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 March 31, 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
FORMER NAME, IF CHANGED SINCE LAST REPORT:
BankAmerica Corporation
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
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 April 30, 1999, there were 1,744,878,417 shares of Bank of America
Corporation Common Stock outstanding.
<PAGE>
BANK OF AMERICA CORPORATION
MARCH 31, 1999 FORM 10-Q
INDEX
<TABLE>
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<S> <C> <C>
Page
----
PART I Item 1. Financial Statements:
FINANCIAL Consolidated Statement of Income for the Three Months
INFORMATION Ended March 31, 1999 and 1998 2
Consolidated Balance Sheet on March 31, 1999
and December 31, 1998 3
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 4
Consolidated Statement of Changes in Shareholders' Equity
for the Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 43
- ----------------------------------------------------------------------------------------------
PART II
OTHER INFORMATION Item 1. Legal Proceedings 43
Item 2. Change in Securities and Use of Proceeds 44
Item 6. Exhibits and Reports on Form 8-K 44
Signature 45
Index to Exhibits 46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
- ----------------------------------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31
----------------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION) 1999 1998
- ----------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans and leases $ 6,770 $ 7,112
Interest and dividends on securities 1,175 1,129
Federal funds sold and securities purchased under agreements to resell 381 417
Trading account securities 545 738
Other interest income 330 309
- ----------------------------------------------------------------------------------------------
Total interest income 9,201 9,705
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 2,313 2,693
Borrowed funds 1,354 1,310
Trading account liabilities 129 274
Long-term debt 805 809
- ----------------------------------------------------------------------------------------------
Total interest expense 4,601 5,086
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME 4,600 4,619
PROVISION FOR CREDIT LOSSES 510 510
- ----------------------------------------------------------------------------------------------
NET CREDIT INCOME 4,090 4,109
GAINS ON SALES OF SECURITIES 130 213
NONINTEREST INCOME
Service charges on deposit accounts 855 816
Mortgage servicing income 132 172
Investment banking income 388 613
Trading account profits and fees 500 372
Brokerage income 184 180
Nondeposit-related service fees 136 175
Asset management and fiduciary service fees 243 245
Credit card income 360 319
Other income 425 601
- ----------------------------------------------------------------------------------------------
Total noninterest income 3,223 3,493
- ----------------------------------------------------------------------------------------------
MERGER-RELATED CHARGES - 900
OTHER NONINTEREST EXPENSE
Personnel 2,333 2,440
Occupancy 396 382
Equipment 358 340
Marketing 147 158
Professional fees 126 195
Amortization of intangibles 222 228
Data processing 190 179
Telecommunications 136 131
Other general operating 420 513
General administrative and other 125 138
- ----------------------------------------------------------------------------------------------
Total other noninterest expense 4,453 4,704
- ----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,990 2,211
INCOME TAX EXPENSE 1,076 880
- ----------------------------------------------------------------------------------------------
NET INCOME $ 1,914 $ 1,331
==============================================================================================
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 1,912 $ 1,320
==============================================================================================
PER-SHARE INFORMATION
EARNINGS PER COMMON SHARE $ 1.10 $ .77
==============================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 1.08 $ .75
==============================================================================================
DIVIDENDS PER COMMON SHARE $ .45 $ .38
- ----------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES ISSUED AND OUTSTANDING (IN THOUSANDS) 1,737,562 1,724,490
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------
MARCH 31 DECEMBER 31
(DOLLARS IN MILLIONS) 1999 1998
- ------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 25,925 $ 28,277
Time deposits placed and other short-term investments 5,615 6,750
Securities:
Held for investment, at cost (market value - $1,386 and $1,853) 1,522 1,997
Available for sale 76,947 78,590
- ------------------------------------------------------------------------------------------------------
Total securities 78,469 80,587
- ------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 26,751 27,146
Trading account assets 42,382 39,602
Derivative-dealer assets 13,585 16,400
Loans and leases 363,102 357,328
Allowance for credit losses (7,123) (7,122)
- ------------------------------------------------------------------------------------------------------
Loans and leases, net of allowance for credit losses 355,979 350,206
- ------------------------------------------------------------------------------------------------------
Premises and equipment, net 7,129 7,289
Customers' acceptance liability 2,194 2,671
Interest receivable 3,620 3,734
Mortgage servicing rights 3,037 2,376
Goodwill 12,651 12,695
Core deposits and other intangibles 1,942 2,013
Other assets 34,966 37,933
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $614,245 $617,679
======================================================================================================
LIABILITIES
Deposits in domestic offices:
Interest-bearing $201,343 $203,644
Noninterest-bearing 87,769 92,623
Deposits in foreign offices:
Interest-bearing 52,457 59,280
Noninterest-bearing 1,748 1,713
- ------------------------------------------------------------------------------------------------------
Total deposits 343,317 357,260
- ------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 74,767 67,543
Trading account liabilities 16,454 14,170
Derivative-dealer liabilities 14,372 16,835
Commercial paper 8,379 6,749
Other short-term borrowings 31,366 24,742
Acceptances outstanding 2,194 2,671
Accrued expenses and other liabilities 20,712 30,929
Trust preferred securities 4,954 4,954
Long-term debt 50,899 45,888
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 567,414 571,741
- ------------------------------------------------------------------------------------------------------
Contingent liabilities and other financial commitments (Note Six)
SHAREHOLDERS' EQUITY
Preferred stock: authorized - 100,000,000 shares; issued and
outstanding - 1,902,039 and 1,952,039 shares 81 83
Common stock: authorized - 5,000,000,000 shares; issued and
outstanding - 1,740,871,815 and 1,724,484,305 shares 15,828 14,837
Retained earnings 32,128 30,998
Accumulated other comprehensive income (580) 152
Other (626) (132)
- ------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 46,831 45,938
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $614,245 $617,679
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
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BANK OF AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31
---------------------------
(DOLLARS IN MILLIONS) 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 1,914 $ 1,331
Reconciliation of net income to net cash used in operating activities:
Provision for credit losses 510 510
Gains on sales of securities (130) (213)
Merger-related charges - 900
Depreciation and premises improvements amortization 271 278
Amortization of intangibles 222 228
Deferred income tax benefit (82) (79)
Net increase in trading instruments (496) (4,318)
Net decrease (increase) in interest receivable 114 (7)
Net (decrease) increase in interest payable (108) 52
Other operating activities (6,028) (1,291)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,813) (2,609)
INVESTING ACTIVITIES
Proceeds from maturities of securities held for investment 475 324
Purchases of securities held for investment - (205)
Proceeds from sales and maturities of securities available for sale 17,534 18,608
Purchases of securities available for sale (16,595) (17,888)
Net decrease (increase) in federal funds sold and securities purchased
under agreements to resell 395 (4,081)
Net decrease in time deposits placed and other short-term investments 1,135 785
Purchases and net originations of loans and leases (8,073) (10,254)
Proceeds from sales and securitizations of loans and leases 2,661 7,594
Purchases and originations of mortgage servicing rights (786) (236)
Net purchases of premises and equipment (111) (107)
Proceeds from sales of foreclosed properties 82 146
Sales and acquisitions of business activities, net of cash (1,483) (81)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,766) (5,395)
FINANCING ACTIVITIES
Net decrease in deposits (13,943) (422)
Net increase in federal funds purchased and securities
sold under agreements to repurchase 7,224 1,831
Net increase in other short-term borrowings and commercial paper 8,254 6,414
Proceeds from issuance of trust preferred securities - 340
Proceeds from issuance of long-term debt 6,009 3,375
Retirement of long-term debt (929) (2,667)
Proceeds from issuance of common stock 348 508
Cash dividends paid (784) (609)
Common stock repurchased - (600)
Other financing activities 39 7
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,218 8,177
Effect of exchange rate changes on cash and cash equivalents 9 2
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,352) 175
Cash and cash equivalents on January 1 28,277 28,466
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS ON MARCH 31 $ 25,925 $ 28,641
==========================================================================================================================
LOANS TRANSFERRED TO FORECLOSED PROPERTIES AMOUNTED TO $74 AND $123 FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998, RESPECTIVELY. LOANS SECURITIZED AND
RETAINED IN THE TRADING AND AVAILABLE FOR SALE SECURITIES PORTFOLIOS AMOUNTED TO
$248 AND $2,633 FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998,
RESPECTIVELY.
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
ACCUMULATED TOTAL
OTHER SHARE-
PREFERRED COMMON STOCK 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 on December 31, 1997 $ 708 1,722,538 $ 15,140 $ 28,438 $ 407 $ (109) $ 44,584
Net income 1,331 1,331 $ 1,331
Other comprehensive income, net of tax (126) (126) (126)
-------------
Comprehensive income $ 1,205
=============
Cash dividends:
Common (598) (598)
Preferred (11) (11)
Common stock issued under dividend
reinvestment and employee plans 14,043 558 (50) 508
Stock issued in acquisitions 385 15 15
Common stock repurchased (9,349) (600) (600)
Conversion of preferred stock (3) 129 3
Other (2) 3 1
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE ON MARCH 31, 1998 $ 705 1,727,746 $ 15,114 $ 29,160 $ 281 $ (156) $ 45,104
=================================================================================================================================
BALANCE ON DECEMBER 31, 1998 $ 83 1,724,484 $ 14,837 $ 30,998 $ 152 $ (132) $ 45,938
Net income 1,914 1,914 $ 1,914
Other comprehensive income, net of tax (732) (732) (732)
-------------
Comprehensive income $ 1,182
=============
Cash dividends:
Common (782) (782)
Preferred (2) (2)
Common stock issued under dividend
reinvestment and employee plans 16,302 842 (494) 348
Conversion of preferred stock (2) 84 2
Other 2 147 147
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE ON MARCH 31, 1999 $ 81 1,740,872 $ 15,828 $ 32,128 $ (580) $ (626) $ 46,831
=================================================================================================================================
</TABLE>
(1)CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME INCLUDE AFTER-TAX NET
UNREALIZED LOSSES ON SECURITIES OF $703 AND $103 AND AFTER-TAX NET
UNREALIZED LOSSES ON FOREIGN CURRENCY TRANSLATION ADJUSTMENTS OF $29 AND $23
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998, RESPECTIVELY.
See accompanying notes to consolidated financial statements.
5
<PAGE>
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On 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
subsidiaries and its nonbanking subsidiaries, the Corporation provides a diverse
range of banking and nonbanking 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 the Corporation to
recognize all derivatives as either assets or liabilities in its financial
statements and measure such instruments at their fair values. Hedging activities
must be redesignated and documented pursuant to the provisions of the statement.
The Corporation is required to implement the statement on or before January 1,
2000. At this time, the Corporation is still assessing the impact of SFAS 133 on
its financial position and results of operations.
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 financial services throughout the
U.S. and in selected international markets to consumers 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 new company's common
stock. In addition, approximately 88 million options to purchase the
Corporation's common stock were issued to convert similar stock options granted
to certain BankAmerica employees. This transaction was accounted for as a
pooling of interests. Under this method of accounting, the recorded assets,
liabilities, shareholders' equity, income and expenses of NationsBank and
BankAmerica have been combined and reflected at their historical amounts.
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 and customer communication,
$300 million of exit and related costs and $135 million of other merger costs
(including legal, investment banking and filing fees). The Corporation
anticipates recording an additional pre-tax merger-related charge of
approximately $400 million ($252 million after-tax) in 1999.
6
<PAGE>
The following table summarizes the activity in the BankAmerica merger-
related reserves during the first quarter of 1999:
<TABLE>
<CAPTION>
NON-CASH
BALANCE ON CASH PAYMENTS REDUCTIONS BALANCE ON
JANUARY 1 APPLIED TO APPLIED TO MARCH 31
(DOLLARS IN MILLIONS) 1999 RESERVE RESERVE 1999
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Severance, change in control
and other employee-related costs $ 487 $ (243) $ - $ 244
Conversion and related costs 143 (6) (9) 128
Exit and related costs 194 (92) (92) 10
Other merger costs 18 (1) - 17
------------------------------------------------------
$ 842 $ (342) $ (101) $ 399
======================================================
</TABLE>
On January 9, 1998, the Corporation completed its merger with Barnett
Banks, Inc., 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
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). As of March 31, 1999, 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 buy BAMS
outstanding shares of Class A Common Stock other than the shares owned by the
Corporation. On April 28, 1999, BAMS became a wholly owned subsidiary of Bank of
America National Trust and Savings Association (Bank of America NT&SA) 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 approximately $330 million.
As of March 31, 1999, the Corporation operated its banking activities
primarily under three charters: Bank of America NT&SA, NationsBank, 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), an Arizona corporation
(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 transferred to NationsBanc Mortgage Corporation, which changed its
name to Bank of America Mortgage. On April 8, 1999, the Corporation merged Bank
of America Texas, N.A. into NationsBank, N.A. The Corporation expects to
continue the consolidation of other banking subsidiaries (other than Bank of
America, N.A. (USA)) throughout 1999.
7
<PAGE>
NOTE THREE - TRADING ACCOUNT ASSETS AND LIABILITIES
The fair value of the components of trading account assets and
liabilities on March 31, 1999 and December 31, 1998 and the average fair value
for the three months ended March 31, 1999 were:
<TABLE>
<CAPTION>
AVERAGE FOR
THE THREE
MARCH 31 December 31 MONTHS ENDED
(DOLLARS IN MILLIONS) 1999 1998 MARCH 31, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities owned:
U.S. Treasury securities $ 7,834 $ 7,854 $ 7,786
Certificates of deposit, bankers' acceptances and commercial paper 2,376 2,723 2,700
Corporate debt 2,039 1,666 1,950
Foreign sovereign debt 10,883 11,774 11,802
Mortgage-backed securities 10,515 7,489 8,830
Other securities 8,735 8,096 8,061
-------------------------- ---------------
Total trading account assets $ 42,382 $ 39,602 $ 41,129
========================== ===============
Short sales:
U.S. Treasury securities $ 7,004 $ 8,534 $ 7,132
Corporate debt 672 82 356
Foreign sovereign debt 3,458 3,166 2,867
Other securities 5,320 2,388 2,324
-------------------------- ---------------
Total trading account liabilities $ 16,454 $ 14,170 $ 12,679
========================== ===============
</TABLE>
See NOTE SIX of the consolidated financial statements on page 11 for
additional information on derivative-dealer positions, including credit risk.
8
<PAGE>
NOTE FOUR - LOANS AND LEASES
Loans and leases on March 31, 1999 and December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 December 31, 1998
-------------------------------------------------
(DOLLARS IN MILLIONS) AMOUNT PERCENT Amount Percent
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial - domestic $ 138,151 38.0 % $ 137,422 38.5 %
Commercial - foreign 31,771 8.7 31,495 8.8
Commercial real estate - domestic 26,351 7.3 26,912 7.5
Commercial real estate - foreign 285 .1 301 .1
-----------------------------------------------------------------------------------
Total commercial 196,558 54.1 196,130 54.9
----------------------------------------------------------------------------------
Residential mortgage 77,918 21.5 73,608 20.6
Home equity lines 15,505 4.3 15,653 4.4
Direct/Indirect consumer 42,126 11.6 40,510 11.3
Consumer finance 16,743 4.6 15,400 4.3
Bankcard 10,642 2.9 12,425 3.5
Foreign consumer 3,610 1.0 3,602 1.0
--------------------------------------------------------------------------------
Total consumer 166,544 45.9 161,198 45.1
----------------------------------------------------------------------------------
TOTAL LOANS AND LEASES $ 363,102 100.0 % $ 357,328 100.0 %
==================================================================================
</TABLE>
The following table presents the recorded investment in specific loans
that were considered to be impaired on March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
(DOLLARS IN MILLIONS) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Commercial - domestic $ 1,100 $ 796
Commercial - foreign 500 314
Commercial real estate - domestic 497 554
Commercial real estate - foreign 3 -
----------- -----------
Total commercial $ 2,100 $ 1,664
=========== ===========
</TABLE>
THE CORPORATION'S CONSUMER LOAN PORTFOLIO GENERALLY CONSISTS OF LARGE GROUPS OF
RELATIVELY SMALLER BALANCE HOMOGENEOUS LOANS THAT ARE COLLECTIVELY EVALUATED FOR
IMPAIRMENT AND, THEREFORE, ARE NOT INCLUDED IN THIS TABLE.
On March 31, 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 $282 million on both
March 31, 1999 and December 31, 1998.
NOTE FIVE - DEBT
In the first quarter of 1999, the Corporation issued $2.7 billion in
senior long-term debt, with maturities ranging from 2001 to 2039. Of the $2.7
billion issued, $1.9 billion was converted from fixed rates ranging from 5.34
percent to 6.30 percent to floating rates through interest rate swaps at spreads
ranging from 10 to 52 basis points over three-month London InterBank Offered
Rates (LIBOR). The remaining $0.8 billion of debt issued bears interest at
spreads ranging from 10 to 15 basis points over three-month LIBOR and spreads
equal to 5 basis points below one-month LIBOR.
9
<PAGE>
NationsBank, N.A. maintains a program to offer up to $25 billion of bank
notes from time to time with fixed or floating rates and maturities from 7 days
or more from date of issue. Prior to the Merger, Bank of America NT&SA
maintained a program to offer up to $12 billion of bank notes from time to time
with fixed or floating rates and maturities ranging from 30 days to 15 years. On
March 31, 1999 there were short-term and long-term bank notes outstanding under
these programs of $10.9 billion and $9.4 billion, respectively.
Since October 1996, the Corporation 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 into 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 March 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
AGGREGATE PER
PRINCIPAL AGGREGATE ANNUM
AMOUNT OF PRINCIPAL INTEREST STATED
TRUST PREFERRED AMOUNT OF RATE OF MATURITY OF
(DOLLARS IN MILLIONS) ISSUED SECURITIES THE NOTES THE NOTES THE NOTES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATIONSBANK
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
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
============= =============
</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 March 31, 1999, the Corporation had commercial paper back-up lines of
credit totaling $1.1 billion, of which $669 million expires in October 1999 and
$479 million expires in October 2002. In addition, the Corporation had a $1.6
billion line of credit which expires in May 2001. At March 31, 1999, there were
no amounts outstanding under these credit facilities. These lines were supported
by fees paid to unaffiliated banks.
As of March 31, 1999, the Corporation had the authority to issue
approximately $6.7 billion of corporate debt and other securities under its
existing shelf registration statement.
Under a joint Euro medium-term note program, the Corporation and
NationsBank, N.A. may offer an aggregate of $8.5 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. On March 31, 1999,
10
<PAGE>
$3.7 billion of notes were outstanding under this program. On March 31, 1999,
$3.5 billion of notes were outstanding under the former BankAmerica program,
which was terminated in connection with the Merger. As of March 31, 1999, the
Corporation and NationsBank, N.A. had the authority to issue approximately $4.8
billion in the aggregate of debt securities under the current program.
In the first quarter of 1999, NationsBank, N.A. issued $2.0 billion in senior
long-term bank notes, with maturities in 2000 and 2001. Of the $2.0 billion
issued, $200 million with fixed rates ranging from 4.97 percent to 5.16 percent
was converted to floating rates through interest rate swaps at spreads ranging
from 12 to 14 basis points below three-month LIBOR. Of the remaining $1.8
billion issued, $279 million was issued at fixed rates ranging from 4.90 percent
to 5.26 percent. The remaining $1.5 billion was issued at floating rates of 5
basis points below three-month LIBOR, 5 basis points below one-month LIBOR, 9
basis points below one-month LIBOR and 283 basis points below the prime rate.
During the first quarter of 1999, Bank of America, F.S.B. received advances from
the Federal Home Loan Bank totaling $1.3 billion, with maturities ranging from
2004 to 2029. Of the $1.3 billion in advances, $680 million bears interest at
floating rates ranging from 1 basis point below three-month LIBOR to three-month
LIBOR. The remaining $604 million bears interest at fixed rates ranging from
5.39 percent to 6.64 percent.
From April 1, 1999 through May 13, 1999, NationsBank, N.A. issued $2.0 billion
of long-term bank notes and Bank of America F.S.B. received advances from the
Federal Home Loan Bank totaling $202 million.
From April 1, 1999 through May 13, 1999, the Corporation issued $565 million of
long-term debt.
On April 22, 1999, the Securities and Exchange Commission declared effective
Main Place Funding LLC's registration statement for the issuance of up to $5.0
billion of securities.
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>
MARCH 31 December 31
(DOLLARS IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Credit card commitments $ 66,144 $ 67,018
Other loan commitments 239,811 234,453
Standby letters of credit and financial guarantees 32,445 33,311
Commercial letters of credit 3,147 3,035
</TABLE>
DERIVATIVES
ASSET AND LIABILITY MANAGEMENT (ALM) ACTIVITIES
The following table outlines the notional amount and fair value of the
Corporation's ALM contracts on March 31, 1999 and December 31, 1998. 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>
MARCH 31, 1999 December 31, 1998
-----------------------------------------------------
NOTIONAL FAIR Notional Fair
(DOLLARS IN MILLIONS) AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------
Interest rate contracts:
<S> <C> <C> <C> <C>
Receive fixed swaps $ 65,466 $ 788 $ 60,450 $ 1,958
Pay fixed swaps 24,441 (673) 25,770 (1,006)
-----------------------------------------------------
Net receive fixed 41,025 115 34,680 952
Basis swaps 9,286 (9) 7,736 (10)
-----------------------------------------------------
Total net swap position 50,311 106 42,416 942
Futures and forward contracts - - 6,348 2
Option products 32,185 (54) 26,836 (46)
-----------------------------------------------------
Total interest rate contracts(1) $ 52 $ 898
======= =========
(1) NOT MEANINGFUL TO SUM NOTIONAL AMOUNTS OF DIFFERENT OFF-BALANCE SHEET
PRODUCTS.
</TABLE>
CREDIT RISK ASSOCIATED WITH DERIVATIVE-DEALER ACTIVITIES
The table on page 13 presents the notional or contract amounts on March
31, 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 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
11
<PAGE>
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.
DERIVATIVE-DEALER POSITIONS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) MARCH 31,1999 December 31, 1998
- -------------------------------------------------------------------------------------------
CONTRACT/ CREDIT Contract/ Credit
NOTIONAL RISK Notional Risk
- -------------------------------------------------------------------------------------------
Interest rate contracts:
<S> <C> <C> <C> <C>
Swaps $1,670,422 $ 4,987 $ 1,539,862 $ 5,470
Futures and forwards 744,053 176 808,284 290
Written options 400,068 - 494,608 -
Purchased options 488,768 2,110 615,492 2,125
Foreign exchange contracts:
Swaps 35,697 1,185 37,357 1,403
Spot, futures and forwards 616,551 3,221 623,977 5,136
Written options 50,887 - 56,287 -
Purchased options 46,463 578 53,426 703
Commodity and other contracts:
Swaps 7,163 631 5,685 370
Futures and forwards 24,375 - 5,292 -
Written options 27,351 - 22,382 -
Purchased options 27,712 1,277 22,134 989
----------- ------------
Total before cross product netting 14,165 16,486
Cross product netting 1,827 1,274
----------- ------------
Net replacement cost $12,338 $ 15,212
=========== ============
</TABLE>
The table above includes both long and short derivative-dealer
positions. The average fair value of derivative-dealer assets for the three
months ended March 31, 1999 and for the twelve months ended December 31, 1998
was $14.9 billion and $14.3 billion, respectively. The average fair value of
derivative-dealer liabilities for the three months ended March 31, 1999 and for
the twelve months ended December 31, 1998 was $15.5 billion and $13.3 billion,
respectively. The fair value of derivative-dealer assets at March 31, 1999 and
December 31, 1998 was $13.6 billion and $16.4 billion, respectively. The fair
value of derivative-dealer liabilities at March 31, 1999 and December 31, 1998
was $14.4 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
generate revenue. The majority of the Corporation's credit derivative positions
consist of credit default swaps and total return swaps. As of March 31, 1999 and
December 31, 1998, the Corporation had a notional amount of $14.1 billion and
$16.9 billion, respectively, in credit derivatives.
WHEN-ISSUED SECURITIES
On March 31, 1999, the Corporation had commitments to purchase and sell
when-issued securities of $16.5 billion and $25.3 billion, respectively. On
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's predecessor, BankAmerica and certain of its
subsidiaries, including Bank of America NT&SA, were named in one such suit by
the City of San Francisco and several related public entities, and by the State
of California, in an action entitled State of California, etc ex rel Stull v.
Bank of America NT&SA, et. al. (No. 968-484).The case was instituted on April 1,
1995 in the Superior Court for the City and County of San Francisco. The City of
San Francisco and related public entities intervened in the case on May 1, 1997,
and the State of California took over prosecution of the case on May 5, 1997.
The chief allegation of this suit is that Bank of America NT&SA and its
predecessors retained unclaimed funds related to bonds and coupons that were not
presented by bondholders rather than returning them to certain bond issuers or
escheating such funds to the State. The suit also alleges False Claims Act
exposure for alleged fee overcharges and claims that Bank of America NT&SA and
its predecessors improperly invested bond program funds. On November 12, 1998,
the plaintiffs and the Corporation and its named subsidiaries settled this suit
whereby the Corporation and its named subsidiaries agreed to pay $187.5 million
to the plaintiffs. The settlement has been approved by the court.
12
<PAGE>
The Corporation and certain present and former officers and directors
have been named as defendants in 24 uncertified class 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 related 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
uncertified classes consist generally of persons who were shareholders of
NationsBank or BankAmerica on September 30, 1998, or who purchased or acquired
securities of the Corporation or its predecessors between August 4, 1998 and
October 13, 1998. Similar uncertified 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 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.
13
<PAGE>
NOTE SEVEN - 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 WEALTH MANAGEMENT, which includes direct equity
investments in businesses and investments in general partnership funds, the
Private Bank which provides asset management, banking and trust services for
high net worth clients both in the US and internationally, and Wealth
Management, which 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 revenues and net income for the three
months ended March 31, 1999 and assets as of March 31, 1999 for each business
segment:
(DOLLARS IN MILLIONS) REVENUES NET INCOME ASSETS
----------------------------------------------------------------------------
Consumer Banking $ 4,317 $ 873 $283,724
Commercial Banking 717 197 70,139
Global Corporate and Investment Banking 2,040 492 240,279
Principal Investing and Wealth Management 685 209 24,863
----------------------------------------------------------------------------
TOTAL $ 7,759 $ 1,771 $619,005
============================================================================
There were no material intersegment revenues between the four business
segments.
A reconciliation of the total of the segments' net income to
consolidated net income follows:
THREE MONTHS
ENDED
(DOLLARS IN MILLIONS) MARCH 31, 1999
-----------------------------------------------------------------
Segments' net income $ 1,771
Adjustments, net of taxes:
Gains on sales of securities 81
Earnings associated with unassigned capital 67
Other (5)
-----------------------------------------------------------------
CONSOLIDATED NET INCOME $ 1,914
=================================================================
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
ON SEPTEMBER 25, 1998, BANKAMERICA CORPORATION REINCORPORATED IN
DELAWARE AND ON SEPTEMBER 30, 1998, NATIONSBANK CORPORATION (NATIONSBANK)
COMPLETED ITS MERGER WITH THE FORMER BANKAMERICA CORPORATION (BANKAMERICA) AND
CHANGED ITS NAME TO "BANKAMERICA CORPORATION". 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; 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 ACCOMODATE
THE EURO CONVERSION, 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, WHICH POLICIES AND REGULATIONS COULD AFFECT THE CORPORATION'S
RESULTS. OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER FROM THE
FORWARD-LOOKING STATEMENTS INCLUDE THE FOLLOWING: COMPETITION WITH OTHER LOCAL,
REGIONAL AND INTERNATIONAL BANKS, SAVINGS AND LOAN ASSOCIATIONS, CREDIT UNIONS
AND OTHER NON-BANK FINANCIAL INSTITUTIONS, SUCH AS INVESTMENT BANKING FIRMS,
INVESTMENT ADVISORY FIRMS, BROKERAGE FIRMS, MUTUAL FUNDS AND INSURANCE
COMPANIES, AS WELL AS OTHER ENTITIES WHICH OFFER FINANCIAL SERVICES, LOCATED
BOTH WITHIN AND
15
<PAGE>
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 ended March 31, 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 first quarter of 1999 increased 44 percent to $1.91
billion from $1.33 billion in the first quarter of 1998. Earnings per common
share and diluted earnings per common share were $1.10 and $1.08, respectively,
for the first quarter of 1999, compared to $0.77 and $0.75, respectively, in the
first quarter of 1998. Excluding a merger-related charge of $900 million ($642
million, net of tax), net income for the first quarter of 1998 was $1.97
billion, earnings per common share were $1.14 and diluted earnings per common
share were $1.11. See NOTE TWO of the consolidated financial statements on page
6 for additional information on merger-related activity.
KEY PERFORMANCE HIGHLIGHTS FOR THE FIRST QUARTER OF 1999 WERE:
o Taxable-equivalent net interest income of $4.65 billion in the first quarter
of 1999 was at the same level as the first quarter of 1998. The net interest
yield decreased to 3.58 percent in the first quarter of 1999 compared to
3.81 percent in the first quarter of 1998 due to higher levels of investment
securities, which have a lower yield than loans, and a decrease in the
spreads between loans and deposits.
o The provision for credit losses remained unchanged at $510 million for the
quarters ended March 31, 1999 and 1998. Net charge-offs totaled $519 million
in the first quarter of 1999 compared to $516 million for the same period in
1998, while net charge-offs as a percentage of average loans and leases
decreased to 0.58 percent for the first quarter of 1999 compared to 0.61
percent for the first quarter of 1998. Higher total commercial net
charge-offs were offset by lower net charge-offs in the consumer loan
portfolio. Nonperforming assets on March 31, 1999 increased to $3.1 billion
compared to $2.8 billion at December 31, 1998, the result of higher
commercial nonperforming loans.
o Noninterest income decreased 8 percent to $3.2 billion in the first quarter
of 1999 compared to $3.5 billion in the first quarter of 1998. This decrease
was primarily attributable to lower levels of investment banking income,
mortgage servicing income and other income. The decrease was partially
offset by higher levels of income from trading account profits and fees,
credit card income and deposit account service charges.
o Other noninterest expense decreased 5 percent to $4.5 billion in the first
quarter of 1999 compared to $4.7 billion in the first quarter of 1998. This
decrease was attributable to merger-related savings resulting in lower
levels of personnel expense, 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 38 percent
to $1.20 for the first quarter of 1999 compared to $0.87 for the same period
a year ago. Excluding merger-related charges, cash basis diluted earnings
per common share were $1.20 and $1.24 for the first quarter of 1999 and
1998, respectively. For the three months ended March 31, 1999, return on
average tangible common shareholders' equity excluding merger-related
charges increased to 27.44 percent compared to 23.02 percent for the same
period in 1998. Excluding merger-related charges, return on average tangible
common shareholders' equity was 27.44 and 32.57 for the first three months
of 1999 and 1998, respectively.
o The cash basis efficiency ratio excluding merger-related charges was 53.76
percent in the first quarter of 1999, an improvement of 116 basis points
from the first quarter of 1998, primarily due to the $251 million decrease
in other noninterest expense in the first three months of 1999.
16
<PAGE>
TABLE ONE
SELECTED OPERATING RESULTS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
----------------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION) 1999 1998
- -------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
<S> <C> <C>
Interest income $ 9,201 $ 9,705
Interest expense 4,601 5,086
Net interest income 4,600 4,619
Net interest income (taxable-equivalent) 4,645 4,659
Provision for credit losses 510 510
Gains on sales of securities 130 213
Noninterest income 3,223 3,493
Merger-related charges - 900
Other noninterest expense 4,453 4,704
Income before income taxes 2,990 2,211
Income tax expense 1,076 880
Net income 1,914 1,331
Net income available to common shareholders 1,912 1,320
Net income (excluding merger-related charges) 1,914 1,973
Average common shares issued and outstanding (in thousands) 1,737,562 1,724,490
PER COMMON SHARE
Earnings $ 1.10 $ .77
Earnings (excluding merger-related charges) 1.10 1.14
Diluted earnings 1.08 .75
Diluted earnings (excluding merger-related charges) 1.08 1.11
Cash dividends paid .45 .38
Shareholders' equity (period-end) 26.86 25.72
BALANCE SHEET (PERIOD-END)
Total loans and leases 363,102 341,219
Total assets 614,245 580,211
Total deposits 343,317 344,447
Long-term debt 50,899 43,633
Common shareholders' equity 46,761 44,430
Total shareholders' equity 46,831 45,104
PERFORMANCE RATIOS
Return on average assets 1.27 % .93 %
Return on average assets (excluding merger-related charges) 1.27 1.38
Return on average common shareholders' equity 16.78 12.46
Return on average common shareholders' equity (excluding merger-related charges) 16.78 18.52
Efficiency ratio (excluding merger-related charges) 56.59 57.72
Total equity to total assets (period-end) 7.62 7.77
Total average equity to total average assets 7.59 7.54
Dividend payout ratio 40.90 45.30
RISK-BASED CAPITAL RATIOS (PERIOD-END) (1)
Tier 1 7.40 6.80
Total 11.17 11.19
Leverage capital ratio 6.47 5.64
CASH BASIS FINANCIAL DATA (2)
Earnings per common share $ 1.23 $ .90
Earnings per common share (excluding merger-related charges) 1.23 1.27
Diluted earnings per common share 1.20 .87
Diluted earnings per common share (excluding merger-related charges) 1.20 1.24
Return on average tangible assets 1.46 % 1.12 %
Return on average tangible assets (excluding merger-related charges) 1.46 1.59
Return on average tangible common shareholders' equity 27.44 23.02
Return on average tangible common shareholders' equity
(excluding merger-related charges) 27.44 32.57
Efficiency ratio (excluding merger-related charges) 53.76 54.92
Tangible equity to tangible assets (period-end) 5.38 5.22
MARKET PRICE PER SHARE OF COMMON STOCK
Closing price $ 70 5/8 $ 72 15/16
High for the period 74 1/2 75 1/8
Low for the period 59 1/2 56 1/4
</TABLE>
(1) RATIOS FOR 1998 HAVE NOT BEEN RESTATED TO REFLECT THE IMPACT OF THE
BANKAMERICA MERGER.
(2) CASH BASIS CALCULATIONS EXCLUDE GOODWILL AND OTHER
INTANGIBLE ASSETS AND THE RELATED AMORTIZATION EXPENSE.
- --------------------------------------------------------------------------------
17
<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 WEALTH 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 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 SEVEN of the consolidated financial statements on page 15 for
additional business segment information, including adjustments and a
reconciliation to consolidated net income.
CONSUMER BANKING
The CONSUMER BANKING segment provides comprehensive retail banking
services to individuals and small businesses through multiple delivery channels
including approximately 4,700 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 22 states and the District of Columbia. This segment also provides
specialized services such as the origination and servicing of residential
mortgage loans, issuance and servicing of credit cards, direct banking via
telephone and personal computer, student lending and certain insurance services.
The consumer finance component provides 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 increased 6 percent to $873 million in the
first three months of 1999 compared to the first three months of 1998.
Taxable-equivalent net interest income decreased 3 percent to $2.9 billion,
primarily reflecting the impact of securitizations, partially offset by average
loan growth. 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
in the first three months of 1999 increased approximately 13 percent over
average levels in the first three months of 1998. Average total deposits for the
first three months of 1999 of $230.9 billion were essentially unchanged compared
to the first three months of 1998. The net interest yield decreased 18 basis
points in the first three months of 1999, reflecting an increase in lower
earning assets and spread compression on loans and deposits.
The provision for credit losses in the first three months of 1999
decreased $45 million to $308 million from $353 million in the same period
during 1998 resulting from charge-offs of lower quality assets.
Noninterest income in CONSUMER BANKING declined 7 percent to $1.4
billion in the first three months of 1999 due to lower mortgage servicing and
production fees and lower other income. Mortgage servicing and production fees
decreased primarily due to higher amortization expense.
Noninterest expense decreased 7 percent to $2.6 billion due to
reductions primarily in personnel expense, professional fees, other general
operating expense and processing expense. These decreases mainly reflect the
successful attainment of merger-related savings. The cash basis efficiency ratio
was 56.9 percent, an improvement of approximately 200 basis points over the
first three months of 1998. The return on tangible equity increased to 28
percent for the first three months of 1999 compared to 26 percent for the same
period in 1998.
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
18
<PAGE>
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 21 percent to $197 million in
the first three months of 1999 compared to $248 million in the first three
months of 1998. Taxable-equivalent net interest income decreased $28 million
from the comparable period in 1998, primarily reflecting lower yields on earning
assets. COMMERCIAL BANKING'S average managed loan and lease portfolio during the
first three months of 1999 increased 2 percent to $55.6 billion compared to the
first three months of 1998.
The provision for credit losses in the first quarter of 1999 of $47
million increased from $22 million in the first quarter of 1998, primarily
attributable to an increase in charge-offs.
Noninterest income remained essentially unchanged at $180 million.
Noninterest expense for the period increased 10 percent to $363 million
primarily due to increases in other general operating expense and
processing/support costs. The cash basis efficiency ratio increased
approximately 630 basis points to 47.4 percent. The return on tangible equity
decreased to 23 percent from 26 percent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE TWO
BUSINESS SEGMENT SUMMARY
For the Three Months Ended March 31
CONSUMER COMMERCIAL GLOBAL CORPORATE AND PRINCIPAL INVESTING AND
BANKING BANKING INVESTMENT BANKING WEALTH 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)$2,919 $2,996 $ 537 $ 565 $ 960 $ 944 $ 122 $ 111
Noninterest income 1,398 1,499 180 182 1,080 1,123 563 576
--------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 4,317 4,495 717 747 2,040 2,067 685 687
Provision for credit losses 308 353 47 22 132 136 23 (1)
Gains on sale of securities 1 5 - - - 2 - -
Noninterest expense 2,594 2,792 363 330 1,165 1,200 330 390
--------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,416 1,355 307 395 743 733 332 298
Income tax expense 543 528 110 147 251 268 123 111
--------------------------------------------------------------------------------------------------------------------
NET INCOME $ 873 $ 827 $ 197 $ 248 $ 492 $ 465 $ 209 $ 187
====================================================================================================================
Cash basis earnings (1) $1,010 $ 971 $ 219 $ 272 $ 526 $ 500 $ 215 $ 192
Net interest yield 4.54% 4.72% 3.38% 3.59% 1.94% 2.14% 2.47% 3.28%
Average equity to average assets 6.61 7.15 6.72 7.35 5.22 5.64 12.46 13.57
Return on average equity 19 17 17 20 16 15 29 33
Return on tangible equity (1) 28 26 23 26 19 19 32 37
Efficiency ratio 60.1 62.1 50.6 44.2 57.1 58.1 48.2 56.8
Cash basis efficiency ratio (1) 56.9 58.9 47.4 41.1 55.4 56.4 47.3 56.0
Average:
Total loans and leases $176,513 $170,461 $55,585 $55,850 $112,121 $102,569 $18,214 $13,228
Total deposits 230,901 230,807 21,596 20,161 73,327 62,810 13,285 11,731
Total assets 283,687 282,696 70,398 69,987 242,352 217,101 23,649 16,877
Period-end:
Total loans and leases 180,393 170,043 55,499 55,299 110,734 102,761 18,831 13,511
Total deposits 232,273 233,728 21,563 20,549 73,199 65,129 13,332 11,701
Total assets 283,724 282,712 70,139 71,554 240,279 216,468 24,863 19,014
</TABLE>
(1) CASH BASIS CALCULATIONS EXCLUDE GOODWILL AND OTHER INTANGIBLE ASSETS AND
THE RELATED AMORTIZATION EXPENSE.
- --------------------------------------------------------------------------------
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,
senior bank debt, structured finance and trade services. On May 17, 1999,
NationsBanc Montgomery Securities LLC, the GLOBAL CORPORATE AND INVESTMENT
BANKING segment's Section 20 subsidiary was renamed Banc of America Securities
LLC. It is a primary dealer of
19
<PAGE>
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. 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 to support client demands and its own account.
GLOBAL CORPORATE AND INVESTMENT BANKING'S net income increased 6 percent
to $492 million in the first three months of 1999 compared to $465 million in
the first three months of 1998. Taxable-equivalent net interest income for the
first three months of 1999 increased 2 percent to $960 million compared to $944
million in the first three months of 1998 primarily due to lower costs of funds.
The average managed loan and lease portfolio increased 10 percent to $116.5
billion in the first three months of 1999 compared to $106.2 billion in the
first three months of 1998.
The provision for credit losses remained essentially unchanged at $132
million in the first three months of 1999 compared to $136 million in the first
three months of 1998.
Noninterest income for the first three months of 1999 declined 4 percent
to $1.1 billion over the first three months of 1998, reflecting lower investment
banking fees, brokerage income and other income partially offset by an increase
in trading account profits and fees. 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 3 percent, due primarily to decreased
personnel expenses. The cash basis efficiency ratio improved to 55.4 percent in
the first three months of 1999 compared to 56.4 percent for the first three
months of 1998. The return on tangible equity remained unchanged at 19 percent.
PRINCIPAL INVESTING AND WEALTH MANAGEMENT
The PRINCIPAL INVESTING AND WEALTH MANAGEMENT segment includes Wealth
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 WEALTH MANAGEMENT earned $209 million in the
first three months of 1999 compared to $187 million in the first three months of
1998, an increase of 12 percent. Taxable-equivalent net interest income for the
first three months of 1999 increased 10 percent to $122 million compared to $111
million in the first three months of 1998, reflecting increased loan volumes
partially offset by increased funding costs. The average loan and lease
portfolio for the first three months of 1999 increased 38 percent to $18.2
billion compared to $13.2 billion in the same period during 1998.
The provision for credit losses in the first quarter of 1999 increased
$24 million from the first quarter of 1998 due to portfolio growth, as well as
an increase in charge-offs.
Noninterest income fell 2 percent to $563 million over the first three
months of 1998. Investment banking fees decreased due to more favorable market
conditions in the first quarter of 1998. Asset management fees and brokerage
income had strong core revenue growth in the first quarter of 1999 which was
somewhat mitigated by the sale of the investment management operations of
Robertson Stephens.
Noninterest expense decreased 15 percent to $330 million, due primarily
to lower personnel expense, professional fees, other general operating expense
and processing/support costs. The cash basis efficiency ratio improved
approximately 870 basis points to 47.3 percent. The return on tangible equity
decreased to 32 percent for the first three months of 1999 from 37 percent for
the first three months of 1998.
20
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
An analysis of the Corporation's taxable-equivalent net interest income
and average balance sheet levels for the most recent five quarters is presented
in TABLE THREE.
Taxable-equivalent net interest income of $4.65 billion in the first
quarter of 1999 was largely unchanged from the first quarter of 1998. Managed
loan growth, increases in core funding levels and the impact of deposit pricing
initiatives were offset by the impact of securitizations, divestitures, asset
sales and spread compression on loans and deposits. 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.
Average earning assets increased nearly $30 billion from the first
quarter of 1998 to $523.7 billion in the first quarter of 1999, primarily due to
loan growth and an increase in investment securities. Loan yields in the first
quarter of 1999 declined 82 basis points from the first quarter of 1998,
primarily reflecting lower market interest rates and a change in loan mix. The
change in mix resulted from strong growth in both consumer and commercial
products.
The net interest yield decreased 23 basis points to 3.58 percent in the
first quarter of 1999 compared to 3.81 percent in the first quarter of 1998,
primarily due to higher levels of investment securities and spread compression.
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.
PROVISION FOR CREDIT LOSSES
The provision for credit losses remained constant at $510 million for
the first three months of 1999 and 1998. Total net charge-offs were essentially
covered by the provision for credit losses. Higher total commercial domestic net
charge-offs were offset by lower net charge-offs in the total consumer loan
portfolio. For additional information on the allowance for credit losses,
certain credit quality ratios and credit quality information on specific loan
categories see the "Allowance for Credit Losses" and "Concentrations of Credit
Risk" sections.
GAINS ON SALES OF SECURITIES
Gains on sales of securities were $130 million and $213 million in the
first quarter of 1999 and 1998, respectively. Securities gains were lower in
1999 as a result of decreased activity connected with the Corporation's overall
risk management activity and less favorable market conditions for certain debt
instruments.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE THREE
QUARTERLY TAXABLE-EQUIVALENT DATA
(DOLLARS IN MILLIONS) First Quarter 1999 Fourth Quarter 1998
--------------------------------------- --------------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
---------- -------- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases (1):
Commercial - domestic $ 138,272 $ 2,444 7.16 % $ 136,629 $ 2,542 7.39 %
Commercial - foreign 31,568 494 6.35 32,893 569 6.86
Commercial real estate - domestic 26,827 559 8.45 28,427 601 8.38
Commercial real estate - foreign 286 6 8.79 319 8 9.39
---------- -------- ------- ---------- -------- -----
Total commercial 196,953 3,503 7.21 198,268 3,720 7.45
---------- -------- ------- ---------- -------- -----
Residential mortgage 75,789 1,356 7.18 73,033 1,336 7.30
Home equity lines 15,537 298 7.79 15,781 326 8.17
Direct/Indirect consumer 41,652 847 8.24 40,557 876 8.57
Consumer finance 15,880 373 9.53 14,368 338 9.33
Bankcard 11,287 327 11.76 12,078 366 12.01
Foreign consumer 3,648 89 9.90 3,551 94 10.47
---------- -------- ------- ---------- -------- -----
Total consumer 163,793 3,290 8.11 159,368 3,336 8.32
---------- -------- ------- ---------- -------- -----
Total loans and leases 360,746 6,793 7.62 357,636 7,056 7.84
---------- -------- ------- ---------- -------- -----
Securities:
Held for investment 1,905 33 6.84 2,948 44 6.09
Available for sale (2) 73,925 1,161 6.31 69,354 1,162 6.68
---------- -------- ------- ---------- -------- -----
Total securities 75,830 1,194 6.33 72,302 1,206 6.66
---------- -------- ------- ---------- -------- -----
Federal funds sold and securities purchased
under agreements to resell 26,561 381 5.80 29,564 486 6.53
Time deposits placed and other short-term
investments 6,408 88 5.58 6,702 111 6.56
Trading account securities 41,129 547 5.36 39,391 613 6.19
Other earning assets 13,008 243 7.53 11,471 207 7.19
---------- -------- ------- ---------- -------- -----
Total earning assets (3) 523,682 9,246 7.13 517,066 9,679 7.44
---------- -------- ------- ---------- -------- -----
Cash and cash equivalents 25,826 25,834
Other assets, less allowance for credit
losses 60,116 63,641
---------- ----------
TOTAL ASSETS $ 609,624 $ 606,541
========== ==========
INTEREST-BEARING LIABILITIES
Domestic interest-bearing deposits:
Savings $ 21,637 71 1.33 $ 21,702 91 1.67
NOW and money market deposit accounts 99,864 575 2.33 97,589 622 2.53
Consumer CDs and IRAs 74,362 857 4.68 74,923 956 5.06
Negotiated CDs, public funds and other
time deposit 6,914 89 5.20 7,388 96 5.16
---------- -------- ------- ---------- -------- -----
Total domestic interest-bearing
deposits 202,777 1,592 3.18 201,602 1,765 3.47
---------- -------- ------- ---------- -------- -----
Foreign interest-bearing deposits (4):
Banks located in foreign countries 20,379 268 5.34 24,938 325 5.17
Governments and official institutions 9,172 113 5.02 10,278 143 5.54
Time, savings and other 26,980 339 5.10 26,868 365 5.39
---------- -------- ------- ---------- -------- -----
Total foreign interest-bearing deposits 56,531 720 5.17 62,084 833 5.32
---------- -------- ------- ---------- -------- -----
Total interest-bearing deposits 259,308 2,312 3.62 263,686 2,598 3.91
---------- -------- ------- ---------- -------- -----
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
Trading account liabilities 12,679 129 4.13 14,194 165 4.62
Long-term debt (5) 52,642 805 6.12 51,779 844 6.52
---------- -------- ------- ---------- -------- -----
Total interest-bearing liabilities (6) 437,013 4,601 4.26 434,075 5,029 4.60
---------- -------- ------- ---------- -------- -----
Noninterest-bearing sources:
Noninterest-bearing deposits 86,623 88,080
Other liabilities 39,709 39,335
Shareholders' equity 46,279 45,051
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 609,624 $ 606,541
========== ==========
Net interest spread 2.87 2.84
Impact of noninterest-bearing sources .71 .74
-------- ------- -------- -----
NET INTEREST INCOME/YIELD ON EARNING ASSETS $ 4,645 3.58 % $ 4,650 3.58 %
======== ======= ======== =====
</TABLE>
(1) NONPERFORMING LOANS ARE INCLUDED IN THE RESPECTIVE AVERAGE LOAN BALANCES.
INCOME ON SUCH NONPERFORMING LOANS IS RECOGNIZED ON A CASH BASIS.
(2) THE AVERAGE BALANCE SHEET AMOUNTS AND YIELDS ON SECURITIES AVAILABLE FOR
SALE ARE BASED ON THE AVERAGE OF HISTORICAL AMORTIZED COST BALANCES.
(3) INTEREST INCOME INCLUDES TAXABLE-EQUIVALENT ADJUSTMENTS OF $45 IN THE
FIRST QUARTER OF 1999 AND $41, $40, $42 AND $40 IN THE FOURTH, THIRD,
SECOND AND FIRST QUARTERS OF 1998, RESPECTIVELY. INTEREST INCOME ALSO
INCLUDES THE IMPACT OF RISK MANAGEMENT INTEREST RATE CONTRACTS, WHICH
INCREASED INTEREST INCOME ON THE UNDERLYING LINKED ASSETS $63 IN THE
FIRST QUARTER OF 1999 AND $70, $46, $29, AND $29 IN THE FOURTH, THIRD,
SECOND AND FIRST 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 LINKED
LIABILITIES $60 IN THE FIRST QUARTER OF 1999 AND $27, $9, $4, AND $5 IN
THE FOURTH, THIRD, SECOND AND FIRST QUARTERS OF 1998, RESPECTIVELY.
-----------------------------------------------------------------------------
22
<PAGE>
TABLE THREE
QUARTERLY TAXABLE-EQUIVALENT DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) Third Quarter 1998 Second Quarter 1998
- --------------------------------------- ----------------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
---------- -------- ------- ------------------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans and leases (1):
Commercial - domestic $132,537 $ 2,538 7.59 % $ 127,788 $ 2,496 7.84 %
Commercial - foreign 31,245 578 7.35 30,046 556 7.41
Commercial real estate - domestic 28,027 610 8.64 28,228 644 9.15
Commercial real estate - foreign 338 8 10.51 334 9 9.82
---------- -------- ------- ------------------- -------
Total commercial 192,147 3,734 7.71 186,396 3,705 7.97
---------- -------- ------- ------------------- -------
Residential mortgage 70,619 1,155 6.53 69,337 1,171 6.76
Home equity lines 16,024 485 12.03 16,271 473 11.64
Direct/Indirect consumer 39,582 854 8.56 40,404 895 8.90
Consumer finance 14,197 385 10.76 14,249 387 10.88
Bankcard 12,751 399 12.43 12,780 409 12.83
Foreign consumer 3,465 93 10.57 3,350 87 10.53
---------- -------- ------- ------------------- -------
Total consumer 156,638 3,371 8.56 156,391 3,422 8.77
---------- -------- ------- ------------------- -------
Total loans and leases 348,785 7,105 8.09 342,787 7,127 8.34
---------- -------- ------- ------------------- -------
Securities:
Held for investment 4,286 76 6.99 4,525 79 7.03
Available for sale (2) 61,250 1,046 6.82 58,527 1,017 6.95
---------- -------- ------- ------------------- -------
Total securities 65,536 1,122 6.83 63,052 1,096 6.96
---------- -------- ------- ------------------- -------
Federal funds sold and securities purchased
under agreements to resell 27,646 492 7.06 25,275 433 6.86
Time deposits placed and other short-term
investments 7,483 138 7.31 7,916 129 6.54
Trading account securities 35,487 587 6.59 42,421 693 6.56
Other earning assets 10,974 204 7.42 10,494 201 7.68
---------- -------- ------- ------------------- -------
Total earning assets (3) 495,911 9,648 7.73 491,945 9,679 7.89
---------- -------- ------- ------------------- -------
Cash and cash equivalents 24,160 25,071
Other assets, less allowance for credit
losses 58,282 56,959
---------- -----------
TOTAL ASSETS $578,353 $ 573,975
========== ===========
INTEREST-BEARING LIABILITIES
Domestic interest-bearing deposits:
Savings $ 22,775 107 1.87 $ 23,208 112 1.93
NOW and money market deposit accounts 95,276 634 2.64 96,605 638 2.65
Consumer CDs and IRAs 74,313 984 5.25 74,002 983 5.29
Negotiated CDs, public funds and other
time deposit 8,696 120 5.45 8,388 117 5.63
---------- -------- ------- ------------------- -------
Total domestic interest-bearing
deposits 201,060 1,845 3.64 202,203 1,850 3.66
---------- -------- ------- ------------------- -------
Foreign interest-bearing deposits (4):
Banks located in foreign countries 27,892 418 5.95 22,393 326 5.84
Governments and official institutions 11,084 156 5.59 10,629 150 5.64
Time, savings and other 24,086 411 6.77 22,592 364 6.49
---------- -------- ------- ------------------- -------
Total foreign interest-bearing deposits 63,062 985 6.20 55,614 840 6.07
---------- -------- ------- ------------------- -------
Total interest-bearing deposits 264,122 2,830 4.25 257,817 2,690 4.18
---------- -------- ------- ------------------- -------
Federal funds purchased, securities sold
under agreements to repurchase and
other short-term borrowings 84,283 1,278 6.02 82,385 1,229 5.98
Trading account liabilities 15,454 194 4.97 19,817 262 5.30
Long-term debt (5) 51,365 862 6.71 49,254 830 6.74
---------- -------- ------- ------------------- -------
Total interest-bearing liabilities (6) 415,224 5,164 4.94 409,273 5,011 4.90
---------- -------- ------- ------------------- -------
Noninterest-bearing sources:
Noninterest-bearing deposits 83,661 84,552
Other liabilities 33,712 35,293
Shareholders' equity 45,756 44,857
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $578,353 $ 573,975
========== ===========
Net interest spread 2.79 2.99
Impact of noninterest-bearing sources .81 .81
-------- ------- -------- -------
NET INTEREST INCOME/YIELD ON EARNING ASSETS $ 4,484 3.60 % $ 4,668 3.80 %
======== ======= ======== =======
<CAPTION>
TABLE THREE
QUARTERLY TAXABLE-EQUIVALENT DATA
(DOLLARS IN MILLIONS) First Quarter 1998
- --------------------------------------- -----------------------------
Average
Balance Income
Sheet or Yields/
Amounts Expense Rates
---------- --------- ------
EARNING ASSETS
Loans and leases (1):
Commercial - domestic $ 123,586 $ 2,413 7.91 %
Commercial - foreign 29,840 543 7.37
Commercial real estate - domestic 29,000 648 9.06
Commercial real estate - foreign 327 8 10.48
---------- --------- ------
Total commercial 182,753 3,612 8.01
---------- --------- ------
Residential mortgage 70,350 1,218 6.95
Home equity lines 16,448 457 11.28
Direct/Indirect consumer 40,280 880 8.85
Consumer finance 14,662 419 11.60
Bankcard 14,259 464 13.19
Foreign consumer 3,218 83 10.46
---------- --------- ------
Total consumer 159,217 3,521 8.94
---------- --------- ------
Total loans and leases 341,970 7,133 8.44
---------- --------- ------
Securities:
Held for investment 4,713 83 7.09
Available for sale (2) 61,074 1,061 6.98
---------- --------- ------
Total securities 65,787 1,144 6.99
---------- --------- ------
Federal funds sold and securities purchased
under agreements to resell 26,632 417 6.35
Time deposits placed and other short-term
investments 8,517 136 6.48
Trading account securities 41,868 740 7.14
Other earning assets 9,047 175 7.76
---------- --------- ------
Total earning assets (3) 493,821 9,745 7.98
---------- --------- ------
Cash and cash equivalents 24,558
Other assets, less allowance for credit
losses 60,462
----------
TOTAL ASSETS $ 578,841
==========
INTEREST-BEARING LIABILITIES
Domestic interest-bearing deposits:
Savings $ 23,096 111 1.95
NOW and money market deposit accounts 96,696 642 2.70
Consumer CDs and IRAs 75,393 992 5.33
Negotiated CDs, public funds and other
time deposit 5,917 81 5.53
---------- --------- ------
Total domestic interest-bearing
deposits 201,102 1,826 3.68
---------- --------- ------
Foreign interest-bearing deposits (4):
Banks located in foreign countries 23,067 336 5.91
Governments and official institutions 10,067 141 5.69
Time, savings and other 23,467 390 6.70
---------- --------- ------
Total foreign interest-bearing deposits 56,601 867 6.20
---------- --------- ------
Total interest-bearing deposits 257,703 2,693 4.24
---------- --------- ------
Federal funds purchased, securities sold
under agreements to repurchase and
other short-term borrowings 91,358 1,310 5.82
Trading account liabilities 20,516 274 5.43
Long-term debt (5) 47,416 809 6.83
---------- --------- ------
Total interest-bearing liabilities (6) 416,993 5,086 4.93
---------- --------- ------
Noninterest-bearing sources:
Noninterest-bearing deposits 82,164
Other liabilities 36,056
Shareholders' equity 43,628
----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 578,841
==========
Net interest spread 3.05
Impact of noninterest-bearing sources .76
--------- ------
NET INTEREST INCOME/YIELD ON EARNING ASSETS $ 4,659 3.81 %
========= ======
</TABLE>
23
<PAGE>
NONINTEREST INCOME
As presented in TABLE FOUR, noninterest income decreased 8 percent to
$3.2 billion in the first quarter of 1999, reflecting lower levels of investment
banking income, other income, mortgage servicing income and nondeposit-related
service fees. This decrease was partially offset by higher levels of income from
trading account profits and fees, credit card income and deposit account service
fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
TABLE FOUR
NONINTEREST INCOME
THREE MONTHS
ENDED MARCH 31 CHANGE
-------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 Amount Percent
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 855 $816 $ 39 4.8 %
Mortgage servicing income 132 172 (40) (23.3)
Investment banking income 388 613 (225) (36.7)
Trading account profits and fees 500 372 128 34.4
Brokerage income 184 180 4 2.2
Nondeposit-related service fees 136 175 (39) (22.3)
Asset management and fiduciary service fees 243 245 (2) (.8)
Credit card income 360 319 41 12.9
Other income 425 601 (176) (29.3)
------ ------ ----- ----
$3,223 $3,493 $(270) (7.7)%
====== ====== ===== ====
</TABLE>
o Mortgage servicing income decreased $40 million to $132 million in the first
quarter of 1999, primarily due to an increase in prepayment rates. The
average portfolio of loans serviced increased 11 percent from $216 billion
in the first quarter of 1998 to $239 billion in the first quarter of 1999.
Mortgage loan originations through the Corporation's mortgage units
increased to $15.7 billion in the first three months of 1999 compared to
$14.4 billion in the first three months of 1998. The increase in loan
originations in the first quarter of 1999 was primarily attributable to a
decline in interest rates over the first quarter of 1998. Origination volume
in the first quarter of 1999 was composed of approximately $7.4 billion of
retail loans and $8.4 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 $8
billion on March 31, 1999 with associated net unrealized appreciation of $10
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. The notional
amount of such contracts on March 31, 1999 was $30 billion with an
associated net unrealized depreciation of $79 million.
o Investment banking income decreased 37 percent to $388 million in the first
quarter of 1999. The decrease was primarily attributable to lower levels of
securities underwriting fees and advisory services fees due to the sale of
the investment banking operations of Robertson Stephens in the third quarter
of 1998. Principal investing income decreased $89 million in the first
quarter of 1999 compared to the first quarter of 1998 primarily due to fewer
sales of publicly-traded marketable equity securities. Syndication fees
decreased 20 percent in the first quarter of 1999 caused by lower loan sale
activity compared to the first quarter of 1998. Investment banking income by
major business activity follows:
24
<PAGE>
THREE MONTHS ENDED
MARCH 31
----------------
(Dollars in Millions) 1999 1998
- ---------------------------------------------------------------
INVESTMENT BANKING INCOME
Principal investing $ 155 $ 244
Securities underwriting 72 193
Syndications 70 87
Advisory services 42 66
Other 49 23
----------------
Total $ 388 $ 613
================
o Trading account profits and fees increased 34 percent to $500 million in the
first quarter of 1999 compared to $372 million in the first quarter of 1998.
The increase is primarily attributable to increased customer activity in
interest-rate and equity derivatives products during the first quarter of
1999. The fair value of the components of the Corporation's trading account
assets and liabilities on March 31, 1999 and December 31, 1998, as well as
their average fair value for the three months ended March 31, 1999 are
disclosed in NOTE THREE of the consolidated financial statements on page 8.
Trading account profits and fees by major business activity follows:
THREE MONTHS ENDED
MARCH 31
----------------
(Dollars in Millions) 1999 1998
- ---------------------------------------------------------------
TRADING ACCOUNT PROFITS AND FEES
Derivatives and securities trading $ 324 $ 188
Foreign exchange contracts 154 171
Other 22 13
----------------
Total $ 500 $ 372
================
o Credit card income increased 13 percent to $360 million for the quarter
ended March 31, 1999 due primarily to higher transaction volume and
interchange fees, as well as higher servicing income, a result of higher
levels of securitizations compared to the first quarter of 1998.
o Other income totaled $425 million in the first quarter of 1999, a decrease
of $176 million over the first quarter of 1998. The decrease was due
primarily to a $110 million gain on the sale of a partial ownership interest
in a mortgage company in the first quarter of 1998, as well as lower levels
of miscellaneous income in the first quarter of 1999. Other income includes
securitization gains of $31 million in the first quarter of 1999.
25
<PAGE>
OTHER NONINTEREST EXPENSE
As presented in TABLE FIVE, the Corporation's other noninterest expense
decreased 5 percent to $4.5 billion in the first quarter of 1999 from $4.7
billion in the same period of 1998. This decrease was attributable to
merger-related savings resulting in lower levels of personnel expense,
professional fees and other general operating expense.
- -------------------------------------------------------------------------
TABLE FIVE
OTHER NONINTEREST EXPENSE
THREE MONTHS
ENDED MARCH 31 CHANGE
------------------------------------
(DOLLARS IN MILLIONS) 1999 1998 AMOUNT PERCENT
- -------------------------------------------------------------------------
Personnel $2,333 $2,440 $(107) (4.4)%
Occupancy 396 382 14 3.7
Equipment 358 340 18 5.3
Marketing 147 158 (11) (7.0)
Professional fees 126 195 (69) (35.4)
Amortization of intangibles 222 228 (6) (2.6)
Data processing 190 179 11 6.1
Telecommunications 136 131 5 3.8
Other general operating 420 513 (93) (18.1)
General administrative and other 125 138 (13) (9.4)
------------------------------------
$4,453 $4,704 $(251) (5.3)%
====================================
A discussion of the significant components of other noninterest expense in
the first quarter of 1999 compared to the first quarter of 1998 follows:
o Personnel expense decreased $107 million in the first quarter of 1999
compared to the same period in 1998 due mainly to merger-related savings in
salaries and wages, incentive compensation and other employee compensation.
On March 31, 1999, the Corporation had approximately 166,000 full-time
equivalent employees compared to approximately 180,000 full-time equivalent
employees on March 31, 1998.
o Marketing expense amounted to $147 million, a decrease of 7 percent from the
first quarter of 1998, reflecting a decline in advertising expense.
o Professional fees decreased $69 million in the first quarter of 1999 to $126
million compared to the first quarter of 1998, primarily due to decreases in
outside legal and consulting services.
o Other general operating expense decreased $93 million in the first quarter
of 1999 mainly as a result of decreases in supplies and other operating
expenses.
o General administrative and other expense declined $13 million in the first
quarter of 1999 due mainly to decreased travel expenses and franchise and
personal property taxes.
26
<PAGE>
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 and analyzed, and are correcting
and testing, 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 scheduled
remediation or replacement of this Infrastructure, as necessary. Examples of
Infrastructure include ATMs, building security systems, fire alarm systems,
identification and access cards, date stamps and elevators. The 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 identifies Systems/Projects and Infrastructure that have Year 2000
issues and determines the steps necessary to remediate these issues. In the
remediation phase, the Corporation replaces, modifies or retires
Systems/Projects or Infrastructure, as necessary. During the testing phase, the
Corporation performs testing to determine whether the remediated
Systems/Projects and Infrastructure accurately process and identify dates. In
the compliance phase, the Corporation internally certifies the Systems/Projects
and Infrastructure that are Year 2000 ready and implements processes to enable
these Systems/Projects and Infrastructure to continue to identify and process
dates accurately through the Year 2000 and thereafter.
As of March 31, 1999, the Corporation has identified approximately 4,400
Systems/Projects. In addition, the Corporation has identified over 16,000
Infrastructure items that may have Year 2000 implications. For Systems/Projects,
as of March 31, 1999, the analysis and remediation phases were substantially
complete, the testing phase was approximately 98% complete and the compliance
phase was approximately 97% complete. For Infrastructure, as of March 31, 1999,
the analysis phase was substantially complete, the remediation and testing
phases were approximately 98% complete, and the compliance phase was
approximately 94% complete. The Corporation expects to substantially complete
all phases by June 30, 1999, in accordance with guidelines established by the
Federal Financial Institutions Examination Council (FFIEC), as such guidelines
are interpreted by the OCC.
The Corporation tracks Systems/Projects and Infrastructure for Year
2000-required changes based on a risk evaluation. Of the identified
Systems/Projects and Infrastructure, approximately 1,900 Systems/Projects and
880 Infrastructure items have been designated "mission critical" (i.e., if not
made Year 2000 ready, these Systems/Projects or Infrastructure items would
substantially impact the normal conduct of business). For mission critical
Systems/Projects, as of March 31, 1999, the analysis and remediation phases were
substantially complete, the testing phase was approximately 98% complete and the
compliance phase was approximately 97% complete. The Corporation is also
performing "time machine testing" (i.e., emulating Year 2000 conditions in a
dedicated environment) on selected mission critical Systems. For mission
critical Infrastructure items, as of March 31, 1999, the analysis phase was
approximately 96% complete, the remediation phase was approximately 93%
complete, the testing phase was approximately 97% complete and the compliance
phase was approximately 88% complete.
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 borrowers, vendors, customers, investment opportunities (either
for the Corporation's accounts or for the
27
<PAGE>
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 is
communicating with certain of 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 plans with respect to the services and produts provided
by these vendors. As of March 31, 1999, any Vendor which had not provided
appropriate documentation was placed in an "in process" category which includes
those Vendors previously called "at risk". In addition, as of March 31, 1999,
the Corporation has designated approximately 36% of its Vendors as "mission
critical." As of March 31, 1999, the Corporation has confirmed or received
assurances that approximately 92% of the services and products provided by its
Vendors, and approximately 93% of the mission critical services and products
provided by its Vendors, are Year 2000 ready, the remainder of which were "in
process." In accordance with its contingency plans, the Corporation will
continue to focus on "in process" mission critical Vendors in order to mitigate
any potential risk.
The Corporation is also tracking the Year 2000 compliance efforts of
certain domestic and international agencies involved with payment systems for
cash and securities clearing. The Corporation has identified 25 of 197 agencies,
or 13%, which have neither responded to the Corporation's inquiries or which
were not Year 2000 ready as of March 31, 1999. Because work involved with the
implementation of the Euro delayed some agencies' Year 2000 efforts, the
Corporation will continue to monitor those agencies of particular concern.
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
Committee reviews the results of customer assessments prepared by the customers'
relationship managers. By July 1, 1999, the Corporation will reassess any
customers deemed "medium risk." 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 is also assessing potential Year 2000 risks associated with
its investment advisory and fiduciary activities. Each investment subsidiary has
a defined investment process and is integrating the consideration of Year 2000
issues into that process. When making investment decisions or recommendations,
the Corporation's investment research areas consider the Year 2000 issue as a
factor in their analysis and may take certain steps to investigate Year 2000
readiness, such as reviewing ratings, research reports and other publicly
available information. In the fiduciary area, the Corporation is assessing Year
2000 risks for business, real estate, oil and gas, and mineral interests that
are held in trust.
Following the merger with BankAmerica, the Corporation identified its
significant depositors and assessed the Year 2000 readiness of these customers.
The Corporation will continue to monitor these depositors 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 $443 million through March
31, 1999. A significant portion of the costs through March 31, 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
which approximately 1,030 have been tested to date. The remaining supplemental
plans will be tested by June 30, 1999. In addition to these plans, the
Corporation has designed and implemented an event management communications
center as a single corporate-wide 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,
28
<PAGE>
the Corporation is conducting regional and global exercises simulating multiple,
simultaneous and diverse events to practice communication and coordination
skills and processes.
During October and November 1999, the Corporation has scheduled all
"high risk" business continuity plans to be reviewed and revalidated to ensure
readiness for possible implementation in 2000.
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 16 and 17.
ECONOMIC AND MONETARY UNIT (EMU) IN EUROPE
On January 1, 1999, 11 member countries of the European Union launched a
common legal currency called the Euro. EMU monetary policy, including the money
supply and official interest rates for the Euro, is now under the direction of
the European Central Bank. During the transition period, January 1, 1999 through
January 1, 2002, the old national currencies will remain legal tender as
denominations of the Euro. Beginning January 1, 2002, Euro denominated bills and
coins will be issued for use in cash transactions, and by July 1, 2002, all
legacy currencies will cease to be legal tender. EMU will impact the
Corporation's payment and clearing systems.
Management expects the elimination of national currencies in favor of
the single Euro currency to reduce cross border barriers to business and reduce
the previous competitive advantage of national firms. The Corporation believes
that it is favorably positioned to benefit from these changes. In addition,
management believes that the Euro conversion presents significant business
opportunities for major pan-European providers of cash management services, such
as the Corporation.
The Corporation has modified its information systems and business
operations to accommodate the Euro conversion. Most of the costs associated with
the Euro conversion were incurred by the end of fiscal 1998, and these costs
have not been material. Such costs have been and will continue to be expensed by
the Corporation during the period in which they are incurred, and any ongoing
costs are not currently anticipated to be material. The Corporation does not
expect the formation of the EMU to have a material impact on its results of
operations or financial condition.
29
<PAGE>
INCOME TAXES
The Corporation's income tax expense for the first quarter of 1999 was
$1.08 billion, an effective tax rate of 36 percent. Income tax expense for the
first quarter of 1998 was $0.88 billion, an effective tax rate of 39.8 percent,
or 36.6 percent excluding merger-related charges.
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 THREE. The following discussion addresses changes in
average balances in 1999 compared to 1998.
Average levels of customer-based funds increased $6.1 billion to $289.4
billion in the first quarter of 1999 compared to average levels for the first
quarter of 1998. As a percentage of total sources, average levels of
customer-based funds decreased to 47 percent in the first quarter of 1999 from
49 percent in the first quarter of 1998.
Average levels of market-based funds increased $13.1 billion in the
first quarter of 1999 to $181.6 billion compared to $168.5 billion in the first
quarter of 1998. In addition, 1999 average levels of long-term debt increased by
$5.2 billion over average levels during the same three month period in 1998,
mainly the result of borrowings to fund earning asset growth, business
development opportunities and replace to maturing debt.
Average loans and leases, the Corporation's primary use of funds,
increased $18.8 billion to $360.7 billion during the first quarter of 1999.
Average managed loans during the same period increased $37.5 billion, or 11
percent annualized growth, to $384.9 billion. This increase in average managed
loans and leases reflects strong loan growth in commercial and consumer products
throughout the franchise, partly attributable to consumer product introductions
in certain regions, as well as improved overall market conditions.
The average securities portfolio in the first quarter of 1999 increased
$10.0 billion over 1998 levels, representing 12 percent of total uses of funds
in 1999 compared to 11 percent in 1998. See the following "Securities" section
for additional information on the securities portfolio.
Average other assets and cash and cash equivalents increased $922
million to $85.9 billion in the first quarter of 1999 due largely to increases
in cash and cash equivalents, as well as increases in secured accounts
receivable, partially offset by a decrease in customers' acceptance liability.
On March 31, 1999, cash and cash equivalents were $25.9 billion, a
decrease of $2.4 billion from December 31, 1998. During the first quarter of
1999, net cash used in operating activities was $3.8 billion, net cash used in
investing activities was $4.8 billion and net cash provided by financing
activities was $6.2 billion. For further information on cash flows, see the
Consolidated Statement of Cash Flows on page 4 in the consolidated financial
statements.
Liquidity is a measure of the Corporation's ability to fulfill its cash
requirements and is managed by the Corporation through its asset and liability
management process. The Corporation monitors its assets and liabilities and
modifies these positions as liquidity requirements change. This process, coupled
with the Corporation's ability to raise capital and debt financing, is designed
to cover the liquidity needs of the Corporation. Management believes 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.
30
<PAGE>
SECURITIES
The securities portfolio on March 31, 1999 consisted of securities held
for investment of $1.5 billion and securities available for sale of $76.9
billion compared to $2.0 billion and $78.6 billion, respectively, on December
31, 1998.
On March 31, 1999 and December 31, 1998, the market value of the
Corporation's securities held for investment reflected net unrealized
depreciation of $136 million and $144 million, respectively.
The valuation allowance for securities available for sale, marketable
equity securities and certain servicing assets decreased shareholders' equity by
$400 million on March 31, 1999, primarily reflecting pre-tax depreciation of
$728 million on debt securities and pre-tax appreciation of $109 million on
marketable equity securities. The valuation allowance increased shareholders'
equity by $303 million on December 31, 1998.
The estimated average duration of the securities held for investment and
securities available for sale portfolios were 6.69 and 4.12, respectively, on
March 31, 1999 compared to 5.59 and 4.14, respectively, on December 31, 1998.
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. These detailed reviews, combined
with historical loss experience, result in the identification and quantification
of loss factors which are used in determining the amount of the allowance and
related provision for credit losses. Consumer loans and leases, which includes
residential mortgages, home equity lines, direct/indirect, consumer finance and
foreign consumer loans, are generally evaluated as a group, based on loan type.
Remaining loans and leases are evaluated individually due to a general lack of
uniformity among individual loans within each loan type and assigned a risk
rating. The loss factors are applied to each individual loan based on the
particular item's risk ratings or to specific loan groups in order to provide a
basis for establishing an adequate level of allowance for credit losses.
The Corporation's allowance for credit losses was $7.1 billion, or 1.96
percent of loans and leases on March 31, 1999, compared to $7.1 billion, or 1.99
percent on December 31, 1998. TABLE SIX provides an analysis of the changes in
the allowance for credit losses. Net charge-offs increased $3 million during the
first quarter of 1999 to $519 million, or 0.58 percent of average loans and
leases compared to $516 million,
31
<PAGE>
or 0.61 percent, for the same period in 1998. The increase was primarily due to
higher commercial - domestic loan net charge-offs which were substantially
offset by lower total consumer net charge-offs during the first quarter of 1999.
<TABLE>
<CAPTION>
TABLE SIX
ALLOWANCE FOR CREDIT LOSSES THREE MONTHS
ENDED MARCH 31
------------------------
(DOLLARS IN MILLIONS) 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $ 7,122 $ 6,778
----------- ----------
Loans and leases charged off:
Commercial - domestic (206) (53)
Commercial - foreign (30) (36)
Commercial real estate - domestic (2) (3)
--------- ---------
Total commercial (238) (92)
Residential mortgage (7) (10)
Home equity lines (6) (8)
Direct/Indirect consumer (140) (146)
Consumer finance (98) (159)
Bankcard (172) (261)
Foreign consumer (5) (3)
----------- ----------
Total consumer (428) (587)
Total loans and leases charged off (666) (679)
----------- ----------
Recoveries of loans and leases previously charged off:
Commercial - domestic 25 26
Commercial - foreign 1 16
Commercial real estate - domestic 4 8
----------- ----------
Total commercial 30 50
Residential mortgage 2 1
Home equity lines 2 2
Direct/Indirect consumer 45 39
Consumer finance 50 42
Bankcard 17 28
Foreign consumer 1 1
----------- ----------
Total consumer 117 113
Total recoveries of loans and leases
previously charged off 147 163
----------- ----------
Net charge-offs (519) (516)
----------- ----------
Provision for credit losses 510 510
Other, net 10 (9)
----------- ----------
Balance on March 31 $ 7,123 6,763
=========== ==========
Loans and leases outstanding at end of period $ 363,102 $ 341,219
Allowance for credit losses as a percentage of
loans and leases outstanding at end of period 1.96% 1.98%
Average loans and leases outstanding during the period $ 360,746 $ 341,970
Net charge-offs as a percentage of average loans and
leases outstanding during the period .58% .61%
Allowance for credit losses as a percentage of
nonperforming loans at end of period 250.99 279.44
- ---------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
NONPERFORMING ASSETS
As presented in TABLE SEVEN, on March 31, 1999, nonperforming assets
were $3.1 billion, or 0.86 percent of net loans, leases and foreclosed
properties, compared to $2.8 billion, or 0.77 percent, on December 31, 1998.
Nonperforming loans increased to $2.8 billion on March 31, 1999 from $2.5
billion on December 31, 1998 due to higher commercial nonperforming loans. The
allowance coverage of nonperforming loans was 251 percent on March 31, 1999
compared to 287 percent on December 31, 1998.
<TABLE>
<CAPTION>
TABLE SEVEN
NONPERFORMING ASSETS
MARCH 31 December 31 September 30 June 30 March 31
(DOLLARS IN MILLIONS) 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------
Nonperforming loans
<S> <C> <C> <C> <C> <C>
Commercial - domestic $1,085 $ 812 $ 717 $ 646 $ 762
Commercial - foreign 434 314 288 347 272
Commercial real estate
- domestic 272 299 303 306 355
Commercial real estate
- foreign 3 4 3 3 3
-----------------------------------------------------------
Total commercial 1,794 1,429 1,311 1,302 1,392
-----------------------------------------------------------
Residential mortgage 634 722 690 669 733
Home equity lines 41 50 46 45 53
Direct/Indirect consumer 20 21 38 33 35
Consumer finance 332 246 209 187 200
Foreign consumer 17 14 - 8 7
-----------------------------------------------------------
Total consumer 1,044 1,053 983 942 1,028
-----------------------------------------------------------
Total nonperforming
loans 2,838 2,482 2,294 2,244 2,420
-----------------------------------------------------------
Foreclosed properties 282 282 288 282 270
-----------------------------------------------------------
Total nonperforming
asset $3,120 $2,764 $ 2,582 $ 2,526 $2,690
===========================================================
Nonperforming assets as a
percentage of
Total assets .51% .45% .43% .44% .46%
Loans, leases and foreclosed
properties .86 .77 .73 .73 .79
Loans past due 90 days or more
and not classified as
nonperforming $571 $ 611 $ 540 $ 539 $ 534
- -------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
CONCENTRATIONS OF CREDIT RISK
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
as outlined in TABLES NINE and TEN. The following section discusses credit risk
in the loan portfolio, including net charge-offs by loan categories as presented
in TABLE EIGHT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
TABLE EIGHT
NET CHARGE-OFFS (RECOVERIES) IN DOLLARS AND AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
THREE MONTHS
ENDED MARCH 31
---------------------------------------------
(DOLLARS IN MILLIONS) 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial - domestic $ 181 .53 % $ 27 .09 %
Commercial - foreign 29 .37 20 .28
Commercial real estate - domestic (2) N/M (5) n/m
---------------------------------------------
Total commercial 208 .43 42 .09
---------------------------------------------
Residential mortgage 5 .03 9 .05
Home equity lines 4 .10 6 .15
Direct/Indirect consumer 95 .93 107 1.08
Consumer finance 48 1.22 117 3.23
Bankcard 155 5.63 233 6.77
Foreign consumer 4 .43 2 .27
---------------------------------------------
Total consumer 311 .77 474 1.21
---------------------------------------------
Total net charge-offs $ 519 .58 % $ 516 .61 %
=============================================
Selected managed net charge-offs and ratios:
Managed bankcard $ 294 6.01 % $ 340 6.78 %
Managed other consumer domestic loans 7 - 6 -
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 REAL ESTATE - Total commercial real estate - domestic loans,
the portion of such loans which are nonperforming, and other credit exposures
are presented in TABLE NINE. 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.
Total commercial real estate-domestic loans totaled $26.4 billion and
$26.9 billion on March 31, 1999 and December 31, 1998, respectively, or 7
percent and 8 percent of loans and leases, respectively. Commercial real estate
- - domestic loans past due 90 days or more and still accruing interest were $21
million, or 0.08 percent of commercial real estate domestic loans, on March 31,
1999 and $12 million, or 0.04 percent, on 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, on March
31, 1999, the Corporation had approximately $11.7 billion of commercial loans
which were not real estate dependent but for which the Corporation had obtained
real estate as secondary repayment security.
34
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TABLE NINE
REAL ESTATE COMMERCIAL LOANS, FORECLOSED PROPERTIES
AND OTHER REAL ESTATE CREDIT EXPOSURES
March 31, 1999
LOANS OTHER
--------------------------- FORECLOSED CREDIT
(DOLLARS IN MILLIONS) OUTSTANDING NONPERFORMING PROPERTIES(1) EXPOSURES(2)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BY GEOGRAPHIC REGION (3):
California $ 6,947 $ 21 $ 61 $ 1,168
Southwest 3,953 26 14 360
Florida 3,001 58 10 326
Northwest 2,895 51 - 629
Midwest 2,683 35 6 15
Midatlantic 2,138 19 6 367
Carolinas 1,191 21 8 75
Midsouth 1,182 9 4 117
Other states 2,361 32 45 1,043
Non-US 285 3 - -
------------------------------------------------------
$ 26,636 $ 275 $ 154 $ 4,100
======================================================
BY PROPERTY TYPE:
Office buildings $ 4,902 $ 28 $ 12 $ 237
Apartments 4,859 15 1 769
Shopping centers/retail 3,315 39 16 558
Residential 2,755 33 5 401
Industrial/warehouse 2,608 25 5 89
Hotels/motels 1,485 15 8 134
Land and land development 1,191 32 67 292
Multiple use 863 6 1 127
Miscellaneous commercial 857 9 13 70
Unsecured 689 4 - 91
Non-US 285 3 - -
Resorts/golf courses 158 2 - 9
Other 2,669 64 26 1,323
------------------------------------------------------
$ 26,636 $ 275 $ 154 $ 4,100
======================================================
(1) FORECLOSED PROPERTIES INCLUDE COMMERCIAL REAL ESTATE LOANS ONLY.
(2) OTHER CREDIT EXPOSURES INCLUDE PRIMARILY LETTERS OF CREDIT AND LOANS
HELD FOR SALE.
(3) DISTRIBUTION BASED ON GEOGRAPHIC LOCATION OF COLLATERAL.
- ----------------------------------------------------------------------------------------
</TABLE>
COMMERCIAL - Total commercial - domestic loans outstanding totaled
$138.1 billion and $137.4 billion on March 31, 1999 and December 31, 1998,
respectively, or 38 percent and 39 percent of loans and leases, respectively.
The Corporation had commercial - domestic loan net charge-offs in the first
quarter of 1999 of $181 million, or 0.53 percent of average commercial -
domestic loans, compared to $27 million, or 0.09 percent of average commercial -
domestic loans in the first quarter of 1998. Commercial - domestic loans past
due 90 days or more and still accruing interest were $162 million, or 0.12
percent of commercial
35
<PAGE>
domestic loans, on March 31, 1999 compared to $135 million, or 0.10 percent, on
December 31, 1998. Nonperforming commercial - domestic loans were $1.1 billion,
or 0.8 percent of commercial - domestic loans, on March 31, 1999, compared to
$812 million, or 0.59 percent, on December 31, 1998.
Commercial - foreign loans outstanding totaled $31.8 billion and $31.5
billion on March 31, 1999 and December 31, 1998, respectively, or 9 percent of
loans and leases for both periods. The Corporation had commercial - foreign loan
net charge-offs in the first quarter of 1999 of $29 million, or 0.37 percent of
average commercial - foreign loans, compared to $20 million, or 0.28 percent of
average commercial - foreign loans in the first quarter of 1998. Commercial -
foreign loans past due 90 days or more and still accruing interest were $34
million, or 0.11 percent of commercial - foreign loans, on March 31, 1999
compared to $23 million, or 0.07 percent, on December 31, 1998. Nonperforming
commercial foreign loans were $434 million, or 1.4 percent of commercial -
foreign loans, on March 31, 1999, compared to $314 million, or 1.0 percent, on
December 31, 1998. For additional information see RECENT INTERNATIONAL
DEVELOPMENTS on page 38.
- ---------------------------------------------------------------
TABLE TEN
SIGNIFICANT INDUSTRY LOANS AND LEASES (1)
March 31, 1999
(DOLLARS IN MILLIONS) OUTSTANDING
-----------------------------------------------------------
Transportation $ 10,280
Oil and gas 8,604
Health care 8,247
Equipment and general manufacturing 8,184
Media 8,052
Agribusiness 7,786
Retail 7,555
Business services 7,400
Autos 7,113
Utilities 5,638
(1) INCLUDES ONLY NON-REAL ESTATE COMMERCIAL LOANS AND LEASES.
- ---------------------------------------------------------------
CONSUMER - On March 31, 1999 and December 31, 1998, total domestic
consumer loans outstanding totaled $162.9 billion and $157.6 billion,
respectively, or 45 percent and 44 percent of loans and leases, respectively.
Total domestic consumer net charge-offs during the three months ended March 31,
1999 decreased $165 million compared to the first quarter of 1998 due mainly to
lower bankcard and consumer finance net charge-offs.
Average residential mortgage loans increased to $75.8 billion for the
first quarter of 1999 compared to $70.4 billion for the first quarter of 1998,
reflecting larger retail origination activity which resulted from a decline in
the general level of interest rates.
Average managed bankcard receivables decreased to $19.8 billion for the
first quarter of 1999 compared to $20.4 billion for the first quarter of 1998.
Average other consumer loans for the first quarter of 1999 increased to
$73.1 billion compared to $71.4 billion for the first quarter of 1998. The
increase was net of the impact of approximately $4.5 billion of securitizations
that occurred throughout 1998 and $1.0 billion of securitizations in the first
three months of 1999. Average managed other consumer loans, which include direct
and indirect consumer loans and home equity lines, as well as indirect auto loan
and consumer finance securitizations, totaled $83.3 billion and $73.7 billion in
the first quarter of 1999 and 1998, respectively.
Total consumer loans past due 90 days or more and still accruing
interest were $354 million, or 0.21 percent of total consumer loans, on March
31, 1999 compared to $441 million, or 0.27 percent, on
36
<PAGE>
December 31, 1998. Total consumer nonperforming loans were $1.0 billion, or 0.63
percent of total consumer loans and $1.1 billion, or 0.65 percent on March 31,
1999 and December 31, 1998, respectively.
RECENT 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. In
addition, since these factors have resulted in capital movement out of the
countries or in reduced capital inflows, many of these countries are
experiencing liquidity problems in addition to the structural problems.
Where appropriate, the Corporation has adjusted its activities
(including its borrower selection) in light of the risks and opportunities
discussed above. The Corporation also has continued to reduce its exposures in
Asia, Latin America and Central and Eastern Europe throughout the first quarter
of 1999. The Corporation will continue to monitor and adjust its foreign
activities on a country by country basis depending on management's judgement 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
similar problems.
In connection with its efforts to maintain a diversified portfolio, the
Corporation limits its exposure to any one geographic region or country and
monitors this exposure on a continuous basis. TABLE ELEVEN sets forth selected
regional exposures as of March 31, 1999.
37
<PAGE>
The following table is based on the Federal Financial Institutions
Examination Council's instructions for periodic reporting of foreign exposures.
The table has been expanded to include "Gross Local Country Claims" as defined
per the footnotes 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 MARCH 31 DECEMBER 31 DECEMBER 31
(DOLLARS IN MILLIONS) LOANS CLAIMS (1) CLAIMS (2) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
REGION/COUNTRY
<S> <C> <C> <C> <C> <C> <C>
ASIA
China $ 96 $ 143 $ 204 $ 443 $ (6) $ (322)
Hong Kong 46 4,621 266 4,933 (255) (698)
India 442 1,863 139 2,444 (74) (55)
Indonesia 428 108 141 677 (46) (833)
Japan 209 2,004 1,805 4,018 (1,043) (2,952)
Korea (South) 548 457 847 1,852 (27) (1,952)
Malaysia 27 666 76 769 41 (485)
Pakistan 8 265 23 296 (56) (254)
Philippines 213 97 134 444 (139) (319)
Singapore 140 1,399 217 1,756 (250) (656)
Taiwan 401 1,655 138 2,194 (96) (244)
Thailand 88 624 142 854 (96) (1,103)
Other 5 124 29 158 5 (39)
---------------------------------------------------------------------------
2,651 14,026 4,161 20,838 (2,042) (9,912)
---------------------------------------------------------------------------
CENTRAL AND EASTERN EUROPE
Russian Federation 34 - 10 44 (16) (403)
Other 279 66 264 609 (95) (89)
---------------------------------------------------------------------------
313 66 274 653 (111) (492)
---------------------------------------------------------------------------
LATIN AMERICA
Argentina 619 432 191 1,242 (25) (401)
Brazil 1,390 850 1,014 3,254 (164) (376)
Chile 726 531 161 1,418 (233) (262)
Colombia 449 58 72 579 (219) (206)
Mexico 2,435 218 1,924 4,577 (361) (1,535)
Venezuela 135 38 344 517 (40) (106)
Other 206 - 188 394 (36) (49)
---------------------------------------------------------------------------
5,960 2,127 3,894 11,981 (1,078) (2,935)
---------------------------------------------------------------------------
TOTAL $ 8,924 $ 16,219 $ 8,329 $ 33,472 $ (3,231) $ (13,339)
===========================================================================
(1) INCLUDES THE FOLLOWING CLAIMS BY THE CORPORATION'S FOREIGN OFFICES ON LOCAL
COUNTRY RESIDENTS REGARDLESS OF THE CURRENCY: TRADING ACCOUNT SECURITIES,
DERIVATIVE PRODUCTS, UNUSED COMMITMENTS, STANDBY LETTERS OF CREDIT,
COMMERCIAL LETTERS OF CREDIT, FORMAL GUARANTEES, AND SECURITIES AVAILABLE
FOR SALE (AT MARKET VALUE) AND HELD FOR INVESTMENT (AT COST).
(2) INCLUDES: ACCRUED INTEREST RECEIVABLE, ACCEPTANCES, INTEREST-BEARING
DEPOSITS IN BANKS, TRADING ACCOUNT SECURITIES, OTHER INTEREST-EARNING
INVESTMENTS, OTHER SHORT-TERM MONETARY ASSETS, UNREALIZED GAINS ON
OFF-BALANCE SHEET INSTRUMENTS, UNUSED COMMITMENTS, STANDBY LETTERS OF
CREDIT, COMMERCIAL LETTERS OF CREDIT, FORMAL GUARANTEES, AND AVAILABLE FOR
SALE AND HELD TO MATURITY SECURITIES, INCLUDING SECURITIES THAT ARE
COLLATERALIZED BY U.S. TREASURY SECURITIES AS FOLLOWS: MEXICO - $1,121,
VENEZUELA - $201, PHILIPPINES - $22 AND LATIN AMERICA OTHER - $87.
HELD FOR INVESTMENT SECURITIES AMOUNTED TO $777 WITH A FAIR VALUE OF $615.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
DERIVATIVES - ASSET AND LIABILITY MANAGEMENT (ALM) ACTIVITIES
Interest rate contracts are used in the 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 were $326 million and $294 million at March 31, 1999 and December 31,
1998, respectively. The amount of net realized deferred losses associated with
terminated ALM futures and forward rate contracts was $11 million and $1 million
at March 31, 1999 and December 31, 1998, respectively. The amount of net
realized deferred gains associated with terminated ALM options were $41 million
and $26 million at March 31, 1999 and December 31, 1998, respectively. See NOTE
SIX of the consolidated financial statements on page 11 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 March 31, 1999, these contracts had a notional amount of
$8.8 billion and fair value of $70 million.
The fair values of the ALM interest rate and foreign exchange portfolios
should be viewed in the context of the overall balance sheet. The value of any
single component of the balance sheet or off-balance sheet positions should not
be viewed in isolation.
For a discussion of the Corporation's management of risk associated with
mortgage production and servicing activities, see the "Noninterest Income"
section on page 25.
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 of loss arising from adverse changes in market
rates and prices, such as interest rates (interest rate risk), foreign currency
exchange rates (foreign exchange risk), commodity prices (commodity risk) and
prices of equity securities (equity risk). Financial products that expose the
Corporation to market risk include securities, loans, deposits, debt and
derivative financial instruments such as futures, forwards, swaps, options and
other financial instruments with similar characteristics. Liquidity risk arises
from the possibility that the Corporation may not be able to satisfy current 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.
The expected maturities, unrealized gains and losses and weighted
average effective yields and rates associated with the Corporation's significant
non-trading, on-balance sheet financial instruments at March 31, 1999 were not
significantly different from those at December 31, 1998. For a 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
TWELVE, the notional amount of the Corporation's receive fixed and pay fixed
interest rate swaps on March 31, 1999 was $65.4 billion and $24.4 billion,
respectively. The receive fixed interest rate swaps are primarily converting
variable-rate commercial loans to fixed-rate. The net receive fixed position on
March 31, 1999 was $41.0 billion compared to $34.7 billion on December 31, 1998.
In addition, the Corporation had $9.3 billion of basis swaps at March 31, 1999
linked primarily to loans and long-term debt.
TABLE TWELVE also summarizes the estimated duration, weighted average
pay and receive rates and the unrealized gains and losses on March 31, 1999 of
the Corporation's ALM interest rate swaps, as well as the estimated duration
and unrealized gains and losses on March 31, 1999 of the Corporation's ALM basis
swaps and options contracts. Unrealized gains and losses are based on the last
repricing and will change in the future primarily based on movements in one-,
three- and six-month LIBOR rates. The net unrealized gain on the ALM swap
portfolio was $106 million and $942 million on March 31, 1999 and December 31,
1998, respectively. The change is attributable to an increase in interest rates.
The net unrealized gain in the estimated value of the ALM interest rate
contracts 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 25.
39
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TABLE TWELVE
ASSET AND LIABILITY MANAGEMENT INTEREST RATE CONTRACTS
MARCH 31, 1999
EXPECTED MATURITY
(DOLLARS IN MILLIONS, ---------------------------------------------------------------
AVERAGE ESTIMATED DURATION FAIR
IN YEARS) VALUE TOTAL 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total receive fixed swaps $788
Notional amount $ 65,466 $ 3,725 $ 11,942 $ 11,554 $ 3,242
Weighted average
receive rate 6.10% 6.03% 6.02% 6.46% 6.64%
Total pay fixed swaps ($673)
Notional amount $ 24,441 $ 4,140 $ 6,900 $ 4,349 $ 1,740
Weighted average pay rate 6.67% 6.48% 6.84% 6.44% 6.75%
Basis swaps ($9)
------
Notional amount $ 9,286 $ 1,385 $ 743 $ 618 $ 1,669
Total swaps $106
----------------------------------------------------------------------------------------------------
Option products ($54)
Notional amount $ 32,185 $ 1,225 $ 505 $ 2,088 $ 938
----------------------------------------------------------------------------------------------------
Total interest rate contracts $52
=======
- -------------------------------------------------------------------------------------------------------
<CAPTION>
EXPECTED MATURITY
(DOLLARS IN MILLIONS, -------------------------- AVERAGE
AVERAGE ESTIMATED DURATION AFTER ESTIMATED
IN YEARS) 2003 2003 DURATION
----------------------------- ------------------------------------
<S> <C> <C>
Total receive fixed swaps 3.60
Notional amount $ 14,146 $ 20,857
Weighted average
receive rate 5.55% 6.23%
Total pay fixed swaps 2.71
Notional amount $ 2,480 $ 4,832
Weighted average pay rate 6.90% 6.60%
Basis swaps 4.19
Notional amount $ 4,871 $ -
Total swaps
----------------------------- ------------------------------------
Option products
Notional amount $ 1,950 $ 25,479
----------------------------- ------------------------------------
Total interest rate contracts
- ------------------------------ -------------------------------------
</TABLE>
The table on the following page sets forth the calculated value-at-risk
(VAR) amounts for the first three months of 1999. 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, the Corporation continued to lower its
market risk. For additional discussion of market risk associated with the
trading portfolio 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
- -----------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 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 $ 108.9 $ 126.8 $ 91.5
Foreign currency 11.8 14.8 7.9
Commodities 1.8 3.1 .9
Equity 7.1 10.9 3.0
Based on zero correlation:
Interest rate 33.4 41.2 24.8
Foreign currency 9.3 12.0 6.1
Commodities 1.3 2.6 .6
Equity 6.4 9.5 2.6
- -----------------------------------------------------------------------------------------------
</TABLE>
(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.
40
<PAGE>
CAPITAL RESOURCES AND CAPITAL MANAGEMENT
Presented below are the Corporation's regulatory capital ratios on March
31, 1999 and December 31, 1998. The Corporation and its significant banking
subsidiaries were considered "well-capitalized" on March 31, 1999.
MARCH 31 December 31
1999 1998
- ----------------------------------------------------------
Risk-Based Capital Ratios:
Tier 1 Capital 7.40% 7.06%
Total Capital 11.17 10.94
Leverage Capital Ratio 6.47 6.22
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,
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 March 31, 1999, the Corporation had no subordinated debt
that qualified as Tier 3 Capital.
The Corporation's and its significant banking subsidiaries' regulatory
capital ratios on March 31, 1999 exceeded the regulatory minimums of 4 percent
for Tier 1 risk-based capital, 8 percent for total risk-based capital and the
leverage guidelines of 100 to 200 basis points above the minimum ratio of 3
percent.
41
<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 40 and the sections
referenced therein for Quantitative and Qualitative
Disclosures about Market Risk.
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL
PROCEEDINGS
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 and
proceedings substantial money damages are asserted against the Corporation and
its subsidiaries and certain of these actions and proceedings are based on
alleged violations of consumer protection, securities, environmental, banking
and other laws.
The Corporation's predecessor, BankAmerica and certain of its
subsidiaries, including Bank of America NT&SA, were named in one such suit by
the City of San Francisco and several related public entities, and by the State
of California, in an action entitled State of California, etc ex rel Stull v.
Bank of America NT&SA, et. al. (No. 968-484).The case was instituted on April 1,
1995 in the Superior Court for the City and County of San Francisco. The City of
San Francisco and related public entities intervened in the case on May 1, 1997,
and the State of California took over prosecution of the case on May 5, 1997.
The chief allegation of this suit is that Bank of America NT&SA and its
predecessors retained unclaimed funds related to bonds and coupons that were not
presented by bondholders rather than returning them to certain bond issuers or
escheating such funds to the State. The suit also alleges False Claims Act
exposure for alleged fee overcharges and claims that Bank of America NT&SA and
its predecessors improperly invested bond program funds. On November 12, 1998,
the plaintiffs and the Corporation and its named subsidiaries settled this suit
whereby the Corporation and its named subsidiaries agreed to pay $187.5 million
to the plaintiffs. The settlement has been approved by the court.
The Corporation and certain present and former officers and directors
have been named as defendants in 24 uncertified class 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 related 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
uncertified classes consist generally of persons who were shareholders of
NationsBank or BankAmerica on September 30, 1998, or who purchased or acquired
securities of the Corporation or its predecessors between August 4, 1998 and
October 13, 1998. Similar uncertified 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 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. CHANGE IN SECURITIES AND USE OF PROCEEDS
In recognition of the fact that certain director positions of the
Corporation and BankAmerica were eliminated in connection with the September 30,
1998 merger between the two companies, on January 27, 1999, the Board of
Directors of the Corporation (which did not include any recipients of the
awards) awarded each of the 19 former directors $120,000 in shares of Common
Stock. This award resulted in the issuance of an aggregate of 36,689 shares of
Common Stock.
42
<PAGE>
ITEM 6. EXHIBITS a. Exhibits
AND REPORTS ON --------
FORM 8-K
Exhibit 11 - Earnings Per Common Share Computation
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
-------------------
The following reports on Form 8-K were filed by the
Corporation during the quarter ended March 31,
1999:
Current Report on Form 8-K dated January 19, 1999
and filed January 21, 1999, Items 5 and 7.
Current Report on Form 8-K dated February 2, 1999
and filed February 8, 1999, Items 5 and 7.
43
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK OF AMERICA CORPORATION
---------------------------
Registrant
Date: May 17, 1999 /s/ MARC D. OKEN
------------ ----------------
MARC D. OKEN
Executive Vice President and
Principal Financial Executive
(Duly Authorized Officer and
Chief Accounting Officer)
44
<PAGE>
BANK OF AMERICA CORPORATION
FORM 10-Q
INDEX TO EXHIBITS
Exhibit Description
- ------- -------------
11 Earnings Per Common Share Computation
12(a) Ratio of Earnings to Fixed Charges
12(b) Ratio of Earnings to Fixed Charges and Preferred Dividends
27 Financial Data Schedule
45
EXHIBIT 11
DILUTED EARNINGS PER COMMON SHARE AND DILUTED AVERAGE COMMON SHARES
OUTSTANDING
---------------------------------------------------------------------------
For diluted earnings per common share, net income available to common
shareholders can be affected by the conversion of the registrant's conver-
tible preferred stock. Where the effect of this conversion would have been
dilutive, net income available to common shareholders is adjusted by the
associated preferred dividends. This adjusted net income is divided by the
weighted average number of common shares outstanding for each period plus
amounts representing the dilutive effect of stock options outstanding and
the dilution resulting from the conversion of the registrant's convertible
preferred stock, if applicable. The effect convertible preferred stock is
excluded from the computation of diluted earnings per common share in
periods in which the effect would be antidilutive.
Diluted earnings per common share was determined as follows:
THREE MONTHS ENDED
(SHARES IN THOUSANDS, DOLLARS IN MILLIONS MARCH 31
----------------------------
EXCEPT PER-SHARE INFORMATION) 1999 1998
---------------------------------------------------------------------------
Average common shares outstanding 1,737,562 1,724,490
Dilutive effect of :
Convertible preferred stock 3,206 3,606
Stock options 38,940 44,919
---------------------------------------------------------------------------
Total dilutive shares 1,779,708 1,773,015
===========================================================================
Income available to common shareholders $ 1,912 $ 1,320
Preferred dividends paid on dilutive convertible
preferred stock 2 2
---------------------------------------------------------------------------
Total net income available to common
shareholders adjusted for full dilution $ 1,914 $ 1,322
===========================================================================
Diluted earnings per common share $ 1.08 $ .75
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
BANK OF AMERICA CORPORATION AND SUBSIDIARIES EXHIBIT 12(A)
Ratio of Earnings to Fixed Charges
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
THREE MONTHS ----------------------------------------------------------
ENDED
(DOLLARS IN MILLIONS) MARCH 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------- -------------- ----------------------------------------------------------
EXCLUDING INTEREST ON DEPOSITS
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 2,990 $ 8,048 $ 10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (3) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 2,288 9,479 8,219 7,082 6,354 4,572
1/3 of net rent expense 84 335 302 282 275 250
-------------- ----------------------------------------------------------
Total fixed charges 2,372 9,814 8,521 7,364 6,629 4,822
-------------- ----------------------------------------------------------
Earnings (excluding capitalized interest) $ 5,359 $ 18,024 $ 19,026 $ 16,668 $ 14,987 $ 11,774
-------------- ----------------------------------------------------------
Fixed charges $ 2,372 $ 9,814 $ 8,521 $ 7,364 $ 6,629 $ 4,822
-------------- ----------------------------------------------------------
Ratio of earnings to fixed charges 2.26 1.84 2.23 2.26 2.26 2.44
============== ==========================================================
<CAPTION>
YEAR ENDED DECEMBER 31
THREE MONTHS ----------------------------------------------------------
ENDED
(DOLLARS IN MILLIONS) MARCH 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------- -------------- ----------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 2,990 $ 8,048 $ 10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (3) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 4,601 20,290 18,903 16,682 16,369 11,083
1/3 of net rent expense 84 335 302 282 275 250
-------------- ----------------------------------------------------------
Total fixed charges 4,685 20,625 19,205 16,964 16,644 11,333
-------------- ----------------------------------------------------------
Earnings (excluding capitalized interest) $ 7,672 $ 28,835 $ 29,710 $ 26,268 $ 25,002 $ 18,285
-------------- ----------------------------------------------------------
Fixed charges $ 4,685 $ 20,625 $ 19,205 $ 16,964 $ 16,644 $ 11,333
-------------- ----------------------------------------------------------
Ratio of earnings to fixed charges 1.64 1.40 1.55 1.55 1.50 1.61
============== ==========================================================
</TABLE>
<TABLE>
<CAPTION>
BANK OF AMERICA CORPORATION AND SUBSIDIARIES EXHIBIT 12(B)
Ratio of Earnings to Fixed Charges and Preferred Dividends
- ------------------------------------------------------------------------ ----------------------------------------------------------
YEAR ENDED DECEMBER 31
THREE MONTHS ----------------------------------------------------------
ENDED
(DOLLARS IN MILLIONS) MARCH 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------- -------------- ----------------------------------------------------------
EXCLUDING INTEREST ON DEPOSITS
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $ 2,990 $ 8,048 $ 10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (3) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 2,288 9,479 8,219 7,082 6,354 4,572
1/3 of net rent expense 84 335 302 282 275 250
-------------- ----------------------------------------------------------
Total fixed charges 2,372 9,814 8,521 7,364 6,629 4,822
Preferred dividend requirements 3 40 183 332 426 467
-------------- ----------------------------------------------------------
Earnings (excluding capitalized interest) $ 5,359 $ 18,024 $ 19,026 $ 16,668 $ 14,987 $ 11,774
-------------- ----------------------------------------------------------
Fixed charges and preferred dividends $ 2,375 $ 9,854 $ 8,704 $ 7,696 $ 7,055 $ 5,289
-------------- ----------------------------------------------------------
Ratio of earnings to fixed charges and preferred dividends 2.26 1.83 2.19 2.17 2.12 2.23
============== ==========================================================
<CAPTION>
YEAR ENDED DECEMBER 31
THREE MONTHS ----------------------------------------------------------
ENDED
(DOLLARS IN MILLIONS) MARCH 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------- -------------- ----------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS
Income before income taxes $ 2,990 $ 8,048 $ 10,556 $ 9,311 $ 8,377 $ 7,010
Less: Equity in undistributed (earnings) losses
of unconsolidated subsidiaries (3) 162 (49) (7) (19) (55)
Fixed charges:
Interest expense (including capitalized interest) 4,601 20,290 18,903 16,682 16,369 11,083
1/3 of net rent expense 84 335 302 282 275 250
-------------- ----------------------------------------------------------
Total fixed charges 4,685 20,625 19,205 16,964 16,644 11,333
Preferred dividend requirements 3 40 183 332 426 467
-------------- ----------------------------------------------------------
Earnings (excluding capitalized interest) $ 7,672 $ 28,835 $ 29,710 $ 26,268 $ 25,002 $ 18,285
-------------- ----------------------------------------------------------
Fixed charges and preferred dividends $ 4,688 $ 20,665 $ 19,388 $ 17,296 $ 17,070 $ 11,800
-------------- ----------------------------------------------------------
Ratio of earnings to fixed charges and preferred dividends 1.64 1.40 1.53 1.52 1.46 1.55
============== ==========================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 25,925
<INT-BEARING-DEPOSITS> 5,615
<FED-FUNDS-SOLD> 26,751
<TRADING-ASSETS> 42,382
<INVESTMENTS-HELD-FOR-SALE> 76,947
<INVESTMENTS-CARRYING> 1,522
<INVESTMENTS-MARKET> 1,466
<LOANS> 363,102
<ALLOWANCE> (7,123)
<TOTAL-ASSETS> 614,245
<DEPOSITS> 343,317
<SHORT-TERM> 130,966
<LIABILITIES-OTHER> 42,232
<LONG-TERM> 50,899
0
81
<COMMON> 15,828
<OTHER-SE> 30,922
<TOTAL-LIABILITIES-AND-EQUITY> 614,245
<INTEREST-LOAN> 6,770
<INTEREST-INVEST> 1,175
<INTEREST-OTHER> 1,256
<INTEREST-TOTAL> 9,201
<INTEREST-DEPOSIT> 2,313
<INTEREST-EXPENSE> 4,601
<INTEREST-INCOME-NET> 4,600
<LOAN-LOSSES> 510
<SECURITIES-GAINS> 130
<EXPENSE-OTHER> 4,453
<INCOME-PRETAX> 2,990
<INCOME-PRE-EXTRAORDINARY> 2,990
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,914
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 3.58
<LOANS-NON> 2,838
<LOANS-PAST> 571
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,122
<CHARGE-OFFS> 666
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 7,123
<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 Form 10-K and are therefore
not included in this Financial Data Schedule.
</FN>
</TABLE>
