<PAGE>
BANKAMERICA CORPORATION ANALYTICAL REVIEW AND FORM 10-Q
[BANKAMERICA CORPORATION LOGO APPEARS HERE]
1994
2nd Quarter
<PAGE>
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 June 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 1-7377
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER:
BankAmerica Corporation
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION:
Delaware
I.R.S. EMPLOYER IDENTIFICATION NUMBER:
94-1681731
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
Bank of America Center
San Francisco, California 94104
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
415-622-3530
FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT:
None
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
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1.5625 par value ------ 346,908,728, shares outstanding on
June 30, 1994.*
*In addition, 12,428,662 shares were held in treasury.
================================================================================
This document serves both as an analytical review for analysts, shareholders,
and other interested persons, and as the quarterly report on Form 10-Q of
BankAmerica Corporation to the Securities and Exchange Commission, which has
taken no action to approve or disapprove the report or to pass upon its accuracy
or adequacy. Additionally, this document is to be read in conjunction with the
consolidated financial statements and notes thereto included in BankAmerica
Corporation's Annual Report on Form 10-K for the year ended December 31, 1993.
<PAGE>
CONTENTS
===============================================================================
PART I FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1.
Financial Statements:
Consolidated Statement of Operations..................................... 2
Consolidated Balance Sheet............................................... 3
Consolidated Statement of Cash Flows..................................... 4
Consolidated Statement of Changes in Stockholders' Equity................ 5
Notes to Consolidated Financial Statements............................... 6
Item 2.
Management's Discussion and Analysis:
Highlights............................................................... 13
Business Sectors......................................................... 15
Results of Operations:
Net Interest Income..................................................... 18
Noninterest Income...................................................... 18
Noninterest Expense..................................................... 20
Income Taxes............................................................ 21
Balance Sheet Analysis................................................... 22
Overview of Loan Portfolio.............................................. 24
Domestic Consumer Loans................................................ 24
Domestic Commercial Loans.............................................. 26
Foreign Loans.......................................................... 27
Restructuring Country Debt.............................................. 28
Credit Risk Management:
Allowance for Credit Losses............................................. 30
Nonaccrual Assets, Restructured Loans, and
Loans Past Due 90 Days or More and Still Accruing Interest............. 32
Foreign Exchange and Other Derivatives................................... 36
Funding and Capital:
Liquidity............................................................... 38
Capital................................................................. 38
Interest Rate Risk Management........................................... 40
- -------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders........................ 42
Item 6.
Exhibits and Reports on Form 8-K........................................... 43
Signatures................................................................. 44
===============================================================================
</TABLE>
1
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<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
========================================================================================================================
1994 1993 SIX MONTHS ENDED
---------------- ------------------------- JUNE 30
SECOND FIRST FOURTH THIRD SECOND ----------------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,294 $2,206 $2,329 $2,345 $2,360 $4,500 $4,789
Interest-bearing deposits in banks 74 56 54 49 45 130 91
Federal funds sold 15 13 6 12 11 28 17
Securities purchased under resale agreements 89 72 54 51 37 161 69
Trading account assets 122 111 102 111 83 233 159
Available-for-sale and held-to-maturity securities 345 355 331 377 345 700 681
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 2,939 2,813 2,876 2,945 2,881 5,752 5,806
INTEREST EXPENSE
Deposits 753 697 715 732 737 1,450 1,524
Federal funds purchased 3 3 4 3 4 6 9
Securities sold under repurchase agreements 97 79 46 55 33 176 57
Other short-term borrowings 59 61 56 51 45 120 94
Long-term debt 185 169 177 184 180 354 366
Subordinated capital notes 10 10 13 39 30 20 61
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,107 1,019 1,011 1,064 1,029 2,126 2,111
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,832 1,794 1,865 1,881 1,852 3,626 3,695
Provision for credit losses 125 125 150 178 227 250 475
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,707 1,669 1,715 1,703 1,625 3,376 3,220
NONINTEREST INCOME
Deposit account fees 290 294 302 306 301 584 590
Credit card fees 85 82 95 88 89 167 171
Trust fees 66 67 72 74 77 133 148
Other fees and commissions 262 266 268 275 272 528 540
Trading income 106 74 101 132 172 180 336
Net gains on available-for-sale securities 7 20 16 14 13 27 31
Net gain on sales of assets 20 45 45 17 17 65 44
Other income 182 155 220 101 117 337 287
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 1,018 1,003 1,119 1,007 1,058 2,021 2,147
NONINTEREST EXPENSE
Salaries 700 710 729 744 703 1,410 1,413
Employee benefits 180 158 138 140 145 338 295
Occupancy 167 165 182 172 167 332 330
Equipment 138 146 174 145 151 284 291
Amortization of intangibles 99 105 115 100 74 204 206
Communications 80 78 81 82 85 158 167
Regulatory fees and related expenses 72 70 74 72 79 142 163
Professional services 53 58 73 63 72 111 132
Other expense 332 294 408 330 350 626 664
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 1,821 1,784 1,974 1,848 1,826 3,605 3,661
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 904 888 860 862 857 1,792 1,706
Provision for income taxes 379 375 364 376 369 754 734
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 525 $ 513 $ 496 $ 486 $ 488 $1,038 $ 972
- ------------------------------------------------------------============================================================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 1.33 $ 1.27 $ 1.21 $ 1.19 $ 1.20 $ 2.59 $ 2.39
EARNINGS PER COMMON SHARE - ASSUMING FULL DILUTION $ 1.32 $ 1.26 $ 1.21 $ 1.18 $ 1.19 $ 2.58 $ 2.38
- ------------------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.40 $ 0.35 $ 0.35 $ 0.35 $ 0.80 $ 0.70
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
===============================================================================================================
1994 1993
------------------ ------------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 10,137 $ 10,455 $ 10,482 $ 10,410 $ 10,989
Interest-bearing deposits in banks 4,707 3,978 2,988 2,646 2,446
Federal funds sold 2,758 2,549 2,050 2,036 2,561
Securities purchased under resale agreements 4,933 5,995 3,549 2,393 2,426
Trading account assets 5,714 6,648 6,866 7,845 5,783
Available-for-sale securities 8,938 9,413 3,282 3,515 3,491
Held-to-maturity securities 11,734 11,979 16,415 16,810 16,207
Loans 124,874 123,544 126,556 125,976 126,011
Less: Allowance for credit losses 3,414 3,445 3,508 3,715 3,781
- ---------------------------------------------------------------------------------------------------------------
Net loans 121,460 120,099 123,048 122,261 122,230
Premises and equipment, net 3,705 3,664 3,631 3,584 3,585
Customers' acceptance liability 935 801 851 847 699
Accrued interest receivable 1,097 1,030 982 1,020 1,002
Other real estate owned 472 553 517 589 512
Goodwill, net 3,886 3,931 3,973 4,097 4,141
Identifiable intangibles, net 2,078 2,133 2,191 2,249 2,262
Unrealized gains on off-balance-sheet instruments 8,650 7,441 -- -- --
Other assets 6,339 6,543 6,108 6,807 7,132
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $197,543 $197,212 $186,933 $187,109 $185,466
- ----------------------------------------------------------=====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Interest-bearing $ 86,568 $ 88,139 $ 89,134 $ 90,774 $ 92,051
Noninterest-bearing 31,009 30,920 31,578 31,560 31,190
Deposits in foreign offices:
Interest-bearing 22,898 22,034 19,608 17,272 16,759
Noninterest-bearing 1,560 1,496 1,298 1,363 1,409
- ---------------------------------------------------------------------------------------------------------------
Total deposits 142,035 142,589 141,618 140,969 141,409
Federal funds purchased 223 270 220 602 724
Securities sold under repurchase agreements 6,332 6,910 4,229 3,465 2,206
Other short-term borrowings 3,537 3,628 3,523 3,083 2,539
Acceptances outstanding 935 801 851 847 699
Accrued interest payable 550 529 505 548 542
Unrealized losses on off-balance-sheet instruments 8,727 7,129 -- -- --
Other liabilities 3,894 4,059 4,728 5,849 5,045
Long-term debt 13,611 13,828 13,508 14,008 14,409
Subordinated capital notes 606 606 607 933 1,459
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 180,450 180,349 169,789 170,304 169,032
STOCKHOLDERS' EQUITY
Preferred stock 2,979 2,979 2,979 2,979 2,979
Common stock 561 561 560 559 556
Additional paid-in capital 7,150 7,130 7,118 7,094 7,025
Retained earnings 7,131 6,807 6,502 6,187 5,888
Net unrealized losses on available-for-sale securities (210) (252) -- -- --
Common stock in treasury, at cost (518) (362) (15) (14) (14)
- ---------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 17,093 16,863 17,144 16,805 16,434
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $197,543 $197,212 $186,933 $187,109 $185,466
- ----------------------------------------------------------=====================================================
</TABLE>
See notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
==========================================================================================================================
Six Months Ended June 30
----------------------------
(IN MILLIONS) 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,038 $ 972
Adjustments to net income to arrive at net cash provided by operating activities:
Provision for credit losses 250 475
Net gain on sales of assets (65) (44)
Net amortization of loan fees and discounts (36) (105)
Depreciation and amortization of premises and equipment 241 221
Amortization of intangibles 204 206
Provision for deferred income taxes 244 306
Change in assets and liabilities net of effects from acquisitions, consolidations,
divestitures, and pending dispositions:
(Increase) decrease in accrued interest receivable (115) 25
Increase in accrued interest payable 45 19
(Increase) decrease in trading account assets 460 (2,308)
Increase in current income taxes payable 120 332
Deferred fees received from lending activities 56 64
Other, net (727) (134)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,715 29
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales proceeds 1,144 1,420
Maturities, prepayments, and calls 2,858 4,218
Purchases (3,084) (2,105)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls 1,378 2,541
Purchases (1,018) (4,479)
Proceeds from sales of loans 790 660
Purchases of loans (444) (316)
Purchases of premises and equipment (305) (459)
Proceeds from sales of other real estate owned 311 276
Net cash provided (used) by:
Loan originations and principal collections (1,727) 1,118
Interest-bearing deposits in banks (1,721) (271)
Federal funds sold (708) (1,073)
Securities purchased under resale agreements (1,384) 400
Cash used by acquisitions -- (25)
Cash provided by acquisitions -- 131
Proceeds from liquidations of assets identified for disposition 219 1,085
Other, net 13 196
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (3,678) 3,317
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,702 2,222
Principal payments and retirements of long-term and subordinated capital notes (1,582) (2,709)
Proceeds from issuance of common stock 27 194
Treasury stock acquired (503) (5)
Common stock dividends (282) (248)
Preferred stock dividends (121) (120)
Net cash provided (used) by:
Deposits 414 (4,812)
Federal funds purchased 3 307
Securities sold under repurchase agreements 2,103 1,280
Other short-term borrowings 14 401
Cash used by disposition of liabilities of deconsolidated subsidiaries and operations (59) (177)
Other, net (107) (532)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,609 (4,199)
Effect of exchange rate changes on cash and due from banks 9 (6)
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (345) (859)
Cash and due from banks at beginning of period 10,482 11,848
- --------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $10,137 $10,989
- ---------------------------------------------------------------------------------------------=============================
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
=====================================================================================================================
1994 1993
----------------- ---------------------------
Second First Fourth Third Second
(IN MILLIONS) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning and end of quarter $ 2,979 $ 2,979 $ 2,979 $ 2,979 $ 2,979
COMMON STOCK
Balance, beginning of quarter 561 560 559 556 554
Common stock issued -- 1 1 3 2
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 561 561 560 559 556
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of quarter 7,130 7,118 7,094 7,025 6,954
Common stock issued 20 12 24 69 71
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 7,150 7,130 7,118 7,094 7,025
RETAINED EARNINGS
Balance, beginning of quarter 6,807 6,502 6,187 5,888 5,587
Net income 525 513 496 486 488
Common stock dividends (139) (143) (125) (124) (124)
Preferred stock dividends (61) (60) (60) (61) (60)
Foreign currency translation adjustments,
net of related income taxes (1) (5) 4 (2) (3)
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 7,131 6,807 6,502 6,187 5,888
NET UNREALIZED LOSSES ON AVAILABLE-FOR-SALE SECURITIES
Balance, beginning of quarter (252) -- -- -- --
Effect of adoption of SFAS No. 115, net of related income taxes -- (15) -- -- --
Valuation adjustments, not of related income taxes 42 (237) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter (210) (252) -- -- --
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of quarter (362) (15) (14) (14) (12)
Treasury stock transactions (156) (347) (1) -- (2)
- ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter (518) (362) (15) (14) (14)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $17,093 $16,863 $17,144 $16,805 $16,434
- ---------------------------------------------------------------------================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
NOTE 1. FINANCIAL STATEMENT PRESENTATION
The unaudited consolidated financial statements of BankAmerica Corporation and
subsidiaries (the Corporation) are prepared in conformity with generally
accepted accounting principles for interim financial information, the
instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments necessary for a fair presentation of the financial
position and results of operations for the periods presented have been included.
All such adjustments are of a normal recurring nature. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in BankAmerica Corporation's (the
Parent) Annual Report on Form 10-K for the year ended December 31, 1993.
The unaudited consolidated financial statements of the Corporation include the
accounts of the Parent and companies in which more than 50 percent of the voting
stock is owned directly or indirectly by the Parent, including Bank of America
NT&SA (the Bank), Seafirst Corporation, and other banking and nonbanking
subsidiaries. The revenues, expenses, assets, and liabilities of the
subsidiaries are included in the respective line items in the unaudited
consolidated financial statements after elimination of intercompany accounts and
transactions.
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and Financial Accounting Standards Board Interpretation
No. 39 (FIN 39), "Offsetting of Amounts Related to Certain Contracts." For
information on the adoption of this Statement and Interpretation, refer to Notes
4 and 5 on pages 8 and 9 in the Notes to Consolidated Financial Statements.
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
- -------------------------------------------------------------------------------
NOTE 2. ACQUISITION OF CONTINENTAL BANK CORPORATION
Pursuant to the Restated Agreement and Plan of Merger (the Agreement) dated as
of January 27, 1994, Continental Bank Corporation (Continental) will be merged
with and into the Parent (the Continental Acquisition.) The purchase price
includes an estimated 21.5 million shares of the Parent's common stock and $948
million in cash, subject to adjustment and termination in certain circumstances,
including movements in the Parent's average stock price beyond certain levels.
Based on the Parent's closing stock price on January 27, 1994, the total value
of the common stock and cash to be issued would be approximately $1.9 billion.
Holders of Continental common stock may elect to receive either cash or the
Parent's common stock, subject to certain limitations.
In addition, each share of Continental's Adjustable Rate Preferred Stock, Series
1 and 2 that is outstanding immediately prior to the consummation of the
Continental Acquisition will be converted, respectively, into one share of
Adjustable Rate Preferred Stock, Series 1 and 2 of the Parent, having
substantially the same terms. Based on January 27, 1994 market value
information, the estimated value of the Parent's preferred stock to be issued in
connection with the Continental Acquisition would have been $415 million if it
had been issued at that date.
6
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===============================================================================
The Parent also entered into a stock option agreement with Continental dated as
of January 27, 1994, whereby the Parent was granted an option to purchase up to
10.2 million shares of Continental common stock (approximately 20 percent of its
outstanding shares) at a price of $37.50 per share. The option is exercisable in
certain circumstances, including the purchase by a third party of more than 20
percent of Continental shares or Continental's agreement to an alternative
transaction with a third party. If either of such events occur within eighteen
months after the termination of the Agreement, Continental would be obligated to
pay the Parent the greater of $60 million or 3 percent of the value of such
alternative transaction.
Continental is a Delaware corporation organized in 1968 and is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended, and
the Illinois Bank Holding Company Act of 1957. Continental's principal
subsidiary is Continental Bank. Continental provides an extensive range of
commercial banking services, primarily in the Midwest, but also throughout the
United States and in various overseas markets. Through its subsidiaries,
Continental provides business financing, specialized financial and operating
services, and private banking services. Continental also engages in equity
finance and investing, as both principal and arranger, and international
trading.
The Continental Acquisition will be recorded by the Parent using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations." Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at consummation of the Continental Acquisition. The
completion of this transaction is subject to the satisfaction of certain
conditions set forth in the agreement. The parties presently anticipate that the
closing will take place on or about August 31, 1994.
During the second quarter of 1994, the Parent completed its previously announced
plan to repurchase common stock in connection with the pending acquisition of
Continental. During the six months ended June 30, 1994, the Parent repurchased
11.8 million shares of its common stock on the open market at an average per-
share price of $42.43.
- -------------------------------------------------------------------------------
NOTE 3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the six-month periods ended June 30, 1994 and 1993, the Corporation made
interest payments on deposits and other interest-bearing liabilities of $2,082
million and $2,093 million, respectively, and made net income tax payments of
$387 million and $96 million, respectively.
During the six months ended June 30, 1993, the Corporation securitized
residential real estate loans of $132 million and reclassified them to
available-for-sale securities. No residential real estate loans were securitized
during the six months ended June 30, 1994.
Foreclosures totaled $296 million and $393 million for the six-month periods
ended June 30, 1994 and 1993, respectively.
During the second quarter of 1994, assets that were previously reported as
assets pending disposition were reclassified to either other assets or loans.
Prior periods have been adjusted for this reclassification. Such assets
reclassified to other assets totaled $995 million and $1,405 million as of June
30, 1994 and 1993, respectively, and included commercial and industrial loans
held for sale in the normal course of business that were originated with the
intent to sell of $760 million and $409 million at June 30, 1994 and 1993,
respectively. Assets reclassified to loans consisted of residential first
mortgages held for sale in the normal course of business of $38 million and $390
million at June 30, 1994 and 1993, respectively.
7
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BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
===============================================================================
During the first quarter of 1993, management determined that certain
subsidiaries that were held for disposition as of year-end 1992, including Bank
of America (Asia) Limited, formerly Security Pacific Asia Bank, Ltd, a former
subsidiary of Security Pacific Corporation, would not be sold. Accordingly,
assets and liabilities of these subsidiaries that were previously recorded in
other assets, including $329 million of available-for-sale securities, $1,950
million of loans, and $1,249 million of deposits, were consolidated in the
Corporation's financial statements effective January 1, 1993.
- -------------------------------------------------------------------------------
NOTE 4. CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
SFAS No. 115 was adopted by the Corporation effective January 1, 1994. SFAS No.
115 requires debt securities for which the Corporation has the positive intent
and ability to hold to maturity to be classified as held-to-maturity securities
and reported at amortized cost. Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term will continue
to be classified as trading account assets and reported at their fair values
with unrealized gains and losses included in earnings. Other debt and equity
securities that the Corporation may not hold to maturity and that are not
considered to be part of trading-related activities are classified as available-
for-sale securities and reported at their fair values, with unrealized gains and
losses reported on a net-of-tax basis as a separate component of stockholders'
equity. Prior-period amounts have not been restated since SFAS No. 115 does not
allow retroactive application.
Upon adoption of SFAS No. 115, $5.6 billion of securities previously classified
as held-to-maturity securities with a market value of $5.7 billion were
transferred to available-for-sale securities. In addition, certain debt-
restructuring par bonds and other instruments issued by the governments of
certain countries, most notably Mexico and Venezuela, were reclassified from
loans to either available-for-sale or held-to-maturity securities. Debt-
restructuring par bonds and other instruments with a carrying value of $1.2
billion and a market value of $1.0 billion at December 31, 1993 were
reclassified to held-to-maturity securities, and debt-restructuring par bonds
and other instruments with a carrying value of $1.3 billion and a market value
of $1.0 billion at December 31, 1993 were reclassified to available-for-sale
securities.
At June 30, 1994, certain nonaccrual debt-restructuring par bonds and other
instruments issued by the governments of Brazil and Argentina with an aggregate
face value of $754 million are included in available-for-sale securities at
their market value of $367 million, including net unrealized gains of $207
million.
The fair values and amortized costs of available-for-sale and held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
SECURITIES SECURITIES
-------------------- ------------------
FAIR AMORTIZED FAIR AMORTIZED
(IN MILLIONS) VALUE COST VALUE COST
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1994 $8,938 $9,288 $11,544 $11,734
March 31, 1994 9,413 9,849 11,976 11,979
December 31, 1993 3,405 3,282 16,802 16,415
September 30, 1993 3,688 3,515 17,357 16,810
June 30, 1993 3,675 3,491 16,730 16,207
</TABLE>
8
<PAGE>
===============================================================================
During the six-month period ended June 30, 1994, the Corporation sold available-
for-sale securities for aggregate proceeds of $1,144 million resulting in gross
realized gains of $48 million and gross realized losses of $21 million. During
the six-month period ended June 30, 1993, the Corporation sold available-for-
sale securities for aggregate proceeds of $1,420 million, resulting in gross
realized gains of $31 million and no gross realized losses. There were no sales
of held-to-maturity securities during the six-month periods ended June 30, 1994
and 1993.
During the six-month period ended June 30, 1994, trading income included a net
unrealized holding loss on trading securities of $64 million, excluding the net
unrealized trading results of the Parent's securities broker and dealer
subsidiaries, which are not subject to the requirements of SFAS No. 115.
- -------------------------------------------------------------------------------
NOTE 5. OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS
FIN 39 was prospectively adopted by the Corporation effective January 1, 1994.
FIN 39 requires unrealized gains on forward, swap, option, and other conditional
or exchange contracts to be recorded as assets and unrealized losses on these
contracts to be recorded as liabilities. However, unrealized gains and losses
may be netted where right of set-off criteria are met or contracts are executed
under legally enforceable master netting agreements with counterparties. To the
extent allowed by FIN 39, the Corporation nets unrealized gains and losses on
certain off-balance-sheet instruments. Prior to January 1, 1994, unrealized
gains and losses were recorded on the consolidated balance sheet on a net basis
for most products, primarily in trading account assets and other liabilities. At
December 31, 1993, net unrealized gains and net unrealized losses were $0.9
billion and $0.7 billion, respectively. Upon adoption of FIN 39, the unrealized
gains and unrealized losses included in these amounts, which were netted where
appropriate, were reclassified to unrealized gains on off-balance-sheet
instruments and unrealized losses on off-balance-sheet instruments,
respectively.
- -------------------------------------------------------------------------------
NOTE 6. INCOME TAXES
The following is a summary of the components of income tax expense:
<TABLE>
<CAPTION>
1994 1993
---------------- ------------------------- SIX MONTHS ENDED
SECOND FIRST FOURTH THIRD SECOND JUNE 30
----------------
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES
Federal $278 $269 $260 $261 $251 $547 $502
State and local 67 72 75 77 77 139 153
Foreign 34 34 29 38 41 68 79
- -------------------------------------------------------------------------------------------
$379 $375 $364 $376 $369 $754 $734
- ---------------------------------==========================================================
</TABLE>
The income tax provision for the second quarter of 1994 reflected the
Corporation's estimated annual effective income tax rate of 42.1 percent,
compared to the annual effective income tax rate of 43.0 percent for 1993. The
1994 effective income tax rate is higher than the federal statutory tax rate of
35.0 percent due principally to state income taxes and the amortization of
nondeductible goodwill.
9
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
===============================================================================
NOTE 7. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the following:
<TABLE>
<CAPTION>
1994 1993
----------------- --------------------------- SIX MONTHS ENDED
(DOLLAR AMOUNTS IN MILLIONS, SECOND FIRST FOURTH THIRD SECOND JUNE 30
-----------------
NUMBER OF SHARES IN THOUSANDS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to
common stock $464 $453 $436 $425 $428 $917 $852
Average number of common
shares outstanding 347,791 355,749 357,629 356,567 354,795 351,770 353,116
Average number of common
and common equivalent
shares outstanding 349,721 357,569 359,547 358,835 357,315 353,645 356,169
Average number of common
shares outstanding--assum-
ing full dilution 355,201 363,049 365,360 364,315 362,797 359,125 361,650
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8. OFF-BALANCE-SHEET TRANSACTIONS
In the ordinary course of business, the Corporation enters into various types of
transactions that involve contracts and financial instruments with off-balance-
sheet risk. The following table is a summary of the aggregate contractual
amounts for each significant class of credit-related financial instrument
outstanding. The contractual amounts of these instruments represent the amounts
at risk should the contract be fully drawn upon, the client default, and the
value of any existing collateral become worthless.
<TABLE>
<CAPTION>
1994 1993
------------------ ---------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commitments to extend credit:
Unutilized credit card lines $24,647 $24,110 $23,437 $24,069 $23,337
Other commitments to extend credit/a/ 60,368 60,690 57,227 57,233 55,562
Standby letters of credit and financial
guarantees/b/ 12,550 11,640 13,323 11,605 11,682
Commercial letters of credit 4,238 3,438 3,124 2,902 2,841
===========================================================================================
</TABLE>
/a/ Represents agreements to extend credit to a customer for which the
Corporation may have received fees. These commitments have specified
interest rates, generally have fixed expiration dates, and may be terminated
by the Corporation if certain conditions of the contract are violated.
/b/ Net of participations sold of $4,020 million at June 30, 1994, $4,032
million at March 31, 1994, $2,076 million at December 31, 1993, $1,980
million at September 30, 1993, and $2,054 million at June 30, 1993.
The tables on page 11 summarize the credit risk and notional or contract amounts
associated with the Corporation's off-balance-sheet trading and asset and
liability management activities for each significant class of foreign exchange
contracts and derivative contracts outstanding. The credit risk amounts
represent the Corporation's exposure to potential loss on these transactions if
all counterparties failed to perform according to the terms of the contract and
the value of any existing collateral became worthless, based on then-current
currency exchange and interest rates at each respective date. The notional or
contract amounts of these transactions represent the face or principal value
upon which calculations of amounts to be exchanged are based. They do not
represent the potential for gain or loss associated with the market risk or
credit risk of such transactions.
10
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
1994 1993
------------------- ----------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CREDIT RISK AMOUNTS/a/
Foreign exchange contracts $ 13,071 $ 6,441 $ 4,633 $ 6,056 $ 8,256
Interest rate swaps 5,038 5,646 6,848 7,270 6,587
Currency swaps 1,847 1,988 1,841 1,987 1,951
Futures and forward contracts--
commitments to purchase 148 104 8 12 15
Futures and forward contracts--
commitments to sell 16 40 36 54 73
Interest rate options written -- -- -- -- --
Interest rate options purchased 283 307 358 379 295
NOTIONAL OR CONTRACT AMOUNTS
Foreign exchange contracts 691,703 571,849 443,298 475,041 445,813
Interest rate swaps 295,514 268,390 233,359 232,261 207,179
Currency swaps 22,507 22,859 22,866 24,150 23,962
Futures and forward contracts--
commitments to purchase 80,526 85,891 75,413 83,130 69,902
Futures and forward contracts--
commitments to sell 98,424 97,084 81,986 84,131 85,934
Interest rate options written 22,968 27,528 29,576 26,672 25,707
Interest rate options purchased 33,983 35,327 35,466 39,794 42,502
</TABLE>
- -------------------------------------------------------------------------------
/a/ Without regard to legally enforceable master netting agreements.
The Corporation conducts securities lending transactions for certain customers
and, at times, indemnifies these customers against various losses. All
securities lending transactions are collateralized by U.S. government or federal
agency securities, cash, or letters of credit with total market value equal to
or in excess of the market value of the securities loaned. In the event of
customer default combined with a decline in the value of the associated
collateral, the Corporation may be exposed to risk of loss. The Corporation was
indemnifying securities lending transactions totaling $5,185 million, $6,691
million, $5,133 million, $2,562 million, and $2,756 million at June 30, 1994,
March 31, 1994, December 31, 1993, September 30, 1993, and June 30, 1993,
respectively, and was holding associated collateral totaling $5,328 million,
$6,825 million, $5,185 million, $2,604 million, and $2,793 million, at June 30,
1994, March 31, 1994, December 31, 1993, September 30, 1993, and June 30, 1993,
respectively.
11
<PAGE>
===============================================================================
[THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
================================================================================
The following is a summary of second-quarter 1994 financial information for
BankAmerica Corporation and subsidiaries (the Corporation).
. The Corporation reported second-quarter 1994 earnings per share of $1.33, an
increase of 11 percent from $1.20 for the same period a year ago. Net income
for the second quarter of 1994 was $525 million, up from $488 million for the
second quarter of 1993.
. The Corporation's results of operations reflected improved performance across
many business sectors. For information on the Corporation's business sectors,
refer to the Business Sectors section on page 15.
. The Corporation continued to focus on controlling expenses effectively.
Excluding the previously disclosed capital additions to two of the Pacific
Horizon money market mutual funds, as discussed on page 20, noninterest
expense for the second quarter of 1994 decreased $73 million from the amount
reported in same period a year ago.
. Average total loans for the second quarter of 1994 were up $1.0 billion from
the previous quarter. Adjusted for certain reclassifications, average loan
outstandings have increased for three consecutive quarters.
. The Corporation's credit quality continued to improve. During the second
quarter of 1994, total nonaccrual assets decreased $276 million, bringing the
decline since year-end 1993 to $664 million, or 23 percent. In addition, net
credit losses for the second quarter of 1994 decreased $197 million, or 56
percent, from the amount reported in the second quarter last year. This
continued improvement in credit quality allowed the Corporation to reduce its
second-quarter 1994 provision for credit losses by $102 million from the
amount reported in the same period last year.
. During the second quarter of 1994, BankAmerica Corporation (the Parent)
completed its previously announced plan to repurchase common stock in
connection with the pending acquisition of Continental Bank Corporation
(Continental). During the six months ended June 30, 1994, the Parent
repurchased 11.8 million shares of its common stock on the open market at an
average per-share price of $42.43.
Moves by the Federal Reserve to increase short-term interest rates in the first
half of 1994 in an effort to slow economic growth and inhibit inflation may have
a moderating effect on domestic economic expansion in the latter half of 1994
and into 1995.
13
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 SIX MONTHS ENDED
------------------ ------------------------------ JUNE 30
(DOLLAR AMOUNTS IN MILLIONS SECOND FIRST FOURTH THIRD SECOND ---------------------
EXCEPT PER SHARE DATA)/A/ QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Interest income $ 2,939 $ 2,813 $ 2,876 $ 2,945 $ 2,881 $ 5,752 $ 5,806
Interest expense 1,107 1,019 1,011 1,064 1,029 2,126 2,111
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,832 1,794 1,865 1,881 1,852 3,626 3,695
Provision for credit losses 125 125 150 178 227 250 475
Noninterest income 1,018 1,003 1,119 1,007 1,058 2,021 2,147
Noninterest expense 1,821 1,784 1,974 1,848 1,826 3,605 3,661
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 904 888 860 862 857 1,792 1,706
Provision for income taxes 379 375 364 376 369 754 734
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 525 $ 513 $ 496 $ 486 $ 488 $ 1,038 $ 972
- ---------------------------------------------------=================================================================================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 1.33 $ 1.27 $ 1.21 $ 1.19 $ 1.20 $ 2.59 $ 2.39
EARNINGS PER COMMON SHARE-ASSUMING FULL DILUTION $ 1.32 $ 1.26 $ 1.21 $ 1.18 $ 1.19 $ 2.58 $ 2.38
- ---------------------------------------------------=================================================================================
STOCK DATA
Dividends declared per common share $ 0.40 $ 0.40 $ 0.35 $ 0.35 $ 0.35 $ 0.80 $ 0.70
Book value per common share at period end 40.69 39.67 39.58 38.69 37.82 40.69 37.82
Common stock price range:
High 50 1/4 48 7/8 47 3/8 49 1/8 53 7/8 50 1/4 55 1/2
Low 38 3/8 38 3/4 40 3/8 43 3/8 40 1/2 38 3/8 40 1/2
Closing common stock price 45 3/4 39 3/8 46 3/8 44 45 1/4 45 3/4 45 1/4
Average number of common and common
equivalent shares outstanding (in thousands) 349,721 357,569 359,547 358,835 357,315 353,645 356,169
Number of common shares outstanding at period
end (in thousands) 346,909 350,029 357,912 357,343 355,758 346,909 355,758
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AND CAPITAL AT PERIOD END
Loans $124,874 $123,544 $126,556 $125,976 $126,011 $124,874 $126,011
Total assets 197,543 197,212 186,933 187,109 185,466 197,543 185,466
Deposits 142,035 142,589 141,618 140,969 141,409 142,035 141,409
Long-term debt and subordinated capital notes 14,217 14,434 14,115 14,941 15,868 14,217 15,868
Common stockholders' equity 14,114 13,884 14,165 13,826 13,455 14,114 13,455
Total stockholders' equity 17,093 16,863 17,144 16,805 16,434 17,093 16,434
- ---------------------------------------------------=================================================================================
SELECTED FINANCIAL RATIOS
Rate of return (based on net income) on:
Average total assets 1.08% 1.07% 1.06% 1.04% 1.06% 1.07% 1.06%
Average common stockholders' equity 13.32 13.00 12.48 12.46 13.08 13.21 13.31
Average total stockholders' equity 12.41 12.17 11.69 11.66 12.16 12.33 12.35
Ratio of common stockholders' equity to total assets 7.14 7.04 7.58 7.39 7.25 7.14 7.25
Ratio of total stockholders' equity to total assets 8.65 8.55 9.17 8.98 8.86 8.65 8.86
Ratio of average stockholders' equity to average
total assets 8.67 8.78 9.03 8.93 8.73 8.70 8.59
Risk-based capital ratios:/b/
Total risk-based capital ratio 12.11 12.21 12.00 11.60 11.70 12.11 11.70
Tier 1 risk-based capital ratio 7.56 7.64 7.61 7.19 6.93 7.56 6.93
Tier 1 leverage ratio 6.55 6.37 6.64 6.42 6.21 6.55 6.21
====================================================================================================================================
</TABLE>
/a/ Due to the pending acquisition of Continental, certain financial data herein
may not be indicative of the Corporation's future results of operations or
financial position. Refer to Note 2 of the Notes to Consolidated Financial
Statements on pages 6-7.
/b/ Refer to the table on page 39 of the Funding and Capital section for
information on the calculation of risk-based capital ratios.
14
<PAGE>
BUSINESS SECTORS
================================================================================
The Corporation manages its operations by customer and market sectors. Since the
Corporation's operations are highly integrated, certain non-sector-specific
income, expense, assets, and liabilities must be allocated to these customer and
market sectors. Domestic sources of funds, equity, overhead, and federal and
state taxes are allocated in this process. Additionally, the unallocated
allowance for credit losses and related provision for credit losses are
allocated to the business sectors. The information set forth in the following
table reflects the Corporation's net income, average total assets, average total
deposits, and return on assets by customer and market sectors and does not
necessarily represent their financial condition and results of operations if
managed as independent entities.
================================================================================
SELECTED BUSINESS SECTOR DATA/a/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
------------------------------------
AVERAGE AVERAGE RETURN
(DOLLAR AMOUNTS IN BILLIONS, EXCEPT NET TOTAL TOTAL ON
FOR NET INCOME WHICH IS IN MILLIONS) INCOME ASSETS DEPOSITS ASSETS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer banking $ 338 $ 54 $ 66 1.26%
Large corporate and foreign banking 336 65 24 1.05
Commercial real estate 143 8 2 3.41
Seafirst Corporation 142 15 12 1.92
Middle market banking 91 10 5 1.80
Private bank 18 2 5 1.57
Other non-California banks 13 23 24 0.11
Other (43) 18 3 (0.48)
- ----------------------------------------------------------------------------
$1,038 $195 $141 1.07%
- ----------------------------------------====================================
</TABLE>
/a/ Amounts reflect 1994 changes in the Corporation's organizational structure
and in its business-sector allocation methodologies.
15
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
===================================================================================================================================
AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- -----------------------------------------------------------------------------------------------------------------------------------
Second Quarter 1994 Second Quarter 1993
----------------------------------- ----------------------------------
(dollar amounts in millions) Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits in banks $ 4,774 $ 74 6.19% $ 2,522/d/ $ 45 7.15%
Federal funds sold 1,427 15 3.99 1,447 11 3.12
Securities purchased under resale agreements 6,886 89 5.20 3,199 37 4.57
Trading account assets 6,402 122 7.67 5,733 84 5.85
Available-for-sale securities/c/ 9,304/d/ 132 5.69/e/ 4,173 71 6.88
Held-to-maturity securities/c/ 11,816 216 7.33 15,901 277 6.98
Domestic loans:
Consumer-residential first mortgages 31,391 462 5.89 29,008 464 6.40
Consumer-credit card 7,092 281 15.86 7,526 306 16.28
Other consumer 24,612 541 8.81 24,885 565 9.10
Commercial and industrial 21,479 350 6.53 20,961 317 6.06
Commercial loans secured by real estate 9,051 177 7.81 9,753 182 7.47
Construction and development loans
secured by real estate 3,850 70 7.27 5,999 73 4.85
Loans for purchasing or carrying securities 1,711 20 4.80 1,074 11 4.17
Financial institutions 1,803 23 5.05 1,766 15 3.64
Lease financing 1,641 33 8.13 1,770 58 13.13
Agricultural 1,596 29 7.43 1,585 30 7.45
Other 1,210 20 6.59 993 13 5.26
-------- ------ -------- ------
Total domestic loans 105,436 2,006 7.62 105,320 2,034 7.74
Foreign loans 17,877 290 6.51 19,358 327 6.77
-------- ------ -------- ------
Total loans/d/ 123,313 2,296 7.46 124,678 2,361 7.59
-------- ------ -------- ------
Total earning assets 163,922 $2,944 7.20 157,653 $2,886 7.34
====== ======
Nonearning assets 35,122 30,649
Less: Allowance for credit losses 3,425 3,873
-------- --------
TOTAL ASSETS $195,619 $184,429
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic interest-bearing deposits:
Transaction $ 13,792 $ 40 1.16% $ 13,386 $ 46 1.39%
Savings 14,569 74 2.03 13,966 81 2.31
Money market 32,623 199 2.45 34,171 214 2.51
Time 26,547 166 2.50 32,112 187 2.34
-------- ------ -------- ------
Total domestic interest-bearing deposits 87,531 479 2.19 93,635 528 2.26
-------- ------ -------- ------
Foreign interest-bearing deposits:
Banks located in foreign countries 6,125 96 6.29 3,063 51 6.64
Governments and official institutions 4,384 48 4.38 1,646 16 3.97
Time, savings, and other 11,000 130 4.75 10,043 142 5.68
-------- ------ -------- ------
Total foreign interest-bearing deposits 21,509 274 5.11 14,752 209 5.69
-------- ------ -------- ------
Total interest-bearing deposits 109,040 753 2.77 108,387 737 2.73
Federal funds purchased 335 3 3.71 590 4 2.79
Securities sold under repurchase agreements 6,852 97 5.64 2,327 33 5.70
Other short-term borrowings 3,785 59 6.26 2,910 45 6.13
Long-term debt 13,637 185 5.45 14,101 180 5.14
Subordinated capital notes 606 10 6.76 2,000 30 6.05
-------- ------ -------- ------
Total interest-bearing liabilities 134,255 $1,107 3.31 130,315 $1,029 3.17
====== ======
Domestic noninterest-bearing deposits 31,001 30,371
Foreign noninterest-bearing deposits 1,437 1,402
Other noninterest-bearing liabilities 11,963 6,246
-------- --------
Total liabilities 178,656 168,334
Stockholders' equity 16,963 16,095
-------- --------
Total Liabilities and Stockholders' Equity $195,619 $184,429
======== ========
Interest income as a percentage of average earning assets 7.20% 7.34%
Interest expense as a percentage of average earnings assets (2.71) (2.62)
===== =====
NET INTEREST MARGIN 4.49% 4.72%
===== =====
===================================================================================================================================
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 35 percent.
/c/ Refer to the table on page 23 of the Balance Sheet Analysis section for more
detail on available-for-sale and held-to-maturity securities.
/d/ Average balances include nonaccrual assets.
/e/ Due to the first-quarter 1994 adoption of Statement of Financial Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," available-for-sale securities are recorded at their fair
values. Without regard to net unrealized losses, the rates would have been
5.51% and 5.71% for the second quarter of 1994 and the six months ended June
30, 1994, respectively.
16
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Six Months ended June 30
- ---------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------
Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
- --------------------------------------------------------------------------------
$ 4,251 $ 130 6.15% $ 2,394/d/ $ 91 7.67%
1,527 28 3.63 1,131 17 3.14
6,398 161 5.07 3,047 69 4.54
6,836 233 6.89 5,300 160 6.08
9,568/d/ 278 5.84/e/ 4,733 150 6.37
11,771 430 7.30 15,144 538 7.12
31,123 905 5.82 29,107 946 6.50
7,148 568 15.88 7,709 629 16.33
24,477 1,065 8.78 25,185 1,151 9.21
20,832 653 6.32 21,156 630 6.01
9,087 348 7.67 9,993 370 7.40
4,062 141 7.00 6,276 148 4.75
2,095 45 4.36 1,017 21 4.23
1,812 42 4.71 1,790 30 3.44
1,657 75 9.08 1,795 119 13.40
1,604 58 7.35 1,620 58 7.17
1,195 37 6.15 1,062 27 5.08
-------- ------ -------- ------
105,092 3,937 7.53 106,710 4,129 7.77
17,720 566 6.45 19,257 662 6.93
-------- ------ -------- ------
122,812 4,503 7.37 125,967 4,791 7.65
-------- ------ -------- ------
163,163 $5,763 7.10 157,716 $5,816 7.41
====== ======
35,495 31,039
3,463 3,932
-------- --------
$195,195 $184,823
======== ========
$ 13,797 $ 79 1.16% $ 13,356 $ 98 1.48%
14,418 145 2.03 13,799 164 2.39
33,148 396 2.41 34,250 438 2.58
26,723 328 2.48 32,576 394 2.44
-------- ------ -------- ------
88,086 948 2.17 93,981 1,094 2.35
-------- ------ -------- ------
5,702 171 6.05 2,981 107 7.22
4,098 86 4.20 1,594 32 4.11
10,721 245 4.61 10,306 291 5.70
-------- ------ -------- ------
20,521 502 4.93 14,881 430 5.83
-------- ------ -------- ------
108,607 1,450 2.69 108,862 1,524 2.82
349 6 3.34 634 9 2.76
6,566 176 5.40 2,073 57 5.55
3,744 120 6.46 2,901 94 6.52
13,460 354 5.31 14,098 366 5.24
606 20 6.73 2,035 61 6.10
-------- ------ -------- ------
133,332 $2,126 3.22 130,603 $2,111 3.26
====== ======
30,998 29,899
1,453 1,436
12,434 7,005
-------- --------
178,217 168,943
16,978 15,880
-------- --------
$195,195 $184,823
======== ========
7.10% 7.41%
(2.63) (2.70)
----- -----
4.47% 4.71%
===== =====
===============================================================================
17
<PAGE>
================================================================================
NET INTEREST INCOME
Taxable-equivalent net interest income was $1,837 million for the second quarter
of 1994, down $20 million, or 1 percent, from the amount reported in the second
quarter of last year. Taxable-equivalent net interest income totaled $3,637
million for the first six months of 1994 and $3,705 million during the same
period in 1993. The Corporation's net interest margin for the second quarter of
1994 was 4.49 percent, down 23 basis points from the comparable period in 1993,
while the net interest margin for the first half of 1994 was 4.47 percent,
compared with 4.71 percent in the first half of 1993.
Interest income for the first half of 1994 was down from the comparable period
in 1993, reflecting both a shift in the mix of earning assets from loans to
lower-yielding assets and a decline in the average yield on loans. In addition,
total interest expense for the first six months of 1994 slightly exceeded the
amount for the same period last year, primarily due to an increase in average
interest-bearing liabilities.
The Corporation's net interest margin includes the results of hedging with
certain off-balance-sheet financial instruments. Hedging transactions are
generally entered into to modify the interest rate characteristics of assets and
liabilities in an effort to limit the Corporation's sensitivity to interest rate
movements. Presently, management accomplishes hedging primarily through the use
of off-balance-sheet instruments, but can also manage interest rate risk using
on-balance-sheet instruments. Management does not consider it meaningful to
separate the results of hedging from the net interest income arising from the
hedged assets and liabilities. Since management defines the amounts and nature
of the risks it is willing to assume prior to identifying the hedging method, it
believes the Corporation's net interest income and results of operations would
have been substantially the same had instruments other than off-balance-sheet
products been used for interest rate risk management purposes.
In the second quarter and first six months of 1994, the Corporation's net
interest income included approximately $110 million and $255 million,
respectively, attributable to hedging with derivative instruments, compared with
approximately $190 million and $380 million, respectively, in the comparable
periods of 1993. The hedging amounts for the second quarter and the first six
months of 1994 accounted for approximately 25 basis points and 30 basis points,
respectively, of the net interest margins for those periods, while the hedging
amounts for the comparable periods of 1993 accounted for approximately 50 basis
points in each period.
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income for the second quarter and first six months of 1994 decreased
$40 million and $126 million, respectively, from the amounts reported in the
corresponding periods of 1993. Included in noninterest income for the first six
months of 1993 was $38 million of nonrecurring income representing previously
unrecognized post-Merger 1992 earnings of Bank of America (Asia) Limited,
formerly Security Pacific Asia Bank, Ltd. Excluding this nonrecurring item, the
decreases in noninterest income for the second quarter and first six months of
1994 over the amounts reported in the same periods last year were primarily
attributable to lower trading income, reflecting less favorable market
conditions, and lower fees and commissions. These declines were partially offset
by growth in various categories of other noninterest income, including income
from assets pending disposition, net gain on sales of assets, and venture
capital income.
18
<PAGE>
================================================================================
Trading income for the second quarter and first half of 1994 decreased $66
million and $156 million, respectively, from the amounts reported in the
corresponding periods of 1993. Trading income represents the net amount earned
from the Corporation's trading activities, which include facilitating
transactions for customers and entering into transactions for the Corporation's
own account in a diverse range of financial instruments and markets.
To reflect the business purpose and use of the financial contracts into which
the Corporation enters, trading income and the net interest revenue or expense
associated with such contracts has been allocated into three broad functional
categories: interest rate trading, foreign exchange trading, and debt
instruments trading.
<TABLE>
<CAPTION>
============================================================================================================================
TRADING INCOME AND TRADING-RELATED NET INTEREST INCOME BY FUNCTION
- ----------------------------------------------------------------------------------------------------------------------------
1994
-------------------------------------------------------------------------------------------------------
SECOND QUARTER SIX MONTHS ENDED JUNE 30
-------------------------------------------------- --------------------------------------------------
INTEREST FOREIGN DEBT INTEREST FOREIGN DEBT
(IN MILLIONS) RATE/a/ EXCHANGE/b/ INSTRUMENTS/c/ TOTAL RATE/a/ EXCHANGE/b/ INSTRUMENTS/c/ TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trading income $15 $71 $20 $106 $29 $127 $24 $180
Net interest income (3) 3 23 23 (2) 2 39 39
- ----------------------------------------------------------------------------------------------------------------------------
$12 $74 $43 $129 $27 $129 $63 $219
- --------------------------==================================================================================================
</TABLE>
/a/ Includes income from interest rate and currency swaps, interest rate futures
and option contracts, and forward rate agreements.
/b/ Includes income from foreign exchange spot, forward, futures, and option
contracts.
/c/ Includes income from debt securities and debt-related derivatives.
Trading income, as disclosed in the Corporation's consolidated statement of
operations, does not include the net interest income associated with trading
activities. However, the net interest income amounts are presented in the table
above as they should be considered in evaluating the overall profitability of
those activities.
19
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
NONINTEREST INCOME
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SECOND QUARTER JUNE 30
---------------- ----------------
(IN MILLIONS) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEES AND COMMISSIONS
Deposit account fees $ 290 $ 301 $ 584 $ 590
Credit card fees 85 89 167 171
Trust fees 66 77 133 148
Other fees and commissions:
Loan fees and charges 64 75 136 159
Off-balance-sheet credit-related instrument fees 73 63 134 121
Mutual fund and annuity commissions 24 26 46 47
Other 101 108 212 213
- ------------------------------------------------------------------------------------------------
262 272 528 540
- ------------------------------------------------------------------------------------------------
703 739 1,412 1,449
TRADING INCOME 106 172 180 336
OTHER NONINTEREST INCOME
Income from assets pending disposition 53 30 121 59
Net gain on sales of assets/a/ 20 17 65 44
Venture capital income 32 21 63 52
Net gains on available-for-sale securities 7 13 27 31
Other income 97 66 153 176
- ------------------------------------------------------------------------------------------------
209 147 429 362
- ------------------------------------------------------------------------------------------------
$1,018 $1,058 $2,021 $2,147
- -------------------------------------------------------------===================================
</TABLE>
/a/ Net gain on sales of assets includes gains and losses from the disposition
of loans, premises and equipment, and certain other assets.
- --------------------------------------------------------------------------------
NONINTEREST EXPENSE
Noninterest expense for both the second quarter and first six months of 1994
included previously disclosed capital additions totaling $68 million to two of
the Pacific Horizon money market mutual funds, for which Bank of America NT&SA
serves as investment advisor. Excluding this item, noninterest expense for the
second quarter and first half of 1994 was down $73 million and $124 million,
respectively, from the amounts reported in the comparable periods of 1993.
Personnel-related expense (comprised of salaries and employee benefits) for the
second quarter and first six months of 1994 increased $32 million and $40
million, respectively, from the amounts reported in the same periods last year.
Although base salary expense for the second quarter and first six months of 1994
decreased slightly from the same periods last year, largely due to reductions in
staff levels, increases in benefits, incentive-based pay, and contract wages
offset these decreases. The Corporation's staff level on a full-time-equivalent
(FTE) basis was approximately 77,100 in June 1994, compared with approximately
80,900 in June 1993. The Corporation had approximately 93,600 employees in June
1994, down from approximately 98,300 a year earlier.
20
<PAGE>
<TABLE>
<CAPTION>
================================================================================
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
SECOND QUARTER JUNE 30
--------------- ----------------
(IN MILLIONS) 1994 1993 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries $ 700 $ 703 $1,410 $1,413
Employee benefits 180 145 338 295
Occupancy 167 167 332 330
Equipment 138 151 284 291
Amortization of intangibles 99 74 204 206
Communications 80 85 158 167
Regulatory fees and related expenses 72 79 142 163
Professional services 53 72 111 132
Net other real estate owned expense (16) 30 6 62
Other expense 348 320 620 602
- --------------------------------------------------------------------------------
$1,821 $1,826 $3,605 $3,661
- ----------------------------------------------==================================
</TABLE>
Amortization of intangibles for the quarter ended June 30, 1994 increased $25
million from the amount reported in the second quarter of 1993, while year-to-
date 1994 amortization of intangibles remained essentially unchanged from the
corresponding period of 1993. The increase in amortization of intangibles for
the second quarter of 1994 over the second quarter of 1993 was primarily due to
a second-quarter 1993 reduction of $24 million, resulting from nonrecurring
adjustments in the amortization of intangibles related to prior periods.
Excluding these adjustments, amortization of intangibles for the second quarter
of 1994 remained essentially unchanged from the amount reported in the same
period last year.
Net other real estate owned expense for the second quarter and first half of
1994 decreased $46 million and $56 million, respectively, from the amounts
reported in the comparable periods of 1993. These decreases can be primarily
attributed to increased gains on sales of other real estate owned and declines
in writedowns of foreclosed properties.
Excluding the capital additions to the Pacific Horizon funds discussed above,
other expense for the second quarter and first six months of 1994 decreased $40
million and $50 million, respectively, from the amounts reported in the same
periods last year. These decreases can be attributed to reductions in net
operating losses and various other components of other expense.
- --------------------------------------------------------------------------------
INCOME TAXES
The provision for income taxes was $379 million and $369 million for the
quarters ended June 30, 1994 and 1993, respectively, reflecting forecasted
annual effective income tax rates of 42.1 percent and 43.0 percent,
respectively.
For further information concerning the Corporation's provision for federal,
state and foreign income taxes for the most recent five quarters, refer to Note
6 on page 9 of the Notes to Consolidated Financial Statements.
21
<PAGE>
BALANCE SHEET ANALYSIS
================================================================================
During the first quarter of 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and Financial Accounting Standards Board Interpretation
No. 39 (FIN 39), "Offsetting of Amounts Related to Certain Contracts." In
connection with the adoption of SFAS No. 115, the Corporation transferred $5.6
billion of securities, which were previously classified as held-to-maturity
securities, to available-for-sale securities. In addition, certain debt-
restructuring par bonds and other instruments issued by foreign governments with
an aggregate value of $2.5 billion were reclassified from loans to either
available-for-sale or held-to-maturity securities. In connection with the
adoption of FIN 39, the Corporation began, in the first quarter of 1994, to
report unrealized gains on forward, swap, option, and other conditional or
exchange contracts as assets and unrealized losses on these contracts as
liabilities. Unrealized gains and losses were netted where right of set-off
criteria were met or contracts were executed under legally enforceable master
netting agreements with counterparties.
For further information concerning the adoption of SFAS No. 115 and FIN 39,
refer to Notes 4 and 5 of the Notes to Consolidated Financial Statements on
pages 8 and 9.
Total assets increased by $10.6 billion between December 31, 1993 and June 30,
1994, primarily as a result of the first-quarter 1994 adoption of FIN 39, which
increased total assets by $7.8 billion. In addition, interest-bearing deposits
in banks, federal funds sold, and securities purchased under resale agreements
grew in the aggregate by $3.8 billion. Reclassifications made in connection with
the adoption of SFAS No. 115, as described above, caused a shift in the
Corporation's earning assets, but did not affect the change in total assets
between year-end 1993 and June 30, 1994.
22
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES -- AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- -----------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1994 SECOND QUARTER 1993
------------------------------- -------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and other government
agency securities $ 3,430 $ 45 5.31% $ 1,818 $ 23 5.07%
Mortgage-backed securities 3,712 50 5.38 1,487 30 8.15
State, county, and municipal securities 9 -- 5.15 -- -- --
Other domestic securities 397 5 5.27 25 -- 6.20
Foreign securities 1,756/c/ 32 7.18 843 18 8.57
------- ---- ------- ----
TOTAL AVAILABLE-FOR-SALE SECURITIES $ 9,304 $132 5.69/d/ $ 4,173 $ 71 6.88
======= ==== ======= ====
Held-to-maturity securities:
U.S. Treasury and other government
agency securities $ 740 $ 12 6.75% $ 3,642 $ 46 5.09%
Mortgage-backed securities 7,761 140 7.22 10,798 200 7.44
State, county, and municipal securities 485 10 8.32 565 11 7.81
Other domestic securities 236 4 6.52 814 18 8.78
Foreign securities 2,594 50 7.74 82 2 7.34
------- ---- ------- ----
TOTAL HELD-TO-MATURITY SECURITIES $11,816 $216 7.33 $15,901 $277 6.98
======= ==== ======= ====
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30
-------------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and other government
agency securities $ 3,489 $ 94 5.43% $ 2,454 $ 55 4.48%
Mortgage-backed securities 3,983 108 5.40 1,379 59 8.62
State, county, and municipal securities 8 -- 6.64 27 1 6.22
Other domestic securities 357 8 4.73 -- -- --
Foreign securities 1,731/c/ 68 7.90 873 35 8.17
------- ---- ------- ----
TOTAL AVAILABLE-FOR-SALE SECURITIES $ 9,568 $278 5.84/d/ $ 4,733 $150 6.37
======= ==== ======= ====
Held-to-maturity securities:
U.S. Treasury and other government
agency securities $ 781 $ 25 6.55% $ 3,665 $ 93 5.12%
Mortgage-backed securities 7,951 288 7.23 9,971 379 7.61
State, county, and municipal securities 493 20 8.15 573 23 8.00
Other domestic securities 244 9 7.15 854 40 9.36
Foreign securities 2,302 88 7.71 81 3 7.38
------- ---- ------- ----
TOTAL HELD-TO-MATURITY SECURITIES $11,771 $430 7.30 $15,144 $538 7.12
======= ==== ======= ====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 35 percent.
/c/ Average balances include nonaccrual assets.
/d/ Due to the first-quarter 1994 adoption of SFAS No. 115, available-for-sale
securities are recorded at their fair values. Without regard to net
unrealized losses, the rates would have been 5.51% and 5.71% for the second
quarter of 1994 and the six months ended June 30, 1994, respectively.
23
<PAGE>
================================================================================
Earning assets totaled $163.7 billion at June 30, 1994, up $2.0 billion from
$161.7 billion at year-end 1993. Growth in earning assets during the first six
months of 1994 was funded primarily by increases in foreign deposits and short-
term liabilities, most notably securities sold under repurchase agreements.
Although earning assets increased between year-end 1993 and June 30, 1994, they
decreased as a percentage of total assets from 87 percent at year-end 1993 to 83
percent at June 30, 1994, primarily due to the first-quarter 1994 adoption of
FIN 39. For information regarding liquid assets, refer to the Liquidity section
of this report on page 38.
During the first six months of 1994, total deposits in foreign offices increased
$3.6 billion, while total deposits in domestic offices decreased $3.1 billion,
partially reflecting a continued shift toward funding foreign needs with foreign
sources of funds. In addition, securities sold under repurchase agreements
increased $2.1 billion during the first six months of 1994. This increase in
securities sold under repurchase agreements was primarily used to fund the
Corporation's overseas trading positions.
- --------------------------------------------------------------------------------
OVERVIEW OF LOAN PORTFOLIO
Excluding the previously discussed reclassification of $2.5 billion of debt-
restructuring par bonds and other instruments from foreign loans to certain
securities portfolios, total loans grew $0.8 billion between December 31, 1993
and June 30, 1994, reflecting growth in both the consumer and foreign sectors.
At both June 30, 1994 and December 31, 1993, domestic consumer loans represented
the largest component of the Corporation's total loan portfolio, accounting for
51 percent and 49 percent of total loans, respectively. At June 30, 1994,
domestic commercial loans accounted for 34 percent of total loan outstandings,
down from 35 percent at year-end 1993. Foreign loans accounted for 15 percent of
total loan outstandings at June 30, 1994, down from 16 percent at year-end 1993.
Domestic Consumer Loans -- The growth in domestic consumer loans during the
first six months of 1994 included increases in residential first mortgages and
installment loans of $1.3 billion and $0.9 billion, respectively. With the rise
in interest rates during the first half of 1994, the demand for refinancing
residential first mortgages dropped below that of last year, impacting both
origination and paydown levels. However, residential first mortgage originations
continued to exceed paydowns during the first six months of 1994, thereby
increasing the amount of loan outstandings. The increase in installment loan
outstandings between year-end 1993 and June 30, 1994 was primarily attributable
to increases in both junior mortgages and manufactured housing loans. Partially
offsetting the growth in residential first mortgages and installment loans were
declines in other categories of consumer loans, including credit card loans and
individual lines of credit, between year-end 1993 and June 30, 1994.
24
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
LOAN OUTSTANDINGS
- ------------------------------------------------------------------------------------------------
1994 1993
------------------ ----------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages/a/ $ 31,784 $ 30,993 $ 30,483 $ 30,021 $ 29,267
Installment/b/ 16,229 15,809 15,332 15,115 15,568
Credit card 7,169 7,162 7,474 7,334 7,468
Individual lines of credit/b/ 8,235 8,268 8,486 8,749 8,573
Other/b/ 285 289 274 278 297
- ------------------------------------------------------------------------------------------------
63,702 62,521 62,049 61,497 61,173
Commercial:
Commercial and industrial/c/ 21,815 20,954 20,486 20,124 20,533
Loans secured by real estate 9,131 9,050 9,251 9,381 9,560
Construction and development loans
secured by real estate 3,742 3,991 4,418 5,085 5,775
Loans for purchasing or carrying securities 1,683 2,934 3,090 3,308 2,322
Financial institutions 1,340 1,751 2,170 2,099 1,945
Lease financing 1,678 1,665 1,715 1,753 1,772
Agricultural 1,605 1,614 1,679 1,625 1,620
Other 1,465 1,332 1,478 1,361 1,184
- ------------------------------------------------------------------------------------------------
42,459 43,291 44,287 44,736 44,711
- ------------------------------------------------------------------------------------------------
106,161 105,812 106,336 106,233 105,884
FOREIGN
Commercial and industrial 12,388 11,748 11,448 11,395 11,555
Governments and official institutions 862 787 3,429 3,527 3,539
Banks and other financial institutions 2,206 1,955 2,279 1,902 2,135
Other 3,257 3,242 3,064 2,919 2,898
- ------------------------------------------------------------------------------------------------
18,713 17,732 20,220 19,743 20,127
- ------------------------------------------------------------------------------------------------
TOTAL LOANS 124,874 123,544 126,556 125,976 126,011
Less: Allowance for credit losses 3,414 3,445 3,508 3,715 3,781
- ------------------------------------------------------------------------------------------------
$121,460 $120,099 $123,048 $122,261 $122,230
- ------------------------------------------------================================================
</TABLE>
/a/ Includes loans held for sale in the normal course of business of $38
million, $138 million, $177 million, $316 million, and $390 million at June
30, 1994, March 31, 1994, December 31, 1993, September 30, 1993, and June
30, 1993, respectively.
/b/ Installment loans, individual lines of credit, and other consumer loans
included the following aggregate amounts that were collateralized by junior
mortgages on residential real estate: $13,280 million at June 30, 1994,
$12,927 million at March 31, 1994, $12,847 million at December 31, 1993,
$13,117 million at September 30, 1993, and $13,313 million at June 30, 1993.
/c/ Excludes loans held for sale in the normal course of business that were
originated with the intent to sell and are included in other assets of $760
million, $487 million, $554 million, $622 million, and $409 million at June
30, 1994, March 31, 1994, December 31, 1993, September 30, 1993, and June
30, 1993, respectively.
25
<PAGE>
================================================================================
During the first six months of 1994, the delinquency ratios (the percentage of
loan outstandings in each portfolio that are past due 60 days or more) decreased
in every category of the Corporation's consumer loans. The delinquency ratio on
residential first mortgages has declined each quarter since September 30, 1993,
and fell to 1.88 percent at June 30, 1994 from 2.25 percent at December 31,
1993. In addition, the delinquency ratio on credit card loans has decreased each
quarter since December 31, 1992, declining to 2.14 percent at June 30, 1994 from
2.39 percent at year-end 1993. Based on current economic and credit quality
indicators, management expects that consumer delinquency ratios will continue to
improve in the near term.
Domestic Commercial Loans -- Commercial and industrial loans, the largest sector
of the Corporation's domestic commercial loan portfolio, grew $1.3 billion
between December 31, 1993 and June 30, 1994, primarily due to growth in loans to
large corporate borrowers. However, this growth was offset by declines in other
sectors of the portfolio. The largest of these declines were in loans for
purchasing or carrying securities and loans to financial institutions, which
decreased $1.4 billion and $0.8 billion, respectively, during the first half of
1994. The decline in loans for purchasing or carrying securities largely
reflected lower demand among brokers and dealers, while the decline in loans to
financial institutions was primarily the result of a payoff of a sizeable loan
originated in the fourth quarter of 1993.
For information regarding the geographic concentrations included in the
Corporation's portfolios of domestic commercial loans secured by real estate, as
well as the geographic concentrations and project types included in the
construction and development loan portfolio, refer to the tables on page 27.
26
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
DOMESTIC COMMERCIAL LOANS SECURED BY REAL ESTATE BY GEOGRAPHIC AREA
- --------------------------------------------------------------------------------------------------------------------
1994 1993
----------------- --------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
California/a/ $5,090 $4,971 $5,117 $5,131 $5,260
Washington 2,138 2,037 2,061 2,077 2,061
Nevada 346 364 394 385 391
Arizona 325 340 334 347 401
Oregon 325 295 281 295 294
Other/b/ 907 1,043 1,064 1,146 1,153
- --------------------------------------------------------------------------------------------------------------------
$9,131 $9,050 $9,251 $9,381 $9,560
- ------------------------------------------------------------------------============================================
</TABLE>
/a/ Approximately 50 percent of domestic commercial loans secured by real estate
in California at June 30, 1994, approximately 55 percent at March 31, 1994
and December 31, 1993, and approximately 50 percent at September 30, 1993
and June 30, 1993 were secured by properties in the following Southern
California counties: Los Angeles, Orange, San Bernardino, San Diego,
Riverside, and Ventura.
/b/ For each period presented, no other state individually exceeded 2 percent of
total domestic commercial loans secured by real estate.
<TABLE>
<CAPTION>
====================================================================================================================
DOMESTIC CONSTRUCTION AND DEVELOPMENT LOANS BY GEOGRAPHIC AREA AND PROJECT TYPE AT JUNE 30, 1994
- --------------------------------------------------------------------------------------------------------------------
APARTMENT & LIGHT
(IN MILLIONS) OFFICE SUBDIVISION RETAIL CONDOMINIUM HOTEL INDUSTRY OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $ 636 $560 $342 $222 $137 $ 70 $ 135 $2,102/a/
Washington 214 173 221 80 31 35 45 799
Pennsylvania 201 -- -- -- -- -- -- 201
Arizona 4 27 63 6 2 3 10 115
Georgia 15 -- 50 14 -- -- -- 79
Other/b/ 159 47 70 67 18 26 59 446
- --------------------------------------------------------------------------------------------------------------------
$1,229 $807 $746 $389 $188 $134 $249 $3,742
- --------------------------------------==============================================================================
</TABLE>
/a/ Approximately 70 percent of domestic construction and development loans in
California at June 30, 1994 were secured by properties in the following
Southern California counties: Los Angeles, Orange, San Bernardino, San
Diego, Riverside, and Ventura.
/b/ No other state individually exceeded 2 percent of total domestic
construction and development loans.
Foreign Loans -- Foreign loans decreased $1.5 billion between December 31, 1993
and June 30, 1994, primarily due to the previously discussed $2.5 billion
reclassification of debt-restructuring par bonds and other instruments issued by
foreign governments to certain securities portfolios in connection with the
first-quarter adoption of SFAS No. 115. Partially offsetting this decrease was a
$0.9 billion increase in foreign commercial and industrial loans, primarily
attributable to Asian borrowers.
27
<PAGE>
================================================================================
RESTRUCTURING COUNTRY DEBT
At June 30, 1994 total public and private sector cross-border outstandings owed
to the Corporation by borrowers in restructuring countries amounted to $1,110
million. Of this amount, $420 million was medium- and long-term debt and $60
million was local currency outstandings which were neither hedged nor funded by
local currency borrowings.
Total cross-border outstandings at June 30, 1994 excluded $907 million in par
bonds and other instruments issued by certain restructuring countries that are
collateralized by zero-coupon U.S. Treasury securities, which, at maturity, will
have redemption values equal to the aggregate face amounts of the related par
bonds and other instruments. Under SFAS No. 115, these par bonds and other
instruments were classified as either available-for-sale securities or held-to-
maturity securities at June 30, 1994.
At June 30, 1994, cross-border outstandings owed to the Corporation by borrowers
in Brazil totaled $661 million. Of this amount, medium- and long-term
obligations were $223 million. During the second quarter and first six months of
1994, the Corporation received $7 million and $19 million, respectively, of cash
payments from the government of Brazil on its medium- and long-term
outstandings. The majority of these payments were recorded in income, since the
recorded investment of the related debt is considered to be realizable.
On April 15, 1994, the government of Brazil initiated a debt exchange in
connection with a plan to restructure its medium- and long-term debt. The
Corporation exchanged debt with an aggregate carrying value of $139 million and
an aggregate face value of $692 million and past due accrued interest for 30-
year bonds with an aggregate face value of $727 million. Of these bonds,
approximately half are collateralized by zero-coupon U.S. Treasury securities,
which, at maturity, will have redemption values equal to the aggregate face
amounts of the related bonds. Upon receipt, these bonds were recorded in
available-for-sale securities at their fair values.
28
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
CROSS-BORDER OUTSTANDINGS EXCEEDING ONE PERCENT OF TOTAL ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
CROSS-BORDER
TOTAL OUTSTANDINGS
PUBLIC PRIVATE CROSS-BORDER AS A PERCENTAGE
(DOLLAR AMOUNTS IN MILLIONS)/abcd/ DATE REPORTED SECTOR/e/ BANKS/e/ SECTOR/e/ OUTSTANDINGS OF TOTAL ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Japan JUNE 30, 1994 $ 17 $1,529 $2,049 $3,595 1.82%
March 31, 1994 17 1,596 1,712 3,325 1.69
December 31, 1993 10 1,490 2,054 3,554 1.90
September 30, 1993 10 1,466 1,807 3,283 1.75
June 30, 1993 9 1,849 1,892 3,750 2.02
Spain JUNE 30, 1994 61 110 3,026 3,197 1.62
March 31, 1994 117 85 3,045 3,247 1.65
December 31, 1993 56 105 1,941 2,102 1.12
September 30, 1993 47 29 1,603 1,679 0.90
June 30, 1993 47 102 1,341 1,490 0.80
Hong Kong JUNE 30, 1994 -- 101 2,328 2,429 1.23
March 31, 1994 -- 106 2,202 2,308 1.17
December 31, 1993 -- 110 2,181 2,291 1.23
September 30, 1993 -- 84 2,008 2,092 1.12
June 30, 1993 5 82 2,108 2,195 1.18
United Kingdom JUNE 30, 1994 246 269 647 1,162 0.59
March 31, 1994 241 310 577 1,128 0.57
December 31, 1993 272 177 815 1,264 0.68
September 30, 1993 351 211 927 1,489 0.80
June 30, 1993 244 239 1,544 2,027 1.09
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Cross-border outstandings include the following assets, primarily in U.S.
dollars, with borrowers or customers in a foreign country: loans, accrued
interest, acceptances, interest-bearing deposits with other banks, trading
account assets, available-for-sale securities, held-to-maturity securities,
other interest-earning investments, and other monetary assets. Local
currency outstandings which are neither hedged nor funded by local currency
borrowings are included in cross-border outstandings. Guarantees of
outstandings of borrowers of other countries are considered outstandings of
the guarantor. Loans made to, or deposits placed with, a branch of a foreign
bank located outside the foreign bank's home country are considered loans or
deposits with the country in which the foreign bank is headquartered.
Outstandings of a country do not include amounts of principal or interest
which are supported by written, legally enforceable guarantees by guarantors
from other countries or the amount of outstandings to the extent that they
are secured by tangible, liquid collateral held and realizable by the
Corporation outside the country.
/b/ At June 30, 1994, total unfunded commitments of the above countries, whose
unfunded commitments exceeded 10 percent of their respective cross-border
outstandings, were as follows: Japan, $1,272 million; Hong Kong, $258
million; and the United Kingdom, $1,628 million.
/c/ Included in the cross-border outstandings of the countries listed are loans
and other interest-bearing assets on nonaccrual status at June 30, 1994,
March 31, 1994, December 31, 1993, September 30, 1993, and June 30, 1993,
respectively, as follows: $17 million, $16 million, $16 million, $17
million, and $16 million for Japan; $6 million, $6 million, $7 million, $5
million, and $1 million for Hong Kong; $49 million, $53 million, $52
million, $59 million, and $39 million for the United Kingdom; and $6 million
for Spain at June 30, 1994, March 31, 1994, and December 31, 1993. Also
included in cross-border outstandings are restructured loans of $2 million
for Hong Kong at June 30, 1993 and loans past due 90 days or more and still
accruing interest of $1 million for Hong Kong at June 30, 1994 and December
31, 1993, and $9 million for the United Kingdom at September 30, 1993.
/d/ No country excluded from this table had cross-border outstandings between
0.75 percent and 1.00 percent of total assets for any of the periods
presented except Italy and South Korea, which had cross-border outstandings
of $1,738 million and $1,522 million, respectively, at June 30, 1994.
Not included in cross-border outstandings with Mexico were par bonds issued
by the government of Mexico with face values of $1,341 million at June 30,
1994, March 31, 1994, December 31, 1993, September 30, 1993, and June 30,
1993. The par bonds had a carrying value of $1,153 million at June 30, 1994,
$1,178 million at March 31, 1994, and $1,297 million at December 31, 1993,
September 30, 1993, and June 30, 1993. At June 30, 1994, the par bonds had a
total fair value of approximately $905 million. Due to the first-quarter
1994 adoption of SFAS No. 115, certain of these par bonds were recorded in
available-for-sale securities and carried at their fair value of $297
million at June 30, 1994, while the remainder of these par bonds were
recorded in held-to-maturity securities at their amortized cost. Principal
repayment of these par bonds is collateralized by zero-coupon U.S. Treasury
securities which, at maturity in 2008 and 2019, will have a redemption value
equal to the face value of the par bonds. At June 30, 1994, this collateral
had a fair value of approximately $210 million. Future interest payments for
a rolling eighteen-month period are also collateralized by additional U.S.
dollar-denominated securities permitted by the agreement. The details of the
transaction in which the majority of these par bonds were acquired were
reported in the Parent's Annual Report on Form 10-K for the year ended
December 31, 1990. Mexico's cross-border outstandings also excluded
additional loans of $45 million at June 30, 1994, March 31, 1994, December
31, 1993, September 30, 1993, and June 30, 1993, which are fully
collateralized at maturity by separate zero-coupon U.S. Treasury securities.
Had these par bonds and other instruments been included, total cross-border
outstandings with Mexico would have exceeded 0.75 percent of total assets
for all periods presented.
/e/ Sector definitions are based on Federal Financial Institutions Examination
Council Instructions for preparing the Country Exposure Report.
29
<PAGE>
CREDIT RISK MANAGEMENT
===============================================================================
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses at June 30, 1994 was 2.73 percent of loan
outstandings, compared with 2.77 percent at December 31, 1993. Excluding
outstandings in the residential first mortgage portfolio and the portion of the
allowance associated with these outstandings, the ratio was 3.57 percent of
loans at June 30, 1994, essentially unchanged from December 31, 1993. In
addition, the Corporation's ratio of the allowance for credit losses to total
nonaccrual assets was 154 percent, up from 122 percent at December 31, 1993.
Although the allowance is general in nature and is available for the credit
portfolio in its entirety, management develops the allowance using a "building
block approach" for various portfolio segments. The allowance is established by
credit officers for each portfolio segment. Significant credits, particularly
those classified as "doubtful," are individually analyzed, while other credits
are analyzed by portfolio segment. In establishing the allowance for the
portfolio segments, credit officers initially employ results obtained from
statistical models using historical loan performance data. These models have
been developed and refined for various portfolio segments over the last nine
years. In addition to the allowance amounts that would be required based on
historical loss experience, the credit officer responsible for each portfolio
segment makes adjustments based on qualitative evaluations of individual
classified assets, knowledge of portfolio segment conditions, or on the
officer's judgment of factors that are expected to influence the future
performance of the portfolio. These factors include geographic and portfolio
concentrations, new products or markets, evaluations of the changes in the
historical loss experience component, and projections of this component into the
current and future periods. The Composition of Allowance for Credit Losses table
below displays how the allowance for credit losses related to special mention
and classified assets is determined by combining the historical loss experience
component with the credit management allocated component.
After an allowance has been established for the portfolio segments, the final
step in this building block approach occurs. Credit management establishes an
unallocated portion of the allowance for credit losses, which is attributable to
factors that cannot be associated with a particular portfolio segment. These
factors include general economic conditions, recognition of specific regional
and international geographic concerns, trends in portfolio growth, new business
volume, and the level of the allowance in relation to total loans and nonaccrual
assets.
<TABLE>
<CAPTION>
============================================================================================================================
COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------ --------------------------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special mention and classified:/a/
Historical loss experience component $ 311 $ 401 $ 475 $ 590 $ 796
Credit management allocated component 579 653 770 777 804
- ----------------------------------------------------------------------------------------------------------------------------
Total special mention and classified 890 1,054 1,245 1,367 1,600
Domestic consumer 1,042 1,079 1,072 1,099 1,114
Domestic commercial 166 148 151 160 163
Foreign 149 144 165 297 286
- ----------------------------------------------------------------------------------------------------------------------------
Total Allocated 2,247 2,425 2,633 2,923 3,163
Unallocated 1,167 1,020 875 792 618
- ----------------------------------------------------------------------------------------------------------------------------
$3,414 $3,445 $3,508 $3,715 $3,781
- ---------------------------------------------==============================================================================
</TABLE>
/a/Includes all loans regardless of type that have been internally risk rated as
"special mention," "substandard," or "doubtful." The Corporation's actual
historical loss experience indicates ultimate loss rates for all periods
presented for "special mention," "substandard," and "doubtful" loans of
approximately 2 percent, 6 percent, and 37 percent, respectively.
30
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
QUARTERLY CREDIT LOSS EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 SIX MONTHS ENDED
----------------------- ------------------------------------- JUNE 30
SECOND FIRST FOURTH THIRD SECOND --------------------
(DOLLAR AMOUNTS IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance, beginning of
period $3,445 $3,508 $3,715 $3,781 $3,903 $3,508 $3,921
CREDIT LOSSES
Domestic consumer:
Residential first
mortgages 13 7 10 6 7 20 7
Credit card 96 102 108 115 129 198 265
Other consumer 81 90 94 96 102 171 214
Domestic commercial:
Commercial and industrial 18 11 54 49 89 29 127
Loans secured by real
estate 21 15 23 29 20 36 39
Construction and
development loans
secured by real estate 12 23 65 61 80 35 165
Loans for purchasing or
carrying securities -- -- -- -- -- -- 2
Financial institutions 1 -- -- 10 8 1 8
Lease financing -- -- 1 1 2 -- 7
Agricultural 1 1 2 1 2 2 4
Foreign 9 24 13 10 7 33 13
- ----------------------------------------------------------------------------------------------------------------------------------
Total credit losses 252 273 370 378 446 525 851
CREDIT LOSS RECOVERIES
Domestic consumer:
Residential first
mortgages -- -- -- 1 -- -- --
Credit card 11 12 13 13 13 23 27
Other consumer 27 25 27 30 30 52 57
Domestic commercial:
Commercial and industrial 21 20 45 24 14 41 42
Loans secured by real
estate 7 4 16 8 6 11 10
Construction and
development loans
secured by real estate 18 24 45 21 13 42 21
Loans for purchasing or
carrying securities -- -- -- -- -- -- --
Financial institutions 2 2 -- 1 1 4 1
Lease financing 1 2 2 1 2 3 3
Agricultural 2 2 1 2 5 4 7
Foreign 9 8 9 41 11 17 16
- ----------------------------------------------------------------------------------------------------------------------------------
Total credit loss
recoveries 98 99 158 142 95 197 184
- ----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 154 174 212 236 351 328 667
Net losses on the sale or
swap of loans to
restructuring countries -- -- -- (3) -- -- --
Provision for credit losses 125 125 150 178 227 250 475
Allowance related to
acquisition -- -- -- -- -- -- 12/a/
Other net additions
(deductions) (2) (14)/b/ (145)/c/ (5) 2 (16)/b/ 40/d/
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF
PERIOD/e/ $3,414 $3,445 $3,508 $3,715 $3,781 $3,414 $3,781
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIO OF NET
CREDIT LOSSES
(RECOVERIES)
TO AVERAGE LOAN
OUTSTANDINGS
Domestic consumer:
Residential first
mortgages 0.16% 0.10% 0.12% 0.07% 0.10% 0.13% 0.05%
Credit card 4.82 5.07 5.23 5.50 6.17 4.95 6.23
Other consumer 0.88 1.08 1.12 1.09 1.15 0.98 1.25
Domestic commercial:
Commercial and industrial (0.05) (0.19) 0.20 0.50 1.41 (0.12) 0.80
Loans secured by real
estate 0.63 0.50 0.29 0.84 0.58 0.57 0.59
Construction and
development loans
secured by real estate (0.62) (0.14) 1.64 2.93 4.48 (0.37) 4.63
Loans for purchasing or
carrying securities -- -- -- -- -- -- 0.33
Financial institutions (0.37) (0.47) -- 1.71 1.69 (0.42) 0.82
Lease financing (0.32) (0.31) (0.19) -- -- (0.31) 0.46
Agricultural (0.14) (0.33) 0.09 (0.23) (0.71) (0.24) (0.39)
Total 0.59 0.61 0.79 1.02 1.35 0.60 1.27
Foreign -- 0.37 0.06 (0.62) (0.08) 0.19 (0.03)
TOTAL 0.50 0.58 0.67 0.76 1.13 0.54 1.07
RATIO OF ALLOWANCE TO
LOANS AT QUARTER END 2.73 2.79 2.77 2.95 3.00 2.73 3.00
EARNINGS COVERAGE OF NET
CREDIT LOSSES/f/ 6.66x 5.83x 4.77x 4.41x 3.09x 6.22x 3.27x
=================================================================================================================================
</TABLE>
/a/ Represents the addition of consummation date allowance for credit losses of
First Gibraltar Bank, FSB.
/b/ Primarily represents a reduction of the allowance due to the transfer of
certain debt-restructuring par bonds and other instruments issued by foreign
governments net of their related allowance to available-for-sale securities.
/c/ Due to the transfer of certain assets net of their related allowance to
other assets, the allowance for credit losses was reduced by $128 million,
which included $88 million of regulatory-related allocated transfer risk
reserve (ATRR). This amount also includes $16 million related to the sale of
commercial real estate loans net of their allowance to a partnership
controlled by Goldman Sachs & Co.
/d/ Includes $36 million related to the consolidation of subsidiaries and
operations that were held for disposition at December 31, 1992.
/e/ Includes ATRR of $81 million and $80 million at September 30, 1993 and June
30, 1993, respectively. Due to the transfer of certain assets net of their
related allowance to other assets during the fourth quarter of 1993, the
allowance for credit losses does not include any ATRR subsequent to the
transfer.
/f/ Earnings coverage of net credit losses is calculated as income before income
taxes plus the provision for credit losses as a multiple of net credit
losses.
31
<PAGE>
===============================================================================
Net credit losses for the second quarter and first six months of 1994 declined
$197 million and $339 million, respectively, from the amounts reported in the
same periods last year. These declines reflected continued improvement in
various sectors of the Corporation's credit portfolio, most notably in
construction and development loans, commercial and industrial loans, and credit
card outstandings. The declines in the net credit losses in these sectors were
partially offset by higher charge-offs related to foreign loans and residential
first mortgages.
- -------------------------------------------------------------------------------
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST
Total nonaccrual assets decreased $664 million, or 23 percent, between year-end
1993 and June 30, 1994. This decrease was largely the result of full or partial
payments and loans restored to accrual status, reflecting improvements in most
segments of the credit portfolio, particularly in the construction and
development and commercial and industrial loan portfolios.
The improvement in the Corporation's credit quality during the first half of
1994 was also reflected in the Corporation's nonperforming assets (comprised of
nonaccrual assets and other real estate owned) ratios. At June 30, 1994, the
ratio of nonaccrual loans to total loans was 1.77 percent, down from 2.28
percent at December 31, 1993. In addition, the ratio of total nonperforming
assets to total assets declined 46 basis points since year-end 1993 to 1.36
percent.
For further information concerning nonaccrual assets, refer to the table below
and the tables on pages 33-35.
<TABLE>
<CAPTION>
===============================================================================================================
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
- ---------------------------------------------------------------------------------------------------------------
1994 1993
---------------------- -------------------------------------
SECOND FIRST FOURTH THIRD SECOND
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter $2,498 $2,886 $3,928 $4,618 $5,033
ADDITIONS
Loans placed on nonaccrual status 269 227 284 256 360
DEDUCTIONS
Restored to accrual status (169) (195) (317) (326) (253)
Foreclosures (32) (72) (100) (196) (176)
Charge-offs (37) (40) (123) (99) (135)
Restructuring-country-related assets
transferred to other assets -- -- (310) -- --
Other, primarily payments (307) (308) (476) (325) (211)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, END OF QUARTER $2,222 $2,498 $2,886 $3,928 $4,618
- --------------------------------------------===================================================================
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
- -------------------------------------------------------------------------------------------------------------------
1994 1993
------------------ -------------------------------
(IN MILLIONS) JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONACCRUAL ASSETS
Domestic consumer loans:
Residential first mortgages $ 383 $ 426 $ 406 $ 359 $ 346
Other consumer 41 45 53 52 82
Domestic commercial loans:
Commercial and industrial 236 372 457 539 661
Loans secured by real estate 588 553 570 742 771
Construction and development loans secured by real estate 724 819 1,037 1,545 2,028
Financial institutions 18 22 64 59 55
Lease financing 13 13 18 22 1
Agricultural 44 41 49 56 81
- -------------------------------------------------------------------------------------------------------------------
2,047 2,291 2,654 3,374 4,025
Foreign loans:
Commercial and industrial 97 119 139 356 360
Governments and official institutions 17 16 42 45 61
Banks and other financial institutions 8 9 11 64 41
Other 46 36 40 77 99
- -------------------------------------------------------------------------------------------------------------------
168 180 232 542 561
Other interest-bearing assets 7 27 -- 12 32
- -------------------------------------------------------------------------------------------------------------------
$2,222/a/ $2,498/a/ $2,886/a/ $3,928 $4,618
- --------------------------------------------------------------=====================================================
RESTRUCTURED LOANS
Domestic commercial:
Commercial and industrial $ 86 $ 86 $ 66 $ 79 $ 20
Loans secured by real estate 13 12 21 6 5
Construction and development loans secured by real estate 2 6 10 16 16
Lease financing 1 1 1 1 --
Agricultural 1 1 -- -- 1
- -------------------------------------------------------------------------------------------------------------------
103 106 98 102 42
Foreign/b/ 36 36 36 36 37
- -------------------------------------------------------------------------------------------------------------------
$ 139 $ 142 $ 134 $ 138 $ 79
- --------------------------------------------------------------=====================================================
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
Domestic consumer:
Residential first mortgages $ 108 $ 121 $ 153 $ 220 $ 179
Other consumer 152 169 175 185 222
Domestic commercial:
Commercial and industrial 19 3 20 51 32
Loans secured by real estate 122 64 138 125 89
Construction and development loans secured by real estate 96 113 86 67 76
Agricultural -- 7 -- -- --
- -------------------------------------------------------------------------------------------------------------------
497 477 572 648 598
Foreign 1 5 6 13 --
- -------------------------------------------------------------------------------------------------------------------
$ 498 $ 482 $ 578 $ 661 $ 598
- --------------------------------------------------------------=====================================================
</TABLE>
/a/Excludes certain nonaccrual debt-restructuring par bonds and other
instruments issued by the governments of Brazil and Argentina that are
included in available-for-sale securities at their market value of
$367 million at June 30, 1994. Also excludes certain nonaccrual
debt-restructuring par bonds and other instruments issued by
various governments of $44 million, $181 million, and $196 million at
June 30, 1994, March 31, 1994, and December 31, 1993 that are included
in other assets at the lower of cost or fair value.
/b/Excludes debt restructurings with countries that have experienced
liquidity problems of $1.9 billion at June 30, 1994 and
March 31, 1994, $2.4 billion at December 31, 1993, and $2.3 billion
at September 30, 1993 and June 30, 1993. Beginning in the first
quarter of 1994, the majority of these instruments were classified
as either available-for-sale or held-to-maturity securities.
Prior to January 1, 1994, these instruments were classified
as loans.
33
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
(IN MILLIONS) JUNE 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DOMESTIC
Interest income that would have been recognized had the assets
performed in accordance with their original terms $89
Less: Interest income included in the results of operations/a/ 25
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic interest income foregone 64
FOREIGN
Interest income that would have been recognized had the assets
performed in accordance with their original terms 8
Less: Interest income included in the results of operations/b/ 1
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign interest income foregone 7
- ------------------------------------------------------------------------------------------------------------------------------------
$71
- ---------------------------------------------------------------------------------------------------------------------------------===
</TABLE>
/a/ Interest income included in the results of domestic operations represents
interest payments recognized in interest income that related to domestic
nonaccrual assets with carrying values totaling $529 million at June 30,
1994. Not included in interest income for the six months ended June 30,
1994 were interest payments of $29 million which, for accounting purposes,
were used to offset the principal balance of domestic nonaccrual assets
with carrying values totaling $757 million at June 30, 1994.
/b/ Interest income included in the results of foreign operations represents
interest payments recognized in interest income that related to foreign
nonaccrual assets with carrying values totaling $35 million at June 30,
1994. Not included in interest income for the six months ended June 30, 1994
were interest payments of $3 million which, for accounting purposes, were
used to offset the principal balance of foreign nonaccrual assets with
carrying values totaling $84 million at June 30, 1994.
34
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1994
----------------------------------------------------------- --------------------------------
CUMULATIVE CASH INTEREST
CASH BOOK AS A PAYMENTS APPLIED
CONTRACTUAL INTEREST NONACCRUAL PERCENTAGE --------------------------------
PRINCIPAL CUMULATIVE APPLIED BOOK OF AS INTEREST AS REDUCTION
(IN MILLIONS) BALANCE CHARGE-OFFS TO PRINCIPAL BALANCE/a/ CONTRACTUAL INCOME OF PRINCIPAL TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $ 383 $ -- $ -- $ 383 100% $ 6 $ -- $ 6
Other consumer 42 1 -- 41 98 -- -- --
Commercial:
Commercial and industrial 374 101 37 236 63 3 5 8
Loans secured by real estate 759 103 68 588 77 11 7 18
Construction and development
loans secured by real estate 1,169 269 176 724 62 4 17 21
Financial institutions 40 17 5 18 45 -- -- --
Lease financing 21 7 1 13 62 -- -- --
Agricultural 61 14 3 44 72 1 -- 1
- ------------------------------------------------------------------------------------------------------------------------------------
2,849 512 290 2,047 72 25 29 54
FOREIGN, EXCLUDING RESTRUCTURING-
COUNTRY-RELATED ASSETS
Commercial and industrial 158 42 19 97 61 1 2 3
Governments and official institutions 17 -- -- 17 100 -- -- --
Banks and other financial institutions 1 -- -- 1 100 -- 1 1
Other 78 29 3 46 59 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
254 71 22 161 63 1 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total, excluding restructuring-
country-related assets 3,103 583 312 2,208 71 26 32 58
RESTRUCTURING-COUNTRY-RELATED ASSETS 44 27 3 14 32 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$3,147 $ 610 $ 315 $2,222 71% $26 $32 $58
- -----------------------------------------===========================================================================================
CASH YIELD ON TOTAL NONACCRUAL ASSETS 5.26%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Nonaccrual book balance is equal to the contractual principal balance less
charge-offs and cash interest payments applied as a reduction of principal
since inception of the loan.
35
<PAGE>
FOREIGN EXCHANGE AND OTHER DERIVATIVES
================================================================================
In the ordinary course of business, the Corporation enters
into various types of transactions that involve foreign
exchange and other derivative products with off-balance-sheet
risk. Foreign exchange and other derivative products include
futures, forwards, swaps, and option contracts, and are
principally linked to interest rates, foreign exchange rates,
or the prices of securities. Foreign exchange and other
derivative transactions are entered into with various types of
counterparties, including U.S. and foreign banks, nonbank
financial institutions, corporations, and middle market
customers. The following table is a summary of the notional or
contractual amounts, credit exposure amounts, and fair value
amounts associated with the Corporation's off-balance-sheet
trading and asset and liability management activities at June
30, 1994. As illustrated below, the Corporation's off-balance-
sheet credit exposure with regard to foreign exchange and
other derivative products is a small fraction of the
respective notional or contractual amounts.
================================================================================
FOREIGN EXCHANGE AND OTHER DERIVATIVE PRODUCTS AT JUNE 30, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NOTIONAL CREDIT FAIR
OR CONTRACT EXPOSURE VALUE
(IN BILLIONS) AMOUNT AMOUNT AMOUNT/a/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADING
Foreign exchange contracts/b/ $ 715.0/c/ $6.6/d/ $(0.6)
Interest rate swaps 292.7/c/ 1.6/de/ 0.4
Interest rate futures and forward contracts 163.5/c/ 0.2/d/ --
Interest rate options 49.4/c/ 0.2/d/ --
- --------------------------------------------------------------------------------
$1,220.6/f/ $8.6 $(0.2)
- ----------------------------------------------==================================
ASSET AND LIABILITY MANAGEMENT
Interest rate swaps $ 28.2/c/ $0.2 $(0.4)
Interest rate futures and forward contracts 16.6/c/ -- --/g/
Interest rate options 8.6/c/ -- 0.1/g/
Other/h/ 1.6/c/ -- 0.1
- --------------------------------------------------------------------------------
$ 55.0/f/ $0.2 $(0.2)
- ----------------------------------------------==================================
</TABLE>
/a/Fair value amounts consist of net unrealized gains and losses, accrued
interest receivable or payable, and premiums paid or received. Such amounts
represent the net fair value of contracts with all counterparties.
/b/Includes amounts related to foreign exchange spot, forward, future, and
option contracts and currency swaps.
/c/Interest rate swaps, interest rate futures and forward contracts, and
interest rate options in both the trading and asset and liability management
portfolios include $12.7 billion, $0.6 billion, and $0.5 billion,
respectively, of intercompany hedging-related contracts. Both trading foreign
exchange contracts and other asset and liability management contracts include
$1.2 billion of intercompany hedging-related foreign exchange forward
contracts and currency swaps.
/d/Amounts represent net unrealized gains on contracts with counterparties for
whom legally enforceable master netting agreements were in place and
effective at June 30, 1994 and gross unrealized gains on contracts with other
counterparties. Credit risk amounts in Note 8 of the Notes to Consolidated
Financial Statements on pages 10 and 11 do not give effect to netting under
legally enforceable master netting agreements. Accordingly, these credit risk
amounts differ from the credit exposure amounts detailed above.
/e/Includes the results of cross product netting of certain interest rate
derivatives and currency swaps.
/f/Including intercompany hedging-related contracts of $18.3 billion in both the
trading and asset and liability management portfolios, the aggregate notional
or contract amounts of foreign exchange and other derivative contracts
outstanding at December 31, 1993 were $894.1 billion for the trading
portfolio and $64.5 billion for the asset and liability management portfolio.
/g/The fair value amounts for interest rate futures and forward contracts and
interest rate options in the asset and liability management portfolio include
gross unrealized gains of $61.4 million and $105.1 million, respectively, and
gross unrealized losses of $62.5 million and $4.0 million, respectively.
/h/Includes amounts related to foreign exchange forward contracts and currency
swaps.
The table on page 37 summarizes expected maturities and
weighted average interest rates associated with amounts to be
received or paid on asset and liability management interest
rate swaps at June 30, 1994. These swaps are designated as
accounting hedges and are used to modify the interest rate
characteristics of assets and liabilities. Expected maturities
and weighted average interest rates associated with the
Corporation's asset and liability management interest rate
swap portfolio at June 30, 1994 were not significantly
different from those at year-end 1993.
36
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
ASSET AND LIABILITY MANAGEMENT INTEREST RATE SWAPS AT JUNE 30, 1994/a/
- -------------------------------------------------------------------------------------------------------------------------
(IN BILLIONS) 0-1 year >1-2 years >2-3 years >3-4 years >4-5 years >5-10 years >10 years Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS:/b/
Notional amount $ 4.1 $ 0.6 $ 0.4 $ 0.2 $ 0.9 $ 7.9 $ 2.0 $16.1/c/
Weighted average receive
rate 7.70% 5.91% 7.32% 8.16% 7.64% 6.28% 6.69% 6.80%
PAY FIXED SWAPS:/b/
Notional amount $ 1.3 $ 3.5 $ 2.9 $ 0.6 $ 0.2 $ 1.2 $ 0.5 $10.2
Weighted average pay rate 7.78% 4.48% 5.62% 5.27% 5.97% 4.03% 7.18% 5.39%
FORWARD SWAPS:/d/
Notional amount -- -- $ 0.2 $ 0.3 -- $ 0.7 $ 0.2 $ 1.4
Weighted average receive
rate -- -- 6.33% 6.02% -- 6.81% 6.66% 6.55%
BASIS SWAPS:/e/
Notional amount $ 0.1 $ 0.1 -- -- -- $ 0.3 -- $ 0.5
- -------------------------------------------------------------------------------------------------------------------------
TOTAL NOTIONAL AMOUNT $28.2
- -------------------------------------------------------------------------------------------------------------------======
</TABLE>
[FN]
/a /Includes intercompany hedging swaps.
/b/The floating side of substantially all receive fixed and pay fixed swaps is
based on the one-, three-, or six-month London InterBank Offered Rate
(LIBOR). At June 30, 1994, the one-, three-, and six-month LIBOR rates were
4.56 percent, 4.88 percent, and 5.25 percent, respectively.
/c/Includes $0.7 billion of amortizing swaps.
/d/Accrual of interest on forward swaps starts at a predetermined future date.
The majority of the forward swaps start accruing interest one to three years
after June 30, 1994.
/e/Basis swaps are interest rate swaps in which both amounts paid and received
are based on floating rates. The Corporation's pay rates are primarily based
on a LIBOR or a commercial paper index and its receive rates are primarily
based on LIBOR.
Substantially all of the Corporation's hedging-related futures and forward rate
agreements outstanding at June 30, 1994 mature within one year, while 85 percent
of its hedging-related option contracts mature within three years. All of the
Corporations's hedging-related foreign exchange forward contracts outstanding at
June 30, 1994 mature within 60 days. At June 30, 1994, the maturity
distributions of the Corporation's hedging-related futures and forward
contracts, option contracts, and foreign exchange forward contracts were
substantially the same as at December 31, 1993. At both June 30, 1994 and
December 31, 1993, the Corporation's hedging-related foreign exchange forward
contracts were denominated in various currencies, most notably Hong Kong dollars
and Spanish pesetas. The Corporation's hedging-related currency swaps were not
significant at either June 30, 1994 or December 31, 1993.
For additional information concerning foreign exchange and other derivative
transactions and their associated credit risk amounts, refer to Note 8 of the
Notes to Consolidated Financial Statements on pages 10-11.
37
<PAGE>
FUNDING AND CAPITAL
===============================================================================
LIQUIDITY
Liquid assets consist of cash and due from banks, interest-bearing deposits in
banks, federal funds sold, securities purchased under resale agreements, trading
account assets, and available-for-sale securities. At June 30, 1994, liquid
assets totaled $37.2 billion, up $8.0 billion from $29.2 billion at December 31,
1993. This growth in liquid assets can be primarily attributed to a $5.7 billion
increase in available-for-sale-securities, largely as a result of the previously
discussed first-quarter 1994 adoption of SFAS No. 115. In addition, interest-
bearing deposits in banks and securities purchased under resale agreements grew
$1.7 billion and $1.4 billion, respectively, funded primarily by growth in
foreign deposits and securities sold under repurchase agreements.
- --------------------------------------------------------------------------------
CAPITAL
At both June 30, 1994 and December 31, 1993, total stockholders' equity was
$17.1 billion. While stockholders' equity increased $0.6 billion due to
year-to-date 1994 earnings net of preferred and common dividends, this increase
was offset by the stock repurchase discussed below and the the adoption of SFAS
No. 115, which resulted in $210 million of net unrealized losses on available-
for-sale securities (net of related income taxes) at June 30, 1994.
During the second quarter of 1994, the Parent completed its previously announced
plan to repurchase common stock in connection with the pending acquisition of
Continental. During the six months ended June 30, 1994, the Parent repurchased
11.8 million shares of its common stock on the open market at an average price
per share of $42.43.
Although the Corporation's total risk-based capital ratio at June 30, 1994
declined 10 basis points from the previous quarter end, it increased 11 basis
points from year-end 1993. This increase can be primarily attributed to the
growth in Tier 2 capital, resulting from issuances of subordinated debt. The
Corporation's Tier 1 risk-based capital ratio at June 30, 1994 was relatively
unchanged from year-end 1993. The Corporation's Tier 1 leverage ratio decreased
9 basis points between year-end 1993 and June 30, 1994 primarily due to the
increase in average total assets in connection with the adoption of FIN 39.
38
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
RISK-BASED CAPITAL AND RISK-BASED CAPITAL RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
1994 1993
----------------------------- ---------------------------------------
(DOLLAR AMOUNTS IN MILLIONS)/a/ JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL
Common stockholders' equity $14,324/b/ $14,136/b/ $14,165 $13,826 $13,455
Perpetual preferred stock 2,979 2,979 2,979 2,979 2,979
Less: Goodwill, nongrandfathered core deposit and
other identifiable intangibles, and other deductions/c/ (5,028) (5,060) (5,125) (5,291) (5,327)
- -----------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL 12,275 12,055 12,019 11,514 11,107
Eligible portion of the allowance for credit losses
(exclusive of allocated transfer risk reserve)/d/ 2,048 1,990 1,995 2,022 2,025
Hybrid capital instruments/e/ 478 562 568 582 1,059
Subordinated notes and debentures/f/ 4,946 4,699 4,422 4,477 4,591
Less: Other deductions (91) (47) (37) (24) (23)
- -----------------------------------------------------------------------------------------------------------------------------------
TIER 2 CAPITAL 7,381 7,204 6,948 7,057 7,652
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL $19,656 $19,259 $18,967 $18,571 $18,759
- ------------------------------------------------------------=======================================================================
RISK-BASED CAPITAL RATIOS
Tier 1 capital 7.56% 7.64% 7.61% 7.19% 6.93%
Tier 2 capital 4.55 4.57 4.39 4.41 4.77
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL RATIO 12.11% 12.21% 12.00% 11.60% 11.70%
- ------------------------------------------------------------=======================================================================
TIER 1 LEVERAGE RATIO/g/ 6.55% 6.37% 6.64% 6.42% 6.21%
===================================================================================================================================
</TABLE>
/a/Due to the first-quarter 1993 adoption of SFAS No. 109, "Accounting for
Income Taxes," core deposit intangibles (CDI) and other identifiable
intangibles that are normally deducted from Tier 1 capital under the current
guidelines of the federal banking regulators were $489 million, $500 million,
$510 million, $516 million, and $535 million higher at June 30, 1994, March
31, 1994, December 31, 1993, September 30, 1993, and June 30, 1993,
respectively, with corresponding increases in deferred taxes. The federal
banking regulators have not issued final capital regulations on the adoption
of SFAS No. 109 and are currently considering whether such increased
intangibles should be deducted from capital. Management believes that the
increased amounts of CDI and other identifiable intangibles resulting from
the adoption of SFAS No. 109 do not pose a risk to the Corporation's capital
and should not be deducted from capital in determining capital ratios.
Pending final resolution of this issue by the banking regulators, such
amounts have not been deducted from capital in determining the capital ratios
shown above.
/b/Excludes net unrealized losses on available-for-sale securities of $210
million and $252 million at June 30, 1994 and March 31, 1994, respectively,
resulting from the adoption of SFAS No. 115.
/c/Includes nongrandfathered CDI and other identifiable intangibles acquired
after February 19, 1992 of $965 million and $63 million, respectively, at
June 30, 1994, $985 million and $67 million, respectively, at March 31, 1994,
$1,008 million and $71 million, respectively, at December 31, 1993, $1,034
million and $84 million, respectively, at September 30, 1993, and $1,045
million and $84 million, respectively, at June 30, 1993, excluding tax gross-
ups due to the adoption of SFAS No. 109. Also includes $24 million, $30
million, $35 million, $51 million, and $33 million at June 30, 1994, March
31, 1994, December 31, 1993, September 30, 1993, and June 30, 1993,
respectively, of the excess of the net book value over 90 percent of the fair
value of purchased mortgage servicing rights and credit card intangibles.
/d/Limited to 1.25% of risk-weighted assets.
/e/Represents subordinated capital notes adjusted for certain limitations.
/f/Limited to 50% of core capital, and reduced by 20% per year during an
instrument's last five years before maturity.
/g/Based on Tier 1 capital before other deductions of $91 million at June 30,
1994, $47 million at March 31, 1994, $37 million at December 31, 1993, $25
million at September 30, 1993, and $24 million at June 30, 1993.
39
<PAGE>
===============================================================================
INTEREST RATE RISK MANAGEMENT
Because of the interest rate sensitivity of financial products, fluctuations in
interest rates expose the Corporation to potential gains and losses. In an
effort to limit its exposure to such losses, the Corporation strives to manage
the repricing characteristics of its assets and liabilities. The Corporation
evaluates its interest rate risk exposure by analyzing the repricing
characteristics of its on-and off-balance-sheet positions. A summary of these
characteristics is shown on page 41 in the Accrual Book Risk Positions table at
June 30, 1994.
The table shows that, at June 30, 1994, in the one-year-or-less categories,
aggregate U.S. dollar-denominated assets exceeded liabilities by $3 billion.
While the Corporation strives to limit current earnings sensitivity to interest
rate movements, managers are allowed, within approved limits, to take tactical
positions for purposes of generating earnings that can result from the relative
repricing positions of primarily short-term assets and liabilities.
In the over-one-year categories at June 30, 1994, U.S. dollar-denominated
liabilities and equity exceeded assets by $3 billion. The Corporation manages
this term risk to preserve ongoing earnings competitiveness and promote market
price stability of its common equity.
The Corporation also attempts to maintain an approximately neutral strategic
position to possible interest rate movements while recognizing common equity as
a long term source of funds. Both on-balance-sheet securities and off-balance-
sheet instruments are used to manage exposure to interest rate risk. Selected
off-balance-sheet instruments, including futures, forward rate agreements, and
swaps, are designated as hedges by the Corporation to manage repricing
mismatches. At June 30, 1994, off-balance-sheet instruments acquired for hedging
purposes containing a short embedded option component were insignificant. At
June 30, 1994, the Corporation held interest rate swap contracts with a gross
notional value of $28 billion in support of these accrual book risk management
activities. The amount of indexed amortizing swaps held at June 30, 1994 was
less than three percent of the total asset and liability management interest
rate swaps portfolio.
At June 30, 1994, an imbalance in customer business, primarily more deposit
balances than loan assets, caused liabilities and equity to exceed customer-
related assets by $17 billion. This structural imbalance and its related
repricing mismatch effects were mitigated by the Corporation's risk management
activities. As shown in the table on page 41, under-one-year securities and off-
balance-sheet risk management positions modified a $1 billion structural gap
mismatch exposure to $3 billion. Over-one-year risk management positions reduced
the structural gap mismatch of $(18) billion by $15 billion.
While the Accrual Book Risk Positions table on page 41 provides an indication of
the potential impact on the Corporation of a change in interest rates, it does
not fully depict the Corporation's exposure to risks resulting from interest
rate fluctuations. Certain assets and liabilities have option-like
characteristics that can affect the Corporation's income through the exercise of
these options as interest rates change. The Corporation's exposure from these
option-like characteristics is separately evaluated and contained with net
purchased interest rate options in an effort to manage the magnitude of
potential gains or losses from changes in interest rates.
40
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
ACCRUAL BOOK RISK POSITIONS AT JUNE 30, 1994/a/
- ---------------------------------------------------------------------------------------------------------------------------
0-3 >3-6 >6-12 SUBTOTAL >1-5 >5 SUBTOTAL
(lesser
than)
(IN BILLIONS) months months months 1 YEAR years years >1 YEAR TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STRUCTURAL GAP POSITION/b/ $ (1) $ 5 $ (3) $ 1 $ (5) $(13) $(18) $(17)
RISK MANAGEMENT POSITIONS:/c/
Securities/d/ 2 2 2 6 5 6 11 17
Off-balance-sheet hedging instruments (7) 3 -- (4) (5) 9 4 --
- ---------------------------------------------------------------------------------------------------------------------------
Total risk management positions (5) 5 2 2 -- 15 15 17
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL GAP POSITION $ (6) $10 $(1) $ 3 $(5) $ 2 $ (3) $ --
- ---------------------------------------------==============================================================================
</TABLE>
/a/ Net U.S. dollar-denominated interest-rate-sensitive financial instruments.
/b/ Gap positions primarily attributable to loan assets and deposit
liabilities.
/c/ Excludes trading-related products and restructuring-country-related par
bonds.
/d/ Includes available-for-sale and held-to-maturity securities.
Gap positions with maturities less than one year are actively managed, and as
such, vary continuously and appreciably. As a consequence, positions in place at
quarter-end are not necessarily indicative of positions held throughout a
quarter. Gap mismatches with maturities in excess of one year (Term Book gaps)
are more stable. Management of these positions is focused on reducing structural
gap mismatches. At inception, off-balance-sheet transactions reduce term
mismatch risk. Occasionally, new customer business reduces longer maturity
structural mismatches, leaving an excess of previously executed hedge contracts
in a particular maturity range. These management positions may be reversed
depending on the overall risk characteristics of the Term Book.
Shorter maturity gap mismatch positions reflect management's view at a specific
point in time on the speed of future interest rate movements, not necessarily
the direction of future rate movements. For example, a negative gap in the 0-3
months maturity indicates a view that future interest rates will run beneath
implied forward rates. As the current yield curve is upward sloping, a negative
0-3 month gap, if maintained, would be profitable if interest rates rose at a
speed less than that implied by the yield curve.
41
<PAGE>
OTHER INFORMATION
================================================================================
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Set forth below is information concerning each matter submitted to a vote at the
Parent's Annual Meeting of Shareholders on May 26, 1994 ("Annual Meeting"):
Directors: Each of the following persons was elected as a director of the
- ----------
Parent, to hold office until the 1995 Annual Meeting of Shareholders or until
earlier retirement, resignation or removal.
<TABLE>
<CAPTION>
Number of Votes
---------------
Director's Name For Against
- --------------- ----------- ---------
<S> <C> <C>
Joseph F. Alibrandi 291,227,131 1,580,143
Peter B. Bedford 291,228,112 1,579,162
Andrew F. Brimmer 291,080,629 1,726,645
Richard A. Clarke 291,283,402 1,523,872
Lewis W. Coleman 291,244,818 1,562,456
Timm F. Crull 291,239,605 1,567,669
Kathleen Feldstein 291,229,461 1,577,813
Donald E. Guinn 291,249,225 1,558,049
Philip M. Hawley 291,042,530 1,764,744
Frank L. Hope, Jr. 291,219,606 1,587,668
Ignacio E. Lozano, Jr. 291,060,051 1,747,223
Cornell C. Maier 291,174,875 1,632,399
Walter E. Massey 291,065,116 1,742,158
Richard M. Rosenberg 291,217,817 1,589,457
A. Michael Spence 291,034,282 1,772,992
</TABLE>
Senior Management Incentive Plan: The shareholders of the Parent approved a
- ---------------------------------
formula governing awards under the Senior Management Incentive Plan.
<TABLE>
<CAPTION>
Number of Votes
---------------
Broker
For Against Abstentions Nonvotes
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Formula Governing
Senior Management
Incentive Plan 267,959,652 18,857,465 5,990,156 --
Auditors: The shareholders also ratified the appointment of Ernst & Young as
- ---------
independent auditors.
Number of Votes
---------------
Broker
For Against Abstentions Nonvotes
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Ernst & Young as
Independent Auditors 290,639,928 1,037,687 1,129,658 --
</TABLE>
42
<PAGE>
================================================================================
Shareholder Proposal: The shareholders of the Parent did not approve the one
- ---------------------
shareholder proposal presented at the Annual Meeting.
<TABLE>
<CAPTION>
Number of Votes
---------------
Broker
For Against Abstentions Nonvotes
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Director Compensation 29,497,892 219,366,324 8,036,905 35,906,153
</TABLE>
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10 BankAmerica Corporation Executive Compensation Program-
Benefits/Perquisites Summary*
</TABLE>
- --------------------------------------------------------------------------------
*Management contract or compensatory plan, contract, or arrangement.
(b) Reports on Form 8-K:
During the second quarter of 1994, the Parent filed reports on Form 8-K dated
April 20, 1994 and May 12, 1994. The April 20, 1994 report filed, pursuant to
Items 5 and 7 of the report, a copy of the Parent's press release titled
"BankAmerica First Quarter Earnings." The May 12, 1994 report filed, pursuant to
Items 5 and 7 of the report, certain historical and unaudited historical and pro
forma combined financial information for the Parent and Continental. After the
second quarter of 1994, the Parent filed reports on Form 8-K dated June 30,
1994, July 18, 1994, and July 20, 1994. The June 30, 1994 report filed, pursuant
to Items 5 and 7 of the report, a copy of the Parent's press release titled
"BankAmerica Announces Sale of U.S. Government Agency Structured Securities."
The July 18, 1994 report disclosed, pursuant to Item 5 of the report, certain
information on approval by the Board of Governors of the Federal Reserve System
of the pending Continental acquisition. The July 20, 1994 report filed, pursuant
to Items 5 and 7 of the report, a copy of the Parent's press release titled
"BankAmerica Second Quarter Earnings."
43
<PAGE>
SIGNATURES
==============================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BANKAMERICA CORPORATION
Registrant
By Principal Financial Officer and
Duly Authorized Signatory:
/s/ Lewis W. Coleman
LEWIS W. COLEMAN
Vice Chairman of the Board and
Chief Financial Officer
August 11, 1994
By Principal Accounting Officer and
Duly Authorized Signatory:
/s/ James H. Williams
JAMES H. WILLIAMS
Group Executive Vice President
August 11, 1994
44
<PAGE>
[BANKAMERICA CORPORATION LOGO APPEARS HERE]
BANKAMERICA CORPORATION
Other information about BankAmerica
Corporation may be found in its
Quarterly Report to Shareholders and its
Annual Report to Shareholders. These
reports, as well as additional copies of
this Analytical Review and Form 10-Q,
may be obtained from:
CORPORATE PUBLIC RELATIONS #3124
BANK OF AMERICA
P.O. BOX 37000
SAN FRANCISCO, CA 94137
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Reference Description
- ----------- ------------
<S> <C>
10 BankAmerica Corporation Executive Compensation Program -
Benefits/Perquisites Summary
</TABLE>
<PAGE>
EXHIBIT 10
EXECUTIVE COMPENSATION PROGRAM
--------------------------------
BENEFITS/PERQUISITES SUMMARY
<TABLE>
<CAPTION>
=========================================================================================================
BENEFITS/PERQUISITES ELIGIBILITY CRITERIA PROGRAM DESCRIPTION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Executive Financial Counseling* Managing Committee Participants are eligible for a one-
Impact Level 1 time comprehensive initial financial
Impact Levels 2-3 & Age 55+ plan (up to $6,000) and an annual
allowance for follow-up services
(up to $2,500) for personal income
tax, investment and estate plan-
ning, as well as other related
financial planning services, as
appropriate.
- ---------------------------------------------------------------------------------------------------------
Vacation Managing Committee Executives do not have a specific
Impact Levels 1-3 annual vacation entitlement and
may not purchase vacation under
the company's Select benefits
program. They may, however
arrange to schedule paid time off
with their manager's approval.
- ---------------------------------------------------------------------------------------------------------
Business Travel SVP and above SVPs and above may travel
business class if the flight is
greater than three hours. If
business class is not available, the
executive must travel coach. First
class travel is not permitted.
- ---------------------------------------------------------------------------------------------------------
Parking SVP and above SVPs and above are eligible for
company-paid parking
- ---------------------------------------------------------------------------------------------------------
Club Memberships Based upon business need. Club memberships are available to
employees on a business need
basis. Corporation pays all
initiation fees for luncheon and
country clubs in addition to 100%
of monthly luncheon club dues and
50% of monthly country club
dues.
========================================================================================================
</TABLE>
* Eligible executives will receive additional information from Executive
Programs #3005.
[BANK OF AMERICA LOGO] NS-905 4/94
APPEARS HERE
