease financing........... 2.29 2.19 2.70 3.57 3.98 3.70
Reserve for credit losses to nonaccrual loans and lease
financing...................................................... 238.92 196.97 142.24 116.28 72.79 54.69
Nonaccrual loans and OREO as a percent of related asset
categories..................................................... 1.1 1.5 2.5 4.2 7.1 7.9
Market value/book value.......................................... 171.2 112.2 108.9 134.4 67.7 35.3
BALANCE SHEET DATA at DECEMBER 31 (1)
Loans and lease financing........................................ $38,870 $37,708 $34,819 $31,240 $31,764 $33,468
Reserve for credit losses........................................ (890) (827) (941) (1,116) (1,264) (1,237)
Total assets..................................................... 59,423 55,411 50,711 47,222 47,837 49,445
Deposits......................................................... 41,064 40,249 38,316 38,097 38,064 40,772
Funds borrowed................................................... 9,503 7,211 5,487 3,092 4,762 3,198
Notes payable.................................................... 2,189 2,219 2,023 1,736 1,469 1,586
Stockholders' equity............................................. 4,702 3,931 3,615 3,198 2,420 2,534
Common shares outstanding (in thousands)......................... 155,296 148,343 147,036 145,379 130,265 128,810
Common stockholders of record(7)................................. 27,662 27,505 28,233 30,163 32,965 33,214
Number of employees.............................................. 23,710 24,009 24,215 24,986 24,283 26,072
Per common share
Book value..................................................... $27.01 $23.07 $21.13 $18.98 $16.98 $18.06
Market value................................................... 46 1/4 25 7/8 23 25 1/2 11 1/2 6 3/8
AVERAGE BALANCE SHEET DATA(1)
Loans and lease financing........................................ $38,283 $36,017 $32,565 $31,568 $33,001 $36,519
Securities....................................................... 7,463 6,473 5,631 6,272 6,347 5,559
Other earning assets............................................. 3,821 5,027 4,684 3,818 3,974 7,302
------- ------- ------- ------- ------- -------
Total earning assets........................................ 49,567 47,517 42,880 41,658 43,322 49,380
====== ======== ======= ======= ======= =======
Cash and due from banks 2,591 2,708 2,419 2,200 2,039 2,351
Other assets..................................................... 3,586 3,164 2,638 2,432 2,229 1,971
------- ------- ------- ------- ------- -------
Total average assets........................................ $55,744 $53,389 $47,937 $46,290 $47,590 $53,702
======= ======= ======= ======= ======= =======
Deposits......................................................... $38,406 $37,919 $37,163 $37,643 $38,534 $42,252
Funds borrowed................................................... 9,132 8,018 4,500 3,633 3,910 4,992
Other liabilities................................................ 1,760 1,563 1,087 1,000 1,101 1,324
Notes payable.................................................... 2,142 2,123 1,797 1,252 1,607 2,152
Stockholders' equity............................................. 4,304 3,766 3,390 2,762 2,438 2,982
------- ------- ------- ------- ------- -------
Total average liabilities and stockholders' equity.......... $55,744 $53,389 $47,937 $46,290 $47,590 $53,702
======= ======= ======= ======= ======= =======
</TABLE>
(5) For purposes of this ratio, preferred stock dividends have been deducted
from net income.
(6) Ratios are based on the historical cash dividends and net income applicable
to common stock of the Corporation.
(7) The number of stockholders of record includes banks and brokers who act as
nominees, each of whom may represent more than one stockholder.
NM--Not meaningful.
F-2
<PAGE>
BANK OF BOSTON CORPORATION
SUPPLEMENTAL SUMMARY OF QUARTERLY CONSOLIDATED FINANCIAL INFORMATION AND
COMMON STOCK DATA
<TABLE>
<CAPTION>
1995 1994
Fourth Third Second First Fourth
(dollars in millions, except per share amounts) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Income Statement Data (1)
Interest income....................................................... $ 1,279 $ 1,320 $ 1,297 $ 1,223 $ 1,254
Interest expense...................................................... 706 750 740 674 697
-------- -------- -------- -------- --------
Net interest revenue............................................. 573 570 557 549 557
Provision for credit losses........................................... 81 51 46 97 41
-------- -------- -------- -------- --------
Net interest revenue after provision for credit losses........... 492 519 511 452 516
Noninterest income(2)................................................. 367 305 292 345 249
Noninterest expense(3)................................................ 545 518 512 501 499
-------- -------- -------- -------- --------
Income before income taxes and extraordinary item..................... 314 306 291 296 266
Provision for income taxes............................................ 134 131 123 141 115
-------- -------- -------- -------- --------
Income before extraordinary item...................................... 180 175 168 155 151
Extraordinary loss from early extinguishment of debt,
net of tax.......................................................... ------- ------- ------- ------- -------
Net income............................................................ $ 180 $ 175 $ 168 $ 155 $ 151
======== ======== ======== ======== ========
Average Balance Sheet Data (1)
Loans and lease financing............................................. $ 39,357 $ 39,033 $ 37,811 $ 36,894 $ 37,606
Securities............................................................ 7,823 7,468 7,335 7,218 7,499
Other earning assets.................................................. 4,115 3,764 3,681 3,723 3,964
-------- -------- -------- -------- --------
Total earning assets............................................. 51,295 50,265 48,827 47,835 49,069
Cash and due from banks............................................... 2,649 2,546 2,581 2,588 2,850
Other assets.......................................................... 3,857 3,901 3,453 3,134 3,186
-------- -------- -------- -------- --------
Total average assets............................................. $ 57,801 $ 56,712 $ 54,861 $ 53,557 $ 55,105
======== ======== ======== ======== ========
Deposits.............................................................. $ 39,903 $ 38,766 $ 37,582 $ 37,342 $ 39,128
Funds borrowed........................................................ 9,355 9,620 9,128 8,407 8,301
Other liabilities..................................................... 1,806 1,790 1,818 1,618 1,580
Notes payable......................................................... 2,159 2,115 2,112 2,183 2,192
Stockholders' equity.................................................. 4,578 4,421 4,221 4,007 3,904
-------- -------- -------- -------- --------
Total average liabilities and stockholders' equity............... $ 57,801 $ 56,712 $ 54,861 $ 53,557 $ 55,105
======== ======== ======== ======== ========
Per Common Share (1)
Income before extraordinary item
Primary.......................................................... $1.09 $1.06 $ 1.03 $ .98 $ .95
Fully diluted.................................................... 1.08 1.05 1.02 .95 .92
Net Income
Primary.......................................................... 1.09 1.06 1.03 .98 .95
Fully diluted.................................................... 1.08 1.05 1.02 .95 .92
Cash dividends declared............................................... .37 .37 .27 .27 .27
Market value
High............................................................. 49 3/8 47 5/8 38 1/4 30 3/8 29 1/8
Low.............................................................. 43 5/8 36 3/4 29 3/8 25 5/8 24 5/8
Average Number of Common Shares
(in thousands)
Primary.......................................................... 156,140 155,660 153,877 149,654 149,471
Fully diluted.................................................... 157,959 157,598 155,529 154,262 154,194
<CAPTION>
1994
Third Second First
(dollars in millions, except per share Quarter Quarter Quarter
amounts)
<S> <C> <C> <C>
Income Statement Data (1)
Interest income....................................................... $ 1,256 $ 996 $ 870
Interest expense...................................................... 712 509 421
-------- -------- --------
Net interest revenue............................................. 544 487 449
Provision for credit losses........................................... 31 31 51
-------- -------- --------
Net interest revenue after provision for credit losses........... 513 456 398
Noninterest income(2)................................................. 255 246 285
Noninterest expense(3)................................................ 495 489 464
-------- -------- --------
Income before income taxes and extraordinary item..................... 273 213 219
Provision for income taxes............................................ 120 92 95
-------- -------- --------
Income before extraordinary item...................................... 153 121 124
Extraordinary loss from early
extinguishment of
debt, net of tax.................................................. (7)
------ ------ ------
Net income............................................................ $ 153 $ 121 $ 117
======== ======== ========
Average Balance Sheet Data (1)
Loans and lease financing............................................. $ 36,589 $ 35,185 $ 34,682
Securities............................................................ 6,774 6,133 5,526
Other earning assets.................................................. 5,120 5,767 5,207
-------- -------- --------
Total earning assets............................................. 48,483 47,085 45,415
Cash and due from banks............................................... 2,767 2,450 2,759
Other assets.......................................................... 3,288 3,308 2,878
-------- -------- --------
Total average assets............................................. $ 54,538 $ 52,843 $ 51,052
======== ======== ========
Deposits.............................................................. $ 38,547 $ 36,794 $ 37,196
Funds borrowed........................................................ 8,447 8,866 6,455
Other liabilities..................................................... 1,702 1,470 1,499
Notes payable......................................................... 2,041 2,011 2,248
Stockholders' equity 3,801 3,702 3,654
-------- -------- --------
Total average liabilities and stockholders' equity............... $ 54,538 $ 52,843 $ 51,052
======== ======== ========
Per Common Share (1)
Income before extraordinary item
Primary.......................................................... $ .96 $ .75 $.77
Fully diluted.................................................... .94 .73 .76
Net Income
Primary.......................................................... .96 .75 .73
Fully diluted.................................................... .94 .73 .71
Cash dividends declared............................................... .22 .22 .22
Market value
High............................................................. 27 3/8 28 1/2 25 5/8
Low.............................................................. 24 3/8 23 1/8 22 5/8
Average Number of Common Shares
(in thousands)
Primary.......................................................... 149,195 148,760 148,203
Fully diluted.................................................... 153,904 153,438 152,844
</TABLE>
(1) Quarterly consolidated financial information and common stock data for each
of the quarters in the periods ended December 31, 1995 and 1994 have been
restated, except for cash dividends declared, to reflect the Corporation's
acquisition of BayBanks, which was completed in July 1996 and was accounted
for as a pooling of interests.
(2) Includes a $20 million gain from the sale of the corporate trust business
in the fourth quarter of 1995, a $75 million gain from the sales of the
Corporation's Maine and Vermont banking subsidiaries in the first quarter
of 1995, and a $27 million gain from the sale of the domestic factoring
business in the first quarter of 1994.
(3) Includes $28 million in charges mainly related to exiting, reorganizing and
downsizing certain business and corporate staff units in the fourth quarter
of 1995, and $5 million and $16 million of acquisition-related costs in the
third and second quarters of 1994, respectively, related to the
Corporation's acquisitions of Pioneer Financial, A Co-operative Bank and
BankWorcester Corporation.
The common stock of the Corporation, which is the only class of its securities
entitled to vote at the Annual Meeting of Stockholders, is listed and traded on
the New York and Boston stock exchanges.
F-3
<PAGE>
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Supplemental Consolidated 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. This
discussion should be read in conjunction with the Management's Discussion and
Analysis and Consolidated Financial Statements included in the Corporation's
1995 Annual Report to Stockholders, which is incorporated by reference into its
1995 Annual Report on Form 10-K, as updated by the Management's Discussion and
Analysis sections of the Corporation's Quarterly Reports on Form 10-Q for the
Quarterly Periods Ended March 31, 1996 and June 30, 1996.
The Corporation is a registered bank holding company which, together with its
subsidiaries, operates 750 offices in 25 countries around the world, including
its 450-branch network within New England. The Corporation's major banking
subsidiaries are The First National Bank of Boston (FNBB), BayBank, N.A., Bank
of Boston Connecticut, Rhode Island Hospital Trust National Bank, BayBank FSB
and BayBank NH, N.A.
Mergers and Acquisitions
Since the beginning of 1995, the Corporation has conducted the following
acquisition activities:
. In February 1995, the Corporation completed its acquisition of Ganis
Credit Corporation (Ganis), which is headquartered in Newport Beach,
California. Ganis specializes in collateralized lending for
recreational vehicles and boats, and had approximately $540 million in
consumer loans outstanding at December 31, 1995.
. In July 1995, the Corporation acquired NFS Financial Corp. (NFS),
parent company of two New Hampshire banking institutions, which had
total assets of approximately $625 million at June 30, 1995. The
acquisition was accounted for as a purchase. Following the
acquisition, the two New Hampshire banking institutions were merged
into, and are operating as, BayBank, FSB.
. In July 1995, Fidelity Acceptance Corporation (FAC), the Corporation's
national consumer finance company, completed the acquisition of
approximately $110 million in consumer loans and assumed 46 offices of
Century Acceptance Corporation, a national consumer finance company
based in Kansas City, Missouri.
. In December 1995, the Corporation acquired Cornerstone Financial
Corporation, parent company of Cornerstone Bank of Derry, NH, which
had total assets of approximately $143 million at November 30, 1995.
This transaction was accounted for as a purchase. Following the
acquisition, Cornerstone Bank began operating as BayBank NH, N.A.
. In June 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 approximately $1.3 billion
in deposits. In this transaction, which was accounted for as a
purchase, the Corporation exchanged 4.6 million shares of its common
stock, with a value of approximately $229 million, for all the
outstanding common stock of Bancorp. The Corporation has purchased an
equivalent amount of shares in the open market during 1996 for this
transaction.
Divestitures
During 1995, the Corporation sold the following non-strategic business units:
. In the first quarter of 1995, following its strategy to focus on the
southern New England market, the Corporation completed the sales of
its Vermont and Maine banking subsidiaries, Bank of Vermont (Vermont)
and Casco Northern Bank, N.A. (Casco), resulting in a pre-tax gain of
approximately $75 million, or $30 million net of tax. Vermont and
Casco combined had loans of approximately $1.2 billion and deposits of
approximately $1.3 billion at December 31, 1994.
. In October 1995, the Corporation sold its corporate trust business,
resulting in a net pre-tax gain of $20 million, or $12 million net of
tax.
F-4
<PAGE>
Strategic Alliances
Since the beginning of 1995, the Corporation has entered into the following
strategic alliances to improve efficiencies and economies of scale of certain of
its business units:
. Effective in October 1995, the Corporation formed a joint venture with
Boston Financial Data Services (a joint venture of State Street Bank
and Trust Company and DST Systems, Inc.), which combined their
respective stock transfer businesses into a single entity that is 50
percent owned by each party.
. In December 1995, the Corporation announced it would enter into a
transaction with two equity investors, the Thomas H. Lee Company and
Madison Dearborn Partners, to form an independent mortgage company.
During the first quarter of 1996, the Corporation sold its BancBoston
Mortgage Corporation (BBMC) subsidiary in return for cash and a
minority equity interest in the newly formed entity, HomeSide, Inc.
(HomeSide). The second phase of the transaction, in which Barnett
Mortgage Company was acquired by HomeSide, was completed in the second
quarter of 1996, upon which the Corporation, Barnett Bank and the
equity investment firms now each hold an approximate one-third
interest in HomeSide. This entity is expected to provide a means to
achieve the growth and scale deemed necessary to succeed in the
mortgage banking industry. Further information on this transaction is
included in the Corporation's Quarterly Report on Form 10-Q for the
Quarterly Period Ended June 30, 1996.
Additional information on certain of the transactions described above is
included in Note 2 to the Supplemental Consolidated Financial Statements.
F-5
<PAGE>
Results of Operations
The following is a discussion and analysis of the Corporation's supplemental
consolidated results of operations. In order to understand this section in
context, it should be read in conjunction with the Supplemental Consolidated
Financial Statements included elsewhere in this report.
Overview
Table 1 presents the Corporation's income before extraordinary item and
cumulative effect of changes in accounting principles and net income, as well as
related primary and fully diluted earnings per common share amounts for 1995,
1994 and 1993. The Corporation's 1995 net income increased $136 million, or 25
percent, from the 1994 level. Net income per common share on a fully diluted
basis for 1995 increased $.78, or 24 percent, from the 1994 level.
Table 1 -- Results of Operations
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions, except per share amounts)
<S> <C> <C> <C>
Income before extraordinary item and
cumulative effect of changes in
accounting principles................................. $ 678 $ 549 $ 343
Extraordinary loss from early
extinguishment of debt, net of tax.................... (7)
Cumulative effect of changes in
accounting principles, net of tax(1) ................. 24
----- ----- -----
Net income.............................................. $ 678 $ 542 $ 367
===== ===== =====
Per common share
Income before extraordinary item and
cumulative effect of changes in
accounting principles
Primary............................................ $4.17 $3.44 $2.09
Fully diluted...................................... 4.09 3.36 2.05
Net income
Primary............................................ 4.17 3.39 2.26
Fully diluted...................................... 4.09 3.31 2.21
</TABLE>
(1) Reflects a cumulative $77 million benefit as a result of adopting Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," as of January 1, 1993, and a cumulative $53 million after-tax
charge as a result of a change in accounting with respect to the valuation
of PMSR.
F-6
<PAGE>
Net Interest Revenue
This 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, presented elsewhere in this report. Table 2 presents a
summary of net interest revenue, related average earning assets and net interest
margin. For this review of net interest revenue, 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.
Table 2 -- Net Interest Revenue, Average Earning Assets and Net Interest Margin
<TABLE>
<CAPTION>
Years Ended December 31
(dollars in millions) U.S. International Consolidated
Net interest revenue (fully
taxable equivalent basis)
<S> <C> <C> <C>
1995............................. $ 1,825 $ 446 $ 2,271
1994............................. 1,704 348 2,052
1993............................. 1,525 257 1,782
Average earning assets
1995............................. $38,688 $10,879 $49,567
1994............................. 37,711 9,806 47,517
1993............................. 35,323 7,557 42,880
Net interest margin
1995............................. 4.72% 4.10% 4.58%
1994............................. 4.52 3.54 4.32
1993............................. 4.32 3.40 4.16
</TABLE>
1995 vs. 1994
Both domestic and international operations contributed to the improvements in
net interest revenue and margin from 1994.
The domestic net interest revenue increase of $121 million resulted from both a
higher level of earning assets and wider spreads. Average earning assets
increased by $977 million, reflecting an approximate $1.1 billion increase in
average loan and lease volume partially offset by a decrease in other earning
assets. Contributing to the loan volume increase was a higher level of consumer-
related loans, reflecting increases in FAC's national consumer finance
portfolio, the full year effects of the 1994 acquisitions of Pioneer Financial,
A Co-operative Bank (Pioneer) and BankWorcester Corporation (BankWorcester), and
the effects of the 1995 acquisitions of Ganis and BayBank FSB. These increases
were partially offset by the impact of the 1995 sales of Vermont and Casco, as
well as lower residential mortgage loans, which reflected the sale of certain
lower-yielding residential mortgages by the Corporation, partially offset by
increases in residential loans due to new volume, particularly at the BayBanks
banking subsidiaries, and due to the BayBanks FSB acquisition (see "Noninterest
Income" for further discussion of residential mortgage loans sold). Wider
spreads mainly reflected the shift in the Corporation's average loan portfolio
towards higher-yielding consumer-related loans, and earning asset yield growth
which generally outpaced rate increases on interest bearing liabilities,
particularly retail deposits, during the first half of the year. The widening of
spreads was also mainly responsible for the domestic net interest margin
increasing by 20 basis points compared with 1994. Information on the
Corporation's management of interest rate risk is discussed in the "Interest
Rate Risk Management" section of the Corporation's 1995 Annual Report to
Stockholders, which is incorporated by reference into its 1995 Annual Report on
Form 10-K.
The international net interest revenue increase of $98 million and the
international net interest margin increase of 56 basis points were primarily
attributable to the Corporation's operations in Latin America. The increase in
international net interest revenue was due to a higher level of average earning
assets and wider spreads, the latter also mainly responsible for the increase in
international net interest margin. The increase in spreads was, in part, due to
a shift in mix to higher-yielding loans from lower-yielding treasury assets as
well as the effects of asset and liability positions taken by the Corporation in
Latin America which enabled it to benefit from prevailing interest rates.
International volume growth included an increase of over $600 million in average
loans and leases in Argentina from 1994.
Consolidated net interest margin increased throughout 1994 to 4.54 percent in
the fourth quarter of 1994. The margin increased further to 4.69 percent in the
first quarter of 1995, and declined in each of the subsequent 1995 quarters, to
4.50 percent in the fourth quarter. The declines in margin during 1995 reflected
the narrower domestic spreads being experienced by the industry as competitive
rate increases on interest bearing liabilities, particularly retail deposits,
caught up with yield growth on earning assets. In addition, international margin
increased in the first half of 1995, mainly as a result of widening spreads in
both Argentina and Brazil, which reflected the effects of government economic
measures and interest rate positions taken by the Corporation enabling it to
benefit from rising rates. Spreads generally narrowed in the second half of
1995, particularly in Argentina, as a result of declining interest rates
stemming from increasing economic stability in that country during this period.
See the "Emerging Markets Countries" section of the Corporation's 1995 Annual
Report to Stockholders, which is incorporated by reference into its 1995 Annual
Report on Form 10-K, for further discussion.
F-7
<PAGE>
The level of net interest revenue and margin reported for the year ended
December 31, 1995 is not necessarily indicative of future results. The
Corporation has experienced, and could continue to experience in the future,
pressure on margin. 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.
Noninterest Income
The composition of noninterest income is presented in Table 3:
<TABLE>
<CAPTION>
Table 3 - Noninterest Income
Years Ended December 31
(in millions) 1995 1994 1993
<S> <C> <C> <C>
Financial service fees:
Net mortgage servicing fees.................................... $ 172 $ 63 $ 11
Deposit fees................................................... 197 209 203
Loan-related fees.............................................. 72 61 46
Letter of credit and acceptance fees........................... 72 63 60
Other financial service fees................................... 182 168 188
------ ------ -----
Total financial service fees..................................... 695 564 508
Trust and agency fees............................................ 240 222 198
Equity and mezzanine profits, net................................ 110 30 38
Net foreign exchange trading profits............................. 60 44 47
Trading profits and commissions.................................. 25 18 26
Securities gains, net............................................ 9 14 32
Gains on sales of businesses..................................... 95 27
Other income..................................................... 75 116 96
------ ------ -----
Total........................................................ $1,309 $1,035 $ 945
====== ====== =====
</TABLE>
1995 vs. 1994
The $131 million increase in financial service fees reflected a significant
increase in net mortgage servicing fees as well as higher loan-related fees and
other financial service fees and higher letter of credit and acceptance fees,
partially offset by a decline in deposit fees. Net mortgage servicing fees
increased $109 million compared with 1994. As a result of the declining interest
rate environment in the fourth quarter of 1995, the Corporation recognized $67
million of gains (net of increased servicing amortization) from the increase in
market value of contracts used to manage prepayment risk in the mortgage
servicing portfolio. See the "Interest Rate Risk Management" section in the
Corporation's 1995 Annual Report to Stockholders, which is incorporated by
reference into its 1995 Annual Report on Form 10-K, for a further discussion of
these contracts and their potential effect on income. Excluding these gains, net
mortgage servicing fees increased $42 million from 1994, reflecting the growth
in the average servicing portfolio from $34 billion in 1994 to $42 billion in
1995. See the "Strategic Alliances" section for further discussion of the
transactions completed during the first and second quarters of 1996 involving
the Corporation's mortgage banking subsidiary. The growth in loan-related and
other financial service fees was mainly due to higher syndication and advisory
fees, reflecting the Corporation's increased emphasis on its capital markets
business. Partially offsetting the increase in other financial service fees was
the absence of factoring fees in 1995, due to the sale of the Corporation's
domestic factoring business in 1994, which resulted in a pre-tax gain of $27
million ($15 million net of tax). Letter of credit and acceptance fees increased
$9 million compared with 1994 due to a higher volume of business. Deposit fees
declined compared to 1994, mainly resulting from the $1.3 billion decline in
deposits due to the 1995 sales of Vermont and Casco, which resulted in a pre-tax
gain of $75 million ($30 million net of tax).
Net equity and mezzanine profits improved $80 million from 1994, as a result of
a higher level of sales activity in 1995. The improvement in trust and agency
fees mainly reflected higher fees from the Brazilian mutual fund business, as
total funds under management increased to $2.5 billion at December 31, 1995,
from $1.7 billion a year ago, which was partially offset by the absence of
corporate trust and domestic stock transfer fees in the fourth quarter of 1995.
As previously discussed in the "Divestitures" and "Strategic Alliances"
sections, respectively, during 1995 the Corporation sold its corporate trust
business, which resulted in a net pre-tax gain of $20 million ($12 million net
of tax), and spun off its domestic stock transfer business into a joint venture.
Foreign exchange trading activities principally include trading of spot and
forward contracts in major foreign currencies. Net foreign exchange trading
profits were $16 million higher compared with 1994, as increases were posted by
international and domestic treasury operations. Trading account profits
increased due to a higher level of profits from international securities trading
during the second half of 1995. Offsetting these improvements were declines in
other noninterest income and net securities gains. Other income declined, in
part, due to a loss of $17 million on the transfer of approximately $1.3 billion
of low-yielding residential mortgage loans into the held for sale account,
substantially all of which were sold by December 31, 1995. Also contributing to
the decline in other income were $17 million of valuation-related charges
associated with certain investments and other assets, including assets being
retained by the Corporation in connection with the aforementioned mortgage
banking transactions, and the absence of net gains recorded in the first quarter
of 1994 from the sale of securities originally acquired in connection with loan
restructurings. Partially offsetting these items was a net improvement in the
results of investments accounted for under the equity method. Other income in
1994 included $15 million of exchange-related profits arising from the
strengthening of Brazil's currency against the U.S. dollar subsequent to the
implementation of Brazil's new economic program in July 1994, and approximately
$15 million of charges associated with certain investments.
F-8
<PAGE>
Noninterest Expense
The composition of noninterest expense is presented in Table 4:
<TABLE>
Table 4 - Noninterest Expense
Years Ended December 31
(in millions) 1995 1994 1993
<S> <C> <C> <C>
Employee costs....................................................................... $1,146 $1,046 $ 988
Occupancy and equipment.............................................................. 324 310 304
FDIC insurance premiums.............................................................. 34 73 84
Other................................................................................ 535 459 459
------ ------ ------
Noninterest expense, excluding OREO costs and special charges...................... 2,039 1,888 1,835
OREO costs........................................................................... 9 38 82
Acquisition, divestiture and restructuring expense................................... 28 21 85
------ ------ ------
Total.............................................................................. $2,076 $1,947 $2,002
====== ====== ======
</TABLE>
1995 vs. 1994
The growth in noninterest expense before acquisition, divestiture and
restructuring expense and OREO costs reflected increases in the Corporation's
Latin American, personal banking and capital markets businesses which the
Corporation has been expanding. The increase in employee costs mainly included
higher merit increases and higher levels of incentive compensation, including
stock awards made to senior management under a plan tied to the Corporation's
common stock price, and reflected the net impact on employee levels of the
Corporation's acquisition and divestiture activities during the year. The $14
million increase in occupancy and equipment from 1994 was the result of higher
expenses from international operations, mainly Latin America, the Corporation's
acquisitions and increased rental expense related to branch openings, including
supermarket branches. The $39 million decline in FDIC insurance premiums
reflected a reduction in the FDIC assessment rate effective in June 1995. Other
expense increased from 1994 as a result of growth and business development in
the Latin American and personal banking businesses. This increase included
higher levels of advertising and marketing expense, including increases related
to new retail deposit products, the Corporation's expansion of the domestic
credit card business, the introduction of a home banking product, new branch
advertising, the introduction of the BayBank product line in New Hampshire and
customer surveys. In addition, growth in travel, communications and software
costs and increased goodwill amortization contributed to the increase in other
expenses. The decline in OREO costs was primarily due to lower valuation
adjustments and the continued disposition of OREO properties.
During the fourth quarter of 1995, the Corporation recorded $28 million of
charges mainly related to exiting, reorganizing and downsizing certain business
and corporate staff units. Included within these charges were expenses related
to reorganizations underway in the European business, including the closing of
the Luxembourg operations, corporate banking, certain Asian operations and
various other units. In addition, a charge was included for curtailment losses
as defined by SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," and SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits." The curtailment losses resulted from the aforementioned mortgage
banking transaction, which removed mortgage banking employees from the
Corporation's postretirement and pension plans during the first quarter of 1996.
Additional information on these items is included in Note 17 to the Supplemental
Consolidated Financial Statements.
Provision for Credit Losses
The provision for credit losses was $275 million in 1995, compared with $154
million in 1994 and $107 million in 1993. The provision for credit losses in
each year reflected management's assessment of the adequacy of the reserve for
credit losses, including the risk characteristics of the loan portfolio and
economic conditions. The 1995 provision for credit losses included special
provisions of $75 million reflecting management's intent to strengthen further
the Corporation's loan loss reserve (see further discussion in the "Reserve For
Credit Losses" section). The 1994 provision reflected the effect of
transferring certain lower quality real estate exposures to an accelerated
disposition portfolio (ADP) (see further discussion in the "Accelerated
Disposition Portfolio" section). The amount of future provisions will be a
function of the regular quarterly review of the reserve for credit losses, which
considers the risk characteristics of the loan portfolio and economic conditions
existing at that time.
Provision for Income Taxes
The 1995 income tax provision was $529 million, compared with $422 million for
1994 and $262 million for 1993. The 1995 provision included $45 million
associated with the $75 million gain on the sales of Vermont and Casco. 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 impact of these sales, the Corporation's
effective tax rate in 1995 was 43 percent, the same rate as in 1994 and 1993.
During 1995, the Massachusetts Legislature enacted a bill to reduce the state
income tax rate for banks from 12.5 percent to 10.5 percent to be phased in over
five years, and to permit apportionment of a bank's taxable income.
Additionally, in 1995, the Corporation reached a favorable settlement of an
outstanding Massachusetts tax matter relating to income earned on certain
securities. These items did not have a significant effect on the Corporation's
1995 effective tax rate, since the reduction in the current tax provision from
the tax law changes and the settlement were offset by the required reduction in
FNBB's net deferred tax assets resulting from the tax law changes. The changes
in the Massachusetts tax law are expected to have a favorable impact on the
Corporation's effective tax rate in 1996.
F-9
<PAGE>
Financial Condition
Credit, liquidity, interest rate and capital management are important elements
to be considered in understanding and assessing the Corporation's financial
condition. For detailed discussions of these areas, refer to the Management's
Discussion and Analysis section of the Corporation's 1995 Annual Report to
Stockholders, which is incorporated by reference into its 1995 Annual Report on
Form 10-K, as updated by the Management's Discussion and Analysis sections of
the Corporation's Quarterly Reports for the Quarterly Periods Ended March 31,
1996 and June 30, 1996.
Loans and Leases
Table 5 shows a breakdown of the Corporation's loans and lease financing
portfolio for the last five years.
Table 5 -- Loans and Lease Financing Portfolio
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(dollars in millions) Balance Percent Balance Percent Balance Percent
<S> <C> <C> <C> <C> <C> <C>
United States
Commercial, industrial and financial................... $12,809 33.0% $13,122 34.8% $13,199 37.9%
Commercial real estate
Construction.................................... 386 1.0 391 1.0 675 1.9
Other........................................... 3,393 8.7 4,065 10.8 4,003 11.5
Consumer-related loans
Secured by 1-4 family
residential properties.......................... 6,697 17.2 7,079 18.8 5,969 17.1
Other........................................... 5,554 14.3 4,559 12.1 3,524 10.1
Lease financing........................................ 1,564 4.0 1,482 3.9 1,367 3.9
Unearned income........................................ (240) (.6) (239) (.6) (228) (.7)
------- ----- ------- ----- ------- -----
30,163 77.6 30,459 80.8 28,509 81.7
------- ----- ------- ----- ------- -----
International
Commercial and industrial 6,422 16.5 5,161 13.6 4,650 13.4
Banks and other financial institutions................. 796 2.1 749 2.0 690 2.0
Governments and official institutions.................. 82 .2 33 .1 22 .1
Lease financing........................................ 285 .7 329 .9 265 .8
All other.............................................. 1,159 3.0 1,053 2.8 791 2.3
Unearned income........................................ (37) (.1) (76) (.2) (108) (.3)
------- ----- ------- ----- ------- -----
8,707 22.4 7,249 19.2 6,310 18.3
------- ----- ------- ----- ------- -----
Total loans and lease financing $38,870 100.0% $37,708 100.0% $34,819 100.0%
======= ===== ======= ===== ======= =====
<CAPTION>
December 31 1992 1991
(dollars in millions) Balance Percent Balance Percent
<S> <C> <C> <C> <C>
United States
Commercial, industrial and financial................... $11,680 37.4% $11,993 37.8%
Commercial real estate
Construction.................................... 911 2.9 1,107 3.5
Other........................................... 4,169 13.3 4,721 14.9
Consumer-related loans
Secured by 1-4 family
residential properties.......................... 5,368 17.2 5,878 18.5
Other........................................... 3,037 9.7 2,967 9.3
Lease financing........................................ 1,322 4.2 1,386 4.4
Unearned income........................................ (231) (.7) (277) (.9)
------- ----- ------- -----
26,256 84.0 27,775 87.5
------- ----- ------- -----
International
Commercial and industrial.............................. 3,646 11.7 2,929 9.2
Banks and other financial institutions................. 430 1.4 157 .5
Governments and official institutions.................. 54 .2 141 .4
Lease financing........................................ 218 .7 242 .8
All other.............................................. 721 2.3 609 1.9
Unearned income........................................ (85) (.3) (89) (.3)
------- ----- ------- -----
4,984 16.0 3,989 12.5
------- ----- ------- -----
Total loans and lease financing........................ $31,240 100.0% $31,764 100.0%
======= ===== ======= =====
</TABLE>
Total loans and lease financing increased approximately $1.2 billion from
December 31, 1994, as the increase in international loans and leases was
partially offset by a decline in domestic loans and leases. The decline in
domestic loans from December 31, 1994 reflected a $1.2 billion reduction from
the sales of Vermont and Casco in the first quarter of 1995, of which
approximately $500 million was related to commercial real estate loans, and the
transfer of approximately $1.3 billion of low-yielding residential mortgage
loans into the held for sale account in the fourth quarter of 1995,
substantially all of which were sold by December 31, 1995. The transfer and sale
of these residential mortgage loans were undertaken in connection with a program
to remove low-return assets from the Corporation's balance sheet, which, in
part, also accounts for the decline in the commercial and industrial and real
estate portfolios. Excluding the sales of Vermont and Casco and the residential
mortgage loans, domestic loans and leases grew approximately $2.2 billion,
primarily due to higher levels of consumer-related loans, largely accomplished
through residential mortgage and other consumer loan originations particularly
at BayBanks subsidiaries, the acquisitions of BayBank FSB, Ganis and BayBank NH,
N. A. and their respective origination activities throughout the year, and
growth in the FAC loan portfolio by $250 million from December 31, 1994.
International loans increased to $8.7 billion at December 31, 1995, from $7.2
billion at December 31, 1994. This growth has primarily occurred in Latin
America, particularly in the loan portfolios of Argentina and Brazil. Total
loans in these two countries have grown approximately $1.1 billion since
December 31, 1994. Other countries contributing to the increase in international
loans from December 31, 1994 were Chile, Colombia and Mexico.
Domestic Commercial Real Estate Loans
Table 6 details domestic commercial real estate loans by geographic location as
of the last three year-ends. The portion attributable to other states at the end
of 1995 was dispersed among approximately 28 states.
F-10
<PAGE>
TABLE 6--DOMESTIC COMMERCIAL REAL ESTATE LOANS
<TABLE>
<CAPTION>
Other
December 31 New Other
(in millions) MA CT England States Total
<S> <C> <C> <C> <C> <C>
1995........... $2,220 $318 $351 $ 890 $3,779
====== ==== ==== ====== ======
1994........... 2,380 427 651 998 4,456
====== ==== ==== ====== ======
1993........... 2,228 595 813 1,042 4,678
====== ==== ==== ====== ======
</TABLE>
A significant portion of the commercial real estate portfolio is comprised of
loans from which ultimate payment to the Corporation is expected to come from
the sale, operation or refinancing of the underlying property. The collateral
underlying substantially all of these loans is valued at least annually using
various real estate valuation techniques, including discounted cash flows and
appraisals. The remaining portfolio is primarily composed of outstandings
secured by real estate which is owner-occupied and where the underlying business
credit, rather than the property, is viewed as the principal source of
repayment. Overall, the level of commercial real estate loans to all geographic
areas declined during 1995, particularly in northern New England due to the
sales of Vermont and Casco.
Highly Leveraged Transactions
Included in commercial, industrial and financial loans are loans made by many of
the Corporation's lending businesses to finance transactions involving leveraged
buyouts, acquisitions, and recapitalizations. These loans are designated as
highly leveraged transactions (HLTs) if, by the nature of the loan terms and
the profile of the customer, the transaction qualifies for this classification
under the current bank regulatory definition of HLTs. Additionally, the HLT
definition encompasses other, more traditional credit arrangements, where a high
degree of leverage would be expected, such as asset-based lending and lending to
the communications industry, particularly cable, where equity is traditionally
low and cash flow is the predominant factor in assessing repayment ability.
Table 7 summarizes the Corporation's HLT portfolio for the last three years.
TABLE 7--HIGHLY LEVERAGED TRANSACTION PORTFOLIO
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(dollars in millions)
<S> <C> <C> <C>
Total loans............................... $1,342 $1,272 $1,304
Number of companies....................... 101 84 75
Average loan size......................... $ 13 $ 15 $ 17
Unused lending commitments................ $ 639 $ 653 $ 540
Nonaccrual loans.......................... $ 1 $ 10
Net credit losses (recoveries)............ $ (4) $ 6 $ 21
Equity and mezzanine
investments.............................. $ 144 $ 105 $ 121
</TABLE>
The Corporation's HLT portfolio is spread among a variety of industries. At
December 31, 1995, the largest segments of the HLT portfolio by industry were as
follows: the transportation industry ___ $177 million to 11 customers; the food,
beverage and tobacco industry ___ $164 million to 14 customers; petroleum,
chemicals, rubber and plastics ___ $110 million to 8 customers; and the
communications industry ___ $108 million to 7 customers. Yields on HLT loans are
generally higher than most other commercial loans. Typically, interest rates on
new HLTs range from 1.5% to 2.75% over the London Interbank Bank Offered Rate
(LIBOR) and fees charged range from .75% to 1.5% of the principal amount
committed. The Corporation has historically been involved in transactions that
are designated as HLTs, and it expects to continue to agent and participate in
such transactions in the future.
F-11
<PAGE>
Nonaccrual Loans and Leases and OREO
Table 8 summarizes nonaccrual loans and leases by type and as a percentage of
the related consolidated loan category.
Table 8--Nonaccrual Loans And Leases And OREO
<TABLE>
<CAPTION>
December 31 1995 1994 1993 1992 1991
Percent Percent Percent Percent Percent
of Loan of Loan of Loan of Loan of Loan
(dollars in millions) Balance Category Balance Category Balance Category Balance Category Balance Category
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Commercial, industrial and
financial.................... $ 88 .7% $ 130 1.0% $ 168 1.3% $ 285 2.4% $ 501 4.2%
Commercial real estate
Construction................. 25 6.5 13 3.3 32 4.7 89 9.8 138 12.5
Other........................ 103 3.0 133 3.3 277 6.9 416 10.0 823 17.4
Consumer-related loans
Secured by 1-4 family
residential properties...... 56 .8 53 .7 75 1.3 73 1.4 80 1.4
Other........................ 35 .6 26 .6 12 .3 31 1.0 36 1.2
----- ----- ----- ------ ------
307 1.0 355 1.2 564 2.0 894 3.4 1,578 5.7
----- ----- ----- ------ ------
International
Commercial and industrial..... 34 .5 17 .3 63 1.4 55 1.4 58 2.0
Banks and other financial
institutions................. 1 .1 1 .2 2 1.3
Governments and official
institutions................. 3 13.6 4 7.4 53 37.5
All other..................... 32 2.8 47 4.5 31 4.0 6 .8 45 7.4
----- ----- ----- ------ ------
66 .8 65 .9 97 1.5 66 1.3 158 4.0
----- ----- ----- ------ ------
Total nonaccrual loans and
leases....................... 373 1.0 420 1.1 661 1.9 960 3.1 1,736 5.5
OREO.......................... 69 143 222 366 572
----- ----- ----- ------ ------
Total......................... $ 442 $ 563 $ 883 $1,326 $2,308
===== ===== ===== ====== ======
</TABLE>
Total nonaccrual loans and leases and OREO declined $121 million to $442 million
at December 31, 1995, from $563 million at December 31, 1994. The decline from
December 31, 1994 included a $27 million reduction from the sales of Vermont and
Casco, and reflected the payoff of several domestic commercial loans and a
decrease in the inflow of new loans placed on nonaccrual.
The management of the Corporation's nonaccrual loans and leases and OREO is
discussed in the "Credit Management" section of the Corporation's 1995 Annual
Report to Stockholders, which is incorporated by reference into its 1995 Annual
Report on Form 10-K.
Table 9 summarizes the changes in nonaccrual loans and leases and OREO that have
occurred during the last three years.
Table 9--Changes In Nonaccrual Loans and Leases and OREO
<TABLE>
<CAPTION>
(dollars in millions) 1995 1994 1993
<S> <C> <C> <C>
Balance, January 1........................ $ 563 $ 883 $1,326
Assets from acquired entities............. 8 20
Assets of entities sold................... (27)
Additions................................. 554 684 592
Sales, restructurings, payments and
other decreases.......................... (396) (520) (663)
Transfers to ADP ........................ (252)
Net credit losses and valuation
adjustments, excluding writedowns
associated with transfers to ADP......... (260) (252) (372)
----- ----- ------
Balance, December 31...................... $ 442 $ 563 $ 883
===== ===== ======
Ending balance as a percentage of
related assets........................... 1.1% 1.5% 2.5%
===== ===== ======
</TABLE>
F-12
<PAGE>
The level of nonaccrual loans and leases and OREO is influenced by the economic
environment, interest rates and other internal and external factors. The ratio
of nonaccrual loans and OREO to related asset categories has declined to 1.1
percent of related assets at December 31, 1995. No assurance can be given,
however, that this historically low level can be sustained by the Corporation.
Additional information on the Corporation's nonaccrual loans and OREO is
included in its Quarterly Report on Form 10-Q for the Quarterly Period Ended
June 30, 1996. Information on the Corporation's accounting policy for nonaccrual
loans and leases is included in Note 1 to the Supplemental Consolidated
Financial Statements.
ACCELERATED DISPOSITION PORTFOLIO
During 1994, in order to expedite the disposition of problem real estate
exposures and to strengthen its balance sheet, the Corporation transferred
certain of its lower quality real estate exposures, including a portion which
was on nonaccrual status, to ADP. In connection with the transfer, the
Corporation recorded credit losses of $119 million to reduce the carrying value
of the exposures to their estimated disposition value of $395 million at the
date of transfer. The Corporation had disposed of all its ADP assets at December
31, 1995, with minimal additional gains and losses on disposition. Remaining
off-balance-sheet commitments included in ADP were disposed of by the middle of
1996.
RESERVE FOR CREDIT LOSSES
The Corporation determines the level of its reserve for credit losses
considering evaluations of individual credits and concentrations of credit
risks, net losses charged to the reserve, changes in quality of the credit
portfolio, levels of nonaccrual loans and leases, current economic conditions,
cross-border risks, changes in size and character of the credit risks and other
pertinent factors. The amount of the reserve is reviewed by management
quarterly.
The reserve for credit losses at December 31, 1995 was $890 million, or 2.29
percent of outstanding loans and leases, compared with $827 million, or 2.19
percent, at December 31, 1994. The reserve for credit losses was 239 percent of
nonaccrual loans and leases at December 31, 1995, compared to 197 percent at
December 31, 1994. In light of the effect of economic events on Latin American
economies in the early part of 1995, and the recent industry trends in consumer
credit, combined with the growth in the Corporation's Latin American lending and
domestic consumer lending portfolios, the Corporation recorded special
provisions for credit losses totaling $75 million during 1995 ($50 million in
the first quarter and $25 million in the fourth quarter). The net increase in
the reserve reflects the 1995 provision for credit losses of $275 million,
including these special provisions, partially offset by reductions from the
sales of Vermont and Casco and by net credit losses incurred during the year.
The future level of the reserve will continue to be a function of management's
evaluation of the Corporation's credit exposures existing at the time.
Therefore, no assurance can be given regarding the future level of the reserve.
During the first quarter of 1995, the Corporation implemented SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a LoanIncome Recognition and
Disclosure." These standards affect the evaluation of the reserve for credit
losses and require that impaired loans be evaluated based on the present value
of expected future cash flows or the fair value of the collateral, as
applicable. The adoption of these new standards, which is more fully discussed
in Note 7 to the Supplemental Consolidated Financial Statements, did not have a
significant effect on the Corporation's financial statements and related
financial information.
Table 10 presents a five-year analysis of the Corporation's reserve for credit
losses and related ratios.
TABLE 10--RESERVE FOR CREDIT LOSSES AND RELATED RATIOS
<TABLE>
<CAPTION>
(dollars in millions) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance, January 1................................................ $ 827 $ 941 $ 1,116 $ 1,264 $ 1,237
Provision......................................................... 275 154 107 288 684
Reserves of acquired entities..................................... 16 25
Reserves of entities sold......................................... (32)
Credit losses, excluding those related to ADP..................... (282) (260) (353) (553) (773)
Recoveries........................................................ 86 86 71 117 116
------- ------- ------- ------- -------
Net credit losses before credit losses related to ADP............. (196) (174) (282) (436) (657)
Credit losses related to ADP...................................... (119)
------- ------- ------- ------- -------
Balance, December 31.............................................. $ 890 $ 827 $ 941 $ 1,116 $ 1,264
======= ======= ======= ======= =======
Loans and lease financing at December 31.......................... $38,870 $37,708 $34,819 $31,240 $31,764
Average loans and lease financing................................. $38,283 $36,017 $32,565 $31,568 $33,001
Reserve for credit losses to total loans and leases
at December 31.................................................. 2.29% 2.19% 2.70% 3.57% 3.98%
Reserve for credit losses to nonaccrual loans and leases
at December 31.................................................. 239% 197% 142% 116% 73%
Reserve for credit losses to nonaccrual
and renegotiated loans and leases at December 31................. 219% 165% 104% 81% 59%
Net credit losses to average loans and lease financing............ .51% .81% .87% 1.38% 1.99%
Net credit losses to provision for credit losses.................. 71.27% 190.26% 263.55% 151.39% 96.05%
Total recoveries to total credit losses........................... 30.50% 22.69% 20.11% 21.16% 15.01%
</TABLE>
F-13
<PAGE>
As detailed in Table 11, net credit losses were $196 million in 1995, compared
to $174 million in 1994, excluding $119 million of writedowns in connection with
ADP. In 1995, the Corporation experienced higher international credit losses,
principally resulting from the Argentine consumer portfolio, and higher domestic
commercial and industrial and consumer-related credit losses, with year-to-year
total recoveries remaining flat.
TABLE 11--NET CREDIT LOSSES
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992 1991
(in millions)
<S> <C> <C> <C> <C> <C>
DOMESTIC CREDIT LOSSES
Commercial, industrial and financial.................................... $ (47) $ (38) $ (80) $ (162) $(240)
Commercial real estate
Construction.......................................................... (7) (10) (19) (63) (122)
Other................................................................. (49) (62) (79) (154) (223)
Consumer-related loans
Secured by 1-4 family residential properties.......................... (26) (22) (33) (37) (34)
Other................................................................. (94) (80) (76) (82) (100)
----- ----- ----- ----- -----
(223) (212) (287) (498) (719)
INTERNATIONAL CREDIT LOSSES............................................. (59) (48) (66) (55) (54)
----- ----- ----- ----- -----
Credit losses, excluding those related
to exposures transferred to ADP.................................. (282) (260) (353) (553) (773)
DOMESTIC RECOVERIES
Commercial, industrial and financial .................................. 17 22 26 38 46
Commercial real estate
Construction.......................................................... 1 4 3 4 5
Other................................................................. 20 14 7 4 4
Consumer-related loans
Secured by 1-4 family residential properties.......................... 5 4 6 4 2
Other................................................................. 28 24 23 25 24
----- ----- ----- ----- -----
71 68 65 75 81
INTERNATIONAL RECOVERIES................................................ 15 18 6 42 35
----- ----- ----- ----- -----
Total recoveries................................................... 86 86 71 117 116
----- ----- ----- ----- -----
Net credit losses, excluding those related to exposures
transferred to ADP................................................ (196) (174) (282) (436) (657)
Credit losses related to exposures transferred to ADP................... (119)
----- ----- ----- ----- -----
Total net credit losses............................................ $(196) $(293) $(282) $(436) $(657)
===== ===== ===== ===== =====
</TABLE>
The Corporation's ability and willingness to extend new credit is a function of
a variety of factors, including competition for customers' business; an analysis
of a loan's potential profitability and risk profile; acquisitions or
divestitures of companies or portfolios; and economic conditions in New England,
other parts of the United States and other countries where the Corporation does
business. In addition, certain segments of the loan portfolio may increase or
decrease from the December 31, 1995 level in accordance with strategic or credit
management decisions made by the Corporation. Given these factors, the rate of
change in the size and mix of the Corporation's loan portfolios experienced
during the past few years may not be indicative of future loan levels. Further
information on the Corporation's loans and lease financing portfolio can be
found in Note 6 to the Supplemental Consolidated Financial Statements.
CROSS-BORDER OUTSTANDINGS
At December 31, 1995, total cross-border outstandings amounted to $8.1 billion,
representing approximately 14 percent of consolidated total assets, which
compares with $6.6 billion and $6.1 billion, or approximately 12 percent of
consolidated total assets, at December 31, 1994 and 1993, respectively. The
acquisition of BayBanks did not have a significant effect on the Corporation's
cross-border outstandings. For a detailed discussion of cross-border
outstandings, refer to the Management's Discussion and Analysis section of the
Corporation's 1995 Annual Report to Stockholders, which is incorporated by
reference into its 1995 Annual Report on Form 10-K, as updated by the
Management's Discussion and Analysis sections of the Corporation's Quarterly
Reports on Form 10-Q for the Quarterly Periods Ended March 31, 1996 and June 30,
1996.
LIQUIDITY MANAGEMENT
Liquidity is defined as the ability to meet known near-term and projected long-
term funding commitments, while supporting selective business expansion in
accordance with the Corporation's strategic plan. The Corporation proactively
manages liquidity according to policy set by, and oversight provided by, its
Asset and Liability Management Committee (ALCO) to ensure its ability to meet
present and future funding needs in domestic and overseas markets. The
acquisition of BayBanks is not expected to have a significant effect on the
Corporation's liquidity management policies or strategy. Reference is made to
the Management's Discussion and Analysis section of the Corporation's 1995
Annual Report to Stockholders, which is incorporated by reference into its 1995
Annual Report on Form 10-K, for a detailed discussion of the Corporation's
liquidity management policies.
F-14
<PAGE>
The Corporation's liquid assets consist primarily of interest bearing deposits
in other banks, federal funds sold and resale agreements, money market loans,
and unencumbered U.S. Treasury and U.S. government agency securities. Table 12
presents the levels of the Corporation's liquid assets as of each of the last
three year-ends.
TABLE 12--LIQUID ASSETS
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(in billions)
<S> <C> <C> <C>
Liquid assets.............. $7.4 $4.8 $5.3
</TABLE>
Deposits are the principal source of the Corporation's funding. Table 13
includes information related to the Corporation's funding sources as of each of
the last three year-ends.
TABLE 13--FUNDING SOURCES
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(dollars in billions)
<S> <C> <C> <C>
DOMESTIC
Interest bearing deposits.................... $24.4 $23.6 $24.2
Noninterest bearing deposits................. 7.1 7.0 7.1
----- ----- -----
Total deposits............................... 31.5 30.6 31.3
Funds borrowed............................... 8.4 6.1 4.7
Notes payable................................ 1.8 2.0 1.9
----- ----- -----
$41.7 $38.7 $37.9
===== ===== =====
INTERNATIONAL
Interest bearing deposits.................... $ 9.0 $ 9.1 $ 6.6
Noninterest bearing deposits................. .6 .6 .5
----- ----- -----
Total deposits............................... 9.6 9.7 7.1
Funds borrowed............................... 1.1 1.1 .8
Notes payable................................ .4 .2 .1
----- ----- -----
$11.1 $11.0 $ 8.0
===== ===== =====
CONSOLIDATED
Interest bearing deposits.................... $33.4 $32.7 $30.8
Noninterest bearing deposits................. 7.7 7.6 7.6
----- ----- -----
Total deposits............................... 41.1 40.3 38.4
Funds borrowed............................... 9.5 7.2 5.5
Notes payable................................ 2.2 2.2 2.0
----- ----- -----
$52.8 $49.7 $45.9
===== ===== =====
Deposits as a percentage of
Loans........................................ 106% 107% 110%
Total assets................................. 69% 73% 76%
</TABLE>
Domestic deposits increased approximately $900 million from 1994. Excluding the
$1.3 billion reduction in deposits resulting from the sales of Vermont and
Casco, domestic deposits increased approximately $2.2 billion. This was
primarily due to deposit inflows from a new retail deposit product which was
first offered in the second quarter of 1995, and increased deposits,
particularly consumer certificates of deposit, from new volume as well as from
the acquisitions made by the Corporation during the year. Domestic funds
borrowed increased approximately $2.3 billion from December 31, 1994, mainly as
a result of increased borrowings of approximately $1.9 billion under FNBB's
medium-term bank note program and increased federal funds purchased, partially
offset by decreased securities sold under agreements to repurchase. The FNBB
medium-term notes have a weighted average maturity of 258 days.
Notes payable declined slightly due to the conversion of $94 million of the
Corporation's subordinated debt into common stock during the first quarter of
1995, and the redemption of $150 million of its subordinated debt during the
third quarter of 1995, offset by new debt issued during the year, primarily by
the Corporation's Brazilian operations. In addition, the Corporation has a shelf
registration filed with the Securities and Exchange Commission with a remaining
availability of $1 billion at July 31, 1996, which can be used for the issuance
of equity or debt securities, including securities issued under a medium-term
note program established by the Corporation in December 1994. Additional
information on the Corporation's notes payable can be found in Note 10 to the
Supplemental Consolidated Financial Statements.
The Corporation continues to have access to funds at competitive rates, and,
during 1995, received upgrades from three major rating agencies. Based upon the
Corporation's liquid asset level and its ability to access the public markets
for additional funding when necessary, management considers overall liquidity at
December 31, 1995 adequate to meet current obligations, support expectations for
future changes in asset and liability levels and carry on normal operations.
F-15
<PAGE>
Interest Rate Risk Management
Interest rate risk can be defined as the exposure of the Corporation's net
income or financial condition to adverse movements in interest rates. Interest
rate risk is managed within policies and limits established by the Corporation's
ALCO and approved by its Board of Directors (the Board). ALCO issues strategic
directives to specify the extent to which Board-approved rate risk limits are
utilized, taking into account the results of the rate risk modeling process as
well as other internal and external factors. The objective of ALCO's directives
is to manage and control the effects of changes in interest rates on the
Corporation's income statement and financial condition. Management seeks to
enhance earnings, principally net interest revenue, and protect economic value,
while ensuring that risks from adverse movements in interest rates are in
compliance with ALCO directives. This objective is achieved through the
development and implementation of interest rate risk management strategies,
including various balance sheet actions and the use of interest rate
derivatives.
The acquisition of BayBanks is not expected to have an effect on the
Corporation's interest rate risk management policies, and had a minimal impact
on its interest rate derivatives and foreign exchange contracts at December 31,
1995 and 1994. Reference is made to the Management's Discussion and Analysis
section of the Corporation's 1995 Annual Report to Stockholders, which is
incorporated by reference into its 1995 Annual Report on Form 10-K, as updated
by the Management's Discussion and Analysis sections of the Corporation's
Quarterly Reports on Form 10-Q for the Quarterly Periods Ended March 31, 1996
and June 30, 1996, respectively, for a detailed discussion of the Corporation's
interest rate risk management policies. Refer to Notes 1 and 20 to the
Supplemental Consolidated Financial Statements for additional information with
respect to the Corporation's asset and liability management and trading
derivatives, including accounting policies.
Capital Management
At December 31, 1995, the Corporation had $4.7 billion in stockholders' equity,
compared with $3.9 billion at December 31, 1994 and $3.6 billion at December 31,
1993. The growth in stockholders' equity from the end of 1994 mainly resulted
from retention of earnings, net of the payment of dividends on common and
preferred stock, the conversion of $94 million of the Corporation's convertible
subordinated debt into common stock during the first quarter of 1995, and the
increase in the fair value of securities available for sale, net of tax.
Based on the Corporation's historical dividend information, the Corporation's
quarterly dividend was increased 37 percent, from $.27 per share in the first
two quarters of 1995 to $.37 per share in the last two quarters of 1995. The
Corporation's quarterly dividend was increased again to $.44 per share in the
first two quarters of 1996. The level of dividends paid on the Corporation's
common stock is determined by the Board based on the Corporation's liquidity,
asset quality profile, capital adequacy and recent earnings history, as well as
economic conditions and other factors deemed relevant by the Board, including
the amount of dividends paid to the Corporation by its subsidiaries.
For a discussion of the Corporation's capital planning process and regulatory
risk-based capital requirements, refer to the Management's Discussion and
Analysis section of the Corporation's 1995 Annual Report to Stockholders, which
is incorporated by reference into its 1995 Annual Report on Form 10-K.
Table 14 presents the Corporation's capital position and related ratios as of
the last three year-ends.
Table 14--Capital Position
<TABLE>
<CAPTION>
Well
December 31 1995 1994 1993 Capitalized
(dollars in millions) Minimum*
Risk-based Capital Ratios
<S> <C> <C> <C> <C>
Tier 1 capital ratio (Tier 1 capital/total risk-adjusted assets)......... 8.5% 7.7% 7.7% 6.00%
Total capital ratio (Total capital/total risk-adjusted assets)........... 12.8 12.7 12.4 10.00
Leverage ratio (Tier 1 capital/adjusted total average assets)................. 7.4 6.7 6.9 5.00
Tier 1 capital................................................................ $ 4,275 $ 3,661 $ 3,456
Tier 2 capital................................................................ 2,165 2,404 2,085
Total capital................................................................. 6,440 6,065 5,541
Total risk-adjusted assets.................................................... 50,382 47,625 44,757
Common equity/assets ratio.................................................... 7.1% 6.2% 6.1%
</TABLE>
* The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established minimum ratios for banks to be considered ''well capitalized.''
These ratios are determined solely for the purpose of applying FDICIA's
provisions and, accordingly, such capital categories may not constitute an
accurate representation of the overall financial condition or prospects of
any bank.
Compared to the prior year-end, the improvement in the Corporation's capital
ratios at December 31, 1995 reflected the impact of current year earnings and
the sales of Vermont and Casco, which resulted in a lower level of risk-adjusted
assets and the removal of $35 million of goodwill from the Corporation's balance
sheet. In addition, the Corporation's Tier 1 capital ratio benefited from the
above-noted conversion of $94 million of convertible subordinated debt into
common stock. The redemption of $150 million of subordinated debt in the third
quarter of 1995 partially offset the improvement in the total capital ratio. The
conversion and redemption of subordinated debt are more fully discussed in Note
10 to the Supplemental Consolidated Financial Statements.
Recent Accounting Pronouncements
For a detailed discussion of recent accounting pronouncements, refer to the
Management's Discussion and Analysis section of the Corporation's 1995 Annual
Report to Stockholders, which is incorporated by reference into its 1995 Annual
Report on Form 10-K, as updated by the Management's Discussion and Analysis
sections of the Corporation's Quarterly Reports on Form 10-Q for the Quarterly
Periods Ended March 31, 1996 and June 30, 1996.
F-16
<PAGE>
1994 VS. 1993
Net Interest Revenue
Domestic net interest revenue increased $179 million to $1,704 million,
resulting from both a higher level of earning assets and wider spreads. Average
earning assets increased $2.4 billion, reflecting a $2.3 billion increase in
average loan and lease volume. Contributing to the loan volume increase was a
higher level of consumer-related loans, a portion of which came from the
acquisitions of BankWorcester and Pioneer. In addition, the Corporation's
average volume of domestic commercial loans increased, primarily from growth in
some of the Corporation's specialty lending areas and the New England commercial
lending business. The wider domestic spreads mainly reflected growth in earning
asset yields, which outpaced increases in rates paid on interest bearing
liabilities during 1994. The widening of spreads was also mainly responsible for
the domestic net interest margin increasing by 20 basis points compared with
1993.
The international net interest revenue increase of $91 million to $348 million
was primarily attributable to the Corporation's operations in Latin America,
two-thirds of which related to operations in Brazil. During the first half of
1994, Brazil's net interest revenue increased from 1993, as earning asset growth
more than offset narrower spreads. During the second half of 1994, after the
country's July 1994 economic program reduced inflation from approximately 50
percent to 1 percent per month, the Corporation maintained funding strategies
which benefited from these economic changes and resulted in wider spreads. An
increase in average Brazilian loan volume of $450 million from 1993 also
contributed to the improvement in net interest revenue. Brazil's second half
performance was the major factor behind the international margin improving 14
basis points compared with 1993.
Noninterest Income
The $56 million increase in financial service fees to $564 million primarily
reflected improvements in net mortgage servicing fees and loan-related fees. Net
mortgage servicing fees increased $52 million compared with 1993, reflecting a
higher volume of servicing, as well as lower amortization of PMSR. Loan-related
fees improved $15 million, mainly reflecting growth in syndication activity. The
major factor offsetting these improvements was a decline of $20 million in other
financial service fees reflecting lower factoring fees due to the sale of the
Corporation's domestic factoring business in the first quarter of 1994.
Trust and agency fees improved $24 million from the 1993 level of $198 million,
primarily as a result of increased volumes and new business in the domestic
stock transfer and Latin American mutual fund businesses. The $18 million
decline in net securities gains reflected a lower level of sales. In addition,
both trading account profits and net equity and mezzanine profits declined $8
million. Other income of $116 million in 1994 improved $20 million from 1993,
and included a $23 million gain recognized in the first quarter from the sale of
securities originally acquired in connection with loan restructurings.
Noninterest Expense
Excluding acquisition, divestiture and restructuring expense and OREO costs,
noninterest expense increased $53 million, or less than 3 percent, from 1993.
This growth is primarily attributable to higher employee costs of $58 million,
which reflected a greater number of employees in Latin America, as the
Corporation continued its strategic expansion in this area; higher compensation
rates, including normal salary and incentive compensation increases; and a
decline in the amount of loan origination costs deferred, reflecting a lower
volume of originations in 1994. These increases were mitigated by a lower level
of domestic employees. Nonemployee costs declined $5 million, reflecting an $11
million decline in FDIC insurance premiums, the result of lower assessment rates
and a partial refund of 1993's assessment, and lower legal fees. These declines
were partially offset by increases in various nonemployee cost categories from
the 1994 acquisitions of BankWorcester and Pioneer. The reduction in OREO costs
from 1993 primarily reflected lower valuation adjustments on and the continued
disposition of OREO properties.
During 1994, in connection with its acquisitions of BankWorcester and Pioneer,
the Corporation recorded acquisition-related costs of $21 million. During 1993,
the Corporation recorded acquisition-related costs of $68 million in connection
with its mergers with Society and Multibank, and reorganization charges of $17
million in connection with downsizing and reconfiguring certain of its business
and corporate units. Additional information on these items is included in Note
17 to the Supplemental Consolidated Financial Statements.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors and Stockholders
Bank of Boston Corporation:
We have audited the accompanying supplemental consolidated balance sheets of
Bank of Boston Corporation and Subsidiaries as of December 31, 1995 and 1994,
and the related supplemental consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the consolidated financial statements of BayBanks, Inc., a wholly owned
subsidiary, which statements reflect total assets of approximately
$12,063,501,000 and $10,770,947,000 as of December 31, 1995 and 1994,
respectively, and net interest income of approximately $507,432,000,
$464,942,000 and $423,823,000 for each of the years in the three-year
period ended December 31, 1995. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
amounts included for BayBanks, Inc., is based solely on the report of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The financial statements referred to above give retroactive effect to the merger
of Bank of Boston Corporation with BayBanks, Inc. on July 29, 1996, which has
been accounted for as a pooling of interests as described in Notes 1 and 2 to
the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in consolidated
financial statements that do not include the date of consummation. These
supplemental financial statements do not extend through the date of
consummation; however, they will become the historical consolidated financial
statements of Bank of Boston Corporation after consolidated financial statements
covering the date of consummation of the business combination are issued.
In our opinion, based on our audits and the aforementioned report of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Bank of Boston
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles applicable after consolidated financial
statements are issued for a period which includes the date of consummation of
the business combination.
As discussed in Notes 1, 15 and 19 to the supplemental financial statements, the
Corporation has adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," and changed its method of accounting for purchased mortgage servicing
rights, effective January 1, 1993 ; adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective December 31, 1993; and adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure," effective January 1, 1995.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 26,1996
F-18
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31 1995 1994
(dollars in millions,
except per share amounts)
<S> <C> <C>
Assets
Cash and due from banks ......................................................................... $ 3,561 $ 3,146
Interest bearing deposits in other banks.......................................................... 1,356 1,559
Federal funds sold and securities purchased under agreements to resell............................ 1,548 1,323
Trading securities .............................................................................. 1,159 581
Mortgages held for sale ......................................................................... 910 188
Securities
Available for sale ............................................................................. 7,582 3,262
Held to maturity (fair value of $667 in 1995 and $4,086 in 1994) ............................... 660 4,238
Loans and lease financing (net of unearned income of $277 in 1995 and $315 in 1994)................ 38,870 37,708
Reserve for credit losses ....................................................................... (890) (827)
-------- --------
Net loans and lease financing ................................................................. 37,980 36,881
Premises and equipment, net ..................................................................... 832 764
Due from customers on acceptances ............................................................... 360 316
Accrued interest receivable ..................................................................... 554 437
Other assets .................................................................................... 2,921 2,716
-------- --------
Total Assets ................................................................................... $59,423 $55,411
======== ========
Liabilities and Stockholders' Equity
Deposits
Domestic offices
Noninterest bearing ........................................................................... $ 7,127 $ 7,008
Interest bearing .............................................................................. 24,392 23,626
Overseas offices
Noninterest bearing ........................................................................... 552 569
Interest bearing .............................................................................. 8,993 9,046
-------- --------
Total deposits ............................................................................... 41,064 40,249
Funds borrowed .................................................................................. 9,503 7,211
Acceptances outstanding ......................................................................... 360 318
Accrued expenses and other liabilities............................................................ 1,605 1,483
Notes payable ................................................................................... 2,189 2,219
-------- -------
Total liabilities ............................................................................... 54,721 51,480
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock without par value
Authorized shares-10,000,000
Issued shares-4,593,941 ..................................................................... 508 508
Common stock, par value $2.25
Authorized shares-200,000,000
Issued shares-155,785,611 in 1995 and 149,382,928 in 1994
Outstanding shares-155,296,203 in 1995 and 148,342,580 in 1994 ............................... 350 336
Surplus ....................................................................................... 1,235 1,069
Retained earnings ............................................................................. 2,553 2,091
Net unrealized gain (loss) on securities available for sale, net of tax......................... 82 (40)
Treasury stock, at cost (489,408 shares in 1995 and 1,040,348 shares in 1994)................... (22) (27)
Cumulative translation adjustments, net of tax ................................................. (4) (6)
-------- --------
Total stockholders' equity ...................................................................... 4,702 3,931
-------- --------
Total Liabilities and Stockholders' Equity ....................................................... $59,423 $55,411
======== ========
</TABLE>
The Accompanying Notes Are an Integral Part of These Supplemental Financial
Statements.
F-19
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Statement of Income
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(dollars in millions, except per share
amounts)
<S> <C> <C> <C>
Interest Income
Loans and lease financing, including fees................................. $ 3,876 $ 3,117 $ 2,588
Securities .............................................................. 503 380 349
Trading securities ...................................................... 186 114 11
Mortgages held for sale ................................................. 31 43 85
Federal funds sold and securities purchased under agreements to resell.... 303 605 147
Deposits in other banks ................................................. 220 117 150
-------- -------- --------
Total interest income ................................................. 5,119 4,376 3,330
-------- -------- --------
Interest Expense
Deposits of domestic offices ............................................ 879 673 791
Deposits of overseas offices ............................................ 912 628 386
Funds borrowed .......................................................... 921 906 268
Notes payable ........................................................... 158 132 116
-------- -------- --------
Total interest expense ................................................ 2,870 2,339 1,561
-------- -------- --------
Net interest revenue .................................................. 2,249 2,037 1,769
Provision for credit losses ............................................. 275 154 107
-------- -------- --------
Net interest revenue after provision for credit losses ................ 1,974 1,883 1,662
-------- -------- --------
Noninterest Income
Financial service fees .................................................. 695 564 508
Trust and agency fees ................................................... 240 222 198
Trading profits and commissions ......................................... 25 18 26
Net securities gains .................................................... 9 14 32
Other income ............................................................ 340 217 181
-------- -------- --------
Total noninterest income .............................................. 1,309 1,035 945
-------- -------- --------
Noninterest Expense
Salaries ................................................................ 947 860 816
Employee benefits ....................................................... 199 186 172
Occupancy expense ....................................................... 191 184 176
Equipment expense ....................................................... 133 126 128
Other real estate owned expense ......................................... 9 38 82
Acquisition, divestiture and restructuring expense ...................... 28 21 85
Other expense ........................................................... 569 532 543
-------- -------- --------
Total noninterest expense ............................................. 2,076 1,947 2,002
-------- -------- --------
Income before income taxes, extraordinary item and cumulative effect of
changes in accounting principles ........................................ 1,207 971 605
Provision for income taxes .............................................. 529 422 262
-------- -------- --------
Income before extraordinary item and cumulative effect of changes
in accounting principles ................................................. $ 678 549 343
Extraordinary loss from early extinguishment of debt, net of tax ......... (7)
-------- -------- --------
Income before cumulative effect of changes in accounting principles ...... $ 678 542 343
Cumulative effect of changes in accounting principles, net of tax ....... 24
-------- -------- --------
Net Income ............................................................. $ 678 $ 542 $ 367
======== ======== ========
Net Income Applicable To Common Stock..................................... $ 641 $ 505 $ 332
======== ======== ========
Per Common Share
Income before extraordinary item and cumulative effect of changes
in accounting principles
Primary ............................................................... $ 4.17 $ 3.44 $ 2.09
Fully diluted ......................................................... 4.09 3.36 2.05
Net income
Primary ............................................................... 4.17 3.39 2.26
Fully diluted ......................................................... 4.09 3.31 2.21
Cash dividends declared (1) ............................................. 1.28 .93 .40
Average Number Of Common Shares (in thousands)
Primary ............................................................... 153,856 148,913 147,033
Fully diluted ......................................................... 156,768 153,616 152,067
</TABLE>
(1) Amounts represent the historical cash dividends of the Corporation.
The Accompanying Notes Are an Integral Part of These Supplemental Financial
Statements.
F-20
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(dollars in millions, except per share amounts)
<S> <C> <C> <C>
Preferred Stock
Balance, January 1................................................................................... $ 508 $ 508 $ 438
Preferred stock issued-280,000 shares................................................................ 70
------- ------- -------
Balance, December 31................................................................................. 508 508 508
------- ------- -------
Common Stock
Balance, January 1................................................................................... 336 331 329
Common stock issued
Dividend reinvestment and common stock purchase plan-861,235 shares in 1995,
1,103,539 shares in 1994 and 286,201 shares in 1993............................................... 2 2 1
Exercise of stock options, net of surrendered shares-905,653 shares
in 1995, 612,492 shares in 1994 and 918,872 shares in 1993......................................... 2 2 1
Conversion of subordinated debentures - 3,477,792 shares in 1995................................... 8
Acquisition of NFS Financial Corporation - 1,071,987 shares in 1995................................ 2
Restricted stock grants, net of forfeitures - 43,062 shares in 1995 487,323 shares in 1994......... 1
------- ------- -------
Balance, December 31................................................................................. 350 336 331
------- ------- -------
Surplus
Balance, January 1................................................................................... 1,069 1,023 999
Dividend reinvestment and stock purchase plan........................................................ 33 25 6
Exercise of stock options............................................................................ 16 8 14
Conversion of subordinated debentures................................................................ 71 1
Acquisition of Ganis Credit Corporation.............................................................. 1
Acquisition of NFS Financial Corporation............................................................. 37
Restricted stock grants, net of forfeitures.......................................................... 2 9 1
Other, principally employee benefit plans............................................................ 6 4 4
Preferred stock issued, net of issuance costs........................................................ (2)
------- ------- -------
Balance, December 31................................................................................. 1,235 1,069 1,023
------- ------- -------
Retained Earnings
Balance, January 1................................................................................... 2,091 1,718 1,438
Net income........................................................................................... 678 542 367
Restricted stock grants, net of forfeitures.......................................................... 3 (6)
Payment on ESOP loan................................................................................. 2 3 3
Cash dividends declared
Preferred stock.................................................................................... (37) (37) (35)
Common stock-$1.28 per share in 1995, $.93 per share in 1994 and $.40 per share in 1993........... (184) (129) (55)
------- ------- -------
Balance, December 31................................................................................. 2,553 2,091 1,718
------- ------- -------
Net Unrealized Gain (Loss) on Securities Available for Sale
Balance, January 1................................................................................... (40) 43
Change in net unrealized gain (loss) on securities available for sale, net of tax.................. 122 (83) 43
------- ------- -------
Balance, December 31................................................................................. 82 (40) 43
------- ------- -------
Treasury Stock
Balance, January 1................................................................................... (27) (1)
Purchases of treasury stock-1,594,016 shares in 1995, 1,110,640 shares in 1994 and 48,640 shares in
1993................................................................................................ (53) (29) (1)
Treasury stock reissued
Dividend reinvestment and stock purchase plan-331,782 shares in 1995............................... 9
Exercise of stock options - 147,370 shares in 1995, 70,292 shares in 155,128 shares in 1993....... 4 2 2
Conversion of subordinated debentures-530,475 shares in 1995...................................... 15
Acquisition of Ganis Credit Corporation-773,621 shares in 1995..................................... 21
Restricted stock grants, net of forfeitures - 255,520 shares in 1995............................... 6
Other, principally employee benefit plans-106,188 shares in 1995................................... 3
------- ------- -------
Balance, December 31................................................................................. (22) (27)
------- ------- -------
Cumulative Translation Adjustments
Balance, January 1................................................................................... (6) (8) (5)
Change in translation adjustments, net of tax........................................................ 2 2 (3)
------- ------- -------
Balance, December 31................................................................................. (4) (6) (8)
------- ------- -------
Total Stockholders' Equity, December 31.............................................................. $4,702 $3,931 $3,615
======= ======= =======
</TABLE>
The Accompanying Notes Are an Integral Part of These Supplemental Financial
Statements.
F-21
<PAGE>
Bank of Boston Corporation
Supplemental Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income.................................................................................. $ 678 $ 542 $ 367
Reconciliation of net income to net cash provided from (used for) operating activities
Cumulative effect of change in accounting for income taxes................................ (77)
Cumulative effect of change in accounting for purchased mortgage servicing rights,
net of tax............................................................................... 53
Extraordinary loss from early extinguishment of debt, net of tax.......................... 7
Provision for credit losses............................................................... 275 154 107
Depreciation and amortization............................................................. 239 202 200
Provision for deferred taxes.............................................................. 39 79 122
Net gains on sales of securities available for sale and other assets...................... (210) (115) (69)
Change in trading securities, net of transfers............................................ (588) (284) (85)
Change in mortgages held for sale ....................................................... (722) 1,286 (359)
Change in securities available for sale, net of transfers................................. 1,267
Net change in interest receivables and payables........................................... (66) (180) 1
Other, net................................................................................ 163 33 146
-------- -------- --------
Net cash provided from (used for) operating activities.................................. (192) 1,724 1,673
-------- -------- --------
Cash Flows From Investing Activities
Net cash provided from (used for) interest bearing deposits in other banks.................. 203 (453) 905
Net cash provided from (used for) federal funds sold and securities
purchased under agreements to resell....................................................... (225) 673 (439)
Purchases of securities held to maturity.................................................... (2,531) (3,353) (2,838)
Maturities of securities held to maturity................................................... 2,994 1,999 1,992
Purchase of securities available for sale................................................... (4,382) (4,541)
Sales of securities available for sale...................................................... 1,979 2,930
Maturities of securities available for sale................................................. 1,439 591
Dispositions of equity and mezzanine financing investments.................................. 122 121 97
Loans and lease financing originated by nonbank entities.................................... (7,107) (2,773) (3,589)
Loans and lease financing collected by nonbank entities..................................... 5,632 2,814 3,365
Proceeds from sales of loan portfolios by bank subsidiaries................................. 1,575 210 238
Loan portfolios purchased by bank subsidiaries.............................................. (44)
Net cash used for lending activities of bank subsidiaries................................... (1,493) (3,353) (3,742)
Lease financing originated by bank entities................................................. (11) (24) (50)
Lease financing collected by bank entities.................................................. 59 24 22
Proceeds from sales of other real estate owned.............................................. 84 113 217
Expenditures for premises and equipment..................................................... (246) (215) (115)
Proceeds from sales of business units, premises and equipment............................... 169 161 8
Other, net.................................................................................. (604) (380) (168)
-------- -------- --------
Net cash used for investing activities.................................................... (2,343) (5,456) (4,141)
-------- -------- --------
Cash Flows From Financing Activities
Net cash provided from deposits............................................................. 815 1,963 308
Net cash provided from funds borrowed....................................................... 2,292 1,724 2,397
Net proceeds from issuance of notes payable................................................. 220 698 519
Repayments/repurchases of notes payable..................................................... (155) (502) (231)
Net proceeds from issuance of common stock.................................................. 70 40 24
Net proceeds from issuance of preferred stock............................................... 68
Purchases of treasury stock................................................................. (53) (29) (1)
Dividends paid.............................................................................. (221) (166) (90)
-------- -------- --------
Net cash provided from financing activities ............................................. 2,968 3,728 2,994
-------- -------- --------
Effect of foreign currency translation on cash.............................................. (18) (22) (24)
-------- -------- --------
Net change in cash and due from banks....................................................... 415 (26) 502
Cash and due from banks at January 1........................................................ 3,146 3,172 2,670
-------- -------- --------
Cash and due from banks at December 31...................................................... $ 3,561 $ 3,146 $ 3,172
======== ======== ========
</TABLE>
The Accompanying Notes Are an Integral Part of These Supplemental Financial
Statements.
F-22
<PAGE>
Notes To Supplemental Financial Statements
1. Summary of Significant Accounting Policies
On July 29, 1996, Bank of Boston Corporation (the Corporation) completed its
acquisition of BayBanks, Inc. (BayBanks). The acquisition was accounted for as
a pooling of interests and, accordingly, the information included in the
accompanying supplemental consolidated 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.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These supplemental consolidated financial statements do not extend through the
date of consummation; however, they will become the historical consolidated
financial statements of the Corporation after consolidated financial statements
covering the date of consummation of the business combination are issued. See
Note 2 for additional information regarding the acquisition.
The financial reporting and accounting policies of the Corporation conform to
generally accepted accounting principles. Certain prior period amounts have been
reclassified to conform with current financial statement presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. The following is a summary of
the significant accounting policies.
Basis of Presentation
The supplemental consolidated financial statements include the Corporation and
its majority owned subsidiaries, including its major banking subsidiaries: The
First National Bank of Boston (FNBB), BayBank, N.A., Bank of Boston
Connecticut, Rhode Island Hospital Trust National Bank, BayBank FSB and BayBank
NH, N.A. All material intercompany accounts and transactions have been
eliminated in consolidation. Investments in 20% to 50%-owned companies are
accounted for using the equity method. The equity interest in their earnings is
included in other income. The excess of cost over the assigned value of the net
assets of companies acquired, or goodwill, is included in other assets and is
amortized on a straight-line basis, generally over periods ranging from ten to
twenty-five years.
Foreign Currency Translation
The Corporation translates the financial statements of its foreign operations in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
''Foreign Currency Translation.'' Under the provisions of SFAS No. 52, a
functional currency is designated for each foreign unit, generally the currency
of the primary economic environment in which it operates. Where the functional
currency is not the U.S. dollar, assets and liabilities are translated into U.S.
dollars at period-end exchange rates, while income and expenses are translated
using average rates for the period. The resulting translation adjustments and
any related hedge gains and losses are recorded, net of tax, as a separate
component of stockholders' equity.
For foreign units operating in highly inflationary economies, the functional
currency is the U.S. dollar. Their financial statements are translated into U.S.
dollars using period-end exchange rates for monetary assets and liabilities,
exchange rates in effect on the date of acquisition for premises and equipment
(and related depreciation) and certain investments, and the average exchange
rate during the period for income and expenses. The resulting translation
adjustments and related hedge gains and losses for these units are recorded in
current period income.
The Corporation hedges a portion of its exposure to translation gains and losses
in overseas branches and foreign subsidiaries through the purchase of foreign
exchange rate contracts and through investments in fixed assets and certain
securities.
Trading Securities
Trading securities comprise securities purchased in connection with the
Corporation's trading activities and, as such, are expected to be sold in the
near term. The Corporation carries trading securities at fair value; realized
and unrealized gains and losses on trading securities are recorded currently in
trading profits and commissions, a component of noninterest income. Obligations
to deliver securities not yet purchased are carried at fair value in funds
borrowed.
Securities Available for Sale and Held to Maturity
Securities are accounted for in accordance with SFAS No. 115, ''Accounting for
Certain Investments in Debt and Equity Securities,'' which the Corporation
adopted effective December 31, 1993. All debt and equity securities that are not
purchased in connection with the Corporation's trading activities are classified
as either securities held to maturity or securities available for sale.
Securities held to maturity are debt securities that the Corporation has the
positive intent and ability to hold to maturity. These securities are reported
at cost, adjusted for amortization of premium and accretion of discount.
Securities available for sale are debt securities that the Corporation may not
hold to maturity, as well as equity securities. These securities include debt
securities that are purchased in connection with the Corporation's
asset/liability risk management strategy and that may be sold in response to
changes in interest rates, resultant prepayment risk and other related factors;
securities held in connection with the Corporation's equity and mezzanine
financing business; and other securities that are intended to be held for
indefinite periods of time, but which may not be held to maturity. Within the
available for sale category, equity securities that have a readily determinable
fair value and debt securities are reported at fair value, with unrealized gains
and losses recorded, net of tax, as a separate component of stockholders'
equity. Equity securities that do not have a readily determinable fair value are
reported at cost. If a security available for sale or held to maturity has
experienced a decline in value that is deemed other than temporary, it is
written down to its estimated fair value through a charge to current period
income. Realized gains and losses with respect to
F-23
<PAGE>
Notes To Supplemental Financial Statements, Continued
securities, which are generally computed on a specific identified cost basis,
are included in net securities gains, except for gains and losses with respect
to equity and mezzanine securities, which are included in other income.
Interest Rate Derivatives and Foreign Exchange Contracts
The Corporation enters into a variety of interest rate derivatives in connection
with its trading activities, including providing these products to its
customers, and as part of its interest rate risk management strategy. Such
derivatives include interest rate futures and forwards, interest rate swaps and
interest rate options. Derivatives are included in either the trading portfolio
or the asset and liability management portfolio.
Derivatives included in the trading portfolio are carried at fair value.
Realized and unrealized changes in fair value are recognized in current period
income as a component of trading profits and commissions.
The asset and liability management portfolio is comprised of derivatives used by
the Corporation as part of its interest rate risk management strategy. When
derivatives are included in the asset and liability management portfolio, they
are linked to the related assets and/or liabilities. Income or loss on
derivatives are recognized on the same basis as the linked assets or
liabilities. If the related assets are carried at fair value or the lower of
cost or fair value, the fair value of the derivatives are combined with the fair
value of the assets and are recognized in income based on the method of
accounting used for the linked assets. If the assets or liabilities are carried
at cost, the derivatives are either accounted for on the accrual basis, with
income or expense accrued over the life of the agreements as an adjustment to
the yield of the related assets or liabilities, or marked to fair value, with
any gain or loss deferred and amortized over the period being managed as an
adjustment to the yield of the related assets or liabilities. In this
connection, interest rate swaps, caps and floors are accounted for on the
accrual basis and interest rate futures, forwards and other option agreements
are marked to fair value, with gains and losses deferred and amortized over the
period being managed. The Corporation does not utilize written options as part
of its interest rate risk management strategy unless they are included as part
of an overall option strategy that effectively creates a net purchased option
position. If a contract is terminated, any remaining unrecognized gain or loss
is deferred and amortized as an adjustment to the yield of the related assets or
liabilities over the remainder of the period that is being managed. If the
linked assets or liabilities are disposed of prior to the end of the period
being managed, the related derivatives are marked to fair value, with any
resulting gain or loss recognized in current period income as an adjustment to
the gain or loss on the disposal of the related assets or liabilities.
Included in the asset and liability management portfolio are interest rate
options used to manage prepayment risk resulting from a decline in interest
rates related to the Corporation's mortgage servicing portfolio. While the
Corporation utilizes these contracts as part of a risk management strategy, the
current composition of the option portfolio has not been structured for economic
reasons to provide a sufficient expectation that the change in its value,
resulting from changes in interest rates, will substantially offset the change
in the value of the mortgage servicing rights to which it is linked. As a
result, these contracts are currently valued at fair value with the realized and
unrealized changes in fair value recorded in the statement of income as part of
net mortgage servicing fees, a component of financial service fees.
The Corporation also enters into foreign exchange contracts in connection with
its trading activities, including providing these products to its customers, and
to hedge a portion of its own foreign exchange risk, which is principally
related to foreign currency translation (see ''Foreign Currency Translation''
above). The trading portfolio includes foreign currency spot, forward, future,
option and cross-currency interest rate swap contracts. Foreign exchange trading
positions are valued at current market rates, with the net foreign exchange
trading gain or loss recorded in the statement of income as a component of other
income.
Loans and Lease Financing
Loans are reported at their principal outstanding, net of charge-offs and
unearned income, if any. Mortgages held for sale are reported separately at the
lower of aggregate cost or fair value.
Interest income on loans is accrued as earned. Unearned income on loans and
leases is recognized on a basis approximating a level rate of return over the
term of the loan. Loan origination fees and costs are accounted for in
accordance with SFAS No. 91, ''Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases,'' which requires the deferral of these fees and costs and subsequent
amortization to income over the life of the related credit or facility. Fees
that adjust the yield on the underlying credit are included in interest income
on loans and lease financing. Fees for credit-related services are included in
financial service fees, a component of noninterest income.
Lease financing receivables, including leveraged leases, are reported at the
aggregate of lease payments receivable and the estimated residual values, net of
unearned and deferred income, including unamortized investment credits.
Leveraged leases are reported net of nonrecourse debt. Unearned income is
recognized to yield a level rate of return on the net investment in the leases.
The Corporation generally places loans and leases on nonaccrual status when any
portion of the principal or interest is ninety days past due, unless it is well
secured and in the process of collection, or earlier when concern exists as to
the ultimate collectibility of principal or interest. Whenever a loan or lease
is placed on nonaccrual status, all other credit exposures to the same borrower
are also placed on nonaccrual status, except when it can be clearly demonstrated
that such credit exposures are well secured, fully performing and insulated from
the weakness surrounding the nonaccrual credit to which they relate. When loans
or leases are placed on nonaccrual status, the related interest receivable is
reversed against interest income of the current period. Interest payments
received on nonaccrual loans and leases are applied as a reduction of the
principal balance when concern exists as to the ultimate collection of
principal; otherwise, such payments are
F-24
<PAGE>
Notes To Supplemental Financial Statements, Continued
recognized as interest income. Loans and leases are removed from nonaccrual
status when they become current as to both principal and interest and concern no
longer exists as to the ultimate collectibility of principal or interest.
The Corporation may renegotiate the contractual terms of a loan because of a
deterioration in the financial condition of the borrower. The carrying value of
a renegotiated loan is reduced by the fair value of any asset or equity interest
received, and by the extent, if any, that future cash receipts required under
the new terms do not equal the loan balance at the time of renegotiation.
Renegotiated loans performing in accordance with their new terms are not
reported as nonaccrual loans unless concern exists as to the ultimate
collectibility of principal or interest under the new terms. Interest, if any,
is recognized in income to yield a level rate of return over the life of the
renegotiated loan.
Reserve for Credit Losses and Provision for Credit Losses
The reserve for credit losses is available for future charge-offs of extensions
of credit. The reserve is increased by the provision for credit losses and by
recoveries of items previously charged off, and is decreased as credits are
charged off. A charge-off occurs once a probability of loss has been determined,
with consideration given to such factors as the customer's financial condition,
underlying collateral and guarantees.
The provision for credit losses is based upon management's estimate of the
amount necessary to maintain the reserve at an adequate level, considering
evaluations of individual credits and concentrations of credit risk, net losses
charged to the reserve, changes in quality of the credit portfolio, levels of
nonaccrual loans and leases, current economic conditions, cross-border risks,
changes in the size and character of the credit risks and other pertinent
factors.
Effective January 1, 1995, the Corporation adopted, prospectively, SFAS No. 114,
''Accounting by Creditors for Impairment of a Loan,'' as amended by SFAS No.
118, ''Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure.'' These standards require that a loan be classified and accounted
for as an impaired loan when it is probable that the Corporation will be unable
to collect all principal and interest due on the loan in accordance with the
loan's original contractual terms. The Corporation uses the same criteria in
placing a loan on nonaccrual status. Accordingly, for purposes of applying these
standards, impaired loans have been defined as all nonaccrual loans, exclusive
of residential mortgage loans, consumer loans and leases.
Impaired loans are valued based on the fair value of the related collateral in
the case of commercial real estate loans and, for all other impaired loans,
based on the present value of expected future cash flows, using the interest
rate in effect at the time the loan was placed on nonaccrual status. A loan's
observable market value may be used as an alternate valuation technique.
Impairment exists when the recorded investment in a loan exceeds the value of
the loan measured using the above-mentioned valuation techniques. Such
impairment is recognized as a valuation reserve, which is included as a part of
the Corporation's overall reserve for credit losses. The Corporation recognizes
interest income on impaired loans consistent with its nonaccrual policy.
The adoption of these new standards did not have a material impact on the
Corporation's overall reserve for credit losses, and did not affect its charge-
off or income recognition policies.
Premises and Equipment
Premises and equipment are reported at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the estimated life of the improvement or the term of the lease.
Purchased and Excess Mortgage Servicing Assets
Purchased mortgage servicing rights (PMSR) represent the cost of purchasing the
right to service mortgage loans originated by others. Excess mortgage servicing
receivables (EMSR) represent the present value of the servicing fee income
retained in excess of a normal servicing fee rate when mortgage loans are sold.
PMSR and EMSR are reported as assets and are amortized as reductions of
servicing fee income, a component of noninterest income, over the estimated
servicing period in proportion to the estimated future net cash flows from the
loans serviced. Remaining PMSR asset balances are evaluated for impairment by
determining their estimated aggregate recoverable amount through applying the
discount rate in effect at the time the servicing portfolios were purchased to
the estimated future net cash flows from servicing the underlying mortgages. The
carrying value is written down for any impairment; such writedowns are recorded
as reductions of servicing fee income. Prior to 1993, this valuation was
performed on an undiscounted basis. EMSR is also evaluated for impairment based
on estimated future cash flows on a discounted basis.
Effective January 1, 1993, the Corporation elected to change its method of
accounting for PMSR to conform its financial reporting to regulatory accounting
rules adopted by the banking regulators in the first quarter of 1993. The
cumulative effect to January 1, 1993 of adopting this change in accounting
principle was a decrease in income of $53 million (net of taxes of $32 million),
or $.36 per common share on a primary basis and $.35 per common share on a fully
diluted basis.
In May 1995, SFAS No. 122, ''Accounting for Mortgage Servicing Rights,'' was
issued. This standard, which is effective January 1, 1996, amends SFAS No. 65,
''Accounting for Certain Mortgage Banking Activities,'' to require that rights
to service mortgage loans originated for sale be recognized as separate assets
either upon origination (if a definitive plan to sell the loans and retain the
rights exists) or upon sale of the loans, based on the relative fair values of
the rights and loans. This standard also requires that mortgage servicing rights
be assessed for impairment based on the fair value of those rights, using a
stratified method. The Corporation does not expect that adoption of this
standard will have a material impact on its financial statements.
F-25
<PAGE>
Notes To Supplemental Financial Statements, Continued
Accelerated Disposition Portfolio
In 1994, the Corporation transferred certain lower quality real estate exposures
to an accelerated disposition portfolio (ADP), which was included in other
assets. The exposures were transferred at their estimated disposition values,
with the excess, if any, of the exposures over the disposition values charged to
the reserve for credit losses. Subsequent declines in disposition value are
recorded in noninterest income. Gains, if any, are not recognized until
realized. Income recognition is based upon existing policies for accruing and
nonaccrual loans and other real estate owned.
Other Real Estate Owned
Other real estate owned (OREO), which is included in other assets, includes
properties on which the Corporation has foreclosed and taken title. OREO is
reported at the lower of the carrying value of the loan or the fair value of the
property obtained, less estimated selling costs. The excess, if any, of the loan
over the fair value of the property at the time of transfer from loans to OREO
is charged to the reserve for credit losses. Subsequent declines in the fair
value of the property and net operating results of the property are recorded in
noninterest expense.
Income Taxes
The Corporation accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Current tax liabilities or assets are
recognized, through charges or credits to the current tax provision, for the
estimated taxes payable or refundable for the current year. Net deferred tax
liabilities or assets are recognized, through charges or credits to the deferred
tax provision, for the estimated future tax effects, based on enacted tax rates,
attributable to temporary differences and tax benefit carryforwards. Deferred
tax liabilities are recognized for temporary differences that will result in
amounts taxable in the future, and deferred tax assets are recognized for
temporary differences and tax benefit carryforwards that will result in amounts
deductible or creditable in the future. The effect of enacted changes in tax
law, including changes in tax rates, on these deferred tax assets and
liabilities is recognized in income in the period that includes the enactment
date. A deferred tax valuation reserve is established if it is more likely than
not that all or a portion of the Corporation's deferred tax assets will not be
realized. Changes in the deferred tax valuation reserve are recognized through
charges or credits to the deferred tax provision. For financial reporting
purposes, investment tax credits received in connection with lease financing are
recognized as lease income over the investment life of the related asset.
Per Share Calculations
Primary net income per common share is computed by dividing net income, reduced
by dividends on preferred stock, by the weighted average number of common shares
outstanding for each period presented. For fully diluted net income per common
share, net income is reduced by preferred stock dividends and increased by the
interest, net of income tax benefit, recorded on the Corporation's convertible
debentures. Such adjusted net income is divided by the weighted average number
of common shares outstanding for each period plus the shares representing the
dilutive effect of stock options outstanding and the shares that would result
from conversion of the Corporation's convertible debentures. The effect of stock
options and convertible debentures is excluded from the computation of fully
diluted net income per common share in periods in which their effect would be
anti-dilutive.
Cash dividends per common share declared, presented in the accompanying
supplemental consolidated statement of income, represent the historical
cash dividends of the Corporation. As described in Note 10, the Corporation's
convertible debentures were converted to common stock in March 1995.
2. Mergers, Acquisitions, Joint Ventures and Divestitures
In July 1993, the Corporation completed its mergers with Society for Savings
Bancorp, Inc. (Society), a $2.4 billion registered bank holding company based in
Hartford, Connecticut, and Multibank Financial Corp. (Multibank), a $2.4 billion
registered bank holding company based in Dedham, Massachusetts. In connection
with the merger with Society, the Corporation issued 9.6 million shares of its
common stock for all of the outstanding shares of Society common stock by
exchanging .80 of a share of its common stock for each outstanding Society
share. In connection with the merger with Multibank, the Corporation issued 10.4
million shares of its common stock for all of the outstanding shares of
Multibank common stock by exchanging 1.125 shares of its common stock for each
outstanding Multibank share. These mergers were accounted for as poolings of
interests and as such are reflected in the accompanying supplemental
consolidated financial statements as though the Corporation, Society and
Multibank had been combined as of the beginning of the earliest period
presented.
In May 1994, the Corporation completed its acquisition of BankWorcester
Corporation (BankWorcester), a $1.5 billion bank holding company based in
Worcester, Massachusetts. The total purchase price amounted to $243 million. In
addition, in August 1994, the Corporation completed its acquisition of Pioneer
Financial, A Co-operative Bank (Pioneer), a $.8 billion bank based in Middlesex
County, Massachusetts. The total purchase price amounted to $117 million. These
acquisitions were accounted for as purchases and, accordingly, the assets and
liabilities of each were recorded at their estimated fair values as of the
acquisition dates. Goodwill resulting from the acquisitions is being amortized
over a twenty-five year period for BankWorcester and a fifteen-year period for
Pioneer. A core deposit intangible resulting from the BankWorcester acquisition
is being amortized over a seven-year period. Both acquisitions have been
included in the accompanying supplemental consolidated financial statements
since their respective acquisition dates. Pro forma results of operations
including BankWorcester and Pioneer for the years ended December 31, 1994 and
1993 are not presented, since the results would not have been significantly
different in relation to the Corporation's results of operations.
F-26
<PAGE>
Notes To Supplemental Financial Statements, Continued
In January 1995, the Corporation completed the sales of two of its affiliate
banks, Bank of Vermont and Casco Northern Bank, N.A. (Casco). The sales resulted
in a combined pre-tax gain of approximately $75 million, or $30 million net of
tax.
In February 1995, the Corporation completed its acquisition of Ganis Credit
Corporation (Ganis), a privately-held consumer finance company headquartered in
Newport Beach, California. The Corporation issued Ganis stockholders
approximately $22 million in Corporation common stock, comprised of 773,621
shares of its treasury stock previously purchased in the open market. In January
1996, the Corporation issued Ganis stockholders an additional $7 million in its
common stock, comprised of 153,741 shares of its treasury stock previously
purchased in the open market, as a result of the achievement by Ganis of certain
performance goals. The Corporation will issue Ganis stockholders up to an
additional $7 million in common stock if Ganis achieves certain additional
performance goals over the next several years. The acquisition was accounted for
as a purchase and, accordingly, the assets and liabilities of Ganis were
recorded at their estimated fair values as of the acquisition date. Goodwill
resulting from the acquisition is being amortized over a fifteen-year period.
The acquisition has been included in the accompanying supplemental consolidated
financial statements since the acquisition date.
In July 1995, the Corporation completed its acquisition of NFS Financial Corp.
(NFS), parent company of NFS Savings Bank, FSB of Nashua, New Hampshire, and
Plaistow Cooperative Bank, FSB of Plaistow, New Hampshire, with combined total
assets of $625 million. The Corporation paid NFS stockholders $97 million,
comprising $58 million in cash and $39 million in common stock. The acquisition
was accounted for as a purchase and , accordingly, the assets and liabilities of
NFS were recorded at their estimated fair values as of the acquisition date.
Goodwill resulting from the acquisition is being amortized over a fifteen-year
period. The acquisition has been included in the accompanying supplemental
consolidated financial statements since the acquisition date. Following the
acquisition, NFS Savings Bank, FSB and Plaistow Cooperative Bank, FSB were
merged and currently operate as BayBank FSB.
Effective in October 1995, the Corporation formed a joint venture with Boston
Financial Data Services (a joint venture of State Street Bank and Trust Company
and DST Systems, Inc.), combining their respective stock transfer businesses
into a single entity which is 50 percent owned by each party. Additionally, in
October 1995, the Corporation completed the sale of its corporate trust
business. This sale resulted in a pre-tax gain of $20 million, or $12 million
net of tax.
In December 1995, the Corporation completed its acquisition of Cornerstone
Financial Corporation (Cornerstone), parent company of Cornerstone Bank of
Derry, New Hampshire, with total assets of $143 million. The Corporation paid
Cornerstone stockholders $18 million. The acquisition was accounted for as a
purchase and, accordingly, the assets and liabilities of Cornerstone were
recorded at their estimated fair values as of the acquisition date. Goodwill
resulting from the acquisition is being amortized over a fifteen-year period.
Following the acquisition, Cornerstone Bank began operating as BayBank NH, N.A.
In December 1995, the Corporation announced an agreement to sell its mortgage
banking subsidiary, BancBoston Mortgage Corporation (BBMC), to a newly formed
independent mortgage company, HomeSide, Inc. (HomeSide), for cash and a minority
interest in the new company. During the first quarter of 1996, the second phase
of the transaction was announced, in which Barnett Bank would sell its mortgage
company to HomeSide. The sales were completed during the first half of 1996.
Upon completion of both phases of the transaction, the Corporation, Barnett Bank
and two equity investment firms each own an approximate one-third interest in
HomeSide.
In October 1995, the Corporation announced a definitive agreement to acquire The
Boston Bancorp (Bancorp), and in June 1996 completed the transaction. Bancorp
was the holding company of South Boston Savings Bank, a Massachusetts chartered
savings bank with $1.3 billion in deposits at June 30, 1996. The Corporation
exchanged 4.6 million shares of its common stock, with a value of $229 million,
for all of the outstanding shares of Bancorp common stock. The Corporation has
purchased an equivalent amount of shares of its common stock in the open market
during 1996 for the 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 acquisition is being amortized over a ten-year period. The acquisition
will be included in the Corporation's consolidated financial statements from the
acquisition date.
In December 1995, the Corporation announced a definitive agreement to acquire
BayBanks, and completed the transaction in July 1996. BayBanks, with total
assets of $11 billion at June 30, 1996, was the Boston-based holding company of
BayBank, N.A. Under terms of the merger agreement, 44 million shares of the
Corporation's common stock were issued for substantially all of the outstanding
shares of BayBanks common stock (based on an exchange ratio of 2.2 shares of the
Corporation's common stock for each outstanding share of BayBanks common stock).
The transaction was accounted for as a pooling of interests, and as such is
reflected in these supplemental consolidated financial statements as though the
Corporation and BayBanks had operated as a combined entity for all periods
presented. In connection with the approval of the transaction by regulatory
authorities, the Corporation agreed to sell 20 branches of the resulting
combined entity, comprising a total of approximately $860 million in deposits.
The sale of these branches is expected to be completed in approximately six
months. Also, in connection with the acquisition the Corporation anticipates
that it will incur certain merger and restructuring costs. Such costs include
investment banking and other professional fees, stock issuance costs and other
expenses and other costs associated with the acquisition and estimated
facilities and operations consolidation and severance costs associated with
expected reorganizations in connection with the acquisition. These costs, which
were originally estimated to be approximately $140 million ($83 million after-
tax), continue to be evaluated along with the estimated cost savings expected to
result from the integration of the two institutions, both of which are likely to
increase upon finalization of the integration plan.
F-27
<PAGE>
Notes To Supplemental Financial Statements, Continued
3. Statement Of Cash Flows
For purposes of the statement of cash flows, cash and due from banks are
considered to be cash equivalents. Foreign currency cash flows are converted to
U.S. dollars using average rates for the period. During 1995, 1994 and 1993, the
Corporation paid interest of approximately $2.8 billion, $2.4 billion and $3.0
billion, respectively. The Corporation paid income taxes of approximately $565
million in 1995, $237 million in 1994 and $114 million in 1993. During 1995,
1994 and 1993, the Corporation transferred approximately $49 million, $105
million and $172 million, respectively, to OREO from loans. Loans made to
facilitate sales of OREO properties were $6 million in 1995: such loans in 1994
and 1993 totaled approximately $10 million and $31 million, respectively. Non-
cash transactions in 1995 included $94 million from the issuance of common stock
in connection with the Corporation's redemption of its convertible subordinated
debentures due 2011, more fully described in Note 10, and the transfer of $3.3
billion of securities held to maturity to securities available for sale. The
transfer was in connection with A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities (the Special
Report), issued by the Financial Accounting Standards Board (the FASB) in
November 1995, which allowed the Corporation to reassess the appropriateness of
the classification of securities held at that time. This transfer is more fully
described in Note 5. During 1994, the Corporation transferred a total of $387
million of lower quality real estate exposure to ADP. During 1993, the
Corporation transferred approximately $861 million of securities held to
maturity to securities available for sale in connection with the Corporation's
mergers with Society and Multibank, as well as the Corporation's adoption of
SFAS No. 115. In accordance with the new standard, cash flows from purchases,
sales and maturities of securities available for sale in 1995 and 1994 are
classified as investing activities in the accompanying supplemental consolidated
statement of cash flows. For 1993, these cash flows are classified as an
operating activity and presented on a net basis.
4. Reserve Requirements, Restricted Deposits And Pledged Assets
At December 31, 1995 and 1994, cash and due from banks included $1.2 billion and
$1.1 billion, respectively, to satisfy the reserve requirements of the Federal
Reserve System and various foreign central banks. Interest bearing deposits in
other banks held to satisfy foreign central bank reserve requirements totaled
$37 million and $30 million at December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, securities, loans and other assets with a book
value of $4.4 billion and $4.1 billion, respectively, were pledged to
collateralize repurchase agreements, public deposits and other items.
F-28
<PAGE>
Notes To Supplemental Financial Statements, Continued
5. Securities
A summary comparison of securities available for sale by type is as follows:
<TABLE>
<CAPTION>
Gross Gross
December 31, 1995 Unrealized Unrealized Carrying
(in millions) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury............................. $2,556 $ 37 $ 2 $2,591
U.S. government
agencies and
corporations--
Mortgage-backed
securities............................... 2,969 71 3 3,037
States and political
subdivisions............................. 245 3 248
Foreign debt
securities............................... 698 5 18 685
Other debt securities..................... 343 9 334
Marketable equity
securities............................... 170 52 222
Other equity
securities............................... 465 465
------ ------ ------ ------
$7,446 $ 168 $ 32 $7,582
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
December 31, 1994 Unrealized Unrealized Carrying
(in millions) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury............................. $1,500 $ 13 $1,487
U.S. government
agencies and
corporations--
Mortgage-backed
securities............................... 796 30 766
State and political subdivisions.......... 9 9
Foreign debt
securities............................... 432 $ 4 52 384
Other debt securities..................... 142 142
Marketable equity
securities............................... 124 21 1 144
Other equity
securities............................... 330 330
------ ------ ------ ------
$3,333 $ 25 $ 96 $3,262
====== ====== ====== ======
</TABLE>
Other equity securities included in securities available for sale are not traded
on established exchanges and are carried at cost. However, in accordance with
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," fair
values were estimated for these securities. These fair values exceeded cost by
$76 million and $70 million at December 31, 1995 and 1994, respectively. Further
information with respect to the fair value of these securities is included in
Note 26.
A summary comparison of securities held to maturity by type is as follows:
<TABLE>
<CAPTION>
Gross Gross
December 31, 1995 Amortized Unrealized Unrealized Fair
(in millions) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury............................. $ 4 $ 4
U.S. government
agencies and
corporations--
Mortgage-backed
securities............................... 523 $ 8 $ 1 530
States and political
subdivisions............................. 5 5
Foreign debt
securities............................... 11 11
Other equity
securities............................... 117 117
------ ------ ------ ------
$ 660 $ 8 $ 1 $ 667
====== ====== ====== ======
</TABLE>
F-29
<PAGE>
Note To Supplemental Financial Statements, Continued
<TABLE>
<CAPTION>
Gross Gross
December 31, 1994 Amortized Unrealized Unrealized Fair
(in millions) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury............................. $2,146 $ 70 $2,076
U.S. government
agencies and
corporations
Mortgage-backed
securities............................... 1,449 74 1,375
States and political
subdivisions............................. 201 1 200
Foreign debt
securities............................... 123 2 121
Other debt securities..................... 200 5 195
Other equity
securities............................... 119 119
------ ------ ------
$4,238 $ 152 $4,086
====== ====== ======
</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.
The FASB Special Report, which provided guidance on the implementation of SFAS
No. 115, allowed companies, no later than December 31, 1995, to make a one-time
reassessment of the classification of their securities portfolios between
available for sale and held to maturity.
As a result of this reassessment, the Corporation transferred $3.3 billion of
securities from held to maturity to available for sale, with a net after-tax
unrealized gain of $52 million recorded in stockholders' equity.
A summary comparison of debt securities available for sale by contractual
maturity is as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
Fair Fair
(in millions) Cost Value Cost Value
<S> <C> <C> <C> <C>
Within one year........ $1,844 $1,844 $ 626 $ 624
After one but within
five years............ 2,472 2,518 1,502 1,475
After five but within
ten years............. 1,165 1,190 238 197
After ten years........ 1,330 1,343 513 492
------ ------ ------ ------
$6,811 $6,895 $2,879 $2,788
====== ====== ====== ======
</TABLE>
A summary comparison of debt securities held to maturity by contractual maturity
is as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value
<S> <C> <C> <C> <C>
Within one year........ $ 11 $ 11 $ 911 $ 902
After one but within
five years............ 115 115 2,121 2,040
After five but within
ten years............. 200 208 338 325
After ten years........ 217 216 749 700
----- ----- ------ ------
$ 543 $ 550 $4,119 $3,967
===== ===== ====== ======
</TABLE>
Certain securities, such as mortgage-backed securities, may not become due at a
single maturity date. Such securities have been classified within the category
that encompasses the due dates for the majority of the instrument.
Included in 1995's net securities gains were gross gains of $11 million and
gross losses of $2 million related to the sale of debt securities available for
sale. Total proceeds from such securities sales amounted to $1.4 billion. For
1994, net securities gains included gross gains of $24 million and gross losses
of $9 million related to the sale of debt securities available for sale. Total
proceeds from such securities sales in 1994 amounted to $2.5 billion. For 1993,
net securities gains included gross gains of $39 million and gross losses of $1
million related to the sale of debt securities available for sale. Total
proceeds from such securities sales in 1993 amounted to $4.7 billion.
F-30
<PAGE>
Notes To Supplemental Financial Statements, Continued
6. Loans and Lease Financing
<TABLE>
<CAPTION>
December 31 1995 1994
(in millions)
<S> <C> <C>
United States
Commercial, industrial and financial........................... $12,809 $13,122
Commercial real estate
Construction................................................. 386 391
Other........................................................ 3,393 4,065
Consumer-related loans
Secured by 1-4 family residential
properties................................................. 6,697 7,079
Other........................................................ 5,554 4,559
Lease financing................................................ 1,564 1,482
Unearned income................................................ (240) (239)
------- -------
30,163 30,459
======= =======
International
Commercial and industrial...................................... 6,422 5,161
Banks and other financial institutions......................... 796 749
Governments and official institutions.......................... 82 33
Lease financing................................................ 285 329
All other...................................................... 1,159 1,053
Unearned income................................................ (37) (76)
------- -------
8,707 7,249
------- -------
$38,870 $37,708
======== ========
</TABLE>
7. Reserve for Credit Losses
An analysis of changes in the reserve for credit losses follows:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
BALANCE, JANUARY 1....................... $827 $941 $1,116
Reserves of acquired entities............ 16 25
Reserves of entities sold................ (32)
Provision................................ 275 154 107
Credit losses............................ (282) (260) (353)
Recoveries............................... 86 86 71
------ ----- -----
Net credit losses..................... (196) (174) (282)
Credit losses related to exposures
transferred to ADP...................... (119)
______ ______ ______
BALANCE, DECEMBER 31..................... $890 $827 $941
====== ====== =======
</TABLE>
As described in Note 1, the adoption of SFAS No. 114, as amended by SFAS No.
118, on January 1, 1995 did not have a material effect on the Corporation's
financial statements, and did not result in any additional provision for credit
losses as of January 1, 1995. At December 31, 1995, impaired loans in accordance
with these standards totaled $250 million, of which loans totaling $113 million
required no valuation reserve and loans totaling $137 million required a
valuation reserve of $32 million. For the year ended December 31, 1995, average
impaired loans were approximately $297 million. Interest recognized on impaired
loans during the year ended December 31, 1995 was not material.
F-31
<PAGE>
Notes To Supplemental Financial Statements, Continued
8. Other Assets
<TABLE>
<CAPTION>
December 31 1995 1994
(in millions)
<S> <C> <C>
Accounts receivable............................................ $ 405 $ 547
PMSR and EMSR.................................................. 553 432
Prepaid pension cost........................................... 187 187
Goodwill and other intangibles................................. 352 316
Precious metal assets.......................................... 136 175
Investments in limited partnerships............................ 183 148
Equity investments in affiliates............................... 149 109
ADP............................................................ 118
OREO........................................................... 70 143
Refundable income taxes........................................ 38 29
Equity investments from loan restructurings.................... 20 23
All other...................................................... 828 489
------ ------
$2,921 $2,716
====== ======
</TABLE>
9. Funds Borrowed
<TABLE>
<CAPTION>
December 31 1995 1994
(in millions)
<S> <C> <C>
Federal funds purchased........................................ $1,869 $ 416
Term federal funds purchased................................... 870 765
Securities sold under agreements to
repurchase.................................................... 1,688 2,680
Short-term bank notes.......................................... 1,190 1,569
Medium-term bank notes......................................... 1,871
Demand notes issued to the U.S. Treasury....................... 361 395
All other...................................................... 1,654 1,386
------ ------
$9,503 $7,211
====== ======
</TABLE>
All other funds borrowed included borrowings with maturities of greater than one
year of $333 million at December 31, 1995 and $221 million at December 31, 1994.
At December 31, 1995 and 1994, the Corporation had availability under various
borrowing arrangements of $1.4 billion and $1.7 billion, respectively. The
Corporation had no significant compensating balance arrangements at December 31,
1995 and 1994.
10. Notes Payable
<TABLE>
<CAPTION>
By Remaining Maturity
at December 31
Due
less than Due Due 1995 1994
(in millions) 1 year 1-5 years 6-10 years Total Total
<S> <C> <C> <C> <C> <C>
Parent
Company
Senior notes.......... $ 100 $ 100 $ 100
Subordinated
notes ............ $ 235 $ 934 1,169 1,320
Convertible
subordinated
debentures ........ 94
---------- ---------- ---------- --------- -----
Subtotal ............ 100 235 934 1,269 1,514
Subsidiaries
Senior notes ........ 27 274 157 458 243
Subordinated
notes .............. 65 397 462 462
---------- ---------- ---------- ---------- -----
Subtotal ............ 27 339 554 920 705
---------- ---------- ---------- ---------- -----
$127 $574 $1,488 $2,189 $2,219
========== ========== ========== ========== ======
</TABLE>
F-32
<PAGE>
Notes To Supplemental Financial Statements, Continued
Notes payable are unsecured obligations of the Corporation or its subsidiaries.
Certain of the indentures under which these notes were issued prohibit the
Corporation from making any payment or other distribution in the stock of FNBB
unless FNBB unconditionally guarantees payment of principal and interest on the
notes. The distribution shown above by remaining maturity is based on
contractual maturity.
Notes payable at December 31, 1995 and 1994 include fixed rate notes of $1,659
million and $1,534 million, respectively, and variable rate notes of $530
million and $685 million, respectively. Fixed rate notes outstanding at December
31, 1995 mature at various dates through 2005 at interest rates ranging from
6.63% to 10.50%. The consolidated weighted average interest rates on fixed rate
notes at December 31, 1995 and 1994 were 7.78% and 7.74%, respectively. The
Corporation has entered into interest rate swap agreements that have effectively
converted its fixed rate obligations to floating rate obligations. At December
31, 1995, such interest rates ranged from 5.75% to 5.95%. Variable rate notes
outstanding, with interest rates ranging from 5.81% to 9.25% at December 31,
1995, mature at various dates through 2003. The consolidated weighted average
interest rates on variable rate notes at December 31, 1995 and 1994 were 6.68%
and 7.03%, respectively.
During 1995, the Corporation called for redemption its 7.75% convertible
subordinated debentures due June 2011 at 100.78% of their principal amount plus
accrued interest to the date of redemption. Substantially all holders of the
debt opted to convert their bonds to common stock prior to redemption, resulting
in the issuance by the Corporation of approximately 4,008,000 shares of its
common stock. Of the total shares issued, approximately 530,000 shares were
treasury shares previously purchased by the Corporation in the open market.
Primary earnings per share for the year ended December 31, 1995 would have been
$4.52 had the debentures been converted on January 1, 1995. Also during 1995,
the Corporation redeemed its 10.30% subordinated notes due September 2000 at
their $150 million principal amount plus accrued interest.
During 1994, the Corporation redeemed its floating rate notes due September
2000, with a carrying value of $179 million, at their principal amount plus
accrued interest, and a nonbanking subsidiary of the Corporation prepaid $186
million of its senior notes, with fixed interest rates ranging from 6.67% to
9.50%, at their principal amount plus accrued interest and a prepayment penalty.
The loss on these early extinguishments of debt amounted to $7 million, net of
tax, or $.04 per common share on both a primary and fully diluted basis, and is
presented as an extraordinary item in the accompanying supplemental consolidated
statement of income.
Notes payable maturing during the next five years amount to: $127 million in
1996, $454 million in 1997 and $120 million in 1998. There are no notes payable
maturing in 1999 and 2000.
11. Preferred Stock
A summary of the Corporation's Adjustable Rate Cumulative Preferred Stock
(Adjustable Rate Preferred Stock) issued and outstanding is as follows:
<TABLE>
<CAPTION>
Series A Series B Series C
Outstanding at December 31,
1995 and 1994
<S> <C> <C> <C>
Shares ...................... 1,044,843 1,574,315 774,783
Amount (in millions) ........ $ 52 $ 79 $ 77
Dividend rates
At December 31, 1995 ..... 6.00% 6.00% 5.50%
Minimum .................. 6.00% 6.00% 5.50%
Maximum .................. 13.00% 13.00% 12.50%
Dividends per share
1995 ..................... $ 3.06 $ 3.01 $ 5.50
1994 ..................... $ 3.02 $ 3.02 $ 5.51
1993 ..................... $ 3.01 $ 3.01 $ 5.51
Liquidation preference
per share ................. $ 50 $ 50 $ 100
</TABLE>
F-33
<PAGE>
Notes To Supplemental Financial Statements, Continued
A summary of the Corporation's Fixed Rate Cumulative Preferred Stock (Fixed Rate
Preferred Stock) issued and outstanding is as follows:
<TABLE>
<CAPTION>
Series E Series F
Outstanding at December 31, 1995 and 1994
<S> <C> <C>
Shares ....................................... 920,000 280,000
Amount (in millions) ......................... $ 230 $ 70
Dividend rate ................................ 8.60% 7.88%
Dividends per share .......................... $ 21.50 $ 19.69
Liquidation preference per share ............. $ 250 $ 250
</TABLE>
The Fixed Rate Preferred Stock is held by stockholders in the form of depositary
shares, with each depositary share representing a one-tenth interest in a share
of the respective preferred stock, and entitles the holder to a proportional
interest in all rights and preferences of a share of Fixed Rate Preferred Stock,
including dividend, voting, redemption and liquidation rights.
Dividends on all series of preferred stock are cumulative and, when declared,
are payable quarterly. The dividend rates for the Adjustable Rate Preferred
Stock are determined according to a formula based upon the highest of three
interest rate benchmarks. Neither the Adjustable Rate Preferred Stock nor the
Fixed Rate Preferred Stock have preemptive or general voting rights. The
preferred stock is redeemable, in whole or in part, at the option of the
Corporation as follows: Series A and B Preferred Stock are redeemable at $50 per
share and Series C Preferred Stock is redeemable at $100 per share. The Series E
and Series F Preferred Stock are redeemable on and after September 15, 1997 and
July 15, 1998, respectively, at $250 per share ($25 per depositary share).
12. Stockholder Rights Plan
In 1990, the Board of Directors of the Corporation adopted a stockholder rights
plan. The plan provides for the distribution of one preferred stock purchase
right for each outstanding share of common stock of the Corporation. Each right
entitles the holder, following the occurrence of certain events, to purchase a
unit, consisting of one-thousandth of a share of Junior Participating Preferred
Stock, Series D, at a purchase price of $50 per unit, subject to adjustment. The
rights will not be exercisable or transferable apart from the common stock
except under certain circumstances in which a person or group of affiliated
persons acquires, or commences a tender offer to acquire, 15% or more of the
Corporation's common stock. Rights held by such an acquiring person or persons
may thereafter become void. Under certain circumstances, a right may become a
right to purchase common stock or assets of the Corporation or common stock of
an acquiring corporation at a substantial discount. Under certain circumstances,
the Corporation may redeem the rights at $.01 per right. The rights will expire
in July 2000 unless earlier redeemed or exchanged by the Corporation.
As a result of the Corporation's acquisition of BayBanks, described in Note 2,
the plan was amended to exclude the transactions contemplated by the agreement.
13. Dividends and Loan Restrictions
Bank regulations require the approval of bank regulatory authorities if the
dividends declared by a bank subsidiary exceed certain prescribed limits. For
1996, aggregate dividend declarations by the Corporation's bank subsidiaries
without prior regulatory approval are limited to approximately $765 million of
their undistributed earnings at December 31, 1995, plus an additional amount
equal to their net profits, as defined, for 1996 up to the date of any dividend
declaration. However, for any dividend declaration, the Corporation's
subsidiaries, as well as the Corporation itself, must consider additional
factors such as the amount of current period net income, liquidity, asset
quality, capital adequacy and economic conditions. It is likely that these
factors would further limit the amount of dividends which the banking
subsidiaries could declare. In addition, bank regulators have the authority to
prohibit banks and bank holding companies from paying dividends if they deem
such payment to be an unsafe or unsound practice.
Each bank subsidiary is also prohibited by the bank regulatory authorities from
granting loans and advances to the Parent Company that exceed certain limits.
Assuming declaration of the maximum amount of dividends under the regulations
described above, any loans and advances would be limited to an aggregate of
approximately $417 million and would be subject to specific collateral
requirements.
Based on the foregoing limitations, an aggregate of approximately $3.4 billion
of the Parent Company's investment in bank subsidiaries of $4.6 billion, which
includes bank holding companies and their subsidiaries, was restricted from
transfer to the Parent Company at December 31, 1995.
F-34
<PAGE>
Notes To Supplemental Financial Statements, Continued
14. Other Income
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Net equity and mezzanine profits .......... $ 110 $ 30 $ 38
Net foreign exchange trading profits ...... 60 44 47
Precious metal income ..................... 16 13 9
Net gains from sales of mortgage
inventories ............................. 13 10
Gains from sales of mortgage servicing
rights .................................. 10 11 1
Equity in undistributed earnings
of affiliates ............................ 18 1 16
Exchange-rate related profits
from Brazil .............................. 15
Gain on sale of domestic factoring
business ................................. 27
Gain on sale of Maine and Vermont
bank subsidiaries ........................ 75
Gain on sale of corporate trust
business ................................. 20
All other ................................. 31 63 60
----- ----- -----
$ 340 $ 217 $ 181
===== ===== =====
</TABLE>
15. Employee Benefits
The Corporation maintains non-contributory defined benefit pension plans (the
Plans) covering substantially all domestic employees. The Corporation funds the
Plans in compliance with the requirements of the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code of 1986, as amended.
The principal plan is an account balance defined benefit plan in which each
eligible employee has an account to which amounts are allocated based on level
of pay and years of service, and which grows at a specified rate of interest.
Benefits accrued prior to 1989 are based on years of service, highest average
compensation and social security benefits. Plans other than the principal plan
have benefit provisions based on length of service and qualifying compensation
in the final years of employment.
Employee benefits expense (income) for the Plans included the following:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost (benefits earned during the period) ....... $ 22 $ 25 $ 21
Interest cost on projected benefit obligation .......... 32 29 26
Return on plan assets
Actual................................................ (161) 5 (54)
Actuarial deferral of gains (losses) ................ 110 (59) 5
Amortization
Unrecognized net asset .............................. (6) (6) (6)
Unrecognized prior service cost ..................... 2 2 3
Other, net .......................................... 2 1
----- ----- -----
Net pension expense (income) ........................... $ 1 $ (3) $ (5)
===== ===== =====
</TABLE>
F-35
<PAGE>
Notes To Supplemental Financial Statements, Continued
The following table sets forth the funded status of the Plans:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(dollars in millions)
<S> <C> <C> <C>
Projected benefit obligation
Vested benefits ................................................. $ 368 $ 282 $ 252
Nonvested benefits .............................................. 35 33 31
----- ----- -----
Accumulated benefit obligation ..................................... 403 315 283
Effect of projected future compensation levels ..................... 79 77 83
----- ----- -----
Projected benefit obligation ....................................... $ 482 $ 392 $ 366
===== ===== =====
Plan assets at fair value (primarily listed stocks and fixed income
securities) ....................................................... $ 688 $ 552 $ 564
===== ===== =====
Plan assets in excess of projected benefit obligation .............. $ 206 $ 160 $ 198
Unrecognized net (gain) loss ....................................... (15) 37 (5)
Unrecognized prior service cost .................................... 14 13 23
Unrecognized net asset ............................................. (18) (23) (29)
----- ----- -----
Prepaid pension cost ............................................... $ 187 $ 187 $ 187
===== ===== =====
Assumptions used in actuarial calculations are as follows:
Weighted average discount rate at December 31 ................... 7.25% 8.25% to 8.5% 7.25% to 7.5%
Rate of increase in future compensation levels at December 31..... 4.45% to 4.5% 4.5% to 5.25% 4.5% to 4.7%
Account balance interest rate at December 31 .................... 6.0% 6.5% 6.0%
Expected long-term rate of return on assets for the years ended
December 31..................................................... 9.0% 9.0% to 9.5% 9.0 % to 9.5%
</TABLE>
The Corporation also maintains nonqualified deferred compensation and retirement
plans for certain officers. All benefits provided under these plans are unfunded
and any payments to plan participants are made by the Corporation. As of
December 31, 1995 and 1994, approximately $25 million and $22 million,
respectively, were included in accrued expenses and other liabilities for these
plans. For 1995, 1994 and 1993, charges to operations related to these plans
were $4 million, $4 million and $2 million, respectively.
The Corporation also provides certain health and life insurance benefits for
retired employees. Eligible domestic employees of the Corporation, except
BayBanks employees, currently receive credits of up to $10,000 based on years of
service, which are used to purchase postretirement health care coverage through
the Corporation. Life insurance coverage is dependent on years of service at
retirement. BayBanks employees retiring prior to December 31, 1993 received
$5,000 in life insurance benefits and a subsidy to cover Medicare premiums.
Those retiring after December 31, 1993 will not receive the Medicare supplement
and will pay the full cost of life insurance and medical insurance premiums at
the Corporations rate. Pursuant to SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions", which the Corporation adopted
effective January 1, 1993, these postretirement benefits are recognized over the
service lives of the employees.
The components of postretirement benefits expense were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Service cost (benefits earned during the
period) ......................................... $ 1 $ 1 $ 1
Interest cost on projected benefit
obligation ...................................... 5 5 6
Amortization
Unrecognized transition obligation .............. 4 5 5
Unrecognized net gain ........................... (1) (1)
----- ----- -----
Net postretirement benefits expense .............. $ 9 $ 11 $ 11
===== ===== =====
</TABLE>
F-36
<PAGE>
Notes To Supplemental Financial Statements, Continued
The following table sets forth the status of the Corporation's accumulated
postretirement benefit obligation:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(dollars in millions)
Accumulated benefit obligation
<S> <C> <C> <C>
Retirees..................................... $ 51 $ 53 $ 65
Active employees eligible to retire.......... 6 7 5
Active employeesnot eligible to retire....... 9 9 10
----- ----- -----
Accumulated postretirement benefit..............
obligation..................................... 66 69 80
Unrecognized net gain........................... 17 16 4
Unrecognized transition obligation.............. (62) (76) (80)
----- ----- -----
Postretirement benefit liability................ $ 21 $ 9 $ 4
===== ===== =====
Assumptions used in actuarial
calculations are as follows:
Weighted average discount rate at
December 31................................. 7.25% 8.25% to 8.5% 7.25% to 7.5%
Rate of increase in future compensation
levels at December 31....................... 4.50% 4.50% 4.50%
Medical cost trend rate...................... 8% 11% 12%
declining to declining to declining to
5% in the 5% in the 5% in the
year 1999 year 2001 year 2001
Effect of 1% increase in medical cost
trend rate on
Accumulated postretirement benefit
obligation.................................. 5.80% 5.90% 4.80%
Postretirement benefits expense.............. 4.90% 4.90% 4.10%
</TABLE>
In 1995, the Corporation recognized curtailment losses in connection with its
pension and postretirement plans. These losses were primarily a result of the
anticipated sale of BBMC to a new mortgage banking joint venture, and
represented the effect of expected employee reductions on the Corporation's
pension and postretirement plans. The BBMC curtailment losses are more fully
described in Note 17.
BayBanks has an employee stock ownership plan (the ESOP). Employees of BayBanks
are eligible to participate in the ESOP plan if they meet certain service
requirements. In 1990, the ESOP borrowed $19 million from a third party to
purchase 1,760,000 shares of BayBanks common stock. This loan, unconditionally
guaranteed by BayBanks, bears interest equal to Reserve Adjusted LIBOR plus .35%
and is payable in eight annual installments ending January 31, 1997. At
December 31, 1995, the balance of the ESOP loan was $6 million at an interest
rate of 6.19% and the number of unallocated ESOP shares was 595,089. During
1995 ESOP expense of $2 million, net of dividends, included an accrual to cover
the loan payment due on January 31, 1996 and interest expense of the ESOP loan
of $.4 million. The dividends used to service the ESOP debt, which were paid on
shares held by the ESOP were $1.6 million in 1995, $1.2 million in 1994 and $.7
million in 1993.
The Corporation maintains thrift incentive plans covering the majority of
domestic employees. Under the BayBanks profit sharing plan, employer
contributions are made based on specified earnings hurdles and offset by
contributions made to the ESOP. Under the Corporation's thrift incentive plan,
employer contributions are made based on a percentage of employee contributions.
The amounts charged to operating expense for these plans were $10 million, $12
million and $10 million in the years ended December 31, 1995, 1994 and 1993,
respectively.
16. Stock Options and Awards
The Corporation's stock incentive plans include the 1991 Long-Term Stock
Incentive Plan (the 1991 Plan), the 1986 and 1982 Stock Option Plans (the 1986
and 1982 Plans) and the BayBanks 1978 and 1988 Stock Option Plans (the 1978 and
1988 Plans). The 1991 Plan provides for the award of stock options, restricted
stock and stock appreciation rights (SARs) to key employees. Awards may be made
under the 1991 Plan until December 31, 1996. No additional grants may be made
under the 1986 and 1982 Plans and the 1978 and 1982 Plans. Shares issued under
these plans may be authorized but unissued shares, treasury shares or shares
purchased in the open market.
Options are granted at prices not less than the fair market value of the common
stock on the date of grant. Options granted under the 1991 plan generally have
been exercisable in equal installments on the date of grant and the first
anniversary of the grant date. Under the 1986 Plan, options granted are
generally exercisable in equal installments on the date of grant and each of the
three anniversary dates thereafter. Options under the 1986 Plan are fully
vested. All options expire not later than 10 years after the date of grant. The
1986 Plan allowed for the granting of rights to receive Tax Offset Payments with
respect to Non-Qualified Stock Options, which are intended to compensate the
participant for the difference in tax treatment of Incentive Stock Options and
Non-Qualified Stock Options. At December 31, 1995, Tax Offset Payments with
respect to 78,334 options, granted in 1987, were outstanding. Compensation
expense for Tax Offset Payments for the year ended December 31, 1995 was $1
million. There were 22,400 SARs, at a grant price of $28.63, outstanding at
December 31, 1995. Compensation expense associated with these awards was $.4
million for the year ended December 31, 1995.
A total of 7,488,921 shares of common stock were reserved for issuance under the
above plans at December 31, 1995. Options outstanding at December 31, 1995 were
at prices ranging from $6.10 to $47.88 per share.
F-37
<PAGE>
Notes To Supplemental Financial Statements, Continued
The following is a summary of the changes in options outstanding:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Options outstanding,
January 1...................................... 4,744,473 4,803,706 5,721,656
Granted ($18.69 to
$47.88 per share).............................. 1,294,174 927,489 659,603
Exercised ($5.63 to
$30.50 per share).............................. (1,250,716) (804,623) (1,146,835)
Canceled........................................ (23,749) (182,099) (430,718)
----------- ---------- -----------
Options outstanding,
December 31.................................... 4,764,182 4,744,473 4,803,706
=========== ========== ===========
Options exercisable,
December 31.................................... 3,871,117 3,687,929 3,669,596
=========== ========== ===========
Shares available for
future grants.................................. 2,724,739 4,469,942 5,532,000
=========== ========== ===========
</TABLE>
Under terms of the Corporation's restricted stock awards, employees are
generally required to maintain employment with the Corporation for a period of
five years after the award in order to become fully vested in the shares
awarded. Under the BayBanks restricted stock plan, restriction periods vary from
one to ten years from the date of grant. Under terms of the Corporation's
agreement with BayBanks, no additional shares were issued under the BayBanks
plans. Performance-based restricted stock has also been awarded by the
Corporation, which vests if the market price of the Corporation's common stock
reaches certain stated levels within specified periods. During 1995, the common
stock price levels for vesting of 180,200 shares of performance restricted stock
granted in 1994 were reached, and the shares were released from forfeiture
restriction. Restricted stock is recorded at the fair market value of the common
stock on the date of award or, if a performance-based award, the value required
for vesting. At the date of award, unearned compensation of the same amount is
recorded as a reduction of retained earnings and is amortized as compensation
expense over the vesting period.
The following is a summary of the activity in restricted stock:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Share balance, January 1........................ 1,205,859 908,559 1,051,197
Awards......................................... 316,570 528,600 111,100
Forfeitures.................................... (17,988) (41,277) (112,541)
Released from forfeiture
restrictions.................................. (496,316) (190,023) (141,197)
----------- ----------- ----------
Share balance, December 31...................... 1,008,125 1,205,859 908,559
=========== =========== ==========
Shares available for future grants 0 865,040
=========== ===========
<CAPTION>
(in millions)
<S>
Unearned compensation at
December 31 (a reduction of <C> <C> <C>
retained earnings)............................. $ 13 $ 17 $ 7
Compensation expense............................ $ 13 $ 6 $ 2
</TABLE>
Upon approval of the stockholders of the Corporation and BayBanks, stock granted
under the BayBanks restricted stock plans became fully vested, and any
restriction periods or other restrictions on outstanding awards of restricted
stock lapsed. This resulted in an additional $4 million of compensation expense
to the Corporation in the second quarter of 1996.
In November 1995, SFAS No. 123, " Accounting for Stock-Based Compensation," was
issued, and is effective January 1, 1996. This new standard requires either the
recording of compensation expense for all stock awards and stock option grants,
or significantly increased disclosures for such awards and grants made after
December 31, 1994. The Corporation intends to disclose the information required
by the standard.
17. Acquisition, Divestiture and Restructuring Expense
During 1995, the Corporation recorded $28 million of charges mainly related to
exiting, reorganizing and downsizing certain business and corporate staff units.
These charges included expenses related to reorganizations underway in the
Corporation's European business, including the closing of the Luxembourg
operations, corporate banking and various other units, and the reorganization of
certain Asian operations. The charges included $16 million, comprised of
estimated costs of employee reduction of approximately 265, including executive,
managerial and staff positions, and $4 million related to equipment and certain
lease obligations. In addition, the charges included $8 million of curtailment
losses as defined by SFAS No. 106, ''Employers' Accounting for Postretirement
Benefits Other Than Pensions'' and SFAS No. 88, ''Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits.'' The curtailment losses resulted from the announced sale
of the mortgage banking business, which is expected to remove mortgage banking
employees from the Corporation's pension and postretirement plans. The majority
of the remaining reserve of $19 million at December 31, 1995 is expected to be
utilized in 1996.
F-38
<PAGE>
Notes To Supplemental Financial Statements, Continued
During 1994, in connection with its acquisitions of BankWorcester and Pioneer,
the Corporation recorded acquisition-related costs of $21 million. Significant
components of the costs included $10 million for estimated costs of employee
reduction of 414, and $11 million for estimated conversion costs. These
conversions were completed in 1994, and consisted of costs to convert loans,
deposits and other computer systems to a common Corporation system, as well as
costs of replacing customers' checkbooks, automatic teller machine cards and
other deposit documents. During 1994, the Corporation charged costs totaling $12
million to the BankWorcester and Pioneer reserves. Substantially all of the
remaining costs, principally comprised of the Corporation's liability for
involuntary termination benefits, were paid during 1995.
During 1993, the Corporation recorded acquisition-related costs and
reorganization charges of $85 million, primarily in connection with its mergers
with Society and Multibank. The costs also included the estimated costs of
downsizing and reconfiguring certain of the Corporation's business and corporate
units. Significant components of the acquisition-related costs included
professional fees; employee reduction costs, principally termination benefits
paid to employees; conversion costs, including costs to convert loans, deposits
and other computer systems of the acquired banks to a common Corporation system
and costs to dispose of systems hardware and software of the acquired banks; and
property related costs, including costs related to the closing of 24 branches
and the disposition of other principal properties, such as post-closing lease
payments and other monthly costs. Components related to the downsizing and
reconfiguration plan included employee reduction costs and estimated costs
related to the disposal of branches and other principal properties and exiting
operating leases. Total employee reduction related to both the mergers and the
downsizing and reconfiguration plan amounted to 950. During 1993, the
Corporation charged costs totaling $40 million to the reserve created by the
charges. Charges to the reserve during 1994 totaled $35 million, and the
remainder of the costs were paid during 1995.
18. Other Expense
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
FDIC insurance premiums......................... $ 34 $ 73 $ 84
Legal fees...................................... 30 31 33
Consulting and other professional fees.......... 36 40 41
Communications.................................. 90 82 79
Advertising..................................... 87 64 58
Forms and supplies.............................. 32 32 33
Travel and customer contact..................... 31 26 26
Software costs.................................. 27 23 22
Other staff costs............................... 26 19 17
Amortization of goodwill and other
intangibles.................................... 28 18 13
All other....................................... 148 124 137
----- ----- -----
$ 569 $ 532 $ 543
===== ===== =====
</TABLE>
19. Income Taxes
The components of the provision for income taxes
were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Current Tax Provision
Federal......................................... $ 297 $ 135 $ 47
Foreign
Based on income.............................. 91 48 27
Withheld on interest and dividends........... 22 15 8
State and local................................. 80 145 58
------- ----- -----
490 343 140
------- ----- -----
Deferred Tax Provision (Benefit)
Federal......................................... (1) 121 108
State and local................................. 40 (42) 14
------ ------ -----
39 79 122
------ ------ -----
Income tax provision before extraordinary item and
cumulative effect of changes in accounting
principles................................... 529 422 262
</TABLE>
F-39
<PAGE>
Notes To Supplemental Financial Statements, Continued
Income Taxes Applicable To Extraordinary
Item And Changes In Accounting Principles
<TABLE>
<S> <C> <C> <C>
Loss from early extinguishment of debt.......... (4)
Change in accounting for income taxes........... (77)
Change in accounting for PMSR................... (32)
----- ----- -----
$ 529 $ 418 $ 153
===== ===== =====
</TABLE>
Excluded from the above table are tax effects related to certain items which
were recorded directly in stockholders' equity, including foreign currency
translation, market value adjustments related to securities available for sale,
stock options and restricted stock. Net tax effects recorded directly in
stockholders' equity amounted to a $74 million charge in 1995, a $62 million
benefit in 1994 and a $26 million charge in 1993. The income tax provision
included tax provisions related to securities gains of $3 million in 1995, $6
million in 1994 and $13 million in 1993.
Effective January 1, 1993, the Corporation adopted, prospectively, SFAS No. 109,
which principally affects accounting for deferred income taxes. The cumulative
effect to January 1, 1993 of adopting the standard was an increase to net income
of $77 million, or $.52 per common share on a primary basis and $.51 per common
share on a fully diluted basis.
The following table reconciles the expected federal tax provision before
extraordinary item and cumulative effect of changes in accounting principles,
based on the federal statutory tax rate of 35% in 1995, 1994 and 1993, to the
actual consolidated tax provision before extraordinary item and cumulative
effect of changes in accounting principles:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
(in millions)
Expected tax provision applicable to
income before extraordinary item
and cumulative effect of changes in
accounting principles.......................... $ 423 $ 340 $ 211
Effect of
State and local income taxes, net of
federal tax benefit........................... 81 67 47
Tax-exempt income.............................. (8) (5) (6)
Non-creditable foreign taxes................... 11 9 5
Non-deductible goodwill from sale
of subsidiaries............................... 11
Other, net..................................... 11 11 5
------ ------ ------
Actual tax provision before
item and cumulative effect of changes in
accounting principles......................... $ 529 $ 422 $ 262
====== ====== ======
</TABLE>
F-40
<PAGE>
Notes To Supplemental Financial Statements, Continued
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
<S> <C> <C>
(in millions)
Deferred Tax Assets
Reserve for credit losses....................... $ 358 $ 370
Foreign operations.............................. 63 30
Interest on nonaccrual loans.................... 45 83
Mortgage servicing rights....................... 39 33
Unrealized loss on securities available
for sale....................................... 32
Other........................................... 92 106
------ ------
Deferred tax assets.......................... 597 654
Deferred Tax Liabilities
Leasing operations.............................. (493) (484)
Pension obligations............................. (71) (77)
Unrealized gain on securities available
for sale....................................... (55)
Other........................................... (57) (36)
------ ------
Deferred tax liabilities..................... (676) (597)
------ ------
Net deferred tax asset (liability).............. $ (79) $ 57
====== ======
</TABLE>
During 1994, the Corporation eliminated its deferred tax valuation reserve,
which was $56 million as of January 1, 1994, as a result of writing off certain
fully reserved state deferred tax assets, executing certain tax planning
strategies and partially settling an Internal Revenue Service (IRS) examination.
The execution of the tax planning strategies and the partial settlement of the
IRS examination resulted in the realization of deferred tax assets, some of
which had been partially reserved. The deferred tax provision was reduced by the
release of these reserves; however, this reduction was offset by an increase in
the current tax provision from these events. Accordingly, there was no net
effect on the Corporation's earnings.
During 1995, The Commonwealth of Massachusetts passed a law which reduces the
state income tax rate for financial institutions from 12.5% to 10.5% to be
phased in over five years, and permits apportionment of a bank's taxable income.
Additionally, in 1995, the Corporation reached a favorable settlement of an
outstanding Massachusetts tax matter relating to income earned on certain
securities. These items did not have a significant effect on the Corporation's
1995 effective tax rate, since the reduction in the current tax provision from
the tax law changes and the settlement were offset by the required reduction in
FNBB's and BayBank, N.A.s net deferred tax assets resulting from the tax law
changes.
It is expected that the Corporation's deferred tax assets at December 31, 1995
will be realized from the reversal of existing deferred tax liabilities and from
the recognition of future taxable income, without relying on tax planning
strategies that the Corporation might not ordinarily follow.
Domestic pre-tax income was $978 million in 1995, $782 million in 1994 and $394
million in 1993. Foreign pre-tax income, defined as income generated from
operations that are located outside the United States, was $229 million in 1995,
$178 million in 1994 and $125 million in 1993.
20. Off-Balance-Sheet Financial Instruments
Off-balance-sheet financial instruments represent various degrees and types of
risk to the Corporation, including credit, interest rate, foreign exchange rate
and liquidity risk.
Interest Rate Derivatives and Foreign Exchange Contracts
In the normal course of its business, the Corporation enters into a variety of
interest rate derivatives and foreign exchange contracts as part of its trading
activities, which primarily focus on providing these products to customers, and
in its interest rate and currency risk management strategy. These products
involve, to varying degrees, credit risk and market risk. Credit risk is the
possibility that a loss may occur if a counterparty to a transaction fails to
perform according to the terms of the contract. Market risk is the effect of a
change in interest rates or currency rates on the value of a financial
instrument. The notional amount of interest rate derivatives and foreign
exchange contracts is the amount upon which interest and other payments under
the contract are based. For interest rate derivatives, the notional amount is
typically not exchanged. Therefore, the notional amounts should not be taken as
the measure of credit or market risk.
F-41
<PAGE>
Notes To Supplemental Financial Statements, Continued
The Corporation controls credit risk arising from interest rate derivatives and
foreign exchange contracts using credit procedures similar to those used for
traditional lending activities. The Corporation believes that fair value, which
approximates the cost to replace the contract at the current market rates should
the counterparty default prior to settlement date, is generally representative
of credit exposure related to interest rate derivatives and foreign exchange
contracts at a point in time. Counterparty credit risk is also reduced through
the use of master netting agreements. Such agreements provide for the offsetting
of amounts receivable and payable under interest rate derivatives or foreign
exchange contracts with the same counterparty. The market risk associated with
interest rate derivatives and foreign exchange contracts is managed by
establishing and monitoring limits as to the types and degree of risk that may
be undertaken.
Interest rate derivatives utilized by the Corporation include futures and
forwards, interest rate swaps and interest rate options. Futures and forward
contracts generally are contracts for the delayed delivery of securities or
money market instruments in which the buyer agrees to purchase, and the seller
agrees to deliver, a specific instrument at a predetermined date for a specific
price. Risks on both types of agreements stem from market movements in the
underlying securities' values and interest rates and from the ability of the
counterparties to meet the terms of the contracts. The Corporation's
counterparty risk for futures is limited, as the majority of these transactions
are executed on organized exchanges that assume the obligations of
counterparties, and generally require margin collateral and daily settlement of
variation margins.
Interest rate swaps generally involve the exchange of fixed and variable rate
interest payments between two parties based on a common notional principal
amount and maturity date. The primary risks associated with interest rate swaps
are the exposure to movements in interest rates and the ability of the
counterparties to meet the terms of the contracts.
Interest rate options are contracts that allow the holder of the option to
receive cash, purchase, sell or enter into a financial instrument at a specified
price within a specified period of time. Options include interest rate caps and
floors, which are types of interest rate protection instruments involving the
potential payment between seller and buyer of an interest differential. In
addition, other types of option products provide the holder with the right to
enter into interest rate swap, cap and floor agreements with the ''writer.'' The
primary risks associated with all types of options are the exposure to current
and the possible future movements in interest rates and the ability of the
counterparties to meet the terms of the contracts.
Foreign exchange contracts include such commitments as foreign currency spot,
forward, futures, option and swap contracts. The primary risks in these
transactions arise from exposure to changes in foreign currency exchange rates
and the ability of the counterparties to meet the terms of the contract.
F-42
<PAGE>
Notes To Supplemental Financial Statements , Continued
The following is a summary of the Corporation's notional amounts and fair values
of interest rate derivatives and foreign exchange contracts included in its
trading and asset and liability management (ALM) portfolios.
<TABLE>
<CAPTION>
Trading Portfolio(1)(6) ALM Portfolio(1)
------------------------------ ----------------------------------
Notional Notional
December 31, 1995 Amount Fair Value (2)(3)(5) Amount Fair Value (2)(3) Unrecognized(4)
(in millions) Asset Liability Asset Liability Gain (Loss)
Interest rate contracts
<S> <C> <C> <C> <C> <C> <C> <C>
Futures and forwards ............ $30,821 $ 12,558 $ 10 $ (89)
Interest rate swaps ............. 9,169 $ 91 $ 80 5,852 $ 93 8 102
Interest rate options
Purchased ...................... 3,411 9 3,968 119 2
Written or sold ................ 3,986 9 360 34
------- ----- ----- -------- ------ ---- -----
Total interest rate contracts .... $47,387 $ 100 $ 89 $ 22,738 $ 212 $ 52 $ 15
======= ===== ===== ======== ====== ==== =====
Foreign exchange contracts
Spot and forward contracts ...... $13,254 $ 172 $ 167 $ 1,258 $ 3 $ 5 $ (2)
Options purchased ............... 1,044 13
Options written or sold ......... 1,130 16
------- ----- ----- -------- ------ ---- -----
Total foreign exchange contracts . $15,428 $ 185 $ 183 $ 1,258 $ 3 $ 5 $ (2)
======= ===== ===== ======== ====== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Trading Portfolio(1)(6) ALM Portfolio(1)
------------------------------ ----------------------------------
Notional Notional
December 31, 1995 Amount Fair Value (2)(3)(5) Amount Fair Value (2)(3) Unrecognized(4)
(in millions) Asset Liability Asset Liability Gain (Loss)
Interest rate contracts
<S> <C> <C> <C> <C> <C> <C> <C>
Futures and forwards ............ $17,272 $ 16,578 1 $ 36
Interest rate swaps ............. 12,604 $ 75 $ 40 3,735 $ 19 $ 225 (208)
Interest rate options
Purchased ...................... 4,251 55 7,710 39 49
Written or sold ................ 5,639 36 6,135 19 (17)
------- ----- ----- -------- ------ ---- -----
Total interest rate contracts .... $39,766 $ 130 $ 76 $ 34,158 $ 59 $ 244 $(140)
======= ===== ===== ======== ====== ==== =====
Foreign exchange contracts
Spot and forward contracts ...... $17,241 $ 172 $ 186 $ 604 $ 2 $ 5 $ (4)
Options purchased ............... 811 8
Options written or sold ......... 753 9
------- ----- ----- -------- ------ ---- -----
Total foreign exchange contracts . $18,805 $ 180 $ 195 $ 604 $ 2 $ 5 $ (4)
======= ===== ===== ======== ====== ==== =====
</TABLE>
(1) Contracts under master netting agreements are shown on a net basis for both
the trading and ALM portfolios.
(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. The majority
of derivatives that are part of the ALM portfolio are accounted for on the
accrual basis, and not carried at fair value. In certain cases, contracts,
such as futures, are subject to daily cash settlements; as such, the fair
value of these instruments is zero.
(3) The credit exposure of interest rate derivatives and foreign exchange
contracts is represented by the fair value of contracts reported in the
"Asset" column.
F-43
<PAGE>
Notes To Supplemental Financial Statements , Continued
(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 over
the period being managed. At December 31, 1995, there were $32 million of
unrecognized gains and $2 million of unrecognized losses related to
terminated contracts that are being amortized to net interest revenue over
a weighted average period of 32 months and 23 months, respectively. At
December 31, 1994, unrecognized gains of $35 million related to terminated
contracts were being amortized to net interest revenue over a weighted
average period of 14 months.
(5) The average asset and liability fair value amounts for interest rate
contracts included in the trading portfolio for the years ended December
31, 1995 and 1994 were $99 million and $67 million, respectively, and $148
million and $83 million, respectively. The average asset and liability fair
value amounts for foreign exchange contracts included in the trading
portfolio were $313 million and $313 million, respectively, for the year
ended December 31, 1995, and $278 million and $283 million, respectively,
for the year ended December 31, 1994.
(6) Net trading gains or losses from interest rate derivatives and foreign
exchange contracts are recorded in trading account profits and commissions
and other income, respectively. Net trading gains from interest rate
derivatives for the years ended December 31, 1995, 1994 and 1993 were $7
million, $7 million and $5 million, respectively. Net trading gains from
foreign exchange activities, which include foreign exchange spot, forward
and options contracts, for the years ended December 31, 1995, 1994 and 1993
were $60 million, $44 million and $47 million, respectively.
Credit-Related Financial Instruments
A commitment to extend credit is a legally binding agreement to lend to a
customer in the future that generally expires within a specified period of time.
The extension of a commitment, which is subject to the Corporation's credit
review and approval policies, gives rise to credit exposure when certain
borrowing conditions are met and it is drawn upon. Until such time, it
represents only potential exposure. In connection with entering into a
commitment, the Corporation may obtain collateral if deemed necessary, based
upon the Corporation's credit evaluation. Such collateral varies but may include
securities, receivables, inventory, fixed assets, personal property and real
estate. The obligation to lend generally may be voided if the customer's
financial condition deteriorates or if the customer fails to meet certain
covenants. Commitments to extend credit do not reflect the actual demand on
liquidity that the Corporation will be subjected to in the future, since
historical experience with loan commitments indicates that a large portion
generally expire without being drawn upon.
Standby letters of credit and foreign office guarantees are commitments that are
primarily issued to third parties to guarantee obligations of the Corporation's
customers. Standby letters of credit may be issued as credit enhancements for
corporate customers' commercial paper, bond issuances by municipalities or other
debt obligations, and to guarantee other financial performance of a customer.
The Corporation has current exposure only to the extent that a customer may
default on the underlying transaction. The risks involved in the issuance of
standby letters of credit and foreign office guarantees are primarily credit
risks. Again, the Corporation's credit review and approval policies and
practices are adhered to when evaluating issuances of standbys or guarantees for
customers. Similar to commitments to extend credit, the Corporation may obtain
various types of collateral, if deemed necessary, based upon the Corporation's
credit evaluation.
The following table summarizes the Corporation's credit-related financial
instruments:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994
(in millions)
<S> <C> <C>
Fee-based or otherwise legally binding
commitments to extend credit(1)................ $23,503 $22,992
Standby letters of credit, foreign
office guarantees and similar
instruments(2)................................. $ 2,315 $ 2,293
Commercial letters of credit.................... $ 1,399 $ 1,188
</TABLE>
(1) Net of participations conveyed to others of $233 million in 1995 and $345
million in 1994.
(2) Net of participations conveyed to others of $720 million in 1995 and $374
million in 1994.
F-44
<PAGE>
Notes To Supplemental Financial Statements , Continued
21. Concentrations of Credit Risk
Credit risk associated with concentrations can arise when changes in economic,
industry or geographic factors affect groups of counterparties with similar
economic characteristics, whose aggregate credit exposure is significant to the
Corporation's total credit exposure. Consistent policies exist regarding the
requirement for collateral security on asset based and real estate credits.
Approximately 50% of the Corporation's business activity in 1995 and 1994 was
with customers located within New England. Information with respect to the
Corporation's overseas business activities and its geographic concentrations is
included in Note 24. The Corporation's commitments to lend and loans
collateralized by domestic commercial real estate properties were approximately
$5 billion and $6 billion in 1995 and 1994, respectively, of which 80%, in both
years, was related to properties in New England. Also, combined domestic credit
exposure from consumer lending and credits secured by 1-4 family residential
properties totaled $16 billion in both 1995 and 1994. There were no other
significant concentrations of credit risk.
22. Lease Commitments
Rental expense for leases of real estate and equipment is summarized below:
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Rental expense............................ $ 125 $ 118 $ 122
Less sublease rental income............... 11 13 14
----- ----- -----
Net rental expense........................ $ 114 $ 105 $ 108
===== ===== =====
</TABLE>
The Corporation has obligations under noncancelable operating leases for real
estate and equipment which include renewal options and escalation clauses. The
Corporation's minimum future rentals under its leases, exclusive of executory
costs and net of sublease rental income, for the years 1996 through 2000 are $97
million, $82 million, $75 million, $68 million and $62 million, respectively,
and $468 million for 2001 and later. Capital leases, the minimum rentals of
which are included in the preceding amounts, are not significant.
23. Contingencies
The Corporation and its subsidiaries are defendants in a number of legal
proceedings arising in the normal course of business, including claims that
borrowers or others have been damaged as a result of the lending practices of
the Corporation's subsidiaries. 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.
24. Segment Information
The Corporation operates within the financial services industry. The geographic
segment information presented in the following table is provided to meet the
requirements of SFAS No. 14, ''Financial Reporting for Segments of a Business
Enterprise,'' and differs from the information used by the Corporation to manage
its businesses. Certain revenues and expenses are allocated differently for this
segment information than for the Corporation's management reporting. For
example, revenues and expenses herein are allocated based on the domicile of the
customer or service provider rather than to the business that earned or incurred
those revenues or expenses, and certain corporate overhead expenses, which are
allocated to business units, have not been allocated to the international
segment for this presentation. This geographic segment information does not
consider other factors, such as method of funding (i.e., local vs. non-local
currency) or location of any cash collateral or guarantees.
F-45
<PAGE>
Notes To Supplemental Financial Statements, Continued
As a result of the inter-relationships that exist within the Corporation's
worldwide network, allocations of certain income and expense items are
necessarily based on assumptions and subjective criteria. Estimates of interest
costs charged to users of funds, stockholders' equity, and administrative and
other expenses incurred by one area on behalf of another are allocated utilizing
internal methodologies. The information presented is based on reporting
assumptions in place at December 31, 1995.
<TABLE>
<CAPTION>
Period
Income End
Years Ended December 31 Total Total Before Net Total
(in millions) Revenue(1) Expense(1) Taxes(2) Income Assets
1995
International
<S> <C> <C> <C> <C> <C>
Latin America............................ $ 606 $ 433 $ 173 $ 98 $10,864
Europe................................... 91 62 29 17 1,891
Asia/Pacific............................. 65 36 29 16 1,095
All other regions........................ 2 7 (5) (3) 45
---------- ---------- --------- --------- -------
Total International................... 764 538 226 128 13,895
Domestic...................................... 2,794 1,813 981 550 45,528
---------- ---------- -------- -------- -------
Total................................. $ 3,558 $ 2,351 $ 1,207 $ 678 $59,423
========== ========== ======== ======== =======
1994
International
Latin America......................... $ 480 $ 331 $ 149 $ 83 $ 7,822
Europe................................ 72 40 32 18 1,776
Asia/Pacific.......................... 55 39 16 9 973
All other regions..................... 14 11 3 2 337
---------- ---------- -------- -------- -------
Total International................. 621 421 200 112 10,908
Domestic...................................... 2,451 1,680 771 430 44,503
---------- ---------- -------- -------- -------
Total............................... $ 3,072 $ 2,101 $ 971 $ 542(3) $55,411
========== ========== ======== ======== =======
1993
International
Latin America............................ $ 364 $ 265 $ 99 $ 56 $ 6,630
Europe................................... 60 47 13 7 1,546
Asia/Pacific............................. 49 51 (2) (1) 976
All other regions........................ 19 23 (4) (3) 234
---------- ---------- -------- --------- -------
Total International................. 492 386 106 59 9,386
Domestic...................................... 2,222 1,723 499 308 41,325
---------- ---------- -------- -------- -------
Total............................... $ 2,714 $ 2,109 $ 605 $ 367(4) $ 50,711
========== ========== ======== ======== =======
</TABLE>
(1) Total revenue includes net interest revenue and noninterest income. Total
expense includes the provision for credit losses and noninterest expense.
(2) Excludes extraordinary item and cumulative effect of changes in accounting
principles.
(3) Includes a $7 million extraordinary loss, net of tax, from early
extinguishment of debt that, for purposes of this analysis, has been
allocated to domestic.
(4) Includes a $24 million cumulative effect of a change in accounting, net of
tax, for PMSR and income taxes that, for purposes of this analysis, have
both been allocated to domestic.
F-46
<PAGE>
Notes To Supplemental Financial Statements, Continued
25. Parent Company Supplemental Condensed Financial Statements
The following is a supplemental condensed balance sheet of the Corporation
(Parent Company only):
<TABLE>
<CAPTION>
December 31 1995 1994
(in millions)
<S> <C> <C>
Assets
Cash and short-term investments in bank
subsidiary................................... $ 119 $ 205
Advances to subsidiaries
Bank subsidiaries............................ 19 36
Nonbank subsidiaries......................... 437 217
Subordinated notes receivable from bank
subsidiary................................... 580 580
Investments in subsidiaries
Bank subsidiaries............................ 4,635 4,250
Nonbank subsidiaries......................... 161 137
Other assets................................... 47 43
------ ------
Total Assets.............................. $5,998 $5,468
====== ======
Liabilities and Stockholders' Equity
Notes payable.................................. $1,269 $1,514
Other liabilities.............................. 27 23
------ ------
Total liabilities............................ 1,296 1,537
------ ------
Total stockholders' equity................... 4,702 3,931
------ ------
Total Liabilities and
Stockholders' Equity.................... $5,998 $5,468
====== ======
<CAPTION>
The following is a supplemental condensed statement of income of the
Corporation (Parent Company only):
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
(in millions)
Operating Income
Dividends from subsidiaries
Bank subsidiaries(1)......................... $ 391 $ 125 $ 24
Nonbank subsidiaries......................... 15 30
Interest from subsidiaries
Bank subsidiaries............................ 59 46 37
Nonbank subsidiaries......................... 25 9 3
Noninterest income............................. 9
------ ------ ------
Total operating income..................... 499 210 64
------ ------ ------
Operating Expense
Interest expense............................... 92 79 51
Other expense, net............................. 6 5 4
------ ------ ------
Total operating expense.................... 98 84 55
------ ------ ------
Income before income taxes,
equity in undistributed net income of
subsidiaries and cumulative effect of
change in accounting principle............... 401 126 9
Provision for (Benefit from) income
taxes........................................ 2 (11) (6)
------ ------ ------
Income before equity in
undistributed net income of
subsidiaries and cumulative effect of
change in accounting principle............... 399 137 15
Equity in undistributed net income of
subsidiaries................................. 279 405 354
------ ------ ------
Income before cumulative effect of
change in accounting principle............... 678 542 369
Cumulative effect of change in
accounting for income taxes.................. (2)
------ ------ ------
Net Income..................................... $ 678 $ 542 $ 367
====== ====== ======
</TABLE>
(1) Dividends in 1995 included $205 million from a subsidiary bank holding
company in connection with the sale of Casco.
F-47
<PAGE>
Notes To Supplemental Financial Statements, Continued
The following is a supplemental condensed statement of cash flows of the
Corporation (Parent Company only):
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
(in millions)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.................................... $ 678 $ 542 $ 367
Reconciliation of net income to net
cash provided from (used for)
operating activities
Cumulative effect of change in
accounting for income taxes................ 2
Equity in undistributed net income
of subsidiaries............................ (279) (405) (354)
Gain on sale of subsidiary.................. (8)
Other, net.................................. 1 (13) (9)
----- ----- -----
Net cash provided from (used for)
operating activities..................... 392 124 6
----- ----- -----
Cash Flows from Investing Activities
Net cash provided from short-term
investments in banking subsidiary............ 86 1 81
Net cash provided from (used for)
advances to subsidiaries..................... (203) 37 (149)
Investments in subsidiaries................... (12) (39) (299)
Proceeds on sale of subsidiary................ 92
Purchase of subordinated note
receivable from bank subsidiary.............. (180)
----- ----- -----
Net cash used for investing
activities............................... (37) (181) (367)
----- ----- -----
Cash Flows from Financing Activities
Repayments/repurchases of notes payable....... (150) (189) (88)
Net proceeds from issuance of notes
payable...................................... 400 449
Net proceeds from issuance of common
stock........................................ 70 40 24
Net proceeds from issuance of preferred
stock........................................ 68
Purchases of treasury stock................... (53) (29) (1)
Dividends paid................................ (221) (166) (90)
----- ----- -----
Net cash provided from (used for)
financing activities..................... (354) 56 362
----- ----- -----
Net change in cash and due from banks......... 1 (1) 1
Cash and due from banks at January 1.......... 1
----- ----- -----
Cash and due from banks at December 31........ $ 1 $ $ 1
===== ===== =====
Interest payments made........................ $ 90 $ 73 $ 46
Income tax payments made (refunds
received).................................... $ 5 $ (8) $ (2)
</TABLE>
26. Fair Values of Financial Instruments
SFAS No. 107 requires that the Corporation disclose estimated fair values for
certain of its financial instruments. Financial instruments include such items
as loans, deposits, securities, interest rate and foreign exchange rate
contracts, swaps and other instruments as defined by the standard.
Fair value estimates are generally subjective in nature and are dependent upon a
number of significant assumptions associated with each instrument or group of
similar instruments, including estimates of discount rates, risks associated
with specific financial instruments, estimates of future cash flows and relevant
available market information. Fair value information is intended to represent an
estimate of an amount at which a financial instrument could be exchanged in a
current transaction between a willing buyer and seller engaging in an exchange
transaction. However, since there are no established trading markets for a
significant portion of the Corporation's financial instruments, the Corporation
may not be able to settle its financial instruments immediately; as such, the
fair values are not necessarily indicative of the amounts that could be realized
through immediate settlement. In addition, the majority of the Corporation's
financial instruments, such as loans and deposits, are held to maturity and are
realized or paid according to the contractual agreement with the customer.
F-48
<PAGE>
Notes To Supplemental Financial Statements, Continued
Where available, quoted market prices are used to estimate fair values. However,
due to the nature of the Corporation's financial instruments, in many instances
quoted market prices are not available. Accordingly, the Corporation has
estimated fair values based on other valuation techniques, such as discounting
estimated future cash flows using a rate commensurate with the risks involved or
other acceptable methods. Fair values are estimated without regard to any
premium or discount that may result from concentrations of ownership of a
financial instrument, possible income tax ramifications or estimated transaction
costs. Fair values are also estimated at a specific point in time and are based
on interest rates and other assumptions at that date. As events change the
assumptions underlying these estimates, the fair values of financial instruments
will change.
Disclosure of fair values is not required for certain items such as lease
financing, investments accounted for under the equity method of accounting,
obligations for pensions and other postretirement benefits, premises and
equipment, OREO, prepaid expenses, PMSR, core deposit intangibles and other
customer relationships, other intangible assets and income tax assets and
liabilities. Accordingly, the aggregate fair value amounts presented do not
purport to represent, and should not be considered representative of, the
underlying ''market'' or franchise value of the Corporation.
Because the standard permits many alternative calculation techniques and because
numerous assumptions have been used to estimate the Corporation's fair values,
reasonable comparisons of the Corporation's fair value information with that of
other financial institutions cannot necessarily be made.
The methods and assumptions used to estimate the fair values of each class of
financial instrument are as follows:
Cash and Due from Banks, Interest Bearing Deposits in Other Banks, Federal Funds
Sold and Securities Purchased Under Agreements to Resell, Funds Borrowed, Due
from Customers on Acceptances and Acceptances Outstanding These items are
generally short-term in nature and, accordingly, the carrying amounts reported
in the balance sheet are reasonable approximations of their fair values.
Trading Securities Trading securities are carried at fair value in the balance
sheet. Such values are generally based on quoted market prices.
Mortgages Held for Sale Fair values are based on the estimated value at which
the loans could be sold in the secondary market. The fair value of commitments
to issue mortgage loans, net of forward contracts to sell mortgage loans, is
included as part of the disclosure of off-balance-sheet financial instruments.
Securities Available for Sale and Securities Held to Maturity Fair values are
principally based on quoted market prices. For certain debt and equity
investments made in connection with the Corporation's equity and mezzanine
financing business that do not trade on established exchanges and for which
markets do not exist, estimates of fair value are based upon management's review
of the investee's financial results, condition and prospects.
Loans The fair value of accruing consumer mortgage loans is estimated using
market quotes or by discounting contractual cash flows, adjusted for credit risk
and prepayment estimates. Discount rates are obtained from secondary market
sources. The fair value of accruing home equity loans is estimated using
comparable market information adjusted for credit and other relevant
characteristics. The fair value of all other accruing loans is estimated by
discounting cash flows, using interest rates that consider the credit and
interest rate risks inherent in the loans, and current economic and lending
conditions. The fair value of nonaccrual loans is primarily estimated by
discounting management's estimate of future cash flows using a rate commensurate
with the risks involved.
Accrued Interest Receivable and Other Assets The carrying amount of accrued
interest receivable approximates its fair value. Financial instruments
classified as other assets subject to the disclosure requirements of the
standard consist principally of accounts receivable, EMSR, investments in
limited partnerships and, in 1994, ADP. The carrying amounts of short-term
receivables are considered to approximate their fair value. For longer-term
receivables, fair value is estimated by discounting expected future cash flows
using a discount rate commensurate with the risks involved. The fair value of
EMSR is based on the present value of expected future cash flows and the
estimated servicing life. Estimates of fair value of investments in limited
partnerships are based upon management's review of the investee's financial
results, condition and prospects. The carrying amount of real estate assets held
for accelerated disposition approximates fair value, as such assets are carried
at the lower of their value upon transfer to the portfolio or their current
estimated disposition value.
Deposits The fair values of deposits subject to immediate withdrawal, such as
interest and noninterest bearing checking, passbook savings and money market
deposit accounts, are equal to their carrying amounts. The carrying amounts for
variable rate certificates of deposit and other time deposits approximate their
fair values at the reporting date. Fair values for fixed rate certificates of
deposit and other time deposits are estimated by discounting future cash flows
using interest rates currently offered on time deposits with similar remaining
maturities.
Accrued Expenses and Other Liabilities Financial instruments classified as
accrued expenses and other liabilities subject to the disclosure requirements of
the standard consist principally of short-term liabilities; the carrying amounts
approximate their fair values.
Notes Payable The fair value of long-term borrowings is estimated using
secondary market prices and does not include the fair values of related interest
rate swap agreements, which are presented separately.
F-49
<PAGE>
Notes To Supplemental Financial Statements, Continued
Foreign Exchange Rate and Interest Rate Financial Instruments The fair values
of foreign exchange rate and interest rate contracts, including contracts used
to manage interest rate, currency and market risks, are estimated based on
market information adjusted for credit and other relevant characteristics using
pricing models, including option models.
Other Unrecognized Financial Instruments The fair value of commitments to
extend credit is estimated using the fees charged to enter into similar legally
binding agreements, taking into account the remaining terms of the agreements
and customers' credit ratings. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair values of foreign office guarantees and letters of
credit are based on fees charged for similar agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the counterparties at
the reporting date.
F-50
<PAGE>
Notes To Supplemental Financial Statements, Continued
The following table sets forth the estimated fair values of the Corporation's
financial instruments:
<TABLE>
<CAPTION>
December 31 1995 1994
Estimated Estimated
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
Assets
<S> <C> <C> <C> <C>
Cash and due from banks.................. $ 3,561 $ 3,561 $ 3,146 $ 3,146
Interest bearing deposits in other
banks................................... 1,356 1,356 1,559 1,559
Federal funds sold and securities
purchased under agreements to resell.... 1,548 1,548 1,323 1,323
Trading securities....................... 1,159 1,159 581 581
Mortgages held for sale.................. 910 919 188 189
Securities(1)
Available for sale..................... 7,582 7,658 3,262 3,332
Held to maturity....................... 660 667 4,238 4,086
Loans.................................... 37,176 36,013
Reserve for credit losses(2)............. (890) (827)
------- -------
36,286 37,415 35,186 35,861
Due from customers on acceptances........ 360 360 316 316
Accrued interest receivable.............. 554 554 437 437
Financial instruments included in other
assets.................................. 611 700 838 866
Liabilities
Deposits................................. 41,064 41,117 40,249 40,207
Funds borrowed........................... 9,503 9,503 7,211 7,211
Acceptances outstanding.................. 360 360 318 318
Financial instruments included in
accrued expenses and other liabilities.. 537 537 645 645
Notes payable............................ 2,189 2,255 2,219 2,107
Interest Rate Contracts(3)
Trading
Asset.................................. 100 130
Liability.............................. (89) (76)
Asset and liability management
Asset.................................. 212 59
Liability.............................. (52) (244)
Foreign Exchange Contracts(3)
Trading
Asset.................................. 185 180
Liability.............................. (183) (195)
Asset and liability management
Asset.................................. 3 2
Liability.............................. (5) (5)
Other Unrecognized Financial Instruments
Fee based or otherwise legally binding
commitments to extend credit............ (59) (37)
Standby and commercial letters of
credit, foreign office guarantees and
similar instruments..................... (32) (50)
</TABLE>
(1) Securities include investments made in connection with the Corporation's
equity and mezzanine financing business that do not trade on established
exchanges, and for which no markets exist. At December 31, 1995 and 1994,
these investments were classified as securities available for sale, and
their estimated fair values exceeded the related carrying amounts by $76
million and $70 million, respectively.
(2) The reserve for credit losses is established for future charge-offs arising
from all extensions of credit. The Corporation has not made a specific
allocation of the reserve to other instruments such as leases, commitments
to extend credit, standby letters of credit and interest rate contracts.
Accordingly, a separate determination of the reserve allocable to loans has
not been made.
F-51
<PAGE>
Notes To Supplemental Financial Statements, Continued
(3) Additional information with respect to interest rate and foreign exchange
contracts can be found in Note 20 to the Supplemental Financial Statements.
The Corporation's accounting policy related to such instruments is discussed
in Note 1 to the Supplemental Financial Statements.
F-52
<PAGE>
SUPPLEMENTAL STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The supplemental information set forth below is provided in accordance with the
Securities Exchange Act of 1934, Industry Guide 3.
Bank of Boston Corporation
Supplemental Average Balances and Interest Rates, Taxable Equivalent Basis
(dollars in millions) Year Ended December 31, 1995
<TABLE>
<CAPTION>
Average Interest(1) Average
Balance Rate
<S> <C> <C> <C>
Assets
Interest bearing deposits in other banks
U.S. $ 253 $ 15 5.98%
International.................................................... 1,087 206 18.91
------- ------
Total........................................................ 1,340 221 16.48
------- ------ -----
Federal funds sold and resale agreements
U.S. 537 32 5.89
International.................................................... 649 271 41.77
------- ------
Total........................................................ 1,186 303 25.51
------- ------ -----
Trading securities
U.S. 245 15 5.85
International.................................................... 602 171 28.45
------- ------
Total........................................................ 847 186 21.91
------- ------ -----
Loans held for sale
U.S.(2).......................................................... 448 31 6.98
------- ------ -----
Securities
U.S.
Available for sale(3)........................................ 3,002 211 7.07
Held to maturity............................................. 3,836 230 5.99
International
Available for sale(3)........................................ 422 64 13.36
Held to maturity............................................. 203 16 7.66
------- ------
Total........................................................ 7,463 521 6.98
------- ------ -----
Loans and lease financing
U.S. 30,367 2,701 8.90
International.................................................... 7,916 1,178 14.88
------- ------
Total(4)..................................................... 38,283 3,879 10.13
------- ------ -----
Total earning assets.............................................. 49,567 5,141 10.37
------ -----
Nonearning assets................................................. 6,177
-------
Total assets(5).............................................. $55,744
=======
Liabilities and Stockholders' Equity
Deposits
U.S.
Savings deposits.............................................. $14,359 $ 382 2.66%
Time deposits................................................. 9,288 520 5.60
International
Banks in foreign countries.................................... 2,257 145 6.42
Other foreign savings and time................................ 5,804 744 12.82
------- ------
Total......................................................... 31,708 1,791 5.65
------- ------ -----
Federal funds purchased and repurchase agreements
U.S. 4,322 237 5.48
International..................................................... 189 45 23.60
------- ------
Total......................................................... 4,511 282 6.24
------- ------ -----
Other funds borrowed
U.S. 3,730 236 6.34
International..................................................... 891 403 45.16
------- ------
Total......................................................... 4,621 639 13.83
------- ------ -----
Notes payable
U.S. 1,932 135 7.02
International..................................................... 210 23 10.87
------- ------
Total......................................................... 2,142 158 7.40
------ -----
Total interest bearing liabilities................................. 42,982 2,870 6.68
------ -----
Demand deposits-U.S................................................ 6,242
Demand deposits-International...................................... 456
</TABLE>
F-53
<PAGE>
<TABLE>
<S> <C> <C> <C>
Other noninterest bearing liabilities.............................. 1,760
Stockholders' equity............................................... 4,304
-------
Total liabilities and stockholders' equity(5)................. $55,744
=======
Net Interest Revenue as a Percentage of Average Interest
Earning Assets
U.S. $38,688 $1,825 4.72%
International..................................................... 10,879 446 4.10%
------- ------
Total......................................................... $49,567 $2,271 4.58%
======= ======
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Average rates for securities available for sale are based on the securities'
amortized cost.
(4) Loans and lease financing includes nonaccrual and renegotiated balances.
Interest on loans and lease financing includes net fees of $62 million.
(5) As of December 31, 1995, average international assets and liabilities as a
percentage of total average consolidated assets and liabilities,
respectively, amounted to 22%.
F-54
<PAGE>
Bank of Boston Corporation
Supplemental Average Balances and Interest Rates, Taxable Equivalent Basis
(dollars in millions) Year Ended December 31, 1994
<TABLE>
<CAPTION>
Average Interest(1) Average
Balance Rate
<S> <C> <C> <C>
Assets
Interest bearing deposits in other banks
U.S. $ 195 $ 7 3.69%
International....................................................... 864 109 12.54
------- ------
Total........................................................... 1,059 116 10.91
------- ------ -----
Federal funds sold and resale agreements
U.S. 1,421 58 4.06
International....................................................... 1,255 547 43.62
------- ------
Total........................................................... 2,676 605 22.61
------- ------ -----
Trading securities
U.S. 178 9 5.45
International....................................................... 398 105 26.26
------- ------
Total........................................................... 576 114 19.84
------- ------ -----
Loans held for sale
U.S.(2)............................................................. 716 45 6.33
------- ------ -----
Securities
U.S.
Available for sale(3)........................................... 1,943 119 6.13
Held to maturity................................................ 3,992 208 5.21
International
Available for sale(3)........................................... 332 47 14.63
Held to maturity................................................ 206 17 8.12
------- ------
Total........................................................... 6,473 391 6.05
------- ------ -----
Loans and lease financing
U.S. 29,265 2,301 7.86
International....................................................... 6,752 819 12.14
------- ------
Total(4)........................................................ 36,017 3,120 8.66
------- ------ -----
Total earning assets................................................. 47,517 4,391 9.24
------ -----
Nonearning assets.................................................... 5,872
-------
Total assets(5)................................................. $53,389
=======
Liabilities and Stockholders' Equity
Deposits
U.S.
Savings deposits................................................ $15,139 $ 307 2.03%
Time deposits................................................... 8,617 383 4.44
International
Banks in foreign countries...................................... 2,118 277 13.09
Other foreign savings and time.................................. 5,062 334 6.60
------- ------
Total........................................................... 30,936 1,301 4.21
------- ------ -----
Federal funds purchased and repurchase agreements
U.S. 4,274 168 3.94
International....................................................... 203 65 31.96
------- ------
Total........................................................... 4,477 233 5.21
------- ------ -----
Other funds borrowed
U.S. 2,361 120 5.05
International....................................................... 1,180 553 46.87
------- ------
Total........................................................... 3,541 673 18.98
------- ------ -----
Notes payable
U.S. 1,996 119 5.98
International....................................................... 127 13 10.36
------- ------
Total........................................................... 2,123 132 6.25
------- ------ -----
Total interest bearing liabilities................................... 41,077 2,339 5.69
------ -----
Demand deposits-U.S.................................................. 6,536
Demand deposits-International........................................ 447
Other noninterest bearing liabilities................................ 1,563
Stockholders' equity................................................. 3,766
-------
Total liabilities and stockholders' equity(5)................... $53,389
=======
Net Interest Revenue as a Percentage of Average Interest
Earning Assets
U.S. $37,711 $1,704 4.52%
International....................................................... 9,806 348 3.54%
------- ------
Total........................................................... $47,517 $2,052 4.32%
======= ======
</TABLE>
(1) Income is shown on a fully taxable equivalent basis.
(2) Amounts include the Corporation's accelerated disposition portfolio.
(3) Average rates for securities available for sale are based on the
securities' amortized cost.
(4) Loans and lease financing includes nonaccrual and renegotiated balances.
Interest on loans and lease financing includes net fees of $58 million.
(5) As of December 31, 1994, average international assets and liabilities as a
percentage of total average consolidated assets and liabilities,
respectively, amounted to 21%.
F-55
<PAGE>
Bank of Boston Corporation
Change in Net Interest Revenue--Supplemental Volume and Rate Analysis
The following tables present, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes for 1995
compared with 1994. The change due to the volume/rate variance has been
allocated to volume.
<TABLE>
<CAPTION>
1995 Compared with 1994
Increase (Decrease)
Due to Change in
(in millions) Volume Rate Net Change
<S> <C> <C> <C>
Earning Assets
Interest bearing deposits in other banks
U.S............................................. $ 4 $ 4 $ 8
International................................... 42 55 97
-----
105
-----
Federal funds sold and resale agreements
U.S............................................. (52) 26 (26)
International................................... (253) (23) (276)
-----
(302)
-----
Trading securities
U.S............................................. 5 1 6
International................................... 58 8 66
-----
72
-----
Loans held for sale
U.S............................................. (19) 5 (14)
-----
Securities
U.S............................................. 62 52 114
International................................... 11 5 16
-----
130
-----
Loans and lease financing
U.S............................................. 97 303 400
International................................... 173 186 359
-----
759
-----
Interest income.................................. 213 537 750
-----
Interest Bearing Liabilities
Deposits
U.S. savings.................................... (20) 95 75
U.S. time....................................... 37 100 137
International................................... 97 181 278
-----
490
-----
Federal funds purchased and repurchase agreements
U.S............................................. 3 66 69
International................................... (3) (17) (20)
-----
49
-----
Other funds borrowed
U.S............................................. 85 31 116
International................................... (130) (20) (150)
-----
(34)
-----
Notes payable
U.S............................................. (5) 21 16
International................................... 9 1 10
-----
26
-----
Interest expense................................. 119 412 531
-----
Net interest revenue............................. $ 219
=====
</TABLE>
F-56
<PAGE>
SECURITIES
The following table sets forth the amortized cost of securities held to maturity
for the years indicated:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(In millions)
<S> <C> <C> <C>
U.S. Treasury $ 4 $ 2,146 $ 1,520
U.S. government agencies
and corporations -
Mortgage-backed securities 523 1,449 1,046
States and political subdivisions 5 201 158
Foreign debt securities 11 123 109
Other debt securities 200 205
Other equity securities 117 119 70
----- ----- -----
$ 660 $ 4,238 $ 3,108
===== ===== =====
</TABLE>
The following table sets forth the carrying values of securities available for
sale for the years indicated:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
(In millions)
<S> <C> <C> <C>
U.S. Treasury $ 2,591 $ 1,487 $ 436
U.S. government agencies
and corporations -
Mortgage-backed securities 3,037 766 530
States and political subdivisions 248 9 19
Foreign debt securities 685 384 490
Other debt securities 334 142 150
Marketable equity securities 222 144 74
Other equity securities 465 330 372
----- ----- -----
$ 7,582 $ 3,262 $ 2,071
===== ===== =====
</TABLE>
The following tables set forth the relative maturities and weighted average
interest rates of securities available for sale and held to maturity at December
31, 1995, excluding equity securities. Certain securities, such as mortgage-
backed securities, may not become due at a single maturity. Such securities
have been classified within the category that represents the due dates for the
majority of the instrument. Rates for states and political subdivisions are
stated on a fully taxable equivalent basis assuming a 35% federal income tax
rate, adjusted for applicable state and local income taxes, net of related
federal tax benefit.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
(Dollars in millions)
U.S. Treasury $ 1,422 5.4% $ 1,066 6.6% $ 54 5.3% $ 49 6.3% $ 2,591 5.9%
U.S. government agencies
and corporations -
Mortgage-backed
securities 29 5.4 944 7.0 790 7.0 1,274 6.3 3,037 6.7
State and political
subdivisions 129 6.3 60 3.6 59 4.2 248 5.2
Foreign debt securities 233 8.1 337 13.7 100 12.8 15 11.1 685 11.6
Other debt securities 31 12.3 111 9.7 187 10.3 5 9.9 334 10.3
----- ----- ----- ----- -----
Total carrying value $ 1,844 6.0 $ 2,518 7.7 $ 1,190 7.7 $ 1,343 6.3 $ 6,895 7.0
===== ===== ===== ===== =====
</TABLE>
F-57
<PAGE>
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Tears Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
(Dollars in millions)
U.S. Treasury $ 4 5.4% $ 4 5.4 %
U.S. government agencies
and corporations -
Mortgage-backed $ 110 6.5 % $ 197 7.1% $ 216 6.1% 523 6.5
securities
State and political
subdivisions 5 3.4 5 3.4
Foreign debt securities 2 6.9 5 5.6 3 6.8 1 7.7 11 6.3
------- ----- --- --- ----
Total amortized cost $ 11 4.9 $ 115 6.4 $ 200 7.1 $ 217 6.1 $ 543 6.5
======= ===== === === ====
</TABLE>
SELECTED LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The following table presents the maturities and interest rate sensitivity, based
on original contractual terms, of the Corporation's loans at December
31, 1995, exclusive of domestic office loans secured by 1-4 family residential
properties, domestic office loans to individuals and lease financing.
<TABLE>
<CAPTION>
After
One
But
Within After
December 31 Within Five Five
(In millions) One Years Years Total
Year
<S> <C> <C> <C> <C>
Commercial, industrial and financial $ 6,227 $ 4,479 $ 2,297 $ 13,003
Real estate:
Construction 222 141 21 384
Other commercial 1,283 1,691 389 3,363
Overseas offices 7,246 905 190 8,341
------ ----- ----- ------
$ 14,978 $ 7,216 $ 2,897 $ 25,091
------ ----- ----- ------
Loans with predetermined interest rates $ 3,992 $ 2,259 $ 600 $ 6,851
Loans with floating interest rates 10,986 4,957 2,297 18,240
------ ----- ----- ------
$ 14,978 $ 7,216 $ 2,897 $ 25,091
====== ===== ===== ======
</TABLE>
SELECTED DEPOSIT DATA
The aggregate amount of deposits by foreign depositors in domestic offices
averaged $1,131 million in 1995, $863 million in 1994 and $876 million in 1993.
The following table presents the maturities of time certificates of deposit and
other time deposits issued by domestic offices in denominations of $100,000 or
more, at December 31, 1995:
<TABLE>
<CAPTION>
Certificates Time
of Deposit Deposits Total
(In millions)
<S> <C> <C> <C>
Maturing within three months $ 1,054 $ 22 $ 1,076
After three but within six months 232 8 240
After six but within twelve months 171 6 177
After twelve months 848 61 909
----- ----- -----
$ 2,305 $ 97 $ 2,402
===== ===== =====
</TABLE>
The majority of foreign office deposits are in denominations of $100,000 or
more.
F-58
<PAGE>
SHORT-TERM BORROWINGS
The following table summarizes the Corporation's short-term borrowings for the
three years ended December 31, 1995:
<TABLE>
<CAPTION>
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
(Dollars in millions) At end of Interest During the During the During the
Category of Aggregage Short-Term Borrowings Period Rate (1) Period Period Period
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1995
Federal funds purchased (2) $ 1,869 5.25% $ 1,920 $ 1,119 5.86%
Term federal funds purchased (2) 870 5.80 2,058 1,409 5.16
Securities sold under agreements to
repurchase (3) 1,688 6.24 2,935 1,983 7.31
Demand notes issued to the U.S.
Treasury (5) 361 4.85 1,051 406 5.75
All other (6) 2,511 13.37 3,724 3,006 17.31
For the Year Ended December 31, 1994
Federal funds purchased (2) $ 416 5.51% $ 1,240 $ 763 4.28%
Term federal funds purchased (2) 765 5.77 2,504 1,793 3.62
Securities sold under agreements to
repurchase (3) 2,680 5.86 2,950 1,921 7.05
Demand notes issued to the U.S.
Treasury (5) 395 4.63 1,060 329 4.34
All other (6) 2,734 18.44 3,807 2,895 17.36
For the Year Ended December 31, 1993
Federal funds purchased (2) $ 471 3.00% $ 872 $ 773 2.99%
Term federal funds purchased (2) 2,150 3.36 2,325 1,284 3.34
Securities sold under agreements to
repurchase (3) 1,247 5.43 1,450 907 4.25
Commercial paper (4) 35 15 3.59
Demand notes issued to the U.S.
Treasury (5) 123 2.73 1,219 404 2.78
All other (6) 1,164 24.77 1,171 708 8.42
</TABLE>
(1) The weighted average interest rates at year-end are not necessarily
indicative of the Corporation's normal borrowing rates since interest
rates for certain categories of borrowing are subject to abnormal short-term
movements.
(2) Federal funds purchased are overnight transactions while term federal funds
purchased have maturities in excess of one day. A large portion of
federal funds purchased arise because of money market activity in federal funds
for regional correspondent banks.
(3) Securities sold under agreements to repurchase by domestic offices mature
within one year and are collateralized by U.S. Treasury and U.S.
government agencies and corporations securities. The majority of securities sold
under agreements to repurchase by overseas offices in 1995, 1994
and 1993 related to Brazilian operations of FNBB for which various Brazilian
government securities served as collateral.
(4) Commercial paper represents unsecured obligations with maximum maturities
of nine months.
(5) Demand notes issued to the U.S. Treasury represent depository liabilities
that are not subject to reserve requirements and bear interest at
one-quarter of one percent below the weekly average federal funds effective
interest rate as published by the Federal Reserve.
(6) The majority of other short-term borrowings represent secured and unsecured
obligations of the Corporation's overseas branches and
subsidiaries.
NONACCRUAL LOANS AND LEASES
The following table presents a five-year analysis of the Corporation's loans and
leases that were over ninety days past due and remained on accrual status:
<TABLE>
<CAPTION>
December
31
- ------------------------------------------------------------------------------------
(In Millions) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loans and leases over ninety days past
due and on accrual status $56 $49 $59 $98 $120
- ------------------------------------------------------------------------------------
</TABLE>
F-59
<PAGE>
ALLOCATION OF RESERVE FOR CREDIT LOSSES
The following table presents the allocation of the reserve for credit losses by
loan and lease financing category, with the excess between the total reserve and
the amounts specifically allocated to each loan category identified as
"unallocated." The unallocated reserve is part of the general reserve of the
Corporation and, as such, is available for both Domestic and International
credit losses. The percentage of loans outstanding in each category to total
loans is presented in the Corporation's 1995 Supplemental Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Current Report on Form 8-K, and such information
is incorporated herein by reference.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
DECEMBER 31 1995 1994 1993 1992 1991
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Commercial, industrial
and financial............. $221 24.8% $284 34.3% $290 30.8% $ 340 30.4% $ 518 41.0%
Commercial real estate,
including construction..... 158 17.8 194 23.5 300 31.9 394 35.3 367 29.0
Consumer related loans
Secured by 1-4 family
residential properties.... 36 4.0 34 4.1 47 5.0 49 4.4 44 3.5
Other...................... 131 14.7 104 12.6 97 10.3 89 8.0 110 8.7
Lease financing............ 22 2.5 21 2.5 18 1.9 4 .4 5 .4
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
568 63.8 637 77.0 752 79.9 876 78.5 1,044 82.6
International 171 19.2 99 12.0 89 9.5 121 10.8 103 8.1
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
739 83.0 736 89.0 841 89.4 997 89.3 1,147 90.7
Unallocated................ 151 17.0 91 11.0 100 10.6 119 10.7 117 9.3
---- ----- ---- ----- ---- ----- ------ ----- ------ -----
$890 100.0% $827 100.0% $941 100.0% $1,116 100.0% $1,264 100.0%
==== ===== ==== ===== ==== ===== ====== ===== ====== =====
</TABLE>
RENEGOTIATED LOANS
Loans are renegotiated when the Corporation determines that it will ultimately
receive greater economic value by revising the terms than through foreclosure,
liquidation or bankruptcy. Candidates for renegotiation must meet specific
guidelines and undergo extensive due diligence reviews. Once a renegotiation
takes place, the loan is subject to the accounting and disclosure rules
prescribed by SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings."
Renegotiated loans at the end of each of the last five years were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994 1993 1992 1991
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Renegotiated loans......... $ 33 $ 82 $ 243 $ 413 $ 392
===== ===== ===== ===== =====
</TABLE>
F-60
<PAGE>
BANK OF BOSTON CORPORATION
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,307 $ 3,561
Interest bearing deposits in other banks 1,192 1,356
Federal funds sold and securities
purchased under agreements to resell 2,516 1,548
Trading account securities 1,732 1,159
Mortgages held for sale 23 910
Securities available for sale 8,459 7,582
Securities held to maturity 686 660
Loans and leases 40,653 38,870
Reserve for credit losses (894) (890)
Premises and equipment 856 832
Due from customers on acceptances 473 360
Accrued interest receivable 555 554
Other assets 2,829 2,921
------- -------
Total assets $62,387 $59,423
======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $43,494 $41,064
Funds borrowed 9,215 9,503
Acceptances outstanding 473 360
Accrued expenses and other liabilities 1,611 1,605
Notes payable 2,632 2,189
------- -------
Total liabilities 57,425 54,721
------- -------
Stockholders' equity:
Preferred stock 508 508
Common stock 235 350
Surplus 1,389 1,235
Retained earnings 2,785 2,553
Net unrealized gain on
securities available for sale, net of tax 51 82
Treasury stock (22)
Cumulative translation adjustments, net of tax (6) (4)
------- -------
Total stockholders' equity 4,962 4,702
======= =======
Total liabilities and stockholders' equity $62,387 $59,423
======= =======
</TABLE>
The accompanying notes are an integral part of these supplemental financial
statements.
F-61
<PAGE>
BANK OF BOSTON CORPORATION
SUPPLEMENTAL UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and lease financing, including fees $ 937 $ 962 $ 1,915 $ 1,857
Securities 139 124 277 238
Trading securities 52 44 93 85
Mortgages held for sale 1 5 18 9
Federal funds sold and securities
purchased under agreements to resell 45 95 88 199
Deposits in other banks 28 67 52 132
------- ------- ------- -------
Total interest income 1,202 1,297 2,443 2,520
------- ------- ------- -------
INTEREST EXPENSE
Deposits of domestic offices 228 214 461 404
Deposits of overseas offices 198 258 385 479
Funds borrowed 159 229 370 452
Notes payable 46 39 90 79
------- ------- ------- -------
Total interest expense 631 740 1,306 1,414
------- ------- ------- -------
NET INTEREST REVENUE 571 557 1,137 1,106
Provision for credit losses 57 46 114 143
------- ------- ------- -------
Net interest revenue after provision for
credit losses 514 511 1,023 963
------- ------- ------- -------
NONINTEREST INCOME
Financial service fees 135 156 187 303
Trust and agency fees 62 63 119 121
Trading profits and commissions 25 7 38 9
Net securities gains 4 17 6
Other income 157 66 307 198
------- ------- ------- -------
Total noninterest income 383 292 668 637
------- ------- ------- -------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries 244 231 485 458
Employee benefits 49 51 101 101
Occupancy expense 50 47 101 94
Equipment expense 34 33 68 66
Other expense 155 150 304 294
------- ------- ------- -------
Total noninterest expense 532 512 1,059 1,013
------- ------- ------- -------
Income before income taxes 365 291 632 587
Provision for income taxes 151 123 263 264
------- ------- ------- -------
NET INCOME $ 214 $ 168 $ 369 $ 323
======= ======= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK $ 205 $ 159 $ 350 $ 304
======= ======= ======= =======
PER COMMON SHARE
Net income
Primary $ 1.33 $ 1.03 $ 2.27 $ 2.01
Fully diluted $ 1.32 $ 1.02 $ 2.24 $ 1.96
Dividends declared $ .44 $ .27 $ .81 $ .54
AVERAGE NUMBER OF COMMON SHARES (IN THOUSANDS)
Primary 153,650 153,877 154,318 151,777
Fully diluted 155,183 155,529 156,018 155,248
</TABLE>
The accompanying notes are an integral part of these supplemental financial
statements.
F-62
<PAGE>
BANK OF BOSTON CORPORATION
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS
1. The accompanying interim supplemental consolidated financial statements of
Bank of Boston Corporation (the Corporation) are unaudited. However, in the
opinion of management, they contain the adjustments (all of which are normal and
recurring in nature) necessary to present fairly financial position and results
of operations. These interim supplemental consolidated financial statements
should be read in conjunction with the notes to the supplemental financial
statements included elsewhere in this Current Report, and the Corporation's
Quarterly Report on Form 10-Q for the Quarterly Period Ending June 30, 1996.
2. The accompanying interim supplemental consolidated financial statements have
been prepared on a pooling-of-interests basis to give retroactive effect to the
Corporation's acquisition of BayBanks, Inc. on July 29, 1996. Certain prior
period amounts have been reclassified for comparative purposes.
F-63
<PAGE>
Schedule B
<PAGE>
BANK OF BOSTON CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information combines the
historical Consolidated Financial Statements of the Corporation and BayBanks,
giving effect to the merger as if it had been effective on June 30, 1996, with
respect to the Pro Forma Combined Balance Sheet, and as of the beginning of the
periods indicated herein, with respect to the Pro Forma Combined Statements of
Income. The merger is accounted for as a pooling of interests. This
information should be read in conjunction with the historical consolidated
financial statements of the Corporation and BayBanks, including their respective
notes thereto. The effect of anticipated merger and restructuring costs has
been reflected in the pro forma combined balance sheet; however, since the
anticipated costs are nonrecurring, they have not been reflected in the pro
forma combined statements of income. The pro forma financial information does
not give effect to any anticipated costs savings in connection with the merger.
The pro forma combined balance sheet is not necessarily indicative of the actual
financial position that would have existed had the merger been consummated on
June 30, 1996 or that may exist in the future. The pro forma combined
statements of income are not necessarily indicative of the results that would
have occurred had the merger been consummated on the dates indicated or that may
be achieved in the future.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CORPORATION BAYBANKS(1) ADJUSTMENTS(1) COMBINED
----------- ---------- -------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,351 $ 956 $ 3,307
Interest bearing deposits in other banks 1,191 1 1,192
Federal funds sold and securities purchased
under agreements to resell 2,166 350 2,516
Securities held to maturity 633 53 686
Securities available for sale 6,430 2,029 8,459
Trading account securities 1,649 83 1,732
Mortgages held for sale 23 23
Loans and leases 32,885 7,768 40,653
Reserve for credit losses (744) (150) (894)
Premises and equipment 647 209 856
Due from customers on acceptances 472 1 473
Accrued interest receivable 475 80 555
Other assets 2,675 154 2,829
------- ------- -------
Total assets $50,830 $11,557 $62,387
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits $33,305 $10,189 $43,494
Funds borrowed 8,856 359 9,215
Acceptances outstanding 472 1 473
Other liabilities 1,605 6 $83 (2) 1,694
Notes payable 2,632 2,632
------- ------- ----- -------
Total liabilities 46,870 10,555 83 57,508
------- ------- ----- -------
Stockholders' equity:
Preferred stock 508 508
Common stock 170 40 25 (3) 235
Surplus 1,043 371 (25) (3) 1,389
Retained earnings 2,198 587 (83) (2) 2,702
Net unrealized gain on
securities available for sale 47 4 51
Cumulative translation adjustments (6) (6)
------- ----- ----- -------
Total stockholders' equity 3,960 1,002 (83) 4,879
------- ------- ----- -------
Total liabilities and stockholders' equity $50,830 $11,557 $62,387
======= ======= ===== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-64
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
<TABLE>
<CAPTION>
SIX MONTHS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) ENDED YEARS ENDED DECEMBER 31,
------------------------
JUNE 30, 1996 1995 1994 1993
------------- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 1,915 $ 3,876 $ 3,117 $ 2,588
Securities 370 689 494 360
Mortgages held for sale 18 31 43 85
Federal funds sold and securities
purchased under agreements to resell 88 303 605 147
Deposits in other banks 52 220 117 150
-------- -------- -------- --------
Total interest income 2,443 5,119 4,376 3,330
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 846 1,791 1,301 1,177
Funds borrowed 370 921 906 268
Notes payable 90 158 132 116
-------- -------- -------- --------
Total interest expense 1,306 2,870 2,339 1,561
-------- -------- -------- --------
Net interest revenue 1,137 2,249 2,037 1,769
Provision for credit losses 114 275 154 107
-------- -------- -------- --------
Net interest revenue after provision
for credit losses 1,023 1,974 1,883 1,662
-------- -------- -------- --------
NONINTEREST INCOME:
Financial service fees 187 695 564 508
Trust and agency fees 119 240 222 198
Trading profits and commissions 38 25 18 26
Net securities gains 17 9 14 32
Other income 307 340 217 181
-------- -------- -------- --------
Total noninterest income 668 1,309 1,035 945
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 586 1,146 1,046 988
Occupancy and equipment expense 169 324 310 304
Other real estate owned expense 3 9 38 82
Acquisition and restructuring expense 28 21 85
Other expense 301 569 532 543
-------- -------- -------- --------
Total noninterest expense 1,059 2,076 1,947 2,002
-------- -------- -------- --------
Income before income taxes, extraordinary
item and cumulative effect of
accounting change 632 1,207 971 605
Provision for income taxes 263 529 422 262
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ 369 $ 678 $ 549 $ 343
======== ======== ======== ========
PER COMMON SHARE:
Income before extraordinary item and
cumulative effect of accounting change:
Primary $2.27 $4.17 $3.44 $ 2.09
Fully diluted 2.24 4.09 3.36 2.05
Average number of common shares
(in thousands):
Primary 154,318 153,856 148,913 147,033
Fully diluted 156,018 156,768 153,616 152,067
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-65
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA PRO FORMA
CORPORATION BAYBANKS(1) ADJUSTMENTS(1) COMBINED
----------- ----------- -------------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 1,580 $ 335 $ 1,915
Securities 305 65 370
Mortgages held for sale 16 2 18
Federal funds sold and securities
purchased under agreements to resell 83 5 88
Deposits in other banks 52 52
-------- ------- --------
Total interest income 2,036 407 2,443
-------- ------- --------
INTEREST EXPENSE:
Deposits 718 128 846
Funds borrowed 357 13 370
Notes payable 89 1 90
-------- ------- --------
Total interest expense 1,164 142 1,306
-------- ------- --------
Net interest revenue 872 265 1,137
Provision for credit losses 100 14 114
-------- ------- --------
Net interest revenue after provision
for credit losses 772 251 1,023
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 96 91 187
Trust and agency fees 106 13 119
Trading profits and commissions 37 1 38
Net securities gains 17 17
Other income 294 13 307
-------- ------- --------
Total noninterest income 550 118 668
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 456 130 586
Occupancy and equipment expense 126 43 169
Other expense 229 75 304
-------- ------- --------
Total noninterest expense 811 248 1,059
-------- ------- --------
Income before income taxes 511 121 632
Provision for income taxes 216 47 263
-------- ------- --------
NET INCOME $ 295 $ 74 $ 369
======== ======= ========
PER COMMON SHARE:
Net income:
Primary $2.50 $3.71 $2.27
Fully diluted 2.46 3.71 2.24
Average number of common shares
(in thousands):
Primary 110,380 19,972 154,318
Fully diluted 112,064 19,979 156,018
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-66
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA PRO FORMA
CORPORATION BAYBANKS(1) ADJUSTMENTS(1) COMBINED
----------- ----------- -------------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 3,240 $ 636 $ 3,876
Securities 539 150 689
Mortgages held for sale 30 1 31
Federal funds sold and securities
purchased under agreements to resell 293 10 303
Deposits in other banks 217 3 220
-------- ------- --------
Total interest income 4,319 800 5,119
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,557 234 1,791
Funds borrowed 866 55 921
Notes payable 155 3 158
-------- ------- --------
Total interest expense 2,578 292 2,870
-------- ------- --------
Net interest revenue 1,741 508 2,249
Provision for credit losses 250 25 275
-------- ------- --------
Net interest revenue after provision
for credit losses 1,491 483 1,974
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 523 172 695
Trust and agency fees 217 23 240
Trading profits and commissions 22 3 25
Net securities gains 9 9
Other income 320 20 340
-------- ------- --------
Total noninterest income 1,091 218 1,309
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 897 249 1,146
Occupancy and equipment expense 240 84 324
Other real estate owned expense 9 9
Acquisition and restructuring expense 28 28
Other expense 423 146 569
-------- ------- --------
Total noninterest expense 1,597 479 2,076
-------- ------- --------
Income before income taxes
985 222 1,207
Provision for income taxes 444 85 529
-------- ------- --------
NET INCOME $ 541 $ 137 $ 678
======== ======= ========
PER COMMON SHARE:
Net income:
Primary $4.55 $7.01 $4.17
Fully diluted 4.43 6.99 4.09
Average number of common shares
(in thousands):
Primary 110,716 19,609 153,856
Fully diluted 113,560 19,640 156,768
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-67
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA PRO FORMA
CORPORATION BAYBANKS(1) ADJUSTMENTS(1) COMBINED
----------- ----------- -------------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 2,606 $ 511 $ 3,117
Securities 355 139 494
Mortgages held for sale 41 2 43
Federal funds sold and securities
purchased under agreements to resell 600 5 605
Deposits in other banks 116 1 117
-------- ------- --------
Total interest income 3,718 658 4,376
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,148 153 1,301
Funds borrowed 868 38 906
Notes payable 130 2 132
-------- ------- --------
Total interest expense 2,146 193 2,339
-------- ------- --------
Net interest revenue 1,572 465 2,037
Provision for credit losses 130 24 154
-------- ------- --------
Net interest revenue after provision
for credit losses 1,442 441 1,883
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 396 168 564
Trust and agency fees 201 21 222
Trading profits and commissions 16 2 18
Net securities gains 14 14
Other income 201 16 217
-------- ------- --------
Total noninterest income 828 207 1,035
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 813 233 1,046
Occupancy and equipment expense 231 79 310
Other real estate owned expense 22 16 38
Acquisition and restructuring expense 21 21
Other expense 392 140 532
-------- ------- --------
Total noninterest expense 1,479 468 1,947
-------- ------- --------
Income before income taxes and
extraordinary item 791 180 971
Provision for income taxes 349 73 422
-------- ------- --------
INCOME BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ 442 $ 107 $ 549
======== ======= ========
PER COMMON SHARE:
Income before extraordinary item and
cumulative effect of accounting change:
Primary $3.79 $5.60 $3.44
Fully diluted 3.67 5.60 3.36
Average number of common shares
(in thousands):
Primary 106,730 19,174 148,913
Fully diluted 111,427 19,177 153,616
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-68
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA PRO FORMA
CORPORATION BAYBANKS(1) ADJUSTMENTS(1) COMBINED
----------- ----------- -------------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees $ 2,112 $ 476 $ 2,588
Securities 271 89 360
Mortgages held for sale 76 9 85
Federal funds sold and securities
purchased under agreements to resell 139 8 147
Deposits in other banks 141 9 150
-------- ------- --------
Total interest income 2,739 591 3,330
-------- ------- --------
INTEREST EXPENSE:
Deposits 1,016 161 1,177
Funds borrowed 264 4 268
Notes payable 114 2 116
-------- ------- --------
Total interest expense 1,394 167 1,561
-------- ------- --------
Net interest revenue 1,345 424 1,769
Provision for credit losses 70 37 107
-------- ------- --------
Net interest revenue after provision
for credit losses 1,275 387 1,662
-------- ------- --------
NONINTEREST INCOME:
Financial service fees 350 158 508
Trust and agency fees 178 20 198
Trading profits and commissions 24 2 26
Net securities gains 32 32
Other income 162 19 181
-------- ------- --------
Total noninterest income 746 199 945
-------- ------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 771 217 988
Occupancy and equipment expense 224 80 304
Other real estate owned expense 44 38 82
Acquisition and restructuring expense 85 85
Other expense 407 136 543
-------- ------- --------
Total noninterest expense 1,531 471 2,002
-------- ------- --------
Income before income taxes and
extraordinary item 490 115 605
Provision for income taxes 215 47 262
-------- ------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 275 $ 68 $ 343
======== ======= ========
PER COMMON SHARE:
Income before cumulative effect
of accounting change:
Primary $2.28 $3.57 $2.09
Fully diluted 2.22 3.56 2.05
Average number of common shares
(in thousands):
Primary 105,336 18,953 147,033
Fully diluted 110,258 19,004 152,067
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Information
F-69
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Certain historical data of BayBanks have been reclassified on a pro forma
basis to conform to the Corporation's classifications. Transactions between the
Corporation and BayBanks are not material in relation to the pro forma combined
financial statements, and have not been eliminated from the pro forma combined
amounts.
(2) Reflects certain anticipated merger and restructuring costs that the
Corporation expects to incur in connection with the merger. These costs, which
were originally estimated to be approximately $140 million ($83 million after-
tax), continue to be evaluated along with the estimated cost savings expected to
result from the integration of the two institutions, both of which are likely to
increase upon finalization of the integration plan. Such costs include
investment banking and other professional fees, stock issuance costs and other
expenses and other costs associated with the acquisition and estimated
facilities and operations consolidation and severance costs associated with
expected reorganizations in connection with the acquisition.
(3) Pursuant to the merger agreement, each outstanding share (19,771,772 shares
at June 30, 1996) of BayBanks Common Stock will be converted into 2.2 shares of
Corporation Common Stock, subject to adjustment in certain circumstances.
F-70
<PAGE>
Exhibits
<PAGE>
EXHIBIT 11
BANK OF BOSTON CORPORATION
Computation of Supplemental Per Share Earnings
<TABLE>
<CAPTION>
EARNINGS Six Months Years Ended
-------- Ended June 30 December 31
---------------------- -----------------------------------
1996 1995 1995 1994 1993
(in millions) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1. Net income $ 369 $ 323 $ 678 $ 542 $ 367
2. Less: Preferred dividends 19 19 37 37 35
---- ---- ---- ---- ----
3. Net income applicable to primary
earnings per common share 350 304 641 505 332
4. Add: Interest expense on convertible
debentures, net of tax 4 4
---- ---- -------- -------- --------
5. Net income applicable to fully diluted
earnings per common share $ 350 $ 304 $ 641 $ 509 $ 336
==== ==== ==== ==== ====
SHARES
------
(in thousands)
6. Weighted average number of common shares
outstanding 154,318 151,777 153,856 148,913 147,033
7. Incremental shares from assumed exercise
of dilutive stock options as of the
beginning of the period using the
treasury stock method 1,700 1,693 2,027 674 991
8. Incremental shares from assumed conversion
of debentures at date of issuance 1,778 885 4,029 4,043
-------- ----- --- ----- -----
9. Adjusted number of common shares 156,018 155,248 156,768 153,616 152,067
======== ======== ======== ======== ========
PER SHARE CALCULATION
---------------------
10. Primary net income per common share
(Item 3 divided by Item 6); see note below $ 2.27 $ 2.01 $ 4.17 $ 3.39 $ 2.26
11. Fully diluted net income per common
(Item 5 divided by Item 9); see note below $ 2.24 $ 1.96 $ 4.09 $ 3.31 $ 2.21
</TABLE>
Note = Income per common share before extraordinary item and cumulative effect
of changes in accounting principles, net of tax, on both a primary and fully
diluted basis for the years ended December 31, 1994 and 1993 is computed by
adding to the numerator the extraordinary loss from early extinguishment of
debt, net of tax, in 1994 of $7 million and subtracting from the numerator the
cumulative effect of accounting changes, net of tax, in 1993 of $24 million.
<PAGE>
EXHIBIT 12.1
BANK OF BOSTON CORPORATION
COMPUTATION OF SUPPLEMENTAL CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (excluding interest on
deposits) for the six months ended June 30, 1996 and 1995 and the five years
ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 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) $ 369 $ 323 $ 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) 263 264 529 422 262 190 (51)
------- ------- ------- ------- ------- ------ ------
Pretax earnings (loss) 632 587 1,207 971 605 455 (162)
------- ------- ------- ------- ------- ------ ------
Fixed charges:
Portion of rental expense
(net of sublease
rental income) which
approximates the
interest factor 20 18 38 35 36 37 39
Interest on borrowed funds 460 531 1,079 1,038 384 352 386
------- ------- ------- ------- ------- ------ ------
Total fixed charges 480 549 1,117 1,073 420 389 425
------- ------- ------- ------- ------- ------ ------
Earnings (for ratio calculation) $ 1,112 $ 1,136 $ 2,324 $ 2,044 $ 1,025 $ 844 $ 263
======= ======= ======= ======= ======= ====== ======
Total fixed charges $ 480 $ 549 $ 1,117 $ 1,073 $ 420 $ 389 $ 425
======= ======= ======= ======= ======= ====== ======
Ratio of earnings to fixed
charges 2.32 2.07 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 to bring the ratio of earnings to fixed charges to a one-to-
one basis are $162 million.
<PAGE>
EXHIBIT 12.2
BANK OF BOSTON CORPORATION
COMPUTATION OF SUPPLEMENTAL CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Including Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (including interest on
deposits) for the six months ended June 30, 1996 and 1995 and the five years
ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 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) $ 369 $ 323 $ 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) 263 264 529 422 262 190 (51)
----- ----- ----- ----- ----- ----- -----
Pretax earnings (loss) 632 587 1,207 971 605 455 (162)
----- ----- ----- ----- ----- ----- -----
Fixed charges:
Portion of rental expense
(net of sublease rental
income) which approximates
the interest factor 20 18 38 35 36 37 39
Interest on borrowed funds 460 531 1,079 1,038 384 352 386
Interest on deposits 846 883 1,791 1,301 1,177 1,640 2,202
----- ----- ----- ----- ----- ----- -----
Total fixed charges 1,326 1,432 2,908 2,374 1,597 2,029 2,627
----- ----- ----- ----- ----- ----- -----
Earnings (for ratio calculation) $ 1,958 $ 2,019 $ 4,115 $ 3,345 $ 2,202 $ 2,484 $ 2,465
===== ===== ===== ===== ===== ===== =====
Total fixed charges $ 1,326 $ 1,432 $ 2,908 $ 2,374 $ 1,597 $ 2,029 $ 2,627
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed
charges 1.48 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 to bring the ratio of earnings to fixed charges to a one-to-
one basis are $162 million.
<PAGE>
EXHIBIT 23.1
-------------
Consent of Independent Accountants
The Board of Directors and Stockholders
Bank of Boston Corporation:
We consent to the incorporation by reference in the registration statements of
Bank of Boston Corporation on Form S-3 (File Nos. 33-29515 and 33-52571) and in
the registration statements on Form S-8 (File Nos. 333-09041, 333-07329, 333-
00297, 33-1899, 33-11186, 33-64462, 33-65850 and 33-66012) of our report dated
August 26, 1996, on our audits of the supplemental consolidated financial
statements of Bank of Boston Corporation as of December 31, 1995 and 1994, and
for each of the years in the three-year period ended December 31, 1995, and the
inclusion of such report in Form 8-K of Bank of Boston Corporation dated
September 6, 1996.
/S/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 6, 1996
<PAGE>
EXHIBIT 23.2
-------------
Consent of Independent Accountants
The Board of Directors and Stockholders
BayBanks, Inc.
We consent to inclusion in Bank of Boston Corporation's Form 8-K dated September
6, 1996, and incorporation by reference in registration statements of Bank of
Boston Corporation on Form S-3 (File Nos. 33-29515 and 33-52571) and in
registration statements on Form S-8 (File Nos. 333-09041, 333-07329, 333-00297,
33-1899, 33-11186, 33-64462, 33-65850 and 33-66012) of our report dated January
18, 1996, relating to the consolidated balance sheets of BayBanks, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1995.
/S/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CURRENT REPORT ON FORM 8-K FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,307
<INT-BEARING-DEPOSITS> 1,192
<FED-FUNDS-SOLD> 2,516
<TRADING-ASSETS> 1,732
<INVESTMENTS-HELD-FOR-SALE> 8,459
<INVESTMENTS-CARRYING> 686
<INVESTMENTS-MARKET> 668
<LOANS> 40,653
<ALLOWANCE> (894)
<TOTAL-ASSETS> 62,387
<DEPOSITS> 43,494
<SHORT-TERM> 8,113
<LIABILITIES-OTHER> 3,186
<LONG-TERM> 2,632
0
508
<COMMON> 235
<OTHER-SE> 4,219
<TOTAL-LIABILITIES-AND-EQUITY> 62,387
<INTEREST-LOAN> 1,915
<INTEREST-INVEST> 277
<INTEREST-OTHER> 251
<INTEREST-TOTAL> 2,443
<INTEREST-DEPOSIT> 846
<INTEREST-EXPENSE> 1,306
<INTEREST-INCOME-NET> 1,137
<LOAN-LOSSES> 114
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 304
<INCOME-PRETAX> 632
<INCOME-PRE-EXTRAORDINARY> 369
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 369
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.24
<YIELD-ACTUAL> 4.40
<LOANS-NON> 399
<LOANS-PAST> 49
<LOANS-TROUBLED> 13
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 890
<CHARGE-OFFS> (138)
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 894
<ALLOWANCE-DOMESTIC> 572
<ALLOWANCE-FOREIGN> 181
<ALLOWANCE-UNALLOCATED> 141
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CURRENT REPORT ON FORM 8-K FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,030
<INT-BEARING-DEPOSITS> 1,575
<FED-FUNDS-SOLD> 959
<TRADING-ASSETS> 832
<INVESTMENTS-HELD-FOR-SALE> 3,288
<INVESTMENTS-CARRYING> 4,254
<INVESTMENTS-MARKET> 4,298
<LOANS> 38,370
<ALLOWANCE> (838)
<TOTAL-ASSETS> 56,201
<DEPOSITS> 38,194
<SHORT-TERM> 8,292
<LIABILITIES-OTHER> 3,250
<LONG-TERM> 2,160
0
508
<COMMON> 345
<OTHER-SE> 3,452
<TOTAL-LIABILITIES-AND-EQUITY> 56,201
<INTEREST-LOAN> 1,857
<INTEREST-INVEST> 238
<INTEREST-OTHER> 425
<INTEREST-TOTAL> 2,520
<INTEREST-DEPOSIT> 883
<INTEREST-EXPENSE> 1,414
<INTEREST-INCOME-NET> 1,106
<LOAN-LOSSES> 143
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 294
<INCOME-PRETAX> 587
<INCOME-PRE-EXTRAORDINARY> 324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 324
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 1.96
<YIELD-ACTUAL> 4.66
<LOANS-NON> 412
<LOANS-PAST> 56
<LOANS-TROUBLED> 33
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 827
<CHARGE-OFFS> (139)
<RECOVERIES> 40
<ALLOWANCE-CLOSE> 838
<ALLOWANCE-DOMESTIC> 562
<ALLOWANCE-FOREIGN> 168
<ALLOWANCE-UNALLOCATED> 108
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CURRENT REPORT ON FORM 8-K FOR THE YEAR ENDED DECEMBER 31,1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,561
<INT-BEARING-DEPOSITS> 1,356
<FED-FUNDS-SOLD> 1,548
<TRADING-ASSETS> 1,159
<INVESTMENTS-HELD-FOR-SALE> 7,582
<INVESTMENTS-CARRYING> 660
<INVESTMENTS-MARKET> 667
<LOANS> 38,870
<ALLOWANCE> (890)
<TOTAL-ASSETS> 59,423
<DEPOSITS> 41,064
<SHORT-TERM> 7,293
<LIABILITIES-OTHER> 4,175
<LONG-TERM> 2,189
0
508
<COMMON> 350
<OTHER-SE> 3,844
<TOTAL-LIABILITIES-AND-EQUITY> 59,423
<INTEREST-LOAN> 3,876
<INTEREST-INVEST> 503
<INTEREST-OTHER> 740
<INTEREST-TOTAL> 5,119
<INTEREST-DEPOSIT> 1,791
<INTEREST-EXPENSE> 2,870
<INTEREST-INCOME-NET> 2,249
<LOAN-LOSSES> 275
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 569
<INCOME-PRETAX> 1,207
<INCOME-PRE-EXTRAORDINARY> 678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 678
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 4.09
<YIELD-ACTUAL> 4.58
<LOANS-NON> 373
<LOANS-PAST> 56
<LOANS-TROUBLED> 33
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 827
<CHARGE-OFFS> (282)
<RECOVERIES> 86
<ALLOWANCE-CLOSE> 890
<ALLOWANCE-DOMESTIC> 568
<ALLOWANCE-FOREIGN> 171
<ALLOWANCE-UNALLOCATED> 151
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CURRENT REPORT ON FORM 8-K FOR THE YEAR ENDED DECEMBER 31,1994 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,146
<INT-BEARING-DEPOSITS> 1,559
<FED-FUNDS-SOLD> 1,323
<TRADING-ASSETS> 581
<INVESTMENTS-HELD-FOR-SALE> 3,262
<INVESTMENTS-CARRYING> 4,238
<INVESTMENTS-MARKET> 4,086
<LOANS> 37,708
<ALLOWANCE> (827)
<TOTAL-ASSETS> 55,411
<DEPOSITS> 40,249
<SHORT-TERM> 6,988
<LIABILITIES-OTHER> 2,024
<LONG-TERM> 2,219
0
508
<COMMON> 336
<OTHER-SE> 3,087
<TOTAL-LIABILITIES-AND-EQUITY> 55,411
<INTEREST-LOAN> 3,117
<INTEREST-INVEST> 380
<INTEREST-OTHER> 879
<INTEREST-TOTAL> 4,376
<INTEREST-DEPOSIT> 1,301
<INTEREST-EXPENSE> 2,339
<INTEREST-INCOME-NET> 2,037
<LOAN-LOSSES> 154
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 532
<INCOME-PRETAX> 971
<INCOME-PRE-EXTRAORDINARY> 549
<EXTRAORDINARY> (7)
<CHANGES> 0
<NET-INCOME> 542
<EPS-PRIMARY> 3.39
<EPS-DILUTED> 3.31
<YIELD-ACTUAL> 4.32
<LOANS-NON> 420
<LOANS-PAST> 49
<LOANS-TROUBLED> 82
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 941
<CHARGE-OFFS> (260)
<RECOVERIES> 86
<ALLOWANCE-CLOSE> 827
<ALLOWANCE-DOMESTIC> 637
<ALLOWANCE-FOREIGN> 99
<ALLOWANCE-UNALLOCATED> 91
</TABLE>
<PAGE>
EXHIBIT 99
----------
INDEPENDENT AUDITORS' REPORT
----------------------------
KPMG Peat Marwick LLP
Certified Public Accountants
99 High Street
Boston, MA 02110
To the Board of Directors and Stockholders of BayBanks, Inc.:
We have audited the accompanying consolidated balance sheets of BayBanks, Inc.,
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BayBanks, Inc., and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
January 18, 1996
