SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: April 10, 1998
(Date of earliest event reported)
NationsBank Corporation
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation)
1-6523 56-0906609
------ ----------
(Commission File Number) (IRS Employer Identification Number)
NationsBank Corporate Center
Charlotte, North Carolina
-------------------------
(Address of principal executive offices)
28255
-----
(Zip Code)
Registrant's telephone number, including area code: (704) 386-5000
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
The Current Report on Form 8-K dated April 10, 1998 and filed with the
Securities and Exchange Commission on April 17, 1998, is amended to include the
following:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following consolidated financial statements of BankAmerica
are incorporated herein by reference to Exhibit 99.1 filed herewith:
1. Consolidated Balance Sheet as of December 31, 1997 and 1996.
2. Consolidated Statement of Operations for the years ended December
31, 1997, 1996 and 1995.
3. Consolidated Statement of Cash Flows for the years ended December
31, 1997, 1996 and 1995.
4. Consolidated Statement of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.
5. Notes to Consolidated Financial Statements.
The Other Events in Item 5 of this Form 8-K should be read in
connection with these consolidated financial statements.
The report of Ernst & Young LLP, independent auditors, on the
consolidated financial statements of BankAmerica as of December 31, 1997 and
1996 and for the three years then ended is filed herewith as part of Exhibit
99.1 and the related consent is filed herewith as Exhibit 99.2. Both the
opinion and consent are incorporated herein by reference.
(b) Pro Forma Financial Information.
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Balance Sheet as of
December 31, 1997 combines the historical consolidated balance sheets of
NationsBank and BankAmerica as if the Reorganization had been effective on
December 31, 1997, after giving effect to certain adjustments described in the
attached Notes to the Unaudited Pro Forma Condensed Financial Information.
NationsBank's acquisition of Boatmen's Bancshares, Inc. ("Boatmen's") was
completed on January 7, 1997 and is reflected in NationsBank's December 31,
1997 historical balance sheet. NationsBank's historical financial statements,
restated to give retroactive effect of the merger of NationsBank with Barnett
Banks, Inc. ("Barnett") on January 9, 1998, are included in NationsBank's
Current Report on Form 8-K filed with the Securities and Exchange Commission
("SEC") on April 15, 1998. BankAmerica's historical financial statements are
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1997 as filed with the SEC on March 16, 1998. The unaudited Pro
Forma Condensed Financial Information should be read in conjunction with the
historical financial statements of NationsBank and BankAmerica.
The Unaudited Pro Forma Condensed Statements of Income for the years
ended December 31, 1997, 1996 and 1995 present the combined results of
operations of NationsBank and BankAmerica as if the Reorganization had been
effective at January 1, 1995, after giving effect to certain adjustments
described in the attached Notes to the Unaudited Pro Forma Condensed Financial
Information.
The unaudited Pro Forma Condensed Financial Information and
accompanying notes reflect the application of the pooling of interests method of
accounting for the Reorganization. Under this method of accounting, the recorded
assets, liabilities, shareholders' equity, income and expenses of NationsBank
and BankAmerica are combined and reflected at their historical amounts.
The Boatmen's transaction was accounted for using the purchase method
of accounting. Accordingly, the results of operations of Boatmen's have been
included in the NationsBank historical financial statements from the date of
acquisition. Under the purchase method of accounting, the purchase price was
allocated to assets acquired and liabilities assumed based on their estimated
fair values at the closing date of the transaction.
The combined company expects to achieve certain merger benefits in the
form of operating cost savings which may be significant. The pro forma earnings,
which do not reflect any direct costs or potential savings which are expected to
result from the consolidation of operations of NationsBank and BankAmerica, may
not be indicative of the results of future operations. The unaudited pro forma
earnings do not reflect any direct costs or potential savings from the
consolidation of operations of Barnett. No assurances can be given with respect
to the ultimate level of expense savings.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)
At December 31, 1997
----------------------------------------------------------------
NationsBank
Pro Forma BankAmerica
NationsBank BankAmerica Adjustments Combined
----------- ----------- ----------- ----------
(Dollars in Millions)
-------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 13,781 $ 14,280 $ -- $ 28,061
Time deposits placed 2,501 5,862 -- 8,363
Investment securities 50,604 16,453 -- 67,057
Federal funds sold and securities purchased
under agreements to resell 10,024 9,879 -- 19,903
Trading account assets 23,682 26,480 -- 50,162
Loans, leases and factored accounts receivable,
net of unearned income 176,778 168,104 -- 344,882
Allowance for credit losses (3,277) (3,500) -- (6,777)
---------- ---------- ------- ----------
Loans, leases and factored accounts receivable,
net of unearned income and allowance
for credit losses 173,501 164,604 -- 338,105
---------- ---------- ------- ----------
Premises and equipment, net 4,424 3,880 -- 8,304
Customers' acceptance liability 1,330 3,561 -- 4,891
Intangible assets 11,863 5,925 -- 17,788
Other assets 18,844 9,235 -- 28,079
----------- --------- --------- ---------
Total assets $ 310,554 $ 260,159 $ -- $ 570,713
========== ========= ========= =========
LIABILITIES
Deposits $ 173,643 $ 172,037 $ -- $ 345,680
Borrowed funds 54,383 25,798 -- 80,181
Trading account liabilities 15,207 15,316 -- 30,523
Acceptances outstanding 1,330 3,563 -- 4,893
Accrued expenses and other liabilities 9,649 7,813 800(2) 18,262
Trust preferred securities 2,705 1,873 -- 4,578
Long-term debt 28,890 13,922 -- 42,812
--------- --------- -------- --------
Total liabilities 285,807 240,322 800 526,929
SHAREHOLDERS' EQUITY
Preferred stock 94 614 -- 708
Common stock 9,779 1,210 4,150 (4) 15,139
Additional paid-in capital -- 7,974 (7,974)(4) --
Retained earnings 14,592 13,726 (800)(2) 27,518
Common stock in treasury, at cost -- (3,824) 3,824 (4) --
Other, including loan to ESOP trust 282 137 -- 419
--------- --------- -------- ---------
Total shareholders' equity 24,747 19,837 (800) 43,784
--------- --------- --------- ---------
Total liabilities and shareholders' equity $ 310,554 $ 260,159 $ -- $ 570,713
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED INCOME STATEMENT
(Unaudited)
For the Year Ended December 31, 1997
--------------------------------------------------------------
NationsBank
Pro Forma BankAmerica
NationsBank BankAmerica Adjustments Combined
----------- ----------- ----------- ----------
(Dollars in Millions, Except Per Share Amounts)
---------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $ 15,270 $ 13,932 $ -- $ 29,202
Interest and dividends on securities 2,140 1,123 -- 3,263
Federal funds sold and securities purchased under
agreements to resell 699 817 -- 1,516
Trading account securities 1,352 1,230 -- 2,582
Other interest income 226 415 -- 641
---------- -------- ------- ----------
Total interest income 19,687 17,517 -- 37,204
INTEREST EXPENSE
Deposits 4,891 5,793 -- 10,684
Borrowed funds 2,435 1,676 -- 4,111
Trading account liabilities 678 297 -- 975
Long-term debt 1,966 1,166 -- 3,132
--------- ------- ------ ---------
Total interest expense 9,970 8,932 -- 18,902
--------- ------- ------ ---------
NET INTEREST INCOME 9,717 8,585 -- 18,302
Provision for credit losses 954 950 -- 1,904
--------- ------- ------ ---------
NET CREDIT INCOME 8,763 7,635 -- 16,398
Gains on sales of securities 155 116 -- 271
Noninterest income 5,929 5,952 -- 11,881
Foreclosed properties expense (income) 9 (22) -- (13)
Merger and restructuring charge 374 -- -- 374
Noninterest expense 9,234 8,399 -- 17,633
--------- -------- ----- ---------
INCOME BEFORE INCOME TAXES 5,230 5,326 -- 10,556
Income tax expense 1,898 2,116 -- 4,014
--------- -------- ----- ---------
NET INCOME BEFORE PREFERRED DIVIDENDS 3,332 3,210 -- 6,542
Preferred dividends 11 100 -- 111
--------- -------- ----- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 3,321 $ 3,110 $ -- $ 6,431
========= ========= ======= =========
Basic earnings per share $ 3.53 $ 4.45 $ 3.71
========= ========= =========
Diluted earnings per share $ 3.44 $ 4.32 $ 3.61
========= ========= =========
Average common shares - Basic 941,992 699,189 1,733,194
========= ========= =========
Average common shares - Diluted 967,672 719,777 1,782,172
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED INCOME STATEMENT
(Unaudited)
For the Year Ended December 31, 1996
---------------------------------------------------------------
NationsBank
Pro Forma BankAmerica
NationsBank BankAmerica Adjustments Combined
----------- ----------- ----------- ----------
(Dollars in Millions, Except Per Share Amounts)
---------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $ 13,121 $ 13,412 $ -- $ 26,533
Interest and dividends on securities 1,618 1,160 -- 2,778
Federal funds sold and securities purchased under
agreements to resell 689 682 -- 1,371
Trading account securities 1,228 1,001 -- 2,229
Other interest income 176 453 -- 629
---------- -------- ------- ----------
Total interest income 16,832 16,708 -- 33,540
INTEREST EXPENSES
Deposits 4,246 5,359 -- 9,605
Borrowed funds 2,274 1,430 -- 3,704
Trading account liabilities 653 227 -- 880
Long-term debt 1,435 1,063 -- 2,498
--------- ------- ------ ---------
Total interest expense 8,608 8,079 -- 16,687
--------- ------- ------ ---------
NET INTEREST INCOME 8,224 8,629 -- 16,853
Provision for credit losses 760 885 -- 1,645
--------- ------- ------ ---------
NET CREDIT INCOME 7,464 7,744 -- 15,208
Gains on sales of securities 86 61 -- 147
Noninterest income 4,408 5,302 -- 9,710
Foreclosed properties expense 21 1 -- 22
Merger and restructuring charge 118 280 -- 398
Noninterest expense 7,283 8,053 -- 15,336
--------- -------- ----- ---------
INCOME BEFORE INCOME TAXES 4,536 4,773 -- 9,309
Income tax expense 1,597 1,900 -- 3,497
--------- -------- ----- ---------
NET INCOME PREFERRED DIVIDENDS 2,939 2,873 -- 5,812
Preferred dividends 17 185 -- 202
--------- -------- ----- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,922 $ 2,688 $ -- $ 5,610
========= ========= ======== =========
Basic earnings per share $ 3.56 $ 3.72 $ 3.42
========= ========= =========
Diluted earnings per share $ 3.50 $ 3.65 $ 3.36
========= ========= =========
Average common shares - Basic 820,945 722,373 1,638,382
========= ========= =========
Average common shares - Diluted 837,706 736,055 1,670,626
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED INCOME STATEMENT
(Unaudited)
For the Year Ended December 31, 1995
--------------------------------------------------------------
NationsBank
Pro Forma BankAmerica
NationsBank BankAmerica Adjustments Combined
----------- ----------- ----------- ----------
(Dollars in Millions, Except Per Share Amounts)
---------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $ 12,134 $ 12,760 $ -- $ 24,894
Interest and dividends on securities 1,844 1,276 -- 3,120
Federal funds sold and securities purchased under
agreements to resell 942 650 -- 1,592
Trading account securities 1,100 741 -- 1,841
Other interest income 166 466 -- 632
---------- -------- ------- ----------
Total interest income 16,186 15,893 -- 32,079
INTEREST EXPENSES
Deposits 4,274 4,923 -- 9,197
Borrowed funds 2,858 1,160 -- 4,018
Trading account liabilities 896 182 -- 1,078
Long-term debt 964 1,113 -- 2,077
--------- ------- ------ ---------
Total interest expenses 8,992 7,378 -- 16,370
--------- ------- ------ ---------
NET INTEREST INCOME 7,194 8,515 -- 15,709
Provision for credit losses 505 440 -- 945
--------- ------- ------ ---------
NET CREDIT INCOME 6,689 8,075 -- 14,764
Gains on sales of securities 34 34 -- 68
Noninterest income 3,787 4,459 -- 8,246
Foreclosed properties expense 30 18 -- 48
Merger and restructuring charge -- -- -- --
Noninterest expense 6,670 7,983 -- 14,653
--------- -------- ----- ---------
INCOME BEFORE INCOME TAXES 3,810 4,567 -- 8,377
Income tax expense 1,327 1,903 -- 3,230
--------- -------- ----- ---------
NET INCOME PREFERRED DIVIDENDS 2,483 2,664 -- 5,147
Preferred dividends 24 227 -- 251
--------- -------- ----- ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,459 $ 2,437 $ -- $ 4,896
========= ========= ===== =========
Basic earnings per share $ 3.18 $ 3.28 $ 3.03
========= ========= =========
Diluted earnings per share $ 3.10 $ 3.24 $ 2.98
========= ========= =========
Average common shares - Basic 773,799 741,963 1,613,404
========= ========= =========
Average common shares - Diluted 800,104 751,112 1,650,062
========= ========= =========
</TABLE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
(Shares in Thousands)
NOTE 1 - BASIS OF PRESENTATION
On April 10, 1998, NationsBank entered into an agreement and plan of
Reorganization with BankAmerica. The Reorganization will create a new
Delaware holding company called BankAmerica Corporation which will be
headquartered in Charlotte, North Carolina. Each outstanding share of
BankAmerica common stock will be converted into 1.1316 shares of the new holding
company's common stock and each share of NationsBank's common stock will be
converted into one share of the new company's common stock.
The unaudited Pro Forma Condensed Financial Information has been
prepared assuming that the Reorganization will be accounted for under the
pooling of interests method and is based on the historical consolidated
financial statements of NationsBank and BankAmerica. Certain amounts in the
historical financial statements of BankAmerica have been reclassified to
conform with NationsBank's historical financial statement presentation.
The pro forma adjustments represent management's best estimates based
on available information at this time. Actual adjustments will differ from those
reflected in the unaudited Pro Forma Condensed Financial Information.
NationsBank and BankAmerica are still in the process of reviewing their
respective accounting policies relative to those followed by the other entity.
As a result of this review, it may be necessary to restate certain amounts in
NationsBank's or BankAmerica's financial statements to conform to those
accounting policies that are most appropriate. In management's opinion, any such
restatements will not be material.
On January 9, 1998, NationsBank completed its merger with Barnett
Banks, Inc. (Barnett), headquartered in Jacksonville, Florida, resulting in the
issuance of approximately 233 million shares of NationsBank's common stock. The
transaction was accounted for under the pooling of interests method and
accordingly, the historical financial statements of NationsBank reflect the
merger with Barnett for all periods presented.
On January 7, 1997, NationsBank completed the acquisition of Boatmen's
Bancshares, Inc. (Boatmen's), headquartered in St. Louis, Missouri, resulting in
the issuance of approximately 195 million shares of NationsBank's common stock
valued at $9.4 billion and aggregate cash payments of $371 million to Boatmen's
shareholders. At the acquisition date, Boatmen's total assets and deposits were
approximately $41.2 billion and $32.0 billion, respectively. The acquisition was
accounted for under the purchase method of accounting and, accordingly, is
included in NationsBank's historical financial statements from the date of
acquisition.
<PAGE>
The unaudited Pro Forma Condensed Financial Information should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of each of NationsBank and BankAmerica. NationsBank's
historical financial statements, restated to give retroactive effect of the
merger of NationsBank with Barnett, are included in NationsBank's Current Report
on Form 8-K filed with the SEC on April 15, 1998. BankAmerica's historical
financial statements are incorporated by reference in its Annual Report on Form
10-K for the year ended December 31, 1997 as filed with the SEC on March 16,
1998. The unaudited Pro Forma Condensed Financial Statements should be read in
conjunction with the historical financial statements of NationsBank and
BankAmerica.
NOTE 2 - MERGER AND RESTRUCTURING ITEMS
In connection with the Reorganization, the combined company expects to
incur pre-tax merger and restructuring items of approximately $1.3 billion
($800 million after tax), which will include severance and change in control
expenses, conversion and related costs and occupancy and equipment expenses
(primarily lease exit costs and the elimination of duplicate facilities and
other capitalized assets), exit costs related to contract terminations and other
Reorganization costs (including legal and investment banking fees). The pro
forma adjustments represent management's best estimates based on available
information at this time. Actual adjustments will differ from those reflected
in the unaudited Pro Forma Condensed Financial Information.
NOTE 3 - DIVESTITURES
The combined company anticipates that, to comply with what the Federal
Reserve Board, the Department of Justice and certain state authorities may
require in connection with their review of the Reorganization, certain branches
of NationsBank and BankAmerica will need to be divested in various markets where
each of NationsBank and BankAmerica have a combined share of deposits. The
impact of anticipated branch divestitures on the combined company's financial
condition and results of operations is not expected to be material.
NOTE 4 - SHAREHOLDERS' EQUITY
In conjunction with the Reorganization, a new holding company will be
established called BankAmerica Corporation. Each outstanding share of
BankAmerica common stock will be converted into 1.1316 shares of the new holding
company's common stock and each share of NationsBank's common stock will be
converted into one share of the new company's common stock. NationsBank and
BankAmerica had 943,933 and 688,057 shares of common stock outstanding as of
December 31, 1997, respectively. The common stock in the Unaudited Pro Forma
Condensed Balance Sheet has been adjusted to reflect the reclassification of
BankAmerica's additional paid-in capital and treasury stock to conform to
NationsBank's presentation. Unaudited pro forma retained earnings reflects the
estimated adjustment for anticipated merger and restructuring costs as
described above.
<PAGE>
NOTE 5 - OPERATING COST SAVINGS
The combined company expects to achieve a certain level of cost savings
through the optimization of delivery systems, reduction of corporate overhead,
elimination of redundant staff functions, consolidation of business lines, data
processing and back office operations, infrastructure and vendor leverage and
the elimination of certain duplicate or excess facilities. No adjustment has
been included in the unaudited Pro Forma Condensed Financial Information for the
anticipated operating cost savings. There can be no assurance that anticipated
operating cost savings will be achieved in the expected amounts or at the times
anticipated.
(c) Exhibits.
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
99.1 Consolidated Financial
Statements of BankAmerica
Corporation and Report of
Ernst & Young LLP.
99.2 Consent of Ernst & Young LLP.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NationsBank Corporation
Registrant
Date: April 24, 1998 /s/ Marc D. Oken
----------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Shareholders and Board of Directors
BankAmerica Corporation
We have audited the accompanying consolidated balance sheet of BankAmerica
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of BankAmerica Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BankAmerica
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
- - ------------------------------
Ernst & Young LLP
San Francisco, California
January 20, 1998
55
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries Year Ended December 31
(dollar amounts in millions, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $13,872 $13,363 $12,707
Interest-bearing deposits in banks 415 453 466
Federal funds sold 41 29 32
Securities purchased under resale agreements 776 653 618
Trading account assets 1,230 1,001 741
Available-for-sale and held-to-maturity securities 1,123 1,160 1,276
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 17,457 16,659 15,840
INTEREST EXPENSE
Deposits 5,793 5,359 4,923
Federal funds purchased 64 79 131
Securities sold under repurchase agreements 810 695 581
Other short-term borrowings 1,099 883 630
Long-term debt 1,022 1,056 1,113
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,788 8,072 7,378
Net interest income 8,669 8,587 8,462
Provision for credit losses 950 885 440
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 7,719 7,702 8,022
NONINTEREST INCOME
Deposit account fees 1,447 1,399 1,303
Credit and other card fees 378 355 315
Trust fees 255 229 300
Other fees and commissions 1,781 1,383 1,269
Trading income 692 630 527
Private equity investment activities 510 427 337
Net gain on sales of loans 249 89 24
Net gain on sales of subsidiaries and operations 213 180 25
Net gain on available-for-sale securities 116 61 34
Gain on issuance of subsidiary's stock -- 147 --
Other income 487 512 412
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 6,128 5,412 4,546
NONINTEREST EXPENSE
Salaries 3,572 3,291 3,309
Employee benefits 708 773 718
Occupancy 753 757 738
Equipment 725 702 663
Professional services 398 344 313
Communications 379 363 359
Amortization of intangibles 358 373 428
Regulatory fees and related expenses 29 123 176
Restructuring charge -- 280 --
Other expense 1,599 1,335 1,297
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 8,521 8,341 8,001
Income before income taxes 5,326 4,773 4,567
Provision for income taxes 2,116 1,900 1,903
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,210 $ 2,873 $ 2,664
Net income applicable to common stock $ 3,110 $ 2,688 $ 2,437
Earnings per common share 4.45 3.72 3.28
Diluted earnings per common share 4.32 3.65 3.24
Dividends declared per common share 1.22 1.08 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
56
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries December 31
(dollar amounts in millions) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,280 $ 16,223
Interest-bearing deposits in banks 5,862 5,708
Federal funds sold 105 134
Securities purchased under resale agreements 9,774 7,275
Trading account assets 15,551 12,205
Available-for-sale securities 12,786 12,113
Held-to-maturity securities (market value: 1997 - $3,744; 1996 - $3,920) 3,667 4,138
Loans 167,111 165,415
Less: Allowance for credit losses 3,500 3,523
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 163,611 161,892
Customers' acceptance liability 3,561 2,861
Accrued interest receivable 1,570 1,441
Goodwill, net 3,822 3,938
Identifiable intangibles, net 1,374 1,616
Unrealized gains on off-balance-sheet instruments 10,929 7,682
Premises and equipment, net 3,880 3,987
Other assets 9,387 9,540
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 260,159 $ 250,753
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Interest-bearing $ 94,495 $ 84,133
Noninterest-bearing 33,704 39,694
Deposits in foreign offices:
Interest-bearing 42,326 42,732
Noninterest-bearing 1,512 1,456
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 172,037 168,015
Federal funds purchased 3,751 2,176
Securities sold under repurchase agreements 11,159 7,644
Other short-term borrowings 15,702 17,566
Acceptances outstanding 3,563 2,861
Accrued interest payable 978 879
Unrealized losses on off-balance-sheet instruments 10,502 7,633
Other liabilities 6,835 6,004
Long-term debt 13,922 15,785
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 238,449 228,563
Corporation obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely junior subordinated deferrable interest debentures of the
corporation (trust preferred securities) 1,873 1,477
STOCKHOLDERS' EQUITY
Preferred stock 614 2,242
Common stock, par value $1.5625 (authorized: 1997 and 1996 - 1,400,000,000 shares;
issued: 1997 - 774,697,520 shares; 1996 - 774,592,574 shares) 1,210 605
Additional paid-in capital 7,974 8,467
Retained earnings 13,726 11,500
Net unrealized gain on available-for-sale securities 137 32
Common stock in treasury, at cost (1997 - 86,640,661 shares; 1996 - 64,058,784 shares) (3,824) (2,133)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 19,837 20,713
Total Liabilities and Stockholders' Equity $ 260,159 $ 250,753
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
57
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries Year Ended December 31
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,210 $ 2,873 $ 2,664
Adjustments to net income to arrive at net cash provided (used) by operating activities:
Provision for credit losses 950 885 440
Net gain on sales of loans and subsidiaries and operations (462) (269) (49)
Depreciation and amortization 870 896 879
Provision for deferred income taxes 694 605 268
Change in assets and liabilities net of effects from acquisitions and pending dispositions:
(Increase) decrease in accrued interest receivable (129) 17 (9)
Increase in accrued interest payable 99 31 17
Increase in trading account assets (3,346) (2,689) (2,685)
Increase (decrease) in current income taxes payable 375 (29) 265
Deferred fees received from lending activities 170 240 142
Increase in loans held for sale (1,145) (622) (880)
Other, net (265) (2,981) 1,683
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 1,021 (1,043) 2,735
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales proceeds 1,968 1,985 2,509
Maturities, prepayments, and calls 4,992 5,805 5,722
Purchases (7,400) (7,661) (7,416)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls 911 1,111 2,514
Purchases (442) (632) (976)
Proceeds from loan sales and securitizations 9,834 5,776 1,982
Purchases of loans (690) (2,555) (1,711)
Purchases of premises and equipment (663) (665) (649)
Proceeds from sales of other real estate owned 330 432 525
Acquisitions, net of cash acquired (100) -- --
Net cash provided (used) by:
Loan originations and principal collections (11,186) (15,269) (14,429)
Interest-bearing deposits in banks 26 53 472
Federal funds sold 29 587 (81)
Securities purchased under resale agreements (2,499) (2,313) 297
Other, net 80 542 138
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (4,810) (12,804) (11,103)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,690 3,719 2,588
Principal payments and retirements of long-term debt and subordinated capital notes (3,139) (2,965) (2,652)
Net proceeds from issuance of trust preferred securities 396 1,477 --
Proceeds from issuance of common stock -- 83 151
Proceeds from issuance of treasury stock 223 99 --
Preferred stock redeemed (1,628) (391) (206)
Treasury stock purchased (2,039) (1,333) (926)
Common stock dividends (853) (780) (684)
Preferred stock dividends (100) (185) (227)
Net cash provided (used) by:
Deposits 4,022 7,580 6,100
Federal funds purchased 1,575 (2,984) 1,877
Securities sold under repurchase agreements 3,515 1,261 878
Other short-term borrowings (1,864) 9,939 2,282
Other, net (54) 216 (87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,744 15,736 9,094
Effect of exchange rate changes on cash and due from banks 102 22 8
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks (1,943) 1,911 734
Cash and due from banks at beginning of year 16,223 14,312 13,578
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at End of Year $14,280 $16,223 $14,312
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BankAmerica Corporation and Subsidiaries Year Ended December 31
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of year $ 2,242 $ 2,623 $ 3,068
Preferred stock redeemed (1,628) (381) (197)
Convertible preferred stock converted to common stock -- -- (248)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 614 2,242 2,623
COMMON STOCK
Balance, beginning of year 605 602 581
Common stock issued -- 3 21
Issuance of 387,314,462 shares of common stock to effect a two-for-one common stock split 605 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1,210 605 602
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 8,467 8,328 7,743
Common stock issued 29 142 594
Issuance of 387,314,462 shares of common stock to effect a two-for-one common stock split (605) -- --
Preferred stock redeemed -- (18) (9)
Treasury stock issued in excess of cost 83 15 --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 7,974 8,467 8,328
RETAINED EARNINGS
Balance, beginning of year 11,500 9,606 7,854
Net income 3,210 2,873 2,664
Common stock dividends (853) (780) (684)
Preferred stock dividends (100) (185) (227)
Foreign currency translation adjustments, net of related income taxes (31) (14) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 13,726 11,500 9,606
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
Balance, beginning of year 32 1 (326)
Valuation adjustments, net of related income taxes 105 31 327
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 137 32 1
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of year (2,133) (938) (29)
Treasury stock purchased (2,025) (1,351) (926)
Treasury stock issued 362 173 29
Other (28) (17) (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (3,824) (2,133) (938)
Total Stockholders' Equity $ 19,837 $ 20,713 $ 20,222
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
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BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
1 Significant Accounting Policies
The consolidated financial statements of BankAmerica Corporation and
subsidiaries (BAC) are prepared in conformity with generally accepted accounting
principles and prevailing practices of the banking industry. The statements also
reflect specialized industry accounting practices of certain nonbanking
subsidiaries that may differ from those used by banking subsidiaries. The
following is a summary of the significant accounting and reporting policies used
in preparing the consolidated financial statements.
Financial Statement Presentation
The consolidated financial statements of BAC include the accounts of BankAmerica
Corporation (the parent) and companies in which more than 50 percent of the
voting stock is owned directly or indirectly by the parent, including Bank of
America NT&SA (the bank), and other banking and nonbanking subsidiaries. The
revenues, expenses, assets, and liabilities of the subsidiaries are included in
the respective line items in the consolidated financial statements after
elimination of intercompany accounts and transactions.
The consolidated statement of cash flows depicts the change in cash and due from
banks as disclosed in the consolidated balance sheet. Cash flows from hedging
transactions are classified in the same category as the cash flows from the
items being hedged.
Certain amounts in prior periods have been reclassified to conform to the
presentation in the current year. Additionally, as explained in Note 18 on page
72, all references to the number of common shares and per common share amounts
have been restated to reflect the effects of a stock split effective June 2,
1997.
Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements of BAC requires
management to make estimates and assumptions that affect reported amounts. These
estimates are based on information available as of the date of the financial
statements. Therefore, actual results could differ from those estimates.
Trading Account Assets
Trading account assets, which are generally held for the short term in
anticipation of market gains and resale, are carried at their fair values.
Realized and unrealized gains and losses on trading account assets are included
in trading income.
Available-for-Sale and Held-to-Maturity Securities
BAC's securities portfolios include U.S. Treasury and other government agency
securities, mortgage-backed securities, state, county, municipal, and foreign
government securities, equity securities and corporate debt securities.
Debt securities for which BAC has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. Debt
securities that BAC may not hold to maturity and marketable equity securities
are classified as available-for-sale securities unless they are considered to be
part of trading-related activities. Available-for-sale securities are reported
at their fair values, with unrealized gains and losses included on a net-of-tax
basis as a separate component of stockholders' equity. Securities for which no
market values were available are stated at cost.
Dividend and interest income, including amortization of premiums and accretion
of discounts, for both securities portfolios are included in interest income.
Realized gains and losses generated from sales of available-for-sale securities
are recorded in net gain on available-for-sale securities and are computed using
the specific identification method. Any decision to sell available-for-sale
securities is based on various factors, including movements in interest rates,
changes in the maturity mix of assets and liabilities, liquidity demands,
regulatory capital considerations, or other similar factors.
Loans
Loans are generally carried at the principal amount outstanding net of unearned
discounts. Interest income on discounted loans is generally recognized using
methods that approximate the interest method, which provides a level rate of
return over a loan's term.
Loans, other than those originated or acquired with the intent to sell, may be
sold prior to maturity due to various economic factors, including significant
movements in interest rates, changes in the maturity mix of assets and
liabilities, liquidity demands, regulatory capital considerations, or other
similar factors. All loans that are held for sale are recorded at the lower of
cost or fair value. The fair value of loans held for sale represents the cash
price anticipated to be received for the loans in a current sale.
Loans are generally placed on nonaccrual status when full payment of principal
or interest is in doubt, or when they are past due 90 days as to either
principal or interest. During the fourth quarter of 1996, BAC changed the past
due period for nonaccrual residential real estate loans and consumer loans that
are collateralized by junior mortgages on residential real estate from 180 days
to 90 days. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. If management determines that
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BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
ultimate collectibility of principal is in doubt, cash receipts on nonaccrual
loans are applied to reduce the principal balance. Senior management may grant a
waiver from nonaccrual status if a past due loan is well secured and in the
process of collection. A nonaccrual loan may be restored to accrual status when
all principal and interest amounts contractually due, including arrearages, are
reasonably assured of repayment within a reasonable period, and there has been a
sustained period of payment performance by the borrower in accordance with the
contractual terms of the loan.
BAC provides equipment financing to its customers through a variety of lease
arrangements. Direct financing leases are carried at the aggregate of lease
payments receivable plus estimated residual value of the leased property, less
unearned income. Unearned income on direct financing leases is amortized over
the lease terms by methods that approximate the interest method. Leveraged
leases, which are a form of financing lease, are carried net of nonrecourse
debt. Unearned income on leveraged leases is amortized over the lease terms by
methods that approximate the interest method.
Allowance for Credit Losses
The allowance for credit losses is a reserve for estimated credit losses and
other credit-related charges. Actual credit losses and other charges, net of
recoveries, are deducted from the allowance for credit losses. Other charges to
the allowance include amounts related to loans of subsidiaries and operations
sold and to loans which were either sold or transferred to other assets pending
disposition. A provision for credit losses, which is a charge against earnings,
is added to the allowance based on a quarterly assessment of the portfolio.
While management has attributed reserves to various portfolio segments, the
allowance is general in nature and is available for the credit portfolio in its
entirety.
BAC generally evaluates a loan for impairment when it is placed on nonaccrual
status and all or a portion is internally risk rated as substandard or doubtful.
BAC measures impairment of loans when it is probable that all amounts, including
principal and interest, will not be collected in accordance with the contractual
terms of the loan agreement. The amount of impairment and any subsequent changes
are recorded as a change in the allocation of the allowance for credit losses.
Substantially all of BAC's impaired loans are on nonaccrual status.
BAC uses one of three methods to measure loan impairment depending on the
circumstances surrounding the loan; present value of a loan's expected future
cash flows, fair value of the collateral, or the loan's observable market value.
The present value of a loan's expected future cash flows is the most widely used
method and is calculated using the loan's effective interest rate based on the
original contractual terms. When foreclosure or liquidation is probable or when
the primary source of repayment is provided by real estate collateral,
impairment is measured based upon the fair value of the collateral less
estimated selling and disposal costs. When quoted market prices are available,
impairment is based on the loan's observable market value less estimated selling
and disposal costs.
Premises and Equipment
Premises, equipment, and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed on a straight-line basis over
the estimated useful lives of the respective assets or the terms of the leases.
Net gains and losses on disposal or retirement of premises and equipment are
included in other income.
Other Real Estate Owned
Other real estate owned (OREO), which is recorded in other assets, includes
properties acquired through foreclosure or in full or partial satisfaction of
the related loan, former premises no longer used in business operations, and
properties that are nonperforming acquisition, development, and construction
arrangements. OREO also includes loans where BAC has obtained physical
possession of the related collateral.
OREO is carried at the lower of fair value, net of estimated selling and
disposal costs, or cost. Fair value adjustments are made at the time that real
estate is acquired through foreclosure or when full or partial satisfaction of
the related loan is received. These fair value adjustments are treated as credit
losses. Changes in estimated selling and disposal costs, routine holding costs,
subsequent declines in fair values, and net gains or losses on disposal of
properties classified as OREO are included in other expense as incurred.
Goodwill and Identifiable Intangibles
Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets associated with BAC's merger and acquisition
transactions. Goodwill is amortized on a straight-line basis generally over 25
years.
Core deposit intangibles (CDI) represent the intangible value of depositor
relationships resulting from deposit liabilities assumed in acquisitions and are
amortized using an accelerated method based on the expected runoff of the
related deposits.
Other identifiable intangibles consist primarily of credit card intangibles
(CCI), which represents the intangible value of credit card customer
relationships resulting from customer balances acquired. Other identifiable
intangibles are amortized using accelerated methods over their estimated periods
of benefit.
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Goodwill and identifiable intangibles are assessed quarterly for other-than-
temporary impairment. Should such an assessment indicate that the value of
goodwill may be impaired, an evaluation of the recoverability would be performed
prior to any writedown of the assets. If the net book value of identifiable
intangibles were to exceed their respective undiscounted future net cash flows,
identifiable intangibles would be written down to their respective undiscounted
future net cash flows.
Mortgage Servicing Assets
Mortgage servicing assets (MSA) are capitalized when acquired either through the
purchase or origination of mortgage loans that are subsequently sold or
securitized with the servicing rights retained. The capitalized MSA are
assessed, on a periodic basis, for impairment based on the fair value of those
rights. For this analysis, the MSA are stratified based on one or more
predominant risk characteristics and any resulting impairment is recognized
through a valuation allowance for each impaired stratum. For purposes of
measuring impairment, BAC stratifies its MSA by loan type, investor type, and
interest rate to reflect the predominant risk characteristics. BAC then uses a
fair valuation model which incorporates assumptions used by market participants
in estimating future net servicing income based on estimates of the cost of
servicing per loan, the discount rate, float value, an inflation rate, ancillary
income per loan, prepayment speeds and default rates.
MSA are included in other assets and are amortized as an offset to other fees
and commissions in proportion to and over the period of estimated net servicing
income. The accounting for MSA is in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS No. 125), which BAC
adopted in 1997. The adoption of SFAS No. 125 did not have a material effect on
BAC's financial position or results of operations.
Investments in Affiliates, Joint Ventures, and Other Entities
Investments in affiliates, joint ventures, and other entities are recorded in
other assets. Investments in affiliates, which are generally 20- to
50-percent-owned companies, and joint ventures are generally accounted for by
the equity method. BAC's share of net income or loss from these investments is
recorded in other income. Gains or losses resulting from issuances of stock by
equity affiliates that change BAC's percentage of ownership are recognized at
the issue date and are also recorded in other income. Dividends are recorded as
a reduction of the carrying value of the investment when received.
Investments in other entities (less than 20-percent-owned companies) that are
not represented by marketable securities are generally carried at cost less
writedowns for declines in value that are judged to be other than temporary.
These valuation losses are recorded in other income when identified. Dividends
are recorded in other income when received.
Derivative Financial Instruments
BAC uses interest rate, foreign exchange, equity, and credit derivative
financial instruments in both its trading and asset and liability management
activities. BAC uses derivative commodity instruments solely in its trading
activities. At December 31, 1997, BAC's notional amounts for credit derivative
financial instruments were not material.
TRADING ACTIVITIES
Interest rate derivative financial instruments used in BAC's trading activities
consist primarily of swaps and options. Foreign exchange financial instruments
include spot, futures, forward, swap, and option contracts. Credit derivative
financial instruments include credit default swaps and total rate of return
swaps. Commodity derivative financial instruments include commodity futures,
forwards, swaps, and options. All derivative financial instruments used in
trading activities are carried at fair value. Fair value for these instruments
is determined based on readily available market prices or by using pricing
models where no market price is available. Any realized and unrealized gains and
losses resulting from adjusting these instruments to fair value are recognized
immediately in trading income.
Interest rate, foreign exchange, credit, and commodity derivative financial
instruments used for trading activities, and their related gains and losses, are
reported in the consolidated balance sheet in unrealized gains (losses) on
off-balance-sheet instruments, in the consolidated statement of operations in
trading income, and in the consolidated statement of cash flows in cash flows
from operating activities. However, unrealized gains and losses with the same
counterparty are netted on the balance sheet to the extent allowed when
contracts are executed under legally enforceable master netting agreements.
ASSET AND LIABILITY MANAGEMENT ACTIVITIES
BAC uses various types of derivative financial instruments to manage its
interest rate and foreign currency exposures through specific strategies that
involve the hedging of future cash flows or of market values. When hedging
future cash flow exposures, the accrual method of accounting is used. Under the
accrual method, each net payment due to or owed under the derivative financial
instrument is recognized in net income during the period to which the
payment/receipt relates; there is no recognition on the balance sheet for
changes in the derivative's fair value. When hedging market value exposures, BAC
uses the deferral or fair value methods.
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CONSOLIDATED FINANCIAL STATEMENTS
Under the deferral method, gains or losses from the derivative financial
instrument are deferred on the balance sheet and recognized in net income in
conjunction with the recognition of the hedged item. Under the fair value
method, the derivative financial instrument is carried on the balance sheet at
fair value with changes in that value recognized in net income or stockholders'
equity in conjunction with the designated hedged item.
Hedge criteria include demonstrating how the hedge will reduce risk, identifying
the asset, liability, firm commitment, or anticipated transaction being hedged,
and citing the time horizon being hedged.
Deferral Method
BAC uses the deferral method when the carrying value of the hedged item is other
than fair value and the market value of the hedging instrument fulfills the
objectives of the hedge strategy.
INTEREST RATE CONTRACTS -- BAC accounts for futures and forward rate agreements
using the deferral method. Under the deferral method, risk reduction is assessed
at the enterprise level. For interest rate futures, hedge effectiveness is
assessed at the inception of the hedge and on an ongoing basis. There must be a
clear economic relationship between the price of the hedged item and the futures
contract and a high level of correlation between these prices during relevant
prior periods. If a high level of correlation is not being achieved on an
ongoing basis, hedge accounting will be terminated. For forward rate agreements,
hedge effectiveness at the inception of the hedge and on an ongoing basis is
assessed by matching the basis and terms of the hedging instruments with those
of the underlying exposure.
Deferred gains and losses on interest rate contracts used for hedging are
reported as adjustments to the carrying values of the hedged loans, deposits,
and long-term debt. The amortization of deferred gains and losses is reported in
the corresponding interest income and interest expense accounts. Initial margin
deposits related to exchange-traded instruments are reported in other assets.
BAC hedges anticipated transactions involving the replacement of deposits with
interest-bearing deposits using interest rate futures contracts. Realized and
unrealized gains and losses on these transactions are deferred and included in
the measurement of the subsequent transaction. For a hedge of an anticipated
transaction to qualify for hedge accounting, it must be probable that the
transaction will occur and the significant characteristics and expected terms of
the transaction must be identified.
FOREIGN EXCHANGE CONTRACTS -- To qualify for hedge accounting, a foreign
exchange contract must reduce risk at the level of the specific transaction.
Realized and unrealized gains and losses on instruments that hedge firm
commitments are deferred and included in the measurement of the subsequent
transaction; however, losses are deferred only to the extent of expected gains
on the future commitment. Realized and unrealized gains and losses on
instruments that hedge net capital exposure are recorded in stockholders' equity
as foreign currency translation adjustments.
Accrual Method
BAC uses the accrual method when the cash flows generated from the hedging
instrument fulfill the objectives of the hedge strategy. Under the accrual
method, interest income or expense on the hedging instrument is accrued and
recorded as an adjustment to the interest income or expense related to the
hedged item.
BAC accounts for certain interest rate swaps and purchased interest rate option
contracts (caps and floors) using the accrual method. Each of these hedging
instruments must reduce risk at the level of the specific transaction with
effectiveness expected at the inception of the hedge and on an ongoing basis.
For each of these hedging instruments, hedge effectiveness is assessed by
matching the basis and terms of the hedging instruments with those of the
underlying exposure. If a high level of correlation is not being achieved, hedge
accounting will be terminated.
Interest income or expense on derivative financial instruments accounted for
using the accrual accounting method is reported in interest income -- loans,
interest expense -- deposits, and interest expense -- long-term debt. Premiums
paid for interest rate options are deferred as a prepaid expense and are
amortized to interest income over the term of the option.
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CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Method
BAC uses the fair value method when the market value of the hedging instrument
fulfills the objectives of the hedge strategy, and the carrying value of the
hedged item is fair value. Market value for these instruments is determined
based on readily available market prices or by using pricing models where no
market price is available. Under the fair value method, realized and unrealized
gains and losses on both the hedged item and hedging instrument are recognized
throughout the period. Realized and unrealized gains and losses on the hedging
instrument are reflected in the same line as the hedged item.
BAC accounts for certain interest rate swaps and purchased equity option
contracts designated as hedges of available-for-sale debt and equity securities,
respectively, using the fair value method. Each of these hedging instruments
must reduce risk at the level of the specific transaction, with effectiveness
expected at the inception of the hedge and on an ongoing basis. There must be a
clear economic relationship between the price of the available-for-sale security
and the interest rate swap or equity instrument underlying the purchased equity
option contract as well as a high level of correlation between these prices
during relevant prior periods. If a high level of correlation is not being
achieved, hedge accounting will be terminated. Changes in the market values of
the interest rate swaps, exclusive of net interest accruals, are reported in
stockholders' equity on a net-of-tax basis. The accrual of interest payable and
interest receivable on the interest rate swaps is reported in interest income --
available-for-sale securities. Changes in the market values of the purchased
equity options, exclusive of the time value of the option, are reported in
stockholders' equity on a net-of-tax basis. The time values of the options are
deferred as a prepaid expense and are amortized to interest income for
available-for-sale securities over the term of the option.
The following policies are followed for all derivative financial instruments
qualifying for hedge accounting treatment. If at any time a derivative financial
instrument no longer qualifies for hedge accounting treatment, it must be
adjusted to fair value on a prospective basis and any deferred gain or loss
associated with the hedging instrument is amortized over the original hedge
period. When an anticipated transaction is no longer likely to occur, any
deferred gain or loss associated with the hedging instrument is recognized
immediately in the income or expense account related to the hedged item. If the
item being hedged matures or is sold, extinguished, or terminated, hedge
accounting is terminated. In this situation, any deferred gain or loss
associated with the hedging instrument is treated as part of the carrying value
of the item being hedged and, therefore, considered in calculating the gain or
loss on the matured, sold, extinguished, or terminated item. If the related
derivative contract is not terminated, it must be accounted for at market value
on a prospective basis.
Foreign Currency Translation
Assets, liabilities, and operations of foreign branches and subsidiaries are
recorded based on the functional currency of each entity. For the majority of
the foreign operations, the functional currency is the local currency, in which
case the assets, liabilities, and operations are translated, for consolidation
purposes, at current exchange rates from the local currency to the reporting
currency, the U.S. dollar. The resulting gains or losses are reported as a
component of retained earnings within stockholders' equity on a net-of-tax
basis. When the foreign entity is not a free-standing operation or is in a
hyperinflationary economy, the functional currency used to measure the financial
statements of a foreign entity is the U.S. dollar. In these instances, the
resulting gains and losses are included in other income.
Provision for Income Taxes
The parent files a consolidated U.S. federal income tax return and consolidated
or combined returns for certain states, including California. State, local, and
foreign income tax returns are filed according to the taxable activity of each
unit.
The liability method of accounting is used for income taxes. Under the liability
method, deferred tax assets and liabilities are recognized for the expected
future tax consequences of existing differences between financial reporting and
tax reporting bases of assets and liabilities, as well as for operating losses
and tax credit carryforwards, using enacted tax laws and rates. Deferred tax
expense represents the net change in the deferred tax asset or liability balance
during the year. This amount, together with income taxes currently payable or
refundable for the current year, represents the total income tax expense for the
year.
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CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Employee Compensation Plans
BAC accounts for compensation expense related to stock-based compensation plans
using the intrinsic value method. Under the intrinsic value method, compensation
expense is determined based on the excess, if any, of the market prices of BAC's
common stock at the measurement dates over the exercise prices of the awards
under those plans.
Earnings per Common Share
Effective December 15, 1997, BAC adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 establishes
new requirements for computing and presenting earnings per share. Under the new
requirements, the method previously used to compute earnings per share is
changed and all prior periods presented must be restated to conform to meet the
new requirements. The new requirements eliminate primary earnings per share and
earnings per common share, assuming full dilution, and require the presentation
of earnings per common share and diluted earnings per common share. As a result,
under the new requirements, earnings per common share excludes any dilutive
effect of stock options and warrants. Also, the dilutive effect of stock options
and warrants used to compute diluted earnings per common share is based on the
average market price of BAC's common stock for the period.
2 Nature of Operations
BAC, through its subsidiaries, provides 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. BAC segregates its operations into five major business sectors --
Consumer Banking, U.S. Corporate and International Banking, Middle Market
Banking, Commercial Real Estate Services, and Wealth Management, ranked, for the
purpose of the following discussion, in order of their contribution to net
income in 1997.
Consumer Banking provides a full array of deposit and loan products to
individuals and small businesses through traditional and in-store branches,
ATMs, telephones, personal computers, and other delivery channels throughout
nine western states. It also provides credit card, home mortgage, manufactured
housing financing, and consumer financing products throughout the U.S., and a
range of consumer banking products and services in Hong Kong, Macau, India,
Taiwan, Singapore, and the Philippines.
U.S. Corporate and International Banking provides credit and capital-raising
services, trade finance, cash management, investment banking, capital markets
products, and financial advisory services to large public- and private-sector
institutions that are part of the global economy. It has offices in the U.S. and
37 other countries and territories in North and South America, Asia, Europe,
Africa, and the Middle East.
Middle Market Banking provides a full range of financial products and services
throughout the West and the Midwest to businesses with annual revenues between
$5 million and $500 million.
Commercial Real Estate Services provides credit and other financial services to
a variety of real estate market segments, including developers, investors,
pension fund advisors, real estate investment trusts, and property managers.
Regional clients are served throughout California and in eight other states.
National clients, such as publicly traded corporations and private entities, are
served through offices in California.
Wealth Management encompasses a number of strategically significant businesses
serving individuals and institutions with sophisticated financial planning and
management needs. The range of capabilities represented in Wealth Management
include institutional investment management supporting BAC's corporate and
commercial banking relationships, private banking, investment management, and
trust services for high-net-worth clients both in the U.S. and internationally.
3 Supplemental Disclosure of Cash Flow Information
During the years ended December 31, 1997, 1996, and 1995, BAC made interest
payments on deposits and other interest-bearing liabilities of $8,689 million,
$8,039 million, and $7,361 million, respectively, and made income tax payments
of $1,114 million, $1,324 million, and $1,342 million, respectively.
During the years ended December 31, 1997, 1996, and 1995, there were
foreclosures of loans with carrying values of $219 million, $360 million, and
$520 million, respectively. Loans made to facilitate the sale of OREO totaled
$12 million, and $8 million during the years ended December 31, 1996, and 1995,
respectively.
65
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
4 Acquisition
On October 1, 1997, BAC acquired Robertson, Stephens & Company Group, L.L.C.
(Robertson Stephens), a San Francisco-based investment banking and investment
management firm. The acquisition involved a cash transaction consisting of an
initial payment of $245 million to the equity-owning partners of Robertson
Stephens, up to $225 million of compensation over a three-year period to certain
Robertson Stephens equity-owning partners, subject to continued employment, and
up to $70 million to be distributed from a cash retention pool as compensation
in the form of awards vesting over a four-year period. The acquisition was
accounted for by the purchase method of accounting.
5 Restrictions on Cash and Due from Banks
BAC's banking subsidiaries are required to maintain reserves with the Federal
Reserve Bank. Reserve requirements are based on a percentage of deposit
liabilities. The average reserves required for 1997 and 1996 were $2,920 million
and $3,740 million, respectively.
6 Securities Purchased Under Resale Agreements and Securities Sold Under
Repurchase Agreements
BAC enters into purchases and sales of securities, primarily U.S. government and
federal agency, under agreements to resell and repurchase substantially
identical securities. In 1997, the yearly averages of securities purchased under
resale agreements and securities sold under repurchase agreements, based on
daily balances, were $10 billion and $11.6 billion, respectively, and the
maximum amounts outstanding at any month end during the year were $13.2 billion
and $15.1 billion, respectively.
During 1997, the underlying securities purchased under resale agreements were
delivered into BAC's account at the Federal Reserve Bank of San Francisco or
into a third-party custodian's account that recognizes BAC's rights and interest
in these securities.
7 Available-For-Sale and Held-to-Maturity Securities and Trading Activities
The following is a summary of available-for-sale and held-to- maturity
securities:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Available-for-Sale Securities
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(in millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury and other government
agency securities $ 1,435 $ 33 $ 2 $ 1,466
Mortgage-backed securities 7,359 151 3 7,507
Foreign governments 1,930 3 78 1,855
Equity securities 330 114 10 434
Corporate and other debt securities 1,503 22 1 1,524
- ------------------------------------------------------------------------------------------
$12,557 $ 323 $ 94 $12,786
DECEMBER 31, 1996
U.S. Treasury and other government
agency securities $ 1,505 $ 6 $ 17 $ 1,494
Mortgage-backed securities 6,591 70 39 6,622
Foreign governments 2,365 36 132 2,269
Equity securities 177 121 1 297
Corporate and other debt securities 1,421 13 3 1,431
- ------------------------------------------------------------------------------------------
$12,059 $ 246 $ 192 $12,113
- ------------------------------------------------------------------------------------------
<CAPTION>
Held-to-Maturity Securities
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(in millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury and other government
agency securities $ 16 $ -- $ -- $ 16
Mortgage-backed securities 1,877 41 2 1,916
State, county, and municipal securities 306 13 1 318
Foreign governments 1,105 51 35 1,121
Corporate and other debt securities 363 18 8 373
- ------------------------------------------------------------------------------------------
$3,667 $ 123 $ 46 $3,744
DECEMBER 31, 1996
U.S. Treasury and other government
agency securities $ 19 $ -- $ -- $ 19
Mortgage-backed securities 2,163 31 15 2,179
State, county, and municipal securities 423 14 6 431
Foreign governments 1,160 9 261 908
Corporate and other debt securities 373 21 11 383
- ------------------------------------------------------------------------------------------
$4,138 $ 75 $ 293 $3,920
- ------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
During the years ended December 31, 1997, 1996 and 1995, BAC sold available-for-
sale securities for aggregate proceeds of $1,968 million, $1,985 million, and
$2,509 million, respectively. These sales resulted in gross realized gains of
$127 million, $91 million, and $268 million, and gross realized losses of $11
million, $30 million, and $234 million in 1997, 1996, and 1995, respectively.
The following is a summary of the contractual maturities of available-for-sale
debt securities at December 31, 1997. These amounts exclude equity securities,
which have no contractual maturities:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized Fair
(in millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,275 $ 1,289
Due after one year through five years 718 713
Due after five years through ten years 2,015 2,057
Due after ten years 8,219 8,293
- --------------------------------------------------------------------------------
$ 12,227 $ 12,352
</TABLE>
- --------------------------------------------------------------------------------
The following is a summary of the contractual maturities of held-to-maturity
securities at December 31, 1997:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized Fair
(in millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 295 $ 296
Due after one year through five years 285 290
Due after five years through ten years 830 855
Due after ten years 2,257 2,303
- --------------------------------------------------------------------------------
$ 3,667 $ 3,744
</TABLE>
- --------------------------------------------------------------------------------
Certain securities, such as mortgage-backed securities, may not become due at a
single maturity date. Those mortgage-backed securities with no specified
maturities are included as having contractual maturities of greater than ten
years for purposes of the tables above. Issuers may have the right to call or
prepay obligations with or without call or prepayment penalties. This right may
cause actual maturities to differ from the contractual maturities presented in
the summaries above.
Certain assets were pledged to collateralize U.S. government and public
deposits, trust and other deposits, and repurchase agreements. These assets,
primarily trading, available-for-sale, and held-to-maturity securities, had
carrying values of $15,052 million and $11,477 million at December 31, 1997 and
1996, respectively.
During the year ended December 31, 1997, trading income included a net
unrealized holding loss of $15 million. For the years ended December 31, 1996
and 1995, trading income included net unrealized holding gains on trading
securities of $1 million and $37 million, respectively. These amounts exclude
the net unrealized trading results of the parent's securities
broker/dealer subsidiary (Section 20 subsidiary).
During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed financial statement preparers a one-time opportunity to reassess the
classifications of securities accounted for under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As a result of this reassessment, BAC reclassified $2.1
billion of held-to-maturity securities to available-for-sale securities. In
connection with this reclassification, gross unrealized gains of $28 million and
gross unrealized losses of $42 million were recorded in available-for-sale
securities and in stockholders' equity (on a net-of-tax basis).
8 Other Debt Restructurings
Restructured loans as described in Note 9 of the Notes to Consolidated Financial
Statements on the following page exclude other debt restructurings totaling
$1,384 million and $1,685 million at December 31, 1997 and 1996, respectively,
with countries that were experiencing liquidity problems at the time of
restructuring. These amounts include securities and loans received in connection
with formal debt restructurings. The majority of these instruments are
classified as either available-for-sale or held-to-maturity securities.
Included in other debt restructurings at December 31, 1997 and 1996, were $1,228
million and $1,456 million, respectively, of par bonds issued by the governments
of Mexico and Venezuela in 1990, and the government of Uruguay in 1991. The face
values of these par bonds at December 31, 1997 and 1996 were $1,494 million and
$1,607 million, respectively. The majority of the Mexican par bonds have a fixed
annual interest rate of 6.25 percent, and the Venezuelan and Uruguayan par bonds
both have fixed annual interest rates of 6.75 percent. The principal of all of
these par bonds is collateralized by zero-coupon U.S. Treasury securities, which
at maturity, will have redemption values equal to the face values of the par
bonds. The market value of the par bonds totaled $1,260 million at December 31,
1997. The fair value of the U.S. Treasury securities collateralizing the
principal of the par bonds totaled $394 million at December 31, 1997.
Also included in the aggregate other debt restructurings discussed above were
$156 million and $229 million at December 31, 1997 and 1996, respectively,
related to other restructuring transactions with borrowers in Venezuela, Poland,
the Philippines, Mexico, Brazil, Ecuador and Panama.
Interest income foregone on these other debt restructurings was not significant
in 1997 or 1996.
67
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
9 Loans
Loans are presented net of unearned income of $2,534 million and $1,636 million
at December 31, 1997 and 1996, respectively.
The following is a summary of loans:
- --------------------------------------------------------------------------------
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
DOMESTIC
Consumer:
Residential first mortgages $ 31,749 $ 37,459
Residential junior mortgages 14,847 14,743
Other installment 18,418 16,979
Credit card 6,697 8,707
Other individual lines of credit 1,937 1,948
Other 461 401
- --------------------------------------------------------------------------------
74,109 80,237
Commercial:
Commercial and industrial 36,602 33,404
Loans secured by real estate 12,897 12,488
Financial institutions 3,485 3,109
Lease financing 2,892 2,542
Loans for purchasing or carrying securities 2,668 1,941
Construction and development loans
secured by real estate 2,206 2,252
Agricultural 1,824 1,696
Other 1,896 1,270
- --------------------------------------------------------------------------------
64,470 58,702
138,579 138,939
FOREIGN
Commercial and industrial 18,484 16,394
Banks and other financial institutions 3,904 3,958
Governments and official institutions 840 970
Other 5,304 5,154
- --------------------------------------------------------------------------------
28,532 26,476
$167,111 $165,415
- --------------------------------------------------------------------------------
The following is a summary of loans considered to be impaired and the related
interest income:
- --------------------------------------------------------------------------------
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
Recorded investment in impaired loans
not requiring an allowance for credit losses/a/ $259 $ 412
Recorded investment in impaired loans requiring
an allowance for credit losses 480 439
- --------------------------------------------------------------------------------
Total recorded investment in impaired loans/b/ $739 $ 851
- --------------------------------------------------------------------------------
December 31
1997 1996 1995
- --------------------------------------------------------------------------------
Average recorded investment in impaired loans $760 $1,120 $1,361
Interest income recognized/c/ 50 50 80
- --------------------------------------------------------------------------------
/a/ These loans do not require an allowance for credit losses since the values
of the impaired loans equal or exceed the recorded investments in the loans.
/b/ These amounts were evaluated using the following measurement methods: For
1997, $363 million was evaluated using the present value of the loan's
expected future cash flows and $376 million using the fair value of the
collateral. For 1996, $403 million was evaluated using the present value of
the loan's expected future cash flows, $422 million using the fair value of
the collateral, and $26 million using the loan's observable market value.
/c/ All interest income recognized on these loans is recorded when cash is
received.
Restructured loans, excluding the other debt restructurings described in Note 8
of the Notes to Consolidated Financial Statements on page 67, were $274 million
and $302 million at December 31, 1997 and 1996, respectively. Interest income
foregone on these loans was not significant in 1997 or 1996.
Previously restructured loans of $40 million and $29 million were on nonaccrual
status at December 31, 1997 and 1996, respectively.
10 Allowance for Credit Losses
The following is a summary of changes in the allowance for credit losses. This
reconciliation reflects activity related to all loans. The allowance for credit
losses on impaired loans was $81 million at December 31, 1997.
- --------------------------------------------------------------------------------
Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Balance, beginning of year $3,523 $3,554 $3,690
Credit losses 1,305 1,325 1,011
Credit loss recoveries 404 407 422
- --------------------------------------------------------------------------------
Net credit losses 901 918 589
Provision for credit losses 950 885 440
Other net additions (deductions) (72)/a/ 2 13
- --------------------------------------------------------------------------------
Balance, End of Year $3,500 $3,523 $3,554
- --------------------------------------------------------------------------------
/a/ Includes allowance for credit losses associated with the sale of SPFS and
Bank of America Hawaii of $60 million and $8 million, respectively.
68
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
11 Premises and Equipment
The following is a summary of premises and equipment:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Premises, including capitalized leases $2,790 $3,060
Equipment and furniture, including capitalized leases 3,210 3,072
Leasehold improvements 1,228 888
Land 466 489
- --------------------------------------------------------------------------------
7,694 7,509
Less: Accumulated depreciation and amortization 3,814 3,522
- --------------------------------------------------------------------------------
$3,880 $3,987
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1997,
1996, and 1995 was $586 million, $593 million, and $552 million, respectively.
12 Deposits
The aggregate amount of time deposit accounts exceeding $100,000, was
approximately $46,686 million and $50,182 million at December 31, 1997 and 1996,
respectively.
At December 31, 1997, the scheduled maturities for time deposits were as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions)
- --------------------------------------------------------------------------------
<S> <C>
Due in 1998 $63,662
Due in 1999 2,812
Due in 2000 1,286
Due in 2001 520
Due in 2002 481
Thereafter 264
- --------------------------------------------------------------------------------
$69,025
</TABLE>
- --------------------------------------------------------------------------------
13 Long-Term Debt
The following is a summary of long-term debt. The maturity distribution is based
upon contractual maturities or earlier dates due to call notices issued.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------------------------------------------
Various Various
Fixed-Rate Floating-Rate
Debt Debt
(in millions) Obligations Obligations Total Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PARENT
Senior Debt:
Due in 1997 $ -- $ -- $ -- $1,692
Due in 1998 219 133 352 352
Due in 1999 215 392 607 1,960
Due in 2000 16 1,580 1,596 1,596
Due in 2001 718 932 1,650 1,650
Due in 2002 109 706 815 316
Thereafter 205 291 496 502
- --------------------------------------------------------------------------------
1,482 4,034 5,516 8,068
Subordinated Debt:
Due in 1998 52 -- 52 53
Due in 2000 417 -- 417 419
Due in 2001 776 30 806 812
Due in 2002 1,837 26 1,863 1,860
Thereafter 3,587 323 3,910 3,015
- --------------------------------------------------------------------------------
6,669 379 7,048 6,159
Total parent 8,151 4,413 12,564 14,227
SUBSIDIARIES
Senior Debt:
Due in 1997 -- -- -- 15
Due in 1998 223 42 265 213
Due in 1999 3 -- 3 --
Due in 2000 -- 79 79 84
Due in 2001 -- -- -- 420
Due in 2002 142 -- 142 --
Thereafter 28 47 75 9
- --------------------------------------------------------------------------------
396 168 564 741
Subordinated Debt:
Due in 1997 -- -- -- 19
Due in 1998 10 -- 10 10
Due in 1999 11 -- 11 11
Due in 2000 12 -- 12 12
Due in 2001 308 -- 308 309
Thereafter 100 -- 100 101
- --------------------------------------------------------------------------------
441 -- 441 462
Total subsidiaries 837 168 1,005 1,203
- --------------------------------------------------------------------------------
$ 8,988 $ 4,581 $13,569 $15,430
- --------------------------------------------------------------------------------
</TABLE>
BAC's fixed-rate long-term debt of $8,988 million at December 31, 1997 matures
at various dates through 2015. At both December 31, 1997 and 1996, the interest
rates on fixed-rate long-term debt ranged from 5.55% to 11.50%. These
obligations were denominated primarily in U.S. dollars.
69
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
BAC has entered into off-balance-sheet financial instruments, primarily interest
rate swaps, with notional amounts of approximately $4 billion and $7 billion at
December 31, 1997 and 1996, respectively, to change its interest rate exposure
from fixed to floating rate. At December 31, 1997 and 1996, the weighted average
interest rates on fixed-rate long-term debt, including the effects of interest
rate swaps, were 7.66% and 7.33%, respectively.
BAC's floating-rate long-term debt of $4,581 million at December 31, 1997
matures at various dates through 2003. The majority of the floating rates are
based on three- and six-month London InterBank Offer Rate (LIBOR). At December
31, 1997 and 1996, the interest rates on floating-rate long-term debt ranged
from 5.75% to 7.91% and from 5.26% to 7.54%, respectively. These obligations
were denominated primarily in U.S. dollars.
BAC has entered into off-balance-sheet financial instruments, primarily futures,
with notional amounts of approximately $1 billion and $6 billion at December 31,
1997 and 1996, respectively, to reduce the interest rate risk by shortening the
repricing profile on floating-rate debt that reprices within one year. At
December 31, 1997 and 1996, the weighted average interest rates on floating-rate
long-term debt were 6.07% and 5.74%, respectively. The effect of futures on
floating rate long-term debt interest rates was not material.
At December 31, 1997 and 1996, $2,837 million and $3,702 million, respectively,
of long-term debt was redeemable at par at the option of the parent on dates
ranging from February 27, 1998 through February 21, 2001.
At December 31, 1997, BAC had a $1.65 billion long-term line of credit that
expires in 2001. There were no draw-downs at December 31, 1997, and the interest
rate on draw-downs is based on current prime or LIBOR rates.
14 Subordinated Capital Notes
The following is a summary of subordinated capital notes as recorded on the
Balance Sheet included in long-term debt by the parent. These notes are
subordinate to senior indebtedness of the parent and qualify as Tier 2
risk-based capital under
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
9.75% Notes due 1999 $254 $256
Auction Rate Notes due 1999 99 99
- --------------------------------------------------------------------------------
$353 $355
- --------------------------------------------------------------------------------
</TABLE>
Federal Reserve Board guidelines for assessing capital
adequacy.
Effective May 17, 1996, the Auction Rate Notes bear interest as follows: $1
million bears interest at a fixed rate of 6.647% per annum, while the remaining
$98 million bears interest at a floating rate of 0.50% over LIBOR per annum
through the maturity date.
At the option of the parent, the Auction Rate Notes may be exchanged for common
stock, perpetual preferred stock, or other capital securities acceptable to the
Federal Reserve Board having a market price equal to the principal amount of the
notes or, under certain circumstances, may be redeemed in whole or in part for
cash. As of December 31, 1997, proceeds from issuances of common and preferred
stock of $350 million have been dedicated to fully retire or redeem subordinated
capital notes.
15 Corporation Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest
Debentures of the Corporation (Trust Preferred Securities)
The trust preferred securities are issued by trusts all of whose outstanding
common securities are owned by the parent. Such common securities represent an
aggregate liquidation amount equal to 3 percent of the total capital of each
trust. The sole assets of the trusts are Junior Subordinated Deferrable Interest
Debentures of the parent (the Debentures). In addition, the parent has entered
into an expense agreement with each trust obligating the parent to pay any
costs, expenses or liabilities of the trust, other than obligations of the trust
to pay amounts due pursuant to the terms of the trust preferred securities. Each
issue of the Debentures has an interest rate equal to the corresponding trust
preferred securities distribution rate. The parent has the right to defer
payment of interest on the Debentures at any time or from time to time for a
period not exceeding the extension period described in the table below with
respect to each deferral period, provided that no extension period may extend
beyond the stated maturity of the relevant Debentures. During any such extension
period, distributions on the trust preferred securities will also be deferred
and the parent's ability to pay dividends on its common and preferred stock will
be restricted. The Debentures are redeemable prior to stated maturity at the
parent's option during the redemption periods at the redemption prices described
below plus accrued interest to the redemption dates. The trust preferred
securities are subject to mandatory redemption upon repayment of the related
Debentures at their stated maturity dates or their earlier redemption at a
redemption price equal to their liquidation amount plus accrued distributions
to the date fixed for redemption and the premium, if any, paid by the parent
upon concurrent repayment of the related Debentures.
The parent has issued guarantees for the payment of distributions and payments
on liquidation or redemption of the trust preferred securities, but only to the
extent of funds held by the relevant trust. The guarantees are junior
subordinated obligations of the parent. In 1997 and 1996, distributions and
amortization of deferred issuance costs on all trust preferred securities
totaling $144 million and $7 million, respectively, were included in noninterest
expense in the consolidated statement of operations.
70
[CAPTION]
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Liquidation Liquidation Aggregate
Amount of Amount of Principal Stated Per Annum Interest
Trust Preferred Common Amount of Maturity of Interest Rate Payment
(dollar amounts in thousands) Securities Securities Debentures Debentures of Debentures Dates
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NAME OF TRUST
BankAmerica Institutional Capital A $450,000 $ 13,918 $ 463,918 12/31/26 8.07% 6/30, 12/31
BankAmerica Institutional Capital B 300,000 9,279 309,279 12/31/26 7.70 6/30, 12/31
BankAmerica Capital I 300,000 9,279 309,279 12/31/26/d/ 7.75 3/31, 6/30,
9/30, 12/31
BankAmerica Capital II 450,000 13,918 463,918 12/15/26 8.00 6/15, 12/15
BankAmerica Capital III 400,000 12,372 412,372 1/15/27 LIBOR 1/15, 4/15,
plus 0.57% 7/15, 10/15
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,900,000/g/ $ 58,766 $1,958,766
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------
Extension Redemption
(dollar amounts in thousands) Period Period
- ----------------------------------------------------------------------------
<S> <C> <C>
NAME OF TRUST
BankAmerica Institutional Capital A 10 semi- On or after
annual periods 12/31/06/ab/
BankAmerica Institutional Capital B 10 semi- On or after
annual periods 12/31/06/bc/
BankAmerica Capital I 20 quarters On or after
12/20/01/e/
BankAmerica Capital II 10 semi- On or after
annual periods 12/15/06/bf/
BankAmerica Capital III 20 quarters On or after
1/15/02/e/
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
/a/ The Debentures may be redeemed on or after December 31, 2006 and prior to
December 31, 2007 at 104.0350% of the principal amount, and thereafter at
prices declining to 100% on December 31, 2016 and thereafter.
/b/ The parent may redeem the Debentures prior to the indicated redemption
period upon the occurrence of certain events relating to tax treatment of
the related trust or the Debentures or relating to capital treatment of the
trust preferred securities at a redemption price calculated by a formula,
which redemption price shall be at least equal to the principal amount of
the Debentures.
/c/ The Debentures may be redeemed on or after December 31, 2006 and prior to
December 31, 2007 at 103.7785% of the principal amount, and thereafter at
prices declining to 100% on December 31, 2016 and thereafter.
/d/ At the option of the parent, the stated maturity may be shortened to a date
not earlier than December 20, 2001 or extended to a date not later than
December 31, 2045, in each case if certain conditions are met.
/e/ The parent may redeem the Debentures (i) during the indicated redemption
period or (ii) upon the occurrence of certain events relating to tax
treatment of the trust or the Debentures or relating to capital treatment of
the trust preferred securities, prior to the indicated redemption period, in
each case, at a redemption price of 100% of the principal amount.
/f/ The Debentures may be redeemed on or after December 15, 2006 and prior to
December 15, 2007 at 103.9690% of the principal amount, and thereafter at
prices declining to 100% on December 15, 2016 and thereafter.
/g/ Excludes $27 million of deferred issuance costs.
The table above is a summary of the outstanding trust preferred securities
and Debentures.
The parent's obligations under each series of Debentures, the related junior
subordinated indenture, the related trust agreement, the related expense
agreement, and the related guarantee taken together constitute a full and
unconditional guarantee by the parent of each trust's obligations under the
relevant trust preferred securities.
The parent is required by the Federal Reserve to maintain certain levels of
capital for bank regulatory purposes. The Federal Reserve has determined that
certain cumulative preferred securities having the characteristics of trust
preferred securities qualify as minority interest, which is included in Tier 1
capital for bank holding companies. Such Tier 1 capital treatment, together with
the parent's ability to deduct, for federal income tax purposes, interest
payable on the related Debentures, provide the parent with a more cost-effective
means of obtaining capital for bank regulatory purposes than if the parent were
to issue preferred stock.
During 1997 and 1996, the trusts issued trust preferred securities, net of
deferred issuance costs, of $396 million and $1,477 million, respectively.
16 Stock Repurchase Program
During the first quarter of 1997, BAC's Board of Directors amended the existing
stock repurchase program. The amended program authorized the parent to buy back
up to an additional $3 billion of its common stock by the end of 1998 and to buy
back or redeem up to an additional $1 billion of its preferred stock by the end
of 1998.
During the year ended December 31, 1997, the parent repurchased 31.7 million
shares of its common stock under the amended stock repurchase program at an
average per-share price of $64.00. These transactions reduced stockholders'
equity by $2,025 million.
During the year ended December 31, 1996, the parent repurchased 34 million
shares of its common stock under the amended and prior stock repurchase programs
at an average per-share price of $39.70. These transactions reduced
stockholders' equity by $1,351 million.
During the year ended December 31, 1995, the parent repurchased 33.2 million
shares of its common stock in connection with a prior program at an average per-
share price of $26.92, which reduced stockholders' equity by $894 million.
During the year ended December 31, 1997, the parent redeemed preferred stock
under the amended stock repurchase program, reducing stockholders' equity by
$1,628 million.
71
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1996, the parent redeemed preferred stock
under the amended and prior stock repurchase programs, reducing stockholders'
equity by $399 million. During the year ended December 31, 1995, the parent
redeemed preferred stock under a prior stock repurchase program, reducing
stockholders' equity by $206 million.
The remaining buyback and redemption authorities for common and preferred stock
totaled $1.8 billion and $0.2 billion, respectively, at December 31, 1997.
17 Preferred Share Purchase Rights and Common Stock Warrants
On April 11, 1988, the Board of Directors of the parent declared a dividend of
one preferred share purchase right (a Right) for each outstanding share of the
parent's common stock as of April 22, 1988 (the Rights Agreement). While the
Rights Agreement is in effect, every share of common stock issued before the
Rights become effective also represents a Right. Each Right entitles the holder
to buy from the parent, until the earlier of April 22, 1998 or the redemption of
the Rights, one two-hundredth of a share of Cumulative Participating Preferred
Stock, Series E, at an exercise price of $25.00 per Right (subject to
adjustment). The Rights will not be exercisable or transferable apart from the
parent's common stock until certain events occur pertaining to a person or group
acquiring or announcing the intention to acquire 20 percent or more of the
parent's outstanding common stock. Under specified circumstances, all of which
relate to a potential acquisition of the parent, a Right may: (i) become a right
to purchase shares of an acquiring company at half of the then-market price,
(ii) become a right to purchase the parent's common stock at half of the
then-market price or (iii) be exchanged by the parent for one share of common
stock or one two-hundredth of a share of Preferred Stock, Series E, or an
equivalent preferred share. The Board of Directors may redeem the Rights at a
price of $0.0005 per Right (rounded as to each holder to the nearest $0.01) at
any time prior to the acquisition by a person or group of 20 percent or more of
the outstanding common stock of the parent. Under other specified conditions,
the Rights may be automatically redeemed. The Rights are excluded from the
computation of earnings per common share. Certain adjustments were made in
accordance with the terms of the Rights to reflect a two-for-one stock split
effective June 2, 1997.
At December 31, 1996, common stock warrants outstanding totaled 105,546, which
were exercised prior to or expired on October 22, 1997. These warrants gave the
holder the right to purchase shares of common stock of the parent at a price of
$8.75 per share, subject to adjustment in certain events. The number of warrants
and the purchase price have been restated to reflect a two-for-one stock split
effective June 2, 1997.
18 Stock Split
On May 22, 1997, the stockholders of BAC approved a two-for one stock split,
along with an increase in the authorized number of shares of common stock from
700 million to 1.4 billion shares. The stock split was effective for
stockholders of record at the close of business on June 2, 1997. The stock split
did not cause any changes in the common stock's stated par value per share of
$1.5625 or in total stockholders' equity. A total of 387,314,462 shares of
common stock were issued in connection with the split, including 37,364,985
shares associated with shares held in treasury. As a result of the stock split,
$605 million was reclassified from additional paid-in capital to common stock.
19 Preferred Stock
The parent is authorized to issue, in one or more series, 70,000,000 shares of
preferred stock. The parent's outstanding preferred shares are nonvoting except
in certain limited circumstances. Dividends are cumulative and are payable
quarterly on February 28, May 31, August 31, and November 30. The shares are
redeemable at the option of the parent during the redemption period and at the
redemption price per share noted in the following table plus accrued and unpaid
dividends to the redemption date. Holders of the preferred shares have dividend
and liquidation preferences senior to those of holders of the parent's common
stock.
On January 15, 1997, the parent redeemed all 11,250,000 outstanding shares of
its 9% Cumulative Preferred Stock, Series H, reducing stockholders' equity by
$281 million. The redemption price was equal to the stated value of $25.00 per
share, plus accrued and unpaid dividends of $0.28125 per share.
On February 15, 1997, the parent redeemed all 14,600,000 outstanding shares of
its 8 3/8% Cumulative Preferred Stock, Series K, reducing stockholders' equity
by $365 million. The redemption price was equal to the stated value of $25.00
per share, plus accrued and unpaid dividends of $0.44201 per share.
Additionally in 1997, the parent redeemed the following Cumulative Preferred
Stock series, each share represented by depositary shares (representing a
one-twentieth interest in a corresponding share of preferred stock) at a price
of $500.00 per share of preferred stock on the dates indicated: 8.16% Series L,
798,020 preferred shares, July 13, 1997; 7 7/8% Series M, 696,847 preferred
shares, September 30, 1997; and 8 1/2% Series N, 469,273 preferred shares,
December 15, 1997. These redemptions reduced stockholders' equity by
$982 million. As to the accrued dividend per share of preferred stock paid at
the redemption date, the following per share amounts were paid to the holders of
record: Series L, $4.76; Series M, $3.1718; and Series N, $1.6528.
72
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Original Shares Dividend
Shares Outstanding at Stated Value Per Share Redemption Price
Preferred Stock Series Issued December 31, 1997 Per Share Per Annum Redemption Period Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Adjustable:
Series A 5,178,000 5,178,000 $ 50.00 $ 3.25/a/ On or after 11/30/87 $ 50.00
Series B 3,546,100 3,546,100 100.00 6.00/b/ On or after 2/28/88 100.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For the Cumulative Adjustable Preferred Stock, Series A, the dividend is
adjusted quarterly, and is 2.0% lower than the highest of three U.S.
Treasury rates, but is no lower than 6.5% and no greater than 14.5% per
annum.
/b/ For the Cumulative Adjustable Preferred Stock, Series B, the dividend is
adjusted quarterly, and is 4.0% lower than the highest of three U.S.
Treasury rates, but is no lower than 6.0% and no greater than 12.0% per
annum.
On March 31, 1996, the parent redeemed all 400,000 outstanding preferred shares
of its 11% Preferred Stock, Series J. This transaction reduced stockholders'
equity by $218 million. The shares were represented by 8 million depositary
shares, each representing a one-twentieth interest in a corresponding share of
preferred stock. The redemption price was $527.50 per share of preferred stock.
On April 16, 1996, the parent redeemed all 7,250,000 outstanding shares of its
9 5/8% Cumulative Preferred Stock, Series F, reducing stockholders' equity by
$181 million. The redemption price was equal to the stated value of $25.00 per
share, plus accrued and unpaid dividends of $0.30747 per share.
The table above summarizes the shares of preferred stock outstanding at December
31, 1997.
20 Capital Requirements
The parent and its domestic banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can result in certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on BAC's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
BAC's banking subsidiaries must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. The
quantitative measures established by regulation to ensure capital adequacy
require financial institutions to maintain minimum amounts and ratios, as set
forth in the table on page 74, of total and Tier I capital to risk-weighted
assets and of Tier I capital divided by average total assets. The table
presented on page 74 includes BAC and its largest banking subsidiary, Bank of
America NT&SA, at December 31, 1997 and 1996. At December 31, 1997, the
calculation of BAC'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. At December 31, 1996, amounts and
ratios excluded the effects of its Section 20 subsidiary. At December 31, 1996,
this exclusion reduced Tier 1 capital by $137 million, and total risk-based
capital by $339 million. This resulted in reducing the Tier 1 capital ratio and
total risk-based capital ratio by 1 basis point and 6 basis points,
respectively.
During 1997, Bank of America (BofA) Illinois, BofA Alaska, N.A., BofA Arizona,
BofA Nevada, BofA New Mexico, N.A., BofA Trust Company of Florida, N.A., and
BofA NW, National Association (BANW) were merged into the bank and are reflected
in its December 31, 1997 risk-based capital components. The bank's 1996 risk-
based capital amounts and ratios did not include these respective subsidiaries.
Capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
As of December 31, 1997 and 1996, all of BAC's depository institution
subsidiaries met the well-capitalized requirements under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, a
financial institution must maintain minimum total risk-based capital, Tier I
risk-based capital, and leverage ratio as set forth in the table on the next
page. There are no conditions or events that have occurred since December 31,
1997 that management believes would change these categorizations.
On an ongoing basis, BAC evaluates and modifies its mix of capital sources,
including debt, equity, and off-balance-sheet financing arrangements, taking
into consideration various factors. Such factors include regulatory capital
targets, as well as the cost of capital, which are influenced by prevailing
interest rates and credit risk. BAC's capital mix may vary from time to time in
response to changes in these factors.
73
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Risk-Based Capital--Actual and Minimum Amounts and Ratios
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
--------------------------------------------------------------------------------------------------
Total Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage Risk-Based Risk-Based Leverage
(dollar amounts in millions) Capital Capital Ratio Capital Capital Ratio
- ----------------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANKAMERICA CORPORATION
Actual $26,554 11.56% $17,291 7.53% $17,291 6.81% $25,880 11.79% $17,044 7.77% $17,229 7.44%
Minimum adequately capitalized 18,376 8.00 9,188 4.00 10,159 4.00 17,559 8.00 8,779 4.00 9,257 4.00
Minimum well capitalized 22,971 10.00 13,782 6.00 12,698 5.00 21,948 10.00 13,169 6.00 11,571 5.00
BANK OF AMERICA NT&SA
Actual 23,576 11.28 15,660 7.49 15,660 6.93 16,521 10.96 10,701 7.10 10,701 6.18
Minimum adequately capitalized 16,722 8.00 8,361 4.00 9,036 4.00 12,064 8.00 6,032 4.00 6,922 4.00
Minimum well capitalized 20,903 10.00 12,542 6.00 11,294 5.00 15,080 10.00 9,048 6.00 8,652 5.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21 Lease Commitments
BAC leases certain premises and equipment under noncancelable agreements
expiring between the years 1998 and 2035.
The following is a summary of future minimum rental commitments for
noncancelable leases at December 31, 1997, which do not include minimum sublease
rental income of $6 million for capital leases and $102 million for operating
leases:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital Operating
(in millions) Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 6 $ 283
1999 6 264
2000 75 238
2001 4 216
2002 4 202
Thereafter 12 1,209
- --------------------------------------------------------------------------------
Total minimum lease payments $107 $2,412
Amount representing interest (32)
- ----------------------------------------------------
Present Value of Net Minimum
Capital Lease Payments $ 75
- --------------------------------------------------------------------------------
</TABLE>
Total rental expense was $366 million in 1997, $375 million in 1996, and
$359 million in 1995.
22 Income Taxes
The significant components of the provision for income taxes are as follows:
- --------------------------------------------------------------------------------
Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
PROVISION FOR (BENEFIT FROM)
INCOME TAXES
Current:
Federal $ 763 $ 869 $1,091
State and local 139 161 305
Foreign 520 265 239
- --------------------------------------------------------------------------------
1,422 1,295 1,635
Deferred:
Federal 516 419 268
State and local 184 175 29
Foreign (6) 11 (29)
- -------------------------------------------------------------------------------
694 605 268
- -------------------------------------------------------------------------------
$2,116 $1,900 $1,903
- -------------------------------------------------------------------------------
74
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
The significant components of deferred income tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Allowance for credit losses $ 1,475 $ 1,534
Accrued expenses 209 237
Tax carryovers/a/ 67 84
Other 462 528
Valuation allowance for deferred
income tax assets/a/ (67) (75)
- --------------------------------------------------------------------------------
Total deferred income tax assets 2,146 2,308
DEFERRED INCOME TAX LIABILITIES
Lease financing (2,166) (1,698)
Identifiable intangible assets (464) (545)
Securities valuation (428) (483)
Employee benefit plans (119) (205)
Accumulated tax depreciation in excess of
book depreciation (187) (227)
Deferred gains and installment sales (169) (122)
Mortgage servicing assets (154) (59)
Other (370) (187)
- ------------------------------------------------------------------------------
Total deferred income tax liabilities (4,057) (3,526)
- ------------------------------------------------------------------------------
Net Deferred Income Tax Liabilities $(1,911) $(1,218)
- ------------------------------------------------------------------------------
</TABLE>
/a/ The valuation allowance for deferred income tax assets relates primarily to
net operating loss carryovers of foreign subsidiaries and pre-acquisition
tax carryovers associated with the Security Pacific Corporation and
Continental Bank Corporation mergers. Utilization of these carryovers is
subject to various limitations. The valuation allowance was established
since BAC may not realize all of the tax benefit of these carryovers as a
result of the related limitations. If BAC determines that it will realize
the pre-acquisition carryover tax benefits in the future, the corresponding
reduction in the valuation allowance will decrease goodwill instead of tax
expense.
Management believes that BAC will fully realize its total deferred income
tax assets as of December 31, 1997 based upon BAC's recoverable taxes from
prior carryback years, its total deferred income tax liabilities, and its
current level of operating income.
The valuation allowance for deferred income tax assets was $67 million and
$75 million at December 31, 1997 and 1996, respectively. In the future, the
recognition of deferred tax assets subject to the valuation allowance may
result in a reduction to goodwill of up to $25 million.
The reconciliation of the provision for income taxes computed at the U.S.
statutory income tax rate to pretax income is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35% 35% 35%
State and local income taxes,
net of federal tax effect 4 5 5
Other, net 1 -- 2
- --------------------------------------------------------------------------------
Effective Tax Rate 40% 40% 42%
- --------------------------------------------------------------------------------
</TABLE>
In 1997 and 1996, deferred tax liabilities of $86 million and $21 million,
respectively, relating to net unrealized gains on available-for-sale securities
were recorded directly to stockholders' equity.
At December 31, 1997, federal income taxes had not been provided on $350
million of undistributed earnings of foreign subsidiaries earned prior to 1987
that have been reinvested for an indefinite period of time. If the undistributed
earnings were distributed, credits for foreign taxes paid on such earnings and
for the related foreign withholding taxes payable upon remittance, would be
available to offset $70 million of the $150 million resulting tax expense.
Subsequent to 1986, federal taxes are provided on earnings of foreign
subsidiaries as a result of a tax law change.
BAC provided tax expense of $46 million, $24 million, and $13 million on net
securities gains in 1997, 1996, and 1995, respectively.
23 Employee Benefit Plans
Defined Benefit Plans
During 1997, the majority of salaried U.S. employees within BAC were covered
under the BankAmerica Pension Plan (the Pension Plan), a defined benefit cash
balance plan.
Pension Plan benefits are based on length of service, level of compensation, and
a specified interest rate. Effective January 1, 1996, the benefit formula of the
Pension Plan was amended so that eligible participants accrue benefits called
pay-based credits, of 7 percent of annual qualified earnings over one-half of
the Social Security wage base. Contributions are made by BAC and are based on
actuarial computations of the amount sufficient to fund the current service cost
plus amortization of the unfunded actuarial accrued liability. Contributions are
determined in accordance with Internal Revenue Service funding requirements and
are invested in diversified portfolios.
BAC maintains certain nonqualified, nonfunded defined benefit retirement plans.
The related retirement benefits are paid from BAC's assets. Certain non-U.S.
employees within BAC are covered by noncontributory defined benefit pension
plans that BAC funds based primarily on local laws. The assumptions used in
computing the present value of the accumulated benefit obligation, the projected
benefit obligation, and net pension expense for the non-U.S. plans are
substantially consistent with those assumptions used for the U.S. plans, given
local conditions.
75
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation between the funded status of all defined
benefit plans and amounts included in BAC's consolidated balance sheet:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
PREPAID PENSION COST
Plan assets at fair value, primarily listed
stocks and bonds $3,669 $3,385
Less: Actuarial present value of projected
benefit obligation 3,206 2,971
- --------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 463 414
Unrecognized net loss 87 151
Unrecognized prior service cost 33 41
Unrecognized net transition obligation 15 15
Additional minimum liability (2) (3)
- --------------------------------------------------------------------------------
Prepaid Pension Cost $ 596 $ 618
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATION
Vested benefit obligation $2,843 $2,697
Accumulated benefit obligation 3,124 2,902
- --------------------------------------------------------------------------------
</TABLE>
The following is a summary of the components of net pension expense:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during the year $ 91 $ 85 $ 98
Interest cost on projected benefit obligation 207 188 200
Net amortization and deferral 283 195 399
Effect of actual return on plan assets (520) (408) (631)
- --------------------------------------------------------------------------------
Net Pension Expense $ 61 $ 60 $ 66
- --------------------------------------------------------------------------------
</TABLE>
A summary of the assumptions used in computing the present value of the
accumulated benefit obligation, the present value of the projected benefit
obligation, and the net pension expense for the U.S. plans follows. The discount
rate used in determining benefit obligations at year end reflects the
approximate yield on high quality fixed-income securities taking into account
the duration of the projected benefit obligation. The discount rate used in
determining net pension expense is based on assumptions used for the previous
year-end measurement of the benefit obligation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate in determining expense 7.25% 6.50% 8.50%
Discount rate in determining benefit
obligations at year end 6.50 7.25 6.50
Rate of increase in future compensation
levels for determining expense/a/ NA 5.00 5.50
Rate of increase in future compensation
levels for determining benefit obligations
at year end/a/ NA NA 5.00
Expected long-term rate of return
on assets 8.50 8.00 9.75
Account growth interest rate in
determining expense 6.75 6.00 6.75
Account growth interest rate in
determining benefit obligations at year end 6.00 6.75 6.00
- --------------------------------------------------------------------------------
</TABLE>
/a/ Rates are attributable to the Seafirst Corporation Retirement Plan (the
Seafirst Plan) since this is the only U.S. defined benefit final average pay
plan as of January 1, 1995. Effective December 31, 1995, the Seafirst Plan
was merged into the Pension Plan.
NA - Not applicable
Defined Contribution Plans
During 1997, the majority of salaried U.S. employees within BAC were eligible
to participate in the BankAmerica 401(k) Investment Plan (the 401(k) Plan). This
plan provides tax-deferred investment opportunities to salaried employees who
have completed a required length of service. Employees may contribute to the
plan up to certain limits prescribed by the Internal Revenue Service. A portion
of these contributions is matched by BAC. Contributions are invested at the
direction of the participant. Effective January 1, 1996, the 401(k) Plan was
amended to provide employees with pay-based credits. The pay-based credits are
equal to 3 percent or 7 percent of an eligible employee's annual qualified
earnings up to one-half of the Social Security wage base, depending upon the
employee's age or length of service.
BAC maintains certain nonqualified defined contribution retirement plans. The
related retirement benefits are paid from BAC's assets. In addition, certain
non-U.S. employees within BAC are covered under defined contribution pension
plans that are separately administered in accordance with local laws.
Aggregate contributions for all defined contribution plans were $169 million,
$175 million, and $93 million in 1997, 1996, and 1995, respectively. The
increase of $82 million in 1996 was primarily attributable to the aforementioned
amendment regarding pay-based credits. Certain employer and employee
contributions to the plans are used to purchase BAC's common stock at prices
that approximate market values. Contributions, including dividends, to the plans
were used to purchase 529,302 shares for $34 million in 1997, 761,094 shares for
$30 million in 1996, and 591,890 shares for $16 million in 1995. Sales by the
plans of BAC's common stock were 467,329 shares for $32 million in 1997, 581,146
shares for $26 million in 1996, and 1,687,176 shares for $45 million in 1995.
The plans held 30,268,651 shares, 31,336,418 shares, and 31,988,306 shares
of BAC's common stock at December 31, 1997, 1996, and 1995, respectively.
76
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Plans
BAC offers shares of its common stock under three compensation plans: 1992
Management Stock Plan (the management stock plan), Performance Equity Program
(PEP), and Take Ownership!(TM) The BankAmerica Global Stock Option Program (Take
Ownership!).
BAC offers shares of its common stock to certain key employees through options
or restricted stock under the management stock plan. BAC was authorized to grant
up to 10,658,006 and 11,023,416 shares of common stock in 1997 and 1996,
respectively, under the management stock plan.
Shares are offered by the management stock plan under three types of options:
nonqualified stock options, performance stock options, and incentive stock
options. The shares under option generally vest ratably over three years. In
addition, the shares under option generally become exercisable not earlier than
six months and not later than ten years after the date the options are granted.
Options awarded before August 5, 1991 to principal officers of BAC are subject
to certain restrictions and also constitute stock appreciation rights (SARs)
equal to the number of shares covered by the options. These SARs are exercisable
for the difference between the option price and the current market price of the
stock at the time of exercise. The difference can be received in cash or in
shares. SARs, which are included in options for purposes of this disclosure, are
exercisable under the same terms as the related stock options.
Under the management stock plan, BAC also awards restricted stock to certain key
employees. Generally, the stock is not released until the employee has completed
a continuous service requirement specified in the award agreement. During 1997,
BAC awarded 1,058,456 restricted shares with a weighted-average fair value at
the date of grant of $73.34 per share. BAC awarded 1,137,252 restricted shares
during 1996 which had a weighted-average fair value at the date of grant of
$41.46 per share. In addition, in 1994 and 1995, shares of restricted stock were
awarded under a three-year performance share program. There were no restricted
shares awarded in 1996 and 1997 under the performance share program. Generally,
these shares vested in three installments as the price of BAC common stock
attained the specified targets. In 1996, the final installment of 302,000 of
these shares vested. Shares of restricted stock outstanding under the management
stock plan were 3,608,440 and 4,165,504 at December 31, 1997 and 1996,
respectively.
Effective May 22, 1997, BAC adopted PEP under which BAC offers shares of its
common stock to certain key employees. Two types of awards can be made under
PEP: market price options and premium price options. Under PEP, BAC is
authorized to grant up to 11,400,000 shares of common stock. The market price
options become exercisable ratably over three years and generally have a maximum
term of ten years after the date the options are granted. The premium price
options generally are exercisable not earlier than three years and not later
than ten years after the date the options are granted. Furthermore, the premium
price options only become exercisable when BAC's common stock price increases
significantly to specified threshold levels within given time frames. Limited
SARs may be awarded in conjunction with premium price options and become
exercisable upon a change in control.
Effective October 1, 1996, BAC adopted Take Ownership! which covers
substantially all of its employees. Under Take Ownership!, BAC is authorized to
grant options, or SARs in certain foreign locations, to its employees for up to
70,200,000 shares of common stock. SARs are generally exercisable under the same
terms as options. The shares granted under Take Ownership! vest ratably over
three years and have a maximum term of five years after the date of grant. As of
December 31, 1997, 28,013,806 options were outstanding under this program.
Both stock options and restricted stock are granted by the Executive Personnel
and Compensation Committee of the Board of Directors. Shares available for grant
under the management stock plan, through either stock options or restricted
stock, were 7,139,419 and 4,263,778 at December 31, 1997 and 1996, respectively.
Under PEP, 523,750 shares were available for grant at December 31, 1997. In
addition, shares available for grant under Take Ownership! were 41,393,705 and
60,015,960 at December 31, 1997 and 1996, respectively. Shares subject to
options that are canceled, except for those converted in connection with the
Security Pacific Corporation and Continental Bank Corporation mergers, become
available for future grants.
The following is a summary of options outstanding and exercisable at
December 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Options Outstanding/a/ Options Exercisable/a/
---------------------------------------------------------------------------------------
Shares Weighted-Average Shares
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at End of Year Contractual Life Exercise Price at End of Year Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.35 to $35.75 19,482,673 5.69 $22.92 16,107,745 $22.15
$41.34 to $72.00 29,589,079 6.07 52.71 4,712,010 44.70
$73.53 to $108.00 24,171,420 7.46 81.43 -- --
- -------------------------------------------------------------------------------------------------------------------------
Total 73,243,172 6.43 $54.26 20,819,755 $27.26
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes outstanding and exercisable options under former plans.
No additional options can be granted under these former plans.
77
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of changes in the options for all of the employee
stock plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31/a/
1997 1996/b/
---------------------------------------------------------
Weighted-Avg. Weighted-Avg.
Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
beginning
of year 45,180,386/b/ $31.44/b/ 36,251,348 $21.44
Granted 40,896,039 73.05 18,740,750 44.89
Exercised (8,499,494) 24.09 (8,734,398) 18.54
Forfeited (4,331,690) 52.71 (1,077,314) 33.72
Expired (2,069) 20.15 -- --
- --------------------------------------------------------------------------------
Balance,
End of
Year 73,243,172 $54.26 45,180,386 $31.44
Exercisable
at end of
year 20,819,755 $27.26 18,211,016 $20.53
- ------------------------------------------------------------------------------
</TABLE>
/a/ Includes outstanding and exercisable options under former plans. No
additional options can be granted under these former plans.
/b/ Restated to reflect a two-for-one stock split effective June 2, 1997.
Compensation expense related to employee stock plans calculated using the
intrinsic value method was $63 million and $50 million in 1997 and 1996,
respectively. The table below reflects BAC's pro forma net income, earnings per
common share, and diluted earnings per common share as if compensation expense
for BAC's stock plans had been determined based on the fair value at the grant
dates for awards under those plans. Since pro forma compensation expense relates
to all periods over which the awards vest, the initial impact of pro forma
compensation expense on pro forma net income may not be representative of
compensation expense in subsequent years, when the effect of the amortization of
multiple awards would be reflected.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRO FORMA RESULTS
- --------------------------------------------------------------------------------
Year Ended December 31
(in millions, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $3,106 $2,844 $2,655
Earnings per common share/b/ 4.30 3.68/a/ 3.27/a/
Diluted earnings per common share/b/ 4.21 3.62/a/ 3.24/a/
- --------------------------------------------------------------------------------
</TABLE>
/a/ Restated to reflect a two-for-one stock split effective June 2, 1997.
/b/ Reflects the adoption of SFAS No. 128 including the restatement of prior
year.
Fair values of the options were estimated at the date of grant using a
variation of the Black-Scholes option pricing model, which includes the
following assumptions used for the stock options awarded during 1997 and 1996,
respectively: risk-free weighted average interest rate of 6.23 percent and 5.95
percent; weighted average dividend yield of 2.96 percent and 3.23 percent;
weighted average expected volatility of 24.5 percent and 20.80 percent; expected
option life for the management stock plan of 4.3 and 4.5 years; expected option
life for PEP of 6.9 years and expected life for Take Ownership! of 2.6 and 2.6
years.
Except for the premium price options awarded under PEP, the weighted-average
grant date fair values of the options granted during 1997 and 1996 were $12.09
and $7.53 per share, respectively. The weighted-average grant date fair values
of the premium price options granted under PEP during 1997 was $8.01 per share.
Generally, the exercise price of each option equals the market price of BAC's
common stock on the date of grant with the exception of premium price options
which have exercise prices significantly above the market price of BAC's common
stock on the date of grant. Expiration dates ranged from January 20, 1998 to
December 4, 2007 for options outstanding at December 31, 1997.
Postretirement Health Care and Life Insurance Benefits
BAC provides certain defined health care and life insurance benefits under plans
for retired U.S. employees. Retiree health care benefits are offered under
self-insured arrangements, as well as through various health maintenance
organizations. The contributions of BAC are expressed as a fixed dollar amount.
The cost of monthly coverage each year for retirees is equal to the difference
between the projected total cost of coverage for the year and the fixed dollar
amount. BAC's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. Employer contributions are invested
in diversified portfolios, including fixed income and equity investments.
The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 6.50 percent and 7.25 percent at December 31, 1997 and
1996, respectively. The expected long-term rates of return on plan assets used
in computing the net periodic postretirement cost were 8.50 percent, 8.00
percent, and 9.75 percent, for the years ended December 31, 1997, 1996, and
1995, respectively.
The following is a reconciliation between the funded status of all
postretirement benefit plans other than pensions and the amounts included in
BAC's consolidated balance sheet:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $510 $467
Fully eligible active plan participants 18 19
Other active plan participants 104 89
- --------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 632 575
Less: Plan assets at fair value, primarily
listed stocks and bonds 136 116
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 496 459
Less: Unrecognized net transition obligation 398 424
Unrecognized net gain (36) (61)
Unrecognized prior service benefit (3) (23)
- --------------------------------------------------------------------------------
Accrued Postretirement Benefit Cost $137 $119
- --------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
The unrecognized net transition obligation is being amortized on a straight-line
basis over twenty years. The following is a summary of the components of net
periodic postretirement cost:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 5 $ 6 $ 6
Interest cost on accumulated
postretirement benefit obligation 40 40 49
Net amortization and deferral 33 28 37
Effect of actual return on plan assets (20) (12) (17)
- --------------------------------------------------------------------------------
Net Periodic Postretirement Cost $ 58 $ 62 $ 75
</TABLE>
- --------------------------------------------------------------------------------
24 Earnings per Common Share
Effective December 15, 1997, BAC adopted SFAS No. 128, "Earnings per Share." For
information regarding the adoption of SFAS No. 128, refer to Note 1 of the Notes
to Consolidated Financial Statements on pages 60-65.
Under the new requirements, BAC's computation of earnings per common and common
equivalent share is replaced by earnings per common share, which excludes any
dilutive effect of stock options and warrants outstanding during the period.
Earnings per common share is computed by dividing net income applicable to
common stock by the average number of common shares outstanding during the
period.
Also, under SFAS No. 128, BAC's computation of earnings per common and common
equivalent share, assuming full dilution, is replaced with diluted earnings per
common share. Diluted earnings per common share is computed by dividing net
income applicable to common stock by the average number of common shares
outstanding during the period including the dilutive effect of stock options and
warrants outstanding during the period. The dilutive effect of stock options and
warrants outstanding during the period is computed using the average market
price of BAC's common stock for the period.
Earnings per common share have been computed based on the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1997 1996/a/ 1995/a/
-------------------------------------------------------------------------------------
Diluted Diluted Diluted
(dollar amounts in millions, Earnings Per Earnings Per Earnings Per Earnings Per Earnings Per Earnings Per
except per share data) Common Share Common Share Common Share Common Share Common Share Common Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,210 $3,210 $2,873 $2,873 $2,664 $2,664
Less: Preferred stock dividends 100 100 185 185 227 227
- -----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock 3,110 3,110 2,688 2,688 2,437 2,437
Average number of common shares outstanding 699,189,176 699,189,176 722,373,206 722,373,206 741,963,186 741,963,186
Effect of dilutive options and warrants -- 20,587,405 -- 13,681,838 -- 9,148,652
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
used to calculate earnings per common share 699,189,176 719,776,581 722,373,206 736,055,044 741,963,186 751,111,838
Earnings Per Common Share $ 4.45 $ 4.32 $ 3.72 $ 3.65 $ 3.28 $ 3.24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Restated to reflect a two-for-one stock split effective June 2, 1997.
79
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
25 Off-Balance-Sheet Transactions
In the ordinary course of business, BAC enters into various types of
transactions that involve credit-related financial instruments and derivative
financial instruments that are not required to be recorded on the balance sheet.
Credit-related financial instruments are typically customer-driven, while
derivative financial instruments are entered into both with customers and for
BAC's own account in managing interest rate and foreign exchange risks.
In its effort to manage credit risk associated with derivative financial
instruments, BAC ensures that its off-balance-sheet portfolio is well
diversified, both in terms of instrument type and industry and customer
concentration. In addition, credit risk is managed through BAC's credit approval
process. It is also BAC's policy to execute legally enforceable master netting
agreements with its derivative financial instrument customers, which provide for
the netting of BAC's current positive and negative closeout exposures associated
with all individual transactions of those counterparties in the event of
default. To further mitigate off-balance-sheet credit exposures, BAC obtains
collateral where determined appropriate.
Credit-Related Financial Instruments
Credit-related financial instruments include commitments to extend credit,
standby letters of credit, and commercial letters of credit. Fees received from
credit-related financial instruments are recognized over the terms of the
contracts and are included in other fees and commissions in noninterest income.
Unfunded credit commitments at December 31, 1997 and 1996 totaled $171,924
million and $158,287 million, respectively, of which $16,806 million and $10,255
million related to foreign-based customers and $155,118 million and $148,032
million related to domestic-based customers. At both December 31, 1997 and 1996,
no domestic or foreign industry nor any individual foreign country comprised
more than 10 percent of total unfunded noncredit-card-related commitments. For a
summary of funded loan outstandings by type at December 31, 1997 and 1996, refer
to Note 9 of the Notes to Consolidated Financial Statements on page 68.
A summary of the contractual amounts of each significant class of
off-balance-sheet credit-related financial instruments outstanding appears in
the table below. The contractual amounts of these instruments are not recorded
as assets or liabilities on the balance sheet. These amounts represent the
amounts at risk should the contract be fully drawn upon, the client default, and
the value of any existing collateral become worthless.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Unutilized credit card lines $ 35,920 $ 36,897
Other commitments to extend credit 114,771 100,234
Standby letters of credit (net of participations
sold: 1997 -- $3,300; 1996 -- $2,999) 18,888 17,092
Commercial letters of credit 2,345 4,064
- --------------------------------------------------------------------------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT
Unutilized credit card lines are commitments to extend credit. These lines
generally are not secured and may be canceled by BAC after thirty-days written
notice to the customer. Many credit card customers are not expected to fully
draw down their total lines of credit and, therefore, the total contractual
amount of these lines does not necessarily represent future cash requirements.
Other commitments to extend credit represent agreements to extend credit to
customers for which BAC may have received fees. These commitments have specified
interest rates and generally have fixed expiration dates and may be terminated
by BAC if certain conditions of the contract are violated. Although they are
currently subject to drawdown, many of these commitments are expected to expire
or terminate without being funded. Of total other commitments to extend credit
at December 31, 1997, $53,591 million will expire in less than one year, $56,208
million from one to five years, and $4,972 million after five years. Generally,
other commitments are not secured, but, when required, collateral may include
cash, securities, and real estate.
STANDBY LETTERS OF CREDIT
A standby letter of credit (SBLC) represents an irrevocable obligation to pay a
third-party beneficiary in the event a customer fails to meet a financial or
performance obligation. BAC's determination of whether an SBLC is a financial or
performance obligation is based upon the contractual obligation which triggers
payment. When the contractual obligation is financial, such as securing bonds or
debt, the SBLC is classified as financial. When the contractual obligation is
performance-related, such as shipping a product or providing a service, then the
SBLC is classified as performance. Credit risk arises in these transactions from
the possibility that, if the SBLC has been drawn upon due to default of payment
or nonperformance, a customer may not be able to repay BAC. Historically, losses
associated with counterparty nonperformance on these instruments have been
immaterial.
80
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997 and 1996, financial SBLCs totaled $14,530 million and
$12,720 million, respectively. Of the year-end 1997 balance, $9,156 million will
expire in less than one year, $4,797 million will expire in one to five years,
and $577 million will expire after five years.
At December 31, 1997 and 1996, performance SBLCs totaled $4,358 million and
$4,372 million, respectively. Of the year-end 1997 balance, $2,579 million will
expire in less than one year, $1,769 million will expire in one to five years,
and $10 million will expire after five years.
Fees received for SBLCs are recognized over the lives of the contracts and are
included in other fees and commissions in noninterest income. Generally, SBLCs
are not secured, but, when required, collateral may include cash and securities.
COMMERCIAL LETTERS OF CREDIT
Commercial letters of credit ensure payment by a bank to a third party for a
customer's foreign or domestic trade transactions. BAC's credit risk in these
transactions is limited by the face amount of the letter of credit, along with
the related collateral and the general duration of the contract.
Derivative Financial Instruments
Derivative financial instruments include swaps, futures, forwards, and option
contracts, all of which derive their value from underlying interest rates,
foreign exchange rates, commodity values or equity instruments. For most
contracts, notional amounts are used solely to determine cash flows to be
exchanged. However, certain foreign exchange contracts are designed for
principal amounts to be exchanged on a common settlement date. The notional or
contract amounts associated with foreign exchange and derivative financial
instruments are not recorded as assets or liabilities on the balance sheet and
do not represent the potential for gain or loss associated with such
transactions.
A more detailed discussion regarding the accounting treatment for trading and
hedging derivative financial instruments and related unrealized gains and losses
may be found in Footnote 1 of the Notes to Consolidated Financial Statements on
pages 60 -- 65.
The table on the next page summarizes the notional and credit risk amounts for
each significant class of derivative financial instrument outstanding in BAC's
trading and asset and liability management portfolios.
Credit risk represents unrealized gains on derivative financial instruments. It
is the amount of loss that BAC would suffer if all counterparties failed to
perform according to the terms of the contract and the value of any existing
collateral became worthless, based on then-current currency exchange and
interest rates at each respective period after the effects of master netting
agreements. In the aggregate for all contracts, credit risk totaled $10.9
billion at December 31, 1997.
The table on page 83 summarizes the average and year-end fair values of each
significant class of derivative financial instrument outstanding in BAC's
trading portfolio and the year-end fair values for each significant class of
derivative financial instrument outstanding in BAC's asset and liability
management portfolio. Fair value amounts consist of unrealized
gains and losses, accrued interest receivable and payable, and premiums paid or
received, and take into account master netting agreements.
The fair value amounts for the trading portfolio are disaggregated by gross
unrealized gains (assets) and gross unrealized losses (liabilities), while the
fair value amounts for the asset and liability management portfolio are shown on
a net basis. Fair value amounts were generally calculated using discounted cash
flow models based on current market yields for similar instruments and the
maturity of each instrument.
81
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL INSTRUMENTS
HELD OR ISSUED FOR TRADING PURPOSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------------------------
Notional Credit Notional Credit
(in millions) Amount Risk/a/ Amount Risk/a/
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 463,295 $ 1,828/b/ $442,160 $ 2,968/b/
Futures and forward rate contracts:
Commitments to purchase 112,562 69 138,381 34
Commitments to sell 145,158 50 182,065 280
Written options 27,191 --/c/ 32,679 --/c/
Purchased options 36,522 395 40,805 373
- ------------------------------------------------------------------------------------------------
Total interest rate contracts 784,728 2,342 836,090 3,655
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts 575,761 6,530 612,767 2,670
Written options 31,748 --/c/ 24,840 --/c/
Purchased options 30,330 520 23,272 319
Currency swaps 29,063 1,450 27,589 951
- ------------------------------------------------------------------------------------------------
Total foreign exchange contracts 666,902 8,500 688,468 3,940
Stock Index Options and Commodity Contracts 4,349 87 1,561 87
- ------------------------------------------------------------------------------------------------
Total $1,455,979/d/ $ 10,929 $1,526,119/e/ $ 7,682
- ------------------------------------------------------------------------------------------------
</TABLE>
/a/ Credit risk represents current replacement cost after the effects of master
netting agreements.
/b/ Includes the effects of cross product netting of certain interest rate
derivatives and currency swaps.
/c/ Interest rate and foreign exchange options written have no credit risk.
/d/ Interest rate swaps and interest rate options in the trading portfolio
include intercompany hedging-related contracts of $6.5 billion and $0.7
billion, respectively. Foreign exchange contracts in the trading portfolio
include $4.2 billion of intercompany hedging-related contracts.
/e/ Interest rate swaps and interest rate options in the trading portfolio
include intercompany hedging-related contracts of $13.9 billion and $0.7
billion, respectively. Foreign exchange contracts in the trading portfolio
include $2.4 billion of intercompany hedging-related contracts.
- --------------------------------------------------------------------------------
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL INSTRUMENTS
HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------------------------
Notional Credit Notional Credit
(in millions) Amount Risk/a/ Amount Risk/a/
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 48,704 $ 167 $ 46,445 $ 128
Futures and forward rate contracts 89,650 -- 58,467 --
Purchased options 17,959 49 10,957 81
- -----------------------------------------------------------------------------------------------
Total interest rate contracts 156,313 216 115,869 209
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts 3,756 -- 1,746 --
Currency swaps 771 -- 673 --
- -----------------------------------------------------------------------------------------------
Total foreign exchange contracts 4,527 -- 2,419 --
Total $ 160,840/b/ $ 216 $118,288/c/ $ 209
- -----------------------------------------------------------------------------------------------
</TABLE>
/a/ Credit risk represents current replacement cost after the effects of master
netting agreements.
/b/ Interest rate swaps and interest rate options in the asset and liability
management portfolio include intercompany hedging-related contracts of $6.5
billion and $0.7 billion, respectively. Foreign exchange contracts in the
asset and liability management portfolio include $4.2 billion of
intercompany hedging-related contracts.
/c/ Interest rate swaps and interest rate options in the asset and liability
management portfolio include intercompany hedging-related contracts of $13.9
billion and $0.7 billion, respectively. Foreign exchange contracts in the
asset and liability management portfolio include $2.4 billion of
intercompany hedging-related contracts.
82
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Average Fair Value Year-End Average Fair Value Year-End
(in millions) For the Year Ended/a,b/ Fair Value/b/ For the Year Ended/a,b/ Fair Value/b/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps:
Assets $ 2,280 $ 1,828 $ 2,956 $ 2,968
Liabilities (1,999) (1,603) (2,661) (2,820)
Futures and forward rate contracts:
Assets 150 119 335 314
Liabilities (131) (78) (331) (329)
Written options (283) (302) (221) (300)
Purchased options 303 395 307 373
- --------------------------------------------------------------------------------------------------------------------------------
Total interest rate contracts 320 359 385 206
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts:
Assets 4,454 6,530 2,358 2,670
Liabilities (4,370) (6,521) (2,709) (2,842)
Written options (640) (731) (333) (369)
Purchased options 504 520 283 319
Currency swaps:
Assets 1,154 1,450 1,137 951
Liabilities (962) (1,199) (1,308) (937)
- --------------------------------------------------------------------------------------------------------------------------------
Total foreign exchange contracts 140 49 (572) (208)
STOCK INDEX OPTIONS AND COMMODITY CONTRACTS
Assets 67 87 58 87
Liabilities (61) (68) (25) (36)
- --------------------------------------------------------------------------------------------------------------------------------
Total stock index options and commodity contracts 6 19 33 51
Total $ 466 $ 427 $ (154) $ 49
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average fair value amounts are calculated based on monthly balances.
/b/ For a description of fair value methodologies, refer to Note 26 of the Notes
to Consolidated Financial Statements on pages 86 -- 88.
- --------------------------------------------------------------------------------
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD
OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997/a,b/ 1996/a,b/
- --------------------------------------------------------------------------------
<S> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $(325) $(369)
Futures and forward rate contracts (16) (26)
Purchased options 42 (4)
- --------------------------------------------------------------------------------
Total interest rate contracts (299) (399)
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts -- --
Currency swaps (133) (63)
- --------------------------------------------------------------------------------
Total foreign exchange contracts (133) (63)
Total $(432) $(462)
- --------------------------------------------------------------------------------
</TABLE>
/a/ For a description of fair value methodologies, refer to Note 26 of the Notes
to Consolidated Financial Statements on pages 86 -- 88.
/b/ Bracketed amounts reflect net liability positions.
83
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
INTEREST RATE AND CURRENCY SWAPS
Interest rate swaps are contractual agreements between two parties to exchange
periodic payments in the same currency, each of which is computed on a different
interest rate basis, on a specified notional amount. Most interest rate swaps
involve the net exchange of payments calculated as the difference between fixed
and floating interest rate payments. Currency swaps, in their simplest form, are
contractual agreements that involve the exchange of both periodic and final
amounts in two different currencies. Exposure to loss on both types of swap
contracts will increase or decrease over their respective lives as a function of
maturity dates, interest and foreign exchange rates, and timing of payments.
INTEREST RATE FUTURES, FORWARD, AND OPTION CONTRACTS
Interest rate futures are exchange-traded instruments and represent commitments
to purchase or sell a designated security or money market instrument at a
specified future date and price. Interest rate forward agreements are
over-the-counter contracts where two parties agree on an interest rate and tenor
that will become a reference point in determining, in concert with an agreed
notional principal amount, a net payment to be made by one party to the other,
depending on what market rate in fact prevails at a future point in time.
Interest rate options, which primarily consist of caps and floors, are interest
rate protection instruments that involve the obligation of the seller to pay the
buyer an interest rate differential in exchange for a premium paid by the buyer.
This differential represents the difference between current interest rates and
an agreed-upon rate applied to a notional amount. Exposure to loss on all
interest rate contracts will increase or decrease over their respective lives as
interest rates fluctuate. For interest rate futures and exchange-traded option
contracts, BAC's exposure to off-balance-sheet credit risk is limited, as these
transactions are executed on organized exchanges that assume the obligations of
counterparties and generally require security deposits and daily settlement of
margins.
FOREIGN EXCHANGE CONTRACTS
Foreign exchange contracts, which include spot, forward and futures contracts,
represent agreements to exchange the currency of one country for the currency of
another country at an agreed-upon price, on an agreed-upon settlement date.
Foreign exchange option contracts are similar to interest rate option contracts,
except that they are based on currencies, rather than interest rates. Exposure
to loss on these contracts will increase or decrease over their respective lives
as currency exchange and interest rates fluctuate. For exchange-traded foreign
exchange contracts, BAC's exposure to off-balance-sheet credit risk is limited,
as these transactions are executed on organized exchanges that assume the
obligations of counterparties and generally require security deposits and daily
settlement of margins.
Trading Activities
Trading income represents the net amount earned from BAC's trading activities,
which include entering into transactions to meet customer demand and taking
positions for BAC's own account in a diverse range of financial instruments and
markets. The profitability of these trading activities depends largely on the
volume and diversity of the transactions BAC executes, the level of risk it is
willing to assume, and the volatility of price and rate movements.
Trading income, as disclosed in BAC's consolidated statement of operations, does
not include the net interest income associated with trading activities. However,
the trading-related net interest income amounts are presented in the table below
as they are considered in evaluating the overall profitability of those
activities.
To reflect the business purpose and use of the financial contracts into which
BAC enters, trading income and the related net interest revenue or expense
associated with the respective products have been allocated into three broad
functional categories: interest rate products, foreign exchange contracts, and
debt instruments trading. Trading-related income from interest rate products
primarily includes the results from transactions using interest rate and
currency swaps, interest rate futures, option contracts, and forward rate
agreements, as well as cash instruments used in the management of this function.
Trading-related income from foreign exchange contracts primarily includes the
results from transactions using foreign exchange spot, forward, futures, and
option contracts. Trading-related income from debt instruments primarily
represents the results from trading activities in various debt securities,
including U.S. government and government agency securities, foreign government
securities (including securities in emerging markets), mortgage-backed
securities, municipal bonds, and corporate debt.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TRADING-RELATED INCOME
- --------------------------------------------------------------------------------
Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADING INCOME
Interest rate products $ 25 $ 56 $ 67
Foreign exchange contracts 444 316 303
Debt instruments 223 258 157
- --------------------------------------------------------------------------------
$ 692 $ 630 $ 527
OTHER TRADING-RELATED INCOME/a/
Interest rate products $ 43 $ 31 $ 30
Foreign exchange contracts 7 20 28
Debt instruments 219 208 152
- --------------------------------------------------------------------------------
$ 269 $ 259 $ 210
- --------------------------------------------------------------------------------
</TABLE>
/a/ Primarily includes the net interest revenue associated with the respective
products.
Asset and Liability Management Activities
BAC uses derivative financial instruments to manage interest rate risk related
to designated assets and liabilities, primarily fixed rate and adjustable rate
residential mortgages, long-term debt, and deposits. Foreign exchange derivative
financial instruments are used to hedge net capital exposure and foreign
currency exposures.
84
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
One strategy that BAC employs in managing interest rate risk is the use of
interest rate swaps to modify the interest rate characteristics of designated
categories of assets and liabilities. For example, BAC may enter into an
interest rate swap to alter cash flows on its long-term debt from fixed to
floating rate in an effort to reduce gap mismatches.
Another hedging strategy used by BAC is the purchase of options to protect
against significant loss due to extreme interest rate movements. For example,
BAC may purchase interest rate floors on its adjustable rate mortgage portfolio
to reduce the risk of loss from a rapid or prolonged decline in interest rates.
In addition, BAC may use interest rate swaps to hedge against market value
fluctuations of available-for-sale securities.
The above hedging strategies would be rendered ineffective if BAC disposes of
the underlying product being hedged or if certain unexpected events occur. In
addition, BAC may terminate its hedging-related contracts in reaction to certain
events or circumstances. The deferred gains or losses on terminated contracts
recorded in BAC's consolidated balance sheet at December 31, 1997 and 1996, and
the amortization of such amounts for the years 1997 and 1996 were not
significant.
The table below summarizes the expected or contractual maturities and weighted
average interest rates associated with amounts to be received or paid on BAC's
interest rate swaps used to manage asset and liability interest rate exposure at
- --------------------------------------------------------------------------------
Asset and Liability Management Interest Rate Swaps/a/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
Greater Greater Greater Greater Greater Greater
than than than than than than
(dollar amounts in billions) 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years 10 years Total/c/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED/b/
Notional amount $ 1.5 $ 1.9 $ 1.6 $ 2.0 $ 2.0 $12.8 $ 2.0 $23.8
Weighted average receive rate 6.68% 6.52% 6.44% 7.07% 7.02% 6.47% 6.60% 6.59%
PAY FIXED/b/
Notional amount $ 3.7 $ 4.9 $ 5.3 $ 2.3 $ 1.1 $ 4.4 $ 1.3 $23.0
Weighted average pay rate 6.19% 6.33% 7.03% 6.99% 7.24% 7.21% 7.20% 6.80%
FORWARD RECEIVE FIXED/d/
Notional amount -- -- -- -- -- $ 0.4 $ 0.7 $ 1.1
Weighted average receive rate -- -- -- -- -- 7.40% 6.46% 6.80%
FORWARD PAY FIXED/d/
Notional amount -- $ 0.2 $ 0.1 -- $ 0.1 $ 0.1 -- $ 0.5
Weighted average pay rate -- 6.16% 6.28% -- 8.95% 8.13% -- 7.14%
BASIS SWAPS/e/
Notional amount -- -- -- -- -- $ 0.3 -- $ 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Notional Amount $48.7
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
Greater Greater Greater Greater Greater Greater
than than than than than than
(dollar amounts in billions) 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years 10 years Total/c/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED/b/
Notional amount $ 4.4 $ 1.1 $ 1.3 $ 1.8 $ 1.7 $11.6 $ 3.6 $25.5
Weighted average receive rate 6.02% 6.69% 6.91% 6.35% 7.29% 6.62% 6.75% 6.58%
PAY FIXED/b/
Notional amount $ 2.4 $ 3.5 $ 1.8 $ 3.6 $ 2.4 $ 4.4 $ 0.1 $18.2
Weighted average pay rate 5.95% 6.19% 6.65% 6.97% 7.11% 7.16% 7.30% 6.72%
FORWARD RECEIVE FIXED/d/
Notional amount -- -- $ 0.8 $ 0.1 -- $ 0.4 -- $ 1.3
Weighted average receive rate -- -- 6.46% 5.62% -- 7.40% -- 6.68%
FORWARD PAY FIXED/d/
Notional amount -- -- $ 0.1 $ 0.7 -- $ 0.3 -- $ 1.1
Weighted average pay rate -- -- 6.55% 7.82% -- 8.14% -- 7.79%
BASIS SWAPS/e/
Notional amount -- -- -- -- -- $ 0.3 -- $ 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Notional Amount $46.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes intercompany swaps.
/b/ The variable rate side of substantially all receive fixed rate and pay fixed
rate swaps is based on the one-, three-, or six-month LIBOR. At December 31,
1997 and 1996, the one-, three-, and six-month LIBOR rates were 5.7188
percent and 5.5000 percent, 5.8125 percent and 5.6016 percent, and 5.8438
percent and 6.1250 percent, respectively.
/c/ Includes $1.4 billion and $1.0 billion of swaps with amortizing notional
amounts at December 31, 1997 and 1996, respectively.
/d/ Accrual of interest on forward swaps starts at a predetermined future date.
The majority of the forward swaps start accruing interest one to three years
after each reported year end.
/e/ Basis swaps are interest rate swaps in which both amounts paid and received
are based on floating LIBOR rates.
85
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996. These swaps have been designated as accounting
hedges and are used to modify the interest rate characteristics of certain
designated categories of assets and liabilities.
Approximately 56 percent of BAC's hedging-related interest rate futures and
forward rate agreements outstanding at December 31, 1997 mature within one year,
while approximately 83 percent of its hedging-related option contracts mature
between five and ten years. Approximately 75 percent of BAC's hedging-related
interest rate futures and forward rate agreements outstanding at December 31,
1996 matured within one year, while approximately 80 percent of its hedging-
related option contracts mature between five and ten years.
26 Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of BAC's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates presented herein are not necessarily indicative of the amounts
BAC could have realized in a sales transaction at either December 31, 1997 or
1996. The estimated fair value amounts for 1997 and 1996 have been measured as
of their respective year ends, and have not been reevaluated or updated for
purposes of these consolidated financial statements subsequent to those
respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year end. This disclosure of fair value amounts
does not include lease financing, MSA, intangibles, including core deposit
intangibles and credit card intangibles, or trust preferred securities.
The following information should not be interpreted as an estimate of the fair
value of the entire corporation since a fair value calculation is only required
for a limited portion of BAC's assets. Due to the wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between BAC's disclosures and those of other companies may not be
meaningful. The following methods and assumptions were used to estimate the fair
values of BAC's financial instruments at December 31, 1997 and 1996.
Financial Instruments Valued at Carrying Value
The respective carrying values of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and due
from banks, interest-bearing deposits in banks, federal funds sold and
purchased, securities purchased and sold under resale and repurchase agreements,
trading account assets, customers' acceptance liability, accrued interest
receivable, other short-term borrowings, acceptances outstanding, accrued
interest payable, and certain other assets and liabilities that are considered
financial instruments. Carrying values were assumed to approximate fair values
for these financial instruments as they are short term in nature and their
recorded amounts approximate fair values or are receivable or payable on demand.
Available-for-Sale and Held-to-Maturity Securities
Fair value amounts of available-for-sale and held-to-maturity securities were
based on quoted market prices, if available. If quoted market prices did not
exist, fair values were estimated using book, cost, or appraised value.
Available-for-sale securities are carried at their aggregate fair value, while
held-to-maturity securities are carried at amortized cost. There were no
off-balance-sheet financial instruments that qualified as accounting hedges for
held-to-maturity securities at December 31, 1997 or 1996. For more information
on the fair value of these securities, refer to Note 7 of the Notes to
Consolidated Financial Statements on pages 66 -- 67.
Loans
The fair values of residential first mortgages were estimated using pricing
procedures that are similar to those used when these loans are sold in the
secondary market in the normal course of business. These pricing procedures use
current market rates for loans with similar characteristics and risk factors.
For residential junior mortgages, consumer installment loans, and other consumer
loans that do not reprice frequently, the fair values were estimated using
discounted cash flow models. The discount rates were based on current market
pricing for loans with similar characteristics and risk factors. Since
substantially all credit card loans, individual lines of credit, and other
variable rate consumer loans reprice frequently, with interest rates reflecting
current market pricing, the carrying values of these loans were assumed to
approximate their fair values.
The fair values of domestic commercial loans that do not reprice or mature
within relatively short time frames were estimated using discounted cash flow
models. The discount rates were based on current market interest rates for
similar types of loans, remaining maturities and credit ratings. For domestic
commercial loans that reprice within relatively short time frames, the carrying
values were used to approximate their fair values.
Substantially all of the foreign loans reprice within relatively short time
frames. Accordingly, for the majority of foreign loans, the carrying values were
assumed to approximate their fair values.
For purposes of these fair value estimates, the fair values of nonaccrual loans
were computed by deducting an estimated market discount from their carrying
values to reflect the uncertainty of future cash flows.
86
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
The fair values of commitments to extend credit were not significant at either
December 31, 1997 or 1996.
The aggregate fair value of loans excludes the effect of off-balance-sheet
financial instruments that qualify as accounting hedges. The fair value of these
hedges was $(23) million and $(8) million at December 31, 1997 and 1996,
respectively. The contract amount of these instruments was $18,066 million and
$12,545 million at December 31, 1997 and 1996, respectively.
Other Financial Instruments
For non-exchange-traded equity securities, which are included in other assets,
fair values were estimated using equity, cost, or appraised value. The carrying
values of all other components of other assets that are considered financial
instruments approximated their respective fair values, as they are short term in
nature or are receivable or payable on demand.
The following is a summary of previously described on-balance-sheet asset
financial instruments whose fair values differ from their carrying values for
either of the periods presented:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
1997 1996
-----------------------------------------------
Carrying Fair Carrying Fair
(in millions) Value Value Value Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Held-to-maturity
securities $ 3,667 $ 3,744 $ 4,138 $ 3,920
Loans:
Domestic consumer:
Residential first mortgages 31,749 32,467 37,459 37,998
Other consumer loans 38,432 38,459 40,094 40,048
Domestic commercial 61,578 61,579 56,160 56,082
Foreign 27,196 27,168 25,053 25,019
- --------------------------------------------------------------------------------
Total loans $158,955 $159,673 $158,766 $159,147
Other financial
instruments 2,717 2,756 2,596 2,611
- --------------------------------------------------------------------------------
</TABLE>
Deposits
The fair values of domestic and foreign demand deposits, savings deposits, and
money market deposits without defined maturities were the amounts payable on
demand.
For domestic deposits with defined maturities, the fair values were estimated
using discounted cash flow models that apply market interest rates corresponding
to similar deposits and timing of maturities. For variable-rate deposits with
fixed repricing dates, the first repricing date was considered the maturity date
for purposes of the fair value calculation. For variable-rate deposits where BAC
has the contractual right to change rates, carrying value was assumed to
approximate fair value.
The carrying values of total foreign time deposits were assumed to approximate
their fair values since these deposits primarily had variable rates and repriced
within relatively short time frames.
The fair value of deposits excludes the fair value of off-balance-sheet
financial instruments that qualify as accounting hedges for the bank's deposits.
The fair value of these accounting hedges was $(334) million and $(478) million
at December 31, 1997 and 1996, respectively. The contract amount of these
financial instruments was $134,148 million and $93,083 million at December 31,
1997 and 1996, respectively.
Long-term Debt
The fair values of BAC's long-term debt instruments were calculated based on
quoted market prices. For those long-term debt issues where quoted market prices
were not available, a discounted cash flow model was used. The discount rates
were based on yield curves appropriate for the remaining maturities of the
instruments.
The fair value of long-term debt excludes the fair value of off-balance-sheet
financial instruments that qualify as accounting hedges for the parent's
long-term debt. The fair value of these hedges was $(120) million and $24
million at December 31, 1997 and 1996, respectively. The contract amount of
these financial instruments was $4,132 million and $12,660 million at December
31, 1997 and 1996, respectively.
Subordinated Capital Notes
The fair value of BAC's subordinated capital notes was calculated based on
quoted market prices.
The following is a summary of previously described on-balance-sheet liability
financial instruments whose aggregate fair values differ from their carrying
values for either of the periods presented:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31
1997 1996
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Value Value Value Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
Deposits $172,037 $171,929 $168,015 $167,971
Long-term debt 13,569 14,002 15,430 15,754
Subordinated capital notes 353 362 355 368
- --------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
The following is a summary of the fair values of derivative financial
instruments outstanding. The fair value of exchange-traded derivative financial
instruments was based on quoted market prices or dealer quotes. Fair value of
non-exchange traded, or over-the-counter (OTC) derivative financial instruments
consisted of net unrealized gains and losses, accrued interest receivable or
payable, and premiums paid or received. These amounts were generally calculated
using discounted cash flow models based on current market yields for similar
types of instruments and the maturity of each instrument. The discount rates
were based on market interest rates and indices for similar derivative financial
instruments prevalent in the market. Refer to Note 25 of the Notes to
Consolidated Financial Statements on pages 80 -- 86 for more information
regarding off-balance-sheet transactions, including a summary of the fair values
for each significant class of derivative financial instrument outstanding in
BAC's trading and asset and liability management portfolios.
- --------------------------------------------------------------------------------
Fair Values of Derivative
Financial Instruments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Trading $ 427 $ 49
Asset and Liability Management (432) (462)
- --------------------------------------------------------------------------------
</TABLE>
27 Restructuring Charge
BAC recorded a pre-tax restructuring charge of $280 million in the fourth
quarter of 1996 as a result of decisions to implement a number of restructurings
of its business activities. The charge covered approximately $196 million for
severance payments, $72 million for premises expense, primarily reflecting the
planned closure of 120 branches, and $12 million for other costs affected by the
actions. The severance payments will reflect an estimated reduction of 3,700
positions due to the restructuring of BAC's business activities. Management
expects that the projects relating to these restructurings will be completed by
the end of 1998.
During 1997, 1,836 positions were reduced, reflecting a remaining balance of
1,864 positions at December 31, 1997. Due to BAC's reorganization into Global
Retail and Wholesale Banks during 1997, BAC determined that $27 million of the
restructuring reserve primarily related to severance costs would not be
utilized.
The following is a summary of changes in the restructuring charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in millions) Severance Premises Other/a/ Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $196 $72 $12 $280
Payments (106) (30) (5) (141)
Unutilized restructuring accrual (17) (8) (2) (27)
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $ 73 $34 $ 5 $112
- --------------------------------------------------------------------------------
</TABLE>
/a/ Includes equipment write-offs and other miscellaneous costs.
28 Special Deposit Assessment
On September 30, 1996, Congress passed legislation to recapitalize the Savings
Association Insurance Fund (SAIF) to 1.25 percent of insured deposits as
prescribed by the Federal Deposit Insurance Corporation Improvement Act. This
legislation imposed a one-time assessment on SAIF deposits held on March 31,
1995, lowered the rates on assessments paid to the SAIF, and widened the spread
of the rates between institutions. BAC recognized a charge of $82 million for
the year ended December 31, 1996 as a result of this assessment.
In addition, beginning January 1, 1997, Bank Insurance Fund (BIF) member
institutions began sharing in the cost of funding Financing Corporation (FICO)
interest payments. The cost of funding these interest payments will be in the
form of an assessment on both BIF and SAIF insured deposits. The assessment rate
will be lower for BIF deposits than for SAIF deposits. Actual rates will
fluctuate over time depending on the amount of deposits insured by the BIF and
SAIF at the time the assessment is made.
29 Legal Contingencies
Due to the nature of its business, BAC is subject to various threatened or
filed legal actions. Although the amount of the ultimate exposure, if any,
cannot be determined at this time, BAC, based upon the advice of counsel, does
not expect the final outcome of threatened or filed suits to have a material
adverse effect on its financial position.
30 BankAmerica Corporation (Parent Company Only)
The amount of funds available to the parent from its subsidiaries is limited by
restrictions placed on them by law and various debt covenants.
Under the U.S. National Bank Act and other federal laws, the parent's national
banking subsidiaries are subject to prohibitions on the payment of dividends in
certain circumstances and to restrictions on the amount that each can pay
without the prior approval of the Office of the Comptroller of the Currency.
Without the Comptroller's approval, dividends for a given year cannot exceed
each bank's retained net income (as defined by national banking laws) for that
year and retained net income from the preceding two years. In addition,
dividends may not be paid in excess of each bank's undivided profits, subject to
other applicable provisions of law. Based upon these laws, the bank could have
declared dividends for 1997 of $3,249 million and the parent's other national
banking
88
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
BankAmerica Corporation
(Parent Company Only) Year Ended December 31
(in millions) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries:
Banking $2,398 $1,964 $2,110
Nonbanking 694 460 153
Interest on subordinated notes
purchased from banking subsidiaries 335 310 316
Interest on advances to
nonbanking subsidiaries 210 239 239
Interest on deposits in banking
subsidiaries 238 192 231
Interest on available-for-sale securities 53 73 80
Net gain on available-for-sale securities 7 33 10
Other income 24 54 36
- --------------------------------------------------------------------------------
Total income 3,959 3,325 3,175
Interest on other short-term borrowings 75 89 76
Interest on long-term debt 916 966 1,007
Interest on subordinated capital notes 28 33 46
Interest on junior subordinated
deferrable interest debentures
issued to grantor trusts 147 7 --
Amortization of goodwill 30 31 30
Other expense 119 75 95
- --------------------------------------------------------------------------------
Total expense 1,315 1,201 1,254
Income before income taxes
and equity in undistributed
income of subsidiaries 2,644 2,124 1,921
Benefit from income taxes 141 105 158
Equity in undistributed income
of subsidiaries 425 644 585
- --------------------------------------------------------------------------------
Net Income $3,210 $2,873 $2,664
- --------------------------------------------------------------------------------
</TABLE>
See notes following the Statement of Cash Flows on page 90.
subsidiaries could have declared dividends of $450 million. At December 31,
1997, the unutilized dividends allowed under these laws for the bank and other
national banking subsidiaries were $899 million, and $450 million, respectively.
In addition, state-chartered nonmember banking subsidiaries are subject to
dividend limitations imposed by applicable federal or state law. State-chartered
nonmember banking subsidiaries could have declared dividends without state
approval of $8 million for 1997. At December 31, 1997, the unutilized dividends
allowed under these laws for the state-chartered nonmember banking subsidiaries
were $8 million.
The parent's subsidiary, Bank of America, FSB, is subject to regulatory
restrictions by the Office of Thrift Supervision on its payment of dividends.
Under these restrictions, Bank of America, FSB could have declared dividends
without regulatory approval of $267 million for 1997. At December 31, 1997, the
unutilized dividends allowed under these laws were $267 million.
The depository subsidiaries are also subject to certain restrictions of the
Federal Reserve Act on loans each subsidiary may extend to their parent
companies. Among other things, the aggregate of such loans may not exceed 10
percent of the sum of such subsidiary's capital stock and surplus. Such loans
must be secured by collateral with a value between 100 percent and 130 percent
of the loan, depending on the type of collateral. Under these restrictions, and
assuming the parent provided the collateral required, the bank, Bank of America
National Association, and other depository subsidiaries could have loaned to the
parent a maximum of $1,845 million, $157 million, and $249 million respectively,
at December 31, 1997.
The net assets of depository subsidiaries restricted from flowing to the parent
by legal limitations were $17,933 million at December 31, 1997.
- --------------------------------------------------------------------------------
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BankAmerica Corporation
(Parent Company Only) December 31
(in millions) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term investments $ 2,510 $ 4,961
Available-for-sale securities 636 982
Investments in subsidiaries:
Banking 21,909 21,674
Nonbanking 1,812 1,563
Subordinated notes purchased from
banking subsidiaries 5,315 4,715
Advances to nonbanking subsidiaries 2,764 4,110
Accrued interest receivable 42 64
Goodwill 575 605
Other assets 731 720
- --------------------------------------------------------------------------------
Total Assets $36,294 $39,394
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings from subsidiaries $ 121 $ 130
Other short-term borrowings 694 1,552
Accrued interest payable 201 206
Other liabilities 565 665
Long-term debt 12,564 14,227
Subordinated capital notes 353 355
Junior subordinated deferrable interest
debentures issued to grantor trusts 1,959 1,546
- --------------------------------------------------------------------------------
Total liabilities 16,457 18,681
Stockholders' equity 19,837 20,713
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $36,294 $39,394
- --------------------------------------------------------------------------------
</TABLE>
See notes following the Statement of Cash Flows on page 90.
89
<PAGE>
BankAmerica Corporation 1997 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corporation (Parent Company Only) Year Ended December 31
(in millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,210 $2,873 $2,664
Adjustments to net income to arrive at net cash provided by operating activities:
Benefit from deferred income taxes (47) (41) (43)
Equity in undistributed income of subsidiaries (458) (697) (613)
Amortization of goodwill 30 31 30
(Increase) decrease in accrued interest receivable 22 35 (36)
Increase (decrease) in accrued interest payable (5) 14 (1)
Increase (decrease) in current income taxes payable 265 (79) 53
Other, net (22) (198) 378
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,995 1,938 2,432
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions to subsidiaries (1,027) (347) (182)
Capital returns from subsidiaries 1,354 673 108
Purchase of subordinated notes from banking subsidiaries (600) (135) (500)
Redemption of subordinated capital notes from banking subsidiaries -- 7 400
Activity in available-for-sale securities:
Sales proceeds 8 40 513
Purchases -- -- (54)
Maturities, prepayments, and calls 351 60 59
Maturities and prepayments of held-to-maturity securities -- -- 125
Cash used for acquisitions (255) -- --
Collections from subsidiaries 6,047 5,412 6,807
Advances to subsidiaries (4,701) (5,937) (6,597)
Other, net (13) 32 (55)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 1,164 (195) 624
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings from subsidiaries 605 329 428
Payments on borrowings from subsidiaries (614) (341) (360)
Increase (decrease) in other short-term borrowings (925) 766 (267)
Proceeds from issuance of long-term debt 1,395 2,994 2,265
Principal payments and retirements of long-term debt and subordinated capital notes (3,060) (2,714) (2,591)
Net proceeds from issuance of junior subordinated
deferrable interest debentures issued to grantor trusts 396 1,477 --
Proceeds from issuance of common stock -- 83 151
Proceeds from issuance of treasury stock 223 99 --
Preferred stock repurchased (1,628) (391) (206)
Treasury stock purchased (2,039) (1,333) (926)
Common stock dividends (853) (780) (684)
Preferred stock dividends (100) (185) (227)
Other, net (10) 3 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (6,610) 7 (2,416)
Net increase (decrease) in cash and short-term investments (2,451) 1,750 640
Cash and short-term investments at beginning of year 4,961 3,211 2,571
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Short-Term Investments at End of Year $2,510 $4,961 $3,211
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
General: For income and asset classification purposes, banking amounts include
the amounts for all of the parent's bank, bank holding company, and savings bank
subsidiaries. Certain amounts in prior periods have been reclassified to conform
to the presentation in the current year.
Balance Sheet: At December 31, 1997 and 1996, cash and short-term investments
included $2,487 million and $4,938 million, respectively, of interest-bearing
deposits with the bank.
Statement of Cash Flows: The statement of cash flows illustrates the change in
cash and short-term investments as disclosed in the Parent Company Only balance
sheet. Short-term investments have original maturities of three months or less
and are considered to be cash equivalents, respectively. During 1997 and 1995,
the parent received net income tax payments representing reimbursements from
subsidiaries of $359 million and $168 million, respectively. During 1996, the
parent made net income tax payments of $15 million. The parent made interest
payments on interest-bearing liabilities of $1,186 million, $1,109 million, and
$1,155 million in 1997, 1996, and 1995, respectively.
90
<PAGE>
BankAmerica Corporation 1997 Annual Report
CORPORATE INFORMATION
31 Performance by Geographic Area
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31/a/
-----------------------------------------------------------------------------------
Total Assets at Net Interest and Income Before
(in millions) Year December 31 Gross Income Noninterest Income Income Taxes Net Income
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic 1997 $208,227 $19,160 $12,964 $5,123 $3,070
1996 $203,123 $17,721 $12,104 $4,039 $2,394
1995 $190,549 $16,719 $11,575 $4,058 $2,349
- ---------------------------------------------------------------------------------------------------------------------------------
Asia 1997 24,084 1,866 825 (312) (218)
1996 21,654 1,786 930 359 224
1995 17,738 1,452 615 142 82
Europe, Middle East, and Africa 1997 20,741 1,653 564 192 143
1996 21,574 1,810 566 143 107
1995 20,762 1,616 507 170 109
Latin America and the Caribbean 1997 4,644 771 392 292 194
1996 2,878 617 335 190 121
1995 2,337 512 282 173 108
Canada 1997 2,463 135 52 31 21
1996 1,524 137 64 42 27
1995 1,060 87 29 24 16
- ---------------------------------------------------------------------------------------------------------------------------------
Total Foreign 1997 51,932 4,425 1,833 203 140
1996 47,630 4,350 1,895 734 479
1995 41,897 3,667 1,433 509 315
- ---------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corporation 1997 $260,159 $23,585 $14,797 $5,326 $3,210
1996 $250,753 $22,071 $13,999 $4,773 $2,873
1995 $232,446 $20,386 $13,008 $4,567 $2,664
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For comparability purposes, 1996 and 1995 amounts reflect BAC's allocation
methodologies at December 31, 1997.
Since BAC's operations are highly integrated, certain asset, liability,
income, and expense amounts must be allocated to arrive at total assets,
gross income, net interest and noninterest income, income before income
taxes, and net income. The underlying assumptions and principle allocations
used in the presentation above are as follows:
BAC identifies its geographic performance based upon the business unit in
which the assets are recorded and where the income is earned and the
expenses are incurred. In certain circumstances, units may transact business
with customers who are out of their immediate geographic area. For example,
a U.S. domiciled unit may have made a loan to a borrower who resides in
Latin America. In this instance, the loan and related income would be
included in domestic activities.
BAC's funds transfer pricing system allocates domestic sources of funds at
U.S. market rates based on the maturities of the funds. To the extent that
overseas units interact with U.S. operations, they are also included in the
funds transfer pricing system.
The allowance for credit losses is established by credit officers for each
portfolio segment. After the allowance has been established for portfolio
segments, credit management establishes an unallocated portion of the
allowance for credit losses, which is attributable to factors that cannot be
associated with a particular portfolio segment and is therefore
proportionally allocated to all portfolio segments. While management
allocates reserves to various portfolio segments, the allowance is general
in nature and is available for the entire portfolio.
Equity is assigned on a risk-adjusted basis taking into account goodwill and
tax-effected identifiable intangibles. Overhead is allocated based on each
geographic area's proportionally weighted income and expenses.
Each geographic area includes its respective tax liability. BAC allocates
federal and state taxes at its effective tax rates.
Translation losses, for those units in hyperinflationary economies, net of
hedging, totaled $27 million, $23 million, and $14 million in 1997, 1996,
and 1995, respectively. These amounts, which are reported in other
noninterest income, are included in the table above.
91
<PAGE>
BankAmerica Corporation 1997 Annual Report
CORPORATE INFORMATION
32 Quarterly Results (unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 Quarter Ended 1996 Quarter Ended
(in millions, except per share data) Dec 31 Sept 30 June 30 Mar 31/a/ Dec 31/a/ Sept 30/a/ June 30/a/ Mar 31/a/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $4,407 $4,451 $4,359 $4,240 $4,238 $4,206 $4,126 $4,089
Interest expense 2,300 2,257 2,165 2,066 2,108 2,054 1,967 1,943
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,107 2,194 2,194 2,174 2,130 2,152 2,159 2,146
Provision for credit losses 220 260 250 220 220 235 250 180
Noninterest income 1,631 1,670 1,442 1,385 1,499 1,319 1,320 1,274
Noninterest expense 2,209 2,232 2,047 2,033 2,250 2,081 1,997 2,013
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,309 1,372 1,339 1,306 1,159 1,155 1,232 1,227
Provision for income taxes 497 553 540 526 412 472 509 507
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 812 $ 819 $ 799 $ 780 $ 747 $ 683 $ 723 $ 720
Earnings per common share/b/ $ 1.15 $ 1.14 $ 1.10 $ 1.05 $ 0.98 $ 0.89 $ 0.94 $ 0.91
Diluted earnings per common share/b/ 1.12 1.11 1.07 1.03 0.96 0.87 0.92 0.90
STOCK DATA
Dividends per common share 0.305 0.305 0.305 0.305 0.27 0.27 0.27 0.27
Common stock price range:/a/
High 81 15/16 77 7/8 69 61 7/8 51 15/16 42 5/8 40 3/16 39 9/16
Low 66 1/4 64 9/16 49 9/16 47 11/16 41 1/16 36 34 7/8 29 3/8
Closing common stock price/c/ 73 73 5/16 64 9/16 50 7/16 49 7/8 41 1/16 37 7/8 38 3/4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Share and per share amounts and stock prices have been restated to reflect a
two-for-one stock split effective June 2, 1997.
/b/ Reflects the adoption of SFAS No. 128 including the restatement of prior
years.
/c/ The principal market of BAC's common stock is the New York Stock Exchange;
the stock is also listed on the Chicago, Pacific, and London Stock
Exchanges. BAC delisted from the Tokyo Stock Exchange during the first
quarter of 1996. Price information represents quotations as reported in the
New York Stock Exchange consolidated transaction reporting system.
92
Exhibit 99.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Current Report on
Form 8-K/A-1 dated April 10, 1998 of NationsBank Corporation of our report
dated January 20, 1998, with respect to the consolidated financial statements
of BankAmerica Corporation incorporated by reference in its Annual Report
on Form 10-K for the year ended December 31, 1997, filed with the Securities
and Exchange Commission.
/s/ Signature of Ernst & Young LLP
------------------------------------
Ernst & Young LLP
San Francisco, California
April 24, 1998
