UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
I.R.S. Employer Identification Number:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
Charlotte, North Carolina 28255
Registrant's telephone number, including area code:
(704) 386-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
On October 31, 1999, there were 1,707,184,032 shares of Bank of America
Corporation Common Stock outstanding.
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Bank of America Corporation
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September 30, 1999 Form 10-Q
- -------------------------------------------------------------------------------------------------------------------
INDEX
<S> <C> <C>
Page
------
Part I Item 1. Financial Statements:
Financial Consolidated Statement of Income for the Three 2
Information Months and Nine Months Ended
September 30, 1999 and 1998
Consolidated Balance Sheet at September 30, 3
1999 and December 31, 1998
Consolidated Statement of Cash Flows for the 4
Nine Months Ended September 30, 1999 and 1998
Consolidated Statement of Changes in 5
Shareholders' Equity for the Nine
Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 18
Item 3. Quantitative and Qualitative Disclosures about 51
Market Risk
- -------------------------------------------------------------------------------------------------------------------
Part II
Other Information Item 1. Legal Proceedings 51
Item 2. Changes in Securities and Use of Proceeds 52
Item 4. Submission of Matters to a Vote of Security 52
Holders
Item 6. Exhibits and Reports on Form 8-K 53
Signature 54
Index to Exhibits 55
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Part I. Financial Information
Item 1. Financial Statements
- -------------------------------------------------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
- -------------------------------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
---------------------------- ---------------------------
(Dollars in Millions, Except Per-Share Information) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans and leases $ 6,883 $ 7,084 $ 20,506 $ 21,301
Interest and dividends on securities 1,208 1,105 3,526 3,311
Federal funds sold and securities purchased under agreements to resell 440 492 1,208 1,342
Trading account assets 482 584 1,552 2,014
Other interest income 281 343 909 982
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 9,294 9,608 27,701 28,950
- -------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits 2,198 2,830 6,678 8,213
Short-term borrowings 1,437 1,278 4,188 3,817
Trading account liabilities 189 194 468 730
Long-term debt 920 862 2,605 2,501
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,744 5,164 13,939 15,261
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 4,550 4,444 13,762 13,689
Provision for credit losses 450 1,405 1,470 2,410
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 4,100 3,039 12,292 11,279
Gains on sales of securities 44 280 226 613
Noninterest income
Service charges on deposit accounts 942 855 2,697 2,515
Mortgage servicing income 206 (93) 463 286
Investment banking income 702 376 1,645 1,653
Trading account profits and fees 313 (529) 1,208 75
Brokerage income 168 198 544 566
Nondeposit-related service fees 136 163 395 502
Asset management and fiduciary service fees 250 238 767 744
Credit card income 496 379 1,304 1,050
Other income 515 818 1,450 2,143
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest income 3,728 2,405 10,473 9,534
- -------------------------------------------------------------------------------------------------------------------------
Merger-related charges, net - 725 200 1,195
Other noninterest expense
Personnel 2,336 2,246 6,930 7,111
Occupancy 417 427 1,208 1,230
Equipment 313 346 1,010 1,020
Marketing 145 143 439 446
Professional fees 160 206 452 610
Amortization of intangibles 222 224 669 679
Data processing 164 195 568 560
Telecommunications 131 142 407 411
Other general operating 498 510 1,364 1,551
General administrative and other 140 144 389 436
- -------------------------------------------------------------------------------------------------------------------------
Total other noninterest expense 4,526 4,583 13,436 14,054
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,346 416 9,355 6,177
Income tax expense 1,195 42 3,375 2,174
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 2,151 $ 374 $ 5,980 $4,003
=========================================================================================================================
Net income available to common shareholders $ 2,149 $ 372 $ 5,975 $3,979
=========================================================================================================================
Per-share information
Earnings per common share $ 1.25 $ .21 $ 3.45 $ 2.30
=========================================================================================================================
Diluted earnings per common share $ 1.23 $ .21 $ 3.37 $ 2.24
=========================================================================================================================
Dividends per common share $ .45 $ .38 $ 1.35 $ 1.14
=========================================================================================================================
Average common shares issued and outstanding (in thousands) 1,722,307 1,740,092 1,734,401 1,732,297
=========================================================================================================================
See accompanying notes to consolidated financial statements.
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2
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<CAPTION>
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
- -------------------------------------------------------------------------------------------------------------------
September 30 December 31
(Dollars in Millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 25,414 $ 28,277
Time deposits placed and other short-term investments 4,846 6,750
Federal funds sold and securities purchased under agreements to resell 40,369 27,146
Trading account assets 38,651 39,602
Securities:
Available for sale 78,353 78,590
Held for investment, at cost (market value - $1,294 and $1,853) 1,483 1,997
- -------------------------------------------------------------------------------------------------------------------
Total securities 79,836 80,587
- -------------------------------------------------------------------------------------------------------------------
Loans and leases 360,236 357,328
Allowance for credit losses (7,076) (7,122)
- -------------------------------------------------------------------------------------------------------------------
Loans and leases, net of allowance for credit losses 353,160 350,206
- -------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 6,728 7,289
Customers' acceptance liability 2,066 2,671
Derivative-dealer assets 18,103 16,400
Interest receivable 3,838 3,734
Mortgage servicing rights 3,845 2,376
Goodwill 12,414 12,695
Core deposits and other intangibles 1,800 2,013
Other assets 29,582 37,933
- -------------------------------------------------------------------------------------------------------------------
Total assets $620,652 $617,679
===================================================================================================================
Liabilities
Deposits in domestic offices:
Noninterest-bearing $87,292 $92,623
Interest-bearing 202,037 203,644
Deposits in foreign offices:
Noninterest-bearing 1,981 1,713
Interest-bearing 45,701 59,280
- -------------------------------------------------------------------------------------------------------------------
Total deposits 337,011 357,260
- -------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 79,739 67,543
Trading account liabilities 18,239 14,170
Derivative-dealer liabilities 18,689 16,835
Commercial paper 7,826 6,749
Other short-term borrowings 32,893 24,742
Acceptances outstanding 2,066 2,671
Accrued expenses and other liabilities 18,993 30,929
Long-term debt 54,352 45,888
Trust preferred securities 4,955 4,954
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 574,763 571,741
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note Six)
Shareholders' equity
Preferred stock, $0.01 par value; authorized - 100,000,000 shares; issued and
outstanding - 1,828,702 shares and 1,952,039 shares 78 83
Common stock, $0.01 par value; authorized - 5,000,000,000 shares; issued and
outstanding - 1,710,039,286 shares and 1,724,484,305 shares 13,538 14,837
Retained earnings 34,631 30,998
Accumulated other comprehensive income (1,929) 152
Other (429) (132)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 45,889 45,938
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $620,652 $617,679
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
- -----------------------------------------------------------------------------------------------------------------
Nine Months
Ended September 30
--------------------------
(Dollars in Millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $5,980 $4,003
Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses 1,470 2,410
Gains on sales of securities (226) (613)
Merger-related charges, net 200 1,195
Depreciation and premises improvements amortization 781 822
Amortization of intangibles 669 679
Deferred income tax (benefit) expense (1,282) 322
Net decrease in trading instruments 3,420 1,801
Net increase in interest receivable (108) (260)
Net increase in interest payable 11 261
Other operating activities, net (4,271) (1,967)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,644 8,653
- ------------------------------------------------------------------------------------------------------------------
Investing Activities
Net decrease in time deposits placed and other short-term investments 1,746 1,671
Net increase in federal funds sold and securities purchased
under agreements to resell (13,223) (10,606)
Proceeds from sales and maturities of available for sale securities 37,081 53,900
Purchases of available for sale securities (35,047) (54,923)
Proceeds from maturities of held for investment securities 514 942
Purchases of held for investment securities - (249)
Proceeds from sales and securitizations of loans and leases 38,179 46,886
Purchases and net originations of loans and leases (42,303) (69,648)
Purchases and originations of mortgage servicing rights (1,869) (437)
Net purchases of premises and equipment (226) (122)
Proceeds from sales of foreclosed properties 247 416
Sales and acquisitions of business activities, net of cash (1,311) (57)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (16,212) (32,227)
- ------------------------------------------------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in deposits (19,204) 4,507
Net increase in federal funds purchased and securities
sold under agreements to repurchase 12,196 4,219
Net increase in commercial paper and other short-term borrowings 9,229 7,693
Proceeds from issuance of long-term debt 14,297 11,225
Retirement of long-term debt (5,628) (6,328)
Proceeds from issuance of trust preferred securities - 340
Proceeds from issuance of common stock 1,004 1,330
Common stock repurchased (2,904) (600)
Redemption of preferred stock - (614)
Cash dividends paid (2,347) (1,826)
Other financing activities, net 56 (140)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,699 19,806
- ------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 6 17
- ------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,863) (3,751)
Cash and cash equivalents at January 1 28,277 28,466
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at September 30 $ 25,414 $ 24,715
==================================================================================================================
Loans transferred to foreclosed properties amounted to $267 and $285 for the nine months ended September 30, 1999 and 1998,
respectively.
Loans securitized and retained in the available for sale securities portfolio amounted to $3,206 and $4,177 for the nine months
ended September 30, 1999 and 1998, respectively.
The fair values of noncash assets acquired and liabilities assumed in acquisitions for the nine months ended September 30, 1999 were
$1,557 and $74, respectively, net of cash acquired. The fair value of noncash assets acquired in acquisitions for the nine months
ended September 30, 1998 was $109, net of cash acquired.
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common Stock Other Share-
Preferred ---------------- Retained Comprehensive holders' Comprehensive
(Dollars in Millions, Shares in Thousands) Stock Shares Amount Earnings Income (1) Other Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $708 1,722,538 $15,140 $28,438 $ 407 $(109) $44,584
Net income 4,003 4,003 $ 4,003
Other comprehensive income, net of tax 377 377 377
-------------
Comprehensive income $ 4,380
=============
Cash dividends:
Common (1,802) (1,802)
Preferred (24) (24)
Common stock issued under dividend
reinvestment and employee plans 27,768 1,349 (19) 1,330
Stock issued in acquisitions 385 15 15
Common stock repurchased (9,349) (600) (600)
Conversion of preferred stock (10) 417 10
Redemption of preferred stock (614) (614)
Other 279 25 13 38
- -----------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 $84 1,742,038 $15,939 $30,615 $ 784 $(115) $47,307
=================================================================================================================
Balance, December 31, 1998 $83 1,724,484 $14,837 $30,998 $ 152 $(132) $45,938
Net income 5,980 5,980 $ 5,980
Other comprehensive income, net of tax (2,081) (2,081) (2,081)
-------------
Comprehensive income $ 3,899
=============
Cash dividends:
Common (2,342) (2,342)
Preferred (5) (5)
Common stock issued under dividend
reinvestment and employee plans 28,320 1,353 (349) 1,004
Common stock repurchased (43,000) (2,904) (2,904)
Conversion of preferred stock (5) 232 5
Other 3 247 52 299
- -----------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $78 1,710,039 $13,538 $34,631 $(1,929) $(429) $45,889
=================================================================================================================
(1)Changes in Accumulated Other Comprehensive Income include after-tax net unrealized gains (losses) on securities available for
sale and marketable equity securities of ($2,047) and $382 and after-tax net unrealized losses on foreign currency translation
adjustments of $34 and $5 for the nine months ended September 30, 1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
</TABLE>
5
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Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
At September 30, 1998, BankAmerica Corporation (BankAmerica) merged with
and into NationsBank Corporation (the Merger). The combined company was renamed
BankAmerica Corporation, and on April 28, 1999, BankAmerica Corporation changed
its name to Bank of America Corporation (the Corporation). The transaction was
accounted for as a pooling of interests. The consolidated financial statements
have been restated to present the combined results of the Corporation as if the
Merger had been in effect for all periods presented.
On January 9, 1998, the Corporation completed its merger with Barnett
Banks, Inc. (Barnett). The transaction was accounted for as a pooling of
interests. The consolidated financial statements have been restated to present
the combined results of the Corporation and Barnett as if the merger had been in
effect for all periods presented.
The Corporation is a Delaware corporation and a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended, with its
principal assets being the stock of its subsidiaries. Through its banking and
nonbanking subsidiaries, the Corporation provides a diverse range of financial
services and products throughout the U.S. and in selected international markets.
Note One - Accounting Policies
The consolidated financial statements include the accounts of the
Corporation and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The information contained in the consolidated financial statements is
unaudited. In the opinion of management, all normal recurring adjustments
necessary for a fair statement of the interim period results have been made.
Certain prior period amounts have been reclassified to conform to current period
classifications.
Accounting policies followed in the presentation of interim financial
results are presented on pages 56 to 61 of the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1998.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This standard requires all derivative
instruments to be recognized as assets or liabilities and measured at their fair
values. In addition, SFAS 133 provides special hedge accounting for fair
value, cash flow and foreign currency hedges, provided certain criteria are
met. The Corporation is required to adopt SFAS 133 on or before January 1, 2001.
Upon adoption, all hedging relationships must be redesignated and documented
pursuant to the provisions of the statement. The Corporation is in the process
of evaluating the impact of this statement on its risk management strategies
and processes, information systems and financial statements.
Note Two - Merger-Related Activity
On September 30, 1998, the Corporation completed its merger with
BankAmerica, a multi-bank holding company headquartered in San Francisco,
California. BankAmerica provided banking and other financial services throughout
the U.S. and in selected international markets to consumer and business
customers including corporations, governments and other institutions. As a
result of the Merger, each outstanding share of BankAmerica common stock was
converted into 1.1316 shares of the Corporation's common stock, resulting in the
net issuance of approximately 779 million shares of the Corporation's common
stock to the former BankAmerica shareholders. Each share of NationsBank
Corporation (NationsBank) common stock continued as one share in the combined
6
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company's common stock. In addition, approximately 88 million options to
purchase the Corporation's common stock were issued to convert stock options
granted to certain BankAmerica employees. This transaction was accounted for as
a pooling of interests. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expense of NationsBank and
BankAmerica have been combined and reflected at their historical amounts.
NationsBank's total assets, total deposits and total shareholders' equity on the
date of the Merger were approximately $331.9 billion, $166.8 billion and $27.7
billion, respectively. BankAmerica's total assets, total deposits and total
shareholders' equity on the date of the Merger amounted to approximately $263.4
billion, $179.0 billion and $19.6 billion, respectively.
In connection with the Merger, the Corporation recorded a $1,325 million
pre-tax merger-related charge in 1998 of which $725 million ($519 million
after-tax) and $600 million ($441 million after-tax) were recorded in the third
and fourth quarters of 1998, respectively. The total pre-tax charge for 1998
consisted of approximately $740 million primarily of severance and change in
control and other employee-related items, $150 million of conversion and related
costs including occupancy and equipment expenses (primarily lease exit costs and
the elimination of duplicate facilities and other capitalized assets) and
customer communication expenses, $300 million of exit and related costs and $135
million of other merger costs (including legal, investment banking and filing
fees). In the second quarter of 1999, the Corporation also recorded a pre-tax
merger-related charge of $200 million ($145 million after-tax) in connection
with the Merger. The pre-tax charge consisted of approximately $94 million
primarily of severance and change in control and other employee-related items,
$7 million of conversion and related costs including occupancy, equipment and
customer communication expenses, $97 million of exit and related costs and $2
million of other merger costs. The Corporation currently anticipates recording
an additional pre-tax merger-related charge of approximately $325 million ($272
million after-tax) in the fourth quarter of 1999.
The following table summarizes the activity in the BankAmerica
merger-related reserve during the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
BankAmerica Merger-Related Reserve
- ----------------------------------------------------------------------------------------------------------------------
Noncash
Balance, Amount Cash Payments Reductions Balance,
January 1 Included in Applied to Applied to September 30
(Dollars in Millions) 1999 Expense Reserve Reserve 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance, change in control
and other employee-related costs $487 $ 94 $(478) $ - $103
Conversion and related costs 143 7 (22) (114) 14
Exit and related costs 194 97 (148) (92) 51
Other merger costs 18 2 (6) (5) 9
- ----------------------------------------------------------------------------------------------------------------------
Total $842 $200 $(654) $(211) $177
======================================================================================================================
</TABLE>
On January 9, 1998, the Corporation completed its merger with Barnett, a
multi-bank holding company headquartered in Jacksonville, Florida (the Barnett
merger). Barnett's total assets, total deposits and total shareholders' equity
on the date of the merger were approximately $46.0 billion, $35.4 billion and
$3.4 billion, respectively. As a result of the Barnett merger, each outstanding
share of Barnett common stock was converted into 1.1875 shares of the
Corporation's common stock, resulting in the net issuance of approximately 233
million common shares to the former Barnett shareholders. In addition,
approximately 11 million options to purchase the Corporation's common stock were
issued to convert stock options granted to certain Barnett employees. This
transaction was also accounted for as a pooling of interests.
In connection with the Barnett merger, the Corporation incurred a pre-tax
merger-related charge during the first quarter of 1998 of approximately $900
million ($642 million after-tax), which consisted of approximately $375 million
primarily in severance and change in control payments, $300 million of
7
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conversion and related costs including occupancy and equipment expenses
(primarily lease exit costs and the elimination of duplicate facilities and
other capitalized assets), $125 million of exit costs related to contract
terminations and $100 million of other merger costs (including legal, investment
banking and filing fees). In the second quarter of 1998, the Corporation
recognized a $430 million gain resulting from the regulatory required
divestitures of certain Barnett branches.Substantially all of the Barnett
merger-related reserves have been utilized.
In 1996, the Corporation completed the initial public offering of 16.1
million shares of Class A Common Stock of BA Merchant Services, Inc. (BAMS), a
subsidiary of the Corporation. On December 22, 1998, the Corporation and BAMS
signed a definitive merger agreement on which the Corporation agreed to purchase
the remaining BAMS outstanding shares of Class A Common Stock it did not own. On
April 28, 1999, BAMS became a wholly-owned subsidiary of Bank of America, N.A.
and each outstanding share of BAMS common stock other than the shares owned by
the Corporation was converted into the right to receive a cash payment equal to
$20.50 per share without interest, or $339.2 million.
At September 30, 1999, the Corporation operated its banking activities
primarily under two charters: Bank of America, N.A. and Bank of America, N.A.
(USA). On March 31, 1999, NationsBank of Delaware, N.A. merged with and into
Bank of America, N.A. (USA), a national association headquartered in Phoenix,
Arizona (formerly known as Bank of America National Association), which operates
the Corporation's credit card business. On April 1, 1999, the mortgage business
of BankAmerica and NationsBanc Mortgage Corporation began doing business as Bank
of America Mortgage. On April 8, 1999, the Corporation merged Bank of America
Texas, N.A. into NationsBank, N.A. On July 5, 1999, NationsBank, N.A. changed
its name to Bank of America, N.A. On July 23, 1999, Bank of America, N.A. merged
into Bank of America National Trust and Savings Association (Bank of America
NT&SA), and the surviving entity of that merger changed its name to Bank of
America, N.A. The Corporation expects to merge Bank of America, FSB, a federal
savings bank headquartered in Portland, Oregon, into Bank of America, N.A.
during the fourth quarter of 1999.
Note Three - Trading Account Assets and Liabilities
The fair value of the components of trading account assets and liabilities
on September 30, 1999 and December 31, 1998 and the average fair value for the
nine months ended September 30, 1999 were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Average for the
September 30 December 31 Nine Months Ended
(Dollars in Millions) 1999 1998 September 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities owned:
U.S. Treasury securities $5,013 $7,854 $6,921
Securities of other U.S. Government agencies and corporations 3,397 524 1,662
Certificates of deposit, bankers' acceptances and commercial paper 2,607 2,723 2,552
Corporate debt 346 1,666 1,417
Foreign sovereign debt 13,334 11,774 11,079
Mortgage-backed securities 6,926 7,489 7,398
Other securities 7,028 7,572 8,430
- ---------------------------------------------------------------------------------------------------------------------------------
Total trading account assets $38,651 $39,602 $39,459
=================================================================================================================================
Short sales:
U.S. Treasury securities $7,366 $10,880 $4,709
Corporate debt - 82 -
Foreign sovereign debt 6,200 3,166 4,578
Other securities 4,673 42 4,902
- ---------------------------------------------------------------------------------------------------------------------------------
Total trading account liabilities $18,239 $14,170 $14,189
=================================================================================================================================
</TABLE>
8
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See Note Six of the consolidated financial statements on page 12 for
additional information on derivative-dealer positions, including credit risk.
Note Four - Loans and Leases
Loans and leases at September 30, 1999 and December 31, 1998 were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
September 30, 1999 December 31, 1998
-----------------------------------------------------
(Dollars in Millions) Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial - domestic $134,765 37.4 % $137,422 38.5 %
Commercial - foreign 28,176 7.8 31,495 8.8
Commercial real estate - domestic 25,317 7.0 26,912 7.5
Commercial real estate - foreign 296 .1 301 .1
- -------------------------------------------------------------------------------------------
Total commercial 188,554 52.3 196,130 54.9
- -------------------------------------------------------------------------------------------
Residential mortgage 80,518 22.4 73,608 20.6
Home equity lines 16,551 4.6 15,653 4.4
Direct/Indirect consumer 42,572 11.8 40,510 11.3
Consumer finance 20,421 5.7 15,400 4.3
Bankcard 8,712 2.4 12,425 3.5
Foreign consumer 2,908 .8 3,602 1.0
- -------------------------------------------------------------------------------------------
Total consumer 171,682 47.7 161,198 45.1
- -------------------------------------------------------------------------------------------
Total loans and leases $360,236 100.0 % $357,328 100.0 %
- -------------------------------------------------------------------------------------------
</TABLE>
The table below summarizes the changes in the allowance for credit losses
for the three months and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
----------------------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 7,096 $ 6,731 $ 7,122 $ 6,778
- ---------------------------------------------------------------------------------------------------------------------
Loans and leases charged off (600) (1,043) (1,938) (2,371)
Recoveries of loans and leases previously charged off 140 141 439 448
- ---------------------------------------------------------------------------------------------------------------------
Net charge-offs (460) (902) (1,499) (1,923)
- ---------------------------------------------------------------------------------------------------------------------
Provision for credit losses 450 1,405 1,470 2,410
Other, net (10) (19) (17) (50)
- ---------------------------------------------------------------------------------------------------------------------
Balance, September 30 $ 7,076 $ 7,215 $ 7,076 $ 7,215
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the recorded investment in specific loans that
were considered individually impaired at September 30, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
September 30 December 31
(Dollars in Millions) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Commercial - domestic $997 $ 796
Commercial - foreign 472 314
Commercial real estate - domestic 463 554
- ---------------------------------------------------------------------------------
Total impaired loans $1,932 $1,664
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
A loan is considered impaired when, based on current information and
events, it is probable that the Corporation will be unable to collect all
amounts due, including principal and interest, according to the contractual
terms of the agreement. Once a loan has been identified as impaired, management
measures impairment in accordance with Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114). Impaired loans are measured based on the present value of payments
expected to be received, observable market prices, or for loans that are solely
dependent on the collateral for repayment, the estimated fair value of the
collateral. If the recorded investment in impaired loans exceeds the measure of
estimated fair value, a valuation allowance is established as a component of the
allowance for credit losses.
At September 30, 1999 and December 31, 1998, nonperforming loans, including
certain loans which are considered to be impaired, totaled $2.8 billion and $2.5
billion, respectively. Foreclosed properties amounted to $228 million and $282
million at September 30, 1999 and December 31, 1998, respectively.
10
<PAGE>
Note Five - Debt
In the third quarter of 1999, the Corporation issued $610 million in senior
and subordinated long-term debt, domestically and internationally, with
maturities ranging from 2004 to 2014. Of the $610 million issued, $133 million
was converted from fixed rates ranging primarily from 7.0 percent to 7.75
percent to floating rates through interest rate swaps at spreads ranging from 12
to 17 basis points over three-month London InterBank Offered Rate (LIBOR) and
six-month LIBOR flat. The remaining $477 million of debt issued bears interest
at 32 basis points over three-month LIBOR.
Bank of America, N.A. maintains a domestic program to offer up to $35
billion of bank notes from time to time with fixed or floating rates and
maturities of 7 days or more from date of issue. At September 30, 1999, there
were short-term and long-term bank notes outstanding under current and former
programs of $10.7 billion and $9.5 billion, respectively.
Since October 1996, the Corporation has formed thirteen wholly-owned
grantor trusts to issue trust preferred securities to the public. The grantor
trusts invested the proceeds of such trust preferred securities in junior
subordinated notes of the Corporation. Certain of the trust preferred securities
were issued at a discount. Such trust preferred securities may be redeemed prior
to maturity at the option of the Corporation. The sole assets of each of the
grantor trusts are the Junior Subordinated Deferrable Interest Notes of the
Corporation (the Notes) held by such grantor trusts. The terms of the
outstanding trust preferred securities at September 30, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Aggregate Per
Principal Aggregate Annum
Amount of Principal Interest Stated
Trust Amount of Rate of Maturity of
(Dollars in Millions) Issued Securities the Notes the Notes the Notes
- -------------------------------------------------------------------------------------------------------------------------
<S>
NationsBank <C> <C> <C> <C> <C>
Capital Trust I December 1996 $600 $619 7.84 % December 2026
Capital Trust II December 1996 365 376 7.83 December 2026
Capital Trust III February 1997 500 516 3-mo. LIBOR January 2027
+55 bps
Capital Trust IV April 1997 500 516 8.25 April 2027
BankAmerica
Institutional Capital A November 1996 450 464 8.07 December 2026
Institutional Capital B November 1996 300 309 7.70 December 2026
Capital I December 1996 300 309 7.75 December 2026 (1)
Capital II December 1996 450 464 8.00 December 2026
Capital III January 1997 400 412 3-mo. LIBOR January 2027
+57 bps
Capital IV February 1998 350 361 7.00 March 2028
Barnett
Capital I November 1996 300 309 8.06 December 2026
Capital II December 1996 200 206 7.95 December 2026
Capital III January 1997 250 258 3-mo. LIBOR February 2027
+62.5 bps
- -------------------------------------------------------------------------------------------------------------------------
Total $4,965 $5,119
- -------------------------------------------------------------------------------------------------------------------------
(1) At the option of the Corporation, 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.
</TABLE>
For additional information on trust preferred securities, see Note Nine
of the Corporation's 1998 Annual Report on Form 10-K on pages 71-72.
At September 30, 1999, the Corporation had a commercial paper back-up
credit facility equal to $669 million, which expired in October 1999. The
11
<PAGE>
Corporation elected not to renew this line of credit. At September 30, 1999,
there was no amount outstanding under this credit facility. This line was
supported by fees paid to unaffiliated banks. The Corporation had additional
commercial paper back-up credit facilities totaling $2.0 billion which were
terminated at the option of the Corporation on September 30, 1999.
At September 30, 1999, the Corporation had the authority to issue
approximately $19.5 billion of corporate debt and other securities under its
existing shelf registration statements.
Under a joint Euro medium-term note program, the Corporation and Bank of
America, N.A. may offer an aggregate of $15.0 billion of senior long-term debt
or, in the case of the Corporation, subordinated notes exclusively to non-United
States residents. The notes bear interest at fixed or floating rates and may be
denominated in U.S. dollars or foreign currencies. The Corporation uses foreign
currency contracts to convert certain foreign-denominated debt into the economic
equivalent of U.S. dollars. At September 30, 1999, $4.4 billion of the
Corporation's notes were outstanding under this program. At September 30, 1999,
$3.5 billion of notes were outstanding under the former BankAmerica Euro
medium-term note program. Of the $15.0 billion authority, at September 30, 1999,
the Corporation and Bank of America, N.A. had a remaining authority to issue
approximately $10.6 billion in the aggregate of debt securities under the
current program.
In the third quarter of 1999, Bank of America, N.A. issued $751 million in
senior long-term bank notes, with maturities from 2000 to 2003. Of the $751
million issued, $361 million bears interest at floating rates with spreads
ranging from four to 14 basis points above three-month LIBOR. Of the remaining
$390 million, $200 million bears interest at 34.5 basis points below and 34.5
basis points above the Fed Funds rate, $110 million bears interest at spreads
ranging from 2.62 basis points to 2.75 basis points below the prime rate, and
$10 million bears interest at 10 basis points above one-month LIBOR. The
remaining $70 million was converted through interest rate swaps from fixed rates
ranging from 5.65 percent to 6.05 percent to three-month LIBOR flat. During the
third quarter of 1999, Bank of America, FSB received advances from the Federal
Home Loan Bank totaling $510 million, with maturities ranging from 2004 to 2019.
Of the $510 million in advances, $500 million bears interest at a floating rate
of one basis point below three-month LIBOR. The remaining $10 million bears
interest at fixed rates ranging from 5.61 percent to 6.51 percent.
From October 1, 1999, through November 15, 1999, Bank of America, N.A.
issued $451 million of long-term bank notes, with maturities ranging from 2001
to 2004 at rates ranging from 9.5 basis points to 18 basis points over
three-month LIBOR.
From October 1, 1999, through November 15, 1999, the Corporation issued
$146 million of long-term debt, with maturities ranging from 2009 to 2039. Of
the $146 million issued, $90 million was converted from fixed rates ranging from
7.25 percent to 7.75 percent to floating rates through interest rate swaps at
spreads ranging from 11 to 13 basis points over three-month LIBOR. The remaining
$56 million of debt issued bears interest at four basis points below three-month
LIBOR.
Note Six - Commitments and Contingencies
Credit Extension Commitments
The Corporation enters into commitments to extend credit, standby letters of
credit and commercial letters of credit to meet the financing needs of its
customers. The commitments shown below have been reduced by amounts
collateralized by cash and amounts participated to other financial institutions.
The following summarizes outstanding commitments to extend credit:
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in Millions) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Credit card commitments $ 65,949 $ 67,018
Other loan commitments 246,890 234,453
Standby letters of credit and financial guarantees 30,563 33,311
Commercial letters of credit 3,641 3,035
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Derivatives
Credit Risk Associated with Derivative-Dealer Activities
The table below presents the notional or contract amounts at September 30,
1999 and December 31, 1998 and the credit risk amounts (the net replacement cost
of contracts in a gain position) of the Corporation's derivative-dealer
positions which are primarily executed in the over-the-counter market. This
table should be read in conjunction with the Off-Balance Sheet section on pages
29 through 33 and Note Eleven of the Corporation's 1998 Annual Report on Form
10-K. The notional or contract amounts indicate the total volume of
transactions, and management believes these amounts significantly exceed the
amount of the Corporation's credit or market risk associated with these
instruments. Credit risk associated with derivatives is measured as the net
replacement cost should the counterparties with contracts in a gain position to
the Corporation completely fail to perform under the terms of those contracts
and any collateral underlying the contracts proves to be of no value. The credit
risk presented in the following table does not consider the value of any
collateral, but generally takes into consideration the effects of legally
enforceable master netting agreements.
<TABLE>
<CAPTION>
Derivative-Dealer Positions
- ---------------------------------------------------------------------------------------------
(Dollars in Millions) September 30, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------
Contract/ Credit Contract/ Credit
Notional Risk Notional Risk
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $2,204,088 $ 6,822 $1,539,862 $ 5,470
Futures and forwards 607,272 68 808,284 290
Written options 623,150 - 494,608 -
Purchased options 605,330 1,075 615,492 2,125
Foreign exchange contracts:
Swaps 43,438 1,023 37,357 1,403
Spot, futures and forwards 603,038 3,971 623,977 5,136
Written options 44,851 - 56,287 -
Purchased options 44,162 513 53,426 703
Commodity and other contracts:
Swaps 9,803 739 5,685 370
Futures and forwards 20,174 387 5,292 -
Written options 28,913 - 22,382 -
Purchased options 34,018 2,466 22,134 989
- ---------------------------------------------------------------------------------------------
Total before cross-product netting 17,064 16,486
Cross-product netting 1,043 1,274
- ---------------------------------------------------------------------------------------------
Net replacement cost $16,021 $15,212
- ---------------------------------------------------------------------------------------------
</TABLE>
The table above includes both long and short derivative-dealer positions.
The average fair value of derivative-dealer assets for the nine months ended
September 30, 1999 and for the year ended December 31, 1998 was $15.2 billion
and $14.3 billion, respectively. The average fair value of derivative-dealer
liabilities for the nine months ended September 30, 1999 and for the year ended
December 31, 1998 was $15.6 billion and $13.3 billion, respectively. The fair
value of derivative-dealer assets at September 30, 1999 and December 31, 1998
was $18.1 billion and $16.4 billion, respectively. The fair value of
derivative-dealer liabilities at September 30, 1999 and December 31, 1998 was
$18.7 billion and $16.8 billion, respectively.
The Corporation uses credit derivatives to diversify credit risk and lower
its risk portfolio by transferring the exposure of an underlying credit to
another counterparty. The Corporation also uses credit derivatives to generate
revenue by taking on exposure to underlying credits. On the client side, the
Corporation provides credit derivatives to sophisticated customers who wish to
hedge existing credit exposures or take on additional credit exposure to
13
<PAGE>
generate revenue. The majority of the Corporation's credit derivative positions
consist of credit default swaps and total return swaps. At September 30, 1999
and December 31, 1998, the Corporation had a notional amount of $13.2 billion
and $16.9 billion and a fair value of $44.0 million and $62.3 million,
respectively, in credit derivatives.
Asset and Liability Management (ALM) Activities
The table below outlines the status of the Corporation's ALM activity
at September 30, 1999 and December 31, 1998. It presents the notional amount and
fair value of open contracts and unamortized results of terminated contracts.
This table should be read in conjunction with the Off-Balance Sheet section on
pages 29 through 33 and Note Eleven of the Corporation's 1998 Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Notional Fair Notional Fair
(Dollars in millions) Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Open interest rate contracts:
Receive fixed swaps $71,369 $(910) $60,450 $ 1,958
Pay fixed swaps 24,367 (125) 25,770 (1,006)
- --------------------------------------------------------------------------------------------------------------------
Net open receive fixed 47,002 (1,035) 34,680 952
Basis swaps 8,103 (7) 7,736 (10)
- --------------------------------------------------------------------------------------------------------------------
Total net swap position 55,105 (1,042) 42,416 942
Open futures and forwards - - 6,348 2
Open option products 34,154 (40) 26,836 (46)
- --------------------------------------------------------------------------------------------------------------------
Total open interest rate contracts $(1,082) (1) $ 898 (1)
- --------------------------------------------------------------------------------------------------------------------
Closed interest rate contracts (2):
Terminated swap positions $ 205 $ 294
Terminated futures and forwards (18) (1)
Terminated option products 87 26
- --------------------------------------------------------------------------------------------------------------------
Total closed interest rate contracts $ 274 $ 319
- --------------------------------------------------------------------------------------------------------------------
Net interest rate contract position $(808) $ 1,217
====================================================================================================================
(1) Represents the net unrealized gains (losses) on open interest rate contracts.
(2) Represents the unamortized net realized deferred gains (losses) associated with terminated interest rate contracts.
</TABLE>
When-Issued Securities
At September 30, 1999, the Corporation had commitments to purchase and sell
when-issued securities of $11.5 billion and $15.7 billion, respectively. At
December 31, 1998, the Corporation had commitments to purchase and sell
when-issued securities of $1.3 billion and $2.4 billion, respectively.
Litigation
In the ordinary course of business, the Corporation and its subsidiaries
are routinely defendants in or parties to a number of pending and threatened
legal actions and proceedings, including actions brought on behalf of various
classes of claimants. In certain of these actions and proceedings, substantial
money damages are asserted against the Corporation and its subsidiaries and
certain of these actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and other laws.
The Corporation and certain present and former officers and directors have
been named as defendants in a number of actions filed in several federal courts
that have been consolidated for pretrial purposes before a Missouri federal
court. The amended complaint in the consolidated actions alleges, among other
things, that the defendants failed to disclose material facts about
BankAmerica's losses relating to D.E. Shaw & Co., L.P. until mid-October 1998,
in violation of various provisions of federal and state laws. The amended
complaint also alleges that the proxy statement-prospectus of August 4, 1998,
falsely stated that the Merger would be one of equals and alleges a scheme to
14
<PAGE>
have NationsBank gain control over the newly merged entity. The Missouri federal
court has certified classes consisting generally of persons who were
shareholders of NationsBank or BankAmerica on September 30, 1998, or were
entitled to vote on the Merger, or who purchased or acquired securities of the
Corporation or its predecessors between August 4, 1998 and October 13, 1998.
Similar class actions (including one limited to California residents) are
pending in California state court, alleging violations of the California
Corporations Code and other state laws. The action on behalf of California
residents has been certified. The Corporation believes the actions lack merit
and will defend them vigorously. The amount of any ultimate exposure cannot be
determined with certainty at this time.
Management believes that the actions and proceedings and the losses, if
any, resulting from the final outcome thereof, will not be material in the
aggregate to the Corporation's financial position or results of operations.
Note Seven - Stock Repurchase Program
On June 23, 1999, the Corporation's Board of Directors authorized the
repurchase of up to 130 million shares of the Corporation's common stock at an
aggregate cost of up to $10.0 billion. Through September 30, 1999, the
Corporation had repurchased 43 million shares of its common stock under an
accelerated share repurchase program and in open market repurchases at an
average per-share price of $67.53, which reduced shareholders' equity by $2.9
billion. The remaining buyback authority for common stock under the current
program totaled $7.1 billion at September 30, 1999.
Note Eight - Earnings Per Common Share
Earnings per common share is computed by dividing net income available to
common shareholders by the weighted average common shares issued and
outstanding.
For diluted earnings per common share, net income available to common
shareholders can be affected by the conversion of the registrant's convertible
preferred stock. Where the effect of this conversion would have been dilutive,
net income available to common shareholders is adjusted by the associated
preferred dividends. This adjusted net income is divided by the weighted average
number of common shares issued and outstanding for each period plus amounts
representing the dilutive effect of stock options outstanding and the dilution
resulting from the conversion of the registrant's convertible preferred stock,
if applicable. The effect of convertible preferred stock is excluded from the
computation of diluted earnings per common share in periods in which the effect
would be antidilutive.
15
<PAGE>
The calculation of earnings per common share and diluted earnings per
common share is presented below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Shares in Thousands, Dollars in Millions, September 30 September 30
-------------------------------------------------------
Except Per-Share Information) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common share:
Net income $2,151 $374 $5,980 $4,003
Preferred stock dividends (2) (2) (5) (24)
- ---------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $2,149 $372 $5,975 $3,979
- ---------------------------------------------------------------------------------------------------------------------------
Average common shares issued and outstanding 1,722,307 1,740,092 1,734,401 1,732,297
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share $ 1.25 $ .21 $3.45 $2.30
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Net income available to common shareholders $2,149 $372 $5,975 $3,979
Preferred stock dividends 2 2 5 24
Preferred stock dividends on nonconvertible stock - - - (19)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of assumed conversions 2 2 5 5
- ---------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders and assumed
conversions $2,151 $374 $5,980 $3,984
- ---------------------------------------------------------------------------------------------------------------------------
Average common shares issued and outstanding 1,722,307 1,740,092 1,734,401 1,732,297
Incremental shares from assumed conversions:
Convertible preferred stock 3,058 3,079 3,058 3,079
Stock options 29,781 41,247 36,233 46,730
- ---------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 32,839 44,326 39,291 49,809
- ---------------------------------------------------------------------------------------------------------------------------
Total dilutive average common shares issued and outstanding 1,755,146 1,784,418 1,773,692 1,782,106
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 1.23 $ .21 $ 3.37 $2.24
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note Nine - Business Segment Information
Management reports the results of operations of the Corporation through
four business segments: Consumer Banking, which provides comprehensive retail
banking services to individuals and small businesses through multiple delivery
channels; Commercial Banking, which provides a wide range of commercial banking
services for businesses with annual revenues of up to $500 million; Global
Corporate and Investment Banking, which provides a broad array of financial and
investment banking products such as capital-raising products, trade finance,
treasury management, capital markets and financial advisory services to domestic
and international corporations, financial institutions and government entities;
and Principal Investing and Asset Management, which includes direct equity
investments in businesses and investments in general partnership funds, provides
asset management, banking and trust services for high net worth clients both in
the U.S. and internationally through its Private Bank, provides full service and
discount brokerage, investment advisory and investment management, as well as
advisory services for the Corporation's affiliated family of mutual funds.
The following table includes revenue and net income for the nine months
ended September 30, 1999 and 1998, and total assets at September 30, 1999 and
1998 for each business segment:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30 September 30
---------------------------------------------------- ------------------------
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) Revenue Net Income Total Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Banking $13,463 $13,936 $2,940 $2,970 $256,610 $262,968
Commercial Banking 2,315 2,273 640 791 65,550 65,858
Global Corporate and Investment Banking 6,172 5,074 1,615 131 221,357 223,311
Principal Investing and Asset Management 2,117 1,830 627 434 25,395 23,073
- ----------------------------------------------------------------------------------------------------------------------------
Total $24,067 $23,113 $5,822 $4,326 $568,912 $575,210
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no material intersegment revenues among the four business
segments.
16
<PAGE>
A reconciliation of the segments' net income to consolidated net income
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Nine Months Ended
September 30
-------------------------
(Dollars in Millions) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Segments' net income $5,822 $4,326
Adjustments, net of taxes:
Gains on sales of securities 113 386
Gains on sales of subsidiary companies - 37
Merger-related charges, net (145) (884)
Earnings associated with unassigned capital 201 140
Other (11) (2)
- -----------------------------------------------------------------------------------------------------
Consolidated net income $5,980 $4,003
- -----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
On September 30, 1998, NationsBank Corporation (NationsBank) completed its
merger with the former BankAmerica Corporation (BankAmerica) and changed its
name to "BankAmerica Corporation". On April 28, 1999, BankAmerica Corporation
changed its name to Bank of America Corporation (the Corporation). In addition,
on January 9, 1998, the Corporation completed its merger with Barnett Banks,
Inc. (Barnett). The BankAmerica and Barnett mergers were each accounted for as a
pooling of interests and, accordingly, all financial information has been
restated for all periods presented.
This report on Form 10-Q contains certain forward-looking statements that
are subject to risks and uncertainties and include information about possible or
assumed future results of operations. Many possible events or factors could
affect the future financial results and performance of the Corporation. This
could cause results or performance to differ materially from those expressed in
our forward-looking statements. Words such as "expects", "anticipates",
"believes", "estimates", variations of such words and other similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in, or
implied by, such forward-looking statements. Readers of the Corporation's Form
10-Q should not rely solely on the forward-looking statements and should
consider all uncertainties and risks discussed throughout this report, as well
as those discussed in the Corporation's 1998 Annual Report on Form 10-K filed
March 22, 1999. These statements are representative only on the date hereof, and
the Corporation undertakes no obligation to update any forward-looking
statements made.
The possible events or factors include the following: the Corporation's
loan growth is dependent on economic conditions, as well as various
discretionary factors, such as decisions to securitize, sell, or purchase
certain loans or loan portfolios; syndications or participations of loans;
retention of residential mortgage loans; and the management of borrower,
industry, product and geographic concentrations and the mix of the loan
portfolio. The rate of charge-offs and provision expense can be affected by
local, regional and international economic and market conditions, concentrations
of borrowers, industries, products and geographic locations, the mix of the loan
portfolio and management's judgments regarding the collectibility of loans.
Liquidity requirements may change as a result of fluctuations in assets and
liabilities and off-balance sheet exposures, which will impact the capital and
debt financing needs of the Corporation and the mix of funding sources.
Decisions to purchase, hold or sell securities are also dependent on liquidity
requirements and market volatility, as well as on- and off-balance sheet
positions. Factors that may impact interest rate risk include local, regional
and international economic conditions, levels, mix, maturities, yields or rates
of assets and liabilities, utilization and effectiveness of interest rate
contracts and the wholesale and retail funding sources of the Corporation.
Factors that may cause actual noninterest expense to differ from estimates
include the ability of third parties with whom the Corporation has business
relationships to fully accommodate uncertainties relating to the Corporation's
efforts to prepare its technology systems and non-information technology systems
for the Year 2000, as well as uncertainties relating to the ability of third
parties with whom the Corporation has business relationships to address the Year
2000 issue in a timely and adequate manner. The Corporation is also exposed to
the potential of losses arising from adverse changes in market rates and prices
which can adversely impact the value of financial products, including
securities, loans, deposits, debt and derivative financial instruments, such as
futures, forwards, swaps, options and other financial instruments with similar
characteristics.
In addition, the banking industry in general is subject to various monetary
and fiscal policies and regulations, which include those determined by the
Federal Reserve Board, the Office of the Comptroller of the Currency (OCC),
Federal Deposit Insurance Corporation, state regulators and the Office of Thrift
Supervision, whose policies and regulations could affect the Corporation's
results. Other factors that may cause actual results to differ from the
forward-looking statements include the following: competition with other local,
regional and international banks, savings and loan associations, credit unions
and other nonbank financial institutions, such as investment banking firms,
investment advisory firms, brokerage firms, mutual funds and insurance
18
<PAGE>
companies, as well as other entities which offer financial services, located
both within and outside the United States; interest rate, market and monetary
fluctuations; inflation; market volatility; general economic conditions and
economic conditions in the geographic regions and industries in which the
Corporation operates; introduction and acceptance of new banking-related
products, services and enhancements; fee pricing strategies, mergers and
acquisitions and their integration into the Corporation and management's ability
to manage these and other risks.
Earnings Review
Table One presents a comparison of selected operating results for the three
months and nine months ended September 30, 1999 and 1998. Significant changes in
the Corporation's results of operations and financial position are discussed in
the sections that follow.
Net income for the three months ended September 30, 1999 increased $1.8
billion to $2.2 billion from $374 million in the same period of 1998, which
included merger-related charges of $725 million ($519 million after-tax). The
change was partially due to higher levels of trading account profits and fees,
which increased $842 million to $313 million, and investment banking income,
which increased $326 million to $702 million, for the three months ended
September 30, 1999. The third quarter of 1998 was impacted by the establishment
of an allowance for credit losses due to weaknesses in global economic
conditions. Earnings per common share and diluted earnings per common share were
$1.25 and $1.23, respectively, for the three months ended September 30, 1999,
compared to $0.21 for both earnings per common share and diluted earnings per
common share in the comparable period of 1998.
Operating net income (net income excluding merger-related charges) for the
three months ended September 30, 1999, increased to $2.2 billion from $893
million for the same period in 1998. Operating earnings per common share and
diluted operating earnings per common share were $1.25 and $1.23, respectively,
for the three months ended September 30, 1999, compared to $0.51 and $0.50 in
the comparable prior year period. See Note Two of the consolidated financial
statements on page 6 for additional information on merger-related activity.
Including merger-related charges of $200 million ($145 million after-tax)
for the nine months ended September 30, 1999, net income increased $2.0 billion
to $6.0 billion from $4.0 billion for the nine months ended September 30, 1998,
which included net merger-related charges of $1.2 billion ($884 million
after-tax). The earnings per common share and diluted earnings per common share
for the nine months ended September 30, 1999 were $3.45 and $3.37, respectively,
compared to $2.30 and $2.24 in the comparable prior year period.
Operating net income for the nine months ended September 30, 1999 increased
to $6.1 billion from $4.9 billion for the same period in 1998. Operating
earnings per common share and diluted operating earnings per common share were
$3.53 and $3.45, respectively, for the nine months ended September 30, 1999
compared to $2.81 and $2.73 in the comparable prior year period.
Key performance highlights for the nine months ended September 30, 1999 were:
o Net interest income on a taxable-equivalent basis for the nine months ended
September 30, 1999 increased to $13.9 billion as compared to $13.8 billion
for the same period in 1998, reflecting strong loan and core deposit
growth, partially offset by the impact of securitizations, asset sales and
divestitures. The net interest yield decreased to 3.52 percent for the nine
months ended September 30, 1999 compared to 3.74 percent for the nine
months ended September 30, 1998, due primarily to higher levels of
lower-yielding investment securities.
o The provision for credit losses totaled $1.5 billion for the nine months
ended September 30, 1999 compared to $2.4 billion for the same period in
1998. Net charge-offs for the nine months ended September 30, 1999 were
$1.5 billion in comparison to $1.9 billion for the same period in 1998. Net
charge-offs as a percentage of average loans and leases decreased to 0.55
percent for the nine months ended September 30, 1999 compared to 0.75
19
<PAGE>
percent for the nine months ended September 30, 1998. Declines in
consumer finance and bankcard net charge-offs were offset by increases in
commercial-domestic net charge-offs for the nine months ended September
30, 1999. Commercial - domestic net charge-offs for the nine months ended
September 30, 1998 were impacted by a charge-off of a credit to DE Shaw
Securities Group, Inc. (DE Shaw), a trading and investment firm.
Nonperforming assets at September 30, 1999 were $3.0 billion compared to
$2.6 billion at December 31, 1998, mainly the result of higher commercial
and consumer finance nonperforming loans, offset by a decline in
residential mortgage nonperforming loans.
o Noninterest income increased 9.8 percent to $10.5 billion for the nine
months ended September 30, 1999 compared to $9.5 billion for the same
period of 1998. This increase was primarily attributable to higher levels
of income from trading account profits and fees, mortgage servicing income
and credit card income. The increase was partially offset by lower levels
of nondeposit-related service fees and other income.
o Other noninterest expense decreased 4.4 percent to $13.4 billion for the
nine months ended September 30, 1999 compared to $14.1 billion for the nine
months ended September 30, 1998. This decrease was primarily attributable
to merger-related savings resulting in lower levels of professional fees,
other general operating expense and general administrative expense.
o Cash basis ratios, which measure operating performance excluding goodwill
and other intangible assets and the related amortization expense, improved
with cash basis diluted earnings per common share increasing by 43 percent
to $3.75 for the nine months ended September 30, 1999 compared to $2.62 for
the same period a year ago. Excluding merger-related charges, cash basis
diluted earnings per common share were $3.83 and $3.11 for the nine months
ended September 30, 1999 and 1998, respectively. For the nine months ended
September 30, 1999, return on average tangible common shareholders' equity,
excluding merger-related charges, increased to 28.48 percent compared to
25.69 percent for the same period in 1998. Including merger-related
charges, the return on average tangible common shareholders' equity was
27.87 percent and 21.59 percent for the nine months ended September 30,
1999 and 1998, respectively.
o The cash basis efficiency ratio, excluding merger-related charges, was
52.36 percent for the nine months ended September 30, 1999, an improvement
of 493 basis points from the same period in 1998, primarily due to a $628
million decrease in other noninterest expense, excluding amortization of
intangibles.
20
<PAGE>
<TABLE>
<CAPTION>
Table One
Selected Operating Results
Three Months Nine Months
Ended September 30 Ended September 30
----------------------------------------------------------
(Dollars in Millions, Except Per-Share Information) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement
Interest income $ 9,294 $ 9,608 $ 27,701 $ 28,950
Interest expense 4,744 5,164 13,939 15,261
Net interest income 4,550 4,444 13,762 13,689
Net interest income (taxable-equivalent basis) 4,603 4,484 13,911 13,811
Provision for credit losses 450 1,405 1,470 2,410
Gains on sales of securities 44 280 226 613
Noninterest income 3,728 2,405 10,473 9,534
Merger-related charges, net - 725 200 1,195
Other noninterest expense 4,526 4,583 13,436 14,054
Income before income taxes 3,346 416 9,355 6,177
Income tax expense 1,195 42 3,375 2,174
Net income 2,151 374 5,980 4,003
Net income available to common shareholders 2,149 372 5,975 3,979
Net income (excluding merger-related charges) 2,151 893 6,125 4,887
Average common shares issued and outstanding (in thousands) 1,722,307 1,740,092 1,734,401 1,732,297
Balance Sheet (period-end)
Total loans and leases $360,236 $351,982 $360,236 $351,982
Total assets 620,652 594,673 620,652 594,673
Total deposits 337,011 345,756 337,011 345,756
Long-term debt 54,352 47,552 54,352 47,552
Common shareholders' equity 45,811 47,245 45,811 47,245
Total shareholders' equity 45,889 47,307 45,889 47,307
Performance ratios
Return on average assets 1.40 % .26 % 1.31 % .93 %
Return on average assets (excluding merger-related charges) 1.40 .61 1.34 1.13
Return on average common shareholders' equity 18.40 3.23 17.19 12.01
Return on average common shareholders' equity (excluding merger-related charges) 18.40 7.73 17.61 14.68
Efficiency ratio (excluding merger-related charges) 54.34 66.55 55.10 60.20
Total equity to total assets (period-end) 7.39 7.96 7.39 7.96
Total average equity to total average assets 7.59 7.91 7.60 7.76
Dividend payout ratio 36.02 162.10 39.20 45.29
Risk-based capital ratios (period-end)
Tier 1 capital 7.71 7.29 7.71 7.29
Total capital 11.39 11.25 11.39 11.25
Leverage ratio 6.59 6.64 6.59 6.64
Cash basis financial data (1)
Earnings per common share $ 1.38 $ .34 $ 3.83 $ 2.69
Earnings per common share (excluding merger-related charges) 1.38 .64 3.91 3.20
Diluted earnings per common share 1.35 .34 3.75 2.62
Diluted earnings per common share (excluding merger-related charges) 1.35 .63 3.83 3.11
Return on average tangible assets 1.58 % .42 % 1.49 % 1.11 %
Return on average tangible assets (excluding merger-related charges) 1.58 .79 1.52 1.33
Return on average tangible common shareholders' equity 29.48 7.76 27.87 21.59
Return on average tangible common shareholders' equity
(excluding merger-related charges) 29.48 14.51 28.48 25.69
Efficiency ratio (excluding merger-related charges) 51.67 63.28 52.36 57.29
Ending tangible equity to tangible assets 5.22 5.59 5.22 5.59
Per common share data
Earnings $ 1.25 $ .21 $ 3.45 $ 2.30
Earnings (excluding merger-related charges) 1.25 .51 3.53 2.81
Diluted earnings 1.23 .21 3.37 2.24
Diluted earnings (excluding merger-related charges) 1.23 .50 3.45 2.73
Cash dividends paid .45 .38 1.35 1.14
Book value 26.79 27.12 26.79 27.12
Market price per share of common stock
Closing 55.69 53.50 55.69 53.50
High 76 3/8 88 7/16 76 3/8 88 7/16
Low 53 1/4 47 7/8 53 1/4 47 7/8
(1) Cash basis calculations exclude goodwill and other intangible assets and the related amortization expense.
</TABLE>
21
<PAGE>
Business Segment Operations
The Corporation provides a diversified range of banking and certain
nonbanking financial services and products through its various subsidiaries.
Management reports the results of the Corporation's operations through four
business segments: Consumer Banking, Commercial Banking, Global Corporate and
Investment Banking, and Principal Investing and Asset Management.
The business segments summarized in Table Two are primarily managed with a
focus on various performance objectives including net income, return on average
equity and operating efficiency. These performance objectives are also presented
on a cash basis, which excludes the impact of goodwill and other intangible
assets and the related amortization expense. The net interest income of the
business segments reflects the results of a funds transfer pricing process which
derives net interest income by matching assets and liabilities with similar
interest rate sensitivity and maturity characteristics. Equity capital is
allocated to each business segment based on an assessment of its inherent risk.
See Note Nine of the consolidated financial statements on page 16 for
additional business segment information and a reconciliation of the segments'
net income to consolidated net income.
Consumer Banking
The Consumer Banking segment provides comprehensive retail banking products
and services to individuals and small businesses through multiple delivery
channels including approximately 4,500 banking centers and 14,000 automated
teller machines (ATMs). These banking centers and ATMs are located principally
throughout the Corporation's franchise and serve approximately 30 million
households in 21 states and the District of Columbia. This segment also provides
specialized services such as the origination and servicing of residential
mortgage loans, issuance and servicing of credit cards, direct banking via
telephone and personal computer, student lending and certain insurance services.
The consumer finance component provides mortgage, home equity and automobile
loans to consumers, retail finance programs to dealers and lease financing to
purchasers of new and used cars.
Consumer Banking's earnings of $2.9 billion for the nine months ended
September 30, 1999 were essentially flat when compared to the same period last
year. Taxable-equivalent net interest income decreased two percent to $8.7
billion, primarily reflecting the impact of securitizations, loan sales and
divestitures, partially offset by average managed loan growth and reduced
funding costs from deposit expense management. As the Corporation continues to
securitize loans, its role becomes that of a servicer and the servicing income,
as well as the gains on securitizations, are reflected in noninterest income.
Excluding the impact of securitizations, acquisitions and divestitures, average
total loans and leases for the nine months ended September 30, 1999 increased 14
percent over average levels for the nine months ended September 30, 1998.
Average total deposits for the nine months ended September 30, 1999 of $229.4
billion were essentially unchanged compared to the nine months ended September
30, 1998. The net interest yield increased six basis points for the nine months
ended September 30, 1999 to 4.96 percent.
The provision for credit losses for the nine months ended September 30,
1999 of $990 million increased from $973 million for the nine months ended
September 30, 1998.
Noninterest income in Consumer Banking declined seven percent to $4.8
billion for the nine months ended September 30, 1999 due to lower other income
primarily due to gains realized on the sale of a manufactured housing unit and
the sale of real estate included in premises and equipment during the nine
months ended September 30, 1998, partially offset by increased mortgage
servicing and production fees and credit card income. Mortgage servicing and
production fees increased primarily due to higher revenue from portfolio growth
and lower prepayments resulting from higher interest rates.
Noninterest expense decreased five percent to $7.8 billion due to
reductions primarily in personnel expense, other general operating expense and
data processing expense. These decreases mainly reflect successful
merger-related savings efforts. The cash basis efficiency ratio was 54.6
percent, an improvement of 170 basis points over the nine months ended September
30, 1998. The return on tangible equity increased to 31 percent from 30 percent.
22
<PAGE>
Commercial Banking
The Commercial Banking segment provides a wide range of commercial banking
services for businesses with annual revenues of up to $500 million. Services
provided include commercial lending, treasury and cash management services,
asset-backed lending and factoring. Also included in this segment are the
Corporation's commercial finance operations which provide: equipment loans and
leases, loans for debt restructuring, mergers and working capital, real estate
and health care financing and inventory financing to manufacturers, distributors
and dealers.
Commercial Banking's earnings decreased 19 percent to $640 million for the
nine months ended September 30, 1999 compared to $791 million for the nine
months ended September 30, 1998. Taxable-equivalent net interest income
decreased $35 million from the comparable period in 1998, primarily reflecting
lower yields on earning assets partially offset by reduced funding costs from
deposit expense and borrowed funds management. Commercial Banking's average
managed loan and lease portfolio during the nine months ended September 30, 1999
increased slightly to $56.5 billion compared to $55.2 billion during the same
period of 1998.
The provision for credit losses for the nine months ended September 30,
1999 of $132 million increased from $45 million for the nine months ended
September 30, 1998.
Noninterest income increased 14 percent to $638 million over the nine
months ended September 30, 1998 primarily due to increased revenue from
investment banking activities.
Noninterest expense for the period increased eight percent to $1.1 billion
primarily due to an increase in other general operating expense. The cash basis
efficiency ratio increased 400 basis points to 46.8 percent. The return on
tangible equity decreased to 23 percent from 28 percent.
Global Corporate and Investment Banking
The Global Corporate and Investment Banking segment provides a broad array
of financial and investment banking products such as capital-raising products,
trade finance, treasury management, investment banking, capital markets, leasing
and financial advisory services to domestic and international corporations,
financial institutions and government entities. Clients are supported through
offices in 37 countries in four distinct geographic regions: U.S. and Canada;
Asia; Europe, Middle East and Africa; and Latin America. Products and services
provided include loan origination, cash management, foreign exchange, leasing,
leveraged finance, project finance, real estate finance, senior bank debt,
structured finance and trade services. Through a separate subsidiary, Banc of
America Securities LLC, formerly NationsBanc Montgomery Securities, Global
Corporate and Investment Banking is a primary dealer of U.S. Government
securities, underwrites and makes markets in equity securities, and underwrites
and deals in high-grade and high-yield corporate debt securities, commercial
paper, mortgage-backed and asset-backed securities, federal agencies securities
and municipal securities. Banc of America Securities LLC also provides
correspondent clearing services for other securities broker/dealers, offers
traditional brokerage service to high net worth individuals and provides
prime-brokerage services. Debt and equity securities research, loan
syndications, mergers and acquisitions advisory services and private
placements are also provided through Banc of America Securities LLC.
Additionally, Global Corporate and Investment Banking is a market maker in
derivative products which include swap agreements, option contracts, forward
settlement contracts, financial futures, and other derivative products in
certain interest rate, foreign exchange, commodity and equity markets. In
support of these activities, Global Corporate and Investment Banking takes
positions in securities and derivatives to support client demands and for its
own account.
Global Corporate and Investment Banking's net income increased
significantly to $1.6 billion for the nine months ended September 30, 1999
compared to $131 million for the nine months ended September 30, 1998.
Taxable-equivalent net interest income for the nine months ended September 30,
1999 increased four percent to $2.9 billion primarily due to the impact of lower
trading related and foreign activities in the third quarter of 1998 which more
than offsets the impact of lower rates and spread compression on loans and
deposits during 1999. The average managed loan and lease portfolio increased
four percent to $111.8 billion for the nine months ended September 30, 1999
compared to $107.4 billion for the nine months ended September 30, 1998.
23
<PAGE>
The provision for credit losses decreased from $1.4 billion for the nine
months ended September 30, 1998 to $250 million during the same period of 1999.
The change is primarily attributable to certain nonrecurring charges in the
third quarter of 1998 including the establishment of an allowance for credit
losses related to weaknesses in global economic conditions.
Noninterest income for the nine months ended September 30, 1999 increased
43 percent to $3.3 billion over the nine months ended September 30, 1998,
reflecting an increase in trading account profits and fees partially offset by
lower investment banking income and brokerage income. The decrease in investment
banking fees and brokerage income is partially attributable to the sale of the
investment banking operations of Robertson Stephens in the third quarter of
1998.
Noninterest expense decreased three percent to $3.5 billion, due primarily
to decreased personnel expense and other general operating expense. The cash
basis efficiency ratio decreased to 54.3 percent for the nine months ended
September 30, 1999 compared to 68.1 percent for the nine months ended September
30, 1998. The return on tangible equity increased to 21 percent from three
percent.
Principal Investing and Asset Management
The Principal Investing and Asset Management segment includes Asset
Management which provides asset management, banking and trust services for high
net worth clients both in the U.S. and internationally through its Private Bank.
In addition, this segment provides full service and discount brokerage,
investment advisory and investment management, as well as advisory services for
the Corporation's affiliated family of mutual funds. The Principal Investing
area includes direct equity investments in businesses and investments in general
partnership funds.
Principal Investing and Asset Management earned $627 million for the nine
months ended September 30, 1999 compared to $434 million for the nine months
ended September 30, 1998, an increase of 44 percent. Taxable-equivalent net
interest income for the nine months ended September 30, 1999 increased 10
percent to $370 million compared to $337 million for the nine months ended
September 30, 1998, reflecting increased loan volumes partially offset by
increased funding costs. The average loan and lease portfolio for the nine
months ended September 30, 1999 increased 28 percent to $18.7 billion compared
to $14.5 billion in the same period during 1998.
The provision for credit losses for the nine months ended September 30,
1999 of $98 million increased $84 million from the same period during 1998
primarily due to portfolio growth and a charge-off related to one significant
relationship in the Private Bank.
Noninterest income for the nine months ended September 30, 1999 increased
17 percent to $1.7 billion compared to the nine months ended September 30, 1998,
primarily attributable to growth in principal investing income, brokerage income
and asset management fees. Brokerage income and asset management fees had strong
core growth during the nine months ended September 30, 1999 which was somewhat
mitigated by the sale of the investment management operations of Robertson
Stephens.
Noninterest expense decreased 11 percent to $1.0 billion, due primarily to
lower personnel expense, professional fees, other general operating expense and
processing expense. The cash basis efficiency ratio decreased to 46.7 percent
from 61.6 percent. The return on tangible equity increased to 31 percent for the
nine months ended September 30, 1999 from 28 percent for the nine months ended
September 30, 1998.
24
<PAGE>
<TABLE>
<CAPTION>
Table Two
Business Segment Summary
For the Nine Months Ended September 30
Consumer Commercial Global Corporate and Principal Investing and
Banking Banking Investment Banking Asset Management
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income
(taxable-equivalent basis) 8,686 $ 8,824 $1,677 $1,712 $ 2,864 $ 2,764 $ 370 $ 337
Noninterest income 4,777 5,112 638 561 3,308 2,310 1,747 1,493
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 13,463 13,936 2,315 2,273 6,172 5,074 2,117 1,830
Provision for credit losses 990 973 132 45 250 1,378 98 14
Gains on sales of securities 43 9 - 4 6 1 - -
Noninterest expense 7,826 8,277 1,126 1,042 3,468 3,561 1,015 1,142
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,690 4,695 1,057 1,190 2,460 136 1,004 674
Income tax expense 1,750 1,725 417 399 845 5 377 240
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,940 $ 2,970 $ 640 $ 791 $ 1,615 $ 131 $ 627 $ 434
===================================================================================================================================
Cash basis earnings (1) $ 3,419 $ 3,396 $ 683 $ 860 $ 1,734 $ 235 $ 654 $ 450
Net interest yield 4.96 % 4.90 % 3.95 % 4.03 % 2.13 % 2.11 % 2.58 % 3.01 %
Average equity to average assets 7.45 7.67 7.06 7.91 5.87 5.97 13.36 12.77
Return on average equity 20 20 20 21 17 1 27 25
Return on tangible equity (1) 31 30 23 28 21 3 31 28
Efficiency ratio 58.1 59.4 48.6 45.8 56.2 70.2 47.9 62.4
Cash basis efficiency ratio (1) 54.6 56.3 46.8 42.8 54.3 68.1 46.7 61.6
Average:
Total loans and leases $180,267 $168,404 $56,487 $56,480 $107,478 $105,027 $18,653 $14,537
Total deposits 229,379 228,470 22,379 20,838 64,521 62,805 11,691 11,625
Total assets 261,325 264,989 61,372 62,456 216,308 211,637 23,011 18,488
Period-end:
Total loans and leases 182,906 166,393 56,612 57,347 101,547 112,234 19,593 16,482
Total deposits 227,928 225,228 22,496 21,725 63,677 65,673 10,514 11,852
Total assets 256,610 262,968 65,550 65,858 221,357 223,311 25,395 23,073
(1) Cash basis calculations exclude goodwill and other intangible assets and the related amortization expense.
</TABLE>
Results of Operations
Net Interest Income
An analysis of the Corporation's net interest income on a
taxable-equivalent basis and average balance sheet levels for the most recent
five quarters and for the nine months ended September 30, 1999 and 1998 is
presented in Tables Three and Four, respectively.
Net interest income on a taxable-equivalent basis increased approximately
three percent to $4.6 billion in the third quarter of 1999 and amounted to $13.9
billion in the first nine months of 1999 compared to $4.5 billion and $13.8
billion for the same respective 1998 periods. These increases are primarily
attributable to strong managed loan growth, particularly in consumer loan
products, and higher core funding levels, partially offset by the impact of
securitizations, asset sales and divestitures.
Average earning assets increased nearly $32.7 billion and $33.6 billion
from the three months ended and nine months ended September 30, 1998,
respectively, to $528.6 billion and $527.5 billion in the same periods of 1999.
These increases are primarily attributable to 10 percent managed loan growth and
higher core domestic funding levels, offset by securitizations, asset sales and
divestitures. Managed consumer loans increased 14 percent, led by franchise-wide
growth in residential mortgages of 19 percent and strong growth in real-estate
secured consumer finance loans of 32 percent. As the Corporation continues to
securitize loans, its role becomes that of a servicer, and the servicing income,
as well as the gains on securitizations, is reflected in noninterest income.
Loan growth is dependent on economic conditions as well as various discretionary
factors, such as decisions to securitize certain loan portfolios and the
management of borrower, industry, product and geographic concentrations.
The net interest yield decreased 14 basis points to 3.46 percent for the
three months ended September 30, 1999 and decreased 22 basis points to 3.52
percent for the nine months ended September 30, 1999, compared to 3.60 percent
and 3.74 percent in the comparable periods of 1998, primarily due to higher
levels of lower-yielding investment securities.
25
<PAGE>
Provision for Credit Losses
The provision for credit losses totaled $450 million and $1.47 billion for
the three months and nine months ended September 30, 1999, respectively,
compared to $1.41 billion and $2.41 billion for the same periods in 1998. The
1998 provision was impacted by certain nonrecurring charges including
a provision related to weaknesses in global economic conditions in the third
quarter of 1998. Total net charge-offs were essentially covered by the provision
for credit losses for the three months and nine months ended September 30, 1999.
For additional information on the allowance for credit losses, certain credit
quality ratios and credit quality information on specific loan categories, see
the "Concentrations of Credit Risk" and "Allowance for Credit Losses" sections.
Gains on Sales of Securities
Gains on sales of securities were $44 million and $226 million for the
three months and nine months ended September 30, 1999, respectively, compared to
$280 million and $613 million in the respective periods for 1998. Securities
gains were lower in 1999 as a result of a continued decrease in the activity
connected with the Corporation's overall risk management operations and less
favorable market conditions for certain debt instruments.
26
<PAGE>
<TABLE>
<CAPTION>
Table Three
Quarterly Taxable-Equivalent Data
Third Quarter 1999 Second Quarter 1999
--------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in Millions) Balance Expense Rate Balance Expense Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Time deposits placed and other short-term investments $ 5,018 $ 69 5.50 % $ 5,159 $ 65 5.03 %
Federal funds sold and securities purchased under
agreements to resell 33,074 440 5.30 29,521 387 5.25
Trading account assets 37,453 483 5.14 39,837 528 5.31
Securities:
Available for sale (1) 78,779 1,208 6.12 76,373 1,139 5.97
Held for investment 1,482 26 7.02 1,482 28 7.61
- -------------------------------------------------------------------------------------------------------------------
Total securities 80,261 1,234 6.13 77,855 1,167 6.00
- -------------------------------------------------------------------------------------------------------------------
Loans and leases (2):
Commercial - domestic 136,149 2,488 7.25 138,257 2,473 7.17
Commercial - foreign 28,348 494 6.93 30,209 456 6.05
Commercial real estate - domestic 25,056 517 8.19 25,938 533 8.25
Commercial real estate - foreign 295 7 8.80 289 6 8.48
- -------------------------------------------------------------------------------------------------------------------
Total commercial 189,848 3,506 7.33 194,693 3,468 7.14
- -------------------------------------------------------------------------------------------------------------------
Residential mortgage 80,015 1,431 7.14 80,151 1,430 7.14
Home equity lines 16,316 321 7.79 15,857 304 7.68
Direct/Indirect consumer 42,740 875 8.13 42,240 859 8.15
Consumer finance 19,923 433 8.62 17,794 424 9.56
Bankcard 8,923 256 11.38 10,365 306 11.83
Foreign consumer 3,635 86 9.36 3,653 87 9.55
- -------------------------------------------------------------------------------------------------------------------
Total consumer 171,552 3,402 7.89 170,060 3,410 8.03
- -------------------------------------------------------------------------------------------------------------------
Total loans and leases 361,400 6,908 7.59 364,753 6,878 7.56
- -------------------------------------------------------------------------------------------------------------------
Other earning assets 11,358 213 7.40 12,924 232 7.23
- -------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 528,564 9,347 7.03 530,049 9,257 7.00
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 25,905 25,868
Other assets, less allowance for credit losses 56,979 59,447
- -------------------------------------------------------------------------------------------------------------------
Total assets $611,448 $615,364
===================================================================================================================
Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings $ 26,037 82 1.25 $ 21,799 67 1.24
NOW and money market deposit accounts 96,402 579 2.38 100,897 581 2.31
Consumer CDs and IRAs 73,429 898 4.85 73,601 847 4.61
Negotiated CDs, public funds and other time deposits 6,609 94 5.66 6,238 80 5.14
- -------------------------------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits 202,477 1,653 3.24 202,535 1,575 3.12
- -------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits (4):
Banks located in foreign countries 13,668 160 4.65 16,947 196 4.62
Governments and official institutions 7,185 90 4.99 8,089 98 4.81
Time, savings and other 25,500 295 4.57 26,354 299 4.56
- -------------------------------------------------------------------------------------------------------------------
Total foreign interest-bearing deposits 46,353 545 4.66 51,390 593 4.62
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 248,830 2,198 3.50 253,925 2,168 3.42
- -------------------------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 114,934 1,437 4.96 116,339 1,396 4.82
Trading account liabilities 15,677 189 4.78 14,178 150 4.25
Long-term debt (5) 59,283 920 6.21 58,302 880 6.03
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (6) 438,724 4,744 4.30 442,744 4,594 4.16
- -------------------------------------------------------------------------------------------------------------------
Noninterest-bearing sources:
Noninterest-bearing deposits 88,168 88,324
Other liabilities 38,117 37,405
Shareholders' equity 46,439 46,891
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $611,448 $615,364
- -------------------------------------------------------------------------------------------------------------------
Net interest spread 2.73 2.84
Impact of noninterest-bearing sources .73 .69
- -------------------------------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $4,603 3.46 % $4,663 3.53 %
===================================================================================================================
(1) The average balance and yield on available for sale securities are based on the average of historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized on
a cash basis.
(3) Interest income includes taxable-equivalent adjustments of $53, $51 and $45 in the third, second and first quarters of 1999 and
$41 and $40 in the fourth and third quarters of 1998, respectively. Interest income also includes the impact of risk management
interest rate contracts, which increased interest income on the underlying assets $103, $83 and $63 in the third, second
and first quarters of 1999 and $70 and $46 in the fourth and third quarters of 1998, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate contracts, which decreased interest expense on the
underlying liabilities $6, $52 and $60 in the third, second and first quarters of 1999 and $27 and $9 in the fourth and
third quarters of 1998, respectively.
27
<PAGE>
<CAPTION>
First Quarter 1999 Fourth Quarter 1998 Third Quarter 1998
------------------------------------------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in Millions) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Earning assets
Time deposits placed and other short-term investments $ 6,408 $ 88 5.58 % $ 6,702 $ 111 6.56 % $ 7,483 $ 138 7.31 %
Federal funds sold and securities purchased under
agreements to resell 26,561 381 5.80 29,564 486 6.53 27,646 492 7.06
Trading account assets 41,129 547 5.36 39,391 613 6.19 35,487 587 6.59
Securities:
Available for sale (1) 73,925 1,161 6.31 69,354 1,162 6.68 61,250 1,046 6.82
Held for investment 1,905 33 6.84 2,948 44 6.09 4,286 76 6.99
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 75,830 1,194 6.33 72,302 1,206 6.66 65,536 1,122 6.83
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and leases (2):
Commercial - domestic 138,272 2,444 7.16 136,629 2,542 7.39 132,537 2,538 7.59
Commercial - foreign 31,568 494 6.35 32,893 569 6.86 31,245 578 7.35
Commercial real estate - domestic 26,827 559 8.45 28,427 601 8.38 28,027 610 8.64
Commercial real estate - foreign 286 6 8.79 319 8 9.39 338 8 10.51
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial 196,953 3,503 7.21 198,268 3,720 7.45 192,147 3,734 7.71
- ------------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 75,789 1,356 7.18 73,033 1,336 7.30 70,619 1,155 6.53
Home equity lines 15,537 298 7.79 15,781 326 8.17 16,024 485 12.03
Direct/Indirect consumer 41,652 847 8.24 40,557 876 8.57 39,582 854 8.56
Consumer finance 15,880 373 9.53 14,368 338 9.33 14,197 385 10.76
Bankcard 11,287 327 11.76 12,078 366 12.01 12,751 399 12.43
Foreign consumer 3,648 89 9.90 3,551 94 10.47 3,465 93 10.57
- ------------------------------------------------------------------------------------------------------------------------------------
Total consumer 163,793 3,290 8.11 159,368 3,336 8.32 156,638 3,371 8.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 360,746 6,793 7.62 357,636 7,056 7.84 348,785 7,105 8.09
- ------------------------------------------------------------------------------------------------------------------------------------
Other earning assets 13,008 243 7.53 11,471 207 7.19 10,974 204 7.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 523,682 9,246 7.13 517,066 9,679 7.44 495,911 9,648 7.73
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 25,826 25,834 24,160
Other assets, less allowance for credit losses 60,116 63,641 58,282
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $609,624 $606,541 $578,353
====================================================================================================================================
Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings $21,637 71 1.33 $ 21,702 91 1.67 $22,775 107 1.87
NOW and money market deposit accounts 99,864 575 2.33 97,589 622 2.53 95,276 634 2.64
Consumer CDs and IRAs 74,362 857 4.68 74,923 956 5.06 74,313 984 5.25
Negotiated CDs, public funds and other time deposits 6,914 89 5.20 7,388 96 5.16 8,696 120 5.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits 202,777 1,592 3.18 201,602 1,765 3.47 201,060 1,845 3.64
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits (4):
Banks located in foreign countries 20,379 268 5.34 24,938 325 5.17 27,892 418 5.95
Governments and official institutions 9,172 113 5.02 10,278 143 5.54 11,084 156 5.59
Time, savings and other 26,980 339 5.10 26,868 365 5.39 24,086 411 6.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total foreign interest-bearing deposits 56,531 720 5.17 62,084 833 5.32 63,062 985 6.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 259,308 2,312 3.62 263,686 2,598 3.91 264,122 2,830 4.25
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 112,384 1,355 4.88 104,416 1,422 5.40 84,283 1,278 6.02
Trading account liabilities 12,679 129 4.13 14,194 165 4.62 15,454 194 4.97
Long-term debt (5) 52,642 805 6.12 51,779 844 6.52 51,365 862 6.71
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (6) 437,013 4,601 4.26 434,075 5,029 4.60 415,224 5,164 4.94
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing sources:
Noninterest-bearing deposits 86,623 88,080 83,661
Other liabilities 39,709 39,335 33,712
Shareholders' equity 46,279 45,051 45,756
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $609,624 $606,541 $578,353
====================================================================================================================================
Net interest spread 2.87 2.84 2.79
Impact of noninterest-bearing sources .71 .74 .81
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $4,645 3.58 % $4,650 3.58 % $4,484 3.60 %
====================================================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Table Four
Nine Month Taxable-Equivalent Data
Nine Months Ended September 30
-------------------------------------------------------------
1999 1998
-------------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in Millions) Balance Expense Rate Balance Expense Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Time deposits placed and other short-term investments $ 5,523 $ 222 5.39 % $ 7,968 $ 403 6.76 %
Federal funds sold and securities purchased
under agreements to resell 29,742 1,208 5.43 26,521 1,342 6.76
Trading account assets 39,459 1,558 5.27 39,903 2,021 6.77
Securities:
Available for sale (1) 76,377 3,508 6.13 60,285 3,124 6.92
Held for investment 1,621 87 7.13 4,506 238 7.04
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 77,998 3,595 6.15 64,791 3,362 6.92
- --------------------------------------------------------------------------------------------------------------------------------
Loans and leases (2):
Commercial - domestic 137,551 7,405 7.20 128,003 7,446 7.77
Commercial - foreign 30,030 1,444 6.43 30,382 1,677 7.38
Commercial real estate - domestic 25,934 1,609 8.30 28,415 1,902 8.95
Commercial real estate - foreign 290 19 8.69 333 25 10.27
- --------------------------------------------------------------------------------------------------------------------------------
Total commercial 193,805 10,477 7.23 187,133 11,050 7.89
- --------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 78,667 4,217 7.15 70,103 3,544 6.74
Home equity lines 15,906 923 7.75 16,246 1,415 11.65
Direct/Indirect consumer 42,216 2,581 8.17 40,087 2,630 8.77
Consumer finance 17,880 1,230 9.20 14,367 1,191 11.08
Bankcard 10,183 889 11.67 13,258 1,272 12.83
Foreign consumer 3,645 262 9.60 3,345 263 10.52
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer 168,497 10,102 8.01 157,406 10,315 8.76
- --------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 362,302 20,579 7.59 344,539 21,365 8.29
- --------------------------------------------------------------------------------------------------------------------------------
Other earning assets 12,426 688 7.38 10,178 579 7.61
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets (3) 527,450 27,850 7.05 493,900 29,072 7.86
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 25,867 24,595
Other assets, less allowance for credit losses 58,835 58,560
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $612,152 $577,055
================================================================================================================================
Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings $23,174 220 1.27 $23,025 330 1.92
NOW and money market deposit accounts 99,041 1,735 2.34 96,188 1,914 2.66
Consumer CDs and IRAs 73,794 2,602 4.71 74,565 2,959 5.29
Negotiated CDs, public funds and other
time deposits 6,586 263 5.33 7,677 318 5.53
- --------------------------------------------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits 202,595 4,820 3.18 201,455 5,521 3.66
- --------------------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits (4):
Banks located in foreign countries 16,973 624 4.91 24,469 1,080 5.90
Governments and official institutions 8,141 301 4.94 10,597 447 5.64
Time, savings and other 26,274 933 4.71 23,383 1,165 6.66
- --------------------------------------------------------------------------------------------------------------------------------
Total foreign interest-bearing deposits 51,388 1,858 4.83 58,449 2,692 6.16
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 253,983 6,678 3.52 259,904 8,213 4.22
- --------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 114,562 4,188 4.89 85,983 3,817 5.94
Trading account liabilities 14,189 468 4.41 18,577 730 5.25
Long-term debt (5) 56,766 2,605 6.12 49,359 2,501 6.76
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (6) 439,500 13,939 4.24 413,823 15,261 4.93
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing sources:
Noninterest-bearing deposits 87,710 83,465
Other liabilities 38,405 35,012
Shareholders' equity 46,537 44,755
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $612,152 $577,055
================================================================================================================================
Net interest spread 2.81 2.95
Impact of noninterest-bearing sources .71 .79
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $13,911 3.52 % $13,811 3.74 %
================================================================================================================================
(1) The average balance and yield on available for sale securities are based on the average of historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized on
a cash basis.
(3) Interest income includes taxable-equivalent adjustments of $149 and $122 in the nine months ended September 30, 1999 and 1998,
respectively. Interest income also includes the impact of risk management interest rate contracts, which increased interest
income on the underlying assets $249 and $104 in the nine months ended September 30, 1999 and 1998, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate contracts, which decreased interest expense on the
underlying liabilities $118 and $18 in the nine months ended September 30, 1999 and 1998, respectively.
</TABLE>
29
<PAGE>
Noninterest Income
As presented in Table Five, noninterest income increased 55 percent to $3.7
billion and 10 percent to $10.5 billion for the three months and nine months
ended September 30, 1999, respectively, reflecting higher levels of trading
account profits and fees, mortgage servicing income and credit card income.
These increases were partially offset by lower levels of income from
nondeposit-related service fees and other income.
<TABLE>
<CAPTION>
Table Five
Noninterest Income
Three Months Nine Months
Ended September 30 Change Ended September 30 Change
-------------------------------------------------------------------------------
(Dollars in Millions) 1999 1998 Amount Percent 1999 1998 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 942 $ 855 $ 87 10.2 % $ 2,697 $ 2,515 $ 182 7.2 %
Mortgage servicing income 206 (93) 299 n/m 463 286 177 61.9
Investment banking income 702 376 326 86.7 1,645 1,653 (8) (.5)
Trading account profits and fees 313 (529) 842 n/m 1,208 75 1,133 n/m
Brokerage income 168 198 (30) (15.2) 544 566 (22) (3.9)
Nondeposit-related service fees 136 163 (27) (16.6) 395 502 (107) (21.3)
Asset management and fiduciary service fees 250 238 12 5.0 767 744 23 3.1
Credit card income 496 379 117 30.9 1,304 1,050 254 24.2
Other income 515 818 (303) (37.0) 1,450 2,143 (693) (32.3)
- ---------------------------------------------------------------------------------------------------------------------------
Total $3,728 $2,405 $1,323 55.0 % $10,473 $9,534 $ 939 9.8 %
===========================================================================================================================
n/m= not meaningful
</TABLE>
o Mortgage servicing income increased $299 million to $206 million and $177
million to $463 million for the three months and nine months ended
September 30, 1999, respectively, mainly due to higher servicing revenue
from portfolio growth and lower prepayment speeds as a result of higher
interest rates. The average portfolio of loans serviced increased 14
percent from $219 billion for the nine months ended September 30, 1998 to
$250 billion for the nine months ended September 30, 1999. Mortgage loan
originations through the Corporation's mortgage units decreased to $42.5
billion for the nine months ended September 30, 1999 compared to $49.8
billion for the same period in 1998, reflecting a slowdown in refinancings
as a result of a general increase in levels of interest rates. Origination
volume for the nine months ended September 30, 1999 was composed of
approximately $19.3billion of retail loans and $23.2 billion of
correspondent and wholesale loans.
In conducting its mortgage production activities, the Corporation is
exposed to interest rate risk for the period between loan commitment date
and subsequent delivery date. To manage this risk, the Corporation enters
into various financial instruments including forward delivery and option
contracts. The notional amount of such contracts was approximately $4
billion at September 30, 1999 with an associated net unrealized
depreciation of $14 million. These contracts have an average expected
maturity of less than 90 days. To manage risk associated with changes in
prepayment rates and the impact on mortgage servicing rights, the
Corporation uses various financial instruments including options and
certain swap contracts. This hedging activity resulted in a net gain
position of $40 million at September 30, 1999, which inclided terminated
contracts with realized deferred gains of $312 million and existing
contracts having a notional amount of $41 billion and associated unrealized
depreciation of $272 million.
o Investment banking income increased 87 percent to $702 million for the
three months ended September 30, 1999, mainly due to higher levels of
activity in principal investing, securities underwriting and syndications,
partially offset by lower fees in advisory services. Investment banking
income remained virtually unchanged at $1.6 billion for the nine months
ended September 30, 1999. Principal investing income increased $261 million
to $339 million and $133 million to $629 million for the three months and
nine months ended September 30, 1999, respectively, compared to the same
30
<PAGE>
prior year periods, primarily reflecting a gain on the sale of an
investment in a sub-prime mortgage lender in the third quarter of 1999.
Securities underwriting fees increased $38 million to $119 million and
decreased $179 million to $339 million for the three months and nine months
ended September 30, 1999, respectively, over the comparable 1998 periods.
The decrease during the nine months ended September 30, 1999 was due to the
sale of the investment banking operations of Robertson Stephens in the
third quarter of 1998, partially offset by higher levels of equity
underwriting during the three months ended September 30, 1999. Syndication
fees increased 52 percent to $167 million and nine percent to $357 million
for the three months and nine months ended September 30, 1999,
respectively, reflecting our position as lead arranger on 195 deals during
the third quarter of 1999. Advisory services fees decreased 32 percent to
$52 million and 28 percent to $175 million for the three and nine months
ended September 30, 1999, respectively, also as a result of the sale of the
investment banking operations of Robertson Stephens in the third quarter
of 1998. Other investment banking income increased $77 million for the nine
months ended September 30, 1999, respectively, primarily due to a gain
on the sale of other assets in the second quarter of 1999. Investment
banking income by major business activity follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Banking Income
Principal investing $339 $ 78 $ 629 $ 496
Securities underwriting 119 81 339 518
Syndications 167 110 357 327
Advisory services 52 76 175 244
Other 25 31 145 68
- ----------------------------------------------------------------------------------------
Total $702 $376 $1,645 $1,653
========================================================================================
</TABLE>
o Trading account profits and fees increased $842 million to $313 million and
$1.1 billion to $1.2 billion for the three months and nine months ended
September 30, 1999, respectively, over the comparable 1998 periods. The
increase was primarily attributable to stronger activity in equity and
fixed income derivatives for the three months ended September 30, 1999.
Prior year profits were impacted by a write-down of Russian securities,
losses in corporate bonds, and widening of mortgage product spreads. The
fair value of the components of the Corporation's trading account assets
and liabilities on September 30, 1999 and December 31, 1998, as well as
their average fair value for the nine months ended September 30, 1999 are
disclosed in Note Three of the consolidated financial statements on page 8.
Trading account profits and fees by major business activity follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading Account Profits and Fees
Derivatives and securities trading $154 $(588) $ 703 $(390)
Foreign exchange contracts 138 51 443 436
Other 21 8 62 29
- ----------------------------------------------------------------------------------------
Total $313 $(529) $1,208 $ 75
========================================================================================
</TABLE>
o Nondeposit-related service fees decreased 17 percent to $136 million and 21
percent to $395 million for the three months and nine months ended
September 30, 1999, respectively. The decrease was primarily due to reduced
general banking service and official check and draft fees for the three
months and nine months ended September 30, 1999.
o Credit card income increased 31 percent to $496 million and 24 percent to
$1.3 billion for the three months and nine months ended September 30, 1999,
respectively. This increase was primarily due to higher securitization
31
<PAGE>
revenues, a result of higher levels of securitizations compared to the
three months and nine months ended September 30, 1998, and higher
interchange fees.
o Other income totaled $515 million and $1.5 billion for the three months and
nine months ended September 30, 1999, respectively, a decrease of $303
million and $693 million from the same periods of 1998. Other income in
1998 included a $110 million gain on the sale of a partial ownership
interest in a mortgage company in the first quarter of 1998, an $84 million
gain on the sale of real estate included in premises and equipment in the
second quarter of 1998, and a $479 million gain on the sale of BankAmerica
Housing, partially offset by a write-down of an investment in South Korea
during the third quarter of 1998. Other income for the three months ended
September 30, 1999 included an $89 million gain on the sale of certain
businesses and securitization gains of $25 million. Securitization gains
for the nine months ended September 30, 1999 were $80 million.
Other Noninterest Expense
As presented in Table Six, the Corporation's other noninterest expense
decreased one percent and four percent to $4.5 billion and $13.4 billion for the
three months and nine months ended September 30, 1999, respectively, over the
same periods of 1998. This decrease was attributable to merger-related savings
resulting in lower levels of occupancy, professional fees, other general
operating expense and general administrative and other expenses.
<TABLE>
<CAPTION>
Table Six
Other Noninterest Expense
Three Months Nine Months
Ended September 30 Change Ended September 30 Change
--------------------------------------------------------------------------------------
(Dollars in Millions) 1999 1998 Amount Percent 1999 1998 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personnel $2,336 $2,246 $ 90 4.0 % $6,930 $7,111 $(181) (2.5) %
Occupancy 417 427 (10) (2.3) 1,208 1,230 (22) (1.8)
Equipment 313 346 (33) (9.5) 1,010 1,020 (10) (1.0)
Marketing 145 143 2 1.4 439 446 (7) (1.6)
Professional fees 160 206 (46) (22.3) 452 610 (158) (25.9)
Amortization of intangibles 222 224 (2) (.9) 669 679 (10) (1.5)
Data processing 164 195 (31) (15.9) 568 560 8 1.4
Telecommunications 131 142 (11) (7.7) 407 411 (4) (1.0)
Other general operating 498 510 (12) (2.4) 1,364 1,551 (187) (12.1)
General administrative and other 140 144 (4) (2.8) 389 436 (47) (10.8)
- ---------------------------------------------------------------------------------------------------------------------
Total $4,526 $4,583 $(57) (1.2) % $13,436 $14,054 $(618) (4.4) %
=====================================================================================================================
</TABLE>
A discussion of the significant components of other noninterest expense for
the three months and nine months ended September 30, 1999 compared to the same
periods in 1998 follows:
o Personnel expense increased $90 million for the three months ended
September 30, 1999 compared to the same period in 1998 primarily due to
higher incentive compensation and higher employee benefits as a result of
personnel increases at Banc of America Securities LLC. Personnel expense
decreased $181 million for the nine months ended September 30, 1999
compared to the same period in 1998 due mainly to merger-related savings in
salaries and wages. At September 30, 1999, the Corporation had
approximately 159,000 full-time equivalent employees compared to
approximately 171,000 full-time equivalent employees at December 31, 1998.
o Professional fees decreased 22 percent to $160 million for the three months
ended September 30, 1999 and 26 percent to $452 million for the nine months
ended September 30, 1999 compared to the same periods in 1998, primarily
due to decreases in outside legal and professional services.
32
<PAGE>
o Other general operating expense decreased $12 million and $187 million for
the three months and nine months ended September 30, 1999, respectively,
mainly as a result of decreases in loan collection expense and other
operating expense.
o General administrative and other expense declined $4 million and $47
million for the three months and nine months ended September 30, 1999,
respectively, due mainly to decreased travel expenses and franchise and
personal property taxes.
Year 2000 Project
The following is a Year 2000 Readiness Disclosure.
General
Because computers frequently use only two digits to recognize years, on
January 1, 2000, many computer systems, as well as equipment that uses embedded
computer chips, may be unable to distinguish between 1900 and 2000. If not
remediated, this problem could create system errors and failures resulting in
the disruption of normal business operations. Since 2000 is a leap year, there
could also be business disruptions as a result of the inability of many computer
systems to recognize February 29, 2000.
In October 1995, the Corporation began establishing project teams to
address Year 2000 issues. Personnel from these project teams and the
Corporation's business segments have identified, analyzed, corrected and tested
computer systems throughout the Corporation ("Systems"). Personnel have also
taken inventory of equipment that uses embedded computer chips (i.e.,
"non-information technology systems" or "Infrastructure") and remediated or
replaced this Infrastructure, as necessary. Examples of Infrastructure include
ATMs, building security systems, fire alarm systems, identification and access
cards, date stamps and elevators. The Corporation tracks certain Systems and
Infrastructure collectively ("Projects"). For purposes of this section, the
information provided for Systems and Projects is generally provided on a
combined basis.
State of Readiness
The Corporation's Year 2000 efforts are generally divided into phases for
analysis, remediation, testing and compliance. In the analysis phase, the
Corporation identified Systems/Projects and Infrastructure that had Year 2000
issues and determined the steps necessary to remediate these issues. In the
remediation phase, the Corporation replaced, modified or retired
Systems/Projects or Infrastructure, as necessary. During the testing phase, the
Corporation performed testing to determine whether the remediated
Systems/Projects and Infrastructure accurately processed and identified dates.
In the compliance phase, the Corporation internally certified the
Systems/Projects and Infrastructure that are Year 2000 ready and implemented
processes to enable these Systems/Projects and Infrastructure to continue to
identify and process dates accurately through the Year 2000 and thereafter.
As of September 30, 1999, the Corporation had identified approximately
4,700 Systems/Projects. In addition, the Corporation had identified over 16,600
Infrastructure items that may have Year 2000 implications. For Systems/Projects
and Infrastructure, as of September 30, 1999, the analysis, remediation, testing
and compliance phases were all substantially complete.
The Corporation tracks Systems/Projects and Infrastructure for Year
2000-required changes based on a risk evaluation. Of the identified
Systems/Projects and Infrastructure, approximately 1,900 Systems and
approximately 830 Infrastructure items were designated "mission critical" (i.e.,
if not made Year 2000 ready, these Systems or Infrastructure items would
substantially impact the normal conduct of business). For mission critical
Systems and Infrastructure, as of September 30, 1999, the analysis, remediation,
testing and compliance phases were all substantially complete. The Corporation
is also performing additional "time machine testing" (i.e., emulating Year 2000
conditions in dedicated environments) on selected mission critical Systems. In
addition, the Corporation is recertifying the approximately 1,900 mission
critical Systems.
Ultimately, the potential impact of Year 2000 issues will depend not only
on corrective measures the Corporation undertakes, but also on the way in which
Year 2000 issues are addressed by governmental agencies, businesses and other
entities which provide data to, or receive data from, the Corporation, or whose
financial condition or operational capability is important to the Corporation as
33
<PAGE>
borrowers, vendors, customers, investment opportunities (either for the
Corporation's accounts or for the accounts of others) or lenders. In addition,
the Corporation's business may be affected by the corrective measures taken by
the landlords and managers of buildings leased by the Corporation. Accordingly,
the Corporation has communicated with these parties to evaluate any potential
impact on the Corporation.
In particular, the Corporation has contacted its service providers and
software vendors (collectively, "Vendors") and has requested information on
their Year 2000 project readiness with respect to the services and products
provided by these Vendors. As of September 30, 1999, the Corporation has
determined the Year 2000 status of the services and products provided by its
Vendors and has initiated contingency plans for those Vendors who have not
demonstrated or documented their Year 2000 readiness.
The Corporation is also tracking the Year 2000 compliance efforts of
certain domestic and international agencies involved with payment systems for
cash and securities clearings. As of September 30, 1999, the Corporation has
identified 201 such agencies, all of which have responded to the Corporation's
inquiries that they are Year 2000 ready.
In addition, the Corporation has completed Year 2000 risk assessments for
substantially all of its commercial credit exposure. For any customers deemed
"high risk", on a quarterly basis, the Corporation's credit review committees
review the results of customer assessments prepared by the customers'
relationship managers. Weakness in a borrower's Year 2000 strategy is part of
the overall risk assessment process. Risk ratings and exposure strategy are
adjusted as required after consideration of all risk issues. Any impact on the
allowance for credit losses is determined through the normal risk rating
process.
The Corporation has also assessed potential Year 2000 risks associated with
its investment advisory and fiduciary activities. Each investment subsidiary has
a defined investment process and has integrated the consideration of Year 2000
issues into that process. When making investment decisions or recommendations,
the Corporation's investment research areas consider the Year 2000 issue as a
factor in their analysis and may take certain steps to investigate Year 2000
readiness, such as reviewing ratings, research reports and other publicly
available information. In the fiduciary area, the Corporation has assessed Year
2000 risks for business, real estate, oil and gas, and mineral interests that
are held in trust.
The Corporation has identified its significant depositors and assessed the
Year 2000 readiness of these customers. The Corporation is monitoring these
customers' balances for purposes of determining any potential liquidity risks to
the Corporation.
Costs
The Corporation currently estimates the total cost of the Year 2000 project
to be approximately $550 million. Of this amount, the Corporation has incurred
cumulative Year 2000 costs of approximately $505 million through September 30,
1999. A significant portion of the costs through September 30, 1999 was not
incremental to the Corporation but instead constituted a reallocation of
existing internal systems technology resources and, accordingly, was funded from
normal operations. Remaining costs are expected to be similarly funded.
Contingency Plans
The Corporation has existing business continuity plans that address its
response to disruptions to business due to natural disasters, civil unrest,
utility outages or other occurrences. Using these existing plans, the
Corporation has developed supplements to address potential Year 2000 issues that
could impact its business processes.
The Corporation has completed approximately 1,100 supplemental plans. Of
these plans, 785 deemed "high risk" or "medium risk" have been tested. In
addition to these plans, the Corporation has designed and implemented an event
management communications center as a single point of coordination and
information about all Year 2000 events, whether internal or external, that may
impact normal business processes. In addition to this center, the Corporation
has developed regional and functional event management teams. The Corporation
has conducted regional and international exercises simulating multiple,
simultaneous and diverse events to practice communication and coordination
skills and processes. A final global, corporate-wide exercise is scheduled for
mid-November.
34
<PAGE>
The Corporation is conducting a review and revalidation of all "high risk"
business continuity plans to ensure readiness for possible implementation in
2000.
The Corporation has established procedures to effectively monitor and
manage its liquidity and cash positions through year-end and has taken steps to
lock in liquidity over year-end and minimize funding requirements. The
Corporation has considered various liquidity scenarios and has identified
strategies to effectivly accommodate a wide range of liquidity positions that
could develop. The Corporation also daily monitors its cash inventory and makes
adjustments to meet customer demands, whether in ATMs, banking centers or cash
vaults.
Risks
Although the Corporation's remediation efforts are directed at reducing its
Year 2000 exposure, there can be no assurance that these efforts will fully
mitigate the effect of Year 2000 issues and it is likely that one or more events
may disrupt the Corporation's normal business operations. In the event the
Corporation fails to identify or correct a material Year 2000 problem, there
could be disruptions in normal business operations, which could have a material
adverse effect on the Corporation's results of operations, liquidity or
financial condition. In addition, there can be no assurance that significant
foreign and domestic third parties will adequately address their Year 2000
issues. Further, there may be some parties, such as governmental agencies,
utilities, telecommunication companies, financial services vendors and other
providers, for which alternative arrangements or resources are not available.
Also, risks associated with some foreign third parties may be greater than those
of domestic parties since there is general concern that some third parties
operating outside the United States are not addressing Year 2000 issues on a
timely basis.
In addition to the foregoing, the Corporation is subject to credit risk to
the extent borrowers fail to adequately address Year 2000 issues, to fiduciary
risk to the extent fiduciary assets fail to adequately address Year 2000 issues,
and to liquidity risk to the extent of deposit withdrawals and to the extent its
lenders are unable to provide the Corporation with funds due to Year 2000
issues. Although it is not possible to quantify the potential impact of these
risks at this time, there may be increases in future years in problem loans,
credit losses, losses in the fiduciary business and liquidity problems, as well
as the risk of litigation and potential losses from litigation related to the
foregoing.
Forward-looking statements contained in the foregoing "Year 2000 Project"
section should be read in conjunction with the cautionary statements included in
the introductory paragraphs under "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on pages 18 and 19.
Income Taxes
The Corporation's income tax expense for the three months and nine months
ended September 30, 1999 was $1.2 billion and $3.4 billion, respectively, for an
effective tax rate of 36 percent for both periods. Excluding merger-related
charges, the effective tax rate for both the three months and nine months ended
September 30, 1999 was 36 percent. Income tax expense for the three months and
nine months ended September 30, 1998 was $42 million and $2.2 billion,
respectively, for effective tax rates of 10 percent and 35 percent, or 22
percent and 34 percent excluding merger-related charges, respectively.
35
<PAGE>
Balance Sheet Review and Liquidity Risk Management
The Corporation utilizes an integrated approach in managing its balance
sheet, which includes management of interest rate sensitivity, credit risk,
liquidity risk and its capital position. The average balances discussed below
can be derived from Table Four. The following discussion addresses changes in
average balances for the nine months ended September 30, 1999 compared to the
same period in 1998.
Average levels of customer-based funds increased $5.4 billion to $290.3
billion for the nine months ended September 30, 1999 compared to average levels
for the nine months ended September 30, 1998. As a percentage of total sources,
average levels of customer-based funds decreased to 47 percent for the nine
months ended September 30, 1999 from 49 percent for the nine months ended
September 30, 1998.
Average levels of market-based funds increased $17.1 billion for the nine
months ended September 30, 1999 to $180.1 billion compared to $163.0 billion for
the nine months ended September 30, 1998. In addition, 1999 average levels of
long-term debt increased by $7.4 billion over average levels during the same
nine month period in 1998, mainly the result of borrowings to fund earning asset
growth and business development opportunities and to build liquidity.
The average securities portfolio for the nine months ended September 30,
1999 increased $13.2 billion over 1998 levels, representing 13 percent of total
uses of funds for the nine months ended September 30, 1999 compared to 11
percent for the nine months ended September 30, 1998. See the following
"Securities" section for additional information on the securities portfolio.
Average loans and leases, the Corporation's primary use of funds, increased
$17.8 billion to $362.3 billion during the nine months ended September 30, 1999.
Average managed loans and leases during the same period increased $33.9 billion,
or 9.6 percent, to $387.3 billion. This increase in average managed loans and
leases reflects strong loan growth in consumer products throughout the franchise
due to continued strength in consumer product introductions in certain regions.
Average other assets and cash and cash equivalents increased $1.5 billion
to $84.7 billion for the nine months ended September 30, 1999, due largely to
increases in the average balances of cash and cash equivalents,
derivative-dealer assets and secured accounts receivable, partially offset by a
decrease in customers' acceptance liability.
At September 30, 1999, cash and cash equivalents were $25.4 billion, a
decrease of $2.9 billion from December 31, 1998. During the nine months ended
September 30, 1999, net cash provided by operating activities was $6.6 billion,
net cash used in investing activities was $16.2 billion and net cash provided by
financing activities was $6.7 billion. For further information on cash flows,
see the Consolidated Statement of Cash Flows on page 4 of the consolidated
financial statements.
Liquidity is a measure of the Corporation's ability to fulfill its cash
requirements and is managed by the Corporation through its asset and liability
management process. The Corporation monitors its assets and liabilities and
modifies these positions as liquidity requirements change. This process, coupled
with the Corporation's ability to raise capital and debt financing, is designed
to cover the liquidity needs of the Corporation. Management believes that the
Corporation's sources of liquidity are more than adequate to meet its cash
requirements. The following discussion provides an overview of significant on-
and off-balance sheet components.
36
<PAGE>
Securities
The securities portfolio on September 30, 1999 consisted of held for
investment securities totaling $1.5 billion and available for sale securities
totaling $78.4 billion compared to $2.0 billion and $78.6 billion, respectively,
on December 31, 1998.
At September 30, 1999 and December 31, 1998, the market value of the
Corporation's held for investment securities reflected net unrealized
depreciation of $189 million and $144 million, respectively.
The valuation allowance for available for sale securities and marketable
equity securities decreased shareholders' equity by $1.7 billion at September
30, 1999, primarily reflecting pre-tax depreciation of $2.9 billion on debt
securities and pre-tax appreciation of $91 million on marketable equity
securities. The valuation allowance increased shareholders' equity by $303
million at December 31, 1998. The change in the valuation allowance was
primarily attributable to an upward shift in certain segments of the U.S.
Treasury yield curve during the first nine months of 1999.
The estimated average duration of held for investment securities and
available for sale securities portfolios were 6.94 years and 4.19 years,
respectively, at September 30, 1999 compared to 5.59 years and 4.14 years,
respectively, at December 31, 1998.
Concentrations of Credit Risk
The following section discusses credit risk in the loan portfolio. In an
effort to minimize the adverse impact of any single event or set of occurrences,
the Corporation strives to maintain a diverse credit portfolio. Table Seven
presents the distribution of loans and leases by category and net charge-offs by
loan category are presented in Table Eight. Table Nine reflects the
Corporation's real estate commercial loans, foreclosed properties and other real
estate credit exposures. Significant industry loans and leases are outlined in
Table Ten. The Corporation's selected regional foreign exposureis presented
in Table Eleven.
<TABLE>
<CAPTION>
Table Seven
Loans and Leases
September 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------
(Dollars in Millions) Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial - domestic $134,765 37.4 % $137,422 38.5 %
Commercial - foreign 28,176 7.8 31,495 8.8
Commercial real estate - domestic 25,317 7.0 26,912 7.5
Commercial real estate - foreign 296 .1 301 .1
- ---------------------------------------------------------------------------------------------
Total commercial 188,554 52.3 196,130 54.9
- ---------------------------------------------------------------------------------------------
Residential mortgage 80,518 22.4 73,608 20.6
Home equity lines 16,551 4.6 15,653 4.4
Direct/Indirect consumer 42,572 11.8 40,510 11.3
Consumer finance 20,421 5.7 15,400 4.3
Bankcard 8,712 2.4 12,425 3.5
Foreign consumer 2,908 .8 3,602 1.0
- ---------------------------------------------------------------------------------------------
Total consumer 171,682 47.7 161,198 45.1
- ---------------------------------------------------------------------------------------------
Total loans and leases $360,236 100.0 % $357,328 100.0 %
=============================================================================================
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Table Eight
Net Charge-offs in Dollars and as a Percentage of Average Loans and Leases Outstanding
Three Months Nine Months
Ended September 30 Ended September 30
------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial - domestic $192 .56 % $427 1.27 % $ 520 .51 % $ 504 .53 %
Commercial - foreign 9 .13 106 1.35 122 .54 177 .78
Commercial real estate - domestic 1 .03 (1) n/m (7) n/m - -
Commercial real estate - foreign - - - - 1 .37 - -
- ----------------------------------------------------------------------------------------------------------------------------
Total commercial 202 .42 532 1.10 636 .44 681 .49
- ----------------------------------------------------------------------------------------------------------------------------
Residential mortgage 10 .05 8 .04 22 .04 21 .04
Home equity lines 1 .01 3 .09 8 .06 14 .12
Direct/Indirect consumer 82 .77 87 .89 260 .83 292 .98
Consumer finance 67 1.35 98 2.74 157 1.18 307 2.86
Bankcard 93 4.11 170 5.29 401 5.26 600 6.05
Other consumer domestic (1) n/m 1 - (1) n/m 1 n/m
Foreign consumer 6 .67 3 .25 16 .58 7 .27
- ----------------------------------------------------------------------------------------------------------------------------
Total consumer 258 .60 370 .94 863 .68 1,242 1.06
- ----------------------------------------------------------------------------------------------------------------------------
Total net charge-offs $460 .51 % $902 1.03 % $1,499 .55 % $1,923 .75 %
============================================================================================================================
Selected managed net charge-offs and ratios:
Managed bankcard $233 4.83 % $312 5.99 % $821 5.66 % $983 6.42 %
n/m = not meaningful
Net charge-offs for each loan type are calculated as a percentage of average outstanding or managed loans for each loan category.
Total net charge-offs are calculated based on total average outstanding loans and leases.
</TABLE>
Commercial - Commercial - domestic loans outstanding totaled $134.8 billion
and $137.4 billion at September 30, 1999 and December 31, 1998, respectively, or
37 percent and 39 percent of loans and leases, respectively. The Corporation had
commercial domestic loan net charge-offs for the nine months ended September 30,
1999 of $520 million, or 0.51 percent of average commercial domestic loans,
compared to $504 million, or 0.53 percent of average commercial - domestic loans
for the nine months ended September 30, 1998. Nonperforming commercial -
domestic loans were $1.0 billion, or 0.76 percent of commercial - domestic
loans, at September 30, 1999, compared to $812 million, or 0.59 percent, at
December 31, 1998. The increase was attributable to a few large credits and
several smaller credits without concentration in any single industry or
geographic region. Commercial - domestic loans past due 90 days or more and
still accruing interest were $121 million, or 0.09 percent of commercial -
domestic loans, at September 30, 1999 compared to $135 million, or 0.10 percent,
at December 31, 1998.
Commercial - foreign loans outstanding totaled $28.2 billion and $31.5
billion at September 30, 1999 and December 31, 1998, respectively, or eight
percent and nine percent of loans and leases, respectively. The decrease
reflects the Corporation's continued reduction of its emerging market exposure
in Asia, Latin America and Central and Eastern Europe. The Corporation had
commercial foreign loan net charge-offs for the nine months ended September 30,
1999 of $122 million, or 0.54 percent of average commercial foreign loans,
compared to $177 million, or 0.78 percent of average commercial - foreign loans
for the nine months ended September 30, 1998. Nonperforming commercial - foreign
loans were $477 million, or 1.7 percent of commercial - foreign loans, at
September 30, 1999, compared to $314 million, or one percent, at December 31,
1998. The increase was primarily due to one large credit which was classified as
nonperforming in the second quarter of 1999. Commercial - foreign loans past due
90 days or more and still accruing interest were $21 million, or 0.08 percent of
commercial - foreign loans, at September 30, 1999 compared to $23 million, or
0.07 percent, at December 31, 1998. For additional information see International
Developments on page 40.
Commercial Real Estate - Total commercial real estate - domestic loans
totaled $25.3 billion and $26.9 billion at September 30, 1999 and December 31,
1998, respectively, or seven percent and eight percent of loans and leases,
respectively.
38
<PAGE>
Table Nine displays commercial real estate loans by geographic region and
property type, including the portion of such loans which are nonperforming, and
other real estate credit exposures. The exposures presented represent credit
extensions for real estate-related purposes to borrowers or counterparties who
are primarily in the real estate development or investment business and for
which the ultimate repayment of the credit is dependent on the sale, lease,
rental or refinancing of the real estate.
At September 30, 1999, commercial real estate - domestic loans past due 90
days or more and still accruing interest were $14 million, or 0.05 percent of
commercial real estate - domestic loans, compared to $12 million, or 0.04
percent, at December 31, 1998.
The exposures included in Table Nine do not include credit extensions which
were made on the general creditworthiness of the borrower for which real estate
was obtained as security and for which the ultimate repayment of the credit is
not dependent on the sale, lease, rental or refinancing of the real estate.
Accordingly, the exposures presented do not include commercial loans secured by
owner-occupied real estate, except where the borrower is a real estate
developer. In addition to the amounts presented in the tables, at September 30,
1999, the Corporation had approximately $18.2 billion of commercial loans which
were not real estate dependent but for which the Corporation had obtained real
estate as secondary repayment security.
<TABLE>
<CAPTION>
Table Nine
Real Estate Commercial Loans, Foreclosed Properties
and Other Real Estate Credit Exposures
September 30, 1999
Loans Other
---------------------------------- Foreclosed Credit
(Dollars in Millions) Outstanding Nonperforming Properties (1) Exposures (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
By Geographic Region (3)
California $ 5,397 $ 9 $ 35 $ 834
Southwest 3,529 18 1 350
Northwest 2,746 4 1 163
Florida 2,602 33 4 267
Geographically diversified 2,250 - - 216
Midwest 2,226 28 20 353
Midatlantic 1,725 15 5 305
Carolinas 1,172 37 8 98
Midsouth 1,095 12 1 164
Northeast 963 - - 151
Other states 1,612 18 34 187
Non-US 296 3 5 10
- --------------------------------------------------------------------------------------------------
Total $25,613 $177 $114 $3,098
==================================================================================================
By Property Type
Office buildings $5,109 $18 $ 7 $ 167
Apartments 4,657 10 1 738
Shopping centers/retail 3,108 33 27 415
Residential 2,761 18 3 382
Industrial/warehouse 2,042 54 2 80
Hotels/motels 1,473 1 - 84
Land and land development 1,095 13 37 206
Miscellaneous commercial 797 8 7 20
Multiple use 760 3 - 1
Unsecured 585 1 1 83
Other 2,930 15 24 912
Non-US 296 3 5 10
- --------------------------------------------------------------------------------------------------
Total $25,613 $177 $114 $3,098
==================================================================================================
(1) Foreclosed properties include commercial real estate loans only.
(2) Other credit exposures primarily include letters of credit and loans held for sale.
(3) Distribution based on geographic location of collateral.
</TABLE>
39
<PAGE>
Consumer - At September 30, 1999 and December 31, 1998, total domestic
consumer loans outstanding totaled $168.8 billion and $157.6 billion,
respectively, or 47 percent and 44 percent of loans and leases, respectively.
Average residential mortgage loans were $80.0 billion and $78.7 billion,
respectively, for the three months and nine months ended September 30, 1999
compared to $70.6 billion and $70.1 billion for the same prior year periods,
reflecting originations in excess of prepayments and sales.
Average managed bankcard receivables were $19.2 billion and $19.4 billion,
respectively, for the three months and nine months ended September 30, 1999
compared to $20.7 billion and $20.5 billion for the same prior year periods.
Average other consumer loans for the three months and nine months ended
September 30, 1999 were $79.0 billion and $76.0 billion, respectively, compared
to $69.8 billion and $70.7 billion for the same prior year periods. The increase
was net of the impact of $2.9 billion of securitizations for the nine months
ended September 30, 1999 and approximately $4.5 billion of securitizations that
occurred throughout 1998. Average managed other consumer loans, which include
direct and indirect consumer loans and home equity lines of credit, as well as
indirect auto loan and consumer finance securitizations, totaled $89.8 billion
and $86.5 billion in the three months and nine months ended September 30, 1999,
respectively, and $76.5 billion and $75.2 billion in the same periods of 1998.
Total domestic consumer net charge-offs during the nine months ended
September 30, 1999 decreased $388 million compared to the same period in 1998
due mainly to lower bankcard and consumer finance net charge-offs.
Total consumer nonperforming loans were $1.1 billion, or 0.66 percent of
total consumer loans and $1.1 billion, or 0.65 percent at September 30, 1999 and
December 31, 1998, respectively. Total consumer loans past due 90 days or more
and still accruing interest were $310 million, or 0.18 percent of total consumer
loans at September 30, 1999 compared to $441 million, or 0.27 percent at
December 31, 1998.
<TABLE>
<CAPTION>
Table Ten
Significant Industry Loans and Leases (1)
September 30, 1999
(Dollars in Millions) Outstanding
- ------------------------------------------------------------------------
<S> <C>
Transportation $10,858
Media 8,758
Health care 8,364
Equipment and general manufacturing 8,325
Business services 7,485
Agribusiness 7,290
Retail 6,893
Oil and gas 6,818
Autos 5,866
Computers and electronics 5,021
(1) Includes only nonreal estate commercial loans and leases.
</TABLE>
International Developments - During 1998, and continuing into 1999, a
number of countries in Asia, Latin America and Eastern Europe experienced
economic difficulties due to a combination of structural problems and negative
market reaction that resulted from increased awareness of these problems. While
each country's situation is unique, many share common factors such as: (1)
government actions which restrain normal functioning of free markets in physical
goods, capital and/or currencies; (2) perceived weaknesses of the banking
systems; and (3) perceived overvaluation of local currencies and/or pegged
40
<PAGE>
exchange rate systems. These factors resulted in capital movement out of these
countries or in reduced capital inflows, and, as a result, many of these
countries experienced liquidity problems in addition to structural problems.
More recently, many of the Asian economies are showing signs of recovery
from prior troubles and are slowly implementing structural reforms. However,
there can be no assurance that this will continue and setbacks should be
expected from time to time. Since early 1999, several Latin American economies
have replaced their pegged exchange rate systems with free-floating currencies.
However, much of Latin America remains in recession and the few signs of
recovery are still weak.
Where appropriate, the Corporation has adjusted its activities (including
its borrower selection) in light of the risks and opportunities discussed above.
The Corporation has continued to reduce its exposures in Asia, Latin America and
Central and Eastern Europe throughout 1999. The Corporation will continue to
monitor and adjust its foreign activities on a country by country basis
depending on management's judgment of the likely developments in each country
and will take action as deemed appropriate. For a more comprehensive discussion
of the Corporation's risk management processes, refer to pages 29 through 35 of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1998.
Regional Foreign Exposure - Through its credit and market risk management
activities, the Corporation has been devoting special attention to those
countries that have been negatively impacted by increasing global economic
pressure. This includes special attention to those Asian countries that are
currently experiencing currency and other economic problems, as well as
countries within Latin America and Eastern Europe which are also experiencing
problems.
In connection with its efforts to maintain a diversified portfolio, the
Corporation limits its exposure to any one geographic region or country and
monitors this exposure on a continuous basis. Table Eleven sets forth selected
regional foreign exposure at September 30, 1999. At September 30, 1999, the
Corporation's total exposure to these select countries was $28.9 billion, a
decrease of $7.8 billion from December 31, 1998.
41
<PAGE>
The following table is based on the Federal Financial Institutions Examination
Council's instructions for periodic reporting of foreign exposures. The table
includes "Gross Local Country Claims" as defined in the table below and may not
be consistent with disclosures by other financial institutions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Table Eleven
Regional Foreign Exposure
Increase Increase
Total Gross Other Total (Decrease) (Decrease)
Cross- Local Cross- Exposure from from
Border Country Border September 30 June 30 December 31
(Dollars in Millions) Loans Claims (1) Claims (2) 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Region/Country
<S> <C> <C> <C> <C> <C> <C>
Asia
China $ 84 $ 99 $ 163 $ 346 $ (3) $ (103)
Hong Kong 44 4,196 302 4,542 (384) (646)
India 609 1,503 130 2,242 (318) (276)
Indonesia 352 92 67 511 (67) (212)
Japan 191 1,228 2,006 3,425 (139) (1,636)
Korea (South) 497 592 773 1,862 29 (17)
Malaysia 26 558 48 632 (37) (96)
Pakistan 13 360 5 378 (18) 26
Philippines 236 93 160 489 (10) (94)
Singapore 48 1,326 205 1,579 (167) (427)
Taiwan 293 760 127 1,180 (835) (1,110)
Thailand 100 451 174 725 (50) (225)
Other 4 131 29 164 4 11
- ---------------------------------------------------------------------------------------------------------------
Total 2,497 11,389 4,189 18,075 (1,995) (4,805)
- ---------------------------------------------------------------------------------------------------------------
Central and Eastern Europe
Russian Federation 18 - 6 24 (9) (36)
Other 207 54 140 401 (164) (303)
- ---------------------------------------------------------------------------------------------------------------
Total 225 54 146 425 (173) (339)
- ---------------------------------------------------------------------------------------------------------------
Latin America
Argentina 514 340 194 1,048 (165) (219)
Brazil 1,111 603 897 2,611 (292) (807)
Chile 709 370 176 1,255 (29) (396)
Colombia 395 40 76 511 (29) (287)
Mexico 1,821 213 2,124 4,158 (17) (780)
Venezuela 131 58 278 467 (42) (90)
Other 184 - 203 387 (23) (43)
- ---------------------------------------------------------------------------------------------------------------
Total 4,865 1,624 3,948 10,437 (597) (2,622)
- ---------------------------------------------------------------------------------------------------------------
Total $7,587 $13,067 $8,283 $28,937 $(2,765) $(7,766)
===============================================================================================================
(1) Includes the following claims by the Corporation's foreign offices on local country residents regardless of the currency: loans,
trading account securities, derivative products, unused commitments, standby letters of credit, commercial letters of credit,
formal guarantees, and available for sale (at market value) and held for investment (at cost) securities.
(2) Includes accrued interest receivable, acceptances, time deposits placed, trading account securities, other interest-earning
investments, other short-term monetary assets, derivative-dealer assets, unused commitments, standby letters of credit,
commercial letters of credit, formal guarantees, and available for sale and held for investment securities, including securities
that are collateralized by U.S. Treasury securities as follows: Mexico - $1,099, Venezuela - $162, Philippines - $21 and Latin
America Other - $83. Held for investment securities amounted to $772 with a fair value of $568.
</TABLE>
42
<PAGE>
Allowance for Credit Losses
The Corporation performs periodic and systematic detailed reviews of its
loan and lease portfolios to identify risks inherent in and to assess the
overall collectibility of those portfolios. As discussed below, certain
homogeneous loan portfolios are evaluated collectively, while remaining
portfolios are reviewed on an individual loan basis. These detailed reviews,
combined with historical loss experience and other factors, result in the
identification and quantification of specific reserves and loss factors which
are used in determining the amount of the allowance and related provision for
credit losses. The actual amount of credit losses realized may vary from
estimated losses due to changing economic conditions or changes in industry or
geographic concentrations. The Corporation has procedures in place to limit
differences between estimated and actual credit losses, which include detailed
periodic assessments by senior management of the various credit portfolios and
the models used to estimate credit losses in those portfolios.
Due to their homogeneous nature, consumer loans and certain smaller
business loans and leases, which includes residential mortgages, home equity
lines, direct/indirect consumer, consumer finance, bankcard, and foreign
consumer loans, are generally evaluated as a group, based on individual loan
type. This evaluation is based primarily on historical, current and projected
delinquency and loss trends and provides a basis for establishing an adequate
level of allowance for credit losses.
Commercial and commercial real estate loans and leases are generally
evaluated individually due to a general lack of uniformity among individual
loans within each loan type and business segment. If necessary, an allowance for
credit losses is established for individual impaired loans. A loan is considered
impaired when, based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due, including principal and
interest, according to the contractual terms of the agreement. Once a loan has
been identified as impaired, management measures impairment in accordance with
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS 114). Impaired loans are measured based on the
present value of payments expected to be received, observable market prices, or
for loans that are solely dependent on the collateral for repayment, the
estimated fair value of the collateral. If the recorded investment in impaired
loans exceeds the measure of estimated fair value, a valuation allowance is
established as a component of the allowance for credit losses.
Portions of the allowance for credit losses are assigned to cover the
estimated probable losses in each loan and lease category based on the results
of the Corporation's detail review process as described above. Further
assignments are made based on general and specific economic conditions, as well
as performance trends within specific portfolio segments and individual
concentrations of credit, including geographic and industry concentrations. The
assigned portion of the allowance for credit losses continues to be weighted
toward the commercial loan portfolio, reflecting a higher level of nonperforming
loans and the potential for higher individual losses. The remaining unassigned
portion of the allowance for credit losses, determined separately from the
procedures outlined above, addresses certain industry and geographic
concentrations, including global economic uncertainty, and covers exposures for
approved but unfunded legally binding commitments, thereby minimizing the risk
related to the margin of imprecision inherent in the estimation of assigned
reserves. Due to the subjectivity involved in the determination of the
unassigned portion of the allowance for credit losses, the relationship of the
unassigned component to the total allowance for credit losses may fluctuate from
period to period. Management evaluates the adequacy of the allowance for credit
losses based on the combined total of the assigned and unassigned components.
The nature of the process by which the Corporation determines the
appropriate allowance for credit losses requires the exercise of considerable
judgment. After review of all relevant matters affecting loan collectibility,
management believes that the allowance for credit losses is appropriate given
its analysis of inherent credit losses at September 30, 1999. Table Twelve
provides an analysis of the changes in the allowance for credit losses.
43
<PAGE>
<TABLE>
<CAPTION>
Table Twelve
Allowance For Credit Losses Three Months Nine Months
Ended September 30 Ended September 30
------------------------------------------------------
(Dollars in Millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 7,096 $ 6,731 $ 7,122 $ 6,778
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans and leases charged off
Commercial - domestic (213) (450) (597) (577)
Commercial - foreign (14) (107) (132) (196)
Commercial real estate - domestic (6) (5) (13) (18)
Commercial real estate - foreign - - (1) -
- ------------------------------------------------------------------------------------------------------------------
Total commercial (233) (562) (743) (791)
- ------------------------------------------------------------------------------------------------------------------
Residential mortgage (11) (8) (26) (24)
Home equity lines (4) (6) (17) (21)
Direct/Indirect consumer (125) (125) (392) (409)
Consumer finance (101) (147) (283) (445)
Bankcard (120) (192) (459) (672)
Other consumer domestic 1 (1) 1 (1)
Foreign consumer (7) (2) (19) (8)
- ------------------------------------------------------------------------------------------------------------------
Total consumer (367) (481) (1,195) (1,580)
- ------------------------------------------------------------------------------------------------------------------
Total loans and leases charged off (600) (1,043) (1,938) (2,371)
- ------------------------------------------------------------------------------------------------------------------
Recoveries of loans and leases previously charged off
Commercial - domestic 21 23 77 73
Commercial - foreign 5 1 10 19
Commercial real estate - domestic 5 6 20 18
Commercial real estate - foreign - - - -
- ------------------------------------------------------------------------------------------------------------------
Total commercial 31 30 107 110
- ------------------------------------------------------------------------------------------------------------------
Residential mortgage 1 - 4 3
Home equity lines 3 3 9 7
Direct/Indirect consumer 43 38 132 117
Consumer finance 34 49 126 138
Bankcard 27 22 58 72
Other consumer domestic - - - -
Foreign consumer 1 (1) 3 1
- ------------------------------------------------------------------------------------------------------------------
Total consumer 109 111 332 338
- ------------------------------------------------------------------------------------------------------------------
Total recoveries of loans and leases previously charged off 140 141 439 448
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs (460) (902) (1,499) (1,923)
- ------------------------------------------------------------------------------------------------------------------
Provision for credit losses 450 1,405 1,470 2,410
Other, net (10) (19) (17) (50)
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30 $ 7,076 $ 7,215 $ 7,076 $ 7,215
==================================================================================================================
Loans and leases outstanding at end of period $360,236 $351,982 $360,236 $351,982
Allowance for credit losses as a percentage of
loans and leases outstanding at end of period 1.96 % 2.05 % 1.96 % 2.05 %
Average loans and leases outstanding during the period $361,400 $348,785 $362,302 $344,539
Net charge-offs as a percentage of average loans
and leases outstanding during the period .51 % 1.03 % .55 % .75 %
Allowance for credit losses as a percentage of
nonperforming loans at end of period 251.85 314.55 251.85 314.55
</TABLE>
44
<PAGE>
Nonperforming Assets
As presented in Table Thirteen, nonperforming loans increased to $2.8
billion at September 30, 1999 from $2.5 billion at December 31, 1998 due
primarily to higher commercial and consumer finance nonperforming loans, offset
by continued improvement in residential mortgage nonperforming loans. The
increase in commercial nonperforming loans was attributable to a few large
credits and several smaller credits in various industries throughout the United
States and overseas. The increase was not concentrated in any single geographic
region or industry. The increase in consumer finance nonperforming loans was due
to strong loan portfolio growth and seasonal increases in consumer delinquency.
The allowance coverage of nonperforming loans was 252 percent at September 30,
1999 compared to 287 percent at December 31, 1998.
<TABLE>
<CAPTION>
Table Thirteen
Nonperforming Assets
September 30 June 30 March 31 December 31 September 30
(Dollars in Millions) 1999 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Nonperforming loans:
Commercial - domestic $1,026 $1,085 $1,085 $ 812 $ 717
Commercial - foreign 477 492 434 314 288
Commercial real estate - domestic 174 203 272 299 303
Commercial real estate - foreign 3 3 3 4 3
- ------------------------------------------------------------------------------------------------------------------
Total commercial 1,680 1,783 1,794 1,429 1,311
- ------------------------------------------------------------------------------------------------------------------
Residential mortgage 542 565 634 722 690
Home equity lines 44 44 41 50 46
Direct/Indirect consumer 16 17 20 21 38
Consumer finance 519 382 332 246 209
Foreign consumer 9 21 17 14 -
- ------------------------------------------------------------------------------------------------------------------
Total consumer 1,130 1,029 1,044 1,053 983
- ------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,810 2,812 2,838 2,482 2,294
- ------------------------------------------------------------------------------------------------------------------
Foreclosed properties 228 258 282 282 288
- ------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,038 $3,070 $3,120 $2,764 $2,582
==================================================================================================================
Nonperforming assets as a percentage of
Total assets .49 % .50 % .51 % .45 % .43 %
Loans, leases and foreclosed
properties .84 .84 .86 .77 .73
Loans past due 90 days or more and not
classified as nonperforming $466 $631 $571 $611 $540
</TABLE>
Note Four of the consolidated financial statements on page 9 provides the
reported investment in specific loans considered to be impaired at September 30,
1999 and December 31, 1998. The Corporation's investment in specific loans that
were considered to be impaired on September 30, 1999, was $1.9 billion compared
to $1.7 billion at December 31, 1998. Commercial-domestic impaired loans
increased to $1.0 billion at September 30, 1999 from $0.8 billion at December
31, 1998, primarily due to the increases in commercial - nonperforming loans
described above. Commercial - foreign impaired loans increased to $0.5 billion
at September 30, 1999 from $0.3 billion at December 31, 1998, primarily due to
one large credit which was classified as impaired in the second quarter of 1999.
Commercial real estate - domestic impaired loans decreased $91 million to $0.5
billion at September 30, 1999 from $0.6 billion at December 31, 1998.
45
<PAGE>
Off-Balance Sheet Financial Instruments
Derivatives - Asset and Liability Management (ALM) Activities
Interest rate contracts are used in the Corporation's ALM process. These
contracts, which are generally non-leveraged generic interest rate and basis
swaps, options and futures, allow the Corporation to effectively manage its
interest rate risk position. Generic interest rate swaps involve the exchange of
fixed-rate and variable-rate interest payments based on the contractual
underlying notional amount. Basis swaps involve the exchange of interest
payments based on the contractual underlying notional amounts, where both the
pay rate and the receive rate are floating rates based on different indices.
Option products primarily consist of caps and floors. Interest rate caps and
floors are agreements where, for a fee, the purchaser obtains the right to
receive interest payments when a variable interest rate moves above or below a
specified cap or floor rate, respectively. Futures contracts used for ALM
activities are primarily index futures providing for cash payments based upon
the movements of a deposit rate index.
The amount of net realized deferred gains associated with terminated ALM
swaps was $205 million and $294 million at September 30, 1999 and December 31,
1998, respectively. The amount of net realized deferred losses associated with
terminated ALM futures and forward rate contracts was $18 million and $1 million
at September 30, 1999 and December 31, 1998, respectively. The amount of net
realized deferred gains associated with terminated ALM options was $87 million
and $26 million at September 30, 1999 and December 31, 1998, respectively. See
Note Six of the consolidated financial statements on page 12 for information on
the notional amount and fair value of the Corporation's ALM interest rate
contracts.
In addition, the Corporation uses foreign currency contracts to manage the
foreign exchange risk associated with foreign-denominated assets and
liabilities, as well as the Corporation's equity investments in foreign
subsidiaries. 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. At September 30, 1999, these contracts had a notional amount of
$5.2 billion and a fair value of $45 million.
The fair value of the ALM interest rate and foreign exchange portfolios
should be viewed in the context of the overall balance sheet. The value of any
single component of the balance sheet or off-balance sheet positions should not
be viewed in isolation.
For a discussion of the Corporation's management of risk associated with
mortgage production and servicing activities, see the "Noninterest Income"
section on page 30.
Market Risk Management
In the normal course of conducting its business activities, the Corporation
is exposed to market risks including price and liquidity risk. Market risk is
the potential for loss arising from adverse changes in market rates and prices,
such as interest rates (interest rate risk), foreign currency exchange rates
(foreign exchange risk), commodity prices (commodity risk) and prices of equity
securities (equity risk). Financial products that expose the Corporation to
market risk include securities, loans, deposits, debt and derivative financial
instruments such as futures, forwards, swaps, options and other financial
instruments with similar characteristics. Liquidity risk arises from the
possibility that the Corporation may not be able to satisfy current or future
financial commitments or that the Corporation may be more reliant on alternative
funding sources such as long-term debt.
Market risk is managed by the Corporation's Finance Committee, which
formulates policy based on desirable levels of market risk. In setting desirable
levels of market risk, the Finance Committee considers the impact on both
earnings and capital of the current outlook in market rates, potential changes
in market rates, world and regional economies, liquidity, business strategies
and other factors.
Available for sale securities had an unrealized loss of $2.9 billion at
September 30, 1999, compared to an unrealized gain of $0.4 billion at December
31, 1998. The expected maturities, unrealized gains and losses and weighted
average effective yield and rate associated with the Corporation's significant
other non-trading, on-balance sheet financial instruments at September 30, 1999
were not significantly different from those at December 31, 1998. For a
46
<PAGE>
discussion of non-trading, on-balance sheet financial instruments, see page 30
and Table Nine on page 31 of the Market Risk Management section of the
Corporation's 1998 Annual Report on Form 10-K.
Risk management interest rate contracts are utilized in the ALM process.
Such contracts, which are generally non-leveraged generic interest rate and
basis swaps, futures, forwards, and options, allow the Corporation to
effectively manage its interest rate risk position. As reflected in Table
Fourteen, the notional amount of the Corporation's receive fixed and pay fixed
interest rate swaps at September 30, 1999 was $71.3 billion and $24.3 billion,
respectively. The receive fixed interest rate swaps are primarily converting
variable-rate commercial loans to fixed-rate. The net receive fixed position at
September 30, 1999 was $47.0 billion notional compared to $34.7 billion notional
at December 31, 1998. In addition, the Corporation had $8.1 billion notional of
basis swaps at September 30, 1999 linked primarily to loans and long-term debt.
Table Fourteen also summarizes the average estimated duration, weighted
average receive and pay rates and the net unrealized losses at September 30,
1999 of the Corporation's ALM interest rate swaps, as well as the average
estimated duration and net unrealized losses at September 30, 1999 of the
Corporation's ALM basis swaps and option contracts. Unrealized gains and
losses are based on the last repricing and will change in the future primarily
based on movements in one-, three- and six-month LIBOR rates. The ALM swap
portfolio had a net unrealized loss of $1.0 billion at September 30, 1999
compared to a net unrealized gain of $942 million at December 31, 1998. The
change is primarily attributable to an increase in interest rates. Management
believes the net unrealized loss in the estimated value of the ALM interest rate
contracts should be viewed in the context of the overall balance sheet, and
the value of any single component of the balance sheet or off-balance sheet
positions should not be viewed in isolation.
For a discussion of the Corporation's management of risk associated with
mortgage production and servicing activities, see the "Noninterest Income"
section on page 30.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Table Fourteen
Asset and Liability Management Interest Rate Contracts
September 30, 1999
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions, Fair
Average Estimated Duration in Years) Value Total 1999 2000 2001 2002
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps: $ (910)
Notional amount $71,369 $2,964 $13,357 $11,658 $3,237
Weighted average receive rate 6.12 % 5.84 % 5.97 % 6.46 % 6.85 %
Pay fixed swaps: $ (125)
Notional amount $24,347 $3,044 $6,902 $4,339 $1,754
Weighted average pay rate 6.72 % 6.45 % 6.84 % 6.43 % 6.85 %
Basis swaps $ (7)
Notional amount $ 8,103 $ 225 $ 743 $ 608 $1,669
Total swaps $(1,042)
- --------------------------------------------------------------------------------------------------------------------------------
Option contracts $ (40)
Notional amount $34,154 $ 445 $ 505 $2,088 $ 868
- --------------------------------------------------------------------------------------------------------------------------------
Total interest rate contracts $(1,082)
----------
<CAPTION>
Average
(Dollars in Millions, After Estimated
Average Estimated Duration in Years) 2003 2003 Duration
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Receive fixed swaps: 3.90
Notional amount $14,143 $26,010
Weighted average receive rate 5.69 % 6.22 %
Pay fixed swaps: 2.95
Notional amount $2,478 $5,830
Weighted average pay rate 7.17 % 6.71 %
Basis swaps 4.84
Notional amount $4,858 $ -
Total swaps
- ---------------------------------------------------------------------------------------------
Option contracts
Notional amount $1,950 $28,298
- ---------------------------------------------------------------------------------------------
Total interest rate contracts
</TABLE>
47
<PAGE>
The table below sets forth the calculated value-at-risk (VAR) amounts for
the nine months ended September 30, 1999 for the Corporation's trading activity.
The amounts are calculated on a pre-tax basis. The first calculation assumes
that each portfolio segment experiences adverse price movements at the same time
(i.e., the price movements are perfectly correlated). The second calculation
assumes that these adverse price movements within the major portfolio segments
do not occur at the same time (i.e., they are uncorrelated). While the
Corporation's trading positions resulted in improved trading results in the nine
months ended September 30, 1999, compared to the same period in 1998, the
Corporation continued to lower its market risk. For additional discussion of
market risk associated with the trading portfolio, the VAR model and how the
Corporation manages its exposure to market risk, see pages 32 and 33 of the
Corporation's 1998 Annual Report on Form 10-K. The composition of the trading
portfolio and the related fair values are included in Note Three of the
consolidated financial statements on page 8.
<TABLE>
<CAPTION>
Trading Activities Market Risk
- ----------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
- ----------------------------------------------------------------------------------------------------
(US Dollar Equivalents in Millions) Average VAR High VAR (1) Low VAR (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Based on perfect positive correlation:
Interest rate $89.0 $126.8 $69.1
Foreign currency 13.0 18.6 7.9
Commodities 1.9 5.4 .9
Equity 11.0 22.3 3.0
Based on zero correlation:
Interest rate 26.2 41.2 18.6
Foreign currency 10.7 15.9 6.1
Commodities 1.5 4.9 .6
Equity 10.1 21.1 2.6
- ----------------------------------------------------------------------------------------------------
(1) The high and low for the entire trading account may not equal the sum of the individual components as the
highs or lows of the components occurred on different trading days.
</TABLE>
Capital Resources and Capital Management
Presented below are the Corporation's regulatory capital ratios at
September 30, 1999 and December 31, 1998. The Corporation and its significant
banking subsidiaries were considered "well-capitalized" at September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
September 30 December 31
(Dollars in Millions) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Risk-based capital ratios:
Tier 1 capital $ 39,380 $36,849
Tier 1 capital ratio 7.71 % 7.06 %
Total capital $ 58,167 $57,055
Total capital ratio 11.39 % 10.94 %
Leverage ratio 6.59 6.22
Risk-weighted assets $510,866 $521,637
- -------------------------------------------------------------------------------
</TABLE>
The regulatory capital guidelines measure capital in relation to the credit
and market risk of both on- and off-balance sheet items using various risk
weights. Under the regulatory capital guidelines, Total capital consists of
three tiers of capital. Tier 1 capital includes common shareholders' equity and
qualifying preferred stock, less goodwill and other adjustments. Tier 2 capital
consists of preferred stock not qualifying as Tier 1 capital, mandatory
convertible debt, limited amounts of subordinated debt, other qualifying term
debt and the allowance for credit losses up to 1.25 percent of risk-weighted
assets. Tier 3 capital includes subordinated debt that is unsecured, fully paid,
48
<PAGE>
has an original maturity of at least two years, is not redeemable before
maturity without prior approval by the Federal Reserve and includes a lock-in
clause precluding payment of either interest or principal if the payment would
cause the issuing bank's risk-based capital ratio to fall or remain below the
required minimum. At September 30, 1999, the Corporation had no subordinated
debt that qualified as Tier 3 capital.
The Corporation's and its significant banking subsidiaries' regulatory
capital ratios at September 30, 1999 exceeded the regulatory minimums of four
percent for Tier 1 risk-based capital, eight percent for total risk-based
capital and the leverage guidelines of 100 to 200 basis points above the minimum
ratio of three percent.
49
<PAGE>
<TABLE>
<CAPTION>
Table Fifteen
Selected Quarterly Operating Results
1999 Quarters
------------------------------------------------
(Dollars in Millions, Except Per-Share Information) Third Second First
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Interest income $ 9,294 $ 9,206 $ 9,201
Interest expense 4,744 4,594 4,601
Net interest income 4,550 4,612 4,600
Net interest income (taxable-equivalent basis) 4,603 4,663 4,645
Provision for credit losses 450 510 510
Gains on sales of securities 44 52 130
Noninterest income 3,728 3,522 3,223
Merger-related charges - 200 -
Other noninterest expense 4,526 4,457 4,453
Income before income taxes 3,346 3,019 2,990
Income tax expense 1,195 1,104 1,076
Net income 2,151 1,915 1,914
Net income (excluding merger-related charges) 2,151 2,060 1,914
Average Balance Sheet
Average total assets 611,448 615,364 609,624
Average total deposits 336,998 342,249 345,931
Average total shareholders' equity 46,439 46,891 46,279
Yield on average earning assets 7.03 % 7.00 % 7.13 %
Rate on average interest-bearing liabilities 4.30 4.16 4.26
Net interest spread 2.73 2.84 2.87
Net interest yield 3.46 3.53 3.58
Performance Ratios
Return on average assets 1.40 1.25 1.27
Return on average assets (excluding merger-related charges) 1.40 1.34 1.27
Return on average common shareholders' equity 18.40 16.40 16.78
Return on average common shareholders' equity (excluding merger-related charges) 18.40 17.64 16.78
Risk-based Capital Ratios (period-end)
Tier 1 capital 7.71 7.38 7.40
Total capital 11.39 11.09 11.17
Leverage ratio 6.59 6.34 6.47
Cash Basis Financial Data (1)
Earnings per common share $ 1.38 $ 1.23 $ 1.23
Earnings per common share (excluding merger-related charges) 1.38 1.31 1.23
Diluted earnings per common share 1.35 1.20 1.20
Diluted earnings per common share (excluding merger-related charges) 1.35 1.28 1.20
Return on average tangible assets 1.58 % 1.43 % 1.46 %
Return on average tangible assets (excluding merger-related charges) 1.58 1.53 1.46
Return on average tangible common shareholders' equity 29.48 26.68 27.44
Return on average tangible common shareholders' equity (excluding merger-related charges) 29.48 28.49 27.44
Per Common Share Data
Earnings $ 1.25 $ 1.10 $ 1.10
Earnings (excluding merger-related charges) 1.25 1.18 1.10
Diluted earnings 1.23 1.07 1.08
Diluted earnings (excluding merger-related charges) 1.23 1.15 1.08
Cash dividends paid .45 .45 .45
Market Price per Share of Common Stock
Closing 55 11/16 73 5/16 70 5/8
High 76 3/8 76 1/8 74 1/2
Low 53 1/4 61 1/2 59 1/2
(1) Cash basis calculations exclude goodwill and other intangible assets and the related amortization expense.
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
See "Management's Discussion and Analysis of
Results of Operations and Financial Condition -
Market Risk Management" on page 46 and the sections
referenced therein for Quantitative and Qualitative
Disclosures about Market Risk.
- --------------------------------------------------------------------------------
Part II. Other Information
Item 1. Legal Litigation
Proceedings
In the ordinary course of business, the
Corporation and its subsidiaries are routinely
defendants in or parties to a number of pending and
threatened legal actions and proceedings, including
actions brought on behalf of various classes of
claimants. In certain of these actions and
proceedings, substantial money damages are asserted
against the Corporation and its subsidiaries and
certain of these actions and proceedings are based on
alleged violations of consumer protection,
securities, environmental, banking and other laws.
The Corporation and certain present and former
officers and directors have been named as defendants
in a number of actions filed in several federal
courts that have been consolidated for pretrial
purposes before a Missouri federal court. The amended
complaint in the consolidated actions alleges, among
other things, that the defendants failed to disclose
material facts about BankAmerica's losses relating to
D.E. Shaw & Co., L.P. until mid-October 1998, in
violation of various provisions of federal and state
laws. The amended complaint also alleges that the
proxy statement-prospectus of August 4, 1998, falsely
stated that the Merger would be one of equals and
alleges a scheme to have NationsBank gain control
over the newly merged entity. The Missouri federal
court has certified classes consisting generally of
persons who were shareholders of NationsBank or
BankAmerica on September 30, 1998, or were entitled
to vote on the Merger, or who purchased or acquired
securities of the Corporation or its predecessors
between August 4, 1998 and October 13, 1998. Similar
class actions (including one limited to California
residents) are pending in California state court,
alleging violations of the California Corporations
Code and other state laws. The action on behalf of
the California residents has been certified. The
Corporation believes the actions lack merit and will
defend them vigorously. The amount of any ultimate
exposure cannot be determined with certainty at this
time.
Management believes that the actions and
proceedings and the losses, if any, resulting from
the final outcome thereof, will not be material in
the aggregate to the Corporation's financial position
or results of operations.
Item 2. Changes As part of its share repurchase program, during the
in Securities and third quarter of 1999, the Corporation sold put
Use of Proceeds options to purchase an aggregate of six million
shares of its common stock. These put options were
sold to four independent third parties for an
aggregate purchase price of $42 million. The put
option exercise prices range from $54.28 to $56.99
per share and expire from January 2000 to October
2000. The put option contracts allow the Corporation
51
<PAGE>
to determine the method of settlement (cash or
stock). Each of these transactions was exempt from
registration under Section 4(2) of the Securities Act
of 1933, as amended.
Item 4. a. The Annual Meeting of Stockholders was held
Submission of on April 28, 1999.
Matters to a Vote
of Security Holders b. The following are the voting results on each
matter submitted to the stockholders:
<TABLE>
<CAPTION>
1. To elect 19 directors
Against or
For Withheld
------------------ --------------------
<S> <C> <C>
Charles W. Coker 1,453,706,748 17,174,608
Timm F. Crull 1,451,842,815 19,038,541
Alan T. Dickson 1,453,390,641 17,490,715
Kathleen F. Feldstein 1,462,159,628 8,721,728
Paul Fulton 1,461,692,382 9,188,974
Donald E. Guinn 1,462,135,805 8,745,551
C. Ray Holman 1,462,311,081 8,570,275
W. W. Johnson 1,461,518,823 9,362,533
Walter E. Massey 1,461,767,521 9,113,835
Hugh L. McColl, Jr. 1,461,037,036 9,844,320
Richard M. Rosenberg 1,461,461,582 9,419,774
O. Temple Sloan, Jr. 1,462,098,576 8,782,780
Meredith R. Spangler 1,462,655,330 8,226,026
A. Michael Spence 1,462,023,792 8,857,564
Ronald Townsend 1,461,778,898 9,102,458
Solomon D. Trujillo 1,461,982,870 8,898,486
Jackie M. Ward 1,461,584,761 9,296,595
Virgil R. Williams 1,462,115,602 8,765,754
Shirley Young 1,446,137,266 24,744,090
2. To consider and act upon a proposal to amend and restate
the Corporation's Amended and Restated Certificate of Incorporation
Against or
For Withheld Abstentions
------------------ ----------------- ------------------
1,460,877,972 4,861,272 5,142,112
3. To consider and act upon a proposal to ratify the action of the Board
of Directors in selecting PricewaterhouseCoopers LLP as independent
public accountants to audit the books of the Corporation and its
subsidiaries for the current year
Against or
For Withheld Abstentions
------------------ ----------------- ------------------
1,459,666,440 6,581,059 4,633,857
4. To consider and act upon a stockholder proposal requesting that the
Corporation develop a policy on transacting business in less
economically developed countries
Proposal 4 was withdrawn at the meeting.
52
<PAGE>
5. To consider and act upon a stockholder proposal requesting that the
Corporation limit employment agreements to $3 million
Against or Broker
For Withheld Abstentions Nonvotes
------------------ ----------------- ------------------ --------------------
238,645,739 973,322,596 48,563,103 210,349,918
6. To consider and act upon a stockholder proposal requesting that the
Corporation establish a cap on CEO compensation expressed as
a multiple of pay of the Corporation's lowest paid associate
Against or Broker
For Withheld Abstentions Nonvotes
------------------ ----------------- ------------------ --------------------
95,691,812 1,114,273,825 50,565,801 201,349,918
7. To consider and act upon a stockholder proposal requesting that the
Board adopt a specific definition of independence for members of the
Compensation Committee
Against or Broker
For Withheld Abstentions Nonvotes
------------------ ----------------- ------------------ --------------------
223,160,513 983,638,456 53,732,469 210,349,918
8. To consider and act upon a stockholder proposal requesting that the
Corporation ensure that the annual stockholders' meetings do not conflict
with religious observances
Against or Broker
For Withheld Abstentions Nonvotes
------------------ ----------------- ------------------ --------------------
92,236,498 1,097,081,743 71,213,197 210,349,918
</TABLE>
Item 6. Exhibits a) Exhibits
and Reports on -----------
Form 8-K
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
----------------------
The following reports on Form 8-K were filed by the
Corporation during the quarter ended September 30,
1999:
Current Report on Form 8-K dated July 8, 1999 and
filed July 9, 1999, Items 5 and 7.
Current Report on Form 8-K dated July 19, 1999 and
filed July 23, 1999, Items 5 and 7.
53
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bank of America Corporation
----------------------------
Registrant
Date: November 15, 1999 /s/ MARC D. OKEN
----------------- -------------------------
MARC D. OKEN
Executive Vice President and
Principal Financial Executive
(Duly Authorized Officer and
Chief Accounting Officer)
54
<PAGE>
Bank of America Corporation
Form 10-Q
Index to Exhibits
- --------------------------------------------------------------------------------
Exhibit Description
12(a) Ratio of Earnings to Fixed Charges
12(b) Ratio of Earnings to Fixed Charges and Preferred Dividends
27 Financial Data Schedule
55
<TABLE>
<CAPTION>
Bank of America Corporation and Subsidiaries Exhibit 12(a)
Ratio of Earnings to Fixed Charges
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Nine Months ---------------------------------------------------
Ended
(Dollars in Millions) September 30, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
Income before income taxes $ 9,355 $ 8,048 $10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (113) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 7,260 9,479 8,219 7,082 6,354 4,572
1/3 of net rent expense 251 335 302 282 275 250
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed charges 7,511 9,814 8,521 7,364 6,629 4,822
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (excluding capitalized interest) $16,753 $18,024 $19,026 $16,668 $14,987 $11,774
- ----------------------------------------------------------------------------------------------------------------------------
Fixed charges $ 7,511 $9,814 $8,521 $7,364 $ 6,629 $4,822
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.23 1.84 2.23 2.26 2.26 2.44
============================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Nine Months ---------------------------------------------------
Ended
(Dollars in Millions) September 30, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Including Interest on Deposits
Income before income taxes $ 9,355 $ 8,048 $10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (113) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 13,939 20,290 18,903 16,682 16,369 11,083
1/3 of net rent expense 251 335 302 282 275 250
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed charges 14,190 20,625 19,205 16,964 16,644 11,333
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (excluding capitalized interest) $23,432 $28,835 $29,710 $26,268 $25,002 $18,285
- ----------------------------------------------------------------------------------------------------------------------------
Fixed charges $14,190 $20,625 $19,205 $16,964 $16,644 $11,333
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.65 1.40 1.55 1.55 1.50 1.61
===========================================================================================================================
</TABLE>
56
<TABLE>
<CAPTION>
Bank of America Corporation and Subsidiaries Exhibit 12(b)
Ratio of Earnings to Fixed Charges and Preferred Dividends
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Nine Months ---------------------------------------------------
Ended
(Dollars in Millions) September 30, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
Income before income taxes $ 9,355 $ 8,048 $10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (113) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 7,260 9,479 8,219 7,082 6,354 4,572
1/3 of net rent expense 251 335 302 282 275 250
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed charges 7,511 9,814 8,521 7,364 6,629 4,822
Preferred dividend requirements 7 40 183 332 426 467
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (excluding capitalized interest) $16,753 $18,024 $19,026 $16,668 $14,987 $11,774
- ----------------------------------------------------------------------------------------------------------------------------
Fixed charges and preferred dividends $ 7,518 $ 9,854 $ 8,704 $ 7,696 $ 7,055 $ 5,289
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges and preferred dividends 2.23 1.83 2.19 2.17 2.12 2.23
============================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Nine Months ---------------------------------------------------
Ended
(Dollars in Millions) September 30, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Including Interest on Deposits
Income before income taxes $ 9,355 $ 8,048 $10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (113) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 13,939 20,290 18,903 16,682 16,369 11,083
1/3 of net rent expense 251 335 302 282 275 250
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed charges 14,190 20,625 19,205 16,964 16,644 11,333
Preferred dividend requirements 7 40 183 332 426 467
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (excluding capitalized interest) $23,432 $28,835 $29,710 $26,268 $25,002 $18,285
- ----------------------------------------------------------------------------------------------------------------------------
Fixed charges and preferred dividends $14,197 $20,665 $19,388 $17,296 $17,070 $11,800
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges and preferred dividends 1.65 1.40 1.53 1.52 1.46 1.55
============================================================================================================================
</TABLE>
57
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the September 30, 1999
Form 10-Q for Bank of America corporation and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 25,414
<INT-BEARING-DEPOSITS> 4,846
<FED-FUNDS-SOLD> 40,369
<TRADING-ASSETS> 38,651
<INVESTMENTS-HELD-FOR-SALE> 78,353
<INVESTMENTS-CARRYING> 1,483
<INVESTMENTS-MARKET> 1,294
<LOANS> 360,236
<ALLOWANCE> (7,076)
<TOTAL-ASSETS> 620,652
<DEPOSITS> 337,011
<SHORT-TERM> 138,697
<LIABILITIES-OTHER> 44,703
<LONG-TERM> 54,352
0
78
<COMMON> 13,538
<OTHER-SE> 32,273
<TOTAL-LIABILITIES-AND-EQUITY> 620,652
<INTEREST-LOAN> 20,506
<INTEREST-INVEST> 3,526
<INTEREST-OTHER> 3,669
<INTEREST-TOTAL> 27,701
<INTEREST-DEPOSIT> 6,679
<INTEREST-EXPENSE> 13,939
<INTEREST-INCOME-NET> 13,762
<LOAN-LOSSES> 1,470
<SECURITIES-GAINS> 226
<EXPENSE-OTHER> 13,436
<INCOME-PRETAX> 9,355
<INCOME-PRE-EXTRAORDINARY> 9,355
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,980
<EPS-BASIC> 3.45
<EPS-DILUTED> 3.37
<YIELD-ACTUAL> 3.52
<LOANS-NON> 2,810
<LOANS-PAST> 466
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,122
<CHARGE-OFFS> 1,938
<RECOVERIES> 439
<ALLOWANCE-CLOSE> 7,076
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0<F1>
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>Allowance-Domestic, Allowance-Foreign and Allowance-Unallocated are only disclosed on an annual
basis in the Corporation's 10-K and are therefore not included in this Financial Data Schedule.
58
</FN>
</TABLE>
