UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-6523
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER:
BankAmerica Corporation
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION:
Delaware
I.R.S. EMPLOYER IDENTIFICATION NUMBER:
56-0906609
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
100 North Tryon Street
Charlotte, North Carolina 28255
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(704) 386-5000
FORMER NAME, IF CHANGED SINCE LAST REPORT:
NationsBank Corporation
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ----
On October 31, 1998, there were 1,730,654,246 shares of BankAmerica Corporation
Common Stock outstanding.
<PAGE>
BankAmerica Corporation
September 30, 1998 Form 10-Q
- -------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Item 1. Financial Statements:
Financial Consolidated Statement of Income for the Three Months
Information and Nine Months Ended September 30, 1998 and 1997............ 2
Consolidated Balance Sheet on September 30, 1998
and December 31, 1997....................................... 3
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997........................... 4
Consolidated Statement of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................ 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk ... 57
- ---------------------------------------------------------------------------------------------
Part II
Other Information Item 1. Legal Proceedings............................................. 57
Item 4. Submission of Matters to a Vote of Security Holders .......... 58
Item 6. Exhibits and Reports on Form 8-K ............................. 58
Signature............................................................. 59
Index to Exhibits..................................................... 60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
BankAmerica Corporation and Subsidiaries
Consolidated Statement of Income
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
(Dollars in Millions, Except Per Share Information) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 7,084 $ 7,370 $ 21,301 $ 21,924
Interest and dividends on securities 1,105 787 3,311 2,256
Federal funds sold and securities purchased under agreements to resell 492 382 1,342 1,102
Trading account securities 584 675 2,014 1,891
Other interest income 343 229 982 626
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 9,608 9,443 28,950 27,799
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 2,830 2,715 8,213 7,955
Borrowed funds 1,278 1,062 3,817 2,941
Trading account liabilities 194 227 730 697
Long-term debt 862 804 2,501 2,332
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,164 4,808 15,261 13,925
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 4,444 4,635 13,689 13,874
PROVISION FOR CREDIT LOSSES 1,405 489 2,410 1,406
- ---------------------------------------------------------------------------------------------------------------------------------
NET CREDIT INCOME 3,039 4,146 11,279 12,468
GAINS ON SALES OF SECURITIES 280 54 613 160
NONINTEREST INCOME
Service charges on deposit accounts 855 860 2,515 2,505
Mortgage servicing and other mortgage-related income (176) 97 12 298
Investment banking income 376 315 1,653 834
Trading account profits and fees (529) 281 75 853
Brokerage income 198 71 566 222
Other nondeposit-related service fees 178 163 546 494
Asset management and fiduciary service fees 238 252 744 752
Credit card income 379 320 1,050 882
Other income 886 719 2,373 1,691
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 2,405 3,078 9,534 8,531
- ---------------------------------------------------------------------------------------------------------------------------------
FORECLOSED PROPERTIES EXPENSE 7 13 42 24
MERGER AND RESTRUCTURING ITEMS EXPENSE, NET 725 72 1,195 72
OTHER NONINTEREST EXPENSE
Personnel 2,246 2,118 7,111 6,350
Occupancy, net 427 433 1,230 1,184
Equipment 346 351 1,020 1,036
Marketing 143 173 446 483
Professional fees 206 189 610 514
Amortization of intangibles 224 214 679 631
Data processing 195 153 560 446
Telecommunications 142 122 411 360
Other general operating 503 537 1,509 1,523
General administrative and miscellaneous 144 116 436 338
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER NONINTEREST EXPENSE 4,576 4,406 14,012 12,865
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 416 2,787 6,177 8,198
INCOME TAX EXPENSE 42 1,057 2,174 3,115
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 374 $ 1,730 $ 4,003 $ 5,083
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 372 $ 1,706 $ 3,979 $ 4,988
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION(1)
Earnings per common share $ 0.21 $ 0.99 $ 2.30 $ 2.87
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.21 $ 0.96 $ 2.24 $ 2.80
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends per common share $ 0.38 $ 0.33 $ 1.14 $ 0.99
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES ISSUED (IN THOUSANDS)(1) 1,740,092 1,722,243 1,732,297 1,736,460
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Shares and per share data reflect a 2-for-1 stock split on February 27, 1997
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries
Consolidated Balance Sheet
- ------------------------------------------------------------------------------------------------------
September 30 December 31
(Dollars in Millions) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,715 $ 28,466
Time deposits placed and other short-term investments 6,692 8,363
Securities
Held for investment, at cost (market value - $3,935 and $4,905) 4,180 4,822
Available for sale 67,959 62,209
- -----------------------------------------------------------------------------------------------------
Total securities 72,139 67,031
- -----------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 30,725 20,200
Trading account assets 34,509 35,937
Loans and leases, net of unearned income 350,687 341,059
Factored accounts receivable 1,295 1,081
Allowance for credit losses (7,215) (6,778)
- -----------------------------------------------------------------------------------------------------
Loans, leases and factored accounts receivable, net of unearned income
and allowance for credit losses 344,767 335,362
- -----------------------------------------------------------------------------------------------------
Premises and equipment, net 7,249 8,123
Customers' acceptance liability 3,917 4,891
Interest receivable 3,838 3,584
Unrealized gains on off-balance sheet instruments 17,141 14,824
Mortgage servicing rights 2,155 2,040
Goodwill 12,802 13,551
Core deposits and other intangibles 2,080 2,203
Other assets 31,944 26,408
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 594,673 $ 570,983
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Deposits in domestic offices:
Interest-bearing $ 198,790 $ 202,082
Noninterest-bearing 83,508 85,815
Deposits in foreign offices:
Interest-bearing 61,807 56,719
Noninterest-bearing 1,651 1,681
- -----------------------------------------------------------------------------------------------------
Total deposits 345,756 346,297
- -----------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 65,625 61,414
Trading account liabilities 17,775 17,300
Commercial paper 5,579 5,925
Other short-term borrowings 22,793 12,120
Liability to factoring clients 769 591
Acceptances outstanding 3,916 4,893
Unrealized losses on off-balance sheet instruments 16,024 13,639
Accrued expenses and other liabilities 16,659 16,755
Trust preferred securities 4,918 4,578
Long-term debt 47,552 42,887
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 547,366 526,399
- -----------------------------------------------------------------------------------------------------
Contingent liabilities and other financial commitments (Note Six)
SHAREHOLDERS' EQUITY
Preferred stock: authorized - 100,000,000 shares; issued and outstanding -
1,967,245 and 10,933,884 shares 84 708
Common stock: authorized - 5,000,000,000 shares; issued and outstanding -
1,742,037,974 and 1,722,537,672 shares 15,939 15,140
Retained earnings 30,615 28,438
Accumulated other comprehensive income 784 407
Other (115) (109)
- -----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 47,307 44,584
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 594,673 $ 570,983
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries
Consolidated Statement of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months
Ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,003 $ 5,083
Reconciliation of net income to net cash provided by operating activities
Provision for credit losses 2,410 1,406
Gains on sales of securities (613) (160)
Merger and restructuring expense 1,625 72
Gain on divestitures (430) --
Depreciation and premises improvements amortization 822 827
Amortization of intangibles 679 631
Deferred income tax expense 322 636
Net change in trading instruments 1,801 (4,641)
Net increase in interest receivable (260) (418)
Net increase in interest payable 261 106
Other operating activities (3,970) (3,234)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,650 308
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of securities held for investment 942 1,347
Purchases of securities held for investment (249) (361)
Proceeds from sales and maturities of securities available for sale 53,900 31,239
Purchases of securities available for sale (54,923) (32,288)
Net increase in federal funds sold and securities purchased
under agreements to resell (10,606) (4,709)
Net decrease (increase) in time deposits placed and other short-term
investments 1,671 (17)
Purchases and net originations of loans and leases (67,424) (32,618)
Proceeds from sales and securitizations of loans and leases 46,886 27,347
Purchases and originations of mortgage servicing rights (437) (323)
Purchases of factored accounts receivable (6,005) (5,939)
Collections of factored accounts receivable 5,784 5,740
Net purchases of premises and equipment (122) (460)
Proceeds from sales of foreclosed properties 416 527
Sales and acquisitions of business activities, net of cash (57) 2,419
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,224) (8,096)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,507 (5,292)
Net increase in federal funds purchased and securities
sold under agreements to repurchase 4,219 21,148
Net increase (decrease) in other short-term borrowings and commercial paper 7,693 (3,526)
Proceeds from issuance of trust preferred securities 340 1,636
Proceeds from issuance of long-term debt 11,225 5,833
Retirement of long-term debt (6,328) (5,285)
Proceeds from issuance of common stock 1,330 1,723
Cash dividends paid (1,826) (1,617)
Common stock repurchased (600) (7,989)
Other financing activities (754) (1,508)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,806 5,123
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 17 55
Net decrease in cash and cash equivalents (3,751) (2,610)
Cash and cash equivalents on January 1 28,466 28,571
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents on September 30 $ 24,715 $ 25,961
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans transferred to foreclosed properties amounted to $285 and $423 for the
nine months ended September 30, 1998 and 1997, respectively. Loans securitized
and retained in the securities portfolio amounted to $4,177 and $8,140 for the
nine months ended September 30, 1998 and 1997, respectively.
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common Stock Other Share-
(Dollars in Millions, Shares Preferred ----------------- Retained Comprehensive holders' Comprehensive
in Thousands) Stock Shares Amount Earnings Income(1) Other Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE ON DECEMBER 31, 1996 $ 2,413 1,602,764 $ 11,419 $ 24,071 $ 20 $(130) $37,793
Net income 5,083 5,083 $ 5,083
Other comprehensive
income, net of tax 258 258 258
----------
Comprehensive income $ 5,341
----------
Cash dividends
Common (1,522) (1,522)
Preferred (95) (95)
Common stock issued under
employee plans 32,370 1,734 (11) 1,723
Stock issued in acquisitions 82 213,711 10,041 10,123
Common stock repurchased (133,568) (7,989) (7,989)
Conversion of preferred stock (85) 3,822 85
Redemption of preferred stock (1,467) (1,467)
Other 11 (29) (1) 7 (23)
- -------------------------------------------------------------------------------------------------------------------
BALANCE ON SEPTEMBER 30, 1997 $943 1,719,110 $ 15,261 $ 27,536 $ 278 $(134) $43,884
- -------------------------------------------------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1997 $ 708 1,722,538 $ 15,140 $ 28,438 $ 407 $(109) $44,584
Net income 4,003 4,003 $ 4,003
Other comprehensive
income, net of tax 377 377 377
-----------
Comprehensive income $ 4,380
-----------
Cash dividends
Common (1,802) (1,802)
Preferred (24) (24)
Common stock issued under employee plans 27,768 1,349 (19) 1,330
Stock issued in acquisitions 385 15 15
Common stock repurchased (9,349) (600) (600)
Conversion of preferred stock (10) 417 10
Redemption of preferred stock (614) (614)
Other 279 25 13 38
- -------------------------------------------------------------------------------------------------------------------
BALANCE ON SEPTEMBER 30, 1998 $ 84 1,742,038 $ 15,939 $ 30,615 $ 784 $(115) $47,307
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Accumulated Other Comprehensive Income includes after tax net unrealized
gains (losses) on securities available for sale and marketable equity
securities, and foreign currency translation adjustments.
See accompanying notes to consolidated financial statements.
5
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. The consolidated financial statements include the accounts
ACCOUNTING POLICIES of BankAmerica Corporation and its majority-owned
subsidiaries (the Corporation). All significant intercompany
accounts and transactions have been eliminated.
The information contained in the consolidated financial
statements is unaudited. In the opinion of management, all
normal recurring adjustments necessary for a fair
presentation of the interim period results have been made.
Certain prior period amounts have been reclassified to
conform to current period classifications.
Accounting policies followed in the presentation of interim
financial results are presented on pages 7 to 12 of the
Corporation's Current Report on Form 8-K filed November 16,
1998, which reflects the supplemental consolidated
financial statements of NationsBank Corporation
(NationsBank) to reflect the merger of NationsBank and the
former BankAmerica Corporation (BankAmerica) which was
completed on September 30, 1998 and the merger of
NationsBank with Barnett Banks, Inc. (Barnett) on January 9,
1998. NationsBank is the predecessor company of the
Corporation.
During the second quarter of 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This
standard requires the Corporation to recognize all
derivatives as either assets or liabilities in its financial
statements and measure such instruments at their fair
values. Hedging activities must be redesignated and
documented pursuant to the provisions of the statement. This
statement becomes effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Corporation
is still assessing the impact of SFAS 133 on its financial
condition and results of operations.
In October 1998, SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" (SFAS 134), was issued. SFAS 134 provides
guidance for mortgage banking firms on how to account for
interests retained after securitizing mortgage loans
previously held for sale. SFAS 134 is effective for fiscal
quarters beginning after December 15, 1998. The Corporation
does not expect the adoption of this standard to have a
material impact on its results of operations or financial
condition.
- -------------------------------------------------------------------------------
NOTE 2. On September 25, 1998, the Corporation reincorporated in
MERGER-RELATED Delaware and on September 30, 1998, the Corporation
ACTIVITY completed its merger with BankAmerica, a multi-bank holding
company headquartered in San Francisco, California (the
Merger). In connection with the Merger, the Corporation
changed its name from NationsBank Corporation to BankAmerica
Corporation. Prior to the Merger, BankAmerica provided
banking and various other financial services throughout the
U.S. and in selected international markets to consumers and
business customers, including corporations, governments and
other institutions. In the Merger, each outstanding share of
BankAmerica common stock was converted into 1.1316 shares of
the Corporation's common stock, resulting in the net
issuance of approximately 779 million common shares to the
BankAmerica shareholders. In addition, approximately 88
million options to purchase the Corporation's common stock
were issued to convert stock options granted to certain
BankAmerica employees. This transaction was accounted for as
a pooling of interests. Under this method of accounting, the
recorded assets, liabilities, shareholders' equity, income
and expenses of NationsBank and BankAmerica have been
combined and reflected at their historical amounts.
BankAmerica's total assets, total deposits and total
shareholders' equity on the date of the Merger amounted to
approximately $263.4 billion, $179.0 billion and $19.6
billion, respectively.
6
<PAGE>
In connection with the Merger, the Corporation incurred
pre-tax merger and restructuring items during the third
quarter of 1998 of approximately $725 million ($519 million
after-tax). The merger and restructuring charge recognized
certain employee termination benefits and other costs to
exit redundant activities. Specifically, it included
approximately $390 million for severance related to
employees that have been identified as being impacted,
management who have given notice related to change in
control arrangements, and other related employee costs. The
merger charge also included $205 million for contract
terminations and the writing-off of supplies, signage,
abandoned equipment and other assets where no future benefit
is expected. In addition, legal and investment banking costs
of $130 million were factored into the charge. The
Corporation anticipates recording additional merger and
restructuring items during the fourth quarter of 1998 and in
1999.
In compliance with certain requirements of the Federal
Reserve Board, the Department of Justice and certain New
Mexico authorities, in connection with the Merger, the
Corporation has entered into an agreement to divest certain
branches with loans and deposits aggregating approximately
$167 million and $500 million, respectively, in various
markets in New Mexico. These divestitures are expected to be
completed in the fourth quarter of 1998.
For further information regarding the Merger, see the
Corporation's Current Report on Form 8-K, as amended, dated
April 17, 1998.
On August 31, 1998, the Corporation completed the sale of
the investment banking operations of Robertson Stephens and
incurred a loss of $15.3 million.
On January 9, 1998, the Corporation completed its merger
with Barnett, a multi-bank holding company headquartered in
Jacksonville, Florida (the Barnett merger). Barnett's total
assets, total deposits and total shareholders' equity on the
date of the merger were approximately $46.0 billion, $35.4
billion and $3.4 billion, respectively. As a result of the
Barnett merger each outstanding share of Barnett common
stock was converted into 1.1875 shares of the Corporation's
common stock, resulting in the net issuance of approximately
233 million common shares to the former Barnett
shareholders. In addition, approximately 11 million options
to purchase the Corporation's common stock were issued to
convert stock options previously granted to certain Barnett
employees. This transaction was accounted for as a pooling
of interests and, accordingly, the recorded assets,
liabilities, shareholders' equity, income and expenses of
the Corporation and Barnett have been combined and reflected
at their historical amounts.
In connection with the Barnett merger, the Corporation
incurred pre-tax merger and restructuring items during the
first quarter of 1998 of approximately $900 million ($642
million after-tax). This cost consisted of approximately
$375 million, primarily in severance and change in control
payments and other employee related items, $300 million of
conversion and related costs and occupancy and equipment
expenses (primarily lease exit costs and the elimination of
duplicate facilities and other capitalized assets), $125
million of exit costs related to contract terminations and
$100 million of other Barnett merger costs (including legal
and investment banking fees).
7
<PAGE>
The following table summarizes the activity in the merger
and restructuring reserves related to the BankAmerica merger
and the Barnett merger for the nine months ended September
30, 1998:
BankAmerica Barnett
(Dollars in Millions) Merger Merger
--------------------------------------------------------------
Balance on January 1, 1998 $ - $ -
Establishment of reserve 725 900
Cash payments (62) (476)
Non-cash items (98) (134)
--------------------------------------------------------------
Balance on September 30, 1998 $565 $ 290
------------------------------------==========================
During the second quarter of 1998, the Corporation divested
67 Florida branches with aggregate loans and deposits of
$1.4 billion and $2.4 billion, respectively, in accordance
with the Federal Reserve Board, the Department of Justice
and certain Florida authorities' approvals of the Barnett
merger. These regulatory-required divestitures resulted in a
pre-tax gain of approximately $430 million ($277 million
after-tax) which has been reflected in Merger and
Restructuring Items Expense on the Consolidated Statement of
Income. These divestitures offset the first quarter merger
and restructuring items, resulting in net pretax merger and
restructuring items related to the Barnett merger of $470
million ($365 million after-tax) for the nine months ended
September 30, 1998.
On June 1, 1997, the branching provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 took
effect, allowing banking companies to consolidate their
subsidiary bank operations across state lines. On May 6,
1998, the Corporation merged NationsBank of Texas, N.A. into
NationsBank, N.A. On October 8, 1998, Barnett Bank, N.A.
merged into NationsBank, N.A. As of October 8, 1998, the
Corporation operated its banking activities primarily under
three charters: Bank of America NT&SA, NationsBank, N.A. and
NationsBank of Delaware, N.A., which (together with Bank of
America National Association) operates the Corporation's
credit card business. The Corporation plans to continue the
consolidation of other banking subsidiaries (other than
NationsBank of Delaware, N.A.) throughout 1999.
8
<PAGE>
NOTE 3. The fair values of the components of trading account assets
TRADING ACCOUNT and liabilities on September 30, 1998 and December 31, 1997
ASSETS AND and the average fair values for the nine months ended
LIABILITIES September 30, 1998 were:
<TABLE>
<CAPTION>
AVERAGE FOR
THE NINE
SEPTEMBER 30 DECEMBER 31 MONTHS ENDED
(DOLLARS IN MILLIONS) 1998 1997 SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
SECURITIES OWNED
U.S. Treasury securities $5,390 $10,537 $10,155
Securities of other U.S. Government
agencies and corporations 907 2,392 1,930
Certificates of deposit, bankers'
acceptances and commercial paper 5,427 1,867 2,754
Corporate debt 3,306 3,439 3,816
Foreign sovereign debt 9,997 12,650 13,697
Mortgage-backed securities 3,918 3,277 3,491
Other securities 5,564 1,775 4,060
----------------------------------------------------------------- ---------
TOTAL TRADING ACCOUNT ASSETS $34,509 $35,937 $ 39,903
--------------------------------------------===================== =========
SHORT SALES
U.S. Treasury securities $13,294 $13,087 $9,111
Corporate debt 569 217 2,045
Foreign sovereign debt 2,170 2,983 3,355
Other securities 1,742 1,013 4,066
----------------------------------------------------------------- -------
TOTAL TRADING ACCOUNT LIABILITIES $17,775 $17,300 $18,577
--------------------------------------------===================== ========
</TABLE>
Derivatives-dealer assets and liabilities are reported as
unrealized gains on off-balance sheet instruments and
unrealized losses on off-balance sheet instruments,
respectively. Unrealized gains and losses on off-balance
sheet instruments were $17.1 billion and $16.0 billion on
September 30, 1998, respectively, compared to $14.8 billion
and $13.7 billion on December 31, 1997, respectively.
9
<PAGE>
NOTE 4. The distribution of net loans, leases and factored
LOANS, LEASES accounts receivable on September 30, 1998 and December 31,
AND FACTORED 1997 was as follows:
ACCOUNTS
RECEIVABLE
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(Dollars in Millions) Amount Percent Amount Percent
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial - domestic $132,256 37.6% $121,382 35.5%
Commercial - foreign 34,016 9.7 30,080 8.8
Commercial real estate - domestic 29,347 8.3 28,567 8.3
Commercial real estate - foreign 333 0.1 324 0.1
---------------------------------------------------------------------------------------
Total commercial 195,952 55.7 180,353 52.7
---------------------------------------------------------------------------------------
Residential mortgage 69,461 19.7 71,540 20.9
Home equity lines 15,997 4.5 16,536 4.8
Bankcard (including private label) 12,256 3.5 14,908 4.4
Direct/Indirect consumer 39,812 11.3 40,058 11.7
Consumer finance 13,707 3.9 14,566 4.3
Foreign consumer 3,502 1.0 3,098 0.9
---------------------------------------------------------------------------------------
Total consumer 154,735 43.9 160,706 47.0
---------------------------------------------------------------------------------------
Factored accounts receivable 1,295 0.4 1,081 0.3
---------------------------------------------------------------------------------------
TOTAL LOANS, LEASES AND FACTORED ACCOUNTS
RECEIVABLE, NET OF UNEARNED INCOME$ 351,982 100.0% $ 342,140 100.0%
--------------------------------------=================================================
</TABLE>
The recorded investment in certain loans that were
considered to be impaired totaled $1.3 billion and $942
million on September 30,1998 and December 31, 1997,
respectively, all of which were classified as nonperforming.
Impaired loans on September 30, 1998 were comprised of
commercial - domestic loans of $669 million, commercial -
foreign loans of $288 million, commercial real estate -
domestic loans of $303 million and commercial real estate -
foreign loans of $1 million. On September 30, 1998 and
December 31, 1997 the allowance for credit losses on
impaired loans was $276 million and $145 million,
respectively.
On September 30, 1998 and December 31, 1997, nonperforming
loans, including certain loans which are considered to be
impaired, totaled $2.3 billion and $2.1 billion,
respectively. Foreclosed properties amounted to $288 million
and $309 million on September 30, 1998 and December 31,
1997, respectively.
- -------------------------------------------------------------------------------
NOTE 5. In the third quarter of 1998, the Corporation issued $2.8
DEBT billion in senior long-term debt, with maturities ranging
from 2000 to 2028. Of the $2.8 billion issued, $420 million
was converted to floating rates through interest rate swaps
at spreads ranging from 1 to 20 basis points over three-
month LIBOR. Fixed-rate debt of $450 million issued but not
swapped bears an interest rate of 6.125 percent. The
remaining $1.9 billion of debt issued bears interest at
spreads ranging from 5 to 14 basis points over three-month
LIBOR and spreads equal to 1 basis point over six-month
LIBOR.
NationsBank, N.A. maintains a program to offer up to $25.0
billion of bank notes from time to time with fixed or
floating rates and maturities from seven days or more from
date of issue. During the first nine months of 1998, $4.4
billion of bank notes classified as long-term debt were
issued under this program, and $427 million of bank notes
classified as long-term debt were issued under a prior
program in the second quarter. Under this program, on
September 30, 1998, there were short-term bank notes
outstanding of $3.8 billion. In addition, under this
program, there were bank notes outstanding on September 30,
1998 totaling $8.9 billion which
10
<PAGE>
were classified as long-term debt.
Bank of America NT&SA and Bank of America, N.A. maintain a
program to offer up to $12.0 billion of bank notes from time
to time with fixed or floating rates and maturities from 30
days to 15 years from date of issue. During the first nine
months of 1998, $1.2 billion of bank notes classified as
long-term debt were issued under this program. Under this
program, on September 30, 1998, there were short-term bank
notes outstanding of $2.4 billion. In addition, under this
program, there were notes outstanding on September 30, 1998
totaling $4.5 billion which were classified as long-term
debt.
Since October 1996, the Corporation (or its predecessors)
formed thirteen wholly owned grantor trusts (NationsBank
Capital Trusts I, II, III and IV, BankAmerica Institutional
Capital A and B, BankAmerica Capital I, II, III and IV, and
Barnett Capital I, II and III) to issue preferred securities
and to invest the proceeds of such preferred securities into
notes of the Corporation. Certain of the preferred
securities were issued at a discount. Such preferred
securities may be redeemed prior to maturity at the option
of the Corporation. The sole assets of each of the grantor
trusts are the Junior Subordinated Deferrable Interest Notes
of the Corporation (the Notes) held by such grantor trusts.
The terms of the preferred securities as of September 30,
1998 are summarized as follows:
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
FACE AMOUNT AMOUNTS INTEREST
(Dollars in Millions) ISSUED OF THE NOTES RATE REDEEMABLE MATURITY
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATIONSBANK
Capital Trust I (Issued Dec. 1996) $600 $619 7.84% Dec. 2001 Dec. 2026
Capital Trust II (Issued Dec. 1996) 365 376 7.83 Dec. 2006 Dec. 2026
Capital Trust III (Issued Feb. 1997) 500 516 3-mo. LIBOR Jan. 2007 Jan. 2027
+55.0 bps
Capital Trust IV (Issued Apr. 1997) 500 516 8.25 Apr. 2007 Apr. 2027
BANKAMERICA
Institutional Capital A (Issued
Nov. 1996) 450 464 8.07 Dec. 2006 Dec. 2026
Institutional Capital B (Issued
Nov. 1996) 300 309 7.70 Dec. 2006 Dec. 2026
Capital I (Issued Dec. 1996) 300 309 7.75 Dec. 2001 Dec. 2026
Capital II (Issued Dec. 1996) 450 464 8.00 Dec. 2006 Dec. 2026
Capital III (Issued Jan. 1997) 400 412 3-mo. LIBOR Jan. 2002 Jan. 2027
+ 57.0 bps
Capital IV (Issued Feb. 1998) 350 361 7.00 Feb. 2003 Mar. 2028
BARNETT
Capital I (Issued Nov. 1996) 300 309 8.06 Dec. 2006 Dec. 2026
Capital II (Issued Dec. 1996) 200 206 7.95 Dec. 2006 Dec. 2026
Capital III (Issued Jan. 1997) 250 258 3-mo. LIBOR Feb. 2007 Feb. 2027
+62.5 bps
</TABLE>
As of November 13, 1998, the Corporation has unused
commercial paper back-up lines of credit totaling $1.2
billion of which $671 million expires in October 1999 and
$479 million expires in October 2002. In addition, the
Corporation has an unused $1.6 billion line of credit which
expires in May 2001. These lines are supported by fees paid
directly by the Corporation to unaffiliated banks.
As of November 13, 1998, the Corporation had the authority
to issue approximately $9.6 billion of corporate debt and
other securities under existing shelf registration
statements.
The Corporation and NationsBank, N.A. may offer up to an
aggregate of $8.5 billion of senior, or in the case of the
Corporation, subordinated notes exclusively to non-United
States residents under a joint Euro medium-term note
program. Authority to issue additional debt under
11
<PAGE>
BankAmerica's Euro medium term note program was cancelled in
September 1998. As of November 13,1998, the Corporation and
NationsBank N.A. had the authority to issue approximately
$3.2 billion and $2.0 billion, respectively, of corporate
debt securities under this program.
NOTE 6. Credit Extension Commitments
COMMITMENTS The Corporation enters into commitments to extend credit,
AND CONTINGENCIES standby letters of credit and commercial letters of credit
to meet the financing needs of its customers. The
commitments shown below have been reduced by amounts
collateralized by cash and participated to other financial
institutions. The following summarizes commitments
outstanding:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
(DOLLARS IN MILLIONS) 1998 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Credit card commitments $ 74,064 $ 69,297
Other loan commitments 240,253 226,773
Standby letters of credit and
financial guarantees 33,861 31,315
Commercial letters of credit 3,969 3,748
</TABLE>
On September 30, 1998, the Corporation had commitments to
purchase and sell when-issued securities of $1.7 billion and
$2.6 billion, respectively. This compares to commitments to
purchase and sell when-issued securities of $8.8 billion and
$8.2 billion, respectively, on December 31, 1997.
12
<PAGE>
Derivatives
The following table presents the notional or contract
amounts on September 30, 1998 and December 31, 1997 and the
current credit risk amounts (the net replacement cost of
contracts in a gain position on September 30, 1998 and
December 31, 1997) of the Corporation's derivatives-dealer
positions which are primarily executed in the
over-the-counter market for trading purposes. The notional
or contract amounts indicate the total volume of
transactions and significantly exceed the amount of the
Corporation's credit or market risk associated with these
instruments. The credit risk amounts presented in the
following table do not consider the value of any collateral,
but generally take into consideration the effects of legally
enforceable master netting agreements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
DERIVATIVES - DEALER POSITIONS
------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------
CONTRACT/ CREDIT RISK CONTRACT/ CREDIT RISK
(DOLLARS IN MILLIONS) NOTIONAL AMOUNT (1) NOTIONAL AMOUNT (1)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Swaps $ 1,300,893 $ 6,241 $ 868,708 $ 3,759
Futures and forwards 859,658 382 470,640 120
Written options 766,403 - 476,152 --
Purchased options 904,499 3,203 449,383 1,078
FOREIGN EXCHANGE CONTRACTS
Swaps 36,164 2,011 31,028 1,577
Spot, futures and forwards 724,397 3,120 628,265 7,214
Written options 78,668 - 80,438 --
Purchased options 75,596 800 75,998 970
COMMODITY AND OTHER CONTRACTS
Swaps 4,725 259 2,713 80
Futures and forwards 6,416 - 3,147 --
Written options 24,763 - 14,159 --
Purchased options 26,274 1,433 13,954 403
--------- ---------
Total before cross product netting 17,449 15,201
Less: Cross product netting 1,504 749
--------- ---------
NET REPLACEMENT COST $ 15,945 $ 14,452
------------------------------------------------------------=========---------------------=========
</TABLE>
(1) Represents the net replacement cost the Corporation
could incur should counterparties with contracts in a gain
position to the Corporation completely fail to perform
under the terms of those contracts. Amounts include
accrued interest.
Credit risk associated with derivatives is measured as the
net replacement cost should the counterparties with
contracts in a gain position to the Corporation completely
fail to perform under the terms of those contracts and any
collateral underlying the contracts proves to be of no
value. In managing derivatives credit risk, both the current
exposure, which is the replacement cost of contracts on the
measurement date, as well as an estimate of the potential
change in value of contracts over their remaining lives, are
considered. In managing credit risk associated with its
derivatives activities, the Corporation deals primarily with
U.S. and foreign commercial banks, broker-dealers and
corporates.
During the first nine months of 1998, there were $42 million
in credit losses associated with Asset and Liability
Management (ALM) transactions. On September 30, 1998, there
were no nonperforming derivatives positions that were
material to the Corporation. To minimize credit risk, the
Corporation enters into legally enforceable master netting
agreements, which reduce risk by permitting the close out
and netting of transactions with the same counterparty upon
the occurrence of certain events.
13
<PAGE>
A portion of the derivatives-dealer activity involves
exchange-traded instruments. Because exchange-traded
instruments conform to standard terms and are subject to
policies set by the exchange involved, including
counterparty approval, margin requirements and security
deposit requirements, the credit risk is minimal.
As of September 30, 1998, the Corporation had a notional
value of $14.8 billion in credit derivatives, primarily
credit defaults swaps.
LITIGATION
In the ordinary course of business, the Corporation and its
subsidiaries are routinely defendants in or parties to a
number of pending and threatened legal actions and
proceedings, including actions brought on behalf of various
classes of claimants. In certain of these actions and
proceedings, substantial money damages are asserted against
the Corporation and its subsidiaries and certain of these
actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and
other laws.
The Corporation's subsidiary, Bank of America NT & SA has
been named in one such suit by the City of San Francisco and
several related public entities, and by the State of
California, in an action entitled State of California, etc
ex rel Stull v. Bank of America NT & SA, et. al. (No.
968-484). The case was instituted on April 1, 1995 in the
Superior Court for the City and County of San Francisco. The
City of San Francisco and related public entities intervened
in the case on May 1, 1997, and the State of California took
over prosecution of the case on May 5, 1997. The chief
allegation of this suit is that Bank of America retained
unclaimed funds related to bonds and coupons that were not
presented by bondholders rather than returning them to
certain bond issuers or escheating such funds to the State.
The suit also alleges False Claims Act exposure for alleged
fee overcharges and claims that Bank of America improperly
invested bond program funds. On November 12, 1998, the
plaintiffs and Bank of America settled this suit whereby
Bank of America agreed to pay $187.5 million to the
plaintiffs. The settlement is subject to court approval.
The Corporation and certain present and former officers have
been named as defendants in approximately 24 uncertified
class actions filed in federal court alleging, among other
things, that the defendants failed to disclose material
facts about BankAmerica's losses relating to DE Shaw & Co.,
L.P. until mid-October 1998, in violation of various
provisions of the federal securities laws. The uncertified
class periods consist generally of persons who were entitled
to vote on the merger of NationsBank Corporation and
BankAmerica Corporation, or who purchased or acquired
securities of the Corporation or its predecessors between
August 4, 1998 and October 13, 1998. Similar actions are
pending in California state court, alleging violations of
the California Corporations Code and involving factual
allegations essentially the same as the federal actions. In
addition, certain cases filed in California state court have
alleged that the proxy statement-prospectus of August
4,1998, falsely stated that the merger would be one of
equals, and allege a conspiracy on the part of certain
executives to gain control over the newly merged entity. At
least one such complaint seeks recovery under various state
common law theories. The Corporation believes the actions
lack merit and will defend them vigorously. The amount of
any ultimate exposure cannot be determined with certainty at
this time.
Management believes, based upon the advice of counsel, that
the actions and proceedings and the losses, if any,
resulting from the final outcome thereof, will not be
material in the aggregate to the Corporation's financial
position or results of operations.
14
<PAGE>
NOTE 7. On January 1, 1998, the Corporation adopted SFAS 131,
BUSINESS SEGMENT "Disclosures about Segments of an Enterprise and Related
INFORMATION Information". Management reports the results of operations
of the Corporation through four business segments: Consumer
Banking, which provides comprehensive retail banking
services to individuals and small businesses through
multiple delivery channels; Commercial Banking, which
provides a wide range of commercial banking services for
businesses with annual revenues of up to $500 million;
Global Corporate and Investment Banking, which provides a
broad array of financial and investment banking products
such as capital-raising products, trade finance, treasury
management, capital markets and financial advisory services
to domestic and international corporations, financial
institutions and government entities; and Wealth Management
and Principal Investing, which includes direct equity
investments in businesses and investments in general
partnership funds and the Private Bank which provides asset
management, banking and trust services for high net worth
clients both in the U.S. and internationally.
The following table includes revenues and net income for the
nine months ended September 30, 1998 and assets as of
September 30, 1998 for each business segment:
<TABLE>
<CAPTION>
NET
(DOLLARS IN MILLIONS) REVENUES INCOME ASSETS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Banking $ 14,054 $ 3,053 $ 257,979
Commercial Banking 2,153 728 65,759
Global Corporate and Investment Banking 5,002 109 230,020
Wealth Management and Principal Investing 1,825 434 22,652
---------------------------------------------------------------------------------------------------
TOTAL $ 23,034 $ 4,324 $ 576,410
-------------------------------------------------==================================================
There were no material intersegment revenues between the
four business segments.
A reconciliation of the total of the segments' net income to
consolidated net income follows:
<CAPTION>
<S> <C>
NINE MONTHS
ENDED
(DOLLARS IN MILLIONS) SEPTEMBER 30, 1998
---------------------------------------------------------------------------------------------------
Segments' net income $ 4,324
Adjustments:
Gains on sales of securities, net of taxes 386
Net gain on sales of subsidiary companies, net of taxes 37
Merger and restructuring items, net of taxes (884)
Earnings associated with unassigned capital, net of taxes 140
----------------------------------------------------------------------------------------------------
CONSOLIDATED NET INCOME $4,003
---------------------------------------------------------------------------------------------=======
</TABLE>
15
<PAGE>
NOTE. 8 On October 13, 1998, the Corporation entered into an
SUBSEQUENT EVENTS agreement with DE Shaw Securities Group, Inc. (DE Shaw), a
trading and investment firm, to which a banking subsidiary
of the Corporation had outstanding credit balances of
approximately $1.4 billion as of September 30, 1998. This
agreement provides for the purchase by a banking subsidiary
of the Corporation of approximately $20 billion of fixed-
income securities along with the related hedge positions
(purchased portfolio) and a modification of certain terms
of the outstanding loans to such firm to provide, among
other things, for an accelerated schedule of repayment. DE
Shaw positions and the purchased portfolio will be
marked-to-market and reflected in earnings currently on an
ongoing basis. Markets continue to be volatile, and the
Corporation anticipates that it may likely recognize losses
with respect to the positions in DE Shaw and the purchased
portfolio, relating to deterioration occurring in the
market prices for such positions and the purchased
portfolio, the scope of which will be dependent upon the
magnitude of such deterioration.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
On September 25, 1998, the Corporation reincorporated in
Delaware and on September 30, 1998, NationsBank Corporation
(NationsBank) completed its merger with the former
BankAmerica Corporation (BankAmerica) and changed its name
to "BankAmerica Corporation" (the Corporation). In addition,
on January 9, 1998, the Corporation completed its merger
with Barnett. The BankAmerica and Barnett mergers were each
accounted for as a pooling of interests and, accordingly,
all financial information has been restated for all periods
presented.
This report on Form 10-Q contains forward-looking statements
that are subject to risks and uncertainties and include
information about possible or assumed future results of
operations. Many possible events or factors could affect the
future financial results and performance of the Corporation.
This could cause results or performance to differ materially
from those expressed in our forward-looking statements.
Words such as "expects", "anticipates", "believes",
"estimates", variations of such words and other similar
expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such
forward-looking statements. Readers of the Corporation's
Form 10-Q should not rely solely on the forward-looking
statements and should consider all uncertainties and risks
discussed throughout this report, as well as those discussed
in the Corporation's most recent Annual Report on Form 10-K
and its Current Report on Form 8-K filed November 16, 1998
which includes the Corporation's supplemental consolidated
financial statements restated for the BankAmerica and
Barnett mergers. These statements are representative only on
the date hereof, and the Corporation undertakes no
obligation to update any forward-looking statements made.
The possible events or factors include the following, the
Corporation's loan growth is dependent on economic
conditions as well as various discretionary factors, such as
decisions to securitize, sell, or purchase certain loans or
loan portfolios, syndications or participations of loans,
the retention of residential mortgage loans generated by the
mortgage subsidiary, the management of borrower, industry,
product and geographic concentrations and the mix of the
loan portfolio. The rate of charge-offs and provision
expense can be affected by local, regional and international
economic and market conditions, concentrations of borrowers,
industries, products and geographic locations, the mix of
the loan portfolio and management's judgments regarding the
collectibility of loans. Liquidity requirements may change
as a result of fluctuations in assets and liabilities and
off-balance sheet exposures, which will impact the capital
and debt financing needs of the Corporation and the mix of
funding sources. Decisions to purchase, hold or sell
securities are also dependent on liquidity requirements and
market volatility, as well as, on- and off-balance sheet
positions. Factors that may impact interest rate risk
include local, regional and international economic
conditions, levels, mix, maturities, yields or rates of
assets and liabilities, utilization and effectiveness of
interest rate contracts and the wholesale and retail funding
sources of the Corporation. Factors that may cause actual
noninterest expense to differ from estimates include
uncertainties relating to the Corporation's efforts to
prepare its technology systems and non-information
technology systems for the Year 2000 and the Euro
conversion, as well as uncertainties relating to the ability
of third parties with whom the Corporation has business
relationships to address the Year 2000 issue and the Euro
conversion issue in a timely and adequate manner. The
Corporation is also exposed to the potential of losses
arising from adverse changes in market rates and prices
which can adversely impact the value of financial products,
including securities, loans, deposits, debt and derivative
financial instruments, such as futures, forwards, swaps,
options and other financial instruments with similar
characteristics.
17
<PAGE>
In addition, the banking industry in general is subject to
various monetary and fiscal policies and regulations, which
include those determined by the Federal Reserve Board, the
Office of the Comptroller of the Currency, Federal Deposit
Insurance Corporation, state regulators and the Office of
Thrift Supervision, which policies and regulations could
affect the Corporation's results. Other factors that may
cause actual results to differ from the forward-looking
statements include competition with other local, regional
and international banks, savings and loan associations,
credit unions and other non-bank financial institutions,
such as investment banking firms, investment advisory firms,
brokerage firms, mutual funds and insurance companies, as
well as other entities which offer financial services,
located both within and outside the United States; interest
rate, market and monetary fluctuations; inflation; market
volatility; general economic conditions and economic
conditions in the geographic regions and industries in which
the Corporation operates; introduction and acceptance of new
banking-related products, services and enhancements; fee
pricing strategies, mergers and acquisitions and their
integration into the Corporation, and management's ability
to manage these and other risks.
EARNINGS REVIEW
- -------------------------------------------------------------------------------
TABLE ONE presents a comparison of selected operating
results for the three months and nine months ended September
30, 1998 and 1997. Significant changes in the Corporation's
results of operations and financial position are discussed
in the sections that follow.
Operating net income (net income excluding merger and
restructuring items) for the third quarter of 1998 decreased
to $893 million from $1.77 billion in the third quarter of
1997, mainly due to the establishment of a $500 million
reserve for the impact of uncertainties in global economic
conditions and volatility in U.S.markets, and an additional
provision for a $372 million write-down of a credit to DE
Shaw Securities Group, Inc. (DE Shaw), a trading and
investment firm. For additional discussion see
"Concentrations of Credit Risk", page 42. Operating earnings
per common share and diluted operating earnings per common
share were $0.51 and $0.50, respectively, for the third
quarter of 1998 compared to $1.02 and $0.99 in the
comparable prior year period. Including a merger and
restructuring charge of $725 million ($519 million, net of
tax) related to the costs associated with the Merger, net
income for the third quarter of 1998 was $374 million, or
$0.21 per common share.
Operating net income for the first nine months of 1998
decreased 5 percent to $4.89 billion from $5.13 billion for
the first nine months of 1997. Operating earnings per common
share and diluted operating earnings per common share were
$2.81 and $2.73, respectively, for the first nine months of
1998 compared to $2.90 and $2.82 in the comparable prior
year period. Including merger and restructuring items for
the first nine months of 1998 of $1.20 billion ($884
million, net of tax), net income was $4.00 billion, or $2.30
per common share, compared to the same year ago period net
income of $5.08 billion or $2.87 per common share, which
included merger and restructuring items of $72 million ($44
million, net of tax).
KEY PERFORMANCE HIGHLIGHTS FOR THE FIRST NINE MONTHS OF 1998
WERE:
o Taxable-equivalent net interest income decreased
approximately 1 percent to $13.8 billion in the first
nine months of 1998. The net interest yield decreased to
3.74 percent compared to 4.06 percent in the first nine
months of 1997 due to higher levels of investment
securities and a decrease in the spreads between loans
and deposits.
18
<PAGE>
<TABLE>
<CAPTION>
TABLE ONE
SELECTED OPERATING RESULTS
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
(Dollars in Millions Except Per Share Information) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Interest income $ 9,608 $ 9,443 $ 28,950 $ 27,799
Interest expense 5,164 4,808 15,261 13,925
Net interest income (taxable-equivalent) 4,484 4,676 13,811 13,991
Net interest income 4,444 4,635 13,689 13,874
Provision for credit losses 1,405 489 2,410 1,406
Gains on sales of securities 280 54 613 160
Noninterest income 2,405 3,078 9,534 8,531
Foreclosed properties expense 7 13 42 24
Merger and restructuring items expense 725 72 1,195 72
Other noninterest expense 4,576 4,406 14,012 12,865
Income before taxes 416 2,787 6,177 8,198
Income tax expense 42 1,057 2,174 3,115
Net income 374 1,730 4,003 5,083
Net income available to common shareholders 372 1,706 3,979 4,988
Net income (excluding merger and restructuring items) 893 1,774 4,887 5,127
Average common shares issued (in thousands) 1,740,092 1,722,243 1,732,297 1,736,460
PER COMMON SHARE
Earnings $ 0.21 $ 0.99 $ 2.30 $ 2.87
Earnings (excluding merger and restructuring items) 0.51 1.02 2.81 2.90
Diluted earnings 0.21 0.96 2.24 2.80
Diluted earnings (excluding merger and
restructuring items) 0.50 0.99 2.73 2.82
Cash dividends paid 0.38 0.33 1.14 0.99
Shareholders' equity (period-end) 27.12 25.00 27.12 25.00
BALANCE SHEET (PERIOD-END)
Total loans, leases and factored accounts receivable, net of unearned income 351,982 336,293 351,982 336,293
Total assets 594,673 543,414 594,673 543,414
Total deposits 345,756 335,574 345,756 335,574
Long-term debt 47,552 42,340 47,552 42,340
Common shareholders' equity 47,245 42,981 47,245 42,981
Total shareholders' equity 47,307 43,884 47,307 43,884
PERFORMANCE RATIOS
Return on average assets 0.26% 1.26% 0.93% 1.26%
Return on average assets (excluding merger and restructuring items) 0.61 1.30 1.13 1.27
Return on average common shareholders' equity 3.23 16.13 12.01 15.92
Return on average common shareholders' equity (excluding merger
and restructuring items) 7.73 16.55 14.68 16.06
Efficiency ratio (excluding merger and restructuring items) 66.44 56.82 60.02 57.12
Total equity to total assets (period-end) 7.96 8.08 7.96 8.08
Total average equity to total average assets 7.91 7.96 7.76 8.07
Dividend payout ratio 162.10 29.54 45.29 30.51
RISK-BASED CAPITAL RATIOS (PERIOD-END)(1)
Tier 1 7.29 7.00 7.29 7.00
Total 11.25 11.56 11.25 11.56
Leverage capital ratio 6.64 6.16 6.64 6.16
CASH BASIS FINANCIAL DATA (2)
Earnings per common share $ 0.34 $ 1.11 $ 2.69 $ 3.24
Earnings per common share (excluding merger and restructuring items) 0.64 1.14 3.20 3.26
Diluted earnings per common share 0.34 1.08 2.62 3.15
Diluted earnings per common share (excluding merger and restructuring items) 0.63 1.11 3.11 3.18
Return on average tangible assets 0.42% 1.46% 1.11% 1.46%
Return on average tangible assets (excluding merger and restructuring items) 0.79 1.49 1.33 1.47
Return on average tangible common shareholders' equity 7.76 28.08 21.59 27.62
Return on average tangible common shareholders' equity
(excluding merger and restructuring items) 14.51 28.73 25.69 27.83
Efficiency ratio (excluding merger and restructuring items) 63.18 54.07 57.11 54.32
Ending tangible equity to tangible assets 5.59 5.52 5.59 5.52
MARKET PRICE PER SHARE OF COMMON STOCK
Closing price $ 53 1/2 $61 7/8 $ 53 1/2 $ 61 7/8
High for the period 88 7/16 71 11/16 88 7/16 71 11/16
Low for the period 47 7/8 56 5/8 47 7/8 48
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Ratios for 1997 have not been restated to reflect the impact of the
BankAmerica and Barnett mergers.
(2) Cash basis calculations exclude intangible assets and the related
amortization expense.
19
<PAGE>
o The provision for credit losses totaled $2.4 billion for
the first nine months of 1998 compared to $1.4 billion
for the same period in 1997. Net charge-offs as a
percentage of average loans, leases and factored accounts
receivable increased to .75 percent for the first nine
months of 1998 compared to .53 percent for the same
period in 1997. Total net charge-offs were $1.9 billion
for the nine months ended September 30, 1998 compared to
$1.4 billion for the same period in 1997. Higher net
charge-offs were primarily the result of a third quarter
$372 million write-down of a credit to DE Shaw, a
trading and investment firm. For additional discussion,
see "Concentrations of Credit Risk", page 42.
Nonperforming assets on September 30, 1998 increased only
slightly to $2.6 billion compared to $2.4 billion at
December 31, 1997, the result of higher commercial
nonperforming loans partially offset by lower consumer
nonperforming loans.
o Noninterest income increased 12 percent to $9.5 billion
in the first nine months of 1998. This growth was
attributable to higher levels of income from most
categories, including investment banking income,
brokerage income, and other income, which included gains
on securitizations during the second and third quarters,
as well as the sale of a partial ownership interest in a
mortgage company in the first quarter. Noninterest income
increased approximately 5 percent excluding the
acquisitions of Montgomery Securities (Montgomery) and
Robertson Stephens in the fourth quarter of 1997, and
NationsBanc Auto Leasing (formerly Oxford Resources
Corp.)in the second quarter of 1997. Partially offsetting
these increases were trading losses and a decrease of
mortgage servicing income. For the first nine months of
1998 trading account profits and fees totaled $75 million
compared to $853 million for the same period in 1997. The
decrease is primarily attributed to a write-down of
Russian securities and losses in corporate bonds and
mortgage products as spreads widened in the third
quarter. Mortgage servicing income for the first nine
months of 1998 totaled $12 million compared to $298
million for the same period in 1997. The decrease was
due to a write-down of mortgage servicing assets
resulting from a drop in interest rates and an increase
in prepayments in the third quarter.
o Other noninterest expense increased 9 percent to $14.0
billion, mainly a result of increases in personnel and
data processing expenses associated with the acquisitions
of Montgomery, Robertson Stephens, and NationsBanc Auto
Leasing.
o Operating cash basis ratios, which measure operating
performance excluding merger and restructuring items,
intangible assets and the related amortization expense,
fell with operating cash basis diluted earnings per
common share decreasing by 2 percent to $3.11 for the
nine months ended September 30, 1998 compared to $3.18
for the same period a year ago. For the nine months ended
September 30, 1998, return on average tangible common
shareholders' equity, excluding merger and restructuring
items, decreased to 25.69 percent compared to 27.83
percent for the same period in 1997. The cash basis
efficiency ratio was 57.11 percent in the first nine
months of 1998, an increase of 299 basis points from the
first nine months of 1997 due to the increase in
noninterest expense associated with the Montgomery,
Robertson Stephens, and NationsBanc Auto Leasing
acquisitions in 1997.
o While the Corporation's core consumer and commercial
banking activities, which are centered in the United
States, continued to perform well during the third
quarter, third quarter results were adversely affected by
the deterioration of overseas economies and the
volatility of United States financial markets. Provision
expense rose sharply due to a $372 million write-down of
a credit to DE Shaw and a $500 million additional reserve
established against continuing uncertainties in global
economic conditions. Weaker market conditions also
affected investment banking income, which totaled
20
<PAGE>
$376 million in the quarter, up from $315 million for the
third quarter of 1997, but down from a record $664
million in the second quarter of 1998. Also within
noninterest income, the Corporation recorded a $250
million write-down in the value of a mortgage servicing
portfolio, primarily reflecting the impact of declining
interest rates and increased prepayment rates.
o Conditions in overseas economies and United States and
global market conditions continue to remain volatile.
Accordingly, the Corporation may experience additional
weaknesses in the fourth quarter relating to the impact
of such conditions on the Corporation's credit and
trading portfolios and additional weakness in income from
operating units, such as investment banking, that may be
adversely impacted by such conditions. As discussed under
"Concentrations of Credit Risk", page 42, on October 13,
1998, the Corporation entered into an agreement with DE
Shaw to which a banking subsidiary of the Corporation had
outstanding credit balances of approximately $1.4 billion
as of September 30, 1998. The agreement provides for the
purchase by a banking subsidiary of the Corporation of
approximately $20 billion of fixed income securities
along with the related hedge positions (purchased
portfolio) and a modification of certain terms of the
outstanding loans to such firm to provide, among other
things, for an accelerated schedule of repayment. DE Shaw
positions and the purchased portfolio will be
marked-to-market and reflected in earnings currently on
an ongoing basis. Markets continue to be volatile and the
Corporation anticipates that it may likely recognize
additional losses with respect to such positions in DE
Shaw and the purchased portfolio, relating to
deterioration occurring in the market prices for such
positions and the purchased portfolio, the scope of which
will be dependent upon the magnitude of such
deterioration.
BUSINESS SEGMENT OPERATIONS
- -------------------------------------------------------------------------------
The Corporation provides a diversified range of banking and
certain nonbanking financial services and products through
its various subsidiaries. Management reports the results of
the Corporation's operations through four business segments:
Consumer Banking, Commercial Banking, Global Corporate and
Investment Banking, and Wealth Management and Principal
Investing.
The business segments summarized in Table Two are primarily
managed with a focus on various performance objectives
including net income, return on average equity and operating
efficiency. These performance objectives are also presented
on a cash basis, which excludes the impact of goodwill and
other intangibles and related amortization expense. The net
interest income of the business segments reflects the
results of a funds transfer pricing process which derives
net interest income by matching assets and liabilities with
similar interest rate sensitivity and maturity
characteristics. Equity capital is allocated to each
business segment based on an assessment of its inherent
risk.
Consumer Banking
The Consumer Banking segment provides comprehensive retail
banking services to individuals and small businesses through
multiple delivery channels including approximately 4,800
banking centers and 14,000 automated teller machines
("ATMs"). These banking centers and ATMs are located
throughout the Corporation's franchise and serve 30 million
households in 22 states and the District of Columbia. This
segment also provides specialized services such as the
origination and servicing of residential mortgage loans,
issuance and servicing of credit cards, direct banking via
telephone and personal computer, student lending and certain
insurance services. The consumer finance component provides
personal, mortgage, home equity and automobile loans to
consumers, retail finance programs to dealers and lease
financing to purchasers of new and used cars.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE TWO
BUSINESS SEGMENT SUMMARY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wealth Management
Global Corporate and and Principal
Consumer Banking Commercial Banking Investment Banking Investing Group
----------------- ------------------ -------------------- -----------------
(Dollars in Millions) 1998 1997 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (taxable-equivalent) $ 8,977 $ 9,346 $ 1,602 $ 1,590 $ 2,708 $ 2,554 $ 326 $ 296
Noninterest income 5,077 4,669 551 464 2,294 2,190 1,499 1,403
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenue 14,054 14,015 2,153 2,054 5,002 4,744 1,825 1,699
Provision for credit losses 959 1,345 59 (13) 1,377 71 14 3
Gains on sale of securities 9 27 4 - 1 12 - 2
Foreclosed properties expense (income) 65 24 - - (23) (20) - (1)
Noninterest expense 8,212 8,442 1,004 955 3,562 2,520 1,141 1,071
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,827 4,231 1,094 1,112 87 2,185 670 628
Income tax expense (benefit) 1,774 1,689 366 432 (22) 824 236 234
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (1) $ 3,053 $ 2,542 $ 728 $ 680 $ 109 $ 1,361 $ 434 $ 394
- ----------------------------------------=========================================================================================
Cash basis earnings (2) $ 3,691 $ 3,189 $ 839 $ 793 $ 244 $ 1,456 $ 450 $ 409
Net interest yield 5.36% 5.42% 3.79% 4.09% 1.97% 2.02% 2.84% 3.21%
Average equity to average assets 8.41 8.26 6.79 6.36 5.96 5.30 12.46 13.21
Return on risk-adjusted average equity 20 16 23 25 1 18 25 26
Return on risk-adjusted tangible equity(2) 32 27 33 38 3 21 28 30
Efficiency ratio 58.4 60.2 46.6 46.5 71.2 53.1 62.5 63.0
Cash basis efficiency ratio(2) 53.9 55.6 41.5 41.0 68.5 51.1 61.7 62.2
Average(3)
Total loans and leases, net of
unearned income $ 174,894 $186,353 $48,789 $ 45,377 $104,801 $ 99,019 $ 14,541 $ 11,684
Total deposits 228,617 230,669 21,261 20,078 62,153 59,999 11,706 10,872
Total assets 244,656 254,766 63,082 57,818 212,934 194,909 18,468 15,068
Period-end(3)
Total loans and leases, net of
unearned income 172,075 177,769 50,353 45,778 111,831 97,783 16,500 12,859
Total deposits 225,578 230,420 22,049 22,096 65,069 61,672 11,972 11,501
Total assets 257,979 249,195 65,759 59,543 230,020 200,984 22,652 17,620
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Business Segment results are presented on a fully allocated basis but do
not include $321 net expense for the first nine months of 1998 and $107 net
income for the first nine months of 1997 which represent earnings associated
with unassigned capital, gains on sales of certain securities, gains on
business divestitures, merger and restructuring items as well as other
corporate activities.
(2) Excludes capital associated with intangible assets and related amortization
expense.
(3) The sums of balance sheet amounts differ from consolidated amounts due to
activities between the Business Segments.
Consumer Banking's earnings increased 20 percent to $3.0
billion in the first nine months of 1998. Taxable-equivalent
net interest income of $9.0 billion decreased 4 percent from
the first nine months of 1997, primarily reflecting lower
interest income on loans attributable to the impact of
increased securitization activity as well as divestitures
and loan sales, partially offset by reduced funding costs
reflecting continued deposit expense management. As the
Corporation continues to securitize loans, its role becomes
that of a servicer and the income related to securitized
loans is reflected in noninterest income. The net interest
yield decreased 6 basis points in the first nine months of
1998, reflecting the impact of lower earnings assets and
changes in spreads on loans and deposits. Excluding the
impact of securitizations, acquisitions and divestitures,
average total loans and leases increased approximately 4
percent in 1998 over average levels
22
<PAGE>
in the first nine months of 1997. Average total deposits for
the first nine months of 1998 decreased to $228.6 billion
from $230.7 billion in 1997, the result of deposit declines
in the former Barnett franchise resulting primarily from the
divestiture of selected banking centers.
The decrease in Consumer Banking's provision for credit
losses of $386 million from 1997 is attributable primarily
to securitizations, loan sales and divestitures.
Noninterest income in Consumer Banking rose 9 percent to
$5.1 billion due to credit card fee income, non-deposit
service charges and fee income, and miscellaneous income
primarily related to a gain on the sale of a manufactured
housing unit and loan sales, partially offset by lower
mortgage servicing income resulting from a write-down of
mortgage servicing rights. Noninterest expense decreased 3
percent to $8.2 billion, reflecting the efficiencies
obtained from the successful integration of the former
Boatmen's and Barnett franchises and expense management
efforts. The cash basis efficiency ratio was 53.9 percent,
an improvement of approximately 170 basis points compared to
the first nine months of 1997. The return on risk-adjusted
tangible equity increased to 32 percent for the first nine
months of 1998 compared to 27 percent for the same period in
1997.
Commercial Banking
The Commercial Banking segment provides a wide range of
commercial banking services for businesses with annual
revenues of up to $500 million. Services provided include
commercial lending, treasury and cash management services,
asset-backed lending, leasing and factoring. Also included
in this segment are the Corporation's commercial finance
operations which provide activities such as: equipment loans
and leases, loans for debt restructuring, mergers and
working capital, real estate and health care financing and
inventory financing to manufacturers, distributors and
dealers.
Commercial Banking's earnings rose 7 percent to $728 million
in the first nine months of 1998 compared to the same
year-ago period. Taxable-equivalent net interest income
increased $12 million primarily reflecting higher loan
levels partially offset by changes in spreads on loans and
deposits. Commercial Banking's average loan and lease
portfolio during the first nine months of 1998 increased 8
percent to $48.8 billion compared to $45.4 billion in the
same period of 1997.
Noninterest income rose 19 percent to $551 million over the
first nine months of 1997 primarily due to an increase in
investment banking fees as well as non-deposit and deposit
service charges. Noninterest expense for the period
increased 5 percent to $1.0 billion, reflecting increases in
data processing and personnel. The cash basis efficiency
ratio increased approximately 50 basis points to 41.5
percent. The return on risk-adjusted tangible equity
decreased to 33 percent from 38 percent.
Global Corporate and Investment Banking
The Global Corporate and Investment Banking segment provides
a broad array of financial and investment banking products
such as capital-raising, trade finance, treasury management,
capital markets and financial advisory services to domestic
and international corporations, financial institutions and
government entities. Clients are supported through offices
in 37 countries in four distinct geographic regions: U.S.
and Canada; Asia; Europe, Middle East and Africa; and Latin
America. Products and services provided include loan
origination, cash management, foreign exchange, leasing,
leveraged finance, principal investing, project finance,
real estate, risk management, senior bank debt, structured
finance, and trade services. Through the Corporation's
Section 20 subsidiary, NationsBanc Montgomery Securities
LLC, Global Corporate and Investment Banking segment is a
primary dealer of U.S. Government Securities, underwrites
and trades municipal bonds, and underwrites, distributes and
makes
23
<PAGE>
markets in high-grade and high-yield debt securities and
equity securities. Asset-backed securitization, commercial
paper distribution, debt and equity securities research,
loan syndications, mergers and acquisitions consulting and
private placements are also provided through NationsBanc
Montgomery Securities LLC. Additionally, Global Corporate
and Investment Banking is a market maker in derivative
products which include swap agreements, option contracts,
forward settlement contracts, financial futures and other
derivative products in certain interest rate, foreign
exchange, commodity and equity markets. In support of these
activities, Global Corporate and Investment Banking takes
positions to support client demands and its own account.
Global Corporate and Investment Banking net income decreased
to $109 million in the first nine months of 1998 compared to
$1.4 billion in the same period of 1997. Taxable-equivalent
net interest income increased 6 percent for the first nine
months of 1998 to $2.7 billion compared to $2.6 billion in
the first nine months of 1997, reflecting increased trading
related activities and higher loan volumes. Excluding the
impact of a $4.2 billion securitization completed in the
third quarter of 1997, the Global Corporate and Investment
Banking average loan and lease portfolio increased
approximately 6 percent over 1997.
The provision for credit losses increased to $1.4 billion
primarily due to the increased uncertainties in global
economic conditions which resulted in an addition of $500
million to reserves in the third quarter, and the $372
million write-down of a credit to a trading and investment
firm which resulted in an increased provision of that
amount, for additional discussion, see "Concentrations of
Credit Risk", page 42.
Noninterest income rose to $2.3 billion, an increase of 5
percent over the first nine months of 1997, reflecting
higher investment banking fees and brokerage income due to
the Montgomery and Robertson Stephens acquisitions.
Partially offsetting these increases were trading losses
resulting from weaker global markets and lower miscellaneous
income primarily due to write-downs of an investment in
KorAm Bank in South Korea. Noninterest expense rose to $3.6
billion due primarily to higher personnel expenses
associated with the Montgomery and Robertson Stephens
acquisitions. Expenses in most other categories also
increased in the first nine months of 1998 due to the
Montgomery and Robertson Stephens acquisitions. The cash
basis efficiency ratio increased to 68.5 percent primarily
due to higher expense ratios at Montgomery and Robertson
Stephens. The return on risk-adjusted tangible equity
decreased to 3 percent for the first nine months of 1998
from 21 percent for the same period in 1997, reflecting the
difficult market conditions.
Wealth Management and Principal Investing
The Wealth Management and Principal Investing segment
includes the Private Bank which provides asset management,
banking and trust services for high net worth clients both
in the U.S. and internationally. The Wealth Management arm
of this segment provides full service and discount
brokerage, investment advisory and investment management, as
well as advisory services for the Corporation's affiliated
family of mutual funds. The Principal Investing area
includes direct equity investments in businesses and
investments in general partnership funds.
Wealth Management and Principal Investing earned $434
million in the first nine months of 1998 compared to $394
million in the first nine months of 1997. The results are
due to strong growth in the segment's core businesses,
following the sales of certain corporate and institutional
trust businesses during the third quarter of 1997.
Taxable-equivalent net interest income increased 10 percent
for the first nine months of 1998 to $326 million compared
to $296 million in the same period a year ago, reflecting
income from increased loan levels. The average loan and
lease portfolio in the first nine months of 1998 increased
to $14.5 billion compared to
24
<PAGE>
$11.7 billion in the first nine months of 1997 as a result
of core loan growth. Assets under management were $194
billion on September 30, 1998, an increase of $15 billion
from September 30, 1997.
Noninterest income increased 7 percent in the first nine
months of 1998 to $1.5 billion primarily attributable to
growth in investment banking fees, brokerage income and
other non-deposit service charges. Core revenue growth was
more than offset by the sales of certain corporate and
institutional trust businesses, which occurred in the third
quarter of 1997. Noninterest expense increased 7 percent due
primarily to increases in personnel expense, professional
fees and support costs. The cash basis efficiency ratio
improved approximately 50 basis points to 61.7 percent in
the first nine months of 1998 compared to 62.2 percent for
the first nine months of 1997. The return on risk-adjusted
tangible equity decreased to 28 percent.
See NOTE SEVEN of the Notes to the Consolidated Financial
Statements for additional business segment information.
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
NET INTEREST An analysis of the Corporation's taxable-equivalent net
INCOME interest income and average balance sheet levels for the
last five quarters and first nine months of 1998 and 1997 is
presented in TABLES THREE AND FOUR, respectively.
Taxable-equivalent net interest income decreased
approximately 4 percent to $4.48 billion in the third
quarter of 1998 and amounted to $13.81 billion in the first
nine months of 1998 compared to $4.68 billion and $13.99
billion for the same respective 1997 periods. This decrease
was mainly the result of changes in spreads on loans and
deposits and the impact of securitizations, divestitures and
asset sales. While securitizations decreased net interest
income by approximately $312 million and $844 million in the
third quarter and first nine months of 1998, respectively,
they did not significantly affect the Corporation's
earnings. As the Corporation continues to securitize loans,
its role becomes that of a servicer and the income related
to securitized loans is reflected in other income under
noninterest income.
The $163 million increase in interest income for the third
quarter of 1998, was due to $616 million of higher average
earning assets, partially offset by a $453 million decrease
resulting from lower yields received on average earning
assets. The $1.16 billion increase in interest income for
the first nine months of 1998 was the result of a $1.91
billion increase due to higher average earning assets,
partially offset by a $751 million decrease resulting from
lower yields received on average earning assets. Interest
expense increased $356 million for the third quarter of
1998, resulting mainly from higher levels of average
interest-bearing liabilities. The $1.34 billion increase in
interest expense for the first nine months of 1998 was the
result of a $933 million increase from higher levels of
average interest-bearing liabilities and a $404 million
increase due to higher rates paid on average
interest-bearing liabilities.
The net interest yield decreased 41 basis points to 3.60
percent in the third quarter and decreased 32 basis points
to 3.74 percent in the first nine months of 1998, compared
to the same periods of 1997. The decreases are due primarily
to higher levels of investment securities and a decrease in
the spreads between loans and deposits.
Loan growth is dependent on economic conditions as well as
various discretionary factors, such as decisions to
securitize certain loan portfolios, the retention of
residential mortgage loans generated by the Corporation's
mortgage units and the management of borrower, industry,
product and geographic concentrations.
25
<PAGE>
<TABLE>
<CAPTION>
TABLE THREE
QUARTERLY TAXABLE-EQUIVALENT DATA
- ---------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1998 SECOND QUARTER 1998
---------------------------- -------------------------------
AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/
(DOLLARS IN MILLIONS) AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
Loans and leases, net of unearned income: (1)
Commercial - domestic $ 131,310 $ 2,538 7.67% $ 126,623 $2,496 7.91%
Commercial - foreign 31,245 578 7.35 30,046 556 7.41
Commercial real estate - domestic 28,027 610 8.64 28,228 644 9.15
Commercial real estate - foreign 338 8 10.51 334 9 9.82
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL 190,920 3,734 7.76 185,231 3,705 8.02
- ---------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 70,619 1,155 6.53 69,337 1,171 6.76
Home equity lines 16,024 485 12.03 16,271 473 11.64
Direct/Indirect consumer 39,582 854 8.56 40,404 895 8.90
Consumer finance 14,197 385 10.76 14,249 387 10.88
Bankcard 12,751 399 12.43 12,780 409 12.83
Foreign consumer 3,465 93 10.57 3,350 87 10.53
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER 156,638 3,371 8.56 156,391 3,422 8.77
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES, NET 347,558 7,105 8.12 341,622 7,127 8.36
- ---------------------------------------------------------------------------------------------------------------------------------
Securities:
Held for investment 4,286 76 6.99 4,525 79 7.03
Available for sale (2) 61,250 1,046 6.82 58,527 1,017 6.95
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES 65,536 1,122 6.83 63,052 1,096 6.96
- ---------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under
agreements to resell 27,646 492 7.06 25,275 433 6.86
Time deposits placed and other short-term investments 7,483 138 7.31 7,916 129 6.54
Trading account securities 35,487 587 6.59 42,421 693 6.56
Other earning assets 10,974 204 7.42 10,494 201 7.68
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS (3) 494,684 9,648 7.75 490,780 9,679 7.91
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 24,160 25,071
Factored accounts receivable 1,227 1,165
Other assets, less allowance for credit losses 58,282 56,959
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 578,353 $573,975
- -----------------------------------------------------------======================================================================
INTEREST-BEARING LIABILITIES
DOMESTIC INTEREST-BEARING DEPOSITS
Savings $ 22,775 107 1.87 $23,208 112 1.93
NOW and money market deposit accounts 95,276 634 2.64 96,605 638 2.65
Consumer CDs and IRAs 74,313 984 5.25 74,002 983 5.29
Negotiated CDs, public funds and other time deposits 8,696 120 5.45 8,388 117 5.63
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC INTEREST-BEARING DEPOSITS 201,060 1,845 3.64 202,203 1,850 3.66
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits(4)
Banks located in foreign countries 27,892 418 5.95 22,393 326 5.84
Governments and official institutions 11,084 156 5.59 10,629 150 5.64
Time, savings, and other 24,086 411 6.77 22,592 364 6.49
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN INTEREST-BEARING DEPOSITS 63,062 985 6.20 55,614 840 6.07
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 264,122 2,830 4.25 257,817 2,690 4.18
- ---------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 84,283 1,278 6.02 82,385 1,229 5.98
Trading account liabilities 15,454 194 4.97 19,817 262 5.30
Long-term debt (5) 51,365 862 6.71 49,254 830 6.74
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES (6) 415,224 5,164 4.94 409,273 5,011 4.90
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING SOURCES:
Noninterest-bearing deposits 83,661 84,552
Other liabilities 33,712 35,293
Shareholders' equity 45,756 44,857
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 578,353 $573,975
- ----------------------------------------------------------=======================================================================
Net interest spread 2.81 3.01
Impact of noninterest-bearing sources 0.79 0.80
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $ 4,484 3.60% $4,668 3.81%
- ----------------------------------------------------------------------===========================================================
</TABLE>
(1) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(2) The average balance sheet amounts and yields on securities available for
sale are based on the average of historical amortized cost balances.
(3) Interest income includes taxable-equivalent adjustments of $40, $42 and
$40 in the third, second and first quarters of 1998 and $40 and $41 in
the fourth and third quarters of 1997, respectively. Interest income also
includes the impact of risk management interest rate contracts, which
increased interest income on the underlying linked assets $46, $29, and $29
in the third, second, and first quarters of 1998 and $61 and $16 in the
fourth and third quarters of 1997, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate
contracts, which increased (decreased) interest expense on the underlying
linked liabilities $9, $4, and $5 in the third, second and first quarters
of 1998 and $22 and $(6) in the fourth and third quarters of 1997,
respectively.
26
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1998 FOURTH QUARTER 1997 THIRD QUARTER 1997
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/ SHEETS OR YIELDS/
AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 122,474 $ 2,413 7.98% $117,000 $ 2,370 8.03% $116,411 $ 2,395 8.17%
29,840 543 7.37 29,291 519 7.04 28,823 506 6.96
29,000 648 9.06 29,020 666 9.11 29,190 704 9.57
327 8 10.48 -- -- -- 178 8 16.08
- ----------------------------------------------------------------------------------------------------------------------------------
181,641 3,612 8.06 175,311 3,555 8.05 174,602 3,613 8.21
- ----------------------------------------------------------------------------------------------------------------------------------
70,350 1,218 6.95 73,138 1,290 7.05 80,468 1,432 7.10
16,448 457 11.28 16,308 479 11.65 15,374 457 11.82
40,280 880 8.85 39,562 874 8.78 39,184 873 8.83
14,662 419 11.60 14,163 408 11.42 13,882 406 11.60
14,259 464 13.19 14,762 491 13.17 15,759 535 13.47
3,218 83 10.46 3,403 83 9.68 3,496 79 8.95
- ----------------------------------------------------------------------------------------------------------------------------------
159,217 3,521 8.94 161,336 3,625 8.91 168,163 3,782 8.94
340,858 7,133 8.47 336,647 7,180 8.47 342,765 7,395 8.57
4,713 83 7.09 4,853 86 7.00 5,180 91 7.04
61,074 1,061 6.98 55,871 962 6.87 41,023 711 6.91
- ----------------------------------------------------------------------------------------------------------------------------------
65,787 1,144 6.99 60,724 1,048 6.88 46,203 802 6.92
- ----------------------------------------------------------------------------------------------------------------------------------
26,632 417 6.35 24,884 414 6.59 22,668 382 6.68
8,517 136 6.48 8,037 142 7.02 8,097 135 6.59
41,868 740 7.14 38,253 691 7.18 40,197 678 6.71
9,047 175 7.76 4,542 99 8.68 3,801 92 9.81
- ----------------------------------------------------------------------------------------------------------------------------------
492,709 9,745 8.00 473,087 9,574 8.04 463,731 9,484 8.13
- ----------------------------------------------------------------------------------------------------------------------------------
24,558 24,203 23,556
1,112 1,234 1,205
60,462 58,071 54,538
- ----------------------------------------------------------------------------------------------------------------------------------
578,841 $556,595 $543,030
==================================================================================================================================
$ 23,096 111 1.95 $ 23,596 118 1.98 $ 24,348 122 1.98
96,696 642 2.70 95,570 648 2.69 94,698 637 2.67
75,393 992 5.33 76,939 1,036 5.35 76,987 1,041 5.34
5,917 81 5.53 6,285 89 5.65 6,149 90 5.77
- ----------------------------------------------------------------------------------------------------------------------------------
201,102 1,826 3.68 202,390 1,891 3.71 202,182 1,890 3.70
- ----------------------------------------------------------------------------------------------------------------------------------
23,067 336 5.91 22,523 347 6.11 21,873 324 5.88
10,067 141 5.69 9,759 140 5.70 11,478 160 5.52
23,467 390 6.70 22,706 351 6.11 22,334 341 6.07
- ----------------------------------------------------------------------------------------------------------------------------------
56,601 867 6.20 54,988 838 6.04 55,685 825 5.88
- ----------------------------------------------------------------------------------------------------------------------------------
257,703 2,693 4.24 257,378 2,729 4.21 257,867 2,715 4.17
- ----------------------------------------------------------------------------------------------------------------------------------
91,358 1,310 5.82 76,245 1,164 6.06 69,744 1,062 6.04
20,516 274 5.43 17,128 278 6.44 15,540 227 5.80
47,416 809 6.83 46,908 805 6.86 47,101 804 6.82
- ----------------------------------------------------------------------------------------------------------------------------------
416,993 5,086 4.93 397,659 4,976 4.97 390,252 4,808 4.89
- ----------------------------------------------------------------------------------------------------------------------------------
82,164 80,953 78,551
36,056 34,176 30,986
43,628 43,807 43,241
- ----------------------------------------------------------------------------------------------------------------------------------
$ 578,841 $556,595 $543,030
- ----------------------------------------------------------------------------------------------------------------------------------
3.07 3.07 3.24
0.75 0.80 0.77
$ 4,659 3.82% $ 4,598 3.87% $ 4,676 4.01%
==================================================================================================================================
</TABLE>
27
<PAGE>
TABLE FOUR
NINE MONTH TAXABLE-EQUIVALENT DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/
(DOLLARS IN MILLIONS) AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases, net of unearned income: (1)
Commercial - domestic $ 126,834 $ 7,446 7.85% $ 116,045 $7,017 8.08%
Commercial - foreign 30,382 1,677 7.38 27,959 1,476 7.06
Commercial real estate - domestic 28,415 1,902 8.95 29,619 2,082 9.40
Commercial real estate - foreign 333 25 10.27 215 22 13.60
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL 185,964 11,050 7.94 173,838 10,597 8.15
- ----------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 70,103 3,544 6.74 83,105 4,393 7.05
Home equity lines 16,246 1,415 11.65 14,239 1,334 12.53
Direct/Indirect consumer 40,087 2,630 8.77 39,172 2,589 8.83
Consumer finance 14,367 1,191 11.08 13,738 1,217 11.84
Bankcard 13,258 1,272 12.83 16,310 1,636 13.42
Foreign consumer 3,345 263 10.52 3,365 226 8.97
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSUMER 157,406 10,315 8.76 169,929 11,395 8.96
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS AND LEASES, NET 343,370 21,365 8.32 343,767 21,992 8.55
- ----------------------------------------------------------------------------------------------------------------------------------
Securities:
Held for investment 4,506 238 7.04 5,588 303 7.24
Available for sale (2) 60,285 3,124 6.92 38,484 1,997 6.92
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES 64,791 3,362 6.92 44,072 2,300 6.96
- ----------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under
agreements to resell 26,521 1,342 6.76 22,949 1,102 6.42
Time deposits placed and other short-term investments 7,968 403 6.76 8,495 399 6.28
Trading account securities 39,903 2,021 6.77 38,294 1,897 6.62
Other earning assets 10,178 579 7.61 3,072 226 9.85
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS (3) 492,731 29,072 7.88 460,649 27,916 8.10
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 24,595 24,182
Factored accounts receivable 1,168 1,160
Other assets, less allowance for credit losses 58,561 53,491
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $577,055 $539,482
==================================================================================================================================
INTEREST-BEARING LIABILITIES
DOMESTIC INTEREST-BEARING DEPOSITS
Savings $ 23,025 330 1.92 $24,884 373 2.00
NOW and money market deposit accounts 96,188 1,914 2.66 95,080 1,880 2.64
Consumer CDs and IRAs 74,565 2,959 5.29 77,661 3,065 5.28
Negotiated CDs, public funds and other time deposits 7,677 318 5.53 6,455 271 5.61
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DOMESTIC INTEREST-BEARING DEPOSITS 201,455 5,521 3.66 204,080 5,589 3.66
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits(4)
Banks located in foreign countries 24,469 1,080 5.90 21,958 927 5.65
Governments and official institutions 10,597 447 5.64 11,152 451 5.40
Time, savings, and other 23,383 1,165 6.66 21,885 988 6.04
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN INTEREST-BEARING DEPOSITS 58,449 2,692 6.16 54,995 2,366 5.75
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 259,904 8,213 4.22 259,075 7,955 4.10
- ----------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 85,983 3,817 5.94 68,431 2,941 5.75
Trading account liabilities 18,577 730 5.25 14,664 697 6.36
Long-term debt (5) 49,359 2,501 6.76 46,144 2,332 6.74
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES (6) 413,823 15,261 4.93 388,314 13,925 4.79
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING SOURCES:
Noninterest-bearing deposits 83,465 77,319
Other liabilities 35,012 30,306
Shareholders' equity 44,755 43,543
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $577,055 $539,482
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 2.95 3.31
Impact of noninterest-bearing sources 0.79 0.75
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $ 13,811 3.74% $ 13,991 4.06%
- ---------------------------------------------------------========================================================================
</TABLE>
(1) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(2) The average balance sheet amounts and yields on securities available for
sale are based on the average of historical amortized cost balances.
(3) Interest income includes taxable-equivalent adjustments of $122 and $117 in
1998 and 1997, respectively. Interest income also includes the impact of risk
management interest rate contracts, which increased interest income on the
underlying linked assets $104 and $101 in 1998 and 1997, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate
contracts, which increased (decreased) interest expense on the underlying
linked liabilities $18 and $(7) in 1998 and 1997, respectively.
28
<PAGE>
- --------------------------------------------------------------------------------
PROVISION FOR The provision for credit losses totaled $1.41 billion and
CREDIT LOSSES $2.41 billion for the third quarter and first nine months of
1998, respectively, compared to $489 million and $1.41
billion for the same periods in 1997. The increase in the
provision for credit losses was due to the establishment of
a $500 million reserve related to the expected impact of
uncertainties in global economic conditions and volatility
in US markets, a $372 million write-down of a credit to DE
Shaw, a trading and investment firm (for additional
information, see "Concentrations of Credit Risk", page 42),
and increased net charge-offs. Net charge-offs totaled $902
million and $1.92 billion for the three months and nine
months ended September 30, 1998, respectively, compared to
$497 million and $1.36 billion for the same year-ago
periods. For additional information on the allowance for
credit losses, certain credit quality ratios and credit
quality information on specific loan categories, see the
"Allowance for Credit Losses" and "Concentrations of Credit
Risk" sections.
- --------------------------------------------------------------------------------
GAINS ON SALES Gains on sales of securities were $280 million and $613
OF SECURITIES million in the third quarter and first nine months of 1998,
respectively, compared to $54 million and $160 million in
the same year-ago periods. Securities gains were higher as
a result of increased activity connected with the
Corporation's overall risk management activities and
favorable market conditions.
TABLE FIVE
NONINTEREST INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 CHANGE ENDED SEPTEMBER 30 CHANGE
- --------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 855 $ 860 $ (5) (0.6)% $ 2,515 $ 2,505 $ 10 0.4%
Mortgage servicing and other
mortgage-related income (176) 97 (273) (281.4) 12 298 (286) (96.0)
Investment banking income 376 315 61 19.4 1,653 834 819 98.2
Trading account profits and fees (529) 281 (810) (288.3) 75 853 (778) (91.2)
Brokerage income 198 71 127 178.9 566 222 344 155.0
Other nondeposit-related service fees 178 163 15 9.2 546 494 52 10.5
Asset management and fiduciary
service fees 238 252 (14) (5.6) 744 752 (8) (1.1)
Credit card income 379 320 59 18.4 1,050 882 168 19.0
Other income 886 719 167 23.2 2,373 1,691 682 40.3
- --------------------------------------------------------------------------------------------------------------------------
$ 2,405 $ 3,078 $ (673) (21.9) $ 9,534 $ 8,531 $ 1,003 11.8
- ---------------------------------------===================================================================================
</TABLE>
NONINTEREST As presented in Table Five, noninterest income decreased 22
INCOME percent to $2.41 billion in the third quarter of 1998
reflecting lower levels of income in trading account profits
and fees and mortgage servicing and other mortgage-related
income. Noninterest income increased 12 percent to $9.53
billion in the first nine months of 1998 reflecting higher
levels of income from most categories, including investment
banking income and brokerage income, as well as the
acquisitions of Montgomery and Robertson Stephens.
o Mortgage servicing and other mortgage-related income
decreased to $(176) million and to $12 million in the
third quarter and first nine months of 1998,
respectively, primarily due to a $250 million write-down
of mortgage servicing rights caused primarily by a
decline in interest rates and also an increase in
prepayment rates. The average portfolio of loans
serviced increased 5 percent from $207.4 billion in the
first nine months of 1997 to $218.6 billion in the first
nine months of 1998. Mortgage loan originations through
the
29
<PAGE>
Corporation's mortgage units increased from $25.0
billion in the first nine months of 1997 to $49.8
billion for the same period of 1998. Origination volume
in the first nine months of 1998 was composed of
approximately $25.5 billion of correspondent and
wholesale loan volume and $24.3 billion of retail loan
volume.
In conducting its mortgage production activities, the
Corporation is exposed to interest rate risk for the
period between loan commitment date and subsequent
delivery date. To manage this risk, the Corporation
enters into various financial instruments including
forward delivery and option contracts. The notional
amount of such contracts was approximately $9.3 billion
on September 30, 1998 with associated net unrealized
losses of $70 million. These contracts generally have an
average expected maturity of less than 90 days. To
manage risk associated with changes in prepayment rates
and the impact on mortgage servicing rights, the
Corporation uses various financial instruments including
options and certain interest rate swaps. The notional
amount of such contracts on September 30, 1998 was $21
billion with an associated net unrealized gain of $281
million.
o Investment banking income increased 19 percent to $376
million and 98 percent to $1.7 billion in the third
quarter and first nine months of 1998, respectively,
mainly reflecting changes in the levels of advisory,
syndication and indemnity fees and the acquisitions of
Montgomery and Robertson Stephens. Securities
underwriting fees increased $49 million to $81 million
for the third quarter of 1998 as a result of the
Montgomery and Robertson Stephens acquisitions. Higher
syndication fees were the result of 200 agent-only deals
totaling $94.7 billion in the third quarter of 1998.
Gains on principal investing activities (investing in
equity or equity-related transactions) decreased $81
million in the third quarter of 1998 over the same
period in 1997 due to a slow down in distributions from
direct investments. Advisory services fees increased in
the third quarter of 1998 by $48 million reflecting the
impact of the Montgomery and Robertson Stephens
acquisitions.
On August 31, 1998, the Corporation sold the investment
banking operations of Robertson Stephens. Investment
banking income by major business activity follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------
INVESTMENT BANKING INCOME
<S> <C> <C> <C> <C>
Syndications $ 110 $ 55 $ 327 $ 168
Securities underwriting 81 32 518 114
Principal investment activities 78 159 496 386
Advisory services 76 28 244 76
Other 31 41 68 90
- -------------------------------------------------------------------------------------
Total investment banking income $ 376 $ 315 $1,653 $ 834
- ---------------------------------------==============================================
</TABLE>
o Brokerage income increased $127 million and $344 million
from the third quarter and first nine months of 1997 due
mainly to the additions of Montgomery and Robertson
Stephens as well as internal growth of 59 percent and 61
percent, respectively.
o Trading account profits and fees decreased $810 million
and $778 million in the third quarter and first nine
months of 1998, respectively. The decrease is primarily
attributable to a write-down of Russian securities and
losses in corporate bonds and mortgage products as
spreads widened in the third quarter. Trading account
profits and fees by major business activity follows:
30
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING ACCOUNT PROFITS AND FEES
Securities trading $(646) $ 98 $(600) $ 318
Interest rate contracts 58 67 210 177
Foreign exchange contracts 51 106 436 322
Other 8 10 29 36
- ------------------------------------------------------------------------------------
$(529) $ 281 $ 75 $ 853
====================================================================================
</TABLE>
o Asset management and fiduciary service fees decreased $14
million to $238 million in the third quarter of 1998 and
decreased $8 million to $744 million for the first nine
months of 1998, reflecting the impact of the third
quarter 1997 sales of certain corporate and institutional
trust businesses, which included businesses that provided
administrative and record-keeping services for employee
benefit plans.
o Other income totaled $886 million and $2.4 billion in the
third quarter and first nine months of 1998,
respectively, an increase of $167 million and $682
million over the same periods of 1997. The increase over
the second quarter of 1998 and the first nine months of
1997 was due primarily to the gain from the sale of
BankAmerica's manufactured housing business, partially
offset by write-downs of an investment in KorAm Bank in
South Korea. Other income includes: certain prepayment
fees and other fees (such as net gains on sales of
miscellaneous investments, business activities, premises
and other similar items), net rental income on operating
automobile leases, servicing and related fees from the
Corporation's consumer finance business, insurance
commissions and earnings and bankers' acceptances and
letters of credit fees.
- --------------------------------------------------------------------------------
MERGER AND In connection with the Merger, the Corporation incurred
RESTRUCTURING ITEMS pre-tax merger and restructuring items during the third
quarter of 1998 of approximately $725 million ($519 million
after-tax). The merger and restructuring charge recognized
certain employee termination benefits and other costs to
exit redundant activities. Specifically, it included
approximately $390 million for severance related to
employees that have been identified as being impacted,
management who have given notice related to change in
control arrangements, and other related employee costs. The
merger charge included $205 million for contract
terminations and the writing off of supplies, signage,
abandoned equipment and other assets where no future benefit
is expected. Legal and investment banking costs of $130
million were factored into the charge. The Corporation
anticipates recording additional merger and restructuring
items during the fourth quarter of 1998 and in 1999. See
NOTE TWO of the Notes to the Consolidated Financial
Statements for additional information.
In connection with the Barnett merger during the first
quarter of 1998, the Corporation incurred pretax merger and
restructuring items of $900 million ($642 million
after-tax). This cost included approximately $375 million
primarily in severance and change in control payments, $300
million of conversion and related costs and occupancy and
equipment expenses (primarily lease exit costs and the
elimination of duplicate facilities and other capitalized
assets), $125 million of exit costs related to contract
terminations and $100 million of other Barnett merger costs
(including legal and investment banking fees).
31
<PAGE>
During the second quarter of 1998, the Corporation divested
67 Florida branches, resulting in a net total pre-tax gain
of approximately $430 million ($277 million after-tax).
These divestiture gains are included in Merger and
Restructuring items expense, resulting in pre-tax merger and
restructuring items related to the Barnett merger of $470
million ($365 million after-tax) for the nine months ended
September 30, 1998.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE SIX
OTHER NONINTEREST EXPENSE
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 CHANGE ENDED SEPTEMBER 30 CHANGE
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1998 1997 AMOUNT PERCENT 1998 1997 AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personnel $ 2,246 $ 2,118 $ 128 6.0% $ 7,111 $ 6,350 $ 761 12.0%
Occupancy, net 427 433 (6) (1.4) 1,230 1,184 46 3.9
Equipment 346 351 (5) (1.4) 1,020 1,036 (16) (1.5)
Marketing 143 173 (30) (17.3) 446 483 (37) (7.7)
Professional fees 206 189 17 9.0 610 514 96 18.7
Amortization of intangibles 224 214 10 4.7 679 631 48 7.6
Data processing 195 153 42 27.5 560 446 114 25.6
Telecommunications 142 122 20 16.4 411 360 51 14.2
Other general operating 503 537 (34) (6.3) 1,509 1,523 (14) (0.9)
General administrative
and miscellaneous 144 116 28 24.1 436 338 98 29.0
- --------------------------------------------------------------------------------------------------------------
$ 4,576 $ 4,406 $ 170 3.9 $14,012 $12,865 $ 1,147 8.9
- ------------------------------================================================================================
</TABLE>
OTHER NONINTEREST As presented in TABLE SIX, the Corporation's other
EXPENSE noninterest expense increased 4 percent and 9 percent to
$4.6 billion and $14.0 billion in the third quarter and
first nine months of 1998, respectively, over the same
periods of 1997. Excluding acquisitions and related
transition expenses, other noninterest expense increased 1
percent and 4 percent in the third quarter and the first
nine months of 1998, respectively, over comparable periods
in 1997.
A discussion of the significant components of other
noninterest expense in the third quarter and the first nine
months of 1998 compared to other noninterest expense for the
same periods in 1997 follows:
o Personnel expense increased $128 million and $761 million
in the third quarter and first nine months of 1998,
respectively, over the comparable 1997 periods due mainly
to the addition of Montgomery, Robertson Stephens and
NationsBanc Auto Leasing. Excluding these acquisitions,
personnel expense was essentially unchanged. On September
30, 1998, the Corporation had approximately 175,000
full-time equivalent employees compared to approximately
181,000 full-time equivalent employees on December 31,
1997.
o Professional fees increased $17 million and $96 million
in the third quarter and first nine months of 1998,
respectively, over the comparable 1997 periods mainly due
to systems conversions and increases in outside legal and
consulting services.
o Intangibles amortization expense increased to $224
million in the third quarter and $679 million in the
first nine months of 1998, reflecting the impact of the
Montgomery, Robertson Stephens and NationsBanc Auto
Leasing transactions.
32
<PAGE>
o Data processing expense increased $42 million and $114
million in the third quarter and first nine months of
1998, respectively, over the comparable 1997 periods due
to increased processing costs associated with the
Montgomery and Robertson Stephens acquisitions.
o Telecommunications expense increased $20 million and $51
million in the third quarter and first nine months of
1998, respectively, over the comparable 1997 periods,
mainly due to the Barnett transition efforts, expenses
related to Model Bank implementation in the West and
increased call volume.
o General administrative and miscellaneous expense
increased $28 million and $98 million in the third
quarter and first nine months of 1998, respectively, due
to the addition of Montgomery and Robertson Stephens.
- -------------------------------------------------------------------------------
YEAR 2000 PROJECT General
Because computers frequently use only two digits to
recognize years, on January 1, 2000, many computer systems,
as well as equipment that uses embedded computer chips, may
be unable to distinguish between 1900 and 2000. If not
remediated, this problem could create system errors and
failures resulting in the disruption of normal business
operations. Since the Year 2000 is a leap year, there could
also be business disruptions as a result of the inability of
many computer systems to recognize February 29, 2000.
In October 1995 and February 1996, respectively, NationsBank
and BankAmerica established project teams to address these
issues. Each of these teams remains in place and continues
to work on solving problems related to the Year 2000.
Although each of these Year 2000 teams will proceed
according to its respective work plan, they will capitalize
on the best practices of both teams.
Personnel from the Corporation's business segments and
project teams are identifying, analyzing, correcting and
testing computer systems throughout the Corporation
("Systems"). Personnel are also taking inventory of
equipment that uses embedded computer chips (i.e.,
"non-information technology systems" or "Infrastructure")
and scheduling remediation or replacement of this
Infrastructure, as necessary. Examples of Infrastructure
include ATMs, building security systems, fire alarm systems,
identification and access cards, date stamps and elevators.
The NationsBank team tracks Systems and Infrastructure
separately, whereas the BankAmerica team tracks Systems and
Infrastructure collectively ("Projects"). For purposes of
this section, the information provided for Systems and
Projects is generally provided on a combined basis.
State of Readiness
The Corporation's Year 2000 efforts are generally divided
into phases for analysis, remediation, testing and
compliance. In the analysis phase, the Corporation
identifies Systems/Projects and Infrastructure that have
Year 2000 issues and determines the steps necessary to
remediate these issues. In the remediation phase, the
Corporation replaces, modifies or retires Systems/Projects
or Infrastructure, as necessary. During the testing phase,
the Corporation performs testing to ensure that the
remediated Systems/Projects and Infrastructure accurately
process and identify dates. In the compliance phase, the
Corporation internally certifies the Systems/Projects and
Infrastructure that are Year 2000 compliant and implements
processes to ensure that the compliant Systems/Projects and
Infrastructure will continue to identify and process dates
accurately through the Year 2000 and thereafter.
33
<PAGE>
As of September 30, 1998, the NationsBank team has
identified over 1,500 Systems, and the BankAmerica team has
identified approximately 2,900 Projects, for a total of
approximately 4,400 Systems/Projects. In addition, the
NationsBank team has identified over 19,000 Infrastructure
items that may have Year 2000 implications. For
Systems/Projects, as of September 30, 1998, the analysis
phase was substantially complete, the remediation phase was
approximately 95% complete, the testing phase was
approximately 74% complete and the compliance phase was
approximately 65% complete. For Infrastructure, as of
September 30, 1998, the analysis phase was approximately 80%
complete, the remediation phase was approximately 64%
complete, the testing phase was approximately 70% complete
and the compliance phase was approximately 47% complete. The
Corporation expects to substantially complete all phases by
June 30, 1999, in accordance with guidelines established by
the Federal Financial Institutions Examination Council
(FFIEC).
The Corporation tracks Systems/Projects and Infrastructure
for Year 2000-required changes based on a risk evaluation.
Of the identified Systems/Projects and Infrastructure,
approximately 1,900 Systems/Projects and 1,800
Infrastructure items have been designated "mission critical"
(i.e., if not made Year 2000 compliant, these
Systems/Projects or Infrastructure items would impact the
normal conduct of business). For mission critical
Systems/Projects, as of September 30, 1998, the analysis
phase was substantially complete, the remediation phase was
approximately 97% complete, the testing phase was
approximately 74% complete and the compliance phase was
approximately 65% complete. The Corporation will also
perform "time machine testing" (i.e., emulate Year 2000
conditions in a dedicated environment) on selected mission
critical Systems. For mission critical Infrastructure items,
as of September 30, 1998, the analysis phase was
approximately 89% complete, the remediation phase was
approximately 34% complete, the testing phase was
approximately 43% complete and the compliance phase was
approximately 17% complete.
Ultimately, the potential impact of Year 2000 issues will
depend not only on the corrective measures the Corporation
undertakes, but also on the way in which Year 2000 issues
are addressed by governmental agencies, businesses and other
entities which provide data to, or receive data from, the
Corporation, or whose financial condition or operational
capability is important to the Corporation as borrowers,
vendors, customers or investment opportunities (either for
the Corporation's accounts or for the accounts of others).
Accordingly, the Corporation is communicating with certain
of these parties to evaluate any potential impact on the
Corporation.
In particular, the Corporation is contacting its service
providers and software vendors (collectively, "Vendors") and
requesting information on their Year 2000 project plans. Any
Vendor which has not provided appropriate documentation, has
not responded timely to the Corporation's inquiries or does
not expect to be compliant until 1999 is placed in an "at
risk" category. As of September 30, 1998, the Corporation
has received assurances that approximately 61% of its
Vendors, and approximately 75% of its mission critical
Vendors, are Year 2000 ready. As of September 30, 1998, the
Corporation has placed approximately 17% of its Vendors, and
approximately 8% of its mission critical Vendors, in an "at
risk" category. In accordance with its contingency plans,
the Corporation will be focusing on these "at risk" mission
critical Vendors during the fourth quarter of 1998 in order
to mitigate any potential risk.
In addition, the Corporation has completed Year 2000 risk
assessments for the majority of its commercial credit
customers. For any customers deemed higher risk, on a
quarterly basis, the Corporation's Credit Review Committee
reviews the results of customer assessments prepared by the
customers' relationship managers. Weakness in a borrower's
Year 2000
34
<PAGE>
strategy is part of the overall risk assessment process.
Risk ratings and exposure strategy are adjusted as required
after consideration of all risk issues. Any impact on the
allowance for credit losses is determined through the normal
risk rating process.
The Corporation is also assessing potential Year 2000 risks
associated with its investment advisory and fiduciary
activities. Each investment subsidiary has a defined
investment process and is integrating the consideration of
Year 2000 issues into that process. When making investment
decisions or recommendations, the Corporation's investment
research areas consider the Year 2000 issue as a factor in
their analysis, and may take certain steps to investigate
Year 2000 readiness, such as reviewing ratings, research
reports and other publicly available information. In the
fiduciary area, the Corporation is assessing Year 2000 risks
for business interests, real estate, and mineral interests
that are held in Trust.
Costs
The Corporation currently estimates the total cost of the
Year 2000 project to be approximately $550 million. Of this
amount, the Corporation has incurred cumulative Year 2000
costs of approximately $353 million through September 30,
1998. A significant portion of the foregoing cost is not
expected to be incremental to the Corporation but instead
will constitute a reallocation of existing internal systems
technology resources and, accordingly, will be funded from
normal operations.
Contingency Plans
The Corporation has existing business continuity plans that
address its response to disruptions to business due to
natural disasters, civil unrest, utility outages or other
occurrences. The Corporation is developing business
continuity plans specific to Year 2000 issues that are based
on these existing plans.
The Corporation has made substantial progress on an
inventory and assessment of the existing business
contingency plans. Supplements to the existing plans to
address Year 2000 issues are in various stages of
development and will include detailed plans to respond to
these events. The Corporation intends to complete these
supplemental business continuity plans by January 31, 1999.
During the remainder of 1999, the business continuity plans
will be tested and validated with particular attention to
event management and communication processes.
Risks
Although the Corporation's remediation efforts are directed
at reducing its Year 2000 exposure, there can be no
assurance that these efforts will fully mitigate the effect
of Year 2000 issues. In the event the Corporation fails to
identify or correct a material Year 2000 problem, there
could be disruptions in normal business operations, which
could have a material adverse effect on the Corporation's
results of operations, liquidity or financial condition. In
addition, there can be no assurance that significant foreign
and domestic third parties will adequately address their
Year 2000 issues. Further, there may be some such parties,
such as governmental agencies, utilities, telecommunication
companies, financial services vendors and other providers,
where alternative arrangements or resources are not
available. Also, risks associated with some foreign third
parties may be greater since there is general concern that
some entities operating outside the United States are not
addressing Year 2000 issues on a timely basis.
35
<PAGE>
In addition to the foregoing, the Corporation is subject to
credit risk to the extent borrowers fail to adequately
address Year 2000 issues, to fiduciary risk to the extent
fiduciary assets fail to adequately address Year 2000
issues, and to liquidity risk to the extent of deposit
withdrawals and to the extent its lenders are unable to
provide the Corporation with funds due to Year 2000 issues.
Although it is not possible to quantify the potential impact
of these risks at this time, in future years, there may be
increases in problem loans, credit losses, losses in the
fiduciary business and liquidity problems, as well as the
risk of litigation and potential losses from litigation
related to the foregoing.
Forward-looking statements contained in the foregoing "Year
2000 Project" section should be read in conjunction with the
cautionary statements included in the introductory
paragraphs under "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on pages 17
and 18.
- --------------------------------------------------------------------------------
ECONOMIC AND On January 1, 1999, 11 member countries of the European
MONETARY UNIT IN Union will launch a common legal currency called the Euro.
EUROPE (EMU) The new European Central Bank will direct monetary policy,
including the money supply and official interest rates for
the Euro. During the transition period, January 1, 1999
through January 1, 2002, the old national currencies will
remain legal tender as denominations of the Euro. Beginning
January 1, 2002, Euro denominated bills and coins will be
issued for use in cash transactions, and by July 1, 2002,
all legacy currencies will cease to be legal tender. The
Corporation is continuing to assess the long-term
competitive implications of the Euro conversion.
The Corporation has had a dedicated EMU project team in
place since the Fall of 1997 to address operational risks
resulting from the formation of the EMU and to ensure that
the Corporation's technology and operations are
appropriately modified by January 1, 1999. Although
management expects EMU to have the most significant impact
on the Corporation's European payment and clearing systems
and operations, the project team is addressing the impact of
the Euro on the systems and business operations of all areas
of the Corporation that deal with currencies, debt or equity
instruments in any of the participating EMU countries.
The Corporation has completed the assessment phase of its
Euro transition plan and is engaged in thorough testing of
the systems and processes affected by EMU. Management
currently expects the testing plan to be completed on
schedule. The Corporation is also communicating extensively
with its clients and counterparties regarding the
implications of EMU and the effect it will have on their
business relationships and contracts with the Corporation.
The Corporation expects to be prepared for EMU by the end of
the fourth quarter of 1998.
Incomplete or untimely resolution of systems modifications
required in connection with EMU could result in missed
business opportunities, disruptions in the Corporation's
payment and clearing systems, as well as erroneous or
incomplete entries in the Corporation's books and records,
which could ultimately cause a material loss. Furthermore,
the Corporation is dependent on the successful
implementation of conversion procedures by many third
parties. Errors arising in these third parties' systems
could also lead to disruptions in the Corporation's payment
and clearing operations and other activities and could cause
errors and omissions in the Corporation's records.
As part of the transition process, the Corporation is
establishing contingency plans. The contingency plans
provide a means to assess and communicate the impact of any
Euro-related delays. These plans also address likely
problems following conversion in order to maximize the
Corporation's ability to avoid disruptions.
36
<PAGE>
Costs associated with the Euro conversion are being expensed
by the Corporation during the period in which they are
incurred and are not currently anticipated to be material.
The Corporation does not expect the formation of the EMU to
have a material impact on its results of operations or
financial condition.
Forward-looking statements contained in the foregoing
"Economic and Monetary Unit in Europe" section should be
read in conjunction with the cautionary statements included
in the introductory paragraphs under "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" on Page 17.
- --------------------------------------------------------------------------------
INCOME The Corporation's income tax expense for the third quarter
TAXES and first nine months of 1998 was $42 million and $2.2
billion, respectively. Excluding merger and restructuring
items, the effective tax rates for the third quarter and
first nine months of 1998 were 22 percent and 34 percent,
respectively. Income tax expense for the third quarter and
first nine months of 1997 was $1.1 billion and $3.1 billion,
respectively, for an effective tax rate of 38 percent for
both periods. The reduction in the effective tax rate from
1997 to 1998 is due primarily to the reorganization of
certain real estate subsidiaries of the Corporation in 1998.
- --------------------------------------------------------------------------------
BALANCE SHEET The Corporation utilizes an integrated approach in
REVIEW AND managing its balance sheet which includes management of
LIQUIDITY RISK interest rate sensitivity, credit risk, liquidity risk and
MANAGEMENT capital position. The average balances discussed below can
be derived from Table Four. The following discussion
addresses changes in average balances for the first nine
months of 1998 compared to the same period in 1997.
Average levels of customer-based funds for the first nine
months of 1998 increased $3.5 billion to $284.9 billion
compared to average levels for the first nine months of
1997. As a percentage of total sources, average levels of
customer-based funds in the first nine months of 1998
decreased to 49 percent compared to 52 percent for the same
period in 1997.
Average levels of market-based funds increased $24.9 billion
to $163.0 billion in the first nine months of 1998 and
comprised a larger portion of total sources of funds at
approximately 28 percent in the first nine months of 1998
compared to approximately 26 percent during the same period
in 1997. In addition, 1998 average levels of long-term debt
increased by $3.2 billion over average levels during the
same nine month period in 1997, mainly the result of
borrowings to fund business development opportunities and to
replace debt maturities.
Average loans and leases, the Corporation's primary use of
funds, decreased $397 million to $343.4 billion during the
first nine months of 1998. As a percentage of total uses of
funds, average loans and leases for the first nine months of
1998 decreased to 60 percent from 64 percent during the same
period in 1997. The decrease in average loans and leases was
due primarily to approximately $19.3 billion of
securitizations in 1997, which mainly took place in the
third quarter. The ratio of average loans and leases to
average customer-based funds was 121 percent in 1998 and 122
percent in 1997.
The average securities portfolio in the first nine months of
1998 increased $20.7 billion over 1997 levels, amounting to
11 percent of total uses of funds in 1998 compared to 8
percent in the first nine months of 1997. See the following
"Securities" section for additional information on the
securities portfolio.
37
<PAGE>
Average other assets and cash and cash equivalents increased
$5.5 billion to $83.2 billion in the first nine months in
1998 due largely to an increase in unrealized gains on
off-balance sheet instruments associated with interest rate
fluctuations, goodwill associated mainly with the Montgomery
acquisition and the April 1, 1997 acquisition of NationsBanc
Auto Leasing.
Cash and cash equivalents were $24.7 billion on September
30, 1998 compared to $26.0 billion on December 31, 1997.
During the first nine months of 1998, net cash provided by
operating activities was $6.7 billion, net cash used in
investing activities was $30.2 billion and net cash provided
by financing activities was $19.8 billion. For further
information on cash flows, see the Consolidated Statement of
Cash Flows in the Consolidated Financial Statements.
Liquidity is a measure of the Corporation's ability to
fulfill its cash requirements and is managed by the
Corporation through its asset and liability management
process. The Corporation monitors its assets and liabilities
and modifies these positions as liquidity requirements
change. This process, coupled with the Corporation's ability
to raise capital and debt financing, is designed to cover
the liquidity needs of the Corporation. Management believes
the Corporation's sources of liquidity are more than
adequate to meet its cash requirements.
The following discussion provides an overview of significant
on- and off-balance sheet
components.
- --------------------------------------------------------------------------------
SECURITIES The securities portfolio on September 30, 1998 consisted of
securities held for investment totaling $4.2 billion and
securities available for sale totaling $68.0 billion
compared to $4.8 billion and $62.2 billion, respectively, on
December 31, 1997. The increase in available for sale
securities reflects the Corporation's increased positions
and the strong demand for U.S. Treasuries which led to a
significant increase in the value of such securities.
On September 30, 1998 and December 31, 1997, the market
value of the Corporation's securities held for investment
reflected net unrealized depreciation of $245 million and
net unrealized appreciation of $83 million, respectively,
due to a portfolio of Brady bonds.
The valuation reserve for securities available for sale,
marketable equity securities and certain servicing assets
increased shareholders' equity by $928 million on September
30, 1998, primarily reflecting pre-tax net appreciation of
$1.4 billion on debt securities and $68 million on
marketable equity securities. The valuation reserve
increased shareholders' equity by $545 million on December
31, 1997.
The estimated average duration of securities held for
investment and securities available for sale portfolios were
3.2 years and 4.7 years, respectively, on September 30, 1998
compared with 6.47 years and 6.02 years, respectively, on
December 31, 1997. The decrease in the average expected
duration of the available for sale portfolio is attributable
to purchases of securities during the third quarter of 1998
with shorter average duration than the weighted average
duration of securities owned on December 31, 1997.
38
<PAGE>
- --------------------------------------------------------------------------------
ALLOWANCE FOR The Corporation's allowance for credit losses was $7.2
CREDIT billion, or 2.05 percent of net loans, Losses leases, and
factored accounts receivable on September 30, 1998 compared
to $6.8 billion, or 1.98 percent, on December 31, 1997.
TABLE SEVEN provides an analysis of the changes in the
allowance for credit losses. During the third quarter of
1998, higher commercial - domestic loan net charge-offs
caused the $405 million increase in total net charge-offs,
which amounted to $902 million, or 1.03 percent of average
loans, leases and factored accounts receivable compared to
$497 million, or .57 percent, for the same period in 1997.
Net charge-offs increased $563 million to $1.9 billion in
the first nine months of 1998 or .75 percent of average
loans, leases and factored accounts receivable, compared to
net charge-offs of $1.4 billion or .53 percent, for the
first nine months of 1997.
Excluding increases that resulted from recent acquisitions,
management expects charge-offs in general to increase
modestly throughout the remainder of 1998. Furthermore,
future economic conditions also will impact credit quality
and may result in increased net charge-offs and higher
provision for credit losses.
39
<PAGE>
TABLE SEVEN
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------------------------------
(DOLLARS IN MILLIONS) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning Balance $ 6,731 $ 6,835 $ 6,778 $ 6,316
- ---------------------------------------------------------------------------------------------------------------------
Loans, leases and factored accounts receivable charged off
Commercial - domestic (448) (107) (569) (206)
Commercial - foreign (107) 2 (196) (8)
Commercial real estate - domestic (5) (11) (18) (35)
Commercial real estate - foreign -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total commercial (560) (116) (783) (249)
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage (8) (12) (24) (40)
Home equity lines (6) (9) (21) (27)
Direct/Indirect consumer (125) (142) (409) (420)
Consumer finance (147) (104) (445) (305)
Bankcard (including private label) (192) (282) (672) (786)
Other consumer domestic (1) -- (1) (11)
Foreign consumer (2) (2) (8) (7)
- ---------------------------------------------------------------------------------------------------------------------
Total consumer (481) (551) (1,580) (1,596)
- ---------------------------------------------------------------------------------------------------------------------
Factored accounts receivable (2) (4) (8) (16)
Total loans, leases and factored accounts
receivable charged off (1,043) (671) (2,371) (1,861)
- ---------------------------------------------------------------------------------------------------------------------
Recoveries of loans, leases and factored accounts
receivable previously charged off
Commercial - domestic 18 32 65 95
Commercial - foreign 1 8 19 20
Commercial real estate - domestic 6 11 18 39
Commercial real estate - foreign -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total commercial 25 51 102 154
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage -- -- 3 4
Home equity lines 3 2 7 6
Direct/Indirect consumer 38 40 117 112
Consumer finance 49 35 138 117
Bankcard (including private label) 22 44 72 101
Other consumer domestic -- -- -- --
Foreign consumer (1) -- 1 1
- ---------------------------------------------------------------------------------------------------------------------
Total consumer 111 121 338 341
- ---------------------------------------------------------------------------------------------------------------------
Factored accounts receivable 5 2 8 6
Total recoveries of loans, leases and factored accounts
receivable previously charged off 141 174 448 501
- ---------------------------------------------------------------------------------------------------------------------
Net charge-offs (902) (497) (1,923) (1,360)
- ---------------------------------------------------------------------------------------------------------------------
Provision for credit losses 1,405 489 2,410 1,406
Allowance applicable to loans of purchased companies and other (19) (57) (50) 408
- ---------------------------------------------------------------------------------------------------------------------
Balance on September 30 $ 7,215 $ 6,770 $ 7,215 $ 6,770
- -----------------------------------------------------------------====================================================
Loans, leases and factored accounts receivable,
net of unearned income, outstanding end of period $ 351,982 $ 336,293 $ 351,982 $ 336,293
Allowance for credit losses as a percentage of loans,
leases and factored accounts receivable, net of
unearned income, outstanding end of period 2.05% 2.01 % 2.05% 2.01%
Average loans, leases and factored accounts receivable,
net of unearned income, outstanding during the period $ 348,785 $ 343,970 $ 344,538 $ 344,927
Net charge-offs as a percentage of average loans, leases and
factored accounts receivable, net of unearned income,
outstanding during the period 1.03% 0.57 % 0.75% 0.53%
Allowance for credit losses as a percentage
of nonperforming loans 314.55 304.87 314.55 304.87
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
TABLE EIGHT
NONPERFORMING ASSETS
- ----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONPERFORMING LOANS
Commercial - domestic $ 717 $ 646 $ 762 $ 563 $ 698
Commercial - foreign 288 347 272 155 111
Commercial real estate - domestic 303 306 355 342 430
Commercial real estate - foreign 3 3 3 2 2
- ----------------------------------------------------------------------------------------------------------------------
Total commercial 1,311 1,302 1,392 1,062 1,241
- ---------------------------------------------------------------------------------------------------------------------
Residential mortgage 690 669 733 744 734
Home equity lines 46 45 53 52 59
Direct/Indirect consumer 38 33 35 43 35
Consumer finance 209 187 200 210 151
Bankcard (including private label) -- -- -- -- --
Foreign consumer -- 8 7 -- 1
- ----------------------------------------------------------------------------------------------------------------------
Total consumer 983 942 1,028 1,049 980
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,294 2,244 2,420 2,111 2,221
- ----------------------------------------------------------------------------------------------------------------------
FORECLOSED PROPERTIES 288 282 270 309 384
- ----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $2,582 $2,526 $2,690 $2,420 $2,605
======================================================================================================================
Nonperforming assets as a percentage of:
Total assets 0.43% 0.44% 0.46% 0.42% 0.48%
Loans, leases and factored accounts
receivable, net of unearned income,
and foreclosed properties 0.73 0.73 0.79 0.71 0.77
Loans past due 90 days or more and not
classified as nonperforming $ 540 $ 539 $ 534 $ 613 $ 566
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING As presented in TABLE EIGHT, on September 30, 1998,
ASSETS nonperforming assets were $2.6 billion, or .73 percent of
net loans, leases, factored accounts receivable and
foreclosed properties, compared to $2.4 billion, or .71
percent, on December 31, 1997. Nonperforming loans increased
to $2.3 billion on September 30, 1998 from $2.1 billion on
December 31, 1997. The increase was due primarily to
commercial nonperforming loans. The allowance coverage of
nonperforming loans was 315 percent on September 30, 1998
compared to 321 percent on December 31, 1997.
41
<PAGE>
CONCENTRATIONS In an effort to minimize the adverse impact of any single
OF CREDIT RISK event or set of occurrences, the Corporation strives to
maintain a diverse credit portfolio. The following section
discusses credit risk in the loan portfolio, including net
charge-offs by loan categories as presented in TABLE NINE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TABLE NINE
NET CHARGE-OFFS IN DOLLARS AND AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial - domestic $ 430 1.30% $ 75 0.26% $ 504 0.53% $ 111 0.13%
Commercial - foreign 106 1.35 (10) (0.14) 177 0.78 (12) (0.06)
Commercial real estate - domestic (1) (0.01) -- -- -- -- (4) (0.02)
Commercial real estate - foreign -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total commercial 535 1.11 65 0.15 681 0.49 95 0.07
- ----------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 8 0.04 12 0.06 21 0.04 36 0.06
Home equity lines 3 0.07 7 0.18 14 0.12 21 0.20
Direct/Indirect consumer 87 0.87 102 1.03 292 0.97 308 1.05
Consumer finance 98 2.74 69 1.97 307 2.86 188 1.83
Bankcard (including private label) 170 5.29 238 5.99 600 6.05 685 5.62
Other consumer domestic 1 N/M -- -- 1 N/M 11 N/M
Foreign consumer 3 0.34 2 0.23 7 0.28 6 0.24
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer 370 0.94 430 1.01 1,242 1.05 1,255 0.99
- ----------------------------------------------------------------------------------------------------------------------------------
Factored accounts receivable (3) (0.97) 2 0.66 -- -- 10 1.15
- ----------------------------------------------------------------------------------------------------------------------------------
Total net charge-offs $ 902 1.03 $ 497 0.57 $ 1,923 0.75 $1,360 0.53
- -----------------------------------------------==================================================================================
SELECTED MANAGED NET CHARGE-OFFS
AND RATIOS:
Managed credit cards $ 312 5.99% $ 314 6.31% $ 983 6.42% $ 888 5.98 %
Managed other consumer loans 7 N/M 5 N/M 19 N/M 34 N/M
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net charge-offs for each loan type are calculated as a percentage of average
outstanding or managed loans for each loan category.
Total net charge-offs are calculated based on total average outstanding loans,
leases and factored accounts receivable.
N/M = Not meaningful
42
<PAGE>
<TABLE>
<CAPTION>
TABLE TEN
REAL ESTATE COMMERCIAL LOANS, FORECLOSED PROPERTIES AND OTHER REAL ESTATE CREDIT EXPOSURES
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998
LOANS (1) OTHER
------------------------------- FORECLOSED CREDIT
(DOLLARS IN MILLIONS) OUTSTANDING NONPERFORMING PROPERTIES (2) EXPOSURES (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BY GEOGRAPHIC REGION (4):
California $ 7,837 $ 26 $ 66 $ 841
Southwest 3,727 23 12 182
Midwest 3,277 31 15 99
Northwest 3,126 46 -- 20
Midatlantic 2,472 45 10 249
Florida 2,002 60 12 302
Midsouth 1,524 18 6 158
Carolinas 1,148 18 8 410
Other states 4,234 36 17 360
Non-US 333 3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$29,680 $ 306 $ 146 $ 2,621
- ----------------------------------------------------------------====================================================================
BY PROPERTY TYPE:
Apartments $ 5,132 $ 20 $ 2 $ 721
Office buildings 5,250 31 3 166
Residential 2,673 43 14 38
Shopping centers/retail 3,562 67 9 382
Unsecured 1,140 3 -- 236
Industrial/warehouse 2,848 19 6 60
Hotels/motels 1,707 8 12 160
Land and land development 1,205 25 52 317
Multiple use 963 6 13 2
Miscellaneous commercial 601 9 18 12
Resorts/golf courses 124 2 -- --
Non-US 333 3 -- --
Other 4,142 70 17 527
- ------------------------------------------------------------------------------------------------------------------------------------
$29,680 $ 306 $ 146 $ 2,621
- ----------------------------------------------------------------====================================================================
</TABLE>
(1) On September 30, 1998, the Corporation had unfunded binding real estate
commercial loan commitments.
(2) Foreclosed properties include commercial real estate loans only.
(3) Other credit exposures include letters of credit and loans held for sale.
(4) Distribution based on geographic location of collateral.
Real Estate - Total commercial real estate - domestic loans,
the portion of such loans which are nonperforming,
foreclosed properties and other credit exposures are
presented in Table Ten.
Commercial real estate - domestic loans totaled $29.3
billion and $28.6 billion on September 30, 1998 and
December 31, 1997, respectively, or 8 percent of net loans,
leases and factored accounts receivable for both periods.
Commercial real estate domestic loans past due 90 days or
more and still accruing interest were $17 million, or .06
percent of commercial real estate - domestic loans, on both
September 30, 1998 and December 31, 1997.
43
<PAGE>
<TABLE>
<CAPTION>
TABLE ELEVEN
SELECTED INDUSTRY LOANS AND LEASES NET OF UNEARNED INCOME
- --------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS) OUTSTANDING
--------------
<S> <C>
Transportation $ 9,882
Oil and gas 8,994
Media 8,468
Equipment and general manufacturing 8,250
Agribusiness 7,644
Health care 7,336
Business services 6,984
Retail 6,893
Automotive 6,170
Securities industry 6,126
- --------------------------------------------------------------------------------------------------
</TABLE>
Other Industries - Table Eleven presents selected industry
credit exposures, commercial loans, factored accounts
receivable and lease financings. On September 30, 1998,
commercial - domestic loans outstanding totaled $132.3
billion, or 38 percent of net loans, leases and factored
accounts receivable, and $121.4 billion, or 36 percent, on
December 31, 1997. Average managed commercial - domestic
loans were $135.7 billion and $131.2 billion for the three
months and nine months ended September 30, 1998, respect-
ively. Commercial - domestic loan net charge-offs for
the nine months ended September 30, 1998 and 1997 were
$503.6 million, or .40 percent of average commercial
domestic loans, and $111.2 million, or .10 percent of
average commercial - domestic loans, respectively. Higher
commercial - domestic loan net charge-offs were primarily
the result of a $372 million write-down of a credit to DE
Shaw, a trading and investment firm, to which a banking
subsidiary of the Corporation had outstanding credit
balances of approximately $1.4 billion as of September 30,
1998. On October 13, 1998, the Corporation entered into an
agreement with this firm providing for the purchase by a
banking subsidiary of the Corporation of approximately $20
billion of fixed-income securities along with the related
hedge positions (the "purchased portfolio") and a
modification of certain terms of the outstanding loans to
such firm to provide, among other things, for an accelerated
schedule of repayment. Positions in DE Shaw and the
purchased portfolio will be marked-to-market and reflected
in earnings currently on an ongoing basis. Markets continue
to be volatile, and the Corporation anticipates that it may
likely recognize additional losses with respect to the
positions in DE Shaw and the purchased portfolio, relating
to deterioration occurring in the market prices of such
positions and the purchased portfolio, the scope of which
will be dependent upon the magnitude of such deterioration.
Forward-looking statements contained in this section should
be read in conjunction with the cautionary statements
included in the introductory paragraphs under "Managements
Discussion and Analysis of Results of Operations and
Financial Condition" on page 17.
Commercial - domestic loans past due 90 days or more and
still accruing interest were $87 million, or .07 percent of
commercial - domestic loans, on September 30, 1998 compared
to $52 million, or .04 percent, on December 31, 1997.
Nonperforming commercial - domestic loans were $717 million,
or .54 percent of commercial - domestic loans, on September
30, 1998, compared to $563 million, or .46 percent, on
December 31, 1997.
44
<PAGE>
Consumer - On September 30, 1998 and December 31, 1997,
total domestic consumer loans outstanding totaled $151.2
billion, or 43 percent of net loans, leases and factored
accounts receivable, and $157.6 billion, or 46 percent of
net loans, leases and factored accounts receivable,
respectively. Total domestic consumer net charge-offs during
the nine months ended September 30, 1998 and 1997 remained
fairly constant with lower levels of bankcard net
charge-offs offset by higher consumer finance net
charge-offs, the result of net charge-offs associated with a
sub-prime auto lending portfolio, which the Corporation is
allowing to run off.
Average residential mortgage loans were $70.6 billion and
$70.1 billion, respectively, for the three months and nine
months ended September 30, 1998 compared to $80.5 billion
and $83.1 billion for the same periods in 1997, reflecting
the impact of approximately $9.6 billion of mortgage loan
securitizations that occurred primarily during the third
quarter of 1997 and $4.2 billion of mortgage loan
securitizations in the first nine months of 1998.
Average managed bankcard receivables (excluding private
label bankcards) were $20.7 billion and $20.5 billion,
respectively, for the three months and nine months ended
September 30, 1998 compared to $19.8 billion and $19.9
billion for the same prior year periods. Although net
charge-offs for the first nine months of 1998 are higher
when compared to the same year-ago period, they have
decreased to 5.99 percent of average managed bankcard
(excluding private label) for the third quarter of 1998
compared to 6.58 percent for the fourth quarter of 1997.
Average other consumer loans, which include direct and
indirect consumer loans and home equity lines, as well as
indirect auto loan and consumer finance for the third
quarter and first nine months of 1998, were $69.8 billion
and $70.7 billion, respectively, compared to $68.4 billion
and $67.1 billion for the same periods in 1997. The increase
was net of the impact of approximately $3.4 billion of
securitizations that occurred throughout 1997 and $2.2
billion of securitizations in the first nine months of 1998.
Average managed other consumer loans increased to $80.1
billion and $80.4 billion in the third quarter and first
nine months of 1998, respectively, compared to $74.4 billion
and $73.5 billion in the same periods of 1997.
Total consumer loans past due 90 days or more and still
accruing interest were $397 million, or .26 percent of total
consumer loans, on September 30, 1998 compared to $541
million, or .34 percent, on December 31, 1997. Total
domestic consumer nonperforming loans were $983 million, or
.65 percent of total domestic consumer loans and $1.0
billion, or .67 percent on September 30, 1998 and December
31, 1997, respectively.
Regional Foreign Exposures - Through its credit and market
risk management activities, the Corporation has been
monitoring those countries that have been negatively
impacted by increasing global economic pressure. This
includes monitoring those Pacific Rim countries that are
currently experiencing currency and other economic problems,
as well as the Russia Federation and Brazil which are also
experiencing similar problems.
In connection with its efforts to maintain a diversified
portfolio, the Corporation limits its exposure to any one
geographic region or country and monitors this exposure on a
continuous basis. Table Twelve sets forth selected
cross-border regional exposures as of September 30, 1998 and
December 31, 1997, including net local currency assets.
Exposure represents loans, securities including restructured
debt, and other monetary assets, and also includes net local
currency monetary assets that have not been funded through
local currency borrowings. On September 30, 1998 and
December 31, 1997, foreign exposure to these regions totaled
$36.5 billion and $42.7 billion, respectively.
45
<PAGE>
<TABLE>
<CAPTION>
TABLE TWELVE
REGIONAL FOREIGN EXPOSURE
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------------------------------------------------
(DOLLARS IN MILLIONS) TOTAL CROSS-BORDER GROSS LOCAL TOTAL
REGION/COUNTRIES EXPOSURE(1) LOANS COUNTRY CLAIMS(2) OTHER(3) EXPOSURE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASIA
China $ 455 $ 174 $ 141 $ 140 $ 730
Hong Kong 5,054 76 4,646 332 5,440
India 2,646 443 1,709 494 2,073
Indonesia 756 368 222 166 1,307
Japan 4,146 241 2,070 1,835 6,849
Korea (South) 2,298 704 473 1,121 3,689
Malaysia 861 7 803 51 1,102
Pakistan 307 8 250 49 451
Philippines 799 288 333 178 674
Singapore 2,254 134 1,661 459 2,124
Taiwan 1,853 392 1,307 154 1,885
Thailand 977 152 604 221 1,734
Other 75 -- 71 4 79
- ------------------------------------------------------------------------------------------------------------------------------------
22,481 2,987 14,290 5,204 28,137
- ------------------------------------------------------------------------------------------------------------------------------------
CENTRAL AND EASTERN EUROPE
Russia Federation 121 72 -- 49 439
Other 777 401 94 282 634
- ------------------------------------------------------------------------------------------------------------------------------------
898 473 94 331 1,073
- ------------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
Argentina 1,418 531 671 216 1,542
Brazil 3,332 1,666 828 838 3,171
Chile 1,605 1,212 282 111 1,612
Colombia 716 539 66 111 762
Mexico 4,848 2,674 253 1,921 5,517
Venezuela 512 79 40 393 554
Other 699 410 1 288 298
- ------------------------------------------------------------------------------------------------------------------------------------
13,130 7,111 2,141 3,878 13,456
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $36,509 $10,571 $16,525 $ 9,413 $42,666
=============================================================================
</TABLE>
(1) Includes the following foreign assets: loans, accrued interest, acceptances,
interest-bearing deposits in banks, trading account securities,
available-for-sale and held-to-maturity securities, other interest-bearing
investments and other monetary assets. Amounts also include unrealized gains on
off-balance sheet instruments, unused commitments, and available-for-sale and
held-to-maturity securities that are collateralized by U.S. Treasury
securities.
(2) Represents claims of the Corporation's foreign offices on local country
residents, including trading account securities, derivatives products, unused
commitments, and available-for-sale and held-to-maturity securities regardless
of the currency.
(3) Includes: accrued interest receivable, acceptances, interest-bearing
deposits in banks, trading account securities, other interest-earning
investments, other short-term monetary assets, unrealized gains on off-balance
sheet instruments, unused commitments, and available-for-sale and
held-to-maturity securities, including securities that are collateralized by
U.S. Treasury securities as follows: Mexico - $1,024, Venezuela - $252,
Philippines - $18, and Latin America Other - $86.
46
<PAGE>
OFF-BALANCE SHEET DERIVATIVES - ASSET AND LIABILITY MANAGEMENT ACTIVITIES(ALM)
- --------------------------------------------------------------------------------
Risk management interest rate contracts are used in the
asset and liability management process. Such contracts,
which are generally non-leveraged generic interest rate and
basis swaps, options and futures, allow the Corporation to
effectively manage its interest rate risk position. Generic
interest rate swaps involve the exchange of fixed-rate and
variable-rate interest payments based on the contractual
underlying notional amount. Basis swaps involve the exchange
of interest payments based on the contractual underlying
notional amounts, where both the pay rate and the receive
rate are floating rates based on different indices. Option
products primarily consist of caps and floors. Interest rate
caps and floors are agreements where, for a fee, the
purchaser obtains the right to receive interest payments
when a variable interest rate moves above or below a
specified cap or floor rate, respectively.
TABLE THIRTEEN summarizes the notional amounts and fair
values on September 30, 1998 and December 31, 1997 of the
Corporation's ALM interest rate contracts. The amount of net
realized deferred gains associated with terminated ALM swaps
was $147 million and $68 million on September 30, 1998 and
December 31, 1997, respectively. The amount of net realized
deferred gains associated with terminated ALM futures and
forward rate contracts was $10 million and $9 million on
September 30, 1998 and December 31, 1997, respectively. The
amount of net realized deferred gains associated with
terminated ALM options was $16 million and $13 million on
September 30, 1998 and December 31, 1997, respectively.
In addition, the Corporation uses foreign currency contracts
to manage the foreign exchange risk associated with
foreign-denominated liabilities. Foreign currency contracts
involve the conversion of certain scheduled interest and
principal payments denominated in foreign currencies. On
September 30, 1998, these contracts had a notional value of
$7 billion and a fair value of $95 million.
The fair values of the ALM interest rate and foreign
exchange portfolios should be viewed in the context of the
overall balance sheet. The value of any single component of
the balance sheet or off-balance sheet positions should not
be viewed in isolation.
For a discussion of the Corporation's management of risk
associated with mortgage production activities, see the
"Noninterest Income" section, on page 29.
<TABLE>
<CAPTION>
TABLE THIRTEEN
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR
ASSET AND LIABILITY MANAGEMENT PURPOSES
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------------------------------------------------
NOTIONAL FAIR NOTIONAL FAIR
(DOLLARS IN MILLIONS) AMOUNT VALUE(1) AMOUNT VALUE(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Contracts
Receive fixed swaps $58,142 $ 2,984 $56,127 $ 877
Pay fixed swaps 25,344 (1,545) 25,041 (888)
Basis swaps 7,585 (9) 2,583 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Swaps 91,071 1,430 83,751 (18)
Futures and forward rate contracts 26,543 33 89,650 (16)
Option products 35,291 (34) 24,113 (60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Contracts(2) $ 1,429 $ (94)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fair value for options represents market value plus unamortized premium.
Fair value for futures/forward rate contracts includes realized but
unrecognized profit and loss.
(2) Not meaningful to sum notional amounts of different off-balance sheet
products.
47
<PAGE>
As discussed under "Concentrations of Credit Risk", page 42,
on October 13, 1998, the Corporation entered into an
agreement with DE Shaw providing for, among other things,
the purchase by a banking subsidiary of the Corporation of
approximately $20 billion of fixed-income securities
together with the related hedge positions.
- --------------------------------------------------------------------------------
MARKET RISK In the normal course of conducting its business activities,
MANAGEMENT the Corporation is exposed to market risk which includes
both price and liquidity risk. Market risk is the potential
of loss arising from adverse changes in market rates and
prices, such as interest rates (interest rate risk), foreign
currency exchange rates (foreign exchange risk), commodity
prices (commodity risk) and prices of equity securities
(equity risk). Financial products that expose the
Corporation to market risk include securities, loans,
deposits, debt, and derivative financial instruments such
as futures, forwards, swaps, options, and other financial
instruments with similar characteristics. Liquidity risk
arises from the possibility that the Corporation may not be
able to satisfy current and future financial commitments or
that the Corporation may be more reliant on alternative
funding sources such as long-term debt.
Market risk is managed by the Corporation's Finance
Committee which formulates policy based on desirable levels
of market risk. In setting desirable levels of market risk,
the Finance Committee considers the impact on both earnings
and capital of the current outlook in market rates,
potential changes in market rates, world and regional
economies, liquidity, business strategies and other factors.
Prior to the Merger, market risk exposure was managed by
each of the previously separate companies. Separate risk
management models and assumptions were used in accordance
with each company's unique market risk profile. The market
risk information presented in this section is as of, or for
the nine months ended, September 30, 1998 and reflects the
market risk profile of the merged company. Prior period
amounts have not been presented as such amounts were based
on the risk profiles of the previously separate entities
and, accordingly, are not comparable to current period
amounts.
For a discussion of non-trading, on-balance sheet financial
instruments see Table Fourteen in the following Market Risk
Management section on page 50. For information on market
risk associated with Asset and Liability Management (ALM)
activities, see the following discussion on page 51 of the
Market Risk Management section and the mortgage banking
section of Noninterest Income on page 29. Market risk
associated with the trading portfolio is discussed in the
following Market Risk Management section on page 53. The
composition of the trading portfolio and related fair values
are included in Note 3 to the Consolidated Financial
Statements on page 9.
Non-Trading Portfolio
The Corporation's Asset-Liability Management (ALM) process
was used to manage interest rate risk through the
structuring of balance sheet and off-balance sheet
portfolios and identifying and linking such off-balance
sheet positions to specific assets and liabilities. Interest
rate risk represents the only material market risk exposure
to the Corporation's non-trading on-balance sheet financial
instruments. To effectively measure and manage interest rate
risk, the Corporation uses computer simulations, which
determine the impact on net interest income of numerous
interest rate scenarios, balance sheet trends and
strategies. These simulations cover the following financial
instruments: short-term financial instruments, securities,
loans, deposits, borrowings and off-balance sheet financial
instruments. These simulations incorporated assumptions
about balance sheet dynamics, such as loan and deposit
growth and pricing, changes in funding mix and asset and
liability repricing and maturity characteristics.
48
<PAGE>
Simulations were run under various interest rate scenarios
to determine the impact on net income and capital. From
these scenarios, interest rate risk was quantified and
appropriate strategies were developed and implemented. The
overall interest rate risk position and strategies were
reviewed on an ongoing basis by senior management.
Additionally, duration and market value sensitivity measures
were selectively utilized where they provide added value to
the overall interest rate risk management process.
On September 30, 1998, the interest rate risk position of
the Corporation was relatively neutral as the impact of a
gradual parallel 100 basis-point rise or fall in interest
rates over the next 12 months when compared to stable rates
was estimated to be less than 2 percent of net interest
income.
TABLE FOURTEEN on the following page summarizes the expected
maturities, unrealized gains and losses and weighted average
effective yields and rates associated with the Corporation's
significant non-trading, on-balance sheet financial
instruments. Cash and cash equivalents, time deposits placed
and other short-term investments, federal funds sold and
purchased, resale and repurchase agreements, commercial
paper, other short-term borrowings and foreign deposits,
which are similar in nature to other short-term borrowings,
are excluded from TABLE FOURTEEN as their respective
carrying values approximate fair values. These financial
instruments generally expose the Corporation to
insignificant market risk as they have either no stated
maturities or an average maturity of less than 30 days and
interest rates that approximate market. However, these
financial instruments could expose the Corporation to
interest rate risk by requiring more or less reliance on
alternative funding sources, such as long-term debt. Loans
held for sale were also excluded as their carrying values
approximate their fair values, generally exposing the
Corporation to insignificant market risk. For further
information on the fair value of financial instruments, see
Note 3 to the Consolidated Financial Statements on page 9.
49
<PAGE>
TABLE FOURTEEN
NON-TRADING ON- BALANCE SHEET FINANCIAL INSTRUMENTS
SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
EXPECTED MATURITY
------------------------------------------------------------
UNREALIZED AFTER
TOTAL GAIN/(LOSS) 1998 1999 2000 2001 2002 2002
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned income (1)
Fixed Rate
Book value $ 120,242 $ 3,004 $ 11,376 $ 29,360 $ 17,963 $ 12,697 $ 8,939 $ 39,907
Weighted average effective yield 8.14 %
Variable Rate
Book value $ 217,333 2,633 28,678 58,050 29,640 37,675 15,596 47,694
Weighted average effective yield 7.72 %
Securities held for investment (2)
Fixed Rate
Book value $ 4,073 83 115 673 51 40 80 3,114
Weighted average effective yield 6.79 %
Variable Rate
Book value $ 107 - 6 1 3 9 4 84
Weighted average effective yield 6.92 %
Securities available for sale (2)
Fixed Rate
Book value $ 63,552 227 207 1,007 2,720 4,277 6,781 48,560
Weighted average effective yield 6.94 %
Variable Rate
Book value $ 4,407 18 - 1 86 143 2,679 1,498
Weighted average effective yield 6.60 %
Liabilities
Total deposits (3)
Fixed Rate
Book value $ 244,541 $ (133) $ 22,979 $ 38,558 $ 15,627 $ 12,029 $ 11,353 $ 143,995
Weighted average effective rate 2.30 %
Variable Rate
Book value $ 101,215 27 4,270 14,886 11,883 9,891 8,333 51,952
Weighted average effective rate 3.19 %
Long-term debt (excluding obligations
under capital leases) (4)
Fixed Rate
Book value $ 24,651 (990) 749 1,000 1,369 4,185 2,927 14,421
Weighted average effective rate 7.41 %
Variable Rate
Book value $ 22,892 (99) 1,189 5,995 5,759 3,360 2,339 4,250
Weighted average effective rate 5.65 %
Trust preferred securities (4)
Fixed Rate
Book value $ 3,784 (238) - - - 300 600 2,884
Weighted average effective rate 7.98 %
Variable Rate
Book value $ 1,134 10 - - - - 400 734
Weighted average effective rate 6.39 %
</TABLE>
(1) Expected maturities reflect the impact of prepayment assumptions.
(2) Expected maturities are based on contractual maturities.
(3) When measuring and managing market risk associated with deposits, the
Corporation considers its long-term relationships with depositors. The
unrealized loss on deposits in this table does not consider these long-term
relationships, therefore only Certificates of Deposit reflect a change in
value.
(4) Expected maturities of long-term debt and trust preferred securities
reflect the Corporation's ability to redeem such debt prior to
contractual maturities.
50
<PAGE>
Risk management interest rate contracts were utilized in the
ALM process. Such contracts, which were generally
non-leveraged generic interest rate and basis swaps,
futures, forwards and options, allowed the Corporation to
effectively manage its interest rate risk position. As
reflected in TABLE FIFTEEN, the total gross notional amount
of the Corporation's ALM interest rate swaps on September
30, 1998 was $91 billion, with the Corporation receiving
fixed on $58 billion, primarily converting variable-rate
commercial loans to fixed rate, and paying fixed on $25.3
billion. The net receive fixed position on September 30,
1998 was $32.8 billion compared to $31.1 billion on December
31, 1997. In addition, the Corporation had $7.6 billion of
basis swaps linked primarily to long-term debt.
TABLE FIFTEEN also summarizes the expected maturities,
weighted average pay and receive rates and the unrealized
gains and losses on September 30, 1998 of the Corporation's
ALM interest rate swaps. The table also summarizes expected
maturities and unrealized gains and losses on September 30,
1998 of the Corporation's ALM basis swaps, forwards,
futures, and options contracts. Unrealized gains and losses
are based on the last repricing and will change in the
future primarily based on movements in one-, three- and
six-month LIBOR rates.
The net unrealized appreciation of the ALM swap portfolio on
September 30, 1998 was $1.4 billion compared to net
unrealized loss of $18 million on December 31, 1997,
reflecting a decrease in interest rates when comparing
September 30, 1998 to December 31, 1997. The amount of net
realized deferred gains associated with terminated ALM swaps
was $147 million on September 30, 1998 compared to $68
million of net realized deferred gains on December 31, 1997.
To manage interest rate risk, the Corporation also used
interest rate option products, primarily caps and floors.
Interest rate caps and floors are agreements where, for a
fee, the purchaser obtains the right to receive interest
payments when a variable interest rate moves above or below
a specified cap or floor rate, respectively. On September
30, 1998, the Corporation had a gross notional amount of $35
billion in outstanding interest rate option contracts used
for ALM purposes compared to $24 billion on December 31,
1997. Such instruments were primarily linked to long-term
debt, short-term borrowings and pools of similar residential
mortgages and consisted mainly of purchased options. On
September 30, 1998, the net unrealized depreciation of ALM
option products was $34 million compared to net unrealized
depreciation of $60 million on December 31, 1997. The amount
of net realized deferred gains associated with terminated
ALM options was $16 million on September 30, 1998 compared
to $13 million of net realized deferred gains on December
31, 1997.
In addition, the Corporation uses foreign currency contracts
to manage the foreign exchange risk associated with
foreign-denominated liabilities. Foreign currency contracts
involve the conversion of certain scheduled interest and
principal payments denominated in foreign currencies. On
September 30, 1998, these contracts had a notional value of
$7 billion and a fair market value of $95 million.
The net unrealized appreciation in the estimated value of
the ALM interest rate should be viewed in the context of the
overall balance sheet. The value of any single component of
the balance sheet or off-balance sheet positions should not
be viewed in isolation.
For a discussion of the Corporation's management of risk
associated with mortgage production activities, see the
"Noninterest Income" section on page 29.
51
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TABLE FIFTEEN
ASSET AND LIABILITY MANAGEMENT INTEREST RATE CONTRACTS
SEPTEMBER 30, 1998
(DOLLARS IN MILLIONS, EXPECTED MATURITY IN YEARS)
Expected Maturity
-----------------------------------------------------------------------------------
Unrealized After
Gain/(Loss) Total 1998 1999 2000 2001 2002 2002
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total receive fixed swaps $2,984
Notional amount $ 58,142 $ 3,074 $ 3,090 $ 8,219 $ 12,281 $ 2,601 $ 28,877
Weighted average receive rate 6.37 % 6.53% 6.71 % 6.41 % 6.32 % 6.93 % 6.27 %
Total pay fixed swaps (1,545)
Notional amount $ 25,344 $ 990 $ 5,315 $ 6,931 $ 4,350 $ 1,177 $ 6,581
Weighted average pay rate 6.76 % 6.53 % 6.33 % 6.89 % 6.49 % 7.31 % 7.11 %
Basis Swaps (9)
-------
Notional amount $ 7,585 $ - $ 1,585 $ 743 $ 619 $ 1,669 $ 2,969
Total Swaps $1,430
=======
Notional amount $ 91,071 $ 4,064 $ 9,990 $ 15,893 $ 17,250 $ 5,447 $ 38,427
- -------------------------------------------------------------------------------------------------------------------------------
Futures and Forward Rate Contracts
Notional amount $ 33 $ 26,543 $ 14,418 $ 6,629 $ 2,247 $ 781 $ 829 $ 1,639
Option Products
Notional amount (34) 35,291 2,075 5,225 1,131 1,163 10,211 15,486
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Contracts $1,429
=======
Notional amount $ 152,905 $ 20,557 $21,844 $ 19,271 $ 19,194 $ 16,487 $ 55,552
- -------------------------------------------------------------------------------------------------------------------------------
Average
Expected
Maturity
- ------------------------------------------------------
Total receive fixed swaps 4.98
Notional amount
Weighted average receive rate
Total pay fixed swaps 3.18
Notional amount
Weighted average pay rate
Basis Swaps 3.19
Notional amount
Total Swaps
Notional amount
- ------------------------------------------------------
Futures and Forward Rate Contracts
Notional amount
Option Products
Notional amount
- ------------------------------------------------------
Total Interest Rate Contracts
Notional amount
- ------------------------------------------------------
</TABLE>
52
<PAGE>
Trading Portfolio
The Corporation manages its exposure to market risk
resulting from trading activities through a risk management
function which is independent of the business units. The
Market Risk Committee (MRC) establishes and monitors various
limits on trading activities. These limits include product
volume, gross and net positions, and value-at-risk (VAR) and
profit and loss simulation limits. Product volume limits
establish maximum aggregate amounts of specific types of
derivatives, foreign exchange contracts, and securities that
the Corporation may hold in its trading account at any point
in time. Position limits restrict the gross and net amount
of contracts that can be held in the trading account in any
specific maturity grouping. VAR measures the potential loss
in future earnings due to market rate movements within the
trading portfolio using proprietary models that are based on
statistical probability. VAR limits establish the maximum
amount of potential loss computed by the model that the
Corporation is willing to assume at any point in time.
Additionally, the Corporation uses profit and loss
simulations to measure the potential for loss in various
segments of the trading portfolio resulting from specific
and extremely adverse scenarios. These scenarios are
projected without regard to the statistical probability of
their occurrences. Loss simulation limits establish the
maximum amount of projected loss computed by the simulation
that the Corporation is willing to assume.
On a day-to-day basis, the Corporation reduces the market
risk to which it is exposed in the trading account by
executing offsetting transactions with other counterparties.
However, the Corporation may also retain, generally on a
temporary basis, open or uncovered trading account positions
in an effort to generate revenue by correctly anticipating
future market conditions and customer demands or by taking
advantage of price differentials among the various markets
in which it operates.
The day-to-day management of interest rate and foreign
exchange risks takes place at a decentralized level within
the Corporation's various trading centers. Limits
established by the MRC are assigned to each trading center.
In addition, documented trading policies and procedures
define acceptable boundaries within which traders can
execute transactions in their assigned markets.
The Corporation uses a VAR methodology to measure the
interest rate and foreign exchange risks inherent in its
trading activities. Under this methodology, management
models historical data to statistically calculate, with 99
percent confidence, the potential loss in earnings the
Corporation might experience if an adverse one-day shift in
market prices was to occur. The instruments covered by the
VAR methodology include derivative commodity instruments,
and financial assets and liabilities that are included in
trading activities.
53
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TRADING ACTIVITIES MARKET RISK(1)
- ----------------------------------------------------------------------------------------
(US DOLLAR EQUIVALENTS IN MILLIONS) NINE MONTHS ENDED SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Average VAR High VAR Low VAR
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Based on Perfect Positive Correlation:
Interest Rate $ 86.0 $ 120.5 $ 67.1
Foreign Currency 33.8 45.9 18.0
Commodities 3.9 6.9 1.6
Equity 2.3 5.2 0.9
Based on Zero Correlation:
Interest Rate 34.8 42.0 27.3
Foreign Currency 28.7 40.0 13.8
Commodities 2.9 5.3 1.2
Equity 1.9 5.2 0.7
- ----------------------------------------------------------------------------------------
1)The high and low for the entire trading account may not equal the sum of the
individual components as the highs or lows of the components occurred on
different trading days.
- ----------------------------------------------------------------------------------------
</TABLE>
The Corporation performs this VAR calculation for each major
trading portfolio segment on a daily basis. It then
calculates the combined VAR across these portfolio segments
using two different sets of assumptions. The first
calculation assumes that each portfolio segment experiences
adverse price movements at the same time (i.e., the price
movements are perfectly correlated). The second calculation
assumes that these adverse price movements within the major
portfolio segments do not occur at the same time (i.e., they
are uncorrelated).
The table above sets forth the calculated VAR amounts for
the first nine months of 1998. The amounts are calculated on
a pre-tax basis. Although the corporation's trading
positions have remained generally consistent over the first
nine months of 1998, VAR levels have been impacted by recent
volatility in market conditions.
Value at risk modeling on trading is subject to numerous
limitations. In addition, the Corporation recognizes that
there are numerous assumptions and estimates associated with
modeling and actual results could differ from these
assumptions and estimates. The Corporation, mitigates these
uncertainties through close monitoring and by examining and
updating assumptions on an ongoing basis. The continual risk
management process considers the impact of unanticipated
risk exposure and updates assumptions to reduce loss
exposure.
As discussed under "Concentrations of Credit Risk", page 42,
on October 13, 1998, the Corporation entered into an
agreement with DE Shaw providing for, among other things,
the purchase by a banking subsidiary of the Corporation of
approximately $20 billion of fixed-income securities along
with the related hedge positions. This portfolio, along with
the positions that continue to be held by DE Shaw, will be
marked-to-market and reflected in earnings currently on an
ongoing basis. The Corporation anticipates that it will
recognize losses in the fourth quarter with respect to such
positions relating to deterioration occurring in the fourth
quarter and the market prices for such positions, the scope
of which will be dependant upon the magnitude of such
deterioration.
54
<PAGE>
CAPITAL RESOURCES The Corporation's regulatory capital ratios on September 30,
AND CAPITAL 1998 were as follows: Tier 1 Capital ratio of 7.29 percent,
MANAGEMENT Total Capital ratio of 11.25 percent, and Leverage Capital
ratio of 6.64 percent.
The Corporation's and its significant banking subsidiaries'
regulatory capital ratios on September 30, 1998 exceeded the
regulatory minimums of 4 percent for Tier 1 risk-based
capital, 8 percent for total risk-based capital and the
leverage guidelines of 100 to 200 basis points above the
minimum ratio of 3 percent. The Corporation and its
significant banking subsidiaries were considered
"well-capitalized" on September 30, 1998.
Regulatory capital guidelines were amended on September 12,
1996 to incorporate a measure for market risk. In accordance
with the amended guidelines, the Corporation and any of its
banking subsidiaries with significant trading activity, as
defined in the amendment, must incorporate a measure for
market risk in their regulatory capital calculations
effective for reporting periods after January 1, 1998. The
revised guidelines did not have a material impact on the
Corporation or its subsidiaries' regulatory capital ratios
or their "well-capitalized" status on September 30, 1998.
At December 31, 1997, the calculation of the Corporation's
risk-based capital amounts and ratios includes its
securities broker/dealer subsidiary to reflect the Federal
Reserve Board's October 31, 1997 modifications to the
risk-based capital regulations that apply to bank holding
companies engaged in securities underwriting and dealing
activities through Section 20 subsidiaries.
The following December 31, 1997 regulatory capital ratios
have not been restated to reflect the Merger.
NationsBank
NationsBank regulatory capital ratios on December 31, 1997
were as follows: Tier 1 Capital ratio of 6.50 percent, Total
Capital ratio of 10.89 percent, and Leverage Capital ratio
of 5.57 percent.
Ratios for December 31, 1997 have not been restated to
reflect the impact of the Barnett merger. Barnett and its
significant banking subsidiary were considered
"well-capitalized" on December 31, 1997.
BankAmerica
BankAmerica regulatory capital ratios on December 31, 1997
were as follows: Tier 1 Capital ratio of 7.53 percent, Total
Capital ratio of 11.56 percent, and Leverage Capital ratio
of 6.81 percent.
55
<PAGE>
TABLE SIXTEEN
SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 QUARTERS
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER-SHARE INFORMATION) THIRD SECOND FIRST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 9,608 $ 9,637 $ 9,705
Interest expense 5,164 5,011 5,086
Net interest income (taxable-equivalent) 4,484 4,668 4,659
Net interest income 4,444 4,626 4,619
Provision for credit losses 1,405 495 510
Gains on sales of securities 280 120 213
Noninterest income 2,405 3,636 3,493
Foreclosed properties expense 7 25 10
Merger and restructuring items expense (income) 725 (430) 900
Other noninterest expense 4,576 4,742 4,694
Income before taxes 416 3,550 2,211
Income tax expense 42 1,252 880
Net income 374 2,298 1,331
Net income (excluding merger and restructuring items) 893 2,021 1,973
Earnings per common share 0.21 1.32 0.77
Earnings per common share (excluding merger and restructuring items) 0.51 1.16 1.14
Diluted earnings per common share 0.21 1.28 0.75
Diluted earnings per common share
(excluding merger and restructuring items) 0.50 1.13 1.11
Dividends per common share 0.38 0.38 0.38
Yield on average earning assets 7.75% 7.91% 8.00%
Rate on average interest-bearing liabilities 4.94 4.90 4.93
Net interest spread 2.81 3.01 3.07
Net interest yield 3.60 3.81 3.82
Average total assets $578,353 $573,975 $578,841
Average total deposits 347,783 342,369 339,867
Average total shareholders' equity 45,756 44,857 43,628
Return on average assets 0.26% 1.61% 0.93%
Return on average assets (excluding merger and restructuring items) 0.61 1.41 1.38
Return on average common shareholders' equity 3.23 20.76 12.46
Return on average common shareholders' equity
(excluding merger and restructuring items) 7.73 18.24 18.52
Cash basis financial data (1)
Earnings per common share $ 0.34 $ 1.45 $ 0.90
Earnings per common share (excluding merger and restructuring items) 0.64 1.29 1.27
Diluted earnings per common share 0.34 1.41 0.87
Diluted earnings per common share (excluding merger and
restructuring items) 0.63 1.25 1.24
Return on average tangible assets 0.42% 1.81% 1.12%
Return on average tangible assets (excluding merger and
restructuring items) 0.79 1.61 1.59
Return on average tangible common shareholders' equity 7.76 35.10 23.02
Return on average tangible common shareholders' equity
(excluding merger and restructuring items) 14.51 31.23 32.57
Tier 1 capital ratio (2) 7.29% 7.32% 6.80%
Total capital ratio (2) 11.25 11.77 11.19
Market price per share of common stock
Closing price $ 53 1/2 $ 76 11/16 $ 72 15/16
High for the period 88 7/16 85 75 1/8
Low for the period 47 7/8 72 1/16 56 1/4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Cash basis calculations exclude intangible assets and the related
amortization expense.
(2)Ratios for the first and second quarters have not been restated to reflect
the impact of the BankAmerica merger.
56
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk
Management" on page 48 and the sections referenced therein
for Quantitative and Qualitative Disclosures about Market
Risk.
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL LITIGATION
PROCEEDINGS
In the ordinary course of business, the Corporation and its
subsidiaries are routinely defendants in or parties to a
number of pending and threatened legal actions and
proceedings, including actions brought on behalf of various
classes of claimants. In certain of these actions and
proceedings, substantial money damages are asserted against
the Corporation and its subsidiaries and certain of these
actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and
other laws.
The Corporation's subsidiary, Bank of America NT & SA has
been named in one such suit by the City of San Francisco and
several related public entities, and by the State of
California, in an action entitled State of California, etc
ex rel Stull v. Bank of America NT & SA, et. al. (No.
968-484). The case was instituted on April 1, 1995 in the
Superior Court for the City and County of San Francisco. The
City of San Francisco and related public entities intervened
in the case on May 1, 1997, and the State of California took
over prosecution of the case on May 5, 1997. The chief
allegation of this suit is that Bank of America retained
unclaimed funds related to bonds and coupons that were not
presented by bondholders rather than returning them to
certain bond issuers or escheating such funds to the State.
The suit also alleges False Claims Act exposure for alleged
fee overcharges and claims that Bank of America improperly
invested bond program funds. On November 12, 1998, the
plaintiffs and Bank of America settled this suit whereby
Bank of America agreed to pay $187.5 million to the
plaintiffs. The settlement is subject to court approval.
The Corporation and certain present and former officers have
been named as defendants in approximately 24 uncertified
class actions filed in federal court alleging, among other
things, that the defendants failed to disclose material
facts about BankAmerica's losses relating to DE Shaw & Co.,
L.P. until mid-October 1998, in violation of various
provisions of the federal securities laws. The uncertified
class periods consist generally of persons who were entitled
to vote on the merger of NationsBank Corporation and
BankAmerica Corporation, or who purchased or acquired
securities of the Corporation or its predecessors between
August 4, 1998 and October 13, 1998. Similar actions are
pending in California state court, alleging violations of
the California Corporations Code and involving factual
allegations essentially the same as the federal actions.
In addition, certain cases filed in California state court
have alleged that the proxy statement-prospectus of August
4, 1998, falsely stated that the merger would be one of
equals, and allege a conspiracy on the part of certain
executives to gain control over the newly merged entity. At
least one such complaint seeks recovery under various state
common law theories. The Corporation believes the actions
lack merit and will defend them vigorously. The amount of
any ultimate exposure cannot be determined with certainty at
this time.
Management believes, based upon the advice of counsel, that
the actions and proceedings and the losses, if any,
resulting from the final outcome thereof, will not be
material in the aggregate to the Corporation's financial
position or results of operations.
57
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
A special meeting of shareholders was held on September 24, 1998 (the "Special
Meeting"). The Corporation's Common Stock, 7% Cumulative Redeemable Preferred
Stock, Series B, and ESOP Convertible Preferred Stock, Series C, voted together
as a single class on the matters submitted to the shareholders at the Special
Meeting. The following are voting results on each of these matters:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Nonvotes
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. The Agreement and Plan of Reorganization
dated as of April 10, 1998, between
NationsBank Corporation and BankAmerica
Corporation, the related Plan of
Reincorporation Merger, dated as of August
3, 1998 between NationsBank Corporation
and its subsidiary NationsBank (DE)
Corporation, and the transactions
contemplated by these documents 716,220,036 12,123,876 3,059,595 0
2. The amendment and restatement of the
Corporation's Key Employee Stock Plan 494,278,924 217,810,999 19,313,584 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 6. EXHIBITS a. Exhibits
AND REPORTS ON
FORM 8-K Exhibit 10(a) - Bank of America Corporation Key
Employee Stock Plan, as amended and restated
effective September 24, 1998.
Exhibit 10(b) - BankAmerica Corporation and Bank of
America National trust and Savings Association
Deferred Compensation Plan for Directors, as
amended and restated
Exhibit 10(c) - BankAmerica Deferred Compensation
Plan, as amended and restated
Exhibit 10(d) - BankAmerica Corporation Senior
Management Incentive Plan, as amended
Exhibit 10(e) - BankAmerica Supplemental Retirement
Plan, as amended and restated
Exhibit 11 - Earnings Per Common Share Computation
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The following reports on Form 8-K were filed by the
Corporation during the quarter ended September 30,
1998:
Current Report on Form 8-K dated July 6, 1998, Items
5 and 7 (filed July 7, 1998).
Current Report on Form 8-K dated July 13,1998, Items
5 and 7 (filed July 13, 1998).
Current Report on Form 8-K dated July 14, 1998, Items
5 and 7 (filed July 23,1998).
Current Report on Form 8-K/A-3 dated April 17, 1998,
Item 7 (filed August 17, 1998). The following
unaudited pro forma condensed financial information
was filed as part of this Current Report on Form
8-K/A-3, reflecting the BankAmerica merger: Unaudited
Pro Forma Condensed Balance Sheet as of June 30, 1998
and Unaudited Pro Forma Condensed Statements of
Income for the six months ended June 30, 1998 and for
the years ended December 31, 1997, 1996 and 1995.
Current Report on Form 8-K and Current Report on Form
8-K/A dated September 25, 1998, Items 5 and 7 (filed
September 28, 1998).
58
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANKAMERICA CORPORATION
--------------------------------------
Registrant
Date: November 16, 1998 /s/ MARC D. OKEN
- ----------------------- --------------------------------------
MARC D. OKEN
Executive Vice President and
Principal Financial Executive
(Duly Authorized Officer and
Chief Accounting Officer)
59
<PAGE>
BANKAMERICA CORPORATION
Form 10-Q
Index to Exhibits
Exhibit Description
10(a) Bank of America Corporation Key Employee Stock Plan, as amended and
restated effective September 24, 1998
10(b) BankAmerica Corporation and Bank of America National Trust and
Savings Association Deferred Compensation Plan for Directors, as
amended and restated
10(c) BankAmerica Deferred Compensation Plan, as amended and restated
10(d) BankAmerica Corporation Senior Management Incentive Plan, as amended
10(e) BankAmerica Supplemental Retirement Plan, as amended and restated
11 Earnings Per Common Share Computation
12(a) Ratio of Earnings to Fixed Charges
12(b) Ratio of Earnings to Fixed Charges and Preferred Dividends
27 Financial Data Schedule
60
Exhibit 10(a)
BANK OF AMERICA CORPORATION
KEY EMPLOYEE STOCK PLAN
Effective Date: January 1, 1995
(As amended and restated effective September 24, 1998)
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
PAGE
<S> <C>
Article 1. Establishment, Purpose, and Duration......................................................1
Article 2. Definitions................................................................................1
Article 3. Administration.............................................................................6
Article 4. Shares Subject to the Plan.................................................................6
Article 5. Eligibility and Participation.............................................................7
Article 6. Stock Options..............................................................................8
Article 7. Stock Appreciation Rights..................................................................9
Article 8. Restricted Stock..........................................................................11
Article 9. Performance Shares........................................................................12
Article 10. Performance Measures.....................................................................13
Article 11. Beneficiary Designation..................................................................14
Article 12. Deferrals................................................................................14
Article 13. Rights of Key Employees..................................................................14
Article 14. Change in Control........................................................................14
Article 15. Amendment, Modification, and Termination................................................17
Article 16. Withholding..............................................................................17
Article 17. Indemnification..........................................................................17
Article 18. Successors...............................................................................18
Article 19. Legal Construction.......................................................................18
</TABLE>
<PAGE>
BANK OF AMERICA CORPORATION
KEY EMPLOYEE STOCK PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. NationsBank Corporation, a North
Carolina corporation (the "Company"), established an incentive compensation plan
known as the "NationsBank Corporation Key Employee Stock Plan" (the "Plan")
effective as of January 1, 1995 (the "Effective Date"). The Plan was designed to
permit the grant of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock and Performance Shares.
1.2 AMENDMENT AND RESTATEMENT OF THE PLAN. The Company entered into an
Agreement and Plan of Reorganization with BankAmerica Corporation, a Delaware
corporation ("BankAmerica"), dated April 10, 1998 (the "Reorganization
Agreement"). Pursuant to the Reorganization Agreement, the Company is being
reformed as a Delaware corporation, BankAmerica is merging into the Company, and
the resulting Delaware corporation is being renamed "BankAmerica Corporation,"
all effective as of the "Effective Time" as defined in the Reorganization
Agreement. References in this Plan to the Company include the Delaware
corporation resulting from the consummation of the transactions contemplated by
the Reorganization Agreement.
This document is an amendment and restatement of the Plan and shall
become effective upon approval by the shareholders of the Company. The purposes
of this amendment and restatement are to (i) rename the Plan consistent with the
corporate name change resulting under the transactions contemplated by the
Reorganization Agreement, (ii) increase the number of shares available for
awards under the Plan, (iii) increase the limit on awards to individuals in any
given year and (iv) otherwise meet current needs.
1.3 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal interests
of Participants to those of the Company's shareholders, and by providing
Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants upon
whose judgment, interest and special effort the successful conduct of its
operation largely is dependent.
1.4 DURATION OF THE PLAN. The Plan commenced on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 15 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan after December 31, 2004.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
2.1 "AWARD" means, individually or collectively, a grant under this
Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock or Performance Shares.
<PAGE>
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company
and each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.3 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5 "CHANGE IN CONTROL" of the Company means, and shall be deemed to
have occurred upon, any of the following events:
(a) The acquisition by any Person of Beneficial Ownership of
twenty-five percent (25%) or more of either:
(i) The then-outstanding Shares (the "Outstanding
Shares"); or
(ii) The combined voting power of the
then-outstanding voting securities of the Company entitled to
vote generally in the election of Directors (the "Outstanding
Voting Securities");
provided, however, that the following acquisitions shall not constitute
a Change in Control for purposes of this subparagraph (a): (A) any
acquisition directly from the Company, (B) any acquisition by the
Company or any of its Subsidiaries, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any of its Subsidiaries, or (D) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subparagraph (c) below; or
(b) Individuals who, as of the Effective Date, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual who becomes a Director subsequent to the
Effective Date and whose election, or whose nomination for election by
the Company's shareholders, to the Board of Directors was either (i)
approved by a vote of at least a majority of the Directors then
comprising the Incumbent Board or (ii) recommended by a Nominating
Committee comprised entirely of Directors who are then Incumbent Board
members shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act),
other actual or threatened solicitation of proxies or consents or an
actual or threatened tender offer; or
(c) Approval by the Company's shareholders of a
reorganization, merger, or consolidation or sale or other disposition
of all or substantially all of the assets of the Company (a "Business
Combination"), in each case, unless following such Business
Combination, (i) all or substantially all of the Persons who were the
Beneficial Owners, respectively, of the Outstanding Shares and
Outstanding Voting Securities immediately prior to such Business
Combination own, directly or indirectly, more than fifty percent (50%)
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from the Business
2
<PAGE>
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding
Shares and Outstanding Voting Securities, as the case may be (provided,
however, that for purposes of this clause (i), any shares of common
stock or voting securities of such resulting corporation received by
such Beneficial Owners in such Business Combination other than as the
result of such Beneficial Owners' ownership of Outstanding Shares or
Outstanding Voting Securities immediately prior to such Business
Combination shall not be considered to be owned by such Beneficial
Owners for the purposes of calculating their percentage of ownership of
the outstanding common stock and voting power of the resulting
corporation), (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from the Business
Combination) beneficially owns, directly or indirectly, twenty-five
percent (25%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from the Business Combination
or the combined voting power of the then outstanding voting securities
of such corporation unless such Person owned twenty-five percent (25%)
or more of the Outstanding Shares or Outstanding Voting Securities
immediately prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or the
action of the Board, providing for such Business Combination; or
(d) Approval by the Company's shareholders of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred for purposes of this Plan as a result of the transactions contemplated
by the Reorganization Agreement.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. References to the Code shall include the valid and binding
governmental regulations, court decisions and other regulatory and judicial
authority issued or rendered thereunder.
2.7 "COMMITTEE" means (i) the Stock Option Committee of the Board (or
any other committee of the Board that is appointed by the Board to administer
the Plan with respect to grants of Awards) and (ii) any individual or committee
of individuals (who need not be Directors) that the Committee described in
clause (i) may appoint from time to time to administer the Plan with respect to
grants of Awards to Key Employees who are not Insiders or Named Executive
Officers.
2.8 "COMPANY" means (i) prior to the Effective Time, NationsBank
Corporation, a North Carolina corporation and (ii) from and after the Effective
Time, BankAmerica Corporation, a Delaware corporation (which is the resulting
entity upon consummation of the transactions contemplated by the Reorganization
Agreement), and any successor as provided in Article 18 herein.
2.9 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.10 "DISABILITY" with respect to a Participant, means "disability" as
defined from time to time under any long-term disability plan of the Company or
Subsidiary with which the Participant is employed.
3
<PAGE>
2.11 "EARNINGS PER SHARE" means "earnings per common share" of the
Company determined in accordance with generally accepted accounting principles
that would be reported in the Company's Annual Report to Shareholders or Annual
Report on Form 10-K.
2.12 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "EFFECTIVE TIME" means the "Effective Time" as defined in the
Reorganization Agreement.
2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.15 "FAIR MARKET VALUE" of a Share on any date means the closing price
of a Share as reflected in the report of composite trading of New York Stock
Exchange listed securities for that day (or, if no Shares were publicly traded
on that day, the immediately preceding day that Shares were so traded) published
in The Wall Street Journal [Eastern Edition] or in any other publication
selected by the Committee; provided, however, that if the Shares are misquoted
or omitted by the selected publication(s), the Committee shall directly solicit
the information from officials of the stock exchanges or from other informed
independent market sources. If Shares shall not have been publicly traded for
more than ten (10) days immediately preceding such date, then the Fair Market
Value of a Share shall be determined by the Committee in such manner as it shall
deem appropriate.
2.16 "FREESTANDING SAR" means an SAR that is granted independently of
any Options.
2.17 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, and designated as an Incentive Stock
Option which is intended to meet the requirements of Section 422 of the Code.
2.18 "INSIDER" shall mean an individual who is, on the relevant date,
an officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act and the rules
thereunder.
2.19 "KEY EMPLOYEE" means an employee of the Company or any Subsidiary,
including an officer of the Company or a Subsidiary, in a managerial or other
important position who, by virtue of such employee's ability, qualifications and
performance, has made, or is expected to make, important contributions to the
Company or its Subsidiaries, all as determined by the Committee in its
discretion.
2.20 "NAMED EXECUTIVE OFFICER" means, for a calendar year, a
Participant who is one of the group of "covered employees" for such calendar
year within the meaning of Code Section 162(m) or any successor statute.
2.21 "NET INCOME" means "net income" of the Company determined in
accordance with generally accepted accounting principles that would be reported
in the Company's Annual Report to Shareholders or Annual Report on Form 10-K.
2.22 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted to Key Employees under Article 6 herein, and which is not
intended to meet the requirements of Code Section 422.
2.23 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
4
<PAGE>
2.24 "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.25 "PARTICIPANT" means a Key Employee, a former Key Employee or any
permitted transferee under the Plan of a Key Employee or former Key Employee who
has outstanding an Award granted under the Plan.
2.26 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception set forth in Code Section 162(m)(4)(C) from the deductibility
limitations of Code Section 162(m).
2.27 "PERFORMANCE SHARE" means an Award granted to a Key Employee, as
described in Article 9 herein.
2.28 "PERIOD OF RESTRICTION" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
2.29 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.30 "PLAN" means the incentive compensation plan set forth herein
which (i) prior to the Effective Time was known as the "NationsBank Corporation
Key Employee Stock Plan" and (ii) from and after the Effective Time is known as
the "BankAmerica Corporation Key Employee Stock Plan," as the same may be
amended from time to time.
2.31 "REORGANIZATION AGREEMENT" means the Agreement and Plan of
Reorganization dated April 10, 1998 between NationsBank Corporation and
BankAmerica Corporation.
2.32 "RESTRICTED STOCK" means an Award granted to a Participant
pursuant to Article 8 herein.
2.33 "RETURN ON ASSETS" means "return on average assets" of the Company
determined in accordance with generally accepted accounting principles that
would be reported in the Company's Annual Report to Shareholders or Annual
Report on Form 10-K.
2.34 "RETURN ON EQUITY" means "return on average common shareholders'
equity" of the Company determined in accordance with generally accepted
accounting principles that would be reported in the Company's Annual Report to
Shareholders or Annual Report on Form 10-K.
2.35 "SHARES" means the shares of common stock of the Company.
2.36 "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone
or in connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
2.37 "SUBSIDIARY" means any corporation, partnership, joint venture,
affiliate, or other entity in which the Company owns more than fifty percent
(50%) of the voting stock or voting ownership interest, as applicable, or any
other business entity designated by the Committee as a Subsidiary for purposes
of the Plan.
5
<PAGE>
2.38 "TANDEM SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a Share under the related Option (and when a Share is purchased under
the Option, the Tandem SAR shall similarly be canceled).
2.39 "TOTAL SHAREHOLDER RETURN" means the percentage change of an
initial investment in Shares over a specified period assuming reinvestment of
all dividends during the period or Annual Report on Form 10-K.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee.
Awards to Insiders shall be administered by the Committee (or any sub-committee
thereof) comprised of two or more Directors who are "non-employee directors"
within the meaning of Rule 16b-3 adopted under the Exchange Act, and Awards to
Named Executive Officers intended to comply with the Performance-Based Exception
shall be administered by the Committee (or any sub-committee thereof) comprised
of two or more Directors who are "outside directors" within the meaning of
Section 162(m) of the Code.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law, or by the
Articles of Incorporation (or Certificate of Incorporation, as the case may be)
or Bylaws of the Company, and subject to the provisions herein, the Committee
shall have full power to select Key Employees who shall participate in the Plan;
determine the sizes and types of Awards; determine the terms and conditions of
Awards in a manner consistent with the Plan; construe and interpret the Plan and
any agreement or instrument entered into under the Plan; establish, amend, or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 15 herein), amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, employees, Participants, and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Beginning on the Effective
Date, there is hereby reserved for issuance under the Plan a number of shares
equal to:
(a) for calendar years 1995 through 1998, seventy-five one
hundredths of a percent (0.75%) of the outstanding Shares as of the
first business day of each such calendar year; plus
(b) for calendar years 1999 through 2004, one and five tenths
percent (1.5%) of the outstanding Shares as of the last day of the
immediately preceding calendar year as reported in the Company's Annual
Report to Shareholders or Annual Report on Form 10-K; plus
(c) the Shares available for issuance under the Company's 1986
Restricted Stock Award Plan (the "1986 Plan") as of January 31, 1995.
6
<PAGE>
Such Shares available for grants of Awards in any year shall be increased by the
number of Shares available under this Section 4.1 in previous years but not
covered by Awards granted under this Plan in those years plus any Shares as to
which Awards granted under this Plan have lapsed, expired, terminated, or been
canceled. In addition, any Shares as to which Awards under the Company's 1986
Plan may lapse, expire, terminate, or be canceled, shall also be reserved and
available for issuance or reissuance under this Section 4.1 in any calendar
year. No further awards are to be granted under the 1986 Plan after January 31,
1995; provided that any outstanding awards under the 1986 Plan shall continue to
remain outstanding in accordance with the terms thereof. An additional Ten
Million (10,000,000) Shares were made available for grants of Awards under the
Plan effective January 7, 1997 in connection with the merger of the Company with
Boatmen's Bancshares, Inc. (after giving effect to the two-for-one stock split
of the Shares effective February 27, 1997), and another Ten Million (10,000,000)
Shares were made available for grants of Awards under the Plan effective January
9, 1998 in connection with the merger of the Company with Barnett Banks, Inc. At
the Effective Time, an additional Eleven Million Five Hundred Thousand
(11,500,000) Shares shall be made available for grants of Awards under the Plan.
In no event shall a Participant receive an Award or Awards during any one (1)
calendar year covering in the aggregate more than Two Million (2,000,000)
Shares. In addition, in no event shall the total number of Incentive Stock
Options granted during the ten (10) year term of the Plan cover in the aggregate
more than the product of (i) ten (10) times (ii) one and five tenths percent
(1.5%) of the outstanding Shares as of the first business day of calendar year
1998. The number of Shares reserved for issuance under this Section 4.1 and the
limitations on the number of annual Awards to individuals and Incentive Stock
Option Awards set forth above shall be subject to adjustment as provided in
Section 4.3.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under the
Plan and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
4.4 SOURCE OF SHARES. Shares delivered under the Plan may be original
issue shares, treasury stock or shares purchased in the open market or
otherwise, all as determined by the Chief Financial Officer of the Company (or
the Chief Financial Officer's designee) from time to time.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan are all
Key Employees of the Company, as determined by the Committee, including Key
Employees who are Directors, but excluding Directors who are not Key Employees.
7
<PAGE>
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Key Employees those
to whom Awards shall be granted and shall determine the nature and amount of
each Award.
5.3 NON-U.S. EMPLOYEES. Notwithstanding any provision of the Plan to
the contrary, in order to foster and promote achievement of the purposes of the
Plan or to comply with provisions of laws in other countries in which the
Company operates or has employees, the Committee, in its sole discretion, shall
have the power and authority to (i) determine which Key Employees (if any)
employed outside the United States are eligible to participate in the Plan, (ii)
modify the terms and conditions of any Awards made to such Key Employees and
(iii) establish subplans and modified Option exercise and other terms and
procedures to the extent such actions may be necessary or advisable.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Key Employees in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Section 422 of the Code,
or an NQSO whose grant is intended not to fall under Code Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under
this Plan shall be at least equal to one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve and which shall be set forth in the
applicable Award Agreement, which need not be the same for each grant or for
each Participant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares.
The Option Price due upon exercise of any Option shall be payable to
the Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price unless such Shares had been
acquired by the Participant on the open market), or (c) by a combination of (a)
and (b).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver the Shares to the
Participant in an appropriate amount based upon the number of Shares purchased
under the Option(s).
8
<PAGE>
Notwithstanding the foregoing, the Committee also may allow (i)
cashless exercises as permitted under Federal Reserve Board's Regulation T,
subject to applicable securities law restrictions, or (ii) exercises by any
other means which the Committee determines to be consistent with the Plan's
purpose and applicable law.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Each Participant's Option Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with Participants, need not be uniform among all
Options issued pursuant to this Article 6, and may reflect distinctions based on
the reasons for termination of employment. In that regard, if an Award Agreement
permits exercise of an Option following the death of the Participant, the Award
Agreement shall provide that such Option shall be exercisable to the extent
provided therein by any person that may be empowered to do so under the
Participant's will, or if the Participant shall fail to make a testamentary
disposition of the Option or shall have died intestate, by the Participant's
executor or other legal representative.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under this Article
6 may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such
Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided
in a Participant's Award Agreement, no NQSO granted under this Article
6 may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article
6 shall be exercisable during his or her lifetime only by such
Participant.
6.10 NO RIGHTS. A Participant granted an Option shall have no rights as
a shareholder of the Company with respect to the Shares covered by such Option
except to the extent that Shares are issued to the Participant upon the due
exercise of the Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of the Plan,
SARs may be granted to Key Employees at any time and from time to time as shall
be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs, or any combination of these forms of SARs.
The Committee shall have complete discretion in determining the number
of SARs granted to each Participant (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.
9
<PAGE>
The grant price of a Freestanding SAR shall equal the Fair Market Value
of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.5 TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten (10) years.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in some combination thereof.
7.7 OTHER RESTRICTIONS. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on exercise of an SAR (including,
without limitation, the right of the Committee to limit the time of exercise to
specified periods) as may be required to satisfy the requirements of Section 16
(or any successor rule) of the Exchange Act or for any other purpose deemed
appropriate by the Committee.
7.8 TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with
Participants, need not be uniform among all SARs issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.
In that regard, if an Award Agreement permits exercise of an SAR following the
death of the Participant, the Award Agreement shall provide that such SAR shall
be exercisable to the extent provided therein by any person that may be
empowered to do so under the
10
<PAGE>
Participant's will, or if the Participant shall fail to make a testamentary
disposition of the SAR or shall have died intestate, by the Participant's
executor or other legal representative.
7.9 NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
7.10 NO RIGHTS. A Participant granted an SAR shall have no rights as a
shareholder of the Company with respect to the Shares covered by such SAR except
to the extent that Shares are issued to the Participant upon the due exercise of
the SAR.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to eligible Key Employees in such amounts as the Committee
shall determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period or
Periods of Restriction, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee and specified in the
Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other
conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without limitation, a
requirement that Participants pay a stipulated purchase price for each Share of
Restricted Stock, restrictions based upon the achievement of specific
performance goals (Company-wide, divisional, and/or individual), time-based
restrictions on vesting following the attainment of the performance goals,
and/or restrictions under applicable Federal or state securities laws.
The Company shall retain the Shares of Restricted Stock in the
Company's possession until such time as all conditions and/or restrictions
applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the Period of
Restriction.
8.5 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
may receive regular cash dividends paid with respect to the
11
<PAGE>
underlying Shares while the Restricted Stock is held by the Company. The
Committee may apply any restrictions to the dividends that the Committee deems
appropriate.
In the event that any dividend constitutes a "derivative security" or
an "equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be subject to a vesting period equal to the remaining vesting
period of the Shares of Restricted Stock with respect to which the dividend is
paid.
8.7 TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement
shall set forth the extent to which the Participant shall have the right to
receive unvested Restricted Shares following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with Participants, need not be uniform among all
Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment. In
amplification but not limitation of the foregoing, in the case of an award of
Restricted Stock to a Named Executive Officer which is intended to qualify for
the Performance-Based Exception, the Award Agreement may provide that such
Restricted Stock may become payable in the event of a termination of employment
by reason of death, Disability or Change in Control, such payment not to occur
before attainment of the related performance goal.
8.8 LIMITATION ON VESTING FOR CERTAIN AWARDS. Notwithstanding any
provision of the Plan to the contrary, an Award of Restricted Stock that vests
solely on the basis of the passage of time (e.g., not on the basis of any
performance standards) shall not vest more quickly than ratably over the three
(3) year period beginning on the first anniversary of the Award, except that the
Award may vest sooner under any of the following circumstances as more
specifically set forth in the applicable Award Agreement: (i) the Participant's
death, (ii) the Participant's Disability, (iii) the Participant's "retirement"
as defined in the Award Agreement consistent with the Company's retirement
policies and programs, (iv) a Change in Control consistent with the provisions
of Article 14 hereof or (v) in connection with establishing the terms and
conditions of employment of a Key Employee as the result of a business
combination or acquisition by the Company or any of its Subsidiaries.
ARTICLE 9. PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms of the Plan,
Performance Shares may be granted to eligible Key Employees in such amount and
upon such terms, and at any time and from time to time, as shall be determined
by the Committee. The number and/or vesting of Performance Shares granted, in
the Committee's discretion, shall be contingent upon the degree of attainment of
specified performance goals or other conditions over a specified period (the
"Performance Period"). The terms and conditions of an Award of Performance
Shares shall be evidenced by an appropriate Award Agreement.
9.2 VALUE OF PERFORMANCE SHARES. The value of a Performance Share at
any time shall equal the Fair Market Value of a Share at such time.
9.3 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. During the course
of a Performance Period, the Committee shall determine the number of Performance
Shares as to which the Participant has earned a right to be paid pursuant to the
terms of the applicable Award Agreement. The Committee shall pay any earned
Performance Shares as soon as practical after they are earned in the form of
cash, Shares or a combination thereof (as determined by the Committee) having an
aggregate Fair Market Value equal to the value of the earned Performance Shares
as of the date they are earned. Any Shares used to pay out earned Performance
Shares may be granted subject to any restrictions deemed appropriate by the
Committee. In addition, the Committee, in its discretion, may cancel any earned
Performance Shares and
12
<PAGE>
grant Stock Options to the Participant which the Committee determines to be of
equivalent value based on a conversion formula stated in the Performance Shares
Award Agreement.
The Committee, in its discretion, may also grant dividend equivalents
rights with respect to earned but unpaid Performance Shares as evidenced by the
applicable Award Agreement. Performance Shares shall not have any voting rights.
Prior to the beginning of a Performance Period (or at such other time
as determined by the Committee), Participants may elect to defer the receipt of
payment of any Performance Shares or other amounts (e.g., dividend equivalents
rights) earned pursuant to the Award Agreement upon such terms as the Committee
deems appropriate and as set forth in the applicable Award Agreement.
9.4 TERMINATION OF EMPLOYMENT. Each Performance Share Award Agreement
shall set forth the extent to which the Participant shall have the right to
receive unearned Performance Shares following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreements entered into with Participants, need not be uniform among all
Performance Shares awarded pursuant to the Plan, and may reflect distinctions
based on the reasons of termination of employment. In amplification but not
limitation of the foregoing, in the case of an award of Performance Shares to a
Named Executive Officer which is intended to qualify for the Performance-Based
Exception, the Award Agreement may provide that such Performance Shares may
become payable in the event of a termination of employment by reason of death,
Disability or Change in Control, such payment not to occur before attainment of
the related performance goal.
9.5 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant.
ARTICLE 10. PERFORMANCE MEASURES
The performance measure(s) to be used for purposes of Awards to Named
Executive Officers which are designed to qualify for the Performance-Based
Exception shall be chosen from among the following alternatives:
(a) Earnings Per Share;
(b) Net Income;
(c) Return On Assets;
(d) Return On Equity; or
(e) Total Shareholder Return.
The Committee shall have the discretion to adjust the determinations of
the degree of attainment of the preestablished performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Named Executive Officers, may not be adjusted
upward (the Committee shall retain the discretion to adjust such Awards
downward).
13
<PAGE>
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option or SAR, the lapse
or waiver of restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF KEY EMPLOYEES
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
For purposes of this Plan, a transfer of a Participant's employment
between the Company and a Subsidiary, or between Subsidiaries, shall not be
deemed to be a termination of employment. Upon such a transfer, the Committee
may make such adjustments to outstanding Awards as it deems appropriate to
reflect the changed reporting relationships.
13.2 PARTICIPATION. No Key Employee shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 14. CHANGE IN CONTROL
14.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change
in Control, unless otherwise specifically prohibited under applicable laws, or
by the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all outstanding Options and SARs held by persons
employed with the Company or any Subsidiary on the date of the Change
in Control shall become immediately exercisable, and shall remain
exercisable throughout their entire term;
14
<PAGE>
(b) Any restriction periods and restrictions imposed on
outstanding Shares of Restricted Stock held by persons employed with
the Company or any Subsidiary on the date of the Change in Control
shall lapse;
(c) The target payout opportunities attainable under all
outstanding Awards of Restricted Stock and Performance Shares held by
persons employed with the Company or any Subsidiary on the date of the
Change in Control shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change in
Control, and the vesting of all such Awards shall be accelerated as of
the effective date of the Change in Control; and
(d) Subject to Article 15 herein, the Committee shall have the
authority to make any modifications to the Awards as determined by the
Committee to be appropriate before the effective date of the Change in
Control.
14.2 LIMITATION ON CHANGE-IN-CONTROL BENEFITS. It is the intention of
the Company and the Participants to reduce the amounts payable or distributable
to a Participant hereunder if the aggregate Net After Tax Receipts (as defined
below) to the Participant would thereby be increased, as a result of the
application of the excise tax provisions of Section 4999 of the Code.
Accordingly, anything in this Plan to the contrary notwithstanding, in the event
that the certified public accountants regularly employed by the Company
immediately prior to any "change" described below (the "Accounting Firm") shall
determine that receipt of all Payments (as defined below) would subject the
Participant to tax under Section 4999 of the Code, it shall determine whether
some amount of Payments would meet the definition of a "Reduced Amount" (as
defined below). If the Accounting Firm determines that there is a Reduced
Amount, the aggregate Payments shall be reduced to such Reduced Amount in
accordance with the provisions of Section 14.2(b) below.
(a) For purposes of this Section 14.2(a):
(i) A "Payment" shall mean any payment or
distribution in the nature of compensation to or for the
benefit of a Participant who is a "disqualified individual"
within the meaning of Section 280G(c) of the Code and which is
contingent on a "change" described in Section 280G(b)(2)(A)(i)
of the Code with respect to the Company, whether paid or
payable pursuant to this Plan or otherwise;
(ii) "Plan Payment" shall mean a Payment paid or
payable pursuant to this Plan (disregarding this Section
14.2);
(iii) "Net After Tax Receipt" shall mean the Present
Value of a Payment, net of all taxes imposed on the
Participant with respect thereto under Sections 1 and 4999 of
the Code, determined by applying the highest marginal rate
under Section 1 of the Code which applied to the Participant's
Federal taxable income for the immediately preceding taxable
year;
(iv) "Present Value" shall mean such value determined
in accordance with Section 280G(d)(4) of the Code; and
(v) "Reduced Amount" shall mean the smallest
aggregate amount of Payments which (A) is less than the sum of
all Payments and (B) results in aggregate Net After Tax
Receipts which are equal to or greater than the Net After
15
<PAGE>
Tax Receipts which would result if all Payments were paid to
or for the benefit of the Participant.
(b) If the Accounting Firm determines that aggregate Payments
should be reduced to the Reduced Amount, the Committee shall promptly
give the Participant notice to that effect and a copy of the detailed
calculation thereof, and the Participant may then elect, in the
Participant's sole discretion, which and how much of the Payments,
including without limitation Plan Payments, shall be eliminated or
reduced (as long as after such election the Present Value of the
aggregate Payments is equal to the Reduced Amount), and shall advise
the Committee in writing of such election within ten (10) days of the
Participant's receipt of notice. If no such election is made by the
Participant within such ten (10) day period, the Committee may elect
which of the Payments, including without limitation Plan Payments,
shall be eliminated or reduced (as long as after such election the
Present Value of the aggregate Payments is equal to the Reduced Amount)
and shall notify the Participant promptly of such election. All
determinations made by the Accounting Firm under this Section 14.2
shall be binding upon the Company and the Participant and shall be made
within sixty (60) days immediately following the event constituting the
"change" referred to above. As promptly as practicable following such
determination, the Company shall pay to or distribute for the benefit
of the Participant such Payments as are then due to the Participant
under this Plan.
(c) At the time of the initial determination by the Accounting
Firm hereunder, it is possible that amounts will have been paid or
distributed by the Company to or for the benefit of the Participant
pursuant to this Plan which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been
paid or distributed by the Company to or for the benefit of the
Participant pursuant to this Plan could have been so paid or
distributed ("Underpayment"), in each case, consistent with the
calculation of the Reduced Amount hereunder. In the event that the
Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Company or the Participant which
the Accounting Firm believes has a high probability of success or
controlling precedent or other substantial authority, determines that
an Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of the Participant shall be
treated for all purposes as a loan ab initio to the Participant which
the Participant shall repay to the Company together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of the
Code; provided, however, that no such loan shall be deemed to have been
made and no amount shall be payable by the Participant to the Company
if and to the extent such deemed loan and payment would not either
reduce the amount on which the Participant is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such
taxes.
In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Participant together
with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code.
14.3 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 14 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards; provided, however, the Board of
16
<PAGE>
Directors, upon recommendation of the Committee, may terminate, amend, or modify
this Article 14 at any time and from time to time prior to the date of a Change
in Control.
ARTICLE 15. AMENDMENT, MODIFICATION, AND TERMINATION
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided, however, that an amendment to the Plan may be conditioned
on the approval of the shareholders of the Company if and to the extent the
Board determines that shareholder approval is necessary or appropriate.
The Committee shall not have the authority to cancel outstanding Awards
and issue substitute Awards in replacement thereof.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
15.3 ACCELERATION OF AWARD VESTING; WAIVER OF RESTRICTIONS.
Notwithstanding any provision of this Plan or any Award Agreement provision to
the contrary, the Committee, in its sole and exclusive discretion, shall have
the power at any time to (i) accelerate the vesting of any Award granted under
the Plan, including, without limitation, acceleration to such a date that would
result in said Awards becoming immediately vested, or (ii) waive any
restrictions of any Award granted under the Plan.
ARTICLE 16. WITHHOLDING
16.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising as a result of this Plan.
16.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
ARTICLE 17. INDEMNIFICATION
Provisions for the indemnification of officers and directors of the
Company in connection with the administration of the Plan shall be as set forth
in the Company's Articles of Incorporation (or Certificate of Incorporation, as
the case may be) and Bylaws as in effect from time to time.
17
<PAGE>
ARTICLE 18. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 19. LEGAL CONSTRUCTION
19.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
19.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
19.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
19.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
19.5 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by (i) prior to the Effective Time, the laws of the State of North
Carolina and (ii) from and after the Effective Time, the laws of the State of
Delaware.
18
Exhibit 10(b)
[Adopted March 8, 1993]
[Amended December 1, 1997]
AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
FOR DIRECTORS FOR BANKAMERICA CORPORATION AND
BANK OF AMERICA TRUST AND SAVINGS ASSOCIATION
l. Purpose of Plan
---------------
The purpose of the BankAmerica Corporation Deferred Compensation Plan for
Directors (the "Plan") is to provide those directors and advisory directors of
BankAmerica Corporation ("BAC" or "Company") who are not employees of the
Company, or of any of its subsidiaries ("Eligible Directors") with a plan in
compliance with applicable federal tax rules whereby one or more Eligible
Directors may elect to defer receipt of such compensation, in an unfunded
account in the form of cash or of restricted stock units, for such period of
years, not exceeding fifteen years, with distributions commencing after the
Eligible Director ceases being a director or retires from his or her principal
occupation, as the Eligible Director may elect.
2. Election to Participate in Plan
-------------------------------
(a) On or before April 1, 1993, with respect to initial elections under the
Plan, or prior to the beginning of any calendar year, or, in the case of newly
elected Directors, within 90 days of such election, each Eligible Director may
elect to participate in the Plan by directing that all or any part of the
compensation which would otherwise have been payable currently for services as a
Director (including fees payable for services as a member of a committee of the
Board) during such calendar year, or, in the case of initial elections or for
newly elected Directors, during the remainder of such calendar year, shall be
credited to a deferred compensation account subject to the terms of the Plan;
provided, however, that no election shall apply to any compensation earned on or
- - --------
- -------
before the date on which the election becomes irrevocable, as provided in
Section 2(b).
(b) Such an election to participate in the Plan shall be in the form of a
document, substantially in the form of Attachment A, executed by the Eligible
Director and filed with the Secretary of the Company. An election related to
fees otherwise payable currently in any calendar year shall become irrevocable
on the last day prior to the beginning of such calendar year, or, in the case of
initial elections under the Plan, on April 1, 1993, or in the case of new
Directors, on the 90th day after becoming a Director. An election shall continue
until an Eligible Director ceases to be a Director or until he or she terminates
or modifies such election by written notice; provided, however, that
-------- -------
only one such termination or modification shall be permitted during any calendar
year. Any such termination or modification shall become effective as of the end
of the calendar year in which such notice is given with respect to all fees
otherwise payable in subsequent calendar years. An Eligible Director who has
filed a termination of election with respect to any calendar year may thereafter
again file an election to participate for any calendar year or years subsequent
to such calendar year.
Page 1
<PAGE>
(c) An Eligible Director's deferred compensation account automatically
shall be credited with that part of the Eligible Director's compensation for any
calendar year (including fees for services as a member of the Board), which the
Board has directed to be credited under this Plan. Such compensation shall be
credited at the time that the related compensation is or would otherwise have
been paid currently.
3. Deferred Compensation Accounts
------------------------------
(a) General. At the time of election to participate in the Plan under
-------
Section 2(a) above, an Eligible Director shall also designate the percentage of
such deferred amounts to be credited to the portion of the Eligible Director's
deferred account which is maintained in the form of restricted stock units ("BAC
Shares Account") and the percentage to be credited to the portion of such
Eligible Director's deferred account which is maintained in the form of cash
("Cash Account"). All deferred amounts credited under Section 2(c) above shall
be credited to the Eligible Director's BAC Shares Account.
(b) BAC Shares Account. Deferred amounts credited to the Eligible
------------------
Director's BAC Shares Account on the date the related compensation is or would
be otherwise be paid shall be converted to a number of restricted stock units,
determined by dividing the amount of such compensation by the Fair Market Value
(as defined below) of BAC Common Stock. The Eligible Director's BAC Shares
Account shall also be credited on each dividend payment date for BAC Common
Stock with an amount equivalent to the dividend payment on the number of shares
of BAC Common Stock equal to the number of restricted stock units in the
Eligible Director's BAC Shares Account on the record date for such dividend.
Such amount shall then be converted to a number of additional restricted stock
units determined by dividing such amount by the Fair Market Value of BAC Common
Stock. The Fair Market Value of BAC Common Stock related to any compensation or
dividend payment date shall mean the average of the high and low sales prices of
a share of BAC Common Stock as reflected in the report of consolidated trading
of New York Stock Exchange listed securities for that day (or, if no shares were
publicly traded on that day, the immediately preceding day that shares were so
traded) published in The Wall Street Journal or in any other publication
selected by the Executive Personnel and Compensation Committee of the BAC Board
of Directors ("Committee"); provided, however, that if shares of BAC Common
Stock shall not have been publicly traded for more than ten days immediately
preceding such date, then the fair market value of a share of BAC Common Stock
shall be determined by the Committee in such manner as it may deem appropriate.
In the event of any change in outstanding shares of BAC Common Stock
by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, the Committee shall make such adjustments, if any, that it deems
appropriate in the number of restricted stock units then credited to Eligible
Directors' BAC Shares Accounts. Any and all such adjustments shall be conclusive
and binding upon all parties concerned.
The maximum number of restricted stock units that may be maintained in
the BAC Shares Accounts of all Eligible Directors may not exceed two million.
This number is subject to adjustment to take into consideration such changes in
the number of outstanding shares of BAC Common Stock as are described in the
immediately preceding paragraph.
Page 2
<PAGE>
(c) Cash Account. Deferred amounts credited to the Eligible Director's
------------
Cash Account shall bear interest from the date the related compensation is or
would otherwise be paid. The interest credited to the Cash Account will be
compounded quarterly at the end of each calendar quarter. For all amounts
whenever credited, the rate of interest credited thereon shall be equal to the
rate determined from time to time by the Committee.
4. Distribution
------------
(a) (i) At the time of election to participate in the Plan, an Eligible
Director shall also make an election with respect to the distribution
(during the Eligible Director's lifetime or in the event of the Eligible
Director's death) of amounts deferred under the Plan plus accumulated
earnings. Such an election shall be contained in the document referred to
in Section 2(b), executed by the Eligible Director and filed with the
Secretary of the Company. Such an election related to fees for any calendar
year shall become effective as of the beginning of such calendar year, or
with respect to newly elected Directors, on the 90/th/ day after becoming a
Director.
(ii) An Eligible Director may elect to have all amounts accumulated
under the Plan be subject to a single distribution election. Such an
election shall be made on the form designated for that purpose by the
Secretary of the Company, executed by the Eligible Director and filed with
the Secretary of the Company. The distribution election shall become
effective on the one year anniversary of the date the distribution form is
filed with the Secretary of the Company, provided the Eligible Director has
remained a Director of the Company continuously until that date. No
distribution election submitted under this paragraph may shorten the period
of time during which payments would have been made or accelerate the date
upon which payment would have commencement in the absence of such election.
(b) An Eligible Director may elect to receive amounts credited to his or
her account in one payment or in some other number of approximately equal annual
installments (not exceeding fifteen). The election shall direct that the first
installment (or the single payment if the Eligible Director has so elected) be
paid on the first day of the calendar year immediately following either (1) the
year in which the Eligible Director ceases to be a Director of the Company, or
(2) the later of the year in which the Eligible Director ceases to be a Director
of the Company or the year in which the Eligible Director has retired from his
or her principal occupation. BAC may rely upon the certification of an Eligible
Director that such Eligible Director has retired from his or her principal
occupation, but reserves the right, but not the obligation, to postpone the
commencement of payment of deferred amounts in such cases upon the advice of its
tax counsel that such retirement has not effectively occurred. Each distribution
shall be made pro-rata from amounts credited to the Eligible Director's Cash
Account and amounts credited to the Eligible Director's BAC Shares Account on
the applicable payment date.
(c) All distributions shall be in cash. For this purpose, the value of
restricted stock units distributed on any payment date shall be determined by
multiplying the number of such restricted stock units by the Fair Market Value
of BAC Common Stock as of the business day immediately preceding the payment
date.
Page 3
<PAGE>
(d) An Eligible Director may elect that, in the event the Eligible Director
should die before full payment of the amounts credited to the Eligible
Director's deferred account, the balance of the deferred account shall be
distributed in one payment or in some other number of approximately equal
installments (not exceeding ten) to the beneficiary or beneficiaries designated
by the Eligible Director in the form of a document substantially in the form of
Attachment B, executed by the Eligible Director and filed with the Secretary of
the Company, or if no such designation has been made, to the estate of the
Eligible Director. The first such installment (or the single payment, if the
Eligible Director has so elected) shall be paid on the first business day of the
calendar year following the year of death.
(e) Installments subsequent to the first installment to the Eligible
Director, or to a beneficiary of the Eligible Director's estate, shall be paid
on the first business day of each succeeding calendar year until the entire
amount credited to the Eligible Director's deferred account shall have been
paid. Deferred amounts held pending distribution shall continue to be credited
with earnings determined in accordance with Section 3.
5. Miscellaneous
--------------
(a) The right of an Eligible Director to any deferred fees and/or earnings
thereon shall not be subject to assignment by the Eligible Director.
(b) All deferred amounts shall be held in the general funds of the Company.
The Company shall not be required to reserve, or otherwise set aside, funds for
payment of its obligations hereunder. The Plan shall not be construed to give
any Eligible Director or beneficiary or any other person a security interest in
deferred amounts held by the Company hereunder, nor shall the Plan be construed
to create any trust or fiduciary arrangement with respect to such deferred
amounts.
(c) The Plan amends, restates and supersedes the BankAmerica Corporation
Deferred Compensation Plan for Directors, as amended through March 2, 1992. The
Plan may be amended from time to time by resolution of the Board of Directors of
BAC, but no such amendment shall (1) permit amounts previously accumulated under
the Plan by an Eligible Director to be paid earlier or within a shorter period
of time than the payments would have been made otherwise or (2) permit any
amounts to be paid otherwise than in cash.
(d) The Plan will continue in effect until terminated by resolution of the
Board of Directors of BAC, but in the event of such termination, the amounts
accumulated pursuant to the Plan prior to termination will continue to be
subject to the provisions of the Plan as if the Plan had not been terminated.
Page 4
<PAGE>
ATTACHMENT A
DEFERRAL ELECTION LETTER
------------------------
To: BankAmerica Corporation
San Francisco, California
I elect to participate in the BankAmerica Corporation Deferred Compensation Plan
for Directors (the "Plan"), the terms and conditions of which are attached to
this letter, and I agree to be bound by the terms and conditions of the Plan.
I elect to DEFER receipt of: [check one or more; fill in percentage(s) for each
category checked]
<TABLE>
<S> <C> <C> <C>
______ Board Retainer Fees _________ % Cash _______ % Restricted Stock Units
______ Committee Retainer Fees _________ % Cash _______ % Restricted Stock Units
______ Board Meeting Fees _________ % Cash ________ % Restricted Stock Units
______ Committee Meeting Fees _________ % Cash ________ % Restricted Stock Units
</TABLE>
to which I otherwise may be entitled for the balance of the calendar year
commencing _______________, and for any succeeding taxable years until I
terminate or amend my participation in the Plan. I acknowledge that this
election shall not apply to any compensation earned on or before the date on
which this election becomes irrevocable, as provided in Section 2(b) of the
Plan.
I direct that such fees be paid as follows: [check one]
___________ Single payment, or
___________ Annual installments for ______________ years. [enter number of
years; maximum of fifteen]
Commencing with: [check one]
____________ the lst business day of the calendar year after I cease being a
director of BankAmerica Corporation.
____________ the lst business day of the calendar year immediately following
the year in which I cease being a director of BankAmerica
Corporation or the lst day of the calendar year following the
calendar year in which I retire from my principal occupation,
whichever shall last occur.
I understand that the Plan is unfunded.
Dated: _______________________________
- -------------------------------------- -------------------------------
(Director Printed Name) (Director Signature)
Receipt Acknowledged
BankAmerica Corporation
By: ___________________________________ Date:________________________
Secretary
<PAGE>
ATTACHMENT B
DESIGNATION OF BENEFICIARY
TO: BankAmerica Corporation
San Francisco, California
Pursuant to Section 4(d) of the BankAmerica Corporation Deferred Compensation
Plan for Directors (the "Plan"), I hereby designate the following person(s) as
Beneficiary(ies) to receive my balance in the Plan in the event of my death:
<TABLE>
<CAPTION>
<S> <C>
1. Name:
- ---------------------------------- __________ % of balance
Address:
- -----------------------------------------------------------------------------------------------------
Street City State Zip Code
2. Name:
- ---------------------------------- __________ % of balance
Address:
- -----------------------------------------------------------------------------------------------------
Street City State Zip Code
3. Name:
- ---------------------------------- __________ % of balance
Address:
- -----------------------------------------------------------------------------------------------------
Street City State Zip Code
4. Name:
- ---------------------------------- __________ % of balance
Address:
- -----------------------------------------------------------------------------------------------------
Street City State Zip Code
</TABLE>
Upon my death, my balance in the Plan shall be distributed to the beneficiary or
beneficiaries designated above as follows: [check one]
___________ Single payment, or
___________ Annual installments for ______________ years [enter number of
years; maximum of ten]
commencing on the first business day of the calendar year following the year of
my death.
I reserve the right to revoke or change this Beneficiary Designation. I
understand that such change or revocation must be tendered in writing on a
Designation of Beneficiary form for this Plan. All prior designations, if any,
of Beneficiaries with respect to this Plan are hereby revoked.
Dated: ________________________
- ----------------------------------------- ------------------------------
(Director Printed Name) (Director Signature)
Receipt Acknowledged
BankAmerica Corporation
By: ___________________________________ Date:________________________
Secretary
Exhibit 10(c)
[LOGO OF BANKAMERICA(R)]
BANKAMERICA DEFERRED COMPENSATION PLAN
(As amended and restated effective January 1, 1997)
As amended through November 19, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I ...........................................................................................................1
1.1 Name.......................................................................................................1
1.2 Purpose....................................................................................................1
1.3 Status Under ERISA.........................................................................................1
ARTICLE II.............................................................................................................2
2.1 Annual Incentive Award.....................................................................................2
2.2 Annual Incentive Plan......................................................................................2
2.3 Compensation...............................................................................................2
2.4 Deferred Compensation Account or Account.................................................................. 2
2.5 Eligible Employee..........................................................................................2
2.6 Employee...................................................................................................3
2.7 Employer...................................................................................................3
2.8 Employment.................................................................................................3
2.9 Enrollment Period..........................................................................................3
2.10 Executive Officer..........................................................................................3
2.11 401(k) Investment Plan.....................................................................................3
2.12 Internal Revenue Code......................................................................................3
2.13 Participant................................................................................................3
2.14 Participating Employer.....................................................................................3
2.15 Plan or Deferred Compensation Plan.........................................................................3
2.16 Plan Administrator.........................................................................................4
2.17 Plan Year..................................................................................................4
2.18 Prior Plan.................................................................................................4
2.19 Salary.....................................................................................................4
2.20 Service Center.............................................................................................4
2.21 United States..............................................................................................4
ARTICLE III............................................................................................................5
3.1 Submission of Deferral Election............................................................................5
3.2 Amount of Compensation Which May be Deferred...............................................................5
3.3 Deferral of Compensation...................................................................................6
3.4 Vesting....................................................................................................6
ARTICLE IV.............................................................................................................7
4.1 Deferred Compensation Account..............................................................................7
4.2 Special Definitions........................................................................................7
4.3 Allocation of Existing Account Balances on 12/31/96 Among Mirror Investment Options........................8
4.4 Allocation of New Deferrals Among Mirror Investment Options andTransfers Among Mirror Investment Options...8
4.5 Procedures and Deadlines for Transactions..................................................................8
4.6 Payments Deducted on a Pro Rata Basis from each Mirror Investment Option...................................9
4.7 Other Deferred Compensation Plans..........................................................................9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V..............................................................................................................11
5.1 Form of Payment............................................................................................11
5.2 Balance less than $10,000..................................................................................11
5.3 Balance of $10,000 or More.................................................................................11
5.4 Payment Election for Termination of Employment............................................................ 11
5.5 In-Service Payment Election................................................................................12
5.6 Payments due to Hardship...................................................................................13
5.7 Immediate Payment with 10 Percent Forfeiture.............................................................. 13
5.8 Reemployed Employees.......................................................................................13
5.9 Payments Upon Death of Participant.........................................................................13
5.10 Withholding Taxes..........................................................................................14
5.11 Temporary Postponement of Payment to Executive Officers................................................... 14
5.12 Transition Provisions......................................................................................15
5.13 Distribution income........................................................................................15
5.14 Participants Returning from non-U.S. Locations............................................................ 15
ARTICLE VI.............................................................................................................16
6.1 Amendment and Termination..................................................................................16
6.2 Plan Administrator.........................................................................................16
6.3 Powers and Duties of Plan Administrator....................................................................16
6.4 Reliance Upon Information..................................................................................17
6.5 Alternative Plans or other Arrangements for U.S. IAs...................................................... 17
ARTICLE VII............................................................................................................18
7.1 Claims Procedure...........................................................................................18
7.2 Appeal and Review Procedure................................................................................18
7.3 Exhaustion of Remedies.....................................................................................19
ARTICLE VIII...........................................................................................................20
8.1 Source of Payments.........................................................................................20
8.2 Prohibition on Alienation..................................................................................20
8.3 Not a Contract of Employment...............................................................................20
8.4 Headings Not to Control....................................................................................20
8.5 Separability of Plan Provisions............................................................................20
8.6 Applicable Law.............................................................................................20
8.7 Entire Plan................................................................................................20
</TABLE>
-ii-
<PAGE>
ARTICLE I
---------
NAME AND PURPOSE
----------------
1.1 Name. This document shall be known as the BankAmerica Deferred
----
Compensation Plan (the "Deferred Compensation Plan" or "Plan"). Effective
January 1, 1997, this document constitutes an amendment to and restatement of
the BankAmerica Corporation Deferred Compensation Plan which was adopted on
November 7, 1977 and was amended from time to time thereafter.
1.2 Purpose. The purpose of the Deferred Compensation Plan is to
-------
provide Eligible Employees with an opportunity to defer the receipt of cash
compensation which would have otherwise been received as Salary or as an Annual
Incentive Award, as such terms are defined in Article II, and to credit the
deferred compensation with a rate of return which mirrors the rates of return
available under the BankAmerica 401(k) Investment Plan.
1.3 Status Under ERISA. The Deferred Compensation Plan is unfunded
------------------
and is maintained for the purpose of providing deferred compensation for a
select group of management or highly compensated employees.
-1-
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
The following terms when used herein shall have the meaning set forth
below, if capitalized. Unless the context clearly indicates otherwise, words in
the masculine, feminine or neuter gender include the other genders and the
singular includes the plural and vice versa.
2.1 "Annual Incentive Award" means a discretionary cash incentive
----------------------
award under an Annual Incentive Plan which is determined and payable during the
Plan Year.
2.2 "Annual Incentive Plan" means the BankAmerica Corporation Senior
---------------------
Management Incentive Plan, the BankAmerica Corporation Annual Management
Incentive Plan and any other written plan of the Participating Employers which
(a) provides for cash incentive awards determined on a discretionary basis and
(b) is designated by the Plan Administrator as being eligible for deferral into
this Deferred Compensation Plan.
2.3 "Compensation" means Salary and an Annual Incentive Award.
------------
2.4 "Deferred Compensation Account" or "Account" means the account
------------------------------------------
described in Section 4.1.
2.5 "Eligible Employee" means an Employee of a Participating Employer
-----------------
who satisfies (a), (b) or (c):
(a) As of the September 30 preceding the applicable Plan Year,
the Employee is based within the United States and satisfies (i), (ii), or
(iii):
(i) The Employee is an Executive Officer.
(ii) The Employee is classified within Impact Level 1, 2 or
3 under the personnel policy of the Participating Employer.
(iii) The Employee has an annual Salary of $100,000 or more.
(b) As of the September 30 preceding the applicable Plan Year,
the Employee is based outside the United States and is classified as an
International Assignee whose home country is the United States under the
personnel policy of the Participating Employer and qualifies under (ii) or (iii)
of section (a) above, provided that either the Plan Administrator specifically
determines that such eligibility is feasible under applicable non-U.S. law
without adverse tax or other consequences or an alternative plan or other
arrangement has been adopted under Section 6.5.
-2-
<PAGE>
(c) The Employee has been designated as an Eligible Employee for
the Plan Year by the Personnel Relations Officer of BankAmerica Corporation.
2.6 "Employee" means a common law employee of an Employer who is
--------
identified as an employee of the Employer in the personnel records of the
Employer. For example, individuals who are leased from a third party or who are
treated as independent contractors by the Employer are not Employees.
2.7 "Employer" means BankAmerica Corporation or any other corporation
--------
which is a member of the controlled group of corporations (within the meaning of
Section 1563(a) of the Internal Revenue Code without regard to Section
1563(a)(4) and 1563(e)(3)(C)) of which BankAmerica Corporation is a member, but
only after the date such corporation becomes a member of the BankAmerica
Corporation controlled group of corporations. Employer shall also include any
other subsidiary or affiliate of BankAmerica Corporation designated as a
Participating Employer by BankAmerica Corporation.
2.8 "Employment" means employment with an Employer.
----------
2.9 "Enrollment Period" means the period in each calendar year
-----------------
designated by the Plan Administrator during which Eligible Employees make
elections to defer Compensation otherwise payable during the following Plan
Year.
2.10 "Executive Officer" means an officer of BankAmerica Corporation
-----------------
designated by the Board of Directors of BankAmerica Corporation as an Executive
Officer for purposes of the Securities and Exchange Commission reporting and
proxy regulations.
2.11 "401(k) Investment Plan" means the BankAmerica 401(k) Investment
----------------------
Plan, as amended from time to time.
2.12 "Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as amended from time to time.
2.13 "Participant" means an Employee or former Employee who has an
-----------
amount credited to a Deferred Compensation Account under the Plan.
2.14 "Participating Employer" means BankAmerica Corporation and each
----------------------
subsidiary or affiliated corporation of BankAmerica Corporation which
participates in the Plan with the approval of BankAmerica Corporation.
2.15 "Plan" or "Deferred Compensation Plan" means the BankAmerica
---- --------------------------
Deferred Compensation Plan as set forth in this document and as amended from
time to time.
-3-
<PAGE>
2.16 "Plan Administrator" means the person or persons designated by
------------------
the Personnel Relations Officer of BankAmerica Corporation as the Plan
Administrator.
2.17 "Plan Year" means the calendar year. The first Plan Year is
---------
1997.
2.18 "Prior Plan" means each of the following:
----------
(a) BankAmerica Corporation Deferred Compensation Plan as in
effect on December 31, 1996.
(b) Continental Deferred Incentive Plan, as amended and restated
effective January 1, 1992, as further amended October 17, 1994 and as in effect
on December 31, 1996.
(c) Seafirst Deferred Compensation Plan, as adopted effective
January 1, 1990 and as in effect on December 31, 1996.
(d) Seafirst Bank Management Incentive Plan, as adopted effective
January 1, 1995 and as in effect on December 31, 1996.
2.19 "Salary" means the base salary of an Employee. Salary includes
------
amounts paid as sickness benefits which are designed to replace 100 percent of
the Employee's salary when the Employee is absent from work due to illness or
injury.
2.20 "Service Center" means the BankAmerica Retirement Plans Service
--------------
Center, which is the department of Bank of America NT&SA or third party
designated by the Plan Administrator to provide day-to-day administrative
services under the Plan.
2.21 "United States" means the 50 states, Guam, Puerto Rico and the
-------------
Virgin Islands.
-4-
<PAGE>
ARTICLE III
ELECTION TO DEFER COMPENSATION
------------------------------
3.1 Submission of Deferral Election. Each Eligible Employee who
-------------------------------
desires to defer the receipt of Compensation otherwise payable during a Plan
Year may do so by filing a deferral election with the Service Center during the
Enrollment Period for that Plan Year. The deferral election shall be made on
the form specified by the Plan Administrator. To be effective, the form must be
received by the Service Center during the annual Enrollment Period. A deferral
election for a Plan Year may not be changed after the end of the Enrollment
Period for that Plan Year.
(a) Notwithstanding the foregoing, the Personnel Relations
Officer of BankAmerica Corporation may, in his or her sole discretion, permit an
Eligible Employee who commences work, or first qualifies as an Eligible
Employee, after the September 30 preceding a Plan Year to submit a deferral
election after the end of the Enrollment Period, provided such deferral election
form is received by the Service Center prior to the beginning of such Plan Year.
In addition, the Personnel Relations Officer of BankAmerica Corporation may, in
his or her sole discretion, permit an Eligible Employee who commences work
during a Plan Year to submit a deferral election for Salary payable during such
Plan Year, provided such deferral election is submitted no later than 30 days
after Employment commences and applies only to Salary earned after the date such
form is received by the Service Center.
(b) Except as provided in the following sentence, an Eligible
Employee must file a separate deferral election for each Plan Year. The Plan
Administrator may adopt procedures permitting an Eligible Employee to specify on
the deferral election form that the election shall remain in effect for future
Plan Years unless and until the election is revoked by the Eligible Employee
during the Election Period for a Plan Year.
(c) Each Eligible Employee who elects to defer Compensation under
the Plan must also consent to the purchase of corporate owned life insurance on
his or her life by Bank of America NT&SA. Bank of America NT&SA shall pay all
premiums and shall be the sole owner and beneficiary of any such policies. Bank
of America NT&SA may use the proceeds from such policies to meet its general
corporate and employee benefit obligations, including, without limitation, to
help defray the cost of offering the Deferred Compensation Plan to its Eligible
Employees.
3.2 Amount of Compensation Which May be Deferred.
--------------------------------------------
(a) Each Eligible Employee may defer a specified percentage (or
specified dollar amount) of Salary payable during the Plan Year. The deferral
percentage must be in whole
-5-
<PAGE>
percentages and must be not less than 5 nor more than 50 percent of such Salary.
A dollar deferral must be in an amount not less than 5 nor more than 50 percent
of the Employee's annual Salary rate as of the September 30 preceding the Plan
Year.
(b) Each Eligible Employee may defer a specified percentage of an
Annual Incentive Award payable during the Plan Year. The deferral percentage
must be in whole percentages and must be not less than 5 nor more than 90
percent of the Annual Incentive Award.
3.3 Deferral of Compensation. The Employee's Employer shall withhold
------------------------
payment of the applicable portion of each Salary payment and each Annual
Incentive Award elected by the Participant to be deferred for the Plan Year.
The deferred Compensation shall be credited to the Participant's Deferred
Compensation Account described in Section 4.1.
3.4 Vesting. All amounts deferred under the Plan, and any earnings
-------
thereon, shall be fully vested at all times.
-6-
<PAGE>
ARTICLE IV
----------
401(k) "MIRROR" RATE OF RETURN
------------------------------
4.1 Deferred Compensation Account. An unfunded bookkeeping account
-----------------------------
known as the Deferred Compensation Account shall be established for each
Participant who is in Employment on or after January 1, 1997. The Deferred
Compensation Account shall be credited with all amounts credited under a Prior
Plan as of December 31, 1996 and all Compensation deferred under Article III of
the Plan on and after January 1, 1997. The amounts credited to a Participant's
Deferred Compensation Account shall be adjusted each month to reflect gain or
loss from the Mirror Investment Options as provided in this Article.
4.2 Special Definitions. The following definitions shall apply for
-------------------
purposes of this Article:
(a) "Mirror Investment Option" means an unfunded bookkeeping
------------------------
account under the Plan which is credited monthly with the same monthly rate of
return as its corresponding 401(k) Investment Plan Fund.
(b) "401(k) Investment Plan Fund" means each of the following 8
---------------------------
investment funds in the 401(k) Investment Plan:
(1) BankAmerica Corporation Common Stock Fund. Effective
January 1, 1998, the rate of return for this fund shall be determined as if all
amounts deferred and dividends were used to purchase shares of BankAmerica
Corporation common stock at the closing price for a share of stock, as reflected
in the report of consolidated trading of New York Stock Exchange listed
securities on the last business day of each month published in the Wall Street
Journal or in any other publication selected by the Plan Administrator.
(2) International Stock Index Fund
(3) Mid Cap Stock Index Fund
(4) Large Cap Stock Index Fund
(5) Balanced Fund
(6) Treasury Bond Index Fund
(7) Income Accumulation Fund
(8) Money Market Fund
(c) "Pre-tax Contributions" means an Employee's Pre-tax
---------------------
Contributions in the 401(k) Investment Plan.
4.3 Allocation of Existing Account Balances on
------------------------------------------
-7-
<PAGE>
12/31/96 Among Mirror Investment Options. The amount credited to a Participant
- - ----------------------------------------
under a Prior Plan as of December 31, 1996 shall be allocated among the Mirror
Investment Options as of January 1, 1997 in the same proportion that the balance
in his or her Pre-tax Contributions account in the 401(k) Investment Plan as of
December 31, 1996 is allocated among the corresponding 401(k) Investment Plan
Funds. If (a) a Participant does not have a balance in a Pre-tax Contributions
account in the 401(k) Investment Plan as of December 31, 1996 or (b) the Plan
Administrator, in his sole discretion, so permits upon a Participant's request,
the Participant's entire Deferred Compensation Account as of January 1, 1997
shall be allocated to the Balanced Fund Mirror Investment Option. A special rule
applies under Section 4.7(a) for the Continental Deferred Incentive Plan.
4.4 Allocation of New Deferrals Among Mirror Investment Options and
---------------------------------------------------------------
Transfers Among Mirror Investment Options.
- - ------------------------------------------
(a) Unless the Participant elects otherwise, new amounts credited
to the Deferred Compensation Account on and after January 1, 1997 shall be (i)
allocated to the Mirror Investment Options in the same proportion as the
Participant's most recent Pre-tax Contributions investment election in effect
for the corresponding 401(k) Investment Plan Funds as of January 1, 1997, or
(ii) if the Participant has no Pre-tax Contributions investment election in
effect for the 401(k) Investment Plan as of January 1, 1997, allocated to the
Balanced Fund Mirror Investment Option.
(b) Each Participant may change the manner in which new deferrals
credited to the Participant's Deferred Compensation Account are allocated among
the Mirror Investment Options beginning February 1, 1997. However, no more than
50 percent of new deferrals may be allocated to the BankAmerica Corporation
Common Stock Fund Mirror Investment Option.
(c) Each Participant may transfer his or her Deferred
Compensation Account among the Mirror Investment Options each month beginning
January 31, 1997. However, no transfer may be made to the extent that such
transfer would cause more than 50 percent of the Participant's Deferred
Compensation Account to be invested in the BankAmerica Corporation Common Stock
Fund Mirror Investment Option. In addition, transfers to or from the Income
Accumulation Fund Mirror Investment Option may only be effective during the
months of April and October and such transfers may not be made with the Money
Market and Treasury Bond Index Fund Mirror Investment Options.
4.5 Procedures and Deadlines for Transactions. Participants shall
-----------------------------------------
request the transactions described in Section 4.4(b) and (c) through the
telephonic interactive voice response system maintained by the Service Center
for the Plan. The procedures and deadlines for such transactions shall be the
same
-8-
<PAGE>
as for similar transactions in the 401(k) Investment Plan.
4.6 Payments Deducted on a Pro Rata Basis from each Mirror Investment
-----------------------------------------------------------------
Option. Installment payments, payments under Section 5.5, 5.6 and 5.7 or any
- - ------
other partial payments from the Deferred Compensation Account shall be deducted
from the balance in each Mirror Investment Option on a pro rata basis in
proportion to the balance in each Option.
4.7 Other Deferred Compensation Plans.
---------------------------------
(a) The Continental Deferred Compensation Plan shall be replaced
by this Plan as of January 1, 1997 with respect to each Participant who is in
Employment on or after January 1, 1997. Amounts credited under the Continental
Deferred Compensation Plan as of December 31, 1996 shall be credited to the
Participant's Deferred Compensation Account as of January 1, 1997.
The dollar value of the Participant's Stock Unit Subaccount under
the Continental Deferred Incentive Plan as of December 31, 1996 shall be
allocated to the BankAmerica Corporation Common Stock Fund Mirror Investment
Option as of January 1, 1997. The amount credited to a Participant's Interest
Subaccount under the Continental Deferred Incentive Plan as of December 31, 1996
shall be allocated among the Mirror Investment Options as of January 1, 1997 in
the same proportion that his or her Pre-tax Contributions account is allocated
among the corresponding 401(k) Investment Plan Funds as of December 31, 1996. If
(i) a Participant does not have a balance in a Pre-tax Contributions account in
the 401(k) Investment Plan as of December 31, 1996 or (ii) the Plan
Administrator, in his sole discretion, so permits upon a Participant's request,
the Participant's entire Interest Subaccount as of December 31, 1996 shall be
allocated to the Balanced Fund Mirror Investment Option.
(b) The Seafirst Deferred Compensation Plan shall be replaced by
this Plan as of January 1, 1997 with respect to each Participant who is in
Employment on or after January 1, 1997. Amounts credited under the Seafirst
Deferred Compensation Plan as of December 31, 1996 shall be credited to the
Participant's Deferred Compensation Account as of January 1, 1997.
(c) Deferred amounts under Seafirst Bank Management Incentive
Plan shall be replaced by this Plan as of January 1, 1997 with respect to each
Participant who is in Employment on or after January 1, 1997. Amounts credited
under the Seafirst Bank Management Incentive Plan as of December 31, 1996 shall
be credited to the Participant's Deferred Compensation Account as of January 1,
1997.
(d) The Security Pacific Deferred Compensation Plan (as adopted
effective January 1, 1986 and as in effect on
-9-
<PAGE>
December 31, 1996) shall not be replaced by this Plan as of January 1, 1997.
Amounts credited under the Security Pacific Deferred Compensation Plan as of
December 31, 1996 shall remain subject to the terms of such plan as in effect
from time to time and no Deferred Compensation Account shall be established for
such amounts. Notwithstanding the foregoing, interest shall be credited to
deferred amounts under such plan at a rate equal to the rate of return on the
Income Accumulation Fund Mirror Investment Option commencing as of January 1,
1997.
(e) The Security Pacific Deferral Plan (as adopted October 20,
1987 and as in effect on December 31, 1996) shall not be replaced by this Plan
as of January 1, 1997. Amounts credited under the Security Pacific Deferral Plan
as of December 31, 1996 shall remain subject to the terms of such plan as in
effect from time to time and no Deferred Compensation Account shall be
established for such amounts. Notwithstanding the foregoing, interest shall be
credited to deferred amounts under such plan at a rate equal to the rate of
return on the Income Accumulation Fund Mirror Investment Option commencing as of
January 1, 1997.
(f) Deferred amounts under the Capital Markets Group incentive
plans shall be replaced by this Plan as of April 1, 1997 with respect to each
Individual who is an Eligible Employee on such date. Amounts deferred under the
Capital Markets Group incentive plans as of March 31, 1997 shall be credited to
the Participant's Deferred Compensation Account as of April 1, 1997. In the case
of Employees who are not Eligible Employees as of April 1, 1997, amounts
credited under the Capital Market Group incentive plans as of March 31, 1997
shall remain subject to the terms of the applicable plan as in effect from time
to time and no Deferred Compensation Account shall be established for such
amounts. Notwithstanding the foregoing, interest shall be credited to deferred
amounts under the Capital Markets Group incentive plans at a rate equal to the
rate of return on the Income Accumulation Fund Mirror Investment Option
commencing as of April 1, 1997.
-10-
<PAGE>
ARTICLE V
---------
PAYMENT OF DEFERRED COMPENSATION ACCOUNT
----------------------------------------
5.1 Form of Payment. The amounts credited to a Participant's
---------------
Deferred Compensation Account shall be paid in cash as provided in this Article.
5.2 Balance less than $10,000. If the amount credited to a
-------------------------
Participant's Deferred Compensation Account is less than $10,000 when the
Participant's Employment ends, the Account shall be paid to the Participant in a
single payment within 60 days of the date the Participant's Employment ends.
5.3 Balance of $10,000 or More. If the amount credited to a
--------------------------
Participant's Deferred Compensation Account is $10,000 or more when the
Participant's Employment ends, the Account shall be paid to the Participant as
provided in (a) or (b) below:
(a) If the Participant's Employment ends during 1997:
(1) The amount credited to the Participant's Deferred
Compensation Account as of December 31, 1996, and any investment gain or loss
attributable thereto, shall be paid pursuant to the payment provisions of the
applicable Prior Plan.
(2) Any amounts deferred under the Plan during 1997, and any
investment gain or loss attributable thereto, shall be paid (i) pursuant to the
Participant's payment election form if one was filed under this Plan prior to
January 1, 1997, or (ii) in a single payment within 60 days of the date
Employment ends if no payment election form was filed under this Plan prior to
January 1, 1997.
(b) If the Participant's Employment ends on or after January 1,
1998:
(1) If the Participant has a payment election in effect, as
provided in Section 5.4(b), when Employment ends, the Participant's Account
shall be paid in accordance with such payment election.
(2) If the Participant does not have a payment election in
effect, as provided in Section 5.4(b), when Employment ends, all amounts
credited to the Participant's Account balance shall be paid in a single payment
within 60 days of the date the Participant's Employment ends.
5.4 Payment Election for Termination of Employment. Each Participant
----------------------------------------------
may submit a payment election form specifying how the Participant's Deferred
Compensation Account (as reduced by any amounts previously paid under Sections
5.5, 5.6 or 5.7)
-11-
<PAGE>
shall be paid upon the Participant's termination of Employment for any reason
other than death.
(a) The payment election form shall specify which of the
following forms of payment shall apply:
(1) A single payment made within 60 days of the date
Employment ends.
(2) A single payment made within the first 60 days of the
first, second or third calendar year immediately following the calendar year in
which Employment ends.
(3) Fifteen or fewer annual installment payments commencing
in the first, second or third calendar year immediately following the calendar
year in which the Participant's Employment ends. Each payment shall be made
within the first 60 days of the calendar year. Each payment shall be equal to
(i) the Participant's Account balance as of December 31 of the immediately
preceding calendar year, multiplied by (ii) a fraction, the numerator of which
is one and the denominator is the number of installments remaining, including
the current year's payment.
(b) If the Participant does not have an existing Deferred
Compensation Account balance at the time a payment election form is submitted,
the payment election form shall become effective on the date of receipt by the
Service Center with respect to amounts deferred in subsequent Plan Years. Except
as provided in section 5.3(a)(2), if the Participant has a Deferred Compensation
Account balance at the time a payment election form is submitted, the payment
election shall become effective on the one year anniversary of the date the
election form is received by the Service Center, provided the Participant has
remained continuously employed by an Employer until that date. If the
Participant has previously submitted a payment election form, the Participant
may not submit a new payment election form until his or her prior election has
become effective. In addition, no new payment election form may be submitted
which would shorten the period during which payments are made after Employment
ends or accelerate the date upon which payment commences after Employment ends.
5.5 In-Service Payment Election. Each Participant may submit an in-
---------------------------
service payment election form during an Enrollment Period directing that a
specified dollar amount of his or her Deferred Compensation Account shall be
paid in a single payment in a specified calendar year, provided the Participant
remains continuously employed by an Employer until that calendar year.
(a) The in-service payment shall be made in a single payment
within the first 60 days of the calendar year specified by the Participant. Each
Participant may have up to 4 in-service elections in effect at one time, not
including any
-12-
<PAGE>
payment elections under Section 5.12. The payment shall be deducted on a
prorated basis from the Participant's balance in each mirror investment option.
(b) Each in-service payment election shall become effective upon
receipt by the Service Center. An in-service payment election may only apply to
Compensation which will be deferred in Plan Years after the form is received by
the Service Center, but shall not include amounts deferred in the Plan Year
preceding the calendar year specified for payment. A Participant may not change
an in-service payment election.
5.6 Payments due to Hardship. In the event a Participant has an
------------------------
unforeseeable emergency, the Plan Administrator in his or her sole discretion
may, upon the Participant's written request and submission of such information
as the Plan Administrator may request, authorize a payment to the Participant
from his or her Account in an amount no greater than necessary to meet such
emergency. For purposes of this section, an unforeseeable emergency means an
unanticipated emergency that is caused by any event beyond the control of the
Participant and that would result in severe financial hardship to the individual
if the withdrawal were not permitted.
5.7 Immediate Payment with 10 Percent Forfeiture. A Participant may
--------------------------------------------
at any time submit a written request to the Service Center for immediate payment
of $10,000 or more from the Participant's Deferred Compensation Account. After
an individual has been a Participant for one year, the Participant may submit a
written request to the Service Center for immediate payment of the entire
balance of his or her Deferred Compensation Account, even if the balance is then
less than $10,000. In such event, 10 percent of the amount requested shall be
forfeited and the remaining 90 percent payable to the Participant in a single
payment within 60 days of the request. If a Participant elects an immediate
payment under this section, all deferrals for the current Plan Year shall cease
and the Participant shall be ineligible to request another immediate payment
under this section, or defer Compensation, during the 3 Plan Years following the
Plan Year in which the request is submitted.
5.8 Reemployed Employees. If a former Employee is reemployed by an
--------------------
Employer, any payments then being made under the Deferred Compensation Plan
shall continue.
5.9 Payments Upon Death of Participant.
----------------------------------
(a) A Participant may designate any person or persons (not
exceeding 10), including a trust, as his or her primary beneficiary or
contingent beneficiary to receive his or her Deferred Compensation Account in
the event of the Participant's death. Any such designation shall be made by
filing the Plan form designated for that purpose with the Service Center. The
Participant may change or cancel his or her
-13-
<PAGE>
beneficiary designation at any time prior to death without the consent of any
designated beneficiary. If no beneficiary has been designated by the
Participant, or if no beneficiary is alive at the date of the Participant's
death, payment shall be made to the Participant's estate.
(b) The Participant may elect on the death benefit payment election
form that his or her Deferred Compensation Account shall be paid, except as
provided in (d) below, upon the Participant's death in accordance with one of
the following options:
(1) In a single payment within 90 days of the date of death.
(2) In a single payment within the first 60 days of the calendar
year immediately following the calendar year in which the death occurs.
(3) In three approximately equal payments, each made within the
first 60 days of the three calendar years immediately following the calendar
year in which the death occurs.
If no death benefit payment election is in effect at the date of the
Participant's death and if a single payment or installment payments under
Sections 5.2, 5.3, or 5.4, as applicable, have not been made, payment shall be
made in a single payment within 60 days of the date of death.
(c) If the Participant's death occurs after installment payments have
commenced, payments shall continue in installments to the Participant's then
living beneficiaries. Upon the death of the last surviving beneficiary, payment
shall be made in a single payment to the Participant's estate within 60 days of
such death. If no beneficiary is living at the Participant's death, payment
shall be made in a single payment to the Participant's estate within 60 days of
the date of death.
5.10 Withholding Taxes. The Participating Employers shall have the
-----------------
right to deduct from payments under the Plan any and all taxes required to be
collected under federal, state or local law.
5.11 Temporary Postponement of Payment to Executive Officers.
-------------------------------------------------------
BankAmerica Corporation reserves the right to temporarily postpone payment of
the Deferred Compensation Account of any Participant who is an Executive Officer
at the time such payment would have occurred, or was an Executive Officer in the
period immediately preceding such date, if BankAmerica Corporation determines in
good faith that such delay is necessary to avoid adverse tax consequences to the
Employers under Internal Revenue Code Section 162(m), or other tax provision.
-14-
<PAGE>
5.12 Transition Provisions.
---------------------
(a) If a Participant had elected to defer amounts under a Prior
Plan until a specified year, the current value of the deferral, including
interest, shall be determined as of December 31, 1996. The amount so determined
shall be converted into an in-service payment election under Section 5.5 by
projecting the amount forward at a 6 percent interest rate, compounded
quarterly, to December 31 of the year immediately preceding the year specified
in the original election.
(b) If an Employee who ceased Employment prior to January 1, 1997
had amounts deferred under a Prior Plan, the provisions of the Prior Plan as in
effect on December 31, 1996 shall continue to apply to such amounts. No Deferred
Compensation Account shall be established for such former Employee.
Notwithstanding the foregoing, interest shall be credited to such former
Employees' deferred amounts at a rate equal to the rate of return on the Income
Accumulation Fund Mirror Investment Option.
5.13 Distribution income. Two weeks interest shall be added to all
-------------------
payments from the Plan. The rate of interest shall be based on the rate of
return of the Money Market Fund Mirror Investment Option.
5.14 Participants Returning from non-U.S. Locations. If an Eligible
----------------------------------------------
Employee has amounts credited under an alternative version, subplan, supplement
or appendix to the Plan or other arrangement described in Section 6.5, the Plan
Administrator in his or her sole discretion may permit such deferred amount to
be transferred to a Deferred Compensation Account under this Plan upon the
Participant's return to the United States. Unless the Participant has
previously submitted a payment election or beneficiary designation to the
Service Center, the Deferred Compensation Account shall be treated as if the
Participant does not have a payment election or beneficiary designation in
effect on the effective date of transfer. In addition, if the Participant has a
deferral election in effect for the current Plan Year under such alternative
version, subplan, supplement or appendix to the Plan or other arrangement, upon
the Participant's return to the United States, the Participant may submit a
deferral election under this Plan for the remainder of the Plan Year, provided
such deferral election is submitted no later than 30 days after the return date
and applies only to Salary earned after the date such form is received by the
Service Center.
-15-
<PAGE>
ARTICLE VI
----------
PLAN AMENDMENT, TERMINATION AND ADMINISTRATION
----------------------------------------------
6.1 Amendment and Termination. BankAmerica Corporation is the "plan
-------------------------
sponsor" of the Deferred Compensation Plan as that term is defined in ERISA.
BankAmerica Corporation may amend or modify the Plan in whole or in part at any
time by a written instrument executed by either the Chief Executive Officer or
Personnel Relations Officer of BankAmerica Corporation, except that any action
which would materially alter the manner in which the investment return on
Participants' Accounts is determined shall be approved by the Executive
Personnel and Compensation Committee of the Board of Directors of BankAmerica
Corporation. BankAmerica Corporation may terminate the Plan in whole or part by
action of its Board of Directors. No such amendment, modification or
termination shall reduce the amount credited to a Participants' Accounts as of
the date of such action. Upon Plan termination, all amounts credited to
Participants' Accounts shall be paid to Participants in a single payment within
120 days.
6.2 Plan Administrator. The Plan Administrator is the named
------------------
fiduciary, as that term is defined in ERISA, of the Deferred Compensation Plan
having discretionary authority to control and manage the operation and
administration of the Deferred Compensation Plan.
6.3 Powers and Duties of Plan Administrator.
---------------------------------------
(a) The Plan Administrator shall have discretionary authority
to determine eligibility for benefits and to construe the terms of the Deferred
Compensation Plan. The Plan Administrator shall have such other discretionary
authority as may be necessary to enable it to discharge its responsibilities
under the Deferred Compensation Plan as administrator and named fiduciary,
including, but not limited to, the power:
(1) To review appeals by Participants under Article
VIII.
(2) To appoint or employ one or more persons to assist
in the administration of the Deferred Compensation Plan.
(3) To adopt such rules as it deems appropriate for the
administration of the Deferred Compensation Plan.
(4) To prescribe procedures to be followed by
Participants.
(5) To prepare and distribute information relating to
the Deferred Compensation Plan.
-16-
<PAGE>
(6) To request from Participating Employers and
Participants such information as shall be necessary for proper administration of
the Deferred Compensation Plan.
(b) The decision of the Plan Administrator upon any matter
within its authority shall be final and binding on all parties, including
BankAmerica Corporation, the Participating Employers and Participants and their
beneficiaries.
6.4 Reliance Upon Information. In making decisions under the
-------------------------
Deferred Compensation Plan, the Plan Administrator shall be entitled to rely
upon information furnished by a Participant, beneficiary or Participating
Employer.
6.5 Alternative Plans or other Arrangements for U.S. IAs. In order
-----------------------------------------------------
to facilitate making the Plan available to Eligible Employees classified as
International Assignees whose home country is the United States, the Personnel
Relations Officer of BAC may adopt alternative versions, subplans, supplements
or appendices to the Plan or make such other arrangements as he or she may
consider necessary or appropriate to accommodate differences in local law,
policy or custom or to facilitate administration of the Plan outside of the
United States. The implementation of any such alternative version, subplan,
supplement, appendix or other arrangements shall not affect the terms of the
Plan as in effect for any other purpose. No alternative version, subplan,
supplement, appendix or other arrangements shall include any provisions that
provide greater rights and benefits than available under the Plan as then in
effect.
-17-
<PAGE>
ARTICLE VII
-----------
CLAIMS FOR BENEFITS
-------------------
7.1 Claims Procedure.
----------------
(a) Claims Must be Filed. An Employee, Participant,
--------------------
beneficiary or estate of a deceased Participant (the "claimant") who has a claim
for benefits or concerning any other matter under the Plan must give written
notice of such claim or other matter to the Service Center.
(b) Review of Claim. After the Service Center has reviewed
---------------
the claim and obtained any other information it deems necessary to render a
decision on the claim, the Service Center shall notify the claimant within 90
days after receipt of the claim of the acceptance or denial of the claim, unless
special circumstances require an extension of time for processing the claim.
Such an extension of time may not exceed 90 additional days and notice of the
extension shall be provided to the claimant prior to the termination of the
initial 90 day period indicating the special circumstances requiring the
extension and the date by which a final decision on the claim is expected.
(c) Denied Claims. In the event any application for benefits
-------------
is denied, in whole or in part, the Service Center shall notify the claimant of
such denial in writing and shall advise the claimant of the right to appeal the
denial and to request a review thereof. Such notice shall be written in a manner
calculated to be understood by the claimant and shall contain:
(1) Specific reason for such denial.
(2) Specific reference to the Plan provisions on which such
denial is based.
(3) A description of any information or material necessary
for the Employee to perfect the claim.
(4) An explanation of why such material is necessary.
(5) An explanation of the Plan's appeal and review
procedure.
7.2 Appeal and Review Procedure.
---------------------------
(a) Appeal to Plan Administrator. If the claimant's claim for
----------------------------
benefits is denied in whole or in part, the claimant, or the claimant's duly
authorized representative, may appeal the denial by submitting to the Plan
Administrator a written request for review of the application within 60 days
-18-
<PAGE>
after receiving written notice of such denial. The Plan Administrator shall
give the applicant (upon request) an opportunity to review pertinent Plan
documents (other than legally privileged documents) in preparing such request
for review.
(b) Contents of Appeal. The request for review must be in
------------------
writing and shall be addressed to the Deferred Compensation Plan Administrator,
c/o Executive Resources at the address stated in the current BankAmerica
Corporation and subsidiaries corporate directory. The request for review shall
set forth all of the grounds upon which it is based, all facts in support
thereof and any other matters which the claimant deems pertinent. The Plan
Administrator may require the claimant to submit (at the claimant's expense)
such additional facts, documents or other material as the Plan Administrator
deems necessary or advisable in making its review.
(c) Review of Appeal. The Plan Administrator shall act upon
----------------
each request for review within 60 days after its receipt thereof unless special
circumstances require further time for processing. Written notice of an
extension of time beyond 60 days shall be furnished to the claimant prior to the
commencement of the extension. In no event shall the decision on review be
rendered more than 120 days after the Plan Administrator receives the request
for review.
(d) Denied Appeals. In the event the Plan Administrator
--------------
confirms the denial of the claim for benefits in whole or in part, it shall give
written notice of its decision to the claimant. Such notices shall be written in
a manner calculated to be understood by the claimant and shall contain the
specific reasons for the denial.
7.3 Exhaustion of Remedies. No legal action for benefits under the
----------------------
Plan shall be brought unless and until the following steps have occurred:
(a) The claimant has submitted a written application for benefits
in accordance with Section 7.1.
(b) The claimant has been notified that the claim has been
denied.
(c) The claimant has filed a written request appealing the denial
in accordance with Section 7.2.
(d) The claimant has been notified in writing that the Plan
Administrator has denied the claimant appeal or has failed to take any action on
the appeal within the time prescribed by Section 7.2.
-19-
<PAGE>
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
8.1 Source of Payments. The Deferred Compensation Accounts
------------------
established under the Plan are unfunded bookkeeping accounts and are payable
from the general assets of the Participating Employers as determined by
BankAmerica Corporation. The Participating Employers are not required to
physically segregate any cash or securities or establish any separate funds to
pay any benefits under the Plan.
8.2 Prohibition on Alienation. No amount payable under the Plan
-------------------------
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, hypothecation, charge, attachment, garnishment, execution,
or levy of any kind or any other process of law, voluntary or involuntary. Any
attempt to dispose of any rights to benefits payable under the Plan shall be
void. Notwithstanding the preceding sentence, the Participating Employers shall
have the right to offset from a Participant's unpaid amounts under the Plan any
amounts due and owing from the Participant to the extent permitted by law.
8.3 Not a Contract of Employment. Participation in this Plan by an
----------------------------
Employee shall not give such Employee any right to be retained in the employ of
any Participating Employer and the ability of each Participating Employer to
dismiss or discharge an Employee is specifically reserved.
8.4 Headings Not to Control. Headings and titles within the Plan are
-----------------------
for convenience only and are not to be read as part of the text of the Plan.
8.5 Separability of Plan Provisions. If any provisions of the Plan
-------------------------------
are for any reason declared invalid or not enforceable, such provisions will not
affect the remaining terms and conditions, but the Plan will be construed and
enforced thereafter as if such provisions had not been inserted.
8.6 Applicable Law. The validity and effect of the Plan and the
--------------
rights and obligations of all persons affected thereby, are to be construed and
determined in accordance with applicable federal law, and to the extent that
federal law is inapplicable, under the laws of the State of California.
8.7 Entire Plan. This document is a complete statement of the
-----------
Deferred Compensation Plan and as of January 1, 1997 supersedes all
representations, prior plans, promises and inducements, proposals, written or
oral, relating to its subject matter. The Participating Employers shall not be
bound by or liable to any person for any representation, promise or inducement
made by any person which is not embodied in this document or in any authorized
written amendment to the Plan.
-20-
<PAGE>
IN WITNESS WHEREOF, BankAmerica Corporation, has caused this instrument to
be executed by its duly authorized officer, this 6/th/ day of December, 1996, to
be effective January 1, 1997.
BANKAMERICA CORPORATION
By /s/ Kathleen J. Burke
--------------------------------
Kathleen J. Burke
Vice Chairman and
Personnel Relations Officer
-21-
EXHIBIT 10(d)
AMENDMENT TO BANKAMERICA CORPORATION
SENIOR MANAGEMENT INCENTIVE PLAN
The BankAmerica Corporation Senior Management Incentive Plan ("SMIP"), as
adopted effective January 1, 1994, is amended as follows, effective January 1,
1996:
1. Section 5.1 of the SMIP is amended in its entirety to read as follows:
"5.1 The Committee shall allocate a percentage of the Incentive Award Pool
to each Executive Officer who is a Participant for the Plan Year. The
allocation shall be made not later than 90 days after the commencement of the
Plan Year. No Participant may be allocated more than 10 percent of the
Incentive Award Pool. An Executive Officer who becomes a Participant after the
date the Committee has allocated percentages of the Incentive Award Pool for the
Plan Year shall have an allocation of 2 percent of the Incentive Award Pool. No
incentive award shall exceed the Participant's allocated percentage of the
Incentive Award Pool."
2. Section 6.1 of the SMIP is deleted. Sections 6.2, 6.3 and 6.4 are
renumbered 6.1, 6.2 and 6.3, respectively.
3. The first sentence of Section 6.1, as renumbered, shall be amended to
read as follows:
"6.1 After the end of the Plan Year, the performance of each Senior
Officer who is a Participant shall be assessed by the CEO who shall make an
award recommendation to the Committee for the Participant."
<PAGE>
EXHIBIT 10.d.
------------
BANKAMERICA CORPORATION
SENIOR MANAGEMENT INCENTIVE PLAN
ARTICLE I
---------
PURPOSE AND EFFECTIVE DATE
--------------------------
The purpose of the BankAmerica Corporation Senior Management Incentive
Plan (the "Plan") is to encourage superior performance by eligible Executive
Officers and Senior Officers of BankAmerica Corporation and its subsidiaries and
affiliates through the payment of annual cash incentive awards.
This Plan is effective as of January 1, 1994, and constitutes an amendment
in its entirety to the BankAmerica Corporation Annual Management Incentive Plan,
as amended, effective January 1, 1982, and as amended from time to time
thereafter.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 The following items shall have the meanings set forth below, if
capitalized.
(a) "Committee" means the Executive Personnel and Compensation
Committee of the Board of Directors of BankAmerica Corporation.
(b) "CEO" means the chief executive officer of BankAmerica
Corporation.
(c) "Company" means BankAmerica Corporation and any subsidiary or
affiliate of BankAmerica Corporation which has been authorized by BankAmerica
Corporation to participate in the Plan.
(d) "Executive Officer" means an individual designated by the
BankAmerica Corporation Board of Directors as an executive officer for federal
securities law purposes.
(e) "Participant" means an officer of the Company designated as a
Participant for a Plan Year under Sections 3.1 or 3.2.
(f) "Plan" means the BankAmerica Corporation Senior Management
Incentive Plan as it may be amended from
<PAGE>
time to time.
(g) "Plan Year" means the calendar year.
(h) "Retirement" means early, normal or postponed retirement as
defined under the retirement policy of the Company.
(i) "Senior Officer" means an officer of the Company designated by
the CEO as an impact level I or II officer.
ARTICLE III
-----------
DESIGNATION OF PARTICIPANTS
---------------------------
3.1 Each Executive Officer of the Company shall be a Participant in the
Plan, provided such Executive Officer is also a member of the Managing Committee
of Bank of America NT&SA.
3.2 Each Senior Officer of the Company shall be a Participant in the Plan,
unless such officer participates in an annual cash incentive program within his
or her business unit or subsidiary.
3.3 No member of the Committee, and no member of the Board of Directors of
BankAmerica Corporation who is not also a regular salaried employee of the
Company, shall be eligible to participate in the Plan.
3.4 The Committee may, but need not, consider for prorated or full
incentive awards Participants who have ceased employment because of death,
disability, or retirement prior to the date the Committee determines incentive
awards under the Plan. Participants who terminate employment (or give notice of
intent to terminate employment) for reasons other than death, disability, or
retirement prior to the date the Committee determines the incentive awards under
the Plan will not be eligible to be considered for an incentive award, unless
the Committee determines in its sole discretion that, because of special
circumstances, the Participant should be eligible to be considered.
3.5 Participation in the Plan shall not entitle any officer to an award
under the Plan. All awards shall be made in the sole discretion of the
Committee.
-2-
<PAGE>
ARTICLE IV
----------
DETERMINATION OF INCENTIVE POOL
-------------------------------
4.1 Incentive awards under the Plan shall be made from the Incentive Award
Pool established for each Plan Year. The Incentive Award Pool shall be an
amount equal to 2 percent of BankAmerica Corporation's income for the Plan Year
before income tax expense, extraordinary items and the cumulative effect of
accounting changes as specified in BankAmerica Corporation's announcement of
annual financial results filed with the Securities and Exchange Commission.
However, if BankAmerica Corporation's return on average common shareholders'
equity for the Plan Year is less than 12 percent, the Incentive Award Pool shall
be reduced by 10 percent for each percent (or fraction thereof) that the return
on average common shareholders' equity is less than 12 percent.
4.2 The Committee may, but need not, grant incentive awards up to the full
amount of the Incentive Award Pool.
4.3 All officers are expected to maintain satisfactory operational and
financial controls for their respective areas of responsibility. As applicable,
Participants are expected to achieve satisfactory audits, both internal and
external, satisfactory credit examinations, to maintain proper financial records
and controls in accordance with applicable policy, and to respond promptly to
any control problems that might arise. The maintenance of and adherence to
internal controls is a key factor in evaluation of performance. If the
Participant fails to satisfactorily meet the requirements described above, the
Committee and CEO, in their sole judgment, may grant a lesser award or make no
award to a Participant in view of such failure.
ARTICLE V
---------
DETERMINATION OF AWARDS FOR EXECUTIVE OFFICERS
----------------------------------------------
5.1 The Committee shall allocate a percentage of the Incentive Award Pool
to each Executive Officer who is a Participant for the Plan Year. The
allocation shall be made prior to January 31, 1994 and prior to January 1 of
each subsequent Plan Year. No Participant may be allocated more than 10 percent
of the Incentive Award Pool. No incentive award shall exceed the Participant's
allocated percentage of the Incentive Award Pool.
5.2 After the end of the Plan Year, the Committee shall calculate the
nominal value of each Participant's allocated percentage of the Incentive Award
Pool.
-3-
<PAGE>
5.3 The Committee shall assess the performance of each Executive Officer
who is a Participant, taking into account the Participant's individual
performance and overall contribution to the Company for the Plan Year, the
corporate performance of BankAmerica Corporation for the Plan Year, and such
other criteria as the Committee may determine to promote the purposes of the
Plan in an individual case. The Committee shall determine the amount of each
Participant's incentive award for the Plan Year in its sole discretion. The
Committee may use its discretion to reduce an incentive award below the nominal
value of a Participant's allocated percentage of the Incentive Award Pool.
ARTICLE VI
----------
DETERMINATION OF AWARDS FOR SENIOR OFFICERS
-------------------------------------------
6.1 The CEO shall establish a target award for each Senior Officer who is
a Participant as soon as practicable after the beginning of the Plan Year. The
CEO shall advise the Committee of the target award for each Participant.
6.2 After the end of the Plan Year, each Participant's performance shall
be assessed by the CEO who shall make an award recommendation to the Committee
for the Participant. The incentive award recommendation shall be based on the
achievement of corporate, division and individual objectives as determined by
the CEO.
6.3 The designation of annual award recipients and the amount of
individual awards shall be in sole discretion of the Committee following receipt
of recommendations from the CEO. In determining awards, the Committee may
follow the award recommendation by the CEO or may make a lesser or greater
award, taking into account the Participant's overall contribution to the Company
for the Plan Year, the corporate performance of BankAmerica Corporation for the
Plan Year, and such other criteria as the Committee may determine to promote the
purposes of the Plan in an individual case.
6.4 The aggregate amount of incentive awards to Senior Officers shall not
exceed the portion of the Incentive Award Pool not allocated to Executive
Officers.
ARTICLE VII
-----------
PAYMENT AND DEFERRAL
--------------------
7.1 Incentive awards granted by the Committee, less applicable withholding
taxes, shall be paid in cash as soon as reasonably possible after being awarded.
-4-
<PAGE>
7.2 A Participant may elect to defer receipt of all or part of any annual
incentive award under the BankAmerica Corporation Deferred Compensation Plan.
ARTICLE VIII
------------
OTHER PROVISIONS
----------------
8.1 The Board of Directors of BankAmerica Corporation reserves the right
to modify, suspend or terminate this Plan at any time.
8.2 The Committee and CEO shall each have the power to construe and
interpret the Plan. Any decision arising out of or in connection with the
construction, interpretation and administration of the Plan shall lie within the
Committee's absolute discretion and shall be final and binding on all parties.
8.3 The designation of an officer as a Participant or the grant of an
award to an officer shall not give such officer any right to be retained in the
employ of the Company and the ability of the Company to dismiss or discharge the
officer is specifically reserved.
8.4 No Participant shall have the right to alienate, assign, encumber,
hypothecate or pledge his or her interest in any award under the Plan,
voluntarily or involuntarily, prior to payment and any attempt to dispose of any
such interest shall be void. Notwithstanding the preceding sentence, the
Company shall have the right to offset from an unpaid or deferred award any
amounts due and owing from the Participant to the extent permitted by law. The
Company shall not be required to segregate physically any cash or to establish
any separate account or accounts to fund any awards made or to be made under the
Plan.
8.5 This document is a complete statement of the Plan and as of the date
below supersedes all prior plans, proposals, representations, promises and
inducements, written or oral, relating to its subject matter. The Company shall
not be bound by or liable to any person for any representation, promise or
inducement made by any person which is not embodied in this document or in any
authorized written amendment to the Plan.
8.6 The Plan shall be construed and enforced in accordance with California
law.
-5-
EXHIBIT 10(e)
BANKAMERICA SUPPLEMENTAL RETIREMENT PLAN
----------------------------------------
(As amended and restated effective April 1, 1996)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I - NAME AND PURPOSE.................................... 1
1.1 Name.............................................. 1
1.2 Purpose........................................... 1
1.3 Participating Employers........................... 1
1.4 Status Under ERISA................................ 1
1.5 Status Under P.L. 104-95.......................... 1
ARTICLE II - DEFINITIONS........................................ 3
2.1 401(k) Investment Plan............................ 3
2.2 Administrative Committee.......................... 3
2.3 BAC Deferred Compensation Plan.................... 3
2.4 Contributing Employee............................. 3
2.5 Employee.......................................... 3
2.6 Employer.......................................... 3
2.7 Employment........................................ 4
2.8 Internal Revenue Code............................. 4
2.9 Matching Employer Contribution.................... 4
2.10 Participant....................................... 4
2.11 Participant Contributions......................... 4
2.12 Participating Employee............................ 4
2.13 Participating Employer............................ 4
2.14 Pension Plan...................................... 4
2.15 Plan Year......................................... 4
2.16 Prior Plan........................................ 4
2.17 Qualified Earnings................................ 4
2.18 Service Center.................................... 4
2.19 Supplemental Earnings............................. 5
2.20 Supplemental Plan................................. 5
ARTICLE III - SUPPLEMENTAL 401(k) INVESTMENT PLAN BENEFITS...... 6
3.1 Supplemental 401(k) Investment Plan Account....... 6
3.2 Benefits on Supplemental Earnings................. 6
3.3 Benefits if Participation is Restricted........... 6
3.4 Benefits Based on Deferred Compensation........... 7
3.5 Supplemental Plans which have merged with this
plan.............................................. 8
3.6 Benefits In Excess of 415 Dollar Limit............ 8
3.7 Interest.......................................... 9
3.8 Vesting........................................... 9
ARTICLE IV - SUPPLEMENTAL PENSION PLAN BENEFITS................. 10
4.1 Supplemental Pension Plan Account................. 10
4.2 Benefits Based on Supplemental Earnings........... 10
4.3 Benefits Based on Deferred Compensation........... 10
4.4 Supplemental Benefits Attributable to BankAmerican
Retirement Plan................................... 11
4.5 Supplemental Plans which have merged with this
plan.............................................. 11
4.6 Benefits in Excess of 415 Dollar Limits........... 13
4.7 Interest.......................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.8 Vesting........................................... 13
ARTICLE V - PAYMENT OF BENEFITS AFTER EMPLOYMENT ENDS........... 15
5.1 Form of Payment................................... 15
5.2 Vested balance less than $10,000.................. 15
5.3 Vested balance $10,000 or more.................... 15
5.4 Benefit Payment Election.......................... 16
5.5 Reemployed Employees.............................. 17
5.6 Beneficiary Designation........................... 17
5.7 Withholding Taxes................................. 19
5.8 Transition Provisions............................. 19
ARTICLE VI - PLAN OPERATION, AMENDMENTS AND ADMINISTRATION..... 21
6.1 Amendment and Termination......................... 21
6.2 Plan Administrator................................ 21
6.3 Powers and Duties of Administrative Committee..... 21
6.4 Reliance Upon Information......................... 22
6.5 Action by Administrative Committee................ 22
ARTICLE VII - CLAIMS FOR BENEFITS............................... 24
7.1 Claims Procedure.................................. 24
7.2 Appeal and Review Procedure....................... 25
7.3 Exhaustion of Remedies............................ 26
ARTICLE VIII - GENERAL PROVISIONS............................... 28
8.1 Cost.............................................. 28
8.2 Unfunded Bookkeeping Accounts..................... 28
8.3 Prohibition on Alienation......................... 28
8.4 Not a Contract of Employment...................... 28
8.5 Headings Not to Control........................... 28
8.6 Separability of Plan Provisions................... 29
8.7 Applicable Law.................................... 29
8.8 Entire Plan....................................... 29
</TABLE>
-ii-
<PAGE>
ARTICLE I
---------
NAME AND PURPOSE
----------------
1.1 Name. This document shall be known as the BankAmerica
----
Supplemental Retirement Plan (the "Supplemental Plan"). Effective April 1,
1996, this Supplemental Plan document constitutes an amendment to and
restatement of the Supplemental CareerAccounts Plan ("Prior Plan") which was
established effective January 1, 1985 and was amended from time to time
thereafter.
1.2 Purpose. The purpose of the Supplemental Plan is to provide
-------
retirement benefits which supplement benefits from the BankAmerica Pension Plan
(the "Pension Plan") and the BankAmerica 401(k) Investment Plan (the "401(k)
investment Plan"), tax-qualified employee benefit plans sponsored by BankAmerica
Corporation for its participating subsidiaries and affiliates.
1.3 Participating Employers. The Supplemental Plan is established by
-----------------------
BankAmerica Corporation. Employees of BankAmerica Corporation and any of its
subsidiaries and affiliates which are participating employers in the Pension
Plan and 401(k) Investment Plan are eligible to participate in the Supplemental
Plan.
1.4 Status Under ERISA. The Plan is unfunded. Sections 3.6 and 4.5
------------------
are maintained for the purpose of providing benefits to employees in excess of
the limitations on contributions and benefits under Section 415 of the Internal
Revenue Code. The other benefit provisions are maintained for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees.
1.5 Status Under P.L. 104-95. For purposes of Section
------------------------
-1-
<PAGE>
114 (entitled "Limitation on State Income Taxation of Certain Pension Income")
of Pub. Law 104-95 (enacted January 10, 1996), Article III and Section 4.2, 4.3
and 4.6 of Article IV are intended to constitute plans, programs or arrangements
maintained solely for the purpose of providing retirement benefits for Employees
in excess of the limitations imposed by one or more of sections 401(a)(17),
401(k), 401(m), 402(g), 403(b), 408(k), or 415 of the Internal Revenue Code or
any other limitation on contributions or benefits in the Internal Revenue Code
on plans to which any of such sections apply. Benefits provided under Sections
4.4 and 4.5 are also intended to constitute such plans, programs or arrangements
to the extent benefits provided under such sections satisfy the requirements in
the preceding sentence.
-2-
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
The following terms when used herein shall have the meaning set forth
below, if capitalized. Unless the context clearly indicates otherwise, words in
the masculine, feminine or neuter gender include the other genders and the
singular includes the plural and vice versa.
2.1 "401(k) Investment Plan" means the BankAmerica 401(k) Investment
----------------------
Plan, as amended from time to time. This plan was named the BankAmerishare Plan
prior to January 1, 1996.
2.2 "Administrative Committee" means the BankAmerica Corporation
------------------------
Employee Benefits Administrative Committee, consisting of senior officers of
Participating Employers who shall be appointed initially by and serve at the
pleasure of the Board of Directors of BankAmerica Corporation.
2.3 "BAC Deferred Compensation Plan" means the BankAmerica Corporation
------------------------------
Deferred Compensation Plan, as amended from time to time.
2.4 "Contributing Employee" is defined under the 401(k) Investment
---------------------
Plan.
2.5 "Employee" means a common-law employee of an Employer.
--------
2.6 "Employer" means BankAmerica Corporation or any other corporation
--------
which is a member of the controlled group of corporations (within the meaning of
Section 1563(a) of the Internal Revenue Code without regard to Section
1563(a)(4) and 1563(e)(3)(C)) of which BankAmerica Corporation is a member, but
only after the date such corporation becomes a member of the
-3-
<PAGE>
BankAmerica Corporation controlled group of corporations.
2.7 "Employment" means employment with an Employer.
----------
2.8 "Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as amended from time to time.
2.9 "Matching Employer Contribution" is defined under the 401(k)
------------------------------
Investment Plan.
2.10 "Participant" means an Employee who has an account balance for
-----------
either the supplemental 401(k) Investment Plan benefits in Article III or
supplemental Pension Plan benefits in Article IV.
2.11 "Participant Contributions" is defined in the 401(k) Investment
-------------------------
Plan.
2.12 "Participating Employee" is defined in the Pension Plan.
----------------------
2.13 "Participating Employer" means BankAmerica Corporation and such
----------------------
subsidiaries and affiliated corporations of BankAmerica Corporation which shall
participate in this Plan with the approval of BankAmerica Corporation.
2.14 "Pension Plan" means the BankAmerica Pension Plan, as amended from
------------
time to time. This plan was named the BankAmeraccount Plan prior to January 1,
1996 and the BankAmerican Retirement Plan prior to July 1, 1985.
2.15 "Plan Year" means the calendar year.
---------
2.16 "Prior Plan" means the Supplemental CareerAccounts Plan as in
----------
effect on March 31, 1996.
2.17 "Qualified Earnings" is defined in the Pension Plan and 401(k)
------------------
Investment Plan.
2.18 "Service Center" means the BankAmerica Retirement
--------------
-4-
<PAGE>
Plans Service Center, which is the department of Bank of America NT&SA or third
party designated by the Administrative Committee to provide day-to-day
administrative services under the Plan.
2.19 "Supplemental Earnings" means compensation which, but for the
---------------------
$150,000 annual compensation limit in Section 401(a)(17) of the Internal Revenue
Code, would constitute Qualified Earnings.
2.20 "Supplemental Plan" means the BankAmerica Supplemental Retirement
-----------------
Plan, as set forth herein, and as amended from time to time.
-5-
<PAGE>
ARTICLE III
-----------
SUPPLEMENTAL 401(k) INVESTMENT PLAN BENEFITS
--------------------------------------------
3.1 Supplemental 401(k) Investment Plan Account. An unfunded
-------------------------------------------
bookkeeping account shall be established for each Participant who has earned
supplemental 401(k) Investment Plan benefits. The account shall be credited
with all supplemental 401(k) Investment Plan benefits credited under the Prior
Plan as of March 31, 1996, any amounts credited under Section 3.5, plus all
amounts credited under this Article after that date.
3.2 Benefits on Supplemental Earnings. If a Contributing Employee to
---------------------------------
the 401(k) Investment Plan has Supplemental Earnings for a Plan Year, an amount
equal to the additional Matching Employer Contributions the Contributing
Employee would have received in the 401(k) Investment Plan with respect to such
Supplemental Earnings, calculated as if there was no annual dollar limit on
Qualified Earnings (or other limit on contributions), shall be credited to the
Participant's account under this Article. For purposes of the preceding
sentence, the Contributing Employee shall be assumed to have made Participant
Contributions with respect to Supplemental Earnings at the actual rate of
Participant Contributions in effect in the 401(k) Investment Plan when the
annual dollar limit on Qualified Earnings was reached.
3.3 Benefits if Participation is Restricted. This section shall apply
---------------------------------------
if a Contributing Employee in the 401(k) Investment Plan does not receive a full
Matching Employer Contribution in the 401(k) Investment Plan for any month
because the participation of the Contributing Employee is restricted in
-6-
<PAGE>
order to enable the 401(k) Investment Plan to meet the rules under Internal
Revenue Code (S)(S)401(k) or (m) or similar rules limiting benefits for highly
compensated Employees. If this section is applicable, an amount equal to the
additional Matching Employer Contributions the Contributing Employee would have
received in the 401(k) Investment Plan if he or she been allowed to fully
contribute for that month shall be credited to the Participant's account under
this Article. For purposes of the preceding sentence, the actual rate of
Participant Contributions in effect prior to any required reduction shall be
used.
3.4 Benefits Based on Deferred Compensation. This Section shall apply
---------------------------------------
if a Contributing Employee in the 401(k) Investment Plan defers the receipt of
compensation under the BAC Deferred Compensation Plan, which compensation would
have been Qualified Earnings or Supplemental Earnings had it not been deferred.
(a) If a Contributing Employee defers compensation under the BAC
Deferred Compensation Plan on or after January 1, 1992, an amount equal to the
additional Matching Employer Contributions the Contributing Employee could have
received in the 401(k) Investment Plan with respect to such deferred
compensation, calculated as if there was no annual dollar limit on Qualified
Earnings (or other limit on benefit accruals), shall be credited to the
Participant's account under this Article. For purposes of the preceding
sentence, the most recent rate of Participant Contributions on record at the
time the deferred compensation would have been paid shall be used.
(b) Amounts deferred under the Annual Management
-7-
<PAGE>
Incentive Plan and BAC Deferred Compensation Plan between October 1, 1985 and
December 31, 1992, including accumulated interest, were treated as Supplemental
Earnings as of December 31, 1991.
3.5 Supplemental Plans which have merged with this plan
---------------------------------------------------
(a) Supplemental amounts credited under the Security Pacific Thrift
Plus Supplemental Plan as of December 31, 1992 shall be credited to the account
of the Participant under this Article.
(b) Supplemental amounts credited under the Seafirst Corporation
Supplemental Employee Matched Savings Plan as of March 31, 1996 shall be
credited to the account of the Participant under this Article.
3.6 Benefits In Excess of 415 Dollar Limit. This section shall apply
--------------------------------------
if a Participant does not receive a full Matching Employer Contribution for any
month of participation in the 401(k) Investment Plan on account of the dollar
limitation on maximum annual contributions under Section 415(c)(1)(A) of the
Internal Revenue Code. If this section is applicable, an amount shall be
credited to the Participant's account equal to (a) the amount of Matching
Employer Contributions the Contributing Employee would have received in the
401(k) Investment Plan for each month of participation if the dollar limitation
on maximum annual contributions did not apply, less (b) the actual amount of
Matching Employer Contributions received by the Participant in the 401(k)
Investment Plan for that month. The Participant's actual rate of Participant
Contributions to the 401(k) Investment Plan for each month of participation
shall be used to calculate Matching Employer Contributions under (a) in the
preceding sentence.
-8-
<PAGE>
3.7 Interest. The amounts credited to a Participant's account under
--------
this Article shall be increased each month by an interest factor. During a
Participant's Employment, the interest factor shall be equal to the monthly
interest rate for the Income Accumulation fund in the 401(k) Investment Plan.
For any month in which the Participant is not credited with a month of Covered
Service, the interest factor shall be equal to the monthly interest factor for
pay-based credits in effect from time to time for the Pension Plan.
3.8 Vesting. The benefits provided under this article shall be fully
-------
vested and nonforfeitable at all times.
-9-
<PAGE>
ARTICLE IV
----------
SUPPLEMENTAL PENSION PLAN BENEFITS
----------------------------------
4.1 Supplemental Pension Plan Account. An unfunded bookkeeping
---------------------------------
account or accounts shall be established for each Participant who has earned
supplemental Pension Plan benefits. The accounts shall be credited with all
supplemental Pension Plan benefits credited under the Prior Plan as of March 31,
1996, any amounts credited under Section 4.5, plus all amounts credited under
this Article.
4.2 Benefits Based on Supplemental Earnings. If a Participating
---------------------------------------
Employee in the pension plan has Supplemental Earnings for a Plan Year, an
amount equal to the additional pay-based credits the Participating Employee
would have received in the Pension Plan with respect to such Supplemental
Earnings, calculated as if there was no annual dollar limit on Qualified
Earnings (or other limit on benefit accruals), shall be credited to the
Participant's account under this Article.
4.3 Benefits Based on Deferred Compensation. This Section shall apply
---------------------------------------
if a Participating Employee in the Pension Plan defers the receipt of
compensation under the BAC Deferred Compensation Plan, which compensation would
have been Qualified Earnings or Supplemental Earnings had it not been deferred.
(a) If a Participating Employee defers compensation under the BAC
Deferred Compensation Plan on or after January 1, 1992, an amount equal to the
pay-based credits the Participating Employee would have received had such
compensation not been deferred shall be credited to the Participant's account
under this Article.
-10-
<PAGE>
(b) Amounts deferred under the BankAmerica Corporation Annual
Management Incentive Plan and BAC Deferred Compensation Plan between October 1,
1985 and December 31, 1992, including accumulated interest, were treated as
Supplemental Earnings as of December 31, 1991.
4.4 Supplemental Benefits Attributable to BankAmerican Retirement
-------------------------------------------------------------
Plan. Supplemental amounts credited under the Supplemental BankAmerican
- - ----
Retirement Plan as of June 30, 1985 were converted into a conversion balance,
in the same manner as benefits under the BankAmerican Retirement Plan were
converted into an conversion balance under the Pension Plan, and credited to an
account for the Participant under this Article. If the Participant qualifies
for grandfathered benefits and/or early retirement subsidies under the Pension
Plan which increase the value of the benefits attributable to the BankAmerican
Retirement Plan, similar adjustments shall be made to the value of the
Participant's supplemental benefits under this section.
4.5 Supplemental Plans which have merged with this plan
---------------------------------------------------
(a) Supplemental amounts credited under the Security Pacific
Supplemental Retirement Plan as of December 31, 1992 based on compensation in
excess of the $150,000 compensation limit in Internal Revenue Code Section
401(a)(17) shall be converted into a conversion balance, in the same manner as
benefits under the Security Pacific Trusteed Retirement Income Plan ("SPTRIP")
were converted into an conversion balance under the Pension Plan, and credited
to an account for the Participant under this Article. If the Participant
qualifies for early retirement subsidies under the Pension Plan which increase
the
-11-
<PAGE>
value of the benefits attributable to the SPTRIP, similar adjustments shall be
made to the value of the Participant's "rule of $50,000" benefits under Article
Three of the Security Pacific Supplemental Retirement Plan and the Participant
shall receive the greater of the conversion balance or the value of the adjusted
benefits.
(b) Supplemental amounts credited under the Continental Supplemental
Pension Program as of December 31, 1994 shall be converted into a conversion
balance, in the same manner as benefits under the Continental Employees Pension
Plan ("Continental Pension Plan") were converted into an conversion balance
under the Pension Plan, and credited to an account for the Participant under
this Article. If the Participant qualifies for enhanced benefits and/or early
retirement subsidies under the Pension Plan which increase the value of the
benefits attributable to the Continental Pension Plan, similar adjustments shall
be made to the value of the Participant's supplemental benefits under this
section and the Participant shall receive the greater of the conversion balance
or the value of the adjusted benefits.
(c) Supplemental amounts credited under the Seafirst Corporation
Supplemental Retirement Plan as of March 31, 1996 shall be converted into a
conversion balance, in the same manner as benefits under the Seafirst
Corporation Retirement Plan ("Seafirst Pension Plan") were converted into an
conversion balance under the Pension Plan, and credited to an account for the
Participant's account under this Article. If the Participant qualifies for
enhanced benefits and/or early retirement subsidies
-12-
<PAGE>
under the Pension Plan which increase the value of the benefits attributable to
the Seafirst Pension Plan, similar adjustments shall be made to the value of the
Participant's supplemental benefits under this section and the Participant shall
receive the greater of the conversion balance or the value of the adjusted
benefits.
4.6 Benefits in Excess of 415 Dollar Limits.
---------------------------------------
(a) This Section shall apply if the benefits of a Participating
Employee in the Pension Plan are reduced on account of the dollar limitation on
maximum annual benefits under Section 415(b)(1)(A) of the Internal Revenue Code.
(b) The Plan shall pay the Participant an amount, if any, equal to (1)
the benefit which would be payable to a Participant under the Pension Plan if
the limitations on maximum annual benefits did not apply, less (2) the benefit
actually payable to the Participant under the Pension Plan.
4.7 Interest.
--------
(a) The amounts credited to the Participant's account under this
Article shall be increased each month by an interest factor equal to the monthly
interest factor for pay-based credits in effect from time to time for the
Pension Plan. Any supplemental conversion balance shall be credited with the
same interest rate the Participant receives under the Pension Plan for his or
her conversion balance.
4.8 Vesting.
-------
(a) The Participant shall be vested in the benefits provided under
this Article to the same extent the Participant is vested under the Pension Plan
for similar
-13-
<PAGE>
benefits.
-14-
<PAGE>
ARTICLE V
---------
PAYMENT OF BENEFITS AFTER EMPLOYMENT ENDS
-----------------------------------------
5.1 Form of Payment. The amounts credited to a Participant's accounts
---------------
under the Supplemental Plan shall be payable in cash as provided in this
Article.
5.2 Vested balance less than $10,000. If the total of the vested
--------------------------------
amounts credited to a Participant's accounts under Articles III and IV is less
than $10,000, all benefits shall be paid to the Participant in a single cash
payment within 90 days of the date Employment ends.
5.3 Vested balance $10,000 or more. If the total of the vested
------------------------------
amounts credited to a Participant's accounts under Articles III and IV is
$10,000 or more and Employment ends on or after April 1, 1997, all benefits
shall be paid to the Participant as follows:
(a) If the Participant has a benefit payment election in effect
when Employment ends, as provided in Section 5.4(b), the Participant's benefits
under the Supplemental Plan shall be paid in accordance with such benefit
payment election.
(b) If the Participant does not have a benefit payment election in
effect when Employment ends, the Participant's benefits under the Supplemental
Plan shall be paid in five annual installments commencing in the calendar year
after the Participant attains age 65, with each payment made within the first 60
days of such calendar year. Each payment shall be equal to (a) the sum of the
accounts maintained for the Participant under Article III and IV, multiplied by
(b) a fraction, the numerator of which is one and the denominator is the number
of
-15-
<PAGE>
installments remaining, including the current year's payments.
5.4 Benefit Payment Election. If the total of the amounts credited to
------------------------
a Participant's accounts under Articles III and IV is $10,000 or more (or has a
current value of $10,000 or more based on early retirement adjustments for early
retirement subsidiaries the Participant currently qualifies for), the
Participant may submit a benefit payment election form specifying how all vested
benefits under the Supplemental Plan shall be paid if Employment ends on or
after April 1, 1997, provided the amount of vested benefits exceeds $10,000 at
time of payment.
(a) The Participant may elect one of the following forms of
payment on the benefit payment election form:
(1) A single payment. The payment shall be made within 90
days of the date Employment ends, or within the first 60 days of any subsequent
calendar year specified by the Participant.
(2) Ten or fewer annual installment payments. The installment
payments shall commence in any calendar year specified by the Participant after
the calendar year in which Employment ends, with each payment made within the
first 60 days of such calendar year. Each payment shall be equal to (i) the sum
of the accounts maintained for the Participant under Article III and IV,
multiplied by (ii) a fraction, the numerator of which is one and the denominator
is the number of installments remaining, including the current year's payment.
(3) Monthly level annuity payments. The payments shall
commence within 90 days of the date Employment ends, or January of in any
subsequent calendar year specified by
-16-
<PAGE>
the Participant, with each payment made by the end of the month. The Participant
may elect a single life level annuity, or a joint and 50%, 75% or 100% survivor
annuity with the spouse to whom the Participant is married on the annuity
starting date. If the Participant elects a joint and survivor level annuity but
is not married on the annuity starting date, the Participant shall receive a
single life level annuity. The level annuity shall contain the 5 year certain
feature described in Section 3.3(c) of the Pension Plan. The amount of level
annuity shall be calculated under Section 3.3(b) of the Pension Plan, based on
the Level Annuity Interest rate in effect on the annuity starting date and the
joint annuitant factors in Section 3.3(c) of the Pension Plan.
(b) Each benefit payment election shall become effective on the one
year anniversary of the date the election is received by the Service Center,
provided the Participant has remained continuously employed by an Employer until
that date. If the Participant has previously submitted an election form, the
Participant may not submit a new benefit payment election until his or her prior
election has become effective. In addition, the Administrative Committee
reserves the right to reject a new benefit payment election if it results in a
significant acceleration of payments over the prior election.
5.5 Reemployed Employees. If a former Employee is reemployed by an
--------------------
Employer, any annuity or installment then being paid under the Supplemental Plan
shall continue.
5.6 Beneficiary Designation.
-----------------------
(a) A participant may designate any person or
-17-
<PAGE>
persons, including a trust, as his or her beneficiary or contingent beneficiary
to receive his or her unpaid benefits under the Supplemental Plan in the event
of the Participant's death. Any such designation shall be made by filing the
Supplemental Plan form designated for that purpose with the Service Center. The
Participant may change or cancel his or her beneficiary designation at any time
prior to death without the consent of any designated beneficiary.
(b) The Participant shall designate on his or her benefit payment
election that any benefits under the Supplemental Plan unpaid at the time of the
Participant's death shall be paid in accordance with one of the following
options:
(1) In a single payment within 90 days of the date of death.
(2) In a single payment within the first 60 days of the calendar
year immediately following the calendar year in which the death occurs.
(3) In three approximately equal payments, each made within the
first 60 days of the three calendar years immediately following the calendar
year in which the death occurs.
(c) If no beneficiary has been designated by the Participant, or if
no beneficiary is alive at the date of the Participant's death, payment shall be
made to the Participant's estate. If no death benefit payment election is in
effect at the date of the Participant's death, payment shall be made in a single
payment within 90 days of the date of death. If payment is made to a
beneficiary or the Participant's estate under the 5
-18-
<PAGE>
year certain feature of a level annuity election, payment shall be made within
90 days of death of the Participant or joint annuitant (if applicable),
whichever occurs later.
5.7 Withholding Taxes. The Participating Employers shall have the
-----------------
right to deduct from payments under the Supplemental Plan any and all taxes
required to be collected under federal, state or local law.
5.8 Transition Provisions.
---------------------
(a) If the total of the vested amounts credited to a
Participant's accounts under Articles III and IV is $10,000 or more and
Employment ends on or before March 31, 1997, the amounts credited to a
Participant's account shall be payable to the Participant in a single payment
within 90 days of the date Employment ends, unless prior to termination of
Employment, the Participant elects one of the following payment options, which
election must be approved by the Administrative Committee:
(1) Ten or fewer equal annual installments.
(2) Monthly level annuity payments calculated by using the
applicable Pension Plan level annuity conversion factors.
(b) If a Participant submitted a benefit payment election form prior to
June 15, 1996, the Participant may submit a replacement benefit payment election
form prior to August 1, 1996 which will have the same effective date as the
first election would have had.
(c) If a Participant had amounts credited under the Seafirst
Corporation Supplemental Retirement Plan or Supplemental Employee Matched
Savings Plan as of March 31, 1996 and if
-19-
<PAGE>
Employment ends prior to July 1, 1997: (1) the procedure in Section 5.8(a)
shall be applicable even if the sum of the Participant's accounts is less than
$10,000, and (2) if a Participant does not have a benefit payment election in
effect when Employment ends, the Participant may make a written request for an
alternative form of distribution under the procedure in Section 5.8(a) instead
of the default provisions in Section 5.3(b), provided that such written request
is submitted prior to the Participant's termination of Employment.
-20-
<PAGE>
ARTICLE VI
----------
PLAN OPERATION, AMENDMENTS AND ADMINISTRATION
----------------------------------------------
6.1 Amendment and Termination. BankAmerica Corporation is the "plan
-------------------------
sponsor" of the Supplemental Plan as that term is defined in ERISA. BankAmerica
Corporation may amend or modify the Supplemental Plan in whole or in part at any
time by a written instrument executed by an officer designated by the Board of
Directors of BankAmerica Corporation. BankAmerica Corporation may terminate the
Plan by action of its Board of Directors. No such amendment, modification or
termination shall reduce the amount credited to a Participant's accounts as of
the date of such action. Upon Plan termination, all amounts credited to
Participant's accounts shall be paid to such Participants in a single payment
within 120 days.
6.2 Plan Administrator. The Administrative Committee is the plan
------------------
administrator as that term is defined in ERISA. The Administrative Committee is
also the named fiduciary, as that term is defined in ERISA, of the Supplemental
Plan having discretionary authority to control and manage the operation and
administration of the Supplemental Plan.
6.3 Powers and Duties of Administrative Committee.
---------------------------------------------
(a) The Administrative Committee shall have discretionary
authority to determine eligibility for benefits and to construe the terms of the
Supplemental Plan. The Administrative Committee shall have such other
discretionary authority as may be necessary to enable it to discharge its
responsibilities under the Supplemental Plan as administrator and named
fiduciary, including, but not limited to, the power:
-21-
<PAGE>
(1) To review appeals by Participants under Article
VIII.
(2) To appoint or employ one or more persons to assist
in the administration of the Supplemental Plan.
(3) To adopt such rules as it deems appropriate for the
administration of the Supplemental Plan.
(4) To prescribe procedures to be followed by
Participants.
(5) To prepare and distribute information relating to
the Supplemental Plan.
(6) To request from Participating Employers and
Participants such information as shall be necessary for proper administration of
the Plan.
(b) The decision of the Administrative Committee upon any matter
within its authority shall be final and binding on all parties, including
BankAmerica Corporation, the Participating Employers and Participants and their
beneficiaries.
6.4 Reliance Upon Information. In making decisions under the
-------------------------
Supplemental Plan, the Administrative Committee shall be entitled to rely upon
information furnished by a Participant, beneficiary or Participating Employer.
6.5 Action by Administrative Committee. The Administrative Committee
----------------------------------
may act either at a meeting or, in the absence of a meeting, by an instrument in
writing signed by a majority of the Committee members. The Administrative
Committee shall elect one of its members as chairperson and it shall
-22-
<PAGE>
appoint a secretary who shall keep a record of all meetings and forward all
necessary communication to the Participating Employers. The Administrative
Committee shall adopt such bylaws for the conduct of its business as it deems
desirable. An Administrative Committee member who becomes aware of any action or
failure to act by the Administrative Committee may, within a reasonable time
thereafter, deliver his or her dissent in writing, setting forth specific
reasons for such dissent, to all other Committee members and to the committee of
the BankAmerica Corporation Board of Directors designated to review Committee
activities.
-23-
<PAGE>
ARTICLE VII
-----------
CLAIMS FOR BENEFITS
-------------------
7.1 Claims Procedure.
----------------
(a) Claims Must be Filed. An Employee, Participant, alternate
--------------------
payee, or the spouse, beneficiary or estate of a deceased Participant (the
"claimant") who has a claim for benefits or concerning any other matter under
the Plan must give written notice of such claim or other matter to the Service
Center.
(b) Review of Claim. After the Service Center has reviewed the
---------------
claim and obtained any other information it deems necessary to render a decision
on the claim, the Service Center shall notify the claimant within 90 days after
receipt of the claim of the acceptance or denial of the claim, unless special
circumstances require an extension of time for processing the claim. Such an
extension of time may not exceed 90 additional days and notice of the extension
shall be provided to the claimant prior to the termination of the initial 90 day
period indicating the special circumstances requiring the extension and the date
by which a final decision on the claim is expected.
(c) Denied Claims. In the event any application for benefits is
-------------
denied, in whole or in part, the Service Center shall notify the claimant of
such denial in writing and shall advise the claimant of the right to appeal the
denial and to request a review thereof. Such notice shall be written in a
manner calculated to be understood by the claimant and shall contain:
(1) Specific reason for such denial.
-24-
<PAGE>
(2) Specific reference to the Plan provisions on which such
denial is based.
(3) A description of any information or material necessary
for the Employee to perfect the claim.
(4) An explanation of why such material is necessary.
(5) An explanation of the Plan's appeal and review procedure.
7.2 Appeal and Review Procedure.
---------------------------
(a) Appeal to Administrative Committee. If the claimant's claim
----------------------------------
for benefits is denied in whole or in part, the claimant, or the claimant's duly
authorized representative, may appeal the denial by submitting to the
Administrative Committee a written request for review of the application within
60 days after receiving written notice of such denial. The Administrative
Committee shall give the applicant (upon request) an opportunity to review
pertinent Plan documents (other than legally privileged documents) in preparing
such request for review.
(b) Contents of Appeal. The request for review must be in
------------------
writing and shall be addressed to the Secretary, BankAmerica Corporation
Employee Benefits Administrative Committee at the address stated in the current
summary plan description. The request for review shall set forth all of the
grounds upon which it is based, all facts in support thereof and any other
matters which the claimant deems pertinent. The Administrative Committee may
require the claimant to submit (at the claimant's expense) such additional
facts, documents or other
-25-
<PAGE>
material as the Administrative Committee deems necessary or advisable in making
its review.
(c) Review of Appeal. The Administrative Committee shall act upon
----------------
each request for review within 60 days after its receipt thereof unless special
circumstances require further time for processing. In no event shall the
decision on review be rendered more than 120 days after the Administrative
Committee receives the request for review. Written notice of an extension of
time beyond 60 days shall be furnished to the claimant prior to the commencement
of the extension.
(d) Denied Appeals. In the event the Administrative Committee
--------------
confirms the denial of the claim for benefits in whole or in part, it shall give
written notice of its decision to the claimant. Such notices shall be written
in a manner calculated to be understood by the claimant and shall contain the
specific reasons for the denial.
7.3 Exhaustion of Remedies. No legal action for benefits under the
----------------------
Plan shall be brought unless and until the following steps have occurred:
(a) The claimant has submitted a written application for benefits
in accordance with Section 7.1.
(b) The claimant has been notified that the claim has been denied.
(c) The claimant has filed a written request appealing the denial
in accordance with Section 7.2.
(d) The claimant has been notified in writing that the
Administrative Committee has denied the claimant appeal or has failed to take
any action on the appeal within the time
-26-
<PAGE>
prescribed by Section 7.2.
-27-
<PAGE>
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
8.1 Cost. The Participating Employers shall pay the entire cost of
----
the Plan. The cost shall be allocated among the Participating Employers as
determined by BankAmerica Corporation.
8.2 Unfunded Bookkeeping Accounts. The accounts established under the
-----------------------------
Plan are unfunded bookkeeping accounts. The Participating Employers are not
required to physically segregate any cash or securities or establish any
separate funds to pay any benefits under the Plan.
8.3 Prohibition on Alienation. No benefit payable under this Plan
-------------------------
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, hypothecation, charge, attachment, garnishment, execution,
or levy of any kind or any other process of law, voluntary or involuntary. Any
attempt to dispose of any rights to benefits payable under the Plan shall be
void. Notwithstanding the preceding sentence, the Participating Employers shall
have the right to offset from a Participant's unpaid benefits under the
Supplemental Plan any amounts due and owing from the Participant to the extent
permitted by law.
8.4 Not a Contract of Employment. Participation in this Plan by an
----------------------------
Employee shall not give such Employee any right to be retained in the employ of
any Participating Employer and the ability of each Participating Employer to
dismiss or discharge an Employee is specifically reserved.
8.5 Headings Not to Control. Headings and titles within the Plan are
-----------------------
for convenience only and are not to be read
-28-
<PAGE>
as part of the text of the Plan.
8.6 Separability of Plan Provisions. If any provisions of the
-------------------------------
Supplemental Plan are for any reason declared invalid or not enforceable, such
provisions will not affect the remaining terms and conditions, but the
Supplemental Plans will be construed and enforced thereafter as if such
provisions had not been inserted.
8.7 Applicable Law. The validity and effect of the Plan and the
--------------
rights and obligations of all persons affected thereby, are to be construed and
determined in accordance with applicable federal law, and to the extent that
federal law is inapplicable, under the laws of the State of California.
8.8 Entire Plan. This document is a complete statement of the Plan
-----------
and as of April 1, 1996 supersedes all representations, prior plans, promises
and inducements, proposals, written or oral, relating to its subject matter.
The Participating Employers shall not be bound by or liable to any person for
any representation, promise or inducement made by any person which is not
embodied in this document or in any authorized written amendment to the Plan.
IN WITNESS WHEREOF, BankAmerica Corporation, has caused this instrument
to be executed by its duly authorized officer, this 27th day of August, 1996
------ ------
to be effective April 1, 1996.
BANKAMERICA CORPORATION
By /s/ KATHLEEN J. BURKE
-------------------------------
Kathleen J. Burke
Vice Chairman and
Personnel Relations Officer
29
Exhibit 11
DILUTED EARNINGS PER COMMON SHARE AND DILUTED AVERAGE COMMON SHARES OUTSTANDING
- --------------------------------------------------------------------------------
For diluted earnings per common share, net income available
to common shareholders can be affected by the conversion of
the registrant's convertible preferred stock. Where the
effect of this conversion would have been dilutive, net
income available to common shareholders is adjusted by the
associated preferred dividends. This adjusted net income is
divided by the weighted average number of common shares
outstanding for each period plus amounts representing the
dilutive effect of stock options outstanding and the
dilution resulting from the conversion of the registrant's
convertible preferred stock, if applicable. The effect of
convertible preferred stock is excluded from the computation
of diluted earnings per common share in periods in which the
effect would be antidilutive.
Diluted earnings per common share was determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(SHARES IN THOUSANDS, DOLLARS IN MILLIONS SEPTEMBER 30 SEPTEMBER 30
EXCEPT PER SHARE INFORMATION) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average common shares outstanding 1,740,092 1,722,243 1,732,297 1,736,460
Dilutive effect of:
Convertible preferred stock 3,079 3,770 3,079 3,770
Stock options 41,247 47,172 46,730 44,431
- ------------------------------------------------------------------------------------------------------------------------------------
Total dilutive shares 1,784,418 1,773,185 1,782,106 1,784,661
====================================================================================================================================
Income available to common shareholders $ 372 $ 1,706 $ 3,979 $ 4,988
Preferred dividends paid on dilutive
convertible preferred stock 2 2 5 6
- ------------------------------------------------------------------------------------------------------------------------------------
Total net income available to common
shareholders adjusted for full dilution $ 374 $ 1,708 $ 3,984 $ 4,994
====================================================================================================================================
Diluted earnings per common share $ 0.21 $ 0.96 $ 2.24 $ 2.80
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
61
<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(a)
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
NINE MONTHS ENDED -----------------------------------------------------------
(DOLLARS IN MILLIONS) SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
Income before taxes $ 6,177 $ 10,556 $ 9,311 $ 8,377 $ 7,010 $ 6,047
Equity in undistributed losses (earnings)
of unconsolidated subsidiaries 13 (49) (7) (19) (55) (42)
Fixed charges:
Interest expense (including capitalized interest and
amortization of debt discount and
appropriate issuance costs) 7,048 8,219 7,082 6,354 4,572 2,735
1/3 of net rent expense 249 302 282 275 250 241
-------- -------- -------- -------- -------- --------
Total fixed charges 7,297 8,521 7,364 6,629 4,822 2,976
-------- -------- -------- -------- -------- --------
Earnings (excluding capitalized interest) $13,487 $ 19,026 $ 16,668 $ 14,987 $ 11,774 $ 8,979
-------- -------- -------- -------- -------- --------
Fixed charges $ 7,297 $ 8,521 $ 7,364 $ 6,629 $ 4,822 $ 2,976
-------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 1.85 2.23 2.26 2.26 2.44 3.02
======== ======== ======== ======== ======== ========
Including Interest on Deposits
Income before taxes $ 6,177 $ 10,556 $ 9,311 $ 8,377 $ 7,010 $ 6,047
Equity in undistributed losses (earnings)
of unconsolidated subsidiaries 13 (49) (7) (19) (55) (42)
Fixed charges:
Interest expense (including capitalized interest and
amortization of debt discount and
appropriate issuance costs) 15,261 18,903 16,682 16,369 11,083 8,757
1/3 of net rent expense 249 302 282 275 250 241
-------- -------- -------- -------- -------- --------
Total fixed charges 15,510 19,205 16,964 16,644 11,333 8,998
-------- -------- -------- -------- -------- --------
Earnings (excluding capitalized interest) $21,700 $ 29,710 $ 26,268 $ 25,002 $ 18,285 $ 15,001
-------- -------- -------- -------- -------- --------
Fixed charges $ 15,510 $ 19,205 $ 16,964 $ 16,644 $ 11,333 $ 8,998
-------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 1.40 1.55 1.55 1.50 1.61 1.67
======== ======== ======== ======== ======== ========
</TABLE>
62
<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXHIBIT 12(B)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Nine Months Ended -----------------------------------------------------------
(Dollars in Millions) September 30, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
Income before taxes $ 6,177 $ 10,556 $ 9,311 $ 8,377 $ 7,010 $ 6,047
Equity in undistributed losses (earnings)
of unconsolidated subsidiaries 13 (49) (7) (19) (55) (42)
Fixed charges:
Interest expense (including capitalized interest and
amortization of debt discount and
appropriate issuance costs) 7,048 8,219 7,082 6,354 4,572 2,735
1/3 of net rent expense 249 302 282 275 250 241
-------- -------- -------- -------- -------- --------
Total fixed charges 7,297 8,521 7,364 6,629 4,822 2,976
Preferred dividend requirements 37 183 332 426 467 466
Earnings (excluding capitalized interest) $13,487 $ 19,026 $ 16,668 $ 14,987 $ 11,774 $ 8,979
-------- -------- -------- -------- -------- --------
Fixed charges and preferred dividends $ 7,334 $ 8,704 $ 7,696 $ 7,055 $ 5,289 $ 3,442
-------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges and
Preferred Dividends 1.84 2.19 2.17 2.12 2.23 2.61
======== ======== ======== ======== ======== ========
Including Interest on Deposits
Income before taxes $ 6,177 $ 10,556 $ 9,311 $ 8,377 $ 7,010 $ 6,047
Equity in undistributed losses (earnings)
of unconsolidated subsidiaries 13 (49) (7) (19) (55) (42)
Fixed charges:
Interest expense (including capitalized interest and
amortization of debt discount and
appropriate issuance costs) 15,261 18,903 16,682 16,369 11,083 8,757
1/3 of net rent expense 249 302 282 275 250 241
-------- -------- -------- -------- -------- --------
Total fixed charges 15,510 19,205 16,964 16,644 11,333 8,998
Preferred dividend requirements 37 183 332 426 467 466
Earnings (excluding capitalized interest) $21,700 $ 29,710 $ 26,268 $ 25,002 $ 18,285 $ 15,001
-------- -------- -------- -------- -------- --------
Fixed charges and preferred dividends $ 15,547 $ 19,388 $ 17,296 $ 17,070 $ 11,800 $ 9,464
-------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges and Preferred Dividends 1.40 1.53 1.52 1.46 1.55 1.59
======== ======== ======== ======== ======== ========
</TABLE>
63
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the September 30, 1998
Form 10-Q for BankAmerica Corporation and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000070858
<NAME> BANKAMERICA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,715
<INT-BEARING-DEPOSITS> 6,692
<FED-FUNDS-SOLD> 30,725
<TRADING-ASSETS> 34,509
<INVESTMENTS-HELD-FOR-SALE> 67,959
<INVESTMENTS-CARRYING> 4,180
<INVESTMENTS-MARKET> 3,935
<LOANS> 351,982
<ALLOWANCE> (7,215)
<TOTAL-ASSETS> 594,673
<DEPOSITS> 345,756
<SHORT-TERM> 111,772
<LIABILITIES-OTHER> 42,286
<LONG-TERM> 47,552
0
84
<COMMON> 15,939
<OTHER-SE> 31,284
<TOTAL-LIABILITIES-AND-EQUITY> 594,673
<INTEREST-LOAN> 7,084
<INTEREST-INVEST> 1,105
<INTEREST-OTHER> 1,419
<INTEREST-TOTAL> 9,608
<INTEREST-DEPOSIT> 2,830
<INTEREST-EXPENSE> 5,164
<INTEREST-INCOME-NET> 4,444
<LOAN-LOSSES> 1,405
<SECURITIES-GAINS> 280
<EXPENSE-OTHER> 4,583
<INCOME-PRETAX> 416
<INCOME-PRE-EXTRAORDINARY> 416
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 3.60
<LOANS-NON> 2,582
<LOANS-PAST> 540
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,778
<CHARGE-OFFS> 2,371
<RECOVERIES> 448
<ALLOWANCE-CLOSE> 7,215
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Allownace-Domestic, Allowance-Foreign and Allowance-Unallocated are only
disclosed on an annual basis in the Corporation's 10-K and are therefore
not included in this Financial Data Schedule.
</FN>
</TABLE>
